<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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TALK CITY, INC.
(Exact name of Registrant as specified in its charter)
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7375 77-0426524
California (Primary Standard Industrial(I.R.S Employer
(prior to Classification Code Number) Identification
reincorporation) No.)
Delaware
(after reincorporation)
(State or other
jurisdiction of
incorporation or
organization)
307 Orchard City Drive, Suite 350
Campbell, CA 95008
(408) 871-5200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
PETER H. FRIEDMAN
President and Chief Executive Officer
Talk City, Inc.
307 Orchard City Drive, Suite 350
Campbell, CA 95008
(408) 871-5200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
PAGE MAILLIARD KENNETH L. GUERNSEY
JULIE A. BELL KARYN R. SMITH
CAROLYNN W. JONES VIRGINIA C. EDWARDS
Wilson Sonsini Goodrich & Rosati LAURIE J. HAUBER
Professional Corporation Cooley Godward LLP
650 Page Mill Road One Maritime Plaza, 20th Floor
Palo Alto, CA 94304 San Francisco, CA 94111
(650) 493-9300 (415) 693-2000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $0.001 par value.............. $50,000,000 $13,900
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</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457 under the Securities Act of 1933.
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.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+We will amend and complete the information in this prospectus. Although we +
+are permitted by U.S. federal securities law to offer these securities using +
+this prospectus, we may not sell them or accept your offer to buy them until +
+the documentation filed with the SEC relating to these securities has been +
+declared effective by the SEC. This prospectus is not an offer to sell these +
+securities or our solicitation of your offer to buy these securities in any +
+jurisdiction where that would not be permitted or legal. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated April 30, 1999
PROSPECTUS
Shares
[TALK CITY LOGO]
Common Stock
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This is our initial public offering of shares of common stock. We are offering
shares.
No public market currently exists for our shares.
We have applied to list the shares on the Nasdaq National Market under the
symbol "TCTY."
Investing in the shares involves risks. Risk Factors begin on page 8.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discount........................................... $ $
Proceeds to Talk City........................................... $ $
</TABLE>
We have granted the underwriters a 30-day option to purchase up to additional
shares of common stock on the same terms and conditions as set forth above
solely to cover over-allotments, if any.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is accurate or complete. Any representation to the contrary is
a criminal offense.
Lehman Brothers expects to deliver the shares on or about , 1999.
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Lehman Brothers
Volpe Brown Whelan & Company
U.S. Bancorp Piper Jaffray
Internet distribution by
E*TRADE Securities
, 1999
<PAGE>
[INSIDE FRONT COVER]
Center A leading Internet provider of high quality online communities
Caption: and interactive services for businesses and consumers.
Text: The Talk City community network is one of the largest
distributed and integrated networks on the Internet. The Talk
City community includes 50 Internet sites for 35 corporate
partners that use Talk City's services. Some of Talk City's
partners are listed below.
[LOGOS OF VARIOUS PARTNERS]
Text: The Talk City network generated more than 6.6 million hours of
online activity in March 1999.
<PAGE>
[INSIDE FRONT COVER GATEFOLD]
Text:Talking about Talk City. A sampling of comments from customers and the
press.
[This page will contain quotes from various publications and customers
regarding Talk City's services. This page also will contain two customer screen
shots.]
<PAGE>
TABLE OF CONTENTS
Corporate Information
We were incorporated in California in March 1996 and will reincorporate in
Delaware prior to the closing of this offering. Our principal office is located
at 307 Orchard City Drive, Suite 350, Campbell, CA 95008. Our telephone number
at that location is (408) 871-5200 and our Internet addresses are
www.talkcity.com and www.onnow.com. Information contained on our Web sites does
not constitute part of this prospectus.
About This Prospectus
Unless stated otherwise, the information contained in this prospectus:
. assumes a one for two reverse stock split of the preferred stock and
common stock, which is subject to stockholder approval, prior to the
closing of this offering;
. reflects the automatic conversion of all outstanding shares of preferred
stock into shares of common stock and the conversion of all outstanding
warrants to purchase preferred stock into warrants to purchase common
stock prior to the closing of this offering;
. assumes no exercise of the underwriters' over-allotment option; and
. reflects our reincorporation in Delaware prior to the closing of this
offering.
See the section of this prospectus entitled "Risk Factors" for a discussion
of factors that you should consider before investing in the common stock
offered in this prospectus.
TALK CITY and LIVEWORLD are our registered trademarks. We are in the process
of registering ONNOW as a trademark. All trademarks and tradenames appearing in
this prospectus are the property of their respective holders.
You should only rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus. References in this prospectus to "we," "our" and
"us" refer to Talk City, Inc., unless the context otherwise requires.
Until 1999, all dealers selling shares of the common stock, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Financial Data.................................................. 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 31
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 50
Certain Transactions....................................................... 59
Principal Stockholders..................................................... 63
Description of Capital Stock............................................... 66
Shares Eligible for Future Sale............................................ 69
Underwriting............................................................... 71
Legal Matters.............................................................. 73
Experts.................................................................... 73
Available Information...................................................... 74
Index to Financial Statements.............................................. F-1
</TABLE>
3
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Prospectus Summary
Talk City, Inc.
We are a leading Internet provider of high quality online communities and
interactive services for businesses and consumers. We offer businesses a wide
range of services to help them develop and expand online relationships with
customers, suppliers and employees. These services include designing fully
integrated, customized communities, producing online events, conducting online
market research and facilitating online meetings. For consumers, we operate a
network of online communities located at www.talkcity.com. Our network includes
20 topical categories, over 50 themed communities, 50 co-branded partner
communities and thousands of user-generated communities. These communities
offer services such as moderated chat, home pages, special event production,
message boards and online event guides.
We have established partnerships across multiple industries and media forms,
including partnerships with major media companies, Internet content companies
and Internet service providers. We work with our partners to co-produce, co-
brand and co-market community services that leverage our partners' content,
brand or customer relationships. By integrating these co-branded services into
our community network, we enjoy exceptional distribution, content and marketing
leverage. Some of our partners include Cox Interactive Media, Inc., Hearst
Communications, Inc., National Broadcasting Company, Inc., WebTV Network, Inc.,
a wholly-owned subsidiary of Microsoft Corporation, @Home Corporation and AT&T
WorldNet Service.
Our community network has achieved critical mass in terms of traffic,
registered users and the loyalty of our users. In March 1999, we had
approximately 2.6 million unique visitors according to Internet Profiles
Corporation, or I/PRO. These users generated over 6.6 million hours of activity
on our www.talkcity.com site during March 1999. During our peak periods, which
tend to be early evening hours, we have as many as 18,000 users simultaneously
chatting or engaging in other interactive activities. As of March 31, 1999, we
had over 2 million user registrations and, during the quarter ended March 31,
1999, we averaged approximately 200,000 new registrations per month. We believe
the strong loyalty of our users and engaging nature of our programming are
reflected by the significant amount of time that users spend on our site. Our
users spend, on average, approximately 2.5 hours per month on our site.
Our community network provides a clean well lighted environment that is
attractive to businesses, consumers, partners and advertisers. By "clean and
well lighted," we mean that our community network is family-oriented, welcoming
and friendly. We promote the family-oriented nature of our community through a
set of published behavior standards, which are maintained by our trained city
standards advisors. These city standards advisors can be called upon at any
time by our users to resolve issues relating to standards violations.
The friendly tone and focused programming of Talk City is further maintained
by our approximately 2,000 trained community leaders and moderators. Our
community leaders and moderators facilitate interaction within our community by
drawing users into conversation and encouraging them to express their ideas.
They also direct the flow of the conversation to maintain the
4
<PAGE>
focus and quality of programming desired by our business clients and partners.
Overall, the community leaders and moderators personify our friendly culture
and serve as role models for our users.
In addition to changing the nature of advertising and commercial
transactions, the Internet has given rise to the use of interactive business
services and the formation of online communities. Businesses seek to utilize
online interactive services to establish deeper and broader relationships with
their customers, increase their understanding of their customers' needs and
reduce their new customer acquisition costs. Online communities satisfy
consumers' basic social need for communication in a convenient manner that is
not limited by the same time and geographic constraints.
We believe our business services and online community network provide
significant benefits to businesses, consumers, advertisers and partners, as
summarized below:
<TABLE>
<CAPTION>
Customers Benefits
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<C> <S>
Businesses .Online community-based marketing, sales and support solutions
.Professional production and moderated environment
.Reduced customer acquisition and maintenance costs
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Consumers .Welcoming and friendly culture
.Family-oriented environment
.Variety of interactive programming
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Advertisers .Positive, effective branding venue
.Segmented, targetable and mainstream audience
.Loyal, engaged viewers
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Partners .Professional production and moderated environment
.Critical mass of traffic and variety of programming
.Co-branding and customization of community services
</TABLE>
Our objective is to be the leading provider of high quality online
communities and interactive services for businesses and consumers. Key elements
of our strategy include:
. expanding the range of our business services;
. building awareness of the Talk City brand and increasing the size of our
consumer audience;
. driving increased sponsorship, and advertising revenues;
. increasing the frequency and duration of visits to our consumer sites;
. increasing our ecommerce services; and
. expanding the breadth and depth of our partner network.
5
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The Offering
<TABLE>
<C> <S>
Common stock offered by us............ shares
Common stock to be outstanding after
the offering......................... shares
Use of proceeds....................... For general corporate purposes,
principally brand promotion, expansion
of our sales and marketing operations
and our partner and moderator
networks.
Proposed Nasdaq National Market
Symbol............................... TCTY
</TABLE>
Shares That May Be Issued After The Offering
You should be aware that we are permitted, and in some cases obligated, to
issue shares of common stock in addition to the common stock to be outstanding
after the offering. If and when we issue these shares, the percentage of the
common stock you own may be diluted. The following is a summary of additional
shares of common stock that we have currently approved for issuance after the
offering:
. 2,523,951 shares of common stock that have been set aside under our 1996
stock option plan, employee stock purchase plan and director option plan;
and
. 1,318,246 shares of common stock that have been set aside in connection
with warrants to purchase our common stock.
6
<PAGE>
Summary Financial Information
(in thousands, except per share data)
The following table summarizes the financial data for our business. The pro
forma net loss per share data reflects our sale in April 1999 of additional
preferred stock for aggregate proceeds of $20.0 million, our issuance of
preferred stock and warrants in connection with the NBC and Hearst agreements
in April 1999, and the automatic conversion of all outstanding shares of our
redeemable convertible preferred stock into shares of our common stock.
<TABLE>
<CAPTION>
Three Months
March 29, 1996 Years Ended Ended
(Inception) to December 31, March 31,
December 31, ----------------- ----------------
1996 1997 1998 1998 1999
-------------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Business services.......... $ -- $ 25 $ 522 $ 60 $ 357
Advertising and
sponsorships.............. 14 183 931 65 623
------- ------- -------- ------- -------
Total revenues........... 14 208 1,453 125 980
Operating expenses,
including noncash
advertising and
promotional charges....... 1,358 6,938 16,745 3,026 8,033
------- ------- -------- ------- -------
Loss from operations....... (1,344) (6,730) (15,292) (2,901) (7,053)
Net loss applicable to
common stockholders....... (1,316) (6,429) (16,217) (2,911) (6,971)
Net loss per share:
Basic and diluted......... $ (0.49) $ (2.10) $ (4.92) $ (0.87) $ (1.90)
Weighted average shares... 2,679 3,068 3,295 3,332 3,661
Pro forma net loss per
share:
Basic and diluted......... $ (1.66) $ (0.47)
Weighted average shares... 9,762 14,741
</TABLE>
The following table is a summary of our balance sheet data. The pro forma
data reflects our sale in April 1999 of additional preferred stock for
aggregate proceeds of $20.0 million, our issuance of preferred stock and
warrants in connection with the NBC and Hearst agreements in April 1999, and
the automatic conversion of all outstanding shares of our redeemable
convertible preferred stock into shares of our common stock. The as adjusted
column reflects the sale of shares of common stock in this offering after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------------
Actual Pro Forma As Adjusted
-------- --------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments.................................. $ 9,224 $29,223 $
Working capital............................... 7,768 39,250
Total assets.................................. 14,572 46,054
Long-term obligations, net of current
portion...................................... 237 237
Redeemable convertible preferred stock and
warrants..................................... 39,979 --
Total stockholders' equity (deficit).......... (28,359) 43,102
</TABLE>
7
<PAGE>
Risk Factors
You should carefully consider the following factors and other information in
this prospectus before you decide to invest in our shares of common stock. If
any of the negative events referred to below occur, our business could suffer.
Risks Related To Our Business
Our business is difficult to evaluate because our operating history is limited
It is difficult to evaluate our business and our prospects because our
operating history is limited and therefore our revenue and income potential is
unproven. We initiated our online operations in April 1996, and have recently
experienced significant growth of our company and expansion of our services
offerings. As a result, we face many risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets like
the Internet. In addition, our revenue model is new and relatively unproven.
The success of our business model will depend on our ability to generate
multiple revenue streams through our community network. To be successful, we
must, among other things, develop and market products and services that achieve
broad market acceptance by our users, business clients and advertisers. Our
inability to generate multiple revenue streams will harm our business.
We have incurred losses since inception and we may be unable to achieve
profitability
We incurred net losses for each period since inception and we may be unable
to achieve profitability in the future. As of March 31, 1999, we had an
accumulated deficit of approximately $30.3 million, including noncash
advertising and promotional charges of $4.3 million. Since inception we have
funded our business primarily from the sale of our stock, not from cash
generated by our business. Although revenues have increased significantly in
recent periods, you should not rely on past performance as any indication of
future growth rates or operating results. We expect to continue to incur
significant operating expenditures, as well as noncash advertising and
promotional charges, and as a result we will need to generate significant
revenues to achieve and maintain profitability. Our business may be harmed if
our revenues increase more slowly than we expect, or if operating expenses
exceed our expectations or cannot be adjusted to compensate for lower than
expected revenues. If we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis.
Fluctuations in our quarterly operating results may harm our stock price
We expect that our quarterly operating results will fluctuate significantly
due to many factors, including:
. our dependence on increased business services and advertising and
sponsorship revenues;
. expansion of our sales force;
. uncertain adoption of the Internet as an advertising medium;
. the length of our sales cycle, particularly our business services sales
cycle;
. our dependence on our partner network;
. our ability to increase our audience of loyal, engaged users;
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. management of growth;
. intense competition; and
. potential technical difficulties or system down time affecting the
Internet generally or us specifically.
These factors are described in more detail in the risk factors described
below. Many of these factors are beyond our control. It is likely that our
operating results in one or more future quarters may be below the expectations
of securities analysts, you or other investors, and as a result the price of
our common stock would certainly decline.
We rely heavily on business services revenue, and our growth will depend on our
ability to increase our business services revenues
We derive a substantial portion of our revenues from the sale of business
services, including designing fully integrated, customized communities,
producing online events, conducting online market research and facilitating
online meetings. We expect to continue to rely on these revenues for the
foreseeable future. Business services represented 12% of our total revenues in
1997, 36% of our total revenues in 1998 and 36% of our total revenues in the
three months ended March 31, 1999. Our growth and future success will depend on
our ability to increase the number of our business services clients, expand our
business services offerings, effectively implement these services and increase
the average revenue per project and per client. We have only recently begun to
hire business services sales personnel. If we do not continue to develop
business services revenues, our business could suffer.
Our ability to generate significant business services revenues will also
depend, in part, on our ability to create new business services offerings
without diluting the value of our existing programs. In addition, our business
clients must accept the Internet as an attractive and sustainable substitute
medium for the traditional methods to which they are accustomed. The Internet
as a business services solution has not been available for a sufficient period
of time for us to gauge its effectiveness as compared with traditional methods,
such as trade shows, phone and mail surveys and video conferencing. The market
for business services may not continue to develop and may not be sustainable.
We rely heavily on advertising and sponsorship revenues, and if our advertising
and sponsorship revenues decline, our business would suffer
We currently derive a substantial portion of our revenues from sponsorships
and advertising, and expect to continue to do so. As a result, our success is
highly dependent on the increased use of the Internet as an advertising medium.
Most of our current or potential advertising customers have little or no
experience using the Internet for advertising purposes and they have allocated
only a limited portion of their advertising budgets to Internet advertising.
Use of the Internet by consumers is at a very early stage of development, and
market acceptance of the Internet as a medium for advertising is subject to a
high level of uncertainty. No standards are widely accepted to measure the
effectiveness of Internet advertising. If these standards do not develop,
existing sponsors or advertisers may not continue their current level of
Internet-based programming, and sponsors or advertisers who are not currently
advertising on the Internet may be reluctant to do so. Our business would be
harmed if the market for Internet advertising fails to develop or develops
slower than expected.
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Our advertising contracts are typically short-term, and guarantee the
advertiser a minimum number of impressions, or times that an advertisement is
seen by users of our sites. If minimum impression levels are not achieved for
any reason, we may be required to provide additional impressions after the
contract term, which could reduce the availability of advertising inventory and
harm our business. If minimum guaranteed impressions are not met, we defer
recognition of the corresponding revenues until guaranteed impression levels
are achieved.
Our uncertain sales cycle could harm our business
Our sales cycle, particularly with our business clients, is generally lengthy
and uncertain. The time between the date of our initial contact with a
potential client and the execution of a contract with that potential client
typically ranges from a few weeks for smaller agreements to several months for
larger agreements. Our sales cycle is also subject to delays as a result of
factors over which we have little or no control, including the following:
. budgetary constraints;
. internal acceptance reviews;
. the success and continued internal support of advertisers', business
services clients' and partners' own development efforts; and
. the possibility of cancellation or delay of projects by advertisers,
business services clients or partners.
During the sales cycle, we may expend substantial funds and management
resources without generating corresponding revenues, which would harm our
business.
We rely on our partner network for user volume, revenues and increased brand
recognition
Our strategy and operations are heavily dependent on the network of partners
with whom we co-produce, co-brand and co-market our services. Our brand
visibility, user volume, revenues and cost structure are dependent on
maintaining and increasing our network of partners and effectively implementing
the associated joint activities. We may be unable to maintain our existing
partner relationships, or establish new relationships, and some or all of these
relationships may not be effective. We may have to incur substantial expenses
to grow and maintain our partner network and implement our partnering programs.
The agreements we have entered into with major media companies and our other
partners typically have fixed terms of varying but limited duration. We cannot
assure you that any of these agreements will be renewed upon expiration of
their initial term. In addition, some of these agreements may permit our
partners to terminate or substantially limit their performance obligations
prior to the expiration of their initial terms.
We depend on our community leaders, moderators and users for content, promotion
and sustaining an engaged audience
We depend largely on our users for content, word-of-mouth promotion and for
sustaining an engaged audience for our advertisers and, to a lesser extent, our
business services clients. We are especially dependent on the efforts of our
network of trained community leaders and moderators,
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which consisted of approximately 2,000 individuals as of March 31, 1999. Most
of these individuals are volunteers. We believe our community leaders,
moderators and users reduce the resources we would otherwise need to expend on
content development and site promotion. Our community leaders, moderators and
users may not continue to generate significant content or promote our site. In
addition, user-generated content or promotional efforts may not continue to
attract other users to our site. Our users may become dissatisfied with our
services or our increased focus on the commercialization of our services. Loss
of engaged users and failure to increase our number of engaged users would hurt
our efforts to generate increased revenues.
Maintaining and promoting our brand identity is critical to our success
Establishing and maintaining our brand identity is a critical aspect of
maintaining and expanding our user base, business client relationships and
partner network, and is particularly important due to the continuing
proliferation of competing Internet sites. We intend to substantially increase
our financial commitment to the creation and maintenance of brand loyalty
through advertising campaigns in several forms of media, including television,
print and billboards. We also intend to engage in co-branding, partner
ingredient branding and other co-marketing efforts with our partner network and
other marketing and promotional efforts. These campaigns and other marketing
efforts may not successfully enhance our brand, and we may incur excessive
expenses in connection with our efforts to promote and maintain our brand
without generating a corresponding increase in revenues, which would harm our
business.
Promotion and enhancement of our brand also will depend, in part, on our
ability to continue to provide a clean, well lighted community experience. The
value of our brand could diminish if businesses, users, partners and
advertisers do not perceive the www.talkcity.com community experience to be of
high quality or if we introduce new services or enter into new business
ventures that are not well received.
We are growing rapidly, and we may be unable to effectively manage our growth
We have grown rapidly and will need to continue to grow in all areas of
operation in order to execute our business strategy. We had 31 employees as of
March 31, 1998 compared to 82 employees as of March 31, 1999, and we anticipate
further significant increases in the number of our employees. Sustaining our
growth has placed significant demands on management as well as on our
administrative, operational and financial systems and controls. Our anticipated
growth will require us to improve all of these systems and controls. If we are
unable to do this effectively, our business could suffer.
Our chief executive officer and other key personnel are critical to our
business and they may not remain with us in the future
Our future success will depend to a significant extent on the continued
services of our senior management and other key personnel, particularly Peter
Friedman, our Chairman of the Board, Chief Executive Officer and President, and
Jenna Woodul, our Vice President of Community. The loss of the services of Mr.
Friedman, Ms. Woodul or one or more other key personnel could harm our
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business. We do not have long-term employment agreements with Mr. Friedman, Ms.
Woodul or any of our other key personnel and we do not maintain any key person
life insurance policies.
Our future success also will depend on our ability to attract, retain and
motivate other highly skilled sales, technical, managerial, marketing and
customer support personnel. Competition for these personnel is intense,
especially in the Internet industry, and we may be unable to successfully
attract, integrate or retain sufficiently qualified personnel. We have in the
past experienced, and we expect to continue to experience, difficulty in hiring
and retaining highly skilled employees with appropriate qualifications as a
result of our rapid growth and expansion.
Our business may be harmed if we are unable to consummate potential
acquisitions or investments or successfully integrate them with our business
As part of our continued growth strategy we may acquire or make investments
in complementary businesses, technologies, services or products if appropriate
opportunities arise. We may be unable to identify suitable acquisition or
investment candidates at reasonable prices or on reasonable terms.
Additionally, regardless of whether suitable candidates are available, we may
be unable to consummate future acquisitions or investments, which could harm
our business.
If we acquire a company or make other types of acquisitions, we could have
difficulty integrating the acquired products, personnel or technologies. These
difficulties could disrupt our ongoing business, distract our management and
employees and increase our expenses.
We may need to raise additional capital, which would result in additional
dilution to purchasers in this offering
We currently believe that the net proceeds from this offering, together with
our available funds, will be sufficient to meet our anticipated needs for
working capital, capital expenditures and business expansion for at least the
next 12 months. We may, however, need to raise additional funds to do one or
more of the following:
. fund more rapid expansion;
. expand our business services;
. expand our partner network;
. expand our moderator base;
. respond to competitive pressures; or
. acquire complementary products, businesses or technologies.
If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced.
In addition, any new securities issued may have rights, preferences or
privileges senior to those securities held by our stockholders. Additional
financing may not be available on favorable terms or at all. If adequate funds
are not available or are not available on acceptable terms, we may be unable to
fund our expansion, take advantage of acquisition opportunities, develop or
enhance our services or products, or otherwise respond to competitive
pressures.
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<PAGE>
We depend on third-party software to measure user demographics and on third
parties to provide us with software, systems and related services
It is important to advertisers that we accurately measure the demographics of
our user base and the delivery of advertising impressions on our Web sites. We
depend on third-party software to provide these measurement services. We
currently are implementing additional systems designed to record demographic
data regarding our users. We may be unable to accurately evaluate the
demographic characteristics of our users if we do not implement these systems
successfully or if the third-party software does not function properly or is
not enhanced to support our needs. Companies may choose not to advertise on our
Web sites or may be less willing to pay the fees we intend to charge for
advertising if they do not perceive our measurements or measurements made by
third parties to be reliable.
We also depend on various third parties for software, systems and related
services. For example, we rely on NetGravity, Inc.'s software for ad serving
and management and Microsoft Exchange for real-time chat. Many of the third
parties that provide us with software and services have a limited operating
history, have relatively new technologies and are themselves dependent on
others for the reliable delivery of services. As a result, our ability to
deliver various services to our users may be harmed by the inability of one or
more of these third parties to provide us with reliable software, systems and
related services.
Our paid moderators could be viewed as employees rather than independent
contractors, and our volunteer community leaders could be viewed as employees,
either of which could increase our operating expenses and subject us to adverse
tax consequences
We treat our paid moderators as independent contractors. One or more
jurisdictions may deem our paid moderators to be employees rather than
independent contractors and seek to impose taxes, and any applicable interest
and penalties, on us. The law regarding the distinction between independent
contractors and employees is not entirely clear. We could be subject to
substantial tax and employee benefit liabilities if it were ultimately
determined that our paid moderators are actually employees. In addition, a
group of former volunteers of America Online, Inc. recently filed a complaint
with the Labor Department claiming they were treated like employees and should
have been paid. If our volunteer community leaders were viewed as employees, we
could be subject to payment of back wages and other penalties and our operating
expenses could substantially increase.
System failures or slow downs would harm our business
A key element of our strategy is to generate a high volume of user traffic.
Our ability to attract potential business clients, users, partners and
advertisers to promote our brand will depend significantly on the performance
of our network infrastructure. An increase in the volume of user traffic could
strain the capacity of our infrastructure, resulting in a slowing or outage of
our services and reduced traffic to our Web sites. System failures could harm
our reputation and reduce our attractiveness to businesses, users, partners and
advertisers.
We may be unable to improve our technical infrastructure in relation to
increased user volume. In addition, our users depend on Internet service
providers, online service providers and other Web site operators for access to
our Web sites. Many of these providers and operators have experienced
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<PAGE>
significant outages in the past, and they could experience outages, delays and
other difficulties due to system failures unrelated to our systems.
Our communications hardware and other computer hardware operations are
located at Frontier GlobalCenter's facilities in Sunnyvale, California. Fire,
floods, earthquakes, power loss, telecommunications failures, break-ins and
similar events could damage these systems. Computer viruses, electronic break-
ins or other similar disruptions also could harm our Web sites. Our insurance
policies may not adequately compensate us for any losses that may occur due to
any failures or interruptions in our systems.
Possible infringement of intellectual property rights could harm our business
We cannot be certain that the steps we have taken to protect our intellectual
property rights will be adequate or that third parties will not infringe or
misappropriate our proprietary rights. Any infringement or misappropriation
could harm our business. In addition, other parties may assert claims of
infringement of intellectual property or other proprietary rights against us.
We have been subject to claims and expect to be subject to legal proceedings
and claims from time to time in the ordinary course of our business, including
claims of alleged infringement of trademarks and other intellectual property
rights of third parties by us and our licensees. These claims, even if without
merit, could cause us to expend significant financial and managerial resources.
Further, if claims like this are successful, we may be required to change our
trademarks, alter our content or pay financial damages, any of which could harm
our business. We may be required to obtain licenses from others to refine,
develop, market and deliver new services. We may be unable to obtain any needed
license on commercially reasonable terms or at all and rights granted under any
licenses may not be valid and enforceable.
Year 2000 problems with our internal systems could require significant time and
expense and could reduce our future revenues
We may be exposed to a loss of revenues and our operating expenses could
increase if the systems on which we are dependent to conduct our operations are
not year 2000 compliant. Our potential areas of exposure include products
purchased from third parties, computers, software telephone systems and other
equipment used internally. If our present efforts to address the year 2000
compliance issues are not successful, or if suppliers and other third parties
with which we do business do not successfully address these issues, our
business could be harmed.
In the event that our Web-hosting facilities are not year 2000 compliant, our
production Web sites would be unavailable and we would not be able to deliver
services to our users. In the event that our production and operational
facilities that support our Web sites are not year 2000 compliant, portions of
our Web site may become inaccessible. A prolonged disruption in our operations
could cause our business clients and partners to stop doing business with us.
14
<PAGE>
Risks Related to the Internet Industry
Our business is largely dependent on the development and growth of the
Internet, which is uncertain
Our market is new and rapidly evolving. Our business will be harmed if
Internet usage does not continue to grow. Varying factors could inhibit future
growth in Internet usage, including:
. inadequate network infrastructure;
. security concerns;
. inconsistent quality of service; and
. unavailability of cost effective, high speed service.
If Internet usage grows, the Internet infrastructure may be unable to support
the demands placed on it by this growth and its performance and reliability may
decline. In addition, many Web sites
have experienced interruptions in their service as a result of outages and
other delays occurring throughout the Internet network infrastructure. Internet
usage, as well as the usage of our Web sites, could decline or grow at a slower
rate than expected if these outages or delays frequently occur in the future.
We must keep pace with rapid technological change to remain competitive
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions and evolving industry standards. The recent
growth of the Internet and intense competition in our industry exacerbate these
market characteristics. To succeed, we will need to effectively integrate the
various software programs and tools required to enhance and improve our product
offerings and manage our business. Our success also will depend on our ability
to adapt to rapidly changing technologies by continually improving the
performance features and reliability of our services. We may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new products and services. In addition, any
enhancements or new services or features must meet the requirements of our
current and prospective users and must achieve significant market acceptance.
We could also incur substantial costs if we need to modify our services or
infrastructure to adapt to these changes.
Internet security and concerns could hinder ecommerce
The need to securely transmit confidential information over the Internet has
been a significant barrier to ecommerce and communications over the Internet.
Any well publicized compromise of security could deter people from using the
Internet or using it to conduct transactions that involve transmitting
confidential information. We may incur significant costs to protect against the
threat of security breaches or to alleviate problems caused by breaches like
this. Our insurance policies carry coverage limits which may not be adequate to
reimburse us for losses caused by security breaches.
We may be subject to liability for products sold through our Web sites
Consumers may sue us if any of the products that we sell online are
defective, fail to perform properly or injure the user. To date, we have had
very limited experience in the sale of products online and the development of
relationships with manufacturers or suppliers of such products. We
15
<PAGE>
plan to develop a range of ecommerce opportunities, such as shopping events
hosted by celebrity guests to promote particular products. Liability claims
resulting from our sale of products could require us to spend significant time
and money in litigation or to pay significant damages.
We may be liable for misappropriation by others of our users' personal
information
If third parties were able to penetrate our network security or otherwise
misappropriate our users' personal information or credit card information, we
could be subject to liability. These could include claims for unauthorized
purchases with credit card information, impersonation or other similar fraud
claims. They could also include claims for other misuses of personal
information, such as for unauthorized marketing purposes. The Federal Trade
Commission and state agencies have been investigating various Internet
companies regarding their use of personal information. We could incur
additional expenses if new regulations regarding the use of personal
information are introduced or if our privacy practices are investigated.
Changes in government regulation could limit our Internet activities or result
in additional costs of doing business on the Internet
Currently few laws or regulations exist that specifically regulate
communications or commerce on the Internet, but we expect more stringent laws
and regulations to be enacted due to the increasing popularity and use of the
Internet. These laws and regulations are likely to address a variety of issues,
including the following:
. user privacy and expression;
. the rights and safety of children;
. intellectual property;
. information security;
. anticompetitive practices;
. the convergence of traditional channels with Internet commerce;
. taxation and pricing; and
. the characteristics and quality of products and services.
The application of existing laws to the Internet is uncertain, may take years
to resolve and could expose us to substantial liability for which we might not
be indemnified by the content providers or other third parties. Those laws that
do reference the Internet, such as the recently passed Digital Millennium
Copyright Act, have not yet been interpreted by the courts and their
applicability and reach are therefore uncertain. The Federal Trade Commission
has submitted proposals to the Internet industry regarding the rights and
safety of children using the Internet and is expected to issue regulations in
this area. Any new legislation or regulations or the application of existing
laws and regulations to the Internet, could limit our user volume, increase our
operating expenses or otherwise harm our business.
Several telecommunications companies have petitioned the Federal
Communications Commission to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers. In
addition, increased use of the Internet has burdened the existing
telecommunications infrastructure and led to interruptions in phone service in
areas with high
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<PAGE>
Internet use. In response, local telephone carriers, such as Pacific Bell, have
petitioned the FCC to regulate Internet service providers in a manner similar
to long distance telephone carriers and to impose access fees. If this were to
occur, the costs of communicating on the Internet could increase substantially,
potentially slowing the growth in use of the Internet. Any new laws or
regulations relating to the Internet could harm our business.
We may be subject to liability for publishing or distributing content over the
Internet
We may be subject to claims relating to content that is published on or
downloaded from our sites. These claims could take the form of suits for
copyright or trademark infringement, defamation or other legal theories based
on the nature and content of the materials that are published or downloaded. We
also could be subject to liability for content that is accessible from our Web
sites through links to other Web sites or that is posted by members in chat
rooms or bulletin boards. Although we carry general liability insurance, our
insurance may not cover potential claims of this type or may not be adequate to
cover all costs incurred in defense of potential claims or to indemnify us for
all liability that may be imposed. In addition, any claims like this, with or
without merit, would result in the diversion of our financial resources and
management personnel.
The Internet services market is highly competitive
The number of Web sites competing for the attention and spending of
businesses, users and advertisers has increased and we expect it to continue to
increase. We compete for business clients, users and advertisers with the
following companies:
. online services or Web sites that produce business services, such as
market research, customized communities or online events, including Well
Engaged and broadcast.com, Inc.;
. online services or Web sites with a focus on community services, such as
America Online, GeoCities, Inc., a subsidiary of Yahoo! Inc., Tripod,
Inc., a subsidiary of Lycos, Inc., theglobe.com, Inc. and Xoom Inc.;
. vertical community online services that focus on specific market or
demographic segments, such as ivillage Inc., which is focused on women;
. Web retrieval and other Web portal companies that offer community
applications, such as chat and home pages, as part of their site,
including Excite, Inc., Infoseek Corporation, Lycos and Yahoo!; and
. publishers and distributors of traditional media, such as television,
radio and print.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could harm our business. Please see
"Business--Competition."
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<PAGE>
Risks Related to Our Offering and Corporate Structure
Our management will have broad discretion over the allocation of proceeds from
this offering
We intend to use a majority of the proceeds from this offering for brand
promotion and expansion of our sales and marketing operations as well as our
partner and moderator networks. The remaining proceeds will be used for working
capital and general corporate purposes, including possible acquisitions and
expansion or relocation of our corporate headquarters. Consequently, our
management will have the discretion to allocate the net proceeds to uses that
stockholders may not deem desirable. Pending any specific needs, we expect to
invest the net proceeds in short-term, interest-bearing, investment grade
securities for an indefinite period of time. We cannot guarantee that any
invested proceeds will yield a significant return. Please see "Use of
Proceeds."
An active public market for our common stock may not develop
Prior to this offering, there has not been a public market for our common
stock. An active public market for our common stock may not develop or be
sustained after this offering. The initial public offering price for the shares
will be determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market.
Our stock price is likely to be extremely volatile
The market price of our common stock is likely to be extremely volatile as
the stock market in general, and the market for Internet-related and technology
companies in particular, have experienced extreme price and volume fluctuations
in recent months. These fluctuations often have been unrelated or
disproportionate to the operating performance of these companies. The trading
prices of many technology company stocks, particularly Internet stocks, have
reached historical highs within the last year and have reflected valuations
substantially above historical levels. During the same period, these companies'
stocks also have been highly volatile and have recorded lows well below these
historical highs. We cannot assure you that our stock will trade at the same
levels as other Internet stocks or that Internet stocks in general will sustain
current market prices.
Our stock price could be subject to wide fluctuations in response to a
variety of factors, including factors that may be beyond our control. These
include:
. actual or anticipated variations in our quarterly operating results;
. announcements of technological innovations or new programming by us or
our competitors;
. changes in financial estimates by securities analysts;
. conditions or trends in the Internet and online services industries;
. changes in the market valuations of other Internet companies;
. announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
. additions or departures of key personnel; and
. sales of substantial amounts of our common stock or other securities in
the open market.
These broad market and industry factors could harm the market price of our
common stock, regardless of our performance. Market fluctuations, as well as
general political and economic conditions, such as recession or interest rate
or currency rate fluctuations, also could harm the market price of our common
stock. Volatility in the market price of our common stock could result in
18
<PAGE>
securities class action litigation. Any litigation would be likely to result in
substantial costs and a diversion of management's attention and resources.
A large number of shares becoming eligible for sale after this offering could
cause our stock price to decline
Sales of a substantial number of shares of common stock in the public market
following this offering, or the perception that sales could occur, could cause
the market price of our common stock to decline. After this offering, we will
have outstanding shares of common stock. Of these shares, the shares sold
in this offering will be freely tradable except for any shares purchased by our
"affiliates" as defined in Rule 144 under the Securities Act of 1933. The
remaining shares of common stock held by existing stockholders will be
"restricted securities" and will become eligible for sale only if registered or
if they qualify for an exemption from registration under the federal securities
laws. Upon expiration of lock-up agreements with the underwriters 180 days
after the date of this prospectus, shares of common stock will be eligible for
resale in accordance with the provisions of federal securities laws. Please see
"Shares Eligible for Future Sale."
Exercise of registration rights after this offering could adversely affect our
stock price
After this offering, the holders of 17,569,709 shares of common stock and
warrants to purchase 1,318,246 shares of our common stock, which will represent
a total of % of our outstanding stock after completion of this offering, will
be entitled to certain rights with respect to registration under the Securities
Act of 1933. If these holders, by exercising their registration rights, cause a
large number of securities to be registered and sold in the public market,
these sales could result in a decline in the price of our common stock. If we
were to include in a company-initiated registration shares held by these
holders pursuant to the exercise of their registration rights, our ability to
raise needed capital could be harmed.
You will incur immediate and substantial dilution in the net tangible book
value of the stock you purchase
The assumed initial public offering price is substantially higher than the
net tangible book value of $ per share that our outstanding common stock
will have immediately after this offering. Accordingly, if you purchase shares
of our common stock, you will incur immediate and substantial dilution of
$ per share. If the holders of outstanding options or warrants exercise
those options or warrants, you will suffer further dilution. See "Dilution."
We have anti-takeover defenses that could delay or prevent an acquisition of
our company
Provisions of our certificate of incorporation, bylaws and Delaware law could
make it more difficult for a third party to acquire us, even if doing so would
be beneficial to our stockholders. See "Description of Capital Stock."
Our undesignated preferred stock may inhibit potential acquisition bids for us,
cause the market price for our common stock to fall and diminish the voting
rights of the holders of our common stock
If our board of directors issues preferred stock, potential acquirers may not
make acquisition bids for us, our stock price may fall and the voting rights of
existing stockholders may diminish as a
19
<PAGE>
result. Our board of directors has the authority to issue up to 5,000,000
shares of preferred stock in one or more series. The board of directors can fix
the price, rights, preferences, privileges and restrictions of the preferred
stock without any further vote or action by our stockholders. See "Description
of Capital Stock--Preferred Stock."
You should not rely on forward-looking statements contained in this prospectus
This prospectus contains forward-looking statements. The outcome of the
events described in these forward-looking statements is subject to risks and
you should not rely on these forward-looking statements. Our actual results
could differ materially from those discussed in the forward-looking statements
contained in this prospectus. This section and the sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" contain a discussion of some of the factors that
could contribute to those differences.
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<PAGE>
Use of Proceeds
Our net proceeds from the sale of shares of common stock in this offering
at an estimated initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, will be $ . If the underwriters' over-allotment option is exercised
in full, our net proceeds will be approximately $ million.
We expect to use a majority of the net proceeds from this offering for brand
promotion, expansion of our sales and marketing operations and expansion of our
partner and moderator networks. The remaining proceeds will be used for working
capital and general corporate purposes, including possible acquisitions and
expansion or relocation of our offices. We believe opportunities may exist to
expand our current business through acquisitions or investments in
complementary businesses, technologies, services or products, and we may
utilize a portion of the proceeds for this purpose. Pending these uses, our net
proceeds from this offering will be invested in short-term, interest-bearing,
investment grade securities.
Dividend Policy
We have never declared or paid any cash dividends on our common stock or
other securities. We currently anticipate that we will retain all of our future
earnings for use in the expansion and operation of our business and do not
anticipate paying any cash dividends for the foreseeable future.
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<PAGE>
Capitalization
The following table sets forth our capitalization as of March 31, 1999:
. on an actual basis after giving effect to the proposed one for two
reverse stock split of the common stock and preferred stock;
. on a pro forma basis to reflect the sale of $20.0 million of
preferred stock and issuance of preferred stock and warrants in
connection with the NBC and Hearst agreements during April 1999 and
the automatic conversion of all outstanding shares of preferred
stock into common stock upon the closing of this offering; and
. on an as adjusted basis to reflect the sale of the shares of
common stock at an assumed initial public offering price of $ per
share in this offering, less estimated underwriting discounts and
commissions and estimated offering expenses to be paid by us. Please
see "Use of Proceeds."
You should read this information together with the financial statements and
the notes to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of March 31, 1999
--------------------------------
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Notes payable, less current portion............ $ 237 $ 237 $
Redeemable convertible preferred stock: $0.001
par value, 38,000,000 shares authorized,
actual; 22,202,443 shares issued and
outstanding, actual; no shares issued or
outstanding, pro forma and as adjusted......... 39,979 --
Stockholders' equity:
Preferred stock, $0.001 par value: 700,000
shares authorized, issued or outstanding,
actual; 5,000,000 shares authorized, pro
forma and as adjusted; no shares issued or
outstanding, pro forma and as adjusted...... -- --
Common stock, $0.001 par value: 30,000,000
shares authorized, actual; 100,000,000
shares authorized, pro forma and as
adjusted; 4,314,904 shares issued and
outstanding, actual; 18,988,788 shares
issued and outstanding, pro forma;
shares issued and outstanding, as adjusted.. 4 19
Additional paid-in capital..................... 3,959 75,405
Deferred compensation.......................... (1,144) (1,144)
Notes receivable from stockholders............. (921) (921)
Accumulated deficit............................ (30,257) (30,257)
-------- -------- ----
Total stockholders' equity (deficit)......... (28,359) 43,102
-------- -------- ----
Total capitalization....................... $ 11,857 $ 43,339 $
======== ======== ====
</TABLE>
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<PAGE>
Dilution
Our pro forma net tangible book value as of March 31, 1999, after giving
effect to the one for two reverse stock split of all the outstanding common
stock and preferred stock, the sale of $20.0 million of preferred stock, the
issuance of preferred stock and warrants in connection with the NBC and Hearst
agreements and the conversion of all outstanding shares of preferred stock, was
$ million, or $ per share. Pro forma net tangible book value per share
represents total tangible assets less total liabilities, divided by the number
of outstanding shares of common stock.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by purchasers of our common stock in this
offering and the net tangible book value per share of our common stock
immediately afterwards. After giving effect to our sale of the shares of
common stock offered by this prospectus and after deducting estimated
underwriting discounts and commissions and estimated offering expenses to be
paid by us, our net tangible book value at March 31, 1999 would have been
$ , or $ per share. This represents an immediate increase in net tangible
book value to existing stockholders of $ per share and an immediate dilution
to new public investors of $ per share. The following table illustrates the
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................... $
Pro forma net tangible book value per share as of March 31, 1999.... $
Increase per share attributable to new public investors.............
---
Pro forma net tangible book value per share after offering..........
---
Dilution per share to new public investors.......................... $
===
</TABLE>
The following table sets forth on a pro forma basis as of March 31, 1999,
after giving effect to a one for two reverse stock split of all the outstanding
common stock and preferred stock, the sale of $20.0 million of preferred stock,
the issuance of preferred stock and warrants in connection with the NBC and
Hearst agreements and the conversion of all outstanding preferred stock into
common stock, the number of shares of common stock purchased from us, the total
price paid, and the average price per share paid by the existing stockholders
and new public investors, after deducting estimated underwriting discounts and
commissions and estimated offering expenses to be paid by us, at an assumed
initial public offering price of $ per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------- --------------------- Average Price
Number Percent Amount Percent Per Share
------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... % $ % $
New public investors....
------- --------- -------- ----------
Total................. 100.0% $ 100.0%
======= ========= ======== ==========
</TABLE>
The above discussion assumes no exercise of outstanding options or warrants.
You will experience additional dilution in the event these warrants or options
are exercised.
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<PAGE>
Selected Financial Data
(in thousands, except per share data)
The following selected financial data are qualified by reference to, and
should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations and the financial statements and
notes thereto included elsewhere in this prospectus. The selected balance sheet
data as of December 31, 1996, 1997 and 1998 and selected statement of
operations data for the period from March 29, 1996 (inception) through December
31, 1996, and the years ended December 31, 1997 and 1998 have been derived from
our audited financial statements and the notes thereto included elsewhere in
this prospectus. The statement of operations data for each of the three-month
periods ended March 31, 1998 and 1999, and the balance sheet data at March 31,
1999, are derived from our unaudited interim financial statements included
elsewhere in this prospectus. In management's opinion, the unaudited financial
statements have been prepared on substantially the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results of
operations for such periods.
<TABLE>
<CAPTION>
March 29, 1996 Years ended Three months ended
(Inception) to December 31, March 31,
December 31, ----------------- --------------------
1996 1997 1998 1998 1999
-------------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data
Revenues:
Business services..... $ -- $ 25 $ 522 $ 60 $ 357
Advertising and
sponsorships......... 14 183 931 65 623
------- ------- -------- --------- ---------
Total revenues...... 14 208 1,453 125 980
Operating expenses:
Product development
and programming...... 771 3,472 5,383 1,175 2,224
Sales and marketing... 252 2,492 6,668 476 3,425
General and
administrative....... 335 974 1,804 336 974
Noncash advertising
and promotional
charges.............. -- -- 2,890 1,039 1,410
------- ------- -------- --------- ---------
Total operating
expenses........... 1,358 6,938 16,745 3,026 8,033
------- ------- -------- --------- ---------
Loss from
operations......... (1,344) (6,730) (15,292) (2,901) (7,053)
Interest income
(expense), net......... 36 339 (367) 10 154
------- ------- -------- --------- ---------
Net loss............ $(1,308) $(6,391) $(15,659) $ (2,891) $ (6,899)
Accretion of redeemable
convertible preferred
stock and warrants..... 8 38 558 20 72
------- ------- -------- --------- ---------
Net loss applicable
to common
stockholders....... $(1,316) $(6,429) $(16,217) $ (2,911) $ (6,971)
======= ======= ======== ========= =========
Net loss per share:
Basic and diluted..... $ (0.49) $ (2.10) $ (4.92) $ (0.87) $ (1.90)
Weighted average
shares............... 2,679 3,068 3,295 3,332 3,661
Pro forma net loss per
share:
Basic and diluted..... $ (1.66) $ (0.47)
Weighted average
shares............... 9,762 14,741
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of March 31,
-------------------------- ---------------
1996 1997 1998 1999
------- ------- -------- ---------------
<S> <C> <C> <C> <C>
Balance Sheet Data
Cash, cash equivalents and short-
term investments................. $ 8,930 $ 2,055 $ 14,437 $ 9,224
Working capital................... 8,651 1,844 13,493 7,768
Total assets...................... 9,062 2,811 18,490 14,572
Long-term obligations, net of
current portion.................. 273 237
Redeemable convertible preferred
stock and warrants............... 10,042 10,081 38,973 39,979
Total stockholder's deficit....... (1,270) (7,669) (22,463) (28,359)
</TABLE>
See Note 2 of Notes to Financial Statements for information concerning the
calculation of shares used in computing net loss per share. The pro forma net
loss per share data reflects reflects our sale in April 1999 of additional
preferred stock for aggregate proceeds of $20.0 million, our issuance of
preferred stock and warrants in connection with the NBC and Hearst agreements
in April 1999, and the automatic conversion of all outstanding shares of our
redeemable convertible preferred stock into shares of our common stock.
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<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview
We are a leading Internet provider of high quality online communities and
interactive services for businesses and consumers. From inception through March
1999, our operating activities have primarily been focused on:
. developing the quality environment of our services;
. expanding the audience and usage of our services;
. establishing operating relationships with partners;
. building sales momentum and developing programs and content to market the
Talk City brand name and attract users to our sites;
. developing a comprehensive computer software and hardware infrastructure;
. recruiting personnel; and
. raising capital.
To date, substantially all of our revenues have been derived from the sale of
our business services, advertising and sponsorships. Our business services
include designing customized communities, producing online events, conducting
online market research and facilitating online meetings. These services help
businesses develop and expand online relationships with customers, suppliers
and employees. Revenues derived from business services are recognized ratably
over the term of the contract period, provided that the collection of the
receivable is probable.
Advertising and sponsorship revenues are derived from two sources.
Advertising revenues generally come from short-term banner advertisement
contracts. Sponsorship revenues come from contracts under which we offer a
combination of custom programming, prominent logo placement, other onsite
promotions and additional banner ads. Our advertising and sponsorship clients
enter into short-term agreements pursuant to which they generally receive a
guaranteed number of advertising impressions on our site. Advertising and
sponsorship revenues are recognized in the period in which the advertisement is
displayed or the sponsorship event is run, provided that no significant
obligations remain, at the lesser of the ratio of impressions delivered over
total guaranteed impressions or on a straight-line basis over the term of the
contract. In some cases, where we contract with sales representative firms to
sell advertising revenues, we recognize revenues net of the commissions paid.
Operating expenses consist primarily of product development and programming,
sales and marketing, general and administrative and interest expenses. Product
development and programming expenses consist primarily of salaries, payroll
taxes and benefits and expenditures related to editorial content, community
management and support personnel, server hosting costs and software development
and operations expenses. Sales and marketing expenses consist primarily of
advertising and promotion costs, salaries, commissions and other related costs
of internal sales and marketing personnel and program expenses, public
relations costs and other marketing expenses. General and administrative
expenses consist of salaries, payroll taxes and benefits and related costs for
general corporate functions, including executive management, finance,
facilities, legal and fees for other professional services.
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Sales and marketing expenses exclude noncash advertising and promotional
charges related to our advertising on the NBC television network and in
magazines owned by Hearst. These advertising activities are paid for through
noncash in-kind investments. This in-kind program includes $7.2 million of
television commercials and print ads valued at rates discounted from the rate
card to be incurred from 1998 through 2001. After March 31, 1999, noncash
charges of $14.5 million will be charged to operations as the related
advertising is run or promotional services are received. We expect that $8.9
million of this $14.5 million will be charged to operations during the three
months ending June 30, 1999. These amounts were determined based on the fair
value of our common stock and warrants exchanged for the services received. See
Note 3 of the notes to our financial statements.
We incurred losses of $1.3 million in 1996, $6.4 million in 1997, $15.7
million in 1998 and $6.9 million for the three months ended March 31, 1999.
These losses include noncash advertising and promotional charges of $4.3
million through March 31, 1999. At March 31, 1999, we had an accumulated
deficit of $30.3 million. We anticipate that we will incur additional operating
losses for the foreseeable future.
Results of Operations
Three Months Ended March 31, 1999 and 1998
Revenues. Total revenues increased to $980,000 for the three months ended
March 31, 1999 from $125,000 for the three months ended March 31, 1998.
Business services revenues increased to $357,000 for the three months ended
March 31, 1999 from $60,000 for the three months ended March 31, 1998.
Advertising and sponsorship revenues increased to $623,000 for the three months
ended March 31, 1999 from $65,000 for the three months ended March 31, 1998.
The increases were primarily due to increased sales from the expansion of our
sales force which resulted in increases in the number of business clients,
projects, advertisers and the amounts spent per advertiser, as well as
increases in our user traffic and expansion of our consumer and business
services offerings.
Operating Expenses:
Product Development and Programming. Product development and programming
expenses increased to $2.2 million for the three months ended March 31, 1999
from $1.2 million for the three months ended March 31, 1998. The increase was
attributable to additional personnel and contractor costs associated with the
increased number of supervised chats we conducted and the enhancement of the
functionality of our Web sites as well as the expansion in our server and
operating infrastructure in response to an increased volume of user traffic.
Sales and Marketing. Sales and marketing expenses increased to $3.4 million
for the three months ended March 31, 1999 from $476,000 for the three months
ended March 31, 1998. The increase in sales and marketing expenses was
primarily attributable to increases in the number of sales personnel, sales
commissions and expenses associated with the development and implementation of
our branding, promotion and marketing campaigns. We expect that sales and
marketing expenses will increase for the foreseeable future as we increase
expenditures for branding, promotion and marketing, expand our internal sales
force and hire additional marketing personnel.
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General and Administrative. General and administrative expenses increased to
$974,000 for the three months ended March 31, 1999 from $336,000 for the three
months ended March 31, 1998. The increase was primarily due to an increase in
salaries and benefits, recruiting costs and facilities expenses resulting from
an increase in the number of personnel hired to support the growth of our
business. We expect general and administrative expenses will increase in the
future as we hire additional personnel and incur additional costs related to
the growth of our business and operations as a public company. In addition, we
expect to expand our facilities and incur associated expenses to support our
anticipated growth.
Noncash Advertising and Promotional Charges. We incurred charges of $1.4
million for the three months ended March 31, 1999 and $1.0 million for the
three months ended March 31, 1998 for noncash expenses associated with
advertising and operating agreements with various media partners and investors.
Interest Income (Expense), Net. Interest income (expense), net includes
income from our cash and investments and expenses related to our equipment
financing obligations. Interest income increased to $154,000 for the three
months ended March 31, 1999 from $10,000 for the three months ended March 31,
1998. The increase was primarily due to a higher average investment balance
during the three months ended March 31, 1999.
Periods Ended December 31, 1998, 1997 and 1996
Revenues. Total revenues were $1.5 million in 1998, $208,000 in 1997 and
$14,000 in 1996. Business services revenues were $522,000 in 1998 and $25,000
in 1997. Advertising and sponsorships revenues were $931,000 in 1998, $183,000
in 1997 and $14,000 in 1996. The increases were primarily due to increased
sales from the expansion of our sales force which resulted in increases in the
number of business clients, projects, advertisers and amounts spent per
advertiser, as well as increases in our user traffic and expansion of our
consumer and business services offerings.
Operating Expenses:
Product Development and Programming. Product development and programming
expenses were $5.4 million in 1998, $3.5 million in 1997 and $771,000 in 1996.
The increases were primarily attributable to additional personnel and
contractor costs associated with the increased number of supervised chats we
conducted and the enhancement of the functionality of our Web sites as well as
the expansion in our server and operating infrastructure in response to an
increased volume of user traffic.
Sales and Marketing. Sales and marketing expenses were $6.7 million in 1998,
$2.5 million in 1997 and $252,000 in 1996. The increases were primarily
attributable to increases in the number of sales and marketing personnel, sales
commissions and expenses associated with the development and implementation of
our branding, promotion and marketing campaigns.
General and Administrative. General and administrative expenses were $1.8
million in 1998, $974,000 in 1997 and $335,000 in 1996. The increases were
primarily due to an increase in salaries and benefits, recruiting costs and
facilities expenses resulting from an increase in the number of personnel hired
to support the growth of our business.
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Noncash Advertising and Promotional Charges. In 1998, we charged $2.9 million
to operations representing noncash expenses associated with advertising and
operating agreements with various media partners and investors.
Interest Income (Expense), Net. Net interest expense was $367,000 in 1998,
and net interest income was $339,000 in 1997 and $36,000 in 1996. We incurred
interest expense in 1998 as a result of our loan financing in 1998 net of
interest income earned on our investments. Interest income increased in 1997
over 1996 as our average investment balances increased during the year.
Quarterly Results of Operations
The following table presents certain statement of operations data for our
five most recent quarters ended March 31, 1999. In management's opinion, this
unaudited information has been prepared on the same basis as the audited annual
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation of the unaudited
information for the quarters presented. This information should be read in
conjunction with our financial statements, including the notes thereto,
included elsewhere herein. The results of operations for any quarter are not
necessarily indicative of results that may be expected for any future periods.
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------
Mar. June Sept. Dec. Mar.
31, 30, 30, 31, 31,
1998 1998 1998 1998 1999
------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues:
Business services.............. $ 60 $ 66 $ 167 $ 229 $ 357
Advertising and sponsorships... 65 202 231 433 623
------- ------- ------- ------- -------
Total revenues............... 125 268 398 662 980
Operating Expenses:
Product development and
programming................... 1,175 1,298 1,268 1,642 2,224
Sales and marketing............ 476 697 1,983 3,512 3,425
General and administrative..... 336 338 467 663 974
Noncash advertising and
promotional charges........... 1,039 118 1,411 322 1,410
------- ------- ------- ------- -------
Total operating expenses..... 3,026 2,451 5,129 6,139 8,033
------- ------- ------- ------- -------
Loss from operations......... (2,901) (2,183) (4,731) (5,477) (7,053)
Interest income (expense), net... 10 (251) (280) 154 154
------- ------- ------- ------- -------
Net loss..................... $(2,891) $(2,434) $(5,011) $(5,323) $(6,899)
Accretion of redeemable
convertible preferred stock and
warrants........................ 20 20 478 40 72
Net loss applicable to common
stockholders................ $(2,911) $(2,454) $(5,489) $(5,363) $(6,971)
======= ======= ======= ======= =======
</TABLE>
Our revenues have increased in all quarters presented as a result of
increased sales from the expansion of our sales force which resulted in
increases in the number of business clients, projects, advertisers and amounts
spent per advertiser, as well as increases in our user traffic and expansion of
our consumer and business services offerings. Seasonality may significantly
affect our revenues during the first and third quarters as advertisers and
business clients historically spend less during these periods. Because Internet
commerce, business services and advertising are emerging markets, additional
seasonal and other patterns may develop in the future as the market matures.
Any
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seasonality is likely to result in quarterly fluctuations in our operating
results, which could harm our business. Our operating results also may
fluctuate significantly in the future as a result of a variety of other
factors, many of which are outside of our control. For detailed information
regarding these factors, please see "Risk Factors--Fluctuations in our
quarterly operating results may harm our stock price."
Liquidity and Capital Resources
Since our inception in March 1996, we have financed our operations primarily
through the private placement of our preferred stock and, to a lesser extent,
through equipment financing. As of March 31, 1999, we had $3.5 million in cash
and cash equivalents and $5.7 million in short-term investments. Net cash
provided by financing activities was $10.1 million in 1996 and $24.2 million in
1998, and was primarily attributable to net proceeds from the issuance of
stock. In April 1999, we completed a private placement of preferred stock with
aggregate gross proceeds of $20.0 million.
Net cash used in operating activities was $1.0 million in 1996, $6.3 million
in 1997, $11.0 million in 1998 and $4.6 million for the quarter ended March 31,
1999. Cash used in operating activities in each of these periods was primarily
the result of net operating losses and increases in accounts receivable,
partially offset by increases in accrued expenses and accounts payable.
Net cash used in investing activities was $137,000 for the inception period
in 1996, $572,000 in 1997, $6.6 million in 1998 and $535,000 for the three
months ended March 31, 1999. Cash used in investing activities in each period
was primarily related to purchases of property and equipment.
As of March 31, 1999, our principal commitments consisted of obligations
outstanding under operating leases. Although we have no material commitments
for capital expenditures, we anticipate a substantial increase in our capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and personnel.
In May 1998, we obtained an equipment line of credit with a financial
institution in the amount of $2.0 million. This line of credit is secured by
our fixed assets and has a three-year term that expires in May 2001. As of
March 31, 1999, the amount outstanding under this line of credit was $367,000.
This amount is due in monthly installments through May 2001.
Our capital requirements depend on numerous factors, including market
acceptance of our services, the resources we allocate to our community network,
marketing and selling our services, our brand promotions and other factors. We
have experienced substantial increases in our expenditures since our inception
consistent with growth in our operations and staffing, and we anticipate that
our expenditures will continue to increase for the foreseeable future.
Additionally, we will continue to evaluate possible acquisitions of or
investments in complementary businesses, technologies, services or products and
plan to expand our sales and marketing programs. We currently believe that our
available cash and cash equivalents combined with the net proceeds from this
offering will be sufficient to meet our anticipated needs for working capital
and capital expenditures for at least the next 12 months. We may need to raise
additional funds, however, in order to fund more rapid expansion, to develop
new or enhance existing services or products, to respond to competitive
pressures or to acquire or invest in complementary businesses, technologies,
services or products. Additional funding may not be available on favorable
terms or at all.
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Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 is effective for financial
statements for years beginning after December 15, 1998. SOP 98-1 provides
guidance over accounting for computer software development or obtained for
internal use including the requirement to capitalize specified costs and
amortization of such costs. We do not expect the adoption of this standard to
have a material effect on our capitalization policy.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivatives and
Hedging Activities," which establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, collectively referred to as derivatives, and for hedging activities.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. This statement does not apply to us as we currently do not
have any derivative instruments or hedging activities.
Year 2000 Compliance
We may be exposed to a loss of revenues and our operating expenses could
increase if the systems on which we are dependent to conduct our operations are
not year 2000 compliant. Our potential areas of exposure include products
purchased from third parties, information technology including computers and
software, and non-information technology including telephone systems and other
equipment used internally. All areas that are vital to our operations are being
tested and validated for year 2000 compliance. We expect to complete our year
2000 compliance assessment plan in the second quarter of 1999 and our
compliance testing and related documentation by the end of the third quarter.
Until our assessment is completed we will not be able to evaluate whether our
systems will need to be revised or replaced, or the cost involved.
In addition, we are in the process of seeking verification from our key
vendors and suppliers that they are year 2000 compliant, or, if they are not
presently compliant, to provide a description of their plans to become
compliant. To the extent that vendors fail to provide certification that they
are year 2000 compliant, we will seek to terminate and replace those
relationships.
In the event that our production and operational facilities that support our
Web sites are not year 2000 compliant, portions of our Web sites may become
inaccessible. A prolonged disruption in our operations could cause our business
clients and partners to stop doing business with us. Our review of our systems
has shown that there is no single application that would make our Web sites
totally unavailable and we believe that we can quickly address any difficulties
that may arise. In the event that our Web-hosting facilities are not year 2000
compliant, our Web sites would be unavailable and we would not be able to
deliver services to our users.
We do not currently have a contingency plan to deal with the worst-case
scenario that might occur if technologies we are dependent upon are not year
2000 compliant and fail to operate effectively after the year 2000. We intend
to develop a plan for this scenario upon the completion of our compliance
assessment plan.
If our present efforts to address the year 2000 compliance issues are not
successful, or if distributors, suppliers and other third parties with whom we
conduct business do not successfully address such issues, our business could be
harmed.
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Business
Overview
We are a leading Internet provider of high quality online communities and
interactive services for businesses and consumers. We offer businesses a wide
range of services to help them develop and expand online relationships with
customers, suppliers and employees. These services include designing fully
integrated, customized communities, producing online events, conducting online
market research and facilitating online meetings. For consumers, we operate a
network of online communities located at www.talkcity.com. Our network includes
20 topical categories, over 50 themed communities, 50 co-branded partner
communities and thousands of user generated communities. These communities
offer services such as moderated chat, home pages, special event production,
message boards and online event guides.
We have established partnerships across multiple industries and media forms,
including partnerships with major media companies, Internet content companies
and Internet service providers. We work with our partners to co-produce, co-
brand and co-market community services that leverage our partners' content,
brand or customer relationships. By integrating these co-branded services into
our community network, we enjoy exceptional distribution, content and marketing
leverage. Some of our partners include Cox Interactive Media, Hearst, NBC,
WebTV Networks, @Home and AT&T WorldNet.
Our community network has achieved critical mass in terms of traffic,
registered users and the loyalty of our users. In March 1999, we had
approximately 2.6 million unique visitors according to I/PRO. These users
generated over 6.6 million hours of activity on our www.talkcity.com site
during March 1999. During our peak periods, which tend to be early evening
hours, we have as many as 18,000 users simultaneously chatting or engaging in
other interactive activities. As of March 31, 1999, we had over 2 million user
registrations and, during the quarter ended March 31, 1999, we averaged
approximately 200,000 new registrations per month. We believe the strong
loyalty of our users and engaging nature of our programming are reflected by
the significant amount of time that users spend on our site. Our users spend,
on average, approximately 2.5 hours per month on our site.
Industry Background
The Continuing Growth and Evolution of the Internet
The Internet is an increasingly significant global communications medium,
enabling millions of people to directly interact, share information and conduct
business electronically. International Data Corporation estimates that the
number of Web users worldwide will increase from 142 million at the end of 1998
to more than 502 million by the year 2003. As Internet use becomes easier and
more widespread, users are shifting from an early adopter, computer-oriented
audience to a more mainstream consumer audience. Jupiter Communications
estimates that the number of Internet connected households in the United States
will grow from 29 million at the end of 1998 to approximately 57 million by the
end of 2002.
The Internet also provides businesses and advertisers with an attractive
means of selling and marketing products and services. According to
International Data Corporation, worldwide consumer
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commerce revenue on the Internet is expected to increase from $14.9 billion at
the end of 1998 to more than $177 billion in 2003. As the Internet audience
grows and the demographics of the Web continue to evolve toward mainstream
consumers, advertisers are also expected to significantly increase Internet
spending. Jupiter Communications estimates that the amount of advertising
dollars spent on the Internet will increase from $1.9 billion in 1998 to $7.7
billion by 2002, a compound annual growth rate of 42%.
The Increasing Importance of Online Communities
In addition to changing the nature of advertising and commercial
transactions, the Internet has also enabled the formation of online
communities. An online community is a group of people who interact via the
Internet with each other around common areas of interest. Online communities
facilitate this interaction by integrating published content, commerce
capabilities and communication resources, such as live events, message boards,
chat rooms, instant messaging, email and homepages.
Companies with strong brands, loyal customers and relevant content are
particularly well-positioned to organize online communities for their
customers. The more passionate a company's customers are about their common
interest, whether it be music, children, a profession or a favorite television
show, the greater the opportunity for that company to migrate its customers
into a robust online community. For example, a media company with a popular
television show can earn the gratitude of its fans by organizing an online
community in which fans can talk about the show, attend live chat events with
the stars, read about missed episodes and buy licensed merchandise at a
discount. We believe the benefits of online communities extend to businesses,
consumers and advertisers.
Online communities represent a significant opportunity for businesses to
deepen their relationship with existing customers or expand their markets by
doing the following:
. reducing customer acquisition, education and support costs;
. increasing customer satisfaction, loyalty and retention;
. capitalizing on the propensity of customers to buy their products or
services;
. enhancing businesses' ability to target customers and understand their
individual needs;
. reducing fixed capital costs;
. broadening geographic reach; and
. providing an opportunity to minimize the use of middlemen such as
retailers, wholesalers, distributors and brokers.
Online communities can also provide significant benefits to consumers, such
as:
. satisfying consumers' basic social need for communication in a convenient
manner that is not limited by the same time and geographic constraints;
. serving as a venue for group meetings and events;
. enabling people to interact on focused topics of interest;
. allowing consumers to obtain increased product and services information
while protecting their privacy; and
. aggregating consumer buying power and helping them to obtain lower prices
from vendors.
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Finally, online communities represent an increasingly attractive opportunity
for advertisers because their participants:
. can be segmented and targeted by their membership profiles and by the
discussion topics they select;
. have favorable usage patterns characterized by extended and frequent
visits to the site; and
. are loyal to their online community and associated brands, products and
services.
Shortcomings of Existing Online Communities
To date, many businesses, consumers and advertisers have been frustrated in
their attempts to capitalize on the benefits of online communities.
Despite the compelling benefits of online communities, many businesses find
it difficult to migrate their traditional customer bases into online
communities. First, businesses have difficulty initially attracting a critical
mass of users to the online community and often compete for consumers with
larger, more established Web sites. Second, many businesses lack the capability
to build a scalable technology platform to provide a range of interactive
services and support an online community and do not wish to incur the
substantial costs of developing this capability. Third, businesses often are
unable to hire and retain employees with the specialized skills required to
produce online events, host online discussions, manage user interests and
profiles and execute the many other tasks associated with providing interactive
services or effectively managing an online community.
Many mainstream consumers find existing community sites unsatisfactory.
First, many community sites lack a friendly and welcoming atmosphere. Second,
chat rooms on many existing community sites sometimes include participants who
behave in obnoxious or inappropriate ways, with no practical recourse for users
to object and stop such behavior. As a result, mainstream consumers,
particularly parents of young children, are often reluctant to participate or
allow their children to participate in the community. Third, many community
sites lack structured programming, which makes it difficult for newcomers to
find community programming that meets their needs and desires.
While advertisers have begun to promote their products on community sites,
several factors have limited their use of community sites as a marketing
vehicle. Advertisers are concerned that consumers might associate the
advertisers' brand with inappropriate behavior that may sometimes occur within
community Web sites. In addition, some Internet programming is so generic that
it is difficult for advertisers to focus on their targeted audiences.
The Talk City Solution
We have created a network of award-winning online communities and developed a
portfolio of interactive services that meet the needs of businesses, consumers,
advertisers and partners. Key elements of our solution include the following:
Online Interactive Services for Businesses. We provide businesses with the
tools, resources and infrastructure required to provide businesses Internet
community-based marketing, sales and support solutions. Our business services
range from online events, market research and online
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meetings to fully integrated, customized communities. Our business services
offer several key advantages. First, our services allow businesses to
communicate, interact and build relationships with their customers. Second, our
services help businesses learn more about their customers through focus groups,
market research and online polls. Third, our interactive services provide an
easily deployed and cost-effective solution enabling our business clients to
leverage our technology infrastructure. Fourth, our experienced moderators
enable businesses to direct the flow of interaction and our trained city
standards advisors help to manage the environment in which businesses' brands
and products are discussed. Finally, our critical mass of users provides a
foundation upon which our business clients can build their own audience.
Clean Well Lighted Environment. We have structured our community as a clean
well lighted environment that is attractive to businesses, users, partners and
advertisers. By "clean and well lighted," we mean that our site is family-
oriented, welcoming and friendly. We strive to maintain the family-oriented
nature of our service by enforcing a set of published behavior standards. These
standards are maintained by our trained city standards advisors. These city
standards advisors can be called upon at any time by our users to resolve
issues relating to standards violations. The friendly tone of our service is
further maintained by our network of approximately 2,000 community leaders and
moderators who personify the friendly culture and serve as role models for all
users.
Extensive Community Network. We have created an extensive network of
community sites which spans multiple industries and media forms and provides us
with exceptional distribution and marketing leverage. The Talk City network
consists of four types of partnerships: major media, distribution, Internet
content and affiliate. Our major media partners, consisting of Cox Interactive
Media, Hearst and NBC, provide us with access to a vast majority of U.S.
households through a combination of national, local and cable broadcast
television, radio, newspapers, magazines and Internet properties. We derive
substantial distribution leverage and access to a growing audience through our
distribution partners, such as @Home and WebTV Network. Our Internet content
partners, such as NetNoir and Hispanic Online, bring audiences of shared
interests or demographic groups into our community. Finally, our Chat@TalkCity
program includes over 77,000 registered affiliated Internet sites and
individuals. This extensive community provides us with one of the largest
distributed and integrated networks of community services on the Internet.
Structured and Moderated Programming. A distinguishing element of our
programming is our network of approximately 2,000 trained community leaders and
moderators who work together to maintain and enhance our culture. These leaders
and moderators facilitate interaction in our communities by drawing users into
the conversation, encouraging them to express their ideas or to interact with
celebrity guests, and provide an experience that makes our users want to stay
longer and return more frequently to our community. To make newcomers feel
welcome, our moderators send "how to chat" messages, hold special "welcome to
Talk City" chats for new users and can be called upon at any time to answer
questions. They also direct discussions in a manner consistent with the quality
programming requirements of our business clients and partners. Our community
leaders and moderators manage over 75,000 supervised chats each month and
oversee the services offered within our community including chats, message
boards, home pages and user content.
Critical Mass. Our community network has achieved critical mass in terms of
traffic, registered users and the loyalty of our users. In March 1999, we had
approximately 2.6 million
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unique visitors according to I/PRO. These users generated over 6.6 million
hours of activity on our www.talkcity.com site during March 1999. During our
peak periods, which tend to be early evening hours, we have as many as 18,000
users simultaneously chatting or engaging in other interactive activities. As
of March 31, 1999, we had over 2 million user registrations and, during the
quarter ended March 31, 1999, we averaged approximately 200,000 new
registrations per month. We believe the strong loyalty of our users and
engaging nature of our programming are reflected by the significant amount of
time that users spend on our site. Our users spend, on average, approximately
2.5 hours per month on our site. We believe our critical mass provides our
users with a sense of excitement, camaraderie and activity. Moreover, business
clients and partners who join our community network use our core audience as a
foundation upon which to build their own audience.
Through our community network, we believe our business services and online
community network are able to provide significant benefits to businesses,
consumers and advertisers, as summarized below:
<TABLE>
<CAPTION>
Customers Benefits
- --------- --------
<S> <C>
Businesses . Online community-based marketing, sales and support solutions
. Professional production and moderated environment
. Reduced customer acquisition and maintenance costs
Consumers . Welcoming and friendly culture
. Family-oriented environment
. Variety of interactive programming
Advertisers . Positive, effective branding venue
. Segmented, targetable and mainstream audience
. Loyal, engaged viewers
Partners . Professional production and moderated environment
. Critical mass of traffic and variety of programming
. Co-branding and customization of community services
</TABLE>
Strategy
Our objective is to be the leading Internet provider of high quality online
communities and interactive services for businesses and consumers. Key elements
of our strategy include the following:
Expand Business Services. We intend to increase the revenues we generate from
our business services by:
. aggressively increasing the number of personnel dedicated to selling and
implementing our business services, including personnel with expertise in
specific industries;
. focusing on selling long-term customized communities which integrate a
wide range of our business services;
. creating specialized templates for targeted communities, such as
communities for employees, customers and suppliers; and
. enhancing the functionality and usability of our business services
products.
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Build Brand Awareness. We intend to increase awareness of Talk City's brand
and our commitment to building high quality online communities. We intend to
achieve this goal in a cost-efficient manner by:
. leveraging the broad reach of our partners' traditional media properties.
For example, we are increasing our presence on regional radio,
television, print and online properties owned by Cox Interactive Media
and promoting our Cox co-branded local properties, such as
accessatlanta.com and bayinsider.com. Likewise, Hearst will continue to
publish full-page advertisements promoting our co-branded properties in
magazines such as Good Housekeeping and Cosmopolitan. NBC airs
advertisements on its television network promoting our co-branded
property, www.nbc.talkcity.com.
. expanding our partner ingredient branding program. In this program, we
provide our community services in exchange for featured co-branding of
the Talk City and OnNow logos and brand names. Additionally, we plan to
expand our Chat@TalkCity program, which currently includes over 77,000
registered affiliated Web sites and individuals.
Drive Sponsorship and Advertising Revenues. To increase our sponsorship and
advertising sales revenues, we intend to:
. increase the number of our sales personnel and focus their efforts on
longer term, high value sponsorship deals;
. sell more advertisements targeted to demographic groups within our
audience;
. align advertiser offerings more precisely with users' interests; and
. focus on selling integrated sponsorships.
Increase Usage of Consumer Community Services. We intend to significantly
increase the amount of time our users spend on our site and the frequency with
which they return. We plan to accomplish this goal in three ways. First, we
expect to expand professionally developed content and features which are
relevant to our particular themed communities. Second, we intend to add useful
new community tools and services which we believe will be attractive to our
users, such as calendaring, group home pages and personalization. Finally, we
plan to significantly expand our community leader and moderator network. This
will support the growth of our consumer community services as users are more
likely to stay longer and return more frequently to our service if they are
welcomed by and interact with our moderators.
Increase Ecommerce Services. We plan to generate additional ecommerce
revenues by offering new services that capitalize on our users' interest in
social interaction and their distinct usage patterns. Examples of these types
of services include user-to-user auctions, themed shopping events, online
personals and classified ads.
Expand Depth and Breadth of Our Partner Network. We intend to expand the
depth and breadth of our partner network by:
. adding account executives to help manage and further develop our partner
relationships;
. increasing the number of major media, distribution, Internet content and
affiliate partners;
. rolling out community services for our major media partners' online
properties; and
. increasing the number of tools and services we offer our partners.
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Business Services
We provide businesses with online community-based marketing, sales and
support solutions. Our business services include designing fully integrated
customized communities, producing online events, conducting online market
research and facilitating online meetings. These services help our business
clients develop and expand online relationships with their employees, customers
and suppliers.
Customized Community
Many businesses have the assets needed to build an online community, such as
strong brands, loyal customers and relevant content, but lack the skills to
operate a community effectively. We help these businesses deploy such assets to
build and organize online communities, improving their relationship marketing
and support. Customized communities include customized sets of chats, message
boards, home pages, surveys and events tailored to complement a client's
specific products, brands and targeted audience.
Online Events
We utilize our professional production capabilities and our moderator network
to produce online events for business clients. Businesses use online events to
introduce new products, educate customers, make sales and marketing
presentations and communicate with and train employees. These online events
enable businesses to reach local, national and international audiences through
the Internet with real-time, two-way interaction, combining text chat and
message boards with graphics, audio and visual aids. For example, we co-produce
a series of year-round meetings with Barbie collectors for Mattel, and Kemper
employs our services to hold meetings with fund managers to review and exchange
information and ideas on the latest financial products.
Market Research
Our market research services include online focus groups, polls and
quantitative surveys. These services enable business clients to generate new
ideas, receive customer feedback and test product concepts, advertising and Web
sites on a national basis with rapid turnaround. We are able to deliver high
quality focus groups and surveys based upon our ability to deliver the
requisite demographics of participants, the skill of our community leaders and
moderators in eliciting meaningful comments from all participants in the group
and our expertise in developing effective survey content. We believe that our
services produce high quality results for our business clients on a more cost-
effective basis than is generally achievable through traditional methods. We
have developed a specific set of online methodologies and tools to provide
these market research services. A representative list of business clients which
use our market research services includes JWT Specialized Communications, an
affiliate of J. Walter Thompson, Kemper and Nokia.
Some of our online market research services are produced in partnership with
NFO Research, one of the leading market research companies in the United
States. NFO contributes its national panel of over 1 million U.S. consumers,
with an average of 100 data points per household, its market research
expertise, presence in the market research industry and national market
research sales force. We contribute our expertise in online focus groups and
surveys, our registered audience base and our national sales force. We jointly
produce focus groups with NFO and share the associated revenues.
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Online Meetings
Online meetings allow our business clients to deliver standard presentations,
such as PowerPoint(TM), over the Internet to meetings attended by hundreds of
people. This service enables a business client to conveniently conduct a
meeting with attendees around the world without having to incur the cost of
travel and materials distribution. This service also allows the client to
maintain full real time control and two-way interaction through the use of text
chat, group polling and voting and phone conference calling.
Partner Network
Overview
As of March 31, 1999, our community included 35 corporate partners with whom
we produce co-branded versions of Talk City for their 50 Internet sites. By
building our service as a distributed and integrated community with many
partners, we have created a network model which we believe will continue to
build on its own momentum. Through our partner network, we are able to drive
additional traffic to our sites and promote our brand, utilize our partners'
content and programming expertise and access their personnel and celebrity
talent. Simultaneously, by increasing our usage, brand identity and programming
expertise, there is more incentive for additional partners to join our
community and promote our brand.
With most of our partners, we co-produce a custom link from the partner's
site into a customized view of our entire community. Each partner version of
Talk City is tailored to that particular partner, co-branded with the partner's
brand and co-marketed to promote our joint programming. Partners are given the
flexibility to tailor or promote any elements of our service they want featured
on the joint site. The partner's user base has full access to our service, and
each partner's users have access to the other partners' users. In many cases,
we have a revenue sharing agreement with the partner in which we are generally
responsible for selling advertising for the joint services and the resulting
revenue is shared with the partner, thus providing a financial incentive for
both parties to make the joint services successful. Our partner network
includes four types of partners: major media, distribution, Internet content
and affiliate.
Major Media Partners
Cox Interactive Media Web sites. In August 1998, we established our
partnership with Cox Interactive Media. We provide our interactive services,
including chat, home page creation capabilities and message boards, for a
number of Cox Interactive Media destinations including the following:
AccessArizona.com GoPBI.com
AccessAtlanta.com GreatOutdoors.com
ActiveDayton.com HamptonRoads.com
Austin360.com OCNow.com
BayInsider.com RealPittsburgh.com
Fastball.com SanDiegoInsider.com
GoBig12.com SECAction.com
GoCarolinas.com The Shopping Channel
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The agreement with Cox Interactive Media is for an initial term of three
years with automatic additional two-year terms, with the initial renewal term
at the discretion of Cox, unless either party notifies the other in writing of
its election to have the agreement expire at least 60 days in advance of the
end of the then-current term.
Hearst. In September 1998, we established our partnership with the Hearst New
Media and Technology division of Hearst Communications. We provide interactive
services for the following Hearst-related sites:
. William Morrow Books--We co-produce a weekly chat series called
"BookSpeak" which brings William Morrow authors online to interact with
the HomeArts' audience.
. Victoria Magazine--We provide the chat services for the editors and
readers of Victoria Magazine.
. Lifetime Television--We provide the chat services for Lifetime cable
television programs.
In addition to the above online co-branding and promotion, we receive
discounted advertising in various Hearst magazines. The community services
agreement with Hearst is for an initial three-year term with automatic
additional two-year terms unless either party notifies the other in writing of
its election to have the agreement expire at least 60 days in advance of the
end of the then-current term.
NBC and affiliates. In 1998 and 1999, we entered into various agreements with
NBC and its affiliated companies pursuant to which we provide our interactive
services, on a local and national basis, to the following Web sites operated by
NBC:
. CNBC.com--We facilitate the online interaction and discussion between
CNBC.com's users and personalities on a variety of business related
topics.
. NBC.com--We provide general and featured celebrity chats for NBC daytime
and prime time programming, such as "Just Shoot Me," "Frasier" and "Days
of Our Lives."
. TNBC--We provide our chat service for NBC's teen oriented programming,
including television shows such as "Saved by the Bell" and "Hang Time."
In addition, we co-produce TNBC's "At the Max" chat as well as the weekly
"Best Friends" chat.
. NBC Interactive Neighborhood--We provide the capability to host locally-
oriented chats to several of NBC's 200 local affiliate television
stations.
In addition, we receive advertising on various NBC television programs. Our
agreement with NBC, which covers CNBC.com, TNBC and NBC.com, is for an initial
three-year term with an automatic extension for a two-year period unless either
party notifies the other in writing of its election to have the agreement
expire at least 60 days in advance of the end of the then-current term. Our
agreement covering NBC Interactive Neighborhood is for a two-year term. The
parties have agreed to negotiate a possible extension of an additional one or
two-year term. Either party may terminate the agreement at any time and for any
reason in its sole discretion by providing the other party with 60 days prior
written notice.
Distribution Partners
We provide our services for a number of Internet service providers including
@Home, AT&T WorldNet, BellSouth.Net, Concentric Networks and WebTV Network.
These partners enable us to reach a substantial number of additional users.
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Internet Content Partners
We also provide community services for online Internet content sites. Our
Internet content partners bring audiences of shared interests or demographic
groups into our community. We include the following within our group of
Internet content partners:
<TABLE>
<CAPTION>
Partner Co-Branded Service
------- ------------------
<C> <S>
@Music................................ A music site for which we provide
always open chat rooms to discuss
numerous music topics
Auto OnRamp........................... An auto site for which we provide chat
on topics such as classic and muscle
cars
Donna Wick Radio Show................. A radio and Internet inspirational
radio show, hosted by Donna Wick, for
which we provide chat rooms for
listeners to chat during live
broadcasts
Hispanic Online....................... An Internet site for the Hispanic
market for which we provide chat and
special events production for featured
guests
Learfield Communications.............. We provide chat rooms for their
Gamecruiser site, the official Internet
broadcast site for 13 of the nations'
top college athletic programs, for
listeners to chat during live
broadcasts
The Lottery Channel................... An Internet site for lottery players
nationwide for which we provide chat
for lottery players to discuss
strategies and share winning stories
NetNoir............................... An Internet site for the African
American market for which we provide
chat and special events production for
featured guests
POV Magazine.......................... A magazine geared towards Gen-Xers
entering the working world for which we
provide chat and special events
production for featured guests
Religions and Spirituality............ We provide our community services for
users to explore world religions,
spiritual traditions and exchange ideas
Riffage Co............................ A music site for which we provide our
community services
Seismic Productions/Lost Worlds....... An Internet guide which provides
virtual tours of the Mayan ruins and
the surface of Mars through the Mars
Pathfinder for which we provide our
community services
Time Warner Books/Little Brown Books.. We provide chat and event hosting for
weekly author chats
Transformations....................... An Internet site geared towards self
help, support and recovery issues for
which we provide our community services
Women Online Worldwide................ An Internet site geared towards
celebrating the spirit of womankind for
which we provide chat on a variety of
women-related topics
Zapa Digital Arts..................... An Internet site which provides our
users with tools and accessories for
home page creation
ZineZone.............................. A personalization site that allows
users to control their view of the Web
for which we provide chat and special
events production for featured guests
</TABLE>
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Affiliate Partners
Our Chat@TalkCity affiliate network program enables other Internet sites and
individuals to create a permanent chat room within our community. These chat
rooms can also be embedded directly into the affiliate's Internet site or home
page, whether the home page is on our service or on another service. The
Chat@TalkCity program provides its participants with the tools to build a chat
room, embed it in their Internet site or home page and make it either a public
chat room, accessible through our service, or a private room. We provide our
Chat@TalkCity participants with instructions on how to operate a chat room and
work within our guidelines, including access to our city standards advisors. As
of March 31, 1999, over 77,000 Internet sites and individuals have registered
with the Chat@TalkCity program.
Consumer Community Service
We believe that quality community services must be planned and proactively
managed. In order to accomplish this, we provide active role models through our
network of trained community leaders and moderators. In addition, we produce a
variety of programming through our live events, topical categories and themed
communities, all within the established culture, tone and standards of our
community.
Our Moderator Network
A distinguishing element of our programming is our network of approximately
2,000 trained community leaders and moderators who work together to enhance our
culture. The moderators range in age from 14 to 77 and are located all over the
United States and in multiple countries around the world. Our moderators
supervise over 75,000 chats per month, as well as our message boards, home
pages and audience content. These leaders and moderators facilitate interaction
in our communities by using proprietary tools to draw users into conversation
and encourage them to express their ideas. Our moderator network is essentially
a community in itself, with a centralized set of goals, guiding principles and
management. Community leaders and moderators become well acquainted with one
another and this camaraderie helps to form a strong foundation of goodwill and
high-spirited commitment.
City Standards Advisors. Our city standards advisors form a separate group
within the moderator network. These individuals are our response-based
standards maintenance team, handling behavior problems, such as profanity or
obscenity, and answering calls from users who believe that standards violations
are occurring in their chat rooms or in one-on-one conversations with other
users. City standards advisors have the power to remove participants from our
actual servers, as opposed to leaders or moderators who can only remove
offenders from the respective chat rooms which they are supervising or
moderating at the time. At least one city standard advisor is on duty on our
service at all times. At peak times, there are typically six city standards
advisors to ensure our clean well-lighted community is maintained.
Recruitment. Our current network of moderators serves as our primary
recruiter for new community leaders and moderators. Our community leaders and
moderators are continually seeking good conversationalists and articulate
participants on our service. They frequently post notices and, in many cases,
approach promising candidates to direct them to a Web site to learn about and
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potentially apply for a community leader or moderator position. This recruiting
provides us with a steady stream of potential new community leaders and
moderators to our training program. There are currently thousands of people on
the waiting list to join our moderator network.
Training and Quality Assurance. Our training consists of online training
sessions and an on-the-job apprenticeship within our community. Candidates are
required to participate in classes which involve the principles and mechanics
of moderating and the maintenance of our behavior standards. A quality
assurance team systematically reviews the performance of our leaders and
moderators. In addition, most of our themed communities hold regular meetings
to discuss such issues as new chat topics requested by users, behavioral or
cultural challenges or moderator policy revisions.
Compensation. Over 270 of our approximately 2,000 trained community leaders
and moderators are compensated for their services. The remainder are
volunteers. Compensated leaders and moderators sign an independent contractor
agreement with us which includes a full nondisclosure agreement. These
agreements are terminable by either party upon 30 days' prior written notice.
Our moderators are paid per hour, while our trained community leaders receive a
flat fee per month.
Programming
We provide our community with an extensive series of live events, 20 topical
categories and over 50 themed communities as described below.
Live Events. We operate one of the most extensive series of live events on
the Internet, attended by audiences ranging in size from several dozen people
to many thousands. The following are examples of events which we produced or
co-produced with our partners and clients in the first quarter of 1999:
Enrico Colantoni--"Just Shoot Me" Mackenzie Phillips (ZoogDisney)
(NBC.com) Shawn Phillips (@Music)
Golden Globe Awards (NBC.com) Premier of "The 60s" (NBC.com)
Grammy Awards Michael Stipe--REM singer
(Borders.com/Grammy.com) (ZoogDisney)
Jewel (ZoogDisney) Joe Satriani
Greg Louganis--Olympic Diver (Borders.com/Grammy.com)
(Borders.com) Jan Schlichtmann--lawyer in "Civil
Mark McGwire & Starbucks CEO, Howard Action" (ZineZone)
Schultz (Starbucks) Soap Opera Digest Awards (NBC.com)
MickeyMouse (ToonDisney) 3rd Storee (ZoogDisney)
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Topical Categories. Our 20 topical categories and over 50 themed communities
all offer moderated chats, message boards, home pages, special events
production and discussion groups. The topical categories may include
professional editorial content or graphical presentation, or they may be co-
produced with our partners. Our topical categories are organized as follows:
<TABLE>
<S> <C> <C>
Ages: 20s to Seniors Computing and Technology Movies, TV and Radio
Numerous chat rooms Computer Talk Movie City
based on particular Folks Online NBC.com
ages MacTalk NBC Interactive
Senior Citizens New2Internet Neighborhoods
New2Talk City
Art and Books New2WebTV Music
Art City @Music
Borders.com
Ethnic and Lifestyle
Mystery Place Alternative LifeStyles News and Sports
Hispanic Online NewsTalk
Auto Latino Chat Sailing Forum
Auto OnRamp NetNoir TC Sports
Trefpunt
Business Finance Romance and Social
Business City Center Games CityPub
Fantasy Forum Courtship Corner
Cities and Travel Games Galore Talk City Personals
Canada Space Corps Towntalk
City Down Under
Cox Interactive Media Health and Wellness Spirituality
sites, such as Transformations JesusCafe Ministries
accessatlanta.com Wellness Forum Religions and
India Spiritualities
Local
Home and Family
Travel Forum Animal Forum Teen
EduCenter The InSite
Collectibles and Hobbies FoodTalk Teen Talk
Collectibles Forum Hearst New Media & TNBC MaxChat
Technology sites Youth Online
College Science Visions
College Connection Women
Kids Women Together
KidszKorner Women Online Worldwide
</TABLE>
In addition, our community provides programming in multiple languages,
including English, Filipino, French, German, several dialects of Hindi,
Italian, Spanish and Vietnamese. We believe the global nature of our
programming creates an around-the-clock friendly environment and a diversity of
subject matter which further increases its value and interest to the entire
audience.
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Applications and Features
We offer a wide range of applications and features through which our users
interact and our programming is created. These include:
. chat--primarily text chat and also new technology showcases for audio
chat, avatar and 3D chat;
. instant messaging--private chats between users;
. buddy lists--user-created list of special friends which notifies the user
and helps the user find these friends when they come on to the service;
. auditoriums--large scale chat events that can handle thousands of users
simultaneously and provide for a more structured question and answer
format than a standard chat room;
. message boards--topical areas of the service in which a user can display
a text message on the screen for others to read;
. home pages--personalized Web sites created by users within our themed
communities;
. polls;
. email;
. search; and
. calendars--features over 3,000 events and activities on our service each
month and serves as an important programming tool for our users.
OnNow
We also operate a second destination site, www.onnow.com, which is a leading
guide to live events on the Internet. The OnNow service provides users with a
guide to thousands of chats, web casts and other live events on the Internet
provided by hundreds of Internet sites, including www.talkcity.com.
Our OnNow service provides users with quick, easy access to schedules of
events in 54 different categories, organized and searchable by topic, time,
audience type, media and publisher. Each event listing provides a description
of the event, an Internet link directly to the event and a link to any
specialized software that might be required to participate in the event. In
addition, users can receive email reminders for events in which they have
expressed interest.
Established Culture
Our programming and services are offered within our clean well lighted
environment which is focused on positive and respectful behavior between people
and intended to create a friendly and welcoming environment for family-oriented
audiences. As new users come to our service, they participate in the moderated
or supervised areas and see and learn the positive culture and behavior
standards from our trained community leaders and moderators. We believe that
when users have become familiar with the culture of our service, they tend to
maintain that culture even when participating in unmoderated, but supervised,
areas of our community.
Sales And Marketing
Sales
We concentrate our sales efforts on, and derive our revenues from, our
business services and advertising and sponsorships. Our internal sales force
consisted of 15 sales personnel as of March 31, 1999.
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Business Services. Sales of our business services are generated by our
internal sales force, which we began to significantly expand in the second half
of 1998. In addition, through our partnership with NFO Research we develop,
produce and sell our interactive market research services, such as our focus
groups. Our business services are generally part of the client's corporate
strategy and are often incorporated into the client's primary business plan. As
a result, we generally work with the senior management of our business clients
and their agencies who possess broad budget authority rather than media buyers
within the organization. This results in a close strategic working relationship
between us and the client and enhances the prospects for long-term account
relationships and repeat revenues.
Sponsorships and Advertising. We believe our clean well lighted community and
loyal, mainstream audience presents attractive opportunities to our sponsors
and advertisers. Our sales force works with our sponsors and advertisers to
provide them with information on our users' demographics and interests so that
the efforts of our advertising clients are aligned with the topical area or
community of their choice. Sponsorships are designed to support broad marketing
objectives, including brand promotion, awareness, product introductions and the
integration of advertising with content. Our sponsorship and advertising
clients enter into short-term agreements pursuant to which they generally
receive a guaranteed number of impressions. We also utilize a third-party
service to sell advertising on our Web sites.
Marketing
We employ a variety of methods to increase our audience and build brand
recognition and loyalty.
Traditional Marketing. Our traditional marketing programs include a mixture
of television, magazine and newspaper media, direct mail and participation in
and sponsorship of Internet trade shows and advertising associations. Our
advertisements are published in selected magazines owned by Hearst, such as
Cosmopolitan and Good Housekeeping. In addition, we receive advertising on the
NBC television network. Both Hearst and NBC provide us the flexibility to
specifically target advertisements to television shows or magazines attractive
to our users.
The Hearst and NBC advertising is currently paid for through noncash in-kind
investments. In total, this in-kind program includes $7.2 million of television
commercials and print advertisements valued at rates discounted from the rate
card to be incurred from 1998 through 2001. Please see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Three months
ended March 31, 1999" and "--Operating Expenses--Noncash Advertising and
Promotional Charges."
Partner Ingredient Branding. Partner ingredient branding describes the
process by which our community network is offered on our partner Web sites in
exchange for featured co-branding of the Talk City brand name on the Internet
and in traditional media forums. For example, when an NBC.com user clicks on
"NBC Talk City," the user is instantly presented with an NBC co-branded view of
www.talkcity.com. While this co-branded site focuses on NBC-specific
programming, such as a chat about "Friends," the NBC.com user has access to our
community and programming as well.
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Viral Community Growth. To date, the majority of our user base growth has
resulted from word-of-mouth recommendations within our community. We intend to
actively encourage and continue this word-of-mouth endorsement by user
communication through our expanding community leader and moderator network and
by ongoing service enhancements, contests and promotions that encourage our
users to invite others to our community.
Operating Infrastructure
Our operating infrastructure has been designed and implemented to support the
delivery of millions of page views per day. Web pages are generated and
delivered, in response to end-users requests, by any one of over 70 Web and
applications servers. Key attributes of this infrastructure include the ability
to support growth, performance and service availability.
Our servers run on the Sun Solaris and Microsoft NT operating systems and use
Netscape Enterprise, Apache and Microsoft's IIS Web server software. We also
use NetApp file servers for personal home pages and a variety of Web-based
applications software to provide our services. In addition, we contract with
CommTouch, Inc. to provide HTML-based email, One&Only Network to provide
personnels, TelePost to provide online conferencing services, and MyPoints to
provide affinity rewards programs. We have developed a variety of proprietary
software, including tools for event production and community moderating, chat
proxy servers, template systems to support dynamic pages and monitoring and
reporting systems.
We maintain all of our production servers at the Sunnyvale, California
facility of Frontier GlobalCenter. Our operations are dependent upon Frontier
GlobalCenter's ability to protect its systems against damage from fire,
earthquakes, power loss, telecommunications failure, break-ins and other
similar events.
All of our production data are copied to backup tapes each night. We keep all
of our production servers behind firewalls for security purposes and do not
allow outside access, at the operating systems level, except via special secure
channels. Strict password management and physical security measures are
followed. Computer security response team alerts are read, and, where
appropriate, recommended action is taken to address security risks and
vulnerabilities.
Our Web sites must accommodate a high volume of traffic and deliver
frequently updated information. Components of our Web sites have in the past
suffered outages or experienced slower response times because of equipment or
software downtime.
Competition
The market for business services, users and Internet advertising is new and
rapidly evolving, and competition across all these areas is intense and is
expected to increase significantly in the future. With no substantial barriers
to entry, we expect that competition will intensify.
We believe that the primary competitive factors in creating communities on
the Internet and business services are:
. the degree of quality and structure in the environment;
. functionality;
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. brand recognition;
. user affinity and loyalty;
. demographic focus;
. variety of value-added services;
. ease-of-use;
. quality of service and of the production process; and
. reliability and critical mass.
Other companies or sites which are primarily focused on business services
include companies that provide:
. similar services on the Internet, such as broadcast.com for live events
production, Well Engaged for customized communities and many smaller
companies that provide online market research and event services;
. software for businesses to implement business services in-house, such as
Microsoft, IBM/Lotus, Netscape and iChat/Accuity; and
. similar solutions by non-online methods, such as market research firms,
trade show firms and event production firms.
In the consumer community area, we compete with:
. horizontal community sites, such as theglobe.com, GeoCities, and Xoom;
. community components of portals and search engine sites, Internet access
sites and general purpose online services, such as America Online, the
Microsoft Network, Yahoo!, Excite, Infoseek, Lycos and Earthlink;
. vertical community sites, such as iVillage, Tripod, and Third Age; and
. online event guide sites and the online event guide components of search
engines such as Yahoo! and America Online.
We will likely also face competition in the future from developers of Web
directories, search engine providers, shareware archives, content sites,
commercial online services, sites maintained by Internet service providers and
other entities that establish or attempt to establish communities on the
Internet by developing their own communities or purchasing one of our
competitors.
In addition, we could face competition in the future from traditional media
companies, a number of which, including Disney, CBS, Fox and NBC, have recently
made significant acquisitions of, or investments in, Internet companies.
Further, our competitors and potential competitors may develop interactive
business services or communities that are equal or superior to ours, or that
achieve greater market acceptance than our business services and community.
We also compete with traditional forms of media such as newspapers,
magazines, radio and television for advertisers and advertising revenues. We
believe that the principal competitive factors in attracting advertisers to our
Web sites include:
. our brand visibility;
. the high usage per user on our sites;
. the amount of traffic on our Web sites;
. the quality of the culture and environment of our Web sites;
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. the demographics of our users;
. our ability to offer targeted audiences; and
. the overall cost-effectiveness of the advertising medium we offer.
We believe that the number of Internet companies relying on business
services, Web-based advertising and ecommerce revenues will increase greatly in
the future. Accordingly, we will likely face increased competition, resulting
in increased pricing pressures on our advertising rates which could in turn
harm our business.
Many of our current and potential competitors, including developers of Web
directories and search engines, have longer operating histories, significantly
greater financial, technical and marketing resources, greater name recognition
and larger existing customer bases than we do. These 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, companies, advertisers
and third-party content providers. Internet content providers and Internet
service providers, including developers of Web directories, search engines,
sites that offer professional editorial content and commercial online services,
may be perceived by advertisers as having more desirable Web sites for
placement of advertisements.
In addition, many of our current advertising customers and strategic partners
also have established collaborative relationships with certain of our
competitors or potential competitors and other high-traffic Web sites or offer
services that are or might become competitive to our services. As a result, any
of the following could occur:
. we may be unable to increase the number of our users, business clients or
advertisers at historical levels;
. we may be unable to retain our current users, business clients or
advertiser customers;
. competitors may experience greater growth in traffic or business clients
than we do as a result of these relationships which could have the effect
of making their Web sites or services more attractive to advertisers; or
. our strategic partners may sever or elect not to renew their agreements
with us.
We may be unable to compete successfully against current or future
competitors and competitive pressures may cause our business to suffer.
Intellectual Property, Proprietary Rights And Domain Names
We regard our copyrights, service marks, trademarks, trade secrets,
proprietary technology and similar intellectual property as critical to our
success, and we rely on trademark and copyright law, trade secret protection
and confidentiality and license agreements with our employees, customers,
independent contractors, partners and others to protect our proprietary rights.
We strategically pursue the registration of trademarks and service marks in the
United States, and have applied for and obtained registration in the United
States for "Talk City" and "LiveWorld." We have also applied for U.S. trademark
registration of "OnNow." Effective trademark, service mark, copyright and trade
secret protection may not be available in every country in which our services
are made available online.
We have licensed in the past, and expect to license in the future, certain of
our proprietary rights, such as trademarks or copyrighted material, to third
parties. While we attempt to ensure that
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<PAGE>
the quality of our brand is maintained by these licensees, licensees may take
actions that might harm the value of our proprietary rights or reputation. The
steps taken by us to protect our proprietary rights may not be adequate and
third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties may assert claims of
infringement of intellectual property or other proprietary rights against us.
We have been subject to claims and expect to be subject to legal proceedings
and claims from time to time in the ordinary course of our business, including
claims of alleged infringement of the trademarks and other intellectual
property rights of third parties by us and our licensees. These claims, even if
without merit, could cause us to expend significant financial and managerial
resources. Further, if these claims are successful, we may be required to
change our trademarks, alter our content and pay financial damages, any of
which could harm our business.
We may be required to obtain licenses from others to refine, develop, market
and deliver new services. We may be unable to obtain any needed license on
commercially reasonable terms or at all and rights granted under any licenses
may not be valid and enforceable.
Employees
As of March 31, 1999, we had a total of 82 employees, all of whom were
located in the United States. Of the total, 52 were engaged in product
development and programming, 21 in sales and marketing and 9 in general and
administrative. None of our employees is represented by a labor union. We have
not experienced any work stoppages and consider our relations with our
employees to be good. See "Risk Factors--"Our chief executive officer and other
key personnel are critical to our business and they may not remain with us in
the future."
Facilities
Our principal offices currently occupy approximately 14,000 square feet in
Campbell, California under a lease that expires in May 2002. In addition, we
lease approximately 3,000 square feet at an office in New York, New York under
a lease that expires in March 2004. We are currently considering relocating our
principal office facilities to accommodate anticipated future growth. We
believe that suitable additional or alternative space will be available in the
future on commercially reasonable terms as needed.
Legal Proceedings
We are not currently subject to any material legal proceedings. We may from
time to time become a party to various legal proceedings in the ordinary course
of business.
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<PAGE>
Management
Executive Officers and Directors
The following table sets forth certain information regarding our executive
officers and directors as of April 30, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter H. Friedman....... 43 President, Chief Executive Officer and Chairman of the Board
Jeffrey Snetiker........ 51 Senior Vice President, Chief Financial and Administrative Officer
Jenna Woodul............ 50 Vice President of Community
Bernard G. Bernstein.... 33 Lead Engineer
Chris N. Christensen.... 38 Vice President of Engineering and Operations
Patricia Griffith....... 47 Vice President of Sales
Christopher J. Escher... 40 Vice President of Marketing
Arwyn Bryant............ 41 Vice President of Product Marketing and Business Operations
Daniel Paul............. 34 Vice President of Business Development
Kenneth A. Bronfin...... 39 Director
Joseph A. 55 Director
Graziano(a)(b).........
Thomas P. 36 Director
Hirschfeld(a)(b).......
John Sculley............ 60 Director
Barry M. Weinman(a)(b).. 60 Director
Martin J. Yudkovitz..... 44 Director
</TABLE>
- --------
(a) Member of the Audit Committee.
(b) Member of the Compensation Committee.
Peter H. Friedman has served as our Chairman of the Board, President and
Chief Executive Officer since he co-founded our company in March 1996. From
1984 to February 1996, Mr. Friedman worked at Apple Computer, Inc., where he
served as Vice President and General Manager of Apple's Internet/Online
business unit. In this role, Mr. Friedman oversaw the launch and growth of
eWorld, Apple's consumer online Internet-based service, managed and grew
Apple's AppleLink business services and a series of Internet-based services
such as Salon and Youth Central. Mr. Friedman also held various senior roles in
marketing at Apple. Mr. Friedman received an M.B.A. degree from the Harvard
Business School and a B.A. degree from Brown University.
Jeffrey Snetiker has served as our Senior Vice President, Chief Financial and
Administrative Officer since March 1999. From October 1996 to February 1999,
Mr. Snetiker was Principal Consultant of Executive Business Advisory, a
consulting company. From January 1995 to September 1996, Mr. Snetiker served as
Senior Vice President, Finance and Administration of United Paramount Network,
a television broadcast network. From October 1985 to November 1993, Mr.
Snetiker held various executive positions for Reeves Entertainment, a
television production and distribution company, including Executive Vice
President, Chief Financial and Administrative Officer from January 1990 to
November 1993, Senior Vice President, Finance and Administration from January
1989 to December 1989 and Vice President, Finance and Administration from
October 1985 to December 1988. From January 1983 to September 1985, Mr.
Snetiker was Vice President and Controller of Group W Productions, a subsidiary
of Westinghouse Broadcasting & Cable. Mr. Snetiker received a B.S. degree in
Accounting from C.W. Post College of Long Island University.
Jenna Woodul has served as our Vice President of Community since she co-
founded our company in March 1996. From January 1993 to March 1996, Ms. Woodul
cultivated the online
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<PAGE>
community for Apple's eWorld, where she directed the Community Center. Ms.
Woodul worked at Apple from 1984 to 1988 in the area of Apple's business
communications service, AppleLink, as a core member of the team which developed
the community-oriented AppleLink Personal Edition, which later became America
Online. Ms. Woodul received an M.A. degree from the University of New Mexico
and a B.A. degree from Vassar College.
Bernard G. Bernstein has served as our Lead Engineer since he co-founded our
company in March 1996. From January 1994 to February 1996, Dr. Bernstein served
as a Senior Scientist/Engineer for Apple in its Electronic Media Lab, a
research lab in the Apple Online Services division. Dr. Bernstein received a
Ph.D. degree in Computer Science from the University of Colorado at Boulder, an
M.S. degree in Computer Science from the University of Colorado at Boulder and
a B.S. degree in Computer Science from the State University of New York at
Albany.
Chris N. Christensen has served as our Vice President of Engineering and
Operations since May 1996. From May 1993 to May 1996, Mr. Christensen served as
the Engineering Manager for Apple's Online Services division. Mr. Christensen
managed the Macintosh and Windows clients for Apple's eWorld online service. He
also wrote the email application for the Newton and worked on the QuickTime
plug-in for Macintosh. Prior to his experience at Apple, Mr. Christensen worked
at Hewlett Packard for five years. Mr. Christensen received an M.E. degree and
a B.S. degree from Rensselaer Polytechnic Institute.
Patricia Griffith has served as our Vice President of Sales since January
1998. From July 1997 to January 1998, Ms. Griffith served as our Director of
Western Sales. Ms. Griffith joined our company from Women.com where she served
as Vice President of Sales from January 1996 to July 1997. At Women.com, Ms.
Griffith was responsible for developing the advertising strategies and programs
that launched a successful advertising model for Women's Wire. From October
1986 to December 1995, Ms. Griffith worked for Harte Hanks Communications, a
marketing company, where she served as Senior Accountant Executive for
Major/National Accounts. Ms. Griffith received a B.A. degree in History and a
B.A. degree in Anthropology from the University of California, Santa Barbara.
Christopher J. Escher has served as our Vice President of Marketing since
August 1997. From February 1997 to August 1997, Mr. Escher served as the
managing director of the Palo Alto, California office of Cunningham
Communication, Inc., a marketing communication firm specializing in high
technology concerns. At Cunningham, Mr. Escher led the Cisco Systems account,
among others. From October 1984 to February 1997, Mr. Escher worked at Apple in
a variety of marketing and communications roles, from Online Services Marketing
Director to Public Relations Director and Creative Director. He culminated his
career at Apple in 1997 as Vice President, Corporate Communications. Mr. Escher
received a B.A. degree in British Studies from Stanford University.
Arwyn Bryant has served as our Vice President of Product Marketing and
Business Operations since January 1998. From July 1996 to December 1997, Mr.
Bryant served as our Senior Director of Product Marketing. From January 1994 to
June 1996, Mr. Bryant held a variety of positions in the areas of Business
Development, Content Development, International Development and Solution
Marketing in Apple's Online Services division. Mr. Bryant received a B.A.
degree in Business/Economics from Macquarie University in Sydney, Australia.
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<PAGE>
Daniel Paul has served as our Vice President of Business Development since
August 1996. From June 1994 to July 1996, Mr. Paul served as Vice President,
New Media, Turner Home Entertainment, a division of Turner Broadcasting
Company. From June 1986 to May 1994, Mr. Paul served in various capacities at
Apple, most recently as Entertainment Industry Evangelist reporting to the
Chairman and CEO a role in which he was responsible for the development of
Apple's market presence in Hollywood. Mr. Paul attended both Boston University
and the University of Colorado.
Kenneth A. Bronfin has served as a director of our company since September
1998. Mr. Bronfin currently serves as Senior Vice President and Deputy Group
Head of Hearst New Media and Technology, the unit of The Hearst Corporation
responsible for the development and investment in Internet-related businesses.
Prior to joining Hearst in June 1996, Mr. Bronfin served as Vice President,
Business Development and General Manager of the NBC Data Network at NBC.
Mr. Bronfin received an M.B.A. degree from the Wharton School at the University
of Pennsylvania and a B.S. degree in Electrical Engineering from the University
of Virginia.
Joseph A. Graziano has served as a director of our company since its
inception in March 1996 and was the Acting Chief Financial Officer from May
1996 until March 1999. From June 1989 to December 1995, Mr. Graziano served as
the Executive Vice President and Chief Financial Officer of Apple and was a
member of its board of directors from June 1993 until October 1995. From May
1987 to June 1989, Mr. Graziano served as Chief Financial Officer of Sun
Microsystems, Inc. and from October 1981 to May 1985, as Chief Financial
Officer of Apple. Mr. Graziano also serves as a director of Pixar and Carrier
Access Corporation. Mr. Graziano received a B.S. degree in accounting from
Merrimack College and is a Certified Public Accountant.
Thomas P. Hirschfeld has served as a director of our company since October
1997. Mr. Hirschfeld has served as a Managing Director of Patricof & Co.
Ventures, Inc., a venture capital company, since April 1999 and was a Principal
from January 1995 to March 1999. From January 1994 to December 1994, he served
as Assistant to the Mayor of New York City. From August 1986 to December 1993,
Mr. Hirschfeld was with Salomon Brothers, an investment banking firm.
Mr. Hirschfeld serves as a director of a number of privately-held companies in
which the limited partnerships managed by Patricof & Co. are investors. He
received an M.A degree from Balliol College, Oxford and an A.B. degree from
Harvard College. .
John Sculley has served as a director of our company since July 1996. Since
February 1994, Mr. Sculley has been a partner with his brothers in Sculley
Brothers, a family investment capital firm, that focuses on media enabling
technologies, Internet services and consumer businesses. The Sculleys are
active investors in approximately 20 companies in the Silicon Valley, New York,
Bermuda and Israel. Their Internet service investments include Intralinks, Talk
City, Zapa.com, GreenTree, Buy.com and Softvideo. Their consumer companies
include Country Gourmet, Select Comfort, Ranch 1, Frame King and Sirius
Thinking Ltd. Mr. Sculley serves on the board of directors of NFO Worldwide,
Inc., an affiliate of NFO Research, and a number of other private companies.
Barry M. Weinman has served as a director of our company since August 1998.
Since May 1993, he has been a Managing Director of Media Technology Equity
Partners and a General Partner of Media Technology Ventures and AVI Management
Partners, which has been making high tech venture capital investments in the
Silicon Valley since 1980. AVI and its new media fund, Media
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Technology Ventures, had approximately $300 million under management as of
March 31, 1999. Mr. Weinman is also on the board of directors of Women.com,
Be.Inc, InfoGear and Quokka Sports. Mr. Weinman received an M.A. degree from
London School of Economics/University of Southern California and a B.S. degree
from Clarkson College of Technology.
Martin J. Yudkovitz has served as a director of our company since August
1998. Since December 1995, Mr. Yudkovitz has been the President and Chief
Executive Officer of NBC Multimedia, Inc., a subsidiary of NBC. Prior to this
he served as Senior Vice President, Strategic Development for NBC. From 1992 to
1994, he served as Senior Vice President of Strategic Development at NBC. His
other positions at NBC have included Vice President of Business Affairs for
NBC's 1992 Olympics Unit, First General Counsel and Vice President for Business
Affairs at CNBC and Senior Counsel to NBC's 1988 Seoul Olympics Unit in NBC
Sports. Mr. Yudkovitz joined NBC in January 1984 in the legal department. Mr.
Yudkovitz received a J.D. degree from Columbia University and a B.A. degree
from Rutgers University.
Classified Board
Immediately following the offering, our board of directors will consist of
seven directors divided into three classes with each class serving for a term
of three years as follows:
<TABLE>
<CAPTION>
Class Expiration Member
----- ---------- ------
<S> <C> <C>
Class I 2000 Bronfin and Hirschfeld
Class II 2001 Sculley, Yudkovitz and Weinman
Class III 2002 Friedman and Graziano
</TABLE>
At each annual meeting of stockholders, directors will be elected by the
holders of common stock to succeed those directors whose terms are expiring. In
addition, our bylaws provide that the authorized number of directors may be
changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of directors. This classification
of the board of directors may have the effect of delaying or preventing changes
in control of our company.
Board Committees
The board of directors has a compensation committee and an audit committee.
The compensation committee, currently comprised of Mr. Hirschfeld, Mr. Graziano
and Mr. Weinman, administers the 1996 stock option plan, the 1999 employee
stock purchase plan and all matters concerning executive compensation and
employment agreements. The audit committee, currently comprised of Mr.
Hirschfeld, Mr. Graziano and Mr. Weinman, approves our independent auditors,
reviews the results and scope of annual audits and other accounting related
services, and evaluates our internal audit and control functions. The
compensation committee was established in November 1996 and the audit committee
was established in December 1996.
Director Compensation
We currently do not pay compensation to directors for serving in that
capacity, nor do we currently reimburse directors for expenses incurred in
attending board meetings. In May 1996,
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Mr. Graziano received options to purchase an aggregate of 350,000 shares of
common stock at an exercise price per share of $0.06. Mr. Sculley received
options to purchase 75,000 shares of common stock in July 1996 and 25,000
shares of common stock in October 1996, each at an exercise price per share of
$0.20.
Compensation Committee Interlocks and Insider Participation
The compensation committee is currently comprised of Mr. Hirschfeld, Mr.
Graziano and Mr. Weinman. Neither Mr. Hirschfeld nor Mr. Weinman has at any
time been an officer or employee of our company. Mr. Graziano served as our
Acting Chief Financial Officer from May 1996 to March 1999. No interlocking
relationship exists between our board of directors or compensation committee
and the board of directors or compensation committee of any other company, nor
has any interlocking relationship existed in the past.
Limitation on Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except for:
. any breach of the director's duty of loyalty to a company or its
stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases, redemptions
or other distributions; or
. any transaction from which the director derived an improper personal
benefit.
Our bylaws provide that we may indemnify our directors and executive officers
to the fullest extent permitted by law. We may, in our discretion, indemnify
other officers, employees and agents as set forth in Delaware law. We believe
that indemnification under our bylaws covers at least negligence and gross
negligence on the part of indemnified parties. Our bylaws also permit us to
secure insurance on behalf of any officer, director, employee or other agent
for any liability arising out of his or her actions in that capacity,
regardless of whether the bylaws would permit indemnification.
We also have entered into agreements to indemnify our directors and officers.
These agreements indemnify our directors and officers for some expenses,
including attorneys' fees, judgments, fines and settlement amounts incurred by
them in any action or proceeding, including any action by or in the right of
our company, arising out of their services as one of our directors or officers,
any of our subsidiaries or any other company or enterprise to which the person
provides services at our request. In addition, we have obtained directors' and
officers' insurance providing indemnification for some of our directors,
officers and employees for certain liabilities. We believe that these
provisions, agreements and insurance are necessary to attract and retain
qualified directors and officers.
At present, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. We are not aware of any threatened litigation or proceeding that
might result in a claim for indemnification.
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<PAGE>
Executive Compensation
The following table sets forth information concerning the compensation that
we paid during the fiscal year ended December 31, 1998 to our Chief Executive
Officer and our four other most highly compensated officers who earned more
than $100,000 during that fiscal year. All option grants were made under our
1996 stock option plan.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------- ---------------------
Securities Underlying
Name and Principal Position Salary ($) Bonus ($) Options (#)
--------------------------- ---------- --------- ---------------------
<S> <C> <C> <C>
Peter H. Friedman...................
President and Chief Executive
Officer $225,000 $ -- --
Patricia Griffith...................
Vice President of Sales 140,000 21,569 55,000
Christopher J. Escher...............
Vice President of Marketing 150,000 -- --
Jenna Woodul........................
Vice President of Community 125,000 -- --
Chris N. Christensen................
Vice President of Engineering and
Operations 115,000 -- --
</TABLE>
Option Grants in Last Fiscal Year
The following table sets forth information with respect to stock options
granted to our Chief Executive Officer and our four other most highly
compensated executive officers during the fiscal year ended December 31, 1998.
We have never granted any stock appreciation rights. All option grants were
made under our 1996 stock option plan. The exercise price per share was equal
to the fair market value of the common stock on the date of grant as determined
by the board of directors. Percentage of total options is based on an aggregate
of 315,648 shares of common stock granted under the 1996 stock option plan in
the year ended December 31, 1998. The potential realizable value is calculated
based on the term of the ten-year option and assumed rates of stock
appreciation of 5% and 10%, compounded annually. These assumed rates comply
with the rules of the Securities and Exchange Commission and do not represent
our estimate of future stock price. Actual gains, if any, on stock option
exercises will be dependent on the future performance of our common stock.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------
Potential Realizable
Value at Assumed
Number Annual Rates of Stock
Of Securities % of Price Appreciation for
Underlying Total Options Exercise Option Term
Options Granted in Price Per Expiration -----------------------
Name Granted (#) 1998 (%) Share ($) Date 5% 10%
- ---- ------------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Peter H. Friedman....... -- -- -- -- -- --
Patricia Griffith....... 55,000 17.4% $0.28 1/15/08 $ 25,085 $ 39,944
Christopher J. Escher... -- -- -- -- -- --
Jenna Woodul............ -- -- -- -- -- --
Chris N. Christensen.... -- -- -- -- -- --
</TABLE>
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<PAGE>
Aggregated Option Exercises in Last Fiscal Year
The following table sets forth for our Chief Executive Officer and our four
other most highly compensated executive officers information concerning shares
acquired upon exercise of stock options in fiscal year ended December 31, 1998
and exercisable and unexercisable options held as of December 31, 1998. None of
the individuals listed below held any unexercised options at the end of fiscal
year 1998. All options were granted under our 1996 stock option plan. The value
realized is based on the assumed initial public offering price of $ , minus
the per share exercise price, multiplied by the number of shares issued upon
exercise of the option.
<TABLE>
<CAPTION>
Shares
Acquired on Value Realized
Name Exercise (#)(a) ($)
---- --------------- --------------
<S> <C> <C>
Peter H. Friedman........................... -- --
Patricia Griffith........................... 75,000
Christopher J. Escher....................... 150,000
Jenna Woodul................................ -- --
Chris N. Christensen........................ -- --
</TABLE>
- --------
(a) The shares acquired by each of Ms. Griffith and Mr. Escher were acquired
pursuant to restricted stock purchase agreements. We have the right to
repurchase any unvested shares at their cost in the event of either
employee's termination of employment. As of April 30, 1999, approximately
48,647 shares held by Ms. Griffith and 84,375 shares held by Mr. Escher
were unvested and subject to our repurchase.
Employment Agreements
We require each of our employees to enter into confidentiality agreements
prohibiting the employee from disclosing any of our confidential or proprietary
information. In addition, the agreements generally provide that upon
termination the employee will not solicit our employees. At the time of
commencement of employment, our employees also generally sign offer letters
specifying certain basic terms and conditions of employment. In general, our
employees are not subject to written employment agreements.
Employee Benefit Plans
1996 Stock Option Plan. Our 1996 stock option plan, as amended and restated,
provides for the granting to employees of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code and for the granting to
employees and consultants of nonstatutory stock options. As of April 30, 1999,
3,075,000 shares were authorized under the plan, 1,301,049 shares had been
issued upon the exercise of stock options granted under the plan, 456,340
shares were subject to outstanding options and 1,317,611 shares remained
available for future grant. The 1996 stock option plan terminates in October
2006.
The 1996 stock option plan may be administered by the board of directors or a
committee of the board. The board has the power to determine the terms of the
options granted, including the exercise price, the number of shares subject to
each option, the exercisability of the option grant and the form of
consideration payable upon exercise. The board also has the authority to amend,
suspend or terminate the 1996 stock option plan, provided that no action may
affect any share of common stock previously issued and sold or any option
previously granted under the plan.
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<PAGE>
The 1996 stock option plan provides that in the event we merge with or into
another company, or we sell substantially all of our assets, each option may be
assumed or substituted by the successor company. If the outstanding options are
not assumed or substituted by the successor company, each outstanding option
will fully vest and become exercisable and the optionee will have 15 days to
exercise the option, after which time the option will terminate.
1996A Stock Option Plan. Our 1996A stock option plan provides for the
granting to employees of incentive stock options within the meaning of Section
422 of the Internal Revenue Code and for the granting to employees and
consultants of nonstatutory stock options. The terms of the 1996A stock option
plan are substantially similar to those of the 1996 stock option plan. All of
the 725,000 shares of common stock authorized for issuance pursuant to the
1996A stock option plan have been issued upon the exercise of stock options
granted under the plan. The 1996A stock option plan terminates in April 2006.
1999 Employee Stock Purchase Plan. A total of 500,000 shares of common stock
has been reserved or issuance under our 1999 employee stock purchase plan, plus
annual increases on the first day of each fiscal year beginning 2000 equal to
the lesser of:
. 500,000 shares;
. 2% of our outstanding shares as of such date; or
. a lesser amount determined by the board of directors.
The 1999 employee stock purchase plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, contains successive 24-month offering
periods. The offering periods generally start on the first trading day on or
after May 1 and November 1 of each year, except for the first offering period,
which will commence on the first trading day on or after the effective date of
this offering and will end on the last trading day on or before October 31,
1999. Subsequent offering periods will each have a six-month duration
commencing on the first trading day on or after May 1 and November 1 of each
year.
Employees are eligible to participate if they are employed by us or any
participating subsidiary for at least 20 hours per week and more than five
months in any calendar year. However, the following employees may not be
granted options to purchase stock under the purchase plan:
. any employee who immediately after grant owns stock possessing 5% or more
of the total combined voting power or value of all classes of our capital
stock; or
. any employee whose rights to purchase stock under all of our employee
stock purchase plans accrues at a rate which exceeds $25,000 worth of
stock for each calendar year.
Participants may purchase common stock through payroll deductions of up to
15% of the participant's compensation. The maximum number of shares a
participant may purchase during a single offering period is 10,000 shares.
Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each offering period. The price of stock
purchased under the purchase plan is 85% of the lower of the fair market value
of the common stock at the beginning of the offering period and the fair market
value of the common stock at end of the offering period.
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<PAGE>
The purchase plan provides that in the event we merge with or into another
company, or we sell substantially all of our assets, each outstanding option
may be assumed or substituted by the successor company. If the successor
company refuses to assume or substitute the options, the offering period then
in progress will be shortened and a new exercise date will be set, which will
occur before the proposed merger or sale.
The purchase plan will become effective on the effective date of this
offering and will terminate in June 2009. The board has the authority to amend
or terminate the purchase plan, except that no action may adversely affect any
outstanding rights to purchase stock.
1999 Director Option Plan
Non-employee directors are entitled to participate in the 1999 director
option plan. The director option plan will become effective upon the effective
date of this offering. The 1999 director option plan has a term of ten years,
unless terminated sooner by the board. A total of 250,000 shares of common
stock have been reserved for issuance under the 1999 director option plan.
Each non-employee director automatically will receive, on the commencement of
this offering and on the date of each annual meeting of stockholders, a fully
vested and exercisable option to purchase 5,000 shares of common stock. Each
new non-employee director who joins our board after the effective date of the
offering will receive, upon joining the board, an initial, fully vested and
exercisable option to purchase 20,000 shares of common stock. The exercise
price of all options is required to be 100% of the fair market value per share
of the common stock, determined with reference to the closing price of the
common stock as reported on the Nasdaq National Market on the date of grant.
In the event we merge with, or sell substantially all of our assets to,
another company, each option may be assumed or substituted by the successor
company. In the absence of an assumption or substitution, the board must notify
each option holder that the option is exercisable for 30 days, after which
period it expires. If the successor company refuses to assume or substitute the
options, each outstanding option will terminate after 30 days. Options granted
under the 1999 director option plan must be exercised within three months of
the end of the optionee's termination of service as a director or consultant,
or within twelve months after such director's termination by death or
disability, but not later than the expiration of the option's ten-year term.
401(k) Savings Plan
We have a 401(k) savings plan covering our employees who are at least 21
years of age. The 401(k) savings plan is intended to qualify under Section
401(k) of the Internal Revenue Code. Consequently, contributions to the 401(k)
savings plan by our employees, and income earned on such contributions, are not
taxable to employees until withdrawn from the 401(k) savings plan. Subject to
restrictions imposed by the Internal Revenue Code on highly compensated
employees, employees may generally defer up to 20% of their pre-tax earnings up
to the statutorily prescribed annual limit, which is $10,000 in 1999, and to
have the amount of such reduction contributed to the 401(k) savings plan. The
401(k) savings plan permits, but does not require, additional matching
contributions by us on behalf of all participants in the 401(k) savings plan.
To date, we have not made any matching contributions to the 401(k) savings
plan.
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Certain Transactions
Equity Investment Transactions for Cash
In June 1996, we sold 150,000 shares of Series A preferred stock for $2.00
per share. In July 1996 we sold 350,000 shares of Series A1 preferred stock for
$2.00 per share. In November 1996, we sold 3,294,785 shares of Series B
preferred stock for $2.80 per share. In August and September of 1998, we sold
5,592,033 shares of Series D preferred stock at $4.00 per share. In April 1999,
we sold 2,499,882 shares of Series E preferred stock for $8.00 per share.
Listed below are the directors, executive officers and stockholders who
beneficially own 5% or more of our securities who participated in these
financings.
<TABLE>
<CAPTION>
Series A Series A1 Series B Series D Series E
Directors, Executive Officers Preferred Preferred Preferred Preferred Preferred Aggregate Cash
and 5% Stockholders Stock Stock Stock Stock Stock Consideration
- ----------------------------- --------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Funds managed by
Patricof & Co.
Ventures, Inc.(a)...... -- -- 714,287 1,253,405 -- $6,100,000
Cox Interactive Media,
Inc...................... -- -- -- 1,250,000 -- 5,000,000
Media Technology Equity
Partners, L.P.(b)........ -- -- -- 1,000,000 125,000 5,000,000
New York Life Insurance
Company.................. -- -- 714,286 400,000 175,000 5,000,000
Hearst Communications,
Inc.(c).................. -- -- -- 292,033 210,521 2,852,296
Starbucks Corporation..... -- -- -- -- 1,000,000 8,000,000
Joseph A. Graziano........ 150,000 50,000 18,000 -- -- 450,400
John Sculley.............. -- 150,000 -- -- -- 300,000
</TABLE>
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(a) The Patricof & Co. Ventures, Inc. shares include shares purchased by APA
Excelsior IV, L.P., APA Excelsior IV/Offshore, L.P. and Patricof Private
Investment Club, L.P. Mr. Hirshfeld, a Managing Director of Patricof & Co.
Ventures, Inc. and a director of our company, disclaims beneficial
ownership of the securities held by these entities except for his
proportional interest in the entities.
(b) Mr. Weinman, a director of our company, is a Managing Director of Media
Technology Equity Partners and a General Partner of Media Technology
Ventures and AVI Management Partners. Mr. Weinman disclaims beneficial
ownership of the securities held by this entity except for his proportional
interest in the entity.
(c) Mr. Bronfin, a director of our company, is Senior Vice President and Deputy
Group Head of the Hearst New Media and Technology division of Hearst
Communications, Inc. Mr. Bronfin disclaims beneficial ownership of the
securities held by this entity except for his proportional interest in the
entity.
NBC and Affiliates Agreements
NBC
We entered into a series of letter agreements with NBC in February, July and
August 1998 pursuant to which we aired advertisements on various NBC television
programs. In consideration for NBC's agreement to air the advertisements, we
issued:
. an aggregate of 384,615 shares, at a price per share of $4.68, of our
Series C preferred stock, which converts to 450,000 shares of common
stock;
. a warrant to purchase 125,000 shares, with an exercise price per share of
$6.00, of Series D preferred stock;
. an aggregate of 600,000 shares, at a price per share of $4.00, of our
Series D preferred stock; and
. a warrant to purchase a total of 266,667 shares of Series D preferred
stock.
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The exercise prices of the warrant to purchase an aggregate of 266,667 shares
of Series D preferred stock are as follows:
. with respect to 41,667 shares, $6.00 per share;
. with respect to 125,000 shares, $8.00 per share; and
. with respect to 100,000 shares, $10.00 per share.
Mr. Yudkovitz, a director of our company, is President and Chief Executive
Officer of NBC Multimedia, a subsidiary of NBC.
NBC Multimedia
In February 1998, we executed a letter agreement with NBC Multimedia, Inc.
pursuant to which we include localized versions of our chat service within NBC
Interactive Neighborhood's menu of localized Web services. In consideration, we
issued a warrant to NBC Multimedia to purchase 320,513 shares of common stock
at an exercise price per share of $4.68. On August 31, 1998, we issued a new
warrant to NBC Multimedia, upon cancellation and in replacement of the original
NBC Multimedia warrant, exercisable for 375,000 shares of common stock, at an
exercise price per share of $4.00, pursuant to an anti-dilution protection
contained in the original warrant.
In August 1998, we entered into an operating agreement with NBC Multimedia
pursuant to which we provide certain of our community services to various NBC
Web sites. In consideration for the execution of the operating agreement by NBC
Multimedia, we issued:
. 500,000 shares of our Series D preferred stock, at a purchase price per
share of $4.00; and
. a warrant to purchase a total of 130,556 shares of Series D preferred
stock.
The warrant has the following exercise prices:
. with respect to 55,555 shares, $6.00 per share;
. with respect to 41,666 shares, $8.00 per share; and
. with respect to 33,335 shares, $10.00 per share.
Mr. Yudkovitz, a director of our company, is President and Chief Executive
Officer of NBC Multimedia.
Hearst Agreement
Pursuant to an agreement, dated October 30, 1998, as amended on April 15,
1999, with the Hearst New Media and Technology division of Hearst
Communications, Inc., we issued an aggregate of 750,000 shares of our Series D
preferred stock, at a price per share of $4.00, in consideration for the
publication by Hearst, over an agreed upon time period beginning September 3,
1998, of our advertisements in various magazines owned by Hearst. Mr. Bronfin,
a director of our company, is Senior Vice President and Deputy Group Head of
the Hearst New Media and Technology division of Hearst Communications, Inc.
Loan Financing
In April and July of 1998, we engaged in a loan financing pursuant to which
we issued to the investors in the financing convertible promissory notes and
warrants to purchase shares of common stock. An aggregate principal amount of
$2,903,000 was issued pursuant to the loan financing.
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The principal plus interest on the notes were convertible, at the option of
each individual investor, into Series D preferred stock upon the initial
closing of the Series D financing, which occurred on August 25, 1998, at a
conversion price per share of $4.00. Each individual warrant issued pursuant to
the financing was exercisable for a number of shares of common stock equal to
30% of the principal amount of the note held by the investor divided by $3.00
per share. The exercise price of the warrants is $3.00 per share.
Funds managed by Patricof & Co. Ventures, Inc. invested an aggregate
principal amount of $900,000 in the loan financing, which converted to an
aggregate of 228,405 shares of Series D preferred stock. These funds also
received warrants to purchase an aggregate of 90,000 shares of common stock.
The Patricof & Co. Ventures, Inc. shares and warrants include shares and
warrants held by APA Excelsior IV, L.P., APA Excelsior IV/Offshore, L.P. and
Patricof Private Investment Club, L.P. Funds managed by Patricof & Co.
Ventures, Inc. own more than 5% of our securities. Mr. Hirschfeld, a Managing
Director of Patricof & Co. Ventures, Inc. and a director of our company,
disclaims beneficial ownership of the securities held by these entities except
for his proportional interest in the entities.
New York Life Insurance Company invested an aggregate principal amount of
$400,000 in the loan financing which converted to an aggregate of 102,183
shares of Series D preferred stock. New York Life also received warrants to
purchase an aggregate of 40,000 shares of common stock. New York Life Insurance
Company owns more than 5% of our securities.
Restricted Stock Purchase Agreement
In March 1999, Mr. Snetiker exercised an option grant to purchase an
aggregate of 125,000 shares of common stock and entered into a restricted stock
purchase agreement regarding the shares. Pursuant to the restricted stock
purchase agreement, we have a right to repurchase any of the unvested 125,000
shares upon his termination of employment. As of April 30, 1999, all 125,000
shares held by Mr. Snetiker remain unvested. Mr. Snetiker paid the $5.00
exercise price per share for such shares by delivery of a ten-year full-
recourse promissory note bearing interest at 5.23% per annum, compounded semi-
annually. The note is secured by the shares of common stock purchased by Mr.
Snetiker. As of April 30, 1999, approximately $625,000 in unpaid principal and
interest was outstanding in the aggregate under the note. In addition, Mr.
Snetiker's stock option agreement provides that, if at any time prior to March
1, 2000:
. we enter into any transaction which involves a change of control and Mr.
Snetiker's employment is terminated as a result of the change of control;
or
. Mr. Snetiker's employment is terminated other than for cause or as a
result of voluntary resignation
then, in each case, 25% of the unvested shares held by Mr. Snetiker will
automatically vest in full. Generally, a "change of control" is defined to
include mergers, asset sales or other transactions involving a transfer of at
least 50% of our securities.
Repurchase Agreements
On November 20, 1996, as a condition to closing the Series B preferred stock
financing, we entered into repurchase agreements with Mr. Friedman and Ms.
Woodul. Pursuant to the repurchase
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agreements, we have the right to repurchase any or all of the unvested shares
of common stock held by Mr. Friedman and Ms. Woodul, respectively, upon their
termination for any reason. As of April 30, 1999, 200,926 and 48,611 of the
shares held by Mr. Friedman and Ms. Woodul, respectively, remain unvested.
These repurchase rights will terminate upon the closing of this offering.
The repurchase agreements also provide that in the event of termination of
such individuals' employment for any reason, with certain exceptions, each of
Mr. Friedman and Ms. Woodul will be entitled to receive 90 days, or such longer
period as the board determines, of their then current salary and benefits,
payable in one lump sum as of the date of termination.
Other Transactions
We have entered into indemnification agreements with each of our executive
officers and directors.
We have granted options to certain of our executive officers and directors.
See "Management--Option Grants in Last Fiscal Year" and "--Restricted Stock
Purchase Agreement."
Holders of preferred stock are entitled to certain registration rights with
respect to the common stock issued or issuable upon conversion of the preferred
stock. See "Description of Capital Stock--Registration Rights."
We believe that all related-party transactions described above were on terms
no less favorable than could have been otherwise obtained from unrelated third
parties.
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Principal Stockholders
The following table sets forth certain information with respect to beneficial
ownership of our common stock as of April 30, 1999, and as adjusted to reflect
the sale of common stock offered by us in this offering, for:
. each person who we know beneficially owns more than 5% of the common
stock;
. each of our directors;
. each executive officer named in the Summary Compensation Table; and
. all of our directors and officers as a group.
Unless otherwise indicated, the principal address of each of the stockholders
below is c/o Talk City, Inc., 307 Orchard City Drive, Suite 350, Campbell,
California 95008. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and includes voting or
investment power with respect to the securities. Except as indicated by
footnote, and subject to applicable community property laws, each person
identified in the table possesses sole voting and investment power with respect
to all shares of common stock held by them. The number of shares of common
stock outstanding used in calculating the percentage for each listed person
includes shares of common stock underlying options or warrants held by such
person that are exercisable within 60 days of April 30, 1999 but excludes
shares of common stock underlying options or warrants held by any other person.
Percentage of beneficial ownership is based on 19,175,763 shares of common
stock outstanding as of April 30, 1999, after giving effect to the conversion
of all outstanding shares of preferred stock upon the closing of this offering.
The numbers shown in the table assume no exercise by the underwriters of their
over-allotment option.
<TABLE>
<CAPTION>
Percentage
Shares Owned Beneficially Owned
Prior to ------------------------------
the Offering Before Offering After Offering
------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholders:
Entities affiliated with National
Broadcasting Company, Inc.(a).... 2,447,223 12.2% %
Funds Managed by Patricof & Co.
Ventures, Inc.(b)................ 2,057,692 10.7
New York Life Insurance
Company(c)....................... 1,431,469 7.5
Hearst Communications, Inc.(d).... 1,252,554 6.5
Cox Interactive Media, Inc.(e).... 1,250,000 6.5
Media Technology Equity Partners,
L.P.(f).......................... 1,125,000 5.9
Starbucks Corporation (g)......... 1,000,000 5.2
Directors and Executive Officers:
Peter H. Friedman(h).............. 1,567,936 8.2
Kenneth A. Bronfin(e)............. 1,252,554 6.5
Joseph A. Graziano(i)............. 578,761 3.0
Thomas P. Hirschfeld(b)........... 2,057,692 10.7
John Sculley(j)................... 260,762 1.4
Barry M. Weinman(f)............... 1,125,000 5.9
Martin J. Yudkovitz(a)............ 2,447,223 12.2
Patricia Griffith(k).............. 75,000 *
Christopher J. Escher(l).......... 155,000 *
Jenna Woodul(m)................... 757,087 3.9
Chris N. Christensen(n)........... 200,000 1.0
All directors and officers as a
group (14 persons)(o)............ 11,186,953 55.4
</TABLE>
- --------
* Represents less than one percent of the total.
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(a) Principal address is 30 Rockefeller Plaza, New York, NY 10112. Number of
shares includes 1,050,000 shares held by NBC, 500,000 shares held by NBC
Multimedia, warrants issued to NBC Multimedia to purchase 505,556 shares
exercisable within 60 days of April 30, 1999 and warrants issued to NBC to
purchase 391,667 shares exercisable with 60 days of April 30, 1999. Mr.
Yudkovitz, a director of our company, is President and Chief Executive
Officer of NBC Multimedia. Mr. Yudkovitz disclaims beneficial ownership of
the shares held by these entities except to the extent of his proportional
interest in the entities.
(b) Principal address is 445 Park Avenue, New York, NY 10022. Number of shares
includes 1,645,776 shares held by APA Excelsior IV, L.P., 290,432 shares
held by APA Excelsior IV/Offshore, L.P., 31,484 shares held by Patricof
Private Investment Club, warrants issued to APA Excelsior IV, L.P. to
purchase 75,276 shares exercisable within 60 days of April 30, 1999,
warrants issued to APA Excelsior IV/Offshore, L.P. to purchase 13,284
shares exercisable within 60 days of April 30, 1999 and warrants issued to
Patricof Private Investment Club to purchase 1,440 shares exercisable
within 60 days of April 30, 1999. Mr. Hirschfeld, a director of our
company, is a Managing Director of Patricof & Co. Ventures, Inc. Mr.
Hirschfeld disclaims beneficial ownership of the shares held by these
entities except to the extent of his proportional interest in the entities.
(c) Principal address is 1400 Lake Hearn Drive, Atlanta, GA 30319.
(d) Principal address is 51 Madison Avenue, New York, NY 10010. Number of
shares includes 1,391,469 shares and warrants to purchase 40,000 shares
exercisable within 60 days of April 30, 1999.
(e) Principal address is 959 8th Avenue, New York, NY 10019. Mr. Bronfin, a
director of our company, is Senior Vice President and Deputy Group Head of
the Hearst New Media and Technology division of Hearst Communications, Inc.
Mr. Bronfin disclaims beneficial ownership of the shares held by such
entity except to the extent of his proportional interest in the entity.
(f) Principal address is One First Street, Los Altos, CA 94022. Mr. Weinman, a
director of our company, is a Managing Director of Media Technology Equity
Partners and a General Partner of Media Technology Ventures and AVI
Management Partners. Mr. Weinman disclaims beneficial ownership of the
shares held by such entity except to the extent of his proportional
interest in the entity.
(g) Principal address is 2401 Utah Avenue South, Seattle, WA 98134.
(h) Includes 1,470,936 shares held directly by Mr. Friedman, 200,926 shares of
which are subject to a repurchase option we hold as of April 30, 1999,
50,000 shares held by Arthur and Cynthia Friedman, 28,000 shares held by
Robert Friedman, 7,000 shares held by Joan Friedman, 7,000 shares held by
Judy and Kevin Wichter and a warrant to purchase 5,000 shares exercisable
within 60 days of April 30, 1999.
(i) Includes a warrant to purchase 3,000 shares exercisable within 60 days of
April 30, 1999.
(j) Principal address is 90 Park Avenue, New York, NY 10016. Includes 257,762
shares, 100,000 shares of which were issued upon exercise of stock options.
Of those 100,000 shares, 32,813 are subject to a repurchase option we hold
as of April 30, 1999, a warrant to purchase 3,000 shares exercisable within
60 days of April 30, 1999, 31,667 shares held by Sculley Brothers LLC,
10,000 shares held by Sculley Investment Ltd. Partnership, 2,500 shares
held by John Sculley Irrevocable Trust fbo Madeline Allnatt u/d/t 12/30/97
and 2,500 shares held by John Sculley Irrevocable Trust fbo Oliver Allnatt
u/d/t 12/30/97.
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(k) Includes 75,000 shares issued upon exercise of stock options, 48,647 shares
of which are subject to a repurchase option we hold as of April 30, 1999.
(l) Includes 150,000 shares issued upon exercise of stock options, 84,375
shares of which are subject to a repurchase option we hold as of April 30,
1999 and a warrant to purchase 5,000 shares exercisable within 60 days of
April 30, 1999.
(m) Includes 380,087 shares held directly by Ms. Woodul, 48,611 shares of which
are subject to a repurchase option we hold as of April 30, 1999, 375,000
shares held by Morgan S. Wright and a warrant to purchase 2,000 shares
exercisable within 60 days of April 30, 1999.
(n) Includes 200,000 shares issued upon exercise of stock options, 54,167 of
which are subject to a repurchase option we hold as of April 30, 1999.
(o) Includes an aggregate of:
. 722,665 shares of which are subject to a repurchase option we hold as of
April 30, 1999;
. 1,700,000 shares issued upon exercise of stock options; and
. warrants to purchase 1,008,023 shares exercisable within 60 days of
April 30,1999.
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Description of Capital Stock
Upon the completion of this offering, our authorized capital stock will
consist of 100,000,000 shares of common stock, $0.001 par value, and 5,000,000
shares of preferred stock, $0.001 par value.
The following summary of certain provisions of the common stock and preferred
stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of our amended and restated certificate of
incorporation and bylaws which are included as exhibits to the registration
statement of which this prospectus is a part and by the provisions of Delaware
law.
Common Stock
After giving effect to the proposed one for two reverse stock split of the
all outstanding common stock and the conversion of all previously outstanding
preferred stock into shares of common stock, as of April 30, 1999, there were
19,175,763 shares of common stock outstanding held of record by approximately
88 stockholders. There will be shares of common stock outstanding, assuming
no exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants, after giving effect to the sale of common
stock in the offering.
The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred
stock, the holders of common stock are entitled to receive ratably any
dividends as may be declared by the board of directors out of funds legally
available for the payment of dividends. See "Dividend Policy." In the event of
our liquidation, dissolution or winding up, the holders of common stock are
entitled to share ratably in all assets, subject to prior distribution rights
of the preferred stock, if any, then outstanding. Holders of common stock have
no preemptive rights or rights to convert their common stock into any other
securities. There are no redemption or sinking fund provisions applicable to
the common stock. All outstanding shares of common stock are fully paid and
non-assessable, and the shares of common stock to be issued in the offering
will be fully paid and non-assessable.
Preferred Stock
Upon the consummation of this offering, each outstanding share of Series A,
Series A1, Series B, Series D and Series E preferred stock will automatically
convert into one share of common stock. Each outstanding share of Series C
preferred stock will automatically convert into approximately 1.17 shares of
common stock. Pursuant to our amended and restated certificate of
incorporation, the board of directors has the authority, without further action
by the stockholders, to issue up to 5,000,000 shares of preferred stock in one
or more series and to fix the designations, powers, preferences and privileges,
which may be greater than the rights of the common stock. The board, without
stockholder approval, can issue preferred stock with voting, conversion or
other rights that could adversely affect the voting power and other rights of
the holders of common stock. Preferred stock could thus be issued quickly with
terms calculated to delay or prevent a change in control of our company or make
removal of management more difficult. Additionally, the issuance of preferred
stock may have the effect of decreasing the market price of the common stock.
At present, there are no shares of preferred stock outstanding, and we have no
plans to issue any of the preferred stock.
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Common Stock Warrants
Upon completion of the offering, we will have 47 warrants outstanding to
purchase an aggregate of 1,318,246 shares of common stock, exercisable as
follows:
. 285,300 shares at an exercise price of $3.00 per share;
. 498,830 shares at an exercise price of $4.00 per share;
. 222,222 shares at an exercise price of $6.00 per share;
. 178,559 shares at an exercise price of $8.00 per share; and
. 133,335 shares at an exercise price of $10.00 per share.
These warrants expire five years from the date of execution.
Registration Rights
Upon completion of the offering, the holders of an aggregate of approximately
17,569,709 shares of common stock will be entitled to certain rights with
respect to the registration of such shares under the Securities Act of 1933.
Under the terms of the third amended and restated shareholders rights
agreement, as amended, if we propose to register any of our securities under
the Securities Act of 1933, either for our own account or for the account of
other security holders, these holders are entitled to notice of such
registration and are entitled to include shares of common stock in the
registration. The rights are subject to certain conditions and limitations,
among them the right of the underwriters of an offering subject to the
registration to limit the number of shares included in such registration.
Certain holders of these rights may also require us to file a registration
statement under the Securities Act of 1933 with respect to their shares of
common stock and we are required to use our best efforts to effect such
registration, subject to conditions and limitations. Furthermore, stockholders
with registration rights may require us to file additional registration
statements on Form S-3, subject to conditions and limitations.
Delaware Anti-Takeover Law and Certain Charter and Bylaws Provisions
Delaware Anti-Takeover Statute. We are subject to Section 203 of the Delaware
General Corporation Law. In general, these provisions prohibit a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that the stockholder
became an interested stockholder, unless the transaction in which the person
became an interested stockholder is approved in a manner presented in Section
203 of the Delaware General Corporation Law.
Generally, a "business combination" is defined to include mergers, asset
sales and other transactions resulting in financial benefit to a stockholder.
In general, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years, did own, 15% or more of
a corporation's outstanding voting stock.
Amended and Restated Certificate of Incorporation. Our certificate of
incorporation provides:
. that the board of directors may issue, without further action by the
stockholders, up to 5,000,000 shares of undesignated preferred stock;
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. that any action to be taken by our stockholders must be effected at a
duly called annual or special meeting and not by written consent; and
. for the division of the board of directors into three classes, with each
class serving for a term of three years.
Bylaws. Our bylaws provide that special meetings of our stockholders may be
called only by the chairman of the board, the president, the board or
stockholders holding a majority of our outstanding stock.
These provisions are intended to enhance the likelihood of continuity and
stability in the composition of the board and in the policies formulated by the
board and to discourage certain types of transactions that may involve an
actual or threatened change of control of our company. These provisions are
designed to reduce our vulnerability to an unsolicited proposal for a takeover
that does not contemplate the acquisition of all of our outstanding shares or
an unsolicited proposal for the restructuring or sale of all or part of our
company. These provisions, however, could discourage potential acquisition
proposals and could delay or prevent a change in control of our company. They
may also have the effect of preventing changes in our management.
Transfer Agent and Registrar
The transfer agent and registrar for common stock is Firstar Bank of
Minnesota, N.A.
Listing
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "TCTY." We have not applied to list our common stock on any
other exchange or quotation system.
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Shares Eligible For Future Sale
Prior to the offering, there has been no market for the common stock. Future
sales of substantial amounts of common stock in the public market following the
offering could cause the prevailing market price of our common stock to fall
and impede our ability to raise equity capital at a time and on terms favorable
to us.
Upon completion of the offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options or outstanding warrants
after April 30, 1999. Of these outstanding shares, the shares sold in the
offering will be freely tradeable without restriction or further registration
under the Securities Act of 1933, unless purchased by our "affiliates" as that
term is defined in Rule 144 under the Securities Act of 1933. The remaining
shares of common stock outstanding upon completion of the offering and held by
existing stockholders will be "restricted securities" as that term is defined
in Rule 144 under the Securities Act of 1933. Restricted shares 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 of 1933, which rules are summarized below, or another exemption. Sales of
the restricted shares in the public market, or the availability of such shares
for sale, could adversely affect the market price of the common stock. All
officers, directors and certain other holders of common stock have entered into
contractual "lock-up" agreements providing that they will not offer, sell,
contract to sell or grant any option to purchase or otherwise dispose of shares
of common stock owned by them or that could be purchased by them through the
exercise of options or warrants for a period of 180 days after the date of this
prospectus without the prior written consent of Lehman Brothers Inc. As a
result of these contractual restrictions, notwithstanding possible earlier
eligibility for sale under the provisions of Rules 144, 144(k) and 701,
additional shares will be eligible for sale beginning 181 days after the
effective date of the offering, subject in some cases to certain volume
limitations.
Of the remaining restricted shares:
. shares are subject to our repurchase option in the event of
termination of employment; and
. shares will not be eligible for sale pursuant to Rule 144 until the
expiration of a one-year holding period.
In general, under Rule 144 as currently in effect, beginning 91 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
persons who may be deemed to be our "affiliates", would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately shares immediately after the offering; or
. the average weekly trading volume of the common stock as reported through
the Nasdaq National Market during the four calendar weeks preceding the
filing of a Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us. Under Rule 144(k), a
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person who is not deemed to have been our affiliate at any time during the 90
days preceding a sale, and who has beneficially owned for at least two years
the restricted shares proposed to be sold, 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.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 permits resales of shares issued
prior to the date the issuer becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, pursuant to certain compensatory benefit
plans and contracts commencing 90 days after the issuer becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, in reliance upon
Rule 144 but without compliance with certain restrictions, including the
holding period requirements. In addition, the Securities and Exchange
Commission has indicated that Rule 701 will apply to typical stock options
granted by an issuer before it becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, along with the shares acquired upon
exercise of such options, including exercises after the date the issuer becomes
so subject. Securities issued in reliance on Rule 701 are restricted securities
and, subject to the contractual restrictions described above, beginning 91 days
after the date of this prospectus, may be sold by persons other than affiliates
subject only to the manner of sale provisions of Rule 144 and by affiliates
under Rule 144 without compliance with its one-year minimum holding period
requirements.
We have agreed not to sell or otherwise dispose of any shares of common stock
or any securities convertible into or exercisable or exchangeable for common
stock, or enter into any swap or similar agreement that transfers, in whole or
in part, the economic risk of ownership of the common stock, for a period of
180 days after the date of this prospectus, without the prior written consent
of Lehman Brothers Inc., subject to limited exceptions.
We intend to file a registration statement under the Securities Act of 1933
covering the shares of common stock subject to outstanding options or reserved
for issuance under the 1996A stock option plan, 1996 stock option plan, 1999
employee stock purchase plan and the 1999 director option plan. This
registration statement is expected to be filed simultaneously with the
effectiveness of the registration statement covering the shares of common stock
offered in this offering and will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will, subject
to Rule 144 volume limitations applicable to affiliates and the expiration of a
180-day lockup period, be available for sale in the open market, except to the
extent that such shares are subject to our vesting restrictions or the
contractual restrictions described above.
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Underwriting
Under the underwriting agreement, which is filed as an exhibit to the
registration statement relating to this prospectus, the underwriters named
below, for whom Lehman Brothers Inc., Volpe Brown Whelan & Company, LLC and
U.S. Bancorp Piper Jaffray Inc. are acting as representatives, and E*TRADE
Securities, Inc. is facilitating online distribution, have each agreed to
purchase from us the respective number of shares of common stock set forth
opposite its name below:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- ------------ ---------
<S> <C>
Lehman Brothers Inc...................................................
Volpe Brown Whelan & Company, LLC.....................................
U.S. Bancorp Piper Jaffray Inc........................................
E*TRADE Securities, Inc...............................................
----
Total...............................................................
====
</TABLE>
The underwriting agreement provides that the underwriters' obligations to
purchase shares of common stock depend on the satisfaction of the conditions
contained in the underwriting agreement, and that if any of the shares of
common stock are purchased by the underwriters under the underwriting
agreement, then all of the shares of common stock which the underwriters have
agreed to purchase under the underwriting agreement, must be purchased. The
conditions contained in the underwriting agreement include the requirement that
the representations and warranties made by us to the underwriters are true,
that there is no material change in the financial markets and that we deliver
to the underwriters customary closing documents.
The representatives have advised us that the underwriters propose to offer
the shares of common stock directly to the public at the public offering price
set forth on the cover page of this prospectus, and to dealers, who may include
the underwriters, at the public offering price less a selling concession not in
excess of $ share. The underwriters may allow, and the dealers may reallow, a
concession not in excess of $ share to brokers and dealers. After the
offering, the underwriters may change the offering price and other selling
terms.
We have granted to the underwriters an option to purchase up to an aggregate
of additional shares of common stock, exercisable solely to cover over-
allotments, if any, at the public offering price less the underwriting
discounts and commissions shown on the cover page of this prospectus. The
underwriters may exercise this option at any time until 30 days after the date
of the underwriting agreement. If this option is exercised, each underwriter
will be committed, so long as the conditions of the underwriting agreement are
satisfied, to purchase a number of additional shares of common stock
proportionate to the underwriter's initial commitment as indicated in the
preceding table and we will be obligated, under the over-allotment option, to
sell the shares of common stock to the underwriters.
We have agreed that, without the prior consent of Lehman Brothers Inc. we
will not directly or indirectly, offer, sell or otherwise dispose of any shares
of common stock or any securities which may be converted into or exchanged for
any such shares of common stock for a period of 180 days from the date of this
prospectus. All of our executive officers and directors and certain other
stockholders, including all of the holders of the preferred stock and warrants,
have agreed under lock-up agreements that, without the prior written consent of
Lehman Brothers Inc., they will not,
71
<PAGE>
directly or indirectly, offer, sell or otherwise dispose of any shares of
common stock or any securities which may be converted into or exchanged for any
such shares for the period ending 180 days after the date of this prospectus.
See "Shares Eligible for Future Sale."
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and
capital structure, estimates of our business potential and earning prospects,
an overall assessment of our management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol "TCTY."
We have agreed to indemnify the underwriters against liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of the representations and warranties contained in the underwriting
agreement, and to contribute to payments that the underwriters may be required
to make for these liabilities.
Until the distribution of the common stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the underwriters
and selling group members to bid for and purchase shares of common stock. As an
exception to these rules, the representatives are permitted to engage in
transactions that stabilize the price of the common stock. These transactions
may consist of bids or purchases for the purposes of pegging, fixing or
maintaining the price of the common stock.
The underwriters may create a short position in the common stock in
connection with the offering, which means that they may sell more shares than
are set forth on the cover page of this prospectus. If the underwriters create
a short position, then the representatives may reduce that short position by
purchasing common stock in the open market. The representatives also may elect
to reduce any short position by exercising all or part of the over-allotment
option. The underwriters have informed us that they do not intend to confirm
sales to discretionary accounts that exceed 5% of the total number of shares of
common stock offered by them.
The representatives also may impose a penalty bid on underwriters and selling
group members. This means that if the representatives purchase shares of common
stock in the open market to reduce the underwriters' short position or to
stabilize the price of the common stock, they may reclaim the amount of the
selling concession from the underwriters and selling group members who sold
those shares as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of those purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
an offering.
Neither we nor any of the underwriters makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of
72
<PAGE>
the common stock. In addition, neither we nor any of the underwriters makes any
representation that the representatives will engage in such transactions or
that such transactions, once commenced, will not be discontinued without
notice.
Any offers in Canada will be made only under an exemption from the
requirements to file a prospectus in the relevant province of Canada where the
sale is made.
Purchasers of the shares of common stock offered in this prospectus may be
required to pay stamp taxes and other charges under the laws and practices of
the country of purchase, in addition to the offering price listed on the cover
of this prospectus.
At our request, the underwriters have reserved up to shares of the common
stock offered by this prospectus for sale to our officers, directors, employees
and their family members and to our business associates at the initial public
offering price set forth on the cover page of this prospectus. These persons
must commit to purchase no later than the close of business on the day
following the date of this prospectus. The number of shares available for sale
to the general public will be reduced to the extent these persons purchase the
reserved shares.
A prospectus in electronic format is being made available on an Internet Web
site maintained by E*TRADE Securities, Inc.
In connection with our private placement of Series D preferred stock and our
private placement of Series E Preferred Stock, we paid to Volpe Brown Whelan &
Company, LLC an aggregate of $1,148,208 in cash, warrants to purchase 120,080
shares of our Series D preferred stock, at an aggregate exercise price of
$480,320, and warrants to purchase 11,893 shares of our Series E Preferred
Stock, at an aggregate exercise price of $95,144, as payment for acting as our
financial advisor.
Legal Matters
The validity of the shares of common stock offered by this prospectus will be
passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. Legal matters in connection with this
offering will be passed upon for the underwriters by Cooley Godward LLP, San
Francisco, California. WS Investment Company, an investment partnership
composed of certain current and former members of and persons associated with
Wilson Sonsini Goodrich & Rosati, Professional Corporation, as well as an
individual attorney of this firm, beneficially own an aggregate of 15,000
shares of our common stock.
Experts
The financial statements of Talk City, Inc. as of December 31, 1997 and 1998
and for the period from March 29, 1996 (inception) through December 31, 1996
and the years ended December 31, 1997 and 1998 included in this prospectus have
been included in reliance on the report of KPMG LLP, independent auditors,
appearing elsewhere in this prospectus, and upon the authority of such firm as
experts in accounting and auditing.
73
<PAGE>
Available Information
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, under the Securities Act of 1933, a registration statement on Form S-1
relating 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 our company and
the shares we are offering by this prospectus you should refer to the
registration statement, including the exhibits and schedules thereto. You may
inspect a copy of the registration statement without charge at the Public
Reference Section of the Securities and Exchange Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 or at the Securities and Exchange
Commission's regional offices at 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036. The Securities and Exchange Commission maintains an
Internet site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The Securities and Exchange Commission's World Wide
Web address is http://www.sec.gov.
We intend to furnish holders of the common stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing
unaudited condensed financial information for the first three quarters of each
fiscal year. We intend to furnish such other reports as we may determine or as
may be required by law.
74
<PAGE>
Talk City, Inc.
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Form of Independent Auditors' Report..................................... F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders'
Deficit................................................................. F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
When the reverse preferred and common stock split and reincorporation in
Delaware, referred to in Note 11 of the Notes to Financial Statements have been
consummated, we will be in a position to render the following report.
/s/ KPMG LLP
Form of Independent Auditors' Report
The Board of Directors and Stockholders
Talk City, Inc.:
We have audited the accompanying balance sheets of Talk City, Inc. (the
Company), as of December 31, 1997 and 1998, and the related statements of
operations, redeemable convertible preferred stock and stockholders' deficit,
and cash flows for the period from March 29, 1996 (inception) to December 31,
1996 and for each of the years in the two-year period ended December 31, 1998.
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 Talk City, Inc. as of December
31, 1997 and 1998, and the results of its operations and its cash flows for the
period from March 29, 1996 (inception) to December 31, 1996 and for each of the
years in the two-year period ended December 31, 1998, in conformity with
generally accepted accounting principles.
Mountain View, California
April 23, 1999, except as to
Note 11 which is as of ,
1999
F-2
<PAGE>
Talk City, Inc.
Balance Sheets
(in thousands, except share and par value amounts)
<TABLE>
<CAPTION>
December 31,
----------------- March 31,
1997 1998 1999
------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................... $ 2,055 $ 8,697 $ 3,484
Short term investments........................ -- 5,740 5,740
Accounts receivable, net...................... 121 763 1,212
Prepaid expenses and other current assets..... 67 -- 47
------- -------- --------
Total current assets........................ 2,243 15,200 10,483
------- -------- --------
Property and equipment, net..................... 548 999 1,384
Other assets, net............................... 20 2,291 2,705
------- -------- --------
Total assets................................ $ 2,811 $ 18,490 $ 14,572
======= ======== ========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable.............................. $ 391 $ 1,205 $ 2,221
Accrued liabilities........................... 8 375 364
Notes payable, current portion................ -- 127 130
------- -------- --------
Total current liabilities................... 399 1,707 2,715
------- -------- --------
Notes payable, less current portion............. -- 273 237
------- -------- --------
Total liabilities........................... 399 1,980 2,952
------- -------- --------
Commitments
Series A, A1, B, C, and D redeemable convertible
preferred stock:
Authorized--3,900,000 in 1997 and 19,000,000
in 1998 and 1999
Issued and outstanding--3,794,785, in 1997,
10,929,909 in 1998, and 11,101,212 in 1999...
Liquidation preference--$10,225 in 1997,
$39,027 in 1998, and $39,713 in 1999......... 10,081 38,973 39,979
Stockholders' deficit:
Common stock, $0.001 par value:
Authorized--30,000,000 in 1997 and 60,000,000
in 1998 and 1999.............................
Issued and outstanding--3,687,200 in 1997,
4,191,666 in 1998, and 4,314,904 in 1999..... 4 4 4
Additional paid-in capital.................... 260 1,792 3,959
Deferred compensation......................... (59) (598) (1,144)
Notes receivable from stockholders............ (175) (303) (921)
Accumulated deficit........................... (7,699) (23,358) (30,257)
------- -------- --------
Total stockholders' deficit................. (7,669) (22,463) (28,359)
------- -------- --------
Total liabilities and stockholders'
deficit.................................... $ 2,811 $ 18,490 $ 14,572
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
Talk City, Inc.
Statements of Operations
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 29, 1996 Years ended Three months ended
(Inception) to December 31, March 31,
December 31, ----------------- --------------------
1996 1997 1998 1998 1999
-------------- ------- -------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Business services..... $ -- $ 25 $ 522 $ 60 $ 357
Advertising and
sponsorships......... 14 183 931 65 623
------- ------- -------- --------- ---------
Total revenues...... 14 208 1,453 125 980
------- ------- -------- --------- ---------
Operating expenses:
Product development
and programming...... 771 3,472 5,383 1,175 2,224
Sales and marketing... 252 2,492 6,668 476 3,425
General and
administrative....... 335 974 1,804 336 974
Noncash advertising
and promotional
charges.............. -- -- 2,890 1,039 1,410
------- ------- -------- --------- ---------
Total operating
expenses........... 1,358 6,938 16,745 3,026 8,033
------- ------- -------- --------- ---------
Loss from
operations......... (1,344) (6,730) (15,292) (2,901) (7,053)
Interest income
(expense), net......... 36 339 (367) 10 154
------- ------- -------- --------- ---------
Net loss............ (1,308) (6,391) (15,659) (2,891) (6,899)
Accretion of redeemable
convertible preferred
stock and warrants..... 8 38 558 20 72
------- ------- -------- --------- ---------
Net loss applicable
to common
stockholders....... $(1,316) $(6,429) $(16,217) $ (2,911) $ (6,971)
======= ======= ======== ========= =========
Net loss per share:
Basic and diluted..... $ (0.49) $ (2.10) $ (4.92) $ (0.87) $ (1.90)
======= ======= ======== ========= =========
Weighted average
shares............... 2,679 3,068 3,295 3,332 3,661
======= ======= ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Talk City, Inc.
Statements of Redeemable Convertible Preferred Stock and Stockholders' Deficit
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Redeemable
Convertible Notes
Preferred stock Common stock Additional receivable
------------------ ----------------- paid-in Deferred from
Shares Amount Shares Amount capital compensation stockholders
---------- ------- --------- ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock to
founders April
1, 1996......... -- $ -- 2,300,000 $ 2 $ 44 $ -- $ --
Issuance of
preferred stock,
net of issuance
costs........... 3,794,785 10,035 -- -- -- -- --
Issuance of
common stock
upon exercise of
stock options... -- -- 1,537,200 2 292 (89) (205)
Accretion
attributable to
redeemable
preferred
stock........... -- 8 -- -- (8) -- --
Net loss........ -- -- -- -- -- -- --
---------- ------- --------- --- ------ ------- -----
Balances,
December 31,
1996............ 3,794,785 10,043 3,837,200 4 328 (89) (205)
Repurchase of
common stock.... -- -- (150,000) -- (30) -- 30
Accretion
attributable to
redeemable
preferred
stock........... -- 38 -- -- (38) -- --
Amortization of
stock-based
compensation.... -- -- -- -- -- 30 --
Net loss........ -- -- -- -- -- -- --
---------- ------- --------- --- ------ ------- -----
Balances,
December 31,
1997............ 3,794,785 10,081 3,687,200 4 260 (59) (175)
Noncash issuance
of preferred
stock and
preferred and
common stock
warrants
pursuant to the
NBC agreements.. 884,615 4,565 -- -- 575 -- --
Issuance of
preferred stock,
net of $1,233
issuance costs.. 6,250,509 23,769 -- -- -- -- --
Issuance of
preferred stock
warrants for
services
rendered in
connection with
the preferred
stock offering.. -- 438 -- -- (438) -- --
Issuance of
common stock
warrants
pursuant to the
loan agreement.. -- -- -- -- 490 -- --
Issuance of
common stock
upon exercise of
stock options,
net of
repurchases..... -- -- 504,466 -- 133 -- (128)
Deferred
compensation
related to
option grants... -- -- -- -- 892 (892) --
Amortization of
stock-based
compensation.... -- -- -- -- -- 353 --
Accretion
attributable to
redeemable
preferred
stock........... -- 120 -- -- (120) -- --
Net loss........ -- -- -- -- -- -- --
---------- ------- --------- --- ------ ------- -----
Balances,
December 31,
1998............ 10,929,909 38,973 4,191,666 4 1,792 (598) (303)
Issuance of
common stock
upon exercise of
stock options
and warrants,
net of
repurchases..... -- -- 123,238 -- 638 -- (618)
Noncash issuance
of preferred
stock pursuant
to the Hearst
agreement....... 171,303 904 -- -- -- -- --
Revaluation of
warrants related
to the NBC
operating
agreements...... -- 30 -- -- 886 -- --
Deferred
compensation
related to
option grants... -- -- -- -- 715 (715) --
Amortization of
stock-based
compensation.... -- -- -- -- -- 169 --
Accretion
attributable to
redeemable
preferred
stock........... -- 72 -- -- (72) -- --
Net loss........ -- -- -- -- -- -- --
---------- ------- --------- --- ------ ------- -----
Balances, March
31, 1999
(unaudited)..... 11,101,212 $39,979 4,314,904 $ 4 $3,959 $(1,144) $(921)
- --------------------------------------------------
========== ======= ========= === ====== ======= =====
<CAPTION>
Total
Accumulated stockholders'
deficit deficit
----------- ------------- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock to
founders April
1, 1996......... $ -- $ 46
Issuance of
preferred stock,
net of issuance
costs........... -- --
Issuance of
common stock
upon exercise of
stock options... -- --
Accretion
attributable to
redeemable
preferred
stock........... -- (8)
Net loss........ (1,308) (1,308)
----------- -------------
Balances,
December 31,
1996............ (1,308) (1,270)
Repurchase of
common stock.... -- --
Accretion
attributable to
redeemable
preferred
stock........... -- (38)
Amortization of
stock-based
compensation.... -- 30
Net loss........ (6,391) (6,391)
----------- -------------
Balances,
December 31,
1997............ (7,699) (7,669)
Noncash issuance
of preferred
stock and
preferred and
common stock
warrants
pursuant to the
NBC agreements.. -- 575
Issuance of
preferred stock,
net of $1,233
issuance costs.. -- --
Issuance of
preferred stock
warrants for
services
rendered in
connection with
the preferred
stock offering.. -- (438)
Issuance of
common stock
warrants
pursuant to the
loan agreement.. -- 490
Issuance of
common stock
upon exercise of
stock options,
net of
repurchases..... -- 5
Deferred
compensation
related to
option grants... -- --
Amortization of
stock-based
compensation.... -- 353
Accretion
attributable to
redeemable
preferred
stock........... -- (120)
Net loss........ (15,659) (15,659)
----------- -------------
Balances,
December 31,
1998............ (23,358) (22,463)
Issuance of
common stock
upon exercise of
stock options
and warrants,
net of
repurchases..... -- 20
Noncash issuance
of preferred
stock pursuant
to the Hearst
agreement....... -- --
Revaluation of
warrants related
to the NBC
operating
agreements...... -- 886
Deferred
compensation
related to
option grants... -- --
Amortization of
stock-based
compensation.... -- 169
Accretion
attributable to
redeemable
preferred
stock........... -- (72)
Net loss........ (6,899) (6,899)
----------- -------------
Balances, March
31, 1999
(unaudited)..... $(30,257) $(28,359)
- --------------------------------------------------
=========== =============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Talk City, Inc.
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
March 29, 1996 Years ended Three months ended
(Inception) to December 31, March 31,
December 31, ------------------- --------------------
1996 1997 1998 1998 1999
-------------- -------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (1,308) $ (6,391) $ (15,659) $ (2,891) $ (6,899)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation........... 15 125 347 70 162
Stock compensation
expense............... -- 30 353 46 169
Common stock warrants
issued pursuant to the
loan financing........ -- -- 490 -- --
Noncash advertising and
promotional charges... -- -- 2,890 1,039 1,410
Provision for accounts
receivable allowance.. -- -- 100 -- --
Changes in operating
assets and
liabilities:
Accounts receivable... (10) (111) (742) (45) (449)
Prepaid expenses and
other current
assets............... (1) (66) 67 13 (47)
Accounts payable and
accrued liabilities.. 290 110 1,181 54 1,005
-------- -------- --------- --------- ---------
Net cash used in
operating activities.. (1,014) (6,303) (10,973) (1,714) (4,649)
-------- -------- --------- --------- ---------
Cash flows from
investing activities:
Purchases of property
and equipment........ (137) (550) (797) (218) (531)
Purchases of short-
term investments..... -- -- (5,740) -- --
Other assets.......... -- (22) (22) -- (4)
-------- -------- --------- --------- ---------
Net cash used in
investing activities... (137) (572) (6,559) (218) (535)
Cash flows from
financing activities:
Proceeds from sale of
redeemable preferred
stock, net of
issuance costs....... 10,035 -- 21,197 -- --
Proceeds from issuance
of common stock...... 46 -- 5 -- --
Proceeds from loan
financing, net of
issuance costs....... -- -- 2,903 -- --
Repayment of loan
financing............ -- -- (331) -- --
Proceeds from notes
payable.............. -- -- 491 -- --
Repayment of notes
payable.............. -- -- (91) -- (29)
-------- -------- --------- --------- ---------
Net cash provided by
financing activities... 10,081 -- 24,174 -- (29)
-------- -------- --------- --------- ---------
Net (decrease) increase
in cash and cash
equivalents............ 8,930 (6,875) 6,642 (1,932) (5,213)
Cash and cash
equivalents at
beginning of period.... -- 8,930 2,055 2,055 8,697
-------- -------- --------- --------- ---------
Cash and cash
equivalents at end of
period................. $ 8,930 $ 2,055 $ 8,697 $ 123 $ 3,484
======== ======== ========= ========= =========
Cash paid during the
period for interest.... $ -- $ -- $ 113 $ -- $ 16
======== ======== ========= ========= =========
Supplemental disclosure
of noncash financing
activities:
Accretion of redeemable
convertible preferred
stock and warrants.... $ 8 $ 38 $ 558 $ 20 $ 72
======== ======== ========= ========= =========
Common stock issued for
notes receivable...... $ 205 $ -- $ 128 $ 128 $ 618
======== ======== ========= ========= =========
Issuance of stock and
warrants for
advertising and
promotional services.. $ -- $ -- $ 5,140 $ 1,577 $ 904
======== ======== ========= ========= =========
Issuance of preferred
stock for conversion
of loan financing..... $ -- $ -- $ 2,572 $ -- $ --
======== ======== ========= ========= =========
Deferred compensation
related to option
grants................ $ 89 $ -- $ 892 $ 223 $ 715
======== ======== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
Talk City, Inc.
Notes to Financial Statements
(information with respect to March 31, 1998 and 1999 is unaudited)
(1) Description of Business and Nature of Operations
Talk City, Inc. (the Company), incorporated in March 1996, is an Internet
provider of high quality online communities and interactive services for
businesses and consumers. The Company offers businesses a wide range of
services to help them develop and expand online relationships with customers,
suppliers, and employees. These services include designing fully integrated,
customized communities, producing online events, conducting online market
research and facilitating online meetings. For consumers, the Company operates
a network of online communities located at www.talkcity.com. This network
includes 20 topical categories, over 50 themed communities, 50 co-branded
partner communities and thousands of user generated communities. These
communities offer services such as moderated chat, home pages, special event
production, message boards and online event guides. The Company generates
revenues by selling business services and advertising and sponsorships on its
Web sites to corporations of various sizes within several industries.
(2) Summary of Significant Accounting Policies
(a) Interim Financial Statements
The interim financial statements of the Company for the three months
ended March 31, 1998 and 1999, 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 note
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 March 31, 1999, and the results of its operations and its
cash flows for the three months ended March 31, 1998 and 1999. Results for
the three months ended March 31, 1999 are not necessarily indicative of the
results to be expected for the entire year.
(b) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
(c) Cash Equivalents and Short-Term Investments
Cash equivalents consist of instruments with maturities of three months
or less at the time of purchase.
F-7
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
The Company has classified its cash equivalents and short-term
investments as "available for sale." Such investments are carried at fair
value, based on the quoted market prices, and unrealized gains and losses,
if material, are reported as a separate component of accumulated other
comprehensive income (loss) in stockholders' deficit. The cost of
securities sold is based on the specific identification method. Realized
and unrealized gains and losses were not material during all periods
presented.
(d) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the
estimated useful lives of the equipment, generally three to five years.
(e) Long Lived Assets
The Company reviews its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. Recoverability of assets held and used is measured
by a comparison of the carrying amount of the asset to future net cash
flows expected to be generated by the asset. If such amounts are considered
to be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(f) Fair Value of Financial Instruments
The fair values of the Company's cash, cash equivalents, short-term
investments, accounts receivable, accounts payable and notes payable
approximate their carrying values due to the short maturity or variable
rate structure of those instruments.
(g) 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 one domestic financial institution. From time to
time, the Company's cash balances with its financial institution may exceed
Federal Deposit Insurance Corporation insurance limits.
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. As of December 31, 1998 and March 31, 1999, the allowance for
bad debts was $100,000.
F-8
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
(h) Revenue Recognition
To date, the Company's revenues have been derived primarily from the sale
of business services and sponsorship and advertising contracts.
Business services revenues are derived principally from contracts
relating to one or more events and contracts relating to a period of time
up to two years in which the Company designs customized communities,
produces online events, conducts market research, and facilitates online
meetings for customers. Business services revenues are recognized as the
events are run or ratably over the term of the contract period, provided
that collection of the receivable is probable.
Sponsorship contracts integrate traditional advertising with content
designed to support broad marketing objectives, including brand promotion,
awareness, and product introductions. Advertising revenues are derived
principally from short-term advertising contracts in which the Company
delivers banner advertisements on its online properties over a specified
period of time for a fixed fee. The Company's contracts typically are
short-term agreements that guarantee a minimum number of impressions or
pages to be delivered to users over a specified period of time. Revenues
from these contracts are recognized in the period in which the
advertisement is displayed or the event is run, provided that no
significant Company obligations remain. The amount of revenue recognized
each period is based on the lesser of the ratio of impressions delivered
over total guaranteed impressions or the ratable amortization over the term
of the contract.
In certain instances where the Company contracts with third party sales
agents for the sale of advertising, the Company recognizes the revenues
from such transactions net of the related commission paid to the agent.
(i) Product Development and Programming
Product development and programming expenses consist primarily of
salaries, payroll taxes and benefits and expenditures related to editorial
content, community management and support personnel, server hosting costs
and software development and operations expenses. Costs related to the
development of new products and enhancements to existing products are
charged to operations as incurred. Software development costs are required
to be capitalized when a product's technological feasibility has been
established by completion of a working model of the product. To date,
completion of a working model of the Company's products and general release
have substantially coincided. As a result, the Company has not capitalized
any software development costs because such costs have not been
significant.
(j) Advertising Expense
The cost of advertising is expensed as incurred. Such costs totaled
approximately $122,000, $1,245,000, $7,410,000, $1,154,000 and $4,162,000
for the period from inception to December 31, 1996, the years ended
December 31, 1997 and 1998, and the three months ended March 31, 1998 and
1999, respectively. For the year ended December 31, 1998 and the three
F-9
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
months ended March 31, 1998 and 1999, these costs included $2,890,000,
$1,039,000, and $1,410,000, respectively, of noncash advertising and
promotional charges pursuant to the NBC and Hearst advertising and
operating agreements. See Note 3--Advertising and Operating Agreements.
(k) Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amount of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized.
(l) Stock-Based Compensation
The Company accounts for its stock-based compensation arrangements with
employees using the intrinsic-value method pursuant to Accounting
Principles Board (APB) Opinion No. 25. As such, compensation expense is
recorded on the date of grant when the fair value of the underlying common
stock exceeds the exercise price for stock options or the purchase price
for the issuance or sales of common stock. Pursuant to Statement of
Financial Accounting Standards (SFAS) No. 123, the Company discloses the
pro forma effects of using the fair value method of accounting for stock-
based compensation arrangements. See Note 6--Capitalization.
The Company accounts for stock-based compensation arrangements with
nonemployees in accordance with the Emerging Issues Task Force Abstract
(EITF) No. 96-18, Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
or Services. Accordingly, unvested options held by nonemployees are subject
to revaluation at each balance sheet date based on the then current fair
market value.
Unearned deferred compensation resulting from employee and nonemployee
option grants is amortized on an accelerated basis over the vesting period
of the individual options, generally four years in accordance with
Financial Accounting Standards Board Interpretation No. 28.
(m) Comprehensive Loss
The Company has no significant components of other comprehensive loss,
and accordingly, the comprehensive loss is the same as the net loss for all
periods.
(n) Net Loss Per Share
Basic net loss per share is computed using the weighted-average number of
outstanding shares of common stock. Diluted net loss per shares is computed
using the weighted-average number of shares of common stock outstanding
and, when dilutive, potential common shares from options and warrants to
purchase common stock using the treasury stock method and from convertible
securities using the if-converted basis. All potential common shares have
been
F-10
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
excluded from the computation of diluted net loss per share for all periods
presented because the effect would have been antidilutive.
Diluted net loss per share does not include the effect of the following
antidilutive common equivalent shares (in thousands):
<TABLE>
<CAPTION>
March 29, 1996 Years ended Three months
(Inception) to December 31, ended March 31,
December 31, ------------- ----------------
1996 1997 1998 1998 1999
-------------- ------ ------ ------- --------
<S> <C> <C> <C> <C> <C>
Stock options................ 133 675 343 233 395
Unvested common stock subject
to repurchase............... 937 647 752 1,038 817
Preferred and common stock
warrants.................... -- -- 1,311 375 1,306
Redeemable convertible
preferred stock (as if
converted).................. 679 3,795 6,467 4,005 11,081
----- ------ ------ ------- --------
1,749 5,117 8,873 5,651 13,599
===== ====== ====== ======= ========
</TABLE>
(o) Segment Reporting
During 1998, the Company adopted the provisions of SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. SFAS
131 establishes annual and interim reporting standards for operating
segments of a company. The statement requires disclosures of selected
segment-related financial information about products, major customers, and
geographic areas. The Company has one operating segment because it is not
organized by multiple segments for purposes of making operating decisions
or assessing performance. The chief operating decision maker evaluates
performance, makes operating decisions, and allocates resources based on
financial data consistent with the presentation in the accompanying
financial statements.
The Company's revenues have all been earned from customers in the United
States. In addition, all operations and assets are based in the United
States. Revenues from one major customer was $229,000 in 1998. Total
receivables from this customer were $171,000 at December 31, 1998.
(p) Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use. SOP 98-1
is effective for financial statements for years beginning after December
15, 1998. SOP 98-1 provides guidance over accounting for computer software
developed or obtained for internal use including the requirement to
capitalize specified costs and amortization of such costs. The Company does
not expect the adoption of this standard to have a material effect on the
Company's capitalization policy.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative
F-11
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
instruments, including derivative instruments embedded in other contracts,
and for hedging activities. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. This statement does
not apply to the Company as the Company currently does not have any
derivative instruments or hedging activities.
(3) Advertising and Operating Agreements
Advertising Agreements
The Company entered into three separate agreements with the National
Broadcasting Company (NBC) whereby NBC provides the Company with advertising
time and promotes the Company's services on television, primarily during prime
time programs, in exchange for preferred stock and warrants described as
follows:
(i) On April 22, 1998, the Company issued 213,675 shares of Series C
Redeemable Convertible Preferred Stock (Series C Stock) at a price of
$4.68 per share, which converts into 250,000 shares of common stock,
in exchange for advertising spots provided by NBC.
(ii) On August 31, 1998, the Company issued 170,940 shares of Series C
Stock at a price of $4.68 per share, which converts into 200,000
shares of common stock, and warrants to purchase 125,000 shares of
Series D Redeemable Convertible Preferred Stock (Series D Stock) with
an exercise price of $6.00 per share in exchange for advertising
spots provided by NBC. The warrant is exercisable at any time prior
to August 31, 2003 and is valued at approximately $425,000 using the
Black Scholes option pricing model.
(iii) On August 21, 1998, the Company entered into a letter agreement
whereby NBC will provide the Company with the use of advertising
spots having an aggregate discounted rate card value of $2,400,000 in
exchange for 600,000 shares of Series D Stock valued at $4.00 per
share and warrants to purchase 266,667 shares of Series D Stock with
a weighted average exercise price of $8.44 per share (the Contingent
Shares). For each $800,000 of advertising spots provided, the Company
will issue 200,000 shares of Series D Stock and warrants to purchase
41,667, 125,000, and 100,000 shares of Series D Stock in the first,
second, and third tranches, respectively. As of March 31, 1999, NBC
had not provided any advertising spots pursuant to this agreement.
On October 30, 1998, the Company entered into an agreement with the New Media
and Technology division of Hearst Communications, Inc. (Hearst) whereby Hearst
will provide advertising space to the Company in selected national
publications. The advertising has an aggregate discounted rate card value of
$3,000,000 and will be provided in exchange for 750,000 shares of Series D
Stock (the Contingent Shares). For every $4.00 of print advertising provided by
Hearst, the Company will issue one share of Series D Stock. For the three
months ended March 31, 1999, 171,303 shares were issuable to Hearst based on
the value of the print advertising provided in the period. These shares are
considered to be issued and outstanding for purposes of presentation in the
accompanying balance sheet.
F-12
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
The Company charged approximately $2,228,000, $1,000,000, and $695,000 for
the year ended December 31, 1998 and for the three months ended March 31, 1998
and 1999, respectively, to noncash advertising and promotional charges in the
statement of operations pursuant to the above arrangements. The value of the
advertising spots was determined based on the fair value of the equity
instruments on the date the advertising was provided. In accordance with EITF
No. 96-18, the Contingent Shares and related advertising expense will be
determined based on the fair value of the common stock and warrants exchanged
for the services received. The estimated value of the advertising incurred in
each period based on rates discounted from the respective rate card was
approximately $1,800,000, $1,000,000 and $580,000 for the year ended December
31, 1998 and the three months ended March 31, 1998 and 1999, respectively.
In April 1999, the Company amended the NBC and Hearst advertising agreements.
See Note 11--Subsequent Events.
Operating Agreements
During 1998, the Company entered into two operating agreements with NBC and
NBC Multimedia whereby the Company and NBC jointly produce, market, and promote
the Company's online properties and involves the integration of the Company's
and NBC's Web sites over a period of two to three years. In connection with
these agreements, the Company issued preferred stock and warrants to NBC and
NBC Multimedia as follows:
(i) The Company executed an operating agreement whereby the Company issued
a warrant to purchase 375,000 shares of common stock with an exercise
price of $4.00 per share. The warrant is exercisable at any time prior
to its expiration in February 2003. Of the shares issuable upon
exercise of the warrants, 50% and 25% are subject to cancellation, if
not previously exercised, in the event that NBC cancels the agreement
for convenience prior to February 25, 1999 and February 25, 2000,
respectively (the Variable Warrants). The warrant was initially valued
at approximately $944,000 using the Black-Scholes option pricing
model.
(ii) The Company executed an operating agreement whereby the Company issued
500,000 shares of Series D Stock and a warrant to purchase 130,556
shares of Series D Stock with a weighted average exercise price of
$7.66 per share. The warrant is exercisable at any time prior to their
expiration in August 2003. Of the shares issuable upon exercise of the
warrant, 25% are subject to cancellation, if not previously exercised,
in the event that NBC cancels the agreement for convenience prior to
August 21, 2001 (the Variable Warrants). The warrant was initially
valued at approximately $439,000 using the Black-Scholes option
pricing model.
The total value attributed to the operating agreements is being amortized
ratably over the term of the respective agreements. For the year ended December
31, 1998 and for the three months ended March 31, 1998 and 1999, amortization
expense related to these agreements of approximately $663,000,
F-13
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
$39,000 and $715,000, respectively, was recorded to noncash advertising and
promotional charges in the statement of operations. In accordance with EITF No.
96-18, the Variable Warrants are subject to revaluation at each balance sheet
date based on the then current fair value through the date the related
cancellation or repurchase rights lapse. As of December 31, 1998 and March 31,
1999, the unamortized value attributable to the noncancelable preferred stock
and warrants of $2,253,000 and $2,454,000, respectively, has been recorded in
other assets.
In April 1999, the Company amended the NBC operating agreements. See Note
11--Subsequent Events.
(4) Financial Statement Components
(a) Cash Equivalents and Short-Term Investments
The following is a summary of cash equivalents and short-term investments as
of December 31, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ -------
<S> <C> <C>
Cash equivalents:
Money markets funds........................................ $ -- $ 21
Commercial paper........................................... 1,807 4,445
Auction rate securities.................................... -- 1,300
Corporate notes............................................ -- 2,347
------ -------
1,807 8,113
------ -------
Short-term investments:
Commercial paper........................................... -- 980
Corporate notes............................................ -- 4,760
------ -------
-- 5,740
------ -------
$1,807 $13,853
====== =======
</TABLE>
As of December 31, 1997 and 1998, the contractual maturities of all debt
securities in the Company's portfolio, except auction-rate securities, were
less than one year. The contractual maturities for the auction-rate securities
exceed 10 years. However, the Company has the option of adjusting the interest
rates or liquidating these investments on their respective reset dates, which
occur every 90 days or less.
F-14
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
(b) Property and Equipment
Property and equipment consisted of the following as of December 31, 1997 and
1998 (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
-------------
<S> <C> <C>
Computer equipment............................................ $ 664 $1,435
Furniture and fixtures........................................ 23 50
----- -------
687 1,485
Less accumulated depreciation................................. 139 486
----- -------
$ 548 $ 999
===== =======
</TABLE>
(c) Interest Income (Expense), Net
Interest income (expense), net consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 29, 1996 Years ended
(Inception) to December 31,
December 31, ------------
1996 1997 1998
-------------- ------------
<S> <C> <C> <C>
Interest income................................ $36 $ 339 $ 241
Interest and other expense..................... -- -- (608)
--- ----- ------
$36 $ 339 $ (367)
=== ===== ======
</TABLE>
Included in interest expense in 1998 is the value associated with the common
stock warrants issued to the holders of the notes totaling $490,000. See Note
6--Capitalization.
(5) Notes Payable
The Company has an equipment line of credit with a financial institution that
provides up to $2,000,000 in borrowings, bears interest at a rate determined on
the draw date, and currently expires in April 2002. The line of credit is
secured by the Company's fixed assets. As of December 31, 1998, $400,000 was
outstanding under this agreement with the principal amount due in 48 monthly
installments beginning in May 1998. These amounts bear interest at a fixed rate
of approximately 20%.
The aggregate principal payments due under the line of credit subsequent to
December 31, 1998 are as follows: 1999, $127,000; 2000, $152,000; 2001,
$93,000; and 2002, $28,000.
F-15
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
(6) Capitalization
(a) Redeemable Convertible Preferred Stock
A summary of redeemable convertible preferred stock as of December 31, 1998
follows:
<TABLE>
<CAPTION>
Noncumulative Liquidation Redemption
Shares dividend preference price
outstanding per share per share per share
----------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Series A.................... 150,000 $0.16 $2.00 $2.00
Series A1................... 350,000 0.16 2.00 2.00
Series B.................... 3,294,785 0.22 2.80 2.80
Series C.................... 384,615 0.38 4.68 4.68
Series D.................... 6,750,509 0.32 4.00 4.00
----------
10,929,909
==========
</TABLE>
At any time after November 30, 2001, following the written request of the
holders of a majority of the then outstanding shares of preferred stock, the
Company must redeem all or any part of the then outstanding shares of preferred
stock for cash at the greater of the redemption price or the then current fair
market value.
Each share of the Series A, A1, B, and D redeemable preferred stock is
convertible into common stock at a rate of 1.00 shares of common stock for one
share of preferred stock and is subject to certain adjustments for
antidilution. Pursuant to antidilution adjustments, the Series C Stock is
convertible at a rate of 1.17 shares of common stock for 1 share of Series C
Stock. The redeemable preferred stock automatically converts to common stock
upon completion of a public offering of the Company's common stock or at such
time as the Company receives the consent of the majority of the holders of each
series of the preferred stock. The holders of the redeemable preferred stock
are entitled to the number of votes equal to the number of shares of common
stock on an "as if converted" basis.
No dividends have been declared or paid on either the preferred stock or
common stock since inception of the Company.
The Company borrowed approximately $2,900,000 under a convertible loan
arrangement from April 1998 through August 1998. Advances were at an interest
rate of 9% per annum. In connection with the issuance of the Series D Stock in
September 1998, notes of $2,634,000, including accrued interest, were converted
into 658,476 shares of Series D Stock and the remaining notes were repaid in
full.
(b) Common Stock
As of December 31, 1998, the Company has reserved 10,994,812 shares of common
stock for the future conversion of the Series A through D Preferred Stock.
F-16
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
The Company has issued to the Company's founders 2,300,000 shares of common
stock, which are subject to repurchase on termination of employment. As of
December 31, 1998, 468,520 shares were subject to repurchase. Such repurchase
rights terminate upon the completion of a public offering of the Company's
common stock.
Certain option holders have exercised options to purchase shares of
restricted common stock in exchange for stockholder promissory notes. The notes
are secured by the underlying shares of common stock and were issued with full
recourse rights. The notes bear interest at 6% and expire on various dates
ranging from November 2006 to March 2009. The Company has the right to
repurchase all unvested shares purchased by the notes at the original exercise
price in the event of employee termination. The number of shares subject to
this repurchase right decreases as the shares vest under the original option
terms, generally over four years. As of December 31, 1998 and March 31, 1999,
there were 732,979 and 855,684 shares, respectively, subject to repurchase.
These options were exercised at prices ranging from $0.02 to $0.60 with a
weighted average exercise price of $0.26 per share. The options exercised to
date have a weighted average fair value of $0.28 per share.
(c) Stock Option Plan
The Company's 1996 Stock Option Plan (the 1996 Plan) provides for stock
options to be granted to employees, independent contractors, officers, and
directors. Options are generally granted at an exercise price which
approximates 100% of the estimated fair market value per share at the date of
grant, as determined by the Company's Board of Directors. All options are
granted at the discretion of the Company's Board of Directors and have a term
not greater than 10 years from the date of grant. Options issued generally vest
ratably over 4 years, 25% one year after the grant date and the remainder at a
rate of 1/36 per month thereafter.
A summary of stock option activity follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------------------- -------------------- --------------------
Weighted Weighted Weighted
average average average
Options exercise Options exercise Options exercise
outstanding price outstanding price outstanding price
----------- -------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 207,750 $0.20 674,801 $0.26
Options granted......... 1,823,200 0.24 520,551 0.28 315,623 0.92
Options exercised....... (1,612,200) 0.32 -- -- (534,519) 0.26
Options canceled........ (3,250) 0.20 (53,500) 0.28 (112,907) 0.38
---------- ------- --------
Outstanding at end of
year................... 207,750 0.20 674,801 0.26 342,998 0.82
========== ======= ========
Shares available for
future grant........... 805,050 488,000 315,336
========== ======= ========
</TABLE>
In connection with its grants of options, the Company has recognized unearned
deferred compensation expense of $892,000 for the year ended December 31, 1998.
Of this amount, $618,000
F-17
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
related to 301,623 options granted to employees with exercise prices below the
deemed fair market value of the common stock. The weighted average exercise
price and weighted average fair value for these options were $0.78 and $2.82,
respectively. The remaining $274,000 relates to the value of option grants to
non-employees determined using the Black-Scholes option pricing model.
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options outstanding Options Vested
--------------------------------- ---------------------
Weighted-
average
Range remaining Weighted- Weighted-
of contractual average average
exercise Number life exercise Number exercise
prices outstanding (years) price outstanding price
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.20-0.40 265,374 8.99 $0.30 149,110 $0.28
2.00 40,500 9.81 2.00 -- --
3.00-4.00 37,124 9.91 3.32 -- --
------- -------
342,998 9.18 0.82 149,110 0.28
======= =======
</TABLE>
The Company uses the intrinsic-value method in accounting for its stock-based
compensation plans. Accordingly, no compensation cost 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 compensation costs been
determined in accordance with SFAS No. 123 for all of the Company's stock based
compensation plans, net loss and basic and diluted net loss per share would not
have been materially impacted.
The weighted-average fair value of employee stock options granted during
1996, 1997, and 1998 was $0.06, $0.08 and $2.02, respectively. The fair value
of employee options granted was estimated on the date of grant using the
minimum value method. The following weighted-average assumptions were used in
the employee and nonemployee calculations for 1996, 1997, and 1998:
(i) dividend yield of 0%; (ii) expected volatility of 0% for employees and 45%
in 1996 and 1997 and 135% in 1998 for nonemployees; (iii) weighted average
risk-free interest rate of approximately 6% in 1996 and 1997 and 5% in 1998;
and (iv) expected life of three years for employees and ten years for
nonemployees.
(d) Preferred Stock Subscribed and Warrants
In August and October 1998, the Company agreed to issue 600,000 and 750,000
shares of the Series D Stock in exchange for television and print advertising,
respectively. In addition, the Company agreed to issue warrants to purchase
266,667 shares of Series D stock associated with the August 1998 advertising
agreement. As the associated advertising services have not yet been provided,
these shares and warrants were not issued as of December 31, 1998. As of March
31, 1999, 171,303 shares were issuable pursuant to these agreements based on
advertising provided to date. Although these shares were not delivered until
April 15, 1999, they are considered issued and
F-18
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
outstanding at March 31, 1999 for purposes of presentation in the accompanying
balance sheet. See Note 3--Advertising and Operating Agreements.
In connection with the Series D Stock issuance, the Company issued warrants
to two investment banking firms to purchase 123,830 shares of Series D Stock
with an exercise price of $4.00 per share. The warrants are exercisable any
time prior to September 4, 2003 and are valued at approximately $438,000 using
the Black-Scholes option pricing model. The fair value of the warrants was
deemed to be a direct financing cost associated with the Series D Stock
issuance and was accreted to Mandatorily Redeemable Convertible Preferred Stock
in 1998 and has been presented as an increase in the net loss applicable to
common stockholders in the 1998 statement of operations.
In connection with the NBC operating and advertising agreements, the Company
issued warrants to purchase 375,000 shares of common stock and 255,556 shares
of the Series D Stock. See Note 3--Advertising and Operating Agreements.
In connection with the convertible loan financing, the Company issued
warrants to purchase 290,300 shares of common stock with an exercise price of
$3.00 per share. The warrants may be exercised at any time prior to the fifth
anniversary of the issuance of the warrants, ranging from April 2003 through
July 2003. The warrants are valued at approximately $490,000 using the Black-
Scholes option pricing model. The fair value of the warrants was deemed to be
additional interest expense and charged to Interest Income (Expense), Net in
1998.
The following weighted-average assumptions were used in estimating the fair
value of the warrants issued in 1998: (i) dividend yield of 0%; (ii) expected
volatility of 135%; (iii) weighted average risk-free interest rate of
approximately 5%; and (iv) expected life of five years.
(7) Income Taxes
Income tax expense of $800, $800, and $8,000 in 1996, 1997 and 1998,
respectively, consisted of minimum state income taxes.
The reconciliation between the amount computed by applying the U. S. federal
statutory tax rate of 34% to the net loss and the actual provision for income
taxes for the periods ending December 31, 1996, 1997 and 1998, follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
----- ------- -------
<S> <C> <C> <C>
Income tax benefit at statutory rate............... $(445) $(2,173) $(5,270)
State income tax, net of federal benefit........... 1 1 8
Current year net operating loss and temporary
differences for which no benefit has been
recognized........................................ 439 2,153 4,969
Other.............................................. 6 20 301
----- ------- -------
Total.......................................... $ 1 $ 1 $ 8
===== ======= =======
</TABLE>
F-19
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 1997 and
1998, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $3,068 $8,812
Preferred and common stock warrants........................ -- 582
Property and equipment..................................... 202 179
Research credit carryforwards.............................. 97 233
Other...................................................... -- 117
------ ------
Total gross deferred tax assets.......................... 3,367 9,923
Valuation allowance.......................................... (3,367) (9,923)
------ ------
Total net deferred tax assets............................ $ -- $ --
====== ======
</TABLE>
Management has established a valuation allowance for the portion of deferred
tax assets for which realization is uncertain. The net increase in total
valuation allowance for the years ended December 31, 1997 and 1998 was
approximately $2,826,000 and $6,556,000, respectively.
The Company has net operating loss carryforwards for federal and California
income tax purposes of approximately $20,762,000 and $19,842,000, respectively,
available to reduce future taxable income subject to income taxes. The net
operating loss carryforwards for federal and California income tax purposes
expire beginning in 2011 and 2004, respectively.
The Internal Revenue Code of 1986 and the California Conformity Act of 1987
substantially restrict the ability of a corporation to utilize existing net
operating losses and credits in the event of an "ownership change." The
issuances of preferred stock have resulted in multiple ownership changes since
inception of the Company. Approximately $16,800,000 of the federal net
operating loss carryforward will be subject to an annual limitation in the
amount of $1,700,000. Any unused annual limitation can be carried over and
added to the succeeding year's annual limitation within the allowable
carryforward period. Future changes in ownership may result in additional
limitations.
The Company also has research credit carryforwards for federal and California
income tax return purposes of approximately $151,000 and $82,000, respectively,
available to reduce future income taxes. The federal research credit
carryforward expires in years 2011, 2012, and 2018. The California research
credit carryforward can be utilized indefinitely.
(9) Commitments
Operating Leases
The Company leases its facilities under noncancelable operating leases
expiring at various dates through 2004. Rent expense was approximately $63,000,
and $211,000 for the years ended December 31, 1997 and 1998.
F-20
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
Future minimum lease payments under noncancelable operating leases as of
December 31, 1998 are as follows (in thousands):
<TABLE>
<S> <C>
1999................................................................. $ 402
2000................................................................. 414
2001................................................................. 427
2002................................................................. 437
2003 and thereafter.................................................. 102
------
Total minimum lease payments..................................... $1,782
======
</TABLE>
(10) Retirement Plan
Effective January 1997, the Company established a qualified 401(k) Plan (the
Plan) available to all employees who meet the Plan's eligibility requirements.
Participants may elect to contribute a percentage of their compensation to this
Plan up to a statutory maximum amount. The Company may make matching
contributions to the Plan on a discretionary basis. To date, the Company has
not made any contributions to the Plan.
(11) Subsequent Events
Amendment of NBC and Hearst Agreements
On April 15, 1999, the Board of Directors amended certain of the advertising
and operating agreements with NBC and Hearst to effect the immediate issuances
of the warrants and shares of preferred stock as follows:
. 600,000 shares of Series D Stock and warrants to purchase 266,667 shares
of Series D Stock pursuant to the NBC advertising agreement dated August
21, 1998;
. 750,000 shares of Series D Stock pursuant to the Hearst advertising
agreement;
. A warrant to purchase 375,000 shares of common stock in exchange for and
upon cancellation of the previous warrant issued to NBC pursuant to the
operating agreement dated February 27, 1998; and,
. Warrants to purchase 130,556 shares of Series D Stock in exchange for
and upon cancellation of the previous warrants issued to NBC pursuant to
the operating agreement dated August 21, 1998.
All the warrants and preferred stock issued pursuant to the above are
noncancelable and nonforfeitable. Accordingly, the fair market value of these
instruments will be measured and fixed on the date of issuance. The fair value
of the preferred stock issued in connection with the advertising agreements
will be charged to operations as the advertisements are run. The fair value of
the warrants will be recorded in Other Assets and amortized over the remaining
term of the respective operating agreements. Subsequent to December 31, 1998,
noncash charges of approximately $15,900,000 will be charged to operations as
the related advertising is run or promotional services are received, of which
the Company expects to incur $14,300,000 million in the year ending December
31, 1999.
F-21
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
Series E Redeemable Convertible Preferred Stock
On April 15, 1999, the Company issued 2,499,882 shares of Series E Redeemable
Convertible Preferred Stock (Series E) at a purchase price of $8.00 per share
for total proceeds of approximately $20.0 million. Holders of Series E
preferred stock are entitled to receive annual noncumulative dividends at the
rate of $0.32 per share. Each outstanding share is convertible on a one for one
basis. Upon liquidation, the holders of Series E preferred stock are entitled
to receive $8.00 per share. Holders of Series E are subject to all other rights
and preferences of the previously issued preferred stock.
Initial Public Offering
On April 23, 1999, the Board of Directors authorized the filing of a
registration statement with the 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 Redeemable Convertible Preferred Stock will
automatically convert into shares of common stock based on the respective
conversion ratios.
Reverse Stock Split and Reincorporation
On April 23, 1999, the Board of Directors authorized a one for two reverse
stock split of the Company's common stock and preferred stock and a
reincorporation of the Company into the state of Delaware. As part of the
reincorporation the common stock par value will be adjusted to equal $0.001 per
share and to the number of common shares authorized will be increased to
100,000,000, effective prior to the closing of the Company's anticipated IPO.
The share information in the accompanying financial statements has been
retroactively restated to reflect the effect of this reverse stock split for
all periods presented.
Stock Plans
The Board of Directors approved, on April 23, 1999, the 1999 Employee Stock
Purchase Plan. The common stock available for sale under the plan shall be
500,000 plus an annual increase to be added on the first day of the Company's
fiscal year beginning in 2000 equal to the lesser of (i) 500,000 shares, (ii)
2% of the outstanding shares on such date, or (iii) a lesser amount determined
by the Board.
The Board of Directors also approved a 1999 Director Option Plan reserving
250,000 shares of common stock for issuance thereunder and an amendment and
restatement to the 1996 Plan increasing the shares of common stock reserved for
issuance thereunder by 750,000. The amendment and restatement of the 1996 Plan
also provides for the automatic annual increase in the number of shares
reserved for issuance under the 1996 Plan by the lesser of 750,000 shares, 4%
of the then outstanding shares of common stock or a lesser an amount determined
by the Board of Directors.
F-22
<PAGE>
[INSIDE BACK COVER]
Text: 2,000 trained community leaders and moderators make the difference.
Text: Talk City's trained community leaders and moderators keep the
service family-oriented, welcoming and friendly. Here are a few
faces behind the nicknames.
[This page will contain photos and personal profiles of six community leaders
and moderators.]
Text: www.talkcity.com
<PAGE>
Shares
[TALK CITY LOGO]
Common Stock
---------------------
PROSPECTUS
, 1999
---------------------
Lehman Brothers
Volpe Brown Whelan & Company
U.S. Bancorp Piper Jaffray
Internet distribution by
E*TRADE Securities
<PAGE>
Part II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the registrant in connection
with the sale of common stock being registered. All amounts are estimates
except the registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
Amount
To Be
Paid
-------
<S> <C>
Registration Fee.................................................... $13,900
NASD Fee............................................................ *
Nasdaq Listing Fee.................................................. *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Printing and Engraving Expenses..................................... *
Blue Sky Fees and Expenses.......................................... *
Transfer Agent Fees................................................. *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
* To be filed by amendment.
Item 14. Indemnification of Directors and Officers
As permitted by Section 145 of the Delaware General Corporation Law, the
registrant's amended and restated certificate of incorporation includes a
provision that eliminates the personal liability of its directors for monetary
damages for breach or alleged breach of their duty of care. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, the bylaws of
the registrant provide that: (1) the registrant is required to indemnify its
directors and executive officers and persons serving in such capacities in
other business enterprises at the registrant's request, to the fullest extent
permitted by Delaware law, including in those circumstances in which
indemnification would otherwise be discretionary; (2) the registrant may, in
its discretion, indemnify employees and agents in those circumstances where
indemnification is not required by law; (3) the registrant is required to
advance expenses, as incurred, to its directors and executive officers in
connection with defending a proceeding, except that it is not required to
advance expenses to a person against whom the registrant brings a claim for
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct, knowing violation of law or deriving an improper personal benefit;
(4) the rights conferred in the bylaws are not exclusive, and the registrant is
authorized to enter into indemnification agreements with its directors,
executive officers and employees; and (5) the registrant may not retroactively
amend the bylaw provisions in a way that it adverse to such directors,
executive officers and employees in these matters.
The registrant's policy is to enter into indemnification agreements with each
of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the bylaws, as well as certain additional
II-1
<PAGE>
procedural protections. In addition, such indemnification agreements provide
that the registrant's directors and executive officers will be indemnified to
the fullest possible extent not prohibited by law against all expenses,
including attorney's fees, and settlement amounts paid or incurred by them in
any action or proceeding, including any derivative action by or in the right of
the registrant, on account of their services as directors or executive officers
of the registrant or as directors or officers of any other company or
enterprise when they are serving in such capacities at the request of the
registrant. The registrant will not be obligated pursuant to the
indemnification agreements to indemnify or advance expenses to an indemnified
party with respect to proceedings or claims initiated by the indemnified party
and not by way of defense, except with respect to proceedings specifically
authorized by the registrant's board of directors or brought to enforce a right
to indemnification under the indemnification agreement, the registrant's bylaws
or any statute or law. Under the agreements, the registrant is not obligated to
indemnify the indemnified party (1) for any expenses incurred by the
indemnified party with respect to any proceeding instituted by the indemnified
party to enforce or interpret the agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
indemnified party in such proceeding was not made in good faith or was
frivolous; (2) for any amounts paid in settlement of a proceeding unless the
registrant consents to such settlement; (3) with respect to any proceeding
brought by the registrant against the indemnified party for willful misconduct,
unless a court determines that each of such claims was not made in good faith
or was frivolous; (4) on account of any suit in which judgment is rendered
against the indemnified party for an accounting of profits made from the
purchase or sale by the indemnified party of securities of the registrant
pursuant to the provisions of (S)16(b) of the Securities Exchange Act of 1934,
and related laws; (5) on account of the indemnified party's conduct which is
finally adjudged to have been knowingly fraudulent or deliberately dishonest,
or to constitute willful misconduct or a knowing violation of the law; (6) on
account of any conduct from which the indemnified party derived an improper
personal benefit; (7) on account of conduct the indemnified party believed to
be contrary to the best interests of the registrant or its stockholders; (8) on
account of conduct that constituted a breach of the indemnified party's duty of
loyalty to the registrant or its stockholders; or (9) if a final decision by a
court having jurisdiction in the matter shall determine that such
indemnification is not lawful.
The indemnification provision in the bylaws and the indemnification
agreements entered into between the registrant and its directors and executive
officers may be sufficiently broad to permit indemnification of the
registrant's officers and directors for liabilities arising under the
Securities Act of 1933.
Reference is made to the following documents filed as exhibits to this
registration statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit
Document Number
-------- -------
<S> <C>
Form of Underwriting Agreement...................................... 1.1
Certificate of Incorporation of the registrant...................... 3.1
Form of Amended and Restated Certificate of Incorporation of the
registrant to be filed upon closing of the offering................ 3.2
Bylaws of registrant................................................ 3.3
Form of Indemnification Agreement entered into by the registrant
with each of its directors and executive officers.................. 10.1
</TABLE>
II-2
<PAGE>
Item 15. Recent Sales of Unregistered Securities
Since March 29, 1996, the registrant has issued and sold the securities
described below. These share numbers do not reflect the proposed one for two
reverse stock split of the common stock and preferred stock anticipated to be
effected prior to the closing of the offering.
(a) From March 29, 1996, to April 30, 1999, the registrant issued and sold an
aggregate of 4,047,622 shares of unregistered common stock to 30 directors,
officers, employees, former employees and consultants at prices ranging from
$0.01 to $2.50 per share, for aggregate cash consideration of approximately
$958,938, of which approximately $916,400 is subject to outstanding promissory
notes payable to the registrant. These shares were sold pursuant to the
exercise of options granted by the board. As to each director, officer,
employee, former employee and consultant of the registrant who was issued such
securities, the registrant relied upon Rule 701 of the Securities Act of 1933.
Each such person purchased securities of the registrant pursuant to a written
contract between such person and the registrant. In addition, the registrant
met the conditions imposed under Rule 701(b).
(b) On April 1, 1996, the registrant sold in the aggregate 4,600,000 of
unregistered common stock at a price per share of $0.01, which such amounts
reflect a ten-for-one stock split approved by the board and stockholders in
April and May of 1996, respectively, to Peter H. Friedman and Jenna Woodul, for
aggregate cash consideration of $46,000. These shares were sold pursuant to
repurchase agreements between the registrant and each such individual. As to
each person issued such securities, the registrant relied upon Section 4(2) of
the Securities Act of 1933.
(c) On June 4, 1996, the registrant sold in the aggregate 300,000 shares of
unregistered Series A preferred stock at a price per share of $1.00 to Joseph
A. Graziano for aggregate cash consideration of $300,000. The registrant relied
upon Section 4(2) of the Securities Act of 1933 in connection with the sale of
these shares.
(d) On July 15, 1996, the registrant issued and sold in the aggregate 700,000
shares of unregistered Series A1 preferred stock at a price per share of $1.00
to certain investors for aggregate cash consideration of $700,000. These shares
were sold pursuant to a Series A1 preferred stock purchase agreement between
the registrant and such investors. The issuance was made in reliance upon
Section 4(2) of the Securities Act of 1933.
(e) On November 20, 1996, the registrant sold in the aggregate 6,589,570
shares of unregistered Series B preferred stock at a price per share of $1.40
to certain investors for aggregate cash consideration of $9,225,400. The shares
were sold pursuant to a Series B preferred stock purchase agreement between the
registrant and such investors. The registrant relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the sale
of these shares. The sale of Series B preferred stock was made in compliance
with all of the terms of Rules 501 and 502 of Regulation D, there were no more
than 35 investors, as calculated pursuant to Rule 501(e) of Regulation D, and
each investor who was not an accredited investor represented to the registrant
that it had such knowledge and experience in financial and business matters
that it was capable of evaluating the merits and risks of the investment.
(f) In April and July 1998, the registrant issued and sold (1) 40
unregistered convertible promissory notes in the aggregate principal amount of
$2,903,000, (2) 40 unregistered warrants exercisable for an aggregate of
580,600 shares of unregistered common stock, at an exercise price
II-3
<PAGE>
per share of $1.50, and (3) in the aggregate 1,445 shares of unregistered
senior preferred stock, pursuant to a bridge loan financing. The bridge notes,
bridge warrants and senior preferred stock were issued to certain investors
pursuant to a note and warrant purchase agreement. Pursuant to their terms, the
principal amount of the bridge notes, plus the accrued interest thereon, were
convertible, at the option of the holders, into shares of the registrant's
capital stock issued in the registrant's next equity financing simultaneously
with the initial closing of such financing. The bridge warrants may be
exercised in whole or in part at any time prior to five years from their
respective date of issuance and may be exercised for cash or pursuant to a net
exercise provision contained therein. The senior preferred stock entitled its
holders to certain rights upon certain acquisitions of the registrant. The
senior preferred stock had no other rights and all outstanding shares of the
senior preferred stock were automatically canceled and null and void as of the
initial closing of the Series D preferred stock financing of the registrant.
The registrant relied upon Section 4(2) of the Securities Act of 1933 and
Regulation D, Rule 506, in connection with the sale of these securities. The
sale of the bridge notes, bridge warrants and senior preferred stock were made
in compliance with all of the terms of Rules 501 and 502 of Regulation D, there
were no more than 35 investors, as calculated pursuant to Rule 501(e) of
Regulation D, and each investor who was not an accredited investor represented
to the registrant that it had such knowledge and experience in financial and
business matters that it was capable of evaluating the merits and risks of the
investment.
(g) On April 22, 1998, the registrant issued and sold in the aggregate
427,350 shares of Series C preferred stock, or 500,000 shares of unregistered
common stock issuable upon conversion of the Series C preferred stock, at a
price per share of $2.34, to National Broadcasting Company, Inc. in
consideration for the broadcast by NBC television network of advertising spots
prepared by the registrant over a time period mutually agreed upon by the
registrant and NBC. The agreed upon aggregate consideration to the registrant
was $1,000,000. The shares were sold pursuant to a Series C preferred stock
purchase agreement. The registrant relied upon Section 4(2) of the Securities
Act of 1933 and Regulation D, Rule 506, in connection with the sale of these
shares. The sale of Series C preferred stock was made in compliance with all of
the terms of Rules 501 and 502 of Regulation D, there were no more than 35
investors, as calculated pursuant to Rule 501(e) of Regulation D, and each
investor who was not an accredited investor represented to the registrant that
it had such knowledge and experience in financial and business matters that it
was capable of evaluating the merits and risks of the investment.
(h) On April 22, 1998, the registrant issued and sold an unregistered warrant
to purchase 641,026 shares of unregistered common stock, with an exercise price
per share of $2.34, to NBC Multimedia, Inc. in consideration for NBC
Multimedia's agreement to include localized versions of the registrant's chat
service among the list of primary services offered as part of NBC Interactive
Neighborhood's menu of localized world wide web services. This warrant is
referred to elsewhere in this registration statement as the Original Multimedia
Warrant. The agreed upon aggregate consideration to the registrant was
$1,500,000. The Original Multimedia Warrant was issued pursuant to a warrant
purchase agreement. The Original Multimedia Warrant may be exercised in whole
or in part at any time prior to April 22, 2003, and may be exercised for cash
or pursuant to a net exercise provision contained therein. The registrant
relied upon Section 4(2) of the Securities Act of 1933 and Regulation D, Rule
506, in connection with the sale of the Original Multimedia Warrant. The sale
of
II-4
<PAGE>
the Original Multimedia Warrant was made in compliance with all of the terms of
Rules 501 and 502 of Regulation D, there were no more than 35 investors, as
calculated pursuant to Rule 501(e) of Regulation D, and each investor who was
not an accredited investor represented to the registrant that it had such
knowledge and experience in financial and business matters that it was capable
of evaluating the merits and risks of the investment.
(i) In August and September 1998, the registrant sold in the aggregate
11,184,066 shares of unregistered Series D preferred stock at a price per share
of $2.00 to certain investors for aggregate cash consideration of $22,368,132.
The shares were sold pursuant to a Series D preferred stock purchase agreement.
The registrant relied upon Section 4(2) of the Securities Act of 1933 and
Regulation D, Rule 506, in connection with the sale of these shares. The sale
of the Series D preferred stock was made in compliance with all of the terms of
Rules 501 and 502 of Regulation D, there were no more than 35 investors, as
calculated pursuant to Rule 501(e) of Regulation D, and each investor who was
not an accredited investor represented to the registrant that it had such
knowledge and experience in financial and business matters that it was capable
of evaluating the merits and risks of the investment.
(j) On August 25, 1998, simultaneously with the initial closing of the Series
D preferred stock financing, the registrant issued in the aggregate 1,315,988
shares of unregistered Series D preferred stock, at a conversion price per
share of $2.00, to the holders of the bridge notes in consideration for the
cancellation of the principal and accrued interest on such notes as of August
24, 1998. In addition, all 1,445 outstanding shares of senior preferred stock
were canceled and declared null and void as of such date. The registrant relied
upon Section 4(2) of the Securities Act of 1933 and Regulation D, Rule 506, in
connection with the sale of these shares. The sale of the Series D preferred
stock was made in compliance with all of the terms of Rules 501 and 502 of
Regulation D, there were no more than 35 investors, as calculated pursuant to
Rule 501(e) of Regulation D, and each investor who was not an accredited
investor represented to the registrant that it had such knowledge and
experience in financial and business matters that it was capable of evaluating
the merits and risks of the investment.
(k) On August 31, 1998, the registrant issued and sold (1) in the aggregate
341,880 shares of unregistered Series C preferred stock, or 400,000 shares of
common stock issuable upon conversion of such Series C preferred stock, at a
price per share of $2.34, and (2) an unregistered warrant to purchase 250,000
shares of unregistered Series D preferred stock, with an exercise price per
share of $3.00, to NBC in consideration for the broadcast by the NBC television
network of advertising spots prepared by the registrant over a time period
mutually agreed upon by the registrant and NBC. The agreed upon aggregate
consideration to the registrant was $1,550,000. The shares and the warrant were
issued pursuant to a Series C preferred stock, Series D preferred stock and
warrant purchase agreement. The warrant may be exercised in whole or in part at
any time prior to August 31, 2003 and may be exercised for cash or pursuant to
a net exercise provision contained therein. The registrant relied upon Section
4(2) of the Securities Act of 1933 and Regulation D, Rule 506, in connection
with the sale of these securities. The sale of the Series C preferred stock and
warrant were made in compliance with all of the terms of Rules 501 and 502 of
Regulation D, there were no more than 35 investors, as calculated pursuant to
Rule 501(e) of Regulation D, and each investor who was not an accredited
investor represented to the registrant that it had such knowledge and
II-5
<PAGE>
experience in financial and business matters and that it was capable of
evaluating the merits and risks of the investment.
(l) On August 31, 1998, the registrant issued and sold (1) in the aggregate
1,000,000 shares of unregistered Series D preferred stock at a price per share
of $2.00, and (2) an unregistered warrant to purchase 261,111 shares of
unregistered Series D preferred stock, to NBC Multimedia in consideration for
the execution and delivery of the operating agreement by and between the
registrant and NBC Multimedia. The warrant has the following exercise prices
per share: with respect to 111,111 of the shares, $3.00; with respect to 83,333
of the shares, $4.00; and with respect to 66,667 of the shares, $5.00. The
agreed upon aggregate consideration to the registrant was $3,000,000. The
shares and the warrant were issued pursuant to a Series C preferred stock,
Series D preferred stock and warrant purchase agreement. The warrant may be
exercised in whole or in part at any time prior to August 31, 2003 and may be
exercised for cash or pursuant to a net exercise provision contained therein.
The registrant relied upon Section 4(2) of the Securities Act of 1933 and
Regulation D, Rule 506, in connection with the sale of these securities. The
sale of the Series D preferred stock and warrant was made in compliance with
all of the terms of Rules 501 and 502 of Regulation D, there were no more than
35 investors, as calculated pursuant to Rule 501(e) of Regulation D, and each
investor who was not an accredited investor represented to the registrant that
it had such knowledge and experience in financial and business matters that it
was capable of evaluating the merits and risks of the investment.
(m) On August 31, 1998, the registrant issued a new unregistered warrant to
Multimedia, to replace the Original Multimedia Warrant, exercisable for 750,000
shares of unregistered common stock with a new exercise price per share of
$2.00. This new warrant is referred to elsewhere in this registration statement
as the New Multimedia Warrant. The New Multimedia Warrant was issued to
Multimedia due to the anti-dilution provisions of the Original Multimedia
Warrant. The New Multimedia Warrant may be exercised in whole or in part at any
time prior to April 22, 2003, and may be exercised for cash or pursuant to a
net exercise provision contained therein. The registrant relied upon Section
4(2) of the Securities Act of 1933 and Regulation D, Rule 506, in connection
with the sale of the New Multimedia Warrant. The sale of the New Multimedia
Warrant was made in compliance with all of the terms of Rules 501 and 502 of
Regulation D, there were no more than 35 investors, as calculated pursuant to
Rule 501(e) of Regulation D, and each investor who was not an accredited
investor represented to the registrant that it had such knowledge and
experience in financial and business matters that it was capable of evaluating
the merits and risks of the investment.
(n) On September 14, 1998, the registrant issued and sold three unregistered
warrants exercisable for an aggregate of 247,659 shares of unregistered Series
D preferred stock, at an exercise price per share of $2.00. The warrants were
issued to Refco Securities, Inc. and Volpe Brown Whelan & Company. Each of the
warrants may be exercised in whole or in part at any time prior to September
14, 2003 and may be exercised for cash only. The registrant relied on Section
4(2) of the Securities Act of 1933 and Regulation D, Rule 506 in connection
with the sale of the securities. The sale of the warrants was made in
compliance with all of the terms of Rule 501 and 502 of Regulation D, there
were no more than 35 investors, as calculated pursuant to Rule 501(e) of
Regulation D, and each investor who was not an accredited investor represented
to the registrant that
II-6
<PAGE>
it had knowledge and experience in financial and business matters and that it
was capable of evaluating the merits and risks of the investment.
(o) On April 15, 1999, the registrant issued and sold in the aggregate
1,500,000 shares of unregistered Series D preferred stock at a price per share
of $2.00 to Hearst Communications, Inc. in consideration for the promotion of
the registrant by Hearst through publication of advertisements in various
Hearst magazines. The agreed upon consideration to the registrant was
$3,000,000. The shares were sold pursuant to a Series D preferred stock
purchase agreement, as amended. The registrant relied upon Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506, in connection with the sale
of these shares. The sale of the Series D preferred stock was made in
compliance with all the terms of Rule 501 and 502 of Regulation D, there were
no more than 35 investors, as calculated pursuant to Rule 501(e) of Regulation
D, and each investor who was not an accredited investor represented to the
registrant that it had such knowledge and expertise in financial and business
matter that it was capable of evaluating the merits and risks of the
investment.
(p) On April 19, 1999, the registrant issued and sold (1) in the aggregate
1,200,000 shares of unregistered Series D preferred stock, at a price per share
of $2.00, and (2) an unregistered warrant to purchase 533,333 shares of
unregistered Series D preferred stock, to NBC in consideration for the
broadcast by the NBC television network of advertising spots prepared by the
registrant over a time period mutually agreed upon by the registrant and NBC.
The warrant has the following exercise prices per share: with respect to 83,333
of the shares, $3.00; with respect to 250,000 of the shares, $4.00; and with
respect to 200,000 of the shares, $5.00. The agreed upon aggregate
consideration to the registrant was $4,650,000. The shares and warrant were
issued pursuant to a Series C preferred stock, Series D preferred stock and
warrant purchase agreement, as amended. The warrant may be exercised in whole
or in part at any time prior to April 19, 2004 and may be exercised for cash or
pursuant to a net exercise provision contained therein. The registrant relied
upon Section 4(2) of the Securities Act of 1933 and Regulation D, Rule 506, in
connection with the sale of these securities. The sale of the Series D
preferred stock and warrant was made in compliance with all of the terms of
Rules 501 and 502 of Regulation D, there were no more than 35 investors, as
calculated pursuant to Rule 501(e) of Regulation D, and each investor who was
not an accredited investor represented to the registrant that it had such
knowledge and experience in financial and business matters that it was capable
of evaluating the merits and risks of the investment.
(q) On April 23, 1999, the registrant issued and sold in the aggregate
4,999,764 shares of unregistered Series E preferred stock at price per share of
$4.00 to certain investors for aggregate cash consideration of $19,999,056. The
shares were sold pursuant to a Series E preferred stock purchase agreement. The
sale of the Series E preferred stock was made in compliance with all of the
terms of Rules 501 and 502 of Regulation D, there were no more than 35
investors, as calculated pursuant to Rule 501(e) of Regulation D, and each
investor who was not an accredited investor represented to the registrant that
it had such knowledge and experience in financial and business matters that it
was capable of evaluating the merits and risks of the investment.
(r) On April 23, 1999, the registrant issued and sold an unregistered warrant
exercisable for an aggregate of 23,785 shares of unregistered Series E
preferred stock, at an exercise price per share of $4.00. The warrant was
issued to Volpe Brown Whelan & Company. The warrant may be
II-7
<PAGE>
exercised in whole or in part at any time prior to April 23, 2004 and may be
exercised for cash only. The registrant relied on Section 4(2) of the
Securities Act of 1933 and Regulation D, Rule 506 in connection with the sale
of the warrant. The sale of the warrant was made in compliance with all of the
terms of Rule 501 and 502 of Regulation D, there were no more than 35
investors, as calculated pursuant to Rule 501(e) of Regulation D, and each
investor who was not an accredited investor represented to the registrant that
it had knowledge and experience in financial and business matters and that it
was capable of evaluating the merits and risks of the investment.
Appropriate legends were affixed to the share certificates issued in the
transactions described above. All recipients had adequate access, through their
relationships with the registrant, to information about the registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement (draft dated April , 1999).*
3.1 Certificate of Incorporation of registrant.*
3.2 Form of Amended and Restated Certificate of Incorporation of
registrant to be filed upon the closing of the offering made under the
registration statement.*
3.3 Bylaws of registrant.*
4.1 Form of registrant's common stock certificate.*
4.2 Third Amended and Restated Shareholders Rights Agreement, dated April
23, 1999, between the registrant and the parties named therein.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.*
10.1 Form of Indemnification Agreement entered into by registrant with each
of its directors and executive officers.*
10.2 1996A Stock Option Plan and related agreements.
10.3 Amended and Restated 1996 Stock Option Plan and related agreements.*
10.4 1999 Employee Stock Purchase Plan.
10.5 1999 Director Option Plan.
10.6 Office Lease Agreement, dated May 21, 1997, by and between the
registrant and The Manufacturers Life Insurance Company (U.S.A.).
10.7 Office Lease Agreement, dated February 28, 1999, by and between the
registrant and SLG Graybar LLC.
10.8 Repurchase Agreement, dated November 20, 1996, as amended, by and
between the registrant and Peter H. Friedman.
10.9 Repurchase Agreement, dated November 20, 1996, as amended, by and
between the registrant and Jenna Woodul.
10.10 Stock Option Agreement, dated March 1, 1999, by and between the
registrant and Jeffrey Snetiker.
10.11 Master Service Agreement, dated April 19, 1999, by and between the
registrant and Frontier GlobalCenter.
10.12 Network Affiliation Agreement, dated March 1, 1998 by and between the
registrant and 24/7 Media Inc.**
10.13 Content and Services Agreement, effective July 19, 1998, by and
between the registrant and WebTV Networks, Inc.**
</TABLE>
II-8
<PAGE>
<TABLE>
<C> <S>
10.14 Contract, dated May 13, 1997, by and between the registrant and NFO
Research.**
10.15 Operating Agreement, dated August 24, 1998, by and between the
registrant and Cox Interactive Media, Inc.**
10.16 Hearst-Talk City Operating Agreement, dated April 20, 1999, by and
between the registrant and Hearst New Media and Technology division, a
division of Hearst Communications, Inc.**
10.17 Series D Preferred Stock Purchase Agreement, dated October 30, 1998,
by and between the registrant and Hearst Communications, Inc., Hearst
New Media & Technology division, as amended on April 15, 1999.**
10.18 NBC-Talk City Chat Services Agreement, dated August 21, 1998, by and
between the registrant and NBC Multimedia, Inc., as amended on April
19, 1999.**
10.19 Letter Agreement, dated February 25, 1998, by and between the
registrant and NBC Multimedia, Inc., as amended on July 27, 1998 and
April 19, 1999.**
21.1 Subsidiaries of the registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).*
23.2 Consent of KPMG LLP, Independent Auditors.
24.1 Power of Attorney (See page II-11).
27. Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
** Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(b) Financial Statement Schedules
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 undersigned hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions referenced in Item 14 of this
registration statement or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities, other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-9
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 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-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Campbell,
State of California, on this 30th day of April 1999.
Talk City, Inc.
/s/ Peter H. Friedman
By: _________________________________
Peter H. Friedman
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints, jointly and severally, Peter H. Friedman and
Jeffrey Snetiker and each one of them, his true and lawful attorney-in-fact and
agents, each with full power of substitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments, including
post-effective amendments, to this registration statement, and any registration
statement related to the offering contemplated by this registration statement
that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933 and to file the same, with all exhibits thereto and all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents or any of them,
or his or their substitute or substitutes, may lawfully do or cause to be done
or by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Peter H. Friedman President and Chief April 30, 1999
______________________________________ Executive Officer
Peter H. Friedman (Principal Executive
Officer)
/s/ Jeffrey Snetiker Senior Vice President, April 30, 1999
______________________________________ Chief Financial and
Jeffrey Snetiker Administrative Officer
(Principal Financial and
Accounting Officer)
/s/ Kenneth A. Bronfin Director April 30, 1999
______________________________________
Kenneth A. Bronfin
/s/ Joseph A. Graziano Director April 30, 1999
______________________________________
Joseph A. Graziano
</TABLE>
II-11
<PAGE>
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Thomas P. Hirschfeld Director April 30, 1999
______________________________________
Thomas P. Hirschfeld
/s/ John Sculley Director April 30, 1999
______________________________________
John Sculley
/s/ Barry M. Weinman Director April 30, 1999
______________________________________
Barry M. Weinman
/s/ Martin J. Yudkovitz Director April 30, 1999
*By: _________________________________
Martin J. Yudkovitz
</TABLE>
II-12
<PAGE>
Exhibit Index
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement (draft dated April , 1999).*
3.1 Certificate of Incorporation of registrant.*
3.2 Form of Amended and Restated Certificate of Incorporation of registrant
to be filed upon the closing of the offering made under the registration
statement.*
3.3 Bylaws of registrant.*
4.1 Form of registrant's common stock certificate.*
4.2 Third Amended and Restated Shareholders Rights Agreement, dated April
23, 1999, between the registrant and the parties named therein.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.*
10.1 Form of Indemnification Agreement entered into by registrant with each
of its directors and executive officers.*
10.2 1996A Stock Option Plan and related agreements.
10.3 Amended and Restated 1996 Stock Option Plan and related agreements.*
10.4 1999 Employee Stock Purchase Plan.
10.5 1999 Director Option Plan.
10.6 Office Lease Agreement, dated May 21, 1997, by and between the
registrant and The Manufacturers Life Insurance Company (U.S.A.).
10.7 Office Lease Agreement, dated February 28, 1999, by and between the
registrant and SLG Graybar LLC.
10.8 Repurchase Agreement, dated November 20, 1996, as amended, by and
between the registrant and Peter H. Friedman.
10.9 Repurchase Agreement, dated November 20, 1996, as amended, by and
between the registrant and Jenna Woodul.
10.10 Stock Option Agreement, dated March 1, 1999, by and between the
registrant and Jeffrey Snetiker.
10.11 Master Service Agreement, dated April 19, 1999, by and between the
registrant and Frontier GlobalCenter.
10.12 Network Affiliation Agreement, dated March 1, 1998 by and between the
registrant and 24/7 Media Inc.**
10.13 Content and Services Agreement, effective July 19, 1998, by and between
the registrant and WebTV Networks, Inc.**
10.14 Contract, dated May 13, 1997, by and between the registrant and NFO
Research.**
10.15 Operating Agreement, dated August 24, 1998, by and between the
registrant and Cox Interactive Media, Inc.**
10.16 Hearst-Talk City Operating Agreement, dated April 20, 1999, by and
between the registrant and Hearst New Media and Technology division, a
division of Hearst Communications, Inc.**
10.17 Series D Preferred Stock Purchase Agreement, dated October 30, 1998, by
and between the registrant and Hearst Communications, Inc., Hearst New
Media & Technology Division, as amended on April 15, 1999.**
10.18 NBC-Talk City Chat Services Agreement, dated August 21, 1998, by and
between the registrant and NBC Multimedia, Inc., as amended on April 19,
1999.**
10.19 Letter Agreement, dated February 25, 1998, by and between the registrant
and NBC Multimedia, Inc., as amended on July 27, 1998 and April 19,
1999.**
21.1 Subsidiaries of the registrant.
23.1 Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).*
23.2 Consent of KPMG LLP, Independent Auditors.
24.1 Power of Attorney (See page II-11).
27. Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
** Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
<PAGE>
EXHIBIT 4.2
================================================================================
TALK CITY, INC.
307 ORCHARD CITY DRIVE
SUITE 304
CAMPBELL, CA 95008
THIRD AMENDED AND RESTATED SHAREHOLDERS RIGHTS AGREEMENT
APRIL 23, 1999
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
SECTION 1 - Purchaser Right of First Refusal; Operating Agreement Extensions............................. 2
1.1 Purchaser Right of First Refusal............................................................ 2
1.2 [Deleted Pursuant to Amendment dated as of August 26, 1998]................................. 4
1.3 Operating Agreement Extensions.............................................................. 4
1.4 Termination................................................................................. 5
SECTION 2 - Company Right of First Refusal............................................................... 5
2.1 Company Right of First Refusal.............................................................. 5
2.2 Termination of Existing Rights. ........................................................... 8
SECTION 3 - Registration Rights.......................................................................... 8
3.1 Restrictions on Transferability............................................................. 8
3.2 Certain Definitions......................................................................... 8
3.3 Restrictive Legends......................................................................... 10
3.4 Restrictions on Transfer; Notice of Proposed Transfers...................................... 11
3.5 Requested Registration..................................................................... 11
3.6 Company Registration....................................................................... 13
3.7 Registration on Form S-3................................................................... 15
3.8 Limitations on Subsequent Registration Rights.............................................. 15
3.9 Expenses of Registration................................................................... 16
3.10 Registration Procedures.................................................................... 16
3.11 Indemnification............................................................................ 16
3.12 Information by Holder...................................................................... 18
3.13 Rule 144 Reporting......................................................................... 18
3.14 Transfer of Registration Rights............................................................ 18
3.15 Standoff Agreement......................................................................... 18
3.16 Termination of Registration Rights......................................................... 19
SECTION 4 - Financial Information and Certain Other Covenants........................................... 19
4.1 Financial Information...................................................................... 19
4.2 Assignment of Rights to Financial Information.............................................. 20
4.3 Board of Directors Expenses................................................................ 20
4.4 Section 1202(c) Compliance................................................................. 20
4.5 Board Composition; Board Attendance........................................................ 20
4.6 Additional Information..................................................................... 22
4.7 Inspection Rights.......................................................................... 22
4.8 Compensation Committee..................................................................... 22
4.9 Approval of Expansion of Option Pool; Option Vesting....................................... 22
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(CONTINUED)
Page
----
<S> <C>
4.10 Termination of Certain Covenants........................................................... 22
4.11 Regulated Financial Institutions Compliance Obligations.................................... 23
SECTION 5 - Preferred Stock Default..................................................................... 23
5.1 Preferred Stock Default Definition......................................................... 23
5.2 Cure Periods............................................................................... 24
5.3 Remedies................................................................................... 24
5.4 Further Assurances......................................................................... 24
5.5 Termination of Covenants................................................................... 24
SECTION 6 - Voting Agreement; Board of Directors ...................................................... 25
6.1 Voting Agreement........................................................................... 25
6.2 Board of Directors......................................................................... 25
SECTION 7 - Miscellaneous.............................................................................. 25
7.1 Governing Law............................................................................. 25
7.2 Confidentiality and Non-Disclosure........................................................ 25
7.3 Survival.................................................................................. 27
7.4 Successors and Assigns.................................................................... 27
7.5 Entire Agreement; Amendment............................................................... 27
7.6 Notices................................................................................... 28
7.7 Delays or Omissions....................................................................... 28
7.8 Counterparts.............................................................................. 28
7.9 Severability.............................................................................. 28
7.10 Titles and Subtitles...................................................................... 28
7.11 Waiver of Rights.......................................................................... 29
</TABLE>
-ii-
<PAGE>
TALK CITY, INC.
THIRD AMENDED AND RESTATED
SHAREHOLDERS RIGHTS AGREEMENT
THIS THIRD AMENDED AND RESTATED SHAREHOLDERS RIGHTS AGREEMENT (the
"Agreement") is made as of April 23, 1999 among (i) Talk City, Inc., a
---------
California corporation (the "Company"), (ii) the sole purchaser of the Company's
-------
Series C Preferred Stock (the "Series C Purchaser") listed on the signature
------------------
pages hereto, (iii) the holder of a warrant (the "NBC Warrant") to purchase
-----------
Common Stock of the Company (the "NBC Warrantholder") listed on the signature
-----------------
pages hereto, (iv) the holders of warrants to purchase Common Stock of the
Company (the "Bridge Warrantholders") listed on the signature pages hereto, (v)
---------------------
the purchasers of the Company's Series B Preferred Stock (the "Series B
--------
Purchasers") pursuant to the Series B Preferred Stock Purchase Agreement dated
- ----------
November 20, 1996 (the "Series B Agreement"), (vi) the sole purchaser of the
------------------
Company's Series A Preferred Stock (the "Series A Purchaser") pursuant to the
------------------
Series A Preferred Stock Purchase Agreement dated June 1996 (the "Series A
--------
Agreement"), (vii) those purchasers of the Company's Series A1 Preferred Stock
- ---------
(the "Series A1 Purchasers") pursuant to the Series A1 Preferred Stock Purchase
--------------------
Agreements dated July 1996 (the "Series A1 Agreements"), (viii) certain holders
--------------------
of Common Stock of the Company (the "Common Shareholders"), (ix) the purchasers
-------------------
(excluding the Bridge Series D Holders (as defined below)) of the Company's
Series D Preferred Stock (the "Series D Purchasers") pursuant to (a) the Series
-------------------
D Preferred Stock Purchase Agreement dated August 25, 1998 (the "Series D
--------
Financing Agreement") and (b) the Series D Preferred Stock Purchase Agreement
- -------------------
with Hearst Communications, Inc., Hearst New Media & Technology Division
("Hearst") dated October 30, 1998 (the "Hearst Series D Agreement", and together
- -------- -------------------------
with the Series D Financing Agreement, the "Series D Agreement"), (x) the
------------------
holders (the "Bridge Series D Holders") of Series D Preferred Stock issued upon
-----------------------
conversion of the bridge notes (the "Bridge Notes") issued pursuant to the
------------
bridge financing (the "Bridge Financing") of the Company, (xi) Volpe Brown
----------------
Whelan & Company ("VBW&C"), as a holder of warrants (the "VBW&C Warrants") to
--------------
purchase Series D Preferred Stock of the Company, (xii) Refco Securities, Inc.
("Refco") as a holder of a warrant (the "Refco Warrant") to purchase Series D
----- -------------
Preferred Stock of the Company and (xiii) the purchasers of the Company's Series
E Preferred Stock (the "Series E Purchasers") pursuant to the Series E Preferred
-------------------
Stock Purchase Agreement dated April 22, 1999 (the "Series E Agreement").
------------------
The Series A Purchaser and the Series A1 Purchasers are collectively
referred to as the "Series A Purchasers"; the Series A Preferred Stock, the
-------------------
Series A1 Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock, the Series E Preferred Stock and the shares
of the Series D Preferred Stock subject to the VBW&C Warrants issued to VBW&C
and the Refco Warrant issued to Refco are collectively referred to as the
"Preferred"; and (A) the Series A Purchaser, (B) the Series A1 Purchasers, (C)
- ----------
the Series B Purchasers, (D) the Series D Purchasers, (E) the Series E
Purchasers, (F) with respect to Sections 1, 2, 3, 4.1, 4.2, 4.5, 4.6, 4.9, 6 and
7 only, the Series C Purchaser, (G) with respect to Sections 2, 3, 4.1, 4.2,
4.6, 4.9, 6 and 7 only, the NBC Warrantholder, (H) with respect to Sections 2,
3, 6 and 7 only, the Bridge Warrantholders and the Series D Bridge Holders and
(J) VBW&C and Refco, as holders of the VBW&C Warrants and the Refco Warrant,
respectively, are collectively referred to as the "Purchasers."
----------
<PAGE>
The Purchasers agree to be bound by all of the terms and conditions of this
Agreement. The Common Shareholders are parties to this Agreement for purposes
of Sections 3.2, 3.6, 3.9 through 3.16, 4.8, 5, 6 and 7 only. The Series C
Purchaser is party to this Agreement for purposes of Sections 1, 2, 3, 4.1, 4.2,
4.5, 4.6, 4.9, 6 and 7 only. The NBC Warrantholder is party to this Agreement
for purposes of Sections 2, 3, 4.1, 4.2, 4.6, 4.9, 6 and 7 only. The Bridge
Warrantholders and the Bridge Series D Holders are party to this Agreement for
purposes of Sections 2, 3, 6 and 7 only.
RECITALS
--------
A. Concurrent with the execution of this Agreement, the Company and the
Series E Purchasers are entering into the Series E Agreement.
B. The Company, the NBC Warrantholder, the Bridge Warrantholders, the
Series D Purchasers, the Series C Purchaser, the Series B Purchasers, the Series
A Purchasers and the Common Shareholders desire to amend and restate the Second
Amended and Restated Shareholders Rights Agreement, dated August 25, 1998, by
and among such parties (the "Rights Agreement"), as amended by an Amendment to
----------------
the Rights Agreement, dated August 26, 1998 and as further amended by an
Amendment to the Rights Agreement dated April 2, 1999 (The Rights Agreement and
both of the amendments thereto are collectively referred to as the "Prior
-----
Agreement").
- ---------
C. The Company has requested, and the parties to the Prior Agreement have
agreed, that the Prior Agreement shall be of no further force and effect, that
the Series D Purchasers, the Series C Purchaser, Series B Purchasers and Series
A Purchasers waive their right of first refusal set forth in Section 1 of the
Prior Agreement with respect to the purchase of the Series E Preferred Stock
(and the shares of Common Stock underlying the Series E Preferred Stock) being
issued pursuant to the Series E Agreement and that the rights granted to the
Purchasers herein supersede the rights granted in the Prior Agreement.
NOW, THEREFORE, in consideration of the promises of the parties set forth
herein, the parties agree as follows:
SECTION 1
PURCHASER RIGHT OF FIRST REFUSAL; OPERATING AGREEMENT EXTENSIONS
----------------------------------------------------------------
1.1 PURCHASER RIGHT OF FIRST REFUSAL.
--------------------------------
(a) Certain Definitions. For purposes of this Section 1.1 the
-------------------
following terms shall have the following respective meanings:
-2-
<PAGE>
A Purchaser's "Pro Rata Share" means the ratio obtained by dividing
--------------
(i) the number of shares of Common Stock held by such Purchaser (including any
shares of Common Stock issuable upon conversion of the Preferred) by (ii) the
total number of shares of Common Stock outstanding immediately prior to the
issuance of the New Securities (including any shares of Common Stock into which
outstanding shares of Preferred are convertible) which are held by the
Purchasers.
"New Securities" means any shares of capital stock of the Company
--------------
including Common Stock and Preferred Stock, whether now authorized or not, and
rights, options or warrants to purchase such shares of Common Stock or Preferred
Stock, and securities of any type whatsoever that are, or may become,
convertible into such shares of Common Stock or Preferred Stock. Notwithstanding
the foregoing, "New Securities" does not include (i) the Series B Preferred
Stock or the Common Stock issuable upon conversion of the Series B Preferred
Stock or the Series A Preferred Stock, (ii) securities issuable upon exercise or
conversion of currently outstanding securities, (iii) securities offered to the
public generally pursuant to a Qualified Public Offering (as defined below),
(iv) securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all of the assets or other
reorganization whereby the Company or its shareholders own more than fifty
percent (50%) of the voting power of the surviving or successor corporation, (v)
securities issued to employees, officers and directors of, and consultants to,
the Company approved by the Board of Directors of the Company (the "Board")
-----
(consistent with the provisions regarding the Compensation Committee set forth
in Section 4.7 below), (vi) securities issued to research or development
collaborators or issued to banks or other institutional lenders or lessors in
connection with capital asset leases or borrowings for the acquisition of
capital assets, pursuant to any arrangement approved by the Board (which Board
approval shall include the approval of at least one director selected by the
holders of the Series B Preferred Stock and at least one director selected by
the holders of the Series C Preferred Stock and Series D Preferred Stock (voting
together as a single class)) of the Company (including securities issued upon
exercise or conversion of any of such securities), (vii) stock issued in
connection with any stock split, stock dividend or recapitalization by the
Company (a "Recapitalization"), (viii) the Series C Preferred Stock, the Common
----------------
Stock issuable upon conversion of the Series C Preferred Stock, the NBC Warrant,
the Common Stock issuable upon exercise of the NBC Warrant, the Bridge Notes,
the equity securities issuable upon conversion of the Bridge Notes, the bridge
warrants (the "Bridge Warrants") issued pursuant to the Bridge Financing, the
---------------
Common Stock issuable upon exercise of the Bridge Warrants, (ix) the Series D
Preferred and the Common Stock issuable upon conversion of the Series D
Preferred, (x) securities to be issued upon exercise of warrants to be granted
to Volpe Brown Whelan & Company LLC pursuant to a letter agreement dated
December 3, 1997 (as the same may be amended) and warrants to be granted to
Refco Securities, Inc. pursuant to a letter agreement dated March 23, 1998 (as
the same may be amended) or (xi) the Series E Preferred Stock and the Common
Stock issuable upon conversion of the Series E Preferred Stock. The term
"Qualified Public Offering" means the offering of the Company's securities to
-------------------------
the public generally pursuant to a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), provided however that if a
-------- -------
Qualified Public Offering does not close in calendar 1999, then the term
"Qualified Public Offering" shall be qualified to require at least $20 million
of gross proceeds to the Company and an offering price per share of at least
$5.00 (as adjusted for any Recapitalization).
-3-
<PAGE>
(b) Right of First Refusal Upon Issuances of New Securities by the
--------------------------------------------------------------
Company. The Company hereby grants to each Purchaser the right of first refusal
- -------
to purchase up to its Pro Rata Share of New Securities which the Company may,
from time to time, propose to sell and issue after the date of this Agreement.
(i) In the event the Company proposes to undertake an issuance
of New Securities, it shall give each Purchaser written notice of its intention,
describing the type of New Securities, the price and the general terms upon
which the Company proposes to issue the same. Each Purchaser shall have fifteen
(15) days from the date of receipt of any such notice (which fifteen (15) day
period shall be specified in the notice) to agree to purchase the Purchaser's
Pro Rata Share of such New Securities for the price and upon the general terms
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased.
(ii) In the event the Purchaser fails to exercise the right of
first refusal within such fifteen (15) day period or affirmatively indicates
that no such exercise will occur, then the Company shall have ninety (90) days
thereafter to close the sale of the New Securities respecting which the
Purchaser's option was not exercised, at a price and upon general terms no more
favorable to the purchasers thereof than specified in the Company's notice. In
the event the Company has not sold the New Securities within such ninety (90)
day period, the Company shall not thereafter issue or sell any New Securities,
without first offering such securities to the Purchasers in the manner provided
above.
(iii) The right of first refusal hereunder is not assignable
except (A) by each of such Purchasers to any affiliated partnership or
corporation or to a partner or retired partner of such Purchaser or affiliated
partnership or corporation or (B) to a transferee who acquires 100,000 or more
shares of Common Stock acquired upon conversion of the Preferred (appropriately
adjusted for Recapitalizations). Notwithstanding the foregoing, National
Broadcasting Company, Inc. ("NBC") shall be entitled to transfer its right of
---
first refusal to no more than four (4) affiliates (as such term is defined
pursuant to Rule 405 under the Securities Act) of NBC, each of whom is an
accredited investor within the meaning of Regulation D, Rule 501(a), promulgated
by the Securities and Exchange Commission, provided each such assignee agrees in
writing to be subject to the terms of this Agreement as if it were the Series C
Purchaser hereunder.
1.2 [DELETED PURSUANT TO AMENDMENT DATED AS OF AUGUST 26, 1998].
1.3 OPERATING AGREEMENT EXTENSIONS. In the event that the Company
------------------------------
receives a bona fide offer to acquire the Company (whether by merger, stock
exchange, sale of substantially all of the assets or other business combination)
pursuant to which the shareholders of the Company would hold less than 50% of
the voting equity securities of the successor or acquiring corporation following
such acquisition (an "Acquisition Offer"), then each operating agreement then in
-----------------
effect between the Company and each of NBC, Cox Interactive Media, Inc. and
Hearst Communications, Inc. (a "Corporate Partner") may, at the option of such
-----------------
Corporate Partner, be extended for a period ending on a date that is five (5)
years from the date of the closing of such Acquisition Offer (or such shorter
period as may be determined by such Corporate Partner, in its sole discretion),
with the other terms of
-4-
<PAGE>
such operating agreement to remain in full force and effect during such period.
The rights and obligations under this Section 1.3 are not assignable by any
Corporate Partner.
1.4 TERMINATION. The rights and obligations granted under Section 1.1
-----------
shall expire upon the earliest to occur of the events described in clause (i),
(ii) or (iii) below. The rights and obligations under Section 1.3 shall expire
upon the first anniversary of the initial closing of the Series D Financing
Agreement (the "First Series D Anniversary"). The events referred to above are:
--------------------------
(i) the closing of a Qualified Public Offering, (ii) as to a Purchaser if such
Purchaser or affiliated partnership or corporation no longer holds any shares of
Preferred and/or Common Stock issued upon conversion of the Preferred
(appropriately adjusted for any Recapitalizations) and (iii) a sale of
substantially all of the assets of the Company or a merger or consolidation of
the Company with or into another corporation or entity pursuant to which the
shareholders immediately prior to such merger or consolidation hold less than
fifty percent (50%) of the voting equity securities of the surviving or
acquiring entity immediately following such merger or consolidation.
SECTION 2
COMPANY RIGHT OF FIRST REFUSAL
------------------------------
2.1 COMPANY RIGHT OF FIRST REFUSAL. Unless otherwise agreed in writing by
------------------------------
the Company, each Purchaser shall not sell, transfer, pledge, hypothecate or
otherwise dispose of any of such Purchaser's Registrable Securities (as defined
in Section 3.2, which shall include, for purposes of this Section 2 only, the
Preferred, the NBC Warrant, the Bridge Warrants and the Common Stock issuable
upon the conversion of the Preferred Stock issuable upon exercise of each of the
Refco Warrant and the VBW&C Warrants) (a "Transfer"), except in compliance with
--------
Section 3.1 below, and any such Transfer shall be subject to the following:
(a) Before any Registrable Securities registered in the name of a
Purchaser may be sold or transferred, such Registrable Securities shall first be
offered to the Company. The Purchaser shall deliver a written notice (the
"Notice") to the Company stating (A) the Purchaser's bona fide intention to sell
------
or transfer such Registrable Securities (the "Proposed Transfer"), (B) the
-----------------
number of shares of such Registrable Securities to be sold or transferred (C)
the price for which the Purchaser proposes to sell or transfer such Registrable
Securities and (D) the name of the proposed purchaser or transferee.
(b) Within (5) business days after receipt of the Notice, the Company
or its assignees (as set forth in clause (c) below) shall have the right to
elect to purchase all (but not less than all) of the shares of Registrable
Securities to which the Notice refers, at the price per share specified in the
Notice.
(c) The Company may not assign its rights hereunder to any person or
entity without first offering to assign its rights hereunder to each of the
holders of the Registrable Securities
-5-
<PAGE>
then outstanding (excluding any Purchaser then proposing to sell or transfer
Registrable Securities, as applicable (the "Transferring Holder")) and any
-------------------
shares of Registrable Securities held by the Transferring Holder shall not be
counted in determining the pro rata amount of the other holders of Registrable
Securities (the "Nontransferring Holders")). In the event the Company desires to
-----------------------
assign its rights hereunder, it shall deliver a written notice (the "Transfer
--------
Notice") to the Nontransferring Holders stating (A) its intention to assign its
- ------
rights hereunder, (B) the number of shares of Registrable Securities to be sold
or transferred by the Transferring Holder, and (C) the price for which the
Transferring Holder proposes to sell or transfer such Registrable Securities.
Within seven (7) days after receipt of the Transfer Notice, each Nontransferring
Holder shall have the right to elect to purchase up to its pro rata share of the
Registrable Securities proposed to be sold or transferred by the Transferring
Holder. If any Nontransferring Holder does not exercise such right in whole, the
Company shall advise the other Nontransferring Holders by providing them with
written notice within three (3) days after the expiration of the seven (7) day
period specified above. Each such Nontransferring Holder shall thereupon be
entitled, for a period of three (3) days from the date of such notice, to
purchase some or all of the shares of Registrable Securities not otherwise
purchased pursuant to this subsection (c); provided, however, that to the extent
-------- -------
that more than one such Nontransferring Holder desires to purchase shares of
Registrable Securities exceeding that proportion as such Nontransferring
Holder's aggregate holding of Registrable Securities then bears to the aggregate
holding of Registrable Securities then held by all Nontransferring Holders who
exercised their rights under this subsection (c) ("Excess Registrable
-------------------
Securities"), the amount of such Excess Registrable Securities which each such
- ----------
Nontransferring Holder shall be entitled to purchase shall be reduced pro rata
--- ----
in accordance with that proportion as the number of shares of Registrable
Securities of which such Nontransferring Holder is then the holder bears to the
total number of shares of Registrable Securities then held by all such
Nontransferring Holders desiring to purchase Excess Registrable Securities
pursuant to this subsection (c). The right to purchase any remaining shares not
so elected to be purchased may be assigned thereafter by the Company to any
person or entity.
(d) In the event the Company and/or its assignee(s) (as set forth in
clause (c) above) elect to acquire the Registrable Securities of a Transferring
Holder as specified in the Notice, the Secretary of the Company shall so notify
the Transferring Holder and settlement thereof shall be made in cash within five
(5) business days after the Company receives the Notice; provided that if the
terms of payment set forth in the Notice were other than cash against delivery,
the Company and/or its assignee(s) (as set forth in clause (c) above) shall pay
the fair market value of such Registrable Securities as determined by the Board,
which determination shall be subject to approval by the Company and a majority
of the holders of the Registrable Securities, and if such determination cannot
be agreed upon, then the parties shall submit the matter to final, binding
arbitration.
(e) If all of the Registrable Securities to which the Notice refers
are not elected to be purchased as provided in Section 2.1(b), then the
Transferring Holder may sell the Registrable Securities to any person named in
the Notice (or any other person) at the price specified in the Notice or at a
higher price, provided that such sale or transfer is consummated within ninety
(90) days after the date of the Notice to the Company, and provided further,
that any such sale is in accordance with all terms and conditions hereof. All
Registrable Securities so sold shall continue to be subject to the provisions of
this Section 2.1 in the same manner as before the transfer, and any transferee
of such
-6-
<PAGE>
Registrable Securities shall execute such written agreement evidencing the same
as the Company shall reasonably request.
(f) The provisions of this Section 2.1 shall terminate upon (and
shall not be applicable to such transactions effective as of) the earlier of (A)
the effective date of a reorganization, merger or consolidation which results in
the Company's shareholders immediately prior to such transaction not holding (by
virtue of shares or securities issued solely with respect thereto) at least 50%
of the voting power of the surviving or continuing entity or its immediate
parent, (B) the effective date of a sale of all or substantially all of the
assets of the Company (except a sale to an affiliate of the Company) (which
transaction has been approved by a majority of the Board) or (C) the closing of
a Qualified Public Offering.
(g) The provisions of Section 2.1(a) through (c) (including the lead-
in set forth in Section 2.1) shall not apply to (1) a transfer of any
Registrable Securities by a Purchaser (i) to any affiliated partnership, limited
liability company, or corporation, (ii) to such Purchaser's ancestors,
descendants or spouse, or any custodian or trustee for the account of the
Purchaser or the Purchaser's ancestors, descendants or spouse, (iii) a transfer
not involving a change in beneficial ownership, (2) distributions without
consideration of Restricted Securities (as such term is defined in Section 3.2)
by the Purchaser to any of its partners, or retired partners, or to the estate
of any of its partners or retired partners, (3) any transfer by any Holder (as
such term is defined in Section 3.2) to (A) any individual or entity controlled
by, controlling, or under common control with, such Holder or (B) any individual
or entity with respect to which such Holder (or any person controlled by,
controlling, or under common control with, such Holder) has the power to direct
investment decisions, or (4) in transactions in compliance with Rule 144 under
the Securities Act, so long as the Company is furnished with reasonably
satisfactory evidence of compliance with such Rule; (5) a transfer by NBC to any
affiliate of NBC (as such term is defined pursuant to Rule 405 under the
Securities Act); (6) a transfer by the NBC Warrantholder to any affiliate of the
NBC Warrantholder (as such term is defined pursuant to Rule 405 under the
Securities Act); (7) a transfer by Cox to any affiliate of Cox (as such term is
defined pursuant to Rule 405 under the Securities Act); or (8) any pledge of
Common Stock made by a Transferring Holder which creates a mere security
interest, provided the pledgee shall furnish the Company and the Purchasers with
a written agreement to be bound by and comply with all provisions of this
Agreement applicable to the Transferring Holder; provided, in each such case
--------
(other than clause (4) above) any such transferee shall receive and hold such
Registrable Securities subject to the provisions of this Section 2.1 and Section
3.15 (as though such transferee were a Holder) and shall execute such written
agreement evidencing the same as the Company shall reasonably request, and there
shall be no further transfer of such Registrable Securities unless in accordance
herewith.
(h) The provisions of this Section 2.1 may be waived by the Company
with respect to any transfer, upon duly authorized action of its Board.
2.2 TERMINATION OF EXISTING RIGHTS. In consideration of the rights
------------------------------
granted herein, Section 2 and Section 4 of each the Series A Agreement and the
Series A1 Agreements are hereby terminated and of no further force and effect.
-7-
<PAGE>
SECTION 3
REGISTRATION RIGHTS
-------------------
3.1 RESTRICTIONS ON TRANSFERABILITY. The Preferred Stock (as defined
-------------------------------
below), the Conversion Stock (as defined below), the NBC Warrant, the Bridge
Warrants, the Refco Warrant and the VBW&C Warrants (and the Common Stock
underlying the NBC Warrant, the Bridge Warrants, the Refco Warrant and the VBW&C
Warrants), shall not be sold, assigned, transferred, pledged or hypothecated (i)
prior to a Qualified Public Offering to a competitor of the Company, which shall
include without limitation GeoCities, the globe.com, Xoom, America OnLine, or
other sites the primary focus of which is community centric services, including
but not limited to services such as chat and home pages, or other competitors as
reasonably determined by a majority of the Board members appointed by the
Preferred, which determination shall be final, and (ii) otherwise, except in
compliance with the conditions specified in this Section 3 and subject to the
Company's right of first refusal set forth in Section 2 above. The Purchasers
will cause any proposed purchaser, assignee, transferee, or pledgee of any such
shares held by the Purchasers to agree to take and hold such securities subject
to the provisions and upon the conditions specified in this Section 3. The
Company shall not be required (i) to transfer on its books any shares of
Preferred Stock, the Conversion Stock, the NBC Warrant, the Bridge Warrants, the
Refco Warrant and the VBW&C Warrants (and the Common Stock underlying the NBC
Warrants, the Bridge Warrants, the Refco Warrant and the VBW&C Warrants) which
shall have been sold or transferred in violation of any of the provisions set
forth in this Agreement or (ii) to treat as owner of such Preferred Stock,
Conversion Stock, NBC Warrant, Bridge Warrants, Refco Warrant and VBW&C Warrants
(and the Common Stock underlying the NBC Warrant, the Bridge Warrants, the Refco
Warrant and the VBW&C Warrants) or to accord the right to vote as such owner or
to pay dividends to any transferee to whom such Preferred Stock, Conversion
Stock, NBC Warrant, Bridge Warrants, Refco Warrant and VBW&C Warrants (and the
Common Stock underlying the NBC Warrant, the Bridge Warrants, the Refco Warrant
and the VBW&C Warrants) shall have been so transferred.
3.2 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Closing Date" shall mean the date of this Agreement.
------------
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
"Conversion Stock" means the Common Stock issued or issuable pursuant
----------------
to conversion of the Preferred Stock.
"Holder" shall mean (i) any Purchaser (excluding the Series C
------
Purchaser, the NBC Warrantholder, the Bridge Warrantholders and the Bridge
Series D Holders) holding Registrable Securities (including Preferred Stock),
(ii) any person holding Registrable Securities to whom the
-8-
<PAGE>
rights under this Section 3 have been transferred in accordance with Section
3.14, (iii) with respect to Sections 3.6 and 3.9 through 3.16 only, the Common
Shareholders holding Registrable Securities, (iv) with respect to Sections 1, 2,
3, 4.1, 4.2, 4.5, 4.6, 4.9, 6 and 7 only, the Series C Purchaser, (v) with
respect to Sections 2, 3, 4.1, 4.2, 4.6, 4.9, 6 and 7 only, the NBC
Warrantholder, and (vi) with respect to Sections 2, 3, 6 and 7 only, the Bridge
Warrantholders and the Bridge Series D Holders.
"Initiating Holders" shall mean any Holders of the Registrable
------------------
Securities.
"Preferred Stock" shall mean (i) the Series A Preferred Stock issued
---------------
pursuant to the Series A Agreement, (ii) the Series A1 Preferred Stock issued
pursuant to the Series A1 Agreements, (iii) the Series B Preferred Stock issued
pursuant to the Series B Agreement, (iv) the Series C Preferred Stock issued
pursuant to the Series C Agreement, (v) the Series D Preferred Stock issued
pursuant to the Series D Agreement and upon conversion of the Bridge Notes, (vi)
the Additional Series D Preferred issued or issuable pursuant to the NBC
Purchase Agreement, the Hearst Series D Agreement and upon exercise of the VBW&C
Warrants and the Refco Warrant and (vii) the Series E Preferred Stock issued
pursuant to the Series E Agreement.
"Registrable Securities" means (i) the Conversion Stock and any Common
----------------------
Stock of the Company issued or issuable in respect of the Conversion Stock upon
any Recapitalization, or any Common Stock otherwise issuable with respect to the
Conversion Stock, (ii) with respect to Sections 3.6 and 3.9 through 3.16 only,
the Common Stock held by the Common Shareholders and their permitted transferees
under Section 3.14, (iii) the Common Stock issuable upon conversion of the NBC
Warrant, and (iv) the Common Stock issuable upon conversion of the Bridge
Warrants; provided, however, that shares of Common Stock or other securities
shall only be treated as Registrable Securities if and so long as they have not
been (A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold or are, in the
reasonable opinion of counsel for the Company, available for sale in a single
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act so that all transfer restrictions and restrictive legends
with respect thereto are removed upon the consummation of such sale.
The terms "register," "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as otherwise
---------------------
stated below, incurred by the Company in complying with Sections 3.5, 3.6 and
3.7 below, including without limitation all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company) and the reasonable fees and disbursements of one counsel for all
Holders.
-9-
<PAGE>
"Restricted Securities" shall mean the securities of the Company
---------------------
required to bear the legends set forth in Section 3.3.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
----------------
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth above, all reasonable fees and
disbursements of counsel for any Holder.
3.3 RESTRICTIVE LEGENDS. Each certificate representing (i) the Preferred
-------------------
Stock, (ii) the Conversion Stock, (iii) the NBC Warrant, (iv) the Bridge
Warrants, (v) the Common Stock issuable upon conversion of the NBC Warrant, (vi)
the Common Stock issuable upon conversion of the Bridge Warrants, (vii) the
Refco Warrant, (viii) the VBW&C Warrants and (ix) any other securities issued in
respect of the Preferred Stock, the Conversion Stock or the Common Stock
issuable upon conversion of the NBC Warrant or Bridge Warrants upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar event,
shall (unless otherwise permitted by the provisions of Section 3.4 below) be
stamped or otherwise imprinted with legends in the following form (in addition
to any legend required under any other agreement between the Purchaser and the
Company or under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF SUCH ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UPON TRANSFER AND RIGHTS OF FIRST REFUSAL AND MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN
THE COMPANY AND THE REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT
THE PRINCIPAL OFFICE OF THE COMPANY.
Each Purchaser and Holder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Preferred
Stock, the Common Stock, the NBC Warrant, the Bridge Warrants, the Refco
Warrants or the VBW&C Warrants in order to implement the restrictions on
transfer established in this Section 3.
-10-
<PAGE>
3.4 RESTRICTIONS ON TRANSFER; NOTICE OF PROPOSED TRANSFERS. The holder of
------------------------------------------------------
each certificate representing Restricted Securities by acceptance thereof agrees
to comply in all respects with the provisions of this Section 3.4. Prior to any
proposed sale, assignment, transfer or pledge of any Restricted Securities
(other than (i) a transfer not involving a change in beneficial ownership, (ii)
in transactions involving the distribution without consideration of Restricted
Securities by the Purchaser to any of its partners, or retired partners, or to
the estate of any of its partners or retired partners, (iii) any transfer by any
Holder to (A) any individual or entity controlled by, controlling, or under
common control with, such Holder or (B) any individual or entity with respect to
which such Holder (or any person controlled by, controlling, or under common
control with, such Holder) has the power to direct investment decisions, or (iv)
in transactions in compliance with Rule 144, so long as the Company is furnished
with satisfactory evidence of compliance with such Rule), and unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied, at such holder's expense by either (i) a written opinion of regular
or regularly employed legal counsel of such holder or other legal counsel who
shall be, and whose legal opinion shall be, reasonably satisfactory to the
Company (provided that in-house counsel of the holder shall be deemed reasonable
counsel) addressed to the Company, to the effect that the proposed transfer of
the Restricted Securities may be effected without registration under the
Securities Act, or (ii) a "no action" letter from the Commission to the effect
that the transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. Each certificate evidencing the
Restricted Securities transferred as above provided shall bear, except if such
transfer is made pursuant to Rule 144, the appropriate restrictive legend set
forth in Section 3.3 above, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for such holder and the Company
such legend is not required in order to establish compliance with any provision
of the Securities Act. Notwithstanding the foregoing, SOFTBANK Ventures, Inc.
("SOFTBANK") shall be entitled to transfer Restricted Securities hereunder to
--------
one or more partnerships or corporations that it is affiliated with, provided
such assignee agrees in writing to be subject to the terms of this Agreement as
if it were a party hereunder.
3.5 REQUESTED REGISTRATION.
----------------------
(a) Request for Registration. In case the Company shall receive from
------------------------
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to (1) at least twenty five percent
(25%) of the issued and outstanding Registrable Securities or (2) not less than
that number of shares of Registrable Securities which would result in an
anticipated aggregate offering price, net of underwriting discounts and
commissions, greater than five million dollars ($5,000,000), then, subject to
the paragraph below, Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
-11-
<PAGE>
(ii) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after receipt of such written notice from
the Company.
Notwithstanding the above, the Company shall not be obligated to take
any action to effect any such registration, qualification or compliance pursuant
to this Section 3.5:
(A) In any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(B) Prior to the earlier of (i) December 1, 1999 or (ii) six
months after the effective date of the Company's first public offering;
(C) During the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the date six
(6) months immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective;
(D) After the Company has effected two such registrations
pursuant to this Section 3.5(a), and such registrations have been declared or
ordered effective;
(E) If the Company shall furnish to such Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board it would be seriously detrimental to the Company or its
shareholders for a registration statement to be filed in the near future, then
the Company's obligation to use its best efforts to register, qualify or comply
under this Section 3.5 shall be deferred for a period not to exceed one hundred
twenty (120) days from the date of receipt of written request from the
Initiating Holders; provided that the Company may not exercise this deferral
-------- ----
right more than once per twelve (12) month period.
Subject to the foregoing clauses (A) through (E), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, after receipt of the request or
requests of the Initiating Holders, and in any case no later than 120 days.
-12-
<PAGE>
(b) Underwriting. In the event that a registration pursuant to
------------
Section 3.5 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 3.5(a)(i). In such event, the right of any Holder to registration
pursuant to Section 3.5 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 3.5, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by a majority in interest of the Initiating Holders, but
subject to the Company's reasonable approval. Notwithstanding any other
provision of this Section 3.5, if the managing underwriter advises the
Initiating Holders in writing that marketing factors require a limitation of the
number of shares to be underwritten, then the Company shall so advise all
holders of Registrable Securities and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders at the time of
filing the registration statement. No Registrable Securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms
of the underwriting, such person may elect to withdraw therefrom by written
notice to the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of such registration, or such other shorter period of
time as the underwriters may require.
3.6 COMPANY REGISTRATION.
--------------------
(a) Notice of Registration. If at any time or from time to time the
----------------------
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within twenty (20) days after receipt of such written notice from
the Company, by any Holder.
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<PAGE>
(b) Underwriting. If the registration of which the Company gives
------------
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3.6(a)(i). In such event the right of any Holder to
registration pursuant to Section 3.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 3.6, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter and the Company may
reduce the Registrable Securities to be included in such registration to the
extent the underwriters deem necessary. The Company shall so advise all Holders
and other holders distributing their securities through such underwriting and
the number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all the Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holder at the time of filing the Registration Statement;
provided, however, that the Registrable Securities to be included by the
- -------- -------
participating Holders in the aggregate shall not be reduced to less than twenty-
five percent (25%) of the total number of shares to be registered in such
registration; provided further, however, that the foregoing provision regarding
---------------- -------
the twenty-five percent (25%) limitation shall not apply in the event of the
Company's initial public offering. To facilitate the allocation of shares in
accordance with the above provisions, the Company may round the number of shares
allocated to any Holder or holder to the nearest 100 shares. If any Holder or
holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to one hundred eighty (180) days after the effective date of
the registration statement relating thereto, or such other shorter period of
time as the underwriters may require.
(c) Right to Terminate Registration. The Company shall have the right
-------------------------------
to terminate or withdraw any registration initiated by it under this Section 3.6
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
3.7 REGISTRATION ON FORM S-3.
------------------------
(a) If any Holder or Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $1,000,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form and to
cause such Registrable Securities to be qualified in such jurisdictions as such
Holder or Holders may reasonably request; provided, however, that the Company
shall not be required to effect more than one registration pursuant to this
Section 3.7 in any twelve (12) month period. The Company shall
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<PAGE>
inform other Holders of the proposed registration and offer them the opportunity
to participate. The substantive provisions of Section 3.5(b) shall be applicable
to each registration initiated under this Section 3.7.
(b) Notwithstanding the foregoing, the Company shall not be obligated
to take any action pursuant to this Section 3.7 (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act; (ii) prior to the Company's
first registered public offering of its stock; (iii) if the Company, within ten
(10) days of the receipt of the request of the Initiating Holders, gives notice
of its bona fide intention to effect the filing of a registration statement with
---- ----
the Commission within ninety (90) days of receipt of such request (other than
with respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities); (iv) during the period starting
with the date sixty (60) days prior to the Company's estimated date of filing
of, and ending on the date six (6) months immediately following, the effective
date of any registration statement pertaining to securities of the Company
(other than a registration of securities in a Rule 145 transaction or with
respect to an employee benefit plan), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective; or (v) if the Company shall furnish to such
Holder a certificate signed by the President of the Company stating that in the
good faith judgment of the Board it would be seriously detrimental to the
Company or its shareholders for registration statements to be filed in the near
future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed one hundred
and twenty (120) days from the receipt of the request to file such registration
by such Holder; provided that the Company may not exercise this deferral right
-------- ----
more than once per twelve (12) month period.
3.8 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
---------------------------------------------
Closing Date, the Company shall not enter into any agreement granting any holder
or prospective holder of any securities of the Company registration rights with
respect to such securities unless (i) such new registration rights, including
standoff obligations set forth in Section 3.15 below, are on a pari passu basis
---- -----
with those rights of the Holders hereunder, or (ii) such new registration
rights, including standoff obligations set forth in Section 3.15 below, are
subordinate to the registration rights granted Holders hereunder.
3.9 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
------------------------
connection with (i) two (2) registrations pursuant to Section 3.5, (ii) all
registrations pursuant to Section 3.6, and (iii) all registrations pursuant to
Section 3.7 shall be borne by the Company. Unless otherwise stated, all Selling
Expenses relating to securities registered on behalf of the Holders and all
other Registration Expenses shall be borne by the Holders of such securities pro
rata on the basis of the number of shares so registered.
3.10 REGISTRATION PROCEDURES. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Section 3,
the Company will keep each Holder advised in
-15-
<PAGE>
writing as to the initiation of each registration, qualification and compliance
and as to the completion thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the Registration
Statement has been completed; and
(b) Furnish to all Holders and to the underwriters of the securities
being registered such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as such
underwriters may reasonably request in order to facilitate the public offering
of such securities (the "Registration Documents"). Copies of the Registration
----------------------
Documents shall also be delivered to Holders not participating in such
registration.
3.11 INDEMNIFICATION.
---------------
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 3, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made (which such qualification the Company acknowledges shall
not apply to any registration statement, or any amendment or supplement thereto,
pursuant to Section 11 of the Securities Act), not misleading, or any violation
by the Company of the Securities Act, the Exchange Act, state securities law or
any rule or regulation promulgated under such laws applicable to the Company in
connection with any such registration, qualification or compliance, and within a
reasonable period the Company will reimburse each such Holder, each of its
officers and directors, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action;
provided that the Company will not be liable in any such case to the extent that
- -------- ----
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder, controlling person or
underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify
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<PAGE>
the Company, each of its directors and officers, each underwriter, if any, of
the Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of Section 15 of
the Securities Act, and each other such Holder, each of its officers and
directors and each person controlling such Holder within the meaning of Section
15 of the Securities Act, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, and within a reasonable
period will reimburse the Company, such Holders, such directors, officers,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of each Holder under this
subsection (b) shall be limited in an amount equal to the gross proceeds before
expenses and commissions to each Holder received for the shares sold by such
Holder, unless such liability arises out of or is based on willful misconduct by
such Holder.
(c) Each party entitled to indemnification under this Section 3.11
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 3.11 unless the failure to give such notice
is materially prejudicial to an Indemnifying Party's ability to defend such
action and provided further, that the Indemnifying Party shall not assume the
defense for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
3.12 INFORMATION BY HOLDER. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 3.
-17-
<PAGE>
3.13 RULE 144 REPORTING. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) So long as the Holder owns any Restricted Securities to furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as the Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing the Holder to sell
any such securities without registration.
3.14 TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to
-------------------------------
register securities granted Holders under Sections 3.5, 3.6 and 3.7 may be
assigned to a transferee or assignee which acquires at least 100,000 shares of
Registrable Securities in connection with any transfer or assignment of
Registrable Securities by the Purchasers or the Common Shareholders (as the case
may be).
3.15 STANDOFF AGREEMENT. In connection with any public offering of the
------------------
Company's securities, the Holder agrees, upon request of the Company or the
underwriters managing any underwritten offering of the Company's securities, not
to sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days in the case of the Company's initial public offering,
and ninety (90) days in the case of other public offerings of the Company) from
the effective date of such registration as may be requested by the underwriters;
provided that the officers and directors of the Company who own stock of the
- -------- ----
Company and holders of five percent (5%) or more of the Company's outstanding
voting securities also agree to such restrictions.
3.16 TERMINATION OF REGISTRATION RIGHTS. The registration rights granted
----------------------------------
pursuant to Section 3 shall terminate as to each Holder at such time as a public
market for the Company's
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<PAGE>
Common Stock exists and all Registrable Securities held by such Holder have been
sold pursuant to Rule 144.
SECTION 4
FINANCIAL INFORMATION AND CERTAIN OTHER COVENANTS
-------------------------------------------------
4.1 FINANCIAL INFORMATION. The Company will furnish the following reports
---------------------
to each Holder for so long as such Holder continues to hold 50,000 shares of
Preferred or Common Stock (as adjusted for Recapitalizations):
(a) As soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, each Purchaser shall receive
audited consolidated balance sheets, consolidated statements of income,
shareholders' equity and cash flow of the Company and its subsidiaries, if any,
as of the end of such fiscal year, all prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in each
case comparative figures for the previous fiscal year, certified by independent
public accountants of recognized national standing selected by the Company.
Together with each delivery of annual financial statements of the Company
pursuant to this subsection (a), the Company will deliver a certificate of its
Chief Financial Officer stating that no violation of the Company's covenants
under this Agreement exists, or if such a violation exists, then specifying the
nature thereof, the period of existence thereof, and what action the Company
proposes to take with respect thereto.
(b) As soon as available, and in any event within forty-five (45)
days after the end of the first, second and third quarterly accounting periods
in each fiscal year of the Company, each Purchaser shall receive a financial
summary of such quarter, in a form provided by the Series B Purchasers,
certified by the Chief Financial Officer of the Company.
(c) As soon as available, and in any event within twenty (20) days
after the end of each month, the Company shall furnish each Purchaser with
unaudited consolidated monthly financial statements, including a consolidated
balance sheet of the Company as of the end of such month, together with related
consolidated statements of operations, changes in shareholders' equity and cash
flows for such month and year-to-date, prepared in accordance with generally
accepted accounting principles consistently applied (with the exception of full
footnote disclosures, schedules and precise period cutoffs) and certified by the
Chief Financial Officer of the Company, subject to usual year-end audit
adjustments, together with a written comparison of the results as reported on
such financial statements with the projections thereof contained in the
applicable Annual Budget (as defined below).
(d) As soon as available, and in any event within twenty (20) days
prior to the end of each fiscal year (except with respect to fiscal 1997, which
shall be by January 30, 1997), the Company shall furnish each Purchaser with an
annual budget and strategic plan (the "Annual Budget") of the Company for the
-------------
next following fiscal year consisting of (i) projected consolidated statements
of operations, changes in shareholders' equity and cash flows, each on a monthly
basis, for each of the calendar months of such fiscal year; (ii) a projected
consolidated balance sheet as of the
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<PAGE>
close of each calendar month; (iii) projected capital expenditures for each
month; and (iv) promptly upon making thereof, any revision or updating which may
be made of any such Annual Budget. Each such Annual Budget and any revisions
thereof shall be submitted for the approval of the Board and be subject to
revision or updating by the Board.
(e) Promptly upon receipt thereof, a copy of each report or
management letter, if any, submitted to the Company by independent public
accountants in connection with each annual audit (and any other audit which may
be performed) of the books of the Company made by such accountants.
4.2 ASSIGNMENT OF RIGHTS TO FINANCIAL INFORMATION. The rights granted
---------------------------------------------
pursuant to Section 4 may be assigned or otherwise conveyed by the Purchaser (or
by any permitted transferee of any such rights) only in connection with the
transfer to a single permitted transferee of not less than 100,000 shares of
Preferred Stock (or Common Stock issuable upon conversion of the Preferred Stock
or the NBC Warrant, or a combination of both) (including, for such purposes
transfers by affiliates of a transferor) (appropriately adjusted for
Recapitalizations) or upon the written consent of the Company, provided that
prior written notice of such assignment or conveyance is given to the Company.
4.3 BOARD OF DIRECTORS EXPENSES. The representatives of the Series B
---------------------------
Purchasers and the Series C/D/E Purchasers elected to the Board shall be
entitled to reimbursement for their reasonable out-of-pocket expenses incurred
in connection with attending Board meetings.
4.4 SECTION 1202(C) COMPLIANCE. The Company shall use reasonable efforts
--------------------------
to comply with Section 1202(c) of the Internal Revenue Code of 1986, as amended
(the "Code"), and shall use reasonable efforts to make all filings required
----
under Section 1202(D)(1)(c) of the Code and any related Treasury regulations.
4.5 BOARD COMPOSITION; BOARD ATTENDANCE.
-----------------------------------
(a) At each election of directors, and for so long as (i) Cox, or any
of its affiliates, holds at least 1,250,000 shares of Series D Preferred Stock
(appropriately adjusted for any Recapitalizations), (ii) NBC, or any of its
affiliates, holds, or has the right to be issued, as of July 14, 1998, at least
769,230 shares of Series C Preferred Stock (approximately adjusted for any
Recapitalizations), and (iii) Hearst Communications, Inc., Hearst New Media &
Technology division ("Hearst"), or any of its affiliates, holds at least
1,000,000 shares of Series D Preferred Stock (appropriately adjusted for any
Recapitalizations), the Series C Purchaser and each of the Series D Purchasers
and Series E Purchasers hereby agree to vote all shares of voting capital stock
of the Company (including, without limitation, all shares of Common Stock issued
upon conversion of the Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock) registered in their respective names or beneficially
owned by them as of the date thereof, including any and all other securities of
the Company legally or beneficially acquired by each of such Purchasers after
the date of this Agreement, for one representative to the Board as designated by
Cox, for one representative to the Board as designated by NBC, and for one
representative to the Board designated by Hearst;
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<PAGE>
provided, however, that if any of Cox, NBC or Hearst falls below their
respective threshold stock holdings as described above, such party's loss of
their right to a representative to the Board shall not affect any other party's
right hereunder. Any vote taken to remove any director elected pursuant to this
Section 4.5(a), or to fill any vacancy created by the resignation of such
director elected pursuant to this Section 4.5(a), shall also be subject to the
provisions of this Section 4.5(a).
(b) (i) The Company shall permit a representative of each of
Patricof, SOFTBANK, New York Life, Soros, Cox, NBC, CSK Venture Capital, Hearst
New Media & Technology, Media Technology Equity Partners, L.P., Intel
Corporation ("Intel") and Starbucks Corporation (each a "Major Investor"), Aaron
--------------
Hsu and Alec Hsu to attend (each a "Board Visitor"), but not vote at, meetings
-------------
of the Board (whether in person, telephonic or other), and all committees
thereof, and to receive notices of such meetings and information circulated to
members of the Board at or prior to any such meetings; provided, however that if
a representative of a Major Investor serves on the Board, such Major Investor
shall not be entitled to designate a Board Visitor. Each Board Visitor shall, at
the request of the Board, except himself or herself from all discussions and
deliberations of the Board (or any committee constituted by the Board) which may
involve conflicts of interest on the part of the Board Visitor or relationships
between the Company and the Major Investor represented by the Board Visitor.
Each Board Visitor and/or Major Investor agrees to maintain the confidentiality
of information received at or in connection with any Board meeting and to abide
by conflict of interest guidelines that may be adopted by the Board.
(ii) The Company acknowledges that Intel will likely have, from
time to time, information that may be of interest to the Company ("Information")
-----------
regarding a wide variety of matters including, by way of example only, (1)
Intel's technologies, plans and services, and plans and strategies relating
thereto, (2) current and future investments Intel has made, may make, may
consider or may become aware of with respect to other companies and other
technologies, products and services, including, without limitation,
technologies, products and services that may be competitive with the Company's
services, and plans and strategies relating thereto, of other companies,
including, without limitation, companies that may be competitive with the
Company. The Company recognizes that a portion of such Information may be of
interest to the Company. Such information may or may not be known by the Intel
Board Visitor.
The Company, as a material part of the consideration for this
Agreement, agrees that Intel and its Board Visitor shall have no duty to
disclose any Information to the Company or permit the Company to participate in
any projects or investments based on any Information, or to otherwise take
advantage of any opportunity that may be of interest to the Company if it were
aware of such Information, and hereby waives, to the extent permitted by law,
any claim based on the corporate opportunity doctrine or otherwise that could
limit Intel's ability to pursue based on such Information or that would require
Intel or its Board Visitor to disclose any such Information to the Company or
offer any opportunity relating thereto to the Company.
4.6 ADDITIONAL INFORMATION. Upon receipt by the Company of written or
----------------------
other formal notice of (a) any investigation by any federal or state
governmental or regulatory agency in connection with which the Company is
identified as an object of such investigation; (b) any complaint or
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<PAGE>
proceeding instituted against the Company by any federal or state governmental
or regulatory agency; and (c) any other action at law or suit in equity
involving a claim or claims against the Company which, if concluded adversely to
the Company, could give rise to damages in excess of $125,000 in the aggregate
or could otherwise materially adversely affect the business or assets of the
Company, the Company shall promptly provide a copy of such notice to the
Purchasers.
4.7 INSPECTION RIGHTS. Holders of at least 50,000 shares of Preferred or
-----------------
Common (as adjusted for Recapitalizations) shall have the right upon prior
written notice for a purpose reasonably related to their position as
shareholders to inspect the Company's facilities at reasonable times during
normal business hours.
4.8 COMPENSATION COMMITTEE. The Company will maintain a compensation
----------------------
committee of the Board (a "Compensation Committee") which will be composed of
----------------------
three (3) outside directors, one of whom shall be Joseph Graziano for so long as
he continues to serve on the Board and, thereafter, a designee of the Series A
Purchasers and the Common Shareholders, voting together as a single class, and
the other two (2) of whom shall be selected by the holders of a majority of the
Preferred held by the Purchasers. The Compensation Committee will review the
overall compensation structure of the Company and specifically all annual
salaries greater than $100,000, all employee stock option programs and grants
and employee agreements. In addition, the Compensation Committee will
specifically review the overall compensation structure and details relative to
business and market conditions every six (6) months and make recommendations
regarding such conditions to the Board.
4.9 APPROVAL OF EXPANSION OF OPTION POOL; OPTION VESTING. Except with the
----------------------------------------------------
written approval of the holders of a majority of the then outstanding shares of
Preferred held by the Purchasers, the Company shall not increase the number of
shares available for issuance to employees and consultants beyond the shares
currently reserved under the 1996A Stock Option Plan and 1996 Stock Option Plan.
Equity or option grants to all officers or employees from and after the date of
this Agreement shall be subject to a minimum of four (4) year vesting with a
minimum of twelve (12) month cliff vesting upon initial hiring, except as
otherwise approved by the Compensation Committee or the Board.
4.10 TERMINATION OF CERTAIN COVENANTS. The covenants set forth in Sections
--------------------------------
4.1, 4.2, 4.4, 4.5, 4.6, 4.7 and 4.8 and 4.9 above shall terminate and be of no
further force or effect upon the earlier of (i) the closing of a Qualified
Public Offering or (ii) with respect to any individual Purchaser, at such time
as the Purchaser no longer holds any shares of capital stock of the Company.
4.11 REGULATED FINANCIAL INSTITUTIONS COMPLIANCE OBLIGATIONS. Nothing in
--------------------------------------------------------
this Agreement shall diminish the continuing obligations of any financial
institution to comply with applicable requirements of law that it maintain
responsibility for the disposition of, and control over its admitted assets,
investments and property, including (without limiting the generality of the
foregoing) the provisions of Section 1411(b) of the New York Insurance Law, as
amended, and as hereinafter from time to time in effect.
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SECTION 5
PREFERRED STOCK DEFAULT
-----------------------
5.1 PREFERRED STOCK DEFAULT DEFINITION. A Preferred Stock default (a
----------------------------------
"Preferred Stock Default") shall occur if:
- ------------------------
(a) the Company shall become insolvent, make an assignment for the
benefit of its creditors or suspend business; a case under any provision of
Title 11 of the United States Code, 11 U.S.C. (S)101 et seq. (the "Bankruptcy
-- --- ----------
Code"), or any comparable law of any jurisdiction, including provisions for
- ----
receivership or reorganization shall be commenced by or against the Company
which, in the case of any action being commenced against the Company under the
Bankruptcy Code, shall retain unstayed or undismissed for a period of sixty (60)
days;
(b) the Company fails to complete, within five (5) years from
November 20, 1996, either: (i) a Qualified Public Offering, (ii) a sale,
liquidation or dissolution of the Company, or (iii) a sale, transfer or
disposition of all or substantially all of the assets of the Company;
(c) the Company incurs indebtedness in excess of $250,000 or pledges
any of its assets (other than in the ordinary course of business) in each case
without the consent of (i) the holders of a majority of each Series of the
Preferred or (ii) one of two representatives of the Series B Preferred then on
the Board;
(d) the Company violates any provision of Article IV, Section 7 of
the Company's Third Amended and Restated Articles of Incorporation (the
"Restated Articles");
-----------------
(e) the Company shall default on any outstanding debt in an amount
equal to or greater than $250,000 or on any contract giving rise to a right in
any third party to any material claim against the Company or on its assets (and
such claim shall have been finally adjudicated adverse to the Company or
resolved by a settlement agreement adverse to the Company); or
(f) if at any time prior to the third anniversary of November 20,
1996 any of the representations and warranties of the Company contained in
Section 3 of the Series B Agreement shall have been breached or inaccurate in
any material respect as of November 20, 1996.
5.2 CURE PERIODS. Upon the occurrence and continuation of a Preferred
------------
Stock Default, the Purchasers shall give the Company written notice (the
"Default Notice") of such Preferred Stock Default, and the Company shall have
- ---------------
the opportunity to cure such default for the time periods set forth below:
(a) for an initial period of ten (10) days following receipt of the
Default (the "Initial Cure Period"); and
-------------------
-23-
<PAGE>
(b) in the event that at the termination of the Initial Cure Period
(i) the Preferred Stock Default remains uncured, (ii) the Preferred Stock
Default remains capable of cure by the Company and (iii) the Company is, in good
faith, pursuing a course of action to cure such Preferred Stock Default, an
additional twenty (20) days (the "Second Cure Period").
------------------
Notwithstanding the above, if during any of the time periods set forth in
clauses (a) and (b) above, the Preferred Stock Default becomes incapable of
cure, or in the case of a Preferred Stock Default existing under Section 5.1(e),
there is an acceleration of the indebtedness to which the Preferred Stock
Default relates or the obligor otherwise commences enforcement of its rights
upon default, then the Purchasers will be entitled to pursue the remedies set
forth under Section 5.3 immediately upon such occurrence.
5.3 REMEDIES. In the event of the occurrence and continuation of a
--------
Preferred Stock Default which has not been cured within the time periods
specified in Section 5.2 above, the holders of a majority of the outstanding
Preferred (excluding the Series C Preferred), voting as a separate class, may
demand, and be entitled to, in accordance with the provisions of Article IV,
Section 6 of the Restated Articles, an immediate (i) redemption of all of the
Preferred (which shall include the Series C Preferred) (or a portion of such
shares pro rata), and (ii) payment of all accrued but unpaid dividends (if any).
5.4 FURTHER ASSURANCES. The Company, the Purchasers and the Common
------------------
Shareholders hereby agree to enter into such voting or other agreements as are
necessary to implement the provisions of this Section 5, and further agree to
consent to approve any amendment to the Company's Restated Articles as may be
necessary to implement the provisions of this Section 5. In the event that a
sale of the Company or its liquidation is required in order to satisfy the
remedies set forth in Section 5.3, the Company, the Purchasers and the Common
Shareholders shall approve (i) in the case of a sale of the Company, the highest
offer received within six (6) months following the demand referred to in Section
5.3 and (ii) if no sale of the Company is contemplated, then a liquidation of
the Company within six (6) months following the demand referred to in Section
5.3.
5.5 TERMINATION OF COVENANTS. The covenants set forth in this Section 5
------------------------
shall terminate and be of no further force and effect upon the earlier to occur
of (i) a Qualified Public Offering, (ii) a sale, liquidation or dissolution of
the Company or a merger or consolidation of the Company or other transaction
with or into any other corporation, where the shareholders of the Company hold
as a result of their stockholdings in the Company less than fifty percent (50%)
of the voting equity securities of the successor or surviving corporation
immediately following such merger, consolidation or other transaction, or (iii)
a sale, transfer or disposition of all or substantially all of the assets of the
Company.
-24-
<PAGE>
SECTION 6
VOTING AGREEMENT; BOARD OF DIRECTORS
------------------------------------
6.1 VOTING AGREEMENT. For so long as Peter Friedman shall continue to
----------------
hold five percent (5%) of the outstanding capital stock of the Company, on a
fully diluted basis (including stock issuable through the exercise of any
option, warrant or right and stock reserved for employees and consultants
pursuant to any stock option plan, stock purchase plan or other stock agreement
or arrangement approved by the Board), the Purchasers agree to vote all of their
shares of Preferred, or all of their shares of Common Stock issuable upon
exercise of the NBC Warrant, the Bridge Warrants or the Preferred, for the
election of Peter Friedman to the Board of Directors of the Company, and further
agree to take any necessary action to effect such election including without
limitation the execution of any proxies.
6.2 BOARD OF DIRECTORS. Any increase in the authorized number of
------------------
directors of the Company beyond nine (9) members, as well as the appointment of
any such members, shall be subject to the approval of the Board.
SECTION 7
MISCELLANEOUS
-------------
7.1 GOVERNING LAW. This Agreement shall be governed in all respects by
-------------
the internal laws of the State of California.
7.2 CONFIDENTIALITY AND NON-DISCLOSURE.
----------------------------------
(a) Confidential Business Information. Subject to Section 7.2(f), the
---------------------------------
Purchasers covenant and agree that they shall maintain the confidentiality of
all non-public information related to the business of the Company made available
to them and/or any of their representatives by the Company and so marked as
confidential ("Confidential Business Information"). The Purchasers further
---------------------------------
covenant and agree that they shall not disclose any Confidential Business
Information to any person or entity, other than their partners, officers,
directors, employees, attorneys, accountants and other agents with a legitimate
need for such information (which individuals and entities will in turn agree to
be bound by this Section 7.2(a), except as required by law or any regulatory
body, without the prior written consent of the Company. The Purchasers agree
that violation of this Section 7.2(a) would cause immediate and irreparable
damage to the business of the Company, and consent to the entry of immediate and
permanent injunctive relief for any violation hereof.
(b) Disclosure of Terms. The terms and conditions of this Agreement
-------------------
and the Series D Agreement (including all Exhibits thereto) (collectively, the
"Financing Terms"), including their existence, shall be considered confidential
---------------
information and shall not be disclosed by any party hereto to any third party
except in accordance with the provisions set forth below.
-25-
<PAGE>
(c) Press Releases, Etc. With sixty (60) days of the initial closing
-------------------
of the Series D Agreement, the Company may issue a press release, in a form
provided by Intel, or as otherwise approved by Intel, disclosing that Intel has
invested in the Company; provided, however, that the release does not disclose
-------- -------
any of the Financing Terms and the final form of the press release is approved
in advance in writing by Intel. No other announcement regarding Intel, whether
by the Company or any other party hereto, in a press release, conference,
advertisement, announcement, professional or trade publication, mass marketing
materials or otherwise to the general public may be made without Intel's prior
written consent. The parties hereto acknowledge and agree that this Section
7.2(c) shall not restrict the Company from issuing a press release, or from
making any other announcement regarding any other Series D Purchaser (other than
and excluding Intel, its investment in the Company or the Financing Terms),
whether by press release, conference, advertisement, professional or trade
publication, mass marketing materials or otherwise, to the general public.
(d) Permitted Disclosures. Notwithstanding the foregoing, (i) any
---------------------
party may disclose any of the Financing Terms to its current or bona fide
prospective investors, employees, investment bankers, lenders, accountants and
attorneys, in each case only where such persons or entities are under
appropriate nondisclosure obligations; and (ii) any party may disclose (other
than in a press release or other public announcement described in subsection
(c)) solely the fact that the Series D Purchasers and Series E Purchasers are
investors in the Company and the amount of such party's investment to any third
parties without the requirement for the consent of any other party or
nondisclosure obligations.
(e) Legally Compelled Disclosure. In the event that any party is
----------------------------
requested or becomes legally compelled (including without limitation, pursuant
to federal or state securities laws and regulations) to disclose the existence
of this Agreement or the Series D Agreement or any of the Financing Terms hereof
in contravention of the provisions of this Section 7.2, such party (the
"Disclosing Party") shall provide the other parties (the "Non-Disclosing
---------------- --------------
Parties") with prompt written notice of that fact so that the appropriate party
may seek (with the cooperation and reasonable efforts of the other parties) a
protective order, confidential treatment or other appropriate remedy. In such
event, the Disclosing Party shall furnish only that portion of the information
which is legally required and shall exercise reasonable efforts to obtain
reliable assurance that confidential treatment will be accorded such information
to the extent reasonably requested by any Non-Disclosing Party.
(f) Other Information. The provisions of this Section 7.2 and Section
-----------------
4.5(b)(i) above shall be in addition to, and not in substitution for, the
provisions of any separate nondisclosure agreement executed by any of the
parties hereto with respect to the transactions contemplated hereby.
Notwithstanding the foregoing, the disclosure and exchange of confidential
information between the Company and Intel (including without limitation, any
exchanges of information with any Intel Board Visitor) shall be governed solely
by the terms of the Corporate Non-Disclosure Agreement No. 110478, dated July
16, 1998, executed by the Company and Intel, and any Confidential Information
Transmittal Records (as defined therein) provided in connection therewith.
(g) All notices required under this section shall be made pursuant to
Section 7.6 of this Agreement.
-26-
<PAGE>
7.3 SURVIVAL. The covenants and agreements made herein shall survive the
--------
Closing (as defined in the Series B Agreement, the Series C Agreement, the
Bridge Agreement, the Series D Agreement and the Series E Agreement).
7.4 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
----------------------
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
7.5 ENTIRE AGREEMENT; AMENDMENT. This Agreement, the Series B Agreement,
---------------------------
the Series C Agreement, the Series D Agreement, the Series E Agreement, the NBC
Warrant Agreement, the Bridge Agreement, the VBW&C Letter Agreement, the Refco
Letter Agreement and the other documents delivered pursuant hereto as of the
respective Closings under each agreement constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party in
any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the Company and (i) with respect to Sections 2, 3, 6 and 7,
the holders of a majority of the Common Stock issued or issuable upon conversion
of the then outstanding Preferred plus the shares of Common Stock issuable upon
exercise of the NBC Warrant plus the shares of Common Stock issuable upon
exercise of the Bridge Warrants plus the Series D Preferred Stock issued or
issuable upon exercise of the Refco Warrant and the VBW&C Warrants, (ii) with
respect to Sections 1, 4.1, 4.2, 4.5, 4.6 and 4.9, the holders of a majority of
the Common Stock issued or issuable upon conversion of the then outstanding
Preferred, plus the Series D Preferred Stock issued or issuable upon exercise of
the Refco Warrant and the VBW&C Warrants, plus (except for Section 4.5) the
shares of Common Stock issuable upon exercise of the NBC Warrant, (iii) with
respect to Sections 4.3, 4.4, 4.7, 4.8 and 5, the holders of a majority of the
Common Stock issued or issuable upon conversion of the then outstanding
Preferred (excluding the Series C Preferred, the Additional Series D Preferred
held by each of the Series C Purchaser and the NBC Warrantholder and the Series
D Preferred block issued or issuable upon exercise of the Refco Warrant and the
VBW&C Warrants) and (iv) with respect to Section 1.3, the Company and the
holders of a majority of the then outstanding Series D Preferred (excluding the
Series D Preferred Stock issued or issuable upon exercise of the Refco Warrant
and the VBW&C Warrants). Any such duly executed amendment, waiver, modification
or termination shall be effective as to all Purchasers. Notwithstanding any of
the foregoing, (i) Section 6.1 may not be amended without the consent of Peter
Friedman; (ii) Section 4.5(a) may not be amended without the consent of Cox,
Hearst and NBC; and (iii) Sections 3.2, 3.6, 3.9 through 3.16, 4.8, 5, 6 and 7
may not be amended in a manner adverse to the Common Shareholders without the
consent of the holders of a majority of the shares of Common Stock of the
Company held by the Common Shareholders.
7.6 NOTICES. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be mailed by first class mail, postage
prepaid, or otherwise delivered by hand or by messenger, or by a reputable
overnight courier service or telecopier (with telephonic confirmation of
receipt) addressed (a) if to a Purchaser, at such Purchaser's address, as shown
on the stock records of the Company, or at such other address as such Purchaser
shall have furnished to the
-27-
<PAGE>
Company in writing, or (b) if to any other holder of any Preferred, the NBC
Warrant, any Bridge Warrant, the Refco Warrant or the VBW&C Warrants, at such
address as such holder shall have furnished the Company in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Preferred, the NBC Warrant, such Bridge
Warrant, the Refco Warrant or the VBW&C Warrants, who has so furnished an
address to the Company, or (c) if to the Company, one copy should be sent to its
address set forth on the cover page of this Agreement and addressed to the Chief
Executive Officer, or at such other address as the Company shall have furnished
to the Purchasers.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or
seven (7) business days after the same has been deposited in a regularly
maintained receptacle for the deposit of the United States mail, addressed and
mailed as aforesaid, or the next business day if sent by overnight courier
service, or upon telephonic confirmation of receipt if sent by telecopier.
7.7 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or
-------------------
omission to exercise any right, power or remedy accruing to any party to this
Agreement upon any breach or default of any other party under this Agreement,
shall impair any such right, power or remedy of such nondefaulting party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default theretofore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any holder of any provisions or conditions of this Agreement, must be in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any party to this Agreement, shall be cumulative and not
alternative.
7.8 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
7.9 SEVERABILITY. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
-------- ----
it materially changes the economic benefit of this Agreement to any party.
7.10 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not considered in construing or
interpreting this Agreement.
-28-
<PAGE>
7.11 WAIVER OF RIGHTS. In consideration of the rights granted herein, (i)
----------------
all rights granted to, and any obligations of, the parties to the Prior
Agreement are amended and restated in full to read as set forth in this
Agreement; and (ii) the Purchasers waive, on behalf of all of the Purchasers,
the right of first refusal as with respect to the issuance of the Series E
Preferred Stock.
-29-
<PAGE>
The foregoing Agreement is hereby executed as of the date first above
written.
"COMPANY"
TALK CITY, INC.,
a California corporation
By: _________________________________
Name: Peter Friedman
Title: Chief Executive Officer
"SERIES E PURCHASERS"
By: _________________________________
Name:
Title:
"SERIES D PURCHASERS"
VOLPE BROWN WHELAN & COMPANY
By: _________________________________
Name:
Title:
REFCO SECURITIES, INC.
By: _________________________________
Name:
Title:
HEARST COMMUNICATIONS, INC., HEARST NEW
MEDIA & TECHNOLOGY DIVISION
By: _________________________________
Name:
Title:
COX INTERACTIVE MEDIA, INC.
By: _________________________________
Name:
Title:
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
NEW YORK LIFE INSURANCE
By: _________________________________
Name:
Title:
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P
(Its General Partner)
By: PATRICOF & CO. MANAGERS, INC.
(Its General Partner)
By: _________________________________
Name: Patricia M. Cloherty
Title: President
APA EXCELSIOR IV/OFFSHORE, L.P.
By: COUTTS & CO. (CAYMAN) LTD., as Custodian for
APA EXCELSIOR IV / OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.,
(Its Investment Advisor)
By: _________________________________
Name: Patricia M. Cloherty
Title: Co-Chairman
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.
(Its General Partner)
By: PATRICOF & CO. MANAGERS, INC.
(Its General Partner)
By: _________________________________
Name: Patricia M. Cloherty
Title: President
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
QUANTUM INDUSTRIAL PARTNERS LDC
By: _________________________________
Name:
Title:
MEDIA TECHNOLOGY EQUITY PARTNERS, L.P.
By: _________________________________
Name:
Title:
CSK VENTURE CAPITAL CO., LTD. as Investment
Manager for CSK-1(A) Investment Fund
By: _________________________________
Name:
Title:
CSK VENTURE CAPITAL CO., LTD. as Investment
Manager for CSK-1(B) Investment Fund
By: _________________________________
Name:
Title:
CSK VENTURE CAPITAL CO., LTD. as Investment
Manager for CSK-2 Investment Fund
By: _________________________________
Name:
Title:
______________________________________
John Hsu
INTEL CORPORATION
By: _________________________________
Name:
Title:
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
"BRIDGE SERIES D HOLDERS"
______________________________________
Tarek AbuZayyad
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P
(Its General Partner)
By: PATRICOF & CO. MANAGERS, INC.
(Its General Partner)
By: _________________________________
Name: Patricia M. Cloherty
Title: President
______________________________________
Bernard Bernstein
______________________________________
Steve Campbell
______________________________________
Michael Chasalow
______________________________________
Jeffrey Cheng
APA EXCELSIOR IV/OFFSHORE, L.P.
By: COUTTS & CO (CAYMAN) LTD., As Custodian for
APA EXCELSIOR IV / OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.,
(Its Investment Advisor)
By: _________________________________
Name: Patricia M. Cloherty
Title: Co-Chairman
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
______________________________________
Barry Davis
______________________________________
Peter H. Friedman
______________________________________
Joseph Graziano
______________________________________
Raymond Ho
______________________________________
Aaron Hsu
______________________________________
Alec Hsu
NEW YORK LIFE INSURANCE
By: _________________________________
Name:
Title:
______________________________________
Don O'Brien
______________________________________
The O'Brien Living Trust, J.J. O'Brien
as Co-Trustee
______________________________________
David J. Padzensky
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.
(Its General Partner)
By: PATRICOF & CO. MANAGERS, INC.
(Its General Partner)
By: ____________________________________________
Name: Patricia M. Cloherty
Title: President
_________________________________________________
Daniel Paul
REFCO CAPITAL MARKETS, LTD.
By: ____________________________________________
Name:
Title:
_________________________________________________
John Sculley
_________________________________________________
Robert Tabke
_________________________________________________
Jonathan Traxler
_________________________________________________
Wijntje Van Der Zouw
_________________________________________________
Traxler Family Trust u/a 6/2/89, Joseph Traxler
& Joyce Traxler, Trustees
_________________________________________________
Kenneth R. Wirt
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
_________________________________________________
Jenna Woodul
"SERIES C PURCHASER"
NATIONAL BROADCASTING COMPANY, INC.
By: ____________________________________________
Name:
Title:
"NBC WARRANTHOLDER"
NBC MULTIMEDIA, INC.
By: ____________________________________________
Name:
Title:
"BRIDGE WARRANTHOLDERS"
_________________________________________________
Tarek AbuZayyad
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P
(Its General Partner)
By: PATRICOF & CO. MANAGERS, INC.
(Its General Partner)
By: ____________________________________________
Name: Patricia M. Cloherty
Title: President
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
AXON TECHNOLOGIES
By: ____________________________________________
Name: Bruce Dembecki
Title:
_________________________________________________
Bernard Bernstein
_________________________________________________
Steve Campbell
_________________________________________________
Michael Chasalow
_________________________________________________
Jeffrey Cheng
APA EXCELSIOR IV/OFFSHORE, L.P.
By: COUTTS & CO. (CAYMAN) LTD., As Custodian for
APA EXCELSIOR IV / OFFSHORE, L.P.
By: PATRICOF & CO. VENTURES, INC.,
(Its Investment Advisor)
By: ____________________________________________
Name: Patricia M. Cloherty
Title: Co-Chairman
_________________________________________________
Barry Davis
_________________________________________________
Christopher Escher
_________________________________________________
David Fox
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
_________________________________________________
Peter H. Friedman
_________________________________________________
Joseph Graziano
_________________________________________________
Raymond Ho
_________________________________________________
Aaron Hsu
_________________________________________________
Alec Hsu
NEW YORK LIFE INSURANCE
By: ____________________________________________
Name:
Title:
_________________________________________________
Don O'Brien
_________________________________________________
The O'Brien Living Trust, J.J. O'Brien
as Co-Trustee
_________________________________________________
David J. Padzensky
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.
(Its General Partner)
By: PATRICOF & CO. MANAGERS, INC.
(Iys General Partner)
By: ____________________________________________
Name: Patricia M. Cloherty
Title: President
_________________________________________________
Daniel Paul
_________________________________________________
Luis Piedrahita
REFCO CAPITAL MARKETS, LTD.
By: ____________________________________________
Name:
Title:
_________________________________________________
John Sculley
SOFTBANK VENTURES, INC.
By: ____________________________________________
Name:
Title:
_________________________________________________
Robert Tabke
_________________________________________________
Jonathan Traxler
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
____________________________________________________
Traxler Family Trust u/a 6/2/89, Joseph Traxler
& Joyce Traxler, Trustees
____________________________________________________
Kenneth R. Wirt
____________________________________________________
Jenna Woodul
"SERIES B PURCHASERS"
____________________________________________________
Joseph Graziano
____________________________________________________
Aaron Hsu
____________________________________________________
Alec Hsu
____________________________________________________
William Lipner
NEW YORK LIFE INSURANCE
By: _______________________________________________
Name:
Title:
QUANTUM INDUSTRIAL PARTNERS LDC
By: _______________________________________________
Name: Michael C. Neus
Title: Attorney-in-Fact
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
SOFTBANK VENTURES, INC.
By: _______________________________________________
Name:
Title:
____________________________________________________
Ken Wirt
APA EXCELSIOR IV, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.
(Its General Partner)
By: PATRICOF & CO. MANAGERS, INC.
(Its General Partner)
By: _______________________________________________
Name: Patricia M. Cloherty
Title: President
APA EXCELSIOR IV/OFFSHORE, L.P.
By: COUTTS & CO. (CAYMAN) LTD., As Custodian for
APA EXCELSIOR IV / OFFSHORE, L.P.
By: PATRICOF & CO., VENTURES, INC.
(Its Investment Advisor)
By: _______________________________________________
Name: Patricia M. Cloherty
Title Co-Chairman
PATRICOF PRIVATE INVESTMENT CLUB, L.P.
By: APA EXCELSIOR IV PARTNERS, L.P.
(Its General Partner)
By: PATRICOF & CO. MANAGERS, INC.
(Its General Manager)
By: _______________________________________________
Name: Patricia M. Cloherty
Title: President
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
"SERIES A PURCHASER"
____________________________________________________
Joseph Graziano
"SERIES A1 PURCHASERS"
____________________________________________________
Steve Campbell
____________________________________________________
Joseph Graziano
____________________________________________________
Aaron Hsu
____________________________________________________
John Scully
____________________________________________________
Sculley Brothers, LLC
____________________________________________________
Sculley Investment Limited Partnership
____________________________________________________
John Sculley Irrevocable Trust FBO Oliver Allnatt
u/d/t 12/30/97, Geraldine Coleman, Trustee
____________________________________________________
John Sculley Irrevocable Trust FBO Madeline
Allnatt u/d/t 12/30/97, Geraldine Coleman, Trustee
____________________________________________________
Robert Tabke
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
"COMMON SHAREHOLDERS"
____________________________________________________
Peter Friedman
____________________________________________________
Joseph Graziano
____________________________________________________
John Sculley
____________________________________________________
Jenna Woodul
____________________________________________________
Arthur and Cynthia Friedman
____________________________________________________
Joan Friedman
____________________________________________________
Robert Friedman
____________________________________________________
Judy and Ken Wichter
____________________________________________________
Morgan S. Wright
[SIGNATURE PAGE TO SHAREHOLDERS RIGHTS AGREEMENT]
<PAGE>
EXHIBIT 10.2
LIVEWORLD PRODUCTIONS, INC.
1996A STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1996A Stock Option Plan
--------------------
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under the Plan may be Incentive Stock
Options or Nonstatutory Stock Options, as determined by the Administrator at the
time of grant of an Option and subject to the applicable provisions of Section
422 of the Code and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees
-------------
appointed pursuant to Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
-----------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any applicable stock exchange and
the applicable laws of any foreign country or jurisdiction where Options are, or
will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a Committee appointed by the Board of
---------
Directors in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means LiveWorld Productions, Inc., a California
-------
corporation.
(h) "Consultant" means any person who is engaged by the Company or
----------
any Parent or Subsidiary to render consulting or advisory services and is
compensated for such services, and any Director of the Company whether
compensated for such services or not. If the Company registers any class of any
equity security pursuant to the Exchange Act, the term Consultant shall
thereafter not include Directors who are not compensated for their services or
are paid only a Director's fee by the Company.
(i) "Continuous Status as an Employee or Consultant" means that the
----------------------------------------------
employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of
<PAGE>
the Company or between the Company, its Parent, any Subsidiary, or any
successor. A leave of absence approved by the Company shall include sick leave,
military leave, or any other personal leave approved by an authorized
representative of the Company. For purposes of Incentive Stock Options, no such
leave may exceed 90 days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract, including Company policies. If reemployment
upon expiration of a leave of absence approved by the Company is not so
guaranteed, on the 91st day of such leave any Incentive Stock Option held by the
Optionee shall cease to be treated as an Incentive Stock Option and shall be
treated for tax purposes as a Nonstatutory Stock Option.
(j) "Director" means a member of the Board of Directors of the
--------
Company.
(k) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
-2-
<PAGE>
(q) "Option" means a stock option granted pursuant to the Plan.
------
(r) "Optioned Stock" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(s) "Optionee" means an Employee or Consultant who receives an Option
--------
or Stock Purchase Right.
(t) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(u) "Plan" means this 1996A Stock Option Plan.
----
(v) "Section 16(b)" means Section 16(b) of the Securities Exchange
-------------
Act of 1934, as amended.
(w) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 12 below.
(x) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be subject to option
and sold under the Plan is One Million Four Hundred Fifty Thousand
(1,450,000)/1/ Shares. The Shares may be authorized but unissued, or reacquired
Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an option exchange program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated). However, Shares
that have actually been issued under the Plan, shall not be returned to the Plan
and shall not become available for future distribution under the Plan, except
that if unvested Shares are repurchased by the Company at their original
purchase price, such Shares shall become available for future grant under the
Plan.
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which
----------------------
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a Committee appointed by the Board.
____________________
/1/ This number reflects the 10-for-1 stock split effected in June 1996.
-3-
<PAGE>
(b) Plan Procedure After the Date, if any, upon Which the Company
-------------------------------------------------------------
becomes Subject to the Exchange Act.
- -----------------------------------
(i) Multiple Administrative Bodies. If permitted by Rule 16b-
------------------------------
3, the Plan may be administered by different bodies with respect to Directors,
Officers and Employees who are neither Directors nor Officers.
(ii) Administration With Respect to Directors and Officers. With
-----------------------------------------------------
respect to grants of Options and Stock Purchase Rights to Employees who are also
Officers or Directors of the Company, the Plan shall be administered by (A) the
Board if the Board may administer the Plan in compliance with the rules under
Rule 16b-3 promulgated under the Exchange Act or any successor thereto ("Rule
16b-3") relating to the disinterested administration of employee benefit plans
under which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted to comply with the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the Committee and thereafter directly administer the
Plan, all to the extent permitted by the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made.
(iii) Administration With Respect to Other Employees and
--------------------------------------------------
Consultants . With respect to grants of Options and Stock Purchase Rights to
- ------------
Employees or Consultants who are neither Directors nor Officers of the Company,
the Plan shall be administered by (A) the Board or (B) a Committee designated by
the Board, which committee shall be constituted in such a manner as to satisfy
Applicable Laws. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time
the Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
-4-
<PAGE>
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options are
granted hereunder;
(iv) to determine the number of Shares to be covered by each
such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions of any award granted
hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option has declined since the date the Option was granted; and
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions,
----------------------------------
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option if otherwise eligible, be
granted additional Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with
respect to continuation of his or her employment or consulting relationship with
the Company, nor shall it
-5-
<PAGE>
interfere in any way with his or her right or the Company's right to terminate
his or her employment or consulting relationship at any time, with or without
cause.
(d) Upon the Company or a successor corporation issuing any class of
common equity securities required to be registered under Section 12 of the
Exchanged Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 5,000,000 Shares.
(ii) In connection with his or her initial employment, an
Employee may be granted Options to purchase up to an additional 3,000,000 Shares
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 11.
(iv) If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 11), the canceled Option shall be counted against the limit
set forth in subsection (i) above. For this purpose, if the exercise price of
an Option is reduced, the transaction will be treated as a cancellation of the
Option and the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company, as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. In the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
-6-
<PAGE>
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued upon
exercise of an Option shall be such price as is determined by the Administrator,
but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of grant of such
Option, owns stock representing more than ten percent (10%) of the voting power
of all classes of stock of the Company or any Parent or Subsidiary, the per
Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to any other person, the per Share exercise
price shall be no less than 85% of the Fair Market Value per Share on the date
of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). Such consideration may consist of (1) cash,
(2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised, (5) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
a broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price, or (6) any combination of the foregoing methods of payment. In
making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
-7-
<PAGE>
9. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote, receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment shall be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. In the
----------------------------------------------------
event of termination of an Optionee's Continuous Status as an Employee or
Consultant (but not in the event of an Optionee's change of status from Employee
to Consultant (in which case an Employee's Incentive Stock Option shall
automatically convert to a Nonstatutory Stock Option on the date three (3)
months and one day following such change of status) or from Consultant to
Employee), such Optionee may, but only within such period of time as is
determined by the Administrator, of at least thirty (30) days, with such
determination in the case of an Incentive Stock Option not exceeding three (3)
months after the date of such termination (but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination. To the extent that the
Optionee was not entitled to exercise the Option at the date of such
termination, or if the Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event of termination of an
----------------------
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her disability, the Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise the Option
-8-
<PAGE>
to the extent otherwise entitled to exercise it at the date of such termination.
If such disability is not a "disability" as such term is defined in Section
22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive
Stock Option shall automatically cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option on
the day three months and one day following such termination. To the extent that
the Optionee was not entitled to exercise the Option at the date of termination,
or if the Optionee does not exercise such Option to the extent so entitled
within the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant) by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent that the Optionee was entitled to exercise the Option on the date of
death. If, at the time of death, the Optionee was not entitled to exercise his
or her entire Option, the Shares covered by the unexercisable portion of the
Option shall immediately revert to the Plan. If, after the Optionee's death,
the Optionee's estate or a person who acquires the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
10. Non-Transferability of Options. Options may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Adjustments Upon Changes in Capitalization or Merger.
----------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option as well as the price per share of Common Stock covered by each such
outstanding Option shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in
-9-
<PAGE>
the number of issued shares of Common Stock effected without receipt of
consideration by the Company. The conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Administrator, whose
determination in that respect shall be final, binding and conclusive. Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify the
Optionee at least fifteen (15) days prior to such proposed action. To the
extent it has not been previously exercised, the Option shall terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation or the sale of substantially all of the assets
of the Company, the Option may be assumed or an equivalent option may be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, an Option is not assumed or
substituted, the Option shall terminate as of the date of the closing of the
merger or sale of assets. For the purposes of this paragraph, the Option shall
be considered assumed if, following the merger or sale of assets, the Option
confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if the holders are offered a choice
of consideration, the type of consideration chosen by the holders of a majority
of the outstanding Shares). If such consideration received in the merger or sale
of assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option for each
Share of Optioned Stock subject to the Option to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
12. Time of Granting Options. The date of grant of an Option shall, for
-------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option or such other date as is determined by the Administrator.
Notice of the determination shall be given to each Employee or Consultant to
whom an Option is so granted within a reasonable time after the date of such
grant.
13. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Sections 162(m) or 422 of the Code (or any other applicable law or
-10-
<PAGE>
regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
16. Agreements. Options shall be evidenced by written agreements in such
----------
form as the Administrator shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under Applicable Laws and the rules of any
stock exchange upon which the Common Stock is listed.
18. Information to Optionees and Purchasers. The Company shall provide to
---------------------------------------
each Optionee not less frequently than annually copies of annual financial
statements. The Company shall also provide such statements to each individual
who acquires shares pursuant to the Plan while such individual owns such shares.
The Company shall not be required to provide such statements to key employees
whose duties in connection with the Company assure their access to equivalent
information.
-11-
<PAGE>
EXHIBIT 10.4
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock
Purchase Plan of Talk City, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean Talk City, Inc., a Delaware corporation,
-------
and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, exclusive of payments for overtime, shift premium, incentive
compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq
<PAGE>
SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such exchange or system for the last market trading day
prior to the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(3) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the Board; or
(4) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan
may be exercised, commencing on the first Trading Day on or after May 1 and
November 1 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after
the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the last Trading Day
on or before October 31, 1999. The duration of and timing of Offering Periods
may be changed pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the
Board pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
-2-
<PAGE>
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the
first Trading Day on or after May 1 and November 1 each year, or on such other
date as the Board shall determine, and continuing thereafter until terminated
in accordance with Section 20 hereof; provided, however, that the first
Offering Period under the Plan shall commence with the first Trading Day on or
after the date on which the Securities and Exchange Commission declares the
Company's Registration Statement effective and ending on the last Trading Day
on or before October 31, 1999. The Board shall have the power to change the
duration of Offering Periods (including the commencement dates thereof) with
respect to future offerings without stockholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
-3-
<PAGE>
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding fifteen percent (15%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate
shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10
hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first
Purchase Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than
10,000 shares of the Company's Common Stock (subject to any adjustment pursuant
to Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may for future
Offering Periods, increase or decrease, in its absolute discretion, the
maximum number of shares of the Company's Common Stock an Employee may
purchase during each Purchase Period of such Offering Period. Exercise of the
option shall occur as provided in Section 8 hereof,
-4-
<PAGE>
unless the participant has withdrawn pursuant to Section 10 hereof. The Option
shall expire on the last day of the Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or
her account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment. Upon a participant's ceasing to be an
-------------------------
Employee, for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
-5-
<PAGE>
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 500,000 shares, plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 2000 equal to the lesser of (i)
500,000 shares, (ii) 2% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board. If, on a given Exercise Date, the number
of shares with respect to which options are to be exercised exceeds the number
of shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a manner
as shall be practicable and as it shall determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise
Date on which the option is exercised but prior to delivery to such participant
of such shares and cash. In addition, a participant may file a written
designation of a beneficiary who is to receive any cash from the participant's
account under the Plan in the event of such participant's death prior to
exercise of the option. If a participant is married and the designated
beneficiary is not the spouse, spousal consent shall be required for such
designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly
-6-
<PAGE>
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
----------------------------------------------------------------------
Merger or Asset Sale.
--------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
stockholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (a "New Exercise Date"), and
shall terminate immediately prior to the consummation
-7-
<PAGE>
of such proposed dissolution or liquidation, unless provided otherwise by the
Board. The New Exercise Date shall be before the date of the Company's proposed
dissolution or liquidation. The Board shall notify each participant in writing,
at least ten (10) business days prior to the New Exercise Date, that the
Exercise Date for the participant's option has been changed to the New Exercise
Date and that the participant's option shall be exercised automatically on the
New Exercise Date, unless prior to such date the participant has withdrawn from
the Offering Period as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing,
at least ten (10) business days prior to the New Exercise Date, that the
Exercise Date for the participant's option has been changed to the New
Exercise Date and that the participant's option shall be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its stockholders. Except as
provided in Section 19 and Section 20 hereof, no amendment may make any change
in any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
-8-
<PAGE>
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including,
but not limited to:
(1) altering the Purchase Price for any Offering Period including
an Offering Period underway at the time of the change in Purchase Price;
(2) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(3) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without
any present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the effective date
------------
of the Registration Statement. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-9-
<PAGE>
EXHIBIT A
---------
TALK CITY, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: __________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________________________________ hereby elects to participate in the
Talk City, Inc. 1999 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my
ability to exercise the option under this Subscription Agreement is subject
to stockholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only):
__________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing within 30 days after the date
---------------------------------------------------------------------------
of any disposition of shares and I will make adequate provision for
-------------------------------------------------------------------
Federal, state or other tax withholding obligations, if any, which arise
------------------------------------------------------------------------
upon the disposition of the Common Stock. The
----------------------------------------
<PAGE>
Company may, but will not be obligated to, withhold from my compensation
the amount necessary to meet any applicable withholding obligation
including any withholding necessary to make available to the Company any
tax deductions or benefits attributable to sale or early disposition of
Common Stock by me. If I dispose of such shares at any time after the
expiration of the 2-year and 1-year holding periods, I understand that I
will be treated for federal income tax purposes as having received income
only at the time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of (1)
the excess of the fair market value of the shares at the time of such
disposition over the purchase price which I paid for the shares, or (2) 15%
of the fair market value of the shares on the first day of the Offering
Period. The remainder of the gain, if any, recognized on such disposition
will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)
_______________________________________________________
(First) (Middle) (Last)
_________________________ ____________________________________________
Relationship
____________________________________________
(Address)
Employee's Social
Security Number: ____________________________________________
Employee's Address: ____________________________________________
____________________________________________
____________________________________________
<PAGE>
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated: ______________ _____________________________________________________
Signature of Employee
_____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
<PAGE>
EXHIBIT B
---------
TALK CITY, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Talk City, Inc.
1999 Employee Stock Purchase Plan which began on ___________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
____________________________________
____________________________________
____________________________________
Signature:
____________________________________
Date: _______________________________
<PAGE>
EXHIBIT 10.5
TALK CITY, INC.
1999 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1999 Director Option Plan
--------------------
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the common stock of the Company.
------------
(d) "Company" means Talk City, Inc., a California corporation.
-------
(e) "Director" means a member of the Board.
--------
(f) "Disability" means total and permanent disability as defined in
----------
section 22(e)(3) of the Code.
(g) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(i) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
<PAGE>
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
Notwithstanding the foregoing, with respect to any Options granted
upon the effective date of the Company's initial public offering (the "IPO"), as
set forth in Section 4 below, the Fair Market Value shall be the price as it
appears in the final prospectus relating to the IPO.
(j) "Inside Director" means a Director who is an Employee.
---------------
(k) "Option" means a stock option granted pursuant to the Plan.
------
(l) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(m) "Optionee" means a Director who holds an Option.
--------
(n) "Outside Director" means a Director who is not an Employee.
----------------
(o) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(p) "Plan" means this 1999 Director Option Plan.
----
(q) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(r) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 250,000 Shares (the "Pool"). The Shares may be authorized,
but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
-2-
<PAGE>
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) Procedure for Grants. All grants of Options to Outside Directors
--------------------
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options.
(ii) Subject to subsection (iv) below, each Outside Director
shall be automatically granted an Option to purchase 20,000 Shares (the "First
Option") on the date on which such person first becomes an Outside Director,
whether through election by the shareholders of the Company or appointment by
the Board to fill a vacancy; provided, however, that an Inside Director who
ceases to be an Inside Director but who remains a Director shall not receive a
First Option.
(iii) Subject to subsection (iv) below, each Outside Director
shall be automatically granted an Option to purchase 5,000 Shares on both (A)
the effective date of the IPO and (B) the date of the Company's Annual Meeting
of Stockholders each year, provided he or she is then an Outside Director and if
as of such date, he or she shall have served on the Board for at least the
preceding six (6) months.
(iv) The terms of each Option granted hereunder shall be as
follows:
(A) the term of the Option shall be ten (10) years.
(B) the Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Sections 8
and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(D) the Option shall be fully vested and exercisable on the
date of grant.
(v) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
-3-
<PAGE>
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the effective date
------------
of the IPO. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares to
---------------------
be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
-4-
<PAGE>
(b) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of such termination, and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
----------------------
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, the
-----------------
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within twelve (12)
months following the date of death, and only to the extent that the Optionee was
entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not
entitled to exercise an Option on the date of death, and to the extent that the
Optionee's estate or a person who acquired the right to exercise such Option
does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of Shares covered by each outstanding
Option, the number of Shares which have been authorized for issuance under the
Plan but as to which no Options have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option, as well as
the price per Share covered by each such outstanding Option, and the number of
Shares issuable pursuant to the automatic grant provisions of Section 4 hereof
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Except as expressly provided herein, no
-5-
<PAGE>
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of Shares
subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation (the "Successor Corporation") or a
Parent or Subsidiary thereof.
If the Successor Corporation does not assume an outstanding Option or
substitute for it an equivalent option, the Board shall notify the Optionee that
the Option shall be fully exercisable for a period of thirty (30) days from the
date of such notice, and upon the expiration of such period the Option shall
terminate.
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are
-6-
<PAGE>
being purchased only for investment and without any present intention to sell or
distribute such Shares, if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned relevant provisions of
law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
16. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
-7-
<PAGE>
EXHIBIT 10.6
OFFER TO LEASE
--------------
To: THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
1. The undersigned offeror, having inspected the premises or plans thereof
hereby offers to lease the premises as outlined in Schedules "A" and "B" and
under the terms and conditions as set forth in the Lease attached hereto and
forming a part hereof and initialed by the parties.
2. Cash/Cheque for $36,371 payable to you as a deposit to be held by The
Manufacturers Life Insurance Company (U.S.A.) pending completion or other
termination of this agreement, is attached hereto to apply as a deposit on Basic
Rent and security deposit which will be returned if this Offer is not accepted.
3. The Lease shall be drawn by you in accordance with the attached Lease and
shall be executed by both parties forthwith.
4. It is further understood that all representations made by The Manufacturers
Life Insurance Company (U.S.A.) or any of its representatives, are set out in
this agreement.
5. This Offer shall be irrevocable until May 30, 1997, after which time if not
accepted this Offer shall be null and void.
DATED this 26 day of May, 1997.
LIVEWORLD PRODUCTIONS, INC., A CALIFORNIA CORPORATION
-----------------------------------------------------
Offeror's Name
/s/ Signature Illegible President CEO
Signature Title
________________________________________________________
Signature Title
(Note: If a corporation, give title of signing officer and affix seal.)
The Manufacturers Life Insurance Company (U.S.A.) hereby accepts the above
Offer.
DATED this 30 day of May, 1997.
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
Per: /s/ Signature Illegible
<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. LEASED PREMISES 1
2. TERM
(a) Term 1
(b) Delay in Occupancy 1
(c) Overholding 2
3. RENT
(a) Basic Rent 2
(b) Additional Rent 2
(i) Taxes 2
(ii) Operating Costs 2
(c) Payment - Additional Rent 2
(d) Accrual of Rent 3
(e) Recovery of Rent 3
(f) Limitations 3
4. SECURITY DEPOSIT 3
5. GENERAL COVENANTS
(a) Landlord's Covenant 3
(b) Tenant's Covenant 3
6. USE AND OCCUPANCY
(a) Use 3
(b) Waste, Nuisance, etc 3
(c) Insurance Risks 4
(d) Compliance with Law 4
(e) Environmental Compliance 4
(f) Rules and Regulations 4
7. ASSIGNMENT AND SUB-LETTING
(a) No Assignment Without Consent 4
(b) Assignment or Sub-letting Procedures 4
(c) Assumption of Obligations 5
(d) Tenant's Continuing Obligations 5
8. REPAIR AND DAMAGE
(a) Landlord's Repairs to Building and Property 5
(b) Landlord's Repairs to the Leased Premises 5
(c) Tenant's Repairs 5
(d) Indemnification 5
(d) Damage and Destruction 6
9. INSURANCE AND LIABILITY
(a) Landlord's Insurance 6
(b) Tenant's Insurance 6
(c) Limitation of Landlord's Liability 7
(d) Indemnity of Landlord 7
(e) Definition of "Insured Damage" 8
10. EVENTS OF DEFAULT AND REMEDIES
(a) Events of Default and Remedies 8
(b) Payment of Rent, etc. on Termination 8
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
ADDITIONAL PROVISIONS
11. Relocation of Leased Premises 9
12. Subordination and Attornment 10
13. Certificates 10
14. Inspection of and Access to the Leased Premises 10
15. Delay 10
16. Waiver 11
17. Sale, Demolition and Renovation 11
18. Public Taking 11
19. Registration of Lease 11
20. Lease Entire Agreement 12
21. Notices 12
22. Interpretation 12
23. Extent of Lease Obligations 12
24. Use and Occupancy Prior to Term 12
25. Schedules 12
</TABLE>
<TABLE>
<CAPTION>
DEFINITIONS OF PRINCIPAL TERMS PARAGRAPH PAGE
<S> <C> <C>
Additional Rent 3(b) 2
Additional Services 4(a) D-2
Basic Rent 3(a) 2
Building 1 1
Debts, Liabilities & Obligations 4 3
Fiscal Period 3(c) 2
Insured Damage 9(e) 8
Landlord 1,10
Landlord's Taxes 2(a) C-1
Leased Premises 1 1
Leasehold Improvements 1 F-1
Landlord's Work 5(b) F-2
Operating Costs 5 D-2
Property 1 1
Public Taking 18 11
Rent 3(d) 3
Taxes 2(b) C-1
Tenant 1
Tenant's Proportionate Share 2(d) C-2
Tenant's Proportionate Share 7 D-3
Tenant's Taxes 2(c) C-1
Term 2(a) 1
</TABLE>
(ii)
<PAGE>
THIS AGREEMENT made this 21st day of May 1997.
---- ---
BETWEEN:
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.), a company domiciled
in the State of Michigan and having an office at 200 Bloor Street
East, Toronto, Ontario M4W 1E5, and having a local office at 865 South
Figueroa Street, Suite 2300 in the City of Los Angeles, California
(hereinafter called the "Landlord")
OF THE FIRST PART,
--- and ---
LIVEWORLD PRODUCTIONS, INC., A CALIFORNIA CORPORATION
having an office at 307 Orchard City Drive, Suite 304
in the City of Campbell, California
(hereinafter called the "Tenant")
OF THE SECOND PART,
In consideration of the rents, covenants and agreements hereinafter
contained, the Landlord and Tenant hereby agree as follows:
1. LEASED PREMISES
LEASED PREMISES The Landlord does demise and lease to the Tenant the premises
(the "Leased Premises") located in a building (the
"Building") having a municipal address of 307 Orchard City
Drive in the City of Campbell and known as
Suite 300, Suite 304, and Suite 350 (the Leased Premises, the
-----------------------------------
Building, together with the lands described in Schedule "A"
attached hereto and present and future improvements,
additions and changes thereto being herein called the
"Property"), the Leased Premises consisting of approximately
ten thousand one hundred three square feet (10,103 rentable
------
square feet) on the third (3rd) floor(s) as outlined in red
on the plan or plans marked Schedule(s) "B" attached hereto,
excluding the exterior surfaces of the exterior walls of the
Leased Premises.
2. TERM
TERM (a) TO HAVE AND TO HOLD the Leased Premises for and during
the term of five (5) years and zero (0) days/months (the
"Term") to be computed from the 1st day of January, 1998, and
to be fully complete and ended on the 31st day of December,
2002, unless otherwise terminated. See Schedule F, Paragraphs
--------------------------
6, 7 and 8.
----------
DELAY IN OCCUPANCY (b) If the Leased Premises or any part thereof are not ready
for occupancy on the date of commencement of the Term, no
part of the "Rent" (as hereinafter defined) or only a
proportionate part thereof, in the event that the Tenant
shall occupy a part of the Leased Premises, shall be payable
for the period prior to the date when the entire Leased
Premises are ready for occupancy and the full Rent shall
accrue only after such last mentioned date. The Tenant agrees
to accept any such abatement of Rent in full settlement of
all claims which the Tenant might otherwise have by reason of
the Leased Premises not being ready for occupancy on the date
of commencement of the Term, provided that when the Landlord
has completed construction of such part of the Leased
Premises as it is obliged hereunder to construct, the Tenant
shall not be entitled to any abatement of Rent for any delay
in occupancy due to the Tenant's failure or delay to provide
plans or to complete any special installations or other work
required for its purposes or due to any other reason, nor
shall the Tenant be entitled to any abatement of Rent for any
delay in occupancy if the Landlord has been unable to
complete construction of the Leased Premises by reason of
such failure or delay by the Tenant. A certificate of the
Landlord as to the date the Leased Premises were ready for
occupancy and such construction as the Landlord is obliged to
complete is substantially completed, or as to the date upon
which the same would have been ready for occupancy and
completed respectively but for the failure or delay of the
Tenant, shall be conclusive and binding on the Tenant and
Rent in full shall accrue and become payable from the date
set out in the said certificate. Notwithstanding any
1
<PAGE>
delay in occupancy, the expiry date of this Lease shall remain
unchanged.
OVER-HOLDING (c) If at the expiration of the Term or sooner termination
hereof, the Tenant shall remain in possession without any
further written agreement or in circumstances where a tenancy
would thereby be created by implication of law or otherwise, a
tenancy from year to year shall not be created by implication
of law or otherwise, but the Tenant shall be deemed to be a
monthly tenant only, at one hundred fifty percent (150%) "Basic
---------------------------------------
Rent" (as hereinafter defined) payable monthly in advance plus
-----
"Additional Rent" (as hereinafter defined) and otherwise upon
and subject to the same terms and conditions as herein
contained, excepting provisions for renewal (if any) and
leasehold improvement allowance (if any), contained herein, and
nothing, including the acceptance of any Rent by the Landlord,
for periods other than monthly periods, shall extend this Lease
to the contrary except an agreement in writing between the
Landlord and the Tenant and the Tenant hereby authorizes the
Landlord to apply any moneys received from the Tenant in
payment of such monthly Rent.
3. RENT
BASIC RENT (a) The Tenant shall without deduction or right of offset pay
to the Landlord yearly and every year during the Term as rental
(herein called "Basic Rent"), the sum of Two Hundred Four
Thousand Three Hundred Eighty Four and 00/100 Dollars
($204,384.00) of lawful money of the jurisdiction in which the
Leased Premises are located, in equal monthly installments of
Seventeen Thousand Thirty-Two and 00/100 Dollars ($17,032.00)
each in advance on the first day of each month during the Term,
the first payment to be made on the first day of January, 1998.
See Schedules K, K-1, K-2, K-3.
ADDITIONAL RENT (b) The Tenant shall, without deduction or right of offset pay
to the Landlord yearly and every year during the Term as
additional rental (herein called "Additional Rent")
(i) the amounts of any Taxes payable by the Tenant to the
Landlord pursuant to the provisions of Schedule "C"
attached hereto; and
(ii) the amounts required to be paid to the Landlord
pursuant to the provisions of Schedule "D" attached
hereto.
PAYMENT (c) Additional Rent shall be paid and adjusted with reference
ADDITIONAL RENT to a fiscal period of twelve (12) calendar months ("Fiscal
Period"), which shall be a calendar year unless the Landlord
shall from time to time have selected a Fiscal Period which is
not a calendar year by written notice to the Tenant.
The Landlord shall advise the Tenant in writing of its
estimate of the Additional Rent to be payable by the
Tenant during the Fiscal Period (or broken portion of the
Fiscal Period, as the case may be, if applicable at the
commencement or end of the Term or because of a change in
Fiscal Period) which commenced upon the commencement date
of the Term and for each succeeding Fiscal Period or
broken portion thereof which commences during the Term.
Such estimate shall in every case be a reasonable estimate
and, if requested by the Tenant, shall be accompanied by
reasonable particulars of the manner in which it was
calculated. The Additional Rent payable by the Tenant
shall be paid in equal monthly installments in advance at
the same time as payment of Basic Rent is due hereunder
based on the Landlord's estimate as aforesaid. From time
to time, the Landlord may re-estimate, on a reasonable
basis, the amount of Additional Rent for any Fiscal Period
or broken portion thereof, in which case the Landlord
shall advise the Tenant in writing of such re-estimate and
fix new equal monthly installments for the remaining
balance of such Fiscal Period or broken portion thereof.
After the end of each such Fiscal Period or broken portion
thereof the Landlord shall submit to the Tenant a
statement of the actual Additional Rent payable in respect
of such Fiscal Period or broken portion thereof and a
calculation of the amounts by which the Additional Rent
payable by the Tenant exceeds or is less than (as the case
may be) the aggregate installments paid by the Tenant on
account of Additional Rent for such Fiscal Period.
Within thirty (30) days after the submission of such
statement either the Tenant shall pay to the Landlord any
amount by which the amount found payable by the Tenant
with respect to such Fiscal Period or broken portion
thereof exceeds the aggregate of the monthly payments made
by it on account thereof during such Fiscal Period or
broken portion thereof, or the Landlord shall pay to the
Tenant any amount by which the amount found payable as
aforesaid is less than the aggregate of such monthly
payments.
ACCRUAL OF RENT (d) Basic Rent and Additional Rent (herein collectively called
"Rent") shall be considered as accruing from day to day,
and Rent for an irregular period of less than one year or
less than one calendar month shall be apportioned and
adjusted by the Landlord for the Fiscal Periods of the
Landlord in which the tenancy created hereby commences and
expires. Where the calculation of
2
<PAGE>
Additional Rent for a period cannot be made until after the
termination of this Lease, the obligation of the Tenant to pay
Additional Rent shall survive the termination hereof and
Additional Rent for such period shall be payable by the Tenant
upon demand by the Landlord. If the Term commences or expires
on any day other than the first or the last day of a month,
Rent for such fraction of a month shall be apportioned and
adjusted as aforesaid and paid by the Tenant on the
commencement date of the Term.
RECOVERY OF RENT (e) Rent and any other amounts required to be paid by the
Tenant to the Landlord under this Lease shall be deemed to be
and be treated as rent and payable and recoverable as rent,
and the Landlord shall have all rights against the Tenant for
default in any payment of rent and other amounts as in the
case of arrears in rent.
LIMITATIONS (f) The information set out in statements, documents or other
writings setting out the amount of Additional Rent submitted
to the Tenant under or pursuant to this Lease shall be binding
on the Tenant and deemed to be accepted by it and shall not be
subject to amendment for any reason unless the Tenant gives
written notice to the Landlord within sixty (60) days of the
Landlord's submission of such statement, document, or writing
identifying the statement, document, or writing and setting
out in reasonable detail the reason why such statement,
document or writing should not be binding on the Tenant.
4. SECURITY DEPOSIT
SECURITY DEPOSIT The Tenant shall pay to the Landlord on execution of this
Lease by the Tenant the sum of Nineteen Thousand Fifty-Two and
00/100 Dollars ($19,052.00) as a deposit to the Landlord to
stand as security for the payment by the Tenant of any and all
present and future debts and liabilities of the Tenant to the
Landlord and for the performance by the Tenant of all of its
obligations arising under or in connection with this Lease
(the "Debts, Liabilities and Obligations"). The Landlord shall
not be required to keep the deposit separate from its general
funds. In the event of the Landlord disposing of its interest
in this Lease, the Landlord shall credit the deposit to its
successor and thereupon shall have no liability to the Tenant
to repay the security deposit to the Tenant. Subject to the
foregoing and to the Tenant not being in default under this
Lease, the Landlord shall repay the security deposit to the
Tenant without interest at the end of the Term or sooner
termination of the Lease provided that all Debts, Liabilities
and Obligations of the Tenant to the Landlord are paid and
performed in full, failing which the Landlord may on notice to
the Tenant elect to retain the security deposit and to apply
it in reduction of the Debts, Liabilities and Obligations and
the Tenant shall remain fully liable to the Landlord for
payment and performance of the remaining Debts, Liabilities
and Obligations.
5. GENERAL COVENANTS
LANDLORD'S (a) The Landlord covenants with the Tenant:
CONVENANT
(i) for quiet enjoyment; and
(ii) to observe and perform all the covenants and
obligations of the Landlord herein.
TENANT'S (a) The Tenant covenants with the Landlord:
CONVENANT
(i) to pay Rent; and
(ii) to observe and perform all the covenants and
obligations of the Tenant herein.
6. USE AND OCCUPANCY
USE The Tenant covenants with the Landlord:
(a) not to use the Leased Premises for any purpose other than
an office for the conduct of the Tenant's business which is
general office use and activities compatible with other
------------------------------------
tenants within the Building.
---------------------------
WASTE, NULSANCE, (b) not to commit, or permit, any waste, injury or damage to
ETC. the Property including the Leasehold Improvements and any
trade fixtures therein, any loading of the floors thereof in
excess of the maximum degree of loading as determined by the
Landlord acting reasonably, any nuisance therein or any use or
manner of use causing annoyance to other tenants and occupants
of the Property or to the Landlord;
INSURANCE RISKS (c) not to do, omit or permit to be done or omitted to be
done upon the Property anything which would cause to be
increased the Landlord's cost of insurance or the costs of
insurance of another tenant of the Property against perils as
to which the Landlord or such other tenant has insured or
which shall cause any policy of insurance on the Property to
be subject to cancellation;
COMPLIANCE WITH (d) to comply at its own expense with all governmental laws,
regulations and requirements
3
<PAGE>
LAW pertaining to the occupation and use of the Leased
Premises, the condition of the Leasehold Improvements,
trade fixtures, furniture and equipment installed by or on
behalf of the Tenant therein and the making by the Tenant
of any repairs, changes or improvements therein; provided
--------
however, Landlord shall construct and pay for, as part of
---------------------------------------------------------
the Operating Costs, the improvements, repairs or changes
---------------------------------------------------------
in order to comply with any governmental laws, regulations
----------------------------------------------------------
or requirements of general applicability regarding the
------------------------------------------------------
improvements in the Leased Premises unless such compliance
----------------------------------------------------------
is necessitated by reason of the particular nature of
-----------------------------------------------------
Tenant's use or occupancy of the Leased Premises (in which
----------------------------------------------------------
event. Tenant will pay these costs directly and not as part
-----------------------------------------------------------
of the Operating Costs).
----------------------
ENVIRONMENTAL (e) (i) to conduct and maintain its business and
COMPLIANCE operations at the Leased Premises so as to comply in all
respects with common law and with all present and future
applicable federal, provincial state, local, municipal,
governmental or quasi-governmental laws, by-laws, rules,
regulations, licenses, orders, guidelines, directives,
permits, decisions or requirements concerning occupational
or public health and safety or the environment and any
order, injunction, judgment, declaration, notice or demand
issued thereunder, ("Environmental Laws").
(ii) not to permit or suffer any substance which is
hazardous or is prohibited, restricted, regulated or
controlled under any Environmental Law to be present at, on
or in the Leased Premises, unless it has received the prior
written consent of the Landlord which consent may be
arbitrarily withheld.
RULES AND (f) to observe and perform, and to cause its employees,
REGULATIONS invitees and others over whom the Tenant can reasonably be
expected to exercise control to observe and perform, the
Rules and Regulations contained in Schedule "E" hereto, and
such further and other reasonable rules and regulations and
amendments and additions therein as may hereafter be made
by the Landlord and notified in writing to the Tenant,
except that no change or addition may be made that is
inconsistent with this Lease unless as may be required by
governmental regulation or unless the Tenant consents
thereto. The imposition of such Rules and Regulations shall
not create or imply any obligation of the Landlord to
enforce them or create any liability of the Landlord for
their non-enforcement or otherwise.
7. ASSIGNMENT AND SUB-LETTING
NO ASSIGN-MENT AND (a) The Tenant covenants that it will not assign this
SUB-LEITING Lease or sub-let the Leased Premises in whole or in part
without the prior written consent of the Landlord, which
consent the Landlord covenants not to withhold unreasonably
(i) as to any assignee or sub-lessee who is in a reasonably
----------
satisfactory financial condition in relation to the
------------------
obligations and liabilities to be assumed under this Lease,
----------------------------------------------------------
agrees to use the Leased Premises for those purposes
permitted hereunder, and is otherwise reasonably
satisfactory to the Landlord, and (ii) as to any portion of
the Leased Premises which, in the Landlord's sole judgment,
is a proper and rational division of the Leased Premises,
subject to the Landlord's right of termination arising
under this paragraph. Without limitation, the Tenant shall
for the purpose of this paragraph be considered to assign
or sub-let in any case where it permits the Leased Premises
or any portion thereof to be, or the Leased Premises or any
portion thereof are, occupied by persons other than the
Tenant, its employees and others engaged in carrying on the
business of the Tenant, whether pursuant to assignment,
sub-letting, license or other right, or where any of the
foregoing occurs by operation of law. Notwithstanding
---------------
anything to the contrary set forth in this Lease, Tenant
--------------------------------------------------------
may assign this Lease at any time or sublease all or any
--------------------------------------------------------
part of the Leased Premises, upon prior written notice to
---------------------------------------------------------
Landlord but without receipt of Landlord's consent, to any
----------------------------------------------------------
entity which acquires not less than fifty-one percent (51%)
-----------------------------------------------------------
of Tenant's assets or stock, or is merged or consolidated
---------------------------------------------------------
with Tenant, or which controls, is controlled by or is
------------------------------------------------------
under common control with, Tenant (collectively, an
---------------------------------------------------
"Affiliate"), so long as (A) such transaction was not
-----------------------------------------------------
entered into as a subterfuge to avoid the obligations and
---------------------------------------------------------
restrictions of this Lease, (B) at least ten (10) days
------------------------------------------------------
prior to the effective date of the transaction, Tenant
------------------------------------------------------
notifies Landlord of such transaction and supplies Landlord
-----------------------------------------------------------
with any documents or information reasonably requested by
---------------------------------------------------------
Landlord regarding such transaction or such Affiliate, (C)
----------------------------------------------------------
in the case of an assignment such Affiliate conclusively
--------------------------------------------------------
agrees, in writing delivered to Landlord prior to the
-----------------------------------------------------
effective date of the transaction, to assume all of
---------------------------------------------------
Tenant's obligations under this Lease, and (D) the net
------------------------------------------------------
worth of such Affiliate, as of the effective date of the
--------------------------------------------------------
assignment or sublease, is at least equal to the net worth
----------------------------------------------------------
of Tenant as of the date of this Lease. Any such assignment
-----------------------------------------------------------
or subletting to an Affiliate pursuant to this Paragraph 7
----------------------------------------------------------
shall neither release nor relieve Tenant from any of
----------------------------------------------------
Tenant's obligations under this Lease.
-------------------------------------
ASSIGNMENT OR (b) The Tenant shall not assign this Lease or sub-let the
SUB-LETTING whole or any part of the Leased Premises unless:
PROCEDURES
(i) it shall have received or procured a bone fide
written offer to take an assignment or sublease which is
not inconsistent with the Lease, and the acceptance of
which would not breach any
4
<PAGE>
provision of this Lease if this paragraph is complied with and
which the Tenant has determined to accept subject to this
paragraph being complied with, and
(ii) it shall have first requested and obtained the
consent in writing of the Landlord thereto.
Any request for consent shall be in writing and accompanied by
a copy of the offer certified by the Tenant to be true and
complete, and the Tenant shall furnish to the Landlord all
information available to the Tenant and requested by the
Landlord as to the responsibility, financial standing and
business of the proposed assignee or sub-tenant.
Notwithstanding the provisions of sub-paragraph (a), within ten
(10) days after the receipt by the Landlord of such request for
consent and of all information which the Landlord shall have
requested hereunder, the Landlord shall have the right upon
written notice of termination submitted to the Tenant, if the
request is to assign this Lease or sub-let the whole of the
Leased Premises, to cancel and terminate this Lease, or if the
request is to sub-let a part of the Leased Premises only, to
cancel and terminate this Lease with respect to such part, in
each case as of a termination date to be stipulated in the
notice of termination which shall be the proposed effective
------------------
date or commencement date of the assignment or sublease. In
-------------------------------------------------------
such event the Tenant shall surrender the whole or part, as the
case may be, of the Leased Premises in accordance with such
notice of termination and Basic Rent and Additional Rent shall
be apportioned and paid to the date of surrender and, if a part
only of the Leased Premises is surrendered, Basic Rent and
Additional Rent shall after the date of surrender abate
proportionately. If such consent shall be given the Tenant
shall assign or sub-let, as the case may be, only upon the
terms set out in the offer submitted to the Landlord as
aforesaid and not otherwise.
ASSUMPTION OF (c) No assignment or sub-letting of this Lease shall be
OBLIGATIONS effective unless THE ASSIGNEE OR SUB-LESSEE SHALL EXECUTE AN
ASSUMPTION AGREEMENT ON THE Landlord's form, assuming all the
obligations of the Tenant hereunder with respect to the terms
-------------------------
of any such sublease or assignment, and shall pay to the
----------------------------------
Landlord its reasonable fee for processing the assignment or
sub-letting.
TENANT'S (d) The Tenant agrees that any consent to an assignment or
CONTINUING sub-letting of this Lease or Leased Premises, shall not thereby
OBLIGATIONS release the Tenant of its obligations hereunder.
8. REPAIR & DAMAGE
LANDLORD'S (a) The Landlord covenants with the Tenant to keep in a good
REPAIRS TO and reasonable state of repair and decoration:
BUILDING &
PROPERTY
(i) those portions of the Property consisting of the
entrance, lobbies, stairways, corridors, landscaped
areas, parking areas, and other facilities from time
to time provided for use in common by the Tenant and
other tenants of the Building or Property, and the
exterior portions (including foundations and roofs)
of all buildings and structures from time to time
forming part of the Property and affecting its
general appearance;
(ii) the Building (other than the Leased Premises and
premises of other tenants) including the systems for
interior climate control, the elevators and
escalators (if any), entrances, lobbies, stairways,
corridors and washrooms from time to time provided
for use in common by the Tenant and other tenants of
the Building or Property and the systems whether or
----------
not located within the Leased Premises provided for
-----------------------------
use in common by the Tenant and other tenants of the
Building or Property and the systems provided for
bringing utilities to the Leased Premises.
LANDLORD'S (b) The Landlord covenants with the Tenant to repair, maintain
--------
REPAIRS TO THE and replace, when necessary, so far as reasonably feasible,
LEASED PREMISES ---------------------------
and as expeditiously as reasonably feasible, defects in
standard demising walls or in structural elements, exterior
walls of the Building, suspended ceiling, electrical, non-
----
Leasehold Improvement plumbing and mechanical installations
------------------------------
standard to the Building installed by the Landlord in the
Leased Premises (if and to the extent that such defects are
sufficient to impair the Tenant's use of the Leased Premises
while using them in a manner consistent with this Lease) and
"Insured Damage" (as herein defined). The Landlord shall in no
event be required to make repairs to Leasehold Improvements
made by the Tenant, or by the Landlord on behalf of the Tenant
or another tenant or to make repairs to wear and tear within
the Leased Premises.
TENANT'S REPAIRS (c) The Tenant covenants with the Landlord to repair,
maintain and keep at the Tenant's own cost, except insofar as
the obligation to repair rests upon the Landlord pursuant to
this paragraph, the Leased Premises, including Leasehold
Improvements in good and substantial repair, reasonable wear
and tear excepted, provided that this obligation shall not
extend to structural elements or to exterior glass or to
repairs which the Landlord would be required to make under this
paragraph but for the exclusion therefrom of defects not
sufficient to impair the Tenant's use of the Leased Premises
while using them in a manner consistent with this Lease. The
Landlord may enter the Leased Premises with reasonable notice
-------------------------------
(subject to Tenant's reasonable security precautions and right
---------------------------------------------------------------
to
--
5
<PAGE>
accompany Landlord at all times) (except in the case of an
----------------------------------------------------------
emergency) and view the condition thereof and the Tenant
----------
covenants with the Landlord to repair, maintain and keep
the Leased Premises in good and substantial repair
according to notice in writing, reasonable wear and tear
excepted. If the Tenant shall fail to repair as aforesaid
after reasonable notice to do so, the Landlord may effect
the repairs and the Tenant shall pay the reasonable cost
thereof to the Landlord on demand. The Tenant covenants
with the Landlord that the Tenant will at the expiration
of the Term or sooner termination thereof peaceably
surrender the Leased Premises and appurtenances in good
and substantial repair and condition, reasonable wear and
tear excepted.
INDEMNIFICATION (d) If any part of the Property becomes out of repair,
damaged or destroyed through the negligence of, or misuse
by, the Tenant or its employees, agents, invitees or
others under its control, the Tenant shall pay the
Landlord on demand the expense of repairs or replacements,
including the Landlord's reasonable administration charge
thereof, necessitated by such negligence or misuse.
DAMAGE AND (e) It is agreed between the Landlord and the Tenant
DESTRUCTION that:
(i) In the event of damage to the Property or to
any part thereof, if the damage is such that
the Leased Premises or any substantial part
thereof is rendered not reasonably capable of
use and occupancy by the Tenant for the
purposes of its business for any period of time
in excess of ten (10) days, then
(1) unless the damage was caused by the fault
or negligence of the Tenant or its
employees, agents, invitees or others
under its control, from the date of
occurrence of the damage and until the
Leased Premises are again reasonably
capable for use and occupancy as
aforesaid, the Rent payable pursuant to
this Lease shall abate from time to time
in proportion to the part or parts of the
Leased Premises not reasonably capable of
such use and occupancy, and
(2) unless this Lease is terminated as
hereinafter provided, the Landlord or the
Tenant as the case may be (according to
the nature of the damage and their
respective obligations to repair as
provided in sub-paragraphs (a), (b) and
(c) of this paragraph) shall repair such
damage with all reasonable diligence, but
to the extent that any part of the Leased
Premises is not reasonably capable of such
use and occupancy by reason of damage
which the Tenant is obligated to repair
hereunder, any abatement of Rent to which
the Tenant would otherwise be entitled
hereunder shall not extend later than the
time by which, in the reasonable opinion
of the Landlord, repairs by the Tenant
ought to have been completed with
reasonable diligence; and
(ii) if the Leased Premises are substantially
damaged or destroyed by any cause and if in the reasonable
opinion of the Landlord given in writing within thirty
(30) days of the occurrence the damage cannot reasonably
be repaired within one hundred and eighty (180) days after
the occurrence thereof, then the Lease shall terminate, in
which event neither the Landlord nor the Tenant shall be
bound to repair as provided in sub-paragraphs (a), (b) and
(c) of this paragraph, and the Tenant shall instead
deliver up possession of the Leased Premises to the
Landlord with reasonable expedition and Rent shall be
apportioned and paid to the date of the occurrence; and
(iii) if premises whether of the Tenant or other
tenants of the Property comprising in the aggregate half
or more of the total number of square feet or rentable
office area in the Property or half or more of the total
number of square feet of rentable office area in the
Building (as determined by the Landlord) or portions of
the Property which affect access or services essential
thereto, are substantially damaged or destroyed by any
cause and if in the reasonable opinion of the Landlord the
damage cannot reasonably be repaired within one hundred
and eighty (180) days after the occurrence thereof, then
the Landlord may, by written notice to the Tenant given
within thirty (30) days after the occurrence of such
damage or destruction, terminate this Lease, in which
event neither the Landlord nor the Tenant shall be bound
to repair as provided in sub-paragraphs (a) (b) and (c) of
this paragraph, and the Tenant shall instead deliver up
possession of the Leased Premises to the Landlord with
reasonable expedition but in any event within sixty (60)
days after delivery of such notice of termination, and
Rent shall be apportioned and paid to the date upon which
possession is so delivered up (but subject to any
abatement to which the Tenant may be entitled under
subparagraph (e)(i) of this paragraph).
9. INSURANCE AND LIABILITY
LANDLORD'S INSURANCE (a) The Landlord shall take out and keep in force during
the Term insurance with respect to the Property except for
the "Leasehold Improvements" (as hereinafter defined) in
the Leased Premises. The insurance to be maintained by the
Landlord shall be in respect of perils and to amounts and
on terms and conditions which from time to time are
insurable at a reasonable premium and which are
6
<PAGE>
normally insured by reasonable prudent owners of properties
similar to the Property, all as from time to time determined at
reasonable intervals by insurance advisors selected by the
Landlord, and whose opinion shall be conclusive. Unless and until
the insurance advisors shall state that any such perils are not
customarily insured against by owners of properties similar to
the Property, the perils to be insured against by the Landlord
shall include, without limitation, public liability, boilers and
machinery, fire and extended perils and may include at the option
of the Landlord losses suffered by the Landlord in its capacity
as Landlord through business interruption. Notwithstanding
---------------
anything to the contrary set forth this Lease, and without
----------------------------------------------------------
affecting any other rights or remedies of the parties hereto
------------------------------------------------------------
(except as expressly provided herein). Landlord and Tenant each
---------------------------------------------------------------
hereby release and relieve the other, and waive their entire
------------------------------------------------------------
right to recover damages against the other, for loss of or damage
-----------------------------------------------------------------
to their respective property arising out of or incident to the
--------------------------------------------------------------
perils required to be insured against under this Paragraph 9 and
----------------------------------------------------------------
/ or in this Lease. The effect of such releases and waivers is
--------------------------------------------------------------
not limited by the amount of insurance carried or required, or by
-----------------------------------------------------------------
any deductible applicable hereto. Landlord and Tenant hereby
------------------------------------------------------------
agree to have their respective insurance carriers waive any right
-----------------------------------------------------------------
to subrogation that such carriers may have against either
---------------------------------------------------------
Landlord or Tenant, as the case may be, so long as any insurance
----------------------------------------------------------------
is not invalidated thereby.
--------------------------
TENANT'S (b) The Tenant shall take out and keep in force during the Term:
INSURANCE
(i) comprehensive general public liability insurance all
on an occurrence basis with respect to the business
carried on in or from the Leased Premises and the
Tenant's use and occupancy of the Leased Premises and
of any other part of the Property, with coverage not
---
less than Two Million Dollars ($2,000,000) for any one
------------------------------------------------------
occurrence or claim, and which insurance shall include
-------------------
the Landlord as a named additionally insured and shall
protect the Landlord in respect of claims by the
Tenant as if the Landlord were separately insured;
(ii) insurance in respect of fire and such other perils as
are from time to time in the usual extended coverage
endorsement covering the Leasehold Improvements, trade
fixtures, and the furniture and equipment in the
Leased Premises for not less than 80% of the full
replacement cost thereof, and which insurance covering
--------
the Leasehold Improvements only, shall include the
-------------------------------
Landlord as named additionally insured as the
Landlord's interest may appear; and
(iii) insurance against such other perils and in such
amounts as the Landlord may from time to time
reasonably require upon not less than ninety (90)
days' written notice, such requirement to be made on
the basis that the required insurance is customary at
the time for prudent tenants of properties similar to
the Property (excluding any requirement that Tenant
--------------------------------------
obtain earthquake and / or flood endorsement or
-----------------------------------------------
insurance).
----------
All insurance required to be maintained by the Tenant shall be on
terms and with insurers reasonably satisfactory to the Landlord.
----------
Each policy shall contain a waiver by the insurer of any rights
of subrogation or indemnity or any other claim over to which the
insurer might otherwise be entitled against the Landlord or the
agents or employees of the Landlord, and shall also contain an
undertaking by the insurer that no material change adverse to the
Landlord or the Tenant will be made, and the policy will not
lapse or be canceled, except after not less than thirty (30)
days' written notice to the Landlord of the intended change,
lapse or cancellation. The Tenant shall furnish to the Landlord,
if and whenever requested by it, certificates or other evidences
acceptable to the Landlord as to the insurance from time to time
effected by the Tenant and its renewal or continuation in force,
together with evidence as to the method of determination of full
replacement cost of the Tenant's Leasehold Improvements, trade
fixtures, furniture and equipment, and if the Landlord reasonably
concludes that the full replacement cost has been underestimated,
the Tenant shall forthwith arrange for any consequent increase in
coverage required under sub-paragraph (b). If the Tenant shall
fail to take out, renew and keep in force such insurance, or if
the evidences submitted to the Landlord are unacceptable to the
Landlord (or no such evidences are submitted within a reasonable
period after request therefor by the Landlord), then the Landlord
may give to the Tenant written notice requiring compliance with
this sub-paragraph and specifying the respects in which the
Tenant is not then in compliance with this sub-paragraph. If the
Tenant does not within forty-eight (48) hours provide appropriate
evidence of compliance with this sub-paragraph, the Landlord may
(but shall not be obligated to) obtain some or all of the
additional coverage or other insurance which the Tenant shall
have failed to obtain, without prejudice to any other rights of
the Landlord under this Lease or otherwise, and the Tenant shall
pay all premiums and other reasonable expenses incurred by the
Landlord to the Landlord on demand.
7
<PAGE>
LIMITATION OF (c) The Tenant agrees that the Landlord shall not be
LANDLORD'S LIABILITY liable for any bodily injury or death of, or loss or
damage to any property belonging to, the Tenant or its
employees, invitees or licensees or any other person
in, on or about the Property unless resulting from the
willful misconduct or negligence of the Landlord or its
own employees or agents. In no event shall the Landlord
-------------------
be liable for any damage which is caused by steam,
water, rain or snow or other thing which may leak into,
issue or flow from any part of the Property or from the
pipes or plumbing works, including the sprinkler system
(if any) therein or from any other place or for any
damage caused by or attributable to the condition or
arrangement of any electric or other wiring or of
sprinkler heads (if any) or for any damage caused by
anything done or omitted by any other tenant except to
---------
the extent caused by the negligence or willful
----------------------------------------------
misconduct of Landlord or its employees or agents.
-------------------------------------------------
INDEMNITY OF LANDLORD (d) Except with respect to claims or liabilities in
respect of any damage which is Insured Damage to
the extent of the cost of repairing such Insured
Damage, or claims arising from the negligence or
----------------------------------------
willful misconduct of Landlord or its employees or
--------------------------------------------------
agents, the Tenant agrees to indemnify, defend
------ ------
(with counsel reasonably acceptable to Landlord)
-----------------------------------------------
and save harmless the Landlord and the Project in
------------------
respect of:
----------
(i) all claims for bodily injury or death,
property damage or other loss or damage
arising from the conduct of any work or any
act or omission of the Tenant or any
assignee, sub-tenant, agent, employee,
contractor, invitee or licensee of the
Tenant, and in respect of all costs,
expenses and liabilities incurred by the
Landlord in connection with or arising out
of all such claims, including the expenses
of any action or proceeding pertaining
thereto (including, without limitation,
------------------------------
reasonable lawyers' fees and costs, and
---------------------------------------
court costs); and
-----------------
(ii) any loss, cost, (including, without
limitation, reasonable lawyers' fees and
---------- ---
costs, and court costs), expense or damage
----------------------
suffered by the Landlord arising from any
breach by the Tenant of any of its
covenants and obligations under this Lease.
DEFINITION OF (e) For purposes of this Lease, "Insured Damage" means
"INSURED DAMAGE" that part of any damage occurring to the Property of
which the entire cost of repair (or the entire cost of
repair other than deductible amount properly
collectable by the Landlord as part of the Additional
Rent) is actually recovered by the Landlord under a
policy or policies of insurance from time to time
effected by the Landlord pursuant to sub-paragraph (a)
Where an applicable policy of insurance contains an
exclusion for damages recoverable from a third party,
claims as to which the exclusion applies shall be
considered to constitute Insured Damage only if the
Landlord successfully recovers from the third party.
10. EVENTS OF DEFAULT AND REMEDIES
EVENTS OF DEFAULT (a) In the event of the happening of any one of the
AND REMEDIES following events:
(i) the Tenant shall have failed to pay an
installment of Basic Rent or of Additional
Rent or any other amount payable hereunder
when due, and such failure shall be
continuing for a period of more than ten
(10) days after the date that Tenant shall
-----------------
have received notice that such installment
-------------------------
or amount was due;
(ii) there shall be a default of or with any
condition, covenant, agreement or other
obligation on the part of the Tenant to be
kept, observed or performed hereunder
(other than a condition, covenant,
agreement or other obligation to pay Basic
Rent, Additional Rent or any other amount
of money) and such default shall be
continuing for a period of more than
fifteen (15) days after written notice by
------------
the Landlord to the Tenant specifying the
default and requiring that it discontinue
-----------
or such longer time as may reasonably be
----------------------------------------
required to cure the default so long as
---------------------------------------
Tenant commences to cure such failure
-------------------------------------
within such fifteen (15) day period and
---------------------------------------
Tenant uses Tenant's best efforts to
------------------------------------
diligently prosecute such cure to
---------------------------------
completion;
----------
(iii) if any policy of insurance upon the
Property or any part thereof from time to
time effected by the Landlord shall be
canceled or about to be canceled by the
insurer by reason of the use or occupation
of the Leased Premises by the Tenant or any
assignee, sub-tenant or licensee of the
Tenant or anyone permitted by the Tenant to
be upon the Leased Premises and the Tenant
after receipt of notice in writing from the
Landlord shall have failed to take such
immediate steps in respect of such use or
occupation as shall enable the Landlord to
reinstate or avoid cancellation (as the
case may be) of such policy of insurance,
(iv) the Leased Premises shall, without the
prior written consent of the Landlord, be
used by any other persons than the Tenant
or its permitted assigns or sub-tenants or
for any
8
<PAGE>
purpose other than that for which they were leased or
occupied or by any persons whose occupancy is
prohibited by this Lease,
(v) the Leased Premises shall be abandoned, or remain
unoccupied without the prior written consent of the
Landlord for fifteen (15) consecutive days or more
while capable of being occupied, and Tenant has not
------------------
paid rent.
---------
(vi) the balance of the Term of this Lease or any of the
goods and chattels of the Tenant located in the
Leased Premises, shall at any time be seized in
execution or attachment, or
(vii) the Tenant shall make any assignment for the benefit
of creditors or become bankrupt or insolvent or take
the benefit of any statute for bankrupt or insolvent
debtors or, if a corporation, shall take any steps or
suffer any order to be made for its winding-up or
other termination of its corporate existence; or a
trustee, receiver or receiver-manager or agent or
other like person shall be appointed of any of the
assets of the Tenant,
the Landlord shall have the following rights and remedies all of
which are cumulative and not alternative and not to the exclusion
of any other or additional rights and remedies in law or equity
available to the Landlord by statute or otherwise:
(A) to remedy or attempt to remedy any default of the
Tenant, and in so doing to make any payments due or
alleged to be due by the Tenant to third parties and
to enter upon the Leased Premises to do any work or
other things therein, and in such event all
reasonable expenses of the Landlord in remedying or
attempting to remedy such default shall be payable by
the Tenant to the Landlord on demand;
(B) with respect to unpaid overdue Rent, to the payment
by the Tenant of the Rent and of interest (which said
interest shall be deemed included herein in the term
"Rent") thereon at a rate equal to the lesser of
three percent (3%) above the prime commercial loan
rate charged to borrowers having the highest credit
rating from time to time by the Landlord's principal
bank from the date upon which the same was due until
actual payment thereof and the maximum amount allowed
under the laws of the jurisdiction in which the
Building is located;
(C) to terminate this Lease forthwith. In the event that
Landlord shall elect to so terminate this Lease, then
Landlord may recover from Tenant:
(i) the worth at the time of award of any unpaid
rent which had been earned at the time of such
termination; plus
(ii) the worth at the time of award of the amount by
which the unpaid rent which would have been
earned after termination until the time of
award exceeds the amount of such rental loss
that Tenant proves could have been reasonably
avoided; plus
(iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the
term after the time of award exceeds the amount
of such rental loss that Tenant proves could be
reasonably avoided; plus
(iv) any other amount necessary to compensate
Landlord for all the detriment approximately
caused by Tenant's failure to perform the
Tenant obligations under this Lease or which in
the ordinary course of things would be likely
to result therefrom. As used in sub-paragraphs
10(C)(i) and (ii) above, the "worth at the time
of award" is computed by allowing interest at
the maximum rate permitted by law per annum. As
used in sub-paragraph 10(C)(iii) above, the
"worth at the time of award" is computed by
discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco at
the time of award plus one percent (1%).
(D) if Landlord terminates this Lease. to enter the
---------------------------------
Leased Premises to take possession of any
furniture or other property thereon and upon
giving ten (10) days' written notice to the
Tenant to store the same at the expense and
risk of the Tenant or to sell or otherwise
dispose of the same at public or private sale
without further notice and to apply the
proceeds thereof upon account of the Rent due
and to become due under this Lease and the
Tenant shall be liable to the Landlord for the
deficiency if any.
9
<PAGE>
(E) to maintain Tenant's rights to possession and
continue said Lease in full force and effect,
whether or not Tenant shall have abandoned
the Leased Premises. In such event, Landlord
shall be entitled to enforce all of its
rights and remedies under this Lease,
including the right to recover Rent as it
becomes due under the terms of the Lease.
(b) The Tenant shall pay to the Landlord on demand all
reasonable costs and expenses, including reasonable
lawyers' fees and costs incurred by the Landlord in
enforcing any of the obligations of the Tenant under
this Lease.
ADDITIONAL PROVISIONS
RELOCATION OF LEASED PREMISES
SUBORDINATION 12. This Lease and all rights of the Tenant hereunder are
AND ALLOTMENT subject and subordinate to all underlying leases and
charges, or mortgages now or hereafter existing (including
charges, and mortgages by way of debenture, note, bond,
deeds of trust and mortgage and all instruments supplemental
thereto) which may now or hereafter affect the Property or
any part thereof and to all renewals, modifications,
consolidations, replacements and extensions thereof provided
the lessor, chargee, mortgagee or trustee agrees in writing
----------
to accept this Lease if not in default; and in recognition
of the foregoing the Tenant agrees that it will, whenever
requested, attorn to such lessor, chargee, mortgagee as a
tenant upon all the terms of this Lease. The Tenant agrees
to execute promptly whenever requested by the Landlord or by
the holder of any such lease, charge, or mortgage an
instrument of subordination or attornment in a commercially
reasonable form, as the case may be, as may be required of
it.
CERTIFICATES 13. The Tenant agrees that it shall promptly whenever
requested by the Landlord from time to time execute and
deliver to the Landlord, and if required by the Landlord, to
any lessor, chargee, or mortgagee (including any trustee) or
other person designated by the Landlord, an acknowledgment
in writing as to the then status of this Lease, including as
to whether it is in full force and effect, is modified or
unmodified, confirming the Basic Rent and Additional Rent
payable hereunder and the State of the accounts between
Landlord and the Tenant, the existence or non-existence of
defaults, and any other matters pertaining to this Lease as
to which the Landlord shall request an acknowledgment.
INSPECTION OF AND 14. The Landlord shall be permitted at any time and from
ACCESS TO THE time to time, upon reasonable notice and subject to Tenant's
----------------------------------------------
reasonable security LEASED PREMISES precautions and right to
------------------------------------------------------------
accompany Landlord at all times (except in the event of an
----------------------------------------------------------
emergency), to enter and to have its authorized agents,
---------
employees and contractors enter the Leased Premises for the
purposes of inspection, window cleaning, maintenance,
providing janitor service, making repairs, alterations or
improvements to the Leased Premises or the Property, or to
have access to utilities and services (including all ducts
and access panels (if any), which the Tenant agrees not to
obstruct) and the Tenant shall provide free and unhampered
access for the purpose, and shall not be entitled to
compensation for any inconvenience, nuisance or
10
<PAGE>
discomfort caused thereby. The Landlord and its authorized agents
and employees shall be permitted entry to the Leased Premises for
the purpose of exhibiting them to prospective tenants. The
Landlord in exercising its rights under this paragraph shall do
so to the extent reasonably necessary so as to minimize
interference with the Tenant's use and enjoyment of the Leased
Premises provided that in an emergency the Landlord or persons
authorized by it may enter the Leased Premises without regard to
minimizing interference.
DELAY 15. Except as herein otherwise expressly provided, if and
whenever and to the extent that either the Landlord or the Tenant
shall be prevented, delayed or restricted in the fulfillment of
any obligation hereunder in respect of the supply or provision of
any service or utility, the making of any repair, the doing of
any work or any other thing (other than the payment of moneys
required to be paid by the Tenant to the Landlord hereunder) by
reason of:
(a) strikes or work stoppages;
(b) being unable to obtain any material, service, utility
or labor required to fulfill such obligation;
(c) any statute, law or regulation of, or inability to
obtain any permission from any government authority
having lawful jurisdiction preventing, delaying or
restricting such fulfillment;
-or-
(d) other unavoidable occurrence,
the time for fulfillment of such obligation shall be extended
during the period in which such circumstance operates to prevent,
delay or restrict the fulfillment thereof, and the other party to
this Lease shall not be entitled to compensation for any
inconvenience, nuisance or discomfort thereby occasioned;
provided that nevertheless the Landlord will use commercially
------------
reasonable efforts to maintain services essential to the use
----------
and enjoyment of the Leased Premises and provided further that if
the Landlord shall be prevented, delayed or restricted in the
fulfillment of any such obligation hereunder by reason of any of
the circumstances set out in sub-paragraph (c) of this paragraph
15 and to fulfill such obligation could not, in the reasonable
opinion of the Landlord, be completed without substantial
additions to or renovations of the Property, the Landlord may on
sixty (60) days' written notice to the Tenant terminate this
Lease.
WAIVER 16. If either the Landlord or the Tenant shall overlook, excuse,
condone or suffer any default, breach, non-observance, improper
compliance or non-compliance by the other of any obligation
hereunder, this shall not operate as a waiver of such obligation
in respect of any continuing or subsequent default, breach, or
non-observance, and no such waiver shall be implied but shall
only be effective if expressed in writing.
SALE, 17. (a) The term "Landlord" as used in this Lease, means
DEMOLITION only the owner for the time being of the Property, so that in
AND the event of any sale or sales or transfer or transfers of the
RENOVATION Property, or the making of any lease or leases thereof, or the
sale or sales or the transfer or transfers or the assignment or
assignments of any such lease or leases, previous landlords shall
be and hereby are relieved of all covenants and obligations of
Landlord hereunder. It shall be deemed and construed without
further agreement between the parties, or their successors in
interest, or between the parties and the transferee or acquiror,
at any such sale, transfer or assignment, or lessee on the making
of any such lease, that the transferee, acquiror or lessee has
assumed and agreed to carry out any and all of the covenants and
obligations of Landlord hereunder to Landlord's exoneration, and
Tenant shall thereafter be bound to and shall attorn to such
transferee, acquiror or lessee, as the case may be, as Landlord
under this Lease;
PUBLIC TAKING 18. The Landlord and Tenant shall cooperate, each with the
other, in respect of any Public Taking of the Leased Premises or
any part thereof so that the Tenant may receive the maximum award
to which it is entitled in law for relocation costs,trade
-----
fixtures, and business interruption and so that the Landlord may
--------
receive the maximum award for all other compensation arising from
or relating to such Public Taking (including all compensation for
the value of the Tenant's leasehold interest subject to the
Public Taking) which shall be the property of the Landlord, and
the Tenant's rights to such compensation are hereby assigned to
the Landlord. If the whole or any part of the Leased Premises is
Publicly Taken, as between the parties hereto, their respective
rights and obligations
11
<PAGE>
under this Lease shall continue until the day on which the Public
Taking authority takes possession thereof. If the whole or any
part of the Leased Premises is Publicly Taken, the Landlord shall
have the option, to be exercised by written notice to the Tenant,
to terminate this Lease and such termination shall be effective
on the day the Public Taking authority takes possession of the
whole or the portion of the Property Publicly Taken. Rent and all
other payments shall be adjusted as of the date of such
termination and the Tenant shall, on the date of such Public
Taking, vacate the Leased Premises and surrender the same to the
Landlord, with the Landlord having the right to reenter and re-
possess the Leased Premises discharged of this Lease and to
remove all persons therefrom. In this paragraph, the words
"Public Taking" shall include expropriation and condemnation and
shall include a sale by the Landlord to an authority with powers
of expropriation, condemnation or taking, in lieu of or under
threat of expropriation or taking and "Publicly Taken" shall have
a corresponding meaning.
REGISTRATION 19. The Tenant agrees with the Landlord not to register
OF LEASE this Lease in any recording office and not to register notice of
this Lease in any form without the prior written consent of the
Landlord. If such consent is provided such notice of Lease or
caveat shall be in such form as the Landlord shall have approved
and upon payment of the Landlord's reasonable fee for same and
all applicable transfer or recording taxes or charges. The Tenant
shall remove and discharge at Tenant's expense registration of
such a notice or caveat at the expiry or earlier termination of
the Term, and in the event of Tenant's failure to so remove or
discharge such notice or caveat after ten (10) days' written
notice by Landlord to Tenant, the Landlord may in the name and on
behalf of the Tenant execute a discharge of such a notice or
caveat in order to remove and discharge such notice of caveat and
for the purpose thereof the Tenant hereby irrevocably constitutes
and appoints any officer of the Landlord the true and lawful
attorney of the Tenant.
LEASE ENTIRE 20. The parties acknowledges that there are no
AGREEMENT covenants, representations, warranties, agreements or conditions
express or implied, collateral or otherwise forming part of or in
any way affecting or relating to this Lease save as expressly set
out in this Lease and Schedules attached hereto and that this
Lease and such Schedules constitute the entire agreement between
the Landlord and the Tenant and may not be modified except as
herein explicitly provided or except by agreement in writing
executed by the Landlord and the Tenant.
NOTICES 21. Any notice, advice, document or writing required or
contemplated by any provision hereof shall be given in writing
and if to the Landlord, either delivered personally to an officer
of the Landlord or mailed by prepaid mail addressed to the
Landlord at the said local office address of the Landlord shown
above, and if to the Tenant, either delivered personally to the
Tenant (or to an officer of the Tenant, if a corporation) or
mailed by prepaid mail addressed to the Tenant at the Leased
Premises, or if an address of the Tenant is shown in the
description of the Tenant above, to such address. Every such
notice, advice, document or writing shall be deemed to have been
given when delivered personally, or if mailed as aforesaid, upon
the fifth day after being mailed. The Landlord may from time to
time by notice in writing to the Tenant designate another address
as the address to which notices are to be mailed to it, or
specify with greater particularity the address and persons to
which such notices are to be mailed and may require that copies
of notices be sent to an agent designated by it. The Tenant may,
if an address of the Tenant is shown in the description of the
Tenant above, from time to time by notice in writing to the
Landlord, designate another address as the address to which
notices are to be mailed to it, or specify with greater
particularity the address to which such notices are to be mailed.
INTERPRETATION 22. In this Agreement "herein", "hereof", "hereby",
"hereunder", "hereto", "hereinafter" and similar expressions
refer to this Lease and not to any particular paragraph, clause
or other portion thereof, unless there is something in the
subject matter or context inconsistent therewith; and the parties
agree that all of the provisions of this Lease are to be
construed as covenants and agreements as though words importing
such covenants and agreements were used in each separate
paragraph hereof, and that should any provision or provisions of
this Lease be illegal or not enforceable it or they shall be
considered separate and severable from the Lease and its
remaining provisions shall remain in force and be binding upon
the parties hereto as though the said provision or provisions had
never been included, and further that the captions appearing for
the provisions of this Lease have been inserted as a matter of
convenience and for reference only and in no way define, limit or
enlarge the scope or meaning of this Lease or of any provisions
hereof.
12
<PAGE>
EXTENT OF 23. This Agreement and everything herein contained shall
LEASE endure to the benefit of and be binding upon the
OBLIGATIONS respective heirs, executors, administrators, successors, assigns
and other legal representatives, as the case may be, of each and
every of the parties hereto, subject to the granting of consent
by the Landlord to any assignment or sublease, and every
reference herein to any party hereto shall include the heirs,
executors, administrators, successors, assigns and other legal
representatives of such party, and where there is more than one
tenant or there is a male or female party the provisions hereof
shall be read with all grammatical changes thereby rendered
necessary and all covenants shall be deemed joint and several.
USE AND 24. If the Tenant shall for any reason use or occupy the Leased
OCCUPANCY Premises in any way prior to the commencement of the Term but
PRIOR ---
TO TERM with there being an existing lease between the Landlord and
----
Tenant, and with the Landlord's and Tenant's mutual consent in
------------------------------
writing, then during such prior use or occupancy the Tenant shall
-------
be a Tenant of the Landlord and shall be subject to the same
covenants and agreements in this Lease mutatis mutandis provided,
--------
however, that if Tenant occupies only a portion of the Leased
-------------------------------------------------------------
Premises, prior to the Commencement Date, then Tenant will only
---------------------------------------------------------------
be obligated to pay a prorata portion of Rent to Landlord until
----------------------------------------------------------------
the Commencement Date occurs (based, in part, upon the following
-----------------------------------------------------------------
monthly Basic Rent: US$3,167.00 per month for Suite 300,
--------------------------------------------------------
US$2,300.00 per month for Suite 304; and US$11,565.00 per month
---------------------------------------------------------------
for Suite 350.
-------------
SCHEDULES 25. The provisions of the following schedules attached hereto
shall form part of this lease as if the same were embodied
herein:
Schedule "A" - Legal Description of Property
Schedule "B" - Outline of Leased Premises
Schedule "B-1" - Outline of Temporary Space (Suite 108)
Schedule "B-2" - Outline of Temporary Space (Suite 304)
Schedule "C" - Taxes Payable by Landlord and Tenant
Schedule "D" - Services and Costs
Schedule "E" - Rules and Regulations
Schedule "F" - Leasehold Improvements
Schedule "G" - N/A
Schedule "H" - Option to Renew
Schedule "I" - N/A
Schedule "J" - N/A
Schedule "K" - Increase in Basic Rental
Schedule "K-1" - Increase in Basic Rental
Schedule "K-2" - Increase in Basic Rental
Schedule "K-3" - Increase in Basic Rental
Schedule "N-1" - Temporary Space Lease (Suite 108)
Schedule "N-2" - Temporary Space Lease (Suite 304)
Schedule "O" - First Right to Lease
IN WITNESS WHEREOF the parties hereto have executed this
Agreement.
Landlord:
THE MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.), a Michigan
Corporation
Checked
/s/ Signature Illegible By Signature: /s/ Signature Illegible
Verified Witness as to signing by Title:
Landlord
Tenant:
LIVEWORLD PRODUCTIONS, INC.,
a California Corporation
/s/ Peter Friedman
/s/ Signature Illegible By Signature Peter Friedman
Witness as to signing by Tenant Title: Chief Executive Officer
13
<PAGE>
Schedule "A"
Legal Description - 307 Orchard City Drive
All that certain real property situate in the City of Campbell, County of Santa
Clara, State of California, described as follows:
PARCEL ONE:
- -----------
ALL OF LOTS 9 and 10, as shown upon that certain Map entitled, "Subdivision of
Campbell Tract, at Campbell Station", which Map was filed for record in the
office of the Recorder of the County of Santa Clara, State of California, on
January 3, 1888 in Book "C" of Maps, at page 49, and more particularly described
as follows:
BEGINNING at an iron pipe set on the Easterly line of Central Avenue, at the
common corner for Lots 8 and 9, as said Lots and Avenue are shown upon that
certain Map entitled, "Subdivision of Campbell Tract at Campbell Station", which
Map was filed for record in the office of the Recorder of the County of Santa
Clara, State of California, on January 3, 1888 in Book "C" of Maps, at page 49,
and running thence along the dividing line between said Lots 8 and 9, East
127.40 feet to an iron pipe; and running thence North 58 40' West, 149.95 feet
to an iron pipe set on the Easterly line of Central Avenue and running thence
along the Easterly line of Central Avenue, South 0 28' East 78 feet to the place
of beginning.
ALSO EXCEPTING THEREFROM, that portion thereof, as conveyed to the City of
Campbell, by deed recorded August 8, 1977 in Book D055 Page 534 of Official
Records, more particularly described as follows:
BEGINNING at an angle point in the centerline of Central Avenue, said angle
point being 432.70 fee southerly from the centerline of Campbell Avenue;
THENCE, along the centerline of Central Avenue N 0 04' 39" W 89.83 feet;
THENCE, S74 05' 25" E 26.01 feet to the intersection with the westerly line of
that certain parcel of land conveyed to Stanley Becker and Marjorie Ruth Becker,
his wife, as joint tenants, by that Certain Deed filed for record in Book 8392
of Official Records Page 526 in the Office of the County Recorder in the County
of Santa Clara, State of California, said point of intersection being the TRUE
POINT OF BEGINNING.
THENCE, S 74 05' 25" E 44.74 feet to the point of tangency with a curve concave
to the north having a radius of 325.00 feet;
THENCE, easterly along said curve through a central angle of 16 37' 35" a
distance of 94.31 feet to its intersection with the southeasterly line of said
Becker parcel of land;
THENCE, along said southeasterly line and its northeasterly prolongation N 31"
51' 44" E 73.53 feet to its intersection with a non-tangent curve concave to the
northwest having a radius of 266 feet;
THENCE, westerly along said curve through a central angle of 0 11' 08" 28.72
feet;
THENCE, along the extension of the radial line of said center 3 05' 30" E 9.00
feet;
THENCE, westerly along a curve concave to the north having a radius of 275 feet
through a central angle of 19 00' 05" a distance of 92.00 feet;
THENCE, along said line N 74 05' 25" W a distance of 43.99 feet to its point of
tangency with a curve concave to the northeast having a radius of 20 feet, and
also being tangent to the westerly line of said Becker parcel;
THENCE, westerly and northerly along said curve through a central angle of 74
00' 46" a distance of 25.84 feet to its point of tangency with said westerly
line of the Becker parcel;
THENCE, along said westerly line S 0 04' 39" E 67.09 feet to the TRUE POINT OF
BEGINNING.
<PAGE>
Page 2 (307 Orchard City Drive)
ALSO EXCEPTING THEREFROM, that portion thereof, as conveyed to the City of
Campbell by deed recorded February 1, 1979 in Book E 264, page 104 of Official
Records, more particularly described as follows:
BEGINNING, at an angle point in the center line of Central Avenue, said angle
point being 432.70 feet southerly from the center line of Campbell Avenue;
thence along the centerline of Central Avenue North 00 04' 39" West, 89.83 feet;
thence South 74 05' 25" East, 26.01 feet to the intersection with the westerly
line of that certain parcel of land conveyed to Stanley Becker and Marjorie Ruth
Becker, his wife, as Joint Tenants, by that certain deed filed for record in
Book 8302 of Official Records, page 526 in the Office of the County Recorder in
the County of Santa Clara, State of California, thence North 00 04' 39" West
along said westerly line 67.09 feet to the TRUE POINT OF BEGINNING; thence
continuing also said westerly line North 00 04' 39" WEst, 71.00 feet, thence
North 89 55' 21" East, 12.00 feet; thence South 57 34' 39" East, 46.00 feet;
thence South 32 25' 21" West, 15.00 feet, to a tangent curve concave to the
Northeast having a radius of 7.00 feet; thence along said tangent curve concave
to the Northeast, 6.28 feet, through a central angle of 90; thence South 57 34'
39" East, 7.00 feet; thence South 32 25' 21" West, 53 feet more or less to the
northerly right-of-way line described in Book of Official Plan Lines, page 68,
filed in the Office of the Recorder of the County of Santa Clara, State of
California, on March 29, 1972; thence northwesterly along said right-of-way line
to the Point of Beginning.
PARCEL TWO:
- -----------
ALL OF LOT 11 as shown upon that certain Map entitled, "Subdivision of Campbell
Tract, at Campbell Station", which Map was filed for record in the Office of the
Recorder of the County of Santa Clara, State of California, on January 3, 1888
in Book "C" of Maps, at page 49.
PARCEL THREE:
- -------------
PORTION OF LOT 14, as shown upon that certain Map entitled, "Subdivision of
Campbell Tract, at Campbell Station", which Map was filed for record in the
office of the Recorder of the County of Santa Clara, State of California, on
January 3, 1888 in Book "C" of Maps, at page 49, and more particularly described
as follows:
BEGINNING at the Southwest corner of said Lot 14 and running thence North 127
feet to the line of Thomas' Land; thence at right angles East to the Westerly
line of the Right of Way of the Southern Pacific Company Railroad; thence
Southwesterly along said line of the Southern Pacific Company Railroad, to the
place of beginning.
PARCEL FOUR:
- ------------
PORTIONS OF LOTS 9 and 10, as shown upon that certain Map entitled, "Subdivision
of Campbell Tract, at Campbell Station", which Map was filed for record in the
office of the Recorder of the County of Santa Clara, State of California, on
January 3, 1888 in Book "C" of Maps, at Page 49, more particularly described as
follows:
That portion of Lots 9 and 10 lying between the Southwesterly line of Parcel 1
as described in the deed executed by MARJORIE RUTH BECKER, as surviving Joint
Tenant to THE FACTORY, LTD., a limited partnership, recorded December 5, 1977 in
Book D 319, Page 517 of Official Records and the Northerly line of Orchard City
Drive as established by Deed executed by MARJORIE RUTH BECKER, a widow to CITY
OF CAMPBELL, recorded August 8, 1977 in Book D 055, Page 534 of Official
Records.
ALSO EXCEPTING THEREFROM, that portion thereof, as conveyed to the City of
Campbell by Deed recorded February 1, 1979 in Book E 264, Page 104 of Official
Records, more particularly described as follows:
<PAGE>
Page 3 (307 Orchard City Drive)
BEGINNING at an angle point in the center line of Central Avenue, said angle
point being 432.70 feet Southerly from the centerline of Campbell Avenue; thence
along the centerline of Central Avenue North 00 04' 39" WEst, 89.83 feet; thence
South 74 05' 25" East, 26.01 feet to the intersection with the westerly line of
that certain parcel of land conveyed to Stanley Becker and Marjorie Ruth Becker,
his wife, as Joint Tenants by that certain Deed filed for record in Book 8302 of
Official Records, Page 526 in the office of the County Recorder in the County of
Santa Clara, State of California; thence North 00 04 39" West along said
Westerly line, 67.09 feet to the TRUE POINT OF BEGINNING; thence continuing
along said Westerly line North 00 04' 39" WEst, 71.00 feet; thence North 89 55'
21" East, 12.00 feet' thence South 57 34' 39" East, 48.00 feet' thence South 32
25' 21" WEst, 15.00 feet, to a tangent curve concave to the Northeast having a
radius of 7.00 feet; thence along said tangent curve concave to the Northeast,
6.28 feet, through a central angle of 90 ; thence South 57 34' 39" East, 7.00
feet; thence South 32 25' 25" WEst, 53.00 feet; more or less to the Northerly
right-of-way line described in Book 7 of Official Plan Lines, Page 68, filed in
the office of the Recorder of the County of Santa Clara, State of California, on
March 29, 1972; thence Northwesterly along said right-of-way line to the point
of beginning.
<PAGE>
[CHART OMITTED]
<PAGE>
SCHEDULE "B-1
(Plan of Leased Premises outlined in red)
[CHART OMITTED]
<PAGE>
SCHEDULE "B-2"
OUTLINE OF TEMPORARY SPACE - (SUITE 304)
----------------------------------------
[CHART OMITTED]
Page B-2
<PAGE>
SCHEDULE "C"
TAXES PAYABLE BY LANDLORD AND TENANT
TENANT'S TAXES 1. (a) The Tenant covenants to pay all Tenant's Taxes, as
and when the same become due and payable. Where any
Tenant's Taxes are payable by the Landlord to the
relevant taxing authorities, the Tenant covenants to
pay the amount thereof to the Landlord.
(b) The Tenant covenants to pay the Landlord the Tenant's
Proportionate Share of the excess of the amount of
the Landlord's Taxes in each Fiscal Period over the
Landlord's Taxes in the "Base Year" (as hereinafter
defined).
(c) The Tenant covenants to pay to the Landlord the
Tenant's Proportionate Share of the costs and
expenses (including legal and other professional fees
and interest and penalties on deferred payments)
incurred in good faith by the Landlord in contesting,
resisting or appealing any of the Taxes.
LANDLORD'S TAXES (d) The Landlord covenants to pay all Landlord's Taxes
subject to the payments on account of Landlord's
Taxes required to be made by the Tenant elsewhere in
this Lease. The Landlord may appeal any official
assessment or the amount of any Taxes or other taxes
based on such assessment and relating to the
Property. In connection with any such appeal, the
Landlord may defer payment of any Taxes or other
taxes, as the case may be, payable by it to the
extent permitted by law, and the Tenant shall co-
operate with the Landlord and provide the Landlord
with all relevant information reasonably required by
the Landlord in connection with any such appeal.
SEPARATE ALLOCATION (e) In the event that the Landlord is unable to obtain
from the taxing authorities any separate allocation
of Landlord's Taxes, Tenant's Taxes or assessment as
required by the Landlord to make calculations of
Additional Rent under this Lease, such allocation
shall be made by the Landlord acting reasonably and
shall be conclusive.
INFORMATION (f) Whenever requested by the Landlord, the Tenant shall
deliver to it receipts for payment of all the
Tenant's Taxes and furnish such other information in
connection therewith as the Landlord may reasonably
require.
TAX ADJUSTMENT (g) If the Building has not been taxed as a completed and
fully occupied building for any Fiscal Period, the
Landlord's Taxes will be determined by the Landlord
as if the Building had been taxed as a completed and
fully occupied building for any such Fiscal Period.
DEFINITION 2. In this lease:
(a) "Landlord's Taxes" shall mean the aggregate of all
Taxes attributable to the Property, the Rent or the
Landlord in respect thereof and including, without
limitation, any amounts imposed, assessed, levied or
charged in substitution for or in lieu of any such
Taxes, but excluding such taxes as capital gains
taxes, corporate income, profit or excess profit
taxes to the extent such taxes are not levied in lieu
of any of the foregoing against the Property or the
Landlord in respect thereof;
(b) "Taxes" shall mean all taxes, rates, duties, levies,
fees, charges, local improvement rates, capital
taxes, rental taxes and assessments whatsoever
including fees, rents, and levies for air rights and
encroachments on or over municipal property imposed,
assessed, levied or charged by any school, municipal,
regional, state, provincial, federal, parliamentary
or other body, corporation, authority, agency or
commission provided that any such local improvements
rates, assessed and paid prior to or in the Base Year
shall
<PAGE>
be excluded from the Base Year and any year
during the Term and provided further that Taxes shall
not include any special utility, levies, fees or
charges imposed, assessed, levied or charged which
are directly associated with initial construction of
the Property.
(c) "Tenant's Taxes" shall mean the aggregate of:
(i) all Taxes (whether imposed upon the Landlord or
the Tenant) attributable to the personal
property, trade fixtures, business, income,
occupancy or sales of the Tenant or any other
occupant of the Leased Premises, and to any
Leasehold Improvements or fixtures installed by
or on behalf of the Tenant within the Leased
Premises, and to the use by the Tenant of any
of the Property; and
(ii) the amount by which Taxes (whether imposed upon
the Landlord or the Tenant) are increased above
the Taxes which would have otherwise been
payable as a
C-1
<PAGE>
SCHEDULE "C"
TAXES PAYABLE BY LANDLORD AND TENANT
result of the Leased Premises or the Tenant or any
other occupant of the Leased Premises being taxed
or assessed in support of separate schools; and
(d) "Tenant's Proportionate Share" shall mean eighteen
point eighty-five percent (18.85%) subject to
adjustment as determined solely by the Landlord and
notified to the Tenant in writing for physical
increases or decreases in the total rentable area of
the Property provided that total rentable area of the
Property and the rentable area of the Leased Premises
shall exclude areas designated (whether or not rented)
for parking and for storage.
(e) "Base Year" as used in this Schedule shall mean
calendar year 1998.
C-2
<PAGE>
SCHEDULE "D"
SERVICES AND COSTS
1. The Landlord covenants with the Tenant:
Interior Climate Control (a) To maintain in the Leased Premises conditions
of reasonable temperature and comfort in
accordance with good standards applicable to
normal occupancy of premises for office
purposes subject to governmental regulations
during hours to be determined by the Landlord
(but to be at least the hours from 8:00 a.m.
to 6:00 p.m. from Monday to Friday, and 9:00
a.m. to 1:00 p.m. on Saturdays, inclusive
(excluding holidays, and Sundays), such
conditions to be maintained by means of a
system for heating and cooling, filtering and
circulating air; the Landlord shall have no
responsibility for any inadequacy of
performance of the said system if the
occupancy of the Leased Premises or the
electrical power or other energy consumed on
the Leased Premises for all purposes exceeds
reasonable amounts as determined by the
Landlord or the Tenant installs partitions or
other installations in locations which
interfere with the proper operation of the
system of interior climate control or if the
window covering on exterior windows is not
kept fully closed. The Landlord covenants
with the Tenant to furnish HVAC to the Leased
Premises for normal office use during the
hours set forth above, and during such other
hours that the Tenant elects, at the Tenant's
sole cost and expense, subject to applicable
governmental regulations:
Janitor Service (b) To provide five (5) days per week janitor and
cleaning services to the Leased Premises and
to common areas of the Building consisting of
reasonable services in accordance with the
standards of similar office buildings;
Elevators, Lobbies, etc. (c) To keep available the following facilities
for use by the Tenant and its employees and
invitees in common with other persons
entitled thereto:
(i) passenger and freight elevator service
to each floor upon which the Leased
Premises are located provided such
service is installed in the Building
and provided that the Landlord may
prescribe the hours during which and
the procedures under which freight
elevator service shall be available and
may limit the number of elevators
providing service outside normal
business hours;
(ii) common entrances, lobbies, stairways
and corridors giving access to the
Building and the Leased Premises,
including such other areas from time to
time which may be provided by the
Landlord for common use and enjoyment
within the Property;
(iii) the washrooms as the Landlord may
assign from time to time which are
standard to the Building, provided that
the Landlord and the Tenant acknowledge
that where an entire floor is leased to
the Tenant or some other tenant the
Tenant or such other tenant, as the
case may be, may exclude others from
the washrooms thereon.
Electricity 2. (a) The Landlord covenants with the Tenant to
furnish electricity to the Leased Premises
(except all or any portion of the Leased
Premises which has a separate meter or
meters) for normal office use for lighting
and for office equipment capable of operating
from the circuits available to the Leased
Premises and standard to the Building, and
during such other hours that the Tenant
elects, at the Tenant's sole cost and
expense, subject to applicable governmental
regulations:
(b) The amount of electricity consumed on the
Leased Premises in excess of electricity
required by the Tenant for normal office use
shall be as determined by the Landlord acting
reasonably or by a metering device installed
by the Tenant at the Tenant's expense. The
Tenant shall pay the Landlord for any such
excess electricity on demand.
(c) In calculating electricity costs for any
Fiscal Period, if less than one hundred
percent (100%) of Building is occupied by
tenants, then the amount of such electricity
costs shall be deemed for the purposes of
this Schedule to be increased to an amount
equal to the like electricity costs which
normally would be expected by the Landlord to
have been incurred had such occupancy been
one hundred percent (100%) during such entire
period.
D-1
<PAGE>
SCHEDULE "D"
SERVICES AND COSTS
3. The Landlord shall maintain and keep in repair the
facilities required for the provision of the interior
climate control, elevator (if installed in the Building),
and other services referred to in sub-paragraph (a) and
(c) of paragraph 1 and sub-paragraph (a) of paragraph 2
of this Schedule in accordance with the standards of
office buildings similar to the Building but reserves the
right to stop the use of any of these facilities and the
supply of the corresponding services when necessary by
reason of accident or breakdown or during the making of
repairs, alterations or improvements, in the reasonable
judgment of the Landlord necessary or desirable to be
made, until the repairs, alterations or improvements
shall have been completed to the satisfaction of the
Landlord.
Additional Services 4. (a) The Landlord may (but shall not be obliged)
on request of the Tenant supply services or
materials to the Leased Premises and the
Property which are not provided for under
this Lease and which are used by the Tenant
(the "Additional Services") including,
without limitation,
(i) replacement of nonbuilding standard
tubes and ballasts;
(ii) carpet shampooing;
(iii) drapery cleaning;
(iv) locksmithing;
(v) removal of bulk garbage;
(vi) picture hanging; and
(vii) special security arrangement.
(b) When Additional Services are supplied or
furnished by the Landlord, accounts therefor shall
be rendered by the Landlord and shall be payable by
the Tenant to the Landlord on demand. In the event
the Landlord shall elect not to supply or furnish
Additional Services, only persons with prior
written approval by the Landlord (which approval
shall not be unreasonably withheld) shall be
permitted by the Landlord or the Tenant to supply
or furnish Additional Services to the Tenant and
the supplying and furnishing shall be subject to
the reasonable rules fixed by the Landlord with
which the Tenant undertakes to cause compliance and
to comply.
OPERATING 5. (a) The Tenant covenants to pay to the Landlord
CHARGES PAYABLE the Tenant's Proportionate Share of the excess of the
amount of the Operating Costs in each Fiscal Period over
the Operating Costs in the "Base Year" (as hereinafter
defined).
(b) In this Lease "Operating Costs" shall mean
all costs reasonably incurred or which will
be incurred by the Landlord in the
maintenance, operation, administration and
management of the Property including without
limitation:
(i) cost of heating, ventilating and air-
conditioning;
(ii) cost of water and sewer charges;
(iii) cost of insurance carried by the
Landlord pursuant to paragraph 9(a) of
this Lease and cost of any deductible
amount paid by the Landlord in
connection with each claim made by the
Landlord under such insurance;
(iv) costs of building office expenses,
including telephone, rent, stationery
and supplies directly related to the
Property:
(v) cost of fuel;
(vi) costs of all elevator and escalator
(if installed in the Building)
maintenance and operation;
(vii) costs of operating staff, management
staff and other administrative
personnel, including salaries, wages,
and fringe benefits, along with a
reasonable management fee, directly
related to the Property:
(viii) cost of providing security;
(ix) cost of providing janitorial services,
window cleaning, garbage and snow
removal and pest control;
(x) cost of supplies and materials;
(xi) reasonable cost of decoration of
common areas;
(xii) cost of landscaping;
(xiii) cost of maintenance and operation of
the parking area;
(xiv) cost of consulting, and professional
fees including expenses;
(xv) cost of replacements, additions and
modifications unless otherwise
included under paragraph 6, and cost
of repair.
(xvi) The Tenant covenants to pay to the
Landlord the Tenant's Proportionate
Share of the costs in respect of each
Major Expenditure (as hereinafter
defined) as amortized over the period
of the Landlord's reasonable estimate
of the economic
D-2
<PAGE>
SCHEDULE "D"
SERVICES AND COSTS
life of the Major Expenditure, but not
to exceed fifteen (15) years, using
equal monthly installments of
principal and interest at ten percent
(10%) per annum compounded semi-
annually. For the purposes hereof,
"Major Expenditure" shall mean any
expenditure incurred after the
Commencement Date of the Lease for
replacement of machinery, equipment,
building elements, systems or
facilities forming a part of or used
in connection with the Property or for
modifications, upgrades or additions
to the Property or facilities used in
connection therewith, provided that,
in each case, such expenditure is more
than ten percent (10%) of the total
Operating Costs of the immediately
preceding Fiscal Period.
(c) In this Lease there shall be excluded
from Operating Costs the following:
(i) interest on debt and capital
retirement of debt;
(ii) such of the Operating Costs as are
recovered from insurance proceeds; and
(iii) costs as determined by the Landlord of
acquiring tenants for the Property;
(iv) insurance "deductible" amounts in the
event of an earthquake; provided
however, that Landlord may include
within Operating Costs that portion of
any such deductible amount which
equals the amortization thereof
allocable to the balance of the Term
as of the date of the casualty,
assuming that such deductible amount
were amortized over the useful life of
the damaged improvement(s) in question
as determined by the depreciation
recovery period for the improvement in
question pursuant to the Internal
Revenue Code; and
(v) costs for a Major Expenditure, except
as otherwise provided in 5(b)(xvi).
6. In calculating Operating Costs for any Fiscal
Period including the Base Year, if less than one hundred
percent (100%) of Building is occupied by tenants, than
the amount of such Operating Costs shall be deemed for
the purposes of this Schedule to be increased to an
amount equal to the like Operating Costs which normally
would be expected by the Landlord to have been incurred
had such occupancy been one hundred percent (100%) during
such entire period.
7. In this Lease
(i) "Tenant's Proportionate Share" shall mean
eighteen point eighty-five percent (18.85%)
subject to adjustment as determined solely by
the Landlord and notified to the Tenant in
writing for physical increases or decreases
in the total rentable area of the Property
provided that total rentable area of the
Property and the rentable area of the Leased
Premises shall exclude areas designated
(whether or not rented) for parking and for
storage.
(ii) "Base Year" shall mean calendar year 1998.
D-3
<PAGE>
SCHEDULE "E"
RULES AND REGULATIONS
1. The sidewalks, entry passages, elevators (if installed in the Building) and
common stairways shall not be obstructed by the Tenant or used for any other
purpose than for ingress and egress to and from the Leased Premises. The Tenant
will not place or allow to be placed in the Building corridors or public
stairways any waste paper, dust, garbage, refuse or anything whatever.
2. The washroom plumbing fixtures and other water apparatus shall not be used
for any purpose other than those for which they were constructed, and no
sweepings, rubbish, rags, ashes or other substances shall be thrown therein. The
expense of any damage resulting by misuse by the Tenant shall be borne by the
Tenant.
3. The Tenant shall permit window cleaners to clean the windows of the Leased
Premises during normal business hours.
4. No birds or animals shall be kept in or about the Property nor shall the
Tenant operate or permit to be operated any musical or sound-producing
instruments or device or make or permit any improper noise inside or outside the
Leased Premises which may be heard outside such Leased Premises.
5. No one shall use the Leased Premises for residential purposes, or for the
storage of personal effects or articles other than those required for business
purposes.
6. All persons entering and leaving the Building at any time other than during
normal business hours shall register in the books which may be kept by the
Landlord at or near the night entrance and the Landlord will have the right to
prevent any person from entering or leaving the Building or the Property unless
provided with a key to the premises to which such person seeks entrance and a
pass in a form to be approved by the Landlord. Any persons found in the Building
at such times without such keys and passes will be subject to the surveillance
of the employees and agents of the Landlord.
7. No dangerous or explosive materials shall be kept or permitted to be kept
in the Leased Premises.
8. The Tenant shall not permit any cooking, except for the use of a microwave
oven or microwave ovens by Tenant's employees or personnel, in the Leased
Premises. The Tenant shall not install or permit the installation or use of any
more than two (2) machines dispensing goods for sale in the Leased Premises
without the prior written approval of the Landlord and subject to governmental
compliance and all other terms of this Lease. Only persons authorized by the
Landlord shall be permitted to deliver or to use the elevators (if installed in
the Building) for the purpose of delivering food or beverages to the Leased
Premises.
9. The Tenant shall not bring in or take out, position, construct, install or
move any safe, business machine or other heavy office equipment without first
obtaining the prior written consent of the Landlord. In giving such consent, the
Landlord shall have the right in its sole discretion, to prescribe the weight
permitted and the position thereof, and the use and design of planks, skids or
platforms to distribute the weight thereof. All damage done to the Building by
moving or using any such heavy equipment or other office equipment or furniture
shall be repaired at the expense of the Tenant. The moving of all heavy
equipment or other office equipment or furniture shall occur only at times
consented to by the Landlord and the persons employed to move the same in and
out of the Building must be acceptable to the Landlord. Safes and other heavy
office equipment will be moved through the halls and corridors only upon steel
bearing plates. No freight or bulky matter of any description will be received
into the Building or carried in the elevators (if installed in the Building)
except during hours approved by the Landlord.
10. The Tenant shall give the Landlord prompt notice of any accident to or any
defect in the plumbing, heating, air-conditioning, ventilating, mechanical or
electrical apparatus or any other part of the Building.
11. The parking of automobiles shall be subject to reasonable regulations of the
Landlord and any future reasonable parking charges imposed by any governmental
or quasi-governmental authority during the Term. The Landlord shall not be
responsible for damage to or theft of any car, its accessories or contents
whether the same be the result of negligence or otherwise.
12. The Tenant shall not mark, drill into or in any way deface the walls,
ceilings, partitions, floors or other parts of the Leased Premises and the
Building.
E- 1
<PAGE>
SCHEDULE "E"
RULES AND REGULATIONS
13. Except with the prior written consent of the Landlord, no tenant shall use
or engage any person or persons other than the janitor or janitorial contractor
of the Landlord for the purpose of any cleaning of the Leased Premises.
14. If the Tenant desires any electrical or communications wiring, the Landlord
reserves the right to direct qualified persons as to where and how the wires are
to be introduced, and without such directions no borings or cutting for wires
shall take place. No other wires or pipes of any kind shall be introduced
without the prior written consent of the Landlord.
15. The Tenant shall not place or cause to be placed any additional locks upon
any doors of the Leased Premises without the approval of the Landlord and
subject to any conditions imposed by the Landlord. Additional keys may be
obtained from the Landlord at the cost of the Tenant.
16. The Tenant shall be entitled to have its name shown upon the directory
board of the Building and at one of the entrance doors to the Leased Premises
all at the Tenant's expense, but the Landlord shall in its sole discretion
design the style of such identification and allocate the space on the directory
board for the Tenant.
17. The Tenant shall keep the sun drapes (if any) in a closed position at all
reasonable times. The Tenant shall not interfere with or obstruct any perimeter
heating, air-conditioning or ventilating units.
18. The Tenant shall not conduct, and shall not permit any, canvassing in the
Building.
19. The Tenant shall take care of the rugs and drapes (if any) in the Leased
Premises and shall arrange for the carrying-out of regular spot cleaning and
shampooing of carpets and dry cleaning of drapes in a manner acceptable to the
Landlord.
20. The Tenant shall permit the periodic closing of lanes, driveways and
passages for the purpose of preserving the Landlord's rights over such lanes,
driveways and passages.
21. The Tenant shall not place or permit to be placed any sign, advertisement,
notice or other display on any part of the exterior of the Leased Premises or
elsewhere if such sign, advertisement, notice or other display is visible from
outside the Leased Premises without the prior written consent of the Landlord
which may be arbitrarily withheld. The Tenant, upon request of the Landlord,
shall immediately remove any sign, advertisement, notice or other display which
the Tenant has placed or permitted to be placed which, in the opinion of the
Landlord, is objectionable, and if the Tenant shall fail to do so, the Landlord
may remove the same at the expense of the Tenant. Notwithstanding anything to
the contrary above. Tenant may, at Tenant's sole cost and expense, using a
contractor or contractors reasonably approved by Landlord, install, maintain and
remove upon the expiration or sooner termination of the Term, one exterior sign
on the existing monument sign; provided, however, Tenant shall use building
standard materials and design which must be submitted to Landlord in writing and
receive Landlord's written approval, which approval shall not be unreasonably
withheld.
22. The Landlord shall have the right to make such other and further reasonable
rules and regulations and to alter the same as in its judgment may from time to
time be needful for the safety, care, cleanliness and appearance of the Leased
Premises and the Building and for the preservation of good order therein, and
the same shall be kept and observed by the tenants, their employees and
servants. The Landlord also has the right to suspend or cancel any or all of
these rules and regulations herein set out.
E-2
<PAGE>
SCHEDULE "F"
LEASEHOLD IMPROVEMENTS
Definition of 1. For purposes of this Lease, the term "Leasehold
Leasehold Improvements" includes, without limitation, all
Improvements fixtures, improvements, installations, alterations and
additions from time to time made, erected or installed by
or on behalf of the Tenant, or any previous occupant of
the Leased Premises, in the Leased Premises and by or on
behalf of other tenants in other premises in the Building
(including the Landlord if an occupant of the Building),
including all partitions, doors and hardware however
affixed, and whether or not movable, all mechanical,
electrical and utility installations and all carpeting
and drapes with the exception only of furniture, trade
fixtures, and equipment not of the nature of fixtures.
Installation of 2. The Landlord shall include in the Leased Premises
Improvements the "Landlord's Work" (as hereinafter defined). The
and Fixtures Tenant shall not make, erect, install or alter any
Leasehold Improvements in the Leased Premises without
having requested and obtained the Landlord's prior
written approval. The Landlord's approval shall not, if
given, under any circumstances be construed as a consent
to the Landlord having its estate charged with the cost
of work. The Landlord shall not unreasonably withhold its
approval to any such request, but failure to comply with
the Landlord's reasonable requirements from time to time
for the Building shall be considered sufficient reason
for refusal. In making, erecting, installing or altering
any leasehold Improvements the Tenant shall not, without
the prior written approval of the Landlord, alter or
interfere with any installations which have been made by
the Landlord or others and in no event shall alter or
interfere with window coverings (if any) or other light
control devices (if any) installed in the Building. The
Tenant's request for any approval hereunder shall be in
writing and accompanied by an adequate description of the
contemplated work and, where appropriate, working
drawings and specifications thereof. If the Tenant
requires from the Landlord drawings or specifications of
the Building in connection with permanent Leasehold
Improvements, the Tenant shall pay the cost thereof to
the Landlord on demand. Any reasonable costs and expenses
incurred by the Landlord in connection with the Tenant's
Leasehold Improvements shall be paid by the Tenant to the
Landlord on demand. All work to be performed in the
Leased Premises shall be performed by competent
contractors and sub-contractors of whom the Landlord
shall have approved in writing prior to commencement of
any work, such approval not to be unreasonably withheld
(except that the Landlord may require that the Landlord's
contractors and sub-contractors be engaged for any
mechanical or electrical work) All such work including
the delivery, storage and removal of materials shall be
subject to the reasonable supervision of the Landlord,
shall be performed in accordance with any reasonable
conditions or regulations imposed by the Landlord
including, without limitation, payment on demand of a
reasonable fee of the Landlord for such supervision,
which shall not exceed 3% of the actual construction
cost, and shall be completed in good and workmanlike
manner in accordance with the description of the work
approved by the Landlord and in accordance with all laws,
regulations and by-laws of all regulatory authorities.
Copies of required building permits or authorizations
shall be obtained by the Tenant at its expense and copies
thereof shall be provided to the Landlord. No locks shall
be installed on the entrance doors or in any doors in the
Leased Premises that are not keyed to the Building master
key system.
Liens and 3. In connection with the making, erection,
Encumbrances on installations or alteration or leasehold Improvements and
Improvements and all other work or installations made by or for the
Fixtures Tenant in the Leased Premises the Tenant shall comply
with all the provisions of the mechanics' lien and other
similar statutes from time to time applicable thereto
(including any proviso requiring or enabling the
retention by way of holdback of portions of any sums
payable) and, except as to any such holdback, shall
promptly pay all accounts relating thereto. The Tenant
will not create any mortgage, conditional sale agreement
or other encumbrance in respect of its Leasehold
Improvements nor shall the Tenant take any action as a
consequence of which any such mortgage, conditional sale
agreement or other encumbrance would attach to the
Property or any part thereof. If and whenever any
mechanics' or other lien for work, labor, services or
materials supplied to or for the Tenant or for the cost
of which the Tenant may be in any way liable or claims
therefor shall arise or be filed or any such mortgage,
conditional sale agreement or other encumbrance shall
attach, the Tenant shall within twenty (20) days after
submission by the Landlord of notice thereof procure the
discharge thereof, including any certificate of action
registered in respect of any lien, by payment or giving
security or in such other manner as may be required or
permitted by law, and failing which the Landlord may
avail itself of any of its remedies hereunder for default
of the Tenant and may make any payments or take any steps
or proceedings required to procure the discharge of any
such liens or encumbrances, and shall be entitled to be
repaid by the Tenant on demand for any such payments and
to be paid on demand by the Tenant for all costs and
expenses in connection with steps or proceedings taken by
the Landlord and the Landlord's right to reimbursement
and to payment shall not be affected or impaired if the
Tenant
F-1
<PAGE>
SCHEDULE "F"
LEASEHOLD IMPROVEMENTS
shall then or subsequently establish or claim that any
lien or encumbrances so discharged was without merit or
excessive or subject to any abatement, set-off or
defense. The Tenant agrees to indemnify the Landlord from
all claims, costs and expenses (including reasonable
attorneys' fees and costs, and court costs) which may be
incurred by the Landlord in any proceedings brought by
any person against the Landlord alone or with another or
others for or in respect of work, labor, services or
materials supplied to or for the Tenant.
Removal of All Leasehold Improvements in or upon the Leased Premises
Improvements and shall immediately upon their placement be and become the
Fixtures Landlord's property without compensation therefor to the
Tenant. Except to the extent otherwise expressly agreed
by the Landlord in writing, no Leasehold Improvements,
furniture or equipment shall be removed by the Tenant
from the Leased Premises either during or at the
expiration or sooner termination of the Term except that:
(a) the Tenant shall, prior to the end of the Term,
remove such of the Leasehold Improvements and trade
fixtures in the Leased Premises as the Landlord
shall require to be removed; and
(b) the Tenant may, at the times appointed by the
Landlord and subject to availability of elevators
(if installed in the Building), remove its
furniture and equipment at the end of the Term, and
also during the Term in the usual and normal course
of its business.
The Tenant shall, in the case of every removal, make good
at the expense of the Tenant any damage caused to the
Property by the installation and removal. In the event of
the non-removal by the end of the Term, or sooner
termination of this Lease, of such trade fixtures or
Leasehold Improvements required by the Landlord of the
Tenant to be removed, the Landlord shall have the option,
in addition to its other remedies under this Lease to
declare to the Tenant that such trade fixtures are the
property of the Landlord and the Landlord upon such a
declaration may dispose of such trade fixtures and retain
any proceeds of disposition as security for the Debts,
Liabilities and Obligations and the Tenant shall be
liable to the Landlord for any expenses incurred by the
Landlord.
5. For the purpose of this Lease,
(a) the term "Tenant's Work" shall mean all work
required to be done to complete the Leased
Premises for occupancy by the Tenant,
excluding the "Landlord's Work" (as
hereinafter defined).
(b) the term "Landlord's Work" shall mean:
1. Repaint Leased Premises using building
standard materials (color to be selected by
Tenant).
2. Recarpet Leased Premises using building
standard materials (color to be selected by
Tenant).
3. Landlord shall deliver the Leased
Premises to Tenant broom-clean, in good
condition and repair.
6. Notwithstanding anything to the contrary set forth
in Paragraph 2, or elsewhere, in this Lease, the
Commencement Date of the Term or the "Commencement
of the Term" shall be defined as, and shall be
conclusively deemed to occur on, the date Landlord
substantially completes the Landlord's Work in the
Leased Premises, which shall occur on the date
Landlord has completed Landlord's Work specified in
this Schedule F Paragraph 5(b) and Landlord tenders
exclusive possession of the Leased Premises to
Tenant, excluding any minor items (e.g. "punch-
list" type items) which can be completed by
Landlord with only minor interference to the
conduct of Tenant's business in the Leased
Premises, and any changes requested by Tenant,
delays caused by Tenant, or events of force
majeure. Once the Commencement Date is determined,
Landlord and Tenant agree to confirm such date in
writing, and Tenant's failure to confirm the
Commencement Date, within fifteen (15) days after
Landlord's written request therefore, shall be
conclusively deemed to be Tenant's approval of the
Commencement Date set by Landlord.
7. If the Commencement Date has not occurred for any
reason whatsoever (except to the extent resulting
from delays caused by Tenant or Tenant's agents,
employees or anyone operating under the control of
or for the benefit of Tenant, or any event of force
majeure) on or before April 1, 1998, Tenant may
terminate this Lease by written notice to Landlord,
whereupon (subject to the terms of this Lease) any
monies previously paid by Tenant to Landlord shall
be reimbursed to Tenant.
F-2
<PAGE>
SCHEDULE "F"
LEASEHOLD IMPROVEMENTS
8. Notwithstanding anything to the contrary set forth
in this Lease, and if the Commencement Date has not
occurred for any reason whatsoever on or before
July 1, 1998, then either Landlord or Tenant, or
both, may elect to terminate this Lease upon
written notice to the other party hereto, whereupon
(subject to the terms of this Lease) this Lease
shall immediately terminate and any monies
previously paid by Tenant to Landlord shall be
reimbursed to Tenant.
F-3
<PAGE>
SCHEDULE "H"
OPTION TO RENEW
(a) The Landlord covenants with the Tenant that if the Tenant is not then
--------
currently in default of this Lease (beyond the expiration of the applicable cure
- --------------------------------------------------------------------------------
period, if any), the Landlord will, at the expiration of the then expiring Term
- --------------
on written notice by the Tenant to the Landlord given by the Tenant not more
than two hundred seventy (270) days prior to the expiration of the then expiring
Term and received by the Landlord not less than one hundred eighty (180) days
prior to the expiration of the then expiring Term, grant to the Tenant a five
(5) year renewal of this Lease of the Leased Premises (the "Renewal Term") on
-------
the same terms and conditions as in this Lease then, at the commencement of the
----------
Renewal Term, save and except the right of further renewal, Landlord's Work (if
any), Basic Rent, tenant improvement allowance (if any) and Basic Rent Free
Period (if any).
(b) The Basic Rent for the Renewal Term shall be determined by negotiations
between the parties hereto, and it is agreed that during such negotiations in
respect of Basic Rent, they will be guided by fair market rental levels for
similar premises in similar buildings in the downtown area of Campbell,
California, prevailing at the beginning of the Renewal Term but in no event
- -----------
shall the Basic Rent per annum be lower than the Basic Rent per annum for the
last year of the Term just ending. If the parties hereto are unable to agree in
writing as to the Basic Rent for the Renewal Term prior to one hundred eighty
(180) days before the expiry of this Lease, this Lease shall end on the expiry
of the Term and this Option to Renew and any subsequent options to renew shall
automatically terminate and be null and void.
- ---------------------------
(c) The Tenant agrees to execute the Landlord's standard lease amendment
agreement then, at the commencement of the Renewal Term, being used by the
Landlord for the Building to give effect to this Option to Renew if exercised by
the Tenant. The Tenant shall execute such agreement prior to the commencement
date of the Renewal Term.
(d) Notwithstanding the above, if the Tenant does not exercise the Option to
Renew in accordance with Schedule "H", then this Option to Renew shall
-----
automatically terminate and be null and void.
- ------------------------------
H-1
<PAGE>
SCHEDULE "K"
INCREASE IN BASIC RENTAL
Commencing on the 1st day of January, 1999 and continuing until the 31st day of
December, 1999, the Basic Rent shall be increased to Two Hundred Ten Thousand
Four Hundred Forty-Four and 00/100 Dollars ($210,444.00) per annum of lawful
money of the jurisdiction in which the Leased Premises are located payable in
equal monthly installments of Seventeen Thousand Five Hundred Thirty-Seven and
00/100 Dollars ($17,537.00) each in advance on the first day of each month
during the Term, the first payment to be made on the 1st day of January, 1999.
K
<PAGE>
SCHEDULE "K-1"
INCREASE IN BASIC RENTAL
Commencing on the 1st day of January, 2000 and continuing until the 31st day of
December, 2000, the Basic Rent shall be increased to Two Hundred Sixteen
Thousand Five Hundred Four and 00/100 Dollars ($216,504.00) per annum of lawful
money of the jurisdiction in which the Leased Premises are located payable in
equal monthly installments of Eighteen Thousand Forty-Two and 00/100 Dollars
($18,042.00) each in advance on the first day of each month during the Term, the
first payment to be made on the 1st day of January, 2000.
K-1
<PAGE>
SCHEDULE "K-2"
INCREASE IN BASIC RENTAL
Commencing on the 1st day of January, 2001 and continuing until the 31st day of
December, 2001, the Basic Rent shall be increased to Two Hundred Twenty-Two
Thousand Five Hundred Sixty-Four and 00/100 Dollars ($222,564.00) per annum of
lawful money of the jurisdiction in which the Leased Premises are located
payable in equal monthly installments of Eighteen Thousand Five Hundred Forty-
Seven and 00/100 Dollars ($18,547.00) each in advance on the first day of each
month during the Term, the first payment to be made on the 1st day of January,
2001.
K-2
<PAGE>
SCHEDULE "K-3"
INCREASE IN BASIC RENTAL
Commencing on the 1st day of January, 2002 and continuing until the 31st day of
December, 2002, the Basic Rent shall be increased to Two Hundred Twenty-Eight
Thousand Six Hundred Twenty-Four and 00/100 Dollars ($228,624.00) per annum of
lawful money of the jurisdiction in which the Leased Premises are located
payable in equal monthly installments of Nineteen Thousand Fifty-Two and 00/100
Dollars ($19,052.00) each in advance on the first day of each month during the
Term, the first payment to be made on the 1st day of January, 2002.
K-3
<PAGE>
SCHEDULE "N-1"
TEMPORARY SPACE LEASE - (SUITE 108)
-----------------------------------
Notwithstanding anything to the contrary set forth in Paragraph 1, or
elsewhere, in this Lease, Landlord and Tenant hereby acknowledge and agree that
prior to the "Commencement Date" of the Term (which the parties hereto estimate
to be January 1, 1998, as set forth in Paragraph 2(a) of this Lease), Landlord
shall lease to Tenant, and Tenant shall lease from Landlord, that certain space
commonly known as Suite 108 in the Building located at 300 Orchard City Drive,
Campbell, California (the "Suite 108 Temporary Space"), which consists of
approximately one thousand six hundred forty-seven (1,647) rentable square feet.
The Suite 108 Temporary Space is more particularly shown on Schedule "B-1"
-------------
attached to this Lease and incorporated herein by this reference. Tenant's lease
of the Suite 108 Temporary Space shall be subject to all of the terms,
conditions and limitations set forth in this Lease regarding the Leased
Premises, except as follows:
(a) The term for Tenant's occupancy of the Suite 108 Temporary Space
shall be the period commencing on June 1, 1997 (the "Suite 108 Commencement
Date"), and continuing for a period of twelve (12) months thereafter (the "Suite
108 Term"); provided, however, the Suite 108 Term shall automatically expire,
without the need for any further written notice between the parties hereto, upon
the earlier to occur of the following: (i) the Commencement Date under this
Lease, (ii) Landlord's delivery to Tenant of exclusive possession of Suite 350
of the Leased Premises, in accordance with the terms of this Lease, prior to the
Commencement Date, or (iii) any termination or expiration of this Lease in
accordance with either Paragraph 7 or 8 in Schedule "F" attached to this Lease
-----------
and incorporated herein by this reference. Consequently, and except as otherwise
provided herein, all obligations of Tenant contained in this Lease with respect
to the Leased Premises (including, without limitation, Tenant's obligation to
pay Rent (as set forth in Paragraph (b) below), and Tenant's Indemnification,
repair and insurance obligations) shall commence and be applicable with respect
to the Suite 108 Temporary Space as of the Suite 108 Commencement Date and
continuing throughout the Suite 108 Term.
(b) Tenant shall, without deduction or right of offset, pay to
Landlord during the Suite 108 Term as rental (herein called the "Suite 108 Basic
Rent"), the amount of Thirty-Three Thousand Six Hundred Dollars (US$33,600.00)
in lawful money of the United States of America, in equal monthly installments
of Two Thousand Eight Hundred Dollars (US$2,800.00), each in advance, on the
first day of each month during the Suite 108 Term, with the first payment to be
made on the Suite 108 Commencement Date. Notwithstanding anything to the
contrary set forth in Paragraph (a) above, Landlord hereby agrees to abate
Tenant's obligation to pay to Landlord the Additional Rent for the Suite 108
Temporary Space during the Suite 108 Term. The abatement of Additional Rent set
forth in this Paragraph (b) shall not be construed as to relieve Tenant of any
of Tenant's other obligations under this Lease. In the event of any default by
Tenant under this Lease and/or with regard to the Suite 108 Temporary Space, as
set forth in Paragraph 10 of this Lease, then as part of the recovery permitted
to Landlord, Landlord shall be entitled to recover all of the Additional Rent
which was abated hereunder (i.e., such Additional Rent shall not be deemed to
---
have been abated, but shall become immediately due and payable as unpaid
Additional Rent earned at the time of Tenant's default).
(c) As of the Suite 108 Commencement Date, Landlord shall deliver the
Suite 108 Temporary Space to Tenant broom-clean, in good condition and repair.
Except as otherwise provided herein, Tenant hereby accepts the Suite 108
Temporary Space in its current "AS-IS/WHERE-IS" condition "WITH ALL FAULTS", and
Landlord shall not be required to construct, nor contribute any monies toward,
any improvements, modifications or alterations in the Suite 108 Temporary Space.
Tenant further acknowledges that neither Landlord nor any agent of Landlord has
made any representation or warranty with respect to the Suite 108 Temporary
Space or its suitability for the conduct of Tenant's business therein. The
taking of possession of the Suite 108 Temporary Space by Tenant shall
conclusively establish that the Suite 108 Temporary Space was in satisfactory
condition to Tenant.
(d) Tenant shall not be required to pay or deposit any additional
security with respect to the Suite 108 Temporary Space. Tenant hereby agrees,
however, that the "Security Deposit" deposited by Tenant for the Leased Premises
pursuant to Paragraph 4 of this Lease may be held, used and applied by Landlord
as security for the performance by Tenant of Tenant's obligations regarding the
Suite 108 Temporary Space. If any portion of the Security Deposit is used or
applied by Landlord with respect to the Suite 108 Temporary Space, Tenant shall
restore the Security Deposit to its original amount pursuant to Paragraph 4 of
this Lease.
<PAGE>
SCHEDULE "N-2"
TEMPORARY SPACE LEASE - (SUITE 304)
-----------------------------------
Notwithstanding anything to the contrary set forth in Paragraph 1, or
elsewhere, in this Lease, Landlord and Tenant hereby acknowledge and agree that
prior to the "Commencement Date" of the Term (which the parties hereto estimate
to be January 1, 1998, as set forth in Paragraph 2(a) of this Lease), Landlord
shall lease to Tenant, and Tenant shall lease from Landlord, that certain space
commonly known as Suite 304 In the Building located at 307 Orchard City Drive,
Campbell, California (the "Suite 304 Temporary Space"), which consists of
approximately one thousand four hundred thirty-seven (1,437) rentable square
feet. The Suite 304 Temporary Space is more particularly shown or Schedule "B-2"
-------------
attached to this Lease and incorporated herein by this reference. Tenant's lease
of the Suite 304 Temporary Space shall be subject to all of the terms,
conditions and limitations set forth in this Lease regarding the Leased
Premises, except as follows:
(a) The term for Tenant's occupancy of the Suite 304 Temporary Space
shall be the period commencing on June 1, 1997 (the "Suite 304 Commencement
Date"), and continuing for a period of twelve (12) months thereafter (the "Suite
304 Term"); provided, however, the Suite 304 Term shall automatically expire,
without the need for any further written notice between the parties hereto, upon
the earlier to occur of the following: (i) the Commencement Date under this
Lease, or (ii) any termination or expiration of this Lease in accordance with
either Paragraph 7 or 8 in Schedule "F" attached to this Lease and incorporated
-----------
herein by this reference. Consequently, and except as otherwise provided herein,
all obligations of Tenant contained in this Lease with respect to the Leased
Premises (including, without limitation, Tenant's obligation to pay Rent (as set
forth in Paragraph (b) below), and Tenant's indemnification, repair and
insurance obligations) shall commence and be applicable with respect to the
Suite 304 Temporary Space as of the Suite 304 Commencement Date and continuing
throughout the Suite 304 Term.
(b) Tenant shall, without deduction or right of offset, pay to
Landlord during the Suite 304 Term as rental (herein called the "Suite 304 Basic
Rent"), the amount of Twenty-Seven Thousand Six Hundred Dollars (US $27,600.00)
in lawful money of the United States of America, in equal monthly installments
of Two Thousand Three Hundred Dollars (US $2,300.00), each in advance, on the
first day of each month during the Suite 304 Term, with the first payment to be
made on the Suite 304 Commencement Date. Notwithstanding anything to the
contrary set forth in Paragraph (a) above, Landlord hereby agrees to abate
Tenant's obligation to pay to Landlord the Additional Rent for the Suite 304
Temporary Space during the Suite 304 Term. The abatement of Additional Rent set
forth in this Paragraph (b) shall not be construed as to relieve Tenant of any
of Tenant's other obligations under this Lease. In the event of any default by
Tenant under this Lease and/or with regard to the Suite 304 Temporary Space, as
set forth in Paragraph 10 of this Lease, then as part of the recovery permitted
to Landlord, Landlord shall be entitled to recover all of the Additional Rent
which was abated hereunder i.e., such Additional Rent shall not be deemed to
----
have been abated, but shall become immediately due and payable as unpaid
Additional Rent earned at the time of Tenant's default).
(c) As of the Suite 304 Commencement Date, Landlord shall deliver the
Suite 304 Temporary Space to Tenant broom-clean, in good condition and repair.
Except as otherwise provided herein, Tenant hereby accepts the Suite 304
Temporary Space in its current "AS-IS/WHERE-IS" condition "WITH ALL FAULTS", and
Landlord shall not be required to construct, nor contribute any monies toward,
any improvements, modifications or alterations in the Suite 304 Temporary Space.
Tenant further acknowledges that neither Landlord nor any agent of Landlord has
made any representation or warranty with respect to the Suite 304 Temporary
Space or its suitability for the conduct of Tenant's business therein. The
taking of possession of the Suite 304 Temporary Space by Tenant shall
conclusively establish that the Suite 304 Temporary Space was in satisfactory
condition to Tenant.
(d) Tenant shall not be required to pay or deposit any additional
security with respect to the Suite 304 Temporary Space. Tenant hereby agrees,
however, that the "Security Deposit" deposited by Tenant for the Leased Premises
pursuant to Paragraph 4 of this Lease may be held, used and applied by Landlord
as security for the performance by Tenant of Tenant's obligations regarding the
Suite 304 Temporary Space. If any portion of the Security Deposit is used or
applied by Landlord with respect to the Suite 304 Temporary Space, Tenant shall
restore the Security Deposit to its original amount pursuant to Paragraph 4 of
this Lease.
<PAGE>
SCHEDULE "O"
RIGHT OF FIRST OFFER
(a) First Offer Right. Tenant shall have the right of first offer during the
-----------------
initial Term of this Lease to lease the remainder of the third floor of the
------------------
Building other than the Leased Premises (the "First Offer Space") pursuant to
the following terms of this Schedule "O".
(b) Procedure for Offer. Landlord agrees that during the initial Term of this
-------------------
Lease, Landlord shall deliver written notice to Tenant (the "First Offer
Notice") prior to the first time Landlord intends to submit to a third party a
bonafide proposal to lease any portion of the First Offer Space to such third
party. The First Offer Notice shall describe the space so offered to Tenant
(including, without, limitation, Landlord's determination of the rentable square
footage thereof), and shall set forth the economic terms upon which Landlord is
willing to lease such space to Tenant, including without limitation (i) the
anticipated date on which the First Offer Space will be available for lease by
Tenant and the commencement date therefore, (ii) the Basic Rent for such First
Offer Space, and (iii) the term of the lease for such space, which shall be
conterminous with the Term for the remainder of the Leased Premises, unless
Landlord elects otherwise in the First Offer Notice (collectively, the "Economic
Terms").
(c) Procedure for Acceptance. On or before the date which is five (5) days
------------------------
after Tenant's receipt of the First Offer Notice (the "Election Date"), Tenant
shall deliver written notice to Landlord ("Tenant's Election Notice") pursuant
to which Tenant shall elect either to (i) lease the entire First Offer Space
described in the First Offer Notice upon the Economic Terms set forth in the
--------------
First Offer Notice and the same non-Economic Terms as set forth in this Lease;
(ii) refuse to lease such First Offer Space identified in the First Offer
Notice, specifying that such refusal is not based upon the Economic Terms set
forth by Landlord in the First Offer Notice, but upon Tenant's lack of need of
such First Offer Space in which event Landlord my lease such First Offer Space
to any person or entity on any terms Landlord desires and Tenant's right of
first offer with respect to the First Offer Space specified in Landlord's First
Offer Notice shall thereupon terminate and be of no further force or effect; or
(iii) refuse to lease the First Offer Space, specifying that such refusal is
based upon the Economic Terms set forth in the First Offer Notice, in which
event Tenant shall also specify in Tenant's Election Notice revised terms upon
-----
which Tenant shall be willing to lease such First Offer Space from Landlord;
provided, however, Tenant may not revise the lease term for such First Offer
Space specified by Landlord in the First Offer Notice. If Tenant does not so
respond in writing to Landlord's First Offer Notice by the Election Date, Tenant
shall be deemed to have elected the option described in clause (ii) above. If
Tenant timely delivers to Landlord Tenants' Election Notice pursuant to clause
(iii) above, Landlord may elect either to: (A) lease such First Offer Space to
Tenant upon the revised terms specified by Tenant in Tenant's Election Notice,
-----
and the same non-Economic Terms as set forth in this Lease; or (B) lease the
First Offer Space to any person or entity within six (6) months after the
Election Date upon any terms Landlord desires; provided, however, if the
Economic Terms of Landlord's proposed lease to said third party are more
favorable than those terms proposed by Tenant in Tenant's Election Notice,
--------------
before entering into such third party lease, Landlord shall notify Tenant of
such more favorable Economic Terms and Tenant shall have the right to lease the
First Offer Space upon such more favorable Economic Terms by delivering written
notice thereof to Landlord within two (2) days after Tenant's receipt of
Landlord's notice. If Tenant does not elect to lease such space from Landlord
within said two (2) day period, Tenant shall be deemed to have elected the
option described in clause (ii) above. If Tenant timely delivers to Landlord
Tenant's Election Notice pursuant to clause (iii) above, and Landlord elects to
proceed to lease the First Offer space to a third party pursuant to clause (B),
but fails to execute a lease with such third party tenant for any portion of the
First Offer Space within six (6) months after the Election Date, then within
thirty (30) days after the expiration of such six (6) month period, Landlord
shall deliver to Tenant a new First Offer Notice setting forth the Economic
---------
Terms upon which Landlord would be willing to lease the First Offer Space to
Tenant, and the foregoing procedures of the Schedule "O" shall again apply. If
Tenant leases any First Offer Space pursuant to this Schedule "O", Landlord and
Tenant shall promptly execute an amendment to this Lease covering the First
Offer Space and the lease terms thereof. Notwithstanding anything to the
contrary contained herein, Tenant must elect to exercise its rights of first
offer, if at all, with respect to all of the space offered by Landlord to Tenant
at any particular time, and Tenant may not elect to lease only a portion
thereof.
(d) Construction in First Offer Space. If Tenant leases the First Offer Space
---------------------------------
pursuant to the terms of this Schedule "O", Tenant shall take the First Offer
Space in its "AS-IS/WHERE-IS" condition "WITH ALL FAULTS" and without any
-------- ---------------
obligation on Landlord's part to contribute any tenant improvement allowance or
construct any tenant improvements therefor, unless otherwise specified in
Landlord's First Offer Notice.
(e) Suspension of Right of First Offer. At Landlord's option, Tenant shall not
----------------------------------
have the right to lease the First Offer Space as provided in this Schedule "O"
so long as Tenant, as of the date of the attempted exercise of any first offer
right by Tenant or as of the date of delivery of such First Offer Space to
Tenant, is in default under this Lease (beyond the expiration of the applicable
---------------------------------------
cure period, if any).
- -------------------
(f) First Offer Right Personal to Tenant. Tenant's right of first offer set
------------------------------------
forth in this Schedule "O" is personal to, and shall only be exercised by, the
originally named Tenant under this Lease (and may not be exercised by any
assignee, subtenant or other transferee of Tenant's interest in this Lease or
the Leased Premises, but may be exercised by an Affiliate), and shall only be
------------------------------------
available if Tenant' is in actual possession and physical occupancy of the
entire Leased Premises.
<PAGE>
SECOND AMENDMENT TO LEASE AGREEMENT
THIS AMENDMENT TO LEASE AGREEMENT made the 5th day of August, 1998.
BETWEEN:
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
(hereinafter called "Landlord")
OF THE FIRST PART,
--- and ---
LIVEWORLD PRODUCTIONS, INC., A CALIFORNIA CORPORATION
(hereinafter called the "Tenant")
OF THE SECOND PART,
WHEREAS by a Lease Agreement made the 21st day of May 1997 and amended by that
Amendment to Lease Agreement dated the 8th day of May 1998 (collectively the
"Lease"), the Landlord leased to the Tenant the following premises:
Property: 307 Orchard City Drive, Campbell, California
95008 (Water Tower II)
Leased Premises: Suites 300, 304, 310, 312 and 350
Term: five (5) year,
Basic Rent: $204,384.00 per annum
Tenant's Proportionate Share: eighteenth decimal eighty-five (18.85%)
AND WHEREAS THE Landlord and the Tenant have agreed to amend the Lease;
NOW WITNESSETH that in consideration of the rents, covenants and agreements
contained in the Lease, and in consideration of the covenants and agreements
hereinafter contained, and the sum of ONE DOLLAR ($1.00) now paid by each of the
parties to the other (the receipt and sufficiency of which is hereby
acknowledged), the Landlord and Tenant hereby agree to amend the Lease as
follows:
1) (i) Clause 1 of the Lease shall be amended by the addition of the
following:
"As of the 16th day of September 1998 (the "Effective Date") the
Leased Premises shall be deemed to consist of THIRTEEN THOUSAND NINE
HUNDRED TWENTY-TWO (13,922) rentable square feet and shall be known as
Suites 300, 302, 304, 350, 310 and 312."
(ii) Clause 3 Paragraph 3(a) of the Lease shall be amended by the
addition of the following:
"Commencing on the 16th day of September 1998 and continuing until the
31st day of December 1999, the Basic Rent shall be the sum of THREE
HUNDRED TEN THOUSAND FIVE HUNDRED AND 00/100 ($310,500.00) per annum
of lawful money of the jurisdiction in which the Leased Premises are
located, payable in equal month instalments. The monthly instalments
shall be TWENTY-FIVE THOUSAND EIGHT HUNDRED SEVENTY-FIVE AND 00/100
DOLLARS ($25,875.00) each in advance on the first day of each month
during the Term. The first amended payment to be made on the 16th day
of September 1998."
(iii) Schedule "K" of the Lease shall be amended by the addition of
the following:
"Commencing on the 1st day of January 2000 and continuing until the
31st day of December 2000, the Basic Rent shall be the sum of THREE
HUNDRED EIGHTEEN THOUSAND EIGHT HUNDRED SIXTY-FOUR AND 00/100 DOLLARS
($318,864.00) of lawful money of the jurisdiction in which the Leased
Premises are located, payable in equal month instalments. The monthly
instalments shall be TWENTY-SIX THOUSAND FIVE HUNDRED SEVENTY-TWO AND
00/100 DOLLARS ($26,572.00) each in advance on the first day of each
month during the Term. The first amended payment to be made on the 1st
day of January 2000."
(iv) Schedule "K-1" of the Lease shall be amended by the addition of
the following:
"As of the Effective Date Commencing on the 1st day of January 2001
and continuing until the 31st day of December 2001, the Basic Rent
shall be the sum of THREE HUNDRED TWENTY-SEVEN THOUSAND TWO HUNDRED
SIXTEEN AND 00/100 DOLLARS ($327,216.00) of lawful money of the
jurisdiction in which the Leased Premises are located, payable in
equal month instalments. The monthly instalments shall be TWENTY-SEVEN
THOUSAND TWO HUNDRED SIXTY-EIGHT AND 00/100 DOLLARS ($27,268.00) each
in advance on the first day of each month during the Term. The first
amended payment to be made on the 1st day of January 2001."
1
<PAGE>
(v) Schedule "K-2" of the Lease shall be amended by the addition
of the following:
"As of the Effective Date Commencing on the 1st day of January 2002
and continuing until the 31st day of December 2002, the Basic Rent
shall be the sum of THREE HUNDRED THIRTY-FIVE THOUSAND FIVE HUNDRED
FIFTY-SIX AND 00/100 DOLLARS ($335,556.00) of lawful money of the
jurisdiction in which the Leased Premises are located, payable in
equal month instalments. The monthly instalments shall be TWENTY-SEVEN
THOUSAND NINE HUNDRED SIXTY-THREE AND 00/100 DOLLARS ($27,963.00) each
in advance on the first day of each month during the Term. The first
amended payment to be made on the 1st day of January 2002."
(vi) Schedule "K-3" shall no longer be in effect.
(vii) Clause 4 of the Lease shall be amended by the addition of the
following:
"The Tenant shall pay to the Landlord on execution of this Amendment
to Lease Agreement by the Tenant the sum of THREE THOUSAND ONE HUNDRED
TWENTY-SIX AND 00/100 DOLLARS ($3,126.00) as an additional deposit to
the Landlord upon the terms and conditions as hereinbefore provided."
(viii) Schedule C Clause 2 Paragraph 2 (d) and Schedule D Clause 7
shall be amended by the addition of the following:
"As of the Effective Date Tenant's Proportionate Share shall be
twenty-five decimal ninety-five percent (25.95%)."
(ix) Schedule F Clause 5 Paragraph 5(b) shall be amended by the
addition of the following:
"As of the Effective Date Landlord's Work shall include:
(a) Repaint Suites 302 using building standard materials (color to
match Suite 350).
(b) Recarpet Suites 310 and 312 using building standard materials
(color to match Suite 350).
2) As of the Effective Date, Schedule B1 - Outline of Additional Leased
Premises, attached hereto, shall form part of the Lease as if the same were
embodied therein.
3) The Landlord and the Tenant hereby confirm each to the other the
several covenants and agreements in the Lease as amended by this Amendment to
Lease Agreement.
4) This Amendment to Lease Agreement and everything herein contained
shall enure to the benefit of and be binding upon the respective heirs,
executors, administrators, successors, assigns and other legal representatives,
as the case may be, of each of the parties hereto, and every reference herein to
any party hereto shall include the heirs, executors, administrators, successors,
assigns and other legal representatives of such party, and where there is more
than one tenant or there is a male or female party, the provisions hereof shall
be read with all grammatical changes thereby rendered necessary and all
covenants shall be deemed joint and several.
IN WITNESS HEREOF the parties hereto have executed this Amendment to Lease
Agreement. I/We have authority to bind the corporation.
LANDLORD:
THE MANUFACTURERS LIFE INSURANCE
COMPANY
(U.S.A.)
/s/ Signature Illegible by Signature: /s/ Signature Illegible
Witness as to Name:
Signing by Landlord Title:
TENANT:
LIVEWORLD PRODUCTIONS, INC,
A CALIFORNIA CORPORATION
/s/ Signature Illegible by Signature: /s/ Signature Illegible
Witness as to Name:
Signing by Tenant Title:
2
<PAGE>
EXHIBIT 10.7
Lease made as of the 28th day of February, 1999, between
SLG GRAYBAR LLC, having an office at
70 West 36th Street, New York, New York 10018
hereinafter referred to as "Landlord" or "Lessor", and TALK CITY, INC., a
corporation having an office at 307 Orchard City Drive, Campbell, California
95008
hereinafter referred to as "Tenant" or "Lessee".
Witnesseth: Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord Rooms 414-415 on the fourth (4th) floor of the building approximately
as indicated on the plan attached hereto and made a part hereof (said space is
hereinafter called the "premises") in the building known as the Graybar
Building, 420 Lexington Avenue
in the County of New York, City of New York, for a term of five (5) years ("the
building" to commence on the 1st day of March 1999, and to expire on the 29th
day of February 2004, or until such term shall sooner end as in Article 12 and
elsewhere herein provided, both dates inclusive, at a fixed annual rental
(subject to Articles 23 and 41) at the annual rate of $95,648.00 per annum for
the period commencing ?? 1, 1999 through March 31, 2001 and $101,626.00 per
annum for the period commencing ?? 1, 2001 through March 31, 2004 payable in
equal monthly installments in advance on the first day of each month, except
that the first installment of rent due under this lease shall be paid by Tenant
upon its execution of this lease, unless this lease be a renewal.
Landlord and Tenant covenant and agree:
PURPOSE
1. Tenant shall use and occupy the premises only for sales &
administrative offices relating to Tenant's business, and for no other purpose.
RENT AND ADDITIONAL RENT.
2. Tenant agrees to pay rent as herein provided at the office of Landlord
or such other place as Landlord may designate, ?? payable in United States
legal tender, by cash, or by good and sufficient check drawn on a New York City
Clearing House Bank, and, 2B without any set off or deduction whatsoever. Any
sum other than fixed rent payable hereunder shall be deemed additional rent and
due on demand.
ASSIGNMENT.
3. Neither Tenant nor Tenant's legal representatives or successors in
interest by operation of law or otherwise, shall assign, mortgage or otherwise
encumber this lease, or sublet or permit all or part of the premises to be used
by others, without the prior written consent of Landlord in each instance. The
transfer of a majority of the issued and outstanding capital stock of any
corporate tenant or sublessee of this lease or a majority of the total interest
in any partnership tenant or sublessee, however accomplished, and whether in a
single transaction or in a series of related or unrelated transactions, and the
conversion of a tenant or sublessee entity to either a limited liability company
or a limited liability partnership shall be deemed an assignment of this lease
or of such sublease. The merger or consolidation of a corporate tenant or
sublessee where the net worth of the resulting corporation is less than the net
worth of the tenant or sublessee immediately prior to such merger or
consolidation shall be deemed an assignment of this lease or of such sublease.
If without Landlord's written consent this lease is assigned, or the premises
are sublet or occupied by anyone other than Tenant, Landlord may accept the rent
from such assignee, subtenant or occupant, and apply the net amount thereof to
the rent herein reserved, but no such assignment, subletting, occupancy or
acceptance of rent shall be deemed a waiver of this covenant. Consent by
Landlord to an assignment or subletting shall not relieve Tenant from the
obligation to obtain Landlord's written consent to any further assignment or
subletting. In no event shall any permitted sublessee assign or encumber its
sublease or further sublet all or any portion of its sublet space, or otherwise
suffer or permit the sublet space or any part thereof to be used or occupied by
others, without Landlord's prior written consent in each instance. A
modification, amendment or extension of a sublease shall be deemed a sublease.
DEFAULT.
4. Landlord may terminate this lease on ?? days' notice: (a) if rent or
additional rent is not paid within ?? days after written notice from Landlord;
or (b) if Tenant shall have failed to cure a default in the performance of any
covenant of this lease (except the payment of rent), or any rule or regulation
hereinafter set forth, within, ?? days after
<PAGE>
written notice thereof from Landlord, or if default cannot be completely cured
in such time, if Tenant shall not promptly proceed to cure such default within
said: ?? days, or shall not complete the curing of such default with due
diligence; or (c) when and to the extent permitted by law, if a petition in
bankruptcy shall be filed by or against Tenant, 4C or if Tenant shall make a
general assignment for the benefit of creditors, or receive the benefit of any
insolvency or reorganization act; or (d) if a receiver or trustee is appointed
or any portion of Tenant's property and such appointment is not vacated within
twenty (20) days; or (e) if an execution or attachment shall be issued under
which the premises shall be taken or occupied or attempted to be taken or
occupied by anyone other than Tenant; or (f) if the premises become and remain
?? for a period often (10) days; or (g) if Tenant shall default beyond any grace
period under any other lease between Tenant and Landlord; or (h) if Tenant shall
fail to move into or take possession of the premises within, 4E days after
commencement of the term of this lease.
At the expiration of the, 4A day notice period, this lease and any rights
of renewal or extension thereof shall terminate as completely as if that were
the date originally fixed for the expiration of the term of this lease, but
Tenant shall remain liable as hereinafter provided.
RELETTING, ETC.
5. If Landlord shall re-enter the premises on the default 5B of Tenant, by
summary proceedings: (a) Landlord may re-let the premises or any part thereof as
Tenant's agent, in the name of Landlord, or otherwise, for a term shorter or
longer than the balance of the term of this lease, and may grant concessions or
free rent. (b) Tenant shall pay Landlord any deficiency between the rent hereby
reserved and the net amount of any rents collected by Landlord for the remaining
term of this lease, through such reletting. Such deficiency shall become due and
payable monthly, as it is determined. Landlord shall have no obligation to re-
let the premises, and its failure or refusal to do so, or failure to collect
rent on re-letting, shall not affect Tenant's liability hereunder. In computing
the net amount of rents collected through such re-letting. Landlord may deduct
all expenses incurred in obtaining possession or re-letting the premises,
including 5A legal expenses and fees, brokerage fees, the cost of restoring the
premises to good order, and the cost of all alterations and decorations deemed
necessary by Landlord to effect re-letting. In no event shall Tenant be entitled
to a credit or repayment for rerental income which exceeds the sums payable by
Tenant hereunder or which covers a period after the original term of this lease.
(c) Tenant hereby expressly waives any right of redemption granted by any
present or future law. "Re-enter" and "re-entry" as used in this lease are not
restricted to their technical legal meaning. In the event of a breach or
threatened breach of any of the covenants or provisions hereof Landlord shall
have the right of injunction. Mention herein of any particular remedy shall not
preclude Landlord from any other available remedy, (d) Landlord shall recover as
liquidated damages, in addition to accrued rent and other charges, if Landlord's
re-entry is the result of Tenant's bankruptcy, insolvency, or reorganization,
the full rental for the maximum period allowed by any act relating to
bankruptcy, insolvency or reorganization.
If Landlord re-enters the premises for any cause, or if Tenant abandons or
vacates the premises, and after the expiration of the term of this lease, any
property left in the premises by Tenant shall be deemed to have been abandoned
by Tenant, and Landlord shall have the right to retain or dispose of such
property in any manner without any obligation to account therefor to Tenant. If
Tenant shall at any time default hereunder, and if Landlord shall institute an
action or summary proceedings against Tenant based upon such default, then
Tenant will reimburse Landlord for the legal expenses and fees thereby incurred
by Landlord.
LANDLORD MAY CURE DEFAULTS.
6. If Tenant shall default in performing any covenant or condition of this
lease. Landlord may perform the same for the account of Tenant, and if Landlord,
in connection therewith, or in connection with any default by Tenant, makes any
expenditures or incurs any obligations for the payment of money, including but
not limited to attorney's fees, such sums so paid or obligations incurred shall
be deemed to be additional rent hereunder, and shall be paid by Tenant to
Landlord within, 6A days of rendition of any bill or statement therefor, and if
Tenant's lease term shall have expired al the time of the making of such
expenditures or incurring of such obligations, such sums shall be recoverable by
Landlord as damages.
<PAGE>
ALTERATIONS.
7. Tenant shall make no decoration, alteration, addition or improvement in
the premises, without the prior written consent of Landlord, 7A and then only by
contractors or mechanics and in such manner and with such materials as shall be
approved by Landlord. 7A 7B All alterations, additions of improvements to the
premises, including window and central air conditioning equipment and duct work,
except movable office furniture and equipment installed at the expense of
Tenant, shall, unless Landlord elects otherwise in writing, become the property
of Landlord 7C and shall be surrendered with the premises at the expiration or
sooner termination of the term of this lease. Any such alterations, additions
and improvements which Landlord shall designate, shall be removed by Tenant and
any damage repaired, at Tenant's expense, prior to the expiration of the term of
this lease.
LIENS
8. Prior to commencement of its work in the demised premises, Tenant shall
obtain and deliver to Landlord a written letter of authorization, in form
satisfactory to Landlord's counsel, signed by architects, engineers and
designers to become involved in such work, which shall confirm that any of their
drawings or plans are to be removed from any filing with governmental
authorities, on request of Landlord, in the event that said architect, engineer,
or designer thereafter no longer is providing services with respect to the
demised premises. With respect to contractors, subcontractors, materialmen and
laborers, and architects, engineers and designers, for all work or materials to
be furnished to Tenant at the premises. Tenant agrees to obtain and deliver to
Landlord written and unconditional waiver of mechanics liens upon the premises
or the building, after payments to the contractors, etc., subject to any then
applicable provisions of the Lien law. Notwithstanding the foregoing, Tenant at
its expense shall cause any lien filed against the premises or the building, for
work or materials claimed to have been furnished to Tenant, to be discharged of
record within twenty (20) days after notice thereof.
REPAIRS.
9. Tenant shall take good care of the premises and the fixtures and
appurtenances therein, and shall make all repairs necessary to keep them in good
working order and condition, including structural repairs when those are
necessitated by the act, omission or negligence of Tenant or its agents,
employees or invitees. During the term of this lease, Tenant may have the use of
any air-conditioning equipment located in the premises, and Tenant, at its own
cost and expense, shall maintain and repair such equipment and shall reimburse
Landlord, in accordance with Article 41 of this lease, for electricity consumed
by the equipment. The exterior walls of the building, the windows and the
portions of all window sills outside same and areas above any hung ceiling are
not part of the premises demised by this lease, and Landlord hereby reserves all
rights to such parts of the building. 9A
DESTRUCTION.
10. If the premises shall be partially damaged by fire or other casualty,
the damage shall be repaired at the expense of Landlord, but without prejudice
to the rights of subrogation, if any, of Landlord's insurer, 10B Landlord shall
not be required to repair or restore any of Tenant's property or any alteration
or leasehold improvement made by or for Tenant at Tenant's expense. The rent
shall abate in proportion to the portion of the premises not usable by Tenant.
Landlord shall not be liable to Tenant for any delay in restoring the premises.
Tenant's sole remedy being the right to an abatement of rent, as above provided.
If the premises are rendered wholly untenantable by fire or other casualty and
if Landlord shall decide not to restore the premises, or if the building shall
be so damaged that Landlord shall decide to demolish it or to rebuild it
(whether or not the premises have been damaged), Landlord may within ninety (90)
days after such fire or other cause give written notice to Tenant of its
election that the term of this lease shall automatically expire no less than ten
(10) days after such notice is given. ?? Notwithstanding the foregoing, each
party shall look first to any insurance in its favor before making any claim
against the other party for recovery for loss or damage resulting from fire or
other casualty, and to the extent that such insurance is in force and
collectible and to the extent permitted by law. Landlord and Tenant each hereby
releases and waives all right of recovery against the other or any one claiming
through or under each of them by way of subrogation or otherwise. The foregoing
release and waiver shall be in force only if both releasors' insurance policies
contain a clause providing that such a release or waiver shall not invalidate
the insurance and also, provided that such a policy can be obtained without
additional premiums. ?? Tenant hereby expressly waives the provisions of Section
227 of the Real Property law and agrees that the foregoing provisions of this
Article shall govern and control in lieu thereof.
<PAGE>
END OF TERM.
11. Tenant shall surrender the premises to Landlord at the expiration or
sooner termination of this lease in good order and condition, except for
reasonable wear and tear and damage by fire or other casualty, and Tenant shall
remove all of its property. Tenant agrees it shall indemnify and save Landlord
harmless against all costs, claims, loss or liability resulting from delay by
Tenant in so surrendering the premises, including, without limitation, any
claims made by any succeeding tenant founded on such delay. Additionally, the
parties recognize and agree that other damage to Landlord resulting from any
failure by Tenant timely to surrender the premises will be substantial, will
exceed the amount of monthly rent theretofore payable hereunder, and will be
impossible of accurate measurement. Tenant therefore agrees that if possession
of the premises is not surrendered to Landlord within one (1) day after the date
of the expiration or sooner termination of the term of this lease, then Tenant
will pay Landlord as liquidated damages for each month and for each portion of
any month during which Tenant holds over in the premises after expiration or
termination of the term of this lease, a sum equal to ?? times the average rent
and additional rent which was payable per month under this lease during the last
six months of the term thereof. The aforesaid obligations shall survive the
expiration or sooner termination of the term of this lease. At any time during
the term of this lease. 11B Landlord may exhibit the premises to prospective
purchasers or mortgagees of Landlord's interest therein. During the last year of
the term of this lease. 11B Landlord may exhibit the premises to prospective
tenants.
SUBORDINATION AND ESTOPPEL, ETC.
12. Tenant has been informed and understands that Landlord is the
SubTenant under a lease of the land and entire building of which the premises
form a part (hereinafter called the "Master Lease"). This lease is and shall be
subject and subordinate to the Master Lease and all other ground and underlying
leases and to all mortgages which may now or hereafter affect such leases or the
real property of which the premises form a part, and to all renewals,
modifications, consolidations, replacements and extensions thereof, This Article
shall be self-operative and no further instrument of subordination shall be
necessary. In confirmation of such subordination, Tenant shall execute promptly
any certificate that Landlord may request. Tenant hereby appoints Landlord as
tenant's irrevocable attorney-in-fact to execute any document of subordination
on behalf of Tenant. 12A In the event that the Master Lease or any other ground
or underlying lease is terminated or any mortgage foreclosed, this lease shall
not terminate or be terminable by Tenant (except as hereinafter provided as to
Master Lease expiration of term) unless Tenant was specifically named in any
termination or foreclosure judgment or final order. In the event that the Master
Lease or any other ground or underlying lease is terminated as aforesaid, or
expires (as hereinafter provided), or if the interests of Landlord under this
lease are transferred by reason of or assigned in lieu of foreclosure or other
proceedings for enforcement of any mortgage, or if the holder of any mortgage
acquires a lease in substitution therefor, then tenant will, at the option to be
exercised in writing by the landlord under the Master Lease or such purchaser,
assignee or lessee, as the case may be, (i) attorn to it and will perform for
its benefit all the terms, covenants and conditions of this lease on the
Tenant's part to be performed with the same force and effect as if said landlord
or such purchaser, assignee or lessee, were the landlord originally named in
this lease, or (ii) enter into a new lease with said lessor or such purchaser,
assignee or lessee, as landlord, for the remaining term of this lease and
otherwise on the same terms, conditions and rentals as herein provided. If the
current term of the Master Lease shall expire prior to the date set forth herein
for the expiration of this lease, then, unless Landlord, at its sole option,
shall have elected to extend or renew the term of the Master Lease, or unless
the lessor under the Master Lease elects that the Tenant attorn or enter into a
new lease as aforesaid, the term of this lease shall expire on the date of
expiration of the Master Lease, notwithstanding the later expiration date
hereinabove set forth. If the Master Lease is renewed, then the term of this
lease shall expire as hereinabove set forth. From time to time, Tenant, on at
least ten (10) days' prior written request by Landlord will deliver to Landlord
a statement in writing certifying that this lease is unmodified and in full
force and effect (or if there shall have been modifications, that the same is in
full force and effect as modified and stating the modification) and the dates to
which the rent and other charges have been paid and stating whether or not the
Landlord is in default in performance of any covenant, agreement, or condition
contained in this lease and, if so, specifying each such default of which Tenant
may have knowledge. 12B
CONDEMNATION.
13. If the whole or any substantial part of the premises shall be
condemned by eminent domain or acquired by private purchase in lieu thereof for
any public or quasi-public purpose, this lease shall terminate on the date of
the vesting of title through such proceeding or purchase, and Tenant shall have
no claim against Landlord for the value of any unexpired portion of the term of
this lease, nor shall Tenant be entitled
<PAGE>
to any part of the condemnation award or private purchase price. 13A If less
than a substantial part of the premises is condemned, this lease shall not
terminate, but rent shall abate in proportion to the portion of the premises
condemned.
REQUIREMENTS OF LAW.
14. (a) Tenant at its expense shall comply with all laws, orders and
regulations of any governmental authority having or asserting jurisdiction over
the premises, which shall impose any violation, order or duty upon Landlord or
Tenant with respect to the premises or the use or occupancy thereof including,
without limitation, compliance in the premises with all City, State and Federal
laws, rules and regulations on the disabled or handicapped, on fire safety and
on hazardous materials. The foregoing shall not require Tenant to do structural
work.
(b) Tenant shall require every person engaged by mm to clean any window in
the premises from the outside, to use the equipment and safety devices required
by Section 202 of the labor law and the rules of any governmental authority
having or asserting jurisdiction.
(c) Tenant at its expense shall comply with all requirements of the New
York Board of Fire Underwriters, or any other similar body affecting the
premises and shall not use the premises in a manner which shall increase the
rate of fire insurance of Landlord or of any other tenant, over that in effect
prior to this lease. If Tenant's use of the premises increases the fire
insurance rate, Tenant shall reimburse Landlord for all such increased costs.
That the premises are being used for the purpose set forth in Article I hereof
shall not relieve Tenant from the foregoing duties, obligations and expenses.
14A
CERTIFICATE OF OCCUPANCY.
15. Tenant will at no time use or occupy the premises in violation of the
certificate of occupancy issued for the building. The statement in this lease of
the nature of the business to be conducted by Tenant shall not be ?? is lawful
or permissible in the premises under the certificate of occupancy for the
building
<PAGE>
POSSESSION.
16. If Landlord shall be unable to give possession of the premises on the
commencement date of the term because of the retention of possession of any
occupant thereof alteration or construction work, or for any other reason except
as hereinafter provided, Landlord shall not be subject to any liability for such
failure. In such event, this lease shall stay in full force and effect, without
extension of its term. However, the rent hereunder shall not commence until the
premises are available for occupancy by Tenant. If delay in possession is due to
work, changes or decorations being made by or for Tenant, 16A or is otherwise
caused by Tenant, there shall be no rent abatement and the rent shall commence
on the date specified in this lease. If permission is given to Tenant to occupy
the demised premises or other premises prior to the date specified as the
commencement of the term, such occupancy shall be deemed to be pursuant to the
terms of this lease, except that the parties shall separately agree as to the
obligation of Tenant to pay rent for such occupancy. The provisions of this
Article are intended to constitute an "express provision to the contrary" within
the meaning of Section 223(a), New York Real Property Law.
QUIET ENJOYMENT.
17. Landlord covenants that if Tenant pays the rent and performs all of
Tenant's other obligations under this lease, Tenant may peaceably and quietly
enjoy the demised premises, subject to the terms, covenants and conditions of
this lease and to the ground leases, underlying leases and mortgages
hereinbefore mentioned.
RIGHT OF ENTRY.
18. Tenant shall permit Landlord to erect and maintain pipes and conduits
in and through the premises. 18B Landlord or its agents shall have the right to
enter or pass through the premises at all times, by master key, by reasonable
force or otherwise, to examine the same, and to make such repairs, alterations
or additions as it may deem necessary or desirable to the premises or the
building, and to take all material into and upon the premises that may be
required therefor. 18A Such entry and work shall not constitute an eviction of
Tenant in whole or in part, shall not be grounds for any abatement of rent, and
shall impose no liability on Landlord by reason of inconvenience or injury to
Tenant's business. 18C Landlord shall have the right at any time, without the
same constituting an actual or constructive eviction, and without incurring any
liability to Tenant, to change the arrangement and/or location of entrances or
passageways, windows, corridors, elevators, stairs, toilets, or other public
parts of the building, and to change the name or number by which the building is
known.
VAULT SPACE.
19. Anything contained in any plan or blueprint to the contrary
notwithstanding, no vault or other space not within the building property line
is demised hereunder. Any use of such space by Tenant shall be deemed to be
pursuant to a license, revocable at will by Landlord, without diminution of the
rent payable hereunder. If Tenant shall use such vault space, any fees taxes or
charges made by any governmental authority for such space shall be paid by
Tenant.
INDEMNITY.
20. Tenant shall indemnify, defend and save Landlord harmless from and
against any liability or expense arising from the use or occupation of the
premises by Tenant, or anyone on the premises with Tenant's permission, or from
any breach of this lease. 20A
LANDLORD'S LIABILITY.
21. This lease and the obligations of Tenant hereunder shall in no way be
affected because Landlord is unable to fulfill any of its obligations or to
supply any service, by reason of strike or other cause not within Landlord's
control. Landlord shall have the right, without incurring any liability to
Tenant, to stop any service because of accident or emergency, or for repairs,
alterations or improvements, necessary or desirable in the judgment of Landlord,
until such repairs, alterations or improvements shall have been completed.
Landlord shall not be liable to Tenant or anyone else, for any loss or damage to
person, property or business, unless due to the negligence or willful misconduct
of Landlord 21A nor shall Landlord be liable for any latent defect in the
premises or the building. Tenant, during the term of this lease, shall carry
public liability and property damage insurance, from a company authorized to do
business in New York, with limitations acceptable to Landlord, which policy or
policies shall name the Landlord and its designees as additional insureds.
Evidence of the policies, and of their timely renewal, shall be delivered to
Landlord. All such insurance shall contain an agreement by the insurance
<PAGE>
company that the policy or policies will not be cancelled or the coverage
changed, without thirty (30) days' prior written notice to the Landlord. Tenant
agrees to look solely to Landlord's estate and interest in the land and
building, or the lease of the building or of the land and building, and the
demised premises, for the satisfaction of any right or remedy of Tenant for the
collection of a judgment (or other judicial process) requiring the payment of
money by Landlord, in the event of any liability by Landlord, and no other
property or assets of Landlord shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to this lease, the relationship of landlord and tenant hereunder, or
Tenant's use and occupancy of the demised premises or any other liability of
Landlord to Tenant (except for negligence).
CONDITION OF PREMISES.
22. Tenant acknowledges that Landlord has made no representation or
promise, except as herein expressly set forth. Tenant agrees to accept the
premises "as is", except for any work which Landlord has expressly agreed in
writing to perform.
TAX ESCALATION.
24. Tenant shall pay to Landlord, as additional rent, tax escalation in
accordance with this Article:
(a) For purposes of this lease the rentable square foot area of the
presently demised premises shall be deemed to be 2,989 square feet.
(b) Definitions: For the purpose of this Article, the following definitions
shall apply:
(i) The term "base tax year" as hereinafter set forth for the
determination of real estate tax escalation, shall mean the 24A
<PAGE>
(ii) The term "The Percentage", for purposes of computing tax
escalation, shall mean .2686 percent (2686%). The Percentage has been
computed on the basis of a fraction, the numerator of which is the rentable
square foot area of the demised premises and the denominator of which is
the total rentable square foot area of the office and commercial space in
the building project. The parties acknowledge and agree that the total
rentable square foot area of the office and commercial space in the
building project shall be deemed to be 1, 112, 424 sq. ft.
(iii) The term "the building project" shall mean the aggregate
combined parcel of land on a portion of which are the improvements of which
the demised premises form a part, with all the improvements thereon, said
improvements being a part of the block and lot for tax purposes which are
applicable to the aforesaid land.
(iv) The term "comparative year" shall mean the twelve (12) months
following the base tax year, and each subsequent Period of twelve (12)
months (or such other Period of twelve (12) months occurring during the
term of this lease as hereafter may be duly adopted as the tax year for
real estate tax purposes by the City of New York).
(v) The term "real estate taxes" shall mean the total of all taxes
and special or other assessments levied, assessed or imposed at any time by
any governmental authority upon or against the building project, 24F and
also any tax or assessment levied, assessed or imposed at any time by any
governmental authority in connection with the receipt of income or rents
from said building project to the extent that same shall be in lieu of all
or a portion of any of the aforesaid taxes or assessments, or additions or
increases thereof, upon or against said building project. If, due to a
future change in the method of taxation or in the taxing authority, or for
any other reason, a franchise, income, transit, profit or other tax or
governmental imposition, however designated, shall be levied against
landlord in substitution in whole or in part for the real estate taxes, or
in lieu of additions to or increases of said real estate taxes, then such
franchise, income, transit, profit or other tax or governmental imposition
shall be deemed to be included within the definition of "real estate taxes"
for the purposes hereof. As to special assessments which are payable over a
period of time extending beyond the term of this lease, only a pro rata
portion thereof covering the portion of the term of this lease unexpired at
the time of the imposition of such assessment, shall be included in "real
estate taxes". If by law, any assessment may be paid in installments, then,
for the purposes hereof (a) such assessment shall be deemed to have been
payable in the maximum number of installments permitted by law and (b)
there shall be included in real estate taxes, for each comparative year in
which such installments may be paid, the installments of such assessment so
becoming payable during such comparative year, together with interest
payable during such comparative year.
(vi) Where more than one assessment is imposed by the City of New
York for any tax year, whether denominated an "actual assessment" or a
"transitional assessment" or otherwise, then the phrases herein "assessed
value" and "assessments" shall mean whichever of the actual, transitional
or other assessment is designated by the City of New York as the taxable
assessment for that tax year.
(c) 1. In the event that the real estate taxes payable for any comparative
year shall exceed the amount of the real estate taxes payable during the base
tax year, tenant shall pay to landlord, as additional rent for such comparative
year, an amount equal to The Percentage of the excess. Before or after the start
of each comparative year, Landlord shall furnish to Tenant a statement of the
real estate taxes payable for such comparative year, and a statement of the real
estate taxes payable during the base tax year. If the real estate taxes payable
for such comparative year exceed the real estate taxes payable during the base
tax year, additional rent for such comparative year, in an amount equal to The
Percentage of the excess, shall be due from Tenant to Landlord, and such
additional rent shall be payable by Tenant to Landlord within 24B days after
receipt of the aforesaid statement. The benefit of any discount for any earlier
payment or prepayment of real estate taxes shall accrue solely to the benefit of
Landlord, and such discount shall not be subtracted from the real estate taxes
payable for any comparative year.
Additionally, Tenant shall pay to Landlord, on demand, a sum equal to The
Percentage of any business improvement district assessment payable by the
building project.
2. Should the real estate taxes payable during the base tax year be
reduced by final determination of legal proceedings, settlement or otherwise,
then, the real estate taxes payable during the base tax year shall be
correspondingly revised, the additional rent theretofore paid or payable
hereunder for all comparative years shall be recomputed on the basis of such
reduction, and tenant shall pay to Landlord as additional rent, within
<PAGE>
ten (10) days after being billed therefor, any deficiency between the amount of
such additional rent as theretofore computed and the amount thereof due as the
result of such recomputations. Should the real estate taxes payable during the
base tax year be increased by such final determination of legal proceedings,
settlement or otherwise, then appropriate recomputation and adjustment also
shall be made.
3. If after Tenant shall have made a payment of additional rent under this
subdivision (c), Landlord shall receive a refund of any portion of the real
estate taxes payable for any comparative year after the base tax year on which
such payment of additional rent shall have been based, as a result of a
reduction of such real estate taxes by final determination of legal proceedings,
settlement or otherwise. Landlord shall within ten (10) days after receiving the
refund pay to Tenant The Percentage of the refund less The Percentage of 24C
expenses (including attorneys' and appraisers' fees) incurred by Landlord in
connection with any such application or proceeding. If prior to the payment of
taxes for any comparative year. Landlord shall have obtained a reduction of that
comparative year's assessed valuation of the building project, and therefore of
said taxes, then the term "real estate taxes" for that comparative year shall be
deemed to include the amount of Landlord's 24C expenses in obtaining such
reduction in assessed valuation, including attorneys' and appraisers' fees.
4. The statement of the real estate taxes to be furnished by Landlord as
provided above shall be certified by Landlord and shall constitute a final
determination as between Landlord and Tenant of the real estate taxes for the
Periods represented thereby, unless Tenant within thirty (30) days after they
are furnished shall give a written notice to Landlord that it disputes their
accuracy or their appropriateness, which notice shall specify the particular
respects in which the statement is inaccurate or inappropriate. If Tenant shall
so dispute said statement then, pending the resolution of such dispute, tenant
shall pay the additional rent to Landlord in accordance with the statement
furnished by Landlord.
5. In no event shall the fixed annual rent under this lease (exclusive of
the additional rents under this Article) be reduced by virtue of this Article.
6. If the commencement date of the term of this lease is not the first day
of the first comparative year, then the additional rent due hereunder for such
first comparative year shall be a proportionate share of said additional rent
for the entire comparative year, said proportionate share to be based upon the
length of time that the lease term will be in existence during such first
comparative year. Upon the date of any expiration or termination of this lease
(except termination because of Tenant's default) whether the same be the date
hereinabove set forth for the expiration of the term or any prior or subsequent
date, a proportionate share of said additional rent for the comparative year
during which such expiration or termination occurs shall, 24D become due and
payable by Tenant to Landlord, if it was not theretofore already billed and
paid. The said proportionate share shall be based upon the length of time that
this lease shall have been in existence during such comparative year. Landlord
shall promptly cause statements of said additional rent for that comparative
year to be prepared and furnished to lessee. Landlord and Tenant shall thereupon
make appropriate adjustments of amounts then owing.
7. Landlord's and Tenant's obligations to make the adjustments referred to
in subdivision (6) above shall survive any expiration or termination of this
lease.
8. Any 24E delay or failure of lessor in billing any tax escalation
hereinabove provided shall not constitute a waiver of or in any way impair the
continuing obligation of lessee to pay such tax escalation hereunder.
SERVICES.
25. Tenant acknowledges that it has been advised that the cleaning
contractor for the building may be a division or affiliate of Landlord. Tenant
agrees to employ said contractor, or such other contractor as Landlord may from
time to time designate, for any waxing, polishing and other maintenance work of
the demised premises and of the Tenant's furniture, fixtures and equipment,
provided that the prices charged by said contractor are comparable to the prices
charged by other contractors for the same work. Tenant agrees that it shall not
employ any other cleaning and maintenance contractor, nor any individual, firm
or organization for such purpose without Landlord's prior written consent. If
Landlord and Tenant cannot agree on whether the prices being charged by the
contractor designated by the Landlord are comparable to those charged by other
contractors. Landlord and Tenant shall each obtain two bona fide bids for such
work from reputable contractors, and the average of the four bids thus obtained
shall be the standard of comparison.
JURY WAIVER.
<PAGE>
26. Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim involving 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 (except for personal injury or
property damage) or involving the right to any statutory relief or remedy.
Tenant will not interpose any counterclaim of any nature in any summary
proceeding.
NO WAIVER, ETC.
27. No act or omission of Landlord or its agents shall constitute an
actual or constructive eviction, unless Landlord shall have first received
written notice of Tenant's claim and shall have had a reasonable opportunity to
meet such claim. In the event that any payment herein provided for by Tenant to
Landlord shall become overdue for a period in excess of ten (10) days, then at
Landlord's option a "late charge" shall become due and payable to Landlord, as
additional rent, from the date it was due until payment is made at the following
rates: for individual and partnership Tenants, said late charge shall be
computed at the maximum legal rate of interest; for corporate or governmental
entity Tenants the late charge shall be computed at two percent per month unless
there is an applicable maximum legal rate of interest which then shall be used.
No act or omission of Landlord or its agents shall constitute an acceptance of a
surrender of the premises, except a writing signed by Landlord. The delivery of
keys to Landlord or its agents shall not constitute a termination of this lease
or a surrender of the premises. Acceptance by Landlord of less than the rent
herein provided shall at Landlord's option be deemed on account of earliest rent
remaining unpaid. No endorsement on any check, or letter accompanying rent,
shall be deemed an accord and satisfaction, and such check may be cashed without
prejudice to Landlord. No waiver of any provision of this lease shall be
effective.
<PAGE>
unless such waiver be in writing signed by Landlord. This lease contains the
entire agreement between the parties, and no modification thereof shall be
binding unless in writing and signed by the party concerned. Tenant shall comply
with the rules and regulations printed in this lease, and any reasonable
modifications thereof or additions thereto. Landlord shall not be liable to
Tenant for the violation of such rules and regulations by any other tenant
Failure of Landlord to enforce any provision of this lease, or any rule or
regulation, shall not be construed as the waiver of any subsequent violation of
a provision of this lease, or any rule or regulation. This lease shall not be
affected by nor shall Landlord in any way be liable for the closing, darkening
or bricking up of windows in the premises, for any reason, including as the
result of construction on any property of which the premises are not a part or
by Landlord's own acts.27A
OCCUPANCY AND USE BY TENANT.
28(A) Tenant agrees that if it 28A the demised premises, at any time
during the term of this lease, without the prior written consent of the
Landlord, then all rent and additional rent reserved in this lease from the date
of such breach to the expiration date of this lease shall become immediately due
and payable to Landlord.
(C) If Tenant breaches the covenants in subdivision (A) above, and this
lease be terminated because of such default, then, in addition to Landlord's
rights of reentry, restoration, preparation for and rerental, and anything
elsewhere in this lease to the contrary notwithstanding. Landlord shall retain
its right to judgment on and collection of Tenant's aforesaid obligation to make
a single payment to Landlord of a sum equal to the total of all rent and and
additional rent reserved for the remainder of the original term of this lease,
subject to future credit or repayment to Tenant in the event of any rerenting of
the premises by Landlord, after first deducting from rerental income all
expenses incurred by Landlord in reducing to judgment or otherwise collecting
Tenant's aforesaid obligation, and in obtaining possession of restoring,
preparing for and re-letting the premises. In no event shall Tenant be entitled
to a credit or repayment for rerental income which exceeds the sums payable by
Tenant hereunder or which covers a period after the original term of this lease.
NOTICES.
29. Any bill, or demand from Landlord to Tenant, may be delivered
personally at the premises or sent by registered or certified mail. 29A Such
bill, or demand shall be deemed to have been given at the time of delivery
or,29B mailing.29C Any notice from Tenant to Landlord must be sent by registered
or certified mail to the last address designated in writing by Landlord.
WATER.
30. Tenant shall pay the amount of Landlord's cost for all water used by
Tenant for any purpose other than ordinary lavatory 30A uses, and any sewer rent
or tax based thereon. Landlord may install a water meter to measure Tenant's
water consumption for all purposes and Tenant agrees to pay for the installation
and maintenance thereof and for water consumed as shown on said meter. If water
is made available to Tenant in the building or the demised premises through a
meter which also supplies other premises, or without a meter, then Tenant shall
pay to Landlord $30B per month for water.
SPRINKLER SYSTEM.
31. If there shall be a "sprinkler system" in the demised premises for any
period during this lease, Tenant shall pay $ - 0 - per month, for sprinkler
supervisory service. If such sprinkler system is damaged by any act or omission
of Tenant or its agents, employees, licensees or visitors. Tenant shall restore
the system to good working condition at its own expense. If the New York Board
of Fire Underwriters, the New York Fire Insurance Exchange, the Insurance
Services Office or any governmental authority requires the installation or any
alteration to a sprinkler system by reason of Tenant's occupancy or use of the
premises, including any alteration necessary to obtain the full allowance for a
sprinkler system in the fire insurance rate of Landlord, or for any other
reason, Tenant shall make such installation or alteration promptly, and at its
own expense.
HEAT, ELEVATOR, ETC.
32. Landlord shall provide 32A elevator service during all usual business
hours including Saturdays until 1 P.M. except on Sundays, State holidays,
Federal holidays, or Building Service Employees Union Contract holidays.
Landlord shall furnish heat to the premises 32B during the same hours on the
same days in
<PAGE>
the cold season in each year. Landlord shall cause the premises to be kept clean
in accordance with Landlord's customary standards for the building.32C provided
they are kept in order by Tenant. Landlord, its cleaning contractor and their
employees shall have after-hours access to the demised premises and the use of
Tenant's light, power and water in the demised premises as may be reasonably
required for the purpose of cleaning the demised premises. Landlord may remove
Tenant's extraordinary refuse from the building and Tenant shall pay the cost
thereof. If the elevators in the building are manually operated, Landlord may
convert to automatic elevators at any time, without in any way affecting
Tenant's obligations hereunder.
SECURITY DEPOSIT.
33. Tenant has deposited with Landlord the sum of $31,882 security for the
performance by Tenant of the terms of this lease. Landlord may use any part of
the Security to satisfy any default of Tenant and any expenses arising from such
default, including but not limited to any damages or rent deficiency before or
after re-entry by Landlord. Tenant shall, 33A demand, deposit with Landlord the
full amount so used, in order that Landlord shall have the full security deposit
on hand at all times during the term of this lease. If Tenant shall comply fully
with the terms of this lease, the security shall be returned to Tenant after the
date fixed as the end of the lease. In the event of a sale or lease of the
building containing the premises, Landlord may transfer the security to the
purchaser or tenant, and Landlord shall thereupon be released from all liability
for the return of the security 33B This provision shall apply to every transfer
or assignment of the security to a new Landlord. Tenant shall have no legal
power to assign or encumber the security herein described.
ELECTRICITY.
34. Terms and conditions with respect to electricity rent inclusion, or
with respect to sub-metering, as the case may be, and general conditions with
respect to either, are set forth in Article 41 in the Rider annexed to and made
part of this lease.
RENT CONTROL.
35. In the event the fixed annual rent or additional rent or any part
thereof provided to be paid by Tenant under the provisions of this lease during
the demised term shall become uncollectible or shall be reduced or required to
be reduced or refunded by virtue of any Federal, State, County or City law,
order or regulation, or by any direction of a public officer or body pursuant to
law, or the orders, rules, code or regulations of any organization or entity
formed pursuant to law, whether such organization or entity be public or
private, then Landlord, at its option, may at any time thereafter terminate this
lease, by not less than thirty (30) days' written notice to Tenant, on a date
set forth in said notice, in which event this lease and the term hereof shall
terminate and come to an end on the date fixed in said notice as if the said
date were the date originally fixed herein for the termination of the demised
term. Landlord shall not have the right so to terminate this lease if Tenant
within such period of thirty (30) days shall in writing lawfully agree that the
rentals herein reserved are a reasonable rental and agree to continue to pay
said rentals, and if such agreement by Tenant shall then be legally enforceable
by Landlord.
SHORING.
36. Tenant shall permit any person authorized to make an excavation on
land adjacent to the building containing the premises to do any work within the
premises necessary to preserve the wall of the building from injury or damage,
and Tenant shall have no claim against Landlord for damages or abatement of rent
by reason thereof
EFFECT OF CONVEYANCE, ETC.
37. If the building containing the premises shall be sold, transferred or
leased, or the lease thereof transferred or sold, Landlord shall be relieved of
all future obligations and liabilities hereunder and the purchaser, transferee
or tenant of the building shall be deemed to have assumed and agreed to perform
all such obligations and liabilities of Landlord hereunder. In the event of such
sale, transfer or lease, Landlord shall also be relieved of all existing
obligations and liabilities hereunder, provided that the purchaser, transferee
or tenant of the building assumes in writing such obligations and liabilities.
RIGHTS OF SUCCESSORS AND ASSIGNS.
38. This lease shall bind and inure to the benefit of the heirs,
executors, administrators, successors, and, except as otherwise provided herein,
the assigns of the
<PAGE>
parties hereto. If any provision of any Article of this lease or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of that Article, or the application of such
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each provision of
said Article and of this lease shall be valid and be enforced to the fullest
extent permitted by law.
CAPTIONS.
39. The captions herein are inserted only for convenience, and are in no
way to be construed as a part of this lease or as a limitation of the scope of
any provision of this lease.
LEASE SUBMISSION.
40. Landlord and Tenant agree that this lease is submitted to Tenant on
the understanding that it shall not be considered an offer and shall not bind
Landlord in any way unless and until (i) Tenant has duly executed and delivered
duplicate originals thereof to Landlord and (ii) Landlord has executed and
delivered one of said originals to Tenant.
<PAGE>
SEE RIDER(S) ANNEXED HERETO AND MADE A PART HEREOF CONSISTING OF PAGES 1
THROUGH 36, CONTAINING RULES & REGULATIONS, ARTICLES 41 THROUGH 58, A LOCATION
PLAN & CLEANING
In Witness Whereof, Landlord and Tenant have executed this lease as of the day
and year first above written SPECIFICATIONS
SLG GRAYBAR LLC TALK CITY, INC. (L.S.)
BY: SLG GRAYBAR 2 LLC, Sole Member
BY: SL GREEN OPERATING PARTNERSHIP, LP,
Sole Member
BY: SL GREEN REALTY CORP., General Partner BY: /s/ Signature Illegible (L.S.)
(NAME) (TITLE)
BY: /s/ Signature Illegible (L.S.)
(NAME) (TITLE)
ACKNOWLEDGEMENTS.
State of New York ) ss.:
County of New York )
On the day of ,19 , before me
State of New York ) ss.: personally came
County of New York ) to me known, who, being by me duly
did depose and say that he sworn,
On the day of ,19 , before me resides at No.
personally came that he is the of
to me known and known to me to be the the corporation described in,
described in, and who executed, individual and which executed, the
the foregoing instrument, and acknowledged foregoing instrument; and that he
to me that he executed the same. signed in name thereto by
authority of the Board of Directors
of said corporation.
Notary Public Notary Public
GUARANTY.
For Value Received and in consideration of the letting of the premises
within mentioned to the within named Tenant, the undersigned do hereby covenant
and agree, to and with the Landlord and the Landlord's legal representatives,
that if default shall at any time he made by the said Tenant in the payment of
the rent and the performance of the covenants contained in the within lease, on
the Tenant's part to he paid and performed, that the undersigned will well and
truly pay the said rent, or any arrears thereof that may remain due unto said
Landlord, and also pay all damages that may arise in consequence of the non-
performance of said covenants, or either of them, without requiring notice of
any such default from the Landlord. The undersigned hereby waives all right to
trial by jury in any action or proceeding hereinafter instituted by the
Landlord, to which the undersigned may be a party.
IN WITNESS WHEREOF, the undersigned has set hand and seal this day of 19
(L.S.)
(L.S.)
to me known and known to me to be the
individual described in, and who
executed the foregoing Guaranty and
State of New York ) acknowledged to me that he executed the same.
ss.:
County of New York )
On the day of , 19 before me
personally came
Notary Public
To
LEASE
DATE
SPACE
FROM
TO
ANNUAL RENT $
MONTHLY RENT $
<PAGE>
ADDENDA TO LEASE AGREEMENT BETWEEN
SLG GRAYBAR LLC., AS LANDLORD AND
TALK CITY, INC. AS TENANT
-------------------------
2A. in writing to Tenant
2B. unless otherwise provided herein
4A. five (5)
4B. ten (10)
4C. and in the event of any such involuntary petition being filed against
Tenant, Tenant has not had same dismissed within twenty (20) days of its
receipt of notice thereof,
4D. abandoned
4E. thirty (30)
5A. reasonable
5B. ("default" as used in this Lease shall mean Tenant's failure to perform
any of its obligations under this Lease within the applicable notice and
cure periods set forth in Article 4.)
6A. ten (10)
7A. which shall not be unreasonably withheld or delayed
7B. Notwithstanding the foregoing, however, Landlord's prior negative
experience with, concerns regarding the financial stability of, and any
criminal proceedings pending against, any such contractor or mechanic
shall be deemed to be a reasonable basis upon which for Landlord to refuse
to grant its approval.
7C. unless Landlord, (i) by notice to Tenant no later than twenty (20) days
prior to the date fixed as the termination of this Lease, elects to
relinquish Landlord's right thereto and to have them removed by Tenant, or
(ii) provided that written request has been made by Tenant at the time of
Tenant's request for Landlord's approval of same, by notice to Tenant at
the time of Tenant's aforementioned request, elects by notice to Tenant to
relinquish Landlord's right thereto and to have them removed by Tenant, in
which case, in either of the foregoing events, the same shall be removed
from the Premises by Tenant, and any resulting damage repaired by Tenant,
prior to the expiration of the Lease, at Tenant's expense. Notwithstanding
the foregoing, Tenant shall be permitted to make decorative alterations to
the Premises without first obtaining the consent of Landlord,
<PAGE>
provided that same do not affect any Building systems,
9A. Notwithstanding anything to the contrary contained herein, Landlord, at
its expense, shall be responsible for the maintenance and repair of the
structural portions of the building, including the windows and the roof,
plumbing, electrical risers and air-conditioning and heating systems
serving the Premises (excluding any supplemental HVAC equipment installed
by Tenant with Landlord's prior written consent) provided however, that
(i) maintenance and repairs of distribution portions of any of the
foregoing utilities or systems located within the Premises shall be the
responsibility of Tenant and (ii) structural repairs and repairs to the
Base Building Systems shall be performed by Landlord at Tenant's sole cost
and expense if necessitated by the act, omission or negligence of Tenant
or its agents, employees, contractors or invitees, subject to the
provisions of Article 44C hereof.
10A. If the Premises are rendered wholly untenantable due to fire or other
casualty and Lessor has not substantially restored the Premises or access
thereto within one hundred and eighty (180) days of such fire or casualty,
then, and in such event, Lessee may elect to cancel this Lease upon giving
written notice to Lessor within thirty (30) days after the end of such one
hundred and eighty (180) day period and the term of this Lease shall
expire on the date set forth therein which shall be not less than thirty
(30) days after the date such notice is given (the "Cancellation Date")
provided that Landlord does not substantially restore the Premises prior
to the Cancellation Date.
10B. (subject to Landlord's obligations regarding the waiver of the right of
subrogation pursuant to Article 44C hereof.)
10C. Landlord represents that it shall at all times carry commercially
reasonable casualty and liability insurance for the building having
commercially reasonable limits given the size and location of the
building.
11A. one and one-half (1-1/2)
11B. upon reasonable notice
12A. ,provided that Tenant fails to execute and return to Landlord any such
document within twenty-one (21) days of its receipt of same.
12B. Landlord represents that the term of the Master Lease is scheduled to
expire after the term of this Lease is set to expire.
<PAGE>
13A. , except for any award made for Tenant's furniture, fixtures and trade
fixtures and for its relocation expenses, so long as not to prevent,
diminish or adversely impact any claim by Landlord.
14A. Notwithstanding anything contained herein to the contrary, (i) Tenant
shall not be required to perform any alteration and/or improvements to
the Premises in order to comply with laws, orders and/or regulations
unless such alterations and/or improvements are required by reason of
Tenant's particular manner of use of the Premises; and (ii) Landlord
shall be responsible to cure any violation of record covering the
Premises as of the commencement date of this Lease.
16A. except for the work to be performed by Landlord pursuant to Article 48
hereof,
18A. ,provided that Landlord shall use reasonable efforts to provide Tenant
with oral notice of same to Tenant(except in the event of an emergency),
and provided that Tenant shall be permitted to accompany Landlord upon
any such entry (except in the event of an emergency).
- -18B. provided that they are concealed, erected along perimeter walls wherever
possible and are installed in a manner which does not interfere with
Tenant's use of the Premises.
18C. Landlord shall use reasonable efforts to minimize interference with
Tenant's normal business activities within the premises provided,
however, that Tenant acknowledges and agrees that all work shall be
performed on normal business days during normal business hours, unless
Tenant requests and pays Landlord the incremental difference in cost for
overtime or premium labor.
20A. , except for Landlord's negligence or willful misconduct.
21A. , its employees or agents
24A. average of the calculation for the New York City Tax Years commencing
July 1, 1998 and ending on June 30, 1999 and commencing July 1, 1999 and
ending June 30, 2000.
24B. twenty (20)
24C. reasonable
24D. promptly
24E. inadvertent
24F. (excluding income, estate, franchise taxes imposed on Landlord)
<PAGE>
27A. Landlord represents that it shall not brick-up any window in the Premises
unless required to do so by law.
28A. abandons
29A. , with an additional copy of same to be sent by regular mail to Tenant at
the address set forth below:
Talk City, Inc.
307 Orchard Drive, Suite 350
-----------------
Campbell, CA 95008
------------------
Attn: Chief Executive Officer
29B. three (3) business days after
29C. Any notice from Landlord to Tenant shall be sent by registered or
certified mail addressed to Tenant as follows:
Talk City, Inc.
307 Orchard Drive, Suite 350
------------------
Campbell, CA 95008
------------------
Attn: Chief Executive Officer
30A. and pantry
30B. Tenant's proportionate share
32A. a minimum of one (1) passenger elevator twenty four hours a day seven
days a week and provide
32B. sufficient for normal office usage
32C. in accordance with the cleaning specifications attached hereto and made a
part hereof,
33A. within ten (10) days after its receipt of a written
33B. provided that such purchaser or tenant has agreed to assume in writing
all of Landlord's obligations accruing hereunder after the date of any
such transfer of Landlord's interest in the building.
<PAGE>
RIDER ANNEXED TO AND MADE A PART OF LEASE BETWEEN
SLG GRAYBAR LLC LANDLORD
---------------
AND TALK CITY, INC. TENANT
-------------------
RULES AND REGULATIONS REFERRED TO IN THIS LEASE
1. No animals, birds, bicycles or vehicles shall be brought into or kept
in the premises. The premises shall not be used for manufacturing or commercial
repairing or for sale or display of merchandise or as a lodging place, or for
any immoral or illegal purpose, nor shall the premises be used for a public
stenographer or typist; barber or beauty shop; telephone, secretarial or
messenger service; employment, travel or tourist agency; school or classroom:
commercial document reproduction; or for any business other than specifically
provided for in the tenant's lease. Tenant shall not cause or permit in the
premises any disturbing noises which may interfere with occupants of this or
neighboring buildings, any cooking or objectionable odors, or any nuisance of
any kind, or any inflammable or explosive fluid, chemical or substance.
Canvassing, soliciting and peddling in the building are prohibited, and each
tenant shall cooperate so as to prevent the same.
2. The toilet rooms and other water apparatus shall not be used for any
purposes other than those for which they were constructed, and no sweepings,
rags, ink, chemicals or other unsuitable substances shall be thrown therein.
Tenant shall not throw anything out of doors, windows of skylights, or into
hallways, stairways or elevators, nor place foot or objects on outside window
sills. Tenant shall not obstruct or cover the halls, stairways and elevators, or
use them for any purpose other than ingress and egress to or from tenant's
premises, nor shall skylights, windows, doors and transoms that reflect or admit
light into the building be covered or obstructed in any way.
3. Tenant shall not place a load upon any floor of the premises in excess
of the load per square foot which such floor was designed to carry and which is
allowed by law. Landlord reserves the right to prescribe the weight and position
of all safes in the premises. Business machines and mechanical equipment shall
be placed and maintained by tenant, at tenant's expense, only with Landlord's
consent and in settings approved by Landlord to control weight, vibration, noise
and annoyance. Smoking or carrying lighted cigars, pipes or cigarettes in the
elevators of the building ir prohibited. If the premises are on the ground floor
of the building the tenant thereof at its expense shall keep the sidewalks and
curb in front of the premises clean and free from ice, snow, dirt and rubbish.
4. Tenant shall not move any heavy or bulky materials into or out of the
building without Landlord's prior written consent, and then only during such
hours and in such manner as Landlord shall reasonably approve. If any material
or equipment requires special handling, tenant shall employ only persons holding
a Master Rigger's License to do such work, and all such work shall comply with
all legal requirements. Landlord reserves the right to inspect all freight to be
brought into the building, and to exclude any freight which violates any rule,
regulation or other provision of this lease.
5. No sign, advertisement, notice or thing shall be inscribed, painted or
affixed on any part of the building, without the prior written consent of
Landlord. Landlord may remove anything installed in violation of this provision,
and Tenant shall pay the cost of such removal. Interior signs on doors and
directories shall be inscribed or affixed by Landlord at Tenant's expense.
Landlord shall control the color, size, style and location of all signs,
advertisements and notices. No advertising of any kind by Tenant shall refer to
the building, unless first approved in writing by Landlord.
6. No article shall be fastened to, or holes drilled or nails or screws
driven into, the ceilings, walls, doors or other portions of the premises, nor
shall any part of the premises by painted, papered or otherwise covered, or in
any way marked or broken, without the prior written consent of Landlord.
Notwithstanding the foregoing, Tenant shall be permitted to hang paintings and
other decorative wall hangings on the walls of the Premises without first
obtaining Landlord's consent to same.
7. No existing locks shall be changed, nor shall any additional locks or
bolts of any kind be placed upon any door or window by Tenant, without the prior
written consent of Landlord. At the termination of this lease. Tenant shall
deliver to Landlord all keys for any portion of the premises or building. Before
leaving the premises at any time. Tenant shall close all windows and close and
lock all doors.
8. No Tenant shall purchase or obtain for use in the premises any ice,
towels, food, bootblacking, barbering or other such service furnished by any
company or person not approved by Landlord, which approval shall not be
unreasonably withheld, conditioned or delayed. Any necessary exterminating work
in the premises shall be done at Tenant's expense, at such times, in such manner
and by such company as Landlord shall require. Landlord reserves the right to
exclude from the building, from 6:00 p.m. to 8:00 a.m., and at all hours on
Sunday and legal holidays, all persons who do not present a pass to the building
signed by Landlord. Landlord will furnish passes to all persons reasonably
designated by Tenant. Tenant shall be responsible for the acts of all persons to
whom passes are issued at Tenant's request.
9. Whenever Tenant shall submit to Landlord any plan, agreement or other
document for Landlord's consent or approval, Tenant agrees to pay Landlord as
additional rent, on demand, an administrative fee equal to the sum of the
reasonable fees of any architect, engineer or attorney employed by Landlord to
review said plan, agreement or document and Landlord's reasonable administrative
costs for same.
10. The use in the demised premises of auxiliary heating devices, such as
portable electric heaters, heat lamps or other devices whose principal function
at the time of operation is to product space heating, is prohibited. In case of
any conflict or inconsistency between any provisions of this lease and any of
the rules and regulations as originally or as hereafter adopted, the provisions
of this lease shall control.
11. Lessee shall keep all doors from the hallway to the Premises closed at
all times except for use during ingress to and egress from the Premises. Lessee
acknowledges that a violation of the terms of this paragraph may also constitute
a violation of codes, rules or regulations of governmental authorities having or
asserting jurisdiction over the Premises, and Lessee agrees to indemnify Lessor
from any fines, penalties, claims, action or increase in fire insurance rates
which might result from Lessee's violation of the terms of this paragraph.
12. Lessee shall be permitted to maintain an "in-house" messenger or
delivery service within the Premises, provided that Lessee shall require that
any messengers in its employ affix identification to the breast pocket of their
outer garment, which shall bear the following information: name of Lessee, name
of employee and photograph of the employee. Messengers in Lessee's employ shall
display such identification at all time. In the event that Lessee or any agent,
servant or employee of Lessee, violates the terms of this paragraph, Lessor
shall be entitled to terminate Lessee's permission to maintain within the
Premises in-house messenger or delivery service upon written notice to Lessee.
13. Lessee will be entitled to three (3) listings on the building lobby
directory board, without charge. Any additional directory listing (if space is
available), or any change in a prior listing, with the exception of a deletion,
will be subject to a fourteen ($14.00) dollar service charge, payable as
additional rent.
<PAGE>
ELECTRICITY
-----------
41. Tenant agrees that Landlord may furnish electricity to Tenant on a
"submetering" basis or on a "rent inclusion basis". Electricity and electric
service, as used herein, shall mean any element affecting the generation,
transmission, and/or distribution or redistribution of electricity, including
but not limited to services which facilitate the distribution of service.
(A). Submetering: If and so long as Landlord provides electricity to
the demised premises on a submetering basis, Tenant covenants and agrees to
purchase the same from Landlord or Landlord's designated agent at charges, terms
and rates set, from time to time, during the term of this lease by Landlord but
not more than those specified in the service classification in effect on January
1, 1970 pursuant to which Landlord then purchased electric current from the
public utility corporation serving the part of the city where the building is
located; provided however, said charges shall be increased in the same
percentage as any percentage increase in the billing to Landlord for electricity
for the entire building, by reason of increase in Landlord's electric rates or
service classifications, subsequent to January 1, 1970, and so as to reflect any
increase in Landlord's electric charges, including changes in market prices for
electricity from utilities and/or other providers, in fuel adjustments or by
taxes or charges of any kind imposed on Landlord's electricity purchases or
redistribution, or for any other such reason, subsequent to said date. Any such
percentage increase in Landlord's billing for electricity due to changes in
rates, service classifications, or market prices, shall be computed by the
application of the average consumption (energy and demand) of electricity for
the entire building for the twelve (12) full months immediately prior to the
rate and/or service classification change, or any changed methods of or rules on
billing for same, applied on a consistent basis to the new rate and/or service
classification or market price, and to the classification and rate in effect on
January 1, 1970. If the average consumption of electricity for the entire
building for said prior twelve (12) months cannot reasonably be applied and used
with respect to changed methods of or rules on billing, then the percentage
shall be computed by the use of the average consumption (energy and demand) for
the entire building for the first three (3) months after such change, projected
to a full twelve (12) months, so as to reflect the different seasons; and that
same consumption, so projected, shall be applied to the service classification
and rate in effect on January 1, 1970. Where more than one meter measures the
service of Tenant in the building, the service rendered through each meter may
be computed and billed separately in accordance with the rates herein specified.
Bills therefore shall be rendered at such times as Landlord may elect and the
amount, as computed from a meter, shall be deemed to be, and be paid as,
additional rent. In the event that such bills are not paid within five (5) days
after the same are rendered, Landlord may, without further notice, discontinue
the service of electric current to the demised premises without releasing Tenant
from any liability under this lease and without Landlord or Landlord's agent
incurring any liability for any damage or loss sustained by lessee by such
discontinuance of service. If any tax is imposed upon Landlord's receipt from
the sale, resale or redistribution of electricity or gas or telephone service to
Tenant by any Federal, State, or Municipal authority, Tenant covenants and
agrees that where permitted by law, Tenant's pro-rata share of such taxes shall
be passed on to and included in the bill of, and paid by, Tenant to Landlord.
(B). Rent Inclusion: If and so long as Landlord provides electricity
to the demised premises on a rent inclusion basis, Tenant agrees that the fixed
annual rent shall be increased by
<PAGE>
the amount of the Electricity Rent Inclusion Factor ("ERIF"), as hereinafter
defined. Tenant acknowledges and agrees (i) that the fixed annual rent
hereinabove set forth in this lease does not yet, but is to include an ERIF of
$2.88 per rentable square foot to compensate Landlord for electrical wiring and
other installations necessary for, and for its obtaining and making available to
Tenant the redistribution of electric current as an additional service; and (ii)
that said ERIF, which shall be subject to periodic adjustments as hereinafter
provided, has been partially based upon an estimate of the Tenant's connected
electrical load, in whatever manner delivered to Tenant, which shall be deemed
to be the demand (KW), and hours of use thereof, which shall be deemed to be the
energy (KWH), for ordinary lighting and light office equipment and the operation
of the usual small business machines, including Xerox or other copying machines
(such lighting and equipment are hereinafter called "Ordinary Equipment") during
ordinary business hours ("ordinary business hours") shall be deemed to mean 50
hours per week), with Landlord providing an average connected load of 4 1/2
watts of electricity for all purposes per rentable square foot. Any installation
and use of equipment other than Ordinary Equipment and/or any connected load
and/or energy usage by Tenant in excess of the foregoing shall result in
adjustment of the ERIF as hereinafter provided. For purposes of this lease the
rentable square foot area of the presently demised premises shall be deemed to
be 2,989 square feet.
If the cost to Landlord of electricity shall have been, or shall be,
increased or decreased subsequent to February 1, 1999 (whether such change
occurs prior to or during the term of this Lease), by change in Landlord's
electric rates or service classifications, or electricity charges, including
changes in market prices, or by an increase, subsequent to the last such
electric rate or service classification change or market price change, in fuel
adjustments or charges of any kind, or by taxes, imposed on Landlord's
electricity purchases or on Landlord's electricity redistribution, or for any
other such reason, then the aforesaid ERIF portion of the fixed annual rent
shall be changed in the same percentage as any such change in cost due to
changes in electric rates, service classifications or market prices, and, also
Tenant's payment obligation, for electricity redistribution, shall change from
time to time so as to reflect any such increase in fuel adjustments or charges,
and such taxes. Any such percentage change in Landlord's cost due to change in
Landlord's electric rate or service classifications or market prices, shall be
computed on the basis of the average consumption of electricity for the building
for the twelve full months immediately prior to the rate change or other such
changes in cost, energy and demand, and any changed methods of or rules on
billing for same, applied on a consistent basis to the new electric rate or
service classification or market price and to the immediately prior existing
electric rate or service classification or market price. If the average
consumption (energy and demand) for the entire building for said prior (12)
months cannot reasonably be applied and used with respect to changed methods of
or rules on billing, then the percentage increase shall be computed by the use
of the average consumption (energy and demand) for the entire building for the
first three (3) months after such change, projected to a full twelve (12)
months, so as to reflect the different seasons; and that same consumption, so
projected, shall be applied to the rate and/or service classification or market
price which existed immediately prior to the change. The parties agree that a
reputable, independent electrical consultant firm, selected by Landlord,
("Landlord's electrical consultant"), shall determine the percentage change for
the changes in ERIF due to Landlord's changed costs, and that Landlord's
electrical consultant may from time to time make surveys in the demised premises
of the electrical equipment and fixtures and use of current. (i) If such survey
shall reflect a connected electrical load in the demised premises in excess of 4
1/2 watts of electricity for all purposes per
<PAGE>
rentable square foot and/or energy usage in excess of ordinary business hours
(each such excess hereinafter called "excess electricity") then the connected
electrical load and/or the hours of use portion(s) of the then existing ERIF
shall be increased by an amount which is equal to a fraction of the then
existing ERIF, the numerator of which is the excess electricity (i.e. excess
connected load and/or excess usage) and the denominator of which is the
connected load and/or the energy usage which was the basis of the then existing
ERIF. Such fractions shall be determined by Landlord's electrical consultant.
The fixed annual rent shall then be appropriately adjusted, effective as of the
date of any such change in connected load and/or usage, as disclosed by said
survey (ii) If such survey shall disclose installation and use of other than
Ordinary Equipment, then effective as of the date of said survey, there shall be
added to the ERIF portion of fixed annual rent (computed and fixed as
hereinbefore described) an additional amount equal to what would be paid under
the SC-4 Rate I Service Classification in effect on February 1, 1999 (and not
the time-of-day rate schedule) or the comparable rate schedule (and not the
time-of-day rate schedule) of any utility other than Con Ed then providing
electrical service to the building as same shall be in effect on the date of
such survey, for such load and usage of electricity, with the connected
electrical load deemed to be the demand (KW) and the hours of use thereof deemed
to be the energy (KWH), as hereinbefore provided, (which addition to the ERIF
shall be increased or decreased by all electricity cost changes of Landlord, as
hereinabove provided, from February 1, 1999 through the date of billing).
In no event, whether because of surveys, rates or cost changes, or for
any reason, is the originally specified $2.88 per rentable square foot ERIF
portion of the fixed annual rent (plus any net increase thereof, but not
decrease, by virtue of all electricity rate, service classification or market
price changes of Landlord subsequent to February 1, 1999) to be reduced.
(C). General Conditions: The determinations by Landlord's electrical
consultant shall be binding and conclusive on Landlord and Tenant from and after
the delivery of copies of such determinations to Landlord and Tenant, unless,
within fifteen (15) days after delivery thereof, Tenant disputes such
determination. If Tenant so disputes the determination, it shall, at its own
expense, obtain from a reputable, independent electrical consultant its own
determinations in accordance with the provisions of this Article. Tenant's
consultant and Landlord's consultant then shall seek to agree. If they cannot
agree within thirty (30) days they shall choose a third reputable electrical
consultant, whose cost shall be shared equally by the parties, to make similar
determinations which shall be controlling. (If they cannot agree on such third
consultant within ten (10) days, than either party may apply to the Supreme
Court in the County of New York for such appointment.) However, pending such
controlling determinations Tenant shall pay to Landlord the amount of additional
rent or ERIF in accordance with the determinations of Landlord's electrical
consultant. If the controlling determinations differ from Landlord's electrical
consultant, then the parties shall promptly make adjustment for any deficiency
owed by Tenant or overage paid by Tenant.
Supplementing Article 35 hereof, if all or part of the submetering
additional rent of the ERIF payable in accordance with Subdivision (A) or (B) of
this Article becomes uncollectible or reduced or refunded by virtue of any law,
order or regulations, the parties agree that, at Landlord's option, in lieu of
submetering additional rent or ERIF, and in consideration of Tenant's use of the
building's electrical distribution system and receipt of redistributed
electricity
<PAGE>
and payment by Landlord of consultant's fees and other redistribution costs, the
fixed annual rental rate(s) to be paid under this lease shall be increased by an
"alternative charge" which shall be a sum equal to $2.88 per year per rentable
square foot of the demised premises, changed in the same percentage as any
increase in the cost to Landlord for electricity for the entire building
subsequent to February 1, 1999, because of electric rate, service classification
or market price changes, such percentage change to be computed as in Subdivision
(B) provided.
Landlord shall not be liable to Tenant for any loss or damage or
expense which Tenant may sustain or incur if either the quantity or character of
electric service is changed or is no longer available or suitable for Tenant's
requirements, except if same is a result of the negligence or willful misconduct
of Landlord, its employees, agents or servants. Tenant covenants and agrees that
at all times its use of electric current shall never exceed the capacity of
existing feeders to the building or wiring installation. Tenant agrees not to
connect any additional electrical equipment to the building electric
distribution system, other than lamps, typewriters and other small office
machines which consume comparable amounts of electricity, without Landlord's
prior written consent, which consent shall not be unreasonably withheld. Any
riser or risers to supply Tenant's electrical requirements, upon written request
of Tenant, will be installed by Landlord, at the sole cost and expense of
Tenant, if, in Landlord's sole reasonable judgment, the same are necessary and
will not cause permanent damage or injury to the building or demised premises or
cause or create a dangerous or hazardous condition or entail excessive or
unreasonable alterations, repairs or expense or interfere with or disturb other
tenants or occupants. In addition to the installation of such riser or risers,
Landlord will also at the sole cost and expense of Tenant, install all other
equipment proper and necessary in connection therewith subject to the aforesaid
terms and conditions. The parties acknowledge that they understand that it is
anticipated that electric rates, charges, etc., may be changed by virtue of
time-of-day rates or changes in other methods of billing, and/or electricity
purchases and the redistribution thereof, and fluctuation in the market price of
electricity, and that the references in the foregoing paragraphs to changes in
methods of or rules on billing are intended to include any such changes.
Anything hereinabove to the contrary notwithstanding, in no event is the
submetering additional rent or ERIF, or any "alternative charge", to be less
than an amount equal to the total of Landlord's payments to public utilities
and/or other providers for the electricity consumed by Tenant (and any taxes
thereon or on redistribution of same) plus 5% thereof for transmission line
loss, plus 15% thereof for other redistribution costs. The Landlord reserves the
right, at any time upon thirty (30) days' written upon written notice, to change
its furnishing of electricity to Tenant from a rent inclusion basis to a
submetering basis, or vice versa, or to change to the distribution of less than
all the components of the existing service to Tenant. The Landlord reserves the
right to terminate the furnishing of electricity on a rent inclusion,
submetering, or any other basis at any time, upon thirty (30) days' written
notice to the Tenant, in which event the Tenant may make application directly to
the public utility and/or other providers for the Tenant's entire separate
supply of electric current and Landlord shall permit its wires and conduits, to
the extent available and safely capable, to be used for such purpose, but only
to the extent of Tenant's then authorized load. (Landlord will not terminate the
existing electrical service to Tenant until Tenant obtains service from either
the public utility or another licensed supplier of electrical service, provided,
Tenant continues to make a good faith effort to obtain electrical service from
those set forth above.) Any meters, risers, or other equipment or connections
necessary to furnish electricity on a submetering basis or to enable Tenant to
obtain electric current directly from such utility and/or other providers shall
be installed at Landlord's
<PAGE>
sole cost and expense. Only rigid conduit or electricity metal tubing (EMT) will
be allowed. The Landlord, upon the expiration of the aforesaid thirty (30) days'
written notice to the Tenant may discontinue furnishing the electric current but
this lease shall otherwise remain in full force and effect. If Tenant was
provided electricity on a rent inclusion basis when it was so discontinued, then
commencing when Tenant receives such direct service and as long as Tenant shall
continue to receive such service, the fixed annual rent payable under this lease
shall be reduced by the amount of the ERIF which was payable immediately prior
to such discontinuance of electricity on a rent inclusion basis.
<PAGE>
DEFAULT
-------
42. Supplementing Article 4 hereof:
A. In the event that Tenant is in arrears for rent or any item
of additional rent, Tenant waives its right, if any, to designate the items
against which payments made by Tenant are to be credited and Landlord may apply
any payments made by Tenant to any items which Landlord in its sole discretion
may elect irrespective of any designation by Tenant as to the items against
which any such payment should be credited.
B. If Landlord, as a result of any default by Tenant in its
performance of any of the terms, covenants, conditions and provisions of this
Lease makes any expenditures or incurs any obligations for the payment of money
including, without limitation, attorneys' fees, then any such cost, expense or
disbursement shall be deemed to be additional rent hereunder and paid by Tenant
to Landlord within ten (10) days after Tenant's receipt of Landlord's written
demand and, if Tenant's lease term shall have expired after such expenditures or
obligations have been incurred, such sums shall be recoverable from Tenant as
damages.
C. Lessee shall not seek to remove and/or consolidate any
summary proceeding brought by Landlord with any action commenced by Tenant in
connection with this Lease or Tenant's use and/or occupancy of the Premises.
D. In the event of a default by Landlord hereunder, no property
or assets of Landlord, or any principals, shareholders, officers, or directors
of Landlord, whether disclosed or undisclosed, other than the building in which
the premises are located and the land upon which the building is situated, shall
be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this Lease, the
relationship of Landlord and Tenant hereunder or Tenant's use and occupancy of
the Premises.
<PAGE>
DESTRUCTION
-----------
43. Supplementing Article 10 hereof:
In the event that the Premises or portion thereof are damaged by
fire or other casualty and Landlord has elected not to terminate this Lease,
Tenant shall cooperate with Landlord in the restoration of the Premises and
shall remove from the Premises as promptly as reasonably possible all of
Tenant's salvageable inventory, movable equipment, furniture and other property.
Tenant's liability for rent shall resume five (5) days after Landlord's
restoration work shall have been substantially completed.
<PAGE>
INSURANCE
---------
44. A. Lessee shall not violate, or permit the violation of, any
condition imposed by the standard fire insurance policy then issued for office
buildings in the Borough of Manhattan. City of New York, and shall not do, or
permit anything to be done, or keep or permit anything to be kept in the
Premises which would subject Lessor to any liability or responsibility for
personal injury or death or property damage, or which would increase the fire or
other casualty insurance rate on the building or the property therein over the
rate which would otherwise then be in effect (unless Lessee pays the resulting
premiums as provided in Section C hereof) or which would result in insurance
companies of good standing refusing to insure the building or any of such
property in amounts reasonably satisfactory to Lessor.
B. Lessee covenants to provide on or before the earlier to occur of
(i) the Commencement Date, and (ii) ten (10) days from the date of this Lease,
and to keep in force during the term hereof the following insurance coverage
which coverage shall be effective on the Commencement Date:
(a) A comprehensive policy of general liability insurance naming
Lessor as an additional insured protecting Lessor and Lessee against any
liability whatsoever occasioned by accident on or about the Premises or any
appurtenances thereto. Such policy shall have limits of liability of not less
than two Million ($2,000,000.00) Dollars combined single limit coverage on a per
occurrence basis, including property damage. Such insurance may be carried under
a blanket policy covering the Premises and other locations of Lessee, if any,
provided such a policy contains an endorsement (i) naming Lessor as an
additional insured, (ii) specifically referencing the Premises; and (iii)
guaranteeing a minimum limit available for the Premises equal to the limits of
liability required under this Lease;
(b) Fire and Extended coverage in an amount adequate to cover
the cost of replacement of all personal property, fixtures, furnishings and
equipment, including Lessee's Alteration Work, located in the Premises.
All such policies shall be issued by companies of recognized
responsibility licensed to do business in New York State and rated by Best's
Insurance Reports or any successor publication of comparable standing and
carrying a rating of A+ VIII or better or the then equivalent of such rating,
and all such policies shall contain a provision whereby the same cannot be
canceled unless Lessor and any additional insured are given at least thirty (30)
days prior written notice of such cancellation or modification.
Prior to the time such insurance is first required to be carried
by Lessee and thereafter, at least fifteen (15) days prior to the expiration of
any such policies, Lessee shall deliver to Lessor certificates evidencing such
insurance, together with reasonable documentary evidence demonstrating that said
policies are in full force and effect. Lessee's failure to provide and keep in
force the aforementioned insurance shall be regarded as a material default
hereunder, entitling Lessor to exercise any or all of the remedies as provided
in this Lease in the event of Lessee's default. In addition, in the event Lessee
fails to provide and keep in force the insurance
<PAGE>
required by this Lease, at the times and for the durations specified in this
Lease, Lessor shall have the right, but not the obligation, at any time and from
time to time, and without notice, to procure such insurance and/or pay the
premiums for such insurance in which event Lessee shall repay Lessor within ten
(10) days after demand by Lessor, as additional rent, all sums so paid by Lessor
and any costs or expenses incurred by Lessor in connection therewith without
prejudice to any other rights and remedies of Lessor under this Lease. In the
event that Lessor procures such insurance as set forth above, then Lessor shall
within a reasonable period of time so notify tenant that it has obtained such
insurance.
C. Lessor and Lessee shall each endeavor to secure an appropriate
clause in, or an endorsement upon, each fire or extended coverage policy
obtained by it and covering the building, the Premises or the personal property,
fixtures and equipment located therein or thereon, pursuant to which the
respective insurance companies waive subrogation or permit the insured, prior to
any loss, to agree with a third party to waive any claim it might have against
said third party. The waiver of subrogation or permission for waiver of any
claim hereinbefore referred to shall extend to the agents of each party and its
employees and, in the case of Lessee, shall also extend to all other persons and
entities occupying or using the Premises in accordance with the terms of this
Lease. If and to the extent that such waiver or permission can be obtained only
upon payment of an additional charge then, except as provided in the following
two paragraphs, the party benefiting from the waiver or permission shall pay
such charge promptly upon demand, or shall be deemed to have agreed that the
party obtaining the insurance coverage in question shall be free of any further
obligations under the provisions hereof relating to such waiver or permission.
In the event that Lessor shall be unable at any time to obtain
one of the provisions referred to above in any of its insurance policies, at
Lessee's option, Lessor shall cause Lessee to be named in such policy or
policies as one of the insureds, but if any additional premium shall be imposed
for the inclusion of Lessee as such an assured, Lessee shall pay such additional
premium upon demand. In the event that Lessee shall have been named as one of
the insureds in any of Lessor's policies in accordance with the foregoing,
Lessee shall endorse promptly to the order of Lessor, without recourse, any
check, draft or order for the payment of money representing the proceeds of any
such policy or any other payment growing out of or connected with said policy
and Lessee hereby irrevocably waives any and all rights in and to such proceeds
and payments.
In the event that Lessee shall be unable at any time to obtain
one of the provisions referred to above in any of its insurance policies, Lessee
shall cause Lessor to be named in such policy or policies as one of the
insureds, but if any additional premium shall be imposed for the inclusion of
Lessor as such an assured, Lessor shall pay such additional premium upon demand
or Lessee shall be excused from its obligations under this paragraph with
respect to the insurance policy or policies for which such additional premiums
would be imposed. In the event that Lessor shall have been named as one of the
insureds in any of Lessee's policies in accordance with the foregoing, Lessor
shall endorse promptly to the order of Lessee, without recourse, any check,
draft or order for the payment of money representing the proceeds of any such
policy or any other payment growing out of or connected with said policy and
Lessor hereby irrevocably waives any and all rights in and to such proceeds and
payments.
<PAGE>
Subject to the foregoing provisions of this Section C, and
insofar as may be permitted by the terms of the insurance policies carried by
it, each party hereby releases the other with respect to any claim (including a
claim for negligence) which it might otherwise have against the other party for
loss, damages or destruction with respect to its property by fire or other
casualty (including rental value or business interruption, as the case may be)
occurring during the term of this Lease.
D. If, by reason of a failure of Lessee to comply with the
provisions of Article 14 or Section A above, the rate of fire insurance with
extended coverage on the building or equipment or other property of Lessor shall
be higher than it otherwise would be, Lessee shall reimburse Lessor, on demand,
for that part of the premiums for fire insurance and extended coverage paid by
Lessor because of such failure on the part of Lessee.
E. Lessor may, from time to time, require that the amount of the
insurance to be provided and maintained by Lessee under Section B hereof be
increased so that the amount thereof adequately protects Lessor's interest, but
in no event in excess of the amount that would be required by other tenants with
similarly sized premises in other similar office buildings in the borough of
Manhattan.
F. A schedule or make up of rates for the building or the Premises,
as the case may be, issued by the New York Fire Insurance Rating Organization or
other similar body making rates for fire insurance and extended coverage for the
premises concerned, shall be conclusive evidence of the facts therein stated and
of the several items and charges in the fire insurance rate with extended
coverage then applicable to such premises.
G. Each policy evidencing the insurance to be carried by Lessee
under this Lease shall contain a clause that such policy and the coverage
evidenced thereby shall be primary with respect to any policies carried by
Lessor, and that any coverage carried by Lessor shall be excess insurance.
<PAGE>
SUBORDINATION
-------------
45. Supplementing the provisions of Article 12 hereof:
A. This lease is and shall be subject and subordinate to all present
and future ground leases, underlying leases and to all subleases of the entire
premises demised by that certain ground lease (hereinafter referred to as the
"Mesne Lease") dated December 30, 1957 and recorded in the office of the
Register of the City of New York in the County of New York on December 31, 1957,
in Liber 5024 of Conveyances, Page 430 of which the premises hereby demised form
a part (the Mesne Lease and any or all present and future ground leases
underlying leases and subleases of the entire premises demised by the Mesne
Lease are hereunder referred to as the "ground leases" and the lessors and
lessees thereunder are hereinafter referred to respectively as the "ground
lessors" and "ground lessees") and to all renewals, modifications, replacements
and extensions of the ground leases, and to all present and future mortgages
affecting such ground leases (such mortgage are hereinafter referred to as the
"mortgages" and the mortgagees thereunder are hereinafter referred to as the
"the mortgagees" and to all renewals, modifications, replacements and extensions
thereof.
B. Notwithstanding the subordination of this lease to all ground
leases and mortgages, this lease shall not terminate or be terminable by Tenant
by reason of the expiration or earlier termination or cancellation of any ground
lease in accordance with its terms or by reason of the foreclosures of any
mortgage, except that this lease may be terminated if Tenant is named as a party
and served with process in a summary or other proceeding brought by the lessor
under the Mesne Lease (hereinafter referred to as the "Mesne Lessor") for the
possession of the premises demised by the Mesne Lease or the space occupied by
Tenant, or in such proceeding brought with the written consent of the Mesne
Lessor delivered to Tenant, and a final order or judgment is entered, and a
warrant for possession of such space issued and executed against the defendants
or respondents in such proceedings.
C. Tenant agrees that if this lease terminates, expires or is
canceled for any reason or by any means whatsoever (other than by a summary or
other proceeding brought by the Mesne Lessor or with the Mesne Lessor's written
consent delivered to Tenant, in which summary or other proceeding Tenant is made
a party and in which a final order or judgment is entered and warrant for
possession is issued and executed against Tenant) and Mesne Lessor or a ground
lessor so elects by written notice to Tenant, this lease shall automatically be
reinstated for the balance of the term which would have remained but for such
termination, expiration or cancellation, at the same rental, and upon the same
agreements, covenants, conditions, restrictions and provisions herein contained,
with the same rental, and upon the same agreements, covenants, conditions,
restrictions and provisions herein contained, with the same force and effect as
if no such termination, expiration or cancellation had taken place. Tenant
covenants to execute and deliver any instrument required to confirm the validity
of the foregoing. Anything herein contained to the contrary notwithstanding,
this lease shall not be deemed to be automatically reinstated as aforesaid, nor
shall Tenant be obligated to execute and deliver any instrument confirming such
reinstatement, if Tenant has delivered to the Mesne Lessor and any ground lessor
so electing a notice that in Tenant's option this lease has so terminated,
expired or
<PAGE>
been canceled, and neither the Mesne Lessor nor such other ground lessor has,
within thirty (30) days after receipt of such notice from Tenant, delivered
notice to Tenant of its election automatically to reinstate this lease.
D. Tenant hereby consents to any and all assignment of Landlord's
interest in this lease to any ground lessor or mortgagee as collateral security
for the payment of the ground rent or monies due under any mortgage. Tenant
agrees to attorn to and pay rent to any such ground lessor's or mortgagee in
accordance with the provisions of any such assignment, provided that Tenant is
given written notice of any such assignment.
E. Tenant agrees that no act, or failure to act, on the part of
Landlord, which would entitle Tenant under the terms of this Lease, or by law to
be relived of Tenant's obligations hereunder or to terminate this lease, shall
result in a release or termination of such obligations or termination of this
lease unless (i) Tenant shall have first given written notice of Landlord's act
or failure to act to the ground lessors under all then existing ground leases,
and to all then existing mortgagees whose names and addresses have been supplied
to tenant in writing and who have requested such notice from Tenant, specifying
the act or failure to act on the part of Landlord which could or would given
basis to Tenant's rights and (ii) the ground lessors and such mortgagees, after
receipt of such notice, have failed or refused to correct or cure the condition
complained of within a reasonable time thereafter but nothing herein contained
shall be deemed to impose any obligation on any ground lessor or such mortgagee
to correct or cure any such condition.
F. This lease may not be modified or amended so as to reduce the
rent, shorten the term, or otherwise materially affect the rights of Landlord
hereunder, or be canceled or surrendered except as provided in subparagraph (E)
of this Article 45, without the prior written consent in each instance of the
ground lessors and of any mortgagees whose mortgages shall require such consent.
Any such modification, agreement, cancellation or surrender made without such
prior written consent shall be null and void.
<PAGE>
AIR CONDITIONING
----------------
46. Supplementing the provisions of Article 9 hereof, Lessor shall provide
air-conditioning to the premises, through the presently existing equipment and
facilities servicing the floor of the Building of which the premises forms a
part, for normal office usage from May 15th to October 15th in each year during
the term of the lease, on regular business days from 8 a.m. to 6 p.m., except on
Saturdays when the hours will be at 8 a.m. to 12:00 Noon (after hours air
conditioning to be furnished, after reasonable advance request by Tenant in
writing, at Landlord's then standard Building rates for same). Lessor represents
that the equipment shall be in good condition and working order as of the date
of the Lease commencement. Lessee shall reimburse Lessor, in accordance with
Article 41 of this Lease, for electricity consumed by such equipment and
facilities in providing air conditioning to the premises. The type and capacity
of air-conditioning equipment and facilities either existing or chosen by Lessor
to service the premises is subject solely to Lessor's decision, and such
equipment and facilities shall be sized in capacity to accommodate normal office
usage and occupancy density. If supplementary air-conditioning equipment and
facilities is required to accommodate Lessee's special usage areas (i.e.
computer rooms, conference rooms, cafeteria/lunchroom or any special usage which
subjects a portion or the entire premises to a high density of office personnel
and/or heat generating machines or appliances), it shall be Lessee's
responsibility to furnish, install, maintain, repair and operate such required
supplementary air-conditioning equipment and facilities at its sole cost and
expense. Lessor reserves the right to suspend the operation of all air-
conditioning equipment and facilities at any time that Lessor, in its judgment,
deems it necessary to do so for reasons such as accidents, emergencies or any
situation arising in the premises or within the building which has an adverse
affect, either directly or indirectly, on the operation of such air-conditioning
equipment and facilities, including but not limited to, reasons relating to the
making of repairs, alterations, or improvements in the premises or the building,
and Lessee agrees that any such suspension in the operation of the air-
conditioning equipment and facilities may continue until such time as the reason
causing such suspension has been remedied and that Lessor shall not be held
responsible or be subject to any claim by Lessee due to such suspension unless
the reason for such suspension is caused by the negligence or willful misconduct
of Landlord, its employees, agents or servants. Lessee further agrees that
Lessor shall have no responsibility or liability to Lessee if operation of the
air-conditioning equipment and facilities is prevented by strikes or accidents
or any cause beyond Lessor's reasonable control, or by the orders or regulations
of any federal, state, county or municipal authority or by failure of the
equipment and facilities or electrical current, steam and/or water or other
required power source.
<PAGE>
CHANGES AND ALTERATIONS
-----------------------
47. Anything in Article 7 to the contrary notwithstanding, Landlord will
not unreasonably withhold or delay approval of written requests of Tenant to
make nonstructural interior alterations, decorations, additions and improvements
(herein referred to as "alterations") in the demised premises, provided that
such alterations do not affect utility services or plumbing and electrical lines
or other systems of the building. Notwithstanding the foregoing, Tenant shall be
permitted to make decorative alterations to the Premises without first obtaining
the consent of Landlord, provided that same do not affect any Building systems.
All alterations shall be performed in accordance with the following conditions:
(a) All alterations costing more than $5,000.00 shall be performed in
accordance with plans and specifications first submitted to Landlord for its
prior written approval. Landlord shall be given, in writing, a good description
of all other alterations.
(b) All alterations shall be done in a good and workmanlike manner.
Tenant shall, prior to the commencement of any such alterations, at its sole
cost and expense, obtain and exhibit to Landlord any governmental permit
required in connection with such alterations.
(c) All alterations shall be done in compliance with all other
applicable provisions of this Lease and with all applicable laws, ordinances,
directions, rules and regulations of governmental authorities having
jurisdiction, including, without limitation, the Americans with Disabilities Act
of 1990 and New York City Local Law No. 57/87 and similar present or future
laws, and regulations issued pursuant thereto, and also New York City Local Law
No. 76 and similar present or future laws, and regulations issued pursuant
thereto, on abatement, storage, transportation and disposal of asbestos, which
work, if required, shall be effected at Tenant's sole cost and expense, by
contractors and consultants approved by Landlord and in strict compliance with
the aforesaid rules and regulations and with Landlord's rules and regulations
thereon.
(d) All work shall be performed with union labor having the proper
jurisdictional qualifications.
(e) Tenant shall keep the building and the demised premises free and
clear of all liens for any work or material claimed to have been furnished to
Tenant or to the demised premises.
(f) Prior to the commencement of any work by or for Tenant, Tenant
shall furnish to Landlord certificates evidencing the existence of the following
insurance:
(i) Workmen's compensation insurance covering all persons
employed for such work and with respect to whom death or bodily injury claims
could be asserted against Landlord, Tenant or the demised premises.
(ii) Broad form general liability insurance written on an
occurrence basis naming Tenant as an insured and naming Landlord and its
designees as additional insureds.
<PAGE>
with limits of not less than $3,000,000 combined single limit for personal
injury in any one occurrence, and with limits of not less than $500,000 for
property damage (the foregoing limits may be revised from time to time by
Landlord to such higher limits as Landlord from time to time reasonably
requires). Tenant, at its sole cost and expense, shall cause all such insurance
to be maintained at all time when the work to be performed for or by Tenant is
in progress. All such insurance shall be obtained from a company authorized to
do business in New York and shall provide that it cannot be canceled without
thirty (30) days prior written notice to Landlord. All policies, or certificates
therefor, issued by the insurer and bearing notations evidencing the payment of
premiums, shall be delivered to Landlord. Blanket coverage shall be acceptable,
provided that coverage meeting the requirements of this paragraph is assigned to
Tenant's location at the demised premises.
(g) All work to be performed by Tenant shall be done in a manner
which will not unreasonably interfere with or disturb other tenants and
occupants of the building.
(h) Any alterations or other work and installations in and for the
demised premises, which shall be consented to by Landlord as provided herein if
effected on Tenant's behalf at Tenant's request by Landlord, its agents or
contractors, and shall be paid for by Tenant promptly when billed, at cost plus
ten (10%) percent thereof for supervision and overhead, plus ten (10%) percent
for general conditions, as additional rent hereunder.
(i) Tenant shall have the right to install a security system in the
Demised Premises subject to the prior approval by Landlord of all plans,
drawings and specifications. Furthermore, Tenant and Tenant's installation of
said security system shall be bound by all of the terms, covenants and
conditions contained in this Article 47.
<PAGE>
LANDLORD'S WORK
---------------
48. (a) Tenant has examined and agrees to accept the leased premises in
their existing condition and state of repair and understands that no work is to
be performed by landlord, except that Landlord designated, wholly owned
affiliate Emerald City Construction Corp., with reasonable dispatch, subject to
delay by causes beyond its control or by the action or inaction of tenant, shall
perform the following work at Landlord's expense, subject to the provisions of
(b), below:
(i) furnish and install, in a building standard manner
utilizing building standard materials, seven (7) window air-
conditioning units in the Premises. One unit shall be installed
in each of the window offices located in the Premises.
(ii) paint the entire Premises, in a building standard manner
using building standard materials, in Tenant's choice of
building standard color;
(iii) furnish and install, in a building standard manner using
building standard materials, new carpeting and vinyl base
molding throughout the Premises in Tenant's choice of available
building standard color;
(iv) furnish and install, in a building standard manner using
building standard materials, new building standard metal
radiator enclosures throughout the Premises in Tenant's choice
of available building standard color;
(v) furnish and install, in a building standard manner using
building standard materials, new building standard blinds in
each office located within the Premises in Tenant's choice of
available building standard color;
(vi) refinish, in a building standard manner using building
standard materials, the entry door to the Premises;
(vii) remove the existing counter tops and tack tile from the
office located across from the pantry located in the Demised
Premises;
(viii) furnish and install, in a building standard manner using
building standard materials, one (1) new 4' x 7' clear glass
insert at a location designated by Tenant.
<PAGE>
(ix) furnish and install, in a building standard manner using
building standard materials, new building standard vinyl
composite tile flooring in the pantry located within the
Premises in Tenant's choice of available building standard
color; and
(x) deliver the existing air-conditioning equipment in the
Premises in good working order as of the commencement date of
this Lease.
The performance by Landlord of the above work ("Landlord's
Work") is expressly conditioned upon compliance by Tenant with all the terms and
conditions of this Lease, including payment of rent.
(b) Any changes in or additions to the work and installations
mentioned in paragraph (a) above which shall be consented to by Landlord as
provided in Article 7 hereof, and further changes in or additions to the demised
premises after said work has been completed which shall be so consented to, if
made at Tenant's request by Landlord, or its agents, but shall be paid for by
Tenant promptly when billed at cost plus 1 1/4% for insurance, 10% for overhead
------------------------------------------------
and 10% for general conditions, and in the event of the failure of Tenant so to
- ------------------------------
pay for said changes or additions. Landlord at its option may consider the cost
thereof, plus the above percentages, as additional rent payable by Tenant and
--------------------------
collectible as such hereunder, as part of the rent for the next ensuring months.
(C) If the substantial completion of Landlord's Work is delayed
beyond the commencement date of this Lease by the acts, omissions or changes
made or requested by Lessee, its agents, designers, architects or any other
party acting or apparently acting on Lessee's behalf, then Tenant shall pay as
hereinbefore provided rent and additional rent on a per diem basis for each day
of delay of Landlord's substantial completion caused by Tenant or any of the
aforementioned parties.
(D) Landlord's Work shall be deemed to be substantially completed
notwithstanding than minor or non-material details of construction, mechanical
adjustment or decoration remain to be performed, provided, that said "Punch List
Items" do not materially adversely effect or prohibit Tenant's permitted use of
all or substantially all of the Premises. The "Punch List" items shall be
completed by Landlord within thirty (30) days thereafter, provided that said
thirty (30) day period shall be extended one (1) day for each day of delay
caused by the acts or omissions of Tenant, its employees, agents, servants or
contractors or for reasons beyond Landlord's control.
<PAGE>
SIGNS
-----
49. Supplementing Article 5 of the Rules and Regulations:
Tenant shall be permitted to affix a suitable sign, plaque or applied
lettering made of brass or bronze on the entrance door to the demised premises,
subject to the prior written approval of Landlord with respect to location,
number, type, size, shape and design thereof, and subject, also, to compliance
by Tenant, at its expense, with all applicable legal requirements or
regulations.
<PAGE>
BROKERAGE
---------
50. (A) Tenant represents and warrants to Landlord that it did not
consult or negotiate with any broker, finder, or consultant with regard to the
Premises other than SL Green Leasing, Inc., and Julien J. Studley, Inc. and that
no other broker, finder or consultant participated in procuring this Lease.
Tenant hereby indemnifies and agrees to defend and hold Landlord, its agents,
servants and employees harmless from any suit, action, proceeding, controversy,
claim or demand whatsoever at law or in equity that may be instituted against
Landlord by anyone for recovery of compensation or damages for procuring this
Lease or by reason of a breach or purported breach of the representations and
warranties contained herein.
(B) Landlord represents and warrants to Tenant that it did not
consult or negotiate with any broker, finder, or consultant with regard to the
Premises other than SL Green Leasing, Inc., and Julien J. Studley, Inc., and
that no other broker, finder or consultant participated in procuring this Lease.
Landlord hereby indemnifies and agrees to defend and hold Tenant, its agents,
servants and employees harmless from any suit, action, proceeding, controversy,
claim or demand whatsoever at law or in equity that may be instituted against
Tenant by those who dealt with Tenant for recovery of compensation or damages
for procuring this Lease or by reason of a breach or purported breach of the
representations and warranties contained herein. Landlord represents that it
shall pay any sums due to both SL Green Leasing, Inc., and Julien J. Studley,
Inc., in connection with this Lease pursuant to a separate agreements.
<PAGE>
FAILURE TO PROVIDE CONSENT
--------------------------
51. In no event shall Tenant be entitled to make, nor shall Tenant make
any claim, and Tenant hereby waives any claim for money damages (nor shall
Tenant claim any money damages by way of set-off, counterclaim or defense) based
upon any claim or assertion by Tenant that Landlord had unreasonably withheld,
delayed or conditioned its consent or approval to any request by Tenant made
under a provision of this Lease. Tenant's sole remedy shall be an action or
proceeding to enforce any such provision, or for specific performance or
declaratory judgment which may be sought by arbitration before the American
Arbitration Association on an expedited basis. In the event that Tenant demands
arbitration under this Article, Landlord and Tenant shall jointly select an
independent arbitrator (the "Arbitrator") In the event that Landlord and Tenant
shall be unable to jointly agree on the designation of the Arbitrator within
five (5) days after they are requested to do so by either party, then the
parties agree to allow the American Arbitration Association, or any successor
organization to designate the Arbitrator in accordance with the rules,
regulations and/or procedures for expedited proceedings then obtaining of the
American Arbitration Association of any successor organization. The Arbitrator
shall conduct such hearings and investigations as he may deem appropriate and
shall, within ten (10) days after the date of designation of the Arbitrator
issue a determination as to whether Landlord's refusal to consent was
unreasonable. The determination of the Arbitrator shall be conclusive and
binding upon Landlord and Tenant and shall be set forth, along and with the
Arbitrator's rationale for such choice, in a written report delivered to
Landlord and Tenant. Each party shall pay its own counsel fees and expenses, if
any, in connection with any arbitration under this Article. The Arbitrator
appointed pursuant to this Article shall be an independent real estate
professional with at least ten (10) years' experience in leasing of properties
which are similar in character to the Building. The Arbitrator shall not have
the power to add to, modify or change any of the provisions of this Lease but
shall have the power to direct Landlord to consent to such request.
<PAGE>
Supplementing Articles 3 and 28 hereof:
ASSIGNMENT AND SUBLETTING
-------------------------
52. A. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this Lease, nor
underlet, or suffer or permit the demised premises or any part thereof to be
used or occupied by others, without the prior written consent of Landlord in
each instance. The merger or consolidation of a corporate lessee or sublessee
where the net worth of the resulting or surviving corporation is less than the
net worth of the lessee or sublessee immediately prior to such merger or
consolidation shall be deemed an assignment of this lease or of such sublease.
If this Lease be assigned, or if the demised premises or any part thereof be
underlet or occupied by anybody other than Tenant, Landlord may, after default
by Tenant, collect rent from the assignee, undertenant or occupant, and apply
the net amount collected to the rent herein reserved, but no assignment,
underletting, occupancy or collection shall be deemed a waiver of the provisions
hereof, the acceptance of the assignee, undertenant or occupant as tenant, or a
release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. The consent by Landlord to an assignment or
underletting shall not in any way be construed to relieve Tenant from obtaining
the express consent in writing of landlord to any further assignment or
underletting. In no event shall any permitted sublessee assign or encumber its
sublease or further sublet all or any portion of its sublet space, or otherwise
suffer or permit the sublet space or any part thereof to be used or occupied by
others, without Landlord's prior written consent in each instance. A
modification, amendment or extension of a sublease shall be deemed a sublease.
If any lien is filed against the demised premises or the building of which the
same form a part for brokerage services claimed to have been performed for
Tenant, whether or not actually performed, the same shall be discharged by
Tenant within twenty (20) days after Tenant's receipt of notice thereof, at
Tenant's expense, by filing the bond required by law, or otherwise, and paying
any other necessary sums, and Tenant agrees to indemnify Landlord and its agents
and hold them harmless form and against any and all claims, losses or liability
resulting from such lien for brokerage services rendered.
B. If Tenant desires to assign this Lease or to sublet all or any
portion of the demised premises, it shall first submit in writing to Landlord
the terms upon which Tenant is willing to assign this Lease or sublet any
portion of the demised premises, and shall offer in writing, (i) with respect to
a desired assignment, to assign this Lease to Landlord without any payment of
moneys or other consideration therefor, or, (ii) with respect to a desired
subletting, to sublet to Landlord the portion of the demised premises involved
("Leaseback Area") for the term specified by Tenant in its proposed sublease or,
at Landlord's option for the balance of the term of the Lease less one (1) day,
and at the lower of (a) Tenant's proposed subrental or (b) at the same rate of
fixed rent and additional rent, and otherwise on the same terms, covenants and
conditions (including provisions relating to escalation rents), as are contained
herein and as are allocable and applicable to the portion of the demised
premises to be covered by such subletting. The offer shall specify the date when
the Leaseback Area will be made available to Landlord, which date shall be in no
event earlier than thirty (30) days nor later than one hundred eighty (180) days
following the acceptance of the offer. If an offer of sublease is made, and if
the proposed sublease will result in all or
<PAGE>
substantially all of the demised premises being sublet, then Landlord shall have
the option to extend the term of its proposed sublease for the balance of the
term of this Lease less one (1) day.
Landlord shall have a period of thirty (30) days from the receipt
of such offer to either accept or reject the same. If Landlord shall accept such
offer Tenant shall then execute and deliver to Landlord, or to anyone designated
or named by Landlord, an assignment or sublease, as the case may be, in either
case in a form reasonably satisfactory to Landlord's counsel.
If a sublease is so made it shall expressly:
(a) permit Landlord to make further subleases of all or any part
of the Leaseback Area and (at no cost or expense to Tenant) to make and
authorize any and all changes, alterations, installations and improvements in
such space as necessary;
(b) provide the Tenant will at all times permit reasonably
appropriate means of ingress to and egress from the Leaseback Area;
(c) negate any intention that the estate created under such
sublease be merged with any other estate held by either of the parties;
(d) provide that Landlord shall accept the Leaseback Area "as
is" except that Landlord, at Tenant's expense, shall perform all such work and
make all such alterations as may be required physically to separate the
Leaseback Area from the remainder of the demised premises and to permit lawful
occupancy, it being intended that Tenant shall have no other cost or expense in
connection with the subletting of the Leaseback Area;
(e) provide that at the expiration of the term of such sublease
Tenant will accept the Leaseback Area in its then existing condition, subject to
the obligations of Landlord to make such repairs thereto as may be necessary to
preserve the Leaseback Area in good order and condition, ordinary wear and tear
excepted.
Landlord shall indemnify and save Tenant harmless from all
obligations under this Lease as to the Leaseback Area during the period of time
it is so sublet, except for fixed annual rent and additional rent, if any, due
under the within Lease, which are in excess of the rents and additional sums due
under such sublease.
Subject to the foregoing, performance by Landlord, or its
designee, under a sublease of the Leaseback Area shall be deemed performance by
Tenant of any similar obligation under this Lease and any default under any such
sublease shall not give rise to a default under a similar obligation contained
in this Lease, nor shall Tenant be liable for any default under this Lease or
deemed to be in default hereunder if such default is occasioned by or arises
from any act or omission of the tenant under such sublease or is occasioned by
or arises from any act or omission of any occupant holding under or pursuant to
any such sublease.
<PAGE>
C. If Tenant request Landlord's consent to a specific assignment or
subletting, it shall submit in writing to Landlord (i) the name and address of
the proposed assignee or sublessee, (ii) a duly executed counterpart of the
proposed agreement of assignment or sublease, (iii) reasonably satisfactory
information as to the nature and character of the business of the proposed
assignee or sublessee and as to the nature of its proposed use of the space, and
(iv) banking, financial or other credit information relating to the proposed
assignee or sublessee reasonably sufficient to enable Landlord to determine the
financial responsibility and character of the proposed assignee or sublessee.
D. If Landlord shall not have accepted Tenant's offer, as provided
in Section B, then Landlord will not unreasonably withhold or delay its consent
to Tenant's request for consent to such specific assignment or subletting,
provided that the business terms of such assignment or subletting are not
substantially more favorable than those offered to Landlord. Any consent of
Landlord under this Article shall be subject to the terms of this Article and
conditioned upon there being no monetary or material nonmonetary default by
Tenant, beyond any grace period, under any of the terms, covenants and
conditions of this Lease at the time that Landlord's consent to any such
subletting or assignment is requested and on the date of the commencement of the
term of any proposed sublease or the effective date of any proposed assignment.
E. Tenant understands and agrees that no assignment or subletting
shall be effective unless and until Tenant, upon receiving any necessary
Landlord's written consent (and unless it was theretofore delivered to Landlord)
causes a duly executed copy of the sublease or assignment to be delivered to
Landlord within ten (10) days after execution thereof. Any such sublease shall
provide that the sublessee shall comply with all applicable terms and conditions
of this Lease to be performed by the Tenant hereunder. Any such assignment of
lease shall contain an assumption by the assignee of all of the terms, covenants
and conditions of this Lease to be performed by the Tenant.
F. Anything herein contained to the contrary notwithstanding:
1. Tenant shall not advertise (but may list with brokers) its
space for assignment or subletting at a rental rate lower than the greater of
the then building rental rate for such space or the rental rate then being paid
by Tenant to Landlord.
2. The transfer of a majority of the issued and outstanding
capital stock of, or a controlling interest in, any corporate tenant or
subtenant of this Lease or a majority of the total interest in any partnership
tenant or subtenant, however accomplished, and whether in a single transaction
or in a series of related or unrelated transactions, shall be deemed an
assignment of this Lease or of such sublease. The transfer of outstanding
capital stock of any corporate tenant, for purposes of this Article, shall not
include sale of such stock pursuant to any public or private offering, or sale
of such stock by persons other than those deemed "insiders" within the meaning
of the Securities Exchange Act of 1934 as amended, and which sale is effected
through "over-the-counter market" or through any recognized stock exchange.
3. No assignment or subletting shall be made:
<PAGE>
(a) To any person or entity which shall at that time be a
tenant, subtenant or other occupant of any part of the building of which the
demised premises form a part, or who dealt with Landlord or Landlord's agent
(directly or through a broker) with respect to space in the building during the
six (6) months immediately preceding Tenant's request for Landlord's consent;
(b) By the legal representatives of the Tenant or by any
person to whom Tenant's interest under this Lease passes by operation of law,
except in compliance with the provisions of this Article;
(c) To any person or entity for the conduct of a business
which is not in keeping with the standards and the general character of the
building of which the demised premises form a part.
G. Anything hereinabove contained to the contrary notwithstanding,
the offer back to Landlord pursuant to the provisions of Section B hereof shall
not apply to, and Landlord will not unreasonably withhold or delay its consent
to an assignment of this Lease, or sublease of all or part of the demised
premises, to the parent of Tenant or to a wholly-owned subsidiary wholly-owned
affiliate of Tenant or of said parent of Tenant, provided the net worth of
transferor or sublessor, after such transaction, is equal to or greater than its
net worth immediately prior to such transaction, and provided also that any such
transaction complies with the other provisions of this Article.
H. Anything hereinabove contained to the contrary notwithstanding,
the offer back to Landlord pursuant to the provisions of Section B hereof shall
not apply to, and Landlord will not unreasonably withhold or delay its consent
to an assignment of this Lease, or sublease of all or part of the demised
premises, to any corporation (i) to which substantially all the assets of Tenant
are transferred or (ii) into which Tenant may be merged or consolidated,
provided that the net worth, experience and reputation of such transferee or of
the resulting or surviving corporation, as the case may be, is equal to or
greater than the net worth experience and reputation of Tenant and of any
guarantor of this Lease immediately prior to such transfer and provided, also,
that any such transaction complies with the other provisions of this Article.
No consent from Landlord shall be necessary under Subdivisions G
and H hereof where (i) reasonably satisfactory proof is delivered to Landlord
that the net worth and other provisions of G or H, as the case may be, and the
other provisions of this Article, have been satisfied and (ii) Tenant, in a
writing reasonably satisfactory to Landlord's attorneys, agrees to remain
primarily liable jointly and severally with any transferee or assignee, for the
obligations of Tenant under this Lease.
I. If Landlord shall not have accepted any required Tenant's offer
and/or Tenant effects any assignment or subletting, then Tenant thereafter shall
pay to Landlord a sum equal to fifty (50%) percent of (a) any rent or other
consideration paid to Tenant by any subtenant which (after deducting the cost of
Tenant, if any, in effecting the subletting, including reasonable alteration
costs, commissions and legal fees) is in excess of the rent allocable to the
subleased space which is then being paid by Tenant to Landlord pursuant to the
terms hereof, and (b) any other profit or gain (after deducting any necessary
expenses incurred) realized by Tenant
<PAGE>
from any such subletting or assignment, except where such assignment or
subletting is accomplished pursuant to the provisions of paragraphs G and H
hereof. All sums payable hereunder by Tenant shall be payable to Landlord as
additional rent upon receipt thereof by Tenant.
J. In no event shall Tenant be entitled to make, nor shall Tenant
make, any claim, and Tenant hereby waives any claim, for money damages (nor
shall Tenant claim any money damages by way of set-off, counterclaim or defense)
based upon any claim or assertion by Tenant that Landlord has unreasonably
withheld or unreasonably delayed its consent or approval to a proposed
assignment or subletting as provided for in this Article. Tenant's sole remedy
shall be an action or proceeding to enforce any such provision, or for specific
performance, injunction or declaratory judgment which may be sought by
arbitration before the American Arbitration Association on an expedited basis.
In the event that Tenant demands arbitration under this Article, Landlord and
Tenant shall jointly select an independent arbitrator (the "Arbitrator") In the
event that Landlord and Tenant shall be unable to jointly agree on the
designation of the Arbitrator within five (5) days after they are requested to
do so by either party, then the parties agree to allow the American Arbitration
Association, or any successor organization to designate the Arbitrator in
accordance with the rules, regulations and/or procedures for expedited
proceedings then obtaining of the American Arbitration Association or any
successor organization. The Arbitrator shall conduct such hearings and
investigations as he may deem appropriate and shall, within ten (10) days after
the date of designation of the Arbitrator issue a determination as to whether
Landlord's refusal to consent was unreasonable. The determination of the
Arbitrator shall be conclusive and binding upon Landlord and Tenant and shall be
set forth, along and with the Arbitrator's rationale for such choice, in a
written report delivered to Landlord and Tenant. Each party shall pay its own
counsel fees and expenses, if any, in connection with any arbitration under this
Article. The Arbitrator appointed pursuant to this Article shall be an
independent real estate professional with at least ten (10) years' experience in
leasing of properties which are similar in character to the Building. The
Arbitrator shall not have the power to add to, modify or change any of the
provisions of this Lease but shall have the power to direct Landlord to consent
to such request.
<PAGE>
PORTER'S WAGE ESCALATION
------------------------
53. Tenant shall pay to Landlord, as additional rent, Porter's Wage
escalation, in accordance with this Article:
(a) Definitions: For the purpose of this Article the following
-----------
definitions shall apply:
(i) The term "Base Rate" as hereinafter set forth for the
determination of Porter's Wage escalation, shall mean the labor rate determined
as hereinafter provided, as of the first day of the calendar year 1999 (the
"base year"). The term "comparative year" shall mean each calendar year, or
portion thereof, subsequent to the base year.
(ii) For purposes of this Lease, the rentable square foot area
of the presently demised premises shall be deemed to be 2,989 square feet.
(iii) The term "labor rate" shall mean the average of the minimum
regular hourly wage rate, plus any taxes applicable thereto, (1) for a porter
and (2) for an office cleaner, determined as follows:
(1) The minimum regular hourly wage rate for porters with 5
years service in Class A office buildings, from time to
time established by Agreement between the Realty
Advisory Board on Labor Relations, Inc., and Local 32B-
32J of the Building Service Employees International
Union AFL-CIO or by the successors to either or both of
them; (this rate shall be used in computations under
this Article whether or not porters' wages are actually
paid by or for the Landlord or by independent
contractors who furnish such services to the demised
premises or to the Building).
(2) The minimum regular hourly wage rate for office
cleaners with 5 years service in Class A office
buildings, from time to time established by agreement
between the Realty Advisory Board on Labor Relations,
Inc., and Local 32B-32J of the Building Service
Employees International Union AFL-CIO or by the
successors to either or both of them; (this rate shall
be used in computations under this Article whether or
not office cleaners' wages are actually paid by or for
the Landlord or by independent contractors who furnish
such services to the demised premises or to the
Building).
(3) As used herein, the term "porters" and the term "office
cleaners" shall mean, respectively, that classification
of
<PAGE>
employee engaged in the general maintenance and
operation of office buildings most nearly comparable to
that classification now applicable to porters or office
cleaners, as the case may be in the 1993-1995 Agreement
with said Local 32B-32J (which classification is
presently termed "others" in said Agreement).
(4) If any such union agreement shall require the regular
employment of porters or office cleaners on days or
during hours when overtime or other premium pay rates
are in effect, then the minimum "regular hourly wage
rate" as used above and subject to the other
adjustments provided for herein, shall be deemed to
mean the average hourly wage rate for the hours in a
calendar week during which porters or office cleaners
are required to be regularly employed (e.g., if, for
example, as of October 1, 1997, an agreement between
RAB and Local 32B-32J shall require the regular
employment of building porters for forty (40) hours
during a calendar week at a regular hourly rate of
$3.00 for the first thirty (30) hours, and premium or
overtime hourly wage rate of $4.50 for the remaining
ten hours, then the regular straight time hourly wage
rate under this Article, as of October 1, 1998, shall
be deemed to be the total weekly wage rate of $135.00,
divided by the total number of required hours of
employment, forty (40) or $3.375).
(5) Subject to the provisions herein contained, and at
Landlord's option, computation of the minimum regular
hourly wage rate shall be based on the number of hours
that a porter or office cleaner is expected to work in
any comparison year. In determining said number of
hours, Landlord may make reasonable estimates of the
average number of days or hours not worked by an
average porter or office cleaner, where such days or
hours are not specified by, or vary with individual
circumstances pursuant to, the union agreement.
If there is no such union agreement in effect at any time during or
prior to the term of this Lease, then all computations and payments shall,
nevertheless, be made, but shall be on the basis of the regular hourly wage
rates, plus any taxes applicable thereto, actually being paid or accrued at such
time by the Landlord or by the contractor performing the cleaning services for
Landlord for such porters or office cleaners, as the case may be, or, if there
are no such persons employed at the building, then such computation shall be
based on the wage rates (without fringe benefits) of porters or office cleaners,
as the case may be, at the Empire State Building, New York, New York.
Appropriate retroactive adjustment shall thereafter be made if and when the
minimum regular hourly wage rate pursuant to such agreement is finally
<PAGE>
determined; provided, however, that if as of the last day of any comparative
year, no union agreement shall be in effect January 1, occurring in such
comparative year, then the minimum regular hourly wage rate computed as
aforedescribed shall for all purposes hereof be deemed to be the minimum regular
hourly wage rate for purposes of this Article, and that no retroactive
adjustment shall be made with respect thereto.
(b) The parties acknowledge that the labor rate is intended to be an
index in the nature of a cost of living or other such index; it is not intended
to reflect the actual costs of wages or expenses for the building.
(c) In the event that the labor rate in effect for the comparative
year 1999 and any comparative year thereafter following the base year shall
exceed the Base Rate, then Tenant shall pay to Landlord, as additional rent for
such comparative year, an amount equal to the product obtained by multiplying
(i) the rentable square foot area of the demised premises, by (ii) one cent for
each cent (including any fraction of a cent) by which the labor rate in effect
during such comparative year exceeds the Base Rate. Subject to subdivision (f)
hereof, each such annual amount of additional rent shall commence to be payable,
in equal monthly installments, as of the first day of the period for which such
labor rate shall have changed; and, after Landlord shall furnish Tenant with an
escalation statement relating to such increase in the labor rate, all monthly
installments of rent shall contain an item of additional rent equal to one-
twelfth (1/12) of the annual amount determined above, until a new change shall
take place in the labor rate. In the event that the escalation statement is
furnished to the Tenant after the commencement or effective date of any change
in the labor rate, there shall be promptly paid by Tenant to Landlord the amount
theretofore accrued or allocable to the period prior to the furnishing of the
said escalation statement. In the event that the labor rate shall be changed or
shall change more frequently than once a year, the adjustment hereunder shall
similarly be made by Landlord in an additional escalation statement furnished by
Landlord, so as to reflect such change in the monthly installments, as of the
effective date of each such change.
(d) The statements furnished by Landlord to Tenant, as provided
above, shall be prepared in reasonable detail by Landlord. The statements thus
furnished to Tenant shall constitute a final determination as between Landlord
and Tenant of the labor rate and Porter's Wage escalation additional rent for
the periods represented thereby, unless Tenant within sixty (60) days after they
are furnished shall in writing challenge their accuracy or their
appropriateness, which notice shall specify the particular respects in which the
statement is inaccurate or inappropriate.
If Tenant shall so dispute said statements then, pending the
resolution of such dispute, Tenant shall pay the additional rent to Landlord in
accordance with the statements furnished by Landlord.
(e) In no event shall the fixed annual rent payable under this Lease
be reduced by virtue of this Article.
(f) If the rent commencement date of this Lease is not the first day
of the first comparative year, then the additional rent due hereunder for such
first comparative year shall be a proportionate share of said additional rent
for the entire comparative year, said proportionate
<PAGE>
share to be based upon the length of time that this Lease's term will be in
existence during such first comparative year. Upon the date of any expiration or
termination of this Lease (except termination because of Tenant's default),
whether the same be the date hereinabove set forth for the expiration of the
term or any prior or subsequent date, a proportionate share of said additional
rent for the comparative year during which such expiration or termination occurs
shall immediately become due and payable by Tenant to Landlord. The said
proportionate share shall be based upon the length of time that this Lease shall
have been in existence during such comparative year. Prior to or promptly after
said expiration or termination, Landlord shall compute the additional rent, if
any, due from Tenant as aforesaid, which computations shall either be based on
that comparative year's labor rate(s) or be an estimate, based upon the most
recent statements theretofore prepared by Landlord and furnished to Tenant. If
an estimate is used, then Landlord thereafter shall cause statements to be
prepared on the basis of that comparative year's actual labor rate(s) and, upon
Landlord's furnishing such statement to Tenant. Landlord and Tenant shall make
appropriate adjustments of amounts then owing or estimated payments theretofore
made.
(g) Notwithstanding any cancellation or termination of the term of
this Lease prior to the Lease's expiration date (except in the case of a
cancellation by mutual agreement or Tenant's cancellation as of right) Tenant's
obligation to pay any and all additional rent under this Article shall continue
and shall cover all periods up to the Lease expiration date. Landlord's and
Tenant's obligation to make the adjustments referred to in subdivision (f) above
shall survive any expiration or sooner termination of the term of this Lease.
(h) Any delay or failure of Landlord in billing for any additional
rent payable as hereinabove provided shall not constitute a waiver of or in any
way impair the continuing obligation of Tenant to pay such additional rent
hereunder.
<PAGE>
MISCELLANEOUS
-------------
54. A. This Lease constitutes the entire agreement between the parties
hereto and no earlier statement or prior written matter shall have any force or
effect. Lessee agrees that it is not relying on any representations or
agreements other than those contained in this Lease. This agreement shall not be
modified or canceled except by written instrument subscribed by both parties.
The covenants, conditions and agreements contained in this Lease shall bind and
inure to the benefit of Lessor and Lessee and their respective heirs,
distributees, executors, administrators, successors and their permitted assigns.
B. This Rider modifies and supersedes certain provisions of the
printed portion of this Lease. In the event any term, covenant, condition or
agreement contained in this Rider to the Lease shall conflict or be inconsistent
with any term, covenant, condition or agreement contained in the printed portion
of this Lease, then the parties agree that the Rider provision shall prevail.
C. This Lease shall be construed without regard to any presumption
or other rule requiring construction against the party causing this Lease to be
drafted.
<PAGE>
RIGHT TO RELOCATE
-----------------
55. A. Notwithstanding anything to the contrary in this Lease, Landlord shall
have the right not more than once during any thirty-six month period of the
Lease Term, upon sixty (60) days notice to Tenant ("Notice of Relocation"), to
substitute in lieu of the Premises reasonably comparable alternative space
("Alternative Space") in the Building, which shall include a comparable amount
of rentable square footage and a reasonably similar number of windows and which
shall also include the same type and style of improvements as existed in the
Premises immediately prior to the date that Tenant takes occupancy of said
Alternative Space. Tenant shall cease its use of the Demised Premises and shall
vacate, surrender and deliver same to Landlord, on or before the date set forth
in said Notice of Relocation, vacant, broom clean and in the condition otherwise
required by this Lease at the expiration or sooner termination thereof, it being
understood that Landlord shall be obligated to make the Alternative Space ready
for occupancy by Tenant on the date set forth in the Notice of Relocation in the
condition set forth in the preceding sentence and that Tenant shall have no
obligation to surrender the Premises or pay Rent for the Alternative Space
unless and until possession of the Alternative Space has been delivered to
Tenant in such condition. In connection therewith, Tenant shall be permitted to
relocate to the Alternative Space during non-business hours Monday through
Friday or during any weekend after Tenant receives such Notice of Relocation
from Landlord, provided that Tenant complies with all other terms, covenants and
conditions of this Lease. Provided Tenant fully complies with the above
requirements and relocates to the Alternative Space, then said Alternative Space
shall be deemed to be the Premises and Landlord shall compensate Tenant for
Tenant's actual, reasonable, out-of-pocket moving expenses upon Tenant's
submission of paid invoices therefor and the fixed annual rent and additional
rent payable under this Lease shall be adjusted, if necessary, so as to reflect
any difference between the deemed square foot area of the original Premises and
said Alternative Space, provided, however that in no event shall the fixed
annual rent and additional rent payable for the Alternative Space be greater
than the amount set forth in the granting clause of this Lease.
B. Any failure by Tenant or Landlord to timely and fully comply with
the requirements of Section A, above, shall constitute a material breach of this
Lease by them.
C. Following any relocation undertaken pursuant to this article,
Landlord and Tenant shall, at the request of either party, promptly execute and
deliver an agreement confirming such relocation and fixing any corresponding
adjustments in fixed annual rent and additional rent payable under this Lease.
<PAGE>
LETTER OF CREDIT
----------------
56. Anything hereinabove to the contrary notwithstanding, Tenant, instead of
depositing cash with Landlord as security deposit hereunder, may elect to
substitute therefor and deliver to Landlord, as and for a security deposit,
hereof, an unconditional, irrevocable, negotiable commercial Letter of Credit
(hereinafter called the "Credit"), to be held and used under the security
deposit provisions of this Lease, which Credit shall be issued by a bank which
is a member of the New York Clearing House Association, in the amount of
$31,882.68, naming Landlord (or its successor as Landlord) as beneficiary and
authorizing the beneficiary to draw on the bank in said amount, or any portion
thereof, available by the sight draft of the beneficiary (which may be executed
on behalf of the beneficiary by its agent), without presentation of any other
documents, statements or authorizations. The Credit shall have a term of at
least twelve (12) months, and it shall by its terms be renewed, automatically,
each year, by the bank, the last renewal of which shall be for a term set to
expire not earlier than the date occurring ninety (90) days following the date
upon which the term of this Lease expires, unless the bank gives written notice
to the beneficiary, at least forty-five (45) days prior to the expiration date
of the then existing Credit, that the bank elects that it not so be renewed. The
Credit shall be transferable. All transfer fees shall be payable by Tenant. The
bank shall further agree with drawers, endorsers, and all bona fide holders that
drafts drawn under and in compliance with the terms of the Credit will be duly
honored upon presentation to the bank at its main office located in New York,
New York. The Credit shall be subject to the Uniform Customs and Practice for
Documentary Credits (1993 Revision) International Chamber of Commerce
Publication No. 500.
B. If during the term of this Lease the Credit and/or the proceeds
of all or part of said Credit become less than the full amount of the security
deposit hereinabove required, then and in such event Tenant shall, upon demand,
deposit with Landlord the amount of any security deposit/Credit theretofore used
or applied by Landlord pursuant to the terms hereof in order that Landlord shall
have the full security deposit on hand at all times during the term of this
Lease. If at the expiration of the term of this Lease, Landlord holds all or
part of said Credit, and Tenant is not in default under any of the terms,
covenants and conditions of this Lease, then Landlord will turn over said Credit
to Tenant or assign it to the designee of Tenant; in the event that Tenant shall
be in default of the terms of this Lease at the expiration of the term of this
Lease, then Landlord shall draw down on the Credit to the extent permitted under
this Article and shall return to Tenant the balance, if any, of the Credit.
C. It shall be the obligation of Tenant during the term of this
Lease to deliver to Landlord at least thirty (30) days prior to the expiration
date of the then existing Credit, a renewal or extension of said Credit or a
substitute Credit (each fully complying with the foregoing). If for any reason
Landlord has not received such renewal or extension or substitute Credit within
twenty (20) days prior to the expiration date of the then existing Credit, then
and in such event Landlord shall be free to draw on the Credit and hold and use
and apply the proceeds thereof in accordance with the security deposit
provisions of this Lease. Tenant agrees to reimburse Landlord for any attorneys'
fees incurred by Landlord in connection with reviewing the Credit and any
renewals, extensions or substitutions therefor, ensuring that the provisions of
the Credit and any renewals, extensions or substitutions therefor comply with
the provisions of this Article, drawing down upon the proceeds of Credit, or any
renewals, extensions or substitution therefor, or ensuring that the security
deposit Credit is maintained as required under this Lease.
<PAGE>
RENT CREDIT
-----------
57. If and so long as Tenant is not in default under this Lease beyond any
grace period, Tenant shall be entitled to a rent credit in the amount of
$15,941.34, to be applied against the first (1st) and second (2nd) monthly
installment of fixed annual rent (without electricity) accruing under this Lease
after possession of the premises is delivered to Tenant, so that Tenant shall
occupy the demised premises free of such fixed annual rent for that period;
except that Tenant shall nevertheless be obligated, from and after the
commencement date of the term, to pay additional rents hereunder and to make
payment of the ERIF portion of the fixed annual rent due under Article 41
--
hereof, (anything in said Article 41 to the contrary notwithstanding).
--
Anything contained hereinabove to the contrary notwithstanding, if
Tenant at any time during the term of this Lease, breaches any material
covenant, condition or provision of this Lease and fails to cure such breach
within any applicable grace period, and provided that this Lease is terminated
by Landlord because of such material default, then, in addition to all other
damages and remedies herein provided and to which Landlord may be otherwise
entitled, Landlord shall also be entitled to the repayment in full of any rent
credit theretofore enjoyed by Tenant, which repayment Tenant shall make upon
demand therefor provided, however, that the amount of such rent credit to be
repaid hereunder shall be multiplied by a fraction, the denominator of which is
60, and the numerator of which is the number of months, including portions
thereof, remaining in the originally stated term of this Lease following such
breach.
<PAGE>
ASBESTOS CONTAINING MATERIAL
----------------------------
58. Notwithstanding anything to the contrary contained in this Lease, in the
event of the existence of any deteriorated asbestos or deteriorated
asbestos-containing material (collectively, "ACM") within the Premises, Landlord
shall remove, enclose, encapsulate or otherwise manage such ACM as required by
applicable law; provided, however, that to the extent that Tenant has (i)
disturbed such ACM, (ii) caused such ACM to become friable by the performance of
any work or alterations in the Premises including, without limitation, Tenant's
Alterations or (iii) installed same, then Tenant shall remove, enclose,
encapsulate or otherwise manage such ACM as required by applicable law at its
sole cost and expense.
<PAGE>
CLEANING SPECIFICATIONS
-----------------------
A) GENERAL CLEANING - NIGHTLY
--------------------------
- - Dust sweep all stone, ceramic tile, marble terrazzo, asphalt tile.
linoleum, rubber, vinyl and other types of flooring
- - Carpet sweep all carpets and rugs four (4) times per week
- - Vacuum clean all carpets and rugs, once (1) per week
- - Police all private stairways and keep in clean condition
- - Empty and clean all wastepaper baskets, ash trays and receptacles; damp
dust as necessary
- - Clean all cigarette urns and replace sand or water as necessary
- - Remove all normal wastepaper and tenant rubbish to a designated area in
the premises. (Excluding cafeteria waste, bulk materials, and all special
materials such as old desks, furniture etc.)
- - Dust all furniture, and window sills as necessary
- - Dust clean all glass furniture tops
- - Dust all chair rails, trim and similar objects as necessary
- - Dust all baseboards as necessary
- - Wash clean all water fountains
- - Keep locker and service closets in clean and orderly condition
B) LAVATORIES-NIGHTLY (EXCLUDING PRIVATE & EXECUTIVE LAVATORIES)
------------------------------------------------------------
- - Sweep and mop all flooring
- - Wipe clean all mirrors, powder shelves and brightwork, including
flushometers, piping toilet seat hinges
<PAGE>
- - Wash and disinfect all basins, bowls and urinals
- - Wash both sides of all toilet seats
- - Dust all partitions, tile walls, dispensers and receptacles
- - Empty and clean paper towel and sanitary disposal receptacles
- - Fill toilet tissue holders, soap dispensers and towel dispensers;
materials to be furnished by Landlord
- - Remove all wastepaper and refuse to designated area in the premises
C) LAVATORIES-PERIODIC CLEANING (EXCLUDES PRIVATE & EXECUTIVE LAVATORIES)
---------------------------------------------------------------------
- - Machine scrub flooring as necessary
- - Wash all partitions, tile walls, and enamel surfaces periodically, using
proper disinfectant when necessary
D) DAY SERVICES - DUTIES OF THE DAY PORTERS
----------------------------------------
- - Police ladies' restrooms and lavatories, keeping them in clean condition
- - Fill toilet dispensers; materials to be furnished by Landlord
- - Fill sanitary napkin dispensers; materials to be furnished by Landlord
E) SCHEDULE OF CLEANING
--------------------
- - Upon completion of the nightly chores, all lights shall be turned off,
windows closed, doors locked and offices left in a neat and orderly
condition
- - All day, nightly and periodic cleaning services as listed herein, to be
done five nights each week, Monday through Friday, except Union and Legal
Holidays
- - All windows from the 2nd floor to the roof will be cleaned inside out
quarterly, weather permitting
<PAGE>
EXHIBIT 10.8
REPURCHASE AGREEMENT
(Including amendments through April 15, 1999)
THIS REPURCHASE AGREEMENT (the "Agreement") is made as of November 20, 1996
by and between LiveWorld Productions, Inc., a California corporation (the
"Company") and Peter H. Friedman ("Employee").
1. Release of Shares From Repurchase Option.
----------------------------------------
(a) Employee currently holds 3,100,000 shares of the Company's Common
Stock (the "Shares"). The Shares shall be subject to a Repurchase Option (as
defined in Section 2) by the Company pursuant to Section 2 below, provided,
--------
however, that one-third (1/3) of the Shares shall be released from the Company's
- -------
Repurchase Option on the date of this Agreement and one thirty-sixth (1/36th) of
the remaining two-thirds (2/3) of the Shares shall be released from the
Company's Repurchase Option each month thereafter until all such shares are
released from the Company's Repurchase Option, provided in each case that the
Employee's employment has not been terminated for any reason prior to the date
of any such release. Any of the Shares which have not yet been released from the
Company's Repurchase Option are referred to as "Unreleased Shares."
(b) Notwithstanding the above, upon (i) the closing of a
Qualified IPO (as defined in the Company's Articles of Incorporation or
Certificate of Incorporation as the case may be) or (ii) a Sale of the Company
(as defined below), all of the Unreleased Shares will be immediately released
from the Repurchase Option. For purposes of this Section 1, a "Sale of the
Company" shall be defined as the sale of all or substantially all of the assets
of the Company, a merger or consolidation of the Company with or into any other
corporation or corporations, or the merger of any other corporation or
corporations into the Company, or any other corporate reorganization, in which
sale of assets, consolidation, reorganization or merger the shareholders of the
Company receive distributions in cash or securities of another corporation or
corporations as a result of such sale of assets, consolidation, reorganization
or merger, unless the shareholders of the Company hold more than fifty percent
(50%) of the voting equity securities of the successor or surviving corporation
immediately following such merger, sale of assets, reorganization or
consolidation, in which case such merger, sale of assets, reorganization or
consolidation shall not be treated as a Sale of the Company.
2. Repurchase Option.
-----------------
(a) In the event that Employee's status as an employee of the Company
terminates for any reason (a "Termination"), the Company shall upon the date of
such Termination (as reasonably fixed and determined by the Company) (the
"Termination Date") have an irrevocable right
<PAGE>
for a period of thirty (30) days from such Termination Date to repurchase any or
all of the Unreleased Shares (the "Repurchase Option"), at the Repurchase Price
(as defined below) (subject to adjustment as set forth in Section 6). For
purposes of this Agreement, the "Repurchase Price" shall mean the price equal to
the average of (i) the last per share price of preferred stock issued by the
Company plus (ii) the last per share price of Common Stock issued by the
Company, or, if options to purchase shares of the Company's Common Stock have
been granted after the most recent issuance of the Company's Common Stock, then
the last per share option price as granted by the Board of Directors of the
Company (the "Board").
(b) The Repurchase Option shall be exercised by the Company within
thirty (30) days following the Termination Date by delivering or mailing to the
Employee written notice in the manner provided for in Section 8(d) and a check
in the amount of the aggregate Repurchase Price. Upon delivery of such notice
and the payment of the aggregate Repurchase Price, the Company shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.
(c) The Company may assign its rights and delegate its duties under
this Agreement, including the Repurchase Option. Accordingly, whenever the
Company shall have the right to repurchase Shares hereunder, the Company may
designate and assign one or more employees, officers, directors or shareholders
of the Company or other persons or organizations to exercise all or a part of
the Company's Repurchase Option under this Agreement.
(d) The Repurchase Option shall terminate and be null and void upon
the earlier of (i) such time as all of the Unreleased Shares have been released
from the Repurchase Option pursuant to Sections 1(a) and (b) above, or (ii) in
the event that the Repurchase Option shall expire unexercised.
3. Escrow of Shares.
----------------
(a) To insure the availability for delivery of the Employee's
Unreleased Shares upon repurchase by the Company pursuant to the Company's
Repurchase Option, the Employee shall upon execution of this Agreement, deliver
and deposit with an escrow holder designated by the Company (the "Escrow
Holder") the share certificates representing the Unreleased Shares, together
with the stock assignment duly endorsed in blank, attached as Exhibit A-1. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder
pursuant to the Joint Escrow Instructions of the Company and Employee attached
as Exhibit A-2, until such time as the Company's rights of repurchase pursuant
to the Company's Repurchase Option no longer are in effect. As a further
condition to the Company's obligations under this Agreement, the spouse of
Employee, if any, shall execute and deliver to the Company the Consent of Spouse
attached as Exhibit A-3.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow and while
acting in good faith and in the exercise of its judgment.
-2-
<PAGE>
(c) If the Company or any assignee exercises its Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such option
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of Shares has been released from such Repurchase
Option, upon the Employee's request the Escrow Holder shall promptly cause a new
certificate to be issued for such released shares and shall deliver such
certificate to the Employee without the legend referred to in Section 5 below.
(e) Subject to the terms hereof, the Employee shall have all the
rights of a shareholder with respect to such Shares while they are held in
escrow, including without limitation, the right to vote the Shares and receive
any cash dividends declared thereon. If, from time to time during the term of
the Company's Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Employee is entitled by reason
by the Employee's ownership of the Shares shall be immediately subject to this
escrow (subject to Section 2(c) above), deposited with the Escrow Holder and
included thereafter as "Shares" for purposes of this Agreement and the Company's
Repurchase Option.
4. Rights as Shareholder. Subject to the terms and conditions of this
---------------------
Agreement, Employee shall have all of the rights of a shareholder of the Company
with respect to the Shares until such time as Employee disposes of the Shares or
the Company and/or its assignee(s) exercises the Repurchase Option hereunder.
Upon such exercise, Employee shall have no further rights as a holder of the
Shares so purchased except the right to receive payment for the Shares so
purchased in accordance with the provisions of this Agreement, and Employee
shall forthwith cause the certificate(s) evidencing the Shares so purchased to
be surrendered to the Company for transfer or cancellation.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The Company shall cause the legend set forth below or
-------
any legend substantially equivalent thereto, to be placed upon any
certificate(s) evidencing ownership of the Unreleased Shares together with any
other legends that may be required by state or federal securities laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF
REPURCHASE AS SET FORTH IN A REPURCHASE AGREEMENT BETWEEN THE ISSUER
AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. THESE RIGHTS ARE
BINDING ON TRANSFEREES OF THESE SHARES.
-3-
<PAGE>
(b) Stop-Transfer Notices. In order to ensure compliance with the
---------------------
restrictions referred to herein, the Company may issue appropriate "stop
transfer" instructions to its transfer agent, if any, and if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
6. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the Repurchase Price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
7. Severance Compensation.
----------------------
(a) In the event of a Termination, Employee shall be entitled to
receive all compensation earned and all benefits and reimbursements due through
the Termination Date. In addition, in the event that Employee's status as an
employee of the Company terminates for any reason, other than a Voluntary
Resignation, termination for Cause or death or Disability, Employee shall
receive ninety (90) days (or such longer period as the Board shall determine) of
Employee's then current salary and benefits (the "Severance Compensation"). Such
salary shall be payable in one lump sum upon the Termination Date.
(b) For the purposes of this Agreement, (i) termination for "Cause"
shall be: (A) the conviction of Employee of any crime involving the property or
business of the Company or any felonious crime detrimental to the Company; or
(B) the Employee's repeated, reckless misconduct and failure to cure such action
within twenty (20) days after written demand for substantial improvement in
performance with reasonable detail is delivered to the Employee by the Board;
(ii) "Disability" means Employee's permanent disability which, in the opinion of
the Board, materially impairs Employee's ability to perform his duties under
this Agreement; (iii) "Voluntary Resignation" means the Employee's voluntary
resignation from employment, excluding a voluntary resignation as a result of
Constructive Termination; and (iv) "Constructive Termination" means (A) a
material reduction in salary and benefits other than a reduction applied to all
employees, (B) a requirement to relocate without the Employee's consent beyond
25 miles from the principal offices of the Company in Saratoga, California, (C)
a change in Employee's title from President, Chief Executive Officer and
Chairman of the Board, or (D) a material reduction in responsibilities
reasonably accorded to and expected of the President, Chief Executive Officer
and Chairman of the Board of a company.
(c) Notwithstanding any provision of this Section 7 to the contrary,
the provisions of Sections 1 through 6, 7(a), and 8 shall survive the
termination of this Agreement.
8. Miscellaneous.
-------------
-4-
<PAGE>
(a) Any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrator shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by the arbitrator shall be final and binding. Judgment
may be entered on the arbitrator's award in any court having jurisdiction. The
direct expense of any arbitration proceeding shall be borne by the Company. Each
party shall bear its own counsel fees. The arbitration proceeding shall be held
in the city where the Company is located.
(b) If any portion of this Agreement is held by a court of competent
jurisdiction to conflict with any federal, state or local law, such portion of
this Agreement shall be of no force or effect and this Agreement shall otherwise
remain in full force and effect and be construed as is such portion had not been
included in this Agreement.
(c) Employee shall not assign this Agreement or any rights or
obligations under this Agreement without the prior written consent of the
Company. This Agreement shall inure to the benefit of the successors and assigns
of the Company.
(d) Any notice or communication required or permitted under this
Agreement shall be made in writing and delivered personally to the other party
or sent by certified or registered mail, return receipt requested and postage
paid.
(e) This Agreement contains the entire agreement and understanding of
the parties and supersedes all prior discussions, agreements and understandings
related to the subject matter of this Agreement. This Agreement may not be
changed or modified, except by an agreement in writing executed by the Company
and by Employee.
(f) The waiver of a breach of any term or provision of this Agreement
shall not operate as or be construed to be a waiver of any other previous or
subsequent breach of this Agreement.
(g) This Agreement shall be governed by the internal laws of the
State of California as applied to agreements made and performed in California by
residents of California.
(h) All captions and section headings used in this Agreement are for
convenient reference only and do not form a part of this Agreement.
(i) This Agreement may be executed in counterparts, each of which
shall constitute one and the same Agreement.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
year first above written.
LIVEWORLD PRODUCTIONS, INC. EMPLOYEE
By: /s/ Joseph A. Graziano /s/ Peter H. Friedman
Joseph A. Graziano Peter H. Friedman
Acting Chief Financial Officer
and Board Member
-6-
<PAGE>
EXHIBIT A-1
-----------
STOCK POWER AND ASSIGNMENT
--------------------------
SEPARATE FROM CERTIFICATE
-------------------------
FOR VALUE RECEIVED and pursuant to that certain Repurchase Agreement dated
as of November 20, 1996 (the "Agreement"), the undersigned hereby sells, assigns
and transfers unto ___________________________________________________________,
____________ shares of the Common Stock of LIVEWORLD PRODUCTIONS, INC., a
California corporation, standing in the undersigned's name on the books of said
corporation represented by Certificate No. _______ delivered herewith, and does
hereby irrevocably constitute and appoint
________________________________________________________________________________
_____________attorney to transfer the said stock on the books of said
corporation with full power of substitution in the premises.
Dated: ______________, 19__
/s/ Peter H. Friedman
Peter H. Friedman
INSTRUCTIONS: Please do not fill in the blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"Repurchase Option," as set forth in the Agreement, without requiring additional
signatures on the part of the Employee.
-7-
<PAGE>
EXHIBIT A-2
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
November 20, 1996
Page Mailliard
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Dear Ms. Mailliard:
As Escrow Agent for both LIVEWORLD PRODUCTIONS, INC., a California
corporation (the "Company"), and the undersigned employee of the Company
("Employee"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Repurchase Agreement (the
"Agreement"), dated as of November 20, 1996, to which a copy of these Joint
Escrow Instructions is attached, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Employee and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Employee and the Company hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its assignee
against the simultaneous delivery to you of the purchase price (by cash, a
check, cancellation of indebtedness or some combination thereof) for the number
of shares of stock being purchased pursuant to the exercise of the Company's
Repurchase Option.
3. Employee irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement. Employee
does hereby irrevocably constitute and appoint you as Employee's attorney-in-
fact and agent for the term of this escrow to execute with respect to such
securities all documents necessary or appropriate to make such securities
negotiable and to complete any transaction herein contemplated, including but
not limited to the filing with any applicable state blue sky authority of any
required applications for consent, or notice of transfer of, the securities.
Subject to the provisions of this paragraph 3, Employee shall exercise all
rights and privileges of a shareholder of the Company while the stock is held by
you.
<PAGE>
4. Upon written request of the Employee, unless the Company's Repurchase
Option has been exercised, you will deliver to Employee a certificate or
certificates representing the shares of stock as are not then subject to the
Repurchase Option. Within thirty (30) days after cessation of Employee's
continuous employment by the Company you will deliver to Employee a certificate
or certificates representing the aggregate number of shares sold and issued
pursuant to the Agreement and not purchased by the Company pursuant to exercise
of the Company's Repurchase Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Employee,
you shall deliver all of same to Employee and shall be discharged of all further
obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Employee while acting in good faith, and
any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
-2-
<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: LIVEWORLD PRODUCTIONS, INC.
13669 Ronnie Way
Saratoga, California 95070
EMPLOYEE: Peter H. Friedman
13669 Ronnie Way
Saratoga, California 95070
ESCROW AGENT: Page Mailliard
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
16. By signing these Joint Escrow Instructions, you become a party only
for the purpose of the Joint Escrow Instructions; you do not become a party to
the Agreement.
-3-
<PAGE>
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto. and their respective successors and permitted assigns. This
instrument may be executed in counterparts, each of which shall be deemed an
original and all of which together shall constitute one instrument.
Very truly yours.
LIVEWORLD PRODUCTIONS, INC.
a California corporation
/s/ Joseph A. Graziano
Joseph A. Graziano, Board Member
and Acting Chief Financial Officer
EMPLOYEE:
/s/ Peter H. Friedman
Peter H. Friedman
ESCROW AGENT:
/s/ Page Mailliard
-4-
<PAGE>
EXHIBIT A-3
-----------
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Employee has read and hereby approves the terms
and conditions of the foregoing Agreement. The undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Agreement and further
agrees that any community property interest shall be similarly bound. The
undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the
undersigned with respect to any amendment or exercise of rights under the
Agreement.
/s/ Sheri B. Friedman
Spouse of Employee
<PAGE>
EXHIBIT 10.9
REPURCHASE AGREEMENT
(Including amendments through April 15, 1999)
THIS REPURCHASE AGREEMENT (the "Agreement") is made as of November 20, 1996
by and between LiveWorld Productions, Inc., a California corporation (the
"Company") and Jenna Woodul ("Employee").
1. Release of Shares From Repurchase Option.
----------------------------------------
(a) Employee currently holds 1,500,000 shares of the Company's Common
Stock (the "Shares"). The Shares shall be subject to a Repurchase Option (as
defined in Section 2) by the Company pursuant to Section 2 below, provided,
--------
however, that one-third (1/3) of the Shares shall be released from the Company's
- -------
Repurchase Option on the date of this Agreement and one thirty-sixth (1/36th) of
the remaining two-thirds (2/3) of the Shares shall be released from the
Company's Repurchase Option each month thereafter until all such shares are
released from the Company's Repurchase Option, provided in each case that the
Employee's employment has not been terminated prior to the date of any such
release. Any of the Shares which have not yet been released from the Company's
Repurchase Option are referred to as "Unreleased Shares."
(b) Notwithstanding the above, upon (i) the closing of a Qualified
IPO (as defined in the Company's Articles of Incorporation or Certificate of
Incorporation, as the case may be) or (ii) a Sale of the Company (as defined
below), all of the Unreleased Shares will be immediately released from the
Repurchase Option. For purposes of this Section 1, a "Sale of the Company" shall
be defined as the sale of all or substantially all of the assets of the Company,
a merger or consolidation of the Company with or into any other corporation or
corporations, or the merger of any other corporation or corporations into the
Company, or any other corporate reorganization, in which sale of assets,
consolidation, reorganization or merger the shareholders of the Company receive
distributions in cash or securities of another corporation or corporations as a
result of such sale of assets, consolidation, reorganization or merger, unless
the shareholders of the Company hold more than fifty percent (50%) of the voting
equity securities of the successor or surviving corporation immediately
following such merger, sale of assets, reorganization or consolidation, in which
case such merger, sale of assets, reorganization or consolidation shall not be
treated as a Sale of the Company.
2. Repurchase Option.
-----------------
(a) In the event that Employee's status as an employee of the Company
terminates for any reason (a "Termination"), the Company shall upon the date of
such Termination (as reasonably fixed and determined by the Company) (the
"Termination Date") have an irrevocable right for a period of thirty (30) days
from such Termination Date to repurchase any or all of the Unreleased Shares
(the "Repurchase Option"), at the Repurchase Price (as defined below) (subject
to adjustment as set forth in Section 6). For purposes of this Agreement, the
"Repurchase Price" shall mean the price equal to the average of (i) the last per
share price of preferred stock issued by the Company plus (ii) the last per
share price of Common Stock issued by the Company, or, if options to purchase
<PAGE>
shares of the Company's Common Stock have been granted after the most recent
issuance of the Company's Common Stock, then the last per share option price as
granted by the Board of Directors of the Company (the "Board").
(b) The Repurchase Option shall be exercised by the Company within
thirty (30) days following the Termination Date by delivering or mailing to the
Employee written notice in the manner provided for in Section 8(d) and a check
in the amount of the aggregate Repurchase Price. Upon delivery of such notice
and the payment of the aggregate Repurchase Price, the Company shall become the
legal and beneficial owner of the Shares being repurchased and all rights and
interests therein or relating thereto, and the Company shall have the right to
retain and transfer to its own name the number of Shares being repurchased by
the Company.
(c) The Company may assign its rights and delegate its duties under
this Agreement, including the Repurchase Option. Accordingly, whenever the
Company shall have the right to repurchase Shares hereunder, the Company may
designate and assign one or more employees, officers, directors or shareholders
of the Company or other persons or organizations to exercise all or a part of
the Company's Repurchase Option under this Agreement.
(d) The Repurchase Option shall terminate and be null and void upon
the earlier of (i) such time as all of the Unreleased Shares have been released
from the Repurchase Option pursuant to Sections 1(a) and (b) above, or (ii) in
the event that the Repurchase Option shall expire unexercised.
3. Escrow of Shares.
----------------
(a) To insure the availability for delivery of the Employee's
Unreleased Shares upon repurchase by the Company pursuant to the Company's
Repurchase Option, the Employee shall upon execution of this Agreement, deliver
and deposit with an escrow holder designated by the Company (the "Escrow
Holder") the share certificates representing the Unreleased Shares, together
with the stock assignment duly endorsed in blank, attached as Exhibit A-1. The
Unreleased Shares and stock assignment shall be held by the Escrow Holder
pursuant to the Joint Escrow Instructions of the Company and Employee attached
as Exhibit A-2, until such time as the Company's rights of repurchase pursuant
to the Company's Repurchase Option no longer are in effect. As a further
condition to the Company's obligations under this Agreement, the spouse of
Employee, if any, shall execute and deliver to the Company the Consent of Spouse
attached as Exhibit A-3.
(b) The Escrow Holder shall not be liable for any act it may do or
omit to do with respect to holding the Unreleased Shares in escrow and while
acting in good faith and in the exercise of its judgment.
(c) If the Company or any assignee exercises its Repurchase Option
hereunder, the Escrow Holder, upon receipt of written notice of such option
exercise from the proposed transferee, shall take all steps necessary to
accomplish such transfer.
-2-
<PAGE>
(d) When the Repurchase Option has been exercised or expires
unexercised or a portion of Shares has been released from such Repurchase
Option, upon the Employee's request the Escrow Holder shall promptly cause a new
certificate to be issued for such released shares and shall deliver such
certificate to the Employee without the legend referred to in Section 5 below.
(e) Subject to the terms hereof, the Employee shall have all the
rights of a shareholder with respect to such Shares while they are held in
escrow, including without limitation, the right to vote the Shares and receive
any cash dividends declared thereon. If, from time to time during the term of
the Company's Repurchase Option, there is (i) any stock dividend, stock split or
other change in the Shares, or (ii) any merger or sale of all or substantially
all of the assets or other acquisition of the Company, any and all new,
substituted or additional securities to which the Employee is entitled by reason
by the Employee's ownership of the Shares shall be immediately subject to this
escrow (subject to Section 2(c) above), deposited with the Escrow Holder and
included thereafter as "Shares" for purposes of this Agreement and the Company's
Repurchase Option.
4. Rights as Shareholder. Subject to the terms and conditions of this
---------------------
Agreement, Employee shall have all of the rights of a shareholder of the Company
with respect to the Shares until such time as Employee disposes of the Shares or
the Company and/or its assignee(s) exercises the Repurchase Option hereunder.
Upon such exercise, Employee shall have no further rights as a holder of the
Shares so purchased except the right to receive payment for the Shares so
purchased in accordance with the provisions of this Agreement, and Employee
shall forthwith cause the certificate(s) evidencing the Shares so purchased to
be surrendered to the Company for transfer or cancellation.
5. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. The Company shall cause the legend set forth below or
-------
any legend substantially equivalent thereto, to be placed upon any
certificate(s) evidencing ownership of the Unreleased Shares together with any
other legends that may be required by state or federal securities laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT OF
REPURCHASE AS SET FORTH IN A REPURCHASE AGREEMENT BETWEEN THE ISSUER
AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. THESE RIGHTS ARE
BINDING ON TRANSFEREES OF THESE SHARES.
(b) Stop-Transfer Notices. In order to ensure compliance with the
---------------------
restrictions referred to herein, the Company may issue appropriate "stop
transfer" instructions to its transfer agent, if any, and if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.
-3-
<PAGE>
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
6. Adjustment for Stock Split. All references to the number of Shares and
--------------------------
the Repurchase Price of the Shares in the Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
7. Severance Compensation
----------------------
(a) In the event of a Termination, Employee shall be entitled to
receive all compensation earned and all benefits and reimbursements due through
the Termination Date. In addition, in the event that Employee's status as an
employee of the Company terminates for any reason, other than a Voluntary
Resignation, termination for Cause or death or Disability, Employee shall
receive ninety (90) days (or such longer period as the Board shall determine) of
Employee's then current salary and benefits (the "Severance Compensation"). Such
salary shall be payable in one lump sum upon the Termination Date.
(b) For the purposes of this Agreement, (i) termination for "Cause"
shall be: (A) the conviction of Employee of any crime involving the property or
business of the Company or any felonious crime detrimental to the Company; or
(B) the Employee's repeated, reckless misconduct and failure to cure such action
within twenty (20) days after written demand for substantial improvement in
performance with reasonable detail is delivered to the Employee by the Board;
(ii) "Disability" means Employee's permanent disability which, in the opinion of
the Board, materially impairs Employee's ability to perform her duties under
this Agreement; (iii) "Voluntary Resignation" means the Employee's voluntary
resignation from employment, excluding a voluntary resignation as a result of
Constructive Termination; and (iv) "Constructive Termination" means (A) a
material reduction in salary and benefits other than a reduction applied to all
employees, (B) a requirement to relocate without the Employee's consent beyond
25 miles from the principal offices of the Company in Saratoga, California, (C)
a change in Employee's title from Vice President of Community or (D) a material
reduction in responsibilities reasonably accorded to and expected of the Vice
President of Community of a company.
(d) Notwithstanding any provision of this Section 7 to the contrary,
the provisions of Sections 1 through 6, 7(a) and 8 shall survive the termination
of this Agreement.
8. Miscellaneous.
-------------
(a) Any unresolved dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrator shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A
-4-
<PAGE>
decision by the arbitrator shall be final and binding. Judgment may be entered
on the arbitrator's award in any court having jurisdiction. The direct expense
of any arbitration proceeding shall be borne by the Company. Each party shall
bear its own counsel fees. The arbitration proceeding shall be held in the city
where the Company is located.
(b) If any portion of this Agreement is held by a court of competent
jurisdiction to conflict with any federal, state or local law, such portion of
this Agreement shall be of no force or effect and this Agreement shall otherwise
remain in full force and effect and be construed as is such portion had not been
included in this Agreement.
(c) Employee shall not assign this Agreement or any rights or
obligations under this Agreement without the prior written consent of the
Company. This Agreement shall inure to the benefit of the Successors and Assigns
of the Company.
(d) Any notice or communication required or permitted under this
Agreement shall be made in writing and delivered personally to the other party
or sent by certified or registered mail, return receipt requested and postage
paid.
(e) This Agreement contains the entire agreement and understanding of
the parties and supersedes all prior discussions, agreements and understandings
related to the subject matter of this Agreement. This Agreement may not be
changed or modified, except by an agreement in writing executed by the Company
and by Employee.
(f) The waiver of a breach of any term or provision of this Agreement
shall not operate as or be construed to be a waiver of any other previous or
subsequent breach of this Agreement.
(g) This Agreement shall be governed by the internal laws of the
State of California as applied to agreements made and performed in California by
residents of California.
(h) All captions and section headings used in this Agreement are for
convenient reference only and do not form a part of this Agreement.
(i) This Agreement may be executed in counterparts, each of which
shall constitute one and the same Agreement.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
year first above written.
LIVEWORLD PRODUCTIONS, INC. EMPLOYEE
By: /s/ Peter H. Friedman /s/ Jenna Woodul
Peter H. Friedman Jenna Woodul
President, Chief Executive Officer
and Chairman of the Board
-6-
<PAGE>
EXHIBIT A-1
-----------
STOCK POWER AND ASSIGNMENT
--------------------------
SEPARATE FROM CERTIFICATE
-------------------------
FOR VALUE RECEIVED and pursuant to that certain Repurchase Agreement dated
as of November 20, 1996 (the "Agreement"), the undersigned hereby sells, assigns
and transfers unto ____________________________________________________________,
_______________ shares of the Common Stock of LIVEWORLD PRODUCTIONS, INC., a
California corporation, standing in the undersigned's name on the books of said
corporation represented by Certificate No. ___________ delivered herewith, and
does hereby irrevocably constitute and appoint ________________________________
________________________________________________ attorney to transfer the said
stock on the books of said corporation with full power of substitution in the
premises.
Dated: _________________, 19__
/s/ Jenna Woodul
Jenna Woodul
INSTRUCTIONS: Please do not fill in the blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"Repurchase Option," as set forth in the Agreement, without requiring additional
signatures on the part of the Employee.
<PAGE>
EXHIBIT A-2
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
November 20, 1996
Page Mailliard
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Dear Ms. Mailliard:
As Escrow Agent for both LIVEWORLD PRODUCTIONS, INC., a California
corporation (the "Company"), and the undersigned employee of the Company
("Employee"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Repurchase Agreement (the
"Agreement"), dated as of November 20, 1996, to which a copy of these Joint
Escrow Instructions is attached, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively as the "Company") exercises the Company's Repurchase Option set
forth in the Agreement, the Company shall give to Employee and you a written
notice specifying the number of shares of stock to be purchased, the purchase
price, and the time for a closing hereunder at the principal office of the
Company. Employee and the Company hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its assignee
against the simultaneous delivery to you of the purchase price (by cash, a
check, cancellation of indebtedness or some combination thereof) for the number
of shares of stock being purchased pursuant to the exercise of the Company's
Repurchase Option.
3. Employee irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement. Employee
does hereby irrevocably constitute and appoint you as Employee's attorney-in-
fact and agent for the term of this escrow to execute with respect to such
securities all documents necessary or appropriate to make such securities
negotiable and to complete any transaction herein contemplated, including but
not limited to the filing with any applicable state blue sky authority of any
required applications for consent, or notice of transfer of, the securities.
Subject to the provisions of this paragraph 3, Employee shall exercise all
rights and privileges of a shareholder of the Company while the stock is held by
you.
<PAGE>
4. Upon written request of the Employee, unless the Company's Repurchase
Option has been exercised, you will deliver to Employee a certificate or
certificates representing the shares of stock as are not then subject to the
Repurchase Option. Within thirty (30) days after cessation of Employee's
continuous employment by the Company you will deliver to Employee a certificate
or certificates representing the aggregate number of shares sold and issued
pursuant to the Agreement and not purchased by the Company pursuant to exercise
of the Company's Repurchase Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Employee,
you shall deliver all of same to Employee and shall be discharged of all further
obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Employee while acting in good faith, and
any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall cease to be an officer or agent of the Company or if you shall resign by
written notice to each party. In the event of any such termination, the Company
shall appoint a successor Escrow Agent.
-2-
<PAGE>
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses, or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: LIVEWORLD PRODUCTIONS, INC.
13669 Ronnie Way
Saratoga, California 95070
EMPLOYEE: Jenna Woodul
10074 Liberty Oak Lane
Cupertino, California 95014
ESCROW AGENT: Page Mailliard
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
16. By signing these Joint Escrow Instructions, you become a party only
for the purpose of the Joint Escrow Instructions; you do not become a party to
the Agreement.
-3-
<PAGE>
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns. This
instrument may be executed in counterparts, each of which shall be deemed an
original and all of which together shall constitute one instrument.
Very truly yours,
LIVEWORLD PRODUCTIONS, INC.
a California corporation
/s/ Peter H. Friedman
Peter H. Friedman, President, Chief Executive
Officer and Chairman of the Board
EMPLOYEE:
/s/ Jenna Woodul
Jenna Woodul
ESCROW AGENT:
/s/ Page Mailliard
-4-
<PAGE>
EXHIBIT A-3
-----------
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Employee has read and hereby approves the terms
and conditions of the foregoing Agreement. The undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Agreement and further
agrees that any community property interest shall be similarly bound. The
undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the
undersigned with respect to any amendment or exercise of rights under the
Agreement.
/s/ Signature Illegible
Spouse of Employee
<PAGE>
EXHIBIT 10.10
TALK CITY, INC.
1996 STOCK OPTION PLAN
STOCK OPTION AGREEMENT -- EARLY EXERCISE
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Stock Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
Optionee: Jeffrey Snetiker
--------------------------
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Stock Option Agreement,
as follows:
Date of Grant March 1, 1999
Vesting Commencement Date March 1, 1999
Exercise Price per Share $2.50
Total Number of Shares Granted 250,000
Total Exercise Price $625,000.00
Type of Option: X Incentive Stock Option
---
___ Nonstatutory Stock Option
Term/Expiration Date: March 1, 2009
Exercise and Vesting Schedule:
- -----------------------------
This Option is exercisable immediately, in whole or in part, conditioned
upon Optionee entering into a Restricted Stock Purchase Agreement with respect
to any unvested Option Shares. The Shares subject to this Option shall vest and
be released from the Company's repurchase option, as set forth in the Restricted
Stock Purchase Agreement, according to the following schedule:
<PAGE>
Except as provided in the paragraph below, 25% of the Shares subject
to the Option shall vest twelve months after the Vesting Commencement Date, and
1/48th of the Shares subject to the Option shall vest each month thereafter,
subject to the Optionee's continuing to be a Service Provider on such dates.
Notwithstanding the foregoing, if (i) at any time prior to March 1,
2000 a Change of Control (as defined below) occurs and Optionee's status as an
employee is terminated prior to
March 1, 2000 by the Successor Corporation (as defined below) as a result of
such Change of Control, or (ii) Optionee is terminated prior to March 1, 2000
other than for Cause or as a result of Voluntary Resignation (each as defined
below), then, in each such case, 25% of the Shares subject to the Option will
automatically vest and become fully exercisable.
For purposes of this Option, "Change of Control" means the sale of all
or substantially all of the assets of the Company, a merger or consolidation of
the Company with or into any other corporation or corporations, or the merger of
any other corporation or corporations into the Company, unless the shareholders
of the Company hold more than fifty percent (50%) of the voting equity
securities of the successor or surviving corporation (the "Successor
Corporation") immediately following such merger, sale of assets or conolidation,
in which case such merger, sale of assets or consolidation will not be treated
as a Change of Control. A Change of Control does not include a reincorporation
by the Company into Delaware.
For purposes of this Option, "Cause" means (A) Optionee's conviction
of a felony; (B) any willful act by Optionee which constitutes gross misconduct
and/or which is injurious to the Company; (C) Optionee's repeated, reckless
misconduct which continues after written demand for substantial improvement is
delivered to Optionee by the Board of Directors of the Company; (D) a breach of
the terms of any confidentiality agreement with, or a policy of, the Company or
its affiliates; or (E) any act of personal dishonesty taken by Optionee in
connection with Optionee's responsibilities as an employee of the Company which
is intended to result in Optionee's substantial personal enrichment.
For purposes of this option, "Voluntary Resignation" means your
voluntary resignation as an employee of the Company or Successor Corporation
(excluding as a result of Optionee's death).
Termination Period:
------------------
This Option may be exercised, to the extent vested, for three months after
termination of Optionee's employment or consulting relationship, or such longer
period as may be applicable upon death or disability of Optionee as provided in
the Plan, but in no event later than the Term/Expiration Date as provided above.
-2-
<PAGE>
II. AGREEMENT
---------
1. Grant of Option. Talk City, Inc. (the "Company"), hereby grants to the
---------------
Optionee named in the Notice of Grant (the "Optionee"), an option (the "Option")
to purchase the total number of shares of Common Stock (the "Shares") set forth
in the Notice of Grant, at the exercise price per share set forth in the Notice
of Grant (the "Exercise Price") subject to the terms, definitions and provisions
of the 1996 Stock Option Plan (the "Plan") adopted by the Company, which is
incorporated herein by reference.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an ISO as defined in Section 422
of the Code. However, if this Option is intended to be an ISO, to the extent
that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as
a Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) Subject to subsections 2(i)(b) through 2(i)(e) below, this
option may be exercised in whole or in part at any time. Vested Shares shall not
be subject to the Company's repurchase right (as set forth in the Restricted
Stock Purchase Agreement, attached hereto as Exhibit C-1).
(b) As a condition to exercising this Option for unvested
Shares, the Optionee must execute the Restricted Stock Purchase Agreement.
(c) This Option may not be exercised for a fraction of a Share.
(d) In the event of Optionee's death, disability or other
termination of the employment or consulting relationship, the exercisability of
the Option is governed by Sections 6, 7 and 8 below, subject to the limitation
contained in subsection 2(i)(e).
(e) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(ii) Method of Exercise. This Option shall be exercisable by
------------------
written notice (in the form attached as Exhibit A) which shall state the
election to exercise the Option, the number of Shares in respect of which the
Option is being exercised, and such other representations and agreements with
respect to such shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed by
the Optionee and, together with an executed copy of the Restricted Stock
Purchase Agreement, if applicable, shall be delivered in person or by certified
mail to the Secretary of the Company. The written notice and Restricted Stock
Purchase Agreement shall be accompanied by payment of the Exercise Price. This
Option shall be deemed to be exercised upon receipt
-3-
<PAGE>
by the Company of such written notice and Restricted Stock Purchase Agreement
accompanied by the Exercise Price.
No Shares shall be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange upon which the Shares may then be
listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B, and shall
read the applicable rules of the Commissioner of Corporations attached to such
Investment Representation Statement.
4. Lock-Up Period. Optionee hereby agrees that if so requested by the
--------------
Company or any representative of the underwriters (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall apply only to the
first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) to the extent permitted by the Administrator, delivery of a
properly executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall
-4-
<PAGE>
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the Exercise Price; or
(v) full recourse promissory note, in the form attached as Exhibit C-
6. Restrictions on Exercise. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
7. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee or Consultant terminates, Optionee may, to the extent the
Option was vested or becomes vested pursuant to the terms hereof at the date of
such termination (the "Termination Date"), exercise this Option during the
Termination Period set out in the Notice of Grant. To the extent that Optionee
was not vested in this Option at the date of such termination, or if Optionee
does not exercise this Option within the time specified herein, the Option shall
terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her disability, Optionee may, but
only within twelve (12) months from the date of such termination (and in no
event later than the expiration date of the term of such Option as set forth in
the Stock Option Agreement), exercise the Option to the extent the Option was
vested or becomes vested pursuant to the terms hereof at the date of such
termination; provided, however, that if such disability is not a "disability" as
such term is defined in Section 22(e)(3) of the Code, in the case of an ISO such
ISO shall cease to be treated as an ISO and shall be treated for tax purposes as
an NSO on the ninety-first (91st) day following such termination. To the extent
that Optionee is not vested in the Option at the date of termination, or if
Optionee does not exercise such Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
9. Death of Optionee. In the event of termination of Optionee's
-----------------
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 10 below), by Optionee's
estate or by a person who acquires the right to exercise the Option by bequest
or inheritance, but only to the extent the Option was vested or becomes vested
pursuant to the terms hereof at the date of death. To the extent that Optionee
is not vested in the Option at the date of death, or if the Option is not
exercised within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
10. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime
-5-
<PAGE>
of Optionee only by Optionee. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee. This
Option represents the Company's entire agreement with Optionee regarding the
grant of this Option and supercedes any prior written or oral agreement or
understanding regarding such Option, including without limitation the Option
provision set forth in Optionee's February 18, 1999 offer letter from the
Company.
11. Term of Option. This Option may be exercised only within the term
--------------
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option.
12. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT
A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) Exercise of ISO. If this Option qualifies as an ISO, there will
---------------
be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair Market Value of the Shares on the date
of exercise over the Exercise Price will be treated as an adjustment to the
alternative minimum tax for federal tax purposes and may subject the Optionee to
the alternative minimum tax in the year of exercise.
(ii) Exercise of ISO Following Disability. If the Optionee's
------------------------------------
Continuous Status as an Employee or Consultant terminates as a result of
disability that is not total and permanent disability as defined in Section
22(e)(3) of the Code, to the extent permitted on the date of termination, the
Optionee must exercise an ISO within three months of such termination for the
ISO to be qualified as an ISO.
(iii) Exercise of NSO. There may be a regular federal income tax
---------------
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the fair market value of the Shares on the date of exercise
over the Exercise Price. If Optionee is an Employee, the Company will be
required to withhold from Optionee's compensation or collect from Optionee and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise. If the Optionee is subject to
Section 16 of the Exchange Act, then the date of income recognition may be
deferred for up to six months.
(iv) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and are disposed of at least two years after the date of
grant, any gain realized on disposition of the Shares will also be treated as
long-term capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within such one-year period or within two years
after the date of grant, any gain realized on such disposition will be treated
as compensation income (taxable at
-6-
<PAGE>
ordinary income rates) to the extent of the difference between the Exercise
Price and the lesser of (1) the fair market value of the Shares on the date of
exercise, or (2) the sale price of the Shares.
(v) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the date of grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
(vi) Section 83(b) Election for Unvested Shares Purchased Pursuant to
----------------------------------------------------------------
Nonqualified Stock Options. With respect to the exercise of a nonqualified
- --------------------------
stock option for unvested Shares, an election may be filed by the Optionee with
the Internal Revenue Service within 30 days of the purchase of the Shares,
--------------
electing pursuant to Section 83(b) of the Code to be taxed currently on any
difference between the purchase price of the Shares and their Fair Market Value
on the date of purchase. This will result in a recognition of taxable income to
the Optionee on the date of exercise, measured by the excess, if any, of the
fair market value of the Shares, at the time the Option is exercised over the
purchase price for the Shares. Absent such an election, taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. Optionee is strongly encouraged to seek the advice of
his or her own tax consultants in connection with the purchase of the Shares and
the advisability of filing of the Election under Section 83(b) and similar tax
provisions. A form of Election under Section 83(b) is attached hereto as
Exhibit C-4 for reference.
(vii) Section 83(b) Election for Unvested Shares Purchased Pursuant
-------------------------------------------------------------
to Incentive Stock Options. With respect to the exercise of an incentive stock
- --------------------------
option for unvested Shares, an election may be filed by the Optionee with the
Internal Revenue Service within 30 days of the purchase of the Shares, electing
--------------
pursuant to Section 83(b) of the Code to be taxed currently on any difference
between the purchase price of the Shares and their Fair Market Value on the date
of purchase for alternative minimum tax purposes. This will result in a
recognition of income to the Optionee on the date of exercise, for alternative
minimum tax purposes, measured by the excess, if any, of the fair market value
of the Shares, at the time the option is exercised, over the purchase price for
the Shares. Absent such an election, alternative minimum taxable income will be
measured and recognized by Optionee at the time or times on which the Company's
Repurchase Option lapses. Optionee is strongly encouraged to seek the advice of
his or her tax consultants in connection with the purchase of the Shares and the
advisability of filing of the Election under Section 83(b) and similar tax
provisions. A form of Election under Section 83(b) for alternative minimum tax
purposes is attached hereto as Exhibit C-5 for reference.
-7-
<PAGE>
OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF OPTIONEE
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON OPTIONEE'S
BEHALF.
Talk City, Inc.
By: /s/ Peter Friedman
---------------------------
Peter Friedman
Its: President, CEO and Secretary
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE
WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has reviewed
the Plan and this Option in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Option and fully understands all
provisions of the Option. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator upon
any questions arising under the Plan or this Option. Optionee further agrees to
notify the Company upon any change in the residence address indicated below.
Dated: _____________________ /s/ Jeffrey Snetiker
----------------------------------
Optionee
Residence Address:
______________________________
______________________________
______________________________
-8-
<PAGE>
EXHIBIT A
---------
1996 STOCK OPTION PLAN
EXERCISE NOTICE
Talk City, Inc.
307 Orchard City Drive, Suite 350
Campbell, CA 95008
Attention: Secretary
1. Exercise of Option. Effective as of today, MARCH 1, 1999, the
------------------ -------------
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
250,000 shares of the Common Stock (the "Shares") of Talk City, Inc. (the
- -------
"Company") under and pursuant to the 1996 Stock Option Plan, as amended (the
"Plan") and the [X] Incentive* [ ] Nonstatutory Stock Option Agreement dated
MARCH 1, 1999 (the "Option Agreement").
- -------------
*To the extent that it exceeds the $100,000 rule of the IRS Code Section 422(d)
it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions.
3. Rights as Shareholder. Until the stock certificate evidencing such
---------------------
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 11 of the Plan.
Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company and/or its assignee(s) exercises
the Right of First Refusal hereunder. Upon such exercise, Optionee shall have
no further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions of
this Agreement, and Optionee shall forthwith cause the certificate(s) evidencing
the Shares so purchased to be surrendered to the Company for transfer or
cancellation.
4. Company's Right of First Refusal. Before any Shares held by Optionee
--------------------------------
or any transferee (either being sometimes referred to herein as the "Holder")
may be sold or otherwise transferred
___________________________
*To the extent that it exceeds the $100,000 rule of the IRS Code section
4(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
<PAGE>
(including transfer by gift or operation of law), the Company or its assignee(s)
shall have a right of first refusal to purchase the Shares on the terms and
conditions set forth in this Section (the "Right of First Refusal").
(a) Notice of Proposed Transfer. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the Holder's
bona fide intention to sell or otherwise transfer such Shares; (ii) the name of
each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the
number of Shares to be transferred to each Proposed Transferee; and (iv) the
bona fide cash price or other consideration for which the Holder proposes to
transfer the Shares (the "Offered Price"), and the Holder shall offer the Shares
at the Offered Price to the Company or its assignee(s).
(b) Exercise of Right of First Refusal. At any time within thirty
----------------------------------
(30) days after receipt of the Notice, the Company and/or its assignee(s) may,
by giving written notice to the Holder, elect to purchase all, but not less than
all, of the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.
(c) Purchase Price. The purchase price ("Purchase Price") for the
--------------
Shares purchased by the Company or its assignee(s) under this Section shall be
the Offered Price. If the Offered Price includes consideration other than cash,
the cash equivalent value of the non-cash consideration shall be determined by
the Board of Directors of the Company in good faith.
(d) Payment. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(e) Holder's Right to Transfer. If all of the Shares proposed in the
--------------------------
Notice to be transferred to a given Proposed Transferee are not purchased by the
Company and/or its assignee(s) as provided in this Section, then the Holder may
sell or otherwise transfer such Shares to that Proposed Transferee at the
Offered Price or at a higher price, provided that such sale or other transfer is
consummated within 120 days after the date of the Notice and provided further
that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.
(f) Exception for Certain Family Transfers. Anything to the contrary
--------------------------------------
contained in this Section notwithstanding, the transfer of any or all of the
Shares during the Optionee's lifetime or on the Optionee's death by will or
intestacy to the Optionee's immediate family or a trust for the benefit of the
Optionee's immediate family shall be exempt from the provisions of this Section.
"Immediate Family" as
<PAGE>
used herein shall mean spouse, lineal descendant or antecedent, father, mother,
brother or sister. In such case, the transferee or other recipient shall receive
and hold the Shares so transferred subject to the provisions of this Section,
and there shall be no further transfer of such Shares except in accordance with
the terms of this Section.
(g) Termination of Right of First Refusal. The Right of First Refusal
-------------------------------------
shall terminate as to any Shares 90 days after the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
5. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Restrictive Legends and Stop-Transfer Orders.
--------------------------------------------
(a) Legends. Optionee understands and agrees that the Company shall
-------
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificate(s) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AND RIGHT OF FIRST REFUSAL
OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN
THE EXERCISE NOTICE BETWEEN THE ISSUER AND THE ORIGINAL HOLDER
OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND
RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE
SHARES.
<PAGE>
(b) Stop-Transfer Notices. Optionee agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) Refusal to Transfer. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
7. Successors and Assigns. The Company may assign any of its rights
----------------------
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
8. Interpretation. Any dispute regarding the interpretation of this
--------------
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
9. Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. Notices. Any notice required or permitted hereunder shall be given
-------
in writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. Further Instruments. The parties agree to execute such further
-------------------
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
full Exercise Price for the Shares.
13. Entire Agreement. The Plan and Notice of Grant/Option Agreement are
----------------
incorporated herein by reference. This Agreement, the Plan, the Option
Agreement, the Restricted Stock Purchase Agreement, and the Investment
Representation Statement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof.
<PAGE>
Submitted by: Accepted by:
OPTIONEE: Talk City, Inc.
/s/ Jeffrey Snetiker
- -------------------------------
By:____________________________________
(Signature)
Its:___________________________________
Address:
- -------
________________________________
________________________________
<PAGE>
EXHIBIT B
---------
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : TALK CITY, INC.
SECURITY : COMMON STOCK
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Securities. Optionee is
acquiring these Securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the Securities. Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, a legend prohibiting their
transfer without the consent of the Commissioner of Corporations of the State of
California and any other legend required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities"
<PAGE>
acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. Rule 701 provides
that if the issuer qualifies under Rule 701 at the time of the grant of the
Option to the Optionee, the exercise will be exempt from registration under the
Securities Act. In the event the Company becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the Securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule 144,
including: (1) the resale being made through a broker in an unsolicited
"broker's transaction" or in transactions directly with a market maker (as said
term is defined under the Securities Exchange Act of 1934); and, in the case of
an affiliate, (2) the availability of certain public information about the
Company, (3) the amount of Securities being sold during any three month period
not exceeding the limitations specified in Rule 144(e), and (4) the timely
filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of grant of the Option, then the Securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires the resale
to occur not less than two years after the later of the date the Securities were
sold by the Company or the date the Securities were sold by an affiliate of the
Company, within the meaning of Rule 144; and, in the case of acquisition of the
Securities by an affiliate, or by a non-affiliate who subsequently holds the
Securities less than three years, the satisfaction of the conditions set forth
in sections (1), (2), (3) and (4) of the paragraph immediately above.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that
any such other registration exemption will be available in such event.
(f) Optionee understands that the certificate evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities without the consent of the Commissioner of Corporations of
California. Optionee has read the applicable Commissioner's Rules with respect
to such restriction, a copy of which is attached.
Signature of Optionee:
/s/ Jeffrey Snetiker
--------------------------------
Date:_________________, ____
<PAGE>
EXHIBIT C-1
-----------
1996 STOCK OPTION PLAN
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between JEFFREY SNETIKER (the "Purchaser") and Talk
----------------
City, Inc. (the "Company") as of MARCH 1, 1999.
--------------
RECITALS
--------
(1) Pursuant to the exercise of the stock option granted to Purchaser
under the Company's 1996 Stock Option Plan and pursuant to the Stock Option
Agreement (the "Option Agreement") dated MARCH 1, 1999 by and between the
-------------
Company and Purchaser with respect to such grant, which Option Agreement is
hereby incorporated by reference, Purchaser has elected to purchase 250,000 of
-------
those shares which have not become vested under the vesting schedule set forth
in the Option Agreement ("Unvested Shares"). The Unvested Shares and the shares
subject to the Option Agreement which have become vested are sometimes
collectively referred to herein as the "Shares".
(2) As required by the Option Agreement, as a condition to Purchaser's
election to exercise the option, Purchaser must execute this Restricted Stock
Purchase Agreement, which sets forth the rights and obligations of the parties
with respect to Shares acquired upon exercise of the Option.
1. Repurchase Option.
-----------------
(a) If Purchaser's Continuous Status as an Employee or Consultant is
terminated for any reason, including for cause, death, and disability, the
Company shall have the right and option to purchase from Purchaser, or
Purchaser's personal representative, as the case may be, all of the Purchaser's
Unvested Shares as of the date of such termination at the price paid by the
Purchaser for such Shares (the "Repurchase Option").
(b) Upon the occurrence of such a termination, the Company may
exercise its Repurchase Option by delivering personally or by registered mail,
to Purchaser (or his transferee or legal representative, as the case may be),
within ninety (90) days of the termination, a notice in writing indicating the
Company's intention to exercise the Repurchase Option and setting forth a date
for closing not later than thirty (30) days from the mailing of such notice. The
closing shall take place at the Company's office. At the closing, the holder of
the certificates for the Unvested Shares being transferred shall deliver the
stock certificate or certificates evidencing the Unvested Shares, and the
Company shall deliver the purchase price therefor.
<PAGE>
(c) At its option, the Company may elect to make payment for the
Unvested Shares to a bank selected by the Company. The Company shall avail
itself of this option by a notice in writing to Purchaser stating the name and
address of the bank, date of closing, and waiving the closing at the Company's
office.
(d) If the Company does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
the termination, the Repurchase Option shall terminate.
2. Transferability of the Shares; Escrow.
-------------------------------------
(a) Purchaser hereby authorizes and directs the secretary of the
Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Repurchase Option has been exercised from
Purchaser to the Company.
(b) To insure the availability for delivery of Purchaser's Unvested
Shares upon repurchase by the Company pursuant to the Repurchase Option under
Section 1, Purchaser hereby appoints the secretary, or any other person
designated by the Company as escrow agent, as its attorney-in-fact to sell,
assign and transfer unto the Company, such Unvested Shares, if any, repurchased
by the Company pursuant to the Repurchase Option and shall, upon execution of
this Agreement, deliver and deposit with the secretary of the Company, or such
other person designated by the Company, the share certificates representing the
Unvested Shares, together with the stock assignment duly endorsed in blank,
attached hereto as Exhibit C-2. The Unvested Shares and stock assignment shall
be held by the secretary in escrow, pursuant to the Joint Escrow Instructions of
the Company and Purchaser attached as Exhibit C-3 hereto, until the Company
exercises its purchase right as provided in Section 1, until such Unvested
Shares are vested, or until such time as this Agreement no longer is in effect.
Upon vesting of the Unvested Shares, the escrow agent shall promptly deliver to
the Purchaser the certificate or certificates representing such Shares in the
escrow agent's possession belonging to the Purchaser, and the escrow agent shall
be discharged of all further obligations hereunder; provided, however, that the
escrow agent shall nevertheless retain such certificate or certificates as
escrow agent if so required pursuant to other restrictions imposed pursuant to
this Agreement.
(c) The Company, or its designee, shall not be liable for any act it
may do or omit to do with respect to holding the Shares in escrow and while
acting in good faith and in the exercise of its judgment.
(d) Transfer or sale of the Shares is subject to restrictions on
transfer imposed by any applicable state and federal securities laws. Any
transferee shall hold such Shares subject to all the provisions hereof and the
Exercise Notice executed by the Purchaser with respect to any Unvested Shares
purchased by Purchaser and shall acknowledge the same by signing a copy of this
Agreement.
3. Ownership, Voting Rights, Duties. This Agreement shall not affect in
--------------------------------
any way the ownership, voting rights or other rights or duties of Purchaser,
except as specifically provided herein.
<PAGE>
4. Legends. The share certificate evidencing the Shares issued
-------
hereunder shall be endorsed with the following legend (in addition to any legend
required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS UPON TRANSFER AND RIGHTS OF REPURCHASE AS
SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY.
5. Adjustment for Stock Split. All references to the number of Shares
--------------------------
and the purchase price of the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by the Company after the date of this Agreement.
6. Notices. Notices required hereunder shall be given in person or by
-------
registered mail to the address of Purchaser shown on the records of the Company,
and to the Company at their respective principal executive offices.
7. Survival of Terms. This Agreement shall apply to and bind Purchaser
-----------------
and the Company and their respective permitted assignees and transferees, heirs,
legatees, executors, administrators and legal successors.
8. Section 83(b) Elections.
-----------------------
(a) Election for Unvested Shares Purchased Pursuant to Nonqualified
---------------------------------------------------------------
Stock Options. Purchaser hereby acknowledges that he or she has been informed
- -------------
that, with respect to the exercise of a nonqualified stock option for Unvested
Shares, that unless an election is filed by the Purchaser with the Internal
Revenue Service and, if necessary, the proper state taxing authorities, within
------
30 days of the purchase of the Shares, electing pursuant to Section 83(b) of the
- -------
Code to be taxed currently on any difference between the purchase price of the
Shares and their fair market value on the date of purchase, there will be a
recognition of taxable income to the Optionee, measured by the excess, if any,
of the fair market value of the Shares, at the time the Company's Repurchase
Option lapses over the purchase price for the Shares. Optionee represents that
Optionee has consulted any tax consultant(s) Optionee deems advisable in
connection with the purchase of the Shares or the filing of the Election under
Section 83(b). A form of Election under Section 83(b) is attached hereto as
Exhibit C-4 for reference.
(b) Election for Unvested Shares Purchased Pursuant to Incentive
------------------------------------------------------------
Stock Options. Purchaser hereby acknowledges that he or she has been informed
- -------------
that, with respect to the exercise of an incentive stock option for Unvested
Shares, that unless an election is filed by the Purchaser with the Internal
Revenue Service within 30 days of the purchase of the Shares, electing pursuant
--------------
to Section 83(b) of the Code to be taxed currently on any difference between the
purchase price of the Shares and their fair market value on the date of
purchase, there will be a recognition of income to the Optionee, for alternative
minimum tax purposes, measured by the excess, if any, of the fair market value
of the Shares, at the time the Company's Repurchase Option lapses over the
purchase price for the Shares. Optionee represents that
<PAGE>
Optionee has consulted any tax consultant(s) Optionee deems advisable in
connection with the purchase of the Shares or the filing of the Election under
Section 83(b) and similar tax provisions. A form of Election under Section 83(b)
for alternative minimum tax purposes is attached hereto as Exhibit C-5 for
reference.
PURCHASER ACKNOWLEDGES THAT IT IS PURCHASER'S SOLE RESPONSIBILITY AND NOT
THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF PURCHASER
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON PURCHASER'S
BEHALF.
9. Representations. Purchaser has reviewed with his own tax advisors the
---------------
federal, state, local and foreign tax consequences of this investment and the
transactions contemplated by this Agreement. Purchaser is relying solely on such
advisors and not on any statements or representations of the Company or any of
its agents. Purchaser understands that he (and not the Company) shall be
responsible for his own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
10. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with California law.
Purchaser represents that he has read this Agreement and is familiar with
its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
"COMPANY"
Talk City, Inc.
By: /s/ Peter Friedman
----------------------------------------
Title: ____________________________________
"PURCHASER"
/s/ Jeffrey Snetiker
-----------------------------------------
Signature
_________________________________________
Address
_________________________________________
<PAGE>
EXHIBIT C-2
-----------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I, __________________________, hereby sell, assign and
transfer unto
________________________________________________________________________________
________________ (__________) shares of the Common Stock of Talk City, Inc.
standing in my name of the books of said corporation represented by Certificate
No. _____ herewith and do hereby irrevocably constitute and appoint
_____________________________________________ to transfer the said stock on the
books of the within named corporation with full power of substitution in the
premises.
This Stock Assignment may be used only in accordance with the Restricted
Stock Purchase Agreement between________________________ and the undersigned
dated ___________, _____.
Dated: _______________, ____
Signature: /s/ Jeffrey Snetiker
----------------------------------
INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
"repurchase option," as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.
<PAGE>
EXHIBIT C-3
-----------
JOINT ESCROW INSTRUCTIONS
-------------------------
_________________, _____
Secretary
Talk City, Inc.
307 Orchard City Drive, Suite 350
Campbell, CA 95008
Dear ___________________________:
As Escrow Agent for both Talk City, Inc. (the "Company"), and the
undersigned purchaser of stock of the Company (the "Purchaser"), you are hereby
authorized and directed to hold the documents delivered to you pursuant to the
terms of that certain Restricted Stock Purchase Agreement ("Agreement") between
the Company and the undersigned, in accordance with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement, the Company shall give to
Purchaser and you a written notice specifying the number of shares of stock to
be purchased, the purchase price, and the time for a closing hereunder at the
principal office of the Company. Purchaser and the Company hereby irrevocably
authorize and direct you to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's repurchase option.
3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.
<PAGE>
4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's repurchase option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's repurchase option.
Within 120 days after cessation of Purchaser's continuous employment by or
services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's repurchase
option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.
<PAGE>
12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
days' advance written notice to each of the other parties hereto.
COMPANY: Talk City, Inc.
307 Orchard City Drive, Suite 350
Campbell, CA 95008
Attention: Secretary
PURCHASER: __________________________________________
__________________________________________
__________________________________________
ESCROW AGENT: Talk City, Inc.
307 Orchard City Drive, Suite 350
Campbell, CA 95008
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
<PAGE>
18. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.
Talk City, Inc.
By: /s/ Peter Friedman
--------------------------------------
Title: __________________________________
Purchaser: /s/ Jeffrey Snetiker
------------------------------
(Signature)
_________________________________________
(Typed or Printed Name)
Escrow Agent:
_________________________________________
<PAGE>
EXHIBIT C-4
-----------
ELECTION UNDER SECTION 83(B)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in taxpayer's gross income
for the current taxable year the amount of any compensation taxable to taxpayer
in connection with taxpayer's receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
NAME: TAXPAYER: SPOUSE:
ADDRESS:
IDENTIFICATION NO.: TAXPAYER: SPOUSE:
TAXABLE YEAR:
2. The property with respect to which the election is made is described as
follows: ______________________________ shares (the "Shares") of the
Common Stock of Talk City, Inc. (the "Company").
3. The date on which the property was transferred is: _________, 19 ____.
4. The property is subject to the following restrictions: The Shares may not
be transferred and are subject to forfeiture under the terms of an
agreement between the taxpayer and the Company. These restrictions lapse
upon the satisfaction of certain conditions contained in such agreement.
5. The fair market value at the time of transfer, determined without regard
to any restriction other than a restriction which by its terms will never
lapse, of such property is: $____________.
6. The amount (if any) paid for such property is: $______________.
The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked
- --------------------------------------------------------------------------
except with the consent of the Commissioner.
- -------------------------------------------
Dated: ___________________, 199____ _________________________________
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: ___________________, 199____ ________________________________]
Spouse of Taxpayer
<PAGE>
EXHIBIT C-6
-----------
PROMISSORY NOTE
$625,000.00 Campbell, CA
- -----------
MARCH 1, 1999
-------------
FOR VALUE RECEIVED, JEFFREY SNETIKER promises to pay to Talk City, Inc.
----------------
(the "Company"), or order, the principal sum of SIX HUNDRED AND TWENTY FIVE
---------------------------
THOUSAND DOLLARS ($625,000.00), together with interest on the unpaid principal
- ---------------- -------------
hereof from the date hereof at the rate of Five and Twenty-Three One-Hundreths
-----------------------------------
percent (5.23%) per annum, compounded semiannually.
- ---------------
Principal and interest shall be due and payable on March 1, 2009. Should
--------------
the undersigned fail to make full payment of principal or interest for a period
of 10 days or more after the due date thereof, the whole unpaid balance on this
Note of principal and interest shall become immediately due at the option of the
holder of this Note. Payments of principal and interest shall be made in lawful
money of the United States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of March 1,
--------
1999. This Note is secured in part by a pledge of the Company's Common Stock
- -----
under the terms of a Security Agreement of even date herewith and is subject to
all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee or consultant
of the Company for any reason, this Note shall, at the option of the Company, be
accelerated, and the whole unpaid balance on this Note of principal and accrued
interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
/s/ Jeffrey Snetiker
________________________________
Jeffrey Snetiker
Date: ____________________, ____
<PAGE>
EXHIBIT C-7
-----------
SECURITY AGREEMENT
This Security Agreement is made as of MARCH 1, 1999 between Talk City,
-------------
Inc. ("Pledgee"), and JEFFREY SNETIKER ("Pledgor").
----------------
Recitals
--------
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated March 1, 1999 (the "Option"), between Pledgor and Pledgee under
-------------
Pledgee's 1996 Stock Option Plan, and Pledgor's election under the terms of the
Option to pay for such shares with his promissory note (the "Note"), Pledgor has
purchased 250,000 shares of Pledgee's Common Stock (the "Shares") at a price of
-------
$2.50 per share, for a total purchase price of $625,000.00. The Note and the
- --------------- -----------
obligations thereunder are as set forth in Exhibit C-6 to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
---------------------------------------------
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
-----------
number 63, duly endorsed in blank or with executed stock powers, and herewith
- ---------
delivers said certificate to the Secretary of Pledgee ("Pledgeholder"), who
shall hold said certificate subject to the terms and conditions of this Security
Agreement.
The pledged stock (together with an executed blank stock assignment for
use in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(c) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(d) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
<PAGE>
(e) Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
-----------------
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
------------------
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
-------
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be
<PAGE>
that number of full Shares which bears the same proportion to the initial number
of Shares pledged hereunder as the payment of principal bears to the initial
full principal amount of the Note.
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross
----------------------
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the
---------------------
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the laws of the State of California.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
"PLEDGOR" By: /s/ Jeffery Snetiker
-------------------------------------------
(Signature)
JEFFREY SNETIKER
-----------------------------------------------
(Print Name)
Address:_______________________________________
_______________________________________________
"PLEDGEE" Talk City, Inc.
By: /s/ Peter Friedman
--------------------------------------------
Title:_________________________________________
"PLEDGEHOLDER" _______________________________________________
Secretary of
Talk City, Inc.
<PAGE>
EXHIBIT 10.11
MASTER SERVICE AGREEMENT NO. TALK0001
This Master Services Agreement (this "Agreement") is entered into as the
19th day of April, 1999 ("Effective Date") by and between the entity indicated
on the Services Order Form attached hereto, with an office at the address listed
on the Services Order Form, ("Client"), and Frontier Global Center, Inc., a
corporation with offices at 1154 E. Arques Ave. Sunnyvale, CA 94080
("GlobalCenter"), and describes the terms and conditions pursuant to which
Global Center shall license to Client certain Software and provide certain
Services (as defined below).
In consideration of the mutual promises and upon the terms and
conditions set forth below, the parties agrees as follows:
1. NATURE OF AGREEMENT This is an Agreement for the provision by
GlobalCenter of Internet connectivity services (the "Bandwidth"), the lease of
equipment to provide such services (the "Hardware"), the availability of space
to store and operate such Hardware ("Space") and the licensing of software to
provide such Services (the "Software"), together comprising an Internet
connectivity and collection package to be provided by GlobalCenter under this
Agreement (together, the "Services").
2. SERVICE ORDERS
2.1. ORDERS. Client may issue one or more service orders describing the
Bandwidth. Space, Hardware, and Software that Client desires ("Service Order").
Each Service Order will set forth the prices, initial term of Services and other
information in the form set forth in the Service Order Form. No Service Order
shall be effective until accepted by GlobalCenter. All Service Orders will be
subject to the terms and conditions of this Agreement, and the terms of this
Agreement shall supersede any terms and conditions which may appear on Client's
order form, or purchase order.
2.2. CANCELLATION. In the event that Client cancels or terminates a Service
Order at any time for any reason whatsoever other than expiration of a Service
Order or a Service Interruption (as defined below). Client agrees to pay
GlobalCenter as a cancellation fee all Monthly Recurring Charges specified in
the Service Order for the balance of the term therefor, which shall become due
and owing as of the effective date of cancellation or termination.
2.3. IP ADDRESSES. GlobalCenter may assign on a temporary basis a reasonable
number of Internet Protocol Addresses ("IP Addresses") from the address space
assigned to the GlobalCenter by InterNIC. Client acknowledges that the IP
Addresses are the sole property of GlobalCenter, are assigned to Client as part
of the Service, and are not "portable," as such term is used by InterNIC.
GlobalCenter reserves the right to change the IP Address assignments at any
time; however, GlobalCenter shall use reasonable efforts to avoid any disruption
to Client resulting from such renumbering requirement. GlobalCenter will give
Client reasonable notice of any such renumbering. Client agrees that it will
have no right to IP Addresses upon termination of this Agreement, and that any
renumbering required of Client after termination shall be the sole
responsibility of Client.
3. SOFTWARE LICENSE AND RIGHTS
3.1. LICENSE. During the term of the applicable Service Order. GlobalCenter
grants Client a non-transferable, nonexclusive license to use the Software in
object code form only, solely on the Hardware in conjunction with the Services.
3.2. PROPRIETARY RIGHTS. This Agreement transfers to Client neither title nor
any proprietary or intellectual property rights to the Software, Hardware,
documentation, or any copyrights, patents, or trademarks, embodied or used in
connection therewith, except for the rights expressly granted herein.
3.3. LICENSE RESTRICTIONS. Client agrees that it will not itself, or through
any parent, subsidiary, affiliate, agent or other third party:
3.4.1. copy the Software except as expressly allowed under this Agreement. In
the event Client makes any copies of the Software, Client, shall reproduce all
proprietary notices of GlobalCenter on any such copies;
3.4.2. reverse engineer, decompile, disassemble, or otherwise attempt to derive
source code from the Software:
3.4.3. sell, lease, license or sublicense the Software or the documentation;
3.4.4. write or develop any derivative software or any other software program
based upon the Software or any Confidential information (as defined below); or
3.4.5. use the Software to provide processing services to third parties, or
otherwise use the Software on a 'service bureau' basis.
4. HARDWARE TERMS AND CONDITIONS
4.1. INSTALLATION. GlobalCenter will use commercially reasonable efforts to
install the Hardware as the Hardware is shipped to GlobalCenter. At Client's
request, GlobalCenter will work with the Client on an installation plan to
define installation time frame and requirements.
4.2. PURCHASE AND TITLE OF HARDWARE. If so indicated on the Service Order,
Client shall purchase the Hardware and deliver, at Client's expense, the
Hardware to the Space. Client agrees that the Hardware shall reside at the Space
during the term of this Agreement.
4.3. LEASE OF HARDWARE. If so indicated on the Service Order, Client shall
lease the Hardware, and GlobalCenter shall obtain and deliver to the Space the
Hardware. In the event Client lease the Hardware, the following terms and
conditions shall apply: The Hardware is and shall remain the property of
GlobalCenter. Client shall
MSA Rev. 1.5 March 1998 1
<PAGE>
not have taken, or attempt to take, any right, title or interest therein or
permit any third party to take any interest therein. Client will not transfer,
sell, assign, sublicense, pledge, or otherwise dispose of, encumber or suffer a
lien or encumbrance upon or against the Hardware or any interest in the
Hardware. Client will use the Hardware only at the Space. Client will not move
the Hardware from that facility without GlobalCenter's prior written permission.
Client shall be responsible for any damage to the Hardware. Client will use the
Hardware only for the purpose of exercising its rights under this Agreement.
4.4. RENT TO OWN. If so indicated on the Service Order, Client shall lease
the Hardware on a "rent to own" plan. In such event, all of the terms and
conditions in Section 4.3 shall apply, and the following terms and conditions
shall also apply. At the end of the term of the Service Order, providing Client
is not in breach of this Agreement. Client shall have the option to purchase the
Hardware. The purchase price shall be as indicated on the Service Order. Upon
payment by Client of the purchase price, title in the Hardware shall pass to
Client at the Space. Unless the Service Order is extended by mutual agreement.
Client shall immediately delete, or shall allow GlobalCenter to delete, all
copies of the Software, associated documentation, or any other materials of
GlobalCenter resident on the Hardware.
5. SPACE
5.1. LICENSE TO OCCUPY. GlobalCenter grants to Client a non-exclusive license
to occupy the Space. Client acknowledges that it has been granted only a license
to occupy the Space and that it has not been granted any real property interests
in the Space. In the event, however, that this arrangement shall be construed by
the owner of the building in which the Space is situated to be such a grant and
if the landlord of the building asserts such a grant to be a violation of the
lease under which GlobalCenter occupies its premises. GlobalCenter agrees to
cooperate with Client in obtaining the approvals Client may need to obtain from
the landlord.
5.2. MATERIAL AND CHANGES. Client shall not make any construction changes or
material alterations to the interior or exterior portions of the Space,
including any cabling or power supplies for the Hardware, without obtaining
GlobalCenter's prior written approval for Client to have the work performed.
Alternatively, Client may request GlobalCenter to perform the work. GlobalCenter
reserves the right to perform and manage any construction or alterations within
the Space areas at rates to be negotiated between the Parties hereto. Client
agrees not to erect any signs or devices to the exterior portion of the Space
without submitting the request to GlobalCenter and obtaining GlobalCenter's
advance written approval.
5.3. DAMAGE. Client agrees to reimburse GlobalCenter for all reasonable
repair or restoration costs associated with damage or destruction caused by
Client's personnel. Client's agents, Client's suppliers/contractors, or Client's
visitors during the term or as a consequence of Client's removal of the Hardware
or property installed in the Space.
5.4. INSURANCE. Unless otherwise agreed. Client agrees to maintain, at
Client's expense, (i) Comprehensive General Liability Insurance in an amount not
less than One Million Dollars ($1,000,000) per occurrence for bodily injury or
property damage, (ii) Employer's Liability in an amount not less than Five
Hundred Thousand Dollars ($500,000) per occurrence, and (iii) Worker's
Compensation in an amount not less than that prescribed by statutory limits.
Prior to taking occupancy of the Collection Space, Client shall furnish
GlobalCenter with certificates of insurance which evidence the minimum levels of
insurance set forth herein. Client shall also maintain insurance covering
Hardware or property owned or leased by Client against loss or physical damage.
5.5. REGULATIONS. Client shall comply with and not violate all of
GlobalCenter's safety, health and operational rules and regulations, which may
be amended by GlobalCenter from time to time. Client's failure to comply with
GlobalCenter's rules and regulations shall constitute a material default under
this Agreement. GlobalCenter may, in its sole discretion, limit Client's access
to a reasonable number of authorized Client employees or designees. Client shall
not interfere with any other clients of GlobalCenter, or such other clients' use
of the Space.
5.6. DISCLAIMER. GlobalCenter does not make any representation or warranty
whatsoever as to the fitness of the Space for Client's use. Client hereby
assumes any and all risks associated with Client, its agents or employees' use
of the Space and shall indemnify, defend and hold harmless GlobalCenter from any
and all claims, liabilities, judgments, causes of action, damages, costs, and
expenses (including reasonable attorneys' and experts' fees), caused by or
arising in connection with such use.
6. SERVICE INTERRUPTIONS
6.1 99% UPTIME GUARANTEE. In the event of Downtime (as defined below), the
monthly fee payable for the Services shall be reduced as follows:
6.1.1. If the total Downtime in the calendar month is more than seven
and seven and two-tenths (7.2) hours, but does not exceed fourteen and
four-tenths (14.4) hours, the monthly fee for that month shall be
reduced by one-third (33.3%);
6.1.2. If the total Downtime in the calendar month is more than fourteen
and four tenths (14.4) hours, but does not exceed twenty-one and six
tenths (21.6) hours, the monthly fee for that month shall be reduced by
two-thirds (66.6%); and
6.1.3. If the total Downtime in the calendar month is more than twenty-
one and six-tenths (21.6) hours, the monthly fee for that month shall
MSA Rev. 1.5 March 1998 2
<PAGE>
be waived.
For the purposes of this Section, Downtime shall mean any interruption of one
(1) minute or more in the availability to users of any Web site residing on the
Hardware and made available through the Services, only if such interruption is
due to either (i) Failure by Global Center to manage a server anomaly so as to
avoid interruption in Web availability, or (ii) a disruption in the connection
between any such server and the Internet. For purposes of this Section, the
Internet is deemed to consist of services that commence where GlobalCenter
transmits a Client's content to GlobalCenter's carrier(s) at the GlobalCenter
border router port(s). Such carriers provide GlobalCenter with private and
dedicated bandwidth. GlobalCenter undertakes no obligation for the circuit or
link between GlobalCenter's facilities and such carrier's services. If router
packet loss is excess of seventy percent (70%) and is sustained for sixty (60)
seconds or more, GlobalCenter will classify this an "outage." If an "outage"
continues for a time period of more than two (2) minutes, then such outage will
be deemed Downtime.
6.2. INVESTIGATION OF SERVICE INTERRUPTIONS. At Client's request. GlobalCenter
will investigate any report of Downtime, and attempt to remedy any Downtime
expeditiously. GlobalCenter reasonably determines that all facilities, systems
and equipment furnished by GlobalCenter are functioning properly, and that
Downtime arose from some other cause, GlobalCenter reserves the right to recover
labor and materials cost for services actually performed at the usual and
customary rates for similar services provided by GlobalCenter to clients in the
same locality.
6.3. TERMINATION. Client may terminate a Service Order in the event of Downtime
of either twenty-four (24) hours of cumulative time during any continuous twelve
(12) month period, or any continuous Downtime of eight (8) hours or more.
6.4. SOLE REMEDY. The terms and conditions of this Section 6 shall Client's
sole remedy and GlobalCenter's sole obligation for any Downtime.
7. USER CONTENT. Client is solely responsible for the content of any
postings, data, or transmissions using the Services ("Content"), or any other
use of the Services by Client or by any person or entity Client permits to
access the Services (a "User"). Client represents and warrants that it and any
User will not use the services for unlawful purposes (including without
limitation infringement of copyright or trademark, misappropriation of trade
secrets, wire fraud, invasion of privacy, photography, obscenity and libel), or
to interfere with or disrupt other network users, network services or network
equipment. Disruptions include without limitation distribution of unsolicited
advertising or chain letters, repeated harassment of other network users,
wrongly impersonating another such user, falsifying one's network identity for
improper or Illegal purposes, sending unsolicited mass e-mailings, propagation
of computer worms and viruses, and using the network to make unauthorized entry
to any other machine accessible via the network. If GlobalCenter has reasonable
grounds to believe that Client or a User is utilizing the Services for any such
illegal or disruptive purpose, GlobalCenter may suspend or terminate Services
Immediately upon notice to Client. Client shall defend, indemnify, hold harmless
GlobalCenter from and against all liabilities and costs (including reasonable
attorney's fees) arising from any and all claims by any person arising out of
Client's use of the Services, including without limitation any content.
8. PRICING AND PAYMENT TERMS
8.1. PAYMENT TERMS. Client shall pay the fees set forth in the Services Order
Form according to the terms set forth therein. Client agrees to pay a late
charge of two percent (2%) above the prime rate as reported by the Wall Street
Journal at the time of assessment or the maximum lawful rate, whichever is less,
for all undisputed amounts not paid within thirty (30) days of receipt of
invoice.
8.2. LATE PAYMENTS. In the event of non-payment by Client of sums over-due
hereunder for more than sixty (60) days, GlobalCenter may upon written notice to
Client either retain any equipment or other assets of Client then in
GlobalCenter's possession and sell them in partial satisfaction of such unpaid
sums, or request Client to remove equipment from GlobalCenter's premises within
ten (10) days. If Client fails to so remove, GlobalCenter may deliver the
equipment to Client at the latter's address for notices at Client's expense for
shipment and insurance, and Client shall be obligated to accept such delivery.
8.3. PRICE INCREASES. GlobalCenter shall not increase the prices for services
during the initial term of any Service Order, but may thereafter change prices
upon sixty (60) days written notice.
9. MAINTENANCE AND SUPPORT. GlobalCenter shall provide Client with
maintenance and support of the Software and Hardware, if any ("Maintenance and
Support") as specified in the Service Specification.
9.1. EXCLUSIONS. Maintenance and Support shall not include services for
problems arising out of (a) modification, alteration or addition or attempted
modification, alteration or addition of the Hardware or Software undertaken by
persons other than GlobalCenter or GlobalCenter's authorized representatives; or
(b) programs or hardware supplied by Client.
9.2. CLIENT DUTIES. Client shall document and promptly report all errors or
malfunctions of the Hardware or Software to GlobalCenter. Client shall take all
steps necessary to carry out procedures for the ?? of errors or malfunctions
within a reasonable time after such procedures have been received from
GlobalCenter. Client shall maintain a current backup copy of all programs and
data. Client shall property train its personnel in the use and application of
the Hardware and Software.
MSA Rev. 1.5 March 1998 3
<PAGE>
10. TERM AND TERMINATION
10.1. TERM. The term of this Agreement shall commence on the Effective Date and
continue indefinitely terminated in accordance with this Section 10. The term of
each Service Order shall be as indicated therein. The term of any Service Order
may be extended upon mutual agreement.
10.2. TERMINATION UPON DEFAULT. Either party may terminate this Agreement in
the event that the other party materially defaults in performing any obligation
under this Agreement and such default continues unremedied for a period of
thirty (30) days following written notice of default. In the event this
Agreement is terminated due to GlobalCenter's breach. GlobalCenter shall refund
to Client any Services fees on a straight line prorated basis.
10.3. TERMINATION UPON INSOLVENCY. This Agreement shall terminate, effective
upon delivery of written notice by a party. (i) upon the institution of
Insolvency, receivership or bankruptcy proceedings or any other proceedings for
the settlement of debts of the other party; (ii) upon the making of an
assignment for the benefit of creditors by the other party: or (iii) upon the
dissolution of the other party.
10.4. EFFECT OF TERMINATION. The provisions of Sections 1, 2.3, 3.2, 3.3, 7,
10.4, 11, 12, 13 and 14 shall survive termination of this Agreement. All other
rights and obligations of the parties shall cease upon termination of this
Agreement. The term of any license granted hereunder shall expire upon
expiration or termination of this Agreement.
11. CONFIDENTIAL INFORMATION. All information identified disclosed by either
party ("Disclosing Party") to the other party ("Receiving Party"), if disclosed
in writing, labeled as proprietary or confidential, or if disclosed orally,
reduced to writing within thirty (30) days and labeled as proprietary or
confidential ("Confidential Information") shall remain the sole property of
Disclosing Party. Except for the specific rights granted by this Agreement,
Receiving Party shall not use any Confidential Information of Disclosing Party
for its own account. Receiving Party shall use the highest commercially
reasonable degree of care to protect Disclosing Party's Confidential
Information. Receiving Party shall not disclose Confidential Information to any
third party without the express written consent of Disclosing Party (except
solely for Receiving Party's internal business needs, to employees or
consultants who are bound by a written agreement with Receiving Party to
maintain the confidentiality of such Confidential Information in a manner
consistent with this Agreement). Confidential Information shall exclude
information (i) available to the public other than by a breach of this
Agreement; (ii) rightfully received from a third party not in breach of an
obligation of confidentiality; (iii) independently developed by Receiving Party
without access to Confidential Information; (iv) known to Receiving Party at the
time of disclosure; or (v) produced in compliance with applicable law or a court
order, provided Disclosing Party is given reasonable notice of such law or order
and an opportunity to attempt to preclude or limit such production. Subject to
the above, Receiving Party agrees to cease using any and all materials embodying
Confidential Information, and to promptly return such materials to Disclosing
Party upon request.
12. LIMITATION OF LIABILITY. GLOBALCENTERS LIABILITY FOR ALL CLAIMS ARISING
OUT OF THIS AGREEMENT SHALL BE LIMITED TO THE AMOUNT OF FEES PAID BY CLIENT TO
GLOBALCENTER UNDER THIS AGREEMENT. IN NO EVENT SHALL GLOBALCENTER BE LIABLE FOR
ANY LOSS OF DATA, LOSS OF PROFITS, COST OF COVER OR OTHER SPECIAL, INCIDENTAL,
CONSEQUENTIAL OR INDIRECT DAMAGES ARISING FROM OR IN RELATION TO THIS AGREEMENT
OR THE USE OF THE SERVICES, HOWEVER, CAUSED AND REGARDLESS OF THEORY OF
LIABILITY. THIS LIMITATION WILL APPLY EVEN IF GLOBALCENTER HAS BEEN ADVISED OR
IS AWARE OF THE POSSIBILITY OF SUCH DAMAGES.
13. DISCLAIMER OF WARRANTIES. GLOBALCENTER SPECIFICALLY DISCLAIMS ALL
WARRANTIES EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NON-
INFRINGEMENT OF THE SYSTEM OR SERVICES PROVIDED BY GLOBALCENTER HEREUNDER.
14. MISCELLANEOUS
14.1. INDEPENDENT CONTRACTOR. The relationship of GlobalCenter and Client
established by this Agreement is that of independent contractors, and nothing
contained in this Agreement shall be construed to (i) give either party the
power to direct and control the day-to-day activities of the other; (ii)
constitute the parties as partners, joint ventures, co-owners or otherwise as
participants in a joint undertaking; or (iii) allow either party to create or
assume any obligation on behalf of the other party for any purpose whatsoever.
14.2 NOTICES. Any notice required or permitted hereunder shall be in writing
and shall be given by registered or certified mail addressed to the addresses
first written above. Such notice shall be deemed to be given upon the earlier of
actual receipt or three (3) days after it has been sent, properly addressed and
with postage prepaid. Either party may change its address for notice by means of
notice to the other party given in accordance with this Section.
14.3. ASSIGNMENT. Client may not assign this Agreement, in whole or in part,
either voluntarily or by operation of law, and any attempt to do so shall be a
material default of this Agreement and shall be void.
14.4. GOVERNING LAW. This Agreement shall be interpreted according to the laws
of the State of California without regard to or application of choice-of-law
rules or principles. The parties hereby agree to the exclusive jurisdiction of
the state and federal courts located in Santa Clara County, California.
MSA Rev. 1.5 March 1998 4
<PAGE>
14.5. ENTIRE AGREEMENT AND WAIVER. This Agreement shall constitute the entire
agreement between GlobalCenter and Client with respect to the subject matter
hereof and all prior agreements, representations, and statement with respect to
such subject matter are superseded hereby, including without limitation any non-
disclosure agreement previously executed between the parties. This Agreement may
be changed only by written agreement signed by both GlobalCenter and Client. No
failure of either party to exercise or enforce any of its rights under this
Agreement shall act as a waiver of subsequent breaches; and the waiver of any
breach shall not act as a waiver of subsequent breaches.
14.6. SEVERABILITY. In the event any provision of this Agreement is held by a
court of other tribunal of competent jurisdiction to be unenforceable, that
provision will be enforced to the maximum extent permissible under applicable
law, and the other provisions of this Agreement will remain in full force and
effect.
14.7. NON-SOLICITATION. During the term of this agreement and for a period of
one (1) year thereafter, Client shall not solicit, nor attempt to solicit the
services, of any employee or subcontractor of GlobalCenter without the prior
written consent of GlobalCenter.
14.8. SUBSTITUTION. GlobalCenter may substitute, change or modify the Software
or Hardware at any time, but shall not thereby after the technical parameters of
the Services.
Frontier GlobalCenter TalkCity, Inc.
______________________________ ______________________________
By: /s/ Signature Illegible By: /s/ Signature Illegible
Title: SR. VP. Frontier GlobalCenter Title: VP of Engineering
----------------------------- -----------------
MSA Rev. 1.5 March 1998 5
<PAGE>
SERVICE SPECIFICATION
- ---------------------
COLLOCATION SERVICE
GlobalCenter will provide a level of service which includes the following
features and options:
GENERAL FEATURES:
MAINTENANCE OF THE SPACE (INCLUDING JANITORIAL SERVICES):
In connection with the Space made available hereunder, GlobalCenter or its
landlord shall perform services that support the overall operation of each Space
at no additional charge to Client. Those services include the following:
* Janitorial Services
* 24 x 7 Access to the Space
* Authorized Security System Access to Raised Floor Collocation Space
* Primary A/C 110 volt Power to the Space
* Backup Power- UPS Systems & Battery Plant (30 - 60 minute survivability
objective)
* Generator Back-up (Sustained backup power)
* HVAC Systems for facility air conditioning
* Fire Control Systems
* Network Monitoring Systems
* Redundant Network Connectivity and Hardware
* 19" Rack Spaces for installation of Hardware
* 10-base-T or 100-base-T switched port with direct high speed Internet
backbone connection.
24X7 NOC SUPPORT: Will provide proactive site monitoring with ExpressLane TM
statistics on Client information base; including bandwidth usage, statistics and
network availability reporting, host monitoring and management interface, access
to GlobalCenter incident tracking system to expedite fault resolution and remote
server reboot.
24X7 CONSOLE ACCESS: GlobalCenter facilities in Sunnyvale and Herndon will
provide systems which allow Clients access to a terminal with a connection to
servers inside the Data Centers.
GLOBALCENTER ESCALATION PLAN AND PROCEDURES: To be provided in the GlobalCenter
Welcome Package 5-10 days after contract signing.
RIGHT-OF-WAY AND ACCESS:
GlobalCenter will allow 24 x 7 access and right-of-way to Client Hardware
located in GlobalCenter facility at no charge. Clients will be escorted at all
times while in the facility. Access to the facilities will not be unreasonably
be withheld by GlobalCenter to Clients for performing appropriate procedures and
maintenance of Hardware, facilities, and systems.
MSA Rev. 1.5 March 1998 6
<PAGE>
Global Center Inc. Master Service Agreement Customer I.D. / MSA # Liv - 0001
This Master Service Agreement between the below named CLIENT and Global Center
Inc. (Collectively referred to as the "PARTIES") establishes the terms and
conditions under which PROVIDER will provide communications services to the
Client.
CLIENT: Live World
PLACE OF BUSINESS:
ADDRESS:
307 Orchard City Drive, Suite 304
Campbell, CA 95008
ATTENTION: Chris Christensen
PROVIDER:
Global Center Inc.
1154 East Arques Avenue
Sunnyvale, CA 94086
1. The PARTIES allow that the CLIENT may issue one or more service orders
("Service Orders") outlining certain services which CLIENT desires to purchase
from PROVIDER. These service orders will set forth the prices, minimum term of
service and other service specific details. All service orders will be subject
to the terms and conditions of this Master Service Agreement for the duration of
the service order. No term or condition hereof shall be modified except by
written agreement of both Parties and any preprinted terms and conditions which
may appear on Clients order form are expressly rejected and are void. As used in
this document the word "Term" shall mean the total duration of a Service Order
and the phrase "Initial Term" shall mean the first six (6) months of service.
The word "Agreement" shall apply to all promises, terms and conditions of the
PARTIES contained in this Master Service Agreement or a Service Order.
1. The Initial Term of this agreement shall be as set forth in the Service
Orders placed hereunder and shall extent thereafter until terminated by
either party upon no less than (60) days prior written notice. In addition,
PROVIDER shall not increase pricing during the Initial Term, but thereafter
may increase pricing upon 60 days written notice. PROVIDER may terminate
this agreement or suspend service hereunder at any time upon: (a) any
failure of CLIENT to pay any undisputed amounts as provided in this
Agreement, which shall permit PROVIDER to terminate this agreement and
suspend service upon (10) days written notice to CLIENT; (b) any breach by
CLIENT of any material provision of this Agreement continuing for (15) days
after receipt of notice thereof; (c) any insolvency, bankruptcy, assignment
for the benefit of creditors, appointment of a trustee or receiver with
respect to CLIENT; or (d) any governmental prohibition or required
alteration of services to be provided hereunder or any violation of an
applicable law, rule or regulation. Any termination shall not relieve
CLIENT of its obligation to pay any charges incurred hereunder prior to
such termination. The PARTIES rights and obligations which by their nature
would extent beyond the termination, cancellation or expiration of this
agreement shall survive such termination cancellation or expiration.
2. During the term CLIENT shall pay PROVIDER for services at the rates set
forth in the Service Order. All amounts owed by CLIENT shall be paid within
(30) days after the date of receipt of the invoice. Provider reserves the
right to charge interest on all delinquent payments at an annualized rate
of two (2) percentage points above the prime rate as announced in the Wall
Street Journal at the time of assessment.
3. PROVIDERS bill shall separately identify any excise, sales, use or other
taxes legally applicable to PROVIDERS provision of service or equipment to
CLIENT. All such taxes, however designated shall be paid by CLIENT in
addition to any other amount owing. PROVIDER will not collect any otherwise
applicable tax if CLIENT first provides PROVIDER with a valid tax exemption
certificate.
4. PROVIDER may substitute, change or rearrange any equipment, facility or
system used in providing services at any time, but shall not thereby alter
the technical parameters of the services provided thereunder.
5. For purposes of canceling and or terminating a service provided under this
agreement for a PROVIDER service interruption, such unscheduled service
interruption must equal either twenty four (24) hours of cumulative service
outages during any continuous six (6) month period or a single outage of
eight (8) hours or more.
6. The foregoing states CLIENT'S sole remedy for service interruption under
the
Confidential and Proprietary Property of Global Center Inc. MSA - Rev. 1.1 7/97
I
<PAGE>
Agreement, and in no event shall Provider be liable for harm of business,
lost revenues, lost savings, or lost profits suffered by CLIENT, regardless
of the form of action. whether in contract warranty, strict liability, or
tort, including without limitation negligence of any kind, whether active
or passive.
7. PROVIDER'S entire liability for any claim, loss, damage, or expense from
any cause whatsoever shall in no event exceed sums actually paid to
Provider by Client, NOTWITHSTANDING THE FOREGOING, NEITHER PROVIDER NOR
CLIENT SHAL BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE, OR SPECIAL DAMAGES. No action or proceeding
against either PARTY shall be commenced by the other PARTY more than one
(1) year after service is rendered.
8. EXCEPT FOR THE WARRANTIES MADE IN THIS SECTION, NEITHER CLIENT OR PROVIDER
MAKE ANY WARRANTIES, EXPRESS OR IMPLIED, TO THE OTHER, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE OR OF
MERCHANTABILITY. PROVIDER shall not be liable to CLIENT for damages to
property of personal injury or for alteration, theft, loss or destruction
of data, programs or systems from accident, fraud, third party intrusion or
otherwise unless the same shall have been caused by the gross negligence or
intentional act of PROVIDER.
9. In the event that CLIENT cancels or terminates service at any time during
the Initial Term of this Agreement or any renewal thereof for any reason
whatsoever other than a service interruption (as described in Paragraph 5
above), Client agrees to pay PROVIDER as liquidated damages (which shall
not be deemed a penalty) the following sums which shall become due and
owing as of the effective date of cancellation or termination and be
payable in accordance with Paragraph 3 above: (1) all Recurring Charges
specified in the Service Order for the balance of the Initial Term of this
Agreement. In the event of non-payment by Client of sums over-due hereunder
for more than sixty (60) days, Provider may upon written notice to CLIENT
either retain any equipment or other assets of CLIENT then in PROVIDER'S
possession and sell them in partial satisfaction of such unpaid sums, or
request CLIENT to remove equipment from PROVIDER'S premises within ten (10)
days. If Client fails to so remove, PROVIDER may deliver the equipment to
CLIENT at the latter's address for notices at CLIENT'S expense for shipment
and insurance, and CLIENT shall be obligated to accept such delivery.
10. If applicable, CLIENT shall be liable for any damage to PROVIDER equipment,
facility, and system which is caused by: negligent or willful acts or
omissions of CLIENT or its agents, employees or suppliers.
11. Client is solely responsible for the content of any transmissions using
PROVIDER'S services, or any other use of PROVIDER'S services by CLIENT or
by any person or entity Client permits to access Provider's services (a
"User"). Client agrees that it and any User will not use the services for
illegal purposes (including but not limited to infringement of copyright or
trademark, misappropriation of trade secrets, wire fraud, mail fraud,
invasion of privacy, pornography, obscenity and libel), or to interfere
with or disrupt other network users, network services or network equipment.
Disruptions include, but are not limited to, distribution of unsolicited
advertising or chain letters, repeated harassment of other network users,
wrongly impersonating another such user, falsifying one's network identity
for improper or illegal purposes, sending unsolicited mass e-mailings,
propagation of computer worms and viruses, and using the network to make
unauthorized entry to any other machine accessible via the network. If
PROVIDER has reasonable grounds to believe that CLIENT is utilizing the
services for any such illegal or disruptive purpose, PROVIDER may suspend
or terminate its services to CLIENT hereunder immediately upon notice to
CLIENT. CLIENT shall defend, indemnify, hold harmless PROVIDER from and
against all liabilities and costs (including reasonable attorney's fees)
arising from any and all claims by any person based upon the content of any
transmissions by CLIENT or any User using PROVIDER'S services or any other
use of PROVIDER'S services by CLIENT or any User. Client represents that
PROVIDER'S services hereunder shall not infringe the intellectual
<PAGE>
property rights of third party suppliers to CLIENT. CLIENT shall defend,
indemnify, and hold harmless Provider from and against all liabilities and
costs (including reasonable attorney's fees) arising from any and all
claims by any person based upon alleged infringement.
12. If so requested, PROVIDER may assign on a temporary basis a reasonable
number of Internet Protocol ("IP") addresses from the address space
assigned to the Provider by the InterNIC. The CLIENT acknowledges that
these addresses are the property of PROVIDER, are assigned to CLIENT as a
service by PROVIDER, and are not portable as such term is used by InterNIC.
PROVIDER reserves the right to change these address assignments at any time
during the term of this Agreement if the architecture of Provider's network
so requires it; however, PROVIDER shall use reasonable efforts to avoid any
disruption to CLIENT resulting from a renumbering requirement. PROVIDER
will give CLIENT as much notice as possible of any requirement to renumber.
CLIENT agrees that the addresses provided by PROVIDER shall be returned to
PROVIDER on the effective date of termination of this Agreement, and that
any renumbering required of CLIENT thereafter shall be the sole
responsibility of CLIENT.
13. Neither Party may assign its rights or obligations under this Agreement, by
operation of law or otherwise, without the express written consent of the
others, except that a Party may assign this Agreement to an affiliate
commonly owned and controlled by or with the Party or to any other third
party in connection with the merger or acquisition of the Party or sale of
all or substantially all of its assets used primarily in connection with
this Agreement. CLIENT represents that it is purchasing PROVIDER'S services
for use in CLIENT'S business and agrees that it will not assign, sell or
make available all or any part of such purchase or services to any
competitor of PROVIDER.
14. If any provision of this Agreement is held by a court to be invalid, void
or unenforceable, the remainder of this Agreement shall nevertheless remain
unimpaired and in effect.
15. No license, joint venture or partnership, express or implied, is granted by
PROVIDER pursuant to this Agreement.
16. Except for payment of money, neither PARTY shall be liable for any delay or
failure in performance of any part of this Agreement to the extent such
delay or failure is caused by an event of Force Majeure, including but not
limited to, fire, flood, explosion, accident, war, strike, embargo,
governmental requirement, civil or military authority, Act of God,
inability to secure materials, labor or transportation, acts or omissions
of common carrier or warehouseman, failure of performance by third-party
supplier, or any other causes beyond its reasonable control. Any such delay
or failure shall suspend the Agreement until the Force Majeure condition
ceases and the Term shall be extended by the length of the suspension.
17. If this Agreement is entered into by more than one Client, each is jointly
and severally liable for all agreements, covenants and obligations herein.
18. This Agreement shall be governed by the laws of the State of California
without regard to its choice of law provisions. The Parties agree that the
exclusive jurisdiction for all actions on claims hereunder or relating
hereto shall be the state and/or federal courts located the Northern
District of California. In any action between the PARTIES to enforce any
material provision of this Agreement, the prevailing PARTY shall be
entitled to recover its legal fees and court costs from the non-prevailing
PARTY in addition to whatever other relief a court may award.
19. Each person executing this Agreement on behalf of PROVIDER or CLIENT
represents and warrants that such person has been fully empowered to do so,
and that all necessary corporate actions (if any) required for the
execution of agreements have been taken.
20. This Agreement may be executed in one or more counterparts, each of which
shall be an original and all of which together shall be constitute one and
the same instrument.
21. The following are incorporated herein by reference and are agreed to by the
Parties:
GLOBAL CENTER INC.
/s/ Signature Illegible
By: _________________
<PAGE>
Title: President
Date: 9/22/97
CLIENT:
/s/ Signature Illegible
By: ______________
Title: Director of Engineering
Date: 9/21/97
Confidential and Proprietary Property of Global Center Inc. MSA - Rev. 1.1 7/97
3
<PAGE>
EXHIBIT 10.12
24/7 MEDIA INC.
NETWORK AFFILIATION AGREEMENT
1. AFFILIATION.
-----------
The undersigned (hereinafter the "Network Affiliate"), the operator and
owner of the Internet website(s) (the "Website(s)") specified on the signature
pages hereto, hereby subscribes to be a member of the internet advertising
network owned and operated by 24/7 Media, Inc., a Delaware corporation ("24/7"),
and hereby grants solely to 24/7 the right and privilege to sell the Advertising
Availabilities (as hereinafter defined) of the Network Affiliate to advertisers,
advertising agencies, buying services or others ("Advertisers"). Advertising
Availabilities include advertising banners, sponsorships, and those segments or
spaces reasonably suitable for the display of advertising and to which the Tags
(as defined in 2(A) below) shall be affixed as provided herein, on those pages
or screens on the Website(s) owned and operated by the Network Affiliate
(individually, a Page or Screen, collectively, the Pages or Screens).
2. OBLIGATIONS OF 24/7.
-------------------
In furtherance of the foregoing, 24/7 covenants and agrees to:
A. provide the Network Affiliate, during the term of this Agreement
(the Term) and only for use in the performance of this Agreement, with unique
tags in HTML/Java or other appropriate language (the Tags) (in which the Network
Affiliate will not have or acquire any proprietary or property rights or
interests, including any intellectual property rights), which will enable 24/7
to serve advertising to the Pages and Screens;
B. utilize its best efforts to sell the Advertising Availabilities on
the Pages and Screens to Advertisers at such prices as 24/7 shall deem
appropriate;
C. serve advertising to the Pages and Screens;
D. provide the Network Affiliate with notice, via posting on 24/7
provided software of new advertisements that have been solicited by 24/7 to be
displayed on the Network Affiliate's Website, and to use its best efforts to
honor any decision by Network Affiliate to decline any advertisement, in
accordance with the provisions in 3(D) below.
E. provide the Network Affiliate with real-time access to records
that will allow it to monitor the number of paid advertisements
delivered to each Page or Screen and the revenue (subject to
billing corrections and
* Certain information in this Exhibit has been omitted
and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted
portions.
<PAGE>
adjustments) produced thereby. All such records, including data,
statistical information or other traffic analysis, produced or
provided by 24/7 shall be jointly owned by Network Affiliate and
24/7,
F. Information on the Network Affiliate's including, audience
numbers, viewership, inventory, site performance shall only be
used in aggregate form for the purpose of generating sales by
24/7, and
F. maintain suitable and qualified personnel in administrative, sales
and technical positions necessary for 24/7 to perform effectively the terms of
this Agreement.
3. OBLIGATIONS OF NETWORK AFFILIATE.
--------------------------------
The Network Affiliate covenants and agrees:
A. that during the Term, it shall use its best efforts to continue
and maintain its Website(s), Pages, and Screens;
B. to insert the Tags on each Page or Screen and only on such Pages
or Screens in such a manner as to assure that the advertisement to be affixed to
said Tag is fully and clearly visible on the first screen viewed when the Page
or Screen is viewed at a 640 x 480 pixel resolution;
C. that the Network Affiliate's total Advertising Availabilities,
excluding availabilities allocated to barter agreements, constitute not less
than [*] ([*]) percent of the Network Affiliate's total number of Pages and
Screens served (the Inventory);
D. to notify 24/7 within one (1) business day from the time of notice
of any new advertisement is given of the Network Affiliate's rejection of any
new advertisement. Failure to provide timely notice of rejection of the new
advertisement shall be deemed acceptance thereof.
E. to furnish 24/7 with all subscribership, viewership, inventory,
and usage reports; reviews and audience studies; deliveries; census
requirements; and any other information regarding the Website(s), Pages, and
Screens as is reasonably available to the Network Affiliate and appropriate for
use by 24/7 for the sale of Advertising Availabilities; and
F. not to engage, contract with, license or permit any person, firm
or entity other than 24/7 and its employees, or Network Affiliate's internal
sales force to sell, or represent the Network Affiliate for the sale of,
Advertising Availabilities in the USA on any Website, Page or Screen owned or
operated by the Network Affiliate in or on which the Advertising Availabilities
appear or are a part, as the case may be provided however that in cases where
Network Affiliate has or makes a partnership agreement that allows a third party
site or it's designated representative to sell the co-branded availabilities
hosted by Network Affiliate then this section will not apply.
2
* Certain information on this page has been omitted
and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted
portions.
<PAGE>
4. PAYMENTS.
--------
A. All cash and other consideration generated from the sale of
Advertising Availabilities by 24/7 (the Payment) shall be payable directly to
24/7 by Advertisers. 24/7 shall pay to the Network Affiliate [*] percent of the
Payment received by 24/7 for the sale of Advertising Availabilities, less those
advertising agency commissions actually retained by agencies or paid by 24/7 to
agencies with respect to the sale of Advertising Availabilities on the Network
Affiliate's Website(s).
B. The Network Affiliate may elect to have 24/7 serve advertisements
not sold by 24/7, for which Network Affiliate will pay 24/7 a serving fee of
$[*] cost per thousand ("CPM"). Advertisements served but not sold by 24/7 may
constitute no more than [*] percent ([*]) of Inventory as defined in Section
3(C) above.
C. 24/7 agrees to deliver to the Network Affiliate, within forty-five
(45) days following the close of each calendar month; (i) a statement showing
revenues earned by the Network Affiliate during said calendar month, (ii) a
payment representing the portion of the Network Affiliate's earnings currently
due based upon collections.
D. In the event any Advertiser remits any Payment directly to the
Network Affiliate rather than to 24/7, the Network Affiliate agrees to make
prompt payment to 24/7 of any and all such Payments.
5. INTELLECTUAL PROPERTY. All hardware, software, programs, codes, trade
---------------------
names, technology, intellectual property, licenses, patents, trademarks,
copyrights, trade secrets, know-how, and processes (collectively, the 24/7
Technology) used to serve the Network Affiliate with advertising under this
Agreement shall remain the sole property of 24/7. Network Affiliate shall have
no rights, title or interest in the 24/7 Technology. Upon the expiration or
termination of this Agreement, each party shall promptly return all information,
documents, manuals and other materials belonging to the other party except as
otherwise provided in this Agreement.
6. CONFIDENTIALITY. 24/7 and Network Affiliate covenant to each other that
---------------
it shall not disclose to any third party (other than its employees and
directors, in their capacity as such, and the employees and directors of any
affiliate on a need to know basis so long as they are bound by the terms of this
Agreement) any information regarding the terms and provisions of this Agreement
or any non-public confidential information which has been identified as such by
the other Party hereto except (i) to the extent necessary to comply with any law
or valid order of a court of competent jurisdiction (or any regulatory or
administrative tribunal), in which event the party so complying shall so notify
the others as promptly as practicable (and, if possible, prior to making any
disclosure) and shall seek confidential treatment of such information, if
available; (ii) as part of its normal reporting or review procedure to its
auditors or its attorneys, as the case may be, so long as they are notified of
the provisions of this Agreement; (iii) in order to enforce its rights pursuant
to this Agreement; (iv) in connection with any filing with any governmental body
or as otherwise required by law; and (v) in a confidential disclosure made in
connection
3
* Certain information on this page has been omitted
and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted
portions.
<PAGE>
with a contemplated financing, merger, consolidation or sale of capital stock of
24/7 or the Network Affiliate.
7. TERM. The term of this Agreement (the "Term") shall commence on the
----
Effective Date and shall continue in effect until either party terminates it.
Termination will be effective four (4) months after the date on which written
notice is given, as determined under the provisions of Section 12 below, to the
other party, by certified mail, return receipt requested.
8. CONTENT OF WEBSITE. Network Affiliate warrants and represents that the
------------------
Website Pages, and Screens (and their respective content) will not in any way
disparage 24/7 or the Advertisers whose advertisements are solicited through
this Agreement. It is understood and agreed that the report or publication of
news, text in chat rooms and news events shall not, for the purposes hereof, be
considered disparaging in any way. Network Affiliate further covenants and
agrees not to include or provide via its Website, Pages or Screens, any material
that is or may be considered: (i) libelous, obscene, or defamatory under any
federal or state law; (ii) an infringement of any third party's intellectual
property rights (including copyright, patent, trademark, trade secret or other
proprietary rights); or (iii) an infringement on any third party's rights of
publicity or privacy. Network Affiliate further covenants and agrees, with
respect to the operation of its Website(s), Pages and Screens, to comply with
all laws, statutes, ordinances, and regulations.
9. INDEMNIFICATION. Network Affiliate shall indemnify and hold harmless
---------------
24/7, its advertisers and other suppliers and any related third parties, against
and in respect of any and all claims, suits, actions, proceedings (formal and
informal), investigations, judgments, deficiencies, damages, settlements,
liabilities, and legal and other expenses (including reasonable legal fees and
expenses of attorneys chosen by 24/7) as and when incurred, arising out of or
based upon any act or omission or alleged act or alleged omission by Network
Affiliate in connection with the acceptance of, or the performance or non-
performance by Network Affiliate of, any of its duties under this Agreement or
arising from the breach by Network Affiliate of its warranties, representations
or covenants contained in this Agreement. 24/7 shall indemnify and hold harmless
the Network Affiliate, against and in respect of any and all claims, suits,
actions, proceedings (formal and informal), investigations, judgments,
deficiencies, damages, settlements, liabilities, and legal and other expenses
(including reasonable legal fees and expenses of attorneys chosen by Network
Affiliate) as and when incurred, arising out of or based upon any act or
omission or alleged act or alleged omission by 24/7 in connection with the
acceptance of, or the performance or non-performance by 24/7 of, any of its
duties under this Agreement or arising from the breach by 24/7 of its
warranties, representations or covenants contained in this Agreement.
10. NO POACHING. Network Affiliate and 24/7 agrees that, for a period of
-----------
one year from the end of the Term, neither entity nor its' affiliates will
solicit or recruit the services of any employees of either company, or hire any
such employees.
11. NO WAIVER. This Agreement shall not be waived, modified, assigned or
---------
transferred except by a written consent to that effect signed by Network
Affiliate and 24/7.
4
<PAGE>
Network Affiliate agrees that if it assigns or transfers this Agreement, it
shall cause such successor, assignee, or transferee to assume all of the Network
Affiliate's obligations hereunder. Any assignment, transfer, or assumption shall
not relieve the Network Affiliate of liability hereunder.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of New York applicable to contracts made
and performed therein, without regard to principles of conflicts of laws.
13. NOTICES. All notices required or permitted to be given hereunder shall
be in writing and either hand-delivered, telecopied, mailed by certified first
class mail, postage prepaid, or sent via electronic mail to the other party or
parties hereto at the address(es) set forth below. A notice shall be deemed
given when delivered personally, when the telecopied notice is transmitted by
the sender, three business days after mailing by certified first class mail, or
on the delivery date if delivered by electronic mail.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
----------------
supersedes all prior agreements of the Parties with respect to the transactions
set forth herein and, except as otherwise expressly provided herein, is not
intended to confer upon any other person any rights or remedies hereunder.
15. COUNTERPARTS. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original and all of which together shall constitute one
and the same document.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
this 1st day of March, 1998 (the "Effective Date").
24/7 MEDIA, INC.
By: /s/ Signature Illegible
Title: VP Business Development
E-mail address: [email protected]
NETWORK AFFILIATE:
Name of Website: Talk City
Website URL: www.talkcity.com
Corporate Name: Liveworld Productions
Address: 307 Orchard City Drive
Address: Suite 350, Campbell, CA 95008.
By: /s/ Peter Friedman
Name: CEO & President Peter Friedman
Title: ____________________
E-mail address: [email protected]
6
<PAGE>
EXHIBIT 10.13
Liveworld/WNI, Version of 2.5. 10/7/98 TalkCity Content and Services Agreement
Effective as of 7/19/98 Page 1
WEBTV NETWORKS, INC. - TALKCITY
CONTENT AND SERVICES AGREEMENT
This Content and Services Agreement (the "Agreement") is between WebTV
Networks, Inc., with an office at 2593 Coast Avenue, Mountain View, CA
94043 ("WNI") and Talk City, Inc., with an office at 307 Orchard City
Drive, Suite 350, Campbell, CA 95008 ("TalkCity" or "TC") and sets forth
the principal terms and objectives of the parties with respect to their
agreement to feature TalkCity Content within the WebTV Network Service,
effective as of July 19, 1998 (the "Effective Date").
THE OBJECTIVES
WNI and TalkCity agree that their mutual goal is to work in partnership to
integrate TalkCity's content (hereinafter called "TalkCity Content" and further
described in Exhibit A) into the WebTV Network Service, such that both parties
realize benefits from such presentation and utilization of TalkCity Content by
WebTV Subscribers. It is agreed that by presenting TalkCity Content in a
uniquely useful and appealing way to WNI's increasingly broad WebTV Subscriber
base, that TalkCity will incur increased network traffic, presence and market
appeal for its content and service offerings. It is further agreed that TalkCity
Content will augment both the desirability and utility of the WebTV Network
Service to its subscribers and further broaden the appeal of WebTV Product and
WebTV Network Services.
The parties, therefore, agree to the following terms, which support their
mutual goals and agreements, though it is recognized that due to the newness of
such endeavors and the evolving and increasingly competitive nature of the
Internet that, in the enactment of this partnership, both parties will need to
exert their reasonable commercial efforts in unanticipated ways to bring about
the success of this Agreement, such as being prepared to engage in further
discussion and negotiation of various emerging issues or unexpected conditions
that need to be resolved between the parties as time passes and market
assumptions are tested.
BASIC TERMS OF AGREEMENT
1. DEFINITIONS. All terms shall have the meanings normally associated with
such terms unless otherwise defined in Exhibit A.
----------
2. OBLIGATIONS OF THE PARTIES. The parties shall perform the following
obligations in fulfilling the terms and intent of this Agreement:
WNI SHALL:
WEBTV NETWORKS, INC. AND LIVEWORLD CONFIDENTIAL
* Certain information in this Exhibit has been omitted
and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted
portions.
<PAGE>
Liveworld/WNI, Version of 2.5. 10/7/98 TalkCity Content and Services Agreement
Effective as of 7/19/98 Page 2
A. Provide development guidance to TalkCity, commencing with a project
manager to interface between WNI's various departmental teams and
TalkCity, including as needed technical support, engineering contacts
and information, marketing and product planning information and other
support necessary to enable TalkCity to work and interface effectively
with WNI.
B. Feature TalkCity Content in the WebTV Network Service in a position of
prominence based upon the mutual understandings described in Exhibit
---------
B.
C. Provide information and feedback to TalkCity on its editorial needs
and requirements, including, when available, user testing and/or
survey results on the use of TalkCity Content by WebTV Subscribers,
user complaints or problems (if any), and statistical information on
usage and satisfaction levels of WebTV Subscribers, when available.
D. Provide advance information on new tool features, capabilities or
technical developments that would have an impact on TalkCity Content
or on the format, structure, style or maintenance of TalkCity Content
on or for the WebTV Network Service.
E. Have sole responsibility and discretion for designing the framework
and templates for chat services, and is responsible for implementing,
maintaining, and hosting all of the "User Interface" for all chat
pages, e.g. welcome, room directory, room list,
guide/instructions/rules, and the chat rooms themselves.
F. Provide TalkCity branding and space for advertising in WeBTV Service
chat rooms that contain TalkCity Content. [Note: WNI to provide TC
with latest UI design]
G. Provide TC with a "service status communication channel" which
reflects the status of the WebTV Network Service.
TALKCITY WILL:
H. Provide and maintain its own standards of moderation and editorial
control over TalkCity Content featured on the WebTV Network Service.
I. Have sole responsibility for hosting the TalkCity Content, including
the IRC content in the chat rooms and the advertisements placed in the
designated ad banner location(s) made available to TC through WNI's
user interface on chat content pages only.
J. Provide sufficient computing performance to service the demand placed
upon the TalkCity Content by WNI Subscribers at the same or greater
levels of performance provided by the WebTV Network Service as a
whole.
K. Serve, own, and control the HTML embed ads and accurately determine
pageviews for calculating Revenue Sharing Terms according to Exhibit
-------
D.
-
L. Provide WNI a number of mutually agreeable databases, including but
not limited to "Scheduled Rooms," and "Current Rooms." Scheduled Rooms
shall be updated at least once per week (perhaps more frequently if
possible). TC will provide more details on this implementation,
including a hierarchy of the Scheduled Rooms
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database within a mutually agreeable timeframe. TC will also provide a
database of Current Rooms, updated every five (5) minutes, to reflect
the chat rooms currently open, the room topic, and number of occupants
in the room at any given time.
M. Will sell, host and serve all ads to appear on WNI chat pages which
contain TalkCity chat Content. Exceptions to advertising are described
in Exhibit C.
----------
WNI AND TALKCITY SHALL HAVE THE FOLLOWING MUTUAL OBLIGATIONS:
N. Each party agrees to give the other party at least thirty (30) days
prior written notice of proposed changes to the chat service(s), chat
templates, test procedures, and require mutual approval on any changes
implemented prior to deployment.
O. Either party may request a fast response time (within give (5)
business days) on "important" requests, which shall not occur more
than twice per month.
P. Either party may request a faster response time (within twenty-four
(24) hours during weekdays) on "emergency" requests, which shall not
occur more than once per month.
Q. TC and WNI's customer care teams will develop an online protocol to
efficiently answer customer questions and/or redirect to the proper
company and department.
R. Both parties shall agree to perform their obligations as defined in
"Featuring of Content" in Exhibit B and the "Technical Performance
Standards" in Exhibit F, either of which may be modified from time to
time upon mutual written consent of both parties.
3. GRANT OF RIGHTS. Subject to the terms and conditions of this Agreement,
TalkCity grants to WNI a nonexclusive worldwide right and license to (i) copy,
use, and Distribute excerpts of the TalkCity Content for the purpose of
marketing, promoting and advertising WebTV Products and the WebTV Network
Service and (ii) Distribute the TalkCity Content to WebTV Subscribers through
the WebTV Network Service. Other than as specifically described in this
Agreement, nothing else herein grants or shall be construed as granting to
either party any licenses or other rights in, to or under the TalkCity Content,
the WebTV Network Service, WebTV Products, WebTV Technology, or WebTV
Subscribers, or any Intellectual Property Rights embodied therein.
4. REVENUE SHARING. WNI and TalkCity shall share revenue generated as a result
of WebTV Subscriber and WebTV Product traffic on TalkCity Content pages as
determined by usage originating from WebTV content or the <webtv.net> domain. TC
acknowledges that most of the WebTV Subscriber links to TalkCity Content
originate from within the WebTV Network Service, rather than the <webtv.net>
domain, and therefore TC agrees to take appropriate measures to adequately
monitor the traffic from WebTV Subscribers originating from any source. Revenue
sharing shall be determined according to Exhibit D.
----------
5. PROMOTIONS AND CO-MARKETING. The parties agree to the types of marketing
promotions, co-marketing opportunities, distribution, ownership and sharing of
subscriber
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information and statistical data described in "Promotions and Use of Data"
according to Exhibit E.
----------
6. USER INTERFACE OWNERSHIP AND EDITORIAL CONTROL. The parties will cooperate
to insure that the user interface will be of the highest quality in terms of
style, graphics and functionality. Both parties shall retain ownership and
control use of their respective marks, logos, look-and-feel, and any other
proprietary materials, except that the parties agree that any unique look-and-
feel developed for use with WebTV Products or the WebTV Network Service, is
identifiable with WNI and shall be used exclusively for WNI. In addition, the
parties agree that TalkCity shall maintain editorial control over TalkCity
Content featured on the WebTV Network Service and shall use its reasonable
commercial efforts to ensure that all TalkCity Content is of the highest quality
and appropriateness for the WebTV Network Service, except that WNI shall have
the right to object to materials which it deems inappropriate or objectionable
(see "Objectionable Material" in the Definitions (Exhibit A) and in Featuring of
Content (Exhibit B)), whereupon TalkCity agrees that such materials may be
blocked, at WNI's expense, from viewing over the WebTV Network Service (if
another solution cannot be agreed to).
7. CUSTOMER SUPPORT. TalkCity shall provide WNI with the following support
services (the "Primary Support") within thirty (30) days after the execution of
this Agreement, so that WNI may provide WebTV Subscribers with the necessary
customer support (the "Secondary Support") for TalkCity Content: i) Answers to
the most frequently asked questions (FAQs) and periodic updates as necessary;
ii) Direct basic training of WNI customer support personnel with respect to the
TalkCity Content; iii) A 24-hour, 7-day-a-week live TalkCity support contact who
shall be available to answer all reasonable questions and address problems
regarding the operation of the TalkCity Content, and iv) Forwarding to a URL
specified by WNI of all support and feedback-related e-mails from WebTV
Subscribers to TalkCity on a monthly basis, or on a basis as mutually agreed
upon by the parties. In the event that the TalkCity Content exceeds WNI's
service capacity (approximately 25 calls per day or calls exceeding 20 minutes),
WNI shall provide written notice to TalkCity of this problem and the two parties
shall work together to resolve the problem within 48 hours. If the problem
cannot be resolved within 48 hours, WNI reserves the right to remove TalkCity
Content from WebTV Network Service(s) until the problem has been fixed.
8. TECHNICAL STANDARDS. The parties shall abide by the technical standards for
response-time service, downtime, redundancy and failure procedures as enumerated
in Exhibit F.
---------
9. CONFIDENTIALITY. The parties shall abide by the terms of the Non-Disclosure
Agreement previously entered into between the parties on August 13, 1996.
TalkCity authorizes WNI to provide Microsoft Corporation with the Confidential
Information. WNI agrees that such Confidential Information will otherwise remain
subject to the terms of the Non-Disclosure Agreement. WNI agrees further that
the Confidential Information provided to Microsoft Corporation shall be
delivered pursuant to the terms of the non-disclosure agreement entered into
between Microsoft Corporation and WNI which prohibits the
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Effective as of 7/19/98 Page 5
disclosure by Microsoft Corporation of the Confidential Information for a period
of five (5) years.
10. INDEMNIFICATION AND LIMITS ON LIABILITY.
A. DISCLAIMER OF WARRANTIES.
I. THE TALKCITY MARKS AND TALKCITY CONTENT ARE PROVIDED TO WNI AS IS
WITHOUT WARRANTY OF ANY KIND. THE ENTIRE RISK AS TO THE RESULTS
AND PERFORMANCE OF THE TALKCITY CONTENT ARE ASSUMED BY TALKCITY.
TALKCITY DISCLAIMS ALL WARRANTIES, EITHER EXPRESS OR IMPLIED WITH
RESPECT TO THE TALKCITY CONTENT AND THE TALKCITY MARKS, INCLUDING
BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT.
II. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT WNI
MAKES NO WARRANTIES, WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO
WEBTV PRODUCTS, WEBTV TECHNOLOGY, OR WEBTV NETWORK SERVICES,
INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THIRD
PARTY RIGHTS.
B. INDEMNIFICATION.
I. TalkCity agrees to hold harmless, indemnify and defend WNI, its
officers, directors and employees, and its Affiliates and
Distributors from and against any losses, damages, fines, product
liability or transactions by TalkCity over WebTV Network
Service(s) including, but not limited to, sales of products or
services by Talk City or third parties for TalkCity, and expenses
(including attorneys fees and costs) arising out of or relating
to any claims that the TalkCity Content is false, libelous,
defamatory, obscene, invades privacy, or infringes any third
party Intellectual Property Rights.
II. WNI shall defend, indemnify, and hold harmless TalkCity, its
officers, directors and employees, from and against any losses,
damages, fines and expenses (including attorneys fees and costs),
whether required to be paid to a third party or otherwise
reasonably incurred in connection with or arising from any
claims, incurred or suffered by TalkCity, to the extent that the
basis of such claims are that 1) WNI misrepresents to the public
the features or capabilities of the WebTV Network Service; or 2)
arising our of or relating to any claims that WNI has encoded
and/or transmitted materials in violation of a third party's
Intellectual Property Rights in such material. TalkCity agrees to
(A) promptly notify WNI in writing of any indemnifiable claim
and, at TalkCity's discretion, give WNI the opportunity to defend
or negotiate a settlement of any such claim at WNI's expense, and
(B) cooperate fully with WNI, at WNI's expense, in defending or
settling such claims.
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C. LIMITATION OF LIABILITY. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY FOR ANY INCIDENTAL, INDIRECT, CONSEQUENTIAL, SPECIAL OR PUNITIVE
DAMAGES OF ANY KIND OR NATURE, INCLUDING WITHOUT LIMITATION LOST
REVENUES OR PROFITS, WHETHER SUCH LIABILITY IS ASSERTED ON THE BASIS
OF CONTRACT (INCLUDING, WITHOUT LIMITATION, THE BREACH OF THIS
AGREEMENT OR ANY TERMINATION OF THIS AGREEMENT, TORT (INCLUDING
NEGLIGENCE OR STRICT LIABILITY), OR OTHERWISE, EVEN IF THE OTHER PARTY
HAS BEEN WARNED OF THE POSSIBILITY OF ANY SUCH LOSS OR DAMAGE IN
ADVANCE.
11. TERM. The term of the Agreement shall run for a period of twenty-four (24)
months, beginning on the Effective Date of this Agreement, which term shall
be subject to early termination if either party fails to perform its
obligations under this Agreement or fails to cooperate to mutually
accomplish the goals of this Agreement. Such right to terminate this
Agreement may be effected by either party upon written notice to the other,
providing a description of the failure to perform with a request for a cure
within thirty (30) days, if such failure is of a material obligation, or
with a request for a cure within sixty (60) days, if such failure is of a
non-material obligation. The failure to remedy the default within the
specified period may result in immediate termination of this Agreement by
written notice sent from the offended party to offending party who has
failed to cure material obligation(s) within the specified cure period.
A. Sections 1, 9, 10, 11, 12 shall survive any termination of this
Agreement.
12. GENERAL PROVISIONS.
A. NOTICES. Unless otherwise provided in this Agreement, all notices,
required under this Agreement shall be in writing and shall be
effective for all purposes upon receipt. Notices shall be sent to:
WebTV Networks, Inc. Talk City, Inc.
2593 Coast Avenue 307 Orchard City Drive, Suite 350
Mountain View, CA 94043 Campbell, CA 95008
Attn: Suzy Brown Attn: Daniel Paul
Required Copy: Legal Department
B. INDEPENDENT CONTRACTORS. In the course of performing under this
Agreement, each of the parties will operate as, and have the status
of, an independent contractor and will not act as or be an agent, co-
venturer, employee or fiduciary of the other party.
C. ASSIGNMENT. TalkCity shall not transfer or assign any rights or
delegate any obligations under this Agreement (whether voluntarily or
by operation of law)
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Effective as of 7/19/98 Page 7
without the prior written consent of WNI, except that TalkCity may
assign this Agreement to a successor or entity in the event of a
merger or acquisition of all or substantially all of TalkCity's
assets. WNI shall have the right to transfer this Agreement, assign
all of its rights and delegate all of its obligations hereunder, and
disclose all Confidential Information to any Affiliate, and to any
successor. WNI shall provide written notice to Talk City of any
transfer within thirty (30) days of such transfer.
D. SEVERABILITY. If any provision of this Agreement or portion thereof is
determined by a court of competent jurisdiction to be invalid, illegal
or otherwise unenforceable, then such provision will, to the extent
permitted by the court not be voided but will instead be construed to
give effect to its intent to the maximum extent permissible under
applicable law and the remainder of this Agreement will remain in full
force and effect according to its terms.
E. EXPORT CONTROL. Each party shall be responsible for insuring that it
complies with all laws and regulations of the United States government
relating to the export from the United States of content, technical
information or technical data or products made using technical
information or technical data or products received from the other
party under this Agreement.
F. GOVERNING LAW. This Agreement shall be governed by and construed
under, and in accordance with, the laws of the State of California.
The parties hereby submit to the personal jurisdiction of, and agree
that any legal proceeding with respect to or arising under this
Agreement shall be brought in, the United States District Court for
the Northern District of California or the state courts of the State
of California for the County of Santa Clara.
G. ENTIRE AGREEMENT; MODIFICATION; WAIVER. This Agreement (including
exhibits and schedules and the referenced Non-Disclosure Agreement)
constitutes the entire Agreement of the parties concerning its subject
matter and supersedes any and all prior or contemporaneous, written or
oral negotiations, correspondence, understandings and Agreements
respecting the subject matter of this Agreement.
H. FORCE MAJEURE. Neither party shall be liable to fulfill its
obligations under this Agreement, or for delays in performance, due to
causes beyond its reasonable control including but not limited to acts
of God, acts of omissions of civil or military authority, fires,
strikes, floods, epidemics, riots, acts of war.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date last written below:
On behalf of On behalf of
WebTV Networks, Inc. Talk City, Inc.
By: /s/ Signature Illegible By: /s/ Signature Illegible
Name: John Matheny Name: Peter Friedman
--------------
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<PAGE>
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Effective as of 7/19/98 Page 8
Title: Senior Director Software Products Title: CEO
---
Date: 10/16/98 Date: 10/9/98
-------- -------
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<PAGE>
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Effective as of 7/19/98 Page 9
WEBTV NETWORKS, INC. - TALKCITY
CONTENT AND SERVICES AGREEMENT
EXHIBIT A
DEFINITIONS
-----------
Except as defined below or as defined above within the body of the Agreement,
all terms have their ordinary and regular meanings within the context of this
Agreement
A. "AFFILIATE(S)" means (i) Microsoft Corporation and any wholly-owned
subsidiaries of Microsoft Corporation, as of the date of this Agreement or
hereafter, (ii) any persons or entities controlling, controlled by or under
common control with WNI, such control being exercised through the ownership or
control, directly or indirectly, of more than fifty percent (50%) of the voting
power of the shares entitled to vote for the election of directors or other
governing authority, as of the date of this Agreement or hereafter, and/or (iii)
any entities formed by WNI under the laws of a foreign country for the purpose
of operating all or a portion of WNI's business in that foreign country, as of
the date of this Agreement or hereafter, who agree in writing to be bound by all
the terms and conditions in this contract as if the Affiliate was WNI.
B. "DERIVATIVE TECHNOLOGY" or "DERIVATIVE" means: (i) for copyrightable or
copyrighted material, any translation (including translation into other computer
languages), portation, modification, correction, addition, extension, upgrade,
improvement, compilation, abridgment or other form in which an existing work may
be recast, transformed or adapted; (ii) for patentable or patented material, any
improvement thereon; and (iii) for material which is protected by trade secret,
any new material derived from such existing trade secret material, including new
material which may be protected by copyright, patent and/or trade secret.
C. "DISTRIBUTE" means to reproduce, license, rent, lease, sell, broadcast,
publicly display or perform, transmit or otherwise distribute.
D. "DISTRIBUTOR(S)" means WNI's licensees, subsidiaries, partners, Affiliates,
and jointventures, who commercially manufacture or sell products or
services containing or utilizing WebTV Technology to End Users.
E. "END USER(S)" means a person or business enterprise which acquires a WebTV
Product for its ordinary personal or business purposes or use in its normal
operations and not for resale or transfer to others in its ordinary course
of business.
F. "INTERNET APPLIANCE" means any consumer electronics device, including
televisions, cable boxes, satellite receivers, set-top boxes, game machines,
telephone displays, or
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Effective as of 7/19/98 Page 10
communication devices that connect to monitors capable of television display or
dual mode monitors that functions as both a TV display and a computer monitor,
that provides Internet access functionality.
G. "INTELLECTUAL PROPERTY RIGHTS (IPR)" are worldwide patent, trademark,
trademark service mark, copyright, and trade secret rights.
H. "OBJECTIONABLE MATERIALS" include any TalkCity Content that: a) is factually
inaccurate, misleading, deceptive, does not contain the most up-to-date version
of TalkCity Content which is available from the TalkCity or is otherwise
inappropriate for WNI's target market as determined exclusively by WNI; b)
infringes or may be perceived as infringing any intellectual property rights; c)
may be deemed to be libelous, defamatory, obscene or pornographic or which may
violate other civil or criminal laws; including those regulating the use and
distribution of content on the Internet and protection of personal privacy; d)
if deemed objectionable for any reason for children by WNI, cannot be presented
or utilized in such a way which allows access to such materials to be strictly
limited to adult users of the WebTV Network; or e) upon presentation, generates
complaints from WebTV Network subscribers such that WNI regards the continuing
presentation of such content to be contrary to the overall goals of the WebTV
Network.
I. "TALKCITY CONTENT" is the content provided by TalkCity available from the
IRC server accessed at http://www.talkcity.com or other sources as mutually
------------
agreed upon in the future (collectively the "Chat Sources"). The chat content
from the Chat Sources will be integrated and delivered on the WebTV Network
Service.
J. "WEBTV NETWORK SERVICE(S)" means any and all hardware, software, multimedia
content, and telecommunication interconnections that make up or are part of a
WebTV-branded Internet service.
K. "WEBTV PRODUCT(S)" means all commercial products and/or services of WNI
and/or its Distributors based upon or containing WebTV Technology, including
without limitation, WebTV Units and WebTV Network Services.
L. "WEBTV SUBSCRIBER(S)" means an End User who is a paying subscriber of a
WebTV Network Service. TalkCity understands and acknowledges that a WebTV
Network Service allows multiple users to share the same WebTV Product and access
the WebTV Network Service through the same account. For the purposes of
calculating Revenue Sharing throughout this Agreement, each End User with a
unique "user name" using a WebTV Network Service account shall be considered a
single WebTV Subscriber.
M. "WEBTV TECHNOLOGY" means any and all technology, inventions, ideas,
processes, know-how, methodologies, concepts, hardware, software and firmware,
and the specifications therefor related to (i) the operation of and/or access to
WebTV Network Services, including successor or alternative versions thereof or
(ii) WNI's current or future WebTV Units and other software and hardware
products, services, and technologies, including WNI's
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Effective as of 7/19/98 Page 11
"Reference Designs" for such products, services and technologies, together with
all Intellectual Property Rights embodied therein or useful therewith, that WNI
licenses, releases, or otherwise makes available to its Distributors (as defined
herein) for any purpose, and to its End Users for commercial use, and/or
distribution directly or indirectly by or through its Distributors.
N. "WEBTV UNIT(S)" means the device used by End Users that is comprised of
hardware and/or software based upon WebTV Technology.
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Effective as of 7/19/98 Page 12
WEBTV NETWORKS, INC. - TALKCITY
CONTENT AND SERVICES AGREEMENT
EXHIBIT B
FEATURING OF CONTENT
--------------------
1. FEATURING OF TALKCITY CONTENT ON THE WEBTV NETWORK. WNI shall feature the
TalkCity Content within the WebTV Network Service in such a way as to
provide ready access to such content by WebTV Subscribers. Such access
shall include access to TalkCity's Content for the Term of the Agreement.
2. OPTIMIZATION. TalkCity shall optimize TalkCity Content to work well in
display and functionality with the WebTV Network Service and complement other
WebTV Network Service features. TalkCity will cooperate with WNI to optimize
TalkCity Content delivery based on user demographic information as maintained
and provided by WNI.
3. FEATURED POSITION. TalkCity may provide self-promotions in the form of links
to TalkCity's Home Page or Community chat pages through advertising according to
Sections 2.0(k) and 2.0(m) in the main body of the Agreement. Access to TalkCity
Content, however, shall remain within WNI's sole discretion. In the event of
substantive changes in the character, quality or partnership performance of
TalkCity, WNI may remove the link to TalkCity Content based on the notification
period agreed to in this Agreement for removal of the TalkCity Content, should
the issues remain unresolved by the parties.
4. OBJECTIONABLE MATERIAL. TalkCity shall ensure that TalkCity Content is
accurate to reasonable standards, does not infringe third party
Intellectual Property Rights, and is of high quality. At WNI's request,
TalkCity shall provide support for one or more "KidSafe" access
technologies selected and used by WNI. In addition, if WNI finds TalkCity
Content objectionable, WNI shall forward a written explanation of its
objection(s) to TalkCity. TalkCity shall review the objection(s) within 24
hours or first business day should the notification occur on a weekend or
recognized holiday and work with WNI to determine a mutually agreeable
solution to resolve the objection(s). WNI reserves the right, to be
exercised in its sole discretion, to disconnect the TalkCity Content if,
after 48 hours the parties do not reach a mutually agreeable solution. In
all cases, TalkCity shall comply with all applicable laws and regulations
governing the use and distribution of content on the Internet or World Wide
Web.
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WEBTV NETWORKS, INC. - TALKCITY
CONTENT AND SERVICES AGREEMENT
EXHIBIT C
ADVERTISING EXCEPTIONS
----------------------
TalkCity shall sell and serve all advertising to appear in TalkCity Content with
the following exceptions:
A. TalkCity may not serve any ads to WebTV subscribers for Internet Appliance
products or services that are competitive to WNI, "WebTV Products," or the
"WebTV Network Service" (collectively "WNI Competitors"). There are no
restrictions on TC offering TC chat services to WNI Competitors; however,
ads for such WNI Competitors shall not be served to WebTV Subscribers.
B. TalkCity may not serve any ads for products, software, or peripherals to
WebTV subscribers for PCs since these are confusing to WebTV Subscribers
who cannot use PC products with their WebTV Product(s) and/or WebTV Network
Service(s).
C. TalkCity self-promotions to TC home or community chat pages are limited to
[*] Percent ([*]%) of the total ads placed per month by TalkCity in
TalkCity Content which is accessed and visible to WebTV users. Any revenue
generated by traffic driven by WebTV Subscribers or WebTV Products to any
TC hosted chat pages, including without limitation,
chat/home/community/shopping/transaction pages, shall be subject to Revenue
Sharing Terms according to Exhibit D.
----------
WEBTV NETWORKS, INC. AND LIVEWORLD CONFIDENTIAL
* Certain information on this page has been omitted and filed
separately with the Commission. Confidential treatment has
been requested with respect to the omitted portions.
<PAGE>
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Effective as of 7/19/98 Page 14
WEBTV NETWORKS, INC. - TALKCITY
CONTENT AND SERVICES AGREEMENT
EXHIBIT D
REVENUE SHARING TERMS
---------------------
Revenue sharing between the parties will be provided as follows:
1. TYPES OF REVENUE. The categories of revenue generated by this Agreement to
be included for revenue sharing shall include: advertising, sponsorship, and
transaction revenue generated from TalkCity Content and WebTV Subscribers and/or
WebTV Products.
2. PERCENTAGE SPLITS. The parties shall receive the following percentages of
revenue generated as a result of WebTV Subscribers and/or WebTV Products
accessing TalkCity Content. The split shall be based as a percentage of total
traffic from WebTV Subscribers or WebTV Products as an overall percentage of all
traffic to TalkCity Content.
3. ADVERTISING. TalkCity and WNI shall split the Gross Revenue of [*]%/[*]%
generated from advertisements placed in TalkCity Content with the higher amount
going to the selling party.
4. TRANSACTIONS. TalkCity shall pay WNI [*]% of Net Transaction revenue for
transactions provided by third parties linked into TalkCity and for which
TalkCity only acts as an agent to the transaction. The split shall be
calculated based on traffic driven by WebTV Subscribers and WebTV Products
to TalkCity transaction areas as a percentage of all the overall traffic in
the TalkCity shopping area.
TalkCity shall pay WNI [*]% of Net Transaction revenue for transactions
occurring in the TalkCity store which offers TalkCity branded merchandise and
where TalkCity is responsible for the procurement of the goods, order taking,
and fulfillment of the goods.
5. STATEMENTS. WNI and TalkCity shall each receive an annual statement of
revenues, the calculation of the percentages, payments made and a verification
of accuracy from an officer of the other party regarding the revenue share
payments and report. Either party may elect to perform an audit of such revenue
sharing calculations at its own expense, which audit costs shall be borne by the
other party, should the originating party's payments differ by more than 10% of
the audited result.
6. PAYMENTS. TalkCity shall provide WNI with a written statement setting forth
the gross advertising revenue received and collected during each calendar
quarter within thirty (30) days of the last day of such quarter, and shall pay
WNI its share of the advertising revenue collected at such time. All payments
shall be mailed to WNI at the address set forth
WEBTV NETWORKS, INC. AND LIVEWORLD CONFIDENTIAL
* Certain information on this page has been omitted
and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted
portions.
<PAGE>
Liveworld/WNI, Version of 2.5, 10/7/98 TalkCity Content and Services Agreement
Effective as of 7/19/98 Page 15
above, attention Finance Department. Collection of advertising receivables shall
remain the sole responsibility of TalkCity. Late payments shall be charged
interest at a rate of one-and-one half percent (1.5%) per month, or the maximum
rate allowed by law, whichever is less.
7. SALE OF ADVERTISING INVENTORY. TalkCity will use the same reasonable
commercial efforts to sell advertising on TalkCity Content web sites that
are accessed through the WebTV Network Service that TalkCity uses to sell
advertising on TalkCity's web sites not on the WebTV Network Service. WNI
will have the option to sell TalkCity's advertising inventory on TalkCity
Content web sites that are accessed through the WebTV Network Service. WNI
will give TalkCity 30 days written notice of its intent to exercise such
option. During this 30-day notice period the parties will use reasonable
commercial efforts to determine the methods and guidelines to enable WNI to
sell TalkCity's advertising inventory on TalkCity Content web sites that
are accessed through the WebTV Network Service. If the parties cannot
mutually agree upon such methods and guidelines, WNI may terminate the
Agreement as per Section 11.
8. TRANSACTIONS. TalkCity will be solely responsible for all aspects of
transactions made by WebTV Subscribers arising or relating to TalkCity
Content including, but not limited to, merchandising, fulfillment,
warranties, and customer service arising or relating to TalkCity Content.
WEBTV NETWORKS, INC. AND LIVEWORLD CONFIDENTIAL
<PAGE>
Liveworld/WNI, Version of 2.5, 10/7/98 TalkCity Content and Services Agreement
Effective as of 7/19/98 Page 16
WEBTV NETWORKS, INC. - TALKCITY
CONTENT AND SERVICES AGREEMENT
EXHIBIT E
PROMOTIONS AND USE OF DATA
--------------------------
1. PROMOTIONS/CO-MARKETING. The parties agree to the following types and
schedules of marketing promotions and co-marketing opportunities:
A. On-line promotions of TalkCity Content on the WebTV Network Service.
B. On-line promotions of the WebTV Network Service on TalkCity Content.
C. Both parties agree to make reasonable commercial efforts to include
the other party in promotions. Promotions may include without
limitation demonstrations of the TalkCity Content and the WebTV
Network Service and WebTV Products at trade shows, in marketing
brochures, on television and in print advertising campaigns. Such
promotions may include without limitation screen shots displaying WNI
or TalkCity logo, and/or screen shots of TalkCity Content displayed on
the WebTV Network Service.
D. Both parties agree to promote each other's brand name products and
services, e.g. such that when either party markets chat content and/or
services for Internet Appliances, each will make commercially
reasonable efforts to mention TalkCity chat Content, WebTV Products,
and WebTV Network Service.
E. Both parties agree to make reasonable commercial efforts to promote
and/or feature key segment events of TalkCity Content within the WebTV
Network Service, e.g. TalkCity will notify WNI in advance of popular
content, such as hosting a celebrity chat session with Jennifer
Aniston from the television show "Friends," and WNI would consider
promoting this event at a higher level within the WebTV Network
Service where a greater number of WebTV Subscribers would be exposed
to this information.
2. INDIVIDUAL USER DATA AND USAGE.
A. OWNERSHIP. Any individual user data previously owned by WNI or
TalkCity will remain the property of that party. No rights or
interests of any nature in or to such data are transferred or granted
hereunder, however, any information directly gathered by TalkCity on
WebTV Subscribers or WebTV Products shall be co-owned by WNI. TalkCity
shall share any and all information gathered on WebTV Subscribers and
WebTV Products, in the aggregate form, to WNI upon WNI's request.
B. STATISTICAL INFORMATION. WNI and TalkCity agree to share, via secure
electronic transfer, (i) from WNI, such aggregated statistical
information, taking into account privacy issues, regarding the
breakdown of WebTV Subscribers who access the
WEBTV NETWORKS, INC. AND LIVEWORLD CONFIDENTIAL
<PAGE>
Liveworld/WNI, Version of 2.5. 10/7/98 TalkCity Content and Services Agreement
Effective as of 7/19/98 Page 17
TalkCity Content web site and (ii) from TalkCity such information
regarding traffic and usage patterns of the TalkCity Content Web site.
TalkCity shall provide information to WNI regarding WebTV Subscriber
usage statistically as well as specific subscriber feedback of the
TalkCity Content when available.
C. DISTRIBUTION. In order to ensure the high-quality delivery of the
TalkCity Content, TalkCity further agrees that WNI and its network
service providers may cache, where practical, the TalkCity Content on
WNI's servers and consents to such caching. TalkCity will track
information regarding the number of ad impressions and click-throughs
and share this data with WNI on a commercially reasonable basis.
D. PROHIBITED USAGE. TalkCity may not use, sell nor distribute to any
third party any specific information about WebTV Subscribers or WebTV
Products without the express prior written consent of WNI. WNI may not
use, sell nor distribute to any third party any specific information
collected and provided by TalkCity to WNI about WebTV Subscriber's
interaction with TalkCity Content without the express written consent
of TalkCity. TalkCity may not directly solicit, outside of TalkCity's
marketing efforts within the TalkCity service or through
advertisements appearing in TalkCity service, individual WebTV
Subscribers without the express written consent of the WebTV
Subscriber. Aggregated statistical information about WebTV Subscribers
is to be considered Confidential Information of WNI under the Non-
Disclosure Agreement previously signed by the parties and as such may
not be used, sold or distributed to other parties by TalkCity, except
as an indistinguishable part of aggregated statistical information
about the TalkCity Web site's overall user base. TalkCity may not
direct market products or TalkCity services, except through its normal
marketing or through advertising appearing in the TalkCity service, to
WebTV Subscribers or allow any third party to direct market products
or services to WebTV Subscribers without the express written consent
of WNI. WNI maintains the right to change its policies regarding
privacy issues for its users and the sharing of WebTV Subscriber
information with TalkCity. Any such changes shall remain in
conformance with industry standards for privacy on the Internet.
WEBTV NETWORKS. INC. AND LIVEWORLD CONFIDENTIAL
<PAGE>
Liveworld/WNI, Version of 2.5. 10/7/98 TalkCity Content and Services Agreement
Effective as of 7/19/98 Page 18
WEB TV NETWORKS, INC. - TALKCITY
CONTENT AND SERVICES AGREEMENT
EXHIBIT F
TECHNICAL PERFORMANCE STANDARDS
-------------------------------
The following performance standards will be upheld for the term of the
Agreement.
1. EQUIPMENT. TalkCity will host the TalkCity Content on the TalkCity Web
site. The TalkCity Web site, and the software, hardware, server IP
address(es), domain name(s), communications links and all other equipment
used in connection with the TalkCity Web site, shall be operated,
maintained, provided, obtained and supported, as the case may be, by
TalkCity, with the exception of the user interface content and architecture
for all WebTV chat services including chat rooms which contain TalkCity
Content, will be hosted by WNI on the WebTV Network Service.
2. ESCALATION PROCEDURES. The parties mutually agree to meet the highest level
of technical performance standards. The parties shall provide each other
with a technical contact person including name and telephone number for 24
hours a day, seven days a week availability. In addition, if WNI finds
TalkCity Content is not meeting the appropriate level of technical
performance, WNI shall forward a written explanation of the technical
performance issue(s) to TalkCity. TalkCity shall review the technical
performance issue(s) within 24 hours and work with WNI to determine a
mutually agreeable solution to resolve the technical performance issue(s).
WNI reserves the right, to be exercised in its sole discretion, to
disconnect TalkCity Content if, after 48 hours the parties do not reach a
mutually agreeable solution.
3. NOTIFICATION OF MODIFICATIONS.
A. TALKCITY MODIFICATIONS. If TalkCity desires to modify the general
subject matter or the technical specifications of the TalkCity Content
in any material respect, TalkCity shall notify WNI at least thirty
(30) days prior to implementing such a modification, where possible
and applicable. If, after the modification of the TalkCity Content,
the original description or the technical characteristics of the
TalkCity Content is no longer accurate or does not meet the Technical
Performance Standards, WNI may thereafter, at its option (i) remove
the TalkCity Content from the WebTV Network Service until the TalkCity
Content conforms to such description; or (ii) terminate this Agreement
upon notice to TalkCity.
B. WNI MODIFICATIONS. If WNI intends to modify the technical
characteristics of the WebTV Network Service, WNI shall notify
TalkCity at least thirty (30) days prior to such modification of the
TalkCity Content, if feasible under the circumstances. TalkCity shall
use commercially reasonable efforts to conform the TalkCity Content to
such modified
WEBTV NETWORKS, INC. AND LIVEWORLD CONFIDENTIAL
<PAGE>
Liveworld/WNI, Version of 2.5. 10/7/98 TalkCity Content and Services Agreement
Effective as of 7/19/98 Page 19
technical characteristics within thirty (30) days from its receipt of
such notice. If, after the modification of the WebTV Network Service,
the original description or the technical characteristics of the WebTV
Network Service do not allow access to TalkCity service according to
Section (c) in "Advertising Exceptions" of Exhibit C, TalkCity may
---------
thereafter, at its option terminate this Agreement as per Section 11
of the Agreement.
WEBTV NETWORKS, INC. AND LIVEWORLD CONFIDENTIAL
<PAGE>
EXHIBIT 10.14
CONTRACT
This contract between LiveWorld Productions (LWPP) and NFOR Research (NFOR)
creates a long term strategic alliance to combine NFOR's market research
expertise with LiveWorld's on-line community/chat services capabilities to
provide high-speed qualitative market research to clients throughout the US and
eventually, the world.
In summary, NFOR will manage all aspects of marketing and sales, client contact,
research methodology, sample acquisition, panel management, report preparation,
and financial control. LWPP will provide the technical infrastructure, provide
and manage the software required to facilitate the online focus groups, and
manage the actual conduct of the chat/focus groups. Both firms will work
together to manage the moderation of the focus groups.
Specific details include the following:
* Pricing:
=> The two companies have to agree on pricing of these joint
products.
=> NFOR will sell text chat based focus groups for $[*] for the
first two sessions and $[*] for the third through "n" sessions.
We expect most studies to require two or more groups.
=> Price includes: Simple, high incidence screener, basic moderation,
and top line report.
=> Price does not include incentives to participants.
=> Participant incentives will range from $[*] to $[*] per session
(some samples such as doctors could be higher) and will be billed
as out of pocket expenses directly to the client.
=> NFOR will charge more for moderators with content expertise (such
as medical, automotive, electronics, high tech, software,.....).
=> NFOR will levy additional charges for acquiring low incidence
participants:
* $[*] for participant incidence from [*]% to [*]% of the
NFOR panel
* $[*] for incidence levels [*]% or below.
* Quota samples will have comparable surcharges.
=> NFOR will charge additional fees for production (if production is
ordered) for focus groups that include graphic screens, audio, 3D
and/or video implementation. Actual pricing is TBD and will
require agreement by both NFOR and LiveWorld.
* Certain information on this page has been omitted
and filed separately with the Commission. Confidential
treatment has been requested with respect to omitted
portions.
<PAGE>
=> The two companies through mutual agreement may jointly develop
additional market research products and both parties will agree
the pricing for these.
* LiveWorld's Commitment On Technology and Operations
=> LWP will provide its current chat technology and its upgrades for
use by the two companies in the jointly offered market research
product line
=> LWP will make reasonable commercial efforts to advance its chat
technologies to increase the number of NFOR panelists who can
participate in NFOR's chat research. LiveWorld will make
reasonable commercial efforts to develop a means to deploy
LiveWorld technology with panelists using AOL browsers.
=> LWP will continue to make reasonable commercial efforts adapt to
new relevant technology, such as Microsoft Normandy or other
software or transport protocol changes.
=> LWP will work with NFOR to make reasonable commercial efforts to
deploy or develop push technologies to automate the user upgrade
process.
=> LWP will maintain sufficient server capacity to meet NFOR's
research needs for the joint products.
=> LWP will provide the operational staff required to manage the
conduct of the joint products including scheduling, server
capacity management, graphic/video/audio object management, and
moderator coordination.
* NFOR's Commitment on Sales, Marketing, NFOR Panel and Implementation. NFOR
will:
=> Make reasonable best efforts to sell, market and implement these
services
=> Provide panel database functionality, panel database, screening
and recruiting of subjects, and technical support to panel before
and during focus groups.
=> Provide invoicing, revenue collection, payments to appropriate
parties.
=> Provide, in general, its market research expertise.
=> Make reasonable commercial efforts to expand its panel services to
build critical mass audience to enable offering the joint
products to research subjects in Europe and Asia.
=> Make reasonable commercial efforts to expand the percentage of the
NFOR panelists that can participate in on-line interactive focus
groups.
=> Will introduce appropriate NFOR clients to LiveWorld for the
purpose of LiveWorld soliciting their business for other
LiveWorld Products.
=> Will promote LiveWorld as the partner for these groups providing
quality community services.
<PAGE>
* Moderation of Focus Groups/Chats
=> In some cases, LWP will provide content moderation; in others,
NFOR will take responsibility for moderating the groups; in still
others, NFOR will provide content specialists and LWP will
provide audience and/or technical moderation.
=> In certain instances, moderators with special expertise (such as
medical expertise from M/K or financial services from PSI, or
high tech within Interactive) will be the most appropriate
individuals to conduct the focus groups. In these instances a
technical moderator from LiveWorld will be required for audience
and/or technical support during the session and training for the
industry specialist prior to the session.
=> LWP will work with NFOR to create a moderator pool comprised of
individuals with varying levels of capabilities that range from
technical facilitators to content specialists who are experienced
in focus group moderation. LWP will focus on providing
facilitation and simple moderation skills; NFOR, on content and
focus group expertise.
=> LWP commits to training NFOR and LWP moderators on use of LWP
technologies.
=> Both companies recognize the importance of effective focus group
moderation and commit to work together to ensure that client
expectations are met.
* Deliverables
=> The content expert for each project will be responsible for the
delivery of a top line summary report to the client. In most
cases, NFO will be responsible for report preparation.
=> The content of the report will usually be as follows:
* Objectives and methods (1 page bulleted text)
* Major findings: bulleted findings supported by verbatim
(2-3 pages bulleted text)
* Transcription of sessions.
* Demographics of attendees (no names).
=> Deliverable due within two working days of completion of the
groups.
* Financial Understanding
=> LWP recognizes that market research is NFOR's primary business;
NFOR recognizes that leveraging the value of its community chat
model across numerous applications is LWP's primary business.
=> NFOR will recognize all the revenue associated with the research
services of the alliance.
<PAGE>
=> For LWP's contributions to the conduct of a specific project, NFOR
will pay to LWP [*]% of a project's revenues (see pricing above)
less certain costs incurred by both parties; these include
standard technical moderation charges, standard and special
content moderation, compensation to participants, and low
incidence screener charges. The following are charges for
standard items (see spread sheet for examples of how this
arrangement will work.):
* $[*]/group for costs associated with technical
moderation to LWP
* $[*]/group for costs associated with basic content
moderation to whichever party provides the content
moderation
=> There is no specific license fee for NFOR's use of LWP's software.
* Billing
=> NFOR will manage all billing directly to the client, including
clients referred to NFOR by LWP.
=> In those cases, when a LiveWorld client wants the joint products
billed by LiveWorld as part of a LiveWorld package, NFOR will
consider LiveWorld to be the client and will bill accordingly.
=> NFOR will compensate LWP directly within a 30 days time of NFOR's
collection of revenues from the client and NFOR will make
reasonable commercial efforts to invoice and collect such revenue
within 30 days of a project's completion.
* Partnering Commitments
=> The LiveWorld Talk City website will maintain a prominent link to
NFOR's panel recruitment site with a banner or icon, which is
labeled appropriately to invite Talk City visitors to join the
NFOR Panel.
=> In the NFOR Interactive website, NFOR will maintain a prominent
link to LWP's Talk City site inviting visitors to visit Talk
City.
=> LWP will work with NFOR to build a template for all NFOR focus
groups. The template will identify both NFOR and Talk City.
=> NFOR Research will perform periodic market research for LWP. The
charge for this research will be at NFOR's recovery rate; charges
will offset fees owed by NFOR to LWP. The amount of research
performed by NFOR for LWP and as measured by the recovery costs
associated with its execution, will be limited to the amount owed
by NFOR to LWP unless otherwise expressly agreed to in writing by
NFOR and LWP.
=> NFOR will use the Talk City Logo in its Interactive Sales
Presentations, and will represent to our customers that we have
selected LiveWorld and Talk City
* Certain information on this page has been
omitted and filed separately with the commission.
Confidential treat-ment has been requested with
respect to the omitted portions.
<PAGE>
due to the quality community services, the firm's technology, its
technology capabilities and the firms experienced staff.
=> Both companies will promote the joint market research products to
their respective customers and to the marketplace and in general
recommend that its customers (advertiser, research buyers etc.
(not panel members or audience members) consider the other
products of the partner company and make introductions as
appropriate.
=> Both companies understand that the other's employees and
contractors are critical factors and assets to the respective
company's business and market differentiation. Each will endeavor
not to hire each other's people during the term of this contract
and for one year after its expiration.
Exclusivity
=> NFOR and LiveWorld agree to work with the other exclusively for a
period of 36 months as follows:
=> LiveWorld will not jointly market, sell and implement community
(including chat, discussion board or other community dialogue
type applications) based on-line market research with any other
company, including but not limited to market research companies
such as NPD, Market Facts, M/A/R/C/. Intelliquest, IDC, Computer
Intelligence, and Dataquest. This does not restrict LiveWorld
from researching its own community, or providing statistics or
other information derived from LiveWorld's services to others
including but not limited to partners or customers. Further,
LiveWorld is not restricted from providing syndicated survey
research based on surveys of its audience or the audiences of
partners and customers.
=> NFOR will not jointly market, sell and implement community
(including chat, discussion board or other community dialogue
type applications) based on-line market research with any other
company, including but not limited to on-line companies such as
AOL, MSN, CompuServe, Prodigy, Yahoo, Village, This does not
restrict NFOR from recruiting panelists via the Internet, or
conducting on-line survey research for other chat oriented
companies.
=> Should either party propose a new (beyond scope of this agreement)
market research service to the other, but the second party is not
be interested in pursuing it, then the first party can pursue it
on its own.
Term and Severance
=> The term of this agreement shall be 36 months from the date of
signing this agreement and renewable
=> Either party may cancel this contract with six months written
notice.
=> During such a six month period, both parties will be responsible
to implement the services described in this contract with the
other.
Signed:
/s/ Signature Illegible /s/ Signature Illegible
Charles B. Hamlin Peter Friedman
NFO Research, Inc. LiveWorld Productions
Date: May/13/1997 Date: May/13/1997
<PAGE>
EXHIBIT 10.15
OPERATING AGREEMENT
BY AND BETWEEN
COX INTERACTIVE MEDIA, INC.
AND
LIVEWORLD PRODUCTIONS, INC.
AUGUST 24, 1998
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TABLE OF CONTENTS 1
INTRODUCTION AND RECITALS 2
1. DEFINITIONS 2
2. CREATION, DEVELOPMENT, INTEGRATION AND OPERATION OF THE SERVICES 6
- General Concept 6
- LWP Obligations 7
- CIM Obligations 12
- Exclusivity 13
- Future Services Integration 14
- Timeline 15
- Approval and Removal of Content 15
- Registration, Collection, Reporting, Ownership, Use and Mining
of End User Data. 16
- Use of Trademarks 19
- Ownership of Content 19
3. PROMOTION AND MARKETING 19
4. ADVERTISING INVENTORY AND REVENUE ALLOCATIONS, SALES AND OTHER FINANCIAL TERMS 21
5. ALTERNATE RESPONSIBILITIES, GUIDELINES AND FINANCIAL TERMS 34
6. MOST FAVORED NATION 38
7. TERM, RENEWAL AND TERMINATION 38
8. REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATIONS 38
9. GENERAL PROVISIONS 40
10. SIGNATURES 43
EXHIBITS 44
List of Exhibits 44
Exhibits A-T 45
</TABLE>
08/26/98 LiveWorld Productions, Confidential Page 1
* Certain information in this Exhibit has been
omitted and filed with the Commission.
Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
INTRODUCTION
------------
This Operating Agreement (this "Agreement"), effective as of August 24,
1998 (the "Effective Date"), is made and entered into by and between LiveWorld
Productions, Inc., a California corporation ("LWP"), with offices at 307 Orchard
City Drive, Suite 350, Campbell, California, and Cox Interactive Media, Inc., a
Delaware corporation ("CIM"), with offices at 530 Means St., Suite 200, Atlanta,
Georgia 30318.
RECITALS
--------
WHEREAS, LWP owns and operates certain Internet sites and services
available through the World Wide Web (the "Web"), including the Talk City
Service (as defined below) and the OnNow Service (as defined below)
(collectively, the "LWP Services"), and is seeking to cross-integrate these
Internet sites and services with partners; and
WHEREAS, CIM owns and operates certain Internet sites and services
available through the Web, and owns or creates other products and services, and
is seeking to integrate into such Internet sites and services certain online
community services; and
WHEREAS, CIM and LWP desire to create, develop and market co-branded online
community services that will be cross-linked between the Talk City Service
and/or the OnNow Service and the Web sites of CIM, in accordance with the terms
of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, LWP and CIM agree as follows:
1. DEFINITIONS. The following definitions shall apply to this Agreement.
-----------
1.1 ADVERTISING. "Advertising" shall mean all online advertisements,
including but not limited to banner ads, "intermercials," and
Sponsorships (as defined below). "Advertising Revenue" shall mean
gross revenue charged to and received from each advertiser by LWP, CIM
or an Other Partner (as defined below) for the sale of Advertising in
the CIM Talk City Service (as defined below), the CIM Talk City Joint
Content Areas (as defined below), the CIM OnNow Service (as defined
below), the Talk City Service (as defined below), or the OnNow Service
(as defined below), or, if appropriate, the CIM Specific Areas (as
defined below). "Advertising Inventory" shall mean all Advertising
allocated to CIM, LWP or, if appropriate, an Other Partner.
1.2 CHAT. "Chat" shall mean an online chat among End Users originating
from one or more online services.
1.3 CIM ONNOW SERVICE. "CIM OnNow Service" shall mean the CIM OnNow co-
branded pages and Internet services providing a version of the OnNow
Service, which End Users access from links on CIM Sites and which
shall be created, maintained and operated pursuant to this Agreement.
2
<PAGE>
The CIM OnNow Service (i) shall include the full range of OnNow
functionalities, including but not limited to event guide, event
search, newsletters, and alerts, (ii) shall include the full range of
OnNow content and services, (iii) in some cases, by mutual agreement
of CIM and LWP, may include additional functions and content not
available on the OnNow Service, (iv) may exclude, as CIM may determine
from time to time at its discretion, functions and content that are
available on the Talk City Service or the OnNow Service and (v) shall
have a customized presentation such that End Users see a co-branded
display of the service and in some cases, by mutual agreement of CIM
and LWP, a customized display of the service's elements, such as, but
not limited to, promotional and featured content or banner ads.
1.4 CIM SITES. "CIM Sites" shall mean Web sites and/or Internet services
owned, operated, managed, distributed, authorized to be distributed,
promoted or licensed by or through or otherwise affiliated with CIM or
any CIM-Related Entity. A list of all current CIM Sites that will be
cross-integrated with the Talk City Service and/or the OnNow Service
(which list shall be subject to addition, amendment and modification
by CIM at any time in accordance with Section 2.2.1) is attached
hereto as EXHIBIT A.
1.5 CIM SPECIFIC AREAS. "CIM Specific Areas" shall mean the specific room,
rooms, or areas, including bulletin boards and auditorium events,
within the Talk City Service, the OnNow Service and the CIM Talk City
Joint Content Areas which are authorized and/or created with the
cooperation of CIM which contain certain branding, CIM designated
links, CIM technologies and/or content from the CIM Sites or any of
CIM's Related Entities to be provided by CIM in its sole discretion,
to which CIM or LWP directs End Users pursuant to this Agreement.
1.6 CIM TALK CITY AREAS. "CIM Talk City Areas" shall mean the CIM Talk
City Service, the CIM OnNow Service and the CIM Talk City Joint
Content Areas.
1.7 CIM TALK CITY JOINT CONTENT AREAS. "CIM Talk City Joint Content Areas"
shall mean the CIM and Talk City and CIM and OnNow co-branded content
areas within the Talk City Service, the CIM Talk City Service, the
OnNow Service and the CIM OnNow Service that may be jointly created by
LWP and CIM, and both of which shall be designated as "CIM Talk City
Joint Content Areas" by mutual agreement of LWP and CIM in accordance
with the procedures described in EXHIBIT B and to which End Users will
be able to gain access and be linked to from either the LWP Services
or the CIM Sites. The version of the CIM Talk City Joint Content Areas
viewed by a particular End User may depend on the way that End User
accesses such CIM Talk City Joint Content Area. The versions of the
CIM Talk City Joint Content Area accessed from CIM Sites shall be
known as "CIM-linked Talk City Joint Content Areas," while the
versions not accessed from CIM Sites shall be known as "General CIM
Talk City Joint Content Areas."
3
<PAGE>
1.8 CIM TALK CITY SERVICE. "CIM Talk City Service" shall mean the CIM and
Talk City co-branded pages and Internet services providing a version
of the Talk City Service, which End Users access from links on CIM
Sites and which shall be created, maintained and operated pursuant to
this Agreement.
The CIM Talk City Service (i) shall include the full range of Talk
City functionalities, including but not limited to Chats, Chat forums
and events, home pages/personal publishing tools, discussion boards,
instant messaging, bulletin boards and "buddy lists," (ii) shall
include the full range of Talk City content and services, (iii) in
some cases, by mutual agreement of CIM and LWP, may include additional
functions and content not available on the Talk City Service, (iv) may
exclude, as CIM may determine from time to time at its discretion,
functions and content that are available on the Talk City Service or
the OnNow Service and (v) shall have a customized presentation such
that CIM End Users see a co-branded display of the service and in some
cases, by mutual agreement of CIM and LWP, a customized display of the
service's elements, such as, but not limited to, promotional and
featured content or banner ads.
1.9 END USER. "End User" shall mean any person or entity which accesses
any online site or service. End Users accessing the CIM Talk City
Service, the CIM OnNow Service, the CIM Talk City Joint Content Areas,
or otherwise from CIM Sites shall be called "CIM End Users." End Users
accessing the Talk City Service or the OnNow Service, but not the CIM
versions of such services, and not from Other Partner Sites, shall be
called "LWP End Users". End Users accessing the Talk City Service or
the OnNow Service from Other Partner Sites will be called "Other
Partner End Users."
1.10 EXCESS INVENTORY. "Excess Inventory" shall mean Advertising Inventory
allocated to CIM or LWP as described in SECTION 4.3.2 ADVERTISING
INVENTORY SPLITS (i) that such party is unable to sell prior to the
day before the date on which such Advertising Inventory is first
scheduled to run or (ii) upon declaration or designation by the party
to which such Advertising Inventory was originally allocated pursuant
to SECTION 4.3.2 ADVERTISING INVENTORY SPLITS.
1.11 HEARST AGREEMENT. "Hearst Agreement" shall mean the Hearst-Talk City
Community Services Agreement, to be entered into by and between LWP
and Hearst Corporation ("Hearst"). "Hearst Area" shall mean the
Hearst/Talk City Area or Areas, as defined in the Hearst Agreement.
1.12 INVESTOR. "Investor" shall mean any company that has made or makes an
investment in any series of preferred stock of LWP.
1.13 LWP-BRANDED ONLINE STORES. "LWP-branded Online Stores" means the e-
commerce areas on the Talk City Service (as defined below) that sell
products branded with Talk City or OnNow marks, logos or brands or
branded with other LWP-owned marks, logos or brands.
4
<PAGE>
1.14 LWP GENERAL AREAS. "LWP General Areas" shall mean, collectively, any
and all "generic" areas within the LWP Services (as defined below)
that are not co-branded with CIM or any Other Partner (as defined
below) in a manner that is substantially similar to the co-branding
arrangement contemplated hereunder for the CIM versions of the LWP
Services (including, but not limited to, the CIM Talk City Service and
the CIM OnNow Service) and does not contain content from or supplied
by CIM.
1.15 LWP SERVICES. "LWP Services" means collectively, the Talk City
Service, the OnNow Service, future online sites operated by LWP and
any derivative or co-branded versions of all such services including
the CIM versions.
1.16 NBC AGREEMENT. "NBC Agreement" shall mean the NBC-Talk City Chat
Services Agreement, dated August 17, 1998, by and between LWP and NBC
Multimedia, Inc. ("NBC"). "NBC Area" shall mean the NBC/Talk City Area
or Areas, as defined in the NBC Agreement.
1.17 ONNOW SERVICE. "OnNow Service" shall mean the Web service owned and
operated by LWP under the brand name "OnNow" which provides a guide to
live events on the Internet and commercial online services.
1.18 OTHER PARTNERS. "Other Partners" (or individually, an "Other Partner")
shall mean other companies (which may include Investors) with whom LWP
has or forms site integration relationships or other relationships
relating to the development of content for the LWP Services or for the
distribution of End User traffic to or from the LWP Services. "Other
Traffic Partners" shall mean Other Partners that, in CIM's reasonable
judgment, provide or have the potential to provide substantial amounts
of End User traffic to the LWP Services and the CIM Talk City Areas.
"Other Content-only Partners" shall mean Other Partners, including but
not limited to NBC or Hearst, who have not agreed to split Advertising
Inventory with LWP or third parties, including CIM, with respect to
Other Partner Joint Content Areas (as defined in Section 4.3.1
hereof).
1.19 OTHER PARTNER SITES. "Other Partner Sites" shall mean the sites of
Other Partners from which End Users may access the Talk City Service
and the OnNow Service.
1.20 RELATED ENTITY. "Related Entity" shall mean any affiliate of LWP or
CIM, as the case may be. As used herein, an "affiliate" of a specified
entity means any other person or entity (i) that directly or
indirectly controls, is controlled by or is under common control with
such specified entity or (ii) of which the specified entity owns,
directly or indirectly at least 5% of the equity interests of such
other person or entity.
1.21 SPONSORSHIP. "Sponsorship" shall mean the payment by one or more
persons or entities, of all or substantially all of the advertising or
other costs associated with a specific event, program, forum or
service or series of such specific events, programs, forums or
services.
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1.22 TALK CITY SERVICE. "Talk City Service" shall mean the Web community
service owned and operated by LWP under the brand name "Talk City."
1.23 TERMS OF SERVICE OR CODE OF CONDUCT. The "Terms of Service or Code of
Conduct" shall mean any terms of service and code of conduct governing
Chats and content on any LWP Services which have been approved by CIM
for use with respect to the CIM Talk City Service areas and CIM Talk
City Joint Content Areas. A copy of the Terms of Service and Code of
Conduct, current as of the date hereof and which has been approved by
CIM, is attached hereto as EXHIBIT N.
1.24 TRANSACTION REVENUE. "Transaction Revenue" shall mean revenue earned,
received and collected on the transactional sale of goods and services
on online services.
"Partner Transaction Revenue" shall mean the commissions paid by
transaction service partners to LWP or CIM on Transaction Revenue
earned by those partners in the LWP Services or CIM Sites, as the case
may be. For LWP Services, such Transaction Revenue shall be called
"LWP Partner Transaction Revenue" and for CIM Sites, such Transaction
Revenue shall be called "CIM Partner Transaction Revenue."
"LWP Store Transaction Revenue" shall mean the gross Transaction
Revenue involving End Users of the LWP Services and earned by LWP in
the LWP-branded Online Stores on the Talk City Service, meaning LWP
recognizes, receives and collects the gross Transaction Revenue and
closes the transaction sale, and not meaning when an LWP transaction
partner is recognizing, receiving and collecting the gross Transaction
Revenue.
"CIM E-commerce Site Transaction Revenue" shall mean the Transaction
Revenue earned by CIM from CIM e-commerce sites for e-commerce
transactions involving End Users; provided, however, that revenue
splits may be paid by CIM for such CIM E-Commerce Site Transaction
Revenue for transactions involving End Users from the general versions
of the Talk City Service, the OnNow Service and Other Partner versions
of such LWP services, but not from the CIM Talk City Service, the CIM
OnNow Service or the CIM Talk City Joint Content Areas.
"E-commerce" transactions involving a LWP End User or a CIM End User
shall mean a commercial transaction in which an End User purchases
goods or services online, either directly from LWP or CIM, as the case
may be, or from a third party (with whom LWP or CIM, as the case may
be, have a revenue or fee sharing relationship or other similar
contractual relationship) by way of a hypertext or graphical link from
the LWP Services or a CIM Site, as the case may be.
2. CREATION, DEVELOPMENT, INTEGRATION AND OPERATION OF THE SERVICES.
-----------------------------------------------------------------
2.1 GENERAL CONCEPT. LWP with the collaboration of CIM will implement the
CIM Talk City Service and the CIM OnNow Service, which CIM will then
integrate into select
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CIM Sites. Select CIM Sites will be integrated by LWP and CIM into the
CIM Talk City Service and/or CIM OnNow Service and/or the Talk City
Service and/or the OnNow Service.
2.2 LWP OBLIGATIONS.
2.2.1 LWP SERVICE IMPLEMENTATION OF THE CO-BRANDED SERVICES. LWP
shall create, maintain and provide CIM and CIM-Related Entities
(and their affiliates and licensees) with the CIM Talk City
Service and CIM OnNow Service to be cross-integrated with the
CIM Sites listed in EXHIBIT A and with such other sites and
services as CIM may request to add to EXHIBIT A (which may
include Web sites of third parties for which CIM wishes to
license content, including the Talk City Service and the OnNow
Service), subject to (i) commercial reasonableness for LWP to
implement the requested service and its integration, (ii)
compliance with the LWP standards as described in EXHIBIT N (or
an updated version of such standards containing only such
modifications as may have been mutually agreed to by LWP and
CIM to the version attached as EXHIBIT N), and (iii) the
absence of any legal conflict with any other then-current
obligations of LWP and excluding sites of Direct LWP
Competitors as listed on EXHIBIT L. The CIM. Sites listed in
EXHIBIT A and such other sites and services as CIM may request
to add to Exhibit A (which may include Web sites of third
parties for which CIM wishes to license content, including the
Talk City Service and the OnNow Service), will be linked into
the Talk City Shops area of the Talk City Service and be
regularly and prominently promoted in appropriate shopping
venues on the Talk City Service and the CIM Talk City Service,
subject to each of (i) the revenue sharing clauses in SECTION
4.4 TRANSACTION REVENUE SHARING (ii) the most favored nations
status clauses in SECTION 2.2.2 LINKS AND ON SITE PROMOTIONAL
SPOTS and (iii) the exclusivity clauses in SECTION 2.4
EXCLUSIVITY.
Cross-integration of the services shall include, but not be
limited to: (i) cross-linking of each of the overall CIM Talk
City Service and CIM OnNow Service from and to the CIM Sites
and (ii) cross-linking of specific subsets of the CIM Talk City
Service and CIM OnNow Service to and from specific subsets of
CIM Sites, whether they be on the basis of function (for
example, chat, home pages, instant messages, message boards)
and/or content type (for example, College Community, Local
Community).
Customization of the CIM Talk City Service and the CIM OnNow
Service shall include but not be limited to (i) CIM co-
branding, (ii) links, promotional spots, calendar and event
listings, as may be reasonably requested by CIM and can be
implemented, in LWP's judgment, in a manner reasonably
consistent with the overall design strategy and implementation
of the Talk City and OnNow services, and (iii) exclusion of
links and promotional spots as may be reasonably requested by
CIM and reasonably implemented by LWP. LWP will list all CIM
Talk City Joint Content Areas and scheduled events relating to
the CIM Talk City Service, the CIM Talk City Joint Content
Areas and the CIM OnNow
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Service in the normal places such areas and events are listed
in Talk City, in both the CIM Talk City Service and the Talk
City Service and in the CIM OnNow Service and the OnNow
Service; provided, however, that Other Partners may choose to
exclude such listings on their versions of the Talk City
Service and/or the OnNow Service.
LWP will also provide hypertext and/or graphical links to the
CIM Sites listed in EXHIBIT A from the content-relevant areas
of the Talk City Service and the OnNow Service subject to their
being reasonably consistent with the overall design strategy
and implementation of the Talk City Service and the OnNow
Service. All such integration will be part of the general
implementation of the Talk City Service and the OnNow Service,
respectively; provided, however, that LWP reserves the right to
exclude from specific implementations of the Talk City Service
and/or the OnNow Service or subsets thereof, any and all
aspects of the CIM Sites, the CIM Talk City Service, the CIM
Talk City Joint Content Areas, and the CIM OnNow Service,
including but not limited to links and promotional spots, if a
LWP client (e.g., a sponsor or corporate services client) or
Other Partner specifically requests that these elements be
excluded from the implementation LWP is producing for that
client or Other Partner. The preceding proviso refers to the
general Talk City Service and OnNow Service and implementations
thereof for LWP's clients and Other Partners. It does not refer
to or allow exclusions from the CIM Talk City Service or the
CIM OnNow Service.
Examples of the general concept of the CIM Talk City Service
and the CIM OnNow Service, including the structure,
customization and cross-linking, are included in EXHIBIT C.
These examples are meant to illustrate such general concept,
and the specifics in these examples may or may not be actually
implemented.
LWP and CIM shall cooperate in good faith to develop such CIM
Talk City Joint Content Areas as the parties may mutually agree
to in accordance with the procedures described in EXHIBIT B.
CIM may request that new sites or services be designated as CIM
Talk City Joint Content Areas subject to (i) commercial
reasonableness for LWP to implement the requested site or
service and its integration, (ii) compliance with the LWP
standards as described in EXHIBIT N (or an updated version of
such standards containing only such modifications as may have
been mutually agreed to by LWP and CIM to the version attached
hereto as EXHIBIT N) and (iii) subject to not creating a legal
conflict with any other then-current obligations of LWP.
Examples of the general concept of the CIM Talk City Joint
Content Areas, including the structure, customization and
cross-linking, are included in EXHIBIT D. These examples are
meant to illustrate such general concept, and the specifics in
these examples may or may not be actually implemented.
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The CIM Talk City Service, the CIM OnNow Service and the CIM
Talk City Joint Content Areas shall be accessible by CIM End
Users from CIM Sites. The CIM Talk City Joint Content Areas
will be accessible to LWP End Users via the Talk City Service
or the OnNow Service. LWP will make the CIM Talk City Joint
Content Areas generally available to LWP End Users and Other
Partner End Users; provided, however, that LWP clients (e.g.
sponsors and/or corporate services clients) and Other Partners
may have the right to exclude the CIM Talk City Joint Content
Areas from specific implementations of the Talk City Service or
subsets thereof for those clients and Other Partners, in which
case the CIM Talk City Joint Content Areas might not be
displayed to the End Users of those implementations.
LWP will work with CIM to create all versions of the CIM Talk
City Service, the CIM Talk City Joint Content Areas and the CIM
OnNow Service using material to be supplied by CIM and CIM's
licensors, suppliers and agents. CIM and LWP agree that the
overall implementation and in particular the customization of
the CIM Talk City Service, the CIM OnNow Service and the CIM
Talk City Joint Content Areas, and each version thereof, will
be subject to CIM's final written approval of all aspects
thereof and any and all elements contained therein.
LWP shall retain total control of the main Talk City Service
and OnNow Service and its presentation to LWP End Users and to
Other Partner End Users.
2.2.2 LINKS AND ON SITE PROMOTIONAL SPOTS. LWP agrees to provide CIM-
branded hypertext and/or graphical links from the top levels on
the home page of both the Talk City Service and the OnNow
Service to the CIM Sites listed in EXHIBIT A. The size and
placement of these links which shall be mutually agreed upon by
the parties with the understanding that the final result must
be consistent with the then current overall Talk City Service
or OnNow Service design strategy and implementation and, in any
case, LWP will have final decision and approval on the
specifics. If multiple CIM Sites are to be linked, this may be
done via a pull down menu, by a link leading to a page with a
list of links or in any other manner that may be agreed upon by
the parties. An example of the general concept of the linking
to CIM Sites at the top level of the Talk City Service is
provided in EXHIBIT C. This example is meant to illustrate such
general concept, and the specifics in these examples may or may
not be actually implemented.
Additional specific links to the CIM Sites in EXHIBIT A, if
any, to be provided in the Talk City Service, OnNow Service,
CIM Talk City Service, CIM Talk City Joint Content Areas and/or
CIM OnNow Service are listed in EXHIBIT E. All such links will
be two-way, meaning if there is a link from the LWP Service to
the CIM Site, there will also be a comparable link back from
the CIM Site to the corresponding CIM Talk City Service or CIM
OnNow Service.
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In general, LWP shall grant to CIM most favored nations status
with Investors and preferential treatment compared to Other
Partners that are not Investors with regard to the placement,
positioning and size of links, the content for the Talk City
Service and/or the OnNow Service supplied by CIM, such
Investors and/or such Other Partners that are not Investors,
and also for the promotional treatment of the CIM Talk City
Joint Content Areas; provided, however, that it is understood
that this most favored nations status applies to links to CIM,
Investor and/or Other Partner owned and operated sites and
services and content from CIM, such Investors and/or such Other
Partners in general, and LWP may provide preferential
promotional treatment to specific non-CIM content and events
that in LWP's good faith judgment is of greater overall value
to End Users, advertisers or the LWP Services.
2.2.3 SYSTEM INFRASTRUCTURE AND SOFTWARE. LWP will provide all
necessary facilities, servers, connectivity and related
equipment and technology required to operate and host the CIM
Talk City Areas, including any bulletin boards, "buddy lists,"
instant messaging, chat events, home pages, event guides or
other Talk City and OnNow services, on LWP's Internet servers
and will ensure that such resources will support any LWP
services technology which CIM reasonably requests that LWP use
or support in connection with the CIM Talk City Service, the
CIM Talk City Joint Content Areas and/or the CIM OnNow Service
during the term of this Agreement. LWP agrees that, at all
times during the term of this Agreement, the system resources
it provides for the CIM Talk City Areas shall be sufficient to
support and manage all simultaneous End Users who wish to use
said services, at any time, within commonly accepted industry
expectations for performance.
LWP shall provide a means for End Users to download the
software required, if any, at no cost, for their general
participation in the CIM Talk City Service and the CIM OnNow
Service; provided, however, that if special LWP or third party
commercial software is required for any specific special or
premium service participation, then the End Users may be
required to pay standard fees, if any, for such software and/or
participation. Nothing in this Agreement shall be construed as
a license to CIM of any rights in or to such software. LWP
shall operate and maintain the Talk City Service, the CIM Talk
City Service, the OnNow Service and the CIM OnNow Service in a
high-quality manner which will be at least consistent with
LWP's then-current Terms of Service or Code of Conduct.
LWP shall bear all the costs of providing the general CIM Talk
City Service, the CIM Talk City Joint Content Areas, the CIM
OnNow Service and other services which it is obligated to
provide hereunder; provided, however, if the two parties
mutually agree otherwise for LWP to provide additional services
at a charge to CIM, then CIM will pay such charges.
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2.2.4 CHAT HOSTS AND COMMUNITY LEADERS. LWP shall be primarily
responsible for recruiting, engaging, training and compensating
all paid or volunteer hosts, personalities, content area
experts, producers and/or standards advisors for the chats and
community leadership roles in the CIM Talk City Service. CIM
may, at its sole discretion, provide personalities, hosts and
other content area experts for Chats taking place within the
CIM Talk City Service or information for display in the CIM
OnNow Areas.
Notwithstanding the foregoing, LWP shall provide, at no
additional cost to CIM, LWP's standard monitoring oversight
services for all chats in the CIM Talk City Service through and
by LWP's City Conference Crew ("CCCs") and LWP's Community
Standard Advisors ("CSAs"), and other such resources consistent
with LWP's approach to the overall Talk City Service.
LWP shall provide other chat hosting services for the CIM Talk
City Service (including without limitation assistance in
recruiting, engaging and basic training of qualified personnel
as chat hosts on an ongoing basis, within the standard LWP
practices and approaches), as may be reasonably requested by
CIM and subject to (i) commercial reasonableness for LWP to do
so or (ii) CIM paying the incremental cost of LWP to provide
such services.
LWP will not be obligated to provide moderation for any
bulletin boards or other similar services which CIM chooses to
include within the CIM Talk City Service, but CIM may choose to
supervise such bulletin boards or similar services itself if
and when it wishes and if it does so, will do so under the
general supervision, rules and guidelines of the Talk City
community management team and the LWP Code of Conduct.
2.2.5 TRANSCRIPTS. LWP agrees to supply CIM with text-based
transcripts of any special event Chats or other special events
on the Talk City Services for posting on the CIM Sites.
2.2.6 TECHNOLOGY. LWP and CIM agree to generally work together to
utilize and showcase each other's technologies in the
implementation of the Talk City Service, the OnNow Service, the
CIM Talk City Service and the CIM OnNow Service subject to the
commercial reasonableness for each of the respective parties.
Technologies that the parties specifically agree to utilize and
showcase and any specific requirements related to that use are
listed in EXHIBIT F; provided, however, that for the general
Talk City Service and the general OnNow Service, if a LWP
client (e.g., a sponsor or corporate services client) or an
Other Partner specifically requests that the utilized or
showcased CIM technologies be excluded from the specific
service implementations (or subsets thereof) that LWP is
creating for those clients or Other Partners, then LWP is
allowed to so exclude said technologies from those
implementations.
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2.2.7 ACCESS TO LWP BOOKING AGENT. LWP shall provide CIM with access
to LWP's booking agents to assist CIM in booking Chat guests
for Chat events or programs on and in the CIM Talk City
Service, with the understanding that such access is subject to
the terms and conditions of LWP's agreements with those agents
and that CIM shall bear any incremental costs associated with
CIM-specific activities.
2.2.8 ADDITIONAL LWP OBLIGATIONS. Additional LWP obligations relating
to service or product implementation, including but not limited
to the development and updating of instant messaging
capabilities, are listed in EXHIBIT G.
2.3 CIM OBLIGATIONS.
2.3.1 CIM SERVICE IMPLEMENTATION OF THE CO-BRANDED SERVICES. CIM will
collaborate, provide input and appropriate materials and
otherwise cooperate with LWP in the creation, ongoing
development, management and promotion of the CIM Talk City
Service, the CIM Talk City Joint Content Areas and the CIM
OnNow Service.
CIM will integrate the CIM Talk City Service as the featured
community service (themed communities, chat, home pages, etc.)
and the CIM OnNow Service as the featured online events guide
in the CIM Sites listed in EXHIBIT A. Examples of the general
concept of this are included in EXHIBIT H. These examples are
meant to illustrate such general concept, and the specifics in
these examples may or may not be actually implemented.
2.3.2 LINKS AND ON SITE PROMOTIONAL SPOTS. CIM agrees to provide, for
the term hereof, a Talk City-branded hypertext and/or graphical
link and an OnNow-branded hypertext and/or graphical link to
the CIM-co-branded versions of those services (the CIM Talk
City Service and the CIM OnNow Service, respectively) on the
top primary Home Page of the CIM Sites listed in EXHIBIT A and
in other appropriate areas in those sites. The size and
placement of these links shall be mutually agreed upon by the
parties with the understanding that the final result must be
consistent with the then current overall CIM design strategy
and implementation and, in any case, CIM will have final
decision and approval on the specifics. Additional specific
links required on the part of CIM are listed in EXHIBIT I. In
general, these links correspond to the links from LWP Services
as described in SECTION 2.2.2 LINKS AND ON SITE PROMOTIONAL
SPOTS and EXHIBIT E.
In general, CIM shall grant to LWP most favored nations status
with other CIM content and distribution partners with regard to
the placement, positioning and size of links from the CIM Sites
to the CIM Talk City Service and CIM OnNow Service; provided,
however, that it is understood that this most favored nations
status applies to LWP links in general, meaning that CIM may
provide preferential promotional treatment to specific content
or services of CIM content
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and distribution partners that in CIM's good faith judgment are
or greater overall value to End Users, advertisers or the CIM
Sites.
2.3.3 ADDITIONAL CIM OBLIGATIONS. Additional CIM obligations relating
to service or product implementation, if any are listed in and
attached hereto as EXHIBIT J.
2.4 EXCLUSIVITY.
2.4.1 GENERAL CONCEPT. CIM and LWP may agree to feature any or all of
each other's sites or services on an exclusive basis on a site
or service specific basis, meaning that they will not feature
any other substantially similar third party site or service.
Sites or services that will be featured exclusively will be
listed in EXHIBIT K.
2.4.2 LWP EXCLUSIVITY. For the CIM Sites listed in EXHIBIT K (which
must be the same list or a subset of the list of CIM Sites in
EXHIBIT A) and for such other CIM Sites as may from time to
time be added to EXHIBIT A and EXHIBIT K by mutual consent of
the two parties, LWP will provide Talk City Service integration
and OnNow Service integration on an exclusive basis, meaning
LWP will not develop and manage a co-branded version of the
Talk City Service and/or the OnNow Service for any other third
party Direct CIM Competitors to those CIM Sites listed in
EXHIBIT K, including the specific Direct CIM Competitors listed
in EXHIBIT L or as may be added from time to time to EXHIBIT L
by mutual agreement of the two parties, with the understanding
that such agreement will not be unreasonably withheld. It is
understood that "Direct CIM Competitor" in this case refers to
Internet sites specifically focused on the same locality or
subject matter as the CIM Sites listed in EXHIBIT K and not to
a larger aggregation or content site that among other things
includes such competitive content outside of its primary focus.
This exclusivity provision is meant to apply to work with other
third party companies and does not preclude LWP from any type
of content or function implementation for its services that is
developed and managed internally by LWP; provided, however,
that the exclusivity provision does preclude LWP from operating
a local content destination or local content based portal
aggregation site, meaning sites that focus on local content
with professional editorial focused on local content and/or
local content aggregation as the main point of the site. It is
understood that this does not refer to local oriented community
online services such as chats, discussion boards and home
pages. It is further understood that this exclusivity provision
does not apply to member generated content such as member chat
rooms and discussion boards, Chat @ Talk City Rooms or Talk
City Home Pages. This exclusivity provision shall not preclude
LWP from providing Talk City Service integration and/or OnNow
Service integration to any other major Investor in LWP, to that
major Investor's affiliates and subsidiaries or to any
companies that said major Investor has a ten
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percent (10%) or greater ownership position in, or any
additional exceptions specifically listed in EXHIBIT K.
2.4.2 CIM EXCLUSIVITY. For the CIM Sites listed in EXHIBIT K (which
must be the same list as or a subset of the list of CIM Sites
in EXHIBIT A), and for such other CIM Sites as may from time to
time be added to EXHIBIT A and EXHIBIT K by mutual consent of
the two parties, CIM will integrate and feature on an exclusive
basis the community services that are provided to it by LWP
through its CIM Talk City Service and its CIM OnNow Service,
meaning CIM will not integrate any other third party community
services into those CIM Sites listed in EXHIBIT K that are
Direct LWP Competitors to the Talk City Service and the OnNow
Service, including the specific Direct LWP Competitors listed
in EXHIBIT L or as may be added from time to time to EXHIBIT L
by mutual agreement of the two parties, with the understanding
that such agreement will not be unreasonably withheld;
provided, however, that it is understood that "Direct LWP
Competitor" in this case refers to Internet sites specifically
focused on the same subject matter as the Talk City Service
and/or the OnNow Service, not to a larger aggregation or
content site that among other things includes such competitive
content outside of its primary focus. For example, if CIM is
integrating and featuring Disney Blast or Excite Search
services which happen to include as a secondary element a Chat
function and/or event listing service, this would not be
considered a Direct LWP Competitor to the Talk City Service or
the OnNow Service; provided, however, that if specific sites or
specific subsets of sites are listed in EXHIBIT L as Direct LWP
Competitors, then those sites or subsets of sites will be
considered Direct LWP Competitors.
The exclusivity provision is meant to apply to work with other
third party companies and does not preclude CIM from any type
of content or function implementation for its services that is
developed and managed internally by CIM.
The two parties may from time to time, by mutual agreement, add
or subtract sites from EXHIBIT K and/or EXHIBIT L.
2.5 FUTURE SERVICE INTEGRATION.
2.5.1 GENERAL CONCEPT. LWP agrees to support future CIM services with
Talk City and OnNow integration subject to the reasonableness
of doing so and CIM agrees to make a good faith effort to
consider integrating future LWP services in and onto CIM Sites,
subject to the reasonableness of doing so.
2.5.2 LWP INTEGRATION WITH FUTURE CIM SITES. LWP agrees to provide
the CIM Talk City Service, the CIM Talk City Joint Content
Areas and the CIM OnNow Service to be integrated with any CIM
Sites that will be added to EXHIBIT A in the future (which may
include Web sites of third parties for which CIM wishes to
license content, including the Talk City Service and/or the
OnNow Service),
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under the terms of this Agreement and subject to (i) the
commercial reasonableness for LWP to do so, (ii) cross-links
with the future CIM Sites would be implemented in a manner
consistent with the terms of this Agreement, (iii) compliance
with the LiveWorld standards as described in EXHIBIT N hereof
(or an updated version of such standards containing any such
modifications as may have been mutually agreed to by LWP and
CIM to the version attached as EXHIBIT N) and (iv) any then-
current legal conflicts that might arise due to such
implementation.
2.5.3 CIM INTEGRATION OF FUTURE LWP SERVICES. CIM agrees to a make a
good faith effort to consider integrating future LWP services
into CIM's future online services, subject to (i) the
commercial reasonableness for CIM to do so, (ii) cross-links
with the future LWP services would be implemented consistent
with the terms of this Agreement, (iii) compliance of the new
LWP services with CIM's then current standards of services as
described in EXHIBIT N hereto (or an updated version of such
standards containing only such modifications as may have been
mutually agreed to by LWP and CIM to the version attached as
EXHIBIT N) and (iv) any then current legal conflicts that might
arise due to the implementation; provided, however, that CIM
retains the right, in its sole discretion, not to integrate LWP
services in future CIM services and/or to integrate other non-
LWP services.
2.5.4 NOTIFICATION AND ACKNOWLEDGMENT. Such future services will need
to be added to EXHIBITS A and EXHIBIT K, as appropriate, by CIM
and LWP upon notification and mutual acknowledgment of these
new sites and services and the mutual intent to integrate them.
2.6 TIMELINE.
LWP and CIM shall cooperate in good faith and use commercially
reasonable efforts to launch the CIM Talk City Service, the CIM Talk
City Joint Content Areas and the CIM OnNow Service as soon as feasible
after the date hereof, subject to the commercial availability of the
CIM Sites and in the most technically and commercially expedient
fashion, based on relevant engineering considerations and giving
effect to CIM's preferences in terms of roll-out of particular areas
on the Talk City Service and the OnNow Service.
See EXHIBIT M for a specific timeline.
2.7 APPROVAL AND REMOVAL OF CONTENT.
2.7.1 APPROVAL. LWP acknowledges that all material created or used by
LWP pursuant to the terms hereof, including in conjunction with
the CIM Specific Areas, will be subject to CIM's prior written
approval where practical and feasible. In addition, as long as
it complies with the terms of SECTION 4.3.2
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LWP SALES RIGHTS, RESPONSIBILITIES AND GUIDELINES, LWP will be
required to obtain CIM's prior written approval of any
Advertising or promotions which appear in any CIM Specific
Areas if feasible and practicable, provided that CIM will have
the right to require LWP to remove any such Advertising or
promotions appearing in the CIM Specific Areas to which CIM
reasonably objects. Any request for such approvals made by LWP
may be approved or rejected by CIM in its sole discretion. In
the case of Advertising or promotions to be placed in the CIM
Specific Areas which CIM permits LWP to sell and for which LWP
requests approval, CIM must make its decision within two (2)
business days of CIM's receipt of the request from LWP, and if
CIM neither approves nor rejects such Advertising or promotion
within such time period, then LWP shall have the right to place
it within the CIM Talk City Areas until such time as CIM
affirmatively requests that LWP remove it therefrom.
2.7.2 REMOVAL. CIM shall have the right to remove or cause to be
removed, from the CIM Talk City Areas any End User information,
statements or other material or content that CIM, at its sole
discretion, chooses to remove. CIM shall also have the right to
de-link or otherwise remove links from the CIM Sites, the CIM
Talk City Service, the CIM Talk City Joint Content Areas and/or
the CIM OnNow Services, to any content, Chats or web pages at
CIM's sole discretion.
In addition, LWP shall have the right to remove, or cause to be
removed, from the CIM Talk City Areas any information,
statements or other material which is not provided by CIM or
CIM's licensors, suppliers or agents, if such material is in
violation of any terms of LWP's then current Terms of Service
or Code of Conduct (current version attached hereto as EXHIBIT
N and approved herewith and subject to updates as may be
mutually agreed upon by LWP and CIM) which has been approved by
CIM for use in connection with the CIM Talk City Areas.
2.8 REGISTRATION, COLLECTION, REPORTING, OWNERSHIP, USE AND MINING OF END
USER DATA.
2.8.1 REGISTRATION. In general, all End Users accessing the CIM Talk
City Areas as well as the End Users coming from the CIM Sites
who access other areas of the Talk City Service or the On Now
Service will be presented with the opportunity to register
their personal chat nickname for use in chatting, message
boards or other non-premium Talk City Services. However, at all
times during the term of this Agreement, LWP agrees that all
End Users of the CIM Talk City Areas will have the right to use
such services at no cost as a guest user who will not be
required to complete a registration process, provided that CIM
acknowledges that any such guest users will not be permitted to
participate in Talk City Services using any nicknames reserved
by End Users of the Talk City Service who have completed the
required registration process. LWP agrees that CIM shall have
the reasonable right to customize, if technically feasible, the
registration process, including the look and feel thereof, for
any End Users of the
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CIM Talk City Areas. In addition, if LWP or CIM determine that
End Users should provide personal information in connection
with any of the registration processes for the CIM Talk City
Areas described above, then the parties must first mutually
agree that such registration process is necessary and then
mutually agree upon all aspects thereof.
2.8.2 COLLECTION. LWP shall electronically tag and track each End
User as they access and use the CIM Talk City Areas and supply
CIM with any aggregate End User data, traffic patterns, and
user feedback related to the CIM Talk City Areas, including any
use of Talk City Services by End Users coming from CIM Sites,
which LWP shall collect on a monthly basis. CIM may make
reasonable requests from time to time for LWP to provide it
with certain data regarding the CIM Talk City Areas collected
from individual End Users, subject to LWP's ability to receive
such data.
In addition, subject to industry standards on privacy and data
use, LWP will make reasonable commercial efforts when it
registers End Users and otherwise collects End User data to
specifically delineate End Users registering via CIM Talk City
Areas and to communicate to such End Users that their
individual data will be available to both Talk City (and/or
OnNow and/or LWP) and also to CIM. This CIM End User data will
be jointly owned by LWP and CIM and each of CIM and LWP may use
such data for the purposes of improving their services, for
targeting advertising, for communications to the CIM End Users,
in the aggregate for reporting information about their services
and for any other purpose commonly available to the owners of
such data, subject to the Privacy, Information and
Communication policies attached hereto as EXHIBIT O.
2.8.3 REPORTING. LWP shall provide CIM, on a monthly basis, with
reports which provide CIM with information collected by LWP
during the past month in connection with any of the
registration processes described in SECTION 2.8.1 REGISTRATION
above or from End Users of the CIM Talk City Areas who come
from the CIM Sites who elect to register after accessing any
Talk City Service outside of the CIM Talk City Areas (the
"Registration Information"). Subject to the terms OF SECTION
4.4 TRANSACTION REVENUE SHARING, CIM acknowledges that LWP may
offer, in LWP's sole discretion, in the future, certain premium
add-ons and services related to the Talk City Services;
provided, however, that if such premium add-ons and services
are offered or made available to End Users within the CIM Talk
City Areas, then such offers and promotions thereof will be
subject to the approval of CIM and if so approved will be no
more costly to the End Users coming from the CIM Talk City
Areas than to users coming from other areas of the Talk City
Service.
LWP shall also provide, on a monthly basis, CIM with reports on
individual CIM End User data regarding the CIM Talk City Areas,
subject to LWP's ability to receive data and disclosure
permissions from the CIM End-Users. LWP shall
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also make available to CIM, on a monthly basis or as CIM may
reasonably request from time to time, all other aggregate Talk
City and OnNow End User data, including without limitation data
made available to LWP through its relationships with its Other
Partners and Investors, subject to CIM and/or LWP mutually
agreeing with those Other Partners and Investors to share such
data with CIM and providing that such sharing does not violate
the Privacy and Information Policies in EXHIBIT O. CIM will use
this data on a confidential basis, but may report it in the
aggregate as part of overall reporting on CIM's services.
Additionally, on request, LWP will supply CIM with any
aggregate End User data, traffic patterns and user feedback
related to the CIM Talk City Areas which LWP shall collect on a
monthly basis. LWP shall not make data or information on a CIM-
specific basis available to any other person or entity and
shall otherwise keep all such data and information confidential
and treat it as "Confidential Information" subject to the
provisions of SECTION 9.9 CONFIDENTIALITY of this Agreement.
Finally, LWP will also make available to CIM LWP's data
analysis of the aggregate Talk City Service and aggregate OnNow
Service data and LWP's data analysis of the CIM Talk City
Areas.
In the event of the termination of this Agreement, LWP will
provide to CIM an electronic copy of the collected and archived
data and data analysis on registered End Users of the CIM Talk
City Areas as of the date of termination of this Agreement.
All data to which CIM is entitled to be furnished hereunder
shall be in formats and in accordance with such technical
specifications as may be reasonably requested by CIM and that
is practical for LWP to provide. LWP will provide such data in
the formats and according to the specifications listed in and
attached hereto as EXHIBIT P.
2.8.4 OWNERSHIP AND USE OF END USER INFORMATION. LWP and CIM shall
jointly own all Registration Information and other information
collected from End Users in connection with the CIM Talk City
Areas. Subject to the attached LWP Privacy and User Information
Policies (see EXHIBIT O for LWP's Privacy and User Information
Policies, current as of the date of this Agreement), and in any
case, all End Users shall be informed, via the LWP Privacy and
User Information Policies or otherwise, before registering or
submitting personal data and information, on how Registration
Information or other information may be used by either CIM or
LWP, and will be provided with the option of declining to
receive any or all of the mailings or other services offered by
either CIM or LWP. Both parties shall be permitted to use such
Registration Information and other information for marketing
and other purposes so approved through written
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notice by each party; provided, however, that no individual End
User data shall be released to any third party without the
express advance permission of such End User, and neither party
shall be allowed to use End User data for direct marketing or
direct solicitation purposes without the prior written consent
of the other party.
2.9 USE OF TRADEMARKS. LWP and CIM each acknowledge and agree that: (i)
each party's trade names and trademarks are and shall remain the sole
property of such owning party; (ii) nothing in this Agreement shall
confer any right of ownership in the other party's trade names and
trademarks; and (iii) each party may use the other's appropriate trade
names and trademarks within their online services and within their
sales and marketing material subject to prior ongoing approval by the
party that owns the trade names and trademarks involved and otherwise
in accordance with SECTION 3 PROMOTION AND MARKETING below.
2.10 OWNERSHIP OF CONTENT. Except for material previously owned by LWP and
provided for use hereunder and the material described IN SECTION 2.8.4
OWNERSHIP AND USE OF END USER INFORMATION, CIM and its licensees,
suppliers, agents and Related Entities, as appropriate, will own all
rights to the material in the CIM Talk City Service, the CIM OnNow
Service and the CIM Talk City Joint Content Areas that is supplied or
created by CIM or such licensees, suppliers, agents and Related
Entities for use therein.
3. PROMOTION AND MARKETING.
------------------------
3.1 GENERAL CONCEPT. CIM and LWP agree to co-market the CIM Talk City
Areas and the relationship between the companies with the goal of
growing these services and the two companies' other respective
services and with marketing program specifics to be agreed on mutually
by the two companies. LWP agrees to provide CIM and its designees with
a number of advertising impressions, in accordance with the terms and
conditions detailed in SECTION 3.6 PROMOTIONAL CONSIDERATION below.
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3.2 USE OF TRADEMARKS, LOGOS AND MATERIAL.
3.2.1 CIM USE OF LWP MATERIAL. CIM may use the Talk City, OnNow and
LiveWorld trademarks and logos, any depictions of the actual
CIM Talk City Areas or material created therefor pursuant
hereto, as well as any other material, names, logos and
trademarks of LWP that LWP chooses to make available to CIM at
its sole discretion (the "LWP Material") for the specific
purposes described in this Agreement and subject to the terms
hereof, in any marketing and promotional activities in which
CIM may choose to engage; provided, however, that such use
shall be made in accordance with any guidelines regarding such
LWP Material provided by LWP, including any amended guidelines
and any and all LWP guidelines regarding the use of LWP
intellectual property, talents' names, likenesses and images as
well as any other requirement related thereto.
CIM will provide LWP with samples of marketing literature and
material that include any LWP Material for purposes of
determining compliance with LWP's guidelines prior to any use
thereof.
3.2.2 LWP USE OF CIM MATERIAL. LWP may use any material supplied to
LWP by CIM, including any CIM names, logos and trademarks
included therein (the "CIM Material") for the specific purposes
described herein and subject to the terms hereof. In addition,
LWP may use CIM Material in any marketing and promotional
activities in which LWP may choose to engage; provided,
however, that such use shall be made in accordance with any
guidelines regarding such CIM Material provided by CIM,
including any amended guidelines and any and all CIM guidelines
regarding the use of CIM intellectual property, talents' names,
likenesses and images as well as any other requirement related
thereto.
LWP will provide CIM with samples of marketing literature and
material that include any CIM Material for purposes of
determining compliance with CIM's guidelines prior to any use
thereof.
3.3 STATEMENTS. Neither party will make any statements to the effect, or
which imply, that any other party "certifies," endorses or guarantees
the performance of any service or product of such party. Except as
otherwise provided in a separate agreement between the parties,
neither party will use or display any name, trademark or logo of the
other party hereto in any other way or after the termination of this
Agreement.
3.4 PRESS RELEASES. CIM and LWP agree to issue (a) mutually agreeable
joint press release(s) about this Agreement and the relationship
between them and for the launch of the CIM Talk City Areas and for any
other events and topics of public interest about which the parties
mutually agree. Notwithstanding the foregoing but subject to the terms
of SECTION 9.9 CONFIDENTIALITY, either party may issue press releases
that are required by law or regulation without the consent of the
other party.
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3.5 CO-MARKETING. CIM and LWP each shall use other commercially reasonable
efforts to direct End-Users toward the CIM Talk City Areas and shall
cooperate in good faith to explore other commercially reasonable
opportunities to market or co-market their services together in online
and offline media; provided, however, that the parties acknowledge
that CIM has not guaranteed that any such cross-marketing or promotion
will actually occur.
3.6 PROMOTIONAL CONSIDERATION FOR CIM. In consideration of this Agreement,
in the Initial Term and in each of any Renewal Terms, LWP shall
provide to CIM, or any other party designated by CIM which is not an
online chat service provider or Direct LWP Competitor as listed hereto
on EXHIBIT L, a total of at least [*] ([*]) barter advertising
impressions (per year) for use in promoting the CIM Sites or any Web
site(s) or other products or services of CIM or its designees which do
not compete with the Talk City Service. In the event that the
otherwise available advertising banner inventory in the Talk City
Service becomes more than [*] percent ([*]%) sold out, LWP shall have
the right to request in writing that CIM forgo a portion of the
inventory described above, and CIM shall not unreasonably refuse such
request; provided, however, that if LWP sells such inventory, then
such sales shall be subject to the terms of SECTION 4.2.1 ADVERTISING
REVENUE ALLOCATIONS. If LWP is unable to sell all of such inventory,
then each of the parties shall have the right to use [*] percent
([*]%) of such unsold Advertising Inventory to advertise any of such
party's Web site(s) or other products or services or its designees
which are not Direct CIM Competitors or Direct LWP Competitors.
LWP will provide a prominent CIM-approved and CIM-branded graphical
link to the CIM Talk City Areas placed above the fold on the home page
of both the Talk City Services and the OnNow Services at all times
during the term of this Agreement. LWP will also include Chat Room
Chat events and features in the Talk City Service or OnNow Services'
calendar of events, subject to CIM approval. LWP will include the
links to and promotion of areas within the CIM Talk City Areas related
to the CIM Sites described in EXHIBIT A hereto. In return, LWP agrees
to provide an above the fold graphical link to the CIM Talk City Areas
from the home page of the LWP Services, the size and placement of
which shall be mutually agreed upon by the parties.
4. ADVERTISING INVENTORY AND REVENUE ALLOCATIONS, SALES, AND OTHER FINANCIAL
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TERMS.
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4.1 GENERAL CONCEPT. CIM and LWP shall both have rights to sell
Advertising Inventory on the CIM Talk City Areas. The two companies
will share in the revenue from such sales by either company.
4.2 ADVERTISING SALES AND ADVERTISING MANAGEMENT RESPONSIBILITIES.
4.2.1 GENERAL. Both LWP and CIM will be able to sell Advertising
for the CIM Talk City Areas.
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Confidental treatment has been requested with
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4.2.2 CIM SALES RIGHTS, RESPONSIBILITIES AND GUIDELINES: CIM will
have the following rights to sell Advertising for CIM Talk
City Areas.
(i) CIM will make a good faith effort to the sell the
Advertising Inventory made available to it hereunder.
(ii) For Advertising that CIM sells, it will be
responsible for the account management, billing and
collections from the client and for payment of
revenue splits to LWP.
(iii) CIM will sell the Advertising Inventory it is
allocated from the CIM Talk City Areas packaged into
CIM site packages and not specifically as Talk City
or OnNow.
(iv) CIM controls and sets pricing for its sales of
Advertising Inventory and will follow the CIM
advertising sales guidelines attached in EXHIBIT Q.
(v) CIM will work within the then-current LWP
advertisement standards, the current version of which
is attached hereto in EXHIBIT Q, then-current
advertising technical standards, inventory, and other
customary and reasonable ad/ad process guidelines. If
CIM is using LWP's ad management services, then CIM
will also work within such customary and reasonable
standard insertion order, ad scheduling and ad
management systems, process and policies as may be
established by LWP.
(vi) CIM agrees to work with LWP to develop a methodology
for coordinating and selling advertising for the CIM
Talk City Areas so that they can avoid confusion in
the marketplace and will work together and coordinate
advertising placements in order to avoid conflicts
between advertising displayed on the CIM Talk City
Areas.
(vii) Media Personalities. If CIM is selling and running
-------------------
ads on the CIM Talk City Areas in conjunction with
the appearance or promotion of a media personality on
the service, then CIM will not make any statements to
the effect, or which imply, that any such media
personality "certifies," endorses or guarantees the
performance of any service or product of such party
unless CIM has otherwise arranged to do so directly
with the media personality or that media
personality's representatives.
(viii) CIM agrees that the advertising it sells and places
in the CIM Talk City Service and the CIM OnNow
Service will not include advertising for any
competitor to any business of LWP of which LWP has
provided CIM notice in EXHIBIT R, attached hereto.
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(ix) CIM will remove from the CIM Talk Areas any
Advertising that LWP reasonably requests be removed
on the basis that such Advertising violates the then-
current LWP advertising standards, a current copy of
which is attached hereto as EXHIBIT Q.
4.2.3 LWP SALES RIGHTS, RESPONSIBILITIES AND GUIDELINES. LWP will
have the following rights to sell Advertising for the CIM
Talk City Areas.
(i) LWP will make a good faith effort to the sell the
Advertising Inventory made available to it hereunder,
and shall use all commercially reasonable efforts to
require each of its Other Partners to make good faith
efforts to sell any Advertising Inventory allocated
to such Other Partner under SECTIONS 4.3.2(III) AND
4.3.2(IV) of this Agreement.
(ii) For Advertising Inventory that LWP sells, it will be
responsible for the account management, billing and
collections from the client and for payment of
revenue splits to CIM.
(iii) LWP will sell the Advertising Inventory it is
allocated from the CIM Talk City Areas packaged into
Talk City and OnNow site packages and not
specifically as CIM Sites.
(iv) LWP shall control and set pricing for its sales of
Advertising Inventory, and will follow the LWP
advertising sales guidelines attached hereto as
EXHIBIT Q.
(v) LWP will remove from the CIM Talk City Areas any
Advertising that CIM reasonably requests be removed
on the basis of such Advertising's violations of then
current CIM advertising standards (a copy of the
current CIM advertising standards is attached hereto
as EXHIBIT Q).
(vi) LWP agrees to work with CIM to develop a methodology
for coordinating and selling advertising for the CIM
Talk City Areas so that they can avoid confusion in
the marketplace and will work together and coordinate
advertising placements in order to avoid conflicts
between advertising displayed on the CIM Talk City
Service, CIM Talk City Joint Content Areas and the
CIM OnNow Service.
(vii) Media Personalities. If LWP is selling and running
-------------------
ads on the CIM Talk City Areas in conjunction with
the appearance or promotion of a media personality on
the service, then LWP will not make any statements to
the effect, or which imply, that any such media
personality "certifies," endorses or guarantees the
performance of any service or product of such party
unless LWP has otherwise arranged to do so directly
with the media personality or that media
personality's representatives.
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(viii) LWP agrees that the Advertising it sells and places
in the CIM Talk City Areas will not include
Advertising for any competitor to any business of CIM
of which CIM has provided LWP notice in EXHIBIT R,
attached hereto.
4.3 ADVERTISING INVENTORY SPLITS, ADVERTISING REVENUE SHARING AND
TREATMENT OF EXCESS INVENTORY.
4.3.1 GENERAL CONCEPT. The two parties agree to split Advertising
Inventory and share Advertising Revenue sold by either party
on the CIM Talk Areas and, where applicable, the Talk City
Service, the OnNow Service or areas within the Talk City
Service or OnNow service containing content from Other
Partners (the "Other Partner Joint Content Areas") and to
share revenue from Excess Inventory as detailed herein. The
two parties agree to manage the Advertising Inventory to
facilitate coordination of the Advertising sales and revenue
sharing.
4.3.2 ADVERTISING INVENTORY SPLITS
GENERAL CONCEPT. Advertising Inventory shall be allocated
among CIM, LWP and Other Partners to recognize, reward and
provide incentives for contributions by such parties of
content, End User traffic and online infrastructure. The
terms and conditions contained in this SECTION 4.3.2
ADVERTISING INVENTORY SPLITS shall not apply to any NBC
Areas, Hearst Areas or Other Partner Joint Content Areas
unless NBC, Hearst and/or such Other Partners agree to adopt
or substantially adopt such terms and conditions.
Advertising Inventory shall be allocated to CIM, LWP and
Other Partners as follows:
(i) CIM End Users to the CIM-linked Talk City Joint Content
Areas.
If a CIM End User accesses a CIM-linked Talk City Joint
Content Area, [*] percent ([*]%) of the overall
Advertising Inventory for such CIM-linked Talk City
Joint Content Area shall be allocated to CIM to sell,
while [*] percent ([*]%) of such overall
Advertising Inventory shall be allocated to LWP to
sell.
(ii) CIM End Users to the CIM Talk City Service and the CIM
OnNow Service.
If a CIM End User accesses the CIM Talk City Service or
the CIM OnNow Service, [*] percent ([*]%) of the
overall Advertising Inventory on the CIM Talk City
Service and the CIM OnNow Service, as appropriate, that
is accessed by such CIM End User shall be allocated to
CIM to sell, while the remaining fifty percent of such
overall Advertising Inventory shall be allocated to LWP
to sell.
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(iii) End Users from CIM Sites to Other Partner Joint
Content Areas.
If a CIM End User accesses an Other Partner Joint
Content Area, [*] percent ([*]%) of the overall
Advertising Inventory on such Other Partner Joint
Content Area shall be allocated to CIM to sell. The
Other Partner contributing content to such Other
Partner Joint Content Area ("Other Content Partner")
shall be allocated [*] percent ([*]%) of the overall
Advertising Inventory in such Other Partner Joint
Content Area, or in such percentage and other terms
as mutually agreed upon by LWP and such Other
Partner; provided, however, that LWP shall not make
any agreement with any Other Content Partner or third
party that will result in the allocation of less than
[*] percent ([*]%) of the overall Advertising
Inventory on such Other Partner Joint Content Area to
CIM to sell; provided further, however, that LWP may,
in its sole discretion, enter into agreements with
NBC, Hearst, and Other Content-only Partners pursuant
to which no Advertising Inventory on their Other
Partner Joint Content Areas will be allocated to CIM,
in which case SECTIONS 4.3.3(V) and 4.3.3(VI)
ADVERTISING REVENUE SHARING shall apply. LWP shall be
responsible for collecting any revenue split from
Other Content Partner's sales of Advertising
Inventory on such Other Partner Joint Content Areas
due to CIM under SECTION 4.3.3(III) ADVERTISING
REVENUE SHARING below and for promptly remitting such
Advertising Revenue to CIM.
(iv) End Users from Non-CIM Sites to General CIM Talk City
Joint Content Areas.
If an End User other than a CIM End User accesses a
General CIM Talk City Joint Content Area, [*] percent
([*]%) of the overall Advertising Inventory for such
General CIM Talk City Joint Content Area shall be
allocated to CIM to sell, while [*] percent ([*]%) of
such overall Advertising Inventory shall be allocated
to LWP to sell. If the End User accessing a General
CIM Talk City Joint Content Area comes from an Other
Partner site or service, with whom LWP has an
Advertising Inventory splitting agreement, LWP may
give a portion of its [*] percent ([*]%) overall
allocation of Advertising Inventory to such Other
Partner to sell, in such percentage and other terms
as mutually agreed upon by LWP and such Other
Partner; provided, however, that LWP shall not make
any agreement with any Other Partner or third party
that will result in the allocation of less than [*]
percent ([*]) of the overall Advertising Inventory
on such General CIM Talk City Joint Content Areas to
CIM to sell. LWP shall be responsible for collecting
any revenue split from Other Partner's sales of
Advertising Inventory on such General CIM Talk City
Joint Content Areas due to CIM under
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Confidental treatment has been requested with
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SECTION 4.3.3(IV) ADVERTISING REVENUE SHARING below
and for promptly remitting such Advertising Revenue
to CIM.
All Advertising Inventory allocations to CIM, LWP and/or
Other Partners shall be determined by reference to the
preceding month's actual Advertising Inventory for each
relevant Web site or service.
4.3.3 ADVERTISING REVENUE SHARING.
GENERAL CONCEPT. [*] percent ([*]%) of the Advertising
Revenue sold and collected by CIM, LWP or, to the extent
applicable, an Other Partner (each a "Selling Party" and
collectively, the "Selling Parties") pursuant to the terms
of SECTION 4.3.2 ADVERTISING INVENTORY SPLITS above, shall
be retained by such Selling Party, and the remaining
[*] percent ([*]%) shall be remitted to the non-Selling
Party or if applicable, to the non-Selling Parties. The
[*] percent ([*]%) difference between the Advertising
Revenue retained by a Selling Party and a non-Selling Party
shall represent consideration to the Selling Party for costs
incurred in selling allocated Advertising Inventory or
Excess Inventory, including but not limited to taxes,
advertising agency fees and sales commissions. An
illustrative table for splitting inventory, sharing revenue
and calculating revenue shares by and among CIM, LWP and
where applicable, Other Partners, based on the Advertising
Inventory splits contemplated in SECTION 4.3.2, is attached
hereto as EXHIBIT S.
Advertising Revenue shares shall be calculated as follows:
(i) CIM End Users to the CIM-linked Talk City Joint Content
Areas.
(a) CIM shall retain [*] percent ([*]%) of the
Advertising Revenue that CIM sells and collects from
the [*] percent ([*]%) of the overall
Advertising Inventory it is allocated under SECTION
4.3.2(I) of this Agreement, plus [*] percent
([*]%) of the Advertising Revenue that LWP sells and
collects from the [*] percent ([*]%) of the
overall Advertising Inventory LWP is allocated under
SECTION 4.3.2(I). Assuming, for illustrative purposes
only, that one hundred percent (100%) of the
Advertising Inventory allocations to CIM and LWP are
sold and all such allocations are sold for the same
price, CIM shall receive an aggregate of
[*] percent ([*]%) of the total Advertising
Revenue from sales of Advertising Inventory on the CIM-
linked Talk City Joint Content Areas.
(b) LWP shall retain [*] percent ([*]%) of the
Advertising Revenue that LWP sells and collects from
the [*] percent ([*]%) of the overall
Advertising Inventory it is allocated under SECTION
4.3.2(I) of this Agreement, plus [*] percent
([*]%) of the Advertising Revenue that CIM sells and
collects from the [*] percent ([*]%)
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of the overall Advertising Inventory CIM is allocated
under SECTION 4.3.2(I). Assuming, for illustrative
purposes only, that one hundred percent (100%) of the
Advertising Inventory allocations to CIM and LWP are
sold and all such allocations are sold for the same
price, LWP shall receive an aggregate of [*] percent
([*]%) of the total Advertising Revenue from sales of
Advertising Inventory on the CIM-linked Talk City
Joint Content Areas
(ii) CIM End Users to the CIM Talk City Service and the
CIM OnNow Service.
(a) CIM shall retain [*] percent ([*]%) of the
Advertising Revenue that CIM sells and collects from
the [*] percent ([*]%) of the overall Advertising
Inventory it is allocated under SECTION 4.3.2(II) of
this Agreement, plus [*] percent ([*]%) of the
Advertising Revenue that LWP sells and collects from
the [*] percent ([*]%) of the overall Advertising
Inventory LWP is allocated under SECTION 4.3.2(II).
Assuming, for illustrative purposes only, that one
hundred percent (100%) of the Advertising Inventory
allocations to CIM and LWP are sold and all such
allocations are sold for the same price, CIM shall
receive an aggregate of [*] percent ([*]%) of the
total Advertising Revenue from sales of Advertising
Inventory on the CIM Talk City Service and the CIM
OnNow Service.
(b) LWP shall retain [*] percent ([*]%) of the
Advertising Revenue that LWP sells and collects from
the [*] percent ([*]%) of the overall Advertising
Inventory it is allocated under SECTION 4.3.2(II) of
this Agreement, plus [*] percent ([*]%) of the
Advertising Revenue that CIM sells and collects from
the [*] percent ([*]%) of the overall Advertising
Inventory CIM is allocated under SECTION 4.3.2(II).
Assuming, for illustrative purposes only, that one
hundred percent (100%) of the Advertising Inventory
allocations to CIM and LWP are sold and all such
allocations are sold for the same price, LWP shall
receive an aggregate of [*] percent ([*]%) of the
total Advertising Revenue from sales of Advertising
Inventory on the CIM Talk City Service and the CIM
OnNow Service.
(iii) End Users from CIM Sites to Other Partner Joint
Content Areas.
(a) CIM shall retain [*] percent ([*]%) of the
Advertising Revenue that CIM sells and collects from
the [*] percent ([*]%) of the overall Advertising
Inventory it is allocated under SECTION 4.3.2(III) of
this Agreement, plus [*] percent ([*]%) of the
Advertising Revenue that LWP sells and collects from
the [*] percent ([*]%) of the overall Advertising
Inventory LWP is allocated under SECTION 4.3.2(III).
Assuming, for illustrative purposes only, that one
hundred
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percent (100%) of the Advertising Inventory allocations
to CIM, LWP and an Other Content Partner are sold and
all such allocations are sold for the same price, CIM
shall receive an aggregate of [*] percent ([*]%) of the
total Advertising Revenue from sales of Advertising
Inventory on such Other Partner Joint Content Areas.
(b) LWP shall retain [*] percent ([*]%) of the
Advertising Revenue that LWP sells and collects from
the overall Advertising Inventory it is allocated under
SECTION 4.3.2(III) of this Agreement, plus [*] percent
([*]%) of the Advertising Revenue that CIM sells and
collects from the [*] percent ([*]%) of the overall
Advertising Inventory CIM is allocated under SECTION
4.3.2(III), plus [*] percent ([*]%) of the Advertising
Revenue from the overall Advertising Inventory
allocated to an Other Content Partner under SECTION
4.3.2(III), minus [*] percent ([*]%) of the [*] percent
([*]%) of the Advertising Revenue from the [*] percent
([*]%) of the overall Advertising Inventory CIM is
allocated under SECTION 4.3.2(III), minus [*] percent
([*]%) of the Advertising Revenue from the overall
Advertising Inventory LWP is allocated under SECTION
4.3.2(III). The exact aggregate total Advertising
Revenue LWP shall receive from sales of Advertising
Inventory on any Other Partner Joint Content Areas
shall be dependent on the percentage of Advertising
Inventory on such Other Partner Joint Content Area LWP
agrees to allocate to any particular Other Content
Partner pursuant to SECTION 4.3.2(III), and percentages
of Advertising Revenue to be shared with any Other
Content Partner that are mentioned in this subsection
are included for illustrative purposes only.
(c) For illustrative purposes only, it is assumed that
the Other Content Partner that provides content for any
particular Other Partner Joint Content Area shall
receive [*] percent ([*]%) of the Advertising Revenue
from the overall Advertising Inventory allocated to
such Other Content Partner under SECTION 4.3.2(III),
plus [*] percent ([*]%) of the Advertising Revenue from
the overall Advertising Inventory allocated to LWP
under SECTION 4.3.2(III), plus [*] percent ([*]%) of
the [*] percent ([*]%) of the Advertising Revenue from
the [*] percent ([*]%) of the overall Advertising
Inventory CIM is allocated under SECTION 4.3.2(III).
The exact aggregate total Advertising Revenue an Other
Content Partner shall receive from sales of Advertising
Inventory on any Other Partner Joint Content Areas
shall be dependent on the percentage of Advertising
Inventory on such Other Partner Joint Content Area LWP
agrees to allocate to any particular Other Content
Partner pursuant to SECTION 4.3.2(III), and percentages
of Advertising Revenue to be shared with any Other
Content Partner that are mentioned in this subsection
are included for illustrative purposes only.
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(iv) End Users from Non-CIM Sites to General CIM Talk City
Joint Content Areas.
(a) CIM shall retain [*] percent ([*]%) of the
Advertising Revenue that CIM sells and collects from
the [*] percent ([*]%) of the overall Advertising
Inventory it is allocated under SECTION 4.3.2(IV) of
this Agreement, plus [*] percent ([*]%) of the
Advertising Revenue that LWP sells and collects from
the [*] percent ([*]%) of the overall Advertising
Inventory LWP is allocated under SECTION 4.3.2(IV),
plus [*] percent ([*]%) of the [*] percent ([*]%) of
the Advertising Revenue from the [*] percent ([*]%) of
the overall Advertising Inventory allocated to Other
Partners under SECTION 4.3.2(IV). Assuming, for
illustrative purposes only, that one hundred percent
(100%) of the Advertising Inventory allocations to CIM,
LWP and the Other Partner from which End Users accessed
the CIM Talk City Joint Content Area are sold and all
such allocations are sold for the same price, CIM shall
receive an aggregate of [*] and [*] percent ([*]%) of
the total Advertising Revenue from sales of Advertising
Inventory on such General CIM Talk City Joint Content
Areas.
(b) LWP shall receive [*] percent ([*]%) of the
Advertising Revenue that CIM sells and collects from
the [*] percent ([*]%) overall Advertising Inventory
CIM is allocated under SECTION 4.3.2(IV) of this
Agreement, plus [*] percent ([*]%) of the Advertising
Revenue from the overall Advertising Inventory Other
Partners are allocated under SECTION 4.3.2(IV), plus
[*] percent ([*]%) of the Advertising Revenue from the
overall Advertising Inventory allocated to LWP under
SECTION 4.3.2(IV), minus [*] percent ([*]%) of the [*]
percent ([*]%) of the Advertising Revenue from the
overall Advertising Inventory allocated to Other
Partners under SECTION 4.3.2(IV). The exact aggregate
total Advertising Revenue LWP shall receive from sales
of Advertising Inventory on any General CIM Talk City
Joint Content Areas shall be dependent on the
percentage of Advertising Inventory on such General CIM
Talk City Joint Content Area LWP agrees to allocate to
any particular Other Partner pursuant to SECTION
4.3.2(IV), and percentages of Advertising Revenue to be
shared with an Other Partner that are mentioned in this
subsection are included for illustrative purposes only.
(c) For illustrative purposes only, it is assumed that
any Other Partner providing End User traffic
distribution to a General CIM Talk City Joint Content
Page shall receive [*] percent of the
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<PAGE>
Advertising Revenue from the overall Advertising
Inventory allocated to such Other Partner under SECTION
4.3.2(IV), plus [*] percent ([*]%) of the Advertising
Revenue from the overall Advertising Inventory
allocated to LWP under SECTION 4.3.2(IV). The exact
aggregate total Advertising Revenue a particular Other
Partner shall receive from sales of Advertising
Inventory on any General CIM Talk City Joint Content
Areas shall be dependent on the percentage of
Advertising Inventory on such General CIM Talk City
Joint Content Area LWP agrees to allocate to such Other
Partner pursuant to SECTION 4.3.2(IV), and percentages
of Advertising Revenue to be shared with an Other
Partner that are mentioned in this subsection are
included for illustrative purposes only.
(v) End Users from CIM Sites to Other Content-only Partner
Areas
(a) If a CIM End User accesses Other Partner Joint
Content Areas of Other Content-only Partners ("Other
Content-only Partner Areas"), including but not limited
to the NBC Areas and the Hearst Areas, CIM shall
receive [*] percent ([*]%) of the [*] percent ([*]%) of
the Advertising Revenue LWP receives from the sale of
Advertising Inventory by the Other Content-only Partner
on such Other Content-only Partner Areas.
(a) If a CIM End User accesses Other Content-only
Partner Areas, including but not limited to the NBC
Areas and the Hearst Areas, LWP shall receive [*]
percent ([*]%) of the [*] percent ([*]%) of the
Advertising Revenue LWP receives from the sale of
Advertising Inventory by the Other Content-only Partner
on such Other Content-only Partner Areas.
(vi) End Users from Other Content-only Partner Areas to CIM
Talk City Areas
(a) If an End User from an Other Content-only Partner
Area accesses CIM Talk City Areas, CIM shall receive
[*] percent ([*]%) of Advertising Revenue it receives
from the sale of Advertising Inventory on such
particular CIM Talk City Areas.
(b) If an End User from an Other Content-only Partner
Area accesses CIM Talk City Areas, LWP shall receive
[*] percent ([*]%) of Advertising Revenue CIM
receives from the sale of Advertising Inventory on such
particular CIM Talk City Areas, from which LWP shall
allocate and remit [*] percent ([*]%), or such
other percentage as LWP and such Other Content-only
Partner shall mutually agree upon, to such Other
Content-only Partner.
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LWP shall be responsible for collecting, remitting to CIM
and, if necessary, auditing the Advertising Revenue split
from Other Partner sales of Advertising Inventory in the
circumstances described in SECTIONS 4.3.3(III) and
4.3.3(IV).
4.3.4 TREATMENT OF EXCESS INVENTORY. In the event that CIM or LWP
finds that it has been allocated Excess Inventory for the
CIM Talk City Service, the CIM OnNow Service and the CIM
Talk City Joint Content Areas, then the party allocated such
Excess Inventory shall make a good faith effort to make such
Excess Inventory available to the other party. Sales and
revenue sharing for such Advertising shall be implemented
consistent with the terms described in SECTION 4.3.3
ADVERTISING REVENUE SHARING as though the reallocated
Advertising Inventory were part of the original allocation
to either party. No party shall be permitted to barter, use
for internal promotion or otherwise dispose of for
consideration that is not subject to sharing under SECTION
4.3.3 ADVERTISING REVENUE SHARING, in excess of [*] percent
([*]%) of the overall Advertising Inventory for the CIM Talk
City Service, the CIM OnNow Service and the CIM Talk City
Joint Content Areas that such party is allocated under
SECTION 4.3.2 ADVERTISING INVENTORY SPLITS without prior
approval of the other party.
4.4 TRANSACTION REVENUE SHARING.
4.4.1 LWP TRANSACTION REVENUE SHARING TO CIM ON PARTNER
TRANSACTION REVENUE. LWP agrees to pay CIM [*] percent
([*]%) of the gross revenue on Partner Transaction Revenue
that occurs as a result of End Users accessing LWP Partner
Transaction Revenue services on and/or from the CIM Sites
(including for this purpose, but not limited to, the CIM
Talk City Service, CIM Talk City Joint Content Areas and/or
the CIM OnNow Service) with such revenue called "CIM
Allocation of LWP Transaction Revenue."
This CIM Allocation of LWP Transaction Revenue will be
calculated by specific tracking mechanisms, if and when such
mechanisms have been put in place by LWP, that track such
revenue and commissions LWP earns on CIM End Users. LWP
shall implement such tracking mechanisms as soon as
practicable after such mechanisms become available in the
market, subject to practicality for LWP to do so and subject
to LWP's then business strategy, implementation and
priorities.
Until such time as LWP has such specific tracking
mechanisms, LWP will calculate transaction revenue splits by
LWP formulas that take the traffic from the CIM Talk City
Service and/or CIM OnNow Service, as appropriate, as a
percentage of total traffic on the Talk City Service and the
OnNow Service and then applying that percentage to the total
LWP Partner Transactions Revenue to arrive at a
determination of a base CIM share of LWP Transaction
Revenue. LWP will multiply the base CIM share of LWP Partner
Transaction Revenue by [*] percent ([*]%) to arrive at the
revenue split to pay CIM.
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<PAGE>
4.4.2 LWP TRANSACTION REVENUE SHARING TO CIM ON LWP STORE
TRANSACTION REVENUE. LWP agrees to pay CIM a [*] percent
([*]%) split of its gross revenue on LWP Store Transaction
Revenue that occurs as a result of CIM End Users accessing
LWP Stores from the CIM Sites (including for this purpose,
but not limited to, the CIM Talk City Service, the CIM Talk
City Joint Content Areas and/or the CIM OnNow Service) with
such revenue called "CIM Transaction Revenue from LWP Store
Transactions."
CIM Transaction Revenue from LWP Store Transactions will be
calculated by specific tracking mechanisms, if and when such
mechanisms have been put in place by LWP, that track such
gross revenue LWP earns on CIM End Users. LWP shall
implement such tracking mechanisms as soon as practicable
after such mechanisms become available.
4.4.3 CIM TRANSACTION REVENUE SHARING TO LWP ON CIM E-COMMERCE
SITES.
CIM agrees to pay LWP a revenue split and/or fee for CIM E-
commerce Site Transaction Revenue resulting from any End
Users accessing CIM e-commerce initiatives located in the
CIM Talk City Areas that CIM, at its sole discretion, may
choose to initiate, via the general Talk City Service and/or
the general OnNow Service (but not via CIM Sites, the CIM
Talk City Service, CIM Talk City Joint Content Areas, the
CIM OnNow Service or any sites and services not owned and/or
predominantly operated by LWP).
The CIM e-commerce initiatives that will be subject to
making these payments are listed in EXHIBIT A and noted as
CIM E-commerce Sites.
It is understood that in the case of a CIM e-commerce
initiative that is accessed by an End User through CIM
Sites, the CIM Talk City Service, CIM Talk City Joint
Content Areas, the CIM OnNow Service or any other sites and
services not owned and/or operated by LWP (with the
understanding that any Other Partner versions of a LWP
Service shall be considered sites operated by LWP), CIM will
not pay any revenue split to LWP for CIM E-Commerce Site
Transaction Revenue associated with such End User. If a CIM
E-commerce initiative is accessed by an End User through the
general Talk City Service or the general OnNow Service, CIM
shall pay LWP per the terms listed for each CIM E-commerce
initiative as listed in and attached hereto as EXHIBIT T.
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<PAGE>
4.5 FUTURE REVENUE.
---------------
The parties agree that if any future revenue generating opportunities
not described above are created in connection with the CIM Talk City
Areas, the parties will negotiate in good faith regarding appropriate
revenue sharing arrangements between the parties; provided, however,
that unless such opportunities involve characteristics which would
make them materially different from the opportunities described above,
the parties intend to share such revenues in a manner mutually agreed
to represent an equitable distribution between LWP and CIM.
It is specifically understood that LWP will not share revenue from its
Corporate Services or User Premium add-ons, unless otherwise agreed to
on a case-by-case basis.
4.6 ADVERTISING OPPORTUNITIES
-------------------------
4.6.1 CIM ADVERTISING ON LWP SERVICES. In addition to the
Advertising impressions provided to CIM by LWP under SECTION
3.6 PROMOTIONAL CONSIDERATION FOR CIM, LWP shall make
available to CIM Advertising on LWP Services at LWP's best
rates and, when requested by CIM, on a first offer basis,
subject to (i) prior existing commitments for such
advertising and sponsorships with third parties, (ii) the
understanding that such offers may at any time be superseded
by package sponsorship deals and/or renewal options in such
deals made with other companies and (iii) the understanding
that such offers will be made available on an equal basis to
other LWP major Investors and if multiple LWP major
Investors wish to avail themselves of the same advertising
or sponsorship opportunity, then the opportunity will be
allocated among them on an equitable basis or on a basis
that LWP judges to be in the best interest of the LWP
Services.
4.7 WAIVER OF LWP SET-UP FEE. LWP expressly acknowledges and agrees that
-------------------------
it has waived its customary [*] dollar ($[*]) set-up fees for the co-
branded services to be provided by LWP to CIM hereunder and that no
such set-up fee shall be applicable to the services to be provided by
LWP to CIM hereunder.
4.8 PAYMENTS AND AUDIT RIGHTS.
--------------------------
4.8.1 PAYMENTS. At the end of each quarter in which LWP or CIM,
respectively, actually receives payments of Advertising
Revenue and/or Transaction Revenue of the type described in
Sections 4.3 or 4.4, LWP or CIM, as the case may be, shall
prepare a quarterly statement providing sufficient detail
regarding the source of such Advertising Revenue or
Transaction Revenue and will deliver such statement along
with the required payment described therein to CIM or LWP,
respectively, no less than thirty (30) days following such
date.
4.8.2 AUDIT RIGHTS. CIM and LWP shall each have the right, upon
reasonable written notice to the other party, to inspect, or
have its agent inspect, subject to such
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<PAGE>
confidentiality requirements as may reasonably be imposed by the
other party, such other party's books and records and all other
documents and material in the possession of or under its control
with respect to all amounts described in this Agreement at the
place or places where such records are normally retained by LWP
or CIM, respectively. CIM or LWP or their agents shall have free
and full access thereto during normal LWP or CIM business hours
for such purposes and shall be permitted to be able to make
copies thereof and extracts therefrom. In the event that an
inspection reveals a discrepancy in the amount of any payments
owed CIM or LWP from what was actually paid, LWP or CIM shall
promptly pay (or, if applicable, LWP shall cause an Other Partner
to promptly pay) such discrepancy. In the event that such
discrepancy is in excess of five percent (5%) of the payments due
for the period audited, LWP or CIM shall also reimburse the other
party, as appropriate (or, if applicable, LWP shall cause an
Other Partner to promptly reimburse CIM), for the reasonable
costs of performing the audit. All books and records relative to
LWP's, CIM's, or if applicable, an Other Partner's respective
obligations hereunder shall be maintained and kept accessible and
available to CIM or LWP, respectively, for inspection for at
least three (3) years after termination of this Agreement. LWP
shall use commercially reasonable efforts to acquire equal or
substantially equal audit and inspection rights with Other
Partners, particularly those of Other Partners who are allocated
Advertising Inventory on General CIM Talk City Joint Content
Areas under SECTION 5.3.2(IV) or who possess the Advertising
Inventory on their own Other Partner Joint Content Areas
described in SECTION 5.3.2(III) in the event CIM exercises its
Other Traffic Partner Option (as defined below).
5. ALTERNATE RESPONSIBILITIES, GUIDELINES AND FINANCIAL TERMS
----------------------------------------------------------
5.1 GENERAL CONCEPT. CIM shall have the option (the "Option"), at its
discretion and upon reasonable prior notice to LWP, to substitute the
following terms and conditions contained in SECTION 5 ALTERNATE
RESPONSIBILITIES, GUIDELINES AND FINANCIAL TERMS below for the terms
and conditions in SECTION 4 ADVERTISING INVENTORY AND REVENUE
ALLOCATIONS, SALES AND OTHER FINANCIAL TERMS. CIM shall be permitted
to exercise the Option or to elect to return to the terms and
conditions of SECTION 4 ADVERTISING INVENTORY AND REVENUE ALLOCATIONS,
SALES AND OTHER FINANCIAL TERMS no more than once in any given twelve
(12) month period. If CIM does not choose to exercise the Option, then
the terms and conditions contained in this SECTION 5 ALTERNATE
RESPONSIBILITIES, GUIDELINES AND FINANCIAL TERMS shall have no effect
or significance whatsoever.
5.2 ADVERTISING SALES AND ADVERTISING MANAGEMENT RESPONSIBILITIES.
5.2.1 CIM SALES RIGHTS, RESPONSIBILITIES AND GUIDELINES. CIM will
have the following rights to sell and responsibilities in
selling Advertising Inventory it is allocated under this
Agreement:
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<PAGE>
(i) CIM will make a good faith effort to the sell the
Advertising Inventory made available to it under this
Agreement.
(ii) For Advertising Inventory that CIM sells, it will be
responsible for the account management, billing and
collections from the client and for payment of revenue
allocations to LWP.
(iii) CIM will sell the Advertising Inventory it is allocated
packaged into CIM site packages and not specifically as
Talk City or OnNow Advertising.
(iv) CIM shall control and set pricing for its sales of
Advertising Inventory and will follow the CIM advertising
sales guidelines attached in EXHIBIT Q.
(v) CIM will work within the then-current LWP advertisement
standards, the current version of which is attached hereto
in EXHIBIT Q, then-current advertising technical
standards, inventory, and other customary and reasonable
ad/ad process guidelines. If CIM is using LWP's
Advertising management services, then CIM will also work
within such customary and reasonable standard insertion
order, ad scheduling and ad management systems, process
and policies as may be established by LWP.
(vi) Media Personalities. If CIM is selling and running
-------------------
Advertisements on the CIM Talk City Areas in conjunction
with the appearance or promotion of a media personality on
the service, then CIM will not make any statements to the
effect, or which imply, that any such media personality
"certifies," endorses or guarantees the performance of any
service or product of such party unless CIM has otherwise
arranged to do so directly with the media personality or
that media personality's representatives.
(vii) CIM agrees that the Advertising it sells and places in the
CIM Talk City Areas will not include Advertising for any
competitor to any business of LWP of which LWP has
provided CIM notice in EXHIBIT R, attached hereto.
(VIII) CIM will remove from the CIM Talk City Service, the CIM
Talk City Joint Content Areas and the CIM OnNow Service
any Advertising that LWP reasonably requests be removed on
the basis that such Advertising violates the then-current
LWP advertising standards, a current copy of which is
attached hereto AS EXHIBIT Q.
5.2.2 LWP SALES RIGHTS, RESPONSIBILITIES AND GUIDELINES. LWP will
have the following rights to sell and responsibilities in
selling Advertising Inventory it is allocated under this
Agreement:
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<PAGE>
(i) LWP will make a good faith effort to the sell the
Advertising Inventory made available to it under this
Agreement.
(ii) For Advertising Inventory that LWP sells, it will be
responsible for the account management, billing and
collections from the client and for payment of revenue
allocations to CIM.
(iii) LWP will sell the Advertising Inventory it is allocated
packaged into Talk City and OnNow site packages and not
specifically as CIM Sites.
(iv) LWP shall control and set pricing for its sales of
Advertising Inventory, and will follow the LWP
advertising sales guidelines attached hereto as EXHIBIT
Q.
(v) LWP will remove from the CIM Talk City Areas any
Advertising that CIM reasonably requests be removed on
the basis that such Advertising violates the then current
CIM advertising standards (a copy of which is attached
hereto AS EXHIBIT Q).
(vi) Media Personalities. If LWP is selling and running ads on
-------------------
any CIM Talk City Areas in conjunction with the
appearance or promotion of a media personality on the
service, then LWP will not make any statements to the
effect, or which imply, that any such media personality
"certifies," endorses or guarantees the performance of
any service or product of such party unless LWP has
otherwise arranged to do so directly with the media
personality or that media personality's representatives.
(vii) LWP agrees that the Advertising it sells and places in
the CIM Talk City Areas will not include advertising for
any competitor to any business of CIM of which CIM has
provided LWP notice in EXHIBIT R, attached hereto.
5.3 ADVERTISING INVENTORY ALLOCATIONS.
5.3.1 CIM ADVERTISING INVENTORY ALLOCATION AND SALES. CIM shall have
the right to sell all Advertising which appears in the CIM
Specific Areas (the "CIM Advertising Inventory"). If CIM is
unable to sell all available CIM Advertising Inventory, then it
may, in its sole discretion, allow LWP to sell such unsold CIM
Advertising Inventory. If LWP is unable to sell all of the CIM
Advertising Inventory which CIM makes available to it or CIM
chooses not to make its unsold CIM Advertising Inventory
available to LWP, then each of CIM and LWP shall have the right
to use [*] percent ([*]%) of such unsold CIM Advertising
Inventory to advertise any of such party's Web site(s) or other
products or services or its designees which are not Direct CIM
Competitors or
* Certain information in this Exhibit has been omitted
and filed separately with the Commission. Confidential
treatment has been requested with respect to the omitted
portions.
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<PAGE>
Direct LWP Competitors as detailed in EXHIBIT L hereto. Any
gross revenue attributable to the sale of CIM Advertising
Inventory which is received by the selling party shall be
divided between the parties with the relevant selling party
receiving [*] percent ([*]%) thereof and the non-selling party
receiving the remaining [*] percent ([*]%) thereof.
5.3.2 LWP ADVERTISING INVENTORY ALLOCATION AND SALES. Subject to the
terms of SECTION 5.3.1, LWP shall have the right to sell all
Advertising which appears in any areas of the CIM Talk City
Areas which are not CIM Specific Areas (the "LWP Advertising
Inventory," and together with the CIM Advertising Inventory,
the "CIM-LWP Advertising Inventory"). If LWP is unable to sell
all available LWP Advertising Inventory, then it may, at its
sole discretion, allow CIM to sell such unsold LWP Advertising
Inventory. If CIM is unable to sell all of the LWP Advertising
Inventory which LWP makes available to it or LWP chooses not to
make its unsold LWP Advertising Inventory available to LWP,
then each of CIM and LWP shall have the right to use [*]
percent ([*]%) of such unsold LWP Advertising Inventory to
advertise any of such party's Web site(s) or other products or
services or its designees which are not Direct CIM Competitors
or Direct LWP Competitors as detailed in EXHIBIT L hereto. Any
gross revenue attributable to the sale of LWP Advertising
Inventory which is received by the selling party shall be
divided between the parties with the relevant selling party
receiving [*] percent ([*]%) thereof and the non-selling party
receiving the remaining [*] percent ([*]%) thereof.
5.4 ADVERTISING REVENUE ALLOCATIONS.
5.4.1 GENERAL. In general, the party selling Advertising Inventory
shall receive [*] percent of the ([*]%) gross revenue received
by such selling party for such Advertising Inventory, and shall
remit [*] percent ([*]%) of the gross revenue received to the
non-selling party.
5.4.2 CIM END USERS TO OTHER CONTENT-ONLY PARTNER AREAS.
(i) If a CIM End User accesses Other Content-only Partner
Areas, including but not limited to the NBC Areas and the
Hearst Areas, CIM shall receive [*] percent ([*]%) of the [*]
percent ([*]%) of the Advertising Revenue LWP receives from the
sale of Advertising Inventory by the Other Content-only Partner
on the Other Content-only Partner Areas accessed by such CIM
End Users.
(ii) If a CIM End User accesses Other Content-only Partner
Areas, including but not limited to the NBC Areas and the
Hearst Areas, LWP shall receive [*] percent ([*]%) of the [*]
percent ([*]%) of the Advertising Revenue LWP receives from the
sale of Advertising Inventory by the Other Content-only Partner
on such Other Content-only Partner Areas.
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6. MOST FAVORED NATION
-------------------
LWP agrees that if LWP enters, or plans on entering into, any agreement or
relationship with any Investor or Other Partner which grants or is
reasonably likely to grant such Investor or Other Partner either (i) more
favorable [*], (ii) more favorable [*] of such Investor's or Other
Partner's [*], or (iii) more favorable [*] than those granted to CIM under
this Agreement, then LWP shall notify CIM of the terms of such agreement or
relationship and if requested by CIM, this Agreement with CIM shall be [*]
effective as of date of such agreement between LWP and such Investor(s) or
Other Partner(s).
7. TERM, RENEWAL AND TERMINATION.
------------------------------
7.1 INITIAL TERM. The initial term of this Agreement shall be three (3)
years from the Effective Date of this Agreement (the "Initial Term").
7.2 AUTOMATIC RENEWAL. This Agreement shall be automatically extended, at
CIM's option, for one (1) additional two-year period (referred to
herein, together with the additional terms described in the following
sentence, as a "Renewal Term") upon the completion of the Initial
Term. If CIM opts to commence a first Renewal Term, this Agreement
thereafter shall be automatically extended upon the completion of such
first Renewal Term for additional two-year periods unless either party
notifies the other in writing of its election to have the Agreement
expire at least sixty (60) days in advance of the end of the then-
current term. This Agreement is further subject to the two parties
concluding, on mutually acceptable terms, an agreement for CIM to take
make an equity investment in LWP's Series D Preferred Stock financing
round. If such agreement is not reached, this Agreement shall be
terminable by CIM or LWP at any time.
7.3 TERMINATION FOR MATERIAL BREACH. In addition, either party may
terminate this Agreement at any time in the event of a material breach
by the other party which remains uncured after thirty (30) days' prior
written notice thereof.
8. REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATIONS
---------------------------------------------------
8.1 REPRESENTATIONS AND WARRANTIES.
8.1.1 LWP REPRESENTATIONS AND WARRANTIES. LWP represents and warrants
to CIM that (i) it has the right and power to perform its
obligations and to grant the rights granted herein, (ii) LWP's
creation and operation of the CIM Talk City Service, the CIM
Talk City Joint Content Areas, the CIM OnNow Service, the Talk
City Service and the OnNow Service pursuant to this Agreement
will not violate any agreement or obligation between LWP and a
third party or any laws or regulations and (iii) except for
material provided by CIM and its licensors, suppliers or agents
pursuant to the terms hereof, the content included on the CIM
Talk City Service, the CIM Talk City Joint Content Areas, the
CIM OnNow
38
* Certain information on this page has been
omitted and filed with the Commission.
Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
Service, the Talk City Service and the OnNow Service and the
operation of the CIM Talk City Service, the CIM Talk City Joint
Content Areas, the CIM OnNow Service, the Talk City Service and
the OnNow Service by LWP as contemplated herein will be
accurate and correct, will not violate or infringe any third
party rights, including intellectual property rights, and will
not adversely affect the operation of the CIM Sites in a
material manner.
8.1.2 CIM REPRESENTATIONS AND WARRANTIES. CIM represents and warrants
to LWP that (i) it has the right and power to perform its
obligations and to grant the rights granted herein, (ii) CIM's
creation and operation of the CIM Sites, the CIM Talk City
Service, the CIM Talk City Joint Content Areas and the CIM
OnNow Service pursuant to this Agreement will not violate any
agreement or obligation between CIM and a third party or any
laws or regulations and (iii) except for material provided by
LWP and its licensors, suppliers or agents pursuant to the
terms hereof, the content included on the CIM Sites, the CIM
Talk City Service, the CIM Talk City Joint Content Areas and
the CIM OnNow Service as contemplated herein will be accurate
and correct, will not violate or infringe any third party
rights, including intellectual property rights, and will not
adversely affect the operation of the LWP Services in a
material manner.
8.2 INDEMNIFICATION.
8.2.1 LWP INDEMNIFIES CIM. LWP agrees to indemnify and hold harmless
CIM, and its affiliates, directors, officers and employees,
from and against any and all claims, liabilities, losses and
actual damages, including reasonable attorney's fees of counsel
of CIM's choosing, caused by, arising out of or related to (i)
LWP's operation and management of the CIM Talk City Service,
the CIM Talk City Joint Content Areas, the CIM OnNow Service,
the Talk City Service and the OnNow Service, (ii) any breach of
LWP's representations and/or warranties set forth in this
Agreement or (iii) any breach of LWP's covenants set forth in
this Agreement or other failure to perform in accordance with
the terms hereof.
8.2.2 CIM INDEMNIFIES LWP. CIM agrees to indemnify and hold harmless
LWP, and its affiliates, directors, officers and employees,
from and against, any and all claims, liabilities, losses and
actual damages, including reasonable attorney's fees of counsel
of LWP's choosing, caused by, arising out of or related to (i)
any breach of CIM's representations and/or warranties set forth
in this Agreement or (ii) any breach of CIM's covenants set
forth in this Agreement or other failure to perform in
accordance with the terms hereof.
8.2.3 CONTROL OF LITIGATION. The indemnitor hereunder shall have full
control of the defense of litigation relating to a claim for
indemnity hereunder and may settle, compromise or adjust the
same; provided, that an indemnitor may not consent to any entry
of judgment or enter into any such settlement, compromise or
adjustment which does not include as an unconditional term
thereof the giving by the plaintiff or claimant to the
indemnified party of a release of all liability in
39
<PAGE>
respect of the claim, liability or litigation); and provided
further, however, that the indemnitee, upon relieving the
indemnitor in writing of the obligations imposed hereunder for
defense and indemnification, shall have the right, if it so
elects, to conduct such litigation at its own expense by its
own counsel.
8.2.4 NOTICE AND DURATION. The above obligations for defense and
indemnification shall be imposed only if (i) the indemnitee
sends to the indemnitor timely written notice of first service
of process upon the indemnitee and a timely written request to
defend the litigation (such notice and request shall be deemed
timely if given within a reasonable length of time after
receipt of service by the indemnitee and a reasonable length of
time prior to the date by which first response to such process
is legally required, considering all the circumstances); (ii)
while such litigation is pending, the indemnitee, upon request,
shall furnish to the indemnitor all relevant facts and
documentary material in the former's possession or under its
control, and shall make its employees or other persons under
its control with knowledge of relevant facts reasonably
available to the indemnitor for consultation and as witnesses
at their customary places of business; and (iii) the indemnitee
does not enter into any settlement relating to any claim for
which it requests indemnification hereunder without the prior
approval of the indemnitor.
8.2.5 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR ANY LOSS OF PROSPECTIVE PROFITS OR ANY SPECIAL,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES BY REASON OF ANY
FAILURE BY SUCH PARTY TO PERFORM ITS OBLIGATIONS PURSUANT TO
THIS AGREEMENT.
9. GENERAL PROVISIONS.
-------------------
9.1 FORCE MAJEURE. Neither party shall be liable for, or be considered in
breach of or default under this Agreement on account of, any delay or
failure to perform as required by this Agreement as a result of any
causes or conditions which are beyond such party's reasonable control
and which such party is unable to overcome by the exercise of
reasonable diligence. Notwithstanding the foregoing, either party may
terminate this Agreement upon written notice to the other party in the
event such failure to perform continues unremedied for a period of
thirty (30) days in the aggregate.
9.2 INDEPENDENT CONTRACTORS. The parties to this Agreement are independent
contractors. Neither party is an agent, representative, or partner of
the other party. Neither party shall have any right, power or
authority to enter into any agreement for or on behalf of, or incur
any obligation or liability of, or to otherwise bind, the other party.
This Agreement shall not be interpreted or construed to create an
association, joint venture or partnership between the parties or to
impose any partnership obligation or liability upon either party.
40
<PAGE>
9.3 SURVIVAL. Sections 1, 2.9, 4.8, 8.1, 8.2, 9.2, 9.3, 9.9 and 9.10 shall
survive the completion, expiration, termination or cancellation of
this Agreement.
9.4 WAIVER. The failure of either party to insist upon or enforce strict
performance by the other party of any provision of this Agreement or
to exercise any right under this Agreement shall not be construed as a
waiver or relinquishment to any extent of such party's right to assert
or rely upon any such provision or right in that or any other
instance; rather, the same shall be and remain in full force and
effect.
9.5 ENTIRE AGREEMENT. This Agreement together with the Exhibits attached
hereto, which are hereby incorporated herein, sets forth the entire
agreement, and supersedes any and all prior agreements, of the parties
with respect to the transactions set forth herein.
9.6 AMENDMENT. No change, amendment or modification of any provision of
this Agreement shall be valid unless set forth in a written instrument
signed by the party to be bound thereby.
9.7 ASSIGNMENT. Neither party shall assign this Agreement or any right,
interest or benefit under this Agreement without the prior written
consent of the other party; provided, however, that no consent shall
be unreasonably withheld and provided further that CIM shall have the
right to assign its rights hereunder to any direct or indirect
subsidiary of Cox Enterprises, Inc. Subject to the foregoing, this
Agreement shall be fully binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective successors and
assigns.
9.8 PARTIAL INVALIDITY. In the event that any provision of this Agreement
conflicts with the law under which this Agreement is to be construed
or if any such provision is held invalid by a court with jurisdiction
over the parties to this Agreement, such provision shall be deemed to
be restated to reflect as nearly as possible the original intentions
of the parties in accordance with applicable law, and the remainder of
this Agreement shall remain in full force and effect.
9.9 CONFIDENTIALITY. Each party hereto agrees to hold the terms and
conditions of this Agreement and all information and material provided
by the other party hereunder and identified at the time of disclosure
as confidential to such party (the "Confidential Information") in
confidence during the term of this Agreement and for three (3) years
thereafter. "Confidential Information" shall not include information
that: (i) is or becomes generally known or available, whether by
publication, commercial use or otherwise, without restriction on
disclosure and through no fault of the receiving party; (ii) is known
by the receiving party prior to the time of disclosure; (iii) is
independently developed or learned by the receiving party without
reference to any Confidential Information of the disclosing party;
(iv) is lawfully obtained from a third party that the receiving party
reasonably believes has the right to make such disclosure. The other
provisions of this Agreement notwithstanding, either party will be
permitted to disclose the terms and conditions of this Agreement to
their outside legal and financial advisors and to the extent required
by applicable law; provided, however, that before making
41
<PAGE>
any such required public filing or disclosure, the disclosing party
shall first give written notice of the intended disclosure to the
other party, within a reasonable time prior to the time when
disclosure is to be made, and the disclosing party will exercise
commercially reasonable best efforts, in cooperation with the other
party, consistent with reasonable time constraints, to obtain
confidential treatment for all non-public and sensitive provisions of
this Agreement, including without limitation dollar amounts and other
numerical information.
9.10 APPLICABLE LAW: JURISDICTION. This Agreement shall be interpreted,
construed and enforced in all respects in accordance with the laws of
the State of New York without reference to conflict of law principles.
9.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one
and the same instrument.
42
<PAGE>
10. SIGNATURES.
-----------
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
LIVE WORLD PRODUCTIONS, INC. COX INTERACTIVE MEDIA, INC.
By: /s/ Peter Friedman By: /s/ Peter M. Winter
Print Name: Peter Friedman Print Name: Peter M. Winter
Title: President Title: President
43
<PAGE>
LIST OF EXHIBITS
----------------
EXHIBIT A. CIM Sites.
- ---------
EXHIBIT B. Procedures for Designation of CIM Talk City Joint Content Areas.
- ---------
EXHIBIT C. Concept samples of the customized co-branded CIM Talk City Service
- ---------
and CIM OnNow Service.
EXHIBIT D. Concept samples of the customized co-branded CIM Talk City Joint
- ---------
Content Areas.
EXHIBIT E. Additional specific links to the CIM Sites in Exhibit A, if any, to
- ---------
be provided in the Talk City Service, OnNow Service, CIM Talk City
Service, and/or CIM OnNow Service.
EXHIBIT F. Technologies that LWP and CIM specifically agree to utilize and/or
- ---------
showcase and any specific requirements related to that use.
EXHIBIT G. Additional LWP obligations relating to service or product
- ---------
implementation, if any.
EXHIBIT H. Concept samples of the integration of the CIM Talk City Service and
- ---------
the CIM OnNow Service into the CIM Sites listed in Exhibit A.
EXHIBIT I. Additional specific links required on the part of CIM.
- ---------
EXHIBIT J. Additional CIM obligations relating to service or product
- ---------
implementation, if any.
EXHIBIT K. CIM and LWP sites or services that will be featured exclusively.
- ---------
EXHIBIT L. Direct Competitors to CIM and LWP.
- ---------
EXHIBIT M. Timeline.
- ---------
EXHIBIT N. Talk City Terms of Service and Code of Conduct as of June, 1998,
- ---------
EXHIBIT O. LWP Privacy and User Information and User Communication Policies as
- ---------
of June, 1998.
EXHIBIT P. Formats for CIM data, transcripts and other End User work product.
- ---------
EXHIBIT Q. LWP and CIM advertising standards as of June, 1998.
- ---------
EXHIBIT R. Competitors for whom the parties are restricted from selling
- ---------
advertising to for the CIM Talk City Service, the CIM OnNow Service
and the CIM Talk City Joint Content Areas.
EXHIBIT S. Illustrative table for calculating revenue, revenue splits and
- ---------
inventory splits.
<PAGE>
EXHIBIT T. CIM Transaction Revenue Sharing to LWP on CIM E-commerce Sites.
- ---------
<PAGE>
EXHIBIT A. CIM Sites.
- ---------
CIM reserves the right to add to or amend this EXHIBIT A at any time, pursuant
to the terms contained in SECTION 2.2.1 (LWP SERVICE IMPLEMENTATION OF THE CO-
BRANDED SERVICES) of this Agreement.
GEOGRAPHICALLY-ORIENTED SITES AND SERVICES
- ------------------------------------------
AccessAtlanta.com
AccessArizona.com
AccessWaco.com
ActiveDayton.com
Austin360.com
BayInsider.com
Coast1073.com
GoCarolinas.com
GoPBI.com
GJSentinel.com
InsideCentralFlorida.com
KF1640.com
News-Journal.com
OCNow.com
RealPittsburgh.com
Reflector.com
SanDiegoInsider.com
SOFla.com
949Online.com
HamptonRoads.com
TOPICALLY-ORIENTED SITES AND SERVICES
- ------------------------------------
AutoConnect.com
Fastball.com
The Shopping Channel
GoBig12.com
GreatOutdoors.com
SECAction.com
Storm98.com
Y'all.com
OTHER SITES AND SERVICES
- -----------------------
@ Home Sites
<PAGE>
EXHIBIT B. Procedures for Designation of CIM Talk City Joint Content Areas.
- ---------
CIM and LWP have agreed to cooperate, in good faith, to develop procedures to
designate CIM Talk City Joint Content Areas as soon as practicable and/or
commercially reasonable.
<PAGE>
EXHIBIT C. Concept samples of the customized co-branded CIM Talk City Service
- ---------
and CIM OnNow Service and of the general Talk City Service with a
link to CIM Sites on the top page.
See attached printouts of:
1. General Talk City home page with local pulldown, local button
Available at
http://accessarizona.com/FEATURES/arizona/talkcity/talkcity_homepage.jpg
------------------------------------------------------------------------
2. Talk City/CIM co-branded home page
Available at
http://accessarizona.com/FEATURES/arizona/talkcity/talkcity_cobrand001.jpg
--------------------------------------------------------------------------
3. On Now calendar
Available at
http://accessarizona.com/FEATURES/arizona/talkcity/talkcity_cobrand003.jpg
--------------------------------------------------------------------------
<PAGE>
EXHIBIT D. Concept samples of the customized co-branded CIM Talk City Joint
- ---------
Content Areas.
See attached printout, available at
http://accessarizona.com/FEATURES/arizona/talkcity/talkcity_cobrand002.jpg
- --------------------------------------------------------------------------
<PAGE>
EXHIBIT E. Additional specific links to the CIM Sites in Exhibit A, if any, to
- ---------
be provided in the Talk City Service, OnNow Service, CIM Talk City Service,
and/or CIM OnNow Service.
Local Communities Link on top level of Talk City Service and CIM Talk City
Service that will link to Talk City Local community activity (Chats, Boards,
Home Pages, etc.) including CIM Local Community activity, including CIM Talk
City Joint Content Areas and links to CIM Sites with local content focus.
LWP shall develop, in cooperation with CIM, localized versions of the Chats
associated with the various Chat channels offered by Talk City, subject to
either it being commercially reasonable for LWP to do so, or CIM agreeing to pay
TBD fees for such services.
LWP and CIM shall collaborate and cooperate in connection with the development
of appropriate ontologies and directories that will integrate listings for the
CIM Talk City Service, the CIM Talk City Joint Content Areas, the CIM OnNow
Service and for other localized channels into the directories and indices of
Talk City and OnNow, and in connection therewith, LWP shall collaborate with CIM
and representatives of LookSmart Ltd. to implement and integrate such ontologies
and directories into the Talk City and OnNow services in an effective,
commercially reasonable manner, subject to LWP and LookSmart Ltd. concluding a
mutually acceptable commercial agreement to do so.
LWP agrees that CIM shall have the right, at a future date during the term of
this Agreement, to add to or amend this Exhibit E, subject to mutual agreement
of the parties, which agreement shall not be unreasonably withheld.
<PAGE>
EXHIBIT F. Technologies that LWP and CIM specifically agree to utilize and/or
- ---------
showcase and any specific requirements related to that use.
From CIM
- --------
CIM Group Builder web page building tools in conjunction with the Home Pages in
the LWP Services.
From LWP
- --------
Chat functionalities and personal publishing tools used in conjunction with the
Home Pages in the LWP Services.
<PAGE>
EXHIBIT G Additional LWP obligations relating to service or product
- ---------
implementation, if any.
With regards to Instant Messaging, LWP will, by the end of calendar Q4 1998,
evaluate the then current commercially available Instant Messaging solutions and
any emerging standards relating to Instant messaging across the Internet. With
the completed evaluation and subject to the content of that evaluation, LWP will
use commercially reasonable efforts to roll out Instant Messaging by the end of
calendar Q2 1999.
CIM and LWP agree that CIM shall have the right, at a future date during the
term of this Agreement, to list here the additional LWP obligations relating to
service or product implementation, if any, subject to commercially
reasonableness..
CIM reserves the right to add to or amend this EXHIBIT G at any time, subject to
mutual agreement of the parties, which agreement shall not be unreasonably
withheld.
<PAGE>
EXHIBIT H. Concept samples of the integration of the CIM Talk City Service and
- ---------
the CIM OnNow Service into the CIM Sites listed in EXHIBIT A.
See attached printout of:
1. CIM home page with links to chat, build a home page etc
Available at
http://accessarizona.com/FEATURES/arizona/talkcity/az homepage.jpg
------------------------------------------------------------------
2. CIM community page with links to chat, On Now, personal home pages
Available at
http://accessarizona.com/FEATURES/arizona/talkcity/az community002.jpg
----------------------------------------------------------------------
3. CIM channel page with links to chat, personal home pages
Available at
http://accessarizona.com/FEATURES/arizona/talkcity/az letsgoout.jpg
-------------------------------------------------------------------
<PAGE>
EXHIBIT I. Additional specific links required on the part of CIM.
- ---------
None.
<PAGE>
EXHIBIT J. Additional CIM obligations relating to service or product
- ---------
implementation, if any.
None.
<PAGE>
EXHIBIT K. CIM Sites and services that will be featured exclusively.
- ---------
Unless otherwise stated, this EXHIBIT K incorporates by reference all CIM sites
specified on EXHIBIT A of this Agreement, as such EXHIBIT A may be amended
pursuant to SECTION 2.2.1 (LWP SERVICE IMPLEMENTATION OF THE CO-BRANDED
SERVICES) of this Agreement.
<PAGE>
EXHIBIT L. Direct Competitors for CIM and LWP.
- ---------
DIRECT CIM COMPETITORS
- ----------------------
Alta Vista
AOL-Digital Cities
CitySearch
City.Net
Excite
Geocities
Infoseek
Knight Ridder (Real Cities, Just Go)
Lycos/Tripod
Microsoft (Start, Sidewalk, etc.)
Mining Co.
New York Today
Web Crawler
Yahoo (Metros)
Zip2
Any entity substantially engaged in the creation of local city sites or the
publishing of locally oriented information on the Internet or any competing
local city site or local network of city sites, or any other site substantially
devoted to the provision of locally oriented online content or services which
directly competes with CIM, including but not limited to sites and services
owned or operated by television stations, radio stations, newspapers and other
periodicals focusing on local content.
CIM reserves the right to add to and amend this EXHIBIT L, subject to
mutual agreement by the parties, which agreement shall not be unreasonably
withheld.
DIRECT LWP COMPETITORS
- ----------------------
To Talk City
- ------------
AOL
GeoCities
The Globe.com
InfoSeek WBS
Lycos Tripod
Who Where's Angelfire
Xzoom
Yahoo Chat
Other online services that are primarily oriented toward providing a broad
array of community services including any or all of chat, home pages, discussion
boards and other such services, as mutually agreed to by the parties.
<PAGE>
To OnNow
- --------
Net Guide Live Events Listings
Yack.com
Yahoo Net Events
Other online services that are primarily oriented toward providing a broad
array of community services including any or all of chat, home pages, discussion
boards and other such services, as mutually agreed to by the parties.
<PAGE>
EXHIBIT M. Timeline.
- ---------
June 1998: Operating Agreement and Series D Equity Investment Agreement signed.
June-July 1998: Press Announcement.
July-September 1998: LWP to release CIM Talk City Service and CIM OnNow Service,
subject to CIM providing necessary materials, input and approvals and
reasonableness of development, ramp and release implementation. CIM to link
these services into the CIM Sites.
CIM TALK CITY SERVICE AND CIM ONNOW SERVICE LAUNCH TIMELINE
- -----------------------------------------------------------
WEEK OF CITY
- ------- ----
July 28, 1998 Phoenix, AZ
San Diego, CA
San Francisco, CA
Hampton Roads, VA
August 3, 1998 Atlanta, GA
Charlotte, NC
August 10, 1998 Orlando, FL
Seattle, WA
August 17, 1998 Dayton, OH
Providence, RI
August 24, 1998 Omaha, NE
Austin, TX
August 31, 1998 Orange County, CA
Palm Beach, FL
September 6, 1998 Miami, OH
Pittsburgh, PA
<PAGE>
EXHIBIT N. Talk City Terms of Service and Code of Conduct as of June, 1998.
- ---------
http://www.talkcity.com/csa/TOS.htmpl
- -------------------------------------
TALK CITY TERMS OF SERVICE AND CONDITIONS OF USE
- ------------------------------------------------
Welcome to Talk City. This Agreement states the terms and conditions governing
the use of membership services on the Talk City Web Site (home.talkcity.com),
hereafter called the "Site." Membership on the Site provides registered Members
(each a "Citizen") with a package of content and services. Talk City may, at its
discretion, add or delete features. By registering as a Citizen, you agree to
use the Site in a manner consistent with all applicable laws and regulations and
in accordance with the terms and conditions stated below.
1. PRICE AND PAYMENT
Talk City membership content and services are available free of charge,
exclusive of other Internet or other telecommunications fees. Talk City may
offer fee-based membership programs in the future.
2. TERMS OF CITIZENSHIP
Citizenship is available to anyone who registers all required information,
provides an accurate, legitimate electronic mail address, and obtains a unique
Talk City Citizen Name and password. Talk City does not discriminate on the
basis of age, gender, or ethnicity. Citizenship is intended for personal use
only and is non-transferable. Please see the "Termination of Service" clause
below for additional Citizenship information.
No information should be submitted to or posted at Talk City's Web Sites by
children 16 years of age or under without their parent's or guardian's consent.
Talk City makes a special effort to advise those 16 and under to get parental
permission before providing information or submitting any material to put
online, and we urge parents to supervise their children's online use.
3. CITIZEN WEB PAGE GUIDELINES
Talk City provides Citizen Web pages and the associated storage space in the
Site as a service to Citizens. Talk City is not responsible for the content of
any personal home page, and the views expressed in the Site are the
responsibility of the posting Citizen and not Talk City. Talk City does not
review Citizen Web pages in any way before they appear on the Site. Talk City
reserves the right to remove any page from the Site. Talk City places an
advertisement, a Talk City home button, and a navigational masthead at the top
of all pages in the Site. Talk City also places a legal disclaimer at the bottom
of all pages within the Site. Removal of the advertisement, Talk City home
button, navigational masthead, and or disclaimer or any additional information
placed on the Citizen's page by Talk City is grounds for removal of that page
and termination of Talk City Citizenship.
Talk City provides space for Citizen Web pages, but makes no implied or express
warranties about the reliability of these pages. Talk City is not responsible
for any damage caused by loss of access to, or deletion or alteration of Citizen
pages; individual Citizens are responsible for monitoring and creating backups
of their pages.
<PAGE>
Every Citizen creating a home page must adhere to Talk City's standards of
content. We have found the following standards promote communication in an
atmosphere of mutual respect:
A) WE DON'T TOLERATE HARASSMENT.
We welcome people of all ages, races, religions, genders, national origins,
sexual orientations and points of view. We don't tolerate expressions of
bigotry, hatred, harassment or abuse, nor will we tolerate threats of harm to
anyone. Because we encourage discussion and exchange of ideas, we don't allow
defamatory, abusive, tasteless or indecorous content or statements. For the same
reason, we don't allow sexually explicit material on the Citizen Web pages, nor
links to such material. Topics dealing with human sexuality and other similar
subjects can be discussed, but in an educational structured and monitored
environment.
B) WE ALLOW ONLY LEGAL ACTIVITIES.
Although this seems obvious, we don't allow any illegal activities.
Specifically, we won't let you advocate illegal conduct or participate in
illegal or fraudulent schemes. You can't use Citizen Web pages to distribute
unauthorized copies of copyrighted material, including photos, artwork, text,
recordings, designs or computer programs. Talk City does not allow the posting
or use of computer programs that contain destructive features, such as viruses,
worms, Trojan horses, bots scripts and any other form of invasive software. Talk
City will not condone the following activities on Talk City:
i) making available copyrighted software which has been "cracked" - i.e., the
copyright protection has been removed from the software;
ii) making available serial numbers for software which can be used to
illegally validate or register software;
iii) making available tools which can be used for no purpose other than for
"cracking" software (this does not include tools which have legitimate uses for
software developers, system administrators, etc.).
Although Talk City cannot monitor all the postings in the chat rooms, home
pages, discussion boards and other public areas, we reserve the right (but
assume no obligation) to delete, move, or edit any postings that come to our
attention that we consider unacceptable or inappropriate, whether for legal or
other reasons.
We reserve the right to immediately remove your Citizen Web pages for content
that we believe interferes with other peoples' enjoyment.
We want your use of your Citizen Web pages here to be enjoyable. If you have
questions about our standards, or you find a Citizen's page that is particularly
enjoyable, or one that you feel violates our standards, then please tell us
about it by clicking on the "Your Comments On This Page?" button on that page.
4. COMMERCIAL ACTIVITY ON CITIZEN WEB PAGES.
Use of your Citizen Web pages for commercial purposes may be limited by the
following:
A) No offering for sale of any products or services;
B) No soliciting for advertisers or sponsors;
C) No displaying of a sponsorship banner of any kind, including those that are
generated by banner or link exchange services, with the sole exception of those
placed there by Talk City or its affiliates;
61
<PAGE>
D) No displaying of banners for services that provide cash or cash-equivalent
prizes to users in exchange for hyperlinks to their web site;
E) No promoting or soliciting for participation in multi-level marketing or
pyramid schemes;
F) No conducting raffles or contests that require any type of entry fee;
G) No violating Internet standards for the purpose of promoting your Citizen
Web pages; i.e., mass mailing of unsolicited email to others; mass cross posting
to Newsgroups, etc.;
H) No developing pages that consist of hyperlinks to content not allowed in
Talk City.
5. TALK CITY CITIZEN PROFILES
Initially, Citizen Web pages will be created from the information entered into
your Talk City Citizen Profile. Therefore, the content contained on Citizen
Profiles should conform to the same content standards described in this
Agreement. In addition it is suggested that no revealing personal information be
placed in the Citizen Profile, or later, when customization of Citizen Web pages
is available, on those pages.
6. RULES FOR ONLINE CONDUCT: TALK CITY MESSAGE BOARDS, CHATROOMS, AND
AUDITORIUMS
By participating in any of the above services, the Citizen agrees to follow the
Talk City Standards as outlined at http://www.talkcity.com/csa/. The information
on that page (and as
----------------------------
amended) is deemed to be incorporated into this document. Postings to Message
Boards, and communication in Chatrooms and Auditoriums are not reviewed prior to
appearing on the Site. Talk City reserves the right to edit, delete, or move any
Postings to Message Boards and to terminate or suspend access to our chats for
conduct that we believe interferes with other peoples' enjoyment. Talk City
provides chats on a number of topics, but Talk City staff or volunteer hosts do
not offer professional advice of any kind, and are speaking from their own
experience or opinion as is helpful for the facilitating of conversation. Such
personnel claim no professional expertise or authority.
We do our best to encourage comfort and discourage disruptive communication.
We also discourage disruptive statements that incite others to violate our
standards. We encourage your participation in upholding our standards.
When in doubt about appropriate behavior here, remember that Talk City is an
electronic world, but the people here are real. So, just as when you join any
gathering of people, we ask that you treat others with respect and with care.
7. PRIVACY
Please review our policy with regards to a users right to privacy at
http://www.talkcity.com/csa/privacy.htmpl. The information on that page (and as
amended) is
- -----------------------------------------
deemed to be incorporated into this document.
The exchange between Talk City and the Citizen of information such as passwords
or electronic mail may not be secure given the current state of the Internet.
Talk City encourages Citizens to change their passwords frequently.
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By submitting material to Talk City, you are permanently granting Talk City all
rights to the material, including the right to modify the material, to use it
commercially, and to maintain the material in an archive.
8. COPYRIGHTED MATERIAL
All material on the Site, including, without limitation, text, software, photos,
video, graphics, music and sound, are protected by U.S. and international
copyright laws, both as individual works and as a collection. The downloading or
use of copyrighted material provided by Talk City or a third-party content
provider is allowed by Citizens for personal use only on the Site. Citizens may
not copy, reproduce, retransmit, distribute, publish, commercially exploit, or
otherwise transfer any such copyrighted material in any format, electronic or
otherwise. Any material protected by copyright may not be placed on the Site or
the Citizenship area without the express permission of the author or owner of
the copyright on that material. With specific regard to issues of software
piracy, please see section 3B above.
9. LIMITATIONS OF LIABILITY AND WARRANTY
The Citizen agrees that the use of the Site is entirely at the Citizen's own
risk. The Site is provided on an "as is" basis without warranties of any kind,
either expressed or implied. Furthermore, Talk City, Cox Interactive Media and
other third-party content providers make no warranty with respect to any-
content, information, services, or products provided through or in conjunction
with the Site.
The Citizen specifically agrees that Talk City, Cox Interactive Media and other
third-party content providers are not liable for any conduct by Citizens
associated with the Site, including, but not limited to, Citizen Web pages,
Citizen Profiles, message boards, chatrooms, or auditoriums. Talk City, Cox
Interactive Media and other third-party content providers make no guarantee of
the accuracy, correctness, or completeness of any information on the Site and
are not responsible for (i) any errors or omissions arising from the use of such
information; (ii) any failures, delays, or interruptions in the delivery of any
content or services contained within the Site; or (iii) losses or damages
arising from the use of the content or services provided by the Site.
10. INDEMNITY
As a Citizen, you agree to indemnify Talk City and any third-party information
provider against any and all claims and expenses, including attorneys' fees,
arising from the Citizen's use of the Site. This expressly includes: (i)
Citizen's responsibility for any and all liability arising from the violation or
infringement of proprietary rights or copyrights and (ii) any libelous or
unlawful material contained within Citizen Web pages, resumes, profiles, or
Postings.
11. TERMINATION OF SERVICE
Talk City may terminate Citizenship and any and all information, communications,
Postings, or Web pages at any time, without notice, for conduct that violates
this Agreement or other policies or guidelines set out by Talk City elsewhere on
the Site. Talk City may terminate Citizenship and delete any and all
information, communications, Postings, or Web pages for online conduct that Talk
City believes is harmful to other Citizens, the business of Talk City, or other
third-party information providers.
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12. CHOICE OF LAW
This Agreement shall be constructed and controlled by the laws of the State of
California, without regard to its conflict of law provisions. Any dispute
arising hereunder will be governed by the laws of the State of California. The
Citizen agrees to personal jurisdiction by the state and federal courts of the
State of California.
13. MERGER CLAUSE
This Agreement, and the content of the referred to URL locations, constitutes
the entire agreement between the parties with respect to the subject matter
contained herein and supersedes any other agreement, proposals and
communications, written or oral, between Talk City representatives and the
Citizen. Talk City may amend this Agreement at any time with notice from Talk
City to the Citizen as published on the Site.
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<PAGE>
http://www.talkcity.com/csa
- ---------------------------
TALK CITY CODE OF CONDUCT, JUNE 1998
- ------------------------------------
Because our goal in Talk City is to promote communication in an atmosphere of
mutual respect, we have a few city ordinances. Also read our Terms of Service,
and Privacy Policy.
* WE DON'T TOLERATE HARASSMENT.
We welcome people of all ages, races, religions, genders, national origins,
sexual orientations and points of view. We don't tolerate expressions of
bigotry, hatred, harassment or abuse, nor will we tolerate threats of harm to
anyone. Because we encourage discussion and exchange of ideas, we don't allow
defamatory, abusive, tasteless or indecorous statements. For the same reason, we
don't allow sexually explicit material in conversations or nicknames.
We recognize that kids and teens need to have rooms that nurture them, as such
rooms with the designation of "4Kids" have standards that in addition to all
other standards, do not allow sexually suggestive conversations or names. For
the same reason we don't allow sexually suggestive innuendoes or double
entendre. Topics dealing with human sexuality and other similar subjects can be
discussed but in an educational structured and monitored environment.
We invite people to open public rooms and to apply for permanent rooms. Creators
(Operators) of such rooms must follow our City Ordinances in room name, topic,
and content. Operators may use the /kick command only if a participant violates
one of the City Ordinances. Operators should then contact the City Standards
Advisor about the kicked offender (/msg CSA Message).
* WE ALLOW ONLY LEGAL ACTIVITIES.
Although this seems obvious, we don't allow any illegal activities.
Specifically, we won't let you advocate illegal conduct or participate in
illegal or fraudulent schemes. You can't use our chat rooms (channels) to
distribute unauthorized copies of copyrighted material, including photos,
artwork, text, recordings, designs or computer programs. Even though it's not
exactly illegal, we won't let you impersonate someone else, including one of our
trained chat hosts. Please do not use a nickname that would lead people to
believe you are a member of the City Conference Crew, Forum Volunteers or
Community Standards Advisors (that is, including the letters CCC or CSA). People
depend on our hosts as official representatives, and respect the fact that they
have earned their CCCs or CSAs through special training.
With regards to chats; Talk City provides chats on a number of topics, Talk City
staff or volunteer hosts are not giving professional advise of any kind, but are
speaking from their own experience or opinion as helpful for the conducting of a
conversation. Such personnel claim no professional or expertise or authority.
* WE DO OUR BEST TO ENCOURAGE COMFORT AND DISCOURAGE DISRUPTIVE
COMMUNICATION.
Talk City doesn't allow posting or use of computer programs that contain
destructive features, such as viruses, worms, Trojan horses, bots scripts and so
on. We also discourage disruptive conduct: Persistent off-topic comments in a
topic-oriented conference, statements that incite others to violate the City
ordinances, or the physical act of "scrolling" -- repeatedly hitting the Return
key in a conference.
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The use of pop-ups that are excessively long; the use of pop-ups or sound waves
in a repetitive manner such that it disrupts the topic or conversation in a room
is not allowed. Users inviting others to visit web sites with content that would
not comply with Talk City Standards are considered to be in violation of our
standards and subject to action by the CSA and other staff.
* WE DO NOT ALLOW UNAUTHORIZED COMMERCIAL ACTIVITY.
We encourage communication between our members but posting or transmitting of
unauthorized or unsolicited advertising, promotional materials, or any other
forms of solicitation to other users, in Talk City, except in those areas that
maybe designated for such a purpose are not allowed.
* WE ENCOURAGE YOUR PARTICIPATION IN UPHOLDING CITY ORDINANCES.
We want your visit here to be enjoyable. If you have questions about City
Ordinances, or need to report a violation, ask a conference host or a Community
Standards Advisor to help you (someone with CCC or CSA attached to their
nickname). We reserve the right to immediately terminate or suspend access to
our chats for conduct that we believe interferes with other peoples' enjoyment.
When in doubt about appropriate behavior here, remember that Talk City is an
electronic world, but the people here are real. So, just as when you join any
gathering of people, we ask that you treat others with respect and with care.
THANKS FOR JOINING THE TALK CITY COMMUNITY!
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EXHIBIT O. LWP Privacy and User Information Policies as of June, 1998.
- ---------
http://www.talkcity.com/csa/privacy.htmpl
- -----------------------------------------
YOUR PRIVACY IN OUR COMMUNITY
- -----------------------------
It is Talk City's (and its parent studio, LiveWorld Productions') policy to use
its best efforts to respect the privacy of its on-line visitors. Talk City does
not use cookie technology to obtain any information from its on-line visitors.
Talk City's cookie "lives" on your hard drive and keeps track of our predefined
browser settings: tool bar off and music on, as well as demographic information,
preferred client, and nickname. This allows us to optimize your on-line
experience. We also track the total number of visitors to our site in an
aggregate form (this means you're one of the bunch, your information isn't
singled out) to allow us to update and improve our site, and tell other people
something about the numbers of people who come to talkcity.com. Personally
identifiable information is not extracted in this process.
Talk City only collects personally identifiable data, such as names, addresses,
e-mail addresses, and the like, when voluntarily submitted by a visitor. We will
use the information we collect from our members during the registration process
only to make Talk City better and more responsive to users--to help us customize
the service, and target advertising, sponsorships, and e-mail offers based on
our members' demographics, likes, dislikes, and affiliations. At our discretion
we will make the information about Talk City's users available in aggregate form
to help describe and identify our users to our partners, the industry and public
at large, and our advertisers. We will not share any detailed individual member
information with other companies unless the member explicitly agrees to our
doing so.
POLICIES FOR INDIVIDUALS 16 AND UNDER
No information should be submitted to or posted at Talk City's Web sites by
children 16 years of age or under without their parent's or guardian's consent.
Unless otherwise disclosed during its collection, Talk City does not provide any
personally identifying information, regardless of its source, to any third party
for any purpose whatsoever. Talk City will not post anyone's e-mail address
unless they specifically give their permission, as in the "Make Friends" section
of nickname and Home Page registration. Talk City encourages parents and
guardians to spend time on-line with their children and to participate in the
interactive activities offered on the sites.
INFORMATION FOR PARENTS
We make a special effort to advise kids to get parental permission before
providing information or submitting stuff to put on-line, and we urge parents to
supervise their kids' on-line use. Personally identifiable information may be
collected in response to registrations, Talk City Home Pages, contest entry
forms, subscribing to an e-mail newsletter, etc. This information will be used
by Talk City for internal purposes, and shared in aggregate form with our
partners, advertiser and third parties. We offer an "unsubscribe" option if at
any time they wish to cease receiving e-mails from Talk City. Any changes in
these privacy policies by Talk City will be promptly communicated on this page.
In the Talk City nickname and Home Page registration process, we have two
clearly marked areas. Information entered on the first page will be kept
private. Information on the second page (called Make
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Friends) will be shown on the person's web page and chat profile, so caution
should be taken on what information is entered here.
LINKS TO OTHER SITES
We do our best to make sure that every link we have on this site works and sends
you to a clean and well lit place on the World Wide Web. But because Web sites
can change so quickly, we can't guarantee the content of every link from the
places we link to (get it?). Young people: it's always a good idea to check with
your parents or teacher before heading off to any new sites.
LWP END USER COMMUNICATIONS POLICY
- ----------------------------------
Talk City will not sell or offer its users' email address and personal
information to any other vendor or company, without the users' express
permission. Talk City will communicate regularly via email and other methods
with its users about changes, additions, offers, and enhancements to the service
that all users will be interested in. We respect our users and endeavor to
communicate with them in a reasonable, consistent and experience enhancing
manner. When we work with partners, we endeavor to coordinate our communications
to Talk City users with these same principles.
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EXHIBIT P. Formats for CIM data, transcripts and other End User work product.
- ----------
CIM and LWP agree to cooperate, in good faith, to develop and agree to formats
and specifications for data to be provided by LWP to CIM pursuant to SECTION 2.8
(USER DATA; OWNERSHIP, COLLECTION AND DATA MINING) of the Agreement, as soon as
practicable and/or commercially reasonable.
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EXHIBIT Q. LWP and CIM advertising standards as of June, 1998.
- ---------
LWP ADVERTISING STANDARDS
- -------------------------
LiveWorld does not accept advertising that focuses on alcohol, tobacco, drugs,
explicit sex, pornography, profanity or hate or otherwise, in LiveWorld's
reasonable judgment, violates the standards of LiveWorld's services and/or is
not in the best interest of it's audiences, partners or services. LiveWorld
reserves the right to refuse, reject, and/or cancel any advertising orders or
material at any time at the company's discretion.
STANDARD TERMS AND CONDITIONS FOR CIM ADVERTISING
- -------------------------------------------------
The following terms and conditions (the "Standard Terms") are deemed to be
incorporated into insertion orders (the "Insertion Order") for CIM Advertising:
1. TERMS OF PAYMENT: Advertiser will be invoiced on the last day of the
contract period set forth on the Insertion Order. Payment shall be made to Cox
Interactive Media, Inc. (CIM) within thirty (30) days from the date of the
invoice, which date shall be no earlier than the advertisement date specified in
the Insertion Order. Amounts paid after such date shall bear interest at the
rate of one percent (1%) per month (or the highest rate permitted by law, if
less). In the event of any failure by Advertiser to make payment, Advertiser
will be responsible for all reasonable expenses (including attorneys' fees)
incurred by CIM in collecting such amounts.
2. POSITIONING: Except as otherwise expressly provided in the Insertion
Order, positioning of advertisements on any CIM web page is at the sole
discretion of CIM. Advertiser acknowledges that CIM has not made any guarantees
with respect to usage statistics or levels of impressions for any advertisement
except where expressly stated in the Insertion Order. CIM provides Advertiser
with estimated usage only as a courtesy to the Advertiser and shall not be held
liable for any claims relating to said usage statistics. Any information
collected by CIM or its site vendors relating to users or subscribers to CIM's
or Advertiser's site (including without limitation any personally identifiable
transactional data, "clickstream" data or demographic information relating to
users of the site) shall be the property of CIM, and Advertiser shall not obtain
any rights in such information by virtue of this Agreement.
3. ADVERTISING AGENCIES: If Advertiser is using an advertising agency for
the purposes of this Agreement, Advertiser and such agency shall be jointly and
severally liable hereunder. The entity signing this Agreement on behalf of
Advertiser warrants that it is duly authorized and has the full power to bind
Advertiser to this Agreement, and agrees to indemnify and hold CIM and its
affiliated companies harmless from any and all claims, losses, damages or costs
(including reasonable attorneys' fees) arising out of a breach of the foregoing
warranty. Advertiser shall be solely responsible for any commission or other
payment due to any such agency.
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4. RENEWAL: Except as expressly set forth in the Insertion Order, any
renewal of the Insertion Order and acceptance of any additional advertising
order shall be at CIM's sole discretion. Pricing for any renewal period is
subject to change by CIM from time to time.
5. OWNERSHIP: All advertising material or other content that represents
the creative effort of CIM and/or the utilization of creativity, illustrations,
labor, composition or material furnished by it, is and remains the property of
CIM, including all rights of copyright therein. Advertiser shall not authorize
electronic, photographic or other reproduction, in whole or in part, of any such
material for use in any other medium without CIM's prior written consent.
6. NO ASSIGNMENT OR RESALE OF AD SPACE: Advertiser may not resell, assign
or transfer any of its rights hereunder, and any attempt to resell, assign or
transfer such rights shall result in immediate termination of this contract,
without liability to CIM.
7. DISCLAIMER; LIMITATION OF LIABILITY: CIM MAKES NO WARRANTIES, EXPRESS
OR IMPLIED, AND CIM SHALL HAVE NO LIABILITY OR RESPONSIBILITY TO ADVERTISER OR
ANY OTHER PERSON WITH RESPECT TO ANY LIABILITY, LOSS OR DAMAGES, INCLUDING,
WITHOUT LIMITATION, LOSS OF PROFITS OR SPECIAL OR CONSEQUENTIAL DAMAGES, CAUSED
BY OR ARISING OUT OF, EITHER DIRECTLY OR INDIRECTLY, ANY BREACH BY CIM OF ANY OF
THE TERMS OF THIS AGREEMENT, OR IN ANY MANNER ARISING OUT OF OR IN CONNECTION
WITH ANY ADVERTISEMENT OR OTHER MATERIAL DISPLAYED ON CIM'S OR ADVERTISER'S
SITE(S), THE MANNER IN WHICH ANY MATERIAL IS DISPLAYED ON CIM'S OR ADVERTISER'S
SITE(S), OR THE FAILURE TO DISPLAY ANY ADVERTISEMENT OR OTHER MATERIAL ON CIM'S
OR ADVERTISER'S SITE(S). SPECIFICALLY, AND WITHOUT IN ANY WAY LIMITING THE
FOREGOING, CIM DOES NOT REPRESENT OR WARRANT THAT ANY ADVERTISEMENT(S) OR OTHER
MATERIAL WILL BE DISPLAYED ON CIM'S OR ADVERTISER'S SITE WITHOUT INTERRUPTION OR
ERROR. CIM'S LIABILITY HEREUNDER SHALL BE LIMITED TO THE AMOUNT PAID TO IT BY
ADVERTISER UNDER THIS AGREEMENT OR PLACEMENT OF THE ADVERTISEMENT AT A LATER
TIME IN A COMPARABLE POSITION.
8. ADVERTISER REPRESENTATIONS; INDEMNIFICATION: Advertisements are
accepted upon the representation that Advertiser has the rights to publish,
transmit and make copies of the contents of the advertisement, without
infringement of any rights of any third party or violating any applicable laws,
rules or regulations. In consideration of such publication, Advertiser agrees to
indemnify and hold CIM, its affiliated entities and its employees harmless
against any and all expenses and losses of any kind (including reasonable
attorneys' fees and costs) incurred by CIM in connection with any claims of any
kind arising out of publication of the advertisement (including, without
limitation, any claim of trademark or copyright infringement, libel, defamation,
breach of confidentiality, false or deceptive advertising or sales practices)
and/or any material of Advertiser to which users can link through the
advertisement.
9. PROVISION OF ADVERTISING MATERIALS: Advertiser will provide all
materials for the advertisement (including GIF files), in accordance with CIM's
policies in effect from time to time, including (without limitation) the manner
of transmission to CIM and the time prior to
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publication of the advertisement. CIM shall not be required to publish any
advertisement that is not received in accordance with such policies. All
expenses connected with the delivery to CIM of advertising material or other web
page content of Advertiser and the return of such materials from CIM (if return
is directed in writing by Advertiser) shall be paid by Advertiser. CIM may
dispose of any advertising materials delivered to it unless acceptable prepaid
return arrangements have previously been made.
10. RIGHT TO REJECT ADVERTISEMENT: All contents of advertisements are
subject to CIM's approval. CIM reserves the right to edit, revise, reject or
cancel any advertisement, or reject or cancel any insertion order, space
reservation or position commitment at any time. In addition, CIM shall have the
absolute right to reject any URL link embodied within any advertisement.
11. CANCELLATIONS: Except as otherwise provided in the Insertion Order,
the Insertion Order is non-cancelable by Advertiser.
12. DEFAULT BY ADVERTISER: CIM may terminate this Agreement upon notice to
Advertiser in the event of default by Advertiser in the payment of any invoice
or any other breach of the terms of this Agreement. Upon such termination, all
charges for services completed hereunder shall become immediately due and
payable, including interest on any sums not paid when due, as provided in
paragraph 1 of these Standard Terms. Notwithstanding anything in this Agreement
to the contrary, any termination or cancellation of this Agreement shall not
release Advertiser from its obligation to make payment for all Advertisements
that have been displayed on CIM's site(s) or for other charges as provided
herein incurred prior to the date such termination or cancellation becomes
effective.
13. CHANGE IN LAW: In the event of a material change in law, government
policy or regulation that effectively prevents a party from lawfully performing
any of its obligations under this Agreement, the parties shall negotiate in good
faith to reform or amend this Agreement so that performance may be made
possible. If the parties are unable to reform or amend the Agreement in a
mutually acceptable manner within 30 days of the date of such change, then this
Agreement shall terminate automatically, without any penalty or further
liability to either party.
14. TAXES: In the event that any federal, state or local taxes are imposed
on the display of Advertisement(s) or other material on CIM's or Advertiser's
sites, such taxes shall be assumed and paid by Advertiser.
15. CONSTRUCTION: No conditions other than those set forth in the
Insertion Order or these Standard Terms shall be binding on CIM unless expressly
agreed to in writing by CIM. In the event of any inconsistency between the
Insertion Order and the Standard Terms, the Standard Terms shall control.
16. MISCELLANEOUS: These Standard Terms, together with the Insertion
Order, (i) shall be governed by and construed in accordance with, the laws of
the State of Delaware, without giving effect to principles of conflicts of law;
(ii) may be amended only by written agreement executed by an authorized
representative of each party; and (iii) constitute the complete and entire
expression of the
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agreement between the parties, and shall supersede any and all other agreements,
whether written or oral, between the parties.
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EXHIBIT R. Competitors for whom the parties are restricted from selling
- ---------
advertising to for the CIM Talk City Service, the CIM OnNow Service
and the CIM Talk City Joint Content Areas
RESTRICTED LWP COMPETITORS FOR THE CIM TALK CITY SERVICE AND CIM TALK CITY JOINT
- --------------------------------------------------------------------------------
CONTENT
- -------
AREAS
- -----
AOL
GeoCities
The Globe.com
InfoSeek WBS
Lycos Tripod
Who Where's Angelfire
Xzoom
Yahoo Chat
RESTRICTED LWP COMPETITORS FOR THE CIM ONNOW SERVICE
- ----------------------------------------------------
Net Guide Live Events Listings
Yack.Com
Yahoo Net Events
RESTRICTED CIM COMPETITORS FOR THE CIM TALK CITY SERVICE, THE CIM ONNOW SERVICE
- --------------------------------------------------------------------------------
AND CIM TALK CITY JOINT CONTENT AREAS
- -------------------------------------
Alta Vista
AOL-Digital Cities
CitySearch
City.Net
Excite
Geocities
Infoseek
Knight Ridder (Real Cities, Just Go)
Lycos/Tripod
Microsoft (Start, Sidewalk, etc.)
Mining Co.
New York Today
Web Crawler
Yahoo (Metros)
Zip2
Any entity substantially engaged in the creation of local city sites or the
publishing of locally oriented information on the Internet or any competing
local city site or local network of city sites, or any site substantially
devoted to the provision of locally oriented online content or services which
directly compete with CIM, including but not limited to sites and services owned
or operated by television stations, radio stations, newspapers and other
periodicals focusing on local content.
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CIM reserves the right to add to and amend this EXHIBIT R, subject to
mutual agreement by the parties, which agreement shall not be unreasonably
withheld.
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EXHIBIT S. Illustrative table for calculating revenue, revenue splits and
- ---------
inventory splits.
These tables illustrate the methodology for calculating revenue sharing and
sales inventory splits. For reference, the general Advertising Revenue splitting
principle was that sixty-five percent (65%) of any Advertising Revenue is kept
by the selling party while thirty-five percent (35%) is turned over to the non-
selling party or parties. In addition, in situations like those described in
Scenarios 3 and 4 below, where Other Partners (e.g. the source of traffic to a
particular Web site or service) are allocated Advertising Inventory based on
either a content or traffic contribution, LWP shall be responsible for
collecting and auditing the Advertising Revenue split owed by those Other
Partners to CIM.
SCENARIO 1 (PER SECTIONS 4.3.2(i) AND 4.3.3(i)). CIM End Users to CIM-linked
- -----------------------------------------------
Talk City Joint Content Areas.
INVENTORY SPLIT
Distribution Content Infrastructure Total
CIM [*]% [*]% [*]% [*]%
LWP [*]% [*]% [*]% [*]%
Other Partner [*]% [*]% [*]% [*]%
[*]%
REVENUE SPLIT
Gross Revenue %
CIM ([*]%x[*]%) + ([*]%x[*]%) [*]%
LWP ([*]%x.[*]%) + ([*]%x[*]%) [*]%
Other Partner N/A
100%
SCENARIO 2 (PER SECTIONS 4.3.2(ii) AND 4.3.3(ii)). CIM End Users to the CIM Talk
- --------------------------------------------------
City Service and the CIM OnNow Service.
INVENTORY SPLIT
Distribution Content Infrastructure Total
CIM [*]% [*]% [*]% [*]%
LWP [*]% [*]% [*]% [*]%
Other Partner [*]% [*]% [*]% 0%
100.000%
REVENUE SPLIT
Gross Revenue %
CIM ([*]%x[*]%) + ([*]%x[*]%) [*]%
LWP ([*]%x.[*]%) + ([*]%x[*]%) [*]%
Other Partner N/A
100.000%
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* Certain information on this page has been
omitted and filed with the Commission.
Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
SCENARIO 3 (PER SECTIONS 4.3.2(iii) AND 4.3.3(iii)). End Users from CIM Sites to
- -----------------------------------------------
Other Partner Joint Content Areas. This model assumes that LWP has agreed to
give fifty percent (50%) of its fifty-percent (50%) overall allocation of
Advertising Inventory to the Other Partner, giving such Other Partner twenty-
five percent (25%) of the overall Advertising Inventory on such Other Partner
Joint Content Areas.
INVENTORY SPLIT
Distribution Content Infrastructure Total
CIM [*]% [*]% [*]% [*]%
LWP [*]% [*]% [*]% [*]%
Other Content Partner [*]% [*]% [*]% [*]%
100.000%
REVENUE SPLIT
Gross Revenue %
CIM ([*]%x[*]%) + ([*]%x[*]%) [*]%
LWP ([*]%x[*]%) + ([*]%x.[*]%) + ([*]%x[*]%) [*]%
-[([*]%x[*]%x[*]%) + ([*]%x[*]%)]
Other Partner ([*]%x[*]%) + ([*]%x[*]%) + ([*]%x[*]%x[*]%) [*]%
100.000%
SCENARIO 4 (PER SECTIONS 4.3.2(iv) AND 4.3.3(iv)). End Users from non-CIM Sites
- --------------------------------------------------
accessing General CIM Talk City Joint Content Areas. This model assumes that LWP
has agreed to give an Other Partner a fifty percent (50%) overall allocation of
Advertising Inventory on such General CIM Talk City Joint Content Areas.
INVENTORY SPLIT
Distribution Content Infrastructure Total
CIM [*]% [*]% [*]% [*]%
LWP [*]% [*]% [*]% [*]%
Other Partner [*]% [*]% [*]% [*]%
100.000%
REVENUE SPLIT
Gross Revenue %
CIM ([*]%x[*]%) + ([*]%x[*]%) + ([*]%x[*]%x[*]%) [*]%
LWP ([*]%x[*]%) + ([*]%x.[*]%) + ([*]%x[*]%) [*]%
-[([*]%x[*]%x[*]%) + ([*]%x[*]%)]
Other Partner ([*]%x[*]%) + ([*]%x[*]%) [*]%
100.000%
77
* Certain information on this page has been
omitted and filed with the Commission.
Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
EXHIBIT T. CIM Transaction Revenue Sharing to LWP on CIM E-commerce Sites
- ---------
CIM and LWP agree that CIM shall have the right, at a future date, to list here
the e-commerce sites and the transactions revenue split and payment terms it
will provide to LWP for transaction revenue on CIM E-Commerce sites that results
from links from the LWP Services to CIM E-Commerce Sites.
CIM shall only split transaction revenue to LWP for traffic driven to the sites
listed below from the general Talk City Service, the general OnNow Service and
LWP Other Partner versions of those services, and shall not split transaction
revenue to LWP for traffic driven to the sites listed below from the CIM Talk
City Services, the CIM OnNow Service or the CIM-linked Talk City Joint Content
Areas.
CIM E-Commerce Site Transaction Revenue Splits Payment Terms
78
<PAGE>
EXHIBIT 10.16
HEARST - TALK CITY OPERATING AGREEMENT
--------------------------------------
This Operating Agreement (the "Agreement"), dated April 20, 1999 (the
"Effective Date"), is made and entered into by and between Talk City, Inc.
("TC"), a California corporation, with offices at 307 Orchard City Drive, Suite
350, Campbell, CA 95008 and Hearst New Media and Technology ("Hearst"), a
division of Hearst Communications, Inc., with offices at 959 Eighth Avenue, New
York, New York 10019.
WHEREAS, TC is in the business of, among other things, developing and
maintaining a network of interrelated commercial Web Sites (as defined below),
including but not limited to those pages currently beginning at the URLs
http://www.talkcity.com and http://www.onnow.com;
WHEREAS, Hearst currently maintains, or intends to develop and maintain,
Web Sites relating to magazines, newspapers, broadcast and cable television, and
other materials it publishes alone or in conjunction with others;
WHEREAS, TC and Hearst mutually desire to develop a framework: (i) to
enable TC and Hearst to develop a series of co-branded Web Sites which
incorporate certain Hearst Properties (as defined below) into the network of Web
Sites maintained by TC; and (ii) for TC to provide certain services for such co-
branded Web Sites, and to produce certain of such sites; and
WHEREAS, this Agreement sets forth the present mutual intention of the
parties hereto to enter into projects to be set forth on schedules to be
executed and attached to this Agreement by the parties hereto from time to time
(each, a "Scope of Work").
NOW, THEREFORE, in consideration of the mutual agreements, undertakings and
covenants set forth herein, the parties hereby agree as follows:
ARTICLE I.
Definitions
-----------
As used in this Agreement, the following terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
Section 1.01. Advertisement. "Advertisement" means any banner
-------------
advertisements, site sponsorship arrangements, performance-based advertising,
referrals, click-throughs, leads and bounties, and all other similar activities
which do not produce revenues through direct electronic sales.
Section 1.02. Affiliate. "Affiliate" shall mean any Entity that directly,
---------
or indirectly through one or more intermediaries, controls or is controlled by
or is under common control with the Entity specified. For purposes of this
definition, control of a Entity means the power, direct or indirect, to direct
or cause the direction of the management and policies of such Entity whether by
contract or otherwise and, in any event and without limitation of the previous
sentence, any Entity owning twenty percent (20%) or more of the Voting Stock of
a second Entity shall be deemed to control that second Entity.
Section 1.03. Change in Control. "Change in Control" with respect to an
-----------------
Entity means (i) a sale of all or substantially all of the assets of such Entity
and its Subsidiaries (as defined below), taken as a whole, (ii) a merger or
consolidation of such Entity with or into another corporation or other Entity
with the effect that the existing holders of such Entity's Voting Stock (as
defined below) hold less than a
* Certain information in this Exhibit has been
omitted and filed with the Commission.
Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
majority of the combined voting power of the then Voting Stock of the surviving
corporation of such merger or the corporation or other Entity resulting from
such consolidation, (iii) other than as a result of an Initial Public Offering
(as defined below), the failure of the beneficial owners (within the meaning of
Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) of
Voting Stock of such Entity on the date hereof to own in the aggregate a
majority of the combined voting power of the then outstanding Voting Stock of
such Entity, (iv) the adoption by such Entity of a plan of complete or partial
liquidation or resolutions providing for or authorizing such liquidation or a
dissolution of such Entity, or (iv) the dissolution of Entity.
Section 1.04. Chat. "Chat" shall mean online chat among End Users
----
originating from a Hearst/Talk City Area which is located within the Talk City
Service, with or without a particular theme, topic, guest, host or event and
which may be scheduled for a particular date and time.
Section 1.05. Co-Branded Area. "Co-Branded Area" shall mean a Hearst/OnNow
---------------
Area or a Hearst/TalkCity Area, but expressly excluding any Hearst-Specific
Area.
Section 1.06. Community Services. "Community Services" shall mean Chat,
------------------
message boards and Homepages with or without a particular theme or topic.
Section 1.07. End-User. "End-User" shall mean any Entity which accesses any
--------
Co-Branded Area either via Co-Branded Area or directly from a Talk City Service,
including any version of the Talk City Service which TC may create in
cooperation with any other third party (i.e., another co-branded version of the
Talk City Service).
Section 1.08. Entity. "Entity" shall mean any individual, corporation,
------
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization or a government or any agency or political
subdivision thereof or other entity.
Section 1.09. Hearst Content. "Hearst Content" shall mean those areas
--------------
within a Co-Branded Area, including the Community Services, that are directly
related to a Hearst Property.
Section 1.10. Hearst Property. "Hearst Property" shall mean any
---------------
communication, entertainment, information, transaction or other related service
or product owned, operated, distributed or authorized to be distributed or
operated by or on behalf of Hearst, including, without limitation, (i) the
English language version of the United States of America editions of those
certain magazines and newspapers currently published by Hearst or any magazine
or newspaper created later by the Hearst which derives its title in significant
part from a current magazine or newspaper; (ii) any broadcast or cable
television materials; or (iii) any materials containing Hearst Marks.
Section 1.11. Hearst/OnNow Area. "Hearst/OnNow Area" shall mean those Web
-----------------
Sites or related services set forth on an effective Scope of Work attached
hereto which (i) relate to or otherwise include any Hearst Property, (ii) relate
to an OnNow Service and (iii) are specified in such Scope of Work as being a
Hearst/OnNow Area.
Section 1.12. Hearst-Specific Area. "Hearst-Specific Area" shall mean a Web
--------------------
Site maintained by or on behalf of Hearst or which contain any Hearst Property
other than a Hearst/OnNow Area or Hearst/Talk City Area.
Section 1.13. Hearst/Talk City Area. "Hearst/Talk City Area" shall mean
---------------------
those Web Sites or related services set forth on an effective Scope of Work
attached hereto (i) which relate to or otherwise
2
<PAGE>
include any Hearst Property, (ii) relate to a Talk City Service and (iii) and
are specified in such Scope of Work as being a Hearst/Talk City Area.
Section 1.14. Homepage. "Homepage" shall mean a Web Site developed by or on
--------
behalf of an End User which is primarily developed and used for non-commercial
purposes.
Section 1.15. Initial Public Offering. "Initial Public Offering" shall
-----------------------
mean, with respect to an entity, its first underwritten public offering of the
then Voting Stock of such entity or the corporation or other entity surviving or
resulting from a merger or consolidation to which the entity is a party.
Section 1.16. Internet. "Internet" shall mean the international network of
--------
interconnected computers commonly referred to as the "Internet."
Section 1.17. Mark. "Mark" means any and all trademarks, trade names,
----
service marks, trade dress, logos, URLs, or identifying slogans of a party,
whether or not registered.
Section 1.18. Non-Hearst Content. "Non-Hearst Content" shall mean those
------------------
general areas within the Talk City Service, including Chat and Homepages that
are not related to a Hearst Property. Non-Hearst Content shall include, but not
be limited to: an "Auto OnRamp" Chat room; and a Homepage on "Penny Lane".
Section 1.19. OnNow Service. "OnNow Service" shall mean any communication,
-------------
entertainment information, transaction or other related service owned, operated,
distributed or authorized to be distributed by or through TC or any Related
Entity throughout the world related to the "OnNow" brand services.
Section 1.20. Related Entity. "Related Entity" shall mean any distributor
--------------
or service provider of a party to this Agreement, or a Entity in which either
party holds at least a five percent (5%) equity interest, or a Entity which
holds at least a five percent (5%) equity interest in either party.
Section 1.21. Talk City Service. "Talk City Service" shall mean any
-----------------
communication, entertainment, information, transaction or other related service
owned, operated, distributed or authorized to be distributed by or through TC or
any Related Entity throughout the world, including, but not limited to, the
"Talk City" brand services, but expressly excluding the OnNow Service.
Section 1.22. Subsidiary. "Subsidiary" shall mean any corporation,
----------
partnership, joint venture or other entity of which a party, directly or
indirectly, owns Voting Stock sufficient to elect a majority of the Board of
Directors (or persons performing similar functions) (irrespective of whether at
the time any other class or classes of ownership interests of such corporation,
partnership or other entity shall or might have such voting power upon the
occurrence of any contingency).
Section 1.23. Voting Stock. "Voting Stock" means, with respect to any
------------
entity, securities ordinarily (and apart from rights arising under special
circumstances) having the right to vote in the election of directors or persons
performing similar functions with respect to such entity.
Section 1.24. Web. "Web" shall mean those categories of communication
---
allowing interactive communication over the Internet using hyper-text markup
language commonly known as the "World Wide Web".
3
<PAGE>
Section 1.25. Web Site. "Web Site" shall mean that subset of the Web
--------
represented by a single top level domain name, and related pages, including,
without limitation, those textual, graphical, photographic and multimedia
components embedded therein or attached thereto.
ARTICLE II.
Creation and Operation of Hearst/Talk City Areas
------------------------------------------------
Section 2.01. Talk City Services. TC will provide all services required for
------------------
the creation, maintenance and operation of the Co-Branded Areas as contemplated
herein. TC will work with Hearst to create all versions of the Co-Branded Areas
using material to be supplied by or on behalf of Hearst. TC will provide all
necessary facilities, servers, connectivity and related equipment and technology
required to host the Co-Branded Areas on TC's Internet servers and will ensure
that such resources will support any of the Talk City Services or other
technology which Hearst reasonably requests that TC use or support in connection
with the Co-Branded Areas during the term of this Agreement. TC agrees that, at
all times during the term of this Agreement, the resources it provides to host
the Co-Branded Areas shall be sufficient to support and manage any number of
simultaneous End Users that wish to use the Co-Branded Areas at any time. TC
shall provide a means for End Users to download any software required, at no
cost, for their participation in the Co-Branded Areas. Nothing in this Agreement
shall be construed as a license to Hearst of any rights in or to such software,
other a license for such limited rights to use such software in a manner
consistent with this Agreement (including any Scope of Work attached hereto). TC
shall operate and maintain the Talk City Services and Co-Branded Areas in a
high-quality manner that will be at least consistent with TC's then-current
terms of service or code of conduct. TC agrees that the Co-Branded Areas shall
be made available to End Users on a 24/7 basis with a downtime of no more than
12 hours in any one month period. TC shall bear all the costs of providing the
Co-Branded Areas and services that it is obligated to provide hereunder.
Section 2.02. Chat Hosts. TC shall be responsible for engaging, training
----------
and compensating all Chat hosts for any Chat room created by Hearst (a "Hearst
Created Room") when a host is used, provided that Hearst may choose to supervise
such Chats itself if and when it wishes. TC will not provide moderation for any
bulletin boards or other similar services, other than Hearst OnNow Areas, which
Hearst chooses to include with the Co-Branded Areas, but Hearst may choose, in
its sole discretion, to supervise such bulletin boards or similar services.
Section 2.03. Terms of Service; Removal of Content
------------------------------------
(a) TC shall have the right to remove, or cause to be removed, from the
entire Talk City Service including but not limited to the Hearst Created Rooms
and Co-Branded Areas any information, statements or other material or content
which is not provided to it by or on behalf Hearst, if such material is in
violation of any terms of the then current terms of service or code of conduct
therefor. In addition, Hearst will have the right to de-link or otherwise remove
links from the Co-Branded Areas and the Hearst-Specific Areas to any content,
Chats or Homepages, or other Web Sites in Co-Branded Areas, in Hearst's sole
discretion.
(b) General Policies - Subject to the foregoing provisions of this Section
2.03, the parties agree that they shall work together in good faith to develop
and maintain terms of service and codes of conduct for all of the Co-Branded
Areas described above which are reasonably similar to each other.
4
<PAGE>
Section 2.04. Support. Hearst may, in its sole discretion, provide
-------
personalities, Chat hosts and other content area experts for the Chats in the
Hearst Created Rooms as well as information for display in the Co-Branded Area
on a schedule which is acceptable to both parties. Hearst also agrees to provide
TC with such content and tools for End Users to incorporate into Homepages as
are set forth on a Scope of Work. TC agrees to supply Hearst with text based
transcripts of any special event Chats for posting on the Co-Branded Areas.
Section 2.05. Collection of Information from End Users
----------------------------------------
(a) Usage Data - TC will electronically tag and track each End User as they
register from any Co-Branded Areas entry point (the "Entry Point") and use the
Co-Branded Areas. TC will supply Hearst on a monthly basis any aggregate data
which TC collects on such users who have registered via a Entry Point, including
(i) traffic patterns and user feedback related to the Co-Branded Areas and (ii)
any use of Talk City Services by End Users registering with the Co-Branded Areas
(the "Usage Data"). Hearst may make reasonable requests from time to time that
TC provide it with certain data regarding the Co-Branded Areas collected from
individual End Users, subject to TC's ability to receive such data. TC and
Hearst will co-own all data on such End Users that registered via an Entry Point
and each party will have access to that individual data as well as overall
aggregate data from the Talk City Services. TC shall deliver said co-owned End
User data in a format and on a schedule as designated by Hearst. Subject to
adherence with the Privacy Policy (as defined below), each party shall be
entitled to enter into third party arrangements pertaining to such data without
accounting to the other party.
(b) Registration of End Users - In general, all End Users coming from the
Co-Branded Areas will be presented with the opportunity to register their
personal chat nickname for use in chatting, message boards or other non-premium
Talk City Services. However at all times during the term of this Agreement
unless Hearst agrees, in its sole discretion, to the contrary, TC agrees that
all End Users of the Co-Branded Areas will have the right to use such services
(i) at no cost unless such End User has obtained access to the Talk City Service
via a third party that chooses to charge such End User a non-content specific
access charge and (ii) as a guest user who will not be required to complete a
registration process, provided that Hearst acknowledges that any such guest
users will not be permitted to participate in Talk City Services using any
nicknames reserved by End Users of the Talk City Service who have completed the
required registration process. TC agrees that Hearst shall have the right to
customize, if technically feasible, the registration process, including the look
and feel thereof, for any End Users of the Co-Branded Areas coming from a
Hearst-Specific Area. In addition, if TC or Hearst determine that End Users
coming from the Hearst-Specific Areas should provide personal information in
connection with any of the registration processes for Co-Branded Areas described
above, then the parties must first mutually agree that such registration process
is necessary and then mutually agree upon all aspects thereof. TC shall provide
Hearst, on a monthly basis, with reports which provide Hearst with information
collected by TC during the past month in connection with any of the registration
processes described above or from End Users of the Co-Branded Areas who come
from a Hearst-Specific Area (the "Registration Information"). Subject to the
terms of Section 3.04, Hearst acknowledges that TC may offer, in TC's sole
discretion, in the future, certain premium add-ons and services related to the
Talk City Services; provided, however, that if such premium add-ons and services
are offered or made available in the Co-Branded Areas or to any End Users who
come from the Hearst-Specific Areas, then such offers and promotions thereof
will be subject to the approval of Hearst and if so approved will be no more
costly to the End Users coming from a Hearst-Specific Area than to users coming
from areas of the Talk City Service.
5
<PAGE>
(c) Privacy Policy - All collection and use of the Usage Data, Registration
Information and any other information collected or received from End Users in
the Co-Branded Areas (the "Site Data") who register through Entry Points whether
through the registration process or otherwise, shall be subject to a privacy
policy to be mutually agreed upon by Hearst and TC, as amended by Hearst and TC
from time to time, which privacy policy will be consistent with generally
accepted industry standard policies on user privacy and communications and, at a
minimum, will inform such End Users of how such Site Data may be used by the
parties and will provide such End Users with the option of declining to receive
any or all of the mailings or other services offered by either party (the
"Privacy Policy"). Each End User shall be able to access the Privacy Policy from
the Co-Branded Areas and shall be clearly informed of the terms of the Privacy
Policy during any registration process. Neither party may use, or authorize any
other Entity to use, any Site Data in any manner which is not strictly in
compliance with the terms of the Privacy Policy.
Section 2.06. Ownership and Use of End User Information. TC and Hearst
-----------------------------------------
shall jointly own all Site Data. Hearst shall have no rights to any End User
data of users who have registered with other TC partners, unless such End Users
also register through an Entry Point. Subject to strict compliance with the
terms of the Privacy Policy described above, both parties shall be permitted to
use such Site Data for marketing and other similar purposes (provided that
advance written notice is given to the other party and such other party does not
object in writing to such use for purposes other than marketing); provided,
--------
however, that the Privacy Policy will allow Hearst and TC to use aggregate Usage
- -------
Data, but will prohibit use of any individual Usage Data by either party for
direct marketing or direct solicitation purposes without the prior written
consent of the other party.
Section 2.07. Tracking End User Traffic and Page Views. All Co-Branded
----------------------------------------
Areas, will be situated in a designated Hearst-owned URL directory, residing
upon TC's servers, such that Hearst receives MediaMetrix and I/Pro audit credit,
or credit from such other Web traffic measurement companies which Hearst may
wish to use from time to time ("Traffic Credit"); provided, however, that, with
-------- -------
respect to any page in the Co-Branded Area which (i) contains only a small
amount of Hearst Content and (ii) contains a significantly large amount of
content from another TC partner whose agreement with TC requires such other TC
partner to receive Traffic Credit for such page, TC may, upon at least three
business day's advance written notice to Hearst, use the other TC Partner's URL
on such page; provided, further, that if Hearst objects to the use of such other
-------- -------
URL, TC will not integrate the Hearst Content with the traffic and/or content of
such other partners.
Section 2.08. Trademarks. Each party acknowledges and agrees for all
purposes that all Marks associated with the other party and/or the other party's
services, products, literature, promotional materials or otherwise, whether or
not registered, constitute the other party's exclusive property. Each party
("Licensor") hereby grants to the other party ("Licensee") a non-exclusive, non-
transferable, non-assignable, royalty-free license ("License") to use those
Marks of Licensor specifically set forth on a Scope of Work as a "Licensed
Mark"; provided, however, that any such License shall be solely for purposes of
-------- ------
performing Licensee's obligations under this Agreement (including, without
limitation, in connection with any Advertising, marketing and promotional
activities undertaken and materials developed pursuant to such Scope of Work).
All uses by Licensee of Licensor's Marks shall be in accordance with such
quality control standards as the Licensor may promulgate from time to time, and
Licensee agrees to immediately and permanently refrain from all uses of
Licensor's Marks to which Licensor objects. All uses of Licensor's Marks by
Licensee, including all goodwill arising therefrom shall inure solely to the
benefit of Licensor. All promotional literature and other materials prepared by
either party in connection with its promotional obligations hereunder shall bear
appropriate copyright and/or trademark notices as prescribed by the party whose
content or branding is included therein.
6
<PAGE>
Licensee agrees it will not use, register or attempt to register in any
jurisdiction, or otherwise appropriate or adopt any name, mark or logo that is
confusingly similar to Licensor's Marks. Licensor retains all rights with
respect to Licensor's Marks that are not specifically granted to Licensee
herein. At no time during the term of the Agreement or thereafter shall Licensee
attack, challenge or file any application with respect to any Licensor Mark.
Unless specifically stated to the contrary in a Scope of Work, all Licenses
granted hereunder shall be non-exclusive.
Section 2.09. Promotion and Marketing. Subject to the provisions of Section
----------------------- -------
2.08, Hearst may use the "Talk City" trademark and logo, any depictions of the
- ----
actual Co-Branded Areas or material created for the Co-Branded Areas pursuant
hereto, as well as any other material, names, logos and trademarks of TC which
TC chooses to make available to Hearst in its sole discretion (the "TC
Material"), in any Advertisement, marketing and promotion activities in which
Hearst may choose to engage, provided that such use shall be made in accordance
with any guidelines regarding such TC Material provided by TC, including any
amended guidelines. Subject to the provisions of Section 2.08, TC may use any
------------
material supplied to TC by Hearst, including any Hearst names, logos and
trademarks included therein, (the "Hearst Material") for the specific purposes
described herein subject to the terms hereof. In addition, TC may use Hearst
Material for certain limited Advertisements, marketing and promotional purposes
if it first obtains the prior written approval of Hearst regarding each such
use. All uses of Hearst Material by TC shall be made in accordance with any
guidelines regarding the Hearst Material provided by Hearst from time to time,
including any amended guidelines, and any and all Hearst guidelines regarding
the use of Hearst intellectual property, talents' names, likenesses and images
as well as any other requirement related thereto. TC will provide Hearst with
samples of marketing literature and material that include any Hearst Material
for purposes of determining compliance with Hearst's guidelines prior to any use
thereof. Neither party will make any statements to the effect, or which imply,
that any other party "certifies," endorses or guarantees the performance of any
service or product of such party. Except as otherwise provided in a separate
agreement between the parties, neither party will use or display any name,
trademark or logo of the other parties hereto in any other way or after the
termination of this Agreement. The parties agree to issue a mutually agreeable
unbundled press release for the launch of the expanded Co-Branded Areas and for
any other events and topics of public interest about which the parties mutually
agree. Furthermore, both parties agree to make commercially reasonable efforts
to co-market the relationship through any relevant printed or online
Advertisements or other marketing materials related to each party's services
described herein which the parties may distribute. Notwithstanding the foregoing
but subject to the terms of Section 12.9, either party may issue press releases
that the parties agree are required by law or regulation without the consent of
the other party; provided, however, that prior to any issuance of any required
-------- -------
press release, a copy of the proposed press release shall be submitted to the
non-issuing party for review, and the issuing party will, to the extent allowed
by law or regulation, consider any proposals to the press release which are
given to the issuing party within 2 business days from the date of such notice.
Hearst and TC agree to make commercially reasonable efforts to pursue cross-
promotional opportunities, which include cross-links to each other's Web Sites,
in the form of permanent links in prominent above the fold positions in
strategic pages; provided, however, that neither party shall be required to
-------- -------
provide such cross-links except as expressly set forth in a Scope of Work.
Section 2.10. Ownership.
---------
(a) Except for material owned by TC and provided for use hereunder and the
material described in Section 2.06, Hearst and its licensors, suppliers, agents
and Affiliates will own all rights to the Hearst Content material, including,
but not limited to, any material created by Hearst for use therein, Chat
transcripts and bulletin board messages. To the extent that Hearst has the
requisite rights to do so
7
<PAGE>
and to the extent that such grant is not subject to third party restrictions,
Hearst grants TC a royalty free license to use any transcripts related to a
Hearst Property which is created in a Co-Branded Area for the Initial Term of
this agreement and for each subsequent Renewal Term (as such terms are defined
below) subject to the terms hereof and the Privacy Policy. Hearst shall have the
right to set any guidelines for the archiving and placement of such materials on
the Talk City Service or any other usage by TC that it chooses to set in its
sole discretion.
(b) TC shall retain ownership of all TC Material that, as a result of this
Agreement, are co-branded with Hearst and created with the cooperation of
Hearst. This applies to current or future areas of Talk City Services that TC
creates without specific cooperation but for which Hearst agrees to co-brand
anyways. Such examples are TC Food Talk, TC Working Moms, and other existing TC
properties that are co-branded with Hearst as a result of this Agreement.
ARTICLE III.
Advertising in the Hearst/Talk City Areas
-----------------------------------------
Section 3.01. Hearst Advertising Inventory Sales. TC shall be responsible
----------------------------------
for selling [*]% of the Advertisements in the Co-Branded areas until both
parties mutually agree upon a method for Hearst to sell such inventory.
Section 3.02. Advertising Sales Guidelines. All such Advertisements
----------------------------
appearing in Co-Branded Areas will comply with any applicable Hearst guidelines
regarding the use of intellectual property related to any Hearst Property or the
Chat guests' names, likenesses and images and any other requirement related
thereto of which TC is informed by Hearst. Hearst has approval rights on all
aspects of such Advertisements on the Co-Branded Area, including, without
limitation, the selection of advertisers and the content and position of the
Advertisements.
Section 3.03. Transaction Revenues
--------------------
(a) TC shall pay Hearst [*] percent ([*]%) of all gross revenues which its
receives in connection with transactions in the "Talk City Store" area of the
Talk City Service which are attributable to End Users which entered the Talk
City Service from Co-Branded Areas ("Merchandise Sales").
(b) TC shall pay Hearst [*] percent ([*]%) of the gross revenues which it
receives from third parties in connection with transactions between such third
parties and End Users which entered the Talk City Service from the Co-Branded
Areas ("Transaction Fees").
(c) The party who sells any Advertisements to be placed on a Co-Branded
Area shall deliver to the other party [*] percent ([*]%) of the gross
revenues which it receives from third parties in connection with the sale of
such Advertisements and shall retain the remaining [*] percent ([*]%).
(d) If Hearst, in its sole discretion, chooses to link to or offer
transaction services within the Co-Branded Areas, then Hearst and TC shall
mutually agree upon how the parties will share any revenue attributable thereto
before such services are linked to or offered within the Co-Branded Areas.
Section 3.04. Future Revenue. The parties agree that if any future revenue
--------------
generating opportunities not described above are created in connection with the
Talk City Service or the Co-Branded Areas, the parties will negotiate in good
faith regarding what revenue sharing arrangements
8
* Certain information on this page has been
omitted and filed with the Commission.
Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
between the parties would be appropriate provided that, unless such
--------
opportunities involve characteristics which would make them materially different
from the opportunities described above, it is the intent of the parties to share
such revenues in a manner similar to that described above. No revenue sharing
arrangements between the parties with respect to any such revenue generating
opportunities will not be binding upon the parties except as set forth in a
Scope of Work.
Section 3.05. Excluded Revenue. Except as otherwise agreed by the parties,
----------------
at no time shall Hearst be entitled to any revenue received by TC in connection
with infochats, user add-ons (Chat @ Talk City), market research, custom
community programming, or other corporate services which do not relate to the
Hearst/Talk City Areas.
ARTICLE IV.
Payments and Audit Rights
-------------------------
Section 4.01. Payments to Hearst. Within forty-five (45) days following the
------------------
end of each quarter (March 31, June 30, September 30, December 31) TC shall
prepare and deliver to Hearst (i) a quarterly statement providing sufficient
detail regarding revenues received from third parties from Merchandise Sales,
Transaction Fees, the sale of Advertisements and all other revenue to which
Hearst is entitled to receive payments from TC pursuant to this Agreement (the
"TC Income Statement"), and (ii) all payments for such quarter required to be
paid by TC to Hearst pursuant to this Agreement (the "TC Revenue Payment").
Section 4.02. Payments to TC. Within than forty-five (45) days following
--------------
the end of each quarter (March 31, June 30, September 30, December 31) Hearst
shall prepare and deliver to TC (i) a quarterly statement providing sufficient
detail regarding revenues received from third parties from the sale of
Advertisements and all other revenue to which TC is entitled to receive payments
from Hearst pursuant to this Agreement (the "Hearst Income Statement," and
together with the TC Income Statement, the "Income Statements"), and (ii) all
payments for such quarter required to be paid by Hearst to TC pursuant to this
Agreement (the "Hearst Revenue Payment").
Section 4.03. Audit Rights
------------
(a) Hearst and TC shall mutually agree upon the measurement methods and
calculations required to determine whether a revenue or an expense is applicable
to Advertisements on the Co-Branded Areas. Either party (the "Inspecting Party")
shall have the right, upon reasonable written notice to the other party (the
"Audited Party"), to inspect, or have its agents inspect, the Audited Party's
books and records and all other documents and material in the possession of or
under its control with respect to the Income Statements prepared and delivered
by the Audited Party at the place or places where such records are normally
retained by the other party. Both parties or its agents shall have free and full
access thereto during normal business hours for such purposes and shall be
permitted to be able to make copies thereof and extracts therefrom. In the event
that such inspection reveals a discrepancy in the amount of any payments owed to
the other party from what was actually paid, the other party shall pay such
discrepancy. In the event that such discrepancy is in excess of ten percent
(10%) of the payments due for the period audited, the party shall also reimburse
the other party for the reasonable costs of performing the audit. All books and
records relative to either party's obligations hereunder shall be maintained and
kept accessible and available to the other party for inspection for at least two
(2) years after termination of this Agreement.
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(b) If the Inspecting Party disputes the determination of revenue stated on
an Income Statement, the parties shall use their best efforts to resolve such
dispute within thirty (30) days of the Inspecting Party's written notification
to the Audited Party of such dispute. If at the end of such thirty (30) day
period, the Inspecting Party and the Audited Party are unable to resolve such
dispute, the Inspecting Party and the Audited Party shall, as promptly as
possible, but within five (5) days, select and appoint a nationally recognized
independent public accounting firm (an "Arbiter") mutually acceptable
-------
to the Inspecting Party and the Audited Party to resolve such dispute within
forty-five (45) days. The determination and resolution of the Arbiter shall be
final and binding upon the Inspecting Party and the Audited Party. If the
Inspecting Party and the Audited Party cannot agree on such a mutually
acceptable Arbiter within such five (5) day period, each of the Inspecting Party
and the Audited Party shall select one (1) Arbiter within five (5) days, and the
two (2) Arbiters so selected shall jointly select within ten (10) days a third
Arbiter to resolve such dispute. In such event, the determination of the third
Arbiter shall be final and binding upon the Inspecting Party and the Audited
Party. In the event that either the Inspecting Party or the Audited Party, as
the case may be, fails to select an Arbiter (as contemplated by the second
preceding sentence) within such five (5) day period, such party shall lose its
right to select an Arbiter, and the decision of the one (1) selected Arbiter
shall be final and binding upon the Inspecting Party and the Audited Party.
Disputes with respect to the calculation of revenues shall in no way affect the
Audited Party's obligation to make timely payment to the Inspecting Party of the
TC Revenue Payment or Hearst Revenue Payment, as the case may be, and the
Audited Party shall deliver to the Inspecting Party in a timely manner the full
amount of the TC Revenue Payment or Hearst Revenue Payment, as the case may be,
as calculated pursuant to the relevant Income Statement.
ARTICLE V.
Exclusivity
-----------
Section 5.01. Hearst Competitors
------------------
(a) During the term of this agreement, TC agrees not to enter into a
similar co-branding agreement with a traditional off-line competitor of any
Hearst Property which has entered into a Scope of Work (if such Scope of Work
provides that TC is the active and exclusive provider of Chat services for said
Hearst Property), during the term of such Scope of Work, if such competitor is
directly competitive to such Hearst Property, including but not limited to
brands at the following companies that deal with similar content matter as that
of the participating Hearst Property (collectively, the "Hearst Competitors"):
(i) With respect to any Hearst magazine (including, without
limitation, the series of Web Sites currently located at URL
http:www.homearts.com, or any other successor Web Site): Conde Nast; Martha
Stewart; Meredith Publications; Hachette; Advance Publications; Time
Warner; News Corporation; and/or online and Internet competitor Web Sites
such as iVillage, Electra, PathFinder's women's areas, Thrive, Epicurious,
and Martha Stewart.com.
(ii) For other Hearst Properties, when the specific Scope of Work is
defined, Hearst and TC will mutually agree on the excluded list of Hearst
Competitors, with the understanding that, such a list will not cause Talk
City to terminate any then existing agreements of TC with other companies.
(b) TC will not integrate the Hearst Competitors or their respective brands
and Web Sites into, or make them accessible from (other than paid banner
advertisements), the Talk City Services or
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OnNow Services, provided, however, that this exclusivity does not apply to NBC
- ---------------
Interactive and Cox Interactive Media, or their respective Affiliates.
Section 5.02. TC Competitors. During the term of this agreement, Hearst
--------------
Properties participating in the Co-Branded Area pursuant to a Scope of Work will
not, during the term of such Scope of Work, enter into any other arrangements
similar to that of the Co-Branded Areas with other community providers that
compete with Talk City Services. When the specific Scope of Work is defined,
Hearst and Talk City will mutually agree on the excluded list of competitors of
TC; provided, however, that such competitors will include, but are not limited
-------- -------
to, theglobe; GeoCities; Tripod; angelfire; whowhere; Xoom; and wbs (the "TC
Competitors"). Nothing herein will preclude any Hearst Property from
participating in (i) scheduled or celebrity chat events with any of the TC
Competitors or (ii) AOL Chat.
ARTICLE VI.
Term and Termination
--------------------
Section 6.01. Term.
----
(a) The term of this Agreement shall be three (3) years from the Effective
Date of this Agreement ("Initial Term"). This Agreement shall be automatically
extended for an additional two (2) year period (a "Renewal Term") upon the
completion of the Initial Term or any Renewal Term unless either party notifies
the other in writing of its election to have the Agreement expire at least sixty
(60) days in advance of the end of the then-current term.
(b) No Hearst Property will be subject to or bound by this Agreement unless
and until such Hearst Property has entered into an effective Scope of Work and
will only be bound by this Agreement for the term of such Scope of Work. A Scope
of Work will be effective when (i) it explicitly states that it is a "Scope of
Work" pursuant to this Agreement, (ii) it is executed and delivered by an
authorized officer of TC and (iii) it is executed and delivered by an authorized
officer of the Hearst Property to be bound by such Scope of Work. A scope of
Work shall remain in effect until the termination or expiration date stated in
such Scope of Work, or if there is no stated date, until the termination or
expiration of this Agreement.
Section 6.02. Termination.
-----------
(a) This Agreement may be terminated prior to the end of the Initial Term
or any Renewal Term as follows:
(i) at any time by mutual written consent of TC and Hearst;
(ii) by either party hereto for any reason by giving sixty (60) days
written notice to the other party at any time after the first year of the
Initial Term; provided, however, that any Scope of Work that has become
-------- -------
effective within the twelve (12) month period prior to the termination of
this Agreement pursuant to this Section 6.02(a)(ii) will not terminate
-------------------
until the one year anniversary of the effective date of such Scope of Work;
(iii) by Hearst by giving written notice to TC if at any time a
Change of Control of TC shall occur;
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(iv) by Hearst by giving written notice to TC if at any time any
materials are posted on the Co-Branded Areas, the Talk City Services or the
OnNow Services which, in Hearst's reasonable opinion will likely injure the
good name or reputation of Hearst, any Hearst Property or any Hearst Mark,
and such materials are not removed within seven (7) days after the notice
of such likelihood of injury;
(v) by either party hereto by giving written notice to the other
party at any time in the event the other party has breached any
representation, warranty, covenant, or other agreement contained in this
Agreement in any material respect and (A) in the case of a breach of
Section 7.01(c) or (d), or Section 7.02(c) or (d), the breach has continued
without cure for a period of two (2) days after the notice of the breach ;
or (B) for any other breach, the breach has continued without cure for a
period of thirty (30) days after the notice of the breach (provided the
party giving such notice is not also in breach of any provision of this
Agreement in any material respect at the time such notice is given); or
(vi) by either party hereto by giving written notice to the other
party at any time in the event the other party (a) files a petition in
bankruptcy (or is the subject of an involuntary petition in bankruptcy that
is not dismissed within sixty (60) days after the effective filing date
thereof), (b) is or becomes insolvent, or (c) admits of a general inability
to pay its debts as they become due.
(b) A Scope of Work may be terminated prior to the termination date stated
therein, or if no stated date, prior to the end of the Initial Term or any
Renewal Term by either party hereto for any reason by giving sixty (60) days
prior written notice to the other party at any time following the first year of
the term of such Scope of Work.
Section 6.03. Effect of Termination. Upon the expiration or termination of
---------------------
this Agreement, each Scope of Work shall terminate (except for each Scope of
Work which survives for a period after termination pursuant to Section
-------
6.02(a)(ii), which shall terminate pursuant to the provisions of Section
- ----------- -------
6.02(a)(ii)). Upon the expiration or termination of a Scope of Work:
- -----------
(a) TC shall, with respect to such Scope of Work, (a) immediately remove
the Co-Branded Areas from its Web servers, (b) immediately cease using any
Hearst Mark or other intellectual property of Hearst, (c) within five (5) days
of such termination, return the Hearst Content, Hearst Materials, Confidential
Information of Hearst and other materials provided to TC by or on behalf of
Hearst (including all electronic copies thereof) and (d) within fifteen (15)
days of such termination deliver to Hearst a final TC Income Statement and TC
Revenue Payment. Further, concurrently with the delivery by the TC to Hearst of
the such materials, an officer of TC shall certify in writing to Hearst that all
such materials have been delivered to Hearst.
(b) Hearst shall, with respect to such Scope of Work, (a) immediately cease
using any TC Mark or other intellectual property of TC, (b) within five (5) days
of such termination, return the TC Materials, Confidential Information of TC and
other materials provided to Hearst by or on behalf of TC (including all
electronic copies thereof) and (c) within fifteen (15) days of such termination
deliver to Hearst a final Hearst Income Statement and Hearst Revenue Payment.
Further, concurrently with the delivery by Hearst to TC of the such materials,
an officer of Hearst shall certify in writing to TC that all such materials have
been delivered to TC.
(c) All other provisions of this Agreement shall survive termination of the
Scope of Work.
12
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Section 6.04. Hearst Control of Brands. At any time during the Initial
------------------------
Term, or any Renewal Term, Hearst may include or omit any Hearst Property or Web
Sites in the Co-Branded Areas upon 60 (sixty) day's written notice to TC;
provided, however, that the inclusion of new Hearst Properties or Web Sites is
- -------- -------
subject to commercial reasonableness for TC to integrate the TC's Services with
those Hearst Properties and Web Sites.
ARTICLE VII.
Representations and Warranties
------------------------------
Section 7.01. Representations and Warranties of TC. Licensor represents and
------------------------------------
warrants to Hearst as follows:
(a) Authority. TC has all requisite power and legal capacity to execute and
---------
deliver this Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly authorized and duly and validly executed and
delivered by TC and constitutes a legal, valid and binding obligation of TC
enforceable against TC in accordance with its terms.
(b) No Conflicts. The execution and delivery by TC of this Agreement do
------------
not, and the performance by TC of its obligations under this Agreement and the
consummation of the transactions contemplated hereby will not (with or without
notice or lapse of time or both): (i) conflict with or result in a violation or
breach of any of the certificate of incorporation or by-laws (or other similar
governing documents) of TC; (ii) conflict with or result in a violation or
breach of any law or order applicable to TC, or any of its assets and
properties; or (iii)(A) conflict with or result in a violation or breach of, (B)
constitute a default under, (C) require TC to obtain any consent, approval or
action of, make any filing with or give any notice to any Entity as a result or
under the terms of, or (D) result in the creation or imposition of any lien upon
TC or any of its assets and properties under, any material contract or material
license to which TC is a party or by which any of its assets and properties is
bound.
(c) Content. TC will not provide any materials to Hearst or publish any
-------
materials on the Co-Branded Area, Talk City Service or OnNow Service that: (a)
infringes on any third party's copyright, patent, trademark, trade secret or
other proprietary rights or rights of publicity or privacy; (b) violates any
law, statute, ordinance or regulation (including without limitation the laws and
regulations governing export control); (c) is defamatory, trade libelous,
unlawfully threatening or unlawfully harassing; (d) is obscene or pornographic
or contains child pornography; (e) violates any laws regarding unfair
competition, anti-discrimination or false advertising, or (f) to the best of
TC's knowledge, contains any viruses, trojan horses, worms, time bombs,
cancelbots or other computer programming routines that are intended to damage,
detrimentally interfere with, surreptitiously intercept or expropriate any
system, data or personal information.
(d) Year 2000 Compliant. To the best of TC's knowledge, based on
-------------------
representations and warranties made by third parties, technology used or
supplied by or on behalf of TC pursuant to this Agreement (exclusive of
technology supplied by Hearst) ("TC Technology") shall be Year 2000 Compliant.
As used in this Section 7.01(d), "Year 2000 Compliant" means that the TC
Technology is designed to be used prior to, during and after the calendar Year
2000 A.D., and will accurately receive, provide and process date/time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the 20th and 21st centuries, including the years 1999 and 2000,
and leap-year calculations and will not malfunction, cease to function, or
provide invalid or incorrect results as a result of date/time data; provided
that all other hardware, software or firmware used in conjunction with the TC
13
<PAGE>
Technology properly exchange accurate and properly formatted date data with the
TC Technology being evaluated for Year 2000 Compliance. TC agrees to use
commercially reasonable practices (including without limitation periodic
inspections of each Talk City Service and OnNow Service) to ensure that End
User-generated content published or distributed on such service does not create
liability for Hearst.
Section 7.02. Representations and Warranties of Hearst. Hearst represents
----------------------------------------
and warrants to TC as follows:
(a) Authority. Hearst has all requisite power and legal capacity to execute
---------
and deliver this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been duly authorized and duly and validly executed
and delivered by Hearst and constitutes a legal, valid and binding obligation of
Hearst enforceable against Hearst in accordance with its terms.
(b) No Conflicts. The execution and delivery by Hearst of this Agreement do
------------
not, and the performance by Hearst of its obligations under this Agreement and
the consummation of the transactions contemplated hereby will not (with or
without notice or lapse of time or both): (i) conflict with or result in a
violation or breach of the certificate of incorporation or by-laws (or other
similar governing documents) of Hearst; (ii) conflict with or result in a
violation or breach of any law or order applicable to Hearst, or any of its
assets and properties; or (iii)(A) conflict with or result in a violation or
breach of, (B) constitute a default under, (C) require Hearst to obtain any
consent, approval or action of, make any filing with or give any notice to any
Entity as a result or under the terms of, or (D) result in the creation or
imposition of any lien upon Hearst or any of its assets and properties under,
any material contract or material license to which Hearst is a party or by which
any of its assets and properties is bound.
(c) Content. Hearst will not provide any materials to TC or publish any
-------
materials on the Co-Branded Area that: (a) infringes on any third party's
copyright, patent, trademark, trade secret or other proprietary rights or rights
of publicity or privacy; (b) violates any law, statute, ordinance or regulation
(including without limitation the laws and regulations governing export
control); (c) is defamatory, trade libelous, unlawfully threatening or
unlawfully harassing; (d) is obscene or pornographic or contains child
pornography; (e) violates any laws regarding unfair competition, anti-
discrimination or false advertising, or (f) to the best of Hearst's knowledge,
contains any viruses, trojan horses, worms, time bombs, cancelbots or other
computer programming routines that are intended to damage, detrimentally
interfere with, surreptitiously intercept or expropriate any system, data or
personal information.
(d) Year 2000 Compliant. To the best of Hearst's knowledge, based on
-------------------
representations and warranties made by third parties, technology used or
supplied by or on behalf of Hearst pursuant to this Agreement (exclusive of
technology supplied by TC) ("Hearst Technology") shall be Year 2000 Compliant.
As used in this Section 7.02(d), "Year 2000 Compliant" means that the Hearst
Technology is designed to be used prior to, during and after the calendar Year
2000 A.D., and will accurately receive, provide and process date/time data
(including, but not limited to, calculating, comparing and sequencing) from,
into and between the 20th and 21st centuries, including the years 1999 and 2000,
and leap-year calculations and will not malfunction, cease to function, or
provide invalid or incorrect results as a result of date/time data; provided
that all other hardware, software or firmware used in conjunction with the
Hearst Technology properly exchange accurate and properly formatted date data
with the Hearst Technology being evaluated for Year 2000 Compliance. Hearst
agrees to use commercially reasonable practices (including without limitation
periodic inspections of each Hearst-Specific Area) to ensure that End User-
generated content published or distributed on such service does not create
liability for TC.
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Section 7.03. Recourse and Remedies. Each party agrees that its sole and
---------------------
exclusive remedy for a breach of any warranty made by the other party pursuant
to this Section 7 shall be indemnification as set forth in Section 8 hereof.
--------- ---------
ARTICLE VIII.
Indemnification
---------------
Section 8.01. TC. TC shall indemnify, defend and hold harmless Hearst and
--
its Affiliates and their respective employees, officers, directors, and agents
(the "Hearst Parties") from any and all claims, demands, suits, actions,
------ -------
damages, fines, penalties, costs and expenses (including but not limited to
attorneys' fees and disbursements) and judgments brought or obtained by a third
party ("Losses"), of whatever type or kind arising out of any breach by TC of
------
any of the terms and conditions of this Agreement. Hearst shall cooperate with,
and assist, TC with respect to any such Losses by (i) promptly notifying TC of
any such Losses (provided that the failure to give such notice shall not affect
TC's indemnification obligations except to the extent that TC is actually
prejudiced thereby), (ii) promptly providing to TC any reasonably requested
documents in its possession, custody, or control, and (iii) making its personnel
familiar with the facts available to TC, except that TC shall reimburse Hearst
for any out-of-pocket travel, lodging, and subsistence expenses necessarily and
reasonably incurred by Hearst in effecting such cooperation.
Section 8.02. Hearst. Hearst shall indemnify, defend and hold harmless TC
------
and its Affiliates and their respective employees, officers, directors, and
agents (the "TC Parties") from any and all Losses of whatever type or kind
-- -------
arising out of any breach by Hearst of any of the terms and conditions of this
Agreement. TC shall cooperate with, and assist, Hearst with respect to any such
Losses by (i) promptly notifying Hearst of any such Losses (provided that the
failure to give such notice shall not affect Hearst's indemnification
obligations except to the extent that Hearst is actually prejudiced thereby),
(ii) promptly providing to Hearst any reasonably requested documents in its
possession, custody, or control, and (iii) making its personnel familiar with
the facts available to Hearst, except that Hearst shall reimburse TC for any
out-of-pocket travel, lodging, and subsistence expenses necessarily and
reasonably incurred by TC in effecting such cooperation.
ARTICLE IX.
Limitation of Liability
-----------------------
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY LOSS OF PROSPECTIVE
PROFITS OR ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES BY REASON
OF ANY FAILURE BY SUCH PARTY TO PERFORM ITS OBLIGATIONS PURSUANT TO THIS
AGREEMENT (INCLUDING BUT NOT LIMITED TO SUCH DAMAGES ARISING FROM TORT,
INCLUDING NEGLIGENCE AND STRICT LIABILITY, BREACH OF CONTRACT OR WARRANTY),
INCLUDING WITHOUT LIMITATION DAMAGES FOR INTERRUPTED COMMUNICATIONS, LOST DATA
OR LOST PROFITS, EVEN IF SUCH PARTY HAS BEEN ADVISED OF (OR KNOWS OR SHOULD KNOW
OF) THE POSSIBILITY OF SUCH DAMAGES AND NOTWITHSTANDING THE FAILURE OF ESSENTIAL
PURPOSE OF ANY REMEDY.
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ARTICLE X.
General Provisions
------------------
Section 10.01. Force Majeure. Neither party shall be liable for, or be
-------------
considered in breach of or default under this Agreement on account of, any delay
or failure to perform as required by this Agreement as a result of any causes or
conditions which are beyond such party's reasonable control and which such party
is unable to overcome by the exercise of reasonable diligence; but the existence
of any such event shall not excuse any failure or delay by TC in making any
payment to Hearst for monies due Hearst. Notwithstanding the foregoing, either
party may terminate this Agreement upon written notice to the other party in the
event such failure to perform continues unremedied for a period of thirty (30)
days in the aggregate.
Section 10.02. Independent Contractors. The parties to this Agreement are
-----------------------
independent contractors. Neither party is an agent, representative, or partner
of the other party. Neither party shall have any right, power or authority to
enter into any agreement for or on behalf of, or incur any obligation or
liability of, or to otherwise bind, the other party. This Agreement shall not be
interpreted or construed to create an association, joint venture or partnership
between the parties or to impose any partnership obligation or liability upon
either party.
Section 10.03. Waiver. Any term or condition of this Agreement may be
------
waived at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition. No waiver
by any party of any term or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a waiver of the same or any
other term or condition of this Agreement on any future occasion.
Section 10.04. Entire Agreement. This Agreement supersedes all prior
----------------
discussions and agreements between the parties with respect to the subject
matter hereof, and contains the sole and entire agreement between the parties
hereto with respect to the subject matter hereof.
Section 10.05. Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
Section 10.06. Discretion of Parties. Except as expressly stated otherwise
---------------------
herein, whenever a party's consent or approval is required herein, such consent
or approval may be withheld by such party in such party's sole discretion.
Section 10.07. Section Headings; Exhibits. The section and subsection
--------------------------
headings used herein are for reference and convenience only, and shall not enter
into the interpretation hereof. Any exhibits referred to herein and attached
hereto, or to be attached hereto, are incorporated herein to the same extent as
if set forth in full herein.
Section 10.08. Neutral Construction. The parties to this Agreement agree
--------------------
that this Agreement was negotiated fairly between them at arm's length and that
the final terms of this Agreement are the product of the parties' negotiations.
Each party represents and warrants that it has sought and received legal counsel
of its own choosing with regard to the contents of this Agreement and the rights
and obligations affected hereby. The parties agree that this Agreement shall be
deemed to have been jointly
16
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and equally drafted by them, and that the provisions of this Agreement therefore
should not be construed against a party or parties on the grounds that the party
or parties drafted or was more responsible for drafting the provision(s).
Section 10.09. Notices. All notices, requests, consents, waivers and other
-------
communications hereunder must be in writing and will be deemed to have been duly
given only if delivered personally or by facsimile transmission or mailed (first
class postage prepaid) to the parties at the following addresses or facsimile
numbers:
If to the Company, to:
Talk City, Inc.
307 Orchard City Drive, Suite 350
Campbell, CA 95008
Facsimile No.: (408) 871-5300
Attn: Daniel Paul
with a copy to:
Wilson, Sonsini Goodrich and Rosati
650 Page Mill Road
Palo Alto, CA 94304
Facsimile No: (650) 496-4088
Attn: Page Mailliard
If to Hearst, to:
Hearst Communications, Inc.
New Media & Technology
959 Eighth Avenue
New York, New York 10019
Facsimile No.: (212) 582-7739
Attn: Alfred C. Sikes, President
with copies to:
Hearst Communications, Inc.
959 Eighth Avenue
New York, New York 10019
Facsimile No.: (212) 649-2035
Attn: Jonathan E. Thackeray, General Counsel
and
Rogers & Wells, LLP
200 Park Avenue
New York, New York 10166
Facsimile No.: (212) 878-8375
Attn: Steven A. Hobbs
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All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section, be deemed given upon receipt, and (iii) if delivered
by mail in the manner described above to the address as provided in this
Section, be deemed given upon receipt (in each case regardless of whether such
notice is received by any other person to whom a copy of such notice, request or
other communication is to be delivered pursuant to this Section). Any party from
time to time may change its address, facsimile number or other information for
the purpose of notices to that party by giving notice specifying such change to
the other party hereto.
Section 10.10. Amendment. This Agreement may be amended, supplemented or
---------
modified only by a written instrument duly executed by or on behalf of each
party hereto.
Section 10.11. Assignment. TC shall not assign this Agreement or any right,
----------
interest or benefit under this Agreement without the prior written consent of
Hearst, such consent not to be unreasonably withheld. TC acknowledges that
Hearst shall have the right to freely assign or transfer, in whole or in part,
any of its rights, interests, benefits or obligations hereunder, including the
Agreement itself, to any party in its sole discretion. Subject to the foregoing,
this Agreement shall be fully binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns.
Section 10.12. Partial Invalidity. If any provision of this Agreement is
------------------
held to be illegal, invalid or unenforceable under any present or future law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
Section 10.13. Confidentiality.
---------------
(a) This Agreement creates a relationship of confidence and trust among the
TC and its affiliates and their respective officers, directors, agents and
employees on the one hand and, Hearst and its affiliates and their respective
officers, directors, agents and employees on the other hand, with respect to any
information applicable to either party's business, clients, or customers,
including, without limitation, (i) technical and non-technical information
including patent, copyright, trade secret, and proprietary information,
techniques, sketches, drawings, models, inventions, know-how, processes,
apparatus, equipment, algorithms, software programs, software source documents,
and formulae related to the current, future and proposed products and services,
as well as (ii) information concerning research, experimental work, development,
design details and specifications, engineering, financial information,
procurement requirements, purchasing manufacturing, customer lists, business
forecasts, sales and merchandising and marketing plans and information
("Confidential Information") of the disclosing party ("Disclosing Party"), which
------------------------ ----------------
may be made known to the other party ("Receiving Party") during the term of
---------------
this Agreement.
(b) All Confidential Information provided by the Disclosing Party is the
sole property of the Disclosing Party. During the term of this Agreement and for
three (3) years thereafter, the Receiving Party will keep in confidence and
trust such Confidential Information, and will not use or disclose any
Confidential Information or anything directly relating to it without the prior
written consent of the
18
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Disclosing Party, unless (i) compelled to disclose by judicial or administrative
process or by other requirements of laws, statutes, rules, regulations,
ordinances and other pronouncements having the effect of law of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision or of any governmental or regulatory authority or
(ii) disclosed in any action, suit, proceeding or arbitration brought by a party
hereto in pursuit of its rights or in the exercise of its remedies hereunder.
Notwithstanding the foregoing, it is understood that, as used herein.
"Confidential Information" shall not include information (i) which is generally
------------------------
known or becomes generally known in the trade or industry not as a result of a
breach of this Agreement by the Receiving Party, (ii) which can be established
to have been otherwise known to the Receiving Party prior to the disclosure by
the Disclosing Party, (iii) subsequently disclosed to the Receiving Party by a
third party, or (iv) which is independently developed by the Receiving Party
without reliance on any Confidential Information of the Disclosing Party, in
each case, not as a result of a breach of this Agreement by the Receiving Party.
Section 10.14. Applicable Law; Jurisdiction. This Agreement shall be
----------------------------
governed by and construed in accordance with the laws of the State of New York
applicable to a contract executed and performed in such state, without reference
to the choice of law provisions thereof. The parties, for themselves and their
respective affiliates, hereby irrevocably waive all right to a trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to the actions of the parties or their
respective affiliates pursuant to this Agreement in the negotiation,
administration, performance or enforcement thereof.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
TALK CITY, INC. HEARST COMMUNICATIONS, INC.
By: /s/ Signature Illegible By: /s/ Signature Illegible
Print Name: PETER FRIEDMAN Print Name: KENNETH A. BRONFIN
-------------- ------------------
Title: CEO Title: SVP
--- ---
20
<PAGE>
EXHIBIT 10.17
============================================================================
TALK CITY, INC.
307 ORCHARD CITY DRIVE
SUITE 304
CAMPBELL, CA 95008
_________________________
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
WITH
HEARST COMMUNICATIONS, INC.,
HEARST NEW MEDIA & TECHNOLOGY DIVISION
OCTOBER 30, 1998
==============================================================================
* Certain information in this exhibit has been omitted
and filed separately with the Commission. Confidential
treatment has been requested with respect to the
omitted portions.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SECTION 1 Authorization and Sale of Series D Preferred Stock; Consideration.................................. 1
1.1 Authorization................................................................................... 1
1.2 Sale and Issuance of Series D Preferred......................................................... 1
SECTION 2 Acquisition and Other Capital Changes.............................................................. 4
2.1 Reclassification, Consolidation, Merger, etc.................................................... 4
2.2 Conversion of the Series D Preferred............................................................ 5
2.3 Subdivision, Stock Dividend or Combination of Shares............................................ 5
2.4 Application Only to Unissued Shares............................................................. 5
2.5 Consequences of Dilutive Issuance............................................................... 5
SECTION 3 Closing Dates; Delivery............................................................................ 6
3.1 Closing Dates................................................................................... 6
3.2 Delivery........................................................................................ 7
SECTION 4 Representations and Warranties of the Company ..................................................... 7
4.1 Organization and Standing; Articles and Bylaws.................................................. 7
4.2 Corporate Power................................................................................. 7
4.3 Authorization................................................................................... 7
4.4 Capitalization.................................................................................. 8
4.5 Financial Statements............................................................................ 8
4.6 Changes......................................................................................... 9
4.7 Material Obligations............................................................................ 10
4.8 Material Contracts and Commitments.............................................................. 10
4.9 Intellectual Property, Trademarks............................................................... 10
4.10 Title to Properties and Assets; Liens........................................................... 11
4.11 Compliance with Other Instruments, None Burdensome............................................. 11
4.12 Litigation..................................................................................... 11
4.13 Registration Rights............................................................................ 12
4.14 Governmental Consent........................................................................... 12
4.15 Offering....................................................................................... 12
4.16 Brokers or Finders............................................................................. 12
4.17 Related Party Transactions..................................................................... 12
4.18 Taxes.......................................................................................... 13
4.19 Insurance...................................................................................... 13
4.20 Benefit Plans; Labor Relations................................................................. 14
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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----
<S> <C>
4.21 Subsidiaries.................................................................................. 14
4.22 Disclosure.................................................................................... 14
SECTION 5 Representations and Warranties of the Purchaser.................................................. 14
5.1 Experience; Speculative Nature of Investment.................................................. 14
5.2 Investment; Accredited Investor............................................................... 15
5.3 Rule 144...................................................................................... 15
5.4 No Public Market.............................................................................. 15
5.5 Access to Data................................................................................ 15
5.6 Authorization................................................................................. 15
5.7 Brokers or Finders............................................................................ 16
5.8 Tax Liability................................................................................. 16
SECTION 6 Conditions to Purchaser's Obligations to Close................................................... 16
6.1 Representations and Warranties Correct........................................................ 16
6.2 Compliance; Covenants......................................................................... 16
6.3 No Injunction................................................................................. 16
6.4 Opinion of Counsel............................................................................ 16
6.5 Compliance Certificate....................................................................... 17
6.6 Blue Sky...................................................................................... 17
6.7 Rights Amendment.............................................................................. 17
6.8 Resolutions................................................................................... 17
6.9 Proceedings and Documents..................................................................... 17
6.10 Good Standing Certificate..................................................................... 17
SECTION 7 Conditions to Company's Obligations to Close..................................................... 17
7.1 Representations and Warranties Correct........................................................ 17
7.2 Compliance; Covenants......................................................................... 17
7.3 Blue Sky...................................................................................... 18
7.4 Proceedings and Documents..................................................................... 18
7.5 Consideration Delivered....................................................................... 18
SECTION 8 Miscellaneous.................................................................................... 18
8.1 Termination; Survival......................................................................... 18
8.2 Governing Law................................................................................. 18
</TABLE>
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
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<S> <C>
8.3 Successors and Assigns........................................................................ 18
8.4 Entire Agreement; Amendment and Waivers....................................................... 18
8.5 Notices, etc.................................................................................. 19
8.6 Delays or Omissions........................................................................... 19
8.7 California Corporate Securities Law........................................................... 19
8.8 Expenses...................................................................................... 20
8.9 Counterparts.................................................................................. 20
8.10 Severability.................................................................................. 20
8.11 Titles and Subtitles.......................................................................... 20
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
EXHIBITS
A Third Amended and Restated Articles of Incorporation, as amended
B List of Publications
C Terms and Conditions
D Disclosure Schedule
E Second Amended and Restated Shareholders Rights Agreement, as amended
F Opinion for Counsel for the Company
G Compliance Certificate
-iv-
<PAGE>
TALK CITY, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
WITH
HEARST COMMUNICATIONS, INC.,
HEARST NEW MEDIA & TECHNOLOGY DIVISION
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made
---------
as of October 30, 1998 by and among Talk City, Inc., a California corporation
(the "Company"), and Hearst Communications, Inc., Hearst New Media & Technology
-------
division, a Delaware corporation (the "Purchaser" or "Hearst").
--------- ------
SECTION 1
AUTHORIZATION AND SALE OF SERIES D PREFERRED STOCK; CONSIDERATION
-----------------------------------------------------------------
1.1 AUTHORIZATION. The Company has authorized the sale and issuance to
-------------
the Purchaser of up to 1,500,000 shares of its Series D Preferred Stock ("Series
------
D Preferred"), with the rights, privileges and preferences as set forth in the
- -----------
Company's Third Amended and Restated Articles of Incorporation, as amended (the
"Restated Articles") in substantially the form attached as Exhibit A. Such
----------------- ---------
shares of Series D Preferred and any substitute shares issuable as provided in
Section 2 below are referred to as the "Shares."
1.2 SALE AND ISSUANCE OF SERIES D PREFERRED.
---------------------------------------
(a) Consideration. Subject to the terms and conditions of this
-------------
Agreement, the Purchaser agrees to purchase, and the Company agrees to sell and
issue to the Purchaser, the Shares, in consideration for the provision by the
Purchaser of advertising space in selected United States editions of Hearst
publications, attached as Exhibit B (the "Selected Hearst Publications"), at a
---------
[*] percent ([*]%) discount to the selected Hearst publication's standard
commercial rate card rate (a "Card Rate") in effect as of the date of a
---------
respective insertion order by the Company (each an "Insertion Order" and
---------------
collectively, "Insertion Orders"), as the same may change from time to time.
----------------
Except as set forth in Section 1.2(d)(iv) below, the "value" of Insertion Orders
as provided throughout this Agreement refers to the applicable Card Rate
applying the [*] percent ([*]%) discount. Each of the Company and the
Purchaser agree that the per share price of the Shares is $2.00 (subject to
adjustment as provided in Section 2 below) (the "Share Purchase Price"), and the
aggregate price for the Shares is $3,000,000. The Company shall, for every
$2.00 of Insertion Orders fulfilled by Hearst, as calculated at [*] percent
([*]%) of the Card Rate in effect on the date of the respective Insertion Order,
issue one (1) Share (subject to the adjustment provisions set forth in
* Certain information on this page has been
omitted and filed with the Commission.
Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
Section 2 below). Notwithstanding the above, in no event shall the Company be
obligated to issue more than 1,500,000 shares of its Series D Preferred (subject
to the adjustment provisions set forth in Section 2 below) (the "Maximum Share
Amount") and the Purchaser shall not be obligated to accept Insertion Orders
with a value in excess of $3,000,000. The sale and issuance of the Shares shall
be according to the schedule set forth in Section 3 below.
(b) Publication Restriction; Insertion Order Terms.
----------------------------------------------
(i) The Company shall select which Hearst Publications in which
to place Insertion Orders; provided, however, that no selected Hearst
-------- -------
Publication shall be required to provide any inventory opposite the "Table of
Contents," or on any cover, of any such Selected Hearst Publication. The Company
agrees to only submit, and the Purchaser shall be obligated to only accept,
full-page advertisements. Any franchise positions (i.e., Cosmopolitan's "Agony
Advice" column) are dependent upon availability of the inventory and the Company
acknowledges that such inventory is typically unavailable.
(ii) The Company agrees to the Purchaser's standard terms and
conditions with respect to the Insertion Orders, attached as Exhibit C, as the
---------
same may be amended from time to time. The Company acknowledges that the
Purchaser, in its sole discretion, reserves the right to reject any Insertion
Order which does not meet the quality or advertising standards of any Selected
Hearst Publication.
(c) TalkCity.com Exclusivity. The Company agrees to submit Insertion
------------------------
Orders promoting only "TalkCity.com" unless such Insertion Order is specifically
agreed to by the Purchaser. In no event shall the Company submit an Insertion
Order on behalf of, or sell or otherwise convey, its rights under this Agreement
to any third party, unless the conveyance of such right occurs in connection
with an Acquisition (as defined in Section 2 below).
(d) Insertion Order Period.
----------------------
(i) General. Subject to the terms and conditions of this
-------
Agreement, the Company shall place its Insertion Orders on a ratable basis over
the period beginning on September 3, 1998 and ending on the eighteenth (18)
month anniversary of such date (the "Initial Order Period") in the Selected
--------------------
Hearst Publications for which a particular issue of any such publication has not
been closed.
(ii) Extensions. The Initial Order Period may be extended as follows:
----------
if the Purchaser rejects in excess of $150,000 of Insertion Orders, then for
every $150,000 of Insertion Orders rejected, the Company shall be granted, at
the Company's sole option, one (1) additional month (all of such additional one
(1) month periods are collectively deemed to be the "Rejection Extension Period"
--------------------------
and the Initial Order Period plus the Rejection Extension Period is deemed to be
the "Order Period" of this Agreement) in which to place substitute Insertion
------------
Orders (each a "Substitute Order" and collectively, "Substitute Orders"). In
---------------- -----------------
addition, in the event the Company fails to submit Insertion Orders or
Substitute Orders with an aggregate value of $3,000,000 by the end of
-2-
<PAGE>
the Initial Order Period plus any Rejection Extension Periods, then the
Purchaser, in its sole discretion (subject to the following sentence), may elect
to extend the Order Period of this Agreement by unlimited consecutive six (6)
month periods (each an "Elected Extension" and collectively, the "Elected
----------------- -------
Extension Period") until such time as the Company submits, and the Investor
- ---------------
fulfills Insertion Orders, or Substitute Orders, with an aggregate value of
$3,000,000.
Notwithstanding the preceding sentence, either party to this Agreement may, at
the conclusion of the Order Period (including any Rejection Extension Periods
but excluding any Elected Extension Periods) provide notice to the other party
of its intent, in the case of the Company, not to place any further Insertion
Orders or Substitute Orders or, in the case of the Purchaser, not elect to
extend the Agreement for any Elected Extension Period, after which notice the
Purchaser shall have, in its sole discretion, the right to purchase, for cash
(the "Calculated Cash Option"), the balance of the shares not previously issued
hereunder (which shall be calculated as (A) $3,000,000 minus (B) the product of
the number of shares previously issued to the Purchaser under this Agreement
(including any Extra Shares) (as defined in Section 1.4(d)(iv) below) (the
"Calculated Unissued Shares") multiplied by the Share Purchase Price applicable
to such previously issued shares (including any Extra Shares) within ninety (90)
days from the date of such notice by either party. In no event shall the
Purchaser be obligated to accept Insertion Orders with a value in excess of
$3,000,000.
(iii) $3,000,000 Limit. In the event the Company submits Insertion
----------------
Orders in excess of $3,000,000, the Purchaser shall so notify the Company prior
to accepting the Insertion Order and shall allow the Company a one (1) time
opportunity to place the Insertion Order and pay cash for the excess amount,
applying the twenty percent (20%) discount rate referred to in Section 1.2(a)
above.
(iv) Additional Share Issuance; Adjustment to Discount. In the event
-------------------------------------------------
the Company fails to submit Insertion Orders or Substitute Orders with an
aggregate value of $3,000,000 by the end of the Order Period (plus any Rejection
Extension Periods and any Elected Extension Periods) and this Agreement is
terminated, the Insertion Order discount rate shall be retroactively reduced
(but not such that the new Card Rate charged to the Company shall exceed one
hundred percent (100%) of the respective Card Rate in effect as of the date of
the applicable Insertion Order), such that the Purchaser shall receive the
balance of the Shares not previously issued to the Purchaser hereunder equal to
the number of Shares which would have been received at the Closings (as defined
in Section 3 below) occurring prior to the termination of this Agreement at the
new Card Rate less the number of Shares previously delivered hereunder (the
"Extra Shares"). Notwithstanding the above, (A) in no event shall the number of
Shares to be delivered to the Purchaser upon any such Card Rate reduction
together with any Shares previously delivered to the Purchaser and any Shares
purchased upon exercise of the Purchaser's Calculated Cash Option, exceed the
Maximum Share Amount, and (B) this Section 1.2(d)(iv) shall not be applicable if
this Agreement is terminated prior to the end of the Order Period (plus any
Rejection Extension Periods and any Elected Extension Periods) as a result of an
Acquisition or otherwise.
-3-
<PAGE>
SECTION 2
ACQUISITION AND OTHER CAPITAL CHANGES
-------------------------------------
2.1 RECLASSIFICATION, CONSOLIDATION, MERGER, ETC.
--------------------------------------------
(a) In case of any reclassification, exchange, substitution or change
of outstanding securities of the class of Shares issuable pursuant to this
Agreement (other than as a result of a subdivision or combination as provided
for below), or in case of any consolidation or merger of the Company with or
into another corporation or the sale, transfer or lease of all or substantially
all of the assets of the Company (collectively, each of the above described
events are referred to as a "Corporate Transaction"), the Company shall,
---------------------
subsequent to Board approval of such Corporate Transaction, notify the Purchaser
of the respective Corporate Transaction. Upon presentation by the Purchaser of
proof of Insertion Order fulfillment as of the date of the Company's notice,
which such presentation shall be provided by the Purchaser to the Company within
three (3) business days of the Company's notice, the Company shall, subject to
satisfaction or waiver of the closing conditions set forth in Sections 6 and 7
below, deliver a certificate registered in the Purchaser's name representing the
number of Shares purchased as of the date of the Company's notice which have not
been previously issued hereunder. Subsequent to the Corporate Transaction, in
lieu of the Shares otherwise issuable upon a respective Closing Date occurring
after such Corporate Transaction, the Purchaser shall be entitled to receive,
upon each respective Closing Date occurring after such Corporate Transaction,
the kind and amount of shares of such other class of stock, other securities,
money and property receivable upon such Corporate Transaction that would have
been received by the Purchaser if it had held the Shares and issuable upon such
Closing Date immediately prior to such Corporate Transaction.
(b) Notwithstanding the above, in the event of any consolidation or
merger of the Company with or into another corporation or the sale, transfer or
lease of all or substantially all of the assets of the Company pursuant to which
the shareholders of the Company hold less than fifty percent (50%) of the
outstanding voting securities of the surviving or acquiring corporation (an
"Acquisition"), the Company shall, subsequent to its execution of a definitive
Acquisition agreement, notify the Purchaser of the proposed Acquisition. In the
event of an Acquisition where the acquiring corporation is a competitor of the
Purchaser, as reasonably determined in the sole discretion of the Purchaser,
then the Purchaser shall have the right for a period of five (5) business days
following receipt of notice from the Company of the Acquisition to purchase
(subject to satisfaction or waiver of the conditions to closing set forth in
Sections 6 and 7 below) the balance of the Shares not previously issued
hereunder (which shall be calculated as (A) $3,000,000 minus (B) the product of
the number of Shares previously issued to the Purchaser under this Agreement
multiplied by the Share Purchase Price applicable to such previously issued
Shares (the "Unissued Share Balance")), for cash at the then applicable Share
Purchase Price (such cash option and the cash option in Section 2.5 below are
referred to as a "Cash Option"). Upon the Purchaser's exercise of the Cash
Option (including its delivery of the cash purchase price), this Agreement and
the obligations of the parties hereunder shall be terminated. In the event the
Purchaser does not exercise the Cash Option within
-4-
<PAGE>
the time period specified above, the provisions of Section 2.1(a) above shall
govern this Agreement upon and subsequent to an Acquisition.
2.2 CONVERSION OF THE SERIES D PREFERRED. In the event all of the shares
------------------------------------
of the Series D Preferred of the Company outstanding are, or if outstanding
would be, at any time prior to the issuance of Shares under this Agreement
converted into shares of the Company's Common Stock (whether due to the initial
public offering of the Company or otherwise) (a "Share Conversion"), then the
Company shall promptly notify the Purchaser of such Share Conversion, prior to
the initial filing date in connection with the initial public offering of the
Company, or prior to any other conversion of the Series D Preferred into the
Company's Common Stock. Upon presentation by the Purchaser of proof of
Insertion Order fulfillment as of the date of the Company's notice of such Share
Conversion, which such presentation shall be provided by the Purchaser to the
Company within three (3) business days of the Company's notice, the Company
shall, subject to satisfaction or waiver of the conditions to closing set forth
in Sections 6 and 7 below, deliver a certificate registered in the Purchaser's
name representing the number of Shares purchased as of the date of the Company's
notice which have not been previously issued hereunder. Subsequent to any such
Share Conversion, the Purchaser shall be entitled to receive, upon each
respective Closing Date and in lieu of the Shares the Purchaser would otherwise
have been entitled to receive at the Closing, a number of shares of Common Stock
equal to the number of shares of Common Stock that would have been received by
the Purchaser if it had held the Shares issuable upon such Closing Date,
immediately prior to such Share Conversion.
2.3 SUBDIVISION, STOCK DIVIDEND OR COMBINATION OF SHARES. If the Company
----------------------------------------------------
at any time prior to a Closing Date shall subdivide or combine the class of
Shares, or shall issue a stock dividend with respect to the class of Shares (a
"Stock Split"), then the Purchaser shall be entitled to receive, upon each
respective Closing Date occurring after such Stock Split, a number of Shares
equal to the number of Shares that would have been received by the Purchaser if
it had held the Shares issuable upon such Closing Date immediately prior to such
Stock Split, and the Share Purchase Price shall be adjusted accordingly.
2.4 APPLICATION ONLY TO UNISSUED SHARES. Each of the Company and the
-----------------------------------
Purchaser acknowledge and agree that the adjustment provisions provided for in
Sections 2.1 to 2.3 above shall apply to the unissued Shares only and not to any
issued Shares, which such issued securities shall be governed by the terms of
the Company's Articles of Incorporation upon any of the events described above.
2.5 Consequences OF DILUTIVE ISSUANCE. In the event that the price per
---------------------------------
share of any stock sold by the Company (not including any "Excluded Stock" as
defined in Article IV, Section 4(d)(2) of the Company's Restated Articles and
any of the warrants or other securities of the Company issued or to be issued by
the Company as described on the Disclosure Schedule attached as Exhibit C) is
---------
less than $1.40 (as adjusted for stock splits, stock dividends, stock
combinations, recapitalizations, mergers, consolidations and the like), the
Purchaser, in its sole discretion and upon notice to the Company, shall no
longer be obligated to accept additional Insertion Orders or Substitute Orders
from the Company and may, in its sole discretion (subject to satisfaction or
waiver of the conditions to closing set forth in Sections 6 and 7 below), within
ninety (90) days of such sale
-5-
<PAGE>
by the Company, elect to purchase the Unissued Share Balance for cash at the
then applicable Share Purchase Price. Upon such notice to the Company and
exercise of the Cash Option (if any), this Agreement and the obligations of the
parties hereunder shall terminate.
SECTION 3
CLOSING DATES; DELIVERY
-----------------------
3.1 CLOSING DATES. The purchase and sale of the Shares hereunder shall
-------------
take place upon the following dates (each, a "Closing," and the date is referred
to as a "Closing Date"):
(a) within ten (10) business days following the Purchaser's
presentation of proof of the fulfillment of Insertion Orders with an aggregate
value of at least $1,000,000 since the most recent Closing Date (or, if there
has been no Closing Date, since September 3, 1998);
(b) within ten (10) business days following each of March 3, 1999,
September 3, 1999 and March 3, 2000 (each, a "Scheduled Date") and the
Purchaser's presentation of proof of the fulfillment of Insertion Orders as of
such Scheduled Date and since the then most recent Closing Date (or, if there
has been no Closing Date, since September 3, 1998);
(c) upon the Purchaser's exercise of its Calculated Cash Option as
set forth in Section 1.2(d)(ii) above, or its Cash Options (as set forth in
Sections 2.2(b) and 2.5 above);
(d) upon presentation by the Purchaser of proof of the fulfillment of
Insertion Orders as of the date of the Company's notice of a proposed Corporate
Transaction (as provided in Section 2.1 above) or Share Conversion (as provided
in Section 2.2 above) and since the then most recent Closing Date;
(e) upon presentation by the Purchaser of proof of the fulfillment of
Insertion Orders as of the end of the Order Period (including any Rejection
Extension Periods and any elected Extension Periods); and
(f) upon notice by the Purchaser of the Company's obligation to issue
any Extra Shares pursuant to Section 1.2(d)(iv) above.
At each Closing Date referred to in Section 3.1(a), (b), (d) and (e) above, the
Company will sell and the Purchaser will purchase, subject to satisfaction or
waiver of the conditions to closing set forth in Sections 6 and 7 of this
Agreement, the number of Shares equal to the value of the Insertion Orders
fulfilled by the Purchaser (as shown by the Purchaser's proof of the same) since
the most recent Closing Date (or, if there has been no Closing Date, then since
September 3, 1998), divided by the then applicable Share Purchase Price and
rounded down to the nearest whole number. At a Closing Date upon exercise of a
Calculated Cash Option or Cash Option (as provided in Section 3.1(c) above), the
Company will sell, and the Purchaser will purchase, subject to satisfaction or
waiver of
-6-
<PAGE>
the conditions to closing set forth in Sections 6 and 7 below, the number of
Shares equal to the Calculated Unissued Shares or the Unissued Share Balance (as
the case may be). At a Closing Date pursuant to Section 3.1(f) above, subject to
satisfaction or waiver of the closing conditions in Sections 6 and 7 below, the
Company will issue the Extra Shares. Notwithstanding anything in this Agreement
to the contrary, in no event shall the aggregate number of Shares deliverable
under this Agreement exceed the Maximum Share Amount. The number of Shares to be
issued on a Closing Date as provided above is referred to as the applicable
"Closing Shares."
3.2 DELIVERY. The Company will deliver to the Purchaser on each Closing
--------
Date a certificate registered in the Purchaser's name representing the
applicable Closing Shares for such Closing Date, against (i) with respect to a
Closing pursuant to Section 3.1(a), (b), (d) or (e) the Purchaser's proof of
fulfillment of Insertion Orders since the most recent Closing Date (as provided
in Section 3.1) and (ii) with respect to a Closing pursuant to Section 3.1(c),
the applicable cash purchase price by wire transfer to the Company's account.
The Purchaser acknowledges and agrees that the delivery of the Shares pursuant
to this Agreement constitutes full and complete payment to it for all amounts
owed to it by the Company for Insertion Orders.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
Except as set forth in the Disclosure Schedule attached as Exhibit D, the
---------
Company represents and warrants to the Purchaser as of the date of this
Agreement as follows:
4.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. The Company is a
----------------------------------------------
corporation duly organized and existing under, and by virtue of, the laws of the
State of California and is in good standing under such laws. The Company has
requisite corporate power and authority to own and operate its properties and
assets, and to carry on its business as presently conducted and as proposed to
be conducted. The Company is not presently qualified to do business as a
foreign corporation in any jurisdiction, and the failure to be so qualified
would not have a material adverse effect on the Company's business as now
conducted. The Company has furnished the Purchaser or counsel to the Purchaser,
upon request, with copies of its Restated Articles and Bylaws, as amended. Such
copies are true, correct and complete and contain all amendments through the
first Closing Date.
4.2 CORPORATE POWER. The Company will have at the first Closing Date all
---------------
requisite legal and corporate power and authority to execute and deliver this
Agreement and that certain amendment (the "Rights Amendment") to the Second
----------------
Amended and Restated Shareholders Rights Agreement (the "Rights Agreement"),
----------------
entered into by and among the Company, the Purchasers and the Common
Shareholders (as defined therein), dated as of August 25, 1998 and attached as
Exhibit E, to sell and issue the Shares hereunder, to issue the shares of the
- ---------
common stock of the Company (the "Common Stock") issuable upon conversion of the
------------
Shares, and to carry out and perform its obligations under the terms of this
Agreement, the Rights Agreement and the Rights Amendment (together the
"Agreements").
- -----------
-7-
<PAGE>
4.3 AUTHORIZATION. All corporate action on the part of the Company and
-------------
its directors necessary for the authorization, execution, delivery and
performance of the Agreements by the Company, the authorization, sale, issuance
and delivery of the Shares and the Common Stock issuable upon conversion of the
Shares, and the performance of all of the Company's obligations under the
Agreements has been taken or will be taken prior to the first Closing Date. The
Agreements, when executed and delivered by the Company, shall constitute valid
and binding obligations of the Company, enforceable in accordance with their
terms, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, except that the indemnification
provisions of Section 3.11 of the Rights Agreement, as amended pursuant hereto,
may further be limited by principles of public policy. The Shares, when issued
in compliance with the provisions of this Agreement, will be validly issued,
will be fully paid and nonassessable, and will have the rights, preferences and
privileges described in the Restated Articles; the Common Stock issuable upon
conversion of the Shares has been duly and validly reserved and, when issued in
compliance with the provisions of this Agreement and the Restated Articles will
be validly issued, and will be fully paid and nonassessable; and the Shares and
the Common Stock issued upon conversion of the Shares, will be free of any liens
or encumbrances, other than any liens or encumbrances created by or imposed upon
the Purchaser; provided, however, that the Shares, and the Common Stock issuable
-------- -------
upon conversion of the Shares, are subject to restrictions on transfer under
state and/or federal securities laws as set forth herein and in the Rights
Agreement. The Shares are not subject to any preemptive rights or rights of
first refusal, except as set forth in the Rights Agreement. The Company is not
an "investment company" within the meaning of the Investment Company Act of
1940, as amended.
4.4 CAPITALIZATION. The authorized capital stock of the Company consists
--------------
of 60,000,000 shares of Common Stock, of which 8,430,000 shares are issued and
outstanding as of the date of this Agreement, and 38,000,000 shares of Preferred
Stock, of which 300,000 are designated Series A Preferred, all of which are
issued and outstanding, 700,000 are designated Series A1 Preferred, all of which
are issued and outstanding, 6,800,000 are designated Series B Preferred,
6,589,570 of which 13,500,000 are issued and outstanding, 3,000,000 are
designated Series C Preferred, 769,230 of which are issued and outstanding, and
25,000,000 shares are designated Series D Preferred, of which are issued and
outstanding. The outstanding shares have been duly authorized and validly
issued in compliance with applicable laws, and are fully paid and nonassessable.
The Company has reserved (a) 1,500,000 shares of Series D Preferred for issuance
hereunder, (b) 35,800,000 shares of Common Stock for issuance upon conversion of
the Series A Preferred, Series A1 Preferred, Series B Preferred, the Series C
Preferred and Series D Preferred, (c) 1,450,000 shares of its Common Stock for
issuance to employees, consultants and directors pursuant to its 1996A Stock
Option Plan, of which options to purchase 1,450,000 shares of Common Stock have
been exercised subject to restricted stock purchase agreements, and (d)
3,650,000 shares of its Common Stock for issuance to employees, consultants and
directors pursuant to its 1996 Stock Option Plan. The Common Stock, the Series
A Preferred, the Series A-1 Preferred, the Series B Preferred, the Series C
Preferred and the Series D Preferred have the rights, preferences, privileges
and restrictions set forth in the Restated Articles. Except as set forth above,
there are no options, warrants or other rights to purchase any of the Company's
authorized and unissued capital stock.
-8-
<PAGE>
4.5 FINANCIAL STATEMENTS. The Purchaser acknowledges that the Company has
--------------------
previously provided to it an unaudited income statement and various other
financial statements of the Company as of and for the period ended July 31, 1998
(the "Financial Statements"). The Financial Statements are complete and correct
--------------------
in all material respects and accurately set out and describe the financial
condition and operating results of the Company as of the date and during the
period indicated therein.
4.6 CHANGES. Since July 31, 1998, there has not been:
-------
(a) Any change in the assets, liabilities, financial condition, or
operations of the Company except changes in the ordinary course of business
which have not been in any case materially adverse;
(b) Any damage, destruction, or loss, whether or not covered by
insurance, materially and adversely affecting the properties or business of the
Company;
(c) Any waiver or compromise by the Company of a valuable right or of
a material debt owed to it;
(d) Any loans made by the Company to its employees, officers or
directors other than travel advances made in the ordinary course of business and
pay advances to individuals not exceeding an aggregate of $30,000;
(e) Any declaration or payment of any dividend or other distribution
by the Company; or
(f) Any failure to maintain in full force and effect substantially
the same level and types of insurance coverage as in effect on the date of the
Financial Statements or destruction, damage to, or loss of any asset of the
Company (whether or not covered by insurance) that materially and adversely
affects the business, operations, condition (financial or otherwise), prospects,
liabilities or assets of the Company;
(g) Any change in accounting principles, methods or practices,
investment practices, claims, payment and processing practices or policies
regarding intercompany transactions;
(h) Any amendment to the Company's Articles of Incorporation or
Bylaws (other than an amendment to the Restated Articles filed with the
California Secretary of State on August 28, 1998 and an amendment to the Bylaws
dated August 26, 1998 to increase the numbers of directors on the Company's
Board to no less than five (5) nor more than nine (9));
(i) Any disposition of or lapse of any Proprietary Right (as defined
in Section 3.9);
-9-
<PAGE>
(j) Any mortgage, pledge or other encumbrance, including liens and
security interests, of any tangible or intangible asset;
(k) Any indebtedness incurred for borrowed money or any commitment to
borrow money, any capital expenditure or capital commitment requiring an
expenditure of monies in the future, any incurrence of a contingent liability or
any guaranty or commitment to guaranty the indebtedness of others entered into,
by the Company, other than customary transactions in the ordinary course of
business not in excess of $50,000 in the aggregate (except for the Bridge
Financing and the Loan Agreement, each as described on Schedule 4.4 and Schedule
------------ --------
4.6, respectively, of the Disclosure Schedule);
- ---
(l) Any increase or commitment to the increase of the salary or other
compensation payable or to become payable to any of its officers, directors or
employees, agents or independent contractors, or the payment of any bonus to the
foregoing persons except in the ordinary course of business; or
(m) To the best of the Company's knowledge, any other event or
condition of any character that has materially and adversely affected the
business, operations, assets or financial condition of the Company.
4.7 MATERIAL OBLIGATIONS. The Company has no material liabilities or
--------------------
obligations, absolute or contingent (individually or in the aggregate), except
(i) the liabilities and obligations set forth in the Financial Statements and
(ii) liabilities and obligations which have been incurred subsequent to July 31,
1998, in the ordinary course of business which have not been, either in any case
or in the aggregate, material.
4.8 MATERIAL CONTRACTS AND COMMITMENTS. The attached Schedule 4.8
---------------------------------- ------------
contains a true and complete and accurate list and a brief description of all
material contracts, understandings, agreements and instruments, whether written
or oral, and including mortgages or other indebtedness (the "Material
--------
Contracts"), to which the Company is a party or by which any of its properties
- ---------
or assets and, with respect to the business of the Company, its employees or key
consultants (including members of key personnel) are bound under which or
pursuant to which the Company is obligated to make cash payments of, or to
deliver products or render services with a value greater than $100,000 or
receive cash payments of or receive products or services with a value greater
than $100,000 or which are otherwise material to the Company, including, without
limitation, agreements with business development partners, but excluding Related
Party Agreements set forth in Section 4.17. There are no existing defaults (or
events which, with notice or lapse of time or both, would constitute a default)
by the Company, or to the best of the Company's knowledge any other party, under
any of the Material Contracts. To the best of the Company's knowledge, all of
the Material Contracts are valid, binding and in full force and effect in all
material respects, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies.
-10-
<PAGE>
4.9 INTELLECTUAL PROPERTY, TRADEMARKS. The Company has the right to use,
---------------------------------
free and clear of all liens, charges, claims and restrictions, all intellectual
property, patents, trademarks, service marks, trade names, copyrights, licenses
and rights and applications therefor ("Proprietary Rights") necessary to the
------------------
business of the Company as presently conducted and as proposed to be conducted.
To the best of the Company's knowledge, the Company is not infringing upon or
otherwise acting adversely to the right or claimed right of any other person
under or with respect to the foregoing. The attached Schedule 4.9 contains an
------------
accurate and complete list of all Proprietary Rights which the Company owns or
is licensed or authorized to use by others and indicates which Proprietary
Rights are owned or licensed. Except as set forth on Schedule 4.9, (i) no other
------------
person has been granted, by the Company or otherwise, any rights, or has any
interest, in such Proprietary Rights and (ii) to the knowledge of the Company,
with respect to any Proprietary Rights which have been assigned to the Company,
the assigning party is fully authorized to assign such rights to the Company
without thereby creating an obligation of the Company to any person. All
Proprietary Rights held by the Company under licenses have been duly licensed to
the Company, and, except as set forth in Schedule 4.9, the Company has rights to
------------
its Proprietary Rights free and clear of any liens or other encumbrances. No
claim has been asserted or, to the knowledge of the Company, threatened, by any
person regarding the use or licensing of any of the Company's Proprietary Rights
by the Company or challenging or questioning the validity, enforceability or
effectiveness of any licenses or agreements (including, without limitation,
assignments) relating to Proprietary Rights or asserting any rights in such
Proprietary Rights. No claims have been asserted by the Company against any
other person claiming infringement of the Company's Proprietary Rights. The
Company is not aware of any third parties who are infringing or violating any of
such Proprietary Rights. Neither the Company nor, to the knowledge of the
Company, any other person is in default under any license or other agreement
relating to the Company's Proprietary Rights (including without limitation,
assignments), and all such licenses and agreements are valid, enforceable and in
full force and effect in all material respects, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
rules of law governing specific performance, injunctive relief or other
equitable remedies.
4.10 TITLE TO PROPERTIES AND ASSETS; LIENS. The Company has good and
-------------------------------------
marketable title to its properties and assets, and has good title to all its
leasehold interests, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (i) the lien of current taxes not yet due and
payable, and (ii) possible minor liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of the Company, and which have not arisen otherwise than
in the ordinary course of business.
4.11 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME. The Company is
--------------------------------------------------
not in violation of any term of its Articles of Incorporation or Bylaws, as each
are amended to date, or in any material respect of any judgment, decree, order,
statute, rule or regulation applicable to the Company. The execution, delivery
and performance of and compliance with the Agreements, and the issuance of the
Shares and the Common Stock issuable upon conversion of the Shares, have not
resulted and will not result in any material violation of, or conflict with, or
constitute a material default under, the Company's Articles of Incorporation or
Bylaws, each as amended, or any of its
-11-
<PAGE>
agreements, nor result in the creation of, any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of the Company.
4.12 LITIGATION. There are no actions, suits, proceedings or
----------
investigations pending against the Company or its properties before any court or
governmental agency (nor, to the best of the Company's knowledge, is there any
reasonable basis therefor or threat thereof). The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
4.13 REGISTRATION RIGHTS. Except as set forth in the Rights Agreement, as
-------------------
amended pursuant hereto, the Company is not under any contractual obligation to
register (as defined in Section 3.2 of the Rights Agreement) any of its
presently outstanding securities or any of its securities which may be issued
after the date of this Agreement.
4.14 GOVERNMENTAL CONSENT. No consent, approval or authorization of or
--------------------
designation, declaration or filing with any governmental authority on the part
of the Company is required in connection with the valid execution and delivery
of the Agreements, or the offer, sale or issuance of the Shares, and the Common
Stock issuable upon conversion of the Shares, or the consummation of any other
transaction contemplated hereby or thereby, except qualification (or taking such
action as may be necessary to secure an exemption from qualification, if
available) of the offer and sale of the Shares (and the Common Stock issuable
upon conversion of the Shares) under the California Corporate Securities Law of
1968, as amended, and other applicable Blue Sky laws, which filings and
qualifications, if required, will be accomplished in a timely manner. The
operations of the Company have been conducted in all material respects in
accordance with all applicable laws, regulations and other requirements of all
governmental bodies having jurisdiction over the Company. The Company has not
received any notification of any asserted present or past failure to comply with
any such laws, rules or regulations. The Company has all franchises, consents,
licenses, permits, registrations, Orders or approvals (collectively, "Permits")
-------
from governmental bodies required for the conduct of its business as currently
conducted and as proposed to be conducted. All of the foregoing Permits are in
full force and effect, and there exist no violations or breaches of any such
Permits.
4.15 OFFERING. Subject to the accuracy of the Purchaser's representations
--------
in Section 5 hereof, the offer, sale and issuance of the Shares to be issued in
conformity with the terms of this Agreement, and the issuance of the Common
Stock to be issued upon conversion of the Shares, constitute transactions exempt
from the registration requirements of Section 5 of the Securities Act of 1933,
as amended (the "Securities Act").
--------------
4.16 BROKERS OR FINDERS. The Company has not engaged any brokers,
------------------
finders or agents, and the Purchaser has not incurred, and will not incur,
directly or indirectly, as a result of any action taken by the Company, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with the Agreements. In the event that the preceding
sentence is in any way inaccurate, the Company hereby agrees to indemnify and
hold harmless the Purchaser from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and
-12-
<PAGE>
expenses of defending against such liability or asserted liability) for which
such Purchaser or any of its officers, partners, employees or representatives is
responsible.
4.17 RELATED PARTY TRANSACTIONS. Set forth on the attached Schedule 4.17
-------------------------- -------------
is a list of all contracts, agreements or arrangements ("Related Party
-------------
Agreements") between the Company and any existing holder of the securities of
- ----------
the Company, or employee, officer or director of the Company, or affiliate or
family member of any of the foregoing (the foregoing, "Related Parties"). Other
---------------
than set forth on such Schedule 4.17, no Related Party is indebted to the
-------------
Company and the Company is not indebted and is not committed to make loans or
extend or guarantee credit to any Related Party. No Related Party is
interested, directly or indirectly, in any contract with the Company or owns any
interest in any asset of the Company or any services used by the Company in its
business except by reason of their ownership interest in the Company.
4.18 TAXES.
-----
(a) All Tax Returns (as defined below) for all periods that are or
were required to Company have been or shall be filed on a timely basis in
accordance with the applicable laws of each governmental authority. All such
Tax Returns that have been filed were, when filed, and continue to be, true,
correct and complete in all material respects. All such franchise, income or
other Tax Returns that will be filed shall be true, correct and complete in all
material respects when filed. There are no United States federal, state, local
and foreign income Tax Returns that have been audited by any governmental
authority, and there is no action, suit, proceeding or claim currently pending
or threatened regarding Taxes with respect to the Company. For the purposes of
this Section 4.18, (i) "Tax" and "Taxes" shall mean any and all taxes, charges,
fees, levies or other assessments, including, without limitation, all net
income, gross income, gross receipts, premium, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
estimated, severance, stamp, occupation, property or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties (including penalties for failure to file in accordance with
applicable information reporting requirements), and additions to tax by any
authority, whether federal, state, or local or domestic or foreign, and (u) "Tax
Return" shall mean any report, return, form, declaration or other document or
information required to be supplied to any authority in connection with Taxes.
(b) The Company has paid, or made adequate provision in its financial
statements for the payment of, all of its Taxes that have or may become due for
all periods which end prior to or which include the date of this Agreement,
including all Taxes reflected on the Tax Returns referred to in this Section
4.18, or in any assessment, proposed assessment or notice, either formal or
informal, received by the Company except such Taxes, if any, that are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided. All Taxes that the Company is or was
required by law to withhold or collect have been duly withheld or collected and,
to the extent required, have been paid to the appropriate governmental
authorities. There are no liens with respect to Taxes on any assets of the
Company other than permitted liens for certain Taxes not yet due.
-13-
<PAGE>
4.19 INSURANCE. Schedule 4.19 contains a complete and accurate list of all
--------- -------------
insurance policies currently providing coverage in favor of the Company
specifying the insurer and type of insurance under each, together with the
policy limits thereon. Each current policy is in full force and effect and in
adequate and customary amounts for similarly situated companies in similar
businesses, and all premiums are currently paid and no notice of cancellation or
termination has been received with respect to any such policy. Such policies
have been sufficient for compliance with all material requirements of law. The
Company has not been refused any insurance with respect to its assets and
operations, nor has its coverage been limited by any insurance carrier to which
it has applied for any such insurance or with which it has carried insurance.
The insurance specified on Schedule 4.19 has been effective, in full force and
-------------
effect, without interruption since the date specified on Schedule 4.19 as the
-------------
initial date of coverage. Furthermore, except as set forth on such Schedule
--------
4.19, there are no material claims, actions, suits or proceedings arising out of
- -----
or based upon any of such policies of insurance and, to the knowledge of the
Company, no basis for any such material claim, action, suit or proceeding
exists.
4.20 BENEFIT PLANS; LABOR RELATIONS. The Company does not have any
------------------------------
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) or other benefit plans or
arrangements that are subject to ERISA. The Company is not in default on its
obligations to any employee and its labor relations are good.
4.21 SUBSIDIARIES. The Company does not presently own or control, directly
------------
or indirectly, any interest in any other corporation, association, or other
business entity. The Company does not have an equity interest in any joint
venture, partnership, or similar entity.
4.22 DISCLOSURE. This Agreement (including the Exhibits hereto) delivered
----------
to the Purchaser, taken as a whole, do not contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained herein not misleading in light of the circumstances under
which they were made; provided, however, that plans, projections, estimates and
-------- -------
other information with respect to 1998 and future results, activities and
events, contained in any written document furnished by or on behalf of the
Company are not facts and as to such matters the Company represents and warrants
only that such information represents the Company's best efforts to plan,
project and estimate, based upon current circumstances, such future results,
activities and events and the good faith belief that such activities and events
can be accomplished. There is no fact known to the Company which the Company
has not disclosed to the Purchaser which materially adversely affects or, to the
best of the knowledge of the Company, could reasonably be expected to materially
adversely affect the business, assets, prospects, profits or condition,
financial or otherwise, of the Company, or the ability of the Company to perform
its obligations under the Agreements.
-14-
<PAGE>
SECTION 5
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
-----------------------------------------------
The Purchaser hereby severally represents and warrants to the Company with
respect to the purchase of Shares by the Purchaser as follows:
5.1 EXPERIENCE; SPECULATIVE NATURE OF INVESTMENT. The Purchaser (or its
--------------------------------------------
principals or advisors) has substantial experience in evaluating and investing
in private placement transactions of securities in companies similar to the
Company so that it is capable of evaluating the merits and risks of its
investment in the Company and has the capacity to protect its own interests.
The Purchaser acknowledges that its investment in the Company entails a
substantial degree of risk and the Purchaser is in a position to lose the entire
amount of such investment.
5.2 INVESTMENT; ACCREDITED INVESTOR. The Purchaser is acquiring the
-------------------------------
Shares and the underlying Common Stock for investment for its own account, not
as a nominee or agent, and not with the view to, or for resale in connection
with, any distribution thereof. The Purchaser understands that the Shares to be
purchased hereby and the underlying Common Stock have not been, and will not be,
registered under the Securities Act by reason of a specific exemption from the
registration provisions of the Securities Act, the availability of which depends
upon, among other things, the bona fide nature of the investment intent and the
---- ----
accuracy of the Purchaser's representations as expressed herein. The Purchaser
is an "accredited investor" within the meaning of Regulation D, Rule 501(a),
promulgated by the Securities and Exchange Commission.
5.3 RULE 144. The Purchaser acknowledges that the Shares and the
--------
underlying Common Stock must be held indefinitely unless subsequently registered
under the Securities Act or unless an exemption from such registration is
available. The Purchaser is aware of the provisions of Rule 144 promulgated
under the Securities Act which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the shares, the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being effected through a "broker's transaction" or
in transactions directly with a "market maker" and the number of shares being
sold during any three-month period not exceeding specified limitations.
5.4 NO PUBLIC MARKET. The Purchaser understands that no public market now
----------------
exists for any of the securities issued by the Company and that the Company has
made no assurances that a public market will ever exist for the Company's
securities.
5.5 ACCESS TO DATA. The Purchaser has had an opportunity to discuss the
--------------
Company's business, management and financial affairs with its management. The
Purchaser has also had an opportunity to ask questions of officers of the
Company, which questions were answered to its satisfaction. The Purchaser
understands that such discussions, as well as any written information issued by
the Company, were intended to describe certain aspects of the Company's business
and
-15-
<PAGE>
prospects but were not a thorough or exhaustive description. The Purchaser
acknowledges that any business plans prepared by the Company have been and
continue to be subject to change and that any projections included in such
business plans are necessarily speculative in nature, and it can be expected
that some or all of the assumptions of the projections will not materialize or
will vary significantly from actual results.
5.6 AUTHORIZATION. The Agreements, when executed and delivered by the
-------------
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except as the
indemnification provisions of Section 3.11 of the Rights Agreement, as amended
pursuant hereto, may be limited by principles of public policy, and subject to
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies.
5.7 BROKERS OR FINDERS. The Purchaser has not engaged any brokers,
------------------
finders or agents, and the Company has not, and will not, incur, directly or
indirectly, as a result of any action taken by Purchasers, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Agreements. In the event that the preceding sentence is in
any way inaccurate, the Purchaser agrees to indemnify and hold harmless the
Company from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability)
for which the Company, or any of its officers, directors, employees or
representatives, is responsible.
5.8 TAX LIABILITY. With respect to tax matters, the Purchaser relies
-------------
solely on its tax advisors and not on any statements or representations of the
Company or any of its agents other than the representations and warranties set
forth herein. The Purchaser understands that it (and not the Company) shall be
responsible for its own tax liability that may arise as a result of this
investment or the transactions contemplated by the Agreements.
SECTION 6
CONDITIONS TO PURCHASER'S OBLIGATIONS TO CLOSE
----------------------------------------------
The Purchaser's obligations to purchase the Shares at each respective
Closing Date are, unless waived by the Purchaser, subject to the fulfillment of
the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
--------------------------------------
warranties made by the Company in Section 3 shall be true and correct in all
material respects as of the first Closing Date.
6.2 COMPLIANCE; COVENANTS. The Company shall be in compliance in all
---------------------
material covenants, agreements and conditions contained in the Agreements to be
performed by the Company.
-16-
<PAGE>
6.3 NO INJUNCTION. There shall not be in effect any injunction, order or
-------------
decree, of a court of competent jurisdiction which is applicable to the Company,
that prohibits or delays the issuance of Shares under this Agreement and the
Chief Executive Officer of the Company shall deliver to the Purchaser at each
Closing Date a certificate to such effect, executed by him.
6.4 OPINION OF COUNSEL. As of the first Closing Date only, the Purchaser
------------------
shall have received from Wilson Sonsini Goodrich & Rosati, counsel to the
Company, an opinion addressed to it in substantially the form of Exhibit F.
---------
6.5 COMPLIANCE CERTIFICATE. The Chief Executive Officer of the Company
----------------------
shall have executed a Compliance Certificate, in substantially the form of
Exhibit G certifying the satisfaction of the conditions to closing listed in
- ---------
Sections 6.1, 6.2, and 6.3.
6.6 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
--------
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Shares and the Common Stock
issuable upon conversion of the Shares.
6.7 RIGHTS AMENDMENT. The Company, the Purchasers and the Common
----------------
Shareholders (as defined in the Rights Agreement) shall have executed and
delivered the Rights Amendment.
6.8 RESOLUTIONS. As of the first Closing Date only, the Purchaser shall
-----------
have received certified copies of resolutions duly adopted by the Board (and
shareholders, if necessary) authorizing the execution and delivery of the
Agreements, the issuance and sale of the Series D Preferred and the issuance and
sale of the Common Stock issuable upon conversion thereof, the reservation of
the shares of Common Stock issuable upon conversion of the Series D Preferred
and the performance of the contemplated transactions, and certifying that such
resolutions were duly adopted, are in full force and effect and have not been
rescinded or amended as of the first Closing Date.
6.9 PROCEEDINGS AND DOCUMENTS. The Purchaser shall have received such
-------------------------
certificates, documents and information as it may reasonably request in order to
establish satisfaction of the conditions set forth in this Section 6. All
corporate and other proceedings in connection with the transactions contemplated
at each of the Closing Dates hereby and all documents and instruments incident
to such transactions shall have been reasonably approved by counsel to the
Purchaser.
6.10 GOOD STANDING CERTIFICATE. The Purchaser shall have received a
-------------------------
Certificate of the Secretary of State of the State of California with respect to
the Company as of a recent date showing the Company to be validly existing and
in good standing in such state.
-17-
<PAGE>
SECTION 7
CONDITIONS TO COMPANY'S OBLIGATIONS TO CLOSE
--------------------------------------------
The Company's obligation to sell and issue the Shares at each respective
Closing Date is, unless waived by the Company, subject to the fulfillment of the
following conditions:
7.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations and
--------------------------------------
warranties made by the Purchaser in Section 4 shall be true and correct in all
material respects as of each respective Closing Date.
7.2 COMPLIANCE; COVENANTS. The Purchaser shall be in compliance in all
---------------------
material respects with all covenants, agreements and conditions contained in the
Agreements to be performed by the Purchaser on or prior to each respective
Closing Date.
7.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law
--------
permits and qualifications, or have the availability of exemptions therefrom,
required by any state for the offer and sale of the Shares and any Common Stock
issuable upon conversion of the Shares.
7.4 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated at each of the Closing Dates
hereby and all documents and instruments incident to such transactions shall
have been reasonably approved by counsel to the Company.
7.5 CONSIDERATION DELIVERED. With respect to Closings pursuant to
-----------------------
Sections 3.1(a), (b), (d) and (e), the Purchaser shall have delivered proof of
the fulfillment of Insertion Orders with an aggregate value equal to the number
of Shares to be issued at such Closing Date multiplied by the then applicable
Share Purchase Price. With respect to Closings pursuant to Section 3.1(c), the
Purchaser shall have delivered cash in the amount equal to the number of Shares
to be issued multiplied by the Share Purchase Price. With respect to a Closing
pursuant to Section 3.1(f), the Purchaser shall have delivered proof of the
calculation of any Extra Shares.
SECTION 8
MISCELLANEOUS
-------------
8.1 TERMINATION; SURVIVAL. This Agreement and all obligations of the
---------------------
parties shall terminate and be of no further force and effect upon expiration of
the Order Period, or sooner as provided in Sections 2.1(b) and 2.5. Upon
termination of this Agreement, all obligations of the parties hereunder shall be
of no further force and effect except any existing as of the date of obligation
of the Company to deliver Shares and any obligation of the Purchaser to deliver
the consideration therefor as of the date of termination of this Agreement. The
representations, warranties, covenants and agreements made herein shall survive
any investigation made by the Purchaser and the closing of the transactions
contemplated hereby.
-18-
<PAGE>
8.2 GOVERNING LAW. This Agreement shall be governed in all respects by
-------------
the internal laws of the State of California.
8.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this
----------------------
Agreement the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto; provided, however, that the rights of the Purchaser to purchase
the Shares shall not be assignable without the consent of the Company.
8.4 ENTIRE AGREEMENT; AMENDMENT AND WAIVERS. This Agreement, including
---------------------------------------
all attached Exhibits, constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof, and supersede
any prior written or oral agreements or understandings (including without
limitation that certain Letter of Intent executed by the parties as of September
3, 1998). No party shall be liable or bound to any other party in any manner by
any warranties, representations or covenants except as specifically set forth in
this Agreement. Except as expressly provided herein, neither this Agreement nor
any term hereof may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
8.5 NOTICES, ETC. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be mailed by first class mail,
postage prepaid, or otherwise delivered by hand or by messenger, or by a
reputable overnight courier service or telecopier (with telephonic confirmation
of receipt) addressed (a) if to the Purchaser, at the Purchaser's address, as
shown on the record books of the Company, or at such other address as the
Purchaser shall have furnished to the Company in writing, or (b) if to any other
holder of any Shares, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares who has so
furnished an address to the Company, or (c) if to the Company, one copy should
be sent to its address set forth on the cover page of this Agreement and
addressed to the attention of the Chief Executive Officer, or at such other
address as the Company shall have furnished to the Purchaser. Each such notice
or other communication shall for all purposes of this Agreement be treated as
effective or having been given when delivered if delivered personally, or, if
sent by mail, at the earlier of its receipt or seven (7) business days after the
same has been deposited in a regularly maintained receptacle for the deposit of
the United States mail, addressed and mailed as set forth above, or the next
business day if sent by overnight courier service, or upon telephonic
confirmation of receipt if sent by telecopier.
8.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or
-------------------
omission to exercise any right, power or remedy accruing to any party to this
Agreement upon any breach or default of any other party under this Agreement,
shall impair any such right, power or remedy of such non-defaulting party nor
shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default previously or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any breach or default under this Agreement, or any waiver on the part
of any party of any provisions or conditions of this agreement, must be in
writing and shall be effective only to the
-19-
<PAGE>
extent specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any party to this Agreement, shall
be cumulative and not alternative.
8.7 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH
-----------------------------------
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
8.8 EXPENSES. The Company and the Purchaser shall each pay their own
--------
expenses in connection with the transactions contemplated hereby.
8.9 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one instrument.
8.10 SEVERABILITY. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
8.11 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
-20-
<PAGE>
The foregoing Agreement is hereby executed as of the date first above
written.
"COMPANY"
TALK CITY, INC.,
a California corporation
/s/ Peter H. Friedman
---------------------------------------
Peter H. Friedman
Chief Executive Officer and President
"PURCHASER"
HEARST COMMUNICATIONS, INC.,
HEARST NEW MEDIA & TECHNOLOGY DIVISION
By: /s/ Kenneth A. Bronfin
------------------------------------
Name: Kenneth A. Bronfin
---------------------------------
Title: Senior V.P
--------------------------------
[SIGNATURE PAGE FOR THE PURCHASE AGREEMENT]
-21-
<PAGE>
EXHIBIT A
---------
[SUPERCEDED BY EXHIBIT 3.1]
<PAGE>
EXHIBIT B
---------
LIST OF HEARST PUBLICATIONS
Colonial Homes
Cosmopolitan
Country Living
Esquire
Goodhousekeeping
Harper's Bazaar
House Beautiful
Motor Boating & Sailing
Popular Mechanics
Redbook
Sports Afield
Town & Country
Victoria
<PAGE>
EXHIBIT C
---------
TERMS AND CONDITIONS
1. Short Rates & Rebates. Advertisers will be short-rated
if the space upon which billings have been based is not used
within the 12-month contract period. Advertisers will be
rebated if they have used the space required within the 12-
month contract period to earn a lower rate.
2. Agency commission: 15%. Bills are rendered on
publication date. Payment in U.S. currency required. Net due
30 days from invoice date. New advertisers must remit with
order of furnish satisfactory credit reference.
3. Orders 30 days beyond current closing date will be
accepted only at rate prevailing. Orders containing
incorrect rates will be accepted and charged at regular
rates. Such errors will be regarded as only clerical.
4. Rates, conditions, and space units are subject to
closure without notice.
5. HEARST will not be bound by any condition appearing on
order blanks or copy instructions submitted by or on behalf
of the advertiser when such condition conflicts with any
provision contained in its rate cared or with its policies.
6. Schedule of months of insertion and size of space must
accompany all orders. So-called "space reservations" are not
considered by HEARST as orders or binding upon it in any
way.
7. Orders specifying positions other than those known as
designated positions are accepted only on a request basis,
subject to the right of the publisher to determine actual
positions.
8. Reproduction quality is at the advertiser's risk if
publisher's specifications are not met or if material is
received after closing date even if on extension. All
queries concerning printed reproduction must be submitted
within 45 days of issue date.
9. Advertising film will be destroyed, if not ordered
returned, 12 months after last use.
10. HEARST reserves the right to decline or reject any
advertisement for any reason at any time without liability,
even though previously acknowledged or accepted.
11. No rebate will be allowed for insertion of wrong key
numbers.
12. The advertiser and its agency, if there be one, agree
that in the event the publisher commits any act, error or
omission in the acceptance, publication, and/or distribution
of their advertisement for which publisher may be held
legally responsible, the publisher's liability will in no
event exceed the cost of the space ordered and further agree
that publisher
<PAGE>
will not under any circumstances be responsible for
consequential damages, including lost income and/or profits.
13. The advertiser and its agency, if there be one, each
represents that it not only has the right to authorize the
publication of any advertisement it has submitted to HEARST,
but that it is fully authorized and licensed to use (i) the
names and/or the portraits or pictures of persons, living or
dead, or of things; (ii) any trademarks, service marks,
copyrighted, proprietary, or otherwise private material; and
(iii) any testimonials contained in any advertisement
submitted by or on behalf of the advertiser and published by
HEARST, and that such advertisement is neither libelous, as
an invasion of privacy violative of any third party's
rights, or otherwise unlawful.
As part of the consideration and to induce HEARST to publish
such advertisement, the advertiser and its agency, if there
be one, each agrees jointly and severally to indemnify and
save harmless HEARST against all loss, liability, damage,
and expense of whatever nature arising out of the copying,
printing, or publishing of such advertisement.
14. The advertiser and its agency agree to and do indemnify
and save harmless the publisher from all loss, damage, and
liability growing out of the failure of any context inserted
by them for publication to be in compliance and conformity
with any and all laws, orders, ordinances, and statues of
the United States, or any of the States or subdivisions
thereof.
15. All orders accepted are subject to acts of God, fires,
strikes, accidents, or other occurrences beyond the
publisher's control (whether like or unlike any of those
enumerated herein) that prevent the publisher from partially
or completely producing, publishing, or distributing the
publication.
16. All advertisement must be clearly identified by the
trademark or signature of the advertiser.
17. The advertiser and its agency, if there be one, agree
jointly and severally to pay the amount of invoices rendered
by HEARST within the time specified in U.S. currency.
18. Advertisements in other than standard sizes are subject
to the publisher's approval.
19. All agencies or direct advertisers must supply
publisher with a legal street address and not just a post
office box.
20. Words such as "advertisement; "institutional", etc.
will be placed with copy that, in HEARST's opinion,
resembles editorial matter. Reading notices are not
accepted.
<PAGE>
Exhibit D
---------
[NOT INCLUDED]
<PAGE>
EXHIBIT E
---------
[SUPERCEDED BY EXHIBIT 4.2]
<PAGE>
EXHIBIT F
---------
[NOT INCLUDED]
<PAGE>
EXHIBIT G
---------
[NOT INCLUDED]
<PAGE>
AMENDMENT TO THE
TALK CITY, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
WITH
HEARST COMMUNICATIONS, INC.,
HEARST NEW MEDIA & TECHNOLOGY DIVISION
THIS AMENDMENT AGREEMENT (the "Agreement") is made as of April 15, 1999 by
and among Talk City, Inc., a California corporation (the "Company"), and Hearst
Communications, Inc., Hearst New Media & Technology division, a Delaware
corporation ("Hearst").
RECITALS
A. All terms not defined in this Agreement will have the meanings given to
them in the Original Agreement (as defined below).
B. The Company and Hearst are party to a Series D Preferred Stock Purchase
Agreement, dated October 30, 1998 (the "Original Agreement"), pursuant to which
the Company agreed to issue to Hearst 1,500,000 shares of its Series D Preferred
Stock (the "Shares") over the Order Period plus any Elected Extension Period(s),
in return for the provision by Hearst of advertising space in Selected Hearst
Publications at a [*]% discount to the Selected Hearst Publication"s Card Rate
in effect as of the date of the Insertion Order by the Company.
C. The Company and Hearst desire to amend the Original Agreement to, among
other things, provide that the Shares will be issued and sold to Hearst in full
upon one closing date (the "Closing", and such date is referred to as the
"Closing Date") as set forth below.
AGREEMENT
Now, therefore, the parties agree as follows:
1. Amendments.
----------
(a) Section 1.2(d) (iv) and the last full paragraph under Section
1.2(d)(ii) are deleted in their entirety.
(b) Section 3 of the Original Agreement is amended in its entirety as
follows:
-1-
* Certain information on this page has been
omitted and filed with the Commission.
Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
"SECTION 3
CLOSING DATE; DELIVERY
----------------------
3.1 CLOSING DATE. The purchase and sale of the Shares hereunder shall
------------
take place on April", 1999 at the offices of Wilson Sonsini Goodrich & Rosati at
10:00 a.m., or such other date and time as agreed to by the parties. At the
Closing Date, the Company will sell, and Hearst will purchase, subject to
satisfaction or waiver of the conditions to closing set forth in Sections 6 and
7 of this Agreement, the Shares, upon delivery by Hearst of proof of the
Insertion Orders fulfilled by Hearst as of the Closing Date.
3.2 DELIVERY. The Company will deliver to Hearst on the Closing Date a
--------
certificate registered in Hearst"s name representing the Shares against proof of
fulfillment of Insertion Orders by Hearst as of the Closing Date. Hearst
acknowledges and agrees that the delivery of the Shares pursuant to this
Agreement constitutes full and complete payment to it for all amounts owed to it
by the Company for Insertion Orders."
(c) Section 7.5 of the Original Agreement is amended in its entirety
as follows:
"7.5 CONSIDERATION DELIVERED. Hearst shall have delivered proof of
-----------------------
the value of the fulfillment of Insertion Orders as of the Closing Date.
2. MISCELLANEOUS
-------------
(a) Governing Law. This Agreement shall be governed in all respects
-------------
by the internal laws of the Sate of California.
(b) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one instrument.
(c) Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
(d) Entire Agreement. This Agreement and the Original Agreement,
----------------
including all attached Exhibits, constitute the full and entire understanding
and agreement between the parties with regard to the subjects hereof, and
supersede any prior written or oral agreements or understandings (including
without limitation the Letter of Intent executed by the parties as of September
3, 1998).
-2-
<PAGE>
This Agreement is executed as of the date first written above.
HEARST COMMUNICATIONS, INC. HEARST TALK CITY, INC.
NEW MEDIA & TECHNOLOGY DIVISION
/s/ Kenneth Bronfin
- ------------------------------- ----------------------------
By: Kenneth Bronfin By: Peter H. Friedman
Title: Senior Vice President Title: President and Chief
Hearst New Media & Technology Financial Officer
-3-
<PAGE>
This Agreement is executed as of the date first written above.
HEARST COMMUNICATIONS, INC. HEARST TALK CITY, INC.
NEW MEDIA & TECHNOLOGY DIVISION
/s/ Peter H. Friedman
By: _____________________________ ---------------------------
Title:___________________________ By: Peter H. Friedman
Title: President and Chief
Financial Officer
<PAGE>
EXHIBIT 10.18
NBC-TALK CITY CHAT SERVICES AGREEMENT
-------------------------------------
This Agreement, effective as of August 21, 1998 ("Effective Date"), is made
and entered into by and between Live World Productions, the owner of the Talk
City and OnNow world wide, web services, ("LWP"), a California corporation, with
offices at 307 Orchard City Drive, Suite, 350, Campbell, CA 95008 and NBC
Multimedia, Inc. ("NBC"), a Delaware corporation, with offices at 3000 West
Alameda Avenue, Burbank, California 91523.
TERMS
-----
1. Definitions. The following definitions shall apply to this Agreement.
-----------
1.1 Chat. "Chat" shall mean an online chat among End Users, an
----
auditorium chat or BBS originating from a NBC/Talk City Area which is located
within the Talk City Service, with or without a particular theme, topic, guest,
host or event and which may be scheduled for a particular date and time.
1.2 Chat Competitors. "Chat Competitors" shall mean any other online
----------------
chat service which LWP reasonably believes directly competes with the Chat
services offered by the Talk City Service.
1.3 End-User(s). "End-User(s)" shall mean any person or entity which
-----------
accesses any NBC/Talk City Area either via the NBC Service or directly from a
Talk City Service, including any version of the Talk City Service which LWP may
create in cooperation with any other third party (i.e., another co-branded
version of the Talk City Service).
1.4 End User/NBC Themed Area or Areas. "Talk City/NBC Themed Areas"
---------------------------------
shall mean the specific room, rooms or areas within the Talk City Service which
contain Chats regarding NBC. NBC's Related Entities and any NBC Programs which
are created at any time by End Users but which are not expressly authorized by
NBC or LWP or created with the cooperation of NBC.
1.5 NBC Created Room or Rooms. "NBC Created Room" shall mean the
-------------------------
specific room, rooms, or areas, including BBS and auditorium events, within the
Talk City Service which are authorized and/or created with the cooperation of
NBC which contain certain branding, NBC designated links, NBC technologies
and/or content from the NBC Service and certain of the television programs
broadcast or distributed by the NBC Television Network or any of NBC's Related
Entities (the "NBC Programs") to be provided by NBC in its sole discretion, to
which NBC or LWP directs End Users pursuant to this Agreement.
1.6 NBC OnNow Area or Areas. "NBC OnNow Area" shall mean the
-----------------------
specific area within the OnNow branded area of the Talk City Service which
contains certain information, branding, NBC designated links, NBC technologies
and/or content from the NBC Service and certain of the NBC Programs to be
provided by NBC in its sole discretion, to which NBC or LWP directs End Users
pursuant to this Agreement.
* Certain information in this Exhibit has been omitted and
filed separately with the Commission. Confidential treatment
has been requested with respect to the omitted portions.
<PAGE>
1.7 NBC-Specific Area or Areas. "NBC-Specific Area" shall mean the
--------------------------
NBC Created Rooms, the NBC OnNow Areas, the Talk City/NBC Themed Areas and the
End User/NBC Themed Areas.
1.8 NBC/Talk City Area or Areas. "NBC/Talk City Area" shall mean,
---------------------------
collectively, the NBC-Specific Areas and any other area of the Talk City Service
which is reached by an End User via the NBC Service.
1.9 Talk City/NBC Themed Areas. "Talk City/NBC Themed Areas" shall
--------------------------
mean the specific room, rooms or areas within the general Talk City Service
which contain Chats regarding NBC, NBC's Related Entities and any NBC Programs
which are created at any time by LWP but which are not expressly authorized or
created with the cooperation of NBC.
1.10 NBC Service. "NBC Service" shall mean the Internet access. Web
-----------
site or related service owned, operated, distributed or authorized to be
distributed by or through NBC with the URL of www.nbc.com or such other Internet
access, Web Site or related service (with a different URL) on or through which
NBC chooses to place the majority of the type of online content related to the
NBC Programs currently available at www.nbc.com in the future in its sole
discretion. Such term does not apply to any other NBC, or Related Entity,
Internet services including, but not limited to, NBC-IN, Snap! or MSNBC
Interactive (an "Other Internet Service"). Notwithstanding the foregoing, NBC
shall have the right, but not the obligation, to create additional and separate
NBC/Talk City Areas which primarily contain the branding and material of Other
Internet Services operated by NBC or its Related Entities (an "Additional
NBC/Talk City Area"), and at such time that NBC chooses to create such
Additional NBC/Talk City Areas, then the relevant Other Internet Service will be
deemed to be an NBC Service for purposes hereof, provided, however, that NBC's
inclusion, in its sole discretion, of some, but not a majority, of the material
and branding included on an Other Internet Service within a NBC/Talk City Area
originally contemplated hereby will not be sufficient to classify such Other
Internet Service as an NBC Service for purposes hereof.
1.11 Other Network. "Other Network" shall mean any national (e.g.,
-------------
ABC, CBS, Fox, WB, UPN, USA Network or Pax Net) or regional broadcast television
network, individual broadcast television station group, or their affiliates.
1.12 Preferred. "Preferred" shall mean when a link to or promotion
---------
of either the Chat services provided by the Talk City Service or the NBC
Service, whichever is relevant, appears in a list or a format other than a list,
the link or promotion is in a prominent, above the fold position which is no
less visually prominent than links to, or promotions of, the services of any
Chat Competitors or Other Network, which is relevant.
1.13 Related Entity. "Related Entity" shall mean any distributor or
--------------
service provider of a party to this Agreement, or an entity in which either
party holds at least a five percent (5%) equity interest, or an entity which
holds at least a five percent (5%) equity interest in either party.
-2-
<PAGE>
1.14 Talk City Service. "Talk City Service" shall mean any
-----------------
communication, entertainment information, transaction or other related service
owned, operated, distributed or authorized to be distributed by or through LWP
or any Related Entity throughout the world, including, but not limited to, the
"Talk City" and "OnNow" brand services.
2. Creation and Operation of NBC/Talk City Areas.
---------------------------------------------
2.1 LWP Services. LWP will provide all services required for the
------------
creation, maintenance and operation of the NBC/Talk City Areas as contemplated
herein, including, but not limited to, any Chat forums. Chat events, instant
messaging as part of the EZ Talk Pro client, bulletin boards, the production
services and other related content or services provided by LWP to any other
third parties now or in the future which are requested by NBC. LWP acknowledges
that, until such time as NBC in its sole discretion decides to the contrary, the
NBC Service, the NBC/Talk City Areas, and the persistent NBC branded material
which follows End Users that come from the NBC Service will not promote or
directly link to any of the e-mail or personal home page services offered by LWP
on the Talk City Service or any promotions therefor; provided, however, that NBC
acknowledges that once any End User actually reaches the actual Chat itself or
the channel, community, or content pages which are similar to those which
currently appear on the Talk City Service within any area of the Talk City
Service other than NBC Created Rooms and NBC/OnNow Areas, LWP may place
reasonable promotional notices of other non-Chat Talk City Services which may
include the e-mail or personal home page services offered by LWP on the Talk
City Service, but which may not be more numerous or prominent than the
promotions therefor which appear in other areas of the Talk City Service. The
NBC-Specific Areas will be accessed by End Users either via the NBC Service or
the Talk City Services. LWP will work with NBC to create all versions of the
NBC/Talk City Areas using material to be supplied by NBC and NBC's licensors,
suppliers and agents. LWP agrees that all NBC/Talk City Areas, and each version
thereof, will be subject to NBC's final written approval of all aspects thereof
and any and all elements contained therein. LWP will provide all necessary
facilities, servers, connectivity and related equipment and technology required
to host the NBC/Talk City Areas, including any bulletin boards, instant
messaging as part of EZ Talk Pro client, Chat events, or other services, on
LWP's Internet servers and will ensure that such resources will support any of
the Talk City services or other technology which NBC reasonably requests that
LWP use or support in connection with the NBC/Talk City Areas during the term of
this Agreement. LWP agrees that, at all times during the term of this
Agreement, the resources it provides to host the NBC/Talk City Areas shall be
sufficient to support and manage any number of simultaneous End Users that wish
to use the NBC/Talk City Areas at any time. LWP shall provide a means for End
Users to download the software required, at no cost, for their participation in
the NBC/Talk City Areas. Nothing in this Agreement shall be construed as a
license to NBC of any rights in or to such software. LWP shall operate and
maintain the Talk City Services in a high-quality manner which will be at least
consistent with LWP's and NBC's then-current terms of service or code of
conduct. LWP shall bear all the costs of providing the NBC/Talk City Areas and
services which it is obligated to provide hereunder.
2.2 Chat Hosts. LWP shall be responsible for engaging, training and
----------
compensating all Chat hosts for the NBC Created Rooms when a host is used,
provided that NBC
-3-
<PAGE>
may choose to supervise such Chats itself if and when it wishes. LWP will not
provide moderation for any bulletin boards or other similar services, other than
NBC OnNow Areas, which NBC chooses to include with the NBC/Talk City Areas, but
NBC may choose to supervise such bulletin boards or similar services itself if
and when it wishes.
2.3 Terms of Service; Removal of Content.
------------------------------------
2.3.1 NBC Created Rooms and NBC OnNow Areas - NBC shall have the
right to create the terms of service and code of conduct for the NBC Created
Rooms and any revisions thereof, provided that NBC agrees to incorporate any
suggested changes thereto reasonably requested by LPW from time to time. NBC
shall have the right to remove, or cause to be removed, from the NBC Created
Rooms and NBC OnNow Areas any End User information, statements or other material
or content which NBC, in its sole discretion, chooses. In addition, LWP shall
have the right to remove, or cause to be removed, from the NBC Created Rooms and
NBC OnNow Areas any information, statements or other material or content which
is not provided to it by NBC or NBC's licensors, suppliers or agents, if such
material is in violation of any terms of the then current terms of service or
code of conduct therefor.
2.3.2 Talk City/NBC Themed Areas and End User/NBC Themed Areas -
NBC and LWP shall mutually agree upon the terms of service and code of conduct
for the Talk City/NBC Themed Areas and End User/NBC Themed Areas and any
revisions thereof. Either party shall have the right to remove, or cause to be
removed, from the Talk City/NBC Themed Areas and End User/NBC Themed Areas any
information, statements or other material or content, which is not provided to
it by the other party or such party's licensors, suppliers or agents, if such
material is in violation of any terms of the then current terms of service or
code of conduct therefor. In addition, NBC will have the right to de-link or
otherwise remove links from the NBC Service and the NBC-Specific Areas to any
content, Chats or web pages in such Talk City/NBC Themed Areas and End User/NBC
Themed Areas in NBC's sole discretion.
2.3.3 Other Areas of Talk City Service - LWP shall have the
right to develop the terms of service and code of conduct for the other areas of
the Talk City Service, including any NBC/Talk Areas which are not NBC-Specific
Areas, and any revisions thereof, provided that LWP agrees to incorporate any
suggested changes thereto reasonably requested by NBC from time to time. LWP
shall have the right to remove, or cause to be removed, from such other areas of
the Talk City Service, any information, statements or other material or content
if such material is in violation of any terms of the then current terms of
service or code of conduct therefor. NBC will have the right to de-link or
otherwise remove links from the NBC Service and the NBC-Specific Areas to any
content, Chats or web pages in such other areas of the Talk City Service in
NBC's sole discretion.
2.3.4 General Policies - Subject to the foregoing provisions of
this Section 2.3, the parties agree that they shall work together in good faith
to develop and maintain terms of service and codes of conduct for all of the
NBC/Talk City Areas described above which are reasonably similar to each other.
-4-
<PAGE>
2.4 Support. NBC may, in its sole discretion, provide personalities,
-------
Chat hosts and other content area experts for the Chats in the NBC Created Rooms
as well as information for display in the NBC OnNow Area on a schedule which is
acceptable to both parties. LWP agrees to supply NBC with text based
transcripts of any special event Chats for posting on the NBC Service.
2.5 Collection of Information from End Users.
----------------------------------------
2.5.1 Usage Data - LWP will electronically tag and track each
End User as they access and use the NBC/Talk City Areas and supply NBC any
aggregate, End User data, traffic patterns, and user feedback related to the
NBC/Talk City Areas, including any use of Talk City Services by End Users coming
from the NBC Service, which LWP collects on a monthly basis. NBC may make
reasonable requests from time to time that LWP provide it with certain data
regarding the NBC/Talk City Areas collected from individual End Users, subject
to LWP's ability to receive such data.
2.5.2 Registration of End Users - In general, all End Users
coming from the NBC Service will be presented with the opportunity to register
their personal chat nickname for use in chatting, message boards or other non-
premium Talk City Services. However, at all times during the term of this
Agreement unless NBC agrees, in its sole discretion, to the contrary, LWP agrees
that all End Users of the NBC/Talk City Areas will have the right to use such
services (i) at no cost unless such End User has obtained access to the Talk
City Service via a third party that chooses to charge such End User a non-
content specific access charge and (ii) as a guest user who will not be required
to complete a registration process, provided that NBC acknowledges that any such
guest users will not be permitted to participate in Talk City Services using any
nicknames reserved by End Users of the Talk City Service who have completed the
required registration process. LWP agrees that NBC shall have the reasonable
right to customize, if technically feasible, the registration process, including
the look and feel thereof, for any End Users of the NBC/Talk City Areas coming
from the NBC Service. In addition, if LWP or NBC determine that End Users coming
from the NBC Service should provide personal information in connection with any
of the registration processes for the NBC/Talk City areas described above, then
the parties must first mutually agree that such registration process is
necessary and then mutually agree upon all aspects thereof. LWP shall provide
NBC, on a monthly basis, with reports which provide NBC with information
collected by LWP during the past month in connection with any of the
registration processes described above or from End Users of the NBC/Talk City
Areas who come from the NBC Service (the "Registration Information"). Subject to
the terms of Section 3.4, NBC acknowledges that LWP may offer, in LWP's sole
discretion, in the future, certain premium add-ons and services related to the
Talk City Services; provided, however, that if such premium add-ons and services
are offered or made available in the NBC-Specific Areas or to any End Users who
come from the NBC Service, then such offers and promotions thereof will be
subject to the approval of NBC and if so approved will be no more costly to the
End Users coming from the NBC Service than to users coming from other areas of
the Talk City Service.
2.5.3 Privacy Policy - All collection and use of any information
from End Users, whether through the registration process or otherwise, shall be
subject to a privacy policy to
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<PAGE>
be mutually agreed upon by NBC and LWP which privacy policy will, at a minimum,
inform End Users of how such Registration Information or other information may
be used by the parties and will provide End Users with the option of declining
to receive any or all of the mailings or other services offered by either party
(the "Privacy Policy"). Each End User shall be able to access the Privacy Policy
from the NBC/Talk City Areas and shall be clearly informed of the terms of the
Privacy Policy during any registration process. Neither party may use any
Registration Information in any manner which is not strictly in compliance with
the terms of the Privacy Policy.
2.6 Ownership and Use of End User Information. [*] shall [*] own
-----------------------------------------
all Registration Information and other information collected from End Users in
connection with the NBC/Talk City Areas. Subject to strict compliance with the
terms of the Privacy Policy described above, [*] shall be permitted to use such
Registration Information and other information for marketing and other purposes
so approved through written notice by [*], provided that no such individual user
data shall be used by either party for direct marketing or direct solicitation
purposes without the prior written consent of [*].
2.7 Use of Trademark. Both parties acknowledge and agree that: (i)
----------------
each party's trade names and trademarks are and shall remain the sole property
of the owning property; and (ii) nothing in this Agreement shall confer any
right of ownership in the other party's trade names and trademarks.
2.8 Promotion and Marketing. NBC may use the "Talk City" trademark
-----------------------
and logo, any depictions of the actual NBC/Talk City Areas or material created
for the NBC/Talk City Areas pursuant hereto, as well as any other material,
names, logos and trademarks of LWP which LWP chooses to make available to NBC in
its sole discretion (the "LWP Material"), in any marketing and promotion
activities in which NBC may choose to engage, provided that such use shall be
made in accordance with any guidelines regarding such LWP Material provided by
LWP, including any amended guidelines. LWP may use any material supplied to LWP
by NBC, including any NBC names, logos and trademarks included therein, (the
"NBC Material") for the specific purposes described herein subject to the terms
hereof. In addition, LWP may use NBC Material for certain limited marketing and
promotional purposes if it first obtains the prior written approval of NBC
regarding each such use. All uses of NBC Material by LWP shall be made in
accordance with any guidelines regarding the NBC Material provided by NBC,
including any amended guidelines, and any and all NBC guidelines regarding the
use of NBC intellectual property, talents' names, likenesses and images as well
as any other requirement related thereto. LWP will provide NBC with samples of
marketing literature and material that include any NBC Material for purposes of
determining compliance with NBC's guidelines prior to any use thereof. Neither
party will make any statements to the effect, or which imply, that any other
party "certifies," endorses or guarantees the performance of any service or
product of such party. Except as otherwise provided in a separate agreement
between the parties, neither party will use or display any name, trademark or
logo of the other parties hereto in any other way or after the termination of
this Agreement. The parties agree to issue a mutually agreeable unbundled press
release for the launch of the expanded NBC/Talk City Areas and for any other
events and topics of public interest about which the parties mutually agree.
Furthermore, both parties agree to make commercially reasonable efforts to co-
market the
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relationship through any relevant printed or online marketing materials related
to each party's services described herein which the parties may distribute;
provided, however, that the parties acknowledge that neither party guarantees
that any such material will actually be distributed. Notwithstanding the
foregoing but subject to the terms of Section 12.9, either party may issue press
releases that the parties agree are required by law or regulation without the
consent of the other party.
2.9 Promotional Consideration. In consideration of this Agreement,
-------------------------
in the Initial Term and in each of any Renewal Terms, LWP shall provide to NBC,
or any other party designated by NBC which is not an online chat service
provider that LWP reasonably believes directly competes with the Talk City
Service, a total of at least [*] ([*]) barter advertising impressions (per year)
for use in promoting the NBC Service or any Web site(s) or other products or
services of NBC or its designees which do not compete with the Talk City
Service. In the event that the otherwise available advertising banner inventory
in the Talk City Service becomes more than [*] percent ([*]%) sold out, LWP
shall have the right to request in writing that NBC forgo a portion of the
inventory described above, and NBC shall not unreasonably refuse such request;
provided, however, that if LWP sells such inventory, then such sales shall be
subject to the terms of Section 3.2. If LWP is unable to sell all of the such
inventory, then each of the parties shall have the right to use [*] percent
([*]%) of such unsold advertising inventory to advertise any of such party's Web
site(s) or other products or services or its designees which are not Other
Networks or Chat Competitors. LWP will provide a prominent NBC-approved and NBC-
branded graphical link to the NBC/Talk City Areas placed above the fold on the
home page of both the "Talk City" branded and the "OnNow" branded Talk City
Services at all times during the term of this Agreement. LWP will also include
Chat Room Chat events and features in the Talk City Service's calendar of
events, subject to NBC approval. LWP will include the links to and promotion of
areas within the NBC Service related to NBC Programs described in Exhibit A
hereto. In return, NBC agrees to provide an above the fold graphical link to the
NBC/Talk City Areas from the home page of the NBC Service, the size and
placement of which shall be mutually agreed upon by the parties. In addition,
NBC shall use reasonable commercial efforts to direct End Users toward the
NBC/Talk City Areas. NBC will endeavor to seek some form of Talk City related
cross-promotional opportunities, which may include on-air promotion and which
will generally be branded with the "Talk City" name, between the NBC Service,
the NBC/Talk City Areas, and/or any relevant NBC Programs; provided, however,
that the parties acknowledge that NBC does not guarantee that any such cross-
promotion will actually occur. Notwithstanding the above, at the end of the
Initial Term, NBC shall provide LWP with a compilation video of any promotions
for the NBC/Talk City Areas of the NBC Service containing the "Talk City" name
that actually appear on or in connection with the NBC Programs for LWP's review.
LWP may make no other use of such compilation, or any part thereof, without
NBC's prior written consent.
2.10 Ownership. Except for material previously owned by LWP and
---------
provided for use hereunder and the material described in Section 2.6, NBC and
its licensors, suppliers, agents and Related Parties will own all rights to the
material in the NBC-Specific Areas, including, but not limited to, any material
created by either party for use therein, Chat transcripts, instant messages, and
bulletin board messages. To the extent that NBC has the requisite rights to do
so and to the
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<PAGE>
extent that such grant is not subject to third party restrictions, NBC grants
LWP a royalty free license to use any NBC oriented NBC/Talk City Area
transcripts, instant messages, and bulletin board messages for the Initial Term
of this agreement and for each subsequent Renewal Term (as such terms are
defined below) subject to the terms hereof and the Privacy Policy. NBC shall
have the right to set any guidelines for the archiving and placement of such
materials on the Talk City Service or any other usage by LWP that it chooses to
set in its sole discretion. NBC acknowledges that LWP does not currently and
does not intend in the future to log or make transcripts of non-auditorium
events or instant messages.
3. Advertising in the NBC/Talk City Areas.
--------------------------------------
3.1 NBC Advertising Inventory Sales. NBC shall have the right to
-------------------------------
sell all advertising and/or sponsorships which appear in the NBC-Specific Areas,
other than the End User/ NBC Themed Areas (the "NBC Advertising Inventory");
provided, however, that if LWP ever makes it possible to sell advertising and/or
sponsorships whose only target is End User/NBC Themed Areas, then such inventory
shall be deemed NBC Advertising Inventory for purposes hereof. If NBC is unable
to sell all available NBC Advertising Inventory, then it may, in its sole
discretion, allow LWP to sell such unsold NBC Advertising Inventory. If LWP is
unable to sell all of the NBC Advertising Inventory which NBC makes available to
it or NBC chooses not to make its unsold NBC Advertising Inventory available to
LWP, then each of the parties shall have the right to use [*] percent ([*]%) of
such unsold NBC Advertising Inventory to advertise any of such party's Web
site(s) or other products or services or its designees which are not Other
Networks or Chat Competitors. Any Gross Revenue attributable to the sale of NBC
Advertising Inventory which is received by the selling party shall be divided
between the parties with the relevant selling party receiving [*] percent
([*]%) thereof and the non-selling party receiving the remaining [*] percent
([*]%) thereof.
3.2 LWP Advertising Inventory Sales. Subject to the terms of Section
-------------------------------
3.1, LWP shall have the right to sell all advertising and/or sponsorships which
appear in any areas of the NBC/Talk City Areas which are not NBC Created Rooms,
NBC OnNow Areas or Talk City/NBC Themed Areas (the "LWP Advertising Inventory").
If LWP is unable to sell all available LWP Advertising Inventory, then it may,
in its sole discretion, allow NBC to sell such unsold LWP Advertising Inventory.
If NBC is unable to sell all of the LWP Advertising Inventory which LWP makes
available to it or LWP chooses not to make its unsold LWP Advertising Inventory
available to LWP, then each of the parties shall have the right to use [*]
percent ([*]%) of such unsold LWP Advertising Inventory to advertise any of such
party's Web site(s) or other products or services or its designees which are not
Other Networks or Chat Competitors. Any Gross Revenue attributable to the sale
of LWP Advertising Inventory which is received by the selling party shall be
divided between the parties with the relevant selling party receiving [*]
percent ([*]%) thereof and the non-selling party receiving the remaining [*]
percent ([*]%) thereof.
3.3 Ad Sales Guidelines. If NBC makes any NBC Advertising Inventory
-------------------
available to LWP pursuant to the terms of Section 3.1, then LWP will (i) not
permit advertising or sponsorships to be purchased by any party specifically for
placement within the NBC/Talk City
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<PAGE>
Areas, (ii) comply with any and all relevant NBC advertising standards,
including any amendments thereto, of which LWP is made aware by NBC, and (iii)
not permit any such advertising to refer to, or imply an endorsement of any kind
by, any guest appearing on a particular Chat or the NBC Program on which such
guest appears. In addition, all such advertising appearing in NBC/Talk City
Areas will comply with any applicable NBC guidelines regarding the use of
intellectual property related to any NBC television show or the Chat guests'
names, likenesses and images and any other requirement related thereto of which
LWP is informed by NBC. LWP agrees that the NBC/Talk City Areas will not contain
any advertising of any Other Networks, and NBC agrees that the NBC/Talk City
Areas will not contain any advertising of any Chat Competitors.
3.4 Transaction Revenues. LWP shall pay NBC [*] percent ([*]%) of
--------------------
all gross revenues which it receives in connection with transactions in the
"Talk City Store" area of the Talk City Service which are attributable to End
Users which entered the Talk City Service from NBC/Talk City Areas. In addition,
LWP shall pay NBC [*] percent ([*]%) of the gross revenues which it receives
from third parties in connection with transactions between such third parties
and End Users which entered the Talk City Service from the NBC/Talk City Areas.
Finally, NBC agrees that if it, in its sole discretion, chooses to link to or
offer transaction services within the NBC/Talk City Areas, then NBC and LWP
shall mutually agree upon how the parties will share any revenue attributable
thereto before such services are linked to or offered within the NBC/Talk City
Areas.
3.5 Future Revenue. The parties agree that if any future revenue
--------------
generating opportunities not described above are created in connection with the
Talk City Service or the NBC/Talk City Areas, the parties will negotiate in good
faith regarding what revenue sharing arrangements between the parties would be
appropriate, provided that, unless such opportunities involve characteristics
which would make them materially different from the opportunities described
above, it is the intent of the parties to share such revenues in a manner
similar to that described above.
3.6 Excluded Revenue. At no time shall NBC be entitled to any
----------------
revenue received by LWP in connection with infochats, user add-ons (Chat @ Talk
City), market research, custom community programming, or other corporate
services which do not relate to the NBC/Talk City Areas.
4. Payments and Audit Rights.
-------------------------
4.1 Payments to NBC. At the end of each quarter in which LWP
---------------
actually receives payments of revenues from the sale of NBC Advertising
Inventory or LWP Advertising Inventory of the type described in Sections 3.1 and
3.2 or transactional revenue of the type described in Section 3.4, if any, LWP
shall prepare a quarterly statement providing sufficient detail regarding the
source of such revenues and will deliver such statement along with the required
payment described therein to NBC no less than forty-five (45) days following
such date.
4.2 Payments to LWP. At the end of each quarter in which NBC
---------------
actually receives payments of revenues from the sale of NBC Advertising
Inventory or LWP Advertising Inventory of
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the type described in Sections 3.1 and 3.2 or transactional revenue of the type
described in Section 3.4, if any, NBC shall prepare a quarterly statement
providing sufficient detail regarding the source of such revenues and will
deliver such statement along with the required payment described therein to LWP
no less than forty-five (45) days following such date.
4.3 Audit Rights. NBC and LWP shall mutually agree upon the
------------
measurement methods and calculations required to determine whether a revenue or
an expense is applicable to advertising or sponsorships applicable to the
NBC/Talk City Areas. Both parties shall have the right, upon reasonable written
notice to inspect, or have its agent inspect, the other party's books and
records and all other documents and material in the possession of or under its
control with respect to all amounts described in Sections 2.4 and 3 at the place
or places where such records are normally retained by the other party. Both
parties or its agent shall have free and full access thereto during normal
business hours for such purposes and shall be permitted to be able to make
copies thereof and extracts therefrom. In the event that such inspection
reveals a discrepancy in the amount of any payments owed to the other party from
what was actually paid, the other party shall pay such discrepancy. In the
event that such discrepancy is in excess of ten percent (10%) of the payments
due for the period audited, the party shall also reimburse the other party for
the reasonable costs of performing the audit. All books and records relative to
either party's obligations hereunder shall be maintained and kept accessible and
available to the other party for inspection for at least two (2) years after
termination of this Agreement.
5. Equity.
------
5.1 Grant of Equity. In consideration of the foregoing and upon
---------------
signature hereof, LWP will issue 1,000,000 shares of its Series D Preferred
Stock (the "Stock") and fully vested warrants for shares of Stock, each with a
term of five (5) years, to purchase (i) an additional 111,111 shares of Stock at
an exercise price of $3.00 per share (the "First Warrant"), (ii) an additional
83,333 shares of Stock with an exercise price of $4.00 per share (the "Second
Warrant") and (iii) an additional 66,667 shares of Stock with an exercise price
of $5.00 per share (the "Third Warrant" and, collectively with the First Warrant
and the Second Warrant, the "Warrants") to NBC pursuant to the terms hereof.
5.2 Stock and Warrant Terms. LWP shall issue the Stock, pursuant to
-----------------------
Section 5.1 to NBC upon the terms and conditions and pursuant to long-form
agreements regarding the issuance, sale and purchase of the Stock (a "Stock
Purchase Agreement") and regarding certain rights related to the ownership of
such Stock (an "Amended and Restated Shareholders Rights Agreement") to be
negotiated in good faith between the parties hereto. In addition, LWP shall
issue the Warrant (or the Replacement Stock and Warrants), pursuant to Section
5.1, to NBC upon the terms and conditions and pursuant to long-form agreements
regarding the characteristics, issuance, sale and purchase of the Stock and
Warrants (or the Replacement Stock and Warrants) (in either case, a "Formal
Warrant" and a "Warrant Purchase Agreement") to be negotiated in good faith
between the parties hereto. The terms and conditions of the Stock Purchase
Agreement and the Amended and Restated Shareholders Rights Agreement, including
any and all terms, representations and warranties, shall be substantially
similar to those contained in the Series C Preferred Stock Purchase Agreement
between the National
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Broadcasting Company, Inc. and LWP dated April 22, 1998 (the "First Stock
Purchase Agreement") and the Amended and Restated Shareholders Rights Agreement
dated April 6, 1998 (the "First Amended and Restated Shareholders Rights
Agreement"); provided that, the rights granted to NBC thereunder, including
--------
price protection and registration rights, shall be no less favorable than those
provided to any other purchaser of Series D Preferred Stock, including, without
limitation, the purchase price per share for Series D Preferred Stock. Subject
to the terms and conditions of this Agreement, the terms and conditions of the
Formal Warrant and the Warrant Purchase Agreement, including all terms,
representations and warranties, shall be substantially similar to those
contained in the Formal Warrant issued by LWP to NBC on April 22, 1998 (the
"First Formal Warrant"), excluding Sections 4(d) and 4(e) thereof, and the
Warrant Purchase Agreement between LWP and NBC dated April 22, 1998 (the "First
Warrant Purchase Agreement"); provided that, the rights granted to NBC
--------
thereunder, including price protection and registration rights, shall be no less
favorable than those provided to any other purchaser of Series D Preferred
Stock. If the parties have not agreed upon the final form of the Stock Purchase
Agreement, the Amended and Restated Shareholders Rights Agreement, the Formal
Warrant and the Warrant Purchase Agreement (collectively, the "Equity
Agreements") within thirty (30) days following the Effective Date hereof, then
the parties shall be required to negotiate in good faith regarding the terms of
such agreements for an additional ten (10) business days. If, after such ten
(10) day period, the parties are unable to agree upon the terms of the Equity
Agreements, then NBC shall have the option, which may be exercised in its sole
discretion, of immediately terminating this Agreement by providing LWP with
written notice of its decision.
6. Approvals. LWP acknowledges that all material created or used by LWP
---------
pursuant to the terms hereof, other than any material which NBC and its Related
Entities provide, including in conjunction with the NBC-Specific Areas, other
than the End User/NBC Themed Areas, will be subject to NBC's prior written
approval; provided, however, that once NBC approves the form of any such
material, LWP shall not be required to obtain any additional approvals from NBC
if End User demands combined with technological constraints cause LWP to create
additional identical NBC/Talk City Areas (e.g., if End User demand causes LWP to
create additional Chat rooms within the Talk City Service). In addition, LWP
will obtain NBC's prior written approval of any material which LWP places in the
End User/NBC Themed Areas if feasible and practicable. Finally, as long as it
complies with the terms of Section 3.3, LWP will be required to obtain NBC's
prior written approval of any advertising or promotions which appear in the
NBC/Talk City Areas if feasible and practicable, provided that NBC will have the
right to require LWP to remove any such advertising or promotions appearing in
the NBC/Talk City Areas to which NBC reasonably objects. Any request for such
approvals made by LWP may be approved or rejected by NBC in its sole discretion.
In the case of advertising or promotions to be placed in the NBC/Talk City Areas
which NBC permits LWP to sell and for which LWP requests approval, NBC must make
its decision within two (2) business days of NBC's receipt of the request from
LWP, and if NBC neither approves nor rejects such advertising or promotion
within such time period, then LWP shall have the right to place it within the
NBC/Talk City Areas until such time as NBC affirmatively requests that LWP
remove it therefrom.
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7. Preferred Carriage and Most Favored Treatment. NBC agrees that the
---------------------------------------------
Talk City Service shall be the Preferred provider of online chat services on the
NBC Service, and LWP agrees that the NBC Service shall be the Preferred online
service amongst all of the online services offered by national or regional
broadcast television networks associated with the Talk City Service provided,
however, that NBC will be given equal treatment with the online services of
other Purchasers (as defined below). In addition, LWP agrees that if any
purchaser of LWP's Series D Preferred Stock (a "Purchaser") has entered into, or
enters into in the future, any agreement with LWP which grants such Purchaser
either (i) more favorable financial terms, (ii) more favorable carriage,
distribution, placement or promotion of such Purchaser's online service or
content, or (iii) more favorable overall terms, than those granted to NBC
herein, then LWP shall notify NBC of the terms of such agreement and if
requested by NBC, this Agreement with NBC shall be adjusted to match such more
favorable arrangements effective as of date of such agreement with the
Purchaser.
8. Term and Termination.
--------------------
8.1 Term. The term of this Agreement shall be three (3) years from
----
the Effective Date of this Agreement ("Initial Term"). This Agreement shall be
automatically extended for an additional two year period (a "Renewal Term") upon
the completion of the Initial Term or any Renewal Term unless either party
notifies the other in writing of its election to have the Agreement expire at
least sixty (60) days in advance of the end of the Initial Term.
8.2 Early Termination for Breach or Change of Control. This
-------------------------------------------------
Agreement may be terminated by either party (i) immediately upon written notice
if the other party (A) becomes insolvent; (B) files a petition in bankruptcy; or
(C) makes an assignment for the benefit of its creditors or (ii) thirty (30)
days after written notice to the other party of such other party's breach of any
of its material obligations under this Agreement in any material respect, which
breach is not remedied within such 30-day period or (iii) upon thirty (30) days'
prior written notice to NBC, if NBC unreasonably fails to provide the
promotional consideration described in Section 2.9 on a reasonably consistent
basis which such failure is not remedied within such 30-day period. In
addition, NBC may terminate this Agreement upon thirty (30) days' prior written
notice, if a majority of LWP's equity, or substantially all of the assets, of
LWP are sold to any other party.
8.3 Early Termination for Convenience. At any time following the
---------------------------------
first year of the Initial Term, either party can terminate this Agreement at any
time and for any reason with sixty (60) days' prior written notice.
8.4 Effect of Early Termination on Warrants.
---------------------------------------
(i) In the event that LWP terminates pursuant to the terms of
Section 8.2 prior to the end of the first year of the Initial Term, NBC shall
forfeit the right to purchase the number of shares of Stock which is equal to
fifty percent (50%) of the number of shares which NBC would otherwise have been
entitled to purchase pursuant to the terms of the Warrants received in
connection with this Agreement as of the date of such termination (i.e., 50% of
the number of shares not purchased by NBC as of such date), but subject to the
foregoing, NBC shall have the right to determine which, and what portion, of the
individual Warrants will be affected by such forfeiture.
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<PAGE>
(ii) In the event that NBC terminates this Agreement pursuant
to the terms of Section 8.3 or LWP terminates pursuant to the terms of Section
8.2 after the end of the first year but prior to the end of the Initial Term.
NBC shall forfeit the right to purchase the number of shares of Stock which is
equal to twenty-five percent (25%) of the number of shares which NBC would
otherwise have been entitled to purchase pursuant to the terms of the Warrants
received in connection with this Agreement as of the date of such termination
(i.e., 25% of the number of shares not purchased by NBC as of such date), but
subject to the foregoing, NBC shall have the right to determine which, and what
portion, of the individual Warrants will be affected by such forfeiture.
(iii) If NBC terminates this Agreement pursuant to the terms of
Section 8.2, then NBC shall not forfeit any of its rights to purchase Stock
covered by the Warrants received in connection with this Agreement regardless of
the date of such termination.
9. Representations and Warranties
------------------------------
9.1 LWP. LWP represents and warrants to NBC that (i) it has the
---
right and power to perform its obligations and to grant the rights granted
herein, (ii) LWP's creation and operation of the NBC/Talk City Areas and the
Talk City Service pursuant to this Agreement will not violate any agreement or
obligation between LWP and a third party or any laws or regulations and (iii)
except for material provided by NBC and its licensors, suppliers or agents
pursuant to the terms hereof, the content included on the NBC/Talk City Areas
and the Talk City Service and the operation of the NBC/Talk City Areas and the
Talk City Service by LWP as contemplated herein will be accurate and correct,
will not violate or infringe any third party rights, including intellectual
property rights and will not adversely affect the operation of the NBC Service
in a material manner.
9.2 NBC. NBC represents and warrants to LWP that it has the right
---
and power to perform its obligations and to grant the rights granted herein and
that the material provided by NBC to LWP for inclusion on the NBC/Talk City
Areas, which NBC has approved for use as contemplated herein, will be accurate
and correct and will not violate or infringe any third party rights, including
intellectual property rights.
10. Indemnities.
-----------
10.1 LWP. LWP agrees to indemnify and hold harmless, NBC against,
---
and from, any and all claims, liability, loss and damage (whether actual,
compensatory, special, punitive or however characterized), including reasonable
attorney's fees from counsel of NBC's choosing, caused by, arising out of or
related to (i) LWP's operation and management of the NBC/Talk City Areas and the
Talk City Service or (ii) any breach of LWP's representations and/or warranties
set forth in this agreement.
10.2 NBC. NBC agrees to indemnify and hold harmless, LWP against,
---
and from, any and all claims, liability, loss and damage (whether actual,
compensatory, special, punitive or however characterized), including reasonable
attorney's fees from counsel of LWP's choosing, caused by, arising out of or
related to (i) any breach of NBC's representations and/or warranties set forth
in this agreement or (ii) any broken, maliciously altered or misdirected link to
the Talk City
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<PAGE>
Service or the NBC/Talk City Areas on the NBC Service for which NBC is
responsible or which NBC could reasonably have prevented.
10.3 Control of Litigation. The indemnitor hereunder shall have full
---------------------
control of the defense of such litigation and may settle, compromise or adjust
the same, provided, however, that the indemnitee, upon relieving the indemnitor
in writing of the obligations imposed hereunder for defense and indemnification,
shall have the right, if it so elects, to conduct such litigation at its own
expense by its own counsel.
10.4 Notice and Duration. The above obligations for defense and
-------------------
indemnification shall be imposed only if: (1) the indemnitee sends to the
indemnitor timely written notice of first service of process upon the indemnitee
and a timely written request to defend the litigation (such notice and request
shall be deemed timely if given within a reasonable length of time after receipt
of service by the indemnitee and a reasonable length of time prior to the date
by which first response to such process is legally required, considering all the
circumstances); (2) while such litigation is pending, the indemnitee upon
request, shall furnish to the indemnitor all relevant facts and documentary
material in the former's possession or under its control, and shall make its
employees or other persons under its control with knowledge of relevant facts
available to the indemnitor for consultation and as witnesses at their customary
places of business; and (3) the indemnitee does not enter into any settlement
relating to any claim for which it requests indemnification hereunder without
the approval of the indemnitor.
11. Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE
-----------------------
FOR ANY LOSS OF PROSPECTIVE PROFITS OR ANY SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES BY REASON OF ANY FAILURE BY SUCH PARTY TO PERFORM ITS
OBLIGATIONS PURSUANT TO THIS AGREEMENT.
12. General Provisions.
------------------
12.1 Force Majeure. Neither party shall be liable for, or be
-------------
considered in breach of or default under this Agreement on account of, any delay
or failure to perform as required by this Agreement as a result of any causes or
conditions which are beyond such party's reasonable control and which such party
is unable to overcome by the exercise of reasonable diligence. Notwithstanding
the foregoing, either party may terminate this Agreement upon written notice to
the other party in the event such failure to perform continues unremedied for a
period of thirty (30) days in the aggregate.
12.2 Independent Contractors. The parties to this Agreement are
-----------------------
independent contractors. Neither party is an agent, representative, or partner
of the other party. Neither party shall have any right, power of authority to
enter into any agreement for or on behalf of, or incur any obligation or
liability of, or to otherwise bind, the other party. This Agreement shall not
be interpreted or construed to create an association, joint venture or
partnership between the parties or to impose any partnership obligation or
liability upon either party.
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12.3 Survival. Sections 1, 2.6, 2.8, 2.10, 4.3. 5, 8, 9, 10, 11, and
--------
12 shall survive the completion, expiration, termination or cancellation of this
Agreement.
12.4 Waiver. The failure of either party to insist upon or enforce
------
strict performance by the other party of any provision of this Agreement or to
exercise any right under this Agreement shall not be construed as a waiver or
relinquishment to any extent of such party's right to assert or rely upon any
such provision or right in that or any other instance; rather, the same shall be
and remain in full force and effect.
12.5 Entire Agreement. This Agreement together sets forth the entire
----------------
agreement, and supersedes any and all prior agreements of the parties with
respect to the transactions related to the NBC Service set forth herein,
including the NBC-Talk City Chat Agreement between the parties dated February
25, 1998 which is hereby deemed to have terminated as of the Effective Date
hereof.
12.6 Amendment. No change, amendment or modification of any
---------
provision of this Agreement shall be valid unless set forth in a written
instrument signed by the party to be bound thereby.
12.7 Assignment. LWP shall not assign this Agreement or any right,
----------
interest or benefit under this Agreement without the prior written consent of
NBC. No consent shall be unreasonably withheld. LWP acknowledges that NBC
shall have the right to freely assign or transfer, in whole or in part, any of
its rights, interests, benefits or obligations hereunder, including the
Agreement itself, to any party in its sole discretion. Subject to the
foregoing, this Agreement shall be fully binding upon, inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
assigns.
12.8 Partial Invalidity. In the event that any provision of this
------------------
Agreement conflicts with the law under which this Agreement is to be construed
or if any such provision is held invalid by a court with jurisdiction over the
parties to this Agreement, such provision shall be deemed to be restated to
reflect as nearly as possible the original intentions of the parties in
accordance with applicable law, and the remainder of this Agreement shall remain
in full force and effect.
12.9 Confidentiality. Each party hereto agrees to hold the terms and
---------------
conditions of this Agreement and all information and material provided by the
other party hereunder and identified at the time of disclosure as confidential
to such party (the "Confidential Information") in confidence during the term of
this Agreement and for three (3) years thereafter. "Confidential Information"
shall not include information that: (i) is or becomes generally known or
available, whether by publication, commercial use or otherwise, without
restriction on disclosure and through no fault of the receiving party; (ii) is
known by the receiving party prior to the time of disclosure; (iii) is
independently developed or learned by the receiving party without reference to
any Confidential Information of the disclosing party; (iv) is lawfully obtained
from a third party that the receiving party reasonably believes has the right to
make such disclosure. The other provisions of this Agreement notwithstanding,
either party will be permitted to disclose the terms and conditions of this
Agreement to their outside legal and financial advisors and to the extent
required by applicable law; provided, however, that before making any such
required filing or disclosure, the disclosing
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<PAGE>
party shall first give written notice of the intended disclosure to the other
party, within a reasonable time prior to the time when disclosure is to be made,
and the disclosing party will exercise best efforts, in cooperation with the
other party, consistent with reasonable time constraints, to obtain confidential
treatment for all non-public and sensitive provisions of this Agreement,
including without limitation dollar amounts and other numerical information.
12.10 Applicable Law; Jurisdiction. This Agreement shall be
----------------------------
interpreted, construed and enforced in all respects in accordance with the laws
of the State of New York without reference to conflict of law principles.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
LIVE WORLD PRODUCTIONS NBC MULTIMEDIA, INC.
By: ______________________________ By: /s/ Christopher Glowacks
-------------------------------------
Print Name:_______________________ Print Name: CHRISTOPHER GLOWACKS
-----------------------------
Title:____________________________ Title: VP
----------------------------------
Date:_____________________________ Date: 8/21/98
-----------------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
LIVE WORLD PRODUCTIONS NBC MULTIMEDIA. INC.
By: /s/ Peter H Friedman By:_____________________________________
--------------------------------
Print Name: PETER H. FRIEDMAN Print Name:_____________________________
------------------------
Title: CEO Title:__________________________________
-----------------------------
Date: August 18, 1998 Date:___________________________________
------------------------------
<PAGE>
AMENDMENT TO THE
NBC -TALK CITY CHAT SERVICES AGREEMENT
THIS AMENDMENT AGREEMENT (the "Agreement") is made as of April 19, 1999 by
and among Talk City, Inc., a California corporation (fka LiveWorld Productions,
Inc.) (the "Company") and NBC Multimedia, Inc., a Delaware corporation
("Multimedia").
RECITALS
A. All terms not defined in this Agreement will have the meanings given
to them in the Operating Agreement (as defined below).
B. The Company and Multimedia are party to that certain NBC - Talk City
Chat Services Agreement, dated August 21, 1998 (the "Operating Agreement"),
pursuant to which the Company issued to Multimedia 1,000,000 shares of its
Series D Preferred Stock (the "Shares") and a warrant to purchase 261,111 shares
of its Series D Preferred Stock (the "Warrant").
C. The Company, Multimedia and National Broadcasting Company, Inc.
("NBC") are entering into, as of the date hereof, additional amendments to
various agreements between the parties, including without limitation an
amendment to the Letter Agreement, dated August 21, 1998, between the Company
and NBC pursuant to which NBC has agreed to accelerate the telecast of
advertising spots regarding the Company according to a schedule attached to such
amendment.
D. The Company and Multimedia desire to amend the Operating Agreement to
delete the forfeiture provisions contained in Section 8.4 of the Operating
Agreement.
E. Section 12.6 of the Operating Agreement provides that the Operating
Agreement may be amended by a written instrument signed by the party to be bound
thereby.
AGREEMENT
Now, therefore, the parties agree as follows:
1. AMENDMENTS.
----------
(a) Section 8.4 of the Operating Agreement is deleted in its entirety.
2. MISCELLANEOUS.
-------------
(a) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of New York without regard to New
York conflicts law.
(b) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one instrument.
<PAGE>
(c) Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not considered in construing or
interpreting this Agreement.
(d) Full Force and Effect. Except as specifically amended hereby, the
---------------------
Operating Agreement shall remain in full force and effect and is hereby ratified
and confirmed in all respects.
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<PAGE>
This Agreement is executed as of the date first written above.
NBC MULTIMEDIA, INC. TALK CITY, INC.
/s/ [SIGNATURE ILLEGIBLE] /s/ Peter H. Friedman
- ------------------------------ __________________________
By: __________________________ By: Peter H. Friedman
Title: _______________________ Title: President and Chief
Financial Officer
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<PAGE>
NBC Multimedia, Inc.
30 Rockefeller Plaza
New York, New York 10112
April 19, 1999
Talk City, Inc.
307 Orchard City Drive
Suite 350
Campbell, California 95008
Talk City/CNBC.com
------------------
Ladies and Gentlemen:
Reference is made to the NBC-Talk City Chat Services Agreement, dated as of
August 21, 1998 (the "Agreement"), between Live World Productions ("Talk City")
---------
and NBC. Multimedia, Inc. ("NBC"). Capitalized terms used but not otherwise
---
defined herein shall have the meanings assigned to such terms in the Agreement.
This letter amendment (this "Amendment") will confirm our understanding and
---------
agreement with regard to certain amendments to the Agreement.
1. Application to CNBC.com Pursuant to Section 1.10 of the Agreement,
-----------------------
NBC is hereby exercising its right to create additional and separate NBC/Talk
City Areas relating to its CNBC.com web site, thus creating an Additional
NBC/Talk City Area. As a result, CNBC.com shall be deemed to be an NBC Service
for all purposes of the Agreement. For purposes of clarity, the proviso to the
last sentence of Section 1.10 shall not apply to CNBC.com.
2. Advertising Sales. CNBC shall have sole responsibility for selling
-----------------
advertising to appear in the CNBC/Talk City Areas. If within the first ninety
(90) days from the availability of the CNBC/Talk City Areas CNBC is not able to
sell a minimum of [*] percent ([*]%) of the advertising at industry
competitive rates, then the parties agree to negotiate in good faith regarding
responsibility for such advertising sales.
3. Effect of Amendment. Except as and to the extent modified by this
-------------------
Amendment, the Agreement shall remain in full force and effect in all respects.
4. Governing Law. This Amendment shall be governed by, and construed in
-------------
accordance with, the laws of the State of New York.
5. Counterparts. This Amendment may be executed and delivered (including
------------
by facsimile transmission) in one or more counterparts, and by the parties
hereto in separate
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Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
counterparts, each of which when executed and delivered shall be deemed to be an
original but all of which taken together shall constitute one and the same
agreement.
If the foregoing accurately sets forth your understanding of our agreement,
please so indicate by countersigning this Amendment, whereupon this Amendment
shall become a binding agreement between us and shall amend the Agreement as
provided herein.
Very truly yours,
NBC MULTIMEDIA, INC.
By: /s/ Signature Illegible
Name:
Title:
Agreed and accepted as of
the date first written above:
TALK CITY, INC.
By: /s/ Signature Illegible
Name:
Title:
2
<PAGE>
EXHIBIT 10.19
February 25, 1998
Via Telecopier
- --------------
Mr. Peter Friedman
President & CEO
Live World Productions
307 Orchard City Drive, Suite 304
Campbell, California 95008
Re: Talk City Participation in NBC-IN
---------------------------------
Dear Mr. Friedman:
This letter sets forth the initial agreement between NBC Multimedia, Inc.
("NBC"), and Live World Productions Inc. ("Company"), as of the date set forth
above (the "Effective Date") with respect to the Company's agreement to provide
its "Talk City" internet chat services as part of NBC's NBC-IN service. The
terms and conditions shall be as follows:
1. Description of NBC-IN. NBC has created a menu of localized world wide web
---------------------
services (the "NBC-IN") which it offers to the NBC Television Network's
("NBC TV") owned and operated stations and interested affiliates (the
"Stations"). NBC agrees that localized versions of the general Talk City
Internet chat service created and operated by the Company ("Talk City")
shall be among the list of primary services offered as part of such
platform subject to the terms and conditions hereof. Company acknowledges
(i) that each Station will have the sole right to determine [*] as part of
the NBC-IN, (ii) that Talk City [*] included in any individual Station's
list of such services, and (iii) that NBC and declining Stations shall have
no liability or obligations to Company due to any Stations' [*].
2. Creation of Talk City Local Sites. Company agrees that it shall create
---------------------------------
customized local versions of Talk City for use by Stations participating in
the NBC-IN. Such localized versions will be designed and operated through
the technological cooperation of Company, NBC, the Stations and NBC's
technology partners (as described below in Section 4(c)) to insure that
online viewers of the Stations' world wide web sites (the "Station Sites")
shall be provided with a version of Talk City which is designed to provide
information and branding relevant to such viewers geographical market. Each
localized version of the general Talk City service (each localized version
to be known for purposes of this Letter Agreement as a "Talk City Local
Site") shall consist of (i) individualized Station "jump pages" which will
be versions of the Talk City general service which contain branding and
other material to be provided by NBC and each of the relevant Stations and
(ii) customized, traveling branding and advertising that appears on any
Talk City pages accessed by viewers after the initial jump page has
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omitted and filed with the Commission.
Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
been viewed. Each such Talk City Local Site shall be framed within a sub-
page of the Station Site but will contain material to be provided by
Company and located on Company's server. Regardless of the depth of the use
by viewers coming through Station Sites, all use of the Talk City Local
Sites shall continue to take place within such Station Sites. As a result
all online viewers will be accessing and bookmarking the Talk City Local
Site content through the NBC-IN's portion of the Station's URL. Company
agrees that the Talk City Local Sites shall also contain (i) open chat
rooms for fans of each NBC Television program (e.g., a "Friends" chat room)
and (ii) at least one chat room (and more if Station requests) specifically
designed for each local market and will have the ability to run auditorium
chats with local talent which shall be moderated by a local NBC webmaster
which, at NBC's option, shall be trained by Company. Except as described in
Section 6 below, the Talk City Local Sites will not include any news or
other categories of information which NBC chooses, in its sole discretion,
to remove from the version of such service provided to it or the Stations,
including any branding of, or links to, any Other Networks' material (as
such term is defined below).
3. Links. As a condition of utilizing the NBC-IN, each participating Station
-----
will be required to devote a standardized portion of the front page of the
Station Site to the NBC-IN, subject to Station's right to have overall
design control of the Station Site. Each Station shall be encouraged to
devote enough space on its front page to permit the placement of hotlinks
to the individual services which make up the NBC-IN within space on such
front page allocated and dedicated to the NBC-IN, but at a minimum, each
participating Station Site's front page shall contain a prominent hotlink
to a special sub-page devoted to hotlinks for all of the services making up
the NBC-IN the size of which shall be [*] by the Station. NBC agrees that
when the individual services which make up the NBC-IN are displayed and a
hotlink to the Talk City Local Site is provided, whether on a front page or
on a separate page, the Talk City icon and/or text, if any, (the "Talk City
Link") shall be [*] the icon and text, if my, devoted to [*] which are part
of the NBC-IN, subject to NBC's right to group brands and/or genetic
categories and subcategories concerning all of its service providers [*] of
the Station Sites.
4. Management of Talk City Local Sites. The day-to-day management of the Talk
-----------------------------------
City Local Sites. and all costs associated therewith, shall be the
responsibility of the Company subject to the following:
(a) Content and Service - Company will provide all of the content and
services for each of the Talk City Local Sites. provided that as part of
the Itemization and customizing process required herein. NBC and the
Stations may provide material in their own discretion for use on the
relevant Talk City Local Sites and Company will make good faith
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omitted and filed with the Commission.
Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
efforts to include such material on the relevant Talk City Local Sites.
Company will acquire all necessary rights and licenses required for the
operation of each Talk City Local Site as contemplated herein and for the
acquisition and use of any content and technology not provided by NBC and
the Stations. Each of the Company, NBC and the Stations will retain and own
all copyrights and other intellectual property rights in, and to, the
material which that entity contributes for use hereunder.
(b) Editorial - Editorial standards and direction regarding the inclusion
and presentation of content will come from Company, provided that Company
shall provide appropriate customization of each Talk City Local Site and
agrees to seriously consider all reasonable requests and suggestions
regarding individual Talk City local Sites which are made by NBC and the
relevant Stations. However, Company agrees that NBC's Local Director,
working with the Stations. will have significant input into the overall
editorial composition of the Talk City Local Sites which will be provided
to the participating Stations. In addition, Company agrees to abide by and
NBC Broadcast Standards and Practices which may apply to the Talk City
Local Sites, including the prohibition against distributing Adult Content.
and with the Rules and Regulations of the Federal Communications Commission
and any other governmental body having jurisdiction. For the purposes
hereof, the term "Adult Content" shall mean any material, including audio
or video material, which is pornographic or which contains nudity, explicit
sexual material or depictions of sexual acts any of which is beyond that
normally broadcast over NBC TV.
(c) Technology - Talk City will be responsible for all maintenance of the
Talk City Local Sites (including customer service, technical upkeep, etc.)
including the costs associated therewith, and NBC and its technology
partner shall be responsible for the framing of the Talk City Local Sites
as contemplated herein. Company will provide all necessary facilities,
servers, connectivity and related equipment and technology required to host
the Talk City local Sites, including any bulletin boards and chat events
requested by NBC, on Company's Internet servers. Company agrees that, at
all times during the term of this Agreement, the resources it provides to
host the Talk City Local Sites shall be sufficient to support and manage
any number of simultaneous users that wish to use the Talk City Local Sites
at any time. Company agrees to work with NBC's technology partners to
coordinate the interface between the Talk City Local Sites and the Station
Sites and to guarantee that the Talk City Local Sites will provide the
required services contemplated herein.
(d) Branding - The Talk City Link may be branded with material to be
provided by Company, subject to NBC's approval thereof. The Talk City Local
Sites will be co-branded with trademarks and other material to be provided
by
3
<PAGE>
NBC, the Stations and Company subject to the approval of each party and
provided that the size of such brands shall be left to the sole discretion
of NBC. The parties agree that the Company's brands on the Talk City Local
Sites shall be not more than [*] percent ([*]%) [*], but as visible as, the
brands of NBC and the relevant Stations. Company agrees to abide by all
requirements and guidelines which NBC and the Stations may have regarding
the use of their trademarks, service marks and other brands and agrees that
it shall make no use of such marks and brands which is not approved in
advance by NBC and the relevant Stations. Branding for all other areas of
the NBC-IN and the Station Sites shall be at the sole discretion of NBC and
the Stations.
5. Promotion. As a condition of utilizing the NBC-IN, each Station will be
----------
required to offer a minimum of [*] on-air promos concerning, or mentions
of, the URL address of the Station Site per week. NBC shall encourage
Stations to include information regarding the NBC-IN as part of such promos
or mentions.
6. Exclusivity. For the term hereof, NBC agrees that Talk City will be the
------------
exclusive provider of Chat Services on NBC-IN, provided that Company
acknowledges that nothing in this Section 6 or elsewhere in the Letter
Agreement shall restrict NBC's rights in any way in connection with NBC's
world wide web site ("NBC.com"), MSNBC Interactive, Intellicast.com or any
other or future NBC related interactive (or other) services other than NBC-
IN. The term "Chat Service" shall mean an online and interactive
communications forum whereby users of NBC-IN can participate in real-time
discussions regarding local issues relevant to such users' local
communities. Notwithstanding the foregoing, Company acknowledges that (i)
other services provided by third parties may be offered to the Stations by
NBC as part of NBC-IN which provide online chat services in addition to
their primary services as long as NBC does not offer such third party
services in place of Company's Chat Service on NBC-IN or materially promote
such competing aspects of such third party services to the Stations or the
public (other than through general advertising) in connection with NBC-IN
and (ii) NBC will have no ability to prevent the Stations from placing
competing services elsewhere on their own Station Sites. Company agrees
that it will not provide Talk City's content or service to, or allow the
content or service w be connected or integrated in any way with, the
national (e.g., ABC, CBS, Fox, WB, UPN, USA Network or Pax Net) and
regional broadcast television networks, individual broadcast television
station groups, and their affiliates and websites (the "Other
Broadcasters"). Notwithstanding the foregoing, NBC acknowledges that
Company has agreements with each of CBS Sportsline and Fox's TV GEN for
Talk City's services which pre-date the date of this Letter Agreement (the
"CBS Agreements" and the "TV GEN Agreements") and agrees that such CBS
Agreements and TV GEN Agreements shall not be considered a violation of the
terms hereof; provided, however, that Company agrees that when the term of
each CBS Agreement and TV GEN Agreement ends, Company will enter into good
faith negotiations with NBC regarding the terms of a more exclusive
arrangement between NBC and
4
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Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
Company prior to entering into any additional agreements with CBS or Fox
respectively or any renewals thereof'. If Company is not able to provide
competitive, high quality, localized coverage and service for any of the
NBC TV markets, NBC will be free to contract with Company's competitors in
order to obtain an online Chat Service in such markets if Company is unable
to cure such problem within sixty(60) days of its receipt of written notice
from NBC. If NBC is unable to sign up any Station in any NBC TV market to
NBC-IN, including the Talk City Local Sites, within six (6)months following
the actual beginning of NBC's negotiations with such Station, then company
will be free to provide its Talk City service to an Other Broadcaster
within such market as long as the service is localized and intended for use
within such geographic market only.
7. Advertising Sales. Company shall be responsible for the sale of advertising
-------------------
inventory to be placed on each Talk City Local Site. Company agrees that no
advertising inventory appearing in the Talk City Local Sites will be
bartered or sold at less than prevailing market rates (as such rates are
determined by Company in its reasonable discretion and provided to NBC at
the beginning of each relevant quarter Company shall have the
responsibility of administering the contract for such advertising, paying
all necessary expenses and collecting all fees related thereto in return
for the Approved Fees described in Section 8(a) below which Approved Fees
shall be Company's sole reimbursement for all internal and external expends
related to such sale. Company acknowledges that NBC and the Stations will
be solely responsible for the sale of advertising which appears within the
area of the Station Sites which frames Talk City Local Sites and that
Company will have no right to advertising revenues received by NBC and
Stations in connection with such frames or any other portions of the
Station Sites other than the Talk City Local Sites. The parties also agree
that they will work together and coordinate advertising placements in order
to avoid conflicts between advertising displayed on the Talk City Local
Service and the area framing such sites (i.e., Coke and Pepsi will not be
displayed at the same time).
8. Financial Terms. Company agrees that it will be responsible for all costs
-----------------
and expenses associated with the creation and operation of the Talk City
Local Sites. All revenues associated with Talk City shall be split among
NBC and Company monthly as follows:
(a) Advertising Revenues - Company will pay NBC [*] percent ([*]%) of Net
--------------------
Revenues (as defined below) associated with the Talk City Local Sites.
Company agrees that when serving advertising inventory to the Talk City
Local Sites which will add to Net Revenue, it will use procedures which are
consistent with the general advertising placement and advertising rate
policies and procedures for the general Talk City service run-of-site
program which policies and procedures shall be approved in writing by NBC.
If Net Revenue is less than zero (i.e. a loss) then NBC will not be
obligated to be a part of the loss or compensate Company for such loss. For
purposes of
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Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
making the calculations described above the following terms shall have the
following meanings:
(1) "Net Revenue" shall mean gross revenue charged to and received
from each advertiser or sponsor by Company for the sale of advertising
appearing to the End Users while participating in the Talk City Local
Sites, less only (i) any identifiable and actual advertising agency
commissions, external advertising sales commissions and fees which are
directly attributable to the sale of advertising for the Talk City
Local Sites (which agency commissions, ad sales commissions and fees
in total shall not exceed [*]% of gross revenue), (ii) identifiable
chat host fees, provided that the scheduling of any such chat hosts
must be approved in advance by NBC and the fees therefore cannot
exceed an average rate of $[*] per hour or a total of $[*] in any
month unless approved in writing in advance by NBC, and (iii) any
identifiable and actual traffic distribution fees paid to traffic
distribution partners in connection with any Purchased End Users which
visit Talk City Local Sites, provided that (x) such distribution fees
shall be attributed to Talk City Local Sites by multiplying all such
fees attributable to Purchased End Users by the percentage which is
derived by dividing Purchased End User traffic in the Talk City Local
Sites by Purchased End User traffic in the entire general Talk City
service and (y) the distribution fee obtained in sub-section (x)
hereof shall be capped at [*]% of the amount obtained by multiplying
all gross revenues attributable to the Talk City Local Sites by the
percentage obtained by dividing the number of Purchased End Users of
the Talk City Local Sites by the total number of all End Users of the
Talk City Local Sites. NBC and Company shall mutually agree upon the
measurement methods and calculations required to determine whether a
revenue or an expense is applicable to advertising or sponsorships
applicable to the Talk City Local Sites;
(2) "End-User(s)" shall mean any person or entity which accesses any
Talk City Local Sites either via Station Sites and NBC-IN or directly
from Talk City .
(3) "Purchased End Users" shall mean those End Users which access the
Talk City Local Sites via, or through, any third party internet
service provider or distributor which charges Company a per user fee
attributable to such End User.
(b) Equity - In consideration for NBC's agreement to make the Talk City
------
local Sites part of NBC-IN as described herein, the Company shall issue to
NBC a warrant to purchase 641,026 shares of stock of the Company, which is
equal to approximately 3.61% of the fully-diluted number of shares of
capital stock of the Company as determined as of the date hereof assuming
full exercise of the Warrants (the "Warrant"). The total exercise price for
acquisition of each of the shares of stock covered by the Warrant shall be
$2.34. In the event that the price per share of
6
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Confidental treatment has been requested with
respect to the omitted portions.
<PAGE>
Company stock sold in the Next Financing is lower than $2.34 (a "Lower
Price"), then the Company shall issue a replacement Warrant to NBC (i) with
an exercise price equal to the Lower Price, (ii) for a number of shares
equal to the number which is obtained by dividing $1,500,000 by the Lower
Price and (iii) with other terms and conditions identical to the initial
Warrant. For purposes hereof, the term "Next Financing" shall mean the
first public or private offering of equity, including convertible debt, of
the Company following the Effective Date hereof and any other public or
private offering of equity of the Company occurring within four (4) months
of such first offering. Provided however, that if the first offering is an
acquisition of the company, then "Next Financing" refers to that
acquisition and does not include additional financings of any kind
following that acquisition. And further provided that Next Financing does
not apply to bridge loan financing that is intended as an interim bridge
financing to the Next Financing and that totals less than $5 Million. The
Warrant may be exercised in whole or in part, may be exercised at any time
and shall give NBC registration rights consistent with existing
registration rights held by preferred stock holders (including 180 day
lockup upon an IPO) in connection with any capital stock that it acquires.
The consideration for the Warrants shall be NBC's agreement to enter into
this Letter Agreement. The Warrant shall terminate on the fifth anniversary
of its issuance. When exercising the Warrant, NBC shall have the right to
either (i) purchase the total number of shares of common stock which the
Warrant entitles NBC to purchase at the exercise price described above or
(ii) receive the net number of shares of common stock arising from the
difference between the market price of such stock at the date of exercise
and the exercise price for the Warrant, as established above. Recognizing
that time is of the essence, this Section 8(b) shall serve as the initial
binding agreement of the parties with respect to the Warrant, and the
parties hereto shall use their good faith efforts to complete a more formal
agreement for the issuance, sale and purchase of the Warrant (a "Warrant
Purchase Agreement"), which shall include representations, warranties and
covenants of the Company at least as extensive as those provided in the
most recent securities purchase agreement entered into by the Company and
consistent with the terms hereof; provided, however, that, if no such
-------- ---------
formal agreement is reached, the terms and conditions contained in this
Section 8(b) and Section 13 shall govern the relationship of the parties
hereto with respect to the Warrant.
(c) Future Revenue - The parties agree that if any future revenue
---------------
generating opportunities not described above are created in connection with
the Talk City general service or the Talk City Local Sites, the parties
will negotiate in good faith regarding what revenue sharing arrangements
between the parties would be appropriate, provided that, unless such
opportunities involve characteristics which would make them materially
different from the opportunities described above, it is the intent of the
parties to share such revenues in a mutually agreed upon manner.
7
<PAGE>
(d) Excluded Revenue - At no time shall NBC be entitled to any revenue
-----------------
received by Company in connection with infochats, user add-ons (Chat @ Talk
City), market research, custom community programming, or other corporate
services which do not relate to the Talk City Local Sites.
9. Payment and Audit Conditions. At the end of each month in which Company
------------------------------
actually receives payments of revenues of the type described in Section 8,
Company shall prepare a monthly statement providing sufficient detail
regarding the source of such revenue and will deliver such statement along
with the required payment described therein to NBC no less than thirty (30)
days following such date. Company that NBC shall have the right to conduct
a reasonable audit of the relevant books and records of such party in order
to determine compliance with the terms of this Letter Agreement. The
parties agree that all revenues associated with the Talk City Sites
collected by Company and not otherwise owed to Company shall be paid
directly to NBC and not to any of the individual Stations.
10. Representations and Warranties. (a) Company represents and warrants to NBC
------------------------------
and the Stations that it has the right and power to perform its obligations
and to grant the rights granted hereto, that Company's creation and
operation of the Talk City Local Sites pursuant to this Letter Agreement
will not violate any agreement or obligation between Company and a third
party or any laws or regulations and that, except for material provided by
NBC and the Stations, the content included on the Talk City Local Sites and
the Talk City Link as well as the operation of the Talk City Local Sites as
contemplated hereto will be accurate and correct, will not violate or
infringe the copyright, trademark, trade name, patent, literary,
intellectual, artistic or dramatic right, right of publicity or privacy or
any other right of any entity or person or contain any material which is
libelous, slanderous, obscene or otherwise unprotected by the United States
Constitution. Company also agrees that the Talk City Local Sites, including
any software or hardware provided by Company in connection therewith, (i)
will not violate or infringe the intellectual property rights of any third
party, (ii) will be operated and maintained with professional diligence and
skill and in a manner consistent with high industry standards, (iii) will
operate as described in this Letter Agreement, (iv) will conform to any
specifications and guidelines mutually agreed upon by the parties from time
to time during the term hereof, (v) will be free of computer viruses and
material crash bugs in any form and (vi) will not adversely affect the
operation of NBC-IN or the Station Sites in a material manner.
(b) NBC represents and warrants to Company that it has the right and power
to perform its obligations and to grant the rights granted herein and that
the material provided by NBC to Company for inclusion on the Talk City
Local Sites, which NBC has approved for use as contemplated herein, will be
accurate and correct and will not violate or infringe any third party
rights, including intellectual property rights.
8
<PAGE>
11. Indemnity. (a) Company agrees to indemnify; defend, and hold NBC, the
Stations, their affiliates and their successors, officers, directors and
employees harmless from any and all actions, causes of action. claims,
demands; costs, liabilities, expenses including reasonable attorneys' fees)
and damages arising out of or in connection with any claim (i) relating to
Company's operation and management of the Talk City local Sites, or (ii}
relating to a breach of any of the terms, representations and/or warranties
set forth in this Letter Agreement.
(b) NBC agrees to indemnify, defend, and hold Company harmless from any and
all actions, causes of action, claims, demands, costs, liabilities,
expenses (including reasonable attorneys' fees) and damages arising out of
or in connection with any claim related to any breach of NBC's
representations and/or warranties set forth in this Letter Agreement.
(c) IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY LOSS OF PROSPECTIVE
PROFITS OR ANY SPECIAL. INDIRECT. INCIDENTAL OR. CONSEQUENTIAL DAMAGES BY
REASON OF ANY FAILURE BY SUCH PARTY TO PERFORM ITS OBLIGATIONS PURSUANT TO
THIS LETTER AGREEMENT.
12. Term. (a) The initial term of this Letter Agreement shall be two (2) years
----
(the "Initial Term"). Ninety {90) days prior to the end of the Initial
Term, the parties agree to negotiate in good faith regarding a possible
extension of the term hereof for an additional one (1) or two (2) years.
(b) Either party may terminate this Letter Agreement at any time and for
any reason in its sole discretion by providing the other party with written
notice of such decision, and such termination shall become effective sixty
(60) days following such other party's receipt of such notice.
(c) Either party may terminate this Letter Agreement (i) upon a material
default by the other party of any of the material terms hereof which
default is not cured within thirty (30) days following the breaching
party's receipt of a written notice regarding the default or (ii)
immediately, in its sole discretion, if any of the following occur: (x) the
commencing by the other party or the other party's intention to commence a
voluntary case under any applicable bankruptcy laws (as now or hereafter
may be in effect); (y) the adjudication that the other party is bankrupt or
insolvent; or (z) the filing by the other party or the intent to file by
the other party of a petition seeking to take advantage of any other law
providing for the relief of debtors,
9
<PAGE>
(d) If the ownership of a significant portion of the equity of Company, or
all or substantially all of the assets of Company, is transferred at any
time during the term hereof, then NBC shall have the option of terminating
this Letter Agreement on five (5) business days prior written notice if the
ownership of such equity or assets are transferred to any (i) Other
Broadcaster, (ii) any provider of Adult Content or (iii) any other party
with whom NBC reasonably chooses not to be associated, other than Company's
current shareholders. Transfer of any amount of such equity or assets shall
be deemed significant when the parties described in (i) and (ii) in the
previous sentence are involved, but such figure shall be deemed to be at
least thirty percent (30%) of Company's equity when the parties described
in (iii) in the previous sentence are involved.
(e) Until such time as the parties complete a definitive Warrant Agreement
pursuant to the terms of Section 8(b) and NBC has received all necessary
third party approvals, NBC shall have the right to terminate this Letter
Agreement for any reason by providing Company with five (5) days' prior
written notice of NBC's decision.
13. Effect of Termination. (a) Upon a termination of this Letter Agreement by
---------------------
NBC pursuant to the terms of Sections 12(b) and 12(e) or by Company
pursuant to the terms of Section 12(c), the following terms shall apply:
(i) Upon any such termination taking effect on a date which falls within
one (1) year of the Effective Date, NBC shall forfeit the right to
purchase the number of shares of Company common stock which is equal
to fifty percent (50%) of the number of shares which NBC would
otherwise have been entitled to purchase pursuant to the terms of the
Warrant as of the date of such termination (i.e., 50% of the number of
shares not purchased by NBC as of such date).
(ii) Upon any such termination taking effect on a date which falls after
one (1) year of the Effective Date, but prior to the end of the
Initial Term, NBC shall forfeit the right to purchase the number of
shares of Company common stock which is equal to twenty-five percent
(25%) of the number of shares which NBC would otherwise have been
entitled to purchase pursuant to the terms of the Warrant as of the
date of such termination (i.e., 25% of the number of shares not
purchased by NBC as of such date).
(b) Upon (i) a termination of this Letter Agreement by NBC pursuant to the
terms of Sections 12(c) and 12(d) or by Company pursuant to the terms of
Section 12(b) or (ii) the completion of the Initial Term, the Warrant shall
survive termination of this Letter Agreement in full.
14. Formal Agreement. Recognizing that time is of the essence, this Letter
----------------
Agreement shall serve as the agreement for the creation and operation of
Talk City Local Sites for a period of six (6) months. At the end of six (6)
months the parties shall reassess this
10
<PAGE>
Letter Agreement to determine whether a more detailed agreement is required
(a "Final Agreement"). If either party decides that a Final Agreement is
required, then it shall notify the other party in writing no less than
thirty (30) days following the end of the six (6) period and both parties
shall use reasonable efforts to complete the Final Agreement within a
reasonable time period; provided, however, that notwithstanding the
foregoing, if no Final Agreement is reached, the terms contained herein
shall govern the relationship between the parties for the Term .
15. NBC Link. Company agrees to include an NBC-IN logo (to be provided. by NBC
--------
and to include an appropriate NBC logo chosen by NBC) that is linked to the
NBC Local page on NBC.com on the Talk City homepage (www.talkcity.com).
16. Confidentiality. Neither party shall issue a press release or make any
---------------
statement to the general public concerning this Letter Agreement, the NBC-IN
or the Talk City Local Sites or the existence thereof without the express
prior written consent of the other, Each party hereto agrees to hold the
terms and conditions of this Letter Agreement and all information and
material provided by the other party hereunder and identified at the time of
disclosure as confidential to such party (the "Confidential Information") in
confidence during the term of this Letter Agreement and for three (3) years
thereafter. "Confidential Information" shall not include information that:
(i) is or becomes generally known or available, whether by publication,
commercial use or otherwise, without restriction on disclosure and through
no fault of the receiving party; (ii) is known by the receiving party prior
to the time of disclosure; (iii) is independently developed or learned by
the receiving party without reference to any Confidential Information of the
disclosing party; (iv) is lawfully obtained from a third party that the
receiving party reasonably believes has the right to make such disclosure.
The other provisions of this Agreement notwithstanding, either party will be
permitted to disclose the terms and conditions of this Agreement to their
outside legal and financial advisors and to the extent required by
applicable law; provided however that before making any such required filing
or disclosure, the disclosing party shall first give written notice of the
intended disclosure to the other party, within a reasonable time prior to
the time when disclosure is to be made, and the disclosing party will
exercise best efforts, in cooperation with the other party, consistent with
reasonable time constraints, to obtain confidential treatment for all non-
public and sensitive provisions of this Agreement, including without
limitation dollar amounts and other numerical information.
17. Successors. The terms of this Letter Agreement shall apply to Company and
------------
any of the Company's successors in interest, including any successors which
acquire the majority of the capital stock or assets of the Company.
18. Miscellaneous. This Letter Agreement constitutes the entire agreement and
-------------
understanding of the parties relating to the subject matter hereof and
supersedes all
11
<PAGE>
prior and contemporaneous agreements, negotiations, and understandings
between the parties, both oral and written, provided that the Non-
Disclosure and Confidentiality Agreement and the NBC-Talk City Chat
Agreement regarding NBC.com between the patties shall remain in full force
and effect. Company shall not be permitted to assign or transfer, in whole
or in part, any of its rights or obligations hereunder without the prior
written consent of NBC, but Company acknowledges that NBC shall have the
right to freely assign or transfer, in whole or in part, any of its rights
or obligations hereunder, including the Agreement itself, to any party in
its sole discretion. Sections 9, 10, 11, 13, 16 and 18 shall survive the
completion, expiration, termination or cancellation of this Agreement no
waiver or modification of any provision of this Letter Agreement shall be
effective unless in writing and signed by both parties. Any waiver by
either party of any provision of this Letter Agreement shall not be
construed as a waiver of any other provision of this Letter Agreement, nor
shall such waiver operate as or be construed as a waiver of such provision
respecting any future event or circumstance. This letter Agreement shall be
governed by and construed under the laws of the State of New York
applicable to contracts fully executed in New York, without regard to New
York conflicts law. the parties hereby consent to and submit to the
jurisdiction of the federal and state courts located in the County of New
York.
If you are in agreement with the above terms and conditions, please indicate
your acceptance by signing in the space provided below, and return one original
to me. This Letter Agreement will be null and void if not signed within 7 days
of the date set forth above.
Very truly yours,
NBC MULTIMEDIA
By: /s/ Vincent C. Grosso
------------------------------------
Name: Vincent C. Grosso
---------------------------------
Title: VP NBC Interactive
------------------
ACCEPTED AND AGREED: 3/3/98
LIVE WORLD PRODUCTIONS INC.
By: /s/ Peter Friedman
-------------------
Name: Peter Friedman
--------------
Title: President
---------
2/25/98
12
<PAGE>
Amendment to the NBC-Talk City Chat Agreement and
Letter Agreement regarding Talk City Participation in NBC-IN
This amendment ("Amendment"), dated as of July 27, 1998, is by and between
NBC Multimedia, Inc. ("NBC") and Live World Productions Inc. ("Company"), and
amends the terms of the NBC-Talk City Chat Agreement (the "NBC.COM Agreement")
and the Letter Agreement regarding Talk City Participation in NBC-IN Letter
Agreement (the "NBC-IN Agreement"), each of which is between NBC and Company and
dated as of February 25, 1998.
In consideration of the mutual covenants herein contained, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows (all capitalized terms used herein
shall have the meanings therefor set forth in the NBC.COM and the Letter
Agreement, whichever is relevant):
1. Section 6 of the NBC.COM Agreement is hereby amended by the insertion of
the following at the end thereof:
"Notwithstanding the foregoing, NBC agrees that the exclusivity provisions
of this Section 6 shall not prohibit Company from entering into any
operating agreements other Series D corporate investors ("Investors") which
would otherwise be deemed to be a violation of the terms of this Section 6
in connection with Investors' purchase of Company's equity in Company's
Series D financing.
2. Section 6 of the Letter Agreement is hereby amended by the insertion of the
following at the end thereof:
"Notwithstanding the foregoing, NBC agrees that the exclusivity provisions
of this Section 6 shall not prohibit Company from entering into any
operating agreement with other Series D corporate investors ("Investors")
which would otherwise be deemed to be a violation of the terms of this
Section 6 in connection with Investors' purchase of Company's equity in
Company's Series D financing.
3. Except as specifically amended hereby, the NBC.COM Agreement and the Letter
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, NBC and Company have duly executed this Amendment the
day and year first above written.
NBC Multimedia, Inc. Live World Productions Inc.
/s/ Christopher A. Glowacki /s/ Peter Friedman
- -------------------------------- --------------------------------------
Name: CHRISTOPHER A. GLOWACKI Name: Peter Friedman
- -------------------------------- --------------------------------------
Date: 8/5/98 Date: 8/7/98
- -------------------------------- --------------------------------------
<PAGE>
SECOND AMENDMENT TO THE
LETTER AGREEMENT REGARDING TALK CITY
PARTICIPATION IN NBC - IN
This second amendment ("Second Amendment"), dated as of April 19, 1999, is
by and between NBC Multimedia, Inc. ("Multimedia") and Talk City, Inc. (fka
Liveworld Productions, Inc.) (the "Company") and further amends the terms of the
Letter Agreement, dated February 25, 1998 (the "Letter Agreement") regarding the
Company's participation in NBC-IN (as defined in the Letter Agreement).
In consideration of the (i) mutual covenants contained herein, (ii) other
amendments which the Company, Multimedia and National Broadcasting Company, Inc.
("NBC") are entering into, as of the date hereof, including without limitation
an amendment to the Letter Agreement, dated August 21, 1998, between the Company
and NBC pursuant to which NBC has agreed to accelerate the telecast of
advertising spots regarding the Company according to a schedule to be attached
to such amendment, and (iii) for other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties agree as follows:
1. Section 13 of the Letter Agreement is hereby deleted in its entirety.
2. Except as specifically amended hereby, the Letter Agreement shall
remain in full force and effect and is ratified and confirmed in all
respects. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York without regard to
New York conflicts law.
IN WITNESS WHEREOF, NBC and the Company have duly executed this Second
Amendment as of the date first written above.
NBC MULTIMEDIA, INC. TALK CITY, INC.
/s/ [SIGNATURE ILLEGIBLE] /s/ Peter Friedman
- ------------------------------- ---------------------------
By: ___________________________ By: Peter H. Friedman
Title:_________________________ Title: Chief Executive Officer and
President
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
The registrant has no subsidiaries.
<PAGE>
Exhibit 23.2
The Board of Directors and Stockholders
Talk City, Inc.:
We consent to the use of our "Form of Independent Auditors' Report" included
herein and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG LLP
Mountain View, California
April 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND MARCH 31,
1999, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, FOR THE FISCAL YEAR
ENDED DECEMBER 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 8,697 3,484
<SECURITIES> 5,740 5,740
<RECEIVABLES> 863 1,312
<ALLOWANCES> (100) (100)
<INVENTORY> 0 0
<CURRENT-ASSETS> 15,200 10,483
<PP&E> 1,485 2,031
<DEPRECIATION> (486) (647)
<TOTAL-ASSETS> 18,490 14,572
<CURRENT-LIABILITIES> 1,707 2,715
<BONDS> 273 237
38,973 39,979
0 0
<COMMON> 4 4
<OTHER-SE> (22,467) (28,363)
<TOTAL-LIABILITY-AND-EQUITY> 18,490 (28,363)
<SALES> 1,453 980
<TOTAL-REVENUES> 1,453 980
<CGS> 0 0
<TOTAL-COSTS> 16,745 8,033
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> (100) 0
<INTEREST-EXPENSE> 367 (154)
<INCOME-PRETAX> (15,659) (6,899)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (15,659) (6,899)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (15,659) (6,899)
<EPS-PRIMARY> 4.92 (1.90)
<EPS-DILUTED> 4.92 (1.90)
</TABLE>
