<PAGE>
As filed with the Securities and Exchange Commission on July 19, 1999
Registration No. 333-77455
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
TALK CITY, INC.
(Exact name of Registrant as specified in its charter)
---------------
Delaware 7375 77-0426524
(State or other (Primary Standard (I.R.S Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
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. [_]
---------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Class of Amount Maximum Maximum Amount of
Securities to be to be Offering Price Aggregate Registration
Registered Registered Per Share Offering Price Fee(1)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par
value.................. 5,175,000 $12.00 $62,100,000 $17,264
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
(1) $14,387 was previously paid.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 July 19, 1999
PROSPECTUS
4,500,000 Shares
[TALK CITY LOGO]
Common Stock
- --------------------------------------------------------------------------------
This is our initial public offering of shares of common stock. We are offering
4,500,000 shares.
The shares have been approved for listing on the Nasdaq National Market under
the symbol "TCTY."
Anticipated Price Range $10.00 to $12.00 per share.
Investing in the shares involves risks. Risk Factors begin on page 9.
<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 675,000
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.
- --------------------------------------------------------------------------------
Lehman Brothers
Volpe Brown Whelan & Company
U.S. Bancorp Piper Jaffray
, 1999
<PAGE>
[INSIDE FRONT COVER AND GATEFOLD]
Center Caption: The Talk City Network Participants
[NAMES OF NETWORK PARTICIPANTS]
Text: Talk City provides community services for 35 network
participants. These network participants, in turn, drive user
volume to our network and provide broad exposure for the Talk
City brand. We share costs to produce and market our network
participants' online community offerings and share the
resulting revenue. Our agreements with our network
participants range in duration from six months to three years.
No individual network participant was responsible for a
material amount of our revenue for the three months ended
March 31, 1999, except WebTV Network which was responsible for
17% of our revenues for that quarter.
Caption: Talk City Business Services
Text: We offer businesses interactive services that help them develop and
expand relationships with customers and employees. These services range
from producing online events to hosting customized online communities.
[This page will contain three business client screen shots.]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C> <C> <C>
Prospectus Summary.................. 4 Management....................... 57
Risk Factors........................ 9 Certain Transactions............. 67
Use of Proceeds..................... 24 Principal Stockholders........... 71
Dividend Policy..................... 24 Description of Capital Stock..... 74
Capitalization...................... 25 Shares Eligible for Future Sale.. 77
Dilution............................ 26 Underwriting..................... 79
Selected Financial Data............. 27 Legal Matters.................... 82
Management's Discussion and Analysis Experts.......................... 82
of Financial Condition and Results Available Information............ 82
of Operations...................... 28 Index to Financial Statements.... F-1
Business............................ 36
</TABLE>
----------------
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.
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.
3
<PAGE>
About This Prospectus
Unless stated otherwise, the information contained in this prospectus
reflects a one for two reverse stock split of the preferred stock and common
stock completed in July 1999 and also 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. The
information contained in this prospectus also assumes no exercise of the
underwriters' over allotment option and reflects our reincorporation in
Delaware in July 1999. References in this prospectus to "we," "our" and "us"
refer to Talk City, Inc., unless the context otherwise requires.
Prospectus Summary
Risks of Investment
An investment in our common stock involves a high degree of risk. Since our
inception in March 1996, we have incurred significant losses, and as of March
31, 1999, we had an accumulated deficit of $30.3 million. We expect our
operating losses and negative cash flow to continue for the foreseeable future.
In addition, we encounter a number of risks, including our unpredictable
quarterly operating results, new and unproven revenue model and dependence on
our business services revenues, advertising revenues, the maintenance of our
brand identity and our network participants, particularly WebTV Network, a
wholly-owned subsidiary of Microsoft Corporation. You should carefully consider
these risks and uncertainties as well as the other risks and uncertainties
described in the section of this prospectus entitled "Risk Factors" before
deciding whether to invest in shares of our common stock.
Talk City, Inc.
We provide online communities and interactive services for businesses and
consumers. An online community is a group of people who interact via the
Internet with each other around common areas of interest. We have over 2,000
trained community leaders and moderators, consisting of approximately 270 paid
and 1,800 volunteer individuals, who facilitate this interaction, maintain our
standards of conduct and supervise our online community services, such as
online events, chats, home pages and message boards. Based on our review and
internal analysis of Media Metrix's April 1999 report, we ranked sixteenth out
of the top 500 sites on the Internet based on average minutes spent per usage
day for home users in April 1999. In addition, based on our review and internal
analysis of the Media Metrix report, we ranked second out of the top
15 Internet sites whose primary focus is providing online community services.
We offer businesses a wide range of moderated interactive 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. In delivering our business services, our trained
community leaders and moderators direct the flow of the interaction to maintain
the quality and focus of programming desired by the client.
For consumers, we operate a network of online communities located at
www.talkcity.com. Our network is organized into 20 topical categories and
includes over 50 themed communities. A topical
4
<PAGE>
category corresponds to common human interests, such as sports or collectibles,
or broad characteristics, such as age or locale. A themed community is a
particular Talk City online forum with a distinctive style, personality,
mission statement and regularly returning participants.
In March 1999, we had approximately 2.6 million unique visitors to our
community, according to Internet Profiles Corporation or I/PRO. These users
generated over 6 million hours of activity on www.talkcity.com in March 1999.
During our peak periods, which tend to be early evening hours, we had over
18,000 users simultaneously chatting or engaging in other interactive
activities. Our users spend a significant amount of time on our site, averaging
over 2 hours per user in the month of March. We believe that these statistics
demonstrate the attractiveness of our community services.
We provide online community services for over 50 Internet sites managed by 35
companies whom we refer to as our network participants. We provide our network
participants with a co-branded Web site linked to our community, including our
community building tools, chats, home pages and other community services, and
the services of our trained community leaders and moderators. A co-branded Web
site means that the brands of both the network participant and Talk City
receive equal treatment in use or placement of logos. Our network participants
provide us with content, access to their users and advertising for the Talk
City Web site and brand. We share advertising revenues on our co-branded Web
sites with our network participants. Our network participants include three
Fortune 500 major media companies, multiple Internet service providers and
numerous Internet content companies. Our network participants are as follows:
Talk City Network Participants
------------------------------------------------------------
Major Media Companies Internet Content Companies
------------------------------------------------------------
@Music
Cox Interactive Media, Inc. Auto OnRamp
Hearst Communications, Inc. CheckOut.com
National Broadcasting Donna Wick Radio Show
Company, Inc. Girl Geeks?
GreenTree
----------------------------- Hispanic Online
Internet Service Providers Learfield Communications
----------------------------- Lifetime Television
The Lottery Channel
Excite@Home LucasFilm Ltd.
AT&T WorldNet Service NetNoir
BellSouth.Net POV Magazine
Cable & Wireless USA Religions and Spirituality
Internet, LLC Riffage.com
Concentric Network Sony Music
MindSpring Enterprises Transformations
WebTV Network UKMax.com
Virtual Communities
Women Online Worldwide
Zapa Digital Arts
ZineZone
The above list of network participants does not include three of our network
participants who have an internal corporate policy of not consenting to use of
their names in prospectuses.
5
<PAGE>
For the quarter ended March 31, 1999, none of our network participants
individually drove user volume responsible for more than 1% of our revenues,
except for WebTV Network which was responsible for approximately 17% of our
revenues during that quarter.
We believe our business services and online community network provide
significant benefits to businesses, consumers, advertisers and network
participants, as summarized below:
<TABLE>
<CAPTION>
Customers Benefits
- ----------------------------------------------------------------------------
<C> <S>
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
- ----------------------------------------------------------------------------
Network Participants . Professional production and moderated environment
. Critical mass of traffic and variety of programming
. Co-branding and customization of community services
</TABLE>
Corporate Information
We were incorporated in California in March 1996 and reincorporated in
Delaware in July 1999. 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.
6
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by us................ 4,500,000 shares
Common stock to be outstanding after the
offering................................. 23,675,763 shares
Excludes 2,523,951 shares of common
stock that have been reserved for
issuance under our stock plans and
1,318,246 shares of common stock
that have been reserved for
issuance upon exercise of
outstanding warrants
Use of proceeds........................... For general corporate purposes,
principally brand promotion,
expansion of our sales and
marketing operations and our
moderator network
Approved Nasdaq National Market Symbol.... TCTY
</TABLE>
7
<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 4,500,000 shares of common stock in this offering
at an assumed public offering price of $11.00 per share 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 $74,158
Working capital............................... 7,768 39,250 84,185
Total assets.................................. 14,572 46,403 91,338
Long-term obligations, net of current
portion...................................... 237 237 237
Redeemable convertible preferred stock and
warrants..................................... 39,979 -- --
Total stockholders' equity (deficit).......... (28,359) 43,451 88,386
</TABLE>
8
<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.
We have incurred losses since inception and we may be unable to achieve
profitability or generate positive cash flow
We incurred net 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 and
we may be unable to achieve profitability in the future. If we continue to
incur net losses in future periods, we may be unable to achieve one or more key
elements of our strategy, including the following:
. increase the number of business services personnel;
. increase our sales and marketing activities, including increasing the
number of our sales personnel;
. expand our content and community offerings for our consumers;
. expand our moderator network; or
. introduce additional ecommerce services.
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. 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. We may
not achieve profitability 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 be unable to sustain or increase profitability on a quarterly or annual
basis. Any of the factors discussed above could cause our stock price to
decline.
Fluctuations in our quarterly operating results may cause our stock price to
decline
It is likely that our operating results in one or more future quarters may be
below the expectations of our investors, and as a result the price of our
common stock could decline. We have historically experienced fluctuating
quarterly operating results. Our net loss decreased from $2.9 million as of
March 31, 1998 to $2.4 million as of June 30, 1998. However, our net loss
increased from $2.4 million as of June 30, 1998 to $5.0 million as of September
30, 1998. We expect that our quarterly operating results will continue to
fluctuate significantly and be affected by many factors, the more important of
which include:
. our dependence on increased business services and advertising and
sponsorship revenues;
. expansion of our sales force;
. the length of our sales cycle, particularly our business services sales
cycle;
. our ability to increase our audience of loyal, engaged users;
. management of growth; and
. potential technical difficulties or system down time affecting the
Internet generally or us specifically.
9
<PAGE>
These factors are described in more detail in the risk factors described
below. Many of these factors are beyond our control.
Our revenue model is new and unproven and we must continue to generate and
develop multiple revenue streams
The success of our revenue 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 contribute to our not
achieving profitability and may cause our accumulated deficit to increase.
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 and we expect to continue to rely on these revenues for the
foreseeable future. If we do not continue to develop business services
revenues, our revenues may not meet our expectations or may decline and we will
need to revise our revenue model to reflect this. 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. 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. We have only recently
begun to hire business services sales personnel.
Our growth will depend upon the acceptance of the Internet as an attractive
medium for our business services clients
Our current and potential business clients must accept the Internet as an
attractive and sustainable substitute medium for the traditional methods to
which they are accustomed. The market for business services may not continue to
develop and may not be sustainable. 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.
We rely heavily on advertising and sponsorship revenues, and if our advertising
and sponsorship revenues decline due to lack of acceptance of the Internet as
an advertising medium, our business will not grow or will decrease
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.
Our business will not grow or will decrease if the market for Internet
advertising fails to develop or develops slower than expected. 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
10
<PAGE>
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.
If we do not provide our advertisers with the guaranteed number of impressions
required by our contracts with them, our reputation would be harmed and our
advertising inventory would be decreased
The terms of our advertising contracts generally range from one week to six
months. Our advertising contracts 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 for our other current and potential
advertisers. Continued inability to deliver the guaranteed number of
impressions to our advertisers would hurt our reputation and could cause our
current as well as potential advertisers to not advertise on our sites. If
minimum guaranteed impressions are not met, we defer recognition of the
corresponding revenues until guaranteed impression levels are achieved.
We rely on our network participants for user volume and increased revenues
Our network participants currently drive approximately 52% of the volume of
our sites, which is defined as the number of Internet page views or Internet
advertisement views seen by our users. The volume is considered to be "driven"
by the network participant if the user comes to our sites via the participant's
site. If we were to terminate or otherwise lose the benefit of all of our
network participant contracts, we would risk losing as much as 52% of our
volume. Our network participant contracts typically have terms of six months to
three years each.
In addition, we sell advertisements based on the volume of our sites, a
portion of which volume is provided by our network participants. Of our total
revenues for the quarter ended March 31, 1999, approximately 20% were generated
through advertisements that ran based on volume provided by our network
participants. If we were to terminate or otherwise lose the benefit of all of
our network participant contracts, we could lose as much as 20% of our
revenues. We would need to replace these revenues with increased revenues from
our other product lines, such as business services or ecommerce. For the
quarter ended March 31, 1999, none of our network participants individually
drove volume responsible for more than 1% of our revenues, except WebTV Network
which was responsible for approximately 17% of our revenues for that quarter.
We rely on WebTV Network for a substantial amount of our volume and revenues,
and if our contract with WebTV Network were not renewed or terminated, we would
need to replace this volume and revenues through other sources
We have a two-year contract with WebTV Network which runs through July 2000.
If this contract were to be terminated or not renewed, we could lose as much as
47% of our volume. We would need to replace this volume with volume from our
other network participants, through the growth of our sites or with volume
generated through other means, such as increased marketing, any
11
<PAGE>
of which would result in an unexpected diversion of management efforts or
increased operating expenses. If we were unable to replace this volume, we
would also be unable to replace the 17% of our revenues lost from WebTV Network
as well. For the year ended 1998, none of our network participants individually
drove more than 2% of our volume, except WebTV Network which was responsible
for approximately 24% of our volume. For the quarter ended March 31, 1999, none
of our network participants individually drove more than 3% of our volume,
except for WebTV Network which was responsible for approximately 47% of our
volume. In addition, WebTV Network was responsible for approximately 13% and
17% of our revenues for the year ended 1998 and the quarter ended March 31,
1999, respectively.
Our uncertain sales cycle may cause us to incur substantial expenses and expend
management time without generating the corresponding revenues which would slow
our cash flow
Our sales cycle, particularly with our business clients, is generally lengthy
and uncertain. During the sales cycle, we may expend substantial funds and
management resources without generating corresponding revenues. 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 network participants' own development efforts; and
. the possibility of cancellation or delay of projects by advertisers,
business services clients or network participants.
The length and uncertainty of our sales cycle also may harm our billing and
collection efforts. The length of the sales cycle prevents us from rendering
our services on a more accelerated basis, which slows our cash flow and reduces
our ability to fund the expenditures we incur during the sales cycle.
We depend on our users for content, promotion and sustaining an engaged
audience, and if our users become dissatisfied or do not become engaged with
our service, we would need to increase our expenditures for these activities
We depend largely on our users for content, word-of-mouth promotion and for
sustaining an involved audience for our advertisers and, to a lesser extent,
our business clients. If our users become dissatisfied or do not become engaged
with our service, they will not generate significant content or promote our
site and we will have to increase the expenditure of our own resources for
these activities. In addition, dissatisfied or disengaged users would not
continue to attract other users to our site. Loss of our users and failure to
increase our number of engaged users would hurt our efforts to generate
increased revenues. Our users may become dissatisfied with our service as a
result of the increased focus on commercialization of our services due to their
continued exposure to advertising or ecommerce activities on our sites or the
use of their information for commercial purposes. Our users may also become
dissatisfied with our service if we do not maintain our structured environment,
if we experience system failures or we do not continually upgrade our software
12
<PAGE>
functionality. In addition, users may visit our community for a single event,
such as a live event regarding the Grammy Awards, or to explore our community
and not return.
We depend on our trained community leaders and moderators to engage our users
and maintain our structured and moderated programming
We depend on our network of trained community leaders and moderators, which
consisted of over 2,000 individuals as of March 31, 1999, to draw our users
into our community and maintain our structured and moderated programming. Most
of our trained community leaders and moderators are volunteers. These people
volunteer because they like to meet and help people from all over the world,
enjoy the recognition they receive in a community leadership position and
generally have fun participating in such a novel form of communication. As the
Internet evolves and online communication becomes more common, our trained
community leaders and moderators may view moderating as less exciting or less
of a novelty than it is now. Loss of our trained community leaders and
moderators, or loss of our ability to attract these individuals to our service,
would cause us to implement new programs to engage our users and maintain our
structured environment. The implementation of these new programs would cause us
to expend unexpected management time and resources which would increase our
operating expenses.
Maintaining and promoting our brand identity is a critical aspect of
maintaining and expanding our user base, business clients and the number of our
network participants
We intend to substantially increase our financial commitment to the
maintenance and promotion of our brand loyalty through advertising campaigns in
several forms of media, including television, print and billboards. These
campaigns 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 contribute
to our not achieving profitability. We spent approximately $7.4 million in 1998
and $4.2 million in the quarter ended March 31, 1999 on these activities. We
expect to spend over $10 million in the next 12 months, consisting of a
combination of cash and noncash in-kind advertising. The amounts include co-
branding, ingredient branding, where the Talk City brand receives a less
prominent position than the brand, usually as an ingredient of the overall
service offered, such as "chat powered by Talk City," and other marketing
activities with our network. These other marketing activities will consist of
activities in which we work with our network participants to promote the
services in a way which highlights both brands' involvement in the services
offered.
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, network participants
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 must effectively manage and support our growth in
order for our business strategy to succeed
We have grown rapidly and will need to continue to grow in all areas of
operation in order to execute our business strategy. Managing and sustaining
our growth will place significant demands on
13
<PAGE>
management as well as on our administrative, operational and financial systems
and controls. If we are unable to do this effectively, we would have to divert
resources away from the continued growth of our business and implementation of
our business strategy, such as management time and our limited revenues. We had
31 employees as of March 31, 1998 compared to 82 employees as of March 31,
1999. We anticipate further significant increases in the number of our
employees, especially in our sales and marketing departments in order to take
full advantage of our relationships with Cox, Hearst and NBC. This rapid growth
has caused us to potentially outgrow our current principal office facilities
sooner than we expected. As a result, we are currently considering leasing
additional space in the very competitive Silicon Valley office leasing market.
Our chief executive officer and vice president of community 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 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 or Ms. Woodul could cause us to incur increased
operating expenses and divert other senior management time in searching for
their replacements. The loss of their services could also harm our reputation
as our business clients, advertisers and network participants could become
concerned about our future operations. We do not have long-term employment
agreements with Mr. Friedman or Ms. Woodul and we do not maintain any key
person life insurance policies.
We must continually attract and retain our sales, technical, marketing and
other personnel or we will be unable to execute our business strategy
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.
We may be unable to consummate potential acquisitions or investments or
successfully integrate them with our business which would slow our growth
strategy
As part of our continued strategy to expand the range of our community
applications and features, to acquire additional community audiences and to
expand our business services products, 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 growth strategy. If we do 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.
14
<PAGE>
We will need to raise additional capital to achieve our business objectives
We will need to raise additional capital to continue to develop our business.
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
would be unable to continue to develop our business, take advantage of
acquisition opportunities, develop or enhance our services and products or do
one or more of the following:
. expand our business services;
. increase the number of our network participants;
. develop our brand;
. expand our moderator base;
. grow our traffic;
. increase our revenues; or
. respond to competitive pressures.
Our paid moderators could be viewed as employees rather than independent
contractors which could subject us to adverse tax and employee benefit
consequences
We treat our 270 paid moderators as independent contractors. Our paid
moderators sign independent contractor agreements and are paid a flat monthly
fee or per hour. 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.
Our volunteer community leaders could be viewed as employees, which would
substantially increase our operating expenses
If our volunteer community leaders, consisting of approximately 1,800
individuals, were viewed as employees, we could be subject to payment of back
wages and other penalties and our operating expenses could substantially
increase. Former volunteers of America Online, Inc. recently filed a complaint
with the Labor Department and a class action lawsuit claiming they were treated
like employees and should have been paid.
System failures or slow downs would harm our reputation and thus reduce our
attractiveness to our current and future business clients, users, network
participants and advertisers
System failures could harm our reputation and reduce our attractiveness to
businesses, users, network participants and advertisers. Our ability to attract
potential business clients, users, network participants and advertisers to
promote our brand will depend significantly on the performance of our network
infrastructure. In addition, a key element of our strategy is to generate a
high level of user volume. 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. We may be unable to improve
our technical infrastructure in relation to increased user volume. Our users
depend on Internet service providers, online service providers and other Web
site operators for access to our
15
<PAGE>
Web sites. Many of these providers and operators have also experienced
significant outages in the past, and they could experience outages, delays and
other difficulties due to system failures unrelated to our systems.
Our communications and other computer hardware operations are subject to
disruptions which are out of our control and for which we may not have adequate
insurance
Fire, floods, earthquakes, power loss, telecommunications failures, break-ins
and similar events could damage our communications hardware and other computer
hardware operations. These operations are located separate from our principal
offices at Frontier Global Centers facilities in Sunnyvale, California. In
addition, computer viruses, electronic break-ins or other similar interruptions
also could disrupt 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.
Our business is largely dependent on the development and growth of the
Internet, which may not grow, or if it does grow, may be unable to support the
demands placed on it by this growth
Our market is new and rapidly evolving. The usage of our Web sites, which
drives our volume and in turn our revenues, may not grow if Internet usage in
general does not continue to grow. If Internet usage does continue to grow, the
Internet infrastructure may be unable to support the demands placed on it by
this growth and its performance and reliability may decline. 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.
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 and the intense competition
of the Internet industry in order to succeed
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. Any enhancements or new services or features
must meet the requirements of our current and prospective users and must
achieve significant market acceptance. 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. We could also incur
substantial costs if we need to modify our services or infrastructure to adapt
to these changes.
16
<PAGE>
We may be liable for misappropriation by others of our users' personal or
credit card 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.
We may be liable for our use or sale of our users' personal information
We could be subject to liability claims by our users for misuses of personal
information, such as for unauthorized marketing purposes. In addition, the
Federal Trade Commission has 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. We currently use our users' personal
information internally to determine how to improve our service, applications
and features and to target our advertisements and communications. We also use
this information externally to provide our advertisers with the demographics of
our user base. We may, in the future, sell our user information on an
aggregate, not individual, basis.
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. Liability claims
resulting from our sale of products could require us to spend significant time
and money in litigation or to pay significant damages. 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 plan to
develop a range of ecommerce opportunities, such as shopping events hosted by
celebrity guests to promote particular products.
Year 2000 problems with our internal systems and third-party systems of our
suppliers and Web infrastructure 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. The reasonably likely worst case scenario for year
2000 issues would be if a significant defect exists in key hardware or software
and if a solution for this problem were not immediately available. If a problem
is detected in these subsystems during our year 2000 compliance testing
process, these components will need to be revised or replaced. 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 be unable 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,
17
<PAGE>
portions of our Web site may become inaccessible. A prolonged disruption in our
operations could cause our business clients and network participants to stop
doing business with us.
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.
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 that may not be adequate to reimburse us for
losses caused by security breaches. Any well publicized compromise of security
could deter people from using the Internet or using it to conduct transactions
that involve transmitting confidential information.
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. Any new legislation or regulations or the application of existing
laws and regulations to the Internet could limit our user volume and increase
our operating expenses. In addition, 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. Existing laws and regulations currently, and
new 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.
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 not defined. 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.
If Internet service providers become regulated in a manner similar to long
distance telephone carriers, Internet growth may grow at a slower pace which
would cause our revenues to decrease
If Internet growth slows due to proposals to regulate Internet service
providers similar to long distance telephone carriers, our user volume and the
demand for our business services would decline which would cause our revenues
to decrease. Increased use of the Internet has burdened the existing
telecommunications infrastructure and led to interruptions in phone service in
areas with high
18
<PAGE>
Internet use. Several telecommunications companies and local telephone
carriers, such as Pacific Bell, have petitioned the Federal Communications
Commission to regulate Internet service providers and online 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.
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. 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, such as defamation or trademark infringement, 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.
Current and potential competitors could decrease our market share and harm our
business
Increases in the number of Web sites competing for the attention and spending
of businesses, users and advertisers could result in price reductions, reduced
margins or loss of market share, any of which could decrease our revenues,
contribute to our not achieving profitability and hurt our reputation. The
barriers to entry in the Internet services market are low and we expect the
number of our competitors to continue to increase. Any company or individual
can establish and maintain a Web site for minimal cost. We compete for business
clients, users and advertisers with numerous companies, including the
following:
. 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., Delphi, theglobe.com, Inc., Xoom Inc.,
Fortune City, Homestead.com, WBS.net and Angelfire;
. vertical community online services that focus on specific market or
demographic segments, such as iVillage Inc., which is focused on women,
or iTurf, which is focused on teens;
. Web retrieval and other Web portal companies that offer community
applications, such as chat and home pages, as part of their site,
including Excite@Home, Infoseek Corporation, Lycos and Yahoo!; and
. publishers and distributors of traditional media, such as television,
radio and print.
None of the above identified competitors is dominant in its respective area
of operation. See "Business--Competition."
19
<PAGE>
We depend on third-party software to measure user demographics and for other
related services and if this software does not function properly, we would need
to purchase new software or write the software ourselves, each of which could
cause a temporary disruption in our business
If software we have purchased from third parties to perform our services does
not function properly or is not updated, we would need to purchase new software
from other third party providers. Even though the third-party software we
currently use is easily replaced through multiple other third party providers,
or by our writing the necessary software programs ourselves, each of these
alternatives would require an unplanned increase in operating expenses and
could cause a one to two month disruption in our business.
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.
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 to be reliable. We have purchased third-party software from Oracle
Corporation and NetGravity, Inc. for these measurement services. We may be
unable to accurately evaluate the demographic characteristics of our users if
the third-party software does not function properly or is not enhanced to
support our needs. Our ability to deliver our services to our users may also be
harmed if other software we have purchased from third parties, such as
Microsoft Exchange for real-time chat and Netscape Web for ad serving and
management, is not reliable or does not function properly.
We are dependent on the trademarks "Talk City" and "OnNow" and if we could not
use these marks we would need to reimplement our Web sites and re-build our
brand identity
We are dependent on the trademarks "Talk City" and "OnNow." We have not yet
received trademark registration of "OnNow." If we were prevented from using the
trademarks "Talk City" or "OnNow," we would need to reimplement our Web sites
and devise new hard copy materials, such as letterhead and merchandise. We
would also need to re-build our brand identity with our business clients,
users, network participants and advertisers. Our operating expenses would
substantially increase if we had to re-build our brand identity or reimplement
our Web sites.
Possible infringement of our intellectual property rights by third parties
could substantially increase our operating expenses
Other parties may assert claims of infringement of intellectual property or
other proprietary rights against us. These claims, even if without merit, could
require 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
substantially increase our operating expenses. We also 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. 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.
20
<PAGE>
The allocation of proceeds from this offering may not yield significant returns
for our stockholders
Our management will have the discretion to allocate the net proceeds of this
offering to uses that our 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.
See "Use of Proceeds."
Our stock price is likely to be extremely volatile as the market for Internet
companies' stock has recently experienced extreme price and volume fluctuations
The market price of our common stock is likely to be extremely volatile as
the market for Internet-related and technology companies has experienced
extreme price and volume fluctuations in recent months. Despite the strong
pattern of operating losses of Internet-related companies, the market demand,
valuation and trading prices of these companies has been high. At the same
time, the share prices of these companies' stocks have been highly volatile and
have recorded lows well below their historical highs. As a result, investors in
these companies often buy the stock at very high prices only to see the price
drop substantially a short time later, resulting in an extreme drop in value in
the stock holdings of these investors. Historically, we have experienced
significant losses, which totaled $15.7 million in 1998. In addition, we have
experienced fluctuations in our volume of users and usage patterns, which could
also lead to extreme volatility of our stock price. 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. Volatility in
the market price of our common stock could result in securities class action
litigation. Any litigation would likely result in substantial costs and a
diversion of management's attention and resources.
Our stock price is likely to be extremely volatile due to broad market and
industry factors beyond our control
We expect our stock price to be subject to wide fluctuations in response to a
variety of factors, including factors beyond our control. These broad market
and industry factors could harm the market price of our common stock,
regardless of our performance. These factors include:
. actual or anticipated variations in our quarterly operating results;
. announcements of technological innovations or new programming by us or
our competitors;
. 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.
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.
An active public market for our common stock may not develop
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
21
<PAGE>
and the representatives of the underwriters and may not be indicative of prices
that will prevail in the trading market.
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 $3.73 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 $7.27
per share. If the holders of outstanding options or warrants exercise those
options or warrants, you will suffer further dilution. See "Dilution."
If we raise additional capital through the issuance of new securities, you will
incur additional dilution
If we raise additional capital through the issuance of new securities, our
stockholders will be subject to additional dilution. In addition, any new
securities issued may have rights, preferences or privileges senior to those
securities held by our stockholders.
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. See "Shares Eligible for
Future Sale."
Exercise of registration rights after this offering could adversely affect our
stock price
If holders of registration rights exercise those rights after this offering,
a large number of securities could be registered and sold in the public market,
which 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 suffer. 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 approximately 80% of our outstanding
stock after completion of this offering, will be entitled to rights with
respect to registration under the Securities Act of 1933.
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 acquirors may not
make acquisition bids for us, our stock price may fall and the voting rights of
existing stockholders may diminish as a result. Our board of directors has the
authority to issue up to 5,000,000 shares of preferred stock in one or more
series. Our board of directors can fix the price, rights, preferences,
privileges and
22
<PAGE>
restrictions of the preferred stock without any further vote or action by our
stockholders. See "Description of Capital Stock--Preferred Stock."
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."
23
<PAGE>
Use of Proceeds
Our net proceeds from the sale of 4,500,000 shares of common stock in this
offering at an assumed initial public offering price of $11.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, will be approximately $44.9 million. If the underwriters'
over-allotment option is exercised in full, our net proceeds will be
approximately $51.8 million.
We currently expect to use approximately $22.1 million of the net proceeds of
this offering for marketing, including brand development and promotion and
growth of our user volume, $13.2 million for expansion of our sales
infrastructure and the remaining $9.6 million will be used for working capital
and general corporate purposes, including expansion of our trained community
leader and moderator network, development of software and content for user
services, relocation of our offices and additional personnel. 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 net 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.
24
<PAGE>
Capitalization
The following table sets forth our capitalization as of March 31, 1999:
. on an actual basis after giving effect to the one for two reverse
stock split of the common stock and preferred stock;
. on a pro forma basis to reflect the sale of 2,499,884 shares of
preferred stock for aggregate proceeds of $20.0 million and the
issuance of 1,350,000 shares of preferred stock, with an assigned
value of $4.00 per share for reporting purposes, 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 4,500,000 shares
of common stock at an assumed initial public offering price of
$11.00 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 $ 237
Redeemable convertible preferred stock: $0.001
par value, 19,000,000 shares authorized,
actual; 11,101,212 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: no 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: 60,000,000
shares authorized, actual; 100,000,000
shares authorized, pro forma and as
adjusted; 4,314,904 shares issued and
outstanding, actual; 19,175,763 shares
issued and outstanding, pro forma;
23,675,763 shares issued and outstanding, as
adjusted.................................... 4 19 24
Additional paid-in capital..................... 3,959 75,754 120,689
Deferred compensation.......................... (1,144) (1,144) (1,144)
Notes receivable from stockholders............. (921) (921) (921)
Accumulated deficit............................ (30,257) (30,257) (30,257)
-------- -------- --------
Total stockholders' equity (deficit)......... (28,359) 43,451 88,386
-------- -------- --------
Total capitalization....................... $ 11,857 $ 43,688 $ 88,623
======== ======== ========
</TABLE>
25
<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
$43.5 million, or $2.27 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 $88.4
million, or $3.73 per share. This represents an immediate increase in net
tangible book value to existing stockholders of $1.46 per share and an
immediate dilution to new public investors of $7.27 per share. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price......................... $11.00
Pro forma net tangible book value per share as of March 31,
1999......................................................... $2.27
Increase per share attributable to new public investors....... 1.46
-----
Pro forma net tangible book value per share after offering.... 3.73
------
Dilution per share to new public investors.................... $ 7.27
======
</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 $11.00 per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 19,175,763 81.0% $38,579,000 46.2% $2.01
New public investors... 4,500,000 19.0 44,935,000 53.8 9.99
---------- ----- ----------- -----
Total................ 23,675,763 100.0% $83,514,000 100.0%
========== ===== =========== =====
</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.
26
<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 stockholders' 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.
27
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
This section contains forward-looking statements. The outcome of the events
described in these forward-looking statements is subject to factors out of our
control. 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 section.
Overview
We provide 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 our network participants;
. 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
28
<PAGE>
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.
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 $14.3 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 $14.3 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, or 36% of total revenues for
the three months ended March 31, 1999, from $60,000, or 48% of total revenues,
for the three months ended March 31, 1998. Advertising and sponsorship revenues
increased to $623,000, or 64% of total revenues, for the three months ended
March 31, 1999 from $65,000, or 52% of total revenues, for the three months
ended March 31, 1998. The increases were primarily due to increased sales from
the expansion of our sales force. These increases in personnel resulted in
increases in the number of business clients, projects, advertisers and the
amounts spent per advertiser, as well as increases in our user volume, which
increased from 1.5 million unique visitors for the one month ended March 31,
1998 to 2.6 million unique visitors for the one month ended March 31, 1999, 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, or 227% of total revenues, for the three
months ended March 31, 1999 from $1.2 million, or 940% of total revenues, for
the three months ended March 31, 1998. The increase was primarily attributable
to additional personnel-related costs of approximately $540,000 and an increase
in independent contractor costs of $310,000 associated with the increased
number of supervised chats we conducted and the enhancement of the
functionality of our Web sites.
29
<PAGE>
Sales and Marketing. Sales and marketing expenses increased to $3.4 million,
or 349% of total revenues, for the three months ended March 31, 1999 from
$476,000, or 381% of total revenues, for the three months ended March 31, 1998.
The increase in sales and marketing expenses was primarily attributable to an
increase in sales personnel and commission-related costs of approximately
$470,000 and an increase of approximately $2.2 million in 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.
General and Administrative. General and administrative expenses increased to
$974,000, or 99% of total revenues, for the three months ended March 31, 1999
from $336,000, or 269% of total revenues, for the three months ended March 31,
1998. The increase was primarily due to compensation expense of approximately
$169,000 related to the issuance of stock options and recruiting costs of
approximately $180,000. In addition, we incurred an increase in accounting and
legal fees of $130,000 and an increase in facilities expenses of $100,000 in
order 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, or 143% of total revenues, for the three months ended March 31, 1999
and $1.0 million, or 831% of total revenues, for the three months ended March
31, 1998 for noncash expenses associated with advertising and operating
agreements with two of our major media network participants.
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, or 16% of total
revenues, for the three months ended March 31, 1999 from $10,000, or 8% of
total revenues, 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, or 36% of total
revenues, in 1998 and $25,000, or 12% of total revenues, in 1997. Advertising
and sponsorship revenues were $931,000, or 64% of total revenues, in 1998,
$183,000, or 88% of total revenues, in 1997 and $14,000, or 100% of total
revenues, 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 volume and expansion of our consumer and business
services offerings.
Operating Expenses:
Product Development and Programming. Product development and programming
expenses were $5.4 million, or 370% of total revenues, in 1998, $3.5 million,
or 1,669% of total revenues, in 1997 and $771,000, or 5,507% of total revenues,
in 1996. In our first year of operations, we were
30
<PAGE>
building our infrastructure and did not begin to incur substantial expenses
until 1997. The increase in absolute dollars in product development and
programming from 1997 to 1998 was primarily attributable to an increase in
personnel and recruiting-related costs of $700,000 and an increase in chat
hosting and server-related costs of $1.1 million associated with the rapid
growth in user volume from our supervised chats and enhancements of
functionality to our Web sites. Product development expenses as a percentage of
total revenues decreased due to growth in total revenues.
Sales and Marketing. Sales and marketing expenses were $6.7 million, or 458%
of total revenues, in 1998, $2.5 million, or 1,198% of total revenues, in 1997
and $252,000, or 1,800% of total revenues, in 1996. In our first year of
operations, we did not dedicate significant resources to sales and marketing.
The increase in sales and marketing expenses from 1997 to 1998 was primarily
attributable to an increase of approximately $2.5 million in our online and
print advertising, public relations and other promotional expenditures and an
increase in personnel and recruiting-related expenses of $825,000 as a result
of implementing our sales and marketing strategy.
General and Administrative. General and administrative expenses were $1.8
million, or 124% of total revenues, in 1998, $974,000, or 468% of total
revenues, in 1997 and $335,000, or 2,393% of total revenues, in 1996. The
increase in general and administrative expenses in 1998 was primarily due to
increases in personnel and professional services, travel and facilities-related
expenses to support the growth of our operations. General and administrative
expenses decreased as a percentage of revenues in 1997 due to of the growth in
total revenues.
Noncash Advertising and Promotional Charges. In 1998, we charged $2.9
million, or 198% of total revenues, to operations, representing noncash
expenses associated with advertising and operating agreements with various
major media network participants and investors.
Interest Income (Expense), Net. Net interest expense was $367,000, or 25% of
total revenues, in 1998 and net interest income was $339,000, or 163% of total
revenues, in 1997 and $36,000, or 257% of total revenues, in 1996. We incurred
interest expense in 1998 as a result of our loan financing in 1998. Interest
income increased in 1997 compared to 1996 due to higher cash equivalent and
investment balances as a result of proceeds received from the sale of preferred
stock in the fourth quarter of 1996.
Income Taxes. Management has established a full valuation allowance against
its net deferred tax assets because it does not expect sufficient taxable
income to be generated during the 15-year carryforward period.
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
31
<PAGE>
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. 31, June 30, Sept. 30, Dec. 31, Mar. 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 volume 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 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 cause our stock price to decline."
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
32
<PAGE>
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 personnel, 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 18 months. We may need to raise
additional funds, however, in order to fund more rapid expansion, including
significant increases in personnel and office facilities; 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. In addition, in order to meet our long term liquidity needs, we may
need to raise additional funds, establish a credit facility or seek other
financing arrangements. Additional funding may not be available on favorable
terms or at all.
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
33
<PAGE>
after June 15, 1999. This statement does not apply to us as we currently do not
have any derivative instruments or hedging activities.
Disclosures About Market Risk
Our exposure to market risk is limited to interest income sensitivity, which
is affected by changes in the general level of U.S. interest rates,
particularly since the majority of our investments are in short-term debt
securities issued by corporations. We place our investments with high quality
issuers and limit the amount of credit exposure to any one issuer. Due to the
nature of our short-term investments, we believe that we are not subject to any
material market risk exposure.
We do not have any foreign currency hedging or other derivative financial
instruments as of March 31, 1999.
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. The reasonably likely worst case scenario for year
2000 issues would be if a significant defect exists in key hardware or software
and if a solution for such a problem were not immediately available. If a
problem is detected in these subsystems during our year 2000 compliance testing
process, these components will need to be revised or replaced.
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. This contingency plan is expected to be completed by the third
quarter of 1999.
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. We have contacted all our major
third party vendors. Of these vendors, 95% have replied to us in writing. Of
the vendors that have replied, 72% are representing that they are year 2000
compliant, 23% are in the process of fixing any known year 2000 problems or
have already identified specific patches available that we will need to install
and verify and 5% are still assessing their year 2000 readiness. To the extent
that vendors fail to provide certification that they are year 2000 compliant,
we will seek to terminate and replace those relationships.
We do not expect to spend more than $100,000 to assess and remediate the year
2000 problem based on the size of our operations, the percentage of our vendors
that are standard to our industry and the lack of dependency on older legacy
software in our production systems.
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
34
<PAGE>
operations could cause our business clients and network participants 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.
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
significantly disrupted.
35
<PAGE>
Business
This section contains forward-looking statements. The outcome of the events
described in these forward-looking statements is subject to factors out of our
control. 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 section.
Overview
We provide 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 network participant 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. Based on our review and internal analysis of Media Metrix's April 1999
report, in April 1999 we ranked sixteenth out of the top 500 sites on the
Internet based on average minutes spent per usage day for home users in April
1999. In addition, based on our review and internal analysis of the Media
Metrix report, we ranked second out of the top 15 Internet sites whose primary
focus is providing online community services.
We have established relationships across multiple industries and media forms,
including relationships with major media companies, Internet service providers
and Internet content companies. We refer to these companies as our network
participants. We work with our network participants to produce and market
community services that leverage our network participants' content, brand or
customer relationships. By integrating these co-branded services into our
community network, we enjoy exceptional distribution, content and marketing
leverage.
For the quarter ended March 31, 1999, WebTV Network was responsible for
approximately 47% of our volume and approximately 17% of our revenues. We have
a two-year contract with WebTV Network which runs through July 2000. If this
contract was terminated or not renewed, we could lose as much as 47% of our
volume and, if we do not replace this volume with volume from our other network
participants or the growth of our sites, we could lose as much as 17% of our
revenues.
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 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, over 2 hours per month on our site.
We began providing online community services in April 1996 as LiveWorld
Productions, Inc. and changed our name to Talk City, Inc. in August 1998. Since
April 1996, our operating activities
36
<PAGE>
have been focused on expanding our audience, establishing relationships with
our network participants, developing programs and content and building our
infrastructure.
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 500 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 approximately 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 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 approximately $1.9 billion in 1998 to approximately $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;
37
<PAGE>
. 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.
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
38
<PAGE>
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 network participants. 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 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, network
participants 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 over 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 community
consists of three types of network participants: major media companies,
Internet service providers and Internet content companies. Our major media
participants 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 Internet
service provider participants. Our Internet content participants bring
audiences of shared interests or demographic groups into our community. In
addition, our Chat@TalkCity program includes over
39
<PAGE>
77,000 registered 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 key element of our programming is our
network of over 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 network participants. Our
trained 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 unique visitors according to I/PRO. These users
generated over 6 million hours of activity on our www.talkcity.com site during
March 1999 according to I/PRO. 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 according to I/PRO. 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, over 2 hours per month on our site
according to I/PRO. We believe our critical mass provides our users with a
sense of excitement, camaraderie and activity. Moreover, business clients and
network participants who join our community network use our core audience as a
foundation upon which to build their own audience.
40
<PAGE>
Through our community network, we believe our business services and online
community network are able to provide significant benefits to businesses,
consumers, advertisers and network participants, 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
Network Participants . 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.
Build Brand Awareness. We intend to increase awareness of Talk City's brand
and our commitment to building clean well lighted online communities. We intend
to achieve this goal in a cost-efficient manner by:
. leveraging the broad reach of our major media participants' 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.
41
<PAGE>
. expanding our co-branding and ingredient branding program. In this
program, we provide our community services in exchange for featured co-
branding or ingredient 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 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 which allows users to schedule event and group
activities, display the schedule on our site and notify others, via email,
instant messaging or Web page comment, of the scheduled event or activity,
group home pages and personalization. Finally, we plan to significantly expand
our trained 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.
Increase Involvement and Number of Our Network Participants. We intend to
increase the involvement and number of our network participants by:
. adding account executives to help manage and further develop our
relationships with our network participants;
. increasing the number of major media companies, Internet service
providers and Internet content companies;
. rolling out community services for our major media participants, online
properties; and
. increasing the number of tools and services we offer our network
participants.
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.
42
<PAGE>
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 are tailored to complement a client's
specific products, brands and targeted audience, and typically include
customized sets of one or more of the following:
. chats;
. message boards;
. home pages; and
. surveys and events.
For example, we created a customized community for Kemper to review and
exchange information and ideas on the latest financial products with their fund
managers.
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 produced
an online interactive press conference for Nokia.
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 focus
groups and surveys based upon our ability to deliver the requisite demographics
of participants, the skill of our trained 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 the desired 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. Examples of business
clients which use our market research services includes JWT Specialized
Communications, an affiliate of J. Walter Thompson, and Mattel.
Some of our online market research services are jointly produced 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.
43
<PAGE>
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.
Network Participants
Overview
As of March 31, 1999, our community included 35 network participants 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
network participants, we have created a network model which we believe will
continue to build on its own momentum. Through our network participants, we are
able to drive additional traffic to our sites and promote our brand, utilize
our network participants' 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
network participants to join our community and promote our brand.
With most of our network participants, we co-produce a custom link from the
participant's site into a customized view of our entire community. Each
participant version of Talk City is tailored to that particular participant,
co-branded with the participant's brand and co-marketed to promote our joint
programming. Network participants are given the flexibility to tailor or
promote any elements of our service they want featured on the joint site. The
network participant's user base has full access to our service, and each
network participant's users have access to the other participants' users. In
many cases, we have a revenue sharing agreement with the network participant in
which we are generally responsible for selling advertising for the joint
services and the resulting revenue is shared with the participant, thus
providing a financial incentive for both parties to make the joint services
successful. Our network participants consist of three types of companies: major
media, Internet service providers and Internet content.
For the year ended 1998, approximately 15% of our revenue was based on volume
driven by our network participants. The volume is considered to be "driven"by a
network participant if the user comes to our sites via the participant's site.
For this period, none of our network participants drove user volume responsible
for more than 1% of our revenues, except WebTV Network which was responsible
for approximately 13% of our revenues for that year. For the quarter ended
March 31, 1999, none of our network participants drove user volume responsible
for more than 1% of our revenues, except WebTV Network which was responsible
for approximately 17% of our revenues for that quarter.
Major Media Companies
Cox Interactive Media Web sites. In August 1998, we established our
relationship with Cox Interactive Media. We provide our interactive services,
including chat, home page creation
44
<PAGE>
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 Insidecentralflorida.com
BayInsider.com OCNow.com
Fastball.com RealPittsburgh.com
GoBig12.com SanDiegoInsider.com
GoCarolinas.com SECAction.com
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. Pursuant to our agreement with Cox, we share the
expenses and revenues arising under the agreement according to mutually agreed
upon percentages.
Hearst. In September 1998, we established our relationship 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.
. CosmoGirl--We provide the chat services for the CosmoGirl Web site.
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. Pursuant to our agreement with Hearst, we share
the expenses and revenues arising under the agreement according to mutually
agreed upon percentages.
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.
45
<PAGE>
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. Pursuant to our agreements with NBC, we share the expenses and
resulting revenues arising under the agreements according to mutually agreed
upon percentages.
Internet Service Providers
Our Internet service provider participants direct their users to Talk City as
their primary community offering. Pursuant to our written agreements with these
participants, we share the costs and revenues associated with promoting and
providing the services and attracting the users. Our Internet service provider
participants include Excite@Home, AT&T WorldNet, BellSouth.Net, Concentric
Network, WebTV Network, Cable & Wireless USA Internet and MindSpring. These
participants enable us to reach a substantial number of additional users.
Internet Content Companies
We also provide community services for online Internet content sites. Our
Internet content participants operate a Web service that typically focuses on a
particular topic or subject. They work with us to provide their users with our
community offerings. Our Internet content participants bring audiences of
shared interests or demographic groups into our community. Pursuant to the
agreements with each of our Internet content participants, we share the
expenses and revenues arising under the agreement with the respective
participant. Specifically, we share the associated costs of creating content,
integrating information on our respective sites and promoting the services. We
include the following within our group of Internet content participants:
<TABLE>
<CAPTION>
Internet Content
Participant 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
CheckOut.com........... A music, video and game site for which we provide our
community services
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
Girl Geeks?............ We provide the community services for this site which
is devoted to exploring women and technology issues
GreenTree.............. A vitamin and nutritional products ecommerce site for
which we provide our chat and message board services
Hispanic Online........ An Internet site for the Hispanic market for which we
provide chat and special events production for
featured guests
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Internet Content Participant Co-Branded Service
---------------------------- ------------------
<C> <S>
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
Lifetime Television......... An Internet site complementing Lifetime
Television Networks for which we provide our
community services for various shows and special
events
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
LucasFilm................... We are the official and exclusive LucasFilm
Internet chat provider for Star Wars motion
pictures through August 1999
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.com................. A music site for which we provide our community
services
Sony Music.................. A music site for which we provide our community
services
Transformations............. An Internet site geared towards self help,
support and recovery issues for which we provide
our community services
UKMax.com................... An Internet site focused on the United Kingdom
for which we provide our community services
Virtual Communities......... A geographically-oriented Web site, currently
focused on Ireland and Jerusalem, 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>
Chat@TalkCity Program
Our Chat@TalkCity 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 participants' 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
47
<PAGE>
advisors. As of March 31, 1999, over 77,000 Internet sites and individuals have
registered online to participate in 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 key element of our programming is our network of over 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 users
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
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
participate in a five session series of two hour classes held in chat rooms.
These training sessions focus on the principles and mechanics of moderating and
the maintaining of our behavior standards. Four teams of three trainers each
run the ongoing training program. Candidates who complete the program are
provided with an ongoing mentor to provide further guidance as necessary. A
quality assurance team systematically reviews the
48
<PAGE>
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.
Volunteers. Most people volunteer as trained community leaders or moderators
because they enjoy being moderators. They like chatting with people and often
have a personality that enjoys helping others, welcoming them and providing a
pleasant context for conversation. They may also enjoy the recognition they
receive in a community leadership position. Often they are passionately
committed to some interest or issue, such as crafts or health, and enjoy being
in a position to share their expertise or interest with others. Volunteers do
not receive any compensation or incentives, financial or otherwise.
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 compensated trained community leaders and moderators are either paid per
hour or receive a flat fee per month depending upon whether such leaders or
moderators oversee an entire themed community.
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 network participants 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)
49
<PAGE>
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 network participants. 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 ComputerTalk Movie City
based on particular FolksOnline NBC.com
ages MacTalk NBC Interactive
Senior-Citizens New2Internet Neighborhoods
New2TalkCity
Art and Books New2WebTV Music
Art City @Music
Borders.com Ethnic and Lifestyle
Mystery Place Alternative LifeStyles News and Sports
Hispanic Online News Talk
Auto Latino Chat Sailing Forum
AutoOnRamp NetNoir TCSports
Trefpunt
Business Finance Romance and Social
Business City Center Games City Pub
Fantasy Forum Courtship Corner
Cities and Travel Games Galore Talk City Personals
Canada Space Corps Town Talk
City Down Under
Cox Interactive Media Health and Wellness Spirituality
sites, such as Transformations Jesus Cafe
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 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.
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;
. audio chat--the user's words are heard aloud by other users;
50
<PAGE>
. avatar--graphical figures or characters on the computer screen are used
to represent the participating users;
. 3D chat--chats take place in a graphical environment in which the
graphics display a three-dimensional view of an environment such as a
room, forest or castle;
. 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 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.
51
<PAGE>
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 agreement 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."
Network Participant Co-Branding and Ingredient Branding. "Branding" describes
the process by which our community services are offered on our network
participants' Web sites in exchange for featured co-branding or ingredient
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.
52
<PAGE>
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.
Our data is copied to backup tapes on a nightly basis. 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;
53
<PAGE>
. 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.
We compete with numerous companies or sites that are primarily focused on
business services, including 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.
None of these companies is currently dominant in the business services area.
In the consumer community area, we also compete with numerous companies, none
which are currently dominant. These competitors include Delphi, theglobe.com,
GeoCities, Xoom, Homestead.com, WBS.net, Angelfire, Fortune City, iVillage,
Tripod and Third Age. Based on our review and internal analysis of Media
Metrix's April 1999 report, we ranked sixteenth out of the top 500 sites on the
Internet based on average minutes spent per usage day for home users in April
1999. In addition, based on our review and internal analysis of the Media
Metrix report, we ranked second out of the top 15 Internet sites whose primary
focus is providing online community services. However, we expect the number of
our competitors in the consumer community area to continue to increase as the
barriers to entry in this area are low.
Other consumer community competitors include:
. 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@Home, Infoseek, Lycos and Earthlink;
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.
54
<PAGE>
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;
. 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 network
participants 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 network participants 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,
55
<PAGE>
trade secret protection and confidentiality and license agreements with our
employees, clients, independent contractors, network participants 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 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 vice
president of community are critical to our business and they may not remain
with us in the future."
Facilities
Our principal offices currently occupy approximately 23,000 square feet in
Campbell, California under leases that expire in July 2000 and 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.
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.
56
<PAGE>
Management
Executive Officers and Directors
The following table sets forth information regarding our executive officers
and directors as of April 30, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter H. Friedman....... 44 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.
Graziano(a)(b)......... 55 Director
Thomas P.
Hirschfeld(a)(b)....... 36 Director
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.
57
<PAGE>
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 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
58
<PAGE>
Marketing in Apple's Online Services division. Mr. Bryant received a B.A.
degree in Business/Economics from Macquarie University in Sydney, Australia.
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
59
<PAGE>
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 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.
No director has a contractual right to serve as a member of our board of
directors.
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.
60
<PAGE>
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, 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. Please see also "Employee Benefit
Plans--Director Option Plan" for a description of options to be granted to
directors.
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.
61
<PAGE>
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.
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 $100,000 during that fiscal year. All option grants were made under our
1996 stock option plan.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------- ----------------------
Securities Underlying
Name and Principal Position Salary ($) Bonus ($) Options (#)
--------------------------- ---------- --------- ----------------------
<S> <C> <C> <C>
Peter H. Friedman.................. $225,000 $ -- --
President and Chief Executive
Officer
Patricia Griffith.................. 140,000 21,569 55,000
Vice President of Sales
Christopher J. Escher.............. 150,000 -- --
Vice President of Marketing
Jenna Woodul....................... 125,000 -- --
Vice President of Community
Chris N. Christensen............... 115,000 -- --
Vice President of Engineering and
Operations
</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>
62
<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 $9.00, minus
the per share exercise price, multiplied by the number of shares issued upon
exercise of the option.
<TABLE>
<CAPTION>
Shares
Acquired on Value Realized
Name Exercise (#)(a) ($)
---- --------------- --------------
<S> <C> <C>
Peter H. Friedman........................... -- --
Patricia Griffith........................... 75,000 654,000
Christopher J. Escher....................... 150,000 1,308,000
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 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 provides for annual
increases on the first day of each fiscal year beginning 2000 equal to the
lesser of:
. 750,000 shares;
. 4% of our outstanding shares as of such date; or
. a lesser amount determined by the board of directors.
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
63
<PAGE>
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. The 1996 stock
option plan terminates in October 2006.
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 for 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.
64
<PAGE>
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.
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
65
<PAGE>
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. We have not made any
matching contributions to the 401(k) savings plan in 1997, 1998 or the three
months ended March 31, 1999.
66
<PAGE>
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>
- --------
(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.
67
<PAGE>
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 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.
68
<PAGE>
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
69
<PAGE>
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 limited 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 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.
70
<PAGE>
Principal Stockholders
The following table sets forth 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% 10.0%
Funds Managed by Patricof & Co.
Ventures, Inc.(b)................ 2,057,692 10.7 8.7
New York Life Insurance
Company(c)....................... 1,431,469 7.5 6.0
Hearst Communications, Inc.(d).... 1,252,554 6.5 5.3
Cox Interactive Media, Inc.(e).... 1,250,000 6.5 5.3
Media Technology Equity Partners,
L.P.(f).......................... 1,125,000 5.9 4.8
Starbucks Corporation (g)......... 1,000,000 5.2 4.2
Directors and Executive Officers:
Peter H. Friedman(h).............. 1,567,936 8.2 6.6
Kenneth A. Bronfin(e)............. 1,252,554 6.5 5.3
Joseph A. Graziano(i)............. 578,761 3.0 2.4
Thomas P. Hirschfeld(b)........... 2,057,692 10.7 8.7
John Sculley(j)................... 260,762 1.4 1.1
Barry M. Weinman(f)............... 1,125,000 5.9 4.8
Martin J. Yudkovitz(a)............ 2,447,223 12.2 10.0
Patricia Griffith(k).............. 75,000 * *
Christopher J. Escher(l).......... 155,000 * *
Jenna Woodul(m)................... 757,087 3.9 3.2
Chris N. Christensen(n)........... 200,000 1.0 *
All directors and officers as a
group (15 persons)(o)............ 11,436,953 56.7 46.3
</TABLE>
- --------
* Represents less than one percent of the total.
71
<PAGE>
(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.
72
<PAGE>
(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.
73
<PAGE>
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 the rights 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 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 23,675,763 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. Except as required
under Delaware law or the rules of the Nasdaq National Market, the rights of
stockholders may not be modified otherwise than by a vote of a majority or more
of the shares outstanding. 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. Please 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.
74
<PAGE>
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 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 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. A limited number of the 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 Our 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 amended and restated
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;
75
<PAGE>
. 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
Our common stock has been approved for listing 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.
76
<PAGE>
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
23,675,763 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 4,500,000
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 19,175,763 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:
. 722,665 shares are subject to our repurchase option in the event of
termination of employment; and
. 10,989,525 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 236,758 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 manner of sale provisions and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not
77
<PAGE>
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.
78
<PAGE>
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, 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........................................
----
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 following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters by us. These amounts are shown
assuming both no exercise and full exercise of the underwriters' option to
purchase 675,000 additional shares.
<TABLE>
<CAPTION>
No Full
Paid by Talk City Exercise Exercise
----------------- -------- --------
<S> <C> <C>
Per Share..................................................... $ $
Total......................................................... $ $
</TABLE>
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.
79
<PAGE>
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, 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. Please 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.
The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by this prospectus.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $1.1 million.
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
80
<PAGE>
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 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 5% 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.
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.
81
<PAGE>
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.
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 Room 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 public may obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission
at 1-800-SEC-0330. The Securities and Exchange Commission also 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.
82
<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>
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.
KPMG LLP
Mountain View, California
April 23, 1999, except as to
Note 11 which is as of July
12, 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 Total
------------------ ----------------- paid-in Deferred from Accumulated stockholders'
Shares Amount Shares Amount capital compensation stockholders deficit deficit
---------- ------- --------- ------ ---------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock to founders
April 1, 1996....... -- $ -- 2,300,000 $ 2 $ 44 $ -- $ -- $ -- $ 46
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) -- -- -- (8)
Net loss............ -- -- -- -- -- -- -- (1,308) (1,308)
---------- ------- --------- --- ------ ------- ----- -------- --------
Balances, December
31, 1996............ 3,794,785 10,043 3,837,200 4 328 (89) (205) (1,308) (1,270)
Repurchase of common
stock............... -- -- (150,000) -- (30) -- 30 -- --
Accretion
attributable to
redeemable preferred
stock............... -- 38 -- -- (38) -- -- -- (38)
Amortization of
stock-based
compensation........ -- -- -- -- -- 30 -- -- 30
Net loss............ -- -- -- -- -- -- -- (6,391) (6,391)
---------- ------- --------- --- ------ ------- ----- -------- --------
Balances, December
31, 1997............ 3,794,785 10,081 3,687,200 4 260 (59) (175) (7,699) (7,669)
Noncash issuance of
preferred stock and
preferred and common
stock warrants
pursuant to the NBC
agreements.......... 884,615 4,565 -- -- 575 -- -- -- 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) -- -- -- (438)
Issuance of common
stock warrants
pursuant to the loan
agreement........... -- -- -- -- 490 -- -- -- 490
Issuance of common
stock upon exercise
of stock options,
net of repurchases.. -- -- 504,466 -- 133 -- (128) -- 5
Deferred
compensation related
to option grants.... -- -- -- -- 892 (892) -- -- --
Amortization of
stock-based
compensation........ -- -- -- -- -- 353 -- -- 353
Accretion
attributable to
redeemable preferred
stock............... -- 120 -- -- (120) -- -- -- (120)
Net loss............ -- -- -- -- -- -- -- (15,659) (15,659)
---------- ------- --------- --- ------ ------- ----- -------- --------
Balances, December
31, 1998............ 10,929,909 38,973 4,191,666 4 1,792 (598) (303) (23,358) (22,463)
Issuance of common
stock upon exercise
of stock options and
warrants, net of
repurchases......... -- -- 123,238 -- 638 -- (618) -- 20
Noncash issuance of
preferred stock
pursuant to the
Hearst agreement.... 171,303 904 -- -- -- -- -- -- --
Revaluation of
warrants related to
the NBC operating
agreements.......... -- 30 -- -- 886 -- -- -- 886
Deferred
compensation related
to option grants.... -- -- -- -- 715 (715) -- -- --
Amortization of
stock-based
compensation........ -- -- -- -- -- 169 -- -- 169
Accretion
attributable to
redeemable preferred
stock............... -- 72 -- -- (72) -- -- -- (72)
Net loss............ -- -- -- -- -- -- -- (6,899) (6,899)
---------- ------- --------- --- ------ ------- ----- -------- --------
Balances, March 31,
1999 (unaudited).... 11,101,212 $39,979 4,314,904 $ 4 $3,959 $(1,144) $(921) $(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 a provider of
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 network participant 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. The Company does not have any foreign
currency hedging or other derivative financial instruments as of March 31,
1999.
(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 which
coincides with when the services are performed, 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
Multimedia whereby the Company and NBC Multimedia jointly produce, market, and
promote the Company's online properties and involves the integration of the
Company's and NBC Multimedia'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 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 April 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 Multimedia 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 $630,000 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 valued at $4.00 per share 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 its 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
Multimedia 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, which coincides with when
the services are received. 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 Multimedia 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.
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 14, 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 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 full valuation allowance against its net
deferred tax assets because it is more likely than not that sufficient taxable
income will not be generated during the 15-year carryforward period. 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. The Company has not made
any contributions to the Plan in 1997, 1998 or the three months ended March 31,
1999.
(11) Subsequent Events
Amendment of NBC and Hearst Agreements
On April 15, 1999, the Board of Directors amended 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 and warrants of $11.5 million issued in connection with
the advertising agreements, excluding the 171,303 shares related to the Hearst
agreement accounted for as of March 31, 1999 (see Note 3), will be recorded to
Other Assets and charged to operations as the advertisements are run. The fair
value of the common stock warrants of
F-21
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
$349,000 (valued as of March 31, 1999) will be recorded in Other Assets in
April 1999 and amortized over the remaining term of the respective operating
agreements. Subsequent to March 31, 1999, noncash charges of approximately
$14,300,000 will be charged to operations as the related advertising is run or
promotional services are received, of which the Company expects to incur
$12,900,000 million in the year ending December 31, 1999. Of the $14,300,000 in
total noncash charges, $11,500,000 is attributable to the advertising
agreements and $2,800,000 is attributable to the operating agreements. At March
31, 1999 approximately $2,450,000 relating to the operating agreements was
recorded in Other Assets. These amounts were determined based on the fair value
of the Series E Redeemable Convertible Preferred Stock issued on the same date.
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.
The following unaudited pro forma financial information presents the
financial position of the Company as if the amendments to the NBC and Hearst
Agreements and the issuance of the Series E Redeemable Convertible Preferred
Stock occurred on March 31, 1999:
<TABLE>
<CAPTION>
Pro
Actual Forma
--------- --------
<S> <C> <C>
Cash, cash equivalents and short-term investments....... $ 9,224 $ 29,223
Working capital......................................... 7,768 39,250
Total assets............................................ 14,572 46,403
Long-term obligations, net of current portion........... 237 237
Redeemable convertible preferred stock and warrants..... 39,979 71,461
Total stockholders' deficit............................. (28,359) (28,010)
</TABLE>
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 July 12, 1999, the Company effected 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
F-22
<PAGE>
Talk City, Inc.
Notes to Financial Statements--(Continued)
(information with respect to March 31, 1998 and 1999 is unaudited)
$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-23
<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. The following are paid moderators of
Talk City.
[This page will contain photos and personal profiles of five community leaders
and moderators.]
Text: www.talkcity.com
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,500,000 Shares
Common Stock
---------------
PROSPECTUS
, 1999
---------------
Lehman Brothers
Volpe Brown Whelan & Company
U.S. Bancorp Piper Jaffray
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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, the NASD filing fee and the Nasdaq listing fee.
<TABLE>
<CAPTION>
Amount
To Be
Paid
----------
<S> <C>
Registration Fee................................................. $ 17,264
NASD Fee......................................................... 6,710
Nasdaq Listing Fee............................................... 95,000
Legal Fees and Expenses.......................................... 500,000
Accounting Fees and Expenses..................................... 275,000
Printing and Engraving Expenses.................................. 125,000
Blue Sky Fees and Expenses....................................... 5,000
Transfer Agent Fees.............................................. 10,000
Miscellaneous.................................................... 66,026
----------
Total.......................................................... $1,100,000
==========
</TABLE>
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 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
Amended and Restated Certificate of Incorporation of the
registrant........................................................ 3.1
Form of Second 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.
(a) From March 29, 1996, to April 30, 1999, the registrant issued and sold an
aggregate of 2,019,954 shares of unregistered common stock to 30 directors,
officers, employees, former employees and consultants at prices ranging from
$0.02 to $5.00 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 2,300,000 of
unregistered common stock at a price per share of $0.02, 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 150,000 shares of
unregistered Series A preferred stock at a price per share of $2.00 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 350,001
shares of unregistered Series A1 preferred stock at a price per share of $2.00
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 3,294,790
shares of unregistered Series B preferred stock at a price per share of $2.80
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
290,300 shares of unregistered common stock, at an exercise price
II-3
<PAGE>
per share of $3.00, and (3) in the aggregate 2,890 shares of unregistered
senior preferred stock, pursuant to a bridge loan financing. The bridge notes,
bridge warrants and senior preferred stock were issued to a limited number of
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 rights upon narrowly-defined 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
213,675 shares of Series C preferred stock, or 250,000 shares of unregistered
common stock issuable upon conversion of the Series C preferred stock, at a
price per share of $4.68, 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 320,513 shares of unregistered common stock, with an exercise price
per share of $4.68, 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 the Original Multimedia Warrant was made in compliance with all of the terms
II-4
<PAGE>
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
5,592,035 shares of unregistered Series D preferred stock at a price per share
of $4.00 to a limited number of 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 658,000
shares of unregistered Series D preferred stock, at a conversion price per
share of $4.00, 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
170,940 shares of unregistered Series C preferred stock, or 200,000 shares of
common stock issuable upon conversion of such Series C preferred stock, at a
price per share of $4.68, and (2) an unregistered warrant to purchase 125,000
shares of unregistered Series D preferred stock, with an exercise price per
share of $6.00, 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
500,000 shares of unregistered Series D preferred stock at a price per share of
$4.00, and (2) an unregistered warrant to purchase 130,556 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 55,555 of the shares, $6.00; with respect to 41,666
of the shares, $8.00; and with respect to 33,335 of the shares, $10.00. 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 325,000
shares of unregistered common stock with a new exercise price per share of
$4.00. 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 123,830 shares of unregistered Series
D preferred stock, at an exercise price per share of $4.00. 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
750,000 shares of unregistered Series D preferred stock at a price per share of
$4.00 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
600,000 shares of unregistered Series D preferred stock, at a price per share
of $4.00, and (2) an unregistered warrant to purchase 266,667 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 41,667
of the shares, $6.00; with respect to 125,000 of the shares, $8.00; and with
respect to 100,000 of the shares, $10.00. 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
2,499,884 shares of unregistered Series E preferred stock at price per share of
$8.00 to a limited number of 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 11,893 shares of unregistered Series E
preferred stock, at an exercise price per share of $8.00. 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 June 1999).*
3.1 Amended and Restated Certificate of Incorporation of registrant.*
3.2 Form of Second 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, as
amended on May 26, 1999.*
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.+
10.20 Internet Profiles Corporation Custom Reporting Services Agreement,
dated April 5, 1999, by and between the registrant and Internet
Profiles Corporation.*
10.21 Lease Agreement, dated May 5, 1999, by and between the registrant and
Pruneyard Associates, LLC.*
10.22 Consent of Media Metrix.**
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.*
27 Financial Data Schedule.*
</TABLE>
- --------
* Previously filed.
** Previously filed exhibit no longer required to be filed.
+ 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 amendment to the 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 19th day of July 1999.
Talk City, Inc.
/s/ Peter H. Friedman
By: _________________________________
Peter H. Friedman
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the 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 Executive July 19, 1999
_____________________________________ Officer (Principal Executive
Peter H. Friedman Officer)
/s/ Jeffrey Snetiker Senior Vice President, Chief July 19, 1999
_____________________________________ Financial and Administrative
Jeffrey Snetiker Officer (Principal Financial
and Accounting Officer)
* Director July 19, 1999
_____________________________________
Kenneth A. Bronfin
* Director July 19, 1999
_____________________________________
Joseph A. Graziano
* Director July 19, 1999
_____________________________________
Thomas P. Hirschfeld
* Director July 19, 1999
_____________________________________
John Sculley
* Director July 19, 1999
_____________________________________
Barry M. Weinman
* Director July 19, 1999
_____________________________________
Martin J. Yudkovitz
/s/ Peter H. Friedman Director July 19, 1999
*By: ________________________________
Peter H. Friedman
Attorney-in-fact
</TABLE>
II-11
<PAGE>
Exhibit Index
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement (draft dated June 1999).*
3.1 Amended and Restated Certificate of Incorporation of registrant.*
3.2 Form of Second 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, as
amended on May 26, 1999.*
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.+
10.20 Internet Profiles Corporation Custom Reporting Services Agreement, dated
April 5, 1999, by and between registrant and Internet Profiles
Corporation.*
10.21 Lease Agreement, dated May 5, 1999, by and between the registrant and
Pruneyard Associates, LLC.*
10.22 Consent of Media Metrix.**
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.*
27 Financial Data Schedule.*
</TABLE>
- --------
* Previously filed.
** Previously filed exhibit no longer required to be filed.
+ 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 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
<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 seventy (50%) 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
<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 65% 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
$2.50 cost per thousand ("CPM"). Advertisements served but not sold by 24/7 may
constitute no more than thirty percent (30%) 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
<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
<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
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 3
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
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 4
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
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 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.
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 6
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)
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 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
--------------
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 8
Title: Senior Director Software Products Title: CEO
---
Date: 10/16/98 Date: 10/9/98
-------- -------
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 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
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 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
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 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.
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 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.
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 13
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
Twenty Percent (20%) 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
<PAGE>
Liveworld/WNI, Version of 2.5, 10/7/98 TalkCity Content and Services Agreement
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 65%/35%
generated from advertisements placed in TalkCity Content with the higher amount
going to the selling party.
4. TRANSACTIONS. TalkCity shall pay WNI 50% 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 7.5% 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
<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 $9,500 for the
first two sessions and $3,500 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 $20 to $30 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:
* $2,500 for participant incidence from 11% to 30% of the
NFOR panel
* $4,000 for incidence levels 10% 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.
<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 20% 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.):
* $150/group for costs associated with technical
moderation to LWP
* $250/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
<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
<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.
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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.
9
<PAGE>
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.
10
<PAGE>
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.
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
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),
14
<PAGE>
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
15
<PAGE>
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
16
<PAGE>
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
17
<PAGE>
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
18
<PAGE>
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.
19
<PAGE>
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.
20
<PAGE>
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 two million (2,000,000) 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 seventy-five percent (75%) 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 fifty percent (50%) 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
-------------------------------------------------------------------------
TERMS.
-----
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.
21
<PAGE>
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.
22
<PAGE>
(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.
23
<PAGE>
(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, seventy-five percent (75%) of the overall
Advertising Inventory for such CIM-linked Talk City
Joint Content Area shall be allocated to CIM to sell,
while twenty-five percent (25%) 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, fifty percent (50%) 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.
24
<PAGE>
(iii) End Users from CIM Sites to Other Partner Joint
Content Areas.
If a CIM End User accesses an Other Partner Joint
Content Area, fifty percent (50%) 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 twenty-five percent (25%) 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
fifty percent (50%) 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, twenty-five
percent (25%) of the overall Advertising Inventory
for such General CIM Talk City Joint Content Area
shall be allocated to CIM to sell, while seventy-five
percent (75%) 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 seventy-five
percent (75%) 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 twenty-five percent (25%) 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
25
<PAGE>
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. sixty-five percent (65%) 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 thirty-
five percent (35%) shall be remitted to the non-Selling
Party or if applicable, to the non-Selling Parties. The
thirty percent (30%) 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 sixty-five percent (65%) of the
Advertising Revenue that CIM sells and collects from
the seventy-five percent (75%) of the overall
Advertising Inventory it is allocated under SECTION
4.3.2(I) of this Agreement, plus thirty-five percent
(35%) of the Advertising Revenue that LWP sells and
collects from the twenty-five percent (25%) 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 fifty-seven
and one-half percent (57.5%) of the total Advertising
Revenue from sales of Advertising Inventory on the CIM-
linked Talk City Joint Content Areas.
(b) LWP shall retain sixty-five percent (65%) of the
Advertising Revenue that LWP sells and collects from
the twenty-five percent (25%) of the overall
Advertising Inventory it is allocated under SECTION
4.3.2(I) of this Agreement, plus thirty-five percent
(35%) of the Advertising Revenue that CIM sells and
collects from the seventy-five percent (75%)
26
<PAGE>
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 forty-two
and one-half percent (42.5%) 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 sixty-five percent (65%) of the
Advertising Revenue that CIM sells and collects from
the fifty percent (50%) of the overall Advertising
Inventory it is allocated under SECTION 4.3.2(II) of
this Agreement, plus thirty-five percent (35%) of the
Advertising Revenue that LWP sells and collects from
the fifty percent (50%) 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 fifty percent (50%) 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 sixty-five percent (65%) of the
Advertising Revenue that LWP sells and collects from
the fifty percent (50%) of the overall Advertising
Inventory it is allocated under SECTION 4.3.2(II) of
this Agreement, plus thirty-five percent (35%) of the
Advertising Revenue that CIM sells and collects from
the fifty percent (50%) 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 fifty percent (50%) 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 sixty-five percent (65%) of the
Advertising Revenue that CIM sells and collects from
the fifty percent (50%) of the overall Advertising
Inventory it is allocated under SECTION 4.3.2(III) of
this Agreement, plus thirty-five percent (35%) of the
Advertising Revenue that LWP sells and collects from
the twenty-five percent (25%) of the overall
Advertising Inventory LWP is allocated under SECTION
4.3.2(III). Assuming, for illustrative purposes only,
that one hundred
27
<PAGE>
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 forty-one and one quarter
percent (41.25%) of the total Advertising Revenue from
sales of Advertising Inventory on such Other Partner
Joint Content Areas.
(b) LWP shall retain sixty-five percent (65%) 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 thirty-five
percent (35%) of the Advertising Revenue that CIM sells
and collects from the fifty percent (50%) of the
overall Advertising Inventory CIM is allocated under
SECTION 4.3.2(III), plus thirty-five percent (35%) of
the Advertising Revenue from the overall Advertising
Inventory allocated to an Other Content Partner under
SECTION 4.3.2(III), minus thirty-five percent (35%) of
the thirty-five percent (35%) of the Advertising
Revenue from the fifty percent (50%) of the overall
Advertising Inventory CIM is allocated under SECTION
4.3.2(III), minus thirty-five percent (35%) 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 sixty-five percent (65%) of the Advertising
Revenue from the overall Advertising Inventory
allocated to such Other Content Partner under SECTION
4.3.2(III), plus thirty-five percent (35%) of the
Advertising Revenue from the overall Advertising
Inventory allocated to LWP under SECTION 4.3.2(III),
plus thirty-five percent (35%) of the thirty-five
percent (35%) of the Advertising Revenue from the fifty
percent (50%) 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.
28
<PAGE>
(iv) End Users from Non-CIM Sites to General CIM Talk City
Joint Content Areas.
(a) CIM shall retain sixty-five percent (65%) of the
Advertising Revenue that CIM sells and collects from
the twenty-five percent (25%) of the overall
Advertising Inventory it is allocated under SECTION
4.3.2(IV) of this Agreement, plus thirty-five percent
(35%) of the Advertising Revenue that LWP sells and
collects from the twenty-five percent (25%) of the
overall Advertising Inventory LWP is allocated under
SECTION 4.3.2(IV), plus thirty-five percent (35%) of
the thirty-five percent (35%) of the Advertising
Revenue from the fifty percent (50%) 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 thirty-one and one-eighth
percent (31.125%) of the total Advertising Revenue from
sales of Advertising Inventory on such General CIM Talk
City Joint Content Areas.
(b) LWP shall receive thirty-five percent (35%) of
the Advertising Revenue that CIM sells and collects
from the twenty-five percent (25%) overall
Advertising Inventory CIM is allocated under SECTION
4.3.2(IV) of this Agreement, plus thirty-five percent
(35%) of the Advertising Revenue from the overall
Advertising Inventory Other Partners are allocated
under SECTION 4.3.2(IV), plus sixty-five percent
(65%) of the Advertising Revenue from the overall
Advertising Inventory allocated to LWP under SECTION
4.3.2(IV), minus thirty-five percent (35%) of the
thirty-five percent (35%) of the Advertising Revenue
from the overall Advertising Inventory allocated to
Other Partners under SECTION 4.3.2(IV) minus thirty-
five percent (35%) of the Advertising Revenue from
the overall Advertising Inventory LWP is allocated in
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 sixty-five percent of the
29
<PAGE>
Advertising Revenue from the overall Advertising
Inventory allocated to such Other Partner under SECTION
4.3.2(IV), plus thirty-five percent (35%) 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 thirty-five percent (35%) of the thirty-five
percent (35%) 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 sixty-
five percent (65%) of the thirty-five percent (35%) 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
sixty-five percent (65%) 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
thirty-five percent (35%) 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 thirty-five percent (35%), or such
other percentage as LWP and such Other Content-only
Partner shall mutually agree upon, to such Other
Content-only Partner.
30
<PAGE>
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 twenty
percent (20%) 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 fifty percent
(50%) 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 fifty percent (50%) to arrive at
the revenue split to pay CIM.
31
<PAGE>
4.4.2 LWP TRANSACTION REVENUE SHARING TO CIM ON LWP STORE
TRANSACTION REVENUE. LWP agrees to pay CIM a seven and one-
half percent (7.5%) 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.
32
<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 ten thousand dollar ($10,000) 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
33
<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:
34
<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:
35
<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 fifty percent (50%) 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
36
<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 sixty-five percent (65%) thereof and the non-
selling party receiving the remaining thirty-five percent
(35%) 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 fifty
percent (50%) 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 sixty-five percent (65%) thereof and the non-
selling party receiving the remaining thirty-five percent
(35%) thereof.
5.4 ADVERTISING REVENUE ALLOCATIONS.
5.4.1 GENERAL. In general, the party selling Advertising Inventory
shall receive sixty-five percent of the (65%) gross revenue
received by such selling party for such Advertising
Inventory, and shall remit thirty-five percent (35%) 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 thirty-five percent (35%) of
the thirty-five percent (35%) 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 sixty-five percent (65%) of
the thirty-five percent (35%) 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.
37
<PAGE>
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 financial terms, (ii) more favorable carriage, distribution,
placement or promotion of such Investor's or Other Partner's online service
or content, or (iii) more favorable overall terms 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 adjusted to match such more favorable arrangements 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
<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.
62
<PAGE>
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.
63
<PAGE>
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.
64
<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.
65
<PAGE>
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!
66
<PAGE>
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
67
<PAGE>
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.
68
<PAGE>
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.
69
<PAGE>
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.
70
<PAGE>
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
71
<PAGE>
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
72
<PAGE>
agreement between the parties, and shall supersede any and all other agreements,
whether written or oral, between the parties.
73
<PAGE>
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.
74
<PAGE>
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.
75
<PAGE>
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 50% 25% 0% 75%
LWP 0% 0% 25% 25%
Other Partner 0% 0% 0% 0%
100%
REVENUE SPLIT
Gross Revenue %
CIM (65%x75%) + (35%x25%) 57.5%
LWP (65%x.25%) + (35%x75%) 42.4%
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 50% 0% 0% 50.000%
LWP 0% 50% 50% 50.000%
Other Partner 0% 0% 0% 0%
100.000%
REVENUE SPLIT
Gross Revenue %
CIM (65%x50%) + (35%x50%) 50.000%
LWP (65%x.50%) + (35%x50%) 50.000%
Other Partner N/A
100.000%
76
<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 50% 0% 0% 50.000%
LWP 0% 0% 25% 25.000%
Other Content Partner 0% 25% 0% 25.000%
100.000%
REVENUE SPLIT
Gross Revenue %
CIM (65%x50%) + (35%x25%) 41.250%
LWP (35%x50%) + (35%x.25%) + (65%x25%) 27.625%
-[(35%x25%x50%) + (35%x25%)]
Other Partner (65%x25%) + (35%x25%) + (35%x35%x50%) 31.125%
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 0% 25% 0% 25.000%
LWP 0% 0% 25% 25.000%
Other Partner 50% 0% 0% 50.000%
100.000%
REVENUE SPLIT
Gross Revenue %
CIM (65%x25%) + (35%x25%) + (35%x35%x50%) 31.125%
LWP (35%x25%) + (35%x.50%) + (65%x25%) 27.625%
-[(35%x35%x50%) + (35%x25%)]
Other Partner (65%x50%) + (35%x25%) 41.250%
100.000%
77
<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
<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 100% 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 seven and one half percent (7.5%) 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 fifty percent (50%) 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 thirty-five percent (35%) of the gross
revenues which it receives from third parties in connection with the sale of
such Advertisements and shall retain the remaining sixty-five percent
(65%).
(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
<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.
9
<PAGE>
(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
10
<PAGE>
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;
11
<PAGE>
(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
<PAGE>
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.
14
<PAGE>
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.
15
<PAGE>
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
<PAGE>
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
17
<PAGE>
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
<PAGE>
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
==============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<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>
-i-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<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>
-ii-
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<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>
-iii-
<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
---------
twenty percent (20%) 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 twenty percent (20%) 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 eighty percent
(80%) 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
<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
---------
DISCLOSURE SCHEDULE
This Disclosure Schedule, dated as of October 30, 1998, is made and given
pursuant to Section 4 of the Talk City, Inc. (the "Company") Series D Preferred
Stock Purchase Agreement with Hearst Communications, Inc., Hearst New Media &
Technology division dated as of October 30, 1998 (the "Purchase Agreement").
The section numbers in this Disclosure Schedule correspond to the section
numbers in the Purchase Agreement; however, any information disclosed herein
under any section number shall be deemed to be disclosed and incorporated into
any other section number under the Purchase Agreement where such disclosure
would be appropriate. Any terms defined in the Purchase Agreement shall have
the same meaning when used in the Purchase Agreement unless otherwise defined
herein.
Section 4.4 Capitalization.
- --------------------------
1. Pursuant to a Warrant Purchase Agreement (the "Warrant Agreement"), dated
April 22, 1998, between the Company and NBC Multimedia, Inc. ("Multimedia"), the
Company issued to Multimedia a warrant to purchase 641,026 shares of Common
Stock of the Company at a per share exercise price equal to the lower of (i)
$2.34 and (ii) the price per share paid by investors in the next round of
financing of the Company (the "Multimedia Warrant"). As a result of this anti-
dilution protection, upon the initial closing (the "Initial Closing") of the
Series D Preferred Stock financing of the Company (the "Series D Financing"),
which occurred on August 25, 1998, the Multimedia Warrant was canceled and a new
warrant was issued to Multimedia which such warrant is exercisable for 750,000
shares of Common Stock at a per share exercise price equal to $2.00.
2. Pursuant to a Series C Preferred Stock, Series D Preferred Stock and
Warrant Purchase Agreement, dated August 31, 1998 (the "NBC Agreement"), between
the Company, National Broadcasting Company, Inc. ("NBC") and Multimedia, the
Company issued to NBC (i) 341,880 shares of Series C Preferred Stock at a per
share price of $2.34, and (ii) a warrant to purchase 250,000 shares of Series D
Preferred Stock of the Company at a per share exercise price of $3.00.
3. In connection with the nbc.com operating agreement, dated August 21, 1998,
between the Company and Multimedia (the "Operating Agreement"), and pursuant to
the NBC Agreement, the Company issued to Multimedia 1,000,000 shares of Series D
Preferred Stock at an agreed upon purchase price of $2.00 per share. In
addition, the Company issued an additional warrant to Multimedia to purchase
Series D Preferred Stock of the Company. The warrant is exercisable as follows:
111,111 shares of Series D Preferred Stock at an exercise price of $3.00 per
share, 83,333 shares of Series D Preferred Stock at an exercise price of $4.00
per share and 66,667 shares of Series D Preferred Stock at an exercise price of
$5.00 per share, for a total of 261,111 shares of Series D Preferred Stock.
<PAGE>
4. Pursuant to a Letter Agreement, dated August 31, 1998 (the "Letter
Agreement") between the Company and NBC, and pursuant to the NBC Agreement, the
Company has agreed to issue to NBC 1,200,000 shares of Series D Preferred Stock
at an agreed upon purchase price of $2.00 per share. In addition, pursuant to
the Letter Agreement and the NBC Agreement, the Company has agreed to issue to
NBC a series of warrants to purchase Series D Preferred Stock for a total number
of shares of Series D Preferred Stock equal to 533,333. The first warrant is
exercisable for 83,333 shares at an exercise price of $3.00 per share; the
second warrant is exercisable for 250,000 shares at an exercise price of $4.00
per share; and the final warrant is exercisable for 200,000 shares at an
exercise price of $5.00 per share. The warrants, as well as the 1,200,000
shares of Series D Preferred Stock, will be issued to NBC over a 12-month period
(beginning on the date of the Letter Agreement) based upon NBC's confirmation of
the telecast of advertising spots with various aggregate values.
5. Pursuant to a Letter Agreement (the "Volpe Agreement"), dated December 3,
1997, between the Company and Volpe Brown Whelan & Company, LLC ("VBW&C"), VBW&C
had the right to receive a warrant (in addition to a cash fee based upon the
proceeds of the Private Placement) (as defined in the Volpe Agreement)) to
purchase shares of the Company issued in a Private Placement in which VBW&C
provided financial advice and assistance. The exercise price for the shares
underlying such warrant is to be the price of the shares issued in the Private
Placement.
In connection with the Series D Financing of the Company, VBW&C received a
6% cash commission on the proceeds raised by it (excluding in-kind transactions
and proceeds raised from current investors in the Company) plus a 3% commission,
in the form of a warrant, to purchase Series D Preferred Stock at an exercise
price of $2.00 per share. In addition, VBW&C received a 3% cash commission on
the investment by Refco (as defined below) in the Company plus a 2% commission
on such investment, in the form of a warrant, to purchase Series D Preferred
Stock at an exercise price of $2.00 per share. The aggregate number of shares
of Series D Preferred Stock subject to the warrants issued to VBW&C is 240,159
shares.
6. Pursuant to a Letter Agreement (the "Refco Agreement"), dated March 23,
1998, between the Company and Refco Securities, Inc. ("Refco"), Refco had the
right to receive a warrant to purchase Common Stock of the Company (in addition
to a cash fee based upon the proceeds from the sale of Securities in a
Transaction (each as defined in the Refco Agreement)) upon the closing of a
Transaction in which Refco provided financial advisory services to the Company.
The exercise price for the warrants was to be the exercise price of the warrants
issued in the Transaction; provided, however, that if no warrants were issued in
the Transaction, the exercise price of the warrants issued to Refco was to be no
greater than 100% of the per share value ascribed to the Common Stock of the
Company in the Transaction based upon the purchase price paid for the Securities
issued in the Transaction.
In connection with the Series D Financing of the Company, Refco received to
a 5% cash commission on the proceeds raised by it plus a 2% commission, in the
form of a warrant, to purchase Series D Preferred Stock (as mutually agreed to
by the Company and Refco) at an exercise price of
<PAGE>
$2.00 per share. The aggregate number of shares of Series D Preferred Stock
subject to the warrant issued to Refco is 7,500 shares.
7. The Company is continuing to negotiate agreements with, and may retain,
additional brokers and financial advisors for the purpose of raising additional
capital for the Company. Pursuant to any such agreements, the Company may
provide compensation in the form of warrants and/or stock of the Company.
8. The Company previously engaged in a bridge financing (the "Bridge
Financing") pursuant to which the Company issued to the investors in such
Financing an aggregate of $2,903,000 principal amount of convertible promissory
notes (the "Bridge Notes"), warrants to purchase shares of Common Stock of the
Company (the "Bridge Warrants"), and shares of senior Preferred Stock of the
Company (the "Senior Preferred"). The initial closing of the Bridge Financing
was April 6, 1998, with a second closing on April 20, 1998, a third closing on
July 6, 1998 and a fourth closing on July 22, 1998.
The Bridge Notes were convertible, at the option of each individual
investor, into such number of shares of the Company's equity securities issued
in the Next Financing (as defined below) as determined by dividing the
outstanding principal and accrued interest on the Bridge Note by the Conversion
Price (as defined below). This conversion right terminated if not exercised by
the individual investor upon the Next Financing. The "Conversion Price" was
defined as the price per share at which equity securities of the Company were
sold in the Next Financing. The "Next Financing" was defined as the closing of
a private placement by the Company of equity securities in an aggregate amount
equal to or greater than $5 million. Upon the Initial Closing of the Series D
Financing, approximately $2,631,858 principal and accrued interest on the
outstanding Bridge Notes was converted into Series D Preferred Stock at the
Conversion Price of $2.00 per share. Approximately five (5) investors in the
Bridge Financing elected not to convert their Bridge Notes and instead chose to
have the Company payoff the principal and accrued interest on such Notes, for a
total of approximately $340,327.
Each individual Bridge Warrant is exercisable for a number of shares of
Common Stock of the Company equal to thirty percent (30%) of the principal
amount the Bridge Note held by the investor divided by $1.50 per share. As of
the date hereof, the Bridge Warrants outstanding are exercisable for a total of
approximately 580,600 shares of Common Stock of the Company.
The Senior Preferred was created by the Company solely in connection with
the Bridge Financing and entitled the holders thereof to certain rights upon an
acquisition of the Company, prior to the maturity date under the Bridge Notes,
with less than a certain amount of aggregate proceeds. The Senior Preferred had
no other rights and was automatically canceled and null and void on the Initial
Closing of the Series D Financing. On August 28, 1998, an amendment to the
Third Amended and Restated Articles of the Company (the "Articles Amendment")
was filed with the California Secretary of State to eliminate the 2,000 shares
of Senior Preferred previously authorized pursuant to such Articles.
<PAGE>
The above description of the Bridge Financing is qualified in its entirety
by the definitive Bridge Financing documents.
9. The 427,350 shares of Series C Preferred issued to NBC pursuant to a Series
C Preferred Stock Purchase Agreement, dated April 22, 1998, and the 341,880
additional shares of Series C Preferred issued to NBC pursuant to the NBC
Agreement are all subject to anti-dilution protection such that in the event the
Company issues stock in the Next Financing (as defined in the Third Amended and
Restated Articles of Incorporation of the Company) at a price below $2.34 per
share, the conversion price of the Series C Preferred will be adjusted to the
lower price. Thus, upon the Initial Closing of the Series D Financing, the
conversion price was adjusted to $2.00 per share and the 769,230 shares of
Series C Preferred currently held by NBC will be convertible into 900,000 shares
of Common Stock.
Section 4.5 Financial Statements.
- --------------------------------
1. The Company, pursuant to the Series D Financing, closed on approximately
$25 million in cash from new and current investors in the Company.
Notwithstanding the above, the Company is cash constrained and dependent on
raising additional cash to continue operations.
Section 4.6 Changes
- -------------------
(a) (1) The Company, pursuant to the Series D Financing, closed on
approximately $25 million in cash from new and current investors in
the Company. Notwithstanding the above, the Company is cash
constrained and dependent on raising additional cash to continue
operations.
(2) See the discussion of the Bridge Financing on Schedule 4.4 above.
------------
(3) The Company entered into a Senior Loan and Security Agreement,
dated April 8, 1998 (the "Loan Agreement"), with Phoenix Leasing
Incorporated ("Phoenix"). Pursuant to the Loan Agreement, the
Company may borrow, in one or more borrowings, up to $2,000,000 in
the aggregate from Phoenix. Each borrowing is evidenced by a Senior
Secured Promissory Note (each a "Note" and collectively "Notes") and
is secured by certain of the Company's equipment, currently owned or
later acquired by the Company, including without limitation high-end
PCs, servers and workstations (the "Collateral"). The Company must
use the proceeds of all loans under the Loan Agreement to purchase
or reimburse the purchase of Collateral. The Loan Agreement
continues in effect for so long as any Note is outstanding.
The Company currently has two outstanding Notes under the Loan
Agreement for a total of approximately $491,000. The Notes are each
dated May 1, 1998 and mature on April 30, 2001 (36-month term) (the
"Maturity Date"). Principal and interest are
<PAGE>
to be paid on a monthly basis, with the interest rate on each Note
to be approximately 18%. The Notes may not be prepaid in whole or in
part. Upon the Maturity Date, the Company has the option, on each
Note, to either (i) make a final payment equal to 15% of the Note's
original principal amount, or (ii) extend the Note's term for an
additional 12 months for a monthly rate of 1.5% of the Note's
original principal amount.
The Company is currently exploring its options in connection with
the Loan Agreement with Phoenix and may borrow up to the full
$2,000,000 at various times, with the intention of using such
additional borrowings for the purpose of leasing servers instead of
buying them. The Company has until March 31, 1999 to borrow the full
$2,000,000.
(4) Pursuant to the Articles Amendment, the Company changed its name
to "Talk City, Inc."
(d) Since October 15, 1996, the Company has authorized the exercise of
options to purchase Common Stock by certain employees and
consultants, in exchange for notes to the Company, in the aggregate
amount of approximately $283,000. In addition, the Company has
agreed to loan Bernard Bernstein such amount as necessary to cover
any actual tax liability incurred by Mr. Bernstein (which note shall
be payable upon sale by Mr. Bernstein of his stock in the Company).
Section 4.7 Material Obligations.
- --------------------------------
1. The Company has rent obligations pursuant to its leases in Campbell, CA
(under approximately $350,000 per year) and Manhattan, NY (under approximately
$100,000 per year). A portion of such leased space may be subleased by the
Company.
Schedule 4.8 Material Contracts and Commitments.
- -----------------------------------------------
1. The Company has numerous consulting contracts with its chat moderators
which total approximately $150,000 per month. All of these contracts are
cancelable by either party upon thirty (30) days notice.
2. The Company has a series of partnering contracts. None of such contracts
requires any cash payments by the Company. In the alternative, most of the
contracts require services implementation by the Company and a few involve
advertising barter agreements.
3. The Company has a series of revenue contracts pursuant to which
advertisers, corporate clients and/or partners are obliged to pay the Company
for its services. These contracts range from under $1,000 to over $100,000 per
contract.
<PAGE>
4. The Company has many advertising barter agreements in which the Company and
other web sites trade advertising space.
5. In the normal course of its business, the Company has entered into various
contractor and consulting agreements with contract engineers and designers,
public relations firms and advertising agencies. Such agreements total
approximately $400,000 per month. A detailed listing of such agreements is
included in the Financial Statements, under Operating Expenses & COGS,
previously furnished to the Purchaser.
Schedule 4.9 Intellectual Property, Trademarks.
- ----------------------------------------------
1. The Company has developed a form of software code, graphics and written
materials in the course of creating and operating its business. In addition,
the Company has registered a series of Internet domain names and has secured
federal trademark registrations for the marks LiveWorld and Talk City. The
Company also has a pending trademark application for the mark OnNow.
2. The Company's initial EZ Talk Java chat application was developed in
collaboration with SportsLine USA. The Company and SportsLine USA have orally
and by electronic mail agreed that each party has the right to use the
application today, and in the future have the right to develop future
enhancements and derivative versions (see attached e-mail message from the Chief
Technology Officer of Sportsline USA confirming this arrangement). The Company
has independently developed subsequent versions of the EZ Talk Java chat
application.
3. Work done for the Company by its employees and various contractors and
consultants generally becomes the intellectual property of the Company, subject
to certain exceptions in the case of certain chat hosts or outside content
talent who may retain rights to original works they bring to the service. The
Company has and is continuing to enter into a series of partnering and affiliate
relationships with other companies, regarding the creation and deployment of on-
line services. The intellectual property rights in such deals vary and will
continue to vary from agreement to agreement. Many of the partnering agreements
provide that the Company and the respective partner have cross-licensed rights
to use the other party's trademarks in joint services and co-marketing activity.
4. The Company has purchased and uses a variety of software on its servers and
personal computers. Technically, some of these purchases amount to software
licenses as is often customary.
Schedule 4.10 Title to Properties and Assets; Liens.
- ---------------------------------------------------
1. Phoenix maintains a first security interest on the Collateral pursuant to
the Loan Agreement, as discussed on Schedule 4.6 above.
------------
Section 4.16 Brokers or Finders.
- -------------------------------
<PAGE>
1. In addition to the compensation VBW&C was to receive upon a Private
Placement (as described on Schedule 4.4 above), VBW&C was paid a retainer fee of
------------
$50,000 which was deducted from the compensation paid to VBW&C as described in
Schedule 4.4 above. Furthermore, upon a Combination Transaction (as defined in
- ------------
the Volpe Agreement), VBW&C was to receive an additional cash fee based upon the
value of the Combination Transaction. Finally, the Company agreed to reimburse
VBW&C monthly for reasonable out-of-pocket costs and expenses; provided,
however, that the Company's prior written approval is necessary for costs and
expenses exceeding $20,000.
2. Upon each closing of the Bridge Financing in which Refco participated
(April 6, 1998 and July 6, 1998), Refco received a finder's fee equal to five
percent (5%) of the principal amount of the Bridge Note issued to Refco pursuant
to such closing.
3. The Company is considering retaining other brokers who, if they were to
bring investment capital into the Company, would get paid a commission.
Schedule 4.17 Related Party Transactions.
- ----------------------------------------
1. Joe Graziano, a member of the Company's Board of Directors and Acting Chief
Financial Officer for the Company, is an investor who holds Series A Preferred
Stock, Series B Preferred Stock, Series D Preferred Stock and Common Stock. Mr.
Graziano also participated in the Bridge Financing.
2. John Sculley, a member of the Company's Board of Directors, is an investor
with both Series A-1 Preferred, Series D Preferred Stock and Common Stock. The
Company has and pursues relationships with other companies in which Mr. Sculley
has an investment position and, in some cases, an operating role. A formal
agreement does not currently exist between the Company and these other
companies, but such agreements may take place in the future. The Company also
has a formal agreement with NFO Market Research regarding on-line market
research and products. Mr. Sculley is a member of the Board of Directors of NFO
Market Research. Mr. Sculley also participated in the Bridge Financing.
3. SOFTBANK Ventures, Inc. ("SOFTBANK") is an investor who holds Series B
Preferred Stock. The Company has relationships and expects to have additional
relationships with companies in the SOFTBANK investment portfolio or otherwise
in relationships with SOFTBANK. SOFTBANK also participated in the Bridge
Financing.
4. New York Life Insurance Company is an investor who holds Series B Preferred
Stock and Series D Preferred Stock and is also an investor in SportsLine USA, a
company in which the Company has had a relationship. New York Life Insurance
Company participated in the Bridge Financing and as a cash investor in the
Series D Financing.
<PAGE>
5. Bill Lipner is an investor who holds Series B Preferred Stock. He is the
CEO of NFO Market Research, a company with which the Company expects to work on
a new product line.
6. Ken Wirt is an investor who holds Series B Preferred Stock and Series D
Preferred Stock. He is the Vice President of Marketing at Diamond Multimedia, a
company that has been an advertiser on and co-marketer of the Company's
services. Mr. Wirt also participated in the Bridge Financing.
7. Patricof Private Investment Club, L.P. ("Patricof") is an investor who
holds Series B Preferred Stock and Series D Preferred Stock. Thomas Hirschfeld
of Patricof is a member of the Board of Directors of the Company. Patricof
participated in the Bridge Financing and as a cash investor in the Series D
Financing.
8. Cox Interactive Media, Inc. ("Cox") is an investor who holds Series D
Preferred Stock. The Company also entered into an Operating Agreement with Cox,
dated August 24, 1998. Peter M. Winter of Cox is a member of the Board of
Directors of the Company.
9. NBC and Multimedia are investors who hold Series C Preferred Stock (NBC)
and Series D Preferred Stock (Multimedia). The Company has entered into an
Operating Agreement with Multimedia pursuant to which Multimedia will integrate
customized versions of the Company's OnNow and Talk City services on various
Multimedia web sites. The Company has also entered into several Letter
Agreements with NBC pursuant to which the NBC Television Network ("NBC TV") has
or will broadcast advertising spots regarding the Company's OnNow and Talk City
Services. Marty Yudkowitz of NBC is a member of the Board of Directors of the
Company.
10. Intel Corporation ("Intel") is an investor who holds Series D Preferred
Stock and advertises on the Company's service. In addition, the Company
participates in Intel's "Showcase Site Co-Op Program." The Company has also
entered into a Letter of Intent, dated August 28, 1998, with Intel regarding a
potential future operating agreement, technology showcases and co-marketing.
11. Media Technology Equity Partners, L.P. ("MTV") is an investor who holds
Series D Preferred Stock. Barry Weinman of MTV is a member of the Board of
Directors of the Company.
12. The Company has created an informal council of business advisors, the
current members of which have received stock option grants (in the amounts
indicated below) in return for their participation. The advisors have each
early exercised their options with the resulting issued shares subject to a
right of repurchase by the Company. The advisors currently include:
(a) Denise Jevne, a former consultant to Soros Fund Management (50,000
shares). Soros is an investor who holds Series B Preferred Stock and
Series D Preferred Stock, and had designated Ms. Jevne as one of
their point people on the investment in the Company;
<PAGE>
(b) James Isaacs, Vice President, Business Development at Concentric
Networks (15,000 shares); and
(c) Page Mailliard, the Company's legal counsel and a partner at Wilson
Sonsini Goodrich & Rosati (15,000 shares).
13. In the normal course of its business, the Company has entered into a wide
range of partnering, customer and supplier agreements throughout the industry
with companies in which various investors, members of the Company's Board of
Directors and/or Company employees may have relationships.
Schedule 4.19 Insurance.
- -----------------------
1. The type of insurance and name of insurer for each insurance policy
currently carried by the Company are as follows:
(a) Health -- Lifeguard Insurance Company (approximately $8,000/month).
(b) Life and Accidental Death and Dismemberment -- Reliance Insurance
Company (approximately $800/month).
(c) Dental -- Blue Cross Insurance Company (approximately $1,200/month).
(d) Long Term Disability -- Unum Insurance Company (approximately
$900/month).
(e) Vision -- Vision Service Plan (approximately $375/month).
(f) Workmens' Compensation -- Hartford Insurance Group (approximately
$12,000/year).
(g) Facilities -- Kemper Insurance Group (approximately $1,000/year).
(h) Business Liability (Errors & Omissions) -- MBO Insurance Brokers
(approximately $5,000/year).
Section 4.20 Benefit Plans; Labor Relations.
- -------------------------------------------
1. See Schedule 4.19 of the Disclosure Schedule for information regarding the
-------------
Company's employee benefits program (i.e., health, dental, life, vision and
disability plans).
2. The Company has implemented a 401(k) program for its employees.
Section 4.22 Disclosure
- -----------------------
1. The Company has provided the Purchaser with a series of business plans,
market, strategies, financial, implementation and project documents including
first drafts, modified drafts and updates (the "Plans"), which such Plans
included estimated projections subject to timing of funding, ramp of personnel,
as well as the risks described below.
The Company is subject to a number of risks, including without limitation
the following:
<PAGE>
(a) The Internet as a media form is a new and volatile market. The
Company's future success and revenues are dependent on the continued
growth in the use of the Internet, the continued development of the
Internet as an advertising medium, the development of a large base
of users of the Company's products and services, the effective
development of media properties attractive to users and advertisers,
the ability to continually improve its technology and system
infrastructure in response to evolving demands of the marketplace
and competitive product offerings, of which there can be no
assurance.
(b) The Company has an extremely limited operating history, including no
history of substantial revenue. The Company is cash constrained and
dependant on raising additional cash to continue operations.
(c) The Company depends substantially upon third parties for several
critical elements of its business, including chat moderators,
publishers to the Company's services, contractors, consultants,
suppliers and third party advertising sales agents. Failure by these
third parties to perform according to the Company's expectations
could have a material adverse effect on the Company.
(d) The market for Internet products and services is highly competitive
and competition is expected to increase significantly. Failure to
compete successfully could have a material adverse effect on the
Company.
(e) The Company's operating results may fluctuate significantly from month
to month.
(f) The Company is dependent on its personnel and on hiring new
personnel, on both an employee and contract basis to implement,
manage and grow the business. There can be no guarantee that the
Company will be able to hire or retain the specific people it needs
to meet its plans and success.
(g) The Company's intellectual property, including trademarks and brand
names, are always at risk of being diluted, challenged or lost.
(h) Laws and regulations may be adopted in the future with respect to
the Internet, covering issues such as pricing, characteristics and
quality of products and services, and user privacy, and any such
laws or regulations could adversely affect the Company.
(i) The Company is also subject to other risks and issues that are or in
the future may be generally associated with a new start up company
in the Internet market.
<PAGE>
EXHIBIT E
---------
[SUPERSEDED BY EXHIBIT 4.2]
<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 20% 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-
<PAGE>
EXHIBIT F
[LETTERHEAD OF WILSON SONSINI GOODRICH & ROSATI]
April 15, 1999
To Hearst Communications, Inc.,
Hearst New Media & Technology division, the Purchaser
under the Talk City, Inc.
Series D Preferred Stock
Purchase Agreement Dated
as of October 30, 1998, as
amended
Ladies and Gentlemen:
This opinion refers to the Series D Preferred Stock Purchase Agreement,
dated as of October 30, 1998, as amended on April 15, 1999 (collectively, the
"Series D Agreement"), complete with all listed exhibits thereto, by and
between Talk City, Inc., a California corporation (the "Company"), and Hearst
Communications, Inc., Hearst New Media & Technology division, a Delaware
corporation (the "Company"), and Hearst Communications, Inc., Hearst New Media
& Technology division, a Delaware corporation (the "Purchaser"), which
provides for the issuance by the Company to the Purchaser of up to 1,500,000
shares of Series D Preferred Stock of the Company (the "Shares"). This opinion
is rendered to you pursuant to Section 6.4 of the Series D Agreement and all
terms used herein have the meanings defined for them in the Series D Agreement
unless otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Series D Agreement and the Second Amended and Restated
Shareholders Rights Agreement, as amended, dated as of August 25, 1998 (the
"Rights Agreement") (collectively the "Agreements") and the issuance of the
Shares. As such counsel, we have made such legal and factual examinations and
inquiries as we have deemed advisable or necessary for the purpose of
rendering this opinion. In addition, we have examined, among other things,
originals or copies of such corporate records of the Company, certificates of
public officials and such other documents and questions of law that we
consider necessary or advisable for the purpose of rendering this opinion. In
such examination we have assumed the genuineness of all signatures on original
documents, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all copies submitted to us a copies
thereof, the legal capacity of natural persons, and the due execution and
delivery of all documents (except as to due execution and delivery by the
Company) where due execution and delivery are a prerequisite to the
effectiveness thereof.
As used in this opinion, the expression "to our knowledge" with reference
to matters of fact means that, after an examination of documents made
available to us by the Company, and after
<PAGE>
inquiries of officers of the Company, but without any further independent
factual investigation, we find no reason to believe that the opinions
expressed herein are factually incorrect. Further, the expression "to our
knowledge" with reference to matters of fact refers to the current actual
knowledge of the attorneys of this firm who have worked on matters for the
Company. Except to the extent expressly set forth herein or as we otherwise
believe to be necessary to our opinion, we have not undertaken any independent
investigation to determine the existence or absence of any fact, and no
inference as to our knowledge of the existence or absence of any fact should
be drawn from our representation of the Company or the rendering of the
opinions set forth below.
For purposes of this opinion, we are assuming that you have all requisite
power and authority, and have taken any and all necessary corporate,
partnership or individual action, to execute and deliver the Agreements and we
are assuming that the representations and warranties made by you in the Series
D Agreement and pursuant thereto are true and correct.
The opinions expressed below are subject to the following qualifications:
(a) We express no opinion as to the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar federal or state laws
affecting the rights of creditors;
(b) We express no opinion as to the effect or availability of rules
of law governing specific performance (including the enforcement of any voting
agreements to the extent such agreements are subject to limitations of public
policy or judicial decisions), injunctive relief or other equitable remedies
(regardless of whether any such remedy is considered in a proceeding at law or
in equity);
(c) We express no opinion as to compliance with applicable
anti-fraud provisions of federal or state securities laws;
(d) We express no opinion as to the enforceability of the
indemnification provisions of Section 3.11 of the Rights Agreement to the
extent the provisions thereof may be subject to limitations of public policy
and the effect of applicable statutes and judicial decisions; and
(e) We are members of the Bar of the State of California and we are
not expressing any opinion as to any matter relating to the laws of any
jurisdiction other than the federal laws of the United States of America and
the laws of the State of California.
Based upon and subject to the foregoing, and except as set forth in the
Series D Agreement (and the exhibits thereto), we are of the opinion that:
1. The Company is a corporation duly organized and validly existing
under, and by virtues of, the laws of the State of California and is in good
standing under such laws. The Company has requisite corporate power to own and
operate its properties and assets, and to carry on its business as presently
conducted.
-2-
<PAGE>
2. The Company has all requisite legal and corporate power to execute and
deliver the Agreements, to sell and issue the Shares under the Series D
Agreement and the Common Stock issuable upon conversion thereof, and to carry
out and perform its obligations under the terms of the Agreements.
3. The authorized capital stock of the Company consists of 60,000,000
shares of Common Stock, of which 8,662,100 shares are issued and outstanding,
and 38,000,000 shares of Preferred Stock. 300,000 shares of Preferred Stock
have been designated "Series A Preferred," all of which are issued and
outstanding; 700,000 shares of Preferred Stock have been designated "Series A1
Preferred," all of which are issued and outstanding; 6,800,000 shares of
Preferred Stock have been designated "Series B Preferred," 6,589,570 of which
are issued and outstanding; 3,000,000 shares of Preferred Stock have been
designated "Series C Preferred," 769,230 or which are issued and outstanding;
and 25,000,000 shares of Preferred Stock have been designated "Series D
Preferred," 13,500,054 of which are issued and outstanding prior to the
Closing Date. All such issued and outstanding shares of Common Stock and
Preferred Stock have been duly authorized and validly issued and are fully
paid and nonassessable and free of any preemptive or similar rights contained
in the Restated Articles or Bylaws of the Company. The Company has reserved
(a) 1,500,000 shares of Series D Preferred for issuance under the Series D
Agreement, (b) 35,800,000 shares of its Common Stock for issuance, upon
conversion of the Series A Preferred; (c) 1,450,000 shares of its Common Stock
for issuance to employees, consultants or 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) 4,650,000 shares of its Common Stock for issuance to employees,
consultants and directors pursuant to its 1996 Stock Option Plan. The Shares
to be issued under the Series D Agreement will be validly issued, fully paid
and nonassessable and will be free of any liens, encumbrances and preemptive
or similar rights contained in the Restated Articles or Bylaws of the Company
other than rights of first refusal set forth in the Rights Agreement and other
than liens created by the Purchaser. The Common Stock issuable upon conversion
of the Shares have been duly and validly reserved and, when issued in
compliance with the Series D Agreement and the Restated Articles, will be
validly issued, fully paid and nonassessable and free of any liens,
encumbrances and preemptive or similar rights contained in the Restated
Articles or Bylaws of the Company other than liens created by the Purchaser;
provided, however, that the Shares and, the Common Stock issued upon
conversion thereof, may be subject to restrictions on transfer under state
and/or federal securities laws and as set forth in the Rights Agreement. To
our knowledge, except for rights described in the Series D Agreement
(including the exhibits thereto) and the Restated Articles, there are no other
options, warrants, conversion privileges or other rights presently outstanding
to purchase or otherwise acquire any authorized but unissued shares of capital
stock or other securities of the Company, or any other agreements to issue any
such securities or rights.
4. All corporate action on the part of the Company, its directors and
shareholders necessary for the authorization, execution and delivery by the
Company of the Agreements, and the authorization, sale, issuance and delivery
of the Shares (and the Common Stock issuable upon conversion thereof) and the
performance of the Company's obligations under the Agreements has
-3-
<PAGE>
been taken. The Agreements have been duly and validly executed and delivered
by the Company and each constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
5. The execution, delivery and performance of and compliance with the
terms of the Agreements and the issuance of the Shares (and the Common Stock
issuable upon conversion thereof) do not violate any material provision of the
Restated Articles or the Company's Bylaws or, to our knowledge, any provision
of any applicable federal or state statute, rule or regulation or any Material
Contract. To Our knowledge, the company is not in violation of any term of the
Restated Articles or the Company's Bylaws.
6. Except as identified in the Series D Agreement (and the exhibits
thereto), to our knowledge, there are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court
or governmental agency (nor, to our knowledge, is there any written threat
thereof), which, if adversely determined, questions the validity of the
Agreements or any action taken or to be taken by the Company in connection
therewith or would result in a material adverse change in the business or
financial condition of the Company.
7. 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 thereof) or the consummation of any other transaction
contemplated thereby, except qualification (or taking such action as may be
necessary to secure an exemption from qualification, if available) under
applicable blue sky laws (but excluding jurisdictions outside of the United
States) of the offer and sale of the Shares (and the Common Stock issuable
upon conversion thereof) under applicable blue sky laws.
8. Subject to the accuracy of the representations of the Purchaser, the
offer, sale and issuance of the shares (and the Common Stock issuable upon
conversion thereof) to the Purchaser in conformity with the terms of the
Series D Agreement are exempt (and, in the case of the Common Stock issuable
upon conversion of the Shares, will be exempt) from the registration
requirements of Section 5 of the Securities Act and the qualification
requirements of the California Corporate Securities Law of 1968, as amended.
-4-
<PAGE>
This opinion is furnished to the Purchaser solely for its benefit in
connection with the purchase of the Shares and may not be relied upon by any
other person or for any other purpose without our prior written consent.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ Wilson, Sonsini Goodrich & Rosati
-5-
<PAGE>
EXHIBIT G
COMPLIANCE CERTIFICATE
Pursuant to Section 6.5 of that certain Series D Preferred Stock
Purchase Agreement (the "Agreement") dated October 30, 1998, as amended, among
Talk City, Inc., a California corporation (the "Company") and Hearst
Communications, Inc., Hearst New Media & Technology division, the undersigned,
Peter H. Friedman, does hereby certify on behalf of the Company as follows:
1. I am the duly elected President, Chief Executive Officer and
Chairman of the Board of the Company;
2. The Company has fulfilled all of the conditions specified in
Sections 6.1, 6.2 and 6.3 of the Agreement.
IN WITNESS WHEREOF, the undersigned has executed this certificate this
15th day of April, 1999.
/s/ Peter H. Friedman
----------------------------------------------
Peter H.Friedman, President, Chief Executive
Officer and Chairman of the Board.
<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.
<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
-5-
<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. LWP and NBC shall
-----------------------------------------
jointly 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, both parties
shall be permitted to use such Registration Information and other information
for marketing and other purposes so approved through written notice by each
party, 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 the other party.
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
-6-
<PAGE>
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 two million (2,000,000) 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 seventy-five percent
(75%) 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
fifty percent (50%) 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
-7-
<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 fifty percent (50%) 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 sixty-five percent (65%) thereof and the non-
selling party receiving the remaining thirty-five percent (35%) 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 fifty
percent (50%) 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 sixty-
five percent (65%) thereof and the non-selling party receiving the remaining
thirty-five percent (35%) 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
-8-
<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 seven and one-half
--------------------
percent (7.5%) 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 fifty percent (50%) 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
-9-
<PAGE>
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
-10-
<PAGE>
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.
-11-
<PAGE>
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.
-12-
<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
-13-
<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.
-14-
<PAGE>
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
-15-
<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.
-16-
<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.
-2-
<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
-3-
<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 eighty-five percent (85%) 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
1
<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
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>
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 comparable to that of any other link
to a service offered 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
comparable and consistent with the icon and text, if any, devoted to any of
the other individual services 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 in manners and sizes which are most
useful to viewers 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
2
<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 fifty percent (50%) smaller than, 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 10 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
<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 fifty percent (50%) 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
5
<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 20% 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 $20 per hour or a total of $2,000 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 15% 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
<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 23.2
The Board of Directors and Stockholders
Talk City, Inc.:
We consent to the use of our "Independent Auditors' Report" included herein
and to the reference to our firm under the heading "Experts" in the
prospectus.
KPMG LLP
Mountain View, California
July 19, 1999
