-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EtRGstRZQo+Z+cWmzTx2QmPUn1Sdzm/7vpeT6pzi/WBNDL+YDFQ44flMmXBKQ1l9 mzxJJaBa/x1leZ0laDvCoA== 0000912057-01-506026.txt : 20010409 0000912057-01-506026.hdr.sgml : 20010409 ACCESSION NUMBER: 0000912057-01-506026 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TICKETMASTER CENTRAL INDEX KEY: 0001006637 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 954546874 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25041 FILM NUMBER: 1589078 BUSINESS ADDRESS: STREET 1: 3701 WILSHIRE BLVD STREET 2: STE 200 CITY: LOS ANGELES STATE: CA ZIP: 90010 BUSINESS PHONE: 6264050050 MAIL ADDRESS: STREET 1: 3701 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90010 FORMER COMPANY: FORMER CONFORMED NAME: TICKETMASTER ONLINE CITYSEARCH INC DATE OF NAME CHANGE: 19980923 FORMER COMPANY: FORMER CONFORMED NAME: CITYSEARCH INC DATE OF NAME CHANGE: 19980617 10-K 1 a2041707z10-k.txt 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-25041 ------------------------ TICKETMASTER (Exact name of registrant as specified in its charter) DELAWARE 95-4546874 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 3701 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90010 (Address of principal executive offices) (Zip code)
(213) 639-6100 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE TITLE OF EACH CLASS: ON WHICH REGISTERED: - -------------------- --------------------- NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant, based upon the closing price of the Class B Common Stock on March 23, 2001, as reported by Nasdaq, was approximately $337,010,046. Shares of voting stock held by each officer and director and by each person who owns 5% or more of the registrant's outstanding voting stock have been excluded in that such persons may be deemed to be affiliates. This calculation similarly excludes 50,260,401 shares of the registrant's voting stock that are held by Ticketmaster Group, Inc. and its subsidiaries (collectively, "TGI"), which are wholly-owned subsidiaries of the registrant. The determinations of affiliate status set forth in the preceding two sentences are not necessarily conclusive determinations for other purposes. The number of shares of the registrant's Common Stock outstanding on February 28, 2001 was 47,640,097 shares of Class A Common Stock and 93,440,003 shares of Class B Common Stock. The number of shares outstanding does not include 42,480,143 shares of Class A Common Stock and 50,260,401 shares of Class B Common Stock held by TGI, as such shares are indirectly held by the registrant. DOCUMENTS INCORPORATED BY REFERENCE Portions of the proxy statement for the registrant's 2001 Annual Stockholders Meeting are incorporated by reference into Part III herein. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TICKETMASTER INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
PAGE -------- PART I..................................................................... 1 ITEM 1. BUSINESS.................................................... 1 ITEM 2. PROPERTIES.................................................. 22 ITEM 3. LEGAL PROCEEDINGS........................................... 23 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 26 PART II.................................................................... 27 ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....................................... 27 ITEM 6. SELECTED FINANCIAL DATA..................................... 29 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................. 31 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................................... 39 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................................. 39 PART III................................................................... 39 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 39 ITEM 11. EXECUTIVE COMPENSATION...................................... 39 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................................ 39 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 40 PART IV.................................................................... 40 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K....................................................... 40
i PART I ITEM I. BUSINESS Unless the context otherwise requires, references to "Ticketmaster" include Ticketmaster (the company formerly known as Ticketmaster Online-Citysearch, Inc.; "TMCS") and Ticketmaster Group, Inc. ("TGI") and their predecessors, wholly-owned subsidiaries, majority-owned or controlled subsidiaries and ventures and their licensees. Ticketmaster as currently organized was formed in January 2001, pursuant to the consummation of the provisions of a contribution agreement, under which TMCS, the predecessor to Ticketmaster, acquired TGI's businesses from USA Networks, Inc. ("USA Networks") in exchange for 52,000,000 new shares of TMCS's Class B common stock (the "Combination"). Upon the closing of the Combination, TMCS changed its name to "Ticketmaster." The Combination was effected in the two steps described below, both of which occurred at the closing on January 31, 2001: - In the first step, Ticketmaster Corporation ("TM Corp") contributed to TMCS all of the equity interests of its subsidiaries (except for shares of TMCS common stock that it holds), and its assets that were freely assignable. The shares of TMCS common stock that were held by TM Corp prior to the closing were not contributed to TMCS or canceled and are still held by TM Corp. In exchange for the contributions by TM Corp, TMCS issued to TM Corp a number of shares of Class B common stock equal to the fair market value of the equity interests and assets contributed by TM Corp to TMCS. - In the second step, USA Networks, which was the sole stockholder of TGI, which was in turn the sole stockholder of TM Corp, contributed to TMCS all of the outstanding capital stock of TGI. In exchange for the capital stock of TGI, TMCS issued to USA Networks 52,000,000 new shares of Class B common stock. In addition, TMCS issued to USA Networks a number of shares of Class A and Class B common stock equal to the number of such shares indirectly held by USA Networks through TM Corp prior to the Combination. As a result of the Combination, TGI and the former subsidiaries of TM Corp whose equity interests were contributed to TMCS became direct subsidiaries of TMCS and TM Corp became an indirect subsidiary of TMCS. As a result of the Combination, USA Networks now owns an additional 52,000,000 shares of TMCS's Class B common stock. The other shares issued to USA Networks in connection with the Combination only replaced shares that were indirectly owned by USA Networks prior to the Combination and that TMCS now owns as a result of the Combination. Accordingly, these shares do not increase USA Networks' percentage ownership of TMCS's capital stock. In connection with the Combination, TMCS also amended its certificate of incorporation to change its name from Ticketmaster Online-Citysearch, Inc. to Ticketmaster. GENERAL Ticketmaster is the leading provider of automated ticketing services in the world, with over 6,200 domestic and foreign clients, including many of the world's foremost entertainment facilities, promoters and professional sports franchises. Ticketmaster is also a leading local portal and electronic commerce company that provides in-depth local content and services to help people get things done online. Ticketmaster's principal online businesses are city guides, ticketing, personals and camping reservations. Ticketmaster's family of Web sites includes citysearch.com, ticketmaster.com, Match.com, reserveamerica.com, museumtix.com, ticketweb.com, cityauction.com and livedaily.com, among others. Ticketmaster's businesses are operated in two segments: (i) ticketing and (ii) city guides and classifieds. 1 Ticketing includes both online and offline ticketing and camping reservations operations and city guides and classifieds includes all of Ticketmaster's other online properties. TICKETING Ticketmaster has established its ticketing market position by providing its clients with comprehensive ticket inventory control and management, a broad distribution network and dedicated marketing and support services. Ticket orders are received and fulfilled through operator-staffed call centers, independent sales outlets remote to the facility box office and through the ticketmaster.com Web site. Ticketing revenue is generated principally from convenience and handling charges received by Ticketmaster for tickets sold on its clients' behalf. Ticketmaster generally serves as an exclusive agent for its clients and typically has no financial risk for unsold tickets. Ticketmaster sold 83.0 million tickets in fiscal 2000, generating revenues of $518.6 million on a pro forma combined basis. Based upon recent trends in the entertainment, sporting and leisure industries, Ticketmaster believes that its principal business, live entertainment ticketing, will continue to experience increased revenues under existing venue contracts. Ticketmaster believes that significant opportunities also exist to increase penetration of this principal market. Additionally, Ticketmaster believes that further ticketing opportunities will arise from an increase in the number of concerts and theatrical and family shows, the construction of new and larger facilities, an increase in the number of professional sports teams and the development of new sports leagues. Furthermore, Ticketmaster plans to continue to broaden its client base to include such venues as museums, amusement parks and state and county fairs. In addition, Ticketmaster intends to continue to grow its online businesses and to acquire additional online and offline businesses when appropriate opportunities become available. Ticketmaster has continued to expand its ticketing operations into territories outside of the United States, and has experienced growth in these markets, with international ticket sales increasing, on a pro forma combined basis, from 12.5 million in fiscal 1999 to 14.2 million in fiscal 2000, and revenues from international ticket sales increasing from $41.4 million to $47.0 million for the same periods. Ticket sales and revenues from international markets represented approximately 17% and 9% of total ticket sales and revenues in fiscal 2000 and in fiscal 1999, respectively. Ticketmaster believes that significant additional opportunities exist in international markets to attract existing and new venues in an historically under-penetrated market for automated ticketing services for live entertainment events. In addition, Ticketmaster believes that the continued enthusiasm for music, theatre, family and arts touring shows, as well as for soccer, rugby and cricket, coupled with the growing popularity of major American sports such as football, baseball and basketball, will lead to increased use of international venues and provide additional revenue opportunities for Ticketmaster. Ticketmaster is seeking to enhance its ability to capitalize on these trends by expanding its existing operations in Canada, the United Kingdom, Ireland, Australia and Mexico, entering into a license agreement covering operations in South and Central America and exploring further opportunities in Europe and Asia. Ticketmaster has also expanded its ticket distribution capabilities through the continued development of the ticketmaster.com Web site, which is designed to promote ticket sales for live events, disseminate event information and offer transactional and merchandising services. Ticketmaster has experienced significant growth in ticket sales through ticketmaster.com in recent years and expects this trend to continue during the next several fiscal years. For the year ended December 31, 2000, online ticket sales through ticketmaster.com accounted for approximately 24.3% of Ticketmaster's ticketing business in the United States, Canada and the United Kingdom, with ticket sales of approximately 19 million having a gross dollar value of over $863 million. Ticketmaster is continuing to use its widely recognized brand name and extensive distribution capabilities to develop new opportunities in related areas, such as entertainment information, 2 merchandising, advertising, promotional services and direct marketing. Specific examples of these efforts include offering integrated brand management and marketing services to strategic partners, such as American Express, Cendant Membership Services, Inc. and Time, Inc. through sponsorship and advertising opportunities during live events, during telephone ticketing services, on its ticket stock and envelopes, on event promotional material and in additional media outlets that Ticketmaster is developing. Ticketmaster believes that its proprietary operating system and software, which is referred to as the Ticketmaster System, and its extensive distribution capabilities provide it with a competitive advantage that enhances Ticketmaster's ability to attract new clients and maintain its existing client base. The Ticketmaster System, which includes both hardware and software, is typically located in a data center that is managed by Ticketmaster staff. The Ticketmaster System provides a single centralized inventory control and management system capable of tracking total ticket inventory for all events, whether sales are made on a season, subscription, group or individual ticket basis. All necessary hardware and software required for the use of the Ticketmaster System is installed in a client's facility box office, call centers or remote sales outlets. The Ticketmaster System is capable of processing over 100,000 tickets per hour, and each of its 26 regional computer systems can support 32,000 users, of which as many as 5,000 can theoretically be actively using the system at any one time. In addition, Ticketmaster has developed or acquired a number of product systems which it now makes available to its ticketing clients as a complement to the Ticketmaster System. Specifically, Ticketmaster offers clients a new array of products and services, including its Architect Ticketing System ("Archtics"), which provides database and customer management features; Facility Access Network by Ticketmaster ("FanTM"), which provides access control through various wireless scanning devices; Ultimate Fan, which is a venue based data collection system designed to help build customer loyalty; and Personal Computerized Interface ("PCI"), which is a personal computer front-end system for the Ticketmaster host system. These systems are widely used by clients. Ticketmaster also has acquired alternative systems, and utilizes its Synchro Venue master client server relational database system targeted for clients abroad, the Microflex ticketing system and Pacer Cats, its inventory management system. Ticketmaster believes that its continued commitment to expanding its systems and capabilities in response to its clients' needs is a critical component to its growth. Ticketmaster has a comprehensive domestic ticket distribution system that includes approximately 3,000 remote sales outlets covering many of the major metropolitan areas in the United States and six domestic call centers with approximately 1,300 operator and customer service positions. The foreign distribution system includes approximately 440 remote sales outlets in five countries and 10 call centers with approximately 600 operator positions. Ticketmaster provides the public with convenient access to tickets and information regarding live entertainment events. Ticket purchasers are assessed a convenience charge for each ticket sold offsite by Ticketmaster on behalf of its clients. These charges are negotiated and included in Ticketmaster's contracts with its clients. The versatility of the Ticketmaster System allows it to be customized to satisfy a full range of client requirements. In addition, Ticketmaster's ticketing segment includes its other ticketing companies, 2b Technology, Inc., a Richmond, Virginia based visitor management software developer and offline and online ticketing company that targets venues such as higher volume museums, cultural institutions and historic sites through its Web site museumtix.com, and TicketWeb Inc., a ticketing company whose Web-based ticketing software allows venues and event promoters, including symphony concerts, clubs, museum exhibitions, amusement parks and film festivals, to perform box-office operations remotely over the Internet. The operations of 2b Technology and TicketWeb are currently being integrated into those of Ticketmaster's ticketing operations. The data provided above with regard to Ticketmaster's ticketing operations during fiscal 2000 excludes data relating to 2b and TicketWeb. 3 Also included in the ticketing segment is Ticketmaster's recently acquired subsidiary, ReserveAmerica Holdings, Inc., a campground reservations company. ReserveAmerica is the leading provider of reservation software and services to United States state and federal agencies for camping and outdoor recreation activities. ReserveAmerica operates three telephone call centers, located in New York, California and Wisconsin, which provide a full range of customer service solutions to its clients. In addition to the call center volume, through its Web site, www.reserveamerica.com, ReserveAmerica provides online sales and information to up to 30,000 visitors daily. Annually, over 2.7 million transactions are processed through ReserveAmerica's reservation systems. CITY GUIDES AND CLASSIFIEDS Ticketmaster's portfolio of online Web sites includes, in addition to its ticketing and camping reservation Web sites, citysearch.com, Match.com, cityauction.com, livedaily.com and careers.citysearch.com, each of which is described in more detail below. - - Citysearch is a network of local portal city guide sites that offer primarily original local content for major cities in the United States and abroad, as well as practical transactional tools to get things done online. The city guides provide up-to-date, locally produced information about a city's arts and entertainment events, bars and restaurants, recreation, community activities and businesses (shopping and professional services), as well as local news, sports and weather updates. Citysearch city guides also let people act on what they learn by supporting online business transactions, including ticketing, reservations, auctions, matchmaking, merchandise sales and classifieds. With Ticketmaster's acquisition of the arts and entertainment portion of the MSN Sidewalk (sidewalk.com) city guides in September 1999, Citysearch local city guides now cover more than 100 cities worldwide. - - Match.com is a leading online matchmaking and dating service that offers single adults a convenient and private environment for meeting other singles. In combination with the One & Only Network, another online personals company Ticketmaster acquired in 1999 and which it is combining with Match.com (the combined operations to be called Match.com), Match.com has more than 9 million user registrations and approximately 1.5 million active users, generating more than 100 million monthly page views. In addition, as part of Ticketmaster's transaction with Microsoft, Match.com has become the premier provider of online personals and matchmaking services on The Microsoft Network (MSN). - - cityauction.com is a person-to-person online auction service that provides a local resource for online auctions. In addition to national and regional auctions, cityauction.com lets users post and search for items in their own locality, allowing them to trade items that would be considered too valuable or difficult to transport, such as televisions or furniture. cityauction.com is a member of the FairMarket, Inc. network of auction sites. Buyers and sellers using cityauction.com have access to all of the auctions listed in the FairMarket network of auction sites, including listings from users of many of the largest Internet portal Web sites. - - livedaily.com is Ticketmaster's daily online live entertainment news webzine that offers music fans daily concert and music news, tour announcements, reviews, interviews and exclusive national ticketing information. livedaily.com users benefit from direct connections to Ticketmaster's ticket distribution network at ticketmaster.com and local music information via Citysearch's growing network of city guides. - - careers.citysearch.com is Ticketmaster's online source of employment classifieds and specialists that can be viewed by city to make job searching efficient and effective. 4 TICKETING CLIENT RELATIONSHIPS Ticketmaster's ticketing clients include many of the most well known arenas, stadiums, theaters, sports teams and promoters in the United States and abroad. Ticketmaster currently provides service to ticketing clients ranging in size from large stadiums with more than 100,000 seats to smaller theaters with seating in the hundreds, and from multi-event promoters to one-time single event promoters. Ticketmaster's clients also include professional sports leagues and franchises in the United States, including the National Basketball Association and most of its member teams, National Hockey League teams, Major League Baseball teams, National Football League teams, Major League Soccer teams, Women's National Basketball Association teams, PGA Tour, Inc. and numerous participating PGA Tour events. Representative of Ticketmaster's clients are the following: Adelphia Coliseum, NASHVILLE, TN Air Canada Centre, TORONTO, CANADA Alamodome, SAN ANTONIO, TX America West Arena, PHOENIX, AZ American Airlines Arena, MIAMI, FL Arco Arena, SACRAMENTO, CA Arie Crown Theater, CHICAGO, IL Arrowhead Pond, ANAHEIM, CA Berklee Performance Center, BOSTON, MA Bi-Lo Center, GREENVILLE, SC Blossom Music Center, CUYAHOGA FALLS, OH Bradley Center, MILWAUKEE, WI Cajundome, LAFAYETTE, LA Charlotte Coliseum, CHARLOTTE, NC Chicago Theater, CHICAGO, IL Colonial Stadium, MELBOURNE, AUSTRALIA Compaq Center, HOUSTON, TX Conseco Fieldhouse, INDIANAPOLIS, IN Continental Arena, EAST RUTHERFORD, NJ Deer Creek Music Center, NOBLESVILLE, IN Delta Center, SALT LAKE CITY, UT Fargodome, FARGO, ND Feld Entertainment, Inc. First Union Arena at Casey Plaza, WILKES-BARRE, PA First Union Spectrum, PHILADELPHIA, PA FleetCenter, BOSTON, MA Ford Center for the Performing Arts, CHICAGO, IL Ford Center for the Performing Arts, NEW YORK, NY Freedom Hall, LOUISVILLE, KY Gaylord Entertainment Center, NASHVILLE, TN General Motors Place, VANCOUVER, CANADA Georgia Dome, ATLANTA, GA Grand Center, GRAND RAPIDS, MI Great Western Forum, INGLEWOOD, CA Greek Theatre, LOS ANGELES, CA Gund Arena, CLEVELAND, OH House of Blues Concerts Ice Palace Arena, TAMPA, FL Irvine Meadows Verizon Wireless Amphitheater, IRVINE, CA Joe Louis Arena, DETROIT, MI John G. Shedd Aquarium and Oceanarium, CHICAGO, IL Jones Beach Theatre, LAWRENCE, NY Los Angeles Memorial Coliseum, LOS ANGELES, CA Louisiana Superdome, NEW ORLEANS, LA Madison Square Garden, NEW YORK, NY Mars Music Amphitheater, WEST PALM BEACH, FL Nassau Coliseum, UNIONDALE, NY New World Music Theatre, TINLEY PARK, IL Odyssey Arena, BELFAST, IRELAND Orlando Centroplex, ORLANDO, FL Palace of Auburn Hills, AUBURN HILLS, MI Pepsi Arena, ALBANY, NY Philips Arena, ATLANTA, GA Pine Knob Music Theatre, CLARKSTON, MI PNC Bank Arts Center, HOLMDEL, NJ Point Theatre, DUBLIN, IRELAND Pontiac Stadium, DETROIT, MI Post-Gazette Pavilion at Star Lake, BURGETTSTOWN, PA Pro Player Stadium, MIAMI, FL Pyramid Arena and Exhibition Hall, MEMPHIS, TN Radio City Music Hall, NEW YORK, NY RCA Dome, INDIANAPOLIS, IN Reliant Astrodome, HOUSTON, TX Reunion Arena, DALLAS, TX Rose Garden, PORTLAND, OR Rosemont Horizon, ROSEMONT, IL Rupp Arena, LEXINGTON, KY San Jose Arena, SAN JOSE, CA Seattle Center, SEATTLE, WA SFX Entertainment, Inc. Staples Center, LOS ANGELES, CA Star Lake Amphitheatre, PITTSBURGH, PA Skydome, TORONTO, CANADA Tacoma Dome, TACOMA, WA Target Center, MINNEAPOLIS, MN Tennessee Performing Arts Center, NASHVILLE, TN Texas Stadium, IRVING, TX The Melbourne Cricket Grounds (MCG), MELBOURNE, AUSTRALIA The Nederlander Organization The Pepsi Center, DENVER, CO The Walt Disney Company TD Waterhouse Centre, ORLANDO, FL Turner Field, ATLANTA, GA United Center, CHICAGO, IL USF Sun Dome, TAMPA, FL Wembley Arena, LONDON, ENGLAND Worcester Centrum Centre, WORCESTER, MA 5 Ticketmaster generally enters into written agreements with its clients pursuant to which it agrees to provide the Ticketmaster System and related systems purchased by the client, and to serve as the client's exclusive ticket sales agent for all sales of individual tickets sold to the general public outside of the facility's box office, including any tickets sold at remote sales outlets, over the phone or via the Internet, for a specified period, which is typically three to five years. Pursuant to an agreement with a facility, Ticketmaster is generally granted the right to sell tickets for all events presented at that facility, and as part of such arrangement Ticketmaster installs the necessary ticketing equipment in the facility's box office. An agreement with a promoter generally grants Ticketmaster the right to sell tickets for all events presented by that promoter at any facility, unless the facility is covered by an exclusive agreement with Ticketmaster or another automated ticketing service company. The terms of Ticketmaster's agreements with its clients are generally negotiated on a contract-by-contract basis, except in the case of contracts subject to public bid (e.g., for facilities owned or managed by municipalities or governmental agencies), the terms of which are largely defined by the specifications and conditions set forth in the formal requests for bids. Clients are routinely required by contract to include the Ticketmaster name in print, radio and television advertisements for entertainment events sponsored by such clients. The Ticketmaster name and logo are also prominently displayed on printed tickets and ticket envelopes. Ticketmaster generally does not buy tickets from its clients for resale to the public and typically has no financial risk for unsold tickets. In the United Kingdom, Ticketmaster may from time to time buy tickets from its clients for resale to the public in an amount typically not exceeding L600,000 in the aggregate. All ticket prices are determined by Ticketmaster's clients. Ticketmaster's clients also generally determine when tickets go on sale to the public and what tickets will be available for sale through Ticketmaster. Facilities and promoters, for example, often handle group sales and season tickets in-house. Ticketmaster only sells a portion of its clients' tickets, the amount of which varies from client to client and varies as to any single client from year to year. Ticketmaster believes that the Ticketmaster System provides its clients with numerous benefits, including (1) broader and expedited distribution of tickets, (2) centralized control of total ticket inventory as well as accounting information and market research data, (3) centralized accountability for ticket proceeds, (4) manageable and predictable transaction costs, (5) wide dissemination of information about upcoming events through Ticketmaster's call centers, ticketmaster.com and other media platforms, (6) the ability to quickly and easily add additional performances if warranted by demand and (7) marketing and promotional support. The Ticketmaster System and related systems such as Archtics, FanTM, PCI and Ultimate Fan also provide Ticketmaster's clients with flexibility in processing season, subscription and group ticketing, database management, access control and fan loyalty programs. For example, using the Ticketmaster System, a sports team can choose to give priority to season tickets, mini-ticket plans and group sales, permitting those ticket purchasers to have first choice of tickets before their sale to the general public. In addition, Ticketmaster's clients have the ability to structure single or multiple events, including seasonal events, in almost any number and type of pricing and discount plans. Ticketmaster believes that its clients also place high value on the ability to integrate their on-site networks with the Ticketmaster System, enhance access control with the FanTM system, and offer "Print My Own Tickets" at home and various fan loyalty programs through the Ultimate Fan system. Pursuant to its contracts with clients, Ticketmaster is granted the right to collect from ticket purchasers a per ticket convenience charge on all tickets sold at remote sales outlets, by telephone, through ticketmaster.com and other media. There is an additional per order handling charge on all tickets sold by Ticketmaster at other than remote sales outlets. Generally, the amount of the convenience charge is determined during the contract negotiation process, and typically varies based upon numerous factors, including the services to be rendered to the client, the amount and cost of 6 equipment to be installed at the client's box office and the amount of advertising and/or promotional allowances to be provided, as well as the type of event and whether the ticket is purchased at a remote sales outlet, by telephone, through ticketmaster.com or otherwise. Any deviations from those amounts for any event are negotiated and agreed upon by Ticketmaster and its client prior to the commencement of ticket sales. During fiscal 2000, Ticketmaster's convenience charges generally ranged from $1.50 to $8.00 per ticket. Convenience charges from ticket sales at outlets, through call centers and via ticketmaster.com (inclusive of per order handling charges added for sales through call centers and via ticketmaster.com) averaged $5.71 per ticket in fiscal 2000. Generally, Ticketmaster's agreement with a particular client also establishes the amounts and frequency of any increases in the convenience charge and handling fees during the term of the agreement. Ticketmaster's agreement with a client may also provide for the client to participate in the convenience and/or handling fees paid by ticket purchasers for tickets bought through Ticketmaster for that client's events. The amount of such participation, if any, is determined by negotiation between Ticketmaster and the client. Some agreements also may provide for Ticketmaster to make participation advances to the client, generally recoupable by Ticketmaster out of the client's future right to participations. In isolated instances, Ticketmaster may make an upfront, non-recoupable payment to a client for the right to sell tickets for that client. The agreements also specify the additional systems, if any, that may be used and purchased by clients. If an event is canceled, Ticketmaster's current policy is to refund the per ticket convenience charges (but not the handling fee that is payable with respect to transactions by telephone and online orders). Refunds of the ticket price for a canceled event are funded by the client. To the extent that funds then being held by Ticketmaster on behalf of the client are insufficient to cover all refunds, the client is obligated to provide Ticketmaster with additional amounts within a specified period of time (typically 24 to 72 hours) after request by Ticketmaster. Clients have historically fulfilled these obligations. DISTRIBUTION SYSTEM Ticketmaster's ticketing distribution system is principally comprised of remote sales outlets, call centers and the ticketmaster.com Web site. During fiscal 2000, ticket sales at the remote sales outlets, at call centers and on ticketmaster.com accounted for approximately 40%, 36% and 24%, respectively, of Ticketmaster's ticket sales. REMOTE SALES OUTLETS At the end of fiscal 2000, Ticketmaster had approximately 3,460 remote ticket sales outlets worldwide, 3,020 of which were located in the United States and approximately 440 of which were in foreign territories, compared to approximately 3,450 remote ticket sales outlets worldwide at the end of fiscal 1999. Ticketmaster has emphasized the establishment of retail outlets in high visibility chain stores with existing name recognition, significant customer traffic and customer profiles consistent with the type of events sold through the Ticketmaster System. The majority of Ticketmaster's remote sales outlets are located in major department, grocery and music stores. Among the retailers that serve as remote sales outlets are Carson Pirie Scott, Dayton-Hudson's, Marshall Field's, Foley's and Robinsons-May department stores, Rite-Aid drug stores, Dominick's, Fiesta and Kroger grocery stores and Coconuts, The Wiz, Wherehouse, Disc Jockey and Tower Records music stores. The specific stores within each chain that serve as remote sales outlets are negotiated by Ticketmaster with each chain. Ticketmaster is responsible for installation and maintenance of the hardware and software necessary to sell tickets through the Ticketmaster System at the remote sales outlets. Ticketmaster also trains the remote sales outlet's employees in the use of the Ticketmaster System and related systems, provides support and oversight in connection with the sale of tickets and furnishes the remote sales 7 outlets with promotional materials related to the Ticketmaster System and events for which tickets are available. The remote sales outlets are responsible for the staffing of the stores and their daily operation. The remote sales outlets are generally paid a commission of approximately 20% to 25% of the convenience charge, typically subject to a maximum amount per ticket. Since February 1997, Ticketmaster has accepted credit cards in addition to cash at the outlets. Ticket purchasers receive their tickets at the point of sale. The remote sales outlets generally deliver sales proceeds and convenience charges to Ticketmaster on a schedule ranging from daily to weekly depending on the financial condition of the particular remote sales outlets and other factors. Ticketmaster has not suffered any material loss with respect to funds collected by its remote sales outlets for remittance to Ticketmaster. CALL CENTERS At December 31, 2000, Ticketmaster operated 16 call centers worldwide. Ticket purchasers seeking a greater degree of convenience than is afforded at facility box offices or remote sales outlets can purchase tickets by telephone seven days a week, up to 14 hours per day, using a major credit card. Sales agents, staffing up to approximately 1,400 telephone and customer service positions domestically and approximately 300 in foreign markets, take the caller's credit card order and mail the tickets directly to the ticket purchasers. Tickets that are purchased by telephone can also be picked up at the appropriate facility's "will call" ticket window. Ticketmaster typically assesses a per order handling fee in addition to the per ticket convenience charge. Ticketmaster generally receives the ticket sales proceeds and convenience and handling fees from telephone credit card transactions within two business days after submission to the credit card company. The call centers also respond to large numbers of informational calls related to events, including requests for facility characteristics, directions, telephone numbers, disability access and seating and local hotels and restaurants. Concurrently with the sale of tickets to entertainment events, Ticketmaster's call centers may offer other products for sale related to the events for which tickets are being sold and may offer other unrelated products. Ticketmaster generally fulfills these sales by ordering the products from a third party. Ticketmaster operates domestic call centers in Los Angeles, California; Orlando, Florida; Pharr and McAllen, Texas; and Richmond and Virginia Beach, Virginia. Ticketmaster also operates call centers in London, England; Calgary, Edmonton, Toronto, Vancouver, Winnipeg and Montreal, Canada; Melbourne, Australia; and through its licensee in Mexico City, Mexico. An important feature of Ticketmaster's domestic telephone system is the ability to channel all or a portion of incoming calls from any city to a selected call center. Accordingly, the number of telephone positions available to receive telephone orders in a given region is capable of being increased in advance of the commencement of sales activity for a major event. Similarly, the ability to network call centers affords Ticketmaster back-up capabilities in the event that a call center experiences operating difficulties. In addition, Ticketmaster has effectively handled a number of ticket orders through its interactive voice response system, which processes ticket orders on the phone without operator assistance. At the end of 2000, approximately 5% of all of Ticketmaster's ticket sales were processed through the interactive voice response system. ONLINE TICKETING SERVICES Ticketmaster expanded its Internet distribution network through a license agreement entered into with TMCS prior to the Combination. The addition of online services permits consumers to purchase tickets and access information about events on their personal computers via the Internet. Ticketmaster's ticketing transactions are processed primarily through ticketmaster.com and, to a lesser extent, through ticketweb.com, museumtix.com and various international versions of these Web sites. Ticketmaster expects online sales to continue to expand as more consumers engage in transactions over the Internet. Additionally, this medium provides Ticketmaster with a cost efficient way to disseminate information 8 and cross-promote, which may help reduce costs for these services across Ticketmaster's other distribution channels. From September 1998 until the Combination, Ticketmaster's online ticketing operations were conducted exclusively by TMCS; since the Combination, they are conducted by Ticketmaster. Ticketmaster.com is the leading online ticketing service. The service enables consumers to purchase tickets for live music, sports, arts and family entertainment events presented by Ticketmaster's clients and related merchandise over the Web. Consumers can access the ticketmaster.com service at www.ticketmaster.com, from Ticketmaster's other owned and operated Web sites, including citysearch.com, and through numerous direct links from banners and event profiles hosted by third party Web sites. In addition to these services, the ticketmaster.com Web site provides local information and original content regarding live events for Ticketmaster clients throughout the United States, Canada and the United Kingdom. Throughout his or her visit to the ticketmaster.com Web site and at the conclusion of a confirmed ticket purchase, the consumer is prompted to purchase merchandise that is related to a particular event, such as videos, tour merchandise and sports memorabilia from the store.ticketmaster.com site. Ticketmaster intends to expand the types and range of merchandise that can be ordered by consumers through the ticketmaster.com Web site. Since the commencement of online ticket sales in November 1996, ticketmaster.com has experienced significant growth in the volume of tickets sold through its Web site. Gross transaction dollars for ticket sales increased from approximately $223,000 in November 1996 to $84.1 million in December 2000. Similarly, tickets sold on the ticketmaster.com Web site in November 1996 represented less than 1% of total tickets sold by Ticketmaster, while tickets sold online in the quarter ended December 31, 2000 represented more than 26.2% of Ticketmaster's tickets sold in the United States, Canada and the United Kingdom. The ticketmaster.com ticketing system interfaces on a real-time basis with the host ticketing systems developed by Ticketmaster. This process is designed to ensure that, except in limited circumstances, the inventory of tickets available online is identical to that which is available through Ticketmaster's other distribution methods (e.g., telephone call centers and independent retail outlets) and to enable consumers to order tickets on a "best available seat" basis. Ticketmaster has taken various measures designed to prevent system failure in Ticketmaster's computer center. Each system has a live back-up available in the event of a primary system failure. Rooms housing computer-related equipment are protected by computer-safe fire protection systems. To guard against power outages, uninterruptable power supplies are utilized. High capacity back-up generators eliminate dependency on public electric sources and all data is continually recorded to multiple back-up systems. In addition, the ticketmaster.com Web site is mirrored in three separate co-location facilities across the United States. Ticketmaster uses Secure Sockets Layer encryption technology, which is designed to allow users to transmit their personal information securely over the ticketmaster.com Web site. The decrypted data is then passed through two levels of firewalls, using an internally developed communications protocol, to the Ticketmaster host systems where credit cards are processed and customer accounts are created. The host systems communicate directly with bank processing centers for instantaneous online credit card authorization and electronic deposit of credit card receipts. Essentially, all order processing, credit card billing, order fulfillment and consumer service functions for online ticketing orders are handled by Ticketmaster in the same manner as orders which are placed by telephone. ticketmaster.com has an extensive database of live event information, with event information updated 20 times every hour and more than 200 times daily. This database contains information on more than 30,000 events and over 3,000 clients and is designed to support an easy-to-use and reliable dynamic event calendar and ticket-buying interface to the Ticketmaster System. 9 The ticketmaster.com system is deployed as a multi-tiered system of servers that separate database functions, Web page serving functions, transaction processing functions and ticketing system interfacing functions. The system is built using a combination of commercial and proprietary software and hardware and is integrated into the Ticketmaster System. All ticketmaster.com ticket sales occur on one of 26 geographically dispersed host systems. Credit card authorization and deposit, inventory control for events, customer account management and ticket printing and distribution are all handled on the Ticketmaster System. Internet users interact with various Web servers to find an event using various criteria including event location, event type or performer name. Once an event is located, users interact with forms-based HTML pages to guide them through the ticket-buying process. The Web servers communicate via a proprietary gateway to the host ticketing systems where the transaction actually takes place. THE TICKETMASTER SYSTEM Ticketmaster specifically developed its proprietary operating system, application software and its computer and telephone systems for the live event ticketing industry. The Ticketmaster System provides clients with the means to maintain and control their ticket inventory efficiently. Users of the Ticketmaster System can effect a range of functions from the most basic to the most complex, including individual advanced ticket sales, season and subscription ticketing, day of show walk-up ticket sales and group ticket sales. The Ticketmaster System software is maintained in-house, eliminating any reliance upon outside software companies. Ticketmaster believes that this allows it to more readily adapt to its clients' needs, changing market conditions and advances in hardware and other technologies. The Ticketmaster System communicates directly with bank processing centers for instantaneous online credit card authorization and electronic deposit of credit card receipts. All of the Ticketmaster System's online terminals at the call centers and at selected facility box offices have access to the authorization network. Significant measures are taken to prevent system failure in each computer center. Each system has a live back-up standing ready in the event of a primary system failure. Rooms housing computer-related equipment are protected by computer-safe fire protection systems. Dual custom air conditioning units provide constant climate control. To guard against power outages, Ticketmaster employs uninterruptable power supplies. High capacity back-up generators eliminate the dependency on public electric sources. Moreover, all data are continually recorded to multiple back-up systems. Ticketmaster maintains an online disaster recovery site in one of its principal offices. Historically, the Ticketmaster System has experienced minimal downtime. Ticketmaster's proprietary software and system are the product of over 20 years of innovation and continual enhancement by a team of in-house software and system professionals currently numbering over 80. Ticketmaster's research and development staff has produced significant enhancements to the Ticketmaster System, including proprietary ticket printers and data telecommunications multiplexors, and regularly upgrades Ticketmaster's software. In order to further expand its product line and offer specialized products to its clients, Ticketmaster has acquired a number of system and software development companies. For example, in January 1998, Ticketmaster acquired the software capabilities of Distributed System Architects, Inc., which provides Archtics software and services for professional sports teams. Similarly, other acquisitions have facilitated Ticketmaster's expansion of its development team and the integration of related products and services, including FanTM, PCI, Ultimate Fan, Synchro and Pacer Cats. In April 2000, Ticketmaster further expanded its product line and development team by acquiring the Microflex Ticketing System used by Admission Network USA Inc. in North America and by Cirque du Soleil, among other clients. In November 2000, Ticketmaster also began to implement its "Print My Own Tickets" program, which is currently only available through ticketmaster.com. This technology 10 allows Ticketmaster to deliver tickets instantly to customers by allowing them to print their own safe and secure bar-coded tickets on their home or office printers. Using Ticketmaster FanTM access control technology, facilities can accept and verify tickets created using "Print My Own Tickets" as well as other bar-coded Ticketmaster tickets. TICKETING INDUSTRY OVERVIEW Ticketmaster believes that, although a material percentage of all tickets for live entertainment events sold in the United States during fiscal 2000 were sold through retail outlet networks, call centers and online services operated by automated ticketing service companies, the domestic market represents a growth opportunity as consumers increasingly use the Internet and seek the convenience offered by ticket locations away from the facility box office. The use of automated ticketing is generally in an earlier stage of development outside of the United States, although the actual level of use varies greatly from country to country. While Ticketmaster believes that there is substantial potential for international growth, the timing and rate of penetration within each international market will vary. The supply of tickets, both domestically and internationally, has increased in recent years due to, among other factors, increases in the number of concerts and family shows, the number of facilities (e.g., construction of amphitheaters) and facility size and seating capacity, event expansion into new market areas (e.g., the increase in the number of professional sports teams and the development of new sports leagues) and increases in the number of performances of a particular event (e.g., the adoption of lengthened regular season play and expanded post-season play by sports leagues and associations). Ticket supply has also been enhanced by the facilities' need to present as many revenue-producing events as possible in order to meet their financial and other obligations. In recent years, the public's increased demand for tickets to certain live entertainment events has been evidenced by its willingness to pay higher ticket prices to attend these events and the spread of public interest in certain types of events beyond historical levels (e.g., increased worldwide interest in football, baseball and basketball). In addition to live entertainment events held at arenas, amphitheaters, stadiums and performing arts venues, automated ticketing for live events has expanded into servicing ticket issuing facilities that do not generally have seats (e.g., museums, amusement parks and state and county fairs). The success of automated ticket service companies depends on their ability to develop and maintain relationships with facilities, sports teams and promoters by providing high quality service as well as the availability of, and public demand for, tickets for all types of events, including sports, family entertainment, concerts, fine arts and cultural attractions. CITY GUIDES AND CLASSIFIEDS CITYSEARCH CITY GUIDES As of December 31, 2000, Ticketmaster had launched citysearch.com sites in 103 cities in the United States, 100 of which are owned and operated by Ticketmaster and the remaining three of which are partner-led. In 33 of the domestic markets in which citysearch.com sites are owned and operated by Ticketmaster, Ticketmaster also maintains local sales and content offices. Ticketmaster has also launched citysearch.com sites in 21 international markets, all of which are partner-led. Although Ticketmaster intends to focus its efforts in the city guides and classifieds segment in fiscal 2001 on further developing the domestic markets in which it has already launched Citysearch sites, Ticketmaster intends to continue to expand its services in other markets by partnering internationally with major media companies. Ticketmaster's international media partners bring capital, brand recognition, promotional strength and local knowledge to their city guides and allow Ticketmaster to build out its international network of sites faster than it could solely through owned and operated sites. 11 CITYSEARCH--BUSINESS-TO-CONSUMER PRODUCTS Citysearch provides local, regional and national businesses with a wide range of Web advertising options designed to reach growing local audiences. These options include Web site design and hosting, premium placement advertising, listings, banners and customized sponsorships and promotions. WEB SITE DESIGN AND HOSTING. Citysearch offers several options for businesses seeking to create a Web presence, from a basic Web site to a multi-page site with additional features and functionality. As of December 1, 2000, Citysearch charged between $50 and $75 per month for its Web site hosting and maintenance services. In addition, Citysearch charges an upfront development and design fee between $1,000 and $5,000 in connection with all its Web site design services. Business customers generally enter into a one-year agreement with Citysearch that automatically converts into a month-to-month contract upon expiration of the initial term. Citysearch provides an integrated solution for businesses to establish a Web presence, including design, photography, layout, posting of updated information, hosting and maintenance. Enhanced features and functionality such as panoramic images, photo galleries and audio clips are available for an additional cost. Citysearch enables its business customers to provide their targeted audiences with current information about their products and services, including photographs, prices, location(s), schedules of live entertainment, sales and other relevant information. Citysearch offers business customers a certain number of free updates each month. PREMIUM PLACEMENT ADVERTISING. Citysearch offers businesses an opportunity to target interested users on the citysearch.com search result pages. Premium placement allows a business's advertisement to appear in one of four advertising positions on the citysearch.com search result pages in various categories, such as hotels, jewelry, bars or restaurants. Keywords associated with a particular business category direct users to premium placement ads on the search results page. Citysearch believes that its premium placement option affords its business customers an efficient and effective means of placing their messages prominently when their potential customers are ready to act. Citysearch customers who select premium placement can choose to link directly to their own Web sites or have Citysearch create a Web presence for them. As of October 1, 2000, Citysearch charged an average of $400 per month for premium placement packages and offered both six- and 12-month contracts. LISTINGS. Businesses can choose from a variety of listing options on citysearch.com. A priority listing allows a business to boost its presence in citysearch.com search results by ensuring that its ad will be placed above those of its competition. An enhanced yellow pages directory listing enables a business to be listed in the Citysearch yellow pages section, which includes the business' name, email button (which links directly to the business' email address), a promotional copy line describing its business and a link to their Citysearch-designed or other Web site. As of February 1, 2001, pricing for listing packages ranged from complimentary to an average of $250 per month. BANNERS AND SPONSORSHIPS. Citysearch also offers local, regional and national businesses opportunities to gain local exposure through Citysearch's banner, sponsorship and promotion products. A business can promote its message by sponsoring one of Citysearch's four major editorial guides, which include Citysearch Weekends, an online weekend planning guide, and Best of Citysearch, a guide that features reader's and editor's picks for the best in local restaurants, shopping, hotels, local traditions and more. The Citysearch editorial calendar provides advertisers with opportunities all year long to be associated with the best in seasonal content from Citysearch's editors. Guide Sponsorships are priced individually by city or nationally and, as of December 1, 2000, ranged in price from $5,000 to $750,000. Citysearch sells section sponsorships of various sections within its city guide on a local and national basis. Sponsorships are offered in the categories of Music, Movies, Arts, Hotels & Visitors, Shopping, Restaurants, Attractions, Sports & Recreation and Bars & Nightlife. As of December 1, 2000, section 12 sponsorships were priced individually by city or nationally, at prices ranging from $4,000 to $2,000,000 per year and were sold in three-month periods. PROMOTIONAL OPPORTUNITIES. Citysearch believes its turn-key Internet marketing programs help businesses achieve their objectives by translating online initiatives into offline results. Elements of Citysearch's marketing programs include online sweepstakes and fulfillment/database building, consumer incentive programs and offline marketing programs such as point-of-purchase, employee incentives and special event sponsorships. These programs are highly customized and are priced according to the scope of the project. Advertisers can purchase targeted banner advertising separately or with any of the programs above. CITYSEARCH--STRATEGIC ALLIANCES Citysearch has entered into partnerships and strategic alliances with third parties in order to: - rapidly build its national and international network of Citysearch local city guides; - generate licensing revenue from Citysearch partner-led markets; - facilitate branding; - gain access to additional content; and - drive traffic on its network of sites. NEWSPAPER AND TELEPHONY PARTNERSHIPS. Citysearch has entered into strategic partnerships with major newspapers and media companies including The Dallas Morning News, The San Diego Union-Tribune, The Washington Post, Newsweek Interactive, Big Colour Pages (the independent yellow pages of Australia), The Melbourne Age, Schibsted ASA/Scandinavia Online (Copenhagen, Oslo and Stockholm), The Sydney Morning Herald, Bell ActiMedia Services Inc. (the yellow pages subsidiary of Bell Canada, Inc.), the Toronto Star, the Korea Information & Communications Co. and Kadokawa Shoten Publishing Co., Ltd. In these partner-led markets, the partner provides capital and management, while Citysearch contributes technology, a business model, consulting services, business systems and processes and network participation. Citysearch typically receives up-front license fees, ongoing license fees for delivery of upgrades and support and, in many cases, royalties based on revenues that the partner generates through the city guide service. In addition, Citysearch generally receives additional fees for consulting services in connection with the launch of the partner's city guides, custom engineering requested by particular partners and hosting services. These partner agreements are typically five to eight years in length and contain customary termination rights in the event of material breach or non-performance. Citysearch believes these arrangements allow it to expand its international network of cities in a more rapid and cost-effective manner than an exclusively owned and operated network would allow. Citysearch does not expect to enter into additional domestic partnerships to launch city guides. TELEVISION AND RADIO MEDIA ALLIANCES. Citysearch has entered into co-promotion agreements with local television and radio stations, as well as local magazine and online sites, in most of the Citysearch-owned and operated markets. These relationships typically offer content sharing and co-promotion to both parties. Citysearch works with each partner to develop a multimedia Web site within the citysearch.com site, and the partner offers promotion and a recognized brand within the market. Citysearch typically receives significant on-air, in print or online promotion from these television and radio stations that increases brand awareness and drives traffic to the citysearch.com site. MARKETING AGREEMENTS. Citysearch has entered into both local and national marketing agreements. For example, Citysearch is party to an agreement with American Express that included an equity investment in the Company and which provides for distribution of co-branded marketing materials to 13 merchant customers of American Express Travel Related Services Company, Inc. in Citysearch's local markets that will offer such merchant customers online Web site presences through its local city guides. Citysearch entered into an extensive distribution and marketing agreement with Microsoft as part of the Sidewalk transaction. The agreement provides promotion and linking arrangements for Citysearch's various Web sites and promotion of its infosite customers' Web sites on the Microsoft online yellow pages. Citysearch intends to continue to aggressively pursue such marketing agreements in order to attract additional business customers and increase usage of citysearch.com sites by consumers. CONTENT DISTRIBUTION ALLIANCES. Citysearch has entered into agreements with a number of companies to distribute its content and drive traffic to its Web sites. For example, Citysearch has entered into agreements or arrangements with Microsoft, Yahoo!, FairMarket, Inc., iWon, Inc., About.com and others for content distribution and cross promotion. Citysearch has recently begun to syndicate its citysearch.com content to non-competitive third party Web sites in exchange for cash payments and/or branding and promotional consideration. CITYSEARCH--MARKETING AND SALES Citysearch emphasizes marketing activities in its owned and operated markets aimed at increasing awareness of its local city guides by both consumers and business customers. Citysearch conducts advertising and public relations campaigns through low-cost "guerrilla" marketing efforts and with its local media partners in radio, television and print advertising to drive both business customer sales and consumer usage. Citysearch also purchases targeted advertising on Web sites, as well as through traditional radio, print and outdoor media. In addition, Citysearch places ads on USA Network and the Sci-Fi channel. In partner-led markets, Citysearch's marketing efforts rely substantially on the partner's existing franchise and resources in the community. Partners typically market their city guide services through print promotion and integration into a pre-existing news Web site. The partner's brand is also used in conjunction with the Citysearch brand to build credibility with local consumers. Citysearch provides its partners with a roll-out team to launch the service and to provide ongoing support, including assistance with recruiting, sales strategy and back office operations. After a citysearch.com site has been launched, Citysearch, or its partners, rely upon a direct sales force to accelerate the momentum established by the roll-out team. As of December 31, 2000 Citysearch employed approximately 100 sales representatives and approximately 30 Internet marketing advisors in Citysearch's city guide sales offices. Sales representatives sell directly to local businesses and Internet marketing advisors maintain regular contact with customers and facilitate up-selling of Web site functionality. Each sales representative completes an intensive training program at Citysearch's city guide headquarters with follow-up field training. Citysearch's proprietary enterprise management system tracks sales leads and prospect status and allows sales managers to track performance. Sales representatives participate in ongoing training sessions in sales techniques and new products. CITYSEARCH--OPERATIONS Citysearch's systematic approach to market roll-out of its local city guides is designed to enable Citysearch to launch its service in owned and operated markets and to support a local service once launched. In addition, Citysearch licenses its roll-out capabilities to media companies in its partner-led markets. Citysearch has analyzed and documented the most successful practices associated with its early city launches to refine and standardize its field and home office production processes. Citysearch's software systems monitor much of the sales and customer care functions. Additionally, Citysearch has built custom systems that streamline the site creation and maintenance process. City guide customer service operations are located in Citysearch's central city guide production site in Pasadena, California. Citysearch's enterprise management systems enable customer service staff 14 members to view a customer's full profile, including billing and interactive history, as they take such customer's call, and to use Citysearch's software tools to make changes to a business customer's site in real time. CITYSEARCH--TECHNOLOGY Citysearch has developed and implemented a number of technologies to support its local city guide service and business operations, including an online city guide application and a suite of integrated enterprise management systems. CITYSEARCH ONLINE APPLICATION. Citysearch's online application provides a simple and intuitive user interface for finding local information online. Citysearch employs a multi-tiered architecture, separating a standard relational database from business rules and presentation logic. Citysearch's tiered architecture is designed to provide for rapid development cycles and code reuse. Citysearch has made a substantial investment in its product development infrastructure and intend to continue to release product enhancements that address the changing demands of business customers and consumers. ENTERPRISE MANAGEMENT SYSTEMS. Citysearch has developed and implemented a suite of integrated enterprise management systems designed to handle an increasing volume of business customers. The enterprise management system consists of third-party and internally developed applications covering sales force automation and telemarketing, production management and tracking systems and customer service, accounting, billing and commissions systems. The sales force automation and production tracking systems enhance Citysearch's ability to manage the planning, scheduling, forecasting and tracking of business Web sites, banners and other services through the various stages of design and production. These tools enable Citysearch to manage the large number of business Web sites and banners developed simultaneously and originating from numerous cities. Citysearch believes the systems and processes it has developed to produce business Web sites allow it to create high quality sites in a more cost-effective and timely manner. ONLINE PERSONALS--MATCH.COM MATCH.COM--SERVICE Ticketmaster purchased Match.com, a leading online matchmaking and dating service, in June 1999. Match.com is designed to provide adults with a secure, effective environment for meeting other single adults. Match.com provides users with access to other users' personal profiles and enables a user interested in meeting another user to send email messages to that user. Email recipients can respond, or not, depending on their interest in the sender. Match.com offers users a free service that includes searching, matching and responding to emails from Match.com users; should the user elect to initiate email contact with another Match.com user, Match.com charges a monthly subscription fee with discounts for longer term subscriptions. Match.com seeks to maintain a balanced number of male and female users by, among other things, forming relationships with women-oriented Internet sites. Match.com also has implemented a number of measures designed to keep the site secure for use by single women. In September 1999, Ticketmaster purchased One & Only Network, another leading Internet personals company, which also operates a large online affiliate program primarily focused on online matchmaking. One & Only Network provides classified personals content to large and small businesses and individual Web entrepreneurs. These affiliates are able to join the One & Only Network for free, and earn commissions on each customer subscription they sell into One & Only Network's online matchmaking service. 15 MATCH.COM--STRATEGIC ALLIANCES Match.com has entered into partnerships and strategic alliances with third parties in order to increase subscriptions in general as well as to target particular segments of its potential subscriber base. For example, Match.com is the primary provider of personals on The Microsoft Network (MSN) in the United States and the United Kingdom and the premiere provider of personals on the MSN local and entertainment channels. In addition, Match.com is the premiere provider of personals on iVillage.com, a Web site oriented towards women, and on iWon.com and AskJeeves.com., and has entered into an agreement to become the premiere provider of personals to certain America Online, Inc. ("AOL") properties. Match.com also has an exclusive arrangement with the Yahoo! Personals section of the Yahoo.com site, through which it offers free profile posting on Match.com as part of the Yahoo! Personals ad posting process. Through its affiliate program, One & Only Network has partnered with over 175,000 Web masters (persons or companies who operate their own Web sites) whose Web sites are linked to One & Only Network's content. Match.com and One & Only Network expect to continue to pursue strategic alliances and partnerships, both through the affiliate program and through agreements with third parties, in an effort to expand their overall subscriber base and to encourage subscriptions from targeted audiences. MATCH.COM--SALES AND MARKETING Match.com purchases advertising on Web sites, including strategic placement of ads on Web pages related to romance and personals, in an effort to increase subscriptions and promote the Match.com brand name. As part of the integration of Match.com and One & Only Network, the combined companies will use the Match.com name, and Ticketmaster intends to focus future advertising efforts on building this brand. One & Only Network expands the reach of its service by utilizing an affiliate program which allows Web masters to customize and integrate One & Only Network content into their Web sites. In general, One & Only Network pays its affiliates a commission on all One & Only Network revenues generated by such affiliates on their Web sites. In addition, One & Only Network provides incentives for existing affiliates to promote the service to other potential affiliates through the payment of commissions on referred affiliate revenues. Match.com and One & Only Network use Ticketmaster's Citysearch national sales team to sell banner ads on their Web sites. MATCH.COM--OPERATIONS Ticketmaster is in the process of combining One & Only Network's personals classifieds program with that of Match.com. In December 1999, the Match.com operations were physically relocated to the Dallas, Texas headquarters of One & Only Network and the One & Only management assumed responsibility for both operations. In 2000, Ticketmaster moved both Web sites to the same pricing plan and began the process of combining the databases of the two properties. In 2001 Ticketmaster plans to begin marketing both operations exclusively under the Match.com brand. MATCH.COM--TECHNOLOGY Match.com and One & Only Network have developed and implemented several technologies to support their matchmaking services and affiliate marketing network. The One & Only Network personals service is deployed as a tiered system consisting of Web servers, database servers, customer support applications and transaction processing applications. These technologies are based on commercial application servers, databases and hardware. Internet users interact with forms-based HTML pages to specify their desired match. One & Only Network's database is then searched to provide the results to the user. User transactions and customer support are accomplished with custom-built applications. 16 The affiliate marketing service provides registration, customization, transaction tracking and reporting services to independent Web masters allowing them to participate in the personals service or any other service which Ticketmaster may make available to the affiliate network from time to time. One & Only Network technology provides near real-time reporting capabilities on the subscription performance of affiliated sites. Upon the full integration of Match.com and One & Only Network, the combined operations will utilize the One & Only Network technology with combined features of the current Match.com and oneandonly.com Web sites. ADDITIONAL WEB SITES Ticketmaster operates a number of other Web sites that have their own following on the Internet and that round out its citysearch.com, ticketmaster.com and online personals offerings. These Web sites include: - livedaily.com; - cityauction.com; and - careers.citysearch.com. LIVEDAILY.COM Livedaily.com is Ticketmaster's online daily entertainment news webzine. Ticketmaster has integrated livedaily.com with its citysearch.com and ticketmaster.com Web sites, providing music fans with access to news about event tickets and promotions as well as local music and event information. CITYAUCTION.COM In March 1999, Ticketmaster purchased CityAuction, Inc., which provides person-to-person online auctions through its cityauction.com Web site. In addition to national and regional auctions, cityauction.com lets users post and search in their own locality, allowing them to trade items that would be considered too valuable or difficult to transport over long distances, such as electronic equipment, office equipment, furniture and automobiles. In September 1999, in connection with Ticketmaster's investment in FairMarket, Inc., another online auction company, Ticketmaster integrated the cityauction.com services into the FairMarket network allowing cityauction.com users to access a greater number of users and listings. Ticketmaster also licensed the cityauction.com technology systems to FairMarket as part of the investment. CAREERS.CITYSEARCH.COM Ticketmaster's careers.citysearch.com Web site is integrated with its citysearch.com site and allows users to search for jobs by city. To help job searchers, careers.citysearch.com provides career advice, company research, industry research, city research and other useful information. 17 COMPANY HISTORY Ticketmaster Group, Inc. and its principal operating subsidiaries, Ticketmaster Corporation, which was organized in 1976, and Ticketmaster LLC, the entity into which certain subsidiaries of Ticketmaster were merged as of December 31, 1998, were organized for the primary purpose of developing stand- alone automated ticketing systems for sale to individual facilities. Ticketmaster Online-Citysearch, Inc. was the result of the September 1998 combination of CitySearch, Inc. and Ticketmaster Multimedia Holdings, Inc. (Ticketmaster.com), then a wholly-owned online subsidiary of TM Corp. CitySearch, Inc. was incorporated in September 1995 and launched its first local city guide in May 1996. Ticketmaster.com was formed in 1993 to administer the online business of TM Corp and began selling live event tickets and related merchandise online in November 1996. During the 1990s, Ticketmaster continued to expand both through acquisitions and strategic alliances with joint venture partners, including, in 1991, the acquisition of certain assets (principally client contracts) of Ticketron, which previously had been one of Ticketmaster's major competitors; in 1997, when it acquired its licensee, Ticketmaster Canada; in 1997, when it acquired its 50% interest in Ticketmaster Ireland; and in 2000, when it acquired Reseau Admission Inc. in Canada, and certain contracts formerly serviced by ETM Entertainment Network, Inc. and Dillard Ticketing System, Inc. (collectively, "ETM") when ETM ceased operations in June 2000. During the past five years, Ticketmaster reacquired the rights to use its name and the Ticketmaster System that had previously been granted to joint ventures and to licensees such that, as of December 31, 2000, in the United States Ticketmaster had only two remaining licensees: the University of Texas and in the Washington, D.C./Baltimore area. In 1999, TMCS acquired CityAuction, Inc. (cityauction.com), an online auction company, and Match.com, Inc. (Match.com) and Web Media Ventures, LLC (d/b/a One & Only Network), which are both online personals services. In addition, in 1999, TMCS acquired the arts and entertainment portion of The Microsoft Network (MSN) Sidewalk (sidewalk.com) city guides, significantly expanding the reach of its citysearch.com city guides. In January 2000, TMCS acquired 2b Technology, Inc., a Richmond, Virginia based visitor management software developer and offline and online ticketing company targeted at venues such as higher volume museums, cultural institutions and historic sites. In May 2000, TMCS acquired TicketWeb Inc., a ticketing company whose Web-based ticketing software allows venues and event promoters, including symphony concerts, clubs, museum exhibitions, amusement parks and film festivals, to perform box-office operations remotely, over the Internet. In February 2001, Ticketmaster (the combined company) acquired ReserveAmerica Holdings, Inc., an online and offline camping and outdoor activity reservations company. TICKETING JOINT VENTURES AND LICENSEES As summarized above, in addition to the ticketing operations performed directly by Ticketmaster, the Ticketmaster System is operated in certain territories through joint ventures and licensees. Included among Ticketmaster's current joint ventures and strategic alliances are the following: AUSTRALIAN JOINT VENTURES On December 1, 1995, Ticketmaster and the Victorian Arts Centre Trust ("VACT") formed joint ventures (the "Australian Joint Ventures") for the purpose of conducting Ticketmaster's live entertainment ticketing business in Australia and, possibly, in New Zealand. In September 1999, VACT sold its interest in the venture to Seven Pty Limited. As a result of this transaction, Ticketmaster has a 50.1% interest in, and serves as the manager of, Ticketmaster 7 Pty Limited ("Ticketmaster Australia"). Some of Ticketmaster Australia's clients include the Victorian Arts Centre, the Australian Football League, the Melbourne Cricket Grounds and the Australian Chamber Orchestra. 18 IRELAND JOINT VENTURE On July 31, 1997, Ticketmaster acquired 50% of the capital stock of Ticket Shop Limited, the entity through which it Ticketmaster conducts its live entertainment ticketing business in Ireland. In December 2000, Ticketmaster acquired an additional 10% of the capital stock of Ticket Shop Limited. Ticketmaster serves as the managing partner of the joint venture. LATIN AMERICAN LICENSE ARRANGEMENT Ticketmaster and Corporacion Interamericana de Entretenimiento, S.A. de C.V. ("CIE") entered into a license arrangement (the "Latin American License") for the purpose of marketing and operating the Ticketmaster System throughout Central and South America. Accordingly, Ticketmaster is licensor to CIE's operating ventures, which are currently operating in Brazil, Argentina and Chile. CIE is currently the owner of a 50.01% equity interest in Ticketmaster's Mexico licensee with Ticketmaster owning the remaining 49.99% equity interest in this licensee. DOMESTIC LICENSEES Ticketmaster has selectively licensed its name and technology to third parties for use in the Washington, D.C./Baltimore area and to the University of Texas. Ticketmaster derives revenues from its licensees in the form of license fees and/or ongoing per ticket royalties. Less than 1% of Ticketmaster's total revenues during fiscal 2000 were derived from these license arrangements. On December 18, 2000, Ticketmaster acquired its Oregon licensee. CITY GUIDE AND CLASSIFIEDS INVESTMENTS ACTIVE.COM In December 1999, TMCS completed the purchase of approximately 19% of the fully-diluted equity of Active.com, Inc. in the form of preferred stock which, as of December 31, 2000, had been diluted to approximately 12.5%. Active.com is an online participatory sports registration and information company. Active.com is the company resulting from the merger of RaceGate.com and ActiveUSA.com, which were each in the same business category. The total consideration paid to Active.com for the preferred stock was valued at $15.5 million. In November 2000, TMCS invested an additional $1 million in Active.com in a follow-on investment round. COMPETITION TICKETING OPERATIONS Ticketmaster's ticketing business, including ticketmaster.com, faces competition from other national and regional ticketing service companies, as well as from its clients who may elect to fulfill ticketing distribution and management functions through their own systems. Not all facilities, promoters and other potential clients use the services of an automated ticketing company, choosing instead to distribute their tickets through their own internal box offices or other distribution channels. Accordingly, Ticketmaster competes with the facilities, promoters and other potential clients for the right to distribute their tickets at retail outlets, by telephone and on the Internet. Among those who perform their own ticketing are The Shubert Organization (Telecharge), the New York Mets and various other sports teams and venues. For those facilities and promoters that decide to use the services of an automated ticketing company, Ticketmaster competes with many international, national and regional ticketing systems, such as Telecharge Systems, which is a division of The Shubert Organization, Inc. and Tickets.com, which merged with Advantix, Inc. in May 1999. Advantix, Inc. had previously acquired Protix, Inc. in September 1998. Several of Ticketmaster's competitors have operations in multiple locations throughout 19 the United States, while others compete principally in one specific geographic location. One or more of these regional ticketing systems could expand into other regions or nationally. Other companies compete with Ticketmaster by selling stand-alone automated ticketing systems to enable the facilities to do their own ticketing, including companies that sell systems under the names Paciolan Systems, Inc. in the United States, Bocs in the United Kingdom, and Softix in Australia, New Zealand and Pacific Rim countries. Ticketmaster has experienced substantial competition for potential client accounts and renewals of contracts, such as the 2002 Winter Olympics in Salt Lake City, the Thomas & Mack Center in Las Vegas, Nevada, Major League Baseball and various Major League Baseball teams. Accordingly, Ticketmaster cannot assure you that prospective or renewal clients will enter into contracts with Ticketmaster rather than Ticketmaster's competitors. Ticketmaster competes on the basis of products and service provided, the capabilities of its ticketing system, its distribution network, reliability and price. As an alternative to purchasing tickets through Ticketmaster, ticket purchasers generally may purchase tickets from the facility's box office at which an event will be held or by season, subscription or group sales directly from the venue or promoter of the event. Although processed through the Ticketmaster System, Ticketmaster derives no convenience charge revenue from the ticket purchasers with respect to those ticket purchases. CITY GUIDE AND CLASSIFIEDS The markets for local interactive content and services, the selling of live event tickets and related merchandise and Ticketmaster's other services are highly competitive and diverse. Citysearch's primary competitors include Digital City, Inc., a company wholly owned by America Online, Inc., Tribune Company, Cox Interactive and Knight Ridder's Real Cities. Citysearch also competes with numerous search engines and other site aggregation companies, media, telecommunications and cable companies, Internet service providers and niche competitors which focus on a specific category or geography and compete with specific content offerings provided by us. Furthermore, additional major media and other companies with financial and other resources greater than Ticketmaster may introduce new Internet products addressing the local interactive content and service market in the future. The online dating services market is very competitive. Match.com's and One & Only Network's primary competitors include FriendFinder, Inc. and Matchmaker.com, Inc., both of whom charge subscribers fees for use of their services. In addition, Match.com and One & Only Network face significant competition from online dating services that are free to subscribers and that are offered by most major portal sites, including Yahoo! Inc. and Excite@Home, among others. Ticketmaster believes that the principal competitive factors for all its services include: depth, quality and comprehensiveness of content; ease of use; distribution; search capability; and brand recognition. Many of Ticketmaster's city guide competitors have greater financial and marketing resources than it has and may have significant competitive advantages through other lines of business and existing business relationships. Ticketmaster cannot assure you that it will be able to successfully compete against its current or future competitors or that competition will not have a material adverse effect on its business, financial condition and results of operations. Furthermore, as a strategic response to changes in the competitive environment, Ticketmaster may make certain pricing, servicing or marketing decisions or enter into acquisitions or new ventures that could have a material adverse effect on its business, financial condition and results of operations. TRADEMARKS AND PATENTS Ticketmaster owns a number of registered trademarks in various countries relating to, among other things, the name Ticketmaster and its related logo. Ticketmaster believes that such trademarks are widely recognized throughout North America and other parts of the world and have considerable value. 20 Ticketmaster is not aware of any actions against its trademarks used in the ticketing business domestically and has not received any notice or claim of infringement in respect of such trademarks. Ticketmaster also acquired the rights to the name Ticketron in connection with Ticketmaster's purchase of certain assets of Ticketron. Ticketmaster presently has no patents pertaining to the Ticketmaster System. Although Ticketmaster may in the future file for patent protection on products developed or to be developed by it, there can be no assurance that any patents will be issued or, if issued, that such patents will provide Ticketmaster with meaningful protection. Furthermore, the technology used by Ticketmaster in many of its products is likely to be within the state-of-the-art and may not be more advanced than the technology used by or available to certain of its present or potential competitors. Ticketmaster may be unable to prevent its competitors and others from incorporating features of Ticketmaster's products into their own products. Ticketmaster regard its copyrights, service marks, trademarks, trade dress, trade secrets, proprietary software and similar intellectual property as critical to its success, and rely on trademark and copyright law, trade secret protection and confidentiality and/or license agreements with employees, customers, partners and others to protect its proprietary rights. Effective trademark, service mark, copyright and trade secret protection may not be available or sought by Ticketmaster in every country in which its products and services are made available online. Ticketmaster has licensed in the past, and expects that it may license in the future, certain proprietary rights, such as trademarks or copyrighted material, to third parties. In addition, Ticketmaster has licensed in the past, and expects to license in the future, certain content, including trademarks and copyrighted material, from third parties. While Ticketmaster attempts to ensure that the quality of its brands is maintained by such licensees, there can be no assurance that such licensees will not take actions that might materially adversely affect the value of Ticketmaster's proprietary rights or reputation, which could have a material adverse effect on its business, financial condition and results of operations. Ticketmaster licenses the registered trademark "Citysearch" from a third party, and there can be no assurance that Ticketmaster will be able to continue to license the trademark on terms acceptable to it. The initial term of the license expired in March 2001, and is subject to indefinite annual renewals at Ticketmaster's option. Ticketmaster exercised its renewal rights in March 2001 and intends to continue to do so in the future. Ticketmaster may be subject to legal proceedings and claims of alleged infringement of the trademarks and other intellectual property rights of third parties by Ticketmaster and its licensees or licensors. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources which could result in a material adverse effect on Ticketmaster's business, financial condition and results of operations. REGULATION Ticketmaster is regulated by certain state and local regulations, including, but not limited to, a law in Georgia that establishes maximum convenience charges on tickets for certain sporting events. Other bills that could affect the way Ticketmaster does business, including bills that would regulate the amount of convenience charges and handling charges, are introduced from time to time in federal, state and local legislative bodies. Ticketmaster is unable to predict whether any such bills will be adopted and, if so, the impact thereof on its business. In addition, increasing concern over consumer privacy has led to the introduction from time to time of proposed legislation that could impact the direct marketing and market research industries. Ticketmaster does not know when or whether any such proposed legislation may pass or whether any such legislation would relate to the types of services currently provided by Ticketmaster or which 21 Ticketmaster intends to develop. Accordingly, Ticketmaster cannot predict the effect, if any, that any such future regulation may have on its business. Because Ticketmaster's current business consists primarily of responding to inbound telephone calls, it is not highly regulated. However, in the event that Ticketmaster decides to expand its outbound telemarketing services to improve off-peak call center utilization, such rules and regulations would apply to a larger percentage of Ticketmaster's business. Accordingly, Ticketmaster must comply with the Federal Communications Commission's rules under the Federal Telephone Consumer Protection Act of 1991 and the Federal Trade Commission's regulations under the Federal Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994, both of which govern telephone solicitation. Ticketmaster believes that it currently is, and will continue to be, in compliance with such statutes. Furthermore, there may be additional federal or state legislation or changes in regulation implementation that would limit the activities of Ticketmaster or its clients in the future or significantly increase the cost of compliance. RELATIONSHIP WITH USA NETWORKS, INC. We are currently a direct, majority-owned subsidiary of USA Networks, Inc. ("USAi"). As of March 15, 2001, USAi beneficially owned shares of our Class A and Class B Common Stock, representing approximately 85% of the total voting power of our total outstanding Common Stock. As a result, USAi generally has the ability to control the outcome of any matter submitted for the vote or consent of our stockholders. Subject to applicable Delaware law, USAi is generally not restricted with regard to its ability to control the election of our directors, to cause the amendment of our Amended and Restated Certificate of Incorporation, or generally to exercise a controlling influence over our business and affairs. This control relationship may have the effect of delaying or preventing a change in control of our company and might adversely affect the market price of the Class B Common Stock. Conflicts of interest may arise between us and USAi and its affiliates in areas relating to past, ongoing and future relationships and other matters. These include corporate opportunities; indemnity arrangements; tax and intellectual property matters; potential acquisitions or financing transactions; sales or other dispositions by USAi of shares of our Class A and Class B Common Stock held by it; and the exercise by USAi of its ability to control our management and affairs. Ownership interests of our directors or officers in USAi common stock, or service as both a director or officer of us and a director, officer or employee of USAi, could create or appear to create potential conflicts of interest when directors and officers are faced with decisions that could have different implications for us and USAi. Several of the members of our board of directors are also directors, officers or employees of USAi. In addition, USAi is engaged in a diverse range of media and entertainment-related businesses, including businesses engaged in electronic and online commerce. These businesses may have interests that conflict or compete in some manner with our business. Subject to applicable Delaware law, USAi is under no obligation, and has not indicated any intention, to share any future business opportunities available to it with us. Our Amended and Restated Certificate of Incorporation also includes provisions which provide that: USAi shall have no duty to refrain from engaging in the same or similar activities or lines of our business, thereby competing with us; USAi, its officers, directors and employees shall not be liable to us or our stockholders for breach of any fiduciary duty by reason of any activities of USAi in competition with us; and USAi shall have no duty to communicate or offer corporate opportunities to us and shall not be liable for breach of any fiduciary duty as a stockholder of us in connection with these opportunities, provided that the relevant procedures set forth in our Amended and Restated Certificate of Incorporation are followed. There can be no assurance that any conflicts that may arise between us and USAi, any loss of corporate opportunity to USAi that might otherwise be available to us, or any engagement by USAi in 22 any activity that is similar to our business will not have a material adverse effect on our business, financial condition and results of operations or our other stockholders. EMPLOYEES As of December 31, 2000, on a pro forma basis assuming the Combination closed as of that date, Ticketmaster employed approximately 2,300 domestic and 500 foreign employees and approximately 1,400 domestic and 300 foreign telephone sales agents. Ticketmaster's telephone sales agents in Toronto and Montreal, Canada and the telephone sales agents employed by the Australian Joint Venture are the only employees of Ticketmaster covered by collective bargaining agreements. The collective bargaining agreement covering the telephone sales agents in Toronto, Canada is scheduled to expire on March 31, 2003. The Media Entertainment and Arts Alliance Award applicable to certain call center agents in Melbourne, Australia is effective as of December 31, 1995 and there is no stated expiration date. The collective bargaining agreement covering the telephone sales agents in Montreal, Canada expired on October 31, 2000; however, Ticketmaster is continuing to operate under the terms of the preexisting agreement until a new agreement is finalized. Ticketmaster believes that its relations with its employees are good. ITEM 2. PROPERTIES Ticketmaster's corporate offices are located at 3701 Wilshire Boulevard, Los Angeles, California, where it currently leases approximately 68,600 square feet under a lease expiring in 2006. Ticketmaster leases office space in various cities throughout the United States, the United Kingdom, Ireland, Australia and Canada. As of December 31, 2000, Ticketmaster had approximately 623,700 square feet of space under lease, with scheduled expirations ranging from March 2001 to May 2009. In addition, Ticketmaster owns a small office in Vancouver, Canada. Ticketmaster's city guide headquarters are located in Pasadena, California, where it currently leases approximately 46,300 square feet under a lease expiring in 2002. Ticketmaster also leases local office space for its city guides in approximately 32 cities throughout the United States and abroad. Local offices range in size from less than 2,000 square feet to 10,000 square feet and have lease terms that range from month-to-month to seven years. None of such leases expires later than 2005, except for the San Francisco lease which expires in 2006. Ticketmaster's Internet personals businesses are located in Dallas, Texas, where it currently leases approximately 31,300 square feet under a lease expiring in 2005. Ticketmaster believes that its facilities are adequate in the locations where it currently does business. ITEM 3. LEGAL PROCEEDINGS We are from time to time party to various legal proceedings arising in the ordinary course of our business. In addition to the legal proceedings described below, we are also party to various legal proceedings in which we are the plaintiff and seek injunctive relief and/or damages from third parties for breach of contract and unauthorized use of our intellectual property. TICKETMASTER CONSUMER CLASS ACTION During 1994, Ticketmaster was named as a defendant in 16 federal class action lawsuits filed in United States District Courts purportedly on behalf of consumers who were alleged to have purchased tickets to various events through Ticketmaster. These lawsuits alleged that Ticketmaster's activities violated antitrust laws. On December 7, 1994, the Judicial Panel on Multidistrict Litigation transferred all of the lawsuits to the United States District Court for the Eastern District of Missouri for 23 coordinated and consolidated pretrial proceedings. After an amended and consolidated complaint was filed by the plaintiffs, Ticketmaster filed a motion to dismiss and, on May 31, 1996, the District Court granted that motion ruling that the plaintiffs had failed to state a claim upon which relief could be granted. On April 10, 1998, the United States Court of Appeals for the Eighth Circuit issued an opinion affirming the district court's ruling that the plaintiffs lack standing to pursue their claims for damages under the antitrust laws and held that the plaintiffs' status as indirect purchasers of Ticketmaster's services did not bar them from seeking equitable relief against Ticketmaster. On July 9, 1998, the plaintiffs filed a petition for writ of certiorari to the United States Supreme Court seeking review of the decision dismissing their damage claims. Plaintiff's petition for writ of certiorari in the United States Supreme Court was denied on January 19, 1999. In November 2000, counsel for the purported class of plaintiffs and Ticketmaster reached an agreement in principle pursuant to which this litigation would be settled. The District Court approved the settlement agreement and is expected to enter an order concluding the litigation in the near future. We do not believe that the settlement will have a material impact on our financial condition or results of operations. LITIGATION RELATING TO THE COMBINATION On or about November 21, 2000, four Ticketmaster shareholders filed separate, virtually identical class action lawsuits against Ticketmaster, USA Networks and 15 of Ticketmaster's current and former directors. The lawsuits, all of which were filed in the Court of Chancery of the State of Delaware, were originally filed as SACHS V. CONN, ET AL., Case No. 18517 NC; BEER V. TICKETMASTER ONLINE-CITYSEARCH, INC., ET AL., Case No. 18520 NC; HARBOR FINANCE PARTNERS V. TICKETMASTER ONLINE-CITYSEARCH, ET AL., Case No. 18518 NC; and OSHER V. CONN, ET AL., Case No. 18516 NC. On or about December 1, 2000, one Ticketmaster shareholder filed a derivative lawsuit on Ticketmaster's behalf against USA Networks and the 15 directors of Ticketmaster. The lawsuit was originally filed as WALDMAN V. CONN, ET AL., Court of Chancery for the State of Delaware, Case No. 18526. The five lawsuits, all of which alleged that the terms of the Combination would unfairly benefit USA Networks at the expense of Ticketmaster and its shareholders, have since been consolidated into one lawsuit entitled IN RE TICKETMASTER SHAREHOLDER LITIGATION, Court of Chancery of the State of Delaware, Case No. 18516. The consolidated lawsuit, which was filed on February 5, 2001, is brought by the plaintiffs derivatively on behalf of Ticketmaster. The plaintiffs allege that the Combination is the product of unfair self-dealing, and that the consideration that Ticketmaster paid to USA Networks was unfair and excessive. The plaintiffs further allege that the directors of Ticketmaster are not disinterested or independent and, therefore, were unable to give unbiased consideration to the transaction or to negotiate the terms of the transaction in good faith and with undivided loyalty. As their prayer for relief in the lawsuit, the plaintiffs sought to have the Court enjoin the defendants from consummating the Combination or, in the alternative, to have the Court rescind the Combination. In addition, the plaintiffs seek monetary damages, attorneys' fees and other costs of pursuing the lawsuit. None of the defendants has yet filed a response to the consolidated lawsuit. However, Ticketmaster believes that the suit is without merit, and expects all defendants to vigorously defend against the lawsuit. TICKETS.COM LITIGATION On July 23, 1999, TMCS and TM Corp filed a Complaint seeking damages and injunctive relief against Tickets.com, Inc. ("Tickets.com"), entitled TICKETMASTER CORPORATION AND TICKETMASTER ONLINE-CITYSEARCH, INC. V. TICKETS.COM, INC., Case No. 99-07654 HLH, in the United States District Court for the Central District of California. Ticketmaster claims that Tickets.com violates Ticketmaster's legal and contractual rights by, among other things, (i) providing deep-links to Ticketmaster's internal Web pages without Ticketmaster's consent, (ii) systematically, deceptively and intentionally accessing Ticketmaster's computers and computer systems and copying verbatim Ticketmaster event pages daily and extracting and reprinting Ticketmaster's Uniform Resource Locators ("URLs") and event data and information in 24 complete form on Tickets.com's Web site and (iii) providing false and misleading information about Ticketmaster, the availability of tickets on the Ticketmaster Web site, and the relationship between Ticketmaster and Tickets.com. On January 7, 2000, Ticketmaster filed a first amended complaint. Tickets.com filed a motion to dismiss Ticketmaster's first amended complaint on or about February 23, 2000, claiming that Tickets.com did not violate the Copyright Act or Lanham Act and that Ticketmaster's state law claims were preempted and/or did not state a valid claim for relief. The Court denied Tickets.com's motion as to Ticketmaster's claims for copyright infringement, violations of the Lanham Act, state law unfair competition and interference with prospective economic advantage. The Court granted Tickets.com's motion, but gave Ticketmaster leave to amend, as to Ticketmaster's claims for breach of contract, trespass, unjust enrichment and misappropriation. Ticketmaster filed a second amended complaint on April 21, 2000. On March 3, 2000, Ticketmaster filed a motion for preliminary injunction, requesting the Court to enjoin Tickets.com from, among other things, deep-linking and "spidering" to Ticketmaster's internal Web pages, accessing Ticketmaster's computers and computer systems and copying Ticketmaster's event pages, and providing misleading and false information about Ticketmaster, the availability of tickets on the Ticketmaster Web site and the relationship between Ticketmaster and Tickets.com. On July 31, 2000, the Court held a hearing. The court took the matter under submission, and on August 11, 2000 issued a ruling denying Ticketmaster's motion for preliminary injunction. On September 8, 2000, Ticketmaster filed a notice of appeal of the Court's order denying Ticketmaster's motion for preliminary injunction. On January 11, 2001, the Ninth Circuit Court of Appeals affirmed the District Court's order denying Ticketmaster's motion for preliminary injunction. On May 30, 2000, Tickets.com filed its Answer to Ticketmaster's second amended complaint and counterclaims against Ticketmaster Corporation and Ticketmaster Online-Citysearch, Inc. Tickets.com asserted claims for relief against Ticketmaster for violations of the Sherman Act, sections 1 and 2, violations of California's Cartwright Act, violations of California's Business and Professions Code section 17200, violations of common law restraint of trade and unfair competition and business practices, interference with contract and declaratory relief. Tickets.com claimed that Ticketmaster Corporation's exclusive agreements with Ticketmaster Online-Citysearch, Inc., venues, promoters and other third parties injure competition, violate antitrust laws, constitute unfair competition and interfere with Tickets.com's prospective economic advantages. On July 19, 2000, Ticketmaster filed a motion to dismiss any claim based in whole or in part on Ticketmaster's alleged litigation conduct as well as Tickets.com's ninth claim for relief under California's antitrust laws (the Cartwright Act). On September 25, 2000, the court entered an order denying Ticketmaster's motion on the ground that Tickets.com has the right to pursue some discovery on the issues raised in the motion before the issue can properly be resolved. On November 30, 2000, counsel for Ticketmaster and counsel for Tickets.com met pursuant to the required Local Rule 6.2 Early Meeting of Counsel obligation. The parties exchanged information concerning witnesses and documents supporting each side's respective positions, and also exchanged proposals concerning the schedule for the case. Tickets.com has proposed a schedule that would result in a trial date in November 2001. Ticketmaster has proposed a schedule pursuant to which discovery would conclude in November 2001 and after motions and other pretrial matters a trial date would be set in October 2002. The court has not yet issued an order setting a pretrial discovery schedule and a trial date. Ticketmaster believes that Tickets.com's claims are without merit and intends to vigorously defend against those claims and pursue its claims against Tickets.com. TICKETMASTER CASH DISCOUNT LITIGATION On or about December 17, 1999, a purported class action lawsuit entitled ADRIANA GARZA, ET AL. V. SOUTHWEST TICKETING, INC., D/B/A TICKETRON, TICKETMASTER AND RAINBOW TICKETMASTER, TICKETMASTER TEXAS MANAGEMENT, TICKETMASTER LLC, TICKETMASTER GROUP, INC., TICKETMASTER ONLINE-CITYSEARCH, INC. AND THE 25 MAY DEPARTMENT STORES COMPANY, CASE NO. C-5714-99-B, was filed in state court in the District Court of Hidalgo County, Texas, 93(rd) Judicial District. The plaintiff filed an amended class action petition in state court on June 20, 2000, which claims that Ticketmaster's practice of offering cash discounts against the amount of its service charges at outlets violated various state laws, and asserting an additional claim that the cash discount program in question violates a provision in a Merchant Services Bankcard Agreement between Ticketmaster and Chase Merchant Services L.L.C. and First Financial Bank. Plaintiff claims all consumers using VISA and MasterCard to purchase tickets from Ticketmaster are third-party beneficiaries of this contract. Plaintiff also filed on July 14, 2000 an amended class certification motion. In addition to the nine-state class sought by Plaintiff's original class certification request, the amended motion seeks the certification of a nationwide class of VISA and MasterCard customers since approximately April 1998 to prosecute the alleged third-party beneficiary claim. Ticketmaster filed a summary judgment motion on May 1, 2000 and Plaintiff filed a second amended motion for partial summary judgment on May 24, 2000. Ticketmaster denies the allegations. On July 20, 2000, Ticketmaster removed the case to federal court in McAllen, Texas on the grounds that the newly added third-party beneficiary claim raises a federal question under the Truth-in-Lending Act. On August 1, 2000, Plaintiff filed a motion to remand the case to state court. In December 2000, the plaintiff and defendants reached a tentative settlement of all issues. This settlement will require court approval to be finalized. Once a preliminary approval of the settlement occurs, the terms of the settlement will be announced through notice to the putative class members. The parties agreed to a remand of the matter from federal court to state court on January 17, 2001. The case subsequently was voluntarily dismissed in state court and later refiled in federal court in Texarkana, Texas. On March 1, 2001, the federal court in Texarkana, Texas granted preliminarily approval of the settlement. We do not believe that the settlement will have a material impact on our financial condition or results of operations. CLASS ACTION LITIGATION RELATED TO MAGAZINE SALES On or about December 18, 2000, Ticketmaster Corporation and Time, Inc. were named as defendants in a purported class action lawsuit filed in the Florida Circuit Court of the Thirteenth Judicial Circuit in Hillsborough County. The lawsuit is entitled VICTORIA MCLEAN V. TICKETMASTER CORPORATION AND TIME, INC., Case No. G0009564. The lawsuit alleges that the offering for sale by Ticketmaster Corporation of subscriptions to Entertainment Weekly magazine, a publication of Time, Inc., as an agent of Time, Inc., involves a pattern of criminal activity, conspiracy and unfair and deceptive trade practices by allegedly disclosing credit card account information to third parties without express written consent and unauthorized posting to credit card accounts. As the prayer for relief in the lawsuit, the plaintiff seeks to have the Court enjoin the business practices of which the plaintiff has complained. In addition, the plaintiff seeks treble monetary damages, as well as attorneys' fees and the costs for pursuing the action. On March 26, 2001, Ticketmaster Corporation and Time, Inc. filed a motion to dismiss the complaint on various grounds. That motion presently is scheduled to be heard by the Court on July 17, 2001. Ticketmaster believes the lawsuit is without merit and intends to vigorously defend against the lawsuit. From time to time, federal, state and local authorities commence investigations or inquiries with respect to Ticketmaster's compliance with applicable antitrust, consumer protection, deceptive advertising, unfair business practice and other laws. Ticketmaster has historically cooperated in and satisfactorily resolved each such investigation or inquiry. Ticketmaster believes that it has conducted its business in compliance with all applicable laws, including federal and state antitrust laws. In the opinion of Ticketmaster's management, none of Ticketmaster's legal proceedings will have a material adverse effect on Ticketmaster's financial position or results of operation. Ticketmaster has incurred significant legal expenses in connection with these 26 and other investigations and lawsuits and may incur additional significant legal expenses in the future should investigations or lawsuits be instituted. Ticketmaster or its affiliates could become the subject of future governmental investigations or inquiries or be named as a defendant in claims alleging violations of federal or state antitrust laws or any other laws. Any adverse outcome in such litigation, investigation or proceeding against Ticketmaster or its affiliates could limit or prevent Ticketmaster from engaging in the ticketing business or subject Ticketmaster to potential damage assessments, all of which could have a material adverse effect on Ticketmaster's business, financial condition or results of operations. Regardless of its merit, source or outcome, any such litigation, investigation or proceeding would at a minimum be costly and could divert the efforts of our management and other personnel from productive tasks, which could have a material adverse effect on Ticketmaster's business, financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of fiscal 2000, TMCS entered into a contribution agreement with USA Networks, which set forth the terms and conditions of the Combination and required the approval of the stockholders of TMCS. Pursuant to an action by written consent, TM Corp, which held shares then representing approximately 84% of the outstanding voting power of TMCS, approved the Combination. Because TM Corp's written consent satisfied the stockholder approval requirements for the Combination under Delaware law, no separate vote of the TMCS stockholders was required. The information required by this Item is incorporated by reference from Ticketmaster's Definitive Information Statement filed with the Securities and Exchange Commission on January 11, 2001 pursuant to Section 14(c) of the Securities Exchange Act of 1934. 27 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET FOR OUR COMMON STOCK Our Class B Common Stock began trading publicly on The Nasdaq National Market on December 3, 1998 under the symbol "TMCS." The following table lists quarterly information on the price range of our Class B Common Stock based on the high and low reported last sale prices for our common stock as reported on The Nasdaq National Market for the periods indicated below. These prices do not include retail markups, markdowns or commissions.
HIGH LOW -------- -------- FISCAL 2001: First Quarter (through March 23, 2001)...................... $12.88 $ 7.50 FISCAL 2000: Fourth Quarter.............................................. $16.00 $ 7.28 Third Quarter............................................... 24.25 14.25 Second Quarter.............................................. 24.00 15.25 First Quarter............................................... 43.63 25.06 FISCAL 1999: Fourth Quarter.............................................. $44.12 $18.87 Third Quarter............................................... 40.06 22.68 Second Quarter.............................................. 41.50 22.00 First Quarter............................................... 71.12 33.00 FISCAL 1998: Fourth Quarter (commencing December 3, 1998)................ $80.50 $32.69
As of March 23, 2001, there were approximately 401 holders of record of our Class B Common Stock. We estimate there are more than 14,000 beneficial holders of our Class B Common Stock. On March 23, 2001, the last reported sale price on The Nasdaq National Market for the Class B Common Stock was $8.97. On March 23, 2001, there were approximately 184 holders of record of our Class A Common Stock. There is no public market for the Class A Common Stock, but each share of Class A Common Stock will be automatically converted into one share of our Class B Common Stock upon any transfer of such share, subject to certain exceptions. In addition, each share of Class A Common Stock may be converted at any time into one share of Class B Common Stock at the option of the holder thereof. We have not paid any dividends since our inception and do not intend to pay any dividends on our common stock in the foreseeable future. RECENT SALES OF UNREGISTERED SECURITIES We have used, and intend to continue to use, our Class B Common Stock to make tactical and strategic acquisitions and investments. In addition, we have issued, and may in the future issue, shares of our Class B Common Stock to raise additional funds to fund acquisitions, investments and operations. Typically, these issuances are not registered by us under the Securities Act of 1933, as amended (the "Securities Act"); rather we provide the party receiving such shares with registration rights permitting the registration of the resale of such shares by such persons under the Securities Act. In addition to issuances of shares that were not registered under the Securities Act that were reported 28 by us in our previously filed Quarterly Reports on Form 10-Q, we have made the following issuances for the following purposes. (1) In September 1999, we issued 1,204,215 shares of our Class B Common Stock as consideration for the acquisition of all of the outstanding ownership units of Web Media Ventures, LLC (d/b/a One & Only Network). Such shares were issued to the former unit holders of One & Only Network. In December 1999, we issued an additional 61,962 shares of our Class B Common Stock to such persons in payment of the first of a series of three earn-out payments also in consideration of the acquisition of One & Only Networks. In March 2000, we issued an additional 65,793 shares of our Class B Common Stock to such persons in payment of the second of such series of earn-out payments. In June 2000, we issued an additional 560,380 shares of our Class B Common Stock to such persons in payment of the third and final of such series of earn-out payments. (2) In December 1999, we issued 1,302,401 shares of our Class B Common Stock to TM Corp, which at that time was our majority stockholder, for an aggregate purchase price of $40 million. We have used the proceeds of this sale for general working capital. (3) In December 1999, we issued 243,620 shares of our Class B Common Stock as partial consideration for our purchase of shares of Series D Preferred Stock of ActiveUSA.com, Inc. Such shares were issued to ActiveUSA.com, Inc. (4) In January 2000, we issued 400,809 shares of our Class B Common Stock as consideration for the acquisition of all of the outstanding stock of 2b Technology, Inc. Such shares were issued to the former shareholders of 2b Technology. We issued an additional 57,196 shares of our Class B Common Stock in February 2000 to the former shareholders as part of a required post-closing adjustment. In December 2000, we issued an additional 299,954 shares of our Class B Common Stock to such persons in payment of all additional required post-closing adjustments and earn-out payments. (5) In May 2000 we issued 1,841,204 shares of our Class B Common Stock as consideration for the acquisition of all of the outstanding stock of TicketWeb, Inc. Such shares were issued to certain of the former shareholders of TicketWeb. (6) In January 2001, we issued 48,958,000 shares of our Class B Common Stock to TM Corp in exchange for the equity interests and assets contributed by TM Corp to us in the first step of the Combination. In addition, on the same date, we issued 53,302,401 shares of our Class B Common Stock and 42,480,143 shares of our Class A Common Stock to USA Networks in part as consideration for the capital stock of TGI contributed to us by USA Networks in the second step of the Combination and in part to replace the number of shares of our Class B and Class A Common Stock held by USA Networks through TM Corp prior to the Combination, which we now hold through TM Corp as a result of the Combination. The aggregate number of new shares issued by us in the Combination was 52,000,000 shares of our Class B Common Stock. The sales of the securities described in items (1), (2), (3), (4), (5) and (6) above were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act, or Regulation D promulgated thereunder, as transactions by an issuer not involving a public offering. 29 ITEM 6. SELECTED FINANCIAL DATA The selected financial data below as of December 31, 2000, 1999 and 1998, and the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998 are derived from the audited financial statements of Ticketmaster. The selected financial data presented below for the years ended and at January 31, 1998 and 1997 are derived from audited financial statements of Ticketmaster.com as the predecessor entity. The selected Ticketmaster financial data set forth below are qualified in their entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Financial Statements of Ticketmaster and Notes thereto included elsewhere in this report. The selected financial data set forth below reflects the financial condition of Ticketmaster prior to the Combination, which occurred after December 31, 2000.
YEAR ENDED ELEVEN MONTHS YEAR ENDED DECEMBER 31, ENDED JANUARY 31, --------------------- DECEMBER 31, ------------------- 2000(1) 1999(1) 1998(2) 1998 1997 --------- --------- -------------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) COMBINED STATEMENTS OF OPERATIONS DATA: Revenues: Ticketing operations................................... $ 135,595 $ 64,787 $ 15,743 $ 5,972 $ 199 City guide and related................................. 66,652 33,915 5,376 -- -- Sponsorship and advertising............................ 18,397 6,601 6,754 3,933 997 --------- --------- -------- ------- ------- Total revenues....................................... 220,644 105,303 27,873 9,905 1,196 Costs and expenses: Ticketing operations................................... 102,209 47,870 9,842 3,522 635 City guide and related................................. 52,893 30,288 4,021 -- -- Sales and marketing.................................... 78,805 47,263 6,834 490 290 Research and development............................... 6,022 7,455 1,728 -- -- General and administrative............................. 27,465 15,242 3,495 1,719 1,260 Amortization of goodwill............................... 163,281 77,744 16,275 -- -- Merger and other transaction costs(3).................. 2,478 4,236 -- -- -- --------- --------- -------- ------- ------- Total costs and expenses............................. 433,153 230,098 42,195 5,731 2,185 --------- --------- -------- ------- ------- Income (loss) from operations............................ (212,509) (124,795) (14,322) 4,174 (989) Interest income, net..................................... 2,830 4,163 54 -- -- Equity in loss of unconsolidated affiliates.............. (3,884) (272) -- -- -- Investment losses, net................................... (8,814) -- -- -- -- Other income (expense)................................... (360) -- -- -- -- --------- --------- -------- ------- ------- Income (loss) before provision for income taxes.......... (222,737) (120,904) (14,268) 4,174 (989) Income tax provision (benefit)........................... 1,474 464 2,951 1,827 (374) --------- --------- -------- ------- ------- Net income (loss)........................................ $(224,211) $(121,368) $(17,219) $ 2,347 $ (615) ========= ========= ======== ======= ======= Basic and diluted net income (loss)(4)................... $ (2.57) $ (1.59) $ (0.38) $ 0.06 $ (0.02) ========= ========= ======== ======= ======= Shares used to compute basic and diluted net income (loss)(4).............................................. 87,374 76,097 45,201 37,238 37,238 ========= ========= ======== ======= =======
DECEMBER 31, JANUARY 31, -------------------------------------- ------------------- 2000 1999 1998 1998 1997 --------- --------- -------------- -------- -------- BALANCE SHEET DATA: Cash, cash equivalents and marketable securities available for sale..................................... $ 40,065 $ 87,754 $106,910 $ -- $ 3 Working capital.......................................... 26,642 77,553 99,571 (100) 218 Total assets(5).......................................... 655,598 804,669 416,725 688 554 Long-term debt including capital lease obligations, less current portion........................................ 762 1,503 1,519 8 -- Stockholders' equity..................................... 626,903 782,593 403,588 289 489
30 - ------------------------ (1) Reflects operating results including the amortization of goodwill and other intangible assets of CityAuction, Match.com, Web Media Ventures (One & Only Network), the Sidewalk assets, 2b Technology and TicketWeb from the date they were acquired. (2) Includes the operating results of Citysearch from September 29, 1998 to December 31, 1998 as a result of the merger of Ticketmaster.com and Citysearch. The eleven-month period reflects our change in year-end to December 31 from January 31. Comparable amounts for the prior period are not presented because as a result of the merger such presentation would not be considered meaningful. (3) These costs are primarily a result of advisory fees, regulatory filing fees and legal and accounting costs related to the Combination with Ticketmaster Group in 2000 and our terminated merger with certain assets owned by our majority stockholder and Lycos, Inc., as well as certain expenses related to the operation of Sidewalk city guides before the integration of these properties into the Citysearch network in 1999. (4) Basic and diluted net income (loss) per share is based on the weighted average number of outstanding Class A and Class B Common Stock shares for the years ended December 31, 2000 and 1999 and for the eleven months ended December 31, 1998. Basic and diluted net income (loss) per share, for the years ended January 31, 1998 and 1997, is based on the number of shares of Citysearch common stock exchanged in the merger of Ticketmaster.com and Citysearch. (5) Total assets at December 31, 2000, 1999 and 1998 reflect $562.5 million, $662.9 million and $299.6 million, respectively, of goodwill and other intangibles, net of accumulated amortization. 31 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH BELOW AND ELSEWHERE IN THIS REPORT. THE FORWARD-LOOKING STATEMENTS ARE BASED ON OUR EXPECTATIONS AS OF THE DATE OF THIS REPORT AND WE TAKE NO OBLIGATION TO UPDATE THESE STATEMENTS. THE FORWARD-LOOKING STATEMENTS HEREIN DO NOT INCLUDE THE POTENTIAL IMPACT OF ANY MERGERS, ACQUISITIONS OR OTHER BUSINESS COMBINATIONS THAT HAVE BEEN COMPLETED AFTER DECEMBER 31, 2000, INCLUDING OUR COMBINATION WITH TICKETMASTER GROUP, INC. AND ITS SUBSIDIARIES (THE "COMBINATION"). THE DISCUSSION BELOW RELATES ONLY TO OUR OPERATIONS PRIOR TO THE COMBINATION, WHICH OCCURRED AFTER DECEMBER 31, 2000. OVERVIEW Ticketmaster (formerly known as Ticketmaster Online-Citysearch, Inc.) prior to the Combination was, and continues to be, a leading local portal and electronic commerce company that provides in-depth local content and services to help people get things done online. We offer practical tools for living that make the Internet an important part of people's everyday lives. Our principal operations are online city guides, online ticketing and online personals. Our family of Web sites includes citysearch.com, ticketmaster.com, match.com, museumtix.com, ticketweb.com, cityauction.com and livedaily.com, among others. We derive revenues from three sources: online ticketing, city guide and related services (which includes online personals subscriptions) and sales of sponsorships and advertising. Prior to the Combination, and for purposes of our financial statements for the year ended December 31, 2000, we viewed our operations as being in one segment, with ongoing integration. Ticketing operations revenues primarily consist of convenience and handling charges generated through ticket sales. The sale of tickets for an event often commences several months prior to the scheduled date of the event. Ticketing operations revenue is recognized when the ticket is sold. The number of tickets sold can vary as a result of (i) additions or deletions to the list of client facilities serviced by TM Corp; (ii) fluctuation in the scheduling of events, particularly for popular performers; (iii) overall consumer demand for live entertainment events; and (iv) the percentage of tickets which are sold directly by clients or through other distribution systems offered by TM Corp and not through our Web site. The average convenience charge per ticket typically varies based upon numerous factors including the type of event as well as the services to be rendered to the client. If credit card chargeback or refund activity is likely to occur with respect to an event, for example, due to the cancellation of such event, an allowance is established for potential convenience charge refunds. City guide and related revenues consist of revenues derived primarily from Web-based city guides in the forms of revenue from custom built Web sites and other consulting services and online personals subscriptions. In our owned and operated city guide markets, we derive our revenues primarily from the sale to local businesses of Web sites which we create, host and maintain, as well as place in our directory listings so that the businesses receive exposure to our users. Business Web site customers typically enter into one-year agreements that automatically convert to month-to-month contracts upon expiration. We recognize revenue from sales of local business Web sites on a monthly basis over the term of each contract as services are rendered. In partner-led markets, we derive licensing and royalty revenues from the licensing of our technology and business systems, from consulting services and from providing back office and hosting services. We do not expect to enter into additional domestic partnerships to launch city guides going forward. Licensing revenue under license agreements is recognized over the term of the license agreement or the period over which the relevant services are delivered for use of our business and technology systems. Royalty revenue is recognized as earned and 32 is typically a percentage of partner-led market revenues from Web site sales, banners, advertisements, sponsorships and other ancillary offerings. In our integrated personals operations, we derive subscription fee revenue from customers who subscribe for our online matchmaking and dating services for one to twelve months. Subscription fee revenues are recognized monthly over the contract term. Sponsorship and advertising revenues are derived from local and national advertisers and are primarily recognized over the term of the promotion either ratably or based on our fulfillment of advertising campaign milestones. See Note 1 of the Notes to our Consolidated Financial Statements. OPERATING COSTS Ticketing operations costs consist primarily of expenses associated with ticket fulfillment (including the license fee to TM Corp), Web site maintenance, service and network infrastructure maintenance and data communications. City guide and related costs consist primarily of the expenses associated with the design, layout, photography, customer service and editorial resources used in production and maintenance of business Web sites; editorial content and network infrastructure maintenance in connection with the city guide operations; and costs of affiliate referral commissions, customer service and network infrastructure maintenance associated with the online personals operations. RECENT DEVELOPMENTS On January 31, 2001, our company was combined with Ticketmaster Group and its subsidiaries in a transaction structured as an acquisition by us of such entities. In the first step, TM Corp contributed to us all of the equity interests of its subsidiaries (except for shares of our common stock that it holds), along with its assets that were freely assignable. The shares of our common stock that were then held by TM Corp were not contributed or canceled and continue to be held by TM Corp. In exchange for the contributions by TM Corp, we issued to TM Corp 48,958,000 shares of our Class B Common Stock. In the second step, USA Networks contributed to us all of the outstanding capital stock of Ticketmaster Group. In exchange for the capital stock of Ticketmaster Group, we issued to USA Networks 52,000,000 new shares of our Class B Common Stock at the time of the closing of the Combination. In addition, we issued to USA Networks a number of shares of our Class A and Class B Common Stock equal to the number of such shares indirectly held by USA Networks through TM Corp prior to the Combination. Upon completion of the Combination, Ticketmaster Group and the former subsidiaries of TM Corp whose equity interests were contributed to us became our direct subsidiaries and TM Corp became our indirect subsidiary. The acquisition has been accounted for as a combination between entities under common control in a manner similar to the pooling of interests method of accounting. As a result of the Combination, prior year financials will be restated in future filings to present the Company as if it had been combined with Ticketmaster Group which will be similar to the pro forma presentation reported in Schedule 14C filed with the SEC in January 2001. On February 12, 2001, we completed an acquisition of ReserveAmerica Holdings, Inc. ("ReserveAmerica"), the leading provider of campsite reservations. We paid $24.9 million in cash for the initial consideration due in the transaction. The purchase price will be increased for additional shares of our common stock to be granted upon achievement of revenue targets based on our stock price at that time. The acquisition has been accounted for using the purchase method of accounting. The acquisition resulted in $24.6 million of goodwill to be recorded initially, with adjustments to be made upon the issuance of additional shares if the revenue targets are achieved. The total amount of goodwill recorded approximates the purchase price that we are amortizing over a period of ten years. OPERATING LOSSES We incurred net losses of $224.2 million, $121.4 million and $17.2 million for the years ended December 31, 2000 and 1999 and for the eleven months ended December 31, 1998, respectively. At December 31, 2000, we had an accumulated deficit of $361.6 million. 33 GOODWILL The merger of Ticketmaster.com and Citysearch in September 1998 and USA Networks' acquisition of 1,997,502 shares of Class A Common Stock of Citysearch from holders of such Class A Common Stock for $17.2 million pursuant to the terms of the related merger agreement in November 1998 resulted in $160.2 million of goodwill that is being amortized over five years. We recorded an allocation of goodwill of $154.8 million, which is being amortized over ten years, resulting from the acquisition of Ticketmaster Group by USA Networks. The acquisitions of CityAuction, Inc., Match.com, Inc and Web Media Ventures, LLC (d/b/a One & Only Network) during 1999 and 2b Technology, Inc. and TicketWeb, Inc. during 2000 resulted in goodwill of $28.7, $42.4, $44.7, $20.5 and $33.5 million, respectively, which are each being amortized over five years, with the exception of CityAuction as the amortization was entirely accelerated in the year ended December 31, 2000. In addition, the fair value of the consideration provided in exchange for the Sidewalk assets and distribution agreement, plus transaction costs amounted to $338.8 million and has been recorded in goodwill and other intangible assets. The amount allocated to the intangible asset of $333.8 million is being amortized over five years. The allocation of $5 million to the distribution agreement is being amortized over four years with the amortization expense included in sales and marketing. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999 TICKETING OPERATIONS REVENUES. Ticketing operations revenues were $135.6 million and $64.8 million for the years ended December 31, 2000 and 1999, respectively. This represents an increase of 109%. The increase is primarily attributable to a significant increase in the number of tickets sold on ticketmaster.com (from 10.0 million to 19.0 million tickets), ticketing revenues due to the acquisitions of 2b Technology in January 2000 and TicketWeb in May 2000 and an increase in the average convenience and handling charge for tickets sold on ticketmaster.com which increased 6% (from $6.38 to $6.78). We did not recognize any revenues from 2b Technology or TicketWeb in the year ended December 31, 1999. CITY GUIDE AND RELATED REVENUES. City guide and related revenues were $66.7 million and $33.9 million for the years ended December 31, 2000 and 1999, respectively. This represents an increase of 97%. The increase is principally attributable to the acquisition of the personals companies, Match.com and Web Media Ventures in June 1999 and September 1999, respectively, growth in revenues from operations in the 25 markets into which the city guide expanded throughout 1999, revenue from new city guide advertising products and services and also to increases in partner-led market consulting fees. Revenues from the personals operations represented a significant portion of total city guide and related revenues in the year ended December 31, 2000. We began recognizing revenues from the Match.com and Web Media Ventures portions of our personals operations in the second and third quarters of 1999, respectively. SPONSORSHIP AND ADVERTISING REVENUES. Sponsorship and advertising revenues were $18.4 million and $6.6 million for the years ended December 31, 2000 and 1999, respectively. This represents an increase of 179%. The increase is primarily attributable to our growing success in leveraging our expanded footprint of local city guides to appeal to national advertisers, including a significant advertising relationship with Microsoft Corporation. TICKETING OPERATIONS EXPENSES. Ticketing operations expenses were $102.2 million and $47.9 million for the years ended December 31, 2000 and 1999, respectively. This represents an increase of 114%. Our gross margins in ticketing operations slightly decreased to approximately 24% in the year ended December 31, 2000 from approximately 26% in the year ended December 31, 1999 as a result of higher client commissions. Ticketing operations expenses are primarily variable in nature and fluctuate in relation to fluctuations in ticketing revenue. In addition, we expect that ticketing operations expenses will increase proportionally with ticketing revenues. Expenses also increased, to a lesser 34 extent, due to the acquisitions of 2b Technology in January 2000 and TicketWeb in May 2000 and from an increase in Ticketmaster.com technology staffing. We did not recognize any expenses from 2b Technology or TicketWeb in the year ended December 31, 1999. CITY GUIDE AND RELATED EXPENSES. City guide and related expenses were $52.9 million and $30.3 million for the years ended December 31, 2000 and 1999, respectively. This represents an increase of 43%. The increase is attributable to the full year impact of both the city guide expansion in the year ended December 31, 1999 and, to a lesser extent, the inclusion of costs associated with our personals operations acquired in 1999. We began recognizing personals costs from the Match.com and Web Media Ventures portions of personals operations in the second and third quarters of 1999, respectively. Our gross margins in city guide and related operations increased to 21% in the year ended December 31, 2000 from 11% in the year ended December 31, 1999. The improvement resulted from the inclusion of our personals operations (which carry a higher gross margin) for the full period as opposed to the inclusion for only part of the 1999 period. City guide and related expenses have both fixed and variable components and may continue to increase in future periods to the extent city guide and related revenues increase during such periods. SALES AND MARKETING EXPENSES. Sales and marketing expenses consist primarily of costs related to the compensation of sales and marketing personnel and both online and offline advertising expense. Sales and marketing expenses were $78.8 million and $47.3 million for the year ended December 31, 2000 and 1999, respectively. This represents an increase of 67%. The increase for the year ended December 31, 2000, as compared to the year ended December 31, 1999, is attributable to the full year impact of the city guide expansion in 1999, advertising contributed by USA Networks for which we paid no consideration and the addition of sales and marketing expenses associated with our personals operations. We began recognizing sales and marketing costs from the Match.com and Web Media Ventures portions of our personals operations in the second and third quarters of 1999, respectively. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses include the costs to develop, test and upgrade our online service and the enterprise management systems primarily for our city guide operations. These costs consist primarily of salaries for product development personnel, contract labor expense, consulting fees, software licenses, hardware costs and recruiting fees. Research and development expenses were $6.0 million and $7.5 million for the years ended December 31, 2000 and 1999, respectively. This represents a decrease of 19%. The decrease is attributable to a reclassification of a portion of such costs to city guide and related expenses and, to a lesser extent, a reduction in full-time employees and consultants expensed to research and development during the 2000 period. We believe that timely deployment of new and enhanced products and technology is critical to attaining our strategic objectives and to remaining competitive. Accordingly, we intend to continue recruiting and hiring experienced research and development personnel and making other investments in research and development. We have expensed research and development costs as incurred. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist primarily of administrative and executive personnel costs. General and administrative expenses were $27.5 million and $15.2 million for the years ended December 31, 2000 and 1999, respectively. This represents an increase of 80%. The increase is due primarily to the costs of additional personnel needed for the continued growth of our city guide operations, increased depreciation expense resulting from capital expenditures during 1999 and 2000 and the inclusion of expenses associated with 2b Technology and TicketWeb, which we acquired in January 2000 and May 2000, respectively. We expect that general and administrative expenses will increase in absolute dollars in future periods. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles consists of goodwill associated with the acquisition of TM Corp by USA Networks, a portion of which was attributed to Ticketmaster.com, the merger of Citysearch and Ticketmaster.com and the acquisitions of CityAuction, Match.com, Web Media Ventures, 2b Technology, TicketWeb and the 35 Sidewalk assets. Amortization of goodwill and other intangibles was $163.3 million and $77.7 million for the years ended December 31, 2000 and 1999, respectively. This represents an increase of 110%. The increases are attributable to recognizing more of the full year impact of these acquisitions in the year ended December 31, 2000 and the accelerated amortization of the goodwill from the CityAuction acquisition. MERGER AND OTHER TRANSACTION COSTS. Merger and other transaction costs were $2.5 million and $4.2 million for the years ended December 31, 2000 and 1999, respectively. In 2000, these costs were attributable to the Combination with Ticketmaster Group and its subsidiaries. In 1999, these costs were primarily a result of advisory fees, regulatory filing fees and legal and accounting costs related to the terminated merger between us, certain assets owned by our majority shareholder and Lycos, Inc., as well as certain expenses related to the operation of the Sidewalk city guides before the integration of these properties into the city guide network. INTEREST INCOME, NET. Net interest income consists primarily of interest earned on our cash, cash equivalents and marketable securities available for sale, less interest expense on capital lease obligations. We had net interest income of $2.8 million and $4.2 million for the years ended December 31, 2000 and 1999, respectively. The changes in net interest income are primarily attributable to changes in the amount of our invested assets. We invest our cash balances in short-term investment grade, interest-bearing securities. EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATES. Equity in loss of unconsolidated affiliates of $3.9 million and $0.3 million for the years ended December 31, 2000 and 1999, respectively, represents our portion of net losses of foodline.com, Inc. and Active.com, Inc., two companies in which we made minority equity investments in late 1999. We recognize a portion of the gain or loss in these unconsolidated affiliates in periods during which our holdings of those companies' securities exceed specified percentages and we are deemed to exercise a measure of control over those companies as a result. In December 2000, foodline.com, Inc. filed for Chapter 7 bankruptcy protection and ceased operations. We will not recognize further losses in the operations of foodline.com, Inc. INVESTMENT LOSSES, NET. Investment losses, net of $8.8 million in the year ended December 31, 2000 represents our losses in certain equity investments that suffered declines in value that were other than temporary, net of proceeds from the sale of an investment. We will continue to evaluate our investments in the future to determine if there are any future reductions in value. OTHER INCOME (EXPENSE). Other income (expense) of $0.4 million in the year ended December 31, 2000 represents losses from the disposal of fixed assets, as well as losses we incurred from foreign currency translation. INCOME TAXES. The provision for income taxes was $1.5 million and $0.5 million for the years ended December 31, 2000 and 1999, respectively. This provision reflects the income tax expense incurred by our foreign subsidiaries, and has increased as a result of increased ticketing profits in those markets and due to foreign taxes on our Japanese partner-led market consulting income and the sale of a Canadian investment which were recognized in the second and fourth quarters of 2000, respectively. Our effective tax rate differs from the statutory federal income tax rate, primarily as a result of foreign income taxes and operating losses not benefited. We expect that our domestic tax provision will remain low throughout 2001 due to the availability of consolidated net operating losses following the Combination. The Company's balance sheet has a deferred tax asset for a net operating loss which is fully offset by a valuation allowance. The Company will retain the valuation allowance until it is likely that the Company will be able to utilize the net operating loss. Each quarter, the Company will evaluate the need for the full valuation allowance. If the valuation allowance is released, some of the benefit will be reflected in the income tax provision and some will be reflected through an adjustment to goodwill. 36 YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE ELEVEN MONTHS ENDED DECEMBER 31, 1998 Results for the year ended December 31, 1999 are compared to the eleven months ended December 31, 1998 due to the change in our fiscal year-end in 1998. The difference of one month's operations is not considered to materially impact the comparison of the two periods. TICKETING OPERATIONS REVENUES. Ticketing operations revenues were $64.8 million and $15.7 million for the year ended December 31, 1999 and for the eleven months ended December 31, 1998, respectively. The increase for the year ended December 31, 1999 over the eleven months ended December 31, 1998 is primarily attributable to a significant increase in the number of tickets sold (from 2.9 million to 10.0 million tickets) and a 17.1% increase in average convenience and handling charge revenue per ticket (from $5.45 to $6.38). CITY GUIDE AND RELATED REVENUE. City guide and related revenues were $33.9 million and $5.4 million for the year ended December 31, 1999 and for the eleven months ended December 31, 1998, respectively. The increase is attributable to inclusion of the city guide operations for a full twelve months versus the inclusion of three months of the city guide operations subsequent to the merger of Citysearch and Ticketmaster.com in September 1998, growth in the city guide operations during 1999, the addition of approximately six months of revenue from the match.com portion of the personals operations and the addition of approximately three months of revenue from the One & Only Network portion of the personals operations. There were no revenues from personals operations in the 1998 period. SPONSORSHIP AND ADVERTISING REVENUES. Sponsorship and advertising revenues were $6.6 million and $6.8 million, for the year ended December 31, 1999 and for the eleven months ended December 31, 1998, respectively. The decrease is associated with the loss of one major promotional agreement which represented $3.0 million in revenues for the eleven months ended December 31, 1998, offset in part by growth in the city guide operations and opportunities to generate sponsorship and advertising in 1999 and an increase in the amount of sponsorship and advertising activity in our ticketing operations. TICKETING OPERATIONS EXPENSES. Ticketing operating expenses were $47.9 million and $9.8 million for the year ended December 31, 1999 and for the eleven months ended December 31,1998, respectively. Our gross margins in ticketing operations declined to approximately 26% in 1999 from approximately 37% in 1998 as a result of the license arrangement with TM Corp which commenced in October 1998 in connection with the merger of Citysearch and Ticketmaster.com. Ticketing operations expenses are primarily variable in nature and have increased during the periods presented in conjunction with the increase in ticketing operations revenue and will continue to increase in future periods to the extent ticketing operations revenues increase during such periods. CITY GUIDE AND RELATED EXPENSES. City guide and related expenses were $30.3 million and $4.0 million for the year ended December 31, 1999 and for the eleven months ended December 31, 1998, respectively. The increase is attributable to growth in city guide operations in 1999, including the addition of 25 new owned and operated markets, the inclusion of a full twelve months of the city guide operations as compared to the three months subsequent to the merger of Citysearch and Ticketmaster.com in September 1998 in the period ended December 31, 1998 and, to a lesser extent, the inclusion of costs associated with our personals operations in 1999. There were no personals costs in the 1998 period. Our gross margins in city guide operations declined to 11% in 1999 from 25% in 1998 as a result of costs associated with the expansion into new markets where sales had not yet commenced. SALES AND MARKETING EXPENSES. Sales and marketing expenses were $47.3 million and $6.8 million for the year ended December 31, 1999 and for the eleven months ended December 31, 1998, respectively. The increase is attributable to the growth of our city guide operations in 1999, the inclusion of a full twelve months of the city guide operations in 1999 as compared to the three months subsequent to the merger of Citysearch and Ticketmaster.com in September 1998 for the eleven 37 months ended December 31, 1998 and, to a lesser extent, the addition of sales and marketing expenses associated with our personals operations in the last half of 1999. There were no personals costs in the 1998 period. RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs were $7.5 million and $1.7 million for the year ended December 31, 1999 and for the eleven months ended December 31, 1998, respectively. The increase is attributable to inclusion of a full twelve months of research and development costs of city guide operations in 1999 as compared to the three months subsequent to the merger of Citysearch and Ticketmaster.com in September 1998 and, to a lesser extent, the growth of city guide operations in 1999. We have expensed research and development costs as incurred, except that certain qualifying Web site software development costs of $4.4 million were capitalized during 1999 for our ticketing, city guide and personals operations. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were $15.2 million and $3.5 million for the year ended December 31, 1999 and for the eleven months ended December 31, 1998, respectively. The increase was attributable to the inclusion of general and administrative expenses relating to city guide expenses for a full twelve months in 1999 as compared to the three month period subsequent to the merger of Citysearch and Ticketmaster.com in September 1998 in the period ended December 31, 1998, the growth of city guide operations in 1999 and, to a lesser extent, the inclusion of general and administrative expenses relating to personals operations in the last half of 1999. We had no costs associated with personals operations in 1998. AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES. Amortization of goodwill and other intangibles was $77.7 million and $16.3 million for the year ended December 31, 1999 and the eleven months ended December 31, 1998, respectively, primarily relating to the merger of Citysearch and Ticketmaster.com and the acquisition of TM Corp. Amortization of goodwill in the prior year periods began during the three-month period ending September 30, 1998 as the acquisition of TM Corp did not occur until the end of June 1998. MERGER AND OTHER TRANSACTION COSTS. Merger and other transaction costs were $4.2 million for the year ended December 31, 1999. There were no merger or other transaction costs in 1998. These costs are primarily a result of advisory fees, regulatory filing fees and legal and accounting costs related to the terminated merger between Ticketmaster Online-Citysearch, certain assets owned by our majority stockholder and Lycos, Inc., as well as certain expenses related to the operation of the Sidewalk city guides before the integration of these properties into the Citysearch network. INTEREST INCOME, NET. We had net interest income of $4.2 million and $54,000 for the year ended December 31, 1999 and the eleven months ended December 31, 1998, respectively. The increase was due primarily to the inclusion of 12 months of net interest income from the cash acquired in the merger of Citysearch and Ticketmaster.com in September 1998 in the year ended December 31, 1999. EQUITY IN LOSS OF UNCONSOLIDATED AFFILIATES. Equity in loss of unconsolidated affiliates of $272,000 represents the percentage of ownership portion of net losses of foodline.com, Inc. for the ownership period from October 1999 during the year ended December 31, 1999. INCOME TAXES. The provision for income taxes was $464,000 and $2.9 million for the year ended December 31, 1999 and for the eleven months ended December 31, 1998, respectively. The provision for income taxes in 1999 relates to our international ticketing operations. Our effective tax rate differs from the statutory federal income tax rate, primarily as a result of state income taxes and generating losses not benefited. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities was $25.5, $35.3 and $0.4 million for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998, respectively. Net cash 38 used in operating activities was primarily due to net losses, offset in large part by non-cash depreciation and amortization expense of $173.1, $82.1 and $17.4 million, respectively. Net cash used in investing activities was $7.7, $51.8 and $1.1 million for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998, respectively. Net cash used in investing activities in the years ended December 31, 2000 and 1999 consisted primarily of purchases of short-term marketable securities, capital expenditures for computers, software, equipment and leasehold improvements, offset in the 2000 period mostly by proceeds from the sale of marketable securities to fund operations. Net cash used in investing activities in the eleven months ended December 31, 1998 consisted primarily of capital expenditures for computers, software, equipment and leasehold improvements. Net cash provided by financing activities was $4.0, $41.7 and $50.6 million for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998, respectively. Net cash provided by financing activities for the year ended December 31, 2000 was primarily attributable to proceeds from employee stock option exercises, offset by payments on capital leases. Net cash provided by financing activities for the year ended December 31, 1999 was primarily attributable to the $40.0 million additional investment by USA Networks (through its wholly-owned subsidiary TM Corp) in exchange for 1.3 million shares of our Class B Common Stock. The cash provided by financing activities for the eleven months ended December 31, 1998 was attributable to proceeds of $105.4 million from our initial public offering offset by the repayment of the $50.0 million convertible promissory note issued to us by USA Networks. We had cash, cash equivalents and marketable securities available for sale of $40.1 million and $87.8 million at December 31, 2000 and 1999, respectively. As of December 31, 2000, we had no material commitments other than those under existing capital and operating lease agreements. We have experienced a substantial increase in our capital expenditures and investing activities consistent with our infrastructure build out and expansion into other businesses that compliment our current offerings. We will continue to evaluate possible acquisitions of, or investments in, businesses, products and technologies that are complementary to ours, which may require the use of cash. As a result of the Combination with Ticketmaster Group in January 2001, we have entered into a revolving credit facility with USA Networks that provides us with $25 million in available credit through May 1, 2001 (the "Revolver") and thereafter must be repaid upon demand. As of March 23, 2001, we owed USA Networks $24 million related to the terms of the Combination (the "Demand Note") and this amount must be repaid upon demand. We also had $0.2 million in outstanding letters of credit which were guaranteed by USA Networks (the "LOCs"). Both the Demand Note and the LOCs reduce the amount of available credit under the Revolver. Our management believes that existing cash and cash equivalents, marketable securities, the Revolver, amounts available from other sources, including USA Networks, and the positive cash flow from the ticketing operations we acquired in the Combination will be sufficient to meet our working capital and capital expenditures requirements for at least the next twelve months. Thereafter, we may be required to raise additional funds. We cannot assure you that we will not choose to or be required to raise additional financing prior to such time. If additional funds are raised through the issuance of equity securities, our stockholders may experience significant dilution. Furthermore, we cannot assure you that additional financing will be available when needed or that, if available, such financing will include terms favorable to us or our stockholders. If such financing is not available when required or is not available on acceptable terms, we may be unable to develop or enhance our products and services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations. 39 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK Our exposure to market rate risk for changes in interest rates relates primarily to our investment portfolio. We have not used derivative financial instruments in our investment portfolio. We invest our excess cash in debt instruments of the U.S. Government and its agencies and in high-quality corporate issuers and, by policy, limit the amount of credit exposure to any one issuer. We protect and preserve our invested funds by limiting default, market and reinvestment risk. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates. SEASONALITY Ticketmaster's ticket sales are occasionally impacted by fluctuations in the availability of events for sale to the public, which vary depending upon scheduling by the client. The second quarter of the year generally experiences the most events. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our financial statements, with notes thereto and the report of Ernst & Young, LLP, our independent auditors, are set forth as indicated in Item 14. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information contained under the headings "Directors" and "Executive Officers" in the definitive Proxy Statement for our 2001 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information contained under the headings "Directors" and "Executive Officers" in the definitive Proxy Statement for our 2001 Annual Meeting of Stockholders is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information contained under the heading "Voting Securities and Principal Stockholders" in the definitive Proxy Statement for our 2001 Annual Meeting of Stockholders is incorporated herein by reference. 40 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information contained under the heading "Certain Transactions" in the definitive Proxy Statement for our 2001 Annual Meeting of Stockholders is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)(1) FINANCIAL STATEMENTS:
PAGE REFERENCE FORM 10 -------------- Schedule II--Valuation and qualifying accounts for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998................................... S-1
Schedules other than those listed above have been omitted since they are either not required, not applicable, or the information is otherwise included. (A)(2) FINANCIAL STATEMENTS: The following financial statements of Ticketmaster are included in response to Item 8 of this report.
PAGE REFERENCE FORM 10 -------------- Report of Independent Auditors.............................. F-1 Consolidated Balance Sheets as of December 31, 2000 and 1999...................................................... F-2 Consolidated Statements of Operations for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998......................................... F-3 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998............................ F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998......................................... F-5 Notes to Consolidated Financial Statements.................. F-7
41 (A)(3) EXHIBITS FILED AS PART OF THIS REPORT:
EXHIBIT NUMBER EXHIBIT TITLE NOTES - ------- ------------- -------- 2.1 Agreement and Plan of Reorganization, among Citysearch, (A) * Inc., MB Acquisition Corporation, MetroBeat, Inc., Mark Davies and Joshua White, dated May 31, 1996. 2.2 Amended and Restated Agreement and Plan of Reorganization, (A) among Citysearch, Inc., Tiberius, Inc., USA Networks, Inc., Ticketmaster Group, Inc., Ticketmaster Corporation and Ticketmaster Multimedia Holdings, Inc., dated August 12, 1998. 2.3 Agreement and Plan of Reorganization, dated January 8, 1999, (E) by and among Ticketmaster Online-Citysearch, Inc., Nero Acquisition Corp., Inc., CityAuction, Inc., Andrew Rebele and Monica Lee as amended. 2.4 Exchange Agreement by and among Cendant Corporation, Cendant (F) Intermediate Holdings, Inc. and Ticketmaster Online-Citysearch, Inc. dated as of May 14, 1999. 2.5 Agreement and Plan of Reorganization dated June 10, 1999 (F) among Ticketmaster Online-Citysearch, Inc., Web Media Ventures LLC (dba One & Only Network) and William Bunker, David Kennedy and Glenn Wiggins. 2.6 Agreement and Plan of Merger by and among Sidewalk.com, (G) Inc., Microsoft Corporation and the Registrant, dated as of July 19, 1999. 2.7 Series D Preferred Stock Purchase Agreement between (H) Ticketmaster and FairMarket, Inc. dated September 15, 1999 2.8 Series D Preferred Stock Purchase Agreement, dated November (K) 17, 1999, by and among RaceGate.com, Inc., a Delaware corporation, RaceGate.com, Inc., a California corporation, RG Acquisition Corp., Active USA.com, Inc., Ticketmaster Online-Citysearch, Inc, Austin Ventures IV, L.P. and Kettle Partners IV, L.P. 2.9 Agreement and Plan of Merger by and among the Registrant, (J) TMCS Merger Sub, Inc., 2b Technology, Inc., Bryan Bostic, Eric Martin, Live Oak Holdings, L.C., Clarke Holding, L.C., and Kenneth Bostic, dated as of January 30, 2000 2.10 Agreement and Plan of Merger by and among the Registrant, (L) TMCS Merger Sub, Inc. and TicketWeb Inc., dated as of May 23, 2000. 2.11 Contribution Agreement by and between the Registrant and USA (O) Networks, Inc., dated as of November 20, 2000. 2.12 Work-Out Agreement by and among the Registrant, 2b (P) Technology, Inc., Bryan Bostic, Eric Martin, Live Oak Holdings, L.C., Clarke Holding, L.C., and Kenneth Bostic dated as of December 8, 2000. 2.13 Share Purchase Agreement by and among Ticketmaster Canada, (P) Inc., Ticketmaster Online-Citysearch, Inc, ReserveAmerica Holdings, Inc., and certain Shareholders of ReserveAmerica Holdings, Inc. dated as of December 28, 2000. 2.14 Asset Purchase Agreement entered into as of March 8, 2001 by + and among Evite, Inc., a California corporation, and Ticketmaster. Portions of this Exhibit 2.14 have been omitted pursuant to a request to the SEC for confidential treatment. 3.1 Amended and Restated Certificate of Incorporation. (B) 3.2 Amended and Restated Bylaws. + 3.3 Certificate of Amendment to Amended and Restated Certificate + of Incorporation. 4.1 Specimen Class B Common Stock Certificate. (B)
42
EXHIBIT NUMBER EXHIBIT TITLE NOTES - ------- ------------- -------- 4.2 Class B Common Stock Purchase Warrant of the Registrant to (G) be delivered upon closing of the Sidewalk acquisition (3,000,000 shares). 4.3 Class B Common Stock Purchase Warrant of the Registrant to (G) be delivered upon closing of the Sidewalk acquisition (1,500,000 shares). 10.1 1996 Stock Option Plan and form of agreement thereunder. (B) 10.2 1998 Stock Option Plan and form of agreement thereunder. (B) 10.3 1998 Employee Stock Purchase Plan. (C) 10.4 Amended and Restated 1999 Stock Plan and form of agreement + thereunder. 10.5 Form of Restricted Stock Agreement under the 1999 Stock (L) ** Plan. 10.6 Form of Restricted Stock Agreement entered into between the (L) ** Registrant and each of John Pleasants and Dan Marriott. 10.7 TicketWeb Inc. 2000 Stock Plan (N) 10.8 License Agreement between Citysearch, Inc. and Perly, Inc., (A) * dated March 9, 1996. 10.9 Standard Office Lease between Citysearch, Inc. and BPG (A) Pasadena, L.L.C. (later assigned to Spieker Properties), dated September 30, 1996. 10.10 First Amendment to Office Lease, dated April 4, 1997, by and + between BPG Pasadena and Citysearch, Inc. 10.11 Lease Amendment No. Two, dated December 1, 1998, by and + between Spieker Properties L.P. (as successor to BPG Pasadena) and Citysearch, Inc. 10.12 Lease Amendment No. Three, dated as of November 14, 1998, by + and between Spieker Properties L.P. (as successor to BPG Pasadena) and Citysearch, Inc. 10.13 Lease Amendment No. Four, dated July 9, 1999, by and between + Spieker Properties L.P. (as successor to BPG Pasadena) and Ticketmaster Online-Citysearch (as successor to Citysearch, Inc.) 10.14 Lease Amendment No. Five, dated August 13, 1999, by and + between Spieker Properties L.P. (as successor to BPG Pasadena) and Ticketmaster Online-Citysearch (as successor to Citysearch). 10.15 Office Lease Agreement, effective as of November 17, 1999, + by and between Cardinal Shiloh 190 II, Inc., as lessor, and Ticketmaster Online-Citysearch, as lessee. 10.16 Marketing Agreement between Citysearch, Inc. and American (A) * Express Travel Related Services Company, Inc., dated May 26, 1998. 10.17 License and Services Agreement between Citysearch, Inc. and (A) * Classified Ventures, L.L.C. 10.18 Development and Services Agreement between Ticketmaster (A) Multimedia Holdings, Inc. and Starwave Corporation, dated June 28, 1996.
43
EXHIBIT NUMBER EXHIBIT TITLE NOTES - ------- ------------- -------- 10.19 Agreement, dated as of July 20, 2000, by and between + Ticketmaster Online-Citysearch and ARTISTdirect, Inc. 10.20 Content License and Promotion Agreement, dated as of + September 28, 2000, by and between Yahoo! Inc. and Ticketmaster Online-Citysearch. Portions of this Exhibit 10.20 have been omitted pursuant to a request to the SEC for confidential treatment. 10.21 Distribution and Promotion Agreement, dated as of November + 20, 2000, by and between Yahoo! Inc. and Match.com. Portions of this Exhibit 10.21 have been omitted pursuant to a request to the SEC for confidential treatment. 10.22 Registration Rights Agreement dated May 14, 1999 among (F) Cendant Intermediate Holdings, Inc. and Ticketmaster Online-Citysearch. 10.23 Registration Rights Agreement between the Registrant and (G) Microsoft Corporation dated September 17, 1999. 10.24 License and Services Agreement entered into as of April 6, + 2000, by and between Ticketmaster Online-Citysearch, Inc. and Walkerplus.com, Inc., a corporation organized under the laws of Japan. 21.1 Subsidiaries of the Registrant. + 23.1 Consent of Independent Auditors. + 24.1 Power of Attorney (See signature page). +
- ------------------------ * Confidential treatment has been granted with respect to portions of this exhibit. ** Reflects management contracts and compensatory plans. + Filed herewith. (A) Incorporated by reference to exhibits filed in response to Item 16, "Exhibits," of the Registrant's Registration Statement on Form S-1 (File No. 333-64855) filed with the Commission on September 30, 1998. (B) Incorporated by reference to exhibits filed in response to Item 16, "Exhibits," of the Registrant's Registration Statement on Form S-1 (File No. 333-64855) filed with the Commission on November 6, 1998. (C) Incorporated by reference to exhibits filed in response to Item 16, "Exhibits," of the Registrant's Registration Statement on Form S-1 (File No. 333-64855) filed with the Commission on November 20, 1998. (D) Incorporated by reference to exhibits filed in response to Item 7, "Exhibits," of the Report on form 8-K filed by USA Networks, Inc. (File No. 000-20570) with the Commission on February 26, 1998. (E) Incorporated by reference to the Registrant's Report on Form 10-K filed with the Commission on March 31, 1999. (F) Incorporated by reference to exhibits filed in response to Item 16, "Exhibits," of the Registrant's Registration Statement on Form S-1 (File No. 333-81761) filed with the Commission on June 29, 1999. (G) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Report on Form 10-Q filed with the Commission on August 16, 1999. 44 (H) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Report on Form 10-Q filed with the Commission on November 15, 1999. (I) Incorporated by reference to exhibits filed in response to Item 8, "Exhibits," of the Registrant's Registration Statement on Form S-8 (File No. 333-30794) filed with the Commission on February 18, 2000. (J) Incorporated by reference to exhibits filed in response to Item 16, "Exhibits," of the Registrant's Registration Statement on Form S-3 (File No. 333-30884) filed with the Commission on February 22, 2000. (K) Incorporated by reference to the Registrant's Report on Form 10-K filed with the Commission on March 23, 2000. (L) Incorporated by reference to exhibits filed in response to Item 6, "Exhibits," of the Registrant's Report on Form 10-Q filed with the Commission on May 15, 2000. (M) Incorporated by reference to exhibits filed in response to Item 16, "Exhibits," of the Registrant's Registration Statement on Form S-3 (File No. 333-39230) filed with the Commission on June 14, 2000. (N) Incorporated by reference to exhibits filed in response to Item 8, "Exhibits," of the Registrant's Registration Statement on Form S-8 (File No. 333-41018) filed with the Commission on July 7, 2000. (O) Incorporated by reference to exhibits to the Registrant's Definitive Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934 filed with the Commission on January 11, 2001. (P) Incorporated by reference to exhibits filed in response to Item 16, "Exhibits," of the Registrant's Registration Statement on Form S-3 (File No. 333-54304) filed with the Commission on January 25, 2001. (B) REPORTS ON FORM 8-K: (1) On October 20, 2000, the Registrant filed a Current Report on Form 8-K in connection with the release of the registrant's financial results for the quarter ended September 30, 2000. (2) On October 27, 2000, the Registrant filed a Current Report on Form 8-K relating to information concerning the registrant contained in a Current Report on Form 8-K filed by USA Networks, Inc. on October 26, 2000. (3) On November 21, 2000, the Registrant filed a Current Report on Form 8-K in connection with the announcement of the registrant's execution of an agreement providing for the acquisition of Ticketmaster Corporation by the registrant. 45 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TICKETMASTER By: /s/ JOHN PLEASANTS ----------------------------------------- John Pleasants CHIEF EXECUTIVE OFFICER AND PRESIDENT
Dated: March 26, 2001 POWER OF ATTORNEY Know All Men By These Presents, that each person whose signature appears below constitutes and appoints Daniel Goodman, Bradley Serwin and Thomas J. McInerney, jointly and severally, his or her attorney-in-fact, each with the power of substitution for him or her in any and all capacities, to sign any amendments to this Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
NAME TITLE DATE ---- ----- ---- /s/ JOHN PLEASANTS Chief Executive Officer (Principal --------------------------------- Executive Officer), President and March 26, 2001 John Pleasants Director /s/ THOMAS J. MCINERNEY Chief Financial Officer, Executive Vice --------------------------------- President (Principal Financial and March 26, 2001 Thomas J. McInerney Accounting Officer) /s/ BARRY DILLER --------------------------------- Co-Chairman March 26, 2001 Barry Diller /s/ TERRY BARNES --------------------------------- Co-Chairman March 26, 2001 Terry Barnes /s/ VICTOR A. KAUFMAN --------------------------------- Director March 26, 2001 Victor A. Kaufman
46
NAME TITLE DATE ---- ----- ---- /s/ BRYAN LOURD --------------------------------- Director March 26, 2001 Bryan Lourd /s/ JON MILLER --------------------------------- Director March 26, 2001 Jon Miller --------------------------------- Director March , 2001 Michael Schrage /s/ ALAN SPOON --------------------------------- Director March 26, 2001 Alan Spoon
47 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors Ticketmaster We have audited the accompanying consolidated balance sheets of Ticketmaster (formerly Ticketmaster Online-Citysearch, Inc.) as of December 31, 2000 and December 31, 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 2000 and 1999 and the eleven month period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and the schedule are the responsibility of Ticketmaster's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 consolidated financial position of Ticketmaster at December 31, 2000, and the consolidated results of their operations and their cash flows for each of the years ended December 31, 2000 and 1999 and the eleven month period ended December 31, 1998, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Los Angeles, California January 29, 2001 F-1 TICKETMASTER CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, ------------------- 2000 1999 -------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ 32,127 $ 61,455 Marketable securities available for sale.................. 7,938 26,299 Accounts receivable (net of allowance for doubtful accounts of $2,390 and $738, respectively).............. 6,886 3,774 Related party receivable.................................. 454 1,942 Due from licensees........................................ 832 830 Current portion of deferred marketing..................... 1,250 1,250 Prepaid expenses and other current assets................. 5,088 2,576 -------- -------- Total current assets.................................... 54,575 98,126 Investments................................................. 11,682 23,085 Computers, software, equipment and leasehold improvements, net....................................................... 24,201 16,831 Goodwill and other intangibles, net......................... 562,458 662,921 Deferred marketing, net of current portion.................. 2,135 3,385 Other long-term assets...................................... 547 321 -------- -------- Total assets............................................ $655,598 $804,669 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.......................................... $ 3,102 $ 4,537 Accrued expenses.......................................... 16,281 9,100 Deferred revenue.......................................... 8,226 5,979 Current portion of capital lease obligations.............. 324 957 -------- -------- Total current liabilities............................... 27,933 20,573 Other long-term liabilities................................. 728 1,170 Capital lease obligations, net of current portion........... 34 333 Stockholders' equity: Preferred stock, $0.01 par value; Authorized shares -- 2,000,000 at December 31, 2000 and 1999 Issued and outstanding -- none..................................... -- -- Class A Common Stock, $0.01 par value; Authorized shares -- 100,000,000 at December 31, 2000 and 1999 Issued and outstanding -- 47,718,879 and 52,840,565 at December 31, 2000 and 1999, respectively................ 477 529 Class B Common Stock -- $0.01 par value; Authorized shares -- 250,000,000 at December 31, 2000 and 1999 Issued and outstanding -- 41,291,839 and 32,104,352 at December 31, 2000 and 1999, respectively............................. 413 321 Class C Common Stock -- $0.01 par value; Authorized shares -- 2,883,506 at December 31, 2000 and 1999 Issued and outstanding -- none..................................... -- -- Additional paid-in capital................................ 987,700 919,348 Accumulated deficit....................................... (361,624) (137,413) Accumulated other comprehensive loss...................... (63) (192) -------- -------- Total stockholders' equity.............................. 626,903 782,593 -------- -------- Total liabilities and stockholders' equity.............. $655,598 $804,669 ======== ========
See accompanying notes. F-2 TICKETMASTER CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED ELEVEN MONTHS DECEMBER 31, ENDED --------------------- DECEMBER 31, 2000 1999 1998 --------- --------- ------------- Revenues: Ticketing operations................................... $ 135,595 $ 64,787 $ 15,743 City guide and related................................. 66,652 33,915 5,376 Sponsorship and advertising............................ 18,397 6,601 6,754 --------- --------- -------- Total revenues....................................... 220,644 105,303 27,873 Operating costs and expenses: Ticketing operations................................... 102,209 47,870 9,842 City guide and related................................. 52,893 30,288 4,021 Sales and marketing.................................... 78,805 47,263 6,834 Research and development............................... 6,022 7,455 1,728 General and administrative............................. 27,465 15,242 3,495 Amortization of goodwill and other intangibles......... 163,281 77,744 16,275 Merger and other transaction costs..................... 2,478 4,236 -- --------- --------- -------- Total costs and expenses............................. 433,153 230,098 42,195 --------- --------- -------- Loss from operations..................................... (212,509) (124,795) (14,322) Other income (expense): Interest income........................................ 3,267 4,428 867 Interest expense....................................... (437) (265) (813) Equity in loss of unconsolidated affiliates............ (3,884) (272) -- Investment losses, net................................. (8,814) -- -- Other expense.......................................... (360) -- -- --------- --------- -------- (10,228) 3,891 54 --------- --------- -------- Loss before income taxes................................. (222,737) (120,904) (14,268) Income tax provision..................................... 1,474 464 2,951 --------- --------- -------- Net loss................................................. $(224,211) $(121,368) $(17,219) ========= ========= ======== Basic and diluted net loss per share..................... $ (2.57) $ (1.59) $ (0.38) ========= ========= ======== Shares used to compute basic and diluted net loss per share.................................................. 87,374 76,097 45,201 ========= ========= ========
See accompanying notes. F-3 TICKETMASTER CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
CLASS A CLASS B COMMON STOCK COMMON STOCK COMMON STOCK DUE TO ADDITIONAL -------------------- ------------------- ------------------- (FROM) PAID-IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT TICKETMASTER CAPITAL -------- --------- -------- -------- -------- -------- ------------ ---------- Balance at January 31, 1998........ 1 $ -- -- $ -- -- $ -- $(1,113) $ -- ======== ========= ======= ==== ====== ==== ======= ======== Net loss........................... -- $ -- -- $ -- -- $ -- $ -- $ -- Allocation of initial capitalization as a result of the Ticketmaster Acquisition by USAi............................. -- -- -- -- -- -- -- 22,834 Allocation of basis of Tax-free Merger of Ticketmaster by USAi... -- -- -- -- -- -- -- 126,170 Stock exchanged in connection with Citysearch Merger (37,238) and USAi's initial investment in Citysearch at cost............... -- -- 40,483 405 -- -- -- 145,923 Contribution of tendered Citysearch Common Stock from USAi to Ticketmaster..................... -- -- -- -- -- -- -- 17,318 Contribution of Citysearch Common Stock from USAi to Ticketmaster..................... -- -- 22,003 220 -- -- -- 1,100 Exercise of stock options and warrants......................... -- -- 923 9 -- -- -- 1,600 Initial public offering of Class B Common Stock..................... -- -- -- -- 8,050 81 -- 103,973 Class A shares converted to Class B................................ -- -- (117) (1) 117 1 -- -- -------- --------- ------- ---- ------ ---- ------- -------- Balance at December 31, 1998....... -- -- 63,292 633 8,167 82 -- 418,918 Comprehensive Loss: Net loss......................... -- -- -- -- -- -- -- -- Net unrealized loss on marketable securities....................... -- -- -- -- -- -- -- -- Foreign currency translation adjustment....................... -- -- -- -- -- -- -- -- Total Comprehensive loss........... -- -- -- -- -- -- -- -- Issuance of Common Stock for acquisitions and investments..... -- -- -- -- 11,229 112 -- 455,980 Issuance of Common Stock related to additional investment by Ticketmaster Corp................ -- -- -- -- 1,302 13 -- 39,987 Additional capital contributed by USAi through advertising......... -- -- -- -- -- -- -- 207 Exercise of stock options and warrants......................... -- -- 582 6 373 4 -- 4,256 Class A shares converted to Class B................................ -- -- (11,033) (110) 11,033 110 -- -- -------- --------- ------- ---- ------ ---- ------- -------- Balance at December 31, 1999....... -- -- 52,841 529 32,104 321 -- 919,348 Comprehensive Loss: Net loss......................... -- -- -- -- -- -- -- -- Net unrealized gain on marketable securities....................... -- -- -- -- -- -- -- -- Foreign currency translation adjustment....................... -- -- -- -- -- -- -- -- Total Comprehensive loss........... -- -- -- -- -- -- -- -- Issuance of Common Stock for acquisitions and investments..... -- -- -- -- 3,226 32 -- 54,837 Additional capital contributed by USAi through advertising......... -- -- -- -- -- -- -- 7,252 Compensation expense on option grants........................... -- -- -- -- -- -- -- 1,374 Exercise of stock options and warrants......................... -- -- 626 6 214 2 -- 4,889 Class A shares converted to Class B................................ -- -- (5,748) (58) 5,748 58 -- -- -------- --------- ------- ---- ------ ---- ------- -------- Balance at December 31, 2000....... -- $ -- 47,719 $477 41,292 $413 $ -- $987,700 ======== ========= ======= ==== ====== ==== ======= ======== ACCUMULATED RETAINED OTHER TOTAL EARNINGS COMPREHENSIVE STOCKHOLDERS' (DEFICIT) INCOME (LOSS) EQUITY --------- ------------- ------------- Balance at January 31, 1998........ $ 1,402 $ -- $ 289 ========= ======= ======== Net loss........................... $ (17,219) $ -- $(17,219) Allocation of initial capitalization as a result of the Ticketmaster Acquisition by USAi............................. 1,174 -- 24,008 Allocation of basis of Tax-free Merger of Ticketmaster by USAi... -- -- 126,170 Stock exchanged in connection with Citysearch Merger (37,238) and USAi's initial investment in Citysearch at cost............... -- -- 146,328 Contribution of tendered Citysearch Common Stock from USAi to Ticketmaster..................... -- -- 17,318 Contribution of Citysearch Common Stock from USAi to Ticketmaster..................... -- -- 1,320 Exercise of stock options and warrants......................... -- -- 1,609 Initial public offering of Class B Common Stock..................... -- -- 104,054 Class A shares converted to Class B................................ -- -- -- --------- ------- -------- Balance at December 31, 1998....... (16,045) -- 403,588 Comprehensive Loss: Net loss......................... (121,368) -- (121,368) Net unrealized loss on marketable securities....................... -- (211) (211) Foreign currency translation adjustment....................... -- 19 19 ------------- Total Comprehensive loss........... -- -- (121,560) ------------- Issuance of Common Stock for acquisitions and investments..... -- -- 456,092 Issuance of Common Stock related to additional investment by Ticketmaster Corp................ -- -- 40,000 Additional capital contributed by USAi through advertising......... -- -- 207 Exercise of stock options and warrants......................... -- -- 4,266 Class A shares converted to Class B................................ -- -- -- --------- ------- -------- Balance at December 31, 1999....... (137,413) (192) 782,593 Comprehensive Loss: Net loss......................... (224,211) -- (224,211) Net unrealized gain on marketable securities....................... -- 220 220 Foreign currency translation adjustment....................... -- (91) (91) ------------- Total Comprehensive loss........... -- -- (224,082) ------------- Issuance of Common Stock for acquisitions and investments..... -- -- 54,869 Additional capital contributed by USAi through advertising......... -- -- 7,252 Compensation expense on option grants........................... -- -- 1,374 Exercise of stock options and warrants......................... -- -- 4,897 Class A shares converted to Class B................................ -- -- -- --------- ------- -------- Balance at December 31, 2000....... $(361,624) $ (63) $626,903 ========= ======= ========
See accompanying notes. F-4 TICKETMASTER CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED ELEVEN MONTHS DECEMBER 31, ENDED --------------------- DECEMBER 31, 2000 1999 1998 --------- --------- ------------- OPERATING ACTIVITIES Net loss.................................................... $(224,211) $(121,368) $ (17,219) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation.............................................. 9,824 4,307 1,136 Amortization of goodwill and other intangibles............ 163,281 77,744 16,275 Deferred marketing........................................ 1,250 365 -- Loss in unconsolidated affiliates......................... 3,884 272 -- Investment losses, net.................................... 8,814 -- -- Stock compensation........................................ 1,374 -- -- Advertising contributed by USAi........................... 7,252 207 -- Loss on disposal of fixed assets.......................... 298 -- -- Changes in operating assets and liabilities: Accounts receivable..................................... (1,968) (2,439) (818) Related parties receivable.............................. 1,488 (1,129) (184) Due from licensees...................................... (2) 610 27 Prepaid expenses and other current assets............... (2,124) (1,399) (475) Accounts payable........................................ (2,152) 677 36 Accrued expenses........................................ 5,987 4,765 (196) Deferred revenue and deferred rent...................... 1,484 2,071 980 --------- --------- --------- Net cash used in operating activities....................... (25,521) (35,317) (438) INVESTING ACTIVITIES Capital expenditures........................................ (16,381) (11,766) (1,034) Investments in unconsolidated affiliates.................... (10,488) (12,857) -- Proceeds from sale of investment in unconsolidated affiliates................................................ 3,588 -- -- Acquisitions, net of cash acquired.......................... (1,759) (472) -- Proceeds from sale of marketable securities available for sale...................................................... 40,474 -- -- Purchase of marketable securities available for sale........ (21,893) (26,510) -- Loan to unconsolidated affiliates........................... (1,249) -- -- Other....................................................... 36 (223) (112) --------- --------- --------- Net cash used in investing activities....................... (7,672) (51,828) (1,146) FINANCING ACTIVITIES Net distributions to Ticketmaster Corp...................... -- -- (5,549) Net proceeds from exercise of options and warrants.......... 4,897 4,266 1,609 Proceeds from initial public offering....................... -- -- 105,373 Costs associated with initial public offering............... -- (861) (384) Additional investment from Ticketmaster Corp................ -- 40,000 -- Payments on capital leases.................................. (941) (1,413) (324) Payment on convertible promissory note...................... -- -- (50,000) Other, net.................................................. -- (321) (108) --------- --------- --------- Net cash provided by financing activities................... 3,956 41,671 50,617 Effect of exchange rate changes on cash and cash equivalents............................................... (91) 19 -- Net cash acquired in Citysearch Merger...................... -- -- 57,877 --------- --------- --------- Net increase (decrease) in cash and cash equivalents........ (29,328) (45,455) 106,910 Cash and cash equivalents at beginning of period............ 61,455 106,910 -- --------- --------- --------- Cash and cash equivalents at end of period.................. $ 32,127 $ 61,455 $ 106,910 ========= ========= ========= See accompanying notes.
F-5 TICKETMASTER CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS)
YEAR ENDED ELEVEN MONTHS DECEMBER 31, ENDED --------------------- DECEMBER 31, 2000 1999 1998 --------- --------- ------------- Supplemental statement of cash flow information Cash paid for: Interest................................................ $ (437) $ (265) Income taxes............................................ (1,096) (2,951) Noncash investing and financing information Mergers and acquisitions of businesses Fair value of assets acquired (including cash and cash equivalents and goodwill)........................... $ 58,622 $ 111,340 $ 226,339 Less: Fair value of liabilities assumed..................... 3,294 4,248 61,373 Issuance of Class B Common Stock...................... 53,597 102,702 -- Guaranteed additional Class B Common Stock issuance... -- 4,390 -- Issuance of Class A Common Stock...................... -- -- 147,648 Contribution of tendered Citysearch Common Stock from USAi to Ticketmaster Corp........................... -- -- 17,318 --------- --------- --------- Cash paid........................................... $ 1,731 $ -- $ -- ========= ========= ========= Acquisition of Sidewalk.com assets Issuance of Class B Common Stock...................... $ 238,000 Issuance of Class B Common Stock Warrants............. 100,500 --------- Fair value of assets acquired....................... $ 338,500 ========= Investment in unconsolidated affiliates through issuance of Class B Common Stock.................... $ 10,500
See accompanying notes. F-6 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 1. ORGANIZATION, FORMATION AND BUSINESS RECENT DEVELOPMENTS On November 21, 2000, the Company and USAi issued a joint press release announcing that they had entered into a definitive Contribution Agreement, dated as of November 20, 2000, pursuant to which USAi would contribute the business and operations of Ticketmaster Corp. to the Company in exchange for the issuance to USAi of 52 million shares of Class B Common Stock in addition to the shares of Class A and Class B Common Stock that USAi currently beneficially owns. This combination was completed on January 31, 2001 and upon completion, the Company was renamed "Ticketmaster" (see Note 14). BASIS OF PRESENTATION AND MERGER Prior to the Merger (as defined below), Ticketmaster Multimedia Holdings, Inc. (the predecessor company) ("Ticketmaster.com") was a wholly owned subsidiary of Ticketmaster Corporation ("Ticketmaster Corp."). Ticketmaster Corp. is a wholly owned subsidiary of Ticketmaster Group, Inc. ("Ticketmaster Group"), which is a wholly owned subsidiary of USA Networks, Inc. ("USAi"). In July 1997, USAi acquired a controlling interest in Ticketmaster Group through the issuance of shares of USAi common stock ("Ticketmaster Acquisition" by USAi). In June 1998, USAi completed its acquisition of Ticketmaster Group in a tax-free merger ("Tax-free Merger" and collectively with the Ticketmaster Acquisition by USAi is the "Ticketmaster Transaction"), pursuant to which each outstanding share of Ticketmaster Group common stock not owned by USAi was exchanged for 1.126 shares of USAi common stock. A portion of the Ticketmaster Group acquisition cost has been allocated to the assets acquired and liabilities assumed of Ticketmaster.com based on the fair value of the respective portion of Ticketmaster.com acquired in the Ticketmaster Transaction. On September 28, 1998, pursuant to an Amended and Restated Agreement and Plan of Reorganization dated as of August 12, 1998 (the "Merger Agreement"), by and among Citysearch, Inc. ("Citysearch"), USAi, Ticketmaster Group, Ticketmaster.com and Tiberius, Inc. ("Tiberius"), a wholly-owned subsidiary of Citysearch, Tiberius was merged with and into Ticketmaster.com, with Ticketmaster.com continuing as the surviving corporation and as a wholly-owned subsidiary of Citysearch (the "Merger"). In connection with the Merger Agreement, all issued and outstanding shares of Ticketmaster.com's Common Stock held by Ticketmaster Corp. were converted into an aggregate of 37,238,000 shares of Citysearch Common Stock and such shares were subsequently reclassified as Class A Common Stock of the Company. The Merger was accounted for using the "reverse purchase" method of accounting, pursuant to which Ticketmaster.com was treated as the acquiring entity for accounting purposes, and the assets acquired and liabilities assumed of Citysearch were recorded at their respective fair values. The accompanying financial statements prior to the Merger reflect the financial position, results of operations and cash flows of Ticketmaster.com. The accompanying financial statements, subsequent to the Merger, include the assets and liabilities of Citysearch and the results of operations of Citysearch from September 28, 1998. In connection with the Merger the name of the combined company was changed from Citysearch, Inc. to Ticketmaster Online- Citysearch, Inc. ("the Company"). References throughout these financial statements to Ticketmaster.com and Citysearch relate to the individual businesses of Ticketmaster.com and Citysearch, respectively. F-7 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 1. ORGANIZATION, FORMATION AND BUSINESS (CONTINUED) The Merger costs and the determination of the excess of Merger costs over net assets acquired are set forth below (in thousands): Initial investment at cost.................................. $ 23,000 Value of portion of Citysearch acquired in the Merger....... 120,864 Tender offer................................................ 17,318 Estimated transaction costs (including non-competition agreements)............................................... 2,464 -------- Total Merger costs...................................... 163,646 Net identifiable assets acquired............................ (2,517) -------- Excess of Merger cost over net assets acquired.............. $161,129 ========
The initial investment at cost represents the previous purchases of shares of Series E Preferred Stock by USAi, which were converted into 3,244,641 shares of Class A Common Stock in connection with the Merger, which, prior to the Merger, represented approximately 11.8% of the Citysearch outstanding equity. The value of the non-monetary exchange between Ticketmaster.com and Citysearch was determined by Ticketmaster.com based on the fair value of the 50.7% of Citysearch acquired in the transaction. The fair value of Citysearch before the Merger was $238.4 million based on an assumed fair value of $8.67 per share of Citysearch's Common Stock outstanding at September 28, 1998, including outstanding stock options under the treasury method. The fair value of Citysearch attributable to outstanding shares of Common Stock at September 28, 1998 was $218.9 million and the fair value of Citysearch attributable to outstanding stock options at September 28, 1998, under the treasury stock method, was $19.5 million. On October 2, 1998 USAi commenced a tender offer (the "Tender Offer") to purchase up to 20% of each Citysearch stockholder's Common Stock at a per share purchase price of $8.67 in cash, up to an aggregate of 2,924,339 shares. The Tender Offer expired on November 3, 1998 and 1,997,502 shares were tendered for purchase for a total of $17.3 million. In connection with the Merger Agreement, Ticketmaster.com also entered into a License and Services Agreement (the "License Agreement") with Ticketmaster Corp. and USAi to remain perpetually in effect unless terminated as allowed under the License Agreement. For a license fee, Ticketmaster Corp. granted Ticketmaster.com, among other things, the exclusive worldwide right to use the trademarks of Ticketmaster Corp. in connection with the sale of tickets and merchandise via electronic interactive services. On December 2, 1999 USAi invested an additional $40 million in the Company through the acquisition of 1.3 million shares of Class B Common Stock by its wholly-owned subsidiary Ticketmaster Corp. The strategic investment increased available cash, including marketable securities, to approximately $88 million at year-end and strengthened the Company's ability to execute its growth strategies. F-8 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 1. ORGANIZATION, FORMATION AND BUSINESS (CONTINUED) PRO FORMA FINANCIAL DATA REFLECTING THE MERGER (UNAUDITED) The following unaudited pro forma information presents a summary of results of the Company assuming the Merger, Ticketmaster Transaction and the Tender Offer had occurred as of January 1, 1998, with pro forma adjustments to give effect to amortization of goodwill, certain other adjustments to conform to the terms of the License Agreement, and the related income tax effects. The pro forma information also gives effect to the Company's change in year ended January 31 to December 31. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effective on January 1, 1998.
YEAR ENDED DECEMBER 31, 1998 -------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues............................................... $ 40,157 Net loss............................................... (72,598) Net loss per share..................................... (1.16)
BUSINESS Ticketmaster.com was formed in December 1993 to administer the online business of Ticketmaster Corp. which is a leading provider of automated ticketing services in the United States, with clients including many of the country's most well-known entertainment facilities, promoters and professional sports franchises. Ticketmaster.com commenced online ticket sales in November 1996 providing a ticketing outlet via the World Wide Web ("Web") which gives users access to live event tickets and event information in the United States, Canada and the United Kingdom. Ticketmaster.com's operations are the online distribution mechanism for Ticketmaster Corp., which utilizes Ticketmaster Corp.'s business relationships and brand name. Citysearch was organized on September 20, 1995. Citysearch produces and delivers comprehensive local city guides on the Web, providing up-to-date information regarding arts and entertainment events, community events, community activities, recreation, business, shopping, professional services and news/ sports/weather to consumers in metropolitan areas. Citysearch designs and produces custom-built Web sites and related services for local businesses, aggregates them in a local city guide environment and provides business customers the ability to regularly update and expand their sites. Citysearch has two primary means of providing its local city guides. In its "owned and operated" markets, Citysearch systematically produces the majority of its own content, hires and deploys a direct sales force to sell custom-built business Web sites as well as related services to local and regional businesses, and launches a presence in the market. In its partner-led markets, Citysearch contracts with a local media company to provide assistance in developing, designing and launching a city guide. Under these contracts, the partners license Citysearch's business and technology systems and pay a license fee and/or make royalty payments to Citysearch based on certain revenues generated by the media partners from the operation of their sites and pay Citysearch for additional consultation and design services not provided for under the license fee. F-9 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 1. ORGANIZATION, FORMATION AND BUSINESS (CONTINUED) Customers include hotels, restaurants, taverns, movie theaters, museums and retail stores. The Company currently owns and operates sites in over 80 cities throughout the continental United States. The growth in cities is a result of aggressive expansion in addition to the acquisition of certain assets associated with the entertainment city guide portion of the Sidewalk.com Web site ("Sidewalk") from Microsoft Corporation ("Microsoft"). Through partnership and licensing agreements, the Company has an Internet presence in three domestic cities, as well as, over twenty international cities. During 1999, the Company entered into the online auctions and personals businesses through its acquisitions of CityAuction, Inc. ("CityAuction"), Match.com, Inc. ("Match.com"), and Web Media Ventures LLC ("Web Media"). CityAuction provides users the ability to auction their belongings over the Web to consumers in their own hometowns. Match.com and Web Media currently operate as two separate online personals operations under the same management team. In 2000, the Company acquired 2b Technology, Inc. ("2b Technology"), a box office software and ticketing company, and TicketWeb, Inc. ("TicketWeb"), a Web-based live event ticketing company. The Company has integrated these acquisitions into its other online offerings. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES TICKETMASTER.COM BASIS OF PRESENTATION Prior to the Merger, the accompanying consolidated financial statements present the operating results and cash flows of the predecessor company, Ticketmaster.com, a wholly owned subsidiary of Ticketmaster Corp. The financial statements include revenues related to the convenience and handling charges in connection with tickets sold via the Internet and advertising sales on Ticketmaster.com's Web site. Costs of ticketing revenues have been allocated from Ticketmaster Corp. to Ticketmaster.com on a per ticket sold basis. The financial statements include operating expenses which have been allocated to Ticketmaster.com by Ticketmaster Corp. on a specific identification basis. Further, Ticketmaster.com shared certain employees and other resources with Ticketmaster Corp. Allocations from Ticketmaster Corp. for indirect expenses for such shared resources have been made primarily on a proportional cost allocation method based on tickets sold and related revenues. Management believes these allocations are reasonable and that such expenses would not differ materially had Ticketmaster.com operated on a stand-alone basis for all periods presented. The financial statements of Ticketmaster.com prior to the merger do not necessarily reflect the results of operations or financial position that would have existed had Ticketmaster.com been an independent company. SEGMENTS The Company identifies its operating segments based on business activities, management responsibility and geographical location. The Company's chief operating decision maker reviews financial information to manage the business consistent with the manner presented in the consolidated financial statements. During the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998, the Company operated in a single business segment operating as a local portal and online consumer service primarily in the United States. Through December 31, 2000, foreign operations have not been significant in revenue. As a result of the combination with Ticketmaster Group (the "Combination"), prior year financials will be restated in future filings to present the F-10 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Company as if it had been combined with Ticketmaster Group which will be similar to the presentation reported in Schedule 14C filed with the SEC in January 2001. CHANGE IN YEAR-END The statements of operations and cash flows for the eleven months ended December 31, 1998 reflect a change in Ticketmaster.com's year-end as a result of the purchase of Ticketmaster Group by USAi. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany amounts have been eliminated. Investments in which the Company owns a 20%, but not in excess of 50%, interest and where it can exercise significant influence over the operations of the investee, are accounted for using the equity method. Investments in which the Company owns less than a 20% interest, where it cannot exercise significant influence and which are not considered investments in marketable securities with a readily determinable fair market value are accounted for at cost. The Company periodically evaluates the recoverability of investments recorded under the cost method and recognizes losses if a decline in value is determined to be other than temporary. ESTIMATES USED IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from those estimates, although management does not believe that any differences would materially affect the Company's consolidated financial position or results of operations. Significant estimates underlying the accompanying consolidated financial statements include the allowance for doubtful accounts and estimates for deferral of revenues and accruals of expenses. REVENUE RECOGNITION Revenue from advertising and sponsorship agreements is recognized when the service is provided or over the term of the promotion. Revenue from the sale of tickets is recognized when tickets are sold. City guide and related revenues include revenue from the sale of subscriptions for custom-built business Web sites (designed and developed by Citysearch) in its owned and operated markets, the performance of consultation and design services, licensing and royalty revenues from the sale of licenses for the use of Citysearch's business and technology systems in its partner-led markets, and the sale of classified advertising for the online personals divisions. License and royalty revenue is less than ten percent of consolidated revenue in all periods presented. The Company recognizes subscription revenues from infosites and online personals classifieds after the site has been built and upon confirmation of payment, respectively, over the period the services are F-11 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) provided. Royalty revenues are recognized when earned based on the revenues generated by the license or based on the minimum royalty provisions in the contract. Revenues from consultation and design services are recognized as the services are provided. Revenues from the sale of licenses for use of the Company's business and technology systems to its partner-led markets are generally recognized over the term of the license agreement or the period over which the relevant services are delivered. The Company's license agreements have terms ranging from five to eight years. Deferred revenue primarily consists of prepayments of subscription services, for both infosites and personals, and licensing agreements, advertising and sponsorship revenue, and revenue from Web site support agreements with joint venture partners of Ticketmaster Corp. Web site support is recognized straight line over the life of the agreement. CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES AVAILABLE FOR SALE The Company invests its excess cash in debt instruments of the U.S. Government and its agencies, and of high-quality corporate issuers. All highly liquid instruments with an original maturity of three months or less are considered cash equivalents and those with original maturities greater than three months and current maturities less than twelve months from the balance sheet date are considered short-term investments. The Company's marketable securities are classified as available-for-sale as of the balance sheet date and are reported at fair value, with unrealized gains and losses, net of tax, recorded as a component of other comprehensive loss included in stockholders' equity. Realized gains or losses and other than temporary declines in value, if any, on available-for-sale securities will be reported in other income or expense as incurred. ACCOUNTS RECEIVABLE Concentration of credit risk with respect to trade receivables is limited based on the transaction size, the use of credit card and bank drafts as method of payment, the large volume of transactions and geographic dispersion of the Company's customers. The Company generally does not require collateral; however, credit losses have been historically within management's expectations and have not been significant. COMPUTERS, SOFTWARE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Computers, software, equipment and leasehold improvements are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, which range from three to seven years. Development costs for internal use software incurred in the application development stage are capitalized. Software development costs incurred in the preliminary project and post implementation stages of a project are expensed as incurred. Capitalized software is depreciated over the estimated useful live of the assets, which ranges from one to three years. Assets acquired under capitalizable lease arrangements are recorded at the present value of the minimum lease payments. Amortization of assets capitalized under capital leases and leasehold F-12 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) improvements are computed using the straight-line method over the life of the asset or term of the lease, whichever is shorter, and is included in depreciation expense. RESEARCH AND DEVELOPMENT Research and development expenditures are charged to operations as incurred. Based on the Company's product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working model and the point at which the product is ready for general release have been insignificant. GOODWILL AND OTHER INTANGIBLES Goodwill of $154.8 million, representing amounts allocated to Ticketmaster.com from the purchase of Ticketmaster Group by USAi, is being amortized by the straight-line method over ten years. As a result of the Merger and the Tender Offer, the Company recorded goodwill of $160.6 million, which is being amortized using the straight-line method over five years, and intangibles relating to non-competition agreements of $500,000, which is being amortized using the straight-line method over 2.5 years. The Company's acquisitions of CityAuction, Match.com and Web Media in 1999 and 2b Technology and TicketWeb in 2000 resulted in goodwill of $28.7, $42.4, $44.7, $20.5 and $33.5 million, respectively. In addition, the fair value of the consideration provided in exchange for the Sidewalk assets and distribution agreement, plus transaction costs amounted to $333.8 million and $5.0 million, respectively, and has been recorded in other intangible assets and deferred marketing, respectively. The Sidewalk intangible is being amortized over five years. The distribution agreement is being amortized over four years with the amortization expense included in sales and marketing. Accumulated amortization at December 31, 2000 and 1999 was $257.3 and $94.0 million, respectively. INCOME TAXES Prior to the Merger, Ticketmaster.com's results have been included in Ticketmaster Corp.'s consolidated federal and state income tax returns. The income tax provision was calculated and deferred tax assets and liabilities were recorded as if Ticketmaster.com had operated as an independent company. Prior to the Merger, Ticketmaster Corp. paid all taxes for Ticketmaster.com and, as such, income taxes payable and deferred tax assets have been included in due to (from) Ticketmaster Corp. Subsequent to the Merger, the Company files its Federal and State income tax returns on a stand-alone basis. Deferred tax assets and liabilities are recognized with respect to differences between the financial statement carrying values and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected in the years in which these temporary differences are expected to be recovered or settled. Further, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. F-13 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) BASIC AND DILUTED LOSS PER SHARE Basic loss per share is determined by dividing the net loss by the weighted average shares of Common Stock outstanding during the period. Diluted loss per share are determined by dividing the net loss by the weighted average shares of Common Stock outstanding plus the dilutive effects of stock options, warrants and other convertible securities. Basic and diluted loss per share is the same for the years ended December 31, 2000 and 1999 and the eleven month period ended December 31, 1998 because the effects of outstanding stock options and warrants are antidilutive. The number of shares used in computing basic and diluted loss per share for the eleven month period ended December 31, 1998 includes the number of shares of Citysearch Common Stock exchanged in the Merger plus shares of Class A Common Stock of Citysearch outstanding and the number of shares of Class B Common Stock issued from the date of the Merger through December 31, 1998 calculated on a weighted average basis. FINANCIAL INSTRUMENTS The estimated fair values of cash, accounts receivable, accounts payable, and accrued expenses approximate their carrying value because of the short term maturity of these instruments are indicative of market interest rates. ADVERTISING COSTS Advertising costs are expensed as incurred. For the years ended December 31, 2000 and 1999 and the eleven month period ended December 31, 1998, advertising costs amounted to $37.7, $16.0 and $1.5 million respectively. The Company has entered into several barter arrangements whereby the Company either assists in the design and hosting of a Web site in exchange for broadcast advertising or provides online advertising in return for television and online advertising. The fair value of these services was determined based on the cost of the services provided. The Company valued these barter transactions at $1.7, $1.1 and $0.3 million for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998. For the year ended December 31, 2000, $1.1 million and $0.6 million of the revenue was included in city guide and related revenue and sponsorship and advertising revenue, respectively, with the full amount recognized in sales and marketing expense. For the year ended December 31, 1999 and the eleven months ended December 31, 1998, the full amounts of $1.1 and $0.3 million are included in City guide and related revenue as well as recognized in sales and marketing expense in the accompanying consolidated statements of operations. IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF The Company periodically reviews its long-lived assets including its intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (on an undiscounted basis) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is F-14 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. STOCK-BASED COMPENSATION As allowed by Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," the Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." In cases where exercise prices are less than fair value as of the grant date, compensation is recognized over the vesting period. FOREIGN CURRENCY The functional currency of the Company's international subsidiaries is the local currency. The financial statements of these subsidiaries are translated to United States dollars using year-end rates of exchange for assets and liabilities, and average rates of exchange for the year for revenues and expenses. Translation gains (losses) are recorded in accumulated other comprehensive income (loss) as a component of stockholders' equity. Net gains and losses resulting from foreign exchange transactions are included in the consolidated statements of operations and were not significant during the periods presented. RECENT ACCOUNTING PRONOUNCEMENTS In December 1999, the staff of the Securities and Exchange Commission released Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," to provide guidance on the recognition, presentation and disclosure of revenues in financial statements. The Company believes that its revenue recognition practices are in conformity with the guidelines in SAB 101, and therefore this pronouncement has no impact on its financial statements. In March 2000, the FASB released Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation: an interpretation of APB Opinion No. 25." Interpretation No. 44 provides clarification of certain issues, such as the determination of who is an employee, the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequence of various modifications to the terms of a previously fixed stock option or award and the accounting for an exchange of stock compensation awards in a business combination. The Company believes that its practices are in conformity with this guidance, and therefore Interpretation No. 44 has no impact on its financial statements. In September 2000, the Emerging Issues Task Force ("EITF") reached a consensus regarding Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," which requires any shipping and handling costs billed to customers in a sale transaction to be classified as revenue. The Company believes that its revenue recognition of shipping and handling fees is in conformity with the consensus and therefore it has no impact on its financial statements. F-15 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) RECLASSIFICATIONS Certain reclassifications have been made to the prior years' balances to conform to the current year presentation. 3. ACQUISITIONS ACQUISITION OF CITYAUCTION, INC. On March 29, 1999, the Company completed the acquisition of CityAuction, a person-to-person online auction community. In connection with the acquisition, the Company issued an aggregate of 793,726 shares of its Class B Common Stock for all the outstanding capital stock of CityAuction representing an aggregate purchase price of $27.3 million. The acquisition was accounted for using the purchase method of accounting which resulted in approximately $28.7 million of goodwill which is amortized over five years. The results of operations of CityAuction are included in the accompanying statement of operations from the date of acquisition. During the quarter ended December 31, 2000, the Company determined that its investment in CityAuction had suffered a decline in value. As such, the Company accelerated the amortization of goodwill associated with CityAuction, resulting in additional amortization expense of $18.7 million to fully reduce the carrying amount to its estimated fair value of zero. ACQUISITION OF MATCH.COM, INC. On June 14, 1999, the Company completed the acquisition of Match.com, an Internet personals company. In connection with the acquisition, the Company issued 1,924,777 shares of Class B Common Stock to the former owners of Match.com representing a total purchase price of approximately $43.5 million. The acquisition was accounted for using the purchase method of accounting which resulted in approximately $42.4 million of goodwill which is being amortized over five years. The results of operations of Match.com are included in the accompanying statement of operations from the date of acquisition. F-16 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 3. ACQUISITIONS (CONTINUED) ACQUISITION OF WEB MEDIA VENTURES, L.L.C. On September 13, 1999, the Company purchased all the outstanding limited liability company units ("Units") of Web Media. Web Media is an Internet personals company distributing its services through a network of affiliated Internet sites. In connection with the acquisition, the Company issued 1,204,215 million shares of Class B Common Stock in exchange for all of the Web Media Units and became obligated to issue $2.2 million of Class B Common Stock payable at the end of each quarter following the closing of the transaction and an additional number of shares of Class B Common Stock no later than 270 days after the closing of the transaction with the last installment subject to adjustment based on the achievement of certain revenue targets by Web Media. As a result, an additional 688,135 shares were issued resulting in a total purchase price of $45.0 million. The acquisition was accounted for using the purchase method of accounting. The acquisition has resulted in $44.7 million of goodwill which is being amortized by the Company over a period of five years. The results of operations of Web Media are included in the accompanying statement of operations from the date of acquisition. TRANSACTION REGARDING SIDEWALK.COM On September 17, 1999, the Company acquired certain assets associated with the entertainment city guide (A&E) portion of Sidewalk from Microsoft. The Company also entered into a four year distribution agreement with Microsoft pursuant to which the Company became the exclusive provider of local city guide content on the Microsoft Network ("MSN") and the Company's internet personals Web sites became the premier provider of personals content to MSN. In addition, the Company and Microsoft entered into additional cross-promotional arrangements. In connection with these transactions, the Company issued to Microsoft 7.0 million shares of its Class B Common Stock and two warrants to purchase an aggregate of 4.5 million shares of its Class B Common Stock. The first warrant for 3.0 million shares has an initial exercise price of $30 per share, which adjusts downward by $0.0625 for each $0.0625 increase in the price of the Class B Common Stock over $30 at the time the warrant is exercised. At December 31, 2000, the exercise price of this warrant was determined to be $30. The second warrant for 1.5 million shares has a fixed exercise price of $60 per share of Class B Common Stock. Both warrants expire on September 17, 2004, five years from the date of issuance. The Company granted Microsoft certain registration rights in connection with the transaction. The impact of the Company's ownership of the Sidewalk assets is included in the accompanying statement of operations from the date the transaction closed. The fair value of the consideration provided in exchange for the Sidewalk assets and distribution agreement, including transaction costs, amounted to $338.8 million where $333.8 million has been recorded in goodwill and other intangibles in the accompanying consolidated balance sheet and $5.0 million has been allocated to the distribution agreement and recorded as deferred marketing in the accompanying balance sheet. The Sidewalk intangible of $333.8 million is being amortized over five years. The distribution agreement of $5.0 million is being amortized over four years with the amortization expense included in sales and marketing. F-17 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 3. ACQUISITIONS (CONTINUED) ACQUISITION OF 2B TECHNOLOGY, INC. On January 31, 2000, the Company completed the acquisition of 2b Technology, Inc ("2b Technology"), a ticketing and software licensing company. In connection with the acquisition, the Company issued an aggregate of 757,959 shares of Class B Common Stock to the former owners of 2b Technology representing a purchase price of approximately $20.4 million. The acquisition is being accounted for using the purchase method of accounting. The acquisition resulted in $20.5 million of goodwill which is being amortized by the Company over a period of five years. The results of operations of 2b Technology are included in the accompanying statement of operations from the date of acquisition. ACQUISITION OF TICKETWEB, INC. On May 26, 2000, the Company completed the acquisition of TicketWeb, Inc ("TicketWeb"), a web-based live event ticketing company. In connection with the acquisition, the Company issued 1,841,204 shares of Class B Common Stock to the former owners of TicketWeb representing a purchase price of approximately $35.4 million. The acquisition is being accounted for using the purchase method of accounting. The acquisition resulted in $33.5 million of goodwill being recorded. The total amount of goodwill recorded is being amortized by the Company over a period of five years. The results of operations of TicketWeb are included in the accompanying statement of operations from the date of acquisition. PRO FORMA FINANCIAL DATA 2000 ACQUISITIONS (UNAUDITED) The following unaudited pro forma information presents a summary of results of the Company assuming the acquisitions of CityAuction, Match.com, Web Media, the Sidewalk assets, 2b Technology and TicketWeb had occurred as of January 1, 1999, with pro forma adjustments to give effect to amortization of goodwill. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effective on January 1, 1999.
YEAR ENDED DECEMBER 31, ------------------------- 2000 1999 ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues...................................... $ 222,697 $ 120,743 Net loss...................................... (229,876) (196,448) Net loss per share............................ (2.59) (2.28)
PRO FORMA FINANCIAL DATA 1999 ACQUISITIONS (UNAUDITED) The following unaudited pro forma information presents a summary of results of the Company assuming the acquisitions of CityAuction, Match.com, Web Media and the Sidewalk assets had occurred as of January 1, 1998, with pro forma adjustments to give effect to amortization of goodwill. The pro F-18 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 3. ACQUISITIONS (CONTINUED) forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effective on January 1, 1998.
YEAR ENDED DECEMBER 31, ------------------------- 1999 1998 ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues...................................... $ 115,325 $ 47,459 Net loss...................................... (182,950) (161,543) Net loss per share............................ (2.20) (2.19)
4. EQUITY INVESTMENTS In September 1999, the Company purchased a minority equity position in FairMarket, Inc. ("FairMarket"), a privately-held, online auction company in exchange for cash and other consideration consisting of a license to FairMarket of the CityAuction auction technology and the Company's agreement to a multi-year Auction Services Agreement with FairMarket. The FairMarket investment is being accounted for using the cost method of accounting. In October 1999, the Company purchased a minority equity position in foodline.com, Inc ("foodline.com"), a privately-held, online restaurant reservations company in exchange for $5.0 million cash. The Company and foodline.com also entered into a multi-year content sharing and distribution agreement. In March 2000, the Company sold $2.2 million of its interest in foodline.com for cost. The foodline.com investment is being accounted for using the equity method of accounting. In December 2000, foodline.com filed for Chapter 7 bankruptcy protection and ceased operations. The Company will recognize no further losses in the operations of foodline.com. In December 1999, the Company purchased a minority equity position in Active.com, Inc. ("Active.com"), a privately-held online local participatory sports registration and reservation company in exchange for $12.5 million cash and a commitment by the Company to provide $3.0 million in services to Active.com. The Company and Active.com also entered into a multi-year content sharing and distribution agreement. During the year ended December 31, 2000, Active.com held an additional round of financing during which the Company invested an additional $1.0 million. The Active.com investment is being accounted for using the cost method of accounting; however, at various times throughout the year ended December 31, 2000, the Company's ownership interest required recognizing equity losses in Active.com. In April 2000, the Company, along with several prominent Japanese companies, purchased an ownership interest in a joint venture called Walkerplus.com, Inc ("Walkerplus"), a privately-held, Japanese arts and entertainment online guide, in exchange for $2.9 million cash. The Company also entered into an exclusive five-year license to provide technology and business methods to the joint venture. The Walkerplus investment is being accounted for using the cost method of accounting. During the year ended December 31, 2000, the Company determined that certain equity investments had suffered declines in value that were other than temporary. As a result, the Company recognized losses totaling $10.2 million to both reduce its investments in FairMarket, foodline.com and F-19 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 4. EQUITY INVESTMENTS (CONTINUED) Active.com to their aggregate fair value of $8.7 million, net of recognized equity losses, and to write-off their respective notes receivables. In February 1997, Citysearch entered into a partnership with the Toronto Star newspaper to launch Citysearch sites in Ontario, Canada. Citysearch contributed the Company's technology through a licensing agreement valued by the other partners at $391,000 and cash of $580,000 in exchange for a 20% interest in the partnership. The Company carries its investment in Toronto Star Citysearch at zero as the Company's proportionate share of losses exceeded the total amount invested. During the year ended December 31, 2000 the Company sold its investment in Toronto Star Citysearch for $1.4 million. The resulting gain is included in investment losses, net on the accompanying statement of operations. 5. COMPUTERS, SOFTWARE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Computers, software, equipment and leasehold improvements consisted of the following (in thousands):
DECEMBER 31, ------------------- 2000 1999 -------- -------- Computers and software...................................... $ 33,594 $20,179 Furniture and fixtures...................................... 3,151 1,465 Leasehold improvements...................................... 2,849 817 -------- ------- 39,594 22,461 Less accumulated depreciation and amortization.............. (15,393) (5,630) -------- ------- $ 24,201 $16,831 ======== =======
Depreciation and amortization expense was $9.8 million, $4.3 million and $1.1 million for the years ended December 31, 2000 and 1999 and the eleven month period ended December 31, 1998, respectively. F-20 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 6. INVESTMENTS At December 31, 2000 and 1999, marketable securities available-for-sale were as follows (in thousands):
GROSS GROSS ESTIMATED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE -------- ---------- ---------- --------- AS OF DECEMBER 31, 2000 U.S. Government and agencies......................... $ 3,925 $15 $ (1) $ 3,939 Corporate debt securities............................ 4,004 9 (14) 3,999 ------- --- ----- ------- $ 7,929 $24 $ (15) $ 7,938 ======= === ===== ======= AS OF DECEMBER 31, 1999 U.S. Government and agencies......................... $13,975 $-- $ (63) $13,912 Corporate debt securities............................ 12,535 -- (148) 12,387 ------- --- ----- ------- $26,510 $-- $(211) $26,299 ======= === ===== =======
The contractual maturities of debt securities classified as available-for-sale as of December 31, 2000 are as follows (in thousands):
ESTIMATED FAIR COST VALUE -------- --------- Due in one year or less........................... $6,932 $6,926 Due after one year through two years.............. 997 1,012 ------ ------ Total............................................. $7,929 $7,938 ====== ======
Gross realized gains and losses from the sale of securities were not material. The specific identification method is used to determine a cost basis for computing realized gains and losses. F-21 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 7. INCOME TAXES The provision for income taxes consisted of the following (in thousands):
YEAR YEAR ELEVEN MONTHS ENDED ENDED ENDED DECEMBER 31 DECEMBER 31, DECEMBER 31, 2000 1999 1998 ----------- ------------ ------------- Current: Federal.................................... $ -- $ -- $2,624 Foreign.................................... 1,474 464 82 State...................................... -- -- 754 ------ ---- ------ 1,474 464 3,460 ------ ---- ------ Deferred: Federal.................................... -- -- (478) State...................................... -- -- (31) ------ ---- ------ -- -- (509) ------ ---- ------ Total income tax provision..................... $1,474 $464 $2,951 ====== ==== ======
The following is a reconciliation of the statutory federal income tax rate to the Company's effective income tax rate:
ELEVEN YEAR YEAR MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Statutory federal income tax expense (benefit)................................... (34)% (34)% (35)% Tax provision for earnings included in Ticketmaster Corp. consolidated return...... -- -- 20 Non-deductible goodwill amortization.......... 22 20 37 State income tax expense (benefit)............ (1) (1) -- Change in valuation allowance................. 13 14 -- Other......................................... -- 1 (1) --- --- --- 0% 0% 21% === === ===
F-22 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 7. INCOME TAXES (CONTINUED) Significant components of the Company's deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31, ------------------- 2000 1999 -------- -------- Deferred tax liabilities Depreciation............................................ $ -- $ 199 Software development.................................... 788 788 Other................................................... -- 296 -------- -------- Total deferred tax liabilities.............................. 788 1,283 Deferred tax assets Net operating loss carryforwards........................ 67,637 49,848 Research and development credit carryforwards........... 1,344 644 Vacation accruals....................................... 822 145 Deferred revenue........................................ 3,461 904 Depreciation............................................ 968 -- Amortization............................................ 4,253 -- Other................................................... 2,450 1,610 -------- -------- Total deferred tax assets................................... 80,935 53,151 Valuation allowance......................................... (80,147) (51,868) -------- -------- Net deferred tax assets..................................... $ -- $ -- ======== ========
The valuation allowance increased by approximately $28.0 and $20.0 million during the years ended December 31, 2000 and 1999, respectively. The valuation allowance recorded in connection with the Citysearch Merger was approximately $30.0 million. If the related deferred tax assets become realizable in the future, the reversal of the valuation allowance will be recorded as a reduction of goodwill. Also, approximately $3.5 million of the valuation allowance relates to stock option deductions, which if realized, will be charged to paid in capital. The Company had net operating loss carryforwards for federal and state income tax purposes at December 31, 2000 of approximately $176.0 million and $135.0 million, respectively. The federal carryforwards expire principally in the period from 2010 to 2019, and the state carryforwards expire principally in the period from 2004 to 2005. Utilization of the net operating loss carryforwards is subject to limitations as a result of ownership changes as defined in the Internal Revenue Code. F-23 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 8. DEFINED CONTRIBUTION PLANS Prior to 1999, Ticketmaster.com participated in the Ticketmaster Corp. 401(k) defined contribution plan (the 401(k) Plan), covering substantially all Ticketmaster.com employees, which contains an employer matching feature of 25% up to a maximum of 6% of the employee's compensation. Ticketmaster.com's contribution for the 401(k) Plan eleven months ended December 31, 1998 was $16,000. In July 1997, Citysearch established a defined contribution plan for certain qualified employees as defined in the plan. Participants may contribute from 1% to 20% of pretax compensation subject to certain liabilities. The plan does provide for certain discretionary contributions by the Company as defined in the plan. No Company contributions were made for the years ended December 31, 2000 or 1999 or the eleven months ended December 31, 1998. As a result of the merger, Ticketmaster.com employees incorporated their balances from the Ticketmaster Corp. 401(k) plan into the Citysearch plan. 9. RELATED PARTY TRANSACTIONS Prior to the Merger, Ticketmaster.com was part of a consolidated group and, as such, had significant transactions with related entities. In connection with the Merger, the Company entered into a license agreement with Ticketmaster Corp. (the License Agreement) under which the Company is required to pay Ticketmaster Corp. a royalty based on a percentage of the net profit the Company derives from online ticket sales. Ticketing operations cost primarily consists of costs associated with ticketing fulfillment provided by Ticketmaster Corp. including royalty fees of $31.2, $15.1 and $1.5 million as incurred under the License Agreement for the years ended December 31, 2000 and 1999 and the eleven months ended December 31, 1998, respectively. Included in related party receivable at December 31, 2000 and 1999 was $0.2 and $1.5 million representing unpaid ticketing fees, net of amounts due to Ticketmaster Corp. for direct expenses and royalty fees under the License Agreement. Concurrently with the execution of the Merger Agreement, the Company received a $50 million loan from USAi in exchange for a convertible promissory note ("Convertible Note"). The Convertible Note, in the principal amount of $50 million, bore interest at a rate per annum of 7.00%. On December 10, 1998, the Company repaid the Convertible Note and paid total interest of $1.2 million covering the period August 13 to December 31, 1998. Interest expense on the Convertible Note was $710,000 during the eleven month period ended December 31, 1998. On December 2, 1999 USAi invested an additional $40 million in the Company through the acquisition of 1.3 million shares of Class B Common Stock by its wholly-owned subsidiary Ticketmaster Corp. Also during the years ended December 31, 2000 and 1999, the Company received additional equity investments of $7.3 and $0.2 million from USAi in the form of advertising on its wholly-owned television properties, Sci-Fi Channel and USA Network for no additional shares. Revenues from affiliated companies for the years ended December 31, 2000 and 1999 and the eleven month period ended December 31, 1998 amounted to $0.7, $1.1 and $0.5 million, respectively, primarily for Web site maintenance and license fee revenue. Included in related party receivables at December 31, 2000 and 1999 was $227,000 and $480,000 receivable from these affiliated companies. F-24 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 10. STOCKHOLDERS' EQUITY AND STOCK OPTIONS The Company has three classes of common stock. Holders of each share of Class A Common Stock have 15 votes. Each share of Class A Common Stock will automatically convert into one share of Class B Common Stock upon a "transfer," as defined, of such share except for transfers to certain parties. Holders of Class B Common Stock have rights in the Company's Restated Certificate of Incorporation similar to holders of Class A Common Stock except each share of Class B Common Stock carries one vote. Holders of Class C Common Stock have no voting rights. In December 1998, the Company completed its initial public offering of 8,050,000 shares of Class B Common Stock resulting in the receipt of net proceeds of $104.1 million. At December 31, 2000 the Company has reserved shares of Class B Common Stock for future issuance, excluding the potential conversion of Class A Common Stock, as follows (in thousands): 1996 Stock Option Plan...................................... 1,079 1998 Stock Option Plan...................................... 3,819 1999 Stock Option Plan...................................... 10,999 2000 TicketWeb Stock Option Plan............................ 42 1998 Employee Stock Purchase Plan........................... 1,200 Warrants to purchase Class B Common Stock................... 4,513 ------ Total....................................................... 21,652 ======
PREFERRED STOCK The Company is authorized to issue 2,000,000 shares of Preferred Stock. The Board of Directors is authorized, subject to limitations prescribed by Delaware law, to provide for the issuance of shares of Preferred Stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the powers, designations, preferences and rights of the shares of each wholly unissued series and designate any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series (but not below the number of shares of such series then outstanding) without any further vote or action by the stockholders. 1996 STOCK OPTION PLAN The Citysearch 1996 Stock Option Plan (1996 Stock Plan) authorized members of management to grant non-statutory stock options or incentive stock options to employees and consultants of the Company and its subsidiaries. As of December 31, 2000 the maximum number of shares of Common Stock to be issued under the Plan was 5,500,000 shares. Options granted under the 1996 Stock Plan are exercisable at various dates over their ten-year life and vest principally 25% after the first year and ratably over the remaining vesting period which is generally another three years. At December 31, 2000 there were options to purchase 1,078,635 shares of the Company's Class A Common Stock outstanding at a weighted average exercise price of $5.56 per share. No additional shares will be granted under this option plan. F-25 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 10. STOCKHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED) 1998 STOCK OPTION PLAN The Company adopted the 1998 Stock Plan and reserved 4,000,000 shares of Class B Common Stock of the Company for issuance thereunder. The 1998 Stock Plan provides for the grant of incentive stock options to employees (including officers and employee directors) and for the grant of nonstatutory stock options and stock purchase rights ("SPRs") to employees, directors and consultants. Options granted under the 1998 Stock Plan are exercisable at various dates over their ten-year life and vest principally 25% after the first year and ratably over the remaining vesting period which is generally another two to three years. Unless terminated sooner, the 1998 Stock Plan will terminate automatically in September 2008. At December 31, 2000, there were options to purchase 2,901,832 shares of the Company's Class B Common Stock outstanding at a weighted average exercise price of $27.12 per share and 165,000 restricted shares of Class B Common Stock outstanding. Options to purchase 763,141 shares of Class B Common Stock were available for future grants at December 31, 2000. The outstanding restricted shares generally vest over three years with 20-25% of the shares vesting in the first and second years, and 50-60% of the shares vesting in the third year. Each restricted share may be purchased by the grantee for $0.01 per share and may be repurchased by the Company for $0.01 per share until the repurchase right lapses (the shares "vest"). For the year ended December 31, 2000, the Company recorded compensation expense in the amount of $1.4 million. As of December 31, 2000, the Company had outstanding shares of restricted stock the value of which the Company expects to amortize over 2001 and 2002 in the aggregate amount of approximately $5.0 million. 1999 STOCK OPTION PLAN The Company adopted the 1999 Stock Plan and reserved 11,000,000 shares of Class B Common Stock of the Company for issuance thereunder. The 1999 Stock Plan provides for the grant of incentive stock options to employees (including officers and employee directors) and for the grant of nonstatutory stock options and SPRs to employees, directors and consultants. Options granted under the 1999 Stock Plan are exercisable at various dates over their ten-year life and vest principally 25% after the first year and ratably over the remaining vesting period which is generally another two to three years. Unless terminated sooner, the 1999 Stock Plan will terminate automatically in December 2009. At December 31, 2000, there were options to purchase 5,447,162 shares of the Company's Class B Common Stock outstanding at a weighted average exercise price of $28.40 per share. Options to purchase 5,551,559 shares of Class B Common Stock were available for future grants at December 31, 2000. 2000 TICKETWEB STOCK OPTION PLAN Upon acquiring TicketWeb, the Company adopted the 2000 TicketWeb Stock Plan and reserved 130,582 shares of Class B Common Stock of the Company for issuance thereunder. The 2000 TicketWeb Stock Plan provides for the grant of incentive stock options to the former employees of TicketWeb (including officers and employee directors) and for the grant of nonstatutory stock options and SPRs to the former employees, directors and consultants of TicketWeb. Options granted under the 1999 Stock Plan are exercisable at various dates over their ten-year life and vest principally 20% after the first year and ratably over the remaining vesting period which is generally another four years. Unless terminated sooner, the 2000 TicketWeb Stock Plan will terminate automatically in January 2010. F-26 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 10. STOCKHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED) At December 31, 2000, there were options to purchase 42,291 shares of the Company's Class B Common Stock outstanding at a weighted average exercise price of $11.14 per share. No additional shares will be granted under this option plan. 1998 EMPLOYEE STOCK PURCHASE PLAN The Company has adopted the Purchase Plan and reserved an aggregate of 1,000,000 shares of Class B Common Stock thereunder. The number of shares reserved will be increased automatically each year on the first day of the of the Company's fiscal year beginning in 2000 by an amount equal to (i) 200,000 shares of Class B Common Stock or (ii) a lesser amount determined by the Board of Directors. The Purchase Plan is intended to qualify as an employee stock purchase plan within the meaning of Section 423 of the Code. Under the Purchase Plan, the Board of Directors may authorize participation by eligible employees, including officers, in periodic offerings following the commencement of the Purchase Plan. Each offering period under the Purchase Plan will run for six months, other than the initial offering period, which commenced in December 1998 and ended on August 14, 1999. Thereafter, new six-month offering periods will commence each February 15 and August 15. The Company has not sold any shares under this plan to date. STOCK OPTION TABLE The following table summarizes certain information related to options for Common Stock:
WEIGHTED AVERAGE NUMBER OF EXERCISE SHARES PRICE PER SHARE PRICE -------------- ------------------- -------- (IN THOUSANDS) Options assumed in Merger............................. 3,905 $ 0.10 $ 8.67 $ 3.67 Granted........................................... 938 8.67 32.69 16.35 Forfeited......................................... (124) 0.50 8.67 4.23 Exercised......................................... (821) 0.10 0.75 9.19 ------ Outstanding at December 31, 1998...................... 3,898 0.10 32.69 7.28 Granted........................................... 5,550 20.37 39.37 31.97 Forfeited......................................... (1,008) 0.10 38.12 15.03 Exercised......................................... (955) 0.10 38.12 4.44 ------ Outstanding at December 31, 1999...................... 7,485 0.10 39.37 24.55 Options assumed in TicketWeb acquisition.......... 131 10.64 22.73 11.14 Granted........................................... 4,840 0.01 42.81 23.65 Forfeited......................................... (1,990) 0.50 42.81 25.60 Exercised......................................... (841) 0.01 38.12 5.96 ------ Outstanding at December 31, 2000...................... 9,625 0.01 42.81 22.96 ======
F-27 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 10. STOCKHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED) Additional information with respect to outstanding options as of December 31, 2000 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ----------------------- -------------------------- WEIGHTED- WEIGHTED- AVERAGE WEIGHTED- AVERAGE REMAINING AVERAGE RANGE OF NUMBER OF EXERCISE CONTRACTUAL NUMBER OF EXERCISE EXERCISE PRICES SHARES PRICE LIFE SHARES PRICE - --------------------- -------------- --------- ----------- -------------- --------- (IN THOUSANDS) (IN THOUSANDS) $ 0.01 to $16.87 2,272 $10.35 8.28 1,111 $6.30 17.25 to 22.75 2,100 21.31 8.88 549 22.10 25.06 to 38.12 2,748 27.27 9.03 728 29.65 38.43 to 42.81 2,505 39.23 9.00 716 39.05 ----- ----- $ 0.01 to 42.81 9,625 25.33 8.82 3,104 22.96 ===== =====
Pro forma information regarding the effect on operations is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. Pro forma information includes options granted subsequent to the Merger using the Black-Scholes method at the date of grant based on the following assumptions:
2000 1999 -------- -------- Expected life (years)....................................... 1 year 1 year Risk-free interest rate..................................... 5.75% 5.64% Dividend yield.............................................. -- -- Volatility.................................................. 94% 65%
This option valuation model requires input of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing model does not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the option's vesting period. The Company's pro forma information follows:
YEAR ENDED YEAR ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------- ----------------- (IN THOUSANDS) Net loss, as reported....................... $(224,211) $(121,368) Pro forma net loss.......................... (284,992) (132,990) Basic and diluted historical net loss per share, as reported............................... $ (2.57) $ (1.59) Pro forma basic and diluted net loss per share..................................... (3.26) (1.75)
The effects of applying SFAS 123 in this pro forma disclosure of the eleven months ended December 31, 1998 are not indicative of future amounts as the options include only three months of grants from the date of the Merger. Additional awards in future years are anticipated. The weighted- F-28 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 10. STOCKHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED) average fair value of options granted during the years ended December 31, 2000 and 1999 was $14.96 and $11.11, respectively, for options granted with an exercise price equal to the deemed fair market value, at the date of grant, of the underlying Common Stock. Through December 31, 2000, the Company recorded compensation expense related to certain stock options issued with exercise prices below the fair market value of the related common stock. 11. COMMITMENTS LEASES The Company has noncancelable capital lease obligations for computers and equipment and leases its facilities and other office equipment under noncancelable operating lease agreements expiring through 2006. Certain of the Company's leases provide for free rent and escalations. The Company is responsible for other costs such as property taxes, insurance, maintenance and utilities. The following is a schedule of future minimum lease payments at December 31, 2000 (in thousands):
OPERATING CAPITAL LEASES LEASES --------- -------- Year ended December 31: 2001........................................... $3,277 $ 436 2002........................................... 1,687 35 2003........................................... 1,229 -- 2004........................................... 1,007 -- 2005........................................... 441 -- Thereafter..................................... 198 -- ------ ----- $7,839 471 ====== Less amount representing interest.................. (113) ----- Net present value of net minimum lease payments (including approximately $324 payable currently)....................................... $ 358 =====
During the years ended December 31, 2000 and 1999 and the eleven month period ended December 31, 1998, rent expense allocated from Ticketmaster Corp. and related to other leased facilities amounted to $4.3, $3.3, $0.6 million, respectively. The total costs and accumulated depreciation of equipment under capital leases amounted to $4.6 and $4.2 million, respectively, as of December 31, 2000, and $4.6 and $1.4 million, respectively, as of December 31, 1999. 12. LITIGATION The Company from time to time is party to various legal proceedings arising in the ordinary course of business. The Company is the plaintiff in various legal proceeding seeking injunctive relief and/or damages from third parties for breach of contract and unauthorized use of the Company's intellectual property. Management does not believe that any of the above matters will have a material adverse impact on its operating results, financial position or cash flows. F-29 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 12. LITIGATION (CONTINUED) The Company is defendant to a counter-claim brought by Tickets.com, Inc. in a lawsuit filed by the Company against Tickets.com. Tickets.com asserted claims for relief against the Company for violations of antitrust laws and laws governing restraint of trade and unfair competition and business practices, interference with contract and declaratory relief. Tickets.com seeks monetary damages which, if awarded, would have a material adverse affect on the Company. The Company is vigorously defending against the counter-claim and does not currently believe it will incur material damages in connection therewith. The Company is the nominal defendant in a shareholder derivative lawsuit brought by the plaintiffs on behalf of the Company against its directors in connection with the Combination. The plaintiffs allege, among other things, that the Combination is the product of unfair self-dealing, and that the consideration that the Company paid to USAi is unfair and excessive. The Company has indemnified its directors in connection with this suit. The plaintiffs seek to have the Court rescind or modify the Combination and also seek monetary damages, attorneys' fees and other costs of pursuing the lawsuit, which, if awarded, could have a material adverse affect on the Company. The Company believes that the suit is without merit, and expects all defendants to vigorously defend against the lawsuit and does not currently believe that the Combination will be rescinded or modified or that it will incur material damages on its behalf or on behalf of its directors in connection therewith. 13. QUARTERLY RESULTS (UNAUDITED)
QUARTER QUARTER QUARTER QUARTER ENDED ENDED ENDED ENDED DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, ------------ ------------- -------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED DECEMBER 31, 2000 Total revenue................................... $ 55,660 $ 57,062 $ 61,401 $ 46,520 Loss from operations............................ (72,187) (48,326) (44,574) (47,422) Net loss........................................ (81,141) (49,143) (45,305) (48,622) Basic and diluted net loss per share............ (0.91) (0.55) (0.52) (0.57) YEAR ENDED DECEMBER 31, 1999 Total revenue................................... $ 36,390 $ 27,411 $ 25,528 $ 15,971 Loss from operations............................ (49,312) (32,724) (23,876) (18,883) Net loss........................................ (48,925) (31,787) (22,916) (17,740) Basic and diluted net loss per share............ (0.58) (0.41) (0.31) (0.25)
Quarterly data may not sum to the full year data reported in the Company's consolidated financial statements due to rounding. 14. SUBSEQUENT EVENTS (UNAUDITED) ACQUISITION OF TICKETMASTER GROUP, INC. AND ITS SUBSIDIARIES On January 31, 2001, pursuant to a contribution agreement dated November 20, 2000 between the Company and USAi, the Company issued 52,000,000 shares of Class B Common Stock to USAi in exchange for Ticketmaster Group and its subsidiaries. Ticketmaster Group provides automated ticketing F-30 TICKETMASTER NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 2000 14. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED) services to its client venues, promoters and sport franchises, which provide patrons with the alternatives of purchasing tickets through operator-staffed call centers, the Internet and independent sales outlets. The Combination will be accounted for as an exchange between entities under common control in a manner similar to the pooling of interests method of accounting. As a result of the Combination, prior year financials will be restated in future filings to present the Company as if it had been combined with Ticketmaster Group which will be similar to the presentation reported in Schedule 14C filed with the SEC in January 2001. Effects of the Combination are not included in the consolidated financial statements as the Combination was not consummated until after December 31, 2000. The following unaudited pro forma information presents a summary of results of the Company assuming the acquisition of Ticketmaster Group and its subsidiaries had occurred as of January 1, 1999. The unaudited pro forma financial data reflects the adjustments that will result from the combination as if it had occurred as of the beginning of the periods presented. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transactions been effective on January 1, 1999.
YEAR ENDED DECEMBER 31, --------------------- 2000 1999 --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Revenues.................................................. $ 606.7 $ 498.5 Net loss.................................................. (230.0) (115.3) Net loss per share........................................ (1.65) (0.90)
ACQUISITION OF RESERVEAMERICA HOLDINGS, INC. On February 12, 2001, the Company completed the acquisition of ReserveAmerica Holdings, Inc. ("ReserveAmerica"), the leading provider of campsite reservations. The Company paid $24.9 million in cash for the initial consideration due in the transaction. The purchase price will be increased for additional shares of the Company's common stock to be granted upon achievement of revenue targets based on the stock price at that time. The acquisition has been accounted for using the purchase method of accounting. The acquisition resulted in $24.6 million of goodwill recorded initially with adjustments to be made upon the issuance of additional shares if the revenue targets are achieved. The total amount of goodwill to be recorded approximates the purchase price which is being amortized by the Company over a period of ten years. F-31 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
BALANCE BALANCE AT TRANSFERRED CHARGED TO CHARGED TO BALANCE AT BEGINNING AT THE COSTS AND OTHER END OF OF PERIOD MERGER EXPENSES ACCOUNTS (B) DEDUCTIONS (A) PERIOD ---------- ----------- ---------- ------------- -------------- ---------- Allowance for doubtful accounts: Year ended December 31, 2000.... $738,000 $ -- $4,036,800 $13,500 $2,398,800 $2,389,500 Year ended December 31, 1999.... 187,500 -- 1,780,700 -- 1,230,200 738,000 Eleven months ended December 31, 1998............. -- 68,400 211,100 -- 92,000 187,500
- ------------------------ (a) Represents amounts written off against the allowance for doubtful accounts, net of recoveries and reversals. (b) In the year ended December 31, 2000 this relates to the amount from the acquisition of TicketWeb, Inc. S-1 EX-2.14 2 a2041707zex-2_14.txt EXHIBIT 2.14 EXHIBIT 2.14 ASSET PURCHASE AGREEMENT This Asset Purchase Agreement (the "AGREEMENT") is entered into as of March 8, 2001 by and among Evite, Inc., a California corporation (the "SELLER") and Ticketmaster (formerly known as Ticketmaster Online-Citysearch, Inc.), a Delaware corporation (the "BUYER"). WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer substantially all of the assets relating to the operation of an internet website (evite.com) which provides users with electronic invitations and related reminder, calendaring and contact listing services, and which carries event planning information (the "BUSINESS") in accordance with the terms of this Agreement. NOW, THEREFORE, BE IT RESOLVED, that the parties hereto hereby agree as follows: ARTICLE 1 PURCHASE AND SALE OF ASSETS 1.1 PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions set forth in this Agreement, Seller hereby agrees to sell, convey, transfer, assign and deliver to Buyer, and Buyer hereby agrees to purchase from Seller (collectively, the "ACQUISITION"), all of Seller's right, title and interest in and to all of the assets of Seller reasonably required to conduct the Business (the "ACQUISITION ASSETS") including without limitation those which are more specifically set forth on SCHEDULE 1.1 hereto, except the Excluded Assets (as defined below), free and clear of all mortgages, liens, security interests, encumbrances, restrictions, and claims of any kind or nature whatsoever (collectively, "ENCUMBRANCES"). 1.2 EXCLUDED ASSETS. Notwithstanding the foregoing, the Acquisition Assets shall not include the assets of Seller set forth on SCHEDULE 1.2 hereto (the "EXCLUDED ASSETS"). 1.3 NO ASSUMPTION OF LIABILITIES. The parties hereby acknowledge and agree that Buyer shall not assume or be obligated to perform any liabilities or obligations of Seller, whether fixed, accrued or contingent, known or unknown, whether presently in existence or arising hereafter and including any sales or other taxes resulting from the Acquisition (collectively the "LIABILITIES"), and Seller agrees to pay all of the Liabilities. 1.4 PURCHASE PRICE. In consideration for the sale of the Acquisition Assets, Buyer will pay at the Closing (as defined below) cash in the amount of $** (the "PURCHASE PRICE") by wire. Buyer shall wire $**. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 1 out of the Purchase Price directly to Seller at Closing and shall wire the remainder of the Purchase Price, or $**, to a post-Closing escrow to be established by Seller in a form substantially similar to the Escrow Agreement attached hereto as EXHIBIT A to satisfy all of its known liabilities and obligations, including without limitation, paying off in full or at such lesser amount as successfully negotiated its long-term debt and equipment leases as listed on SCHEDULE 1.4 ("SECURED OBLIGATIONS"), entering into a settlement and release of its lease obligations with its landlord, obtaining releases from each employee and all of its other payables and severance costs associated with winding down the company and to serve as security for Seller's obligation to obtain and deliver to Buyer executed UCC termination statements (and any other documents necessary to terminate any security interests or liens) for each security interest and/or UCC filing set forth on SCHEDULE 1.4 ("SECURITY INTERESTS"). 1.5 THE CLOSING. Upon the satisfaction or written waiver of all conditions set forth in Article 5 of this Agreement, the closing (the "CLOSING") of the Acquisition shall take place at the offices of Strategic Law Partners LLP, 333 South Grand Avenue, Suite 3970, Los Angeles, California 90071 at such time and date as Buyer and Seller may mutually select (with the date of the Closing being referred to herein as the "CLOSING DATE"). 1.6 DELIVERY AND TRANSFER AT CLOSING; FURTHER ASSURANCES. At the Closing, Seller shall transfer and assign to Buyer its entire right, title and interest in and to the Acquisition Assets pursuant to a Bill of Sale in form substantially the same as EXHIBIT B attached hereto and such other instruments of transfer as may be reasonably requested by Buyer to transfer the Acquisition Assets to Buyer including, but not limited to, short form assignments of any copyrights, trademarks and domain names in forms substantially the same as those attached as EXHIBIT C, EXHIBIT D and EXHIBIT E, respectively. From time to time after the Closing, Seller will execute and deliver to Buyer such instruments of sale, transfer, conveyance, assignment and delivery, consents, assurances, powers of attorney and other instruments as may be reasonably requested by Buyer in order to vest in Buyer all right, title and interest of Seller in and to the Acquisition Assets and otherwise in order to carry out the purpose and intent of this Agreement, including without limitation, UCC termination statements and any other documents necessary to terminate any security interests or liens relating to the Acquisition Assets. In addition, Seller shall use its best efforts to obtain any consents necessary to assign contracts included within the Acquisitions Assets. 1.7 DELIVERY AT EXECUTION. On or before the execution of this Agreement, Seller shall execute and deliver, or shall cause to be executed and delivered, and Buyer shall execute and deliver the following documents: (a) Escrow Agreement substantially in the form of EXHIBIT A attached hereto executed by Seller and Perkins Coie, LLP, as Escrow Agent. (b) Bill of Sale substantially in the form of EXHIBIT B attached hereto. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 2 (c) Assignment of Copyrights substantially in the form of EXHIBIT C attached hereto. (d) Assignment of Trademarks substantially in the form of EXHIBIT D attached hereto. (e) Assignment of Domain Names substantially in the form of EXHIBIT E attached hereto. (f) Agreement Not to Compete substantially in the form of EXHIBIT F attached hereto executed by Josh Silverman. (g) Transition Services Agreement substantially in the form of EXHIBIT G attached hereto executed by Seller. All such documents shall be held in escrow and shall only be enforceable at such time as Buyer shall have wire transferred the Purchase Price in the manner set forth in Section 1.4 hereof. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLER The Seller represents and warrants to Buyer as follows: 2.1 ORGANIZATION AND STANDING. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of California and has all requisite corporate power and authority to own, operate and lease its properties and carry on its business as now conducted, and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the failure to so qualify would have a material adverse effect on Seller. Seller does not own, directly or indirectly, an interest in any corporation, partnership, limited liability company or other entity. 2.2 AUTHORITY, APPROVAL AND ENFORCEABILITY. (a) Seller has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement, and all corporate action on its part necessary for such execution, delivery and performance has been duly taken. (b) The execution and delivery by Seller of this Agreement does not, and the performance and consummation of the transactions contemplated by this Agreement will not, result in any conflict with, breach or violation of or default, termination or forfeiture under (or upon the failure to give notice or the lapse of time, or both, result in any conflict with, breach or violation of or default, termination or forfeiture under) any terms or provisions of (i) its Articles of Incorporation or Bylaws, (ii) any statute, rule, regulation, or 3 any judicial, governmental, regulatory or administrative decree, order or judgment, or (iii) any Material Agreement (as defined in SCHEDULE 2.8). (c) No consent, approval, authorization, order, registration, qualification or filing of or with any court or any regulatory authority or any other governmental or administrative body is required on the part of Seller for the consummation by it of the transactions contemplated by this Agreement. (d) Upon due execution and delivery by Seller, this Agreement will be its legal, valid and binding obligation, enforceable against it in accordance with its terms. 2.3 ASSETS. Seller owns the Acquisition Assets, free and clear of all Encumbrances, and upon consummation of the transactions contemplated hereby, Buyer shall receive good and marketable title to the Acquisition Assets free and clear of all Encumbrances. The Acquisition Assets constitute substantially all of the assets used in the Business except for the Excluded Assets, and, except as set forth on SCHEDULE 2.3, Buyer will hereby obtain all of the software and tangible assets reasonably necessary to operate the Business. 2.4 INTELLECTUAL PROPERTY; SOFTWARE. (a) For all purposes of this Agreement, (i) "INTELLECTUAL PROPERTY RIGHTS" means intellectual property rights arising from or in respect of the following, whether protected, created or arising under the laws of the United States or any other jurisdiction: (A) fictional business names, trade names, service names, registered and unregistered trademarks and service marks and logos (including any Internet domain names), and applications therefor (collectively, "MARKS"), (B) patents, patent rights and all applications therefor, including any and all continuation, divisional, continuation-in-part, or reissue patent applications or patents issuing thereon (collectively, "PATENTS"), (C) copyrights and all registrations and applications therefor (collectively, "COPYRIGHTS") and (D) know-how, trade secrets, inventions, discoveries, concepts, ideas, methods, processes, designs, formulae, technical data, drawings, specifications, data bases and other proprietary and confidential information, including customer lists, in each case to the extent not included in the foregoing clauses (B) or (C) (collectively, "TRADE SECRETS") and, together with the Marks, Patents, Copyrights and Trade Secrets, the "INTELLECTUAL PROPERTY"). (ii) "SOFTWARE" means any and all (A) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (B) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (C) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing and (D) all documentation, including user manuals and training materials, relating 4 to any of the foregoing, in each case developed or licensed by the Seller, or used in or necessary for the conduct of its business, specifically excluding those items prepared for customers in the operation of the Seller's business for which the customer contractually has vested title. (b) SCHEDULE 2.4(b) sets forth a complete and correct list of all Intellectual Property Rights owned, licensed or used by Seller in the conduct of its business (other than any Intellectual Property Rights consisting of "shrink-wrap" licensed software), together with a listing of all material licenses, franchises, licensing agreements (whether as licensor or licensee) to which Seller is a party, and any other arrangement with respect to such Intellectual Property Rights. All Intellectual Property Rights owned, licensed or used by Seller or used or exercised in or necessary to the conduct of the Seller's business, are referred to herein, collectively, as the "SELLER INTELLECTUAL PROPERTY ASSETS." (c) Seller has not, during the three years preceding the date of this Agreement, been a party to any proceeding, nor, to the knowledge of the Seller, is any proceeding threatened that involved or is likely to involve a claim of infringement or misappropriation by any person or entity (including any governmental authority) of any Intellectual Property Right of such person or entity. No Seller Intellectual Property Asset is subject to any outstanding order, judgment, decree or stipulation to which Seller is subject in any proceeding to which Seller is a party or, to its knowledge, any other proceeding, restricting the use thereof by the Seller, or restricting the licensing thereof by Seller or any person or entity. To the Company's knowledge, the current use and exploitation of the Intellectual Property Assets by Seller (including, without limitation, the licensing or other distribution of Software to third parties by the Seller) does not conflict with, infringe upon, violate or result in the misappropriation of Intellectual Property Right of any person or entity. (d) Except as set forth on SCHEDULE 2.4(d): (i) The Seller has no right, title or interest in any Patent. The Seller owns all right, title and interest in each of the registered Marks listed in SCHEDULE 2.4(b), within its respective field of use, free and clear of any and all liens and Encumbrances. Seller has not received any notice or claim (whether written or oral) challenging the Seller's exclusive and complete ownership of any of the Marks listed in SCHEDULE 2.4(b) (collectively "SELLER MARKS") in their respective fields of use, or suggesting that any other person or entity has any claim of legal or beneficial ownership or other claim or interest with respect thereto; (ii) The Seller Marks are legally valid and enforceable without any material qualification, limitation or restriction on their use and Seller has not received any notice or claim (whether written or oral) challenging the validity or enforceability of any of the Seller Marks; (iii) The Seller has not taken any action (or failed to take any action), or used or enforced (or failed to use or enforce) any of Seller Marks, in each case 5 in a manner that would result in the abandonment, cancellation, forfeiture, relinquishment or unenforceability of any of the Owned Marks or any of the Seller's rights therein; (iv) The Seller has taken reasonable steps to protect its rights in and to each of Seller Marks and to prevent any known unauthorized use thereof by any other person or entity, in each case in accordance with standard industry practice, and has adequately policed Seller Marks against third party infringement of which it is aware; (v) The Seller has not granted to any person or entity any right, license or permission to use any of Seller Marks; (vi) All Seller Marks that have been registered have been effectively registered in accordance with all applicable legal requirements and are currently in compliance with all legal requirements; (vii) All maintenance fees, annuities, and the like due on Seller Marks have been timely paid; and (viii) No Mark that constitutes a Seller Mark has been or is now involved in any opposition or cancellation proceeding and, to the Seller's knowledge, no such action is threatened with the respect to any of Seller Marks. (e) The Seller has taken reasonable precautions (as determined by the Seller management) to protect the secrecy of any Trade Secrets that derive commercial value from not being generally known to the public. To the Seller's knowledge, the Seller has the absolute and unrestricted right to use all of the Trade Secrets. None of the Trade Secrets owned by Seller is subject to any liens or Encumbrances. The Seller has not received any notice or claim challenging the Seller's absolute and unrestricted right to use any of the Trade Secrets or suggesting that any other person or entity has any claim with respect thereto. None of the Trade Secrets has been, or is alleged to have been, misappropriated from any other person or entity. Except under appropriate confidentiality obligations, to the Seller's knowledge, there has been no disclosure by Seller of material confidential information or other Trade Secrets that derive commercial value from not being generally known to the public. (f) The Seller either owns the entire right, title and interest in, to and under, or has acquired a license to use, any and all Seller Intellectual Property Assets which are material to the conduct of the Business in the manner that the Business has heretofore been or is presently being conducted, and no other Intellectual Property Rights are necessary for the unimpaired continued operation of such businesses after the Closing Date in the manner that such businesses have heretofore been or are presently being conducted. (g) SCHEDULE 2.4(g) sets forth a complete and accurate list of all of the material Software (excluding Software that is available in consumer retail stores and subject to "shrink-wrap" agreements). SCHEDULE 2.4(g) specifically identifies all material 6 Software that is owned exclusively by Seller (the "OWNED SOFTWARE") and all material Software that is used by Seller in the conduct of the Business that is not exclusively owned by Seller (excluding software that is available in consumer retail stores and subject to "shrink-wrap" agreements) (the "LICENSED SOFTWARE"). The Seller is the owner of all right, title and interest in and to all Owned Software, including, without limitation, all Copyrights, Trade Secrets and other Intellectual Property Rights relating thereto, free and clear of any and all liens and Encumbrances, and Seller has not received any notice or claim (whether written, oral or otherwise) challenging the Seller's complete and exclusive ownership of all Owned Software and all such Intellectual Property Rights relating thereto or claiming that any other person or entity has any claim of legal or beneficial ownership with respect thereto. The Seller has not assigned, licensed, transferred or encumbered any of its rights in or to any Owned Software, including, without limitation, any Copyrights, Trade Secrets or other Intellectual Property Rights with respect thereto, to any person or entity, excluding any non-exclusive licenses granted to customers in the ordinary course of Business or pursuant to Designated Software Agreements (as defined hereon). The Seller has lawfully acquired the right to use the Licensed Software, as it is used in the conduct of its business as presently conducted, and has not exercised any rights in respect of any Licensed Software, including, without limitation, any reproduction, distribution or derivative work rights, outside the scope of any license expressly granted by the person or entity from which the right to use such Licensed Software was obtained. (h) SCHEDULE 2.4(h) contains a complete and accurate specific list of all agreements and arrangements pertaining to the Licensed Software (collectively, "LICENSED SOFTWARE AGREEMENTS") and a complete and accurate list of all agreements and arrangements pertaining to any other technology used or practiced by Seller as to which a person or entity other than Seller owns the applicable Intellectual Property Rights (collectively, "OTHER LICENSED TECHNOLOGY AGREEMENTS" and, together with Licensed Software Agreements, the "LICENSED TECHNOLOGY AGREEMENTS"). SCHEDULE 2.4(h) sets forth a complete and accurate list of all royalty obligations of Seller under any Licensed Technology Agreements. All Licensed Technology Agreements are in full force and effect, and Seller is not in material breach thereof, nor is Seller aware of any claim or basis for any claim to the contrary. There are no outstanding, and, to the Seller's knowledge, no threatened disputes with respect to any Licensed Technology Agreement. The Licensed Technology Agreements together expressly confer on Seller any necessary rights under or in respect of all of the Intellectual Property Rights that are not owned exclusively by Seller and that are used or practiced in the Business. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in the impairment of any rights under, any Licensed Technology Agreement. (i) SCHEDULE 2.4(i) contains a complete and accurate list of all agreements and arrangements involving the grant by Seller to any person or entity of any right to distribute, prepare derivative works based on, support or maintain or otherwise commercially exploit any Software, including, without limitation, any joint development or marketing agreements or strategic alliance agreements involving any Software (collectively, 7 "DESIGNATED SOFTWARE AGREEMENTS"). All Designated Software Agreements are in full force and effect, and Seller is not in material breach thereof, nor is Seller aware of any claim or basis for a claim to the contrary. There are no outstanding and, to the Seller's knowledge, no threatened disputes or disagreements with respect to any Designated Software Agreement. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will result in any impairment of rights under any Designated Software Agreement. (j) To the Seller's knowledge, it has taken commercially reasonable actions in accordance with industry practice to protect its Intellectual Property Rights in relation to employees, independent contractors and consultants, including entering into agreements with such persons or entities that assign to Seller all of the employee's, contractor's or consultant's rights, including all Intellectual Property Rights, in any Intellectual Property created or developed thereby that is used in connection with, or that relates to, the Business. To the knowledge of the Seller, no employee of Seller has entered into any contract or other agreement with any person or entity (other than the Seller) that restricts or limits in any way the scope or type of work in which the employee may be engaged for Seller or requires the employee to transfer, assign, or disclose information concerning the employee's work with Seller to any other person or entity. 2.5 LICENSES AND PERMITS; LAWS. (a) Seller has, and at all times has held, all permits, licenses, orders, authorizations, registrations, qualifications, approvals and other analogous instruments (collectively, "PERMITS") (and each is in full force and effect) as required by applicable law for the purpose of conducting the Business or owning the Acquisition Assets or both. The Seller is in compliance with all such Permits. SCHEDULE 2.5(a) hereto sets forth a complete and correct list of all such Permits. There are no proceedings, pending or threatened, to revoke or terminate any such presently existing Permits, and Seller knows of no reason why any such Permit would not be renewed in the ordinary course. (b) Except as set forth in SCHEDULE 2.5(b), Seller has complied in all material respects with all foreign, federal, state, local and county laws, ordinances, regulations, judgments, orders, decrees or rules of any court, arbitrator or governmental, regulatory or administrative agency or entity applicable to the Business. Except as set forth on SCHEDULE 2.5(b), Seller has not received any governmental notice of any violation by Seller of any such laws, rules, regulation or orders. 2.6 FINANCIAL STATEMENTS. (a) Seller has delivered to Buyer complete copies of its balance sheet, income statement and statement of shareholders' equity as of December 31, 2000 (the "FINANCIAL STATEMENTS"). The Financial Statements have been prepared from the books and records of Seller in accordance with generally accepted accounting principles ("GAAP") (except where noted on SCHEDULE 2.6), are complete and correct in all material respects, 8 present fairly Seller's financial position as of such date, and contain and reflect adequate reserves for all liabilities or obligations of any nature, whether absolute or contingent. (b) Except to the extent specifically reflected or reserved against in the Financial Statements or as set forth on SCHEDULE 2.6, Seller has no outstanding liabilities or obligations of any nature, whether absolute, accrued, contingent or otherwise, and whether due or to become due (including, without limitation, any liability for taxes and interest, penalties and other charges payable with respect to any such liability or obligation), except for (i) liabilities and obligations incurred in the ordinary course of business since the date of the Financial Statements, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under GAAP to be reflected on the Financial Statements. 2.7 TAXES. (a) DEFINITIONS. For purposes of this Agreement: (i) the term "TAXES" means (A) all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, (B) any liability for payment of amounts described in clause (A) whether as a result of transferee liability, of being a member of an affiliated, consolidated, combined or unitary group for any period, or otherwise through operation of law and (C) liability for the payment of amounts described in clauses (A) or (B) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other person; and the term "TAX" means any one of the foregoing Taxes; and (ii) the term "RETURNS" means all returns, declarations, reports, statements and other documents required to be filed in respect of Taxes, and the term "RETURN" means any one of the foregoing Returns. (b) Seller or its agent has completed and filed on a timely basis and in materially correct form all Returns required to be filed. As of the time of filing, the filed Returns did not materially misstate the facts regarding the income, business, assets, operations, activities, status or other matters of the Seller or any other information required to be shown thereon. All Taxes required to be paid by the Seller to taxing authorities or others have been paid. Seller does not owe any Taxes on compensation paid to any of its employees, other than Taxes that are not yet due and payable. 2.8 MATERIAL AGREEMENTS AND RELATIONSHIPS. 9 (a) Except as set forth on SCHEDULE 2.8 (the "MATERIAL AGREEMENTS") or as is listed on any portion of SCHEDULE 2.4, Seller is not a party to or subject to any material oral or written agreement with respect to the Business. (b) To the best of Seller's knowledge, no party to any Material Agreement has committed a breach thereof or a default thereunder or intends to cancel or withdraw such Material Agreement. (c) Seller has performed all material obligations required to be performed by it on or prior to the date hereof under each Material Agreement and Seller is current with respect to all payments required to be made by Seller under each Material Agreement. 2.9 ABSENCE OF LITIGATION. Except as set forth on SCHEDULE 2.9, Seller is not a party to any litigation, claim, arbitration, investigation or other proceeding, nor, to the best of its knowledge, is there any such litigation, claim, arbitration, investigation or other proceeding threatened against Seller. Seller is not bound by any judgment, decree, injunction, ruling or order of any court, governmental, regulatory or administrative department, commission, agency or instrumentality, arbitrator or any other person that relates to the Business. 2.10 NO BROKERS. Seller is not obligated for the payment of fees or expenses of any broker or finder in connection with the origin, negotiation or execution of this Agreement or in connection with any transaction contemplated hereby or thereby other than a fee payable by Seller to JP Morgan, H&Q under the terms of an engagement letter dated September 29, 2000. 2.11 EMPLOYEES. Each current and former employee of Seller has executed and delivered to Seller an Employment, Confidential Information and Invention Assignment Agreement substantially in the form of EXHIBIT H (without any material deviations therefrom) and each employee of Seller that was terminated by Seller without cause on or after November 1, 2000 and received severance pay has executed and delivered to Seller an Evite/Execustaff Exit Certification substantially in the form of EXHIBIT I (without any material deviations therefrom). To Seller's knowledge, no present or former employee, officer or director of the Company has made or threatened to make any claim against the Seller or Execustaff, Inc., nor does any reasonable basis exist for such a claim. Seller has performed all material obligations required to be performed by it under its Client Service Agreement with Execustaff, Inc., and Seller has not committed a breach thereof. Seller has not received notice of termination of such agreement from Execustaff, Inc. and, to Seller's knowledge, Execustaff, Inc. has no present plans to terminate such agreement. 2.12 COMDISCO AND VENTURE LEASING DEBTS. Seller has paid all material amounts that it owes to Comdisco, Inc. and Venture Leasing Associates and its affiliates. 10 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: 3.1 ORGANIZATION AND STANDING. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the state of Delaware. 3.2 AUTHORITY, APPROVAL AND ENFORCEABILITY. (a) Buyer has all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement, and all necessary corporate action for such execution, delivery and performance has been duly taken. (b) The execution and delivery by Buyer of this Agreement does not, and the performance and consummation of the transactions contemplated by this Agreement will not, result in any conflict with, breach or violation of or default, termination or forfeiture under (or upon the failure to give notice or the lapse of time, or both, result in any conflict with, breach or violation of or default, termination or forfeiture under) any terms or provisions of its (i) Certificate of Incorporation or Bylaws, (ii) any statute, rule, regulation or any judicial, governmental, regulatory or administrative decree, order or judgment, or (iii) any material agreement, lease or other instrument to which it is a party or to which it or any of its assets may be bound. (c) No consent, approval, authorization, order, registration, qualification or filing of or with any court or any regulatory authority or any other governmental or administrative body is required on the part of Buyer for the consummation by it of the transactions contemplated by this Agreement. (d) Upon due execution and delivery by Buyer, this Agreement will be its legal, valid and binding obligation, enforceable against it in accordance with its terms. ARTICLE 4 COVENANTS 4.1 MAINTENANCE OF BUSINESS. During the period from the date hereof to the Closing Date, Seller shall operate the Business in the ordinary course and in substantially the same manner as it has prior to the date of this Agreement; provided however, Seller may (with advance written notice to Buyer if such actions relate to employee layoffs or terminating agreements relating to content on or functionality or Seller's website) proceed with preparations for winding down Seller's operations and business as long as such actions do not interfere with the operation of the Business. Seller shall not allow any diminution in 11 the quality of the Business (including, without limitation, the operation of evite.com, customer service response time, advertiser support and routine maintenance) and agrees not to enter into any material agreements with respect to the Acquisition Assets or take any other significant actions with respect to the Acquisition Assets without the prior written consent of Buyer, which shall not be unreasonably withheld. 4.2 OTHER DISCUSSIONS. During the period from the date hereof through the Closing Date, neither Seller nor any of its officers, directors, agents or representatives will initiate discussions, solicit or negotiate (including providing any non-public information concerning the Business), or authorize any person or entity to discuss, solicit or negotiate on its or their behalf, with any other party concerning the possible sale or disposition of Seller's business, assets or capital stock. Seller will immediately notify Buyer, if any offer is received from a potential purchaser. 4.3 EFFORTS. Seller will use commercially reasonable efforts to cause all conditions to the Closing to be satisfied as soon as practicable. Seller shall use its commercially reasonable efforts to obtain any consents necessary in connection with the consummation of the transactions contemplated by this Agreement. 4.4 ACCESS TO INFORMATION. Buyer shall be permitted to make a full and complete investigation of Seller's business and affairs and shall have access to the facilities, employees, and records of Seller for the purpose of conducting its due diligence investigation in accordance with this paragraph; provided, however, in no event shall Buyer's due diligence investigation be permitted to interfere with the day to day operations of Seller. 4.5 CUSTOMER NOTICE; TRANSFER OF CUSTOMER DATA. Immediately following the execution of this Agreement, Seller shall send a notice to each registered user and email invitees of such registered users ("Users") of the Evite service of Seller's intended transfer and sale of such User's Data (as defined in the Evite Privacy Policy) to Buyer pursuant to this Agreement (the "USER NOTICE") and allowing each such User three (3) days following transmission of the User Notice to notify Seller of its election to opt out of the transfer of such User's Data (each such notification shall be referred to herein as an "OPT OUT NOTICE"). Buyer acknowledges that such Data is subject to the Evite Privacy Policy in effect as of the date hereof and that Buyer shall honor all Opt Out Notices received from such Users during and after such three (3) day period. At the Closing, Seller shall transfer to Buyer the Data of those Users who have not delivered an Opt Out Notice. ARTICLE 5 CONDITIONS TO ACQUISITION 5.1 CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to consummate the transactions contemplated hereby are subject to satisfaction (or written waiver) of the following conditions: (a) Seller shall have executed and delivered to Buyer an 12 Assurance of Voluntary Compliance in the form of EXHIBIT J attached hereto executed by the Michigan Attorney General, (b) Seller shall have delivered to Buyer consents to the transaction contemplated by this Agreement from its shareholders, (c) three (3) days shall have elapsed since the delivery of the User Notice described in Section 4.5, and (d) consummation of the transactions contemplated by this Agreement shall not violate any order, decree or judgment of any court or governmental body having jurisdiction. ARTICLE 6 INDEMNITY 6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties of Buyer and Seller in this Agreement shall survive the execution, delivery, and performance of this Agreement until the earlier of one year from the Closing Date or the date that Seller's Certificate of Dissolution is accepted by the California Secretary of State for filing (the "TERMINATION DATE"), and shall be deemed to have been made again by such party at and as of the Closing Date. 6.2 INDEMNIFICATION OF BUYER. (a) Seller agrees to indemnify, defend and hold harmless Buyer against and in respect of, any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, remedies and penalties, including interest, penalties and reasonable attorney's fees and expenses that the Buyer shall incur or suffer, and which arise from or are attributable to by reason of or in connection with (i) any breach or inaccuracy of any of Seller's representations or warranties contained in this Agreement or (ii) any Liability. (b) The indemnity obligations of Seller pursuant to this Section 6.2 shall survive the Closing, and shall terminate on the Termination Date (except to the extent that claims have been submitted in writing or notice of the claim has been provided in writing prior to the Termination Date). In any case in which claims have been asserted or are pending prior to the Termination Date, the parties agree that the indemnity obligations of Seller with respect to such matters shall continue in full force and effect until such matters have been settled by agreement of the parties or by other final non-appealable resolution of such matters. No disclosure by Seller other than as set forth in this Agreement or the Schedules hereto nor any investigation made by or on behalf of Buyer with respect to Seller shall be deemed to affect Buyer's reliance on the representations or warranties made by Seller contained in this Agreement and shall not constitute a waiver of Buyer's rights to indemnity as herein provided. (c) Seller shall have no obligations under this Section 6.2 for an amount in excess of $1,000,000.00. Absent fraud or willful breach by Seller, the indemnity provisions shall be the sole and exclusive remedy of Buyer for monetary damages (but not for injunctive relief) under this Agreement. 13 6.3 INDEMNIFICATION OF SELLER. (a) Buyer agrees to indemnify, defend and hold harmless Seller from and against, and shall reimburse Seller against and in respect of, any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, remedies and penalties, including interest, penalties and reasonable attorneys' fees and expenses Seller shall incur or suffer, and which arise from or are attributable to by reason of or in connection with any breach or inaccuracy of any of Buyer's representations or warranties contained in this Agreement. (b) The indemnity obligations of Buyer pursuant to this Section 6.3 shall terminate on the Termination Date (except to the extent that claims against Buyer have been submitted in writing or notice of the claim has been provided in writing prior to the Termination Date). In any case in which claims have been asserted or are pending prior to the Termination Date, all parties agree that the indemnity obligations of Buyer with respect to such matters shall continue in full force and effect until such matters have been settled by agreement of the parties or by other final non-appealable resolution of such matters. No disclosure by Buyer other than as set forth in this Agreement or the schedules hereto nor any investigation made by or on behalf of Seller with respect to Buyer shall be deemed to affect Seller's reliance on the representations and warranties made by Buyer contained in this Agreement and shall not be a waiver of Seller's rights to indemnity as herein provided. (c) Buyer shall have no obligations under this Section 6.3 for an amount in excess of $1,000,000.00. Absent fraud or willful breach by Buyer, the indemnity provisions shall be the sole and exclusive remedy of Seller for monetary damages (but not for injunctive relief) under this Agreement. 6.4 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO NON-THIRD PARTY CLAIMS. If an indemnified party determines to seek indemnification under this Article 6 (excluding claims resulting from the assertion of liability by third parties, which shall be governed by the provisions of Section 6.5), it shall promptly give written notice thereof to the indemnifying party, including in such notice a brief description of the facts upon which such claim is based and the amount thereof. If the indemnifying party, within ten (10) business days after receipt of the notice of claim does not give written notice to the indemnified party announcing its intent to contest such claim, the claim shall be deemed accepted and the amount of claim shall be deemed a valid claim, and the indemnifying party shall, within five (5) business days after expiration of the prior notice period, deliver to the indemnified party the amount of the claim. In the event, however, that the indemnifying party contests the assertion of a claim by giving such written notice to the indemnified party within said period, then the parties shall act in good faith to reach agreement regarding such claim. In the event the parties are unable to reach an agreement regarding such claim, such claim shall be submitted to non-binding mediation with a recognized dispute resolution service before a single mutually-selected mediator to be held in Los Angeles, California. 14 6.5 PROCEDURE FOR INDEMNIFICATION WITH RESPECT TO THIRD-PARTY CLAIMS. (a) If an indemnified party determines to seek indemnification under this Article 6 with respect to a claim resulting from the assertion of liability by third parties, such indemnified party shall promptly give written notice to the indemnifying party of facts upon which any such claim will be based; the notice shall set forth such material information with respect thereto as is then reasonably available to such indemnified party. In case any such liability is asserted against the indemnified party, and the indemnified party notifies the indemnifying party thereof, the indemnifying party will be entitled, if such indemnifying party so elects by written notice delivered to the indemnified party within ten (10) business days after receiving the indemnified party's notice, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. Notwithstanding the foregoing, (i) the indemnified party shall also have the right to employ its own counsel in any such case, but the fees and expenses of such additional counsel shall be at the expense of the indemnified party unless the indemnified party shall reasonably determine that there is a conflict of interest between the indemnified party and the indemnifying party with respect to such claim, in which case the fees and expenses of such additional counsel will be borne by the indemnifying party, (ii) the rights of an indemnified party to be indemnified hereunder in respect of claims resulting from the assertion of liability by third parties shall not be adversely affected by the indemnified party's failure to give notice pursuant to the foregoing unless, and, if so, only to the extent that, the indemnifying party is materially prejudiced thereby. With respect to any assertion of liability by a third party that results in an indemnifiable claim, the parties hereto shall make available to each other all relevant information in their possession material to any such assertion. (b) In the event that the indemnifying party, within ten (10) business days after receipt of the aforesaid notice of a claim, fails to assume the defense of an indemnified party against such claim, the indemnified party shall have the right to undertake the defense, compromise, or settlement of such action on behalf of and for the account, expense, and risk of the indemnifying party; provided, however, that indemnified party shall not settle any such claim without the prior written consent of the indemnifying party, which consent shall not be unreasonably withheld or delayed. (c) Notwithstanding anything in this Article 6 to the contrary, the indemnified party shall have the right to participate (at the indemnified party's expense) in such defense, compromise, or settlements, and the indemnifying party shall not, without the indemnified party's prior written consent (which consent shall not be unreasonably withheld or delayed), settle or compromise any such claim or consent to entry of any judgment in respect thereof unless such settlement, compromise, or consent includes as an unconditional term thereof the giving by the claimant or the plaintiff to the indemnified party a release from all liability in form and substance satisfactory to such indemnified party in respect of such claim. 15 ARTICLE 7 TERMINATION 7.1 TERMINATION BY MUTUAL CONSENT. At any time prior to the Closing, this Agreement may be terminated by written consent of Buyer and Seller. 7.2 TERMINATION BY BUYER OR SELLER. (a) Buyer may terminate this Agreement at any time prior to the Closing by delivery of written notice to Seller if any of the conditions to closing set forth in Section 5.1 hereof shall not have been satisfied on or prior to March 15, 2001 through no fault of Buyer. (b) Seller may terminate this Agreement at any time prior to the Closing by delivery of written notice to Buyer if the conditions to closing set forth in Section 5.1(b) or (d) hereof shall not have been satisfied on or prior to March 15, 2001 through no fault of Seller. 7.3 EFFECT OF TERMINATION. In the event of termination as provided above, the obligations of the parties hereunder shall terminate; provided, that (a) Sections 6.1, 6.2 (to the extent specifically provided thereunder) 8.4, 8.5, 8.6 and 8.8 shall survive such termination and continue in full force and effect, and (b) nothing herein will relieve any party from liability for any breach of this Agreement prior to such termination. ARTICLE 8 MISCELLANEOUS 8.1 NOTICES. Any notice given hereunder shall be in writing and shall be deemed effective upon the earlier of personal delivery (including personal delivery by facsimile) or the third day after mailing by certified or registered mail, postage prepaid, as follows: (a) If to Buyer: Ticketmaster 3701 Wilshire Boulevard Los Angeles, California 90010 Attention: Jeff Goldstein and Brad Serwin, Esq. Facsimile: (213) 382-6210 with a copy to: 16 Strategic Law Partners LLP 333 South Grand Avenue, Suite 3970 Los Angeles, CA 90071 Attention: Bradley D. Schwartz, Esq. Facsimile: (213) 213-7301 (b) If to Seller: Evite, Inc. 350 Florida Street San Francisco, CA 94110 Attention: Josh Silverman Facsimile: (415) 343-3611 with a copy to: Perkins Coie 101 Jefferson Drive Menlo Park, CA 94025 Attention: Mark Albert, Esq. Facsimile: (650) 838-4350 or to such other address as any party may have furnished in writing to the other parties in the manner provided above. 8.2 ENTIRE AGREEMENT; MODIFICATIONS; WAIVER. This Agreement and the exhibits and schedules hereto and the documents referred to herein between the parties hereto constitute the final, exclusive and complete understanding of the parties with respect to the subject matter hereof and supersede any and all prior agreements, understandings and discussions with respect thereto, including, without limitation, that certain Ticketmaster/Evite.com Term Sheet dated February 2, 2001, by Buyer and Seller. No variation or modification of this Agreement and no waiver of any provision or condition hereof, or granting of any consent contemplated hereby, shall be valid unless in writing and signed by the party against whom enforcement of any such variation, modification, waiver or consent is sought. The rights and remedies available to Buyer and Seller pursuant to this Agreement and all exhibits hereunder shall be cumulative. Upon the Closing, the rights of termination set forth in Article 7 hereof and the conditions set forth in Article 5 shall be deemed to be waived and of no further force or effect. 8.3 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall constitute an original copy hereof, but all of which together shall constitute one agreement. 17 8.4 PUBLICITY. The terms and conditions of this Agreement shall be confidential information and shall not be disclosed to any third party, provided that the parties will mutually approve a press release announcing the Acquisition on a "terms undisclosed" basis; provided, however, the parties may disclose the terms of this Agreement to the extent necessary to obtain the required consents to enter into this Agreement and perform such parties' obligations hereunder, so long as the disclosing party informs the third party in writing that the transaction and the identity of the parties hereto are confidential. If either party determines that it is required by law to disclose information regarding this Agreement or to file this Agreement with any governmental agency or authority, it shall, within a reasonable time before making any such disclosure or filing, consult with the other party regarding such disclosure or filing and seek confidential treatment for such portions of the disclosure or filing as may be requested by the other party. 8.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California as applied to contracts between California without regard to conflict of law provisions. 8.6 FURTHER ASSURANCES. At the request of any of the parties hereto, and without further consideration other than reimbursement of reasonable out-of-pocket expenses, the other parties agree to execute such documents and instruments and to do such further acts as may be necessary or desirable to effectuate the Acquisition, including without limitation, Seller delivering executed UCC termination statements and any other documents necessary to terminate any security interests or liens relating to the Acquisition Assets. In addition, Seller shall use its best efforts to obtain any consents necessary to assign contracts included within the Acquisitions Assets. 8.7 EXPENSES. Any expenses incurred prior to the consummation of the Acquisition (including, without limitation, attorneys' fee and broker's fees) shall be incurred for the incurring party's own account. 8.8 ATTORNEYS' FEES. In the event of any suit or other proceeding to construe or enforce any provision of this Agreement or any other agreement to be entered into pursuant hereto, or otherwise in connection with this Agreement, the prevailing party's or parties' reasonable attorney's fees and costs (in addition to all other amounts and relief to which such party or parties may be entitled) shall be paid by the other party or parties. 8.9 ASSIGNMENT. This Agreement shall not be assigned in whole or in part, by operation of law or otherwise, without the prior written consent of the other party, and any attempted assignment in violation of this Section 8.9 will be void. 8.10 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any rights or remedies upon any person other than Seller and Buyer and their respective successors and permitted assigns. 18 8.11 INSURANCE. Seller shall add Buyer as an additional insured to all insurance policies maintained by Seller. 19 IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date first above written. TICKETMASTER (formerly known as TICKETMASTER ONLINE-CITYSEARCH, INC.) /s/ DAN MARRIOTT ------------------------------------------- Dan Marriott, Executive Vice President EVITE, INC. /s/ JOSH SILVERMAN ------------------------------------------- Josh Silverman, President 20 EX-3.2 3 a2041707zex-3_2.txt EXHIBIT 3.2 EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF TICKETMASTER (F/K/A TICKETMASTER ONLINE-CITYSEARCH, INC.) ARTICLE I OFFICES Section 1. PRINCIPAL OFFICE. The registered office of the Corporation shall be located in the City of Wilmington, County of New Castle, State of Delaware. Section 2. OTHER OFFICES. The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II STOCKHOLDERS Section 1. PLACE OF MEETING. Meetings of stockholders may be held at such place, either within or without the State of Delaware, as may be designated by the Board of Directors. If no designation is made, the place of the meeting shall be the principal office of the Corporation. Section 2. ANNUAL MEETING. The annual meeting of the stockholders shall be held at such date and time as may be fixed by resolution of the Board of Directors. Section 3. SPECIAL MEETINGS. Special meetings of the stockholders may be called by the Chairman of the Board or a majority of the Board of Directors. Section 4. NOTICE. Written notice stating the date, time and place of the meeting, and in case of a special meeting, the purpose or purposes thereof, shall be given to each stockholder of record entitled to vote thereat not less than ten (10) nor more than sixty (60) days prior thereto, either personally or by mail. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the stockholder at his address as it appears on the records of the Corporation. Such further notice shall be given as may be required by law. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Meetings may be held without notice if all stockholders entitled to vote are present, or if notice is waived by those not present in accordance with Article IX of these By-Laws. Any previously scheduled meeting of the stockholders may be postponed, and any special meeting of the stockholders may be canceled, by resolution of the Board of Directors upon public notice given prior to the date previously scheduled for such meeting of stockholders. Section 5. ADJOURNED MEETINGS. The Chairman of the meeting or a majority of the voting power of the shares so represented may adjourn the meeting from time to time, whether or not there is a quorum. When a meeting is adjourned to another time or place, except as required by law, notice of the adjourned meeting need not be given. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. Section 6. QUORUM. The holders of a majority of the voting power of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business; provided, however, if the Certificate of Incorporation of the Corporation or the Delaware General Corporation Law provides that any matter shall be decided by a vote of a certain class or classes of stock, then the holders of a majority of the voting power entitled to vote thereon, present in person or represented by proxy shall constitute a quorum for the transaction of business on such matter. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. If at such adjourned meeting, a quorum shall be present or represented, any business may be transacted that might have been transacted at the meeting as originally notified. When a quorum is present at any meeting, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the matter shall be the act of the stockholders, unless the question is one upon which by express provision of the Delaware General Corporation Law or of the Certificate of Incorporation of the Corporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. The stockholders present at a duly called meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Section 7. VOTING. Each stockholder of record entitled to vote at a meeting of the stockholders shall be entitled to vote in person or by proxy at such meeting each share of the class of capital stock entitled to be voted thereat. Section 8. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS. (A) ANNUAL MEETINGS OF STOCKHOLDERS. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the stockholders may be made at an 2 annual meeting of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this By-Law, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this By-Law. (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1) of this By-Law, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 60th day nor earlier than the close of business on the 90th day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the Corporation. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (A)(2) of this By-Law to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 70 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this By-Law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business 3 on the 10th day following the day on which such public announcement is first made by the Corporation. (B) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this By-Law, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this By-Law. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the stockholder's notice required by paragraph (A)(2) of this By-Law shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. (C) GENERAL. (1) Only such persons who are nominated in accordance with the procedures set forth in this By-Law shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this By-Law. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this By-Law and, if any proposed nomination or business is not in compliance with this By-Law, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this By-Law, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. Notwithstanding the foregoing provisions of this By-Law, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-Law. Nothing in this By-Law shall be 4 deemed to affect any rights (i) of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances. Section 9. PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE. Election of directors at all meetings of the stockholders at which directors are to be elected shall be by ballot, and, subject to the rights of the holders of shares of Common Stock to elect directors under specified circumstances, a plurality of the votes cast thereat shall elect directors. Section 10. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of stockholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of stockholders, the Chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging the duties of an inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of the inspector's ability. The inspectors shall have the duties prescribed by law. The Chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting. Section 11. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum voting power that would be necessary to authorize or take such action at a meeting at which all of the shares entitled to vote thereon were present and voted, provided that prompt notice of such action shall be given to those stockholders who have not so consented in writing to such action without a meeting. ARTICLE III DIRECTORS Section 1. NUMBER AND TENURE. The business and affairs of the Corporation shall be managed by the Board of Directors. The number of directors shall be fixed from time to time pursuant to a resolution adopted by a majority of the Board of Directors or by the stockholders, or by a duly adopted amendment to the Certificate of Incorporation of the Corporation. Each director shall serve a term of one year from the date of his election and until his successor is elected. Directors need not be stockholders. 5 Section 2. RESIGNATION OR REMOVAL. Any director may at any time resign by delivering to the Board of Directors his resignation in writing, to take effect no later than ten days thereafter. Any director or the entire Board of Directors may at any time be removed effective immediately, with or without cause, by the vote, either in person or represented by proxy, of a majority of the voting power of shares of stock issued and outstanding of the class or classes that elected such director and entitled to vote at a special meeting held for such purpose or by the written consent of a majority of the voting power of shares of stock issued and outstanding of the class or classes that elected such director. Section 3. VACANCIES. Vacancies and newly created directorships occurring on the Board of Directors shall be filled in accordance with the Delaware General Corporation Law. The directors so chosen shall hold office until the next annual election and until their respective successors are duly elected. Section 4. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such dates, times and places as may be designated by the Chairman of the Board, and shall be held at least quarterly. Section 5. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board or any two directors. The person or persons calling a special meeting of the Board of Directors may fix a place and time within or without the State of Delaware for holding such meeting. Section 6. NOTICE. Notice of any regular meeting or a special meeting shall be given to each director, either orally, by facsimile or by hand delivery, addressed to each director at his address as it appears on the records of the Corporation. If notice be by facsimile, or given orally (including by telephone) or by hand delivery, such notice shall be deemed to be adequately delivered when the notice is transmitted or given at least 24 hours before such meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice of such meeting. A meeting may be held at any time without notice if all the directors are present or if those not present waive notice of the meeting in accordance with Article IX of these By-Laws. Section 7. QUORUM. At all meetings of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business. Unless otherwise provided in the Certificate of Incorporation of the Corporation or these By-Laws, the act of a majority of the directors present at any meeting at which there is a quorum shall be an act of the Board of Directors. If a quorum is not present at any meeting of the Board of Directors, the directors present may adjourn the meeting from time to time, without notice, until a quorum shall be present. The directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum. A director present at a meeting shall be counted in determining the presence of a quorum, regardless of whether a contract or transaction between the Corporation and any other 6 Corporation, partnership, association, or other reorganization in which such director is a director or officer or has a financial interest, is authorized or considered at such meeting. Section 8. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing and such written consent is filed with the minutes of proceedings of the Board of Directors or committee. Section 9. ACTION BY CONFERENCE TELEPHONE. Members of the Board of Directors or any committee thereof may participate in a meeting of such Board of Directors or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. Section 10. CHAIRMAN OF THE BOARD. The Chairman of the Board shall be chosen from among the Directors. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors, except that, in his absence, he may designate another member of the Board of Directors to so preside. Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board shall not be an officer of the Corporation. The Chairman of the Board shall perform all duties incidental to his office and all such other duties as is properly required of him by the Board of Directors. He shall make reports to the Board of Directors and the stockholders and, together with the Chief Executive Officer of the Corporation, shall see that all orders and resolutions of the Board of Directors and any committee thereof are carried into effect. The Corporation may have one or more Chairmen (if more than one, a "Co-Chair"), each of whom shall possess powers and authority as may be specified by the Board of Directors, which may be the same or different from another Co-Chair. Section 11. COMMITTEES. The Board of Directors, by resolution adopted by a majority of the whole Board of Directors, may designate one (1) or more committees, each committee to consist of two (2) or more directors. The Board of Directors may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in such resolution, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers that may require it, except that no committee shall have the power or authority to amend the Certificate of Incorporation of the Corporation, to adopt an agreement of merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, to recommend to the stockholders a 7 dissolution, to amend the By-Laws of the Corporation, to declare a dividend or to authorize the issuance of stock. Section 12. COMPENSATION OF DIRECTORS. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of committees may be allowed like compensation for attending committee meetings. ARTICLE IV OFFICERS Section 1. Positions. The officers of the Corporation shall consist of a Chief Executive Officer ("CEO"), a President, a Secretary, a Treasurer, and such other officers and assistant officers and agents as may be deemed necessary by the Chairman, CEO or the Board of Directors. Any two (2) or more offices may be held by the same person. Section 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation shall be elected by the Board of Directors and/or by such other persons as may be specified by the Board. Unless otherwise provided in the Certificate of Incorporation of the Corporation or these By-Laws, any officer appointed by the Board of Directors may be removed, with or without cause, at any time by the Board of Directors and/or by such other persons as may be specified by the Board. Each officer shall hold his office until his successor is appointed or until his earlier resignation, removal from office, or death. All officers elected by the Board of Directors shall each have such powers and duties as generally pertain to their respective offices, subject to the specific provisions of this Article IV. Such officers shall also have such powers and duties as from time to time may be conferred by the Board of Directors or by any committee thereof. The Board or any committee thereof may from time to time elect, or the Chairman or CEO may appoint, such other officers (including one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers, and Assistant Controllers) and such agents, as may be necessary or desirable for the conduct of the business of the Corporation. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in these By-Laws or as may be prescribed by the Board or such committee or by the Chairman or CEO, as the case may be. Section 3. THE CHIEF EXECUTIVE OFFICER. The CEO shall be responsible for the general management of the affairs of the Corporation and shall perform all duties incidental to his office. The CEO shall be empowered to sign all certificates, contracts and other instruments of the Corporation, and to do all acts that are authorized by the Board of Directors, and shall, in general, have such other duties and responsibilities as are assigned consistent with the authority of a Chief Executive Officer of a corporation. 8 Section 4. THE PRESIDENT. The President shall have such duties and responsibilities as from time to time may be assigned to him by the Board of Directors, the Chairman or the CEO. The President shall be empowered to sign all certificates, contracts and other instruments of the Corporation, and to do all acts which are authorized by the Board of Directors, the Chairman or the CEO, and shall, in general, have such other duties and responsibilities as are assigned consistent with the authority of a President of a corporation. Section 5. VICE PRESIDENTS. The Board of Directors, the Chairman or the CEO may from time to time name one or more Vice Presidents that may include the designation of Executive Vice Presidents and Senior Vice Presidents all of whom shall perform such duties as from time to time may be assigned to him by the the Board of Directors, the Chairman or the CEO. Section 6. THE SECRETARY. The Secretary shall keep the minutes of the proceedings of the stockholders and the Board of Directors; the Secretary shall give, or cause to be given, all notices in accordance with the provisions of these By-Laws or as required by law, shall be custodian of the corporate records and of the seal of the Corporation, and, in general, shall perform such other duties as may from time to time be assigned by the Board of Directors, the Chairman or the CEO. Section 7. THE TREASURER. The Treasurer or, if one is designated by the Board of Directors, the Chief Financial Officer of the Corporation, shall act as the chief financial officer of the Corporation, shall have the custody of the corporate funds and securities, shall keep, or cause to be kept, correct and complete books and records of account, including full and accurate accounts of receipts and disbursements in books belonging to the Corporation, shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors, and in general shall perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors, the Chairman or the CEO. Section 8. ASSISTANT SECRETARIES. The Assistant Secretaries, if any, in general shall perform such duties as from time to time may be assigned to them by the Secretary or by the Board of Directors, and shall in the absence or incapacity of the Secretary, perform his functions. Section 9. ASSISTANT TREASURERS. The Assistant Treasurers, if any, in general shall perform such duties as from time to time may be assigned to them by the Treasurer or by the Board of Directors, and shall in the absence or incapacity of the Treasurer perform his functions. ARTICLE V CERTIFICATES OF STOCK Section 1. SIGNATURE BY OFFICERS. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman, the 9 CEO or President, if any (or any Vice President), and the Secretary (or an Assistant Secretary) of the Corporation, certifying the number of shares owned by the stockholder in the Corporation. Section 2. FACSIMILE SIGNATURES. The signature of the Chairman, CEO, President, Vice President, Treasurer or Assistant Treasurer, Secretary or Assistant Secretary may be a facsimile. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation. Section 3. LOST CERTIFICATES. The Board of Directors may direct a new certificate(s) to be issued by the Corporation to replace any certificate(s) alleged to have been lost or destroyed, upon its receipt of an affidavit of that fact by the person claiming the certificate(s) of stock to be lost or destroyed. When authorizing such issue of a new certificate(s), the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate(s), or such owner's legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate(s) alleged to have been lost or destroyed. Section 4. TRANSFER OF STOCK. Upon surrender to the Corporation or its transfer agent of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. The Board of Directors may close the stock transfer books of the Corporation for a period of not more than sixty (60) nor less than ten (10) days preceding the date of any meeting of stockholders, or the date for payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect or for a period of not more than sixty (60) nor less than ten (10) days in connection with obtaining the consent of stockholders for any purpose. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date of not more than sixty (60) nor less than ten (10) days preceding the date of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any change, conversion or exchange of capital stock, or to give such consent. In such case and not- withstanding any transfer of any stock on the books of the Corporation after any such record date, such stockholders as shall be stockholders of record on the date so fixed shall 10 be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be. Section 6. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner. Except as otherwise provided by law, the Corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person whether or not it shall have express or other notice thereof. ARTICLE VI CONTRACT, LOANS, CHECKS, AND DEPOSITS Section 1. CONTRACTS. When the execution of any contract or other instrument has been authorized by the Board of Directors without specification of the executing officers, the CEO, the President, any Vice President, the Treasurer or Assistant Treasurer and the Secretary, or any Assistant Secretary, may execute the same in the name of and on behalf of the Corporation and may affix the corporate seal thereto. Section 2. LOANS. No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Section 3. CHECKS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 4. ACCOUNTS. Bank accounts of the Corporation shall be opened, and deposits made thereto, by such officers or other persons as the Board of Directors may from time to time designate. ARTICLE VII DIVIDENDS Section 1. DECLARATION OF DIVIDENDS. Subject to the provisions, if any, of the Certificate of Incorporation of the Corporation, dividends upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or contractual rights, or in shares of the Corporation's capital stock. Section 2. RESERVES. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to 11 meet contingencies or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE VIII FISCAL YEAR The fiscal year of the Corporation shall be established by the Board of Directors. ARTICLE IX WAIVER OF NOTICE Whenever any notice whatsoever is required to be given by law, the Certificate of Incorporation of the Corporation or these By-Laws, a written waiver thereof, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting. ARTICLE X SEAL The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. ARTICLE XI AMENDMENTS Except as expressly provided otherwise by the Delaware General Corporation Law, the Certificate of Incorporation of the Corporation or other provisions of these By-Laws, these By-Laws may be altered, amended or repealed and new By-Laws adopted by action of the Board of Directors. ARTICLE XII INDEMNIFICATION AND INSURANCE Section 1. INDEMNIFICATION. The Corporation shall, to the fullest extent authorized by the General Corporation Law of the State of Delaware as the same exists or may hereafter be 12 amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), indemnify and hold harmless any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, investigation or proceeding, whether civil, criminal or administrative by reason of the fact that he or a person of whom he is the legal representative is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer or employee of another Corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving as a director or officer) against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith; provided, however, that except as provided in this By-Law, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors. The right to indemnification conferred in this By-Law shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition, such advances to be paid by the Corporation within 20 days after the receipt by the Corporation of a statement or statements from the claimant requesting such advance or advances from time to time; provided, however, that if the General Corporation Law of the State of Delaware requires, the payment of such expenses incurred by a director or officer in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this By-Law or otherwise. To obtain indemnification under this By-Law, a claimant shall submit to the Corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Any indemnification (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because he has met the applicable standard of conduct. Upon written request by a claimant for indemnification pursuant to the preceding sentence, a determination, if required by applicable law, with respect to a claimant's entitlement thereto shall be made as follows: (i) by a majority of the Board of Directors who are not parties to such action, suit, investigation or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (iv) 13 by the stockholders of the Corporation. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within 10 days after such determination. If a claim under this By-Law is not paid in full by the Corporation within 20 days after a written claim pursuant to this By-Law has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standard of conduct which makes it permissible under the General Corporation Law of the State of Delaware for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the Corporation (including its Board of Directors or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. If a determination shall have been made pursuant to this By-Law that the claimant is entitled to indemnification, the Corporation shall be bound by such determination in any judicial proceeding commenced pursuant to this By-Law. Furthermore, the Corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to this By-Law that the procedures and presumptions of this By-Law are not valid, binding and enforceable and shall stipulate in such proceeding that the Corporation is bound by all the provisions of this By-Law. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this By-Law shall not be exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any By-Law, agreement, contract, vote of stockholders or disinterested directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification shall be made to the fullest extent permitted by law. No repeal or modification of this By-Law shall in any way diminish or adversely affect the rights of any director or officer of the Corporation (or employee or agent of the Corporation to which rights to indemnification have been granted) hereunder in respect of any occurrence or matter arising prior to any such repeal or modification. The indemnification and advancement of expenses shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, 14 officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and rights to be paid by the Corporation the expenses incurred in defending any proceeding in advance of its final disposition, to any employee or agent of the Corporation to the fullest extent of the provisions of this By-Law with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. If any provision or provisions of this By-Law shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this By-Law (including, without limitation, each portion of any paragraph of this By-Law containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this By-Law (including, without limitation, each such portion of any paragraph of this By-Law containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Any notice, request or other communication required or permitted to be given to the Corporation under this By-Law shall be in writing and either delivered in person or sent by telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the Secretary of the Corporation and shall be effective only upon receipt by the Secretary. Section 2. INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or will be a director, officer, employee or agent of the Corporation, or is or will be a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the General Corporation Law of the State of Delaware. To the extent that the Corporation maintains any policy or policies providing such insurance, each such director or officer, and each such agent or employee to which rights to indemnification have been granted, shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage thereunder for any such director, officer, employee or agent. 15 EX-3.3 4 a2041707zex-3_3.txt EXHIBIT 3.3 EXHIBIT 3.3 - ------------------------------------------------------------------------------- STATE OF DELAWARE OFFICE OF THE SECRETARY OF STATE -------------------------------- I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF "TICKETMASTER ONLINE-CITYSEARCH, INC.", CHANGING ITS NAME FROM "TICKETMASTER ONLINE-CITYSEARCH, INC." TO "TICKETMASTER", FILED IN THIS OFFICE ON THE THIRTY-FIRST DAY OF JANUARY, A.D. 2001, AT 9 O'CLOCK A.M. A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE COUNTY RECORDER OF DEEDS. /s/ HARRIET SMITH WINDSOR ---------------------------------------------- HARRIET SMITH WINDSOR, SECRETARY OF STATE 2544478 8100 AUTHENTICATION: 0947767 010051292 DATE: 01-31-01 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 09:00 AM 01/31/2001 010051292-2544478 CERTIFICATE OF AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF TICKETMASTER ONLINE-CITYSEARCH, INC. A DELAWARE CORPORATION Ticketmaster Online-Citysearch, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does hereby certify as follows: FIRST: That, in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, the Board of Directors of the Corporation duly adopted resolutions setting forth an amendment to the Amended and Restated Certificate of Incorporation of the Corporation (this "Amendment") and deeming this Amendment advisable. SECOND: That this Amendment was approved by written consent of the stockholders pursuant to Section 228 of the General Corporation Law of the State of Delaware. THIRD: That written notice of this Amendment was duly given in accordance with Section 228 of the General Corporation Law of the State of Delaware to stockholders of the Corporation who did not consent to this Amendment. FOURTH: That the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended as follows: (A) Article I of the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety to read as follows: I. The name of the Corporation is Ticketmaster. (B) The first paragraph of Article IV of the Amended and Restated Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety to read as follows: The Corporation is authorized to issue four classes of stock to be designated "Class A Common Stock", "Class B Common Stock,""Class C Common Stock" (the Class A Common Stock, Class B Common Stock and Class C Common Stock are sometimes referred to collectively hereinafter as the "Common Stock") and "Preferred Stock," all of which shall have a par value of $0.01 per share. The total number of shares which the Corporation is authorized to issue is four hundred four million eight hundred and eighty-three thousand and five hundred six (404,883,506). One hundred fifty million (150,000,000) shares shall be Class A Common Stock, two hundred fifty million (250,000,000) shall be Class B Common Stock, two million eight hundred and eighty-three thousand and five hundred six (2,883,506) shall be Class C Common Stock and two million (2,000,000) shares shall be Preferred Stock. IN WITNESS WHEREOF, the Corporation has caused this certificate to be signed by its President and attested to by its Secretary this 23rd day of January, 2001. /s/ John Pleasants ------------------- Name: John Pleasants Title: CEO & President Attest: /s/ Bradley Serwin - ---------------------- Name: Brad Serwin Title: Secretary EX-10.4 5 a2041707zex-10_4.txt EXHIBIT 10.4 EXHIBIT 10.4 TICKETMASTER 1999 STOCK PLAN (AS AMENDED AS OF 02/01/01) 1. PURPOSES OF THE PLAN. The purposes of this 1999 Stock Plan are: - to attract and retain the best available personnel for positions of substantial responsibility, - to provide additional incentive to Employees, Directors and Consultants, and - to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. Stock Purchase Rights may also be granted under the Plan. 2. DEFINITIONS. As used herein, the following definitions shall apply: (a) "ADMINISTRATOR" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "APPLICABLE LAWS" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options or Stock Purchase Rights are, or will be, granted under the Plan. (c) "BOARD" means the Board of Directors of the Company. (d) "CODE" means the Internal Revenue Code of 1986, as amended. (e) "COMMITTEE" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan. (f) "COMMON STOCK" means the Class B Common Stock of the Company. (g) "COMPANY" means Ticketmaster, a Delaware corporation. (h) "CONSULTANT" means any person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity. (i) "DIRECTOR" means a member of the Board. (j) "DISABILITY" means total and permanent disability as defined in Section 22(e)(3) of the Code. (k) "EMPLOYEE" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (m) "FAIR MARKET VALUE" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the day of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, as reported in THE WALL STREET JOURNAL or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Administrator. (n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (o) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (p) "NOTICE OF GRANT" means a written or electronic notice titled Notice of Grant of Stock Options and Option Agreement evidencing certain terms and conditions of an individual Option or Stock Purchase Right grant. The Notice of Grant is part of the Option Agreement. (q) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (r) "OPTION" means a stock option granted pursuant to the Plan. (s) "OPTION AGREEMENT" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (t) "OPTION EXCHANGE PROGRAM" means a program whereby outstanding Options are surrendered in exchange for Options with a lower exercise price. (u) "OPTIONED STOCK" means the Common Stock subject to an Option or Stock Purchase Right. (v) "OPTIONEE" means the holder of an outstanding Option or Stock Purchase Right granted under the Plan. (w) "PARENT" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (x) "PLAN" means this 1999 Stock Plan. (y) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan. -2- (z) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement between the Company and the Optionee evidencing the terms and restrictions applying to stock purchased under a Stock Purchase Right. The Restricted Stock Purchase Agreement is subject to the terms and conditions of the Plan and the Notice of Grant. (aa) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (bb) "SECTION 16(b)" means Section 16(b) of the Exchange Act. (cc) "SERVICE PROVIDER" means an Employee, Director or Consultant. (dd) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan. (ee) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant. (ff) "SUBSIDIARY" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 11,000,000 Shares. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); PROVIDED, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, such Shares shall become available for future grant under the Plan. 4. ADMINISTRATION OF THE PLAN. (a) PROCEDURE. (i) MULTIPLE ADMINISTRATIVE BODIES. The Plan may be administered by different Committees with respect to different groups of Service Providers. (ii) SECTION 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) RULE 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) OTHER ADMINISTRATION. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. -3- (b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value; (ii) to select the Service Providers to whom Options and Stock Purchase Rights may be granted hereunder; (iii) to determine the number of shares of Common Stock to be covered by each Option and Stock Purchase Right granted hereunder; (iv) to approve forms of agreement for use under the Plan; (v) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option or Stock Purchase Right granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options or Stock Purchase Rights may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or Stock Purchase Right or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to reduce the exercise price of any Option or Stock Purchase Right to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option or Stock Purchase Right shall have declined since the date the Option or Stock Purchase Right was granted; (vii) to institute an Option Exchange Program; (viii) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (ix) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (x) to modify or amend each Option or Stock Purchase Right (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; (xi) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (xii) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option or Stock Purchase Right previously granted by the Administrator; (xiii) to make all other determinations deemed necessary or advisable for administering the Plan. (c) EFFECT OF ADMINISTRATOR'S DECISION. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options or Stock Purchase Rights. -4- 5. ELIGIBILITY. Nonstatutory Stock Options and Stock Purchase Rights may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 6. LIMITATIONS. (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option or Stock Purchase Right shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. (c) The following limitations shall apply to grants of Options: (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 500,000 Shares. (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 1,000,000 Shares which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 13. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 13), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. For this purpose, if the exercise price of an Option is reduced, the transaction will be treated as a cancellation of the Option and the grant of a new Option. 7. TERM OF PLAN. Subject to Section 19 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan. 8. TERM OF OPTION. The term of each Option shall be stated in the Option Agreement. In the case of an Incentive Stock Option, the term shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 9. OPTION EXERCISE PRICE AND CONSIDERATION. (a) EXERCISE PRICE. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent -5- or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or other corporate transaction. (b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions which must be satisfied before the Option may be exercised. (c) FORM OF CONSIDERATION. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which (A) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. EXERCISE OF OPTION. (a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full -6- payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 13 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) TERMINATION OF RELATIONSHIP AS A SERVICE PROVIDER. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) DISABILITY OF OPTIONEE. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) DEATH OF OPTIONEE. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance, but only to the extent that the Option is vested on the date of death. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, at the time of death, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Optionee's estate or, if none, by the person(s) entitled to exercise the Option under the Optionee's will or the laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) BUYOUT PROVISIONS. The Administrator may at any time offer to buy out for a payment in cash or Shares an Option previously granted based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. 11. STOCK PURCHASE RIGHTS. (a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing or electronically, by means of a Notice of Grant, of the terms, conditions and restrictions related to the offer, including the number of -7- Shares that the offeree shall be entitled to purchase, the price to be paid, and the time within which the offeree must accept such offer. The offer shall be accepted by execution of a Restricted Stock Purchase Agreement in the form determined by the Administrator. (b) REPURCHASE OPTION. Unless the Administrator determines otherwise, the Restricted Stock Purchase Agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser's service with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock Purchase Agreement shall be the original price paid by the purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option shall lapse at a rate determined by the Administrator. (c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. (d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is exercised, the purchaser shall have the rights equivalent to those of a stockholder, and shall be a stockholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 13 of the Plan. 12. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Unless determined otherwise by the Administrator, an Option or Stock Purchase Right may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option or Stock Purchase Right transferable, such Option or Stock Purchase Right shall contain such additional terms and conditions as the Administrator deems appropriate. 13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET SALE. (a) CHANGES IN CAPITALIZATION. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option and Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) DISSOLUTION OR LIQUIDATION. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. -8- (c) MERGER OR ASSET SALE. In the event of a merger of the Company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding Option and Stock Purchase Right shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the Option or Stock Purchase Right, the Optionee shall fully vest in and have the right to exercise the Option or Stock Purchase Right as to all of the Optioned Stock, including Shares as to which it would not otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes fully vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee in writing or electronically that the Option or Stock Purchase Right shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option or Stock Purchase Right shall terminate upon the expiration of such period. For the purposes of this paragraph, the Option or Stock Purchase Right shall be considered assumed if, following the merger or sale of assets, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option or Stock Purchase Right immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or sale of assets is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock subject to the Option or Stock Purchase Right, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 14. DATE OF GRANT. The date of grant of an Option or Stock Purchase Right shall be, for all purposes, the date on which the Administrator makes the determination granting such Option or Stock Purchase Right, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 15. AMENDMENT AND TERMINATION OF THE PLAN. (a) AMENDMENT AND TERMINATION. The Board may at any time amend, alter, suspend or terminate the Plan. (b) STOCKHOLDER APPROVAL. The Company shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws. (c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Company, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. 16. CONDITIONS UPON ISSUANCE OF SHARES. (a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of an Option or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. -9- 17. INABILITY TO OBTAIN AUTHORITY. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 18. RESERVATION OF SHARES. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 19. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted. Such stockholder approval shall be obtained in the manner and to the degree required under Applicable Laws. -10- TICKETMASTER 1999 STOCK PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the 1999 Stock Plan shall have the same defined meanings in this Stock Option Agreement. I. NOTICE OF STOCK OPTION GRANT As provided by the Company delivered to the employee under separate mailing. TERMINATION PERIOD: This Option may be exercised for three months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for one year after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. II. AGREEMENT 1. GRANT OF OPTION. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant sent under separate cover and referred to in Part I of this Agreement an option to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO"). 2. EXERCISE OF OPTION. (a) RIGHT TO EXERCISE. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (b) METHOD OF EXERCISE. This Option is exercisable by delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to the Option Administrator of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. 3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; (c) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or (d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, AND (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares. 4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 5. TERM OF OPTION. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. 6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Delaware. 7. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. -2- EXHIBIT A TICKETMASTER 1999 STOCK PLAN EXERCISE NOTICE Ticketmaster 790 E. Colorado Blvd., Suite 200 Pasadena, CA 91101 Attention: Secretary 1. EXERCISE OF OPTION. Effective as of today, ________________, 20__, the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Class B Common Stock (the "Common Stock") of Ticketmaster (the "Company") under and pursuant to the 1999 Stock Plan (the "Plan") and the Stock Option Agreement (the "Option Agreement") dated _______________ [enter the date of the option grant here]. The purchase price for the Shares shall be $___________, as required by the Option Agreement. 2. DELIVERY OF PAYMENT. Purchaser herewith delivers to the Company the full purchase price for the Shares. 3. REPRESENTATIONS OF PURCHASER. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. RIGHTS AS STOCKHOLDER. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 13 of the Plan. 5. TAX CONSULTATION. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 1 6. ENTIRE AGREEMENT; GOVERNING LAW. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of Delaware. Submitted by: Accepted by: PURCHASER: TICKETMASTER - ---------------------------------- ------------------------------------- Signature By - ---------------------------------- ------------------------------------- Print Name Its ADDRESS: ADDRESS: 790 E. Colorado Blvd., Suite 200 - --------------------------------- Pasadena, CA 91101 - --------------------------------- ------------------------------------- Date Received 2 EX-10.10 6 a2041707zex-10_10.txt EXHIBIT 10.10 EXHIBIT 10.10 790 COLORADO FIRST AMENDMENT TO OFFICE LEASE THIS FIRST AMENDMENT TO OFFICE LEASE ("First Amendment") is entered as of the 14th day of April, 1997, by and between BPG PASADENA, L.L.C. ("Landlord"), a Delaware Limited Liability Company, and CITYSEARCH, INC. ("Tenant"), a Delaware corporation. THE PARTIES ENTER THIS FIRST AMENDMENT on the basis of the following facts, understandings and intentions: A. Landlord and Tenant entered a 790 Colorado Office Lease ("Lease"), dated as of September 30, 1996, pursuant to which Tenant leased from Landlord a portion of the premises ("Premises") located at 790 East Colorado Blvd., Pasadena, California. All capitalized terms not defined herein shall have the meanings ascribed to them in the Lease. B. Landlord and Tenant desire to amend the Lease to extend the Lease Expiration Date and the termination right by four (4) months. NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. TERM EXPIRATION DATE. The term expiration date is March 31, 2002. 2. TERMINATION CLAUSE. Lessee may terminate the Lease after 40 months, subject to: (a) no material default of Lease; (b) nine (9) months prior written notice; (c) payment of five (5) months Base Rental; and (d) payment of all unamortized Lessee improvement provided by Lessor and unamortized Lease commissions paid by Lessor at 12% interest rate. The Lease Commencement Date was November 15, 1996 making the first effective date that the Lease can be terminated as March 16, 2000. 3. FULL FORCE AND EFFECT. Except as amended hereby, the terms, covenants and conditions contained in the Lease shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment as of the date first above written. "Lessor" BPG PASADENA, L.L.C., a Delaware Limited Liability Company By: /s/ Michael D. Barber ---------------------------------- Its: Managing Member "Lessee" CITYSEARCH, INC. a Delaware Corporation By: /s/ Bradley Ramberg ---------------------------------- Its: CFO 5/6/97 ------------------------------ EX-10.11 7 a2041707zex-10_11.txt EXHIBIT 10.11 EXHIBIT 10.11 LEASE AMENDMENT NO. TWO Lease Amendment No. Two to be attached to and form a part of that lease (which together with any amendments, modifications and extensions thereof is hereinafter called the "Lease") made on the 30th day of September, 1996 between SPIEKER PROPERTIES L.P., a California limited partnership (successor in interest to BPG Pasadena, L.L.C., a Delaware Limited Liability Company) as Landlord and CITYSEARCH, INC., a Delaware Corporation, as Tenant, for the premises commonly known as 790 East Colorado Boulevard, Pasadena, CA 91101 (the "Project"). Effective December 1, 1998, the above described Lease shall be modified as follows: RENTABLE AREA. Upon the effective date of December 1, 1998 through March 31, 2002, Tenant's Rentable area shall also include the Premises (approximately 2,491 rentable square feet), commonly known as 790 East Colorado Blvd., Suite 103, Pasadena, CA 91101 (the "Project"), as shown outlined in red on the attached Exhibit "A". Therefore from December 1, 1998 through March 31, 2002, Tenant's total Rentable Area shall be 30,053 rentable square feet. RIGHT TO PRIOR OCCUPANCY. Tenant has requested early occupancy and use of the Expansion Space on an intermittent basis during the period from October 1, 1998 through October 25, 1998. Landlord is willing to permit such early occupancy and use. Such early occupancy and use by Tenant shall be on all the terms and conditions set forth in the Lease, as amended hereby, except that the rent owed by Tenant for the Expansion Space during such early occupancy period shall be $2,366.50. Tenant agrees to surrender possession of the Expansion Space to Landlord immediately following the end of such early occupancy period, so that Landlord can perform its improvement work as described below. Tenant acknowledges that as a result of such early occupancy by Tenant, Landlord will not be able to commence the improvements to the Expansion Space required of Landlord pursuant to TENANT IMPROVEMENTS Section herein ("Landlord's Work") until on or after October 26, 1998, that such improvements will take approximately eight weeks, or more, to complete, and that it may not be practical or cost-effective to schedule such work over the Thanksgiving weekend or during the period from the day before Christmas through New Year's Day. Accordingly, Tenant agrees that Tenant's regular monthly obligations for rent and rent escalation's for the Expansion Space as described in BASIC MONTHLY RENTAL shall commence on December 1, 1998, irrespective of the fact that Landlord has not then completed Landlord's Work and tendered possession of the Expansion Space back to Tenant. Landlord agrees to complete Landlord's Work as soon as practical on a commercially reasonable basis, as determined by Landlord in its reasonable discretion, but without any obligation to incur liability for overtime or other premium payments. In the event that Landlord does not complete Landlord's Work and tender possession of the Expansion Space to Tenant by January 1, 1999, then Tenant shall be entitled to an equitable abatement of rent and rent escalation's for the Expansion Space, as reasonably calculated by Landlord for the number of days of such delay after January 1, 1999, until the date that Landlord does complete Landlord's Work and tender possession of the Expansion Space to Tenant; provided, however, that Tenant shall receive no such rental abatement for any portion of such delay that was caused by the acts or omissions of Tenant. Such rental abatement shall be Tenant's sole and exclusive remedy for any delay by Landlord in completing Landlord's Work and tendering possession of the Expansion Space to Tenant. BASIC MONTHLY RENTAL. The Basic Monthly Rental shall increase to the following amounts to reflect the inclusion of the Premises:
Current New Total $/Sq.Ft ------- --- ----- ------- December 1, 1998-October 31, 1999 $46,855.40 $4,733.00 $51,588.40 $1.72 November 1, 1999-November 30, 1999 $47,590.38 $4,733.00 $52,323.39 $1.74 December 1, 1999-September 30, 2000 $48,233.50 $4,733.00 $52,966.50 $1.76 October 1, 2000-March 31, 2002 $48,233.50 $5,232.50 $53,465.50 $1.78
TENANT'S PERCENTAGE SHARE OF OPERATING COSTS AND TAXES. The Premises constitutes 1.91% of the total rentable area of the Building. As of December 1, 1998, Tenant's percentage share of operating costs and taxes shall be increased by 1.91%. Tenant's new prorata share as of December 1, 1998 shall be 23.01%. BASE YEAR FOR OPERATING EXPENSES AND TAXES. Base Year for the additional Premises (Suite 103) shall be calendar year 1999. TENANT IMPROVEMENTS: Landlord shall build out the space based on the floor plan (Suite 103) revised 09/29/98. Such floor plan is attached hereto as Exhibit "B." All materials shall be building standard unless noted on the Exhibit "B." Tenant shall contribute $30,000.00 towards the build out of the space; $15,000.00 upon the execution of the lease and $15,000.00 upon tenant move-in. In the event Tenant causes construction delays for whatever reason, Tenant shall be solely responsible for the costs incurred for such construction delays. If Tenant requests any change(s) in the Exhibit "B," and any such requested changes are approved by Landlord in writing in Landlord's sole discretion, Landlord shall advise Tenant promptly of any cost increase and/or delays such approved change(s) will cause in the construction of the Tenant Improvements. Tenant shall approve or disapprove any or all such change(s) within three (3) business days after notice from Landlord of such cost increases and/or delays. To the extent Tenant disapproves any such cost increase and/or delay attributable thereto, Landlord shall have the right, in its sole discretion, to disapprove Tenant's request for any changes to the approved Plans. If the cost of the Tenant Improvements increases due to any changes in the Plan(s) requested by Tenant, Tenant shall pay Landlord the amount of such increase within three (3) business days after notice from Landlord of such increase and Tenant's approval thereof in accordance with this Paragraph. Tenant shall be responsible for the purchase, installation and maintenance of any workstations, partitions, telephone and/or computer cabling and equipment. Tenant shall also be responsible for any additional electrical load that is required that is not considered building standard. Existing window coverings shall remain. Landlord shall install the following additional one time improvements written below. Landlord shall pay one-half (1/2) of the total cost of below improvements and Tenant shall pay (1/2) one-half of the total cost of the below improvements. Tenant shall pay their one-half (1/2) of their improvements cost prior to the commencement of the additional tenant improvements and the balance will be paid at the completion of the tenant improvements: o Install one (1) security access system on the Storage Room wall next to the Storage Room door of the Premises. o Install one (1) security access system on the entrance to Suite 103. PARKING: Tenant shall be allowed an additional TEN (10) unreserved parking spaces at the Building's prevailing rate. As of the commencement date of this Lease Amendment, Tenant shall have a total of one hundred twenty (120) unreserved parking spaces. BUILDING DIRECTORY: Tenant shall be allowed space on the Building's Directory Board to list the company name, at Landlord's one-time sole cost and expense. SIGNAGE: Tenant shall be allowed to have one (1) building standard sign installed on the double glass door of their Premises, at Tenant's sole cost and expense. All other terms and conditions of the Lease to remain the same. IN WITNESS WHEREOF, the parties hereto have signed and sealed this Lease Amendment No. Two as dated below. LANDLORD: SPIEKER PROPERTIES L.P., a California limited partnership By: Spieker Properties, Inc., a Maryland corporation Its: General Partner By: /s/ Jeffrey K. Nickell -------------------------------- Jeffrey K. Nickell Vice President Dated: 10-6-98 ----------------------------- TENANT: CITYSEARCH, INC., a Delaware Corporation By: /s/ Bradley Ramberg -------------------------------- Bradley Ramberg CFO Date: 10/05/98 ------------------------------ EX-10.12 8 a2041707zex-10_12.txt EXHIBIT 10.12 EXHIBIT 10.12 LEASE AMENDMENT NO. THREE Lease Amendment No. Three to be attached to and form a part of that lease (which together with any amendments, modifications and extensions thereof is hereinafter called the "Lease") made on the 30th day of September, 1996 between SPIEKER PROPERTIES L.P., a California limited partnership (successor in interest to BPG Pasadena, L.L.C., a Delaware Limited Liability Company) as Landlord and CITYSEARCH, INC., a Delaware Corporation, as Tenant, for the premises commonly known as 790 East Colorado Boulevard, Pasadena, CA 91101 (the "Project"). The above described Lease shall be modified as follows: CANCELLATION OF AMENDMENT NO. TWO. It is hereby agreed and understood that, after full execution and upon its commencement, this Lease shall cancel and supersede that certain Amendment between Spieker Properties, L.P., as Landlord, and Citysearch, Inc., as Tenant, for premises located at 790 East Colorado Boulevard, Pasadena, CA 91101, Suite 103, provided that (i) Tenant is not, and has not been, in default of the terms of the Prior Amendment; (ii) all financial obligations of Tenant under the Prior Amendment are paid through December 31, 1998. RENTABLE AREA. Upon the effective date of January 1, 1999 through March 31, 2002, Tenant's Rentable Area shall also include the Premises (approximately 3,094 rentable square feet), commonly known as 790 East Colorado Blvd., Suite 102, Pasadena, CA 91101 (the "Project"), as shown outlined in red on the attached Exhibit "A". Therefore from January 1, 1999 through March 31, 2002, Tenant's total Rentable Area shall be 30,656 rentable square feet. PRIOR RIGHT OF OCCUPANCY. It is hereby agreed that, notwithstanding anything to the contrary contained in the lease, Tenant may occupy the Premises upon Landlord moving out of Suite 102 and into Suite 103, subject to all of the terms and conditions of the Lease including payment of Rent and Operating Expenses, which shall be prorated from the date of occupancy. BASIC MONTHLY RENTAL. The Basic Monthly Rental shall increase to the following amounts to reflect the inclusion of the Premises:
Current New Total $/Sq. Ft. ------- --- ----- --------- January 1, 1999 - October 31, 1999 $46,855.40 $6,280.00 $53,135.40 $1.73 November 1, 1999 - November 30, 1999 $47,590.38 $6,280.00 $53,870.38 $1.76 December 1, 1999 - September 30, 2000 $48,233.50 $6,280.00 $54,513.50 $1.78 October 1, 2000 - March 31, 2002 $48,233.50 $6,890.00 $55,123.50 $1.80
In addition, Tenant must pay Landlord a one-time fee of $25,000.00 as additional rent. $12,500.00 shall be due and payable upon execution of Amendment No. Three; the remaining $12,500.00 shall be due the date Suite 102 is available for occupancy. TENANT'S PERCENTAGE SHARE OF OPERATING COSTS AND TAXES. The Premises constitutes 2.37% of the total rentable area of the Building. As of January 1, 1999, Tenant's percentage share of operating costs and taxes shall be increased by 2.37%. Tenant's new prorata share as of January 1, 1999 shall be 23.47%. BASE YEAR FOR OPERATING EXPENSES AND TAXES. Base Year for the additional Premises (Suite 102) shall be calendar year 1999. TENANT IMPROVEMENTS: Tenant accepts the Premises in its "as-is" condition and acknowledges that Landlord has no obligation to make any changes or improvements to the Premises or to pay any costs expended or to be expended in connection with any such changes or improvements. In the event Tenant requires tenant improvements, all such improvements must be paid for by Tenant and approved by Landlord using Building Standard materials and colors and in the Building Standard manner. As used herein, "Building Standard" shall mean the standards for a particular item selected from time to time by Landlord for the Building or such other standards as may be mutually agreed upon between Landlord and Tenant in writing. PARKING: Tenant shall be allowed an additional TEN (10) unreserved parking spaces at the Building's prevailing rate. As of the commencement date of this Lease Amendment, Tenant shall have a total of one hundred twenty (120) unreserved parking spaces. BUILDING DIRECTORY: Tenant shall be allowed space on the Building's Directory Board to list the company name, at Landlord's one-time sole cost and expense. ADDITIONAL EXPANSION PREMISES ADDITIONAL EXPANSION PREMISES. Provided that the existing tenant of Suite 101 vacates by December 31, 1999, Tenant agrees to lease Suite 101 at the time it is made available to Landlord. Upon such date as the space is made available to Landlord through March 31, 2002, Tenant's Rentable Area shall also include the Additional Premises (approximately 2,638 rentable square feet), commonly known as 790 East Colorado Blvd., Suite 101, Pasadena, CA 91101 (the "Project"), as shown outlined in green on the attached Exhibit "B". Therefore from such date as the space is made available to Landlord through March 31, 2002, Tenant's total Rentable Area shall be 33,294 rentable square feet. BASIC MONTHLY RENTAL. The Basic Monthly Rental shall increase to the following amounts to reflect the inclusion of the Suite 101:
Current New Total $/Sq. Ft. ------- --- ----- --------- Available Date - October 31, 1999 $53,135.40 $5,276.00 $58,411.40 $1.75 November 1, 1999 - November 30, 1999 $53,870.38 $5,276.00 $59,146.38 $1.78 December 1, 1999 - September 30, 2000 $54,513.50 $5,276.00 $59,789.50 $1.80 October 1, 2000 - March 31, 2002 $55,123.50 $5,810.00 $60,933.50 $1.83
TENANT'S PERCENTAGE SHARE OF OPERATING COSTS AND TAXES. The Premises constitutes 2.02% of the total rentable area of the Building. As of such date as the space is made available to Landlord, Tenant's percentage share of operating costs and taxes shall be increased by 2.02%. Tenant's new prorata share as of such date as the space is made available shall be 25.49%. BASE YEAR FOR OPERATING EXPENSES AND TAXES. In the event the lease commences on or before June 30, 1999 the Base Year for the additional Premises (Suite 101) shall be calendar year 1999. In the event the lease commences July 1, 1999 or after, the Base Year for the additional Premises (Suite 101) shall be calendar year 2000. PARKING: Tenant shall be allowed an additional EIGHT (8) unreserved parking spaces at the Building's prevailing rate. As of such date as the space is made available, Tenant shall have a total of one hundred twenty-eight (128) unreserved parking spaces. TENANT IMPROVEMENTS: Tenant accepts Suite 101 in its "as-is" condition and acknowledges that Landlord has no obligation to make any changes or improvements to Suite 101 or to pay any costs expended or to be expended in connection with any such changes or improvements except Landlord shall paint Suite 101 using Building Standard colors and materials and shall remove the demising wall between Suite 102 and Suite 101. In the event Tenant requires additional tenant improvements, all such improvements must be paid for by Tenant and approved by Landlord using Building Standard materials and in the Building Standard manner. As used herein, "Building Standard" shall mean the standards for a particular item selected from time to time by Landlord for the Building or such other standards as may be mutually agreed upon between Landlord and Tenant in writing. BUILDING DIRECTORY: Tenant shall be allowed space on the Building's Directory Board to list the company name, at Landlord's one-time sole cost and expense. All other terms and conditions of the Lease to remain the same. IN WITNESS WHEREOF, the parties hereto have signed and sealed this Lease Amendment No. Two as dated below. LANDLORD: SPIEKER PROPERTIES L.P., a California limited partnership By: Spieker Properties, Inc., a Maryland corporation Its: General Partner By: ----------------------------- Jeffrey K. Nickell Vice President Date: ---------------------------- TENANT: CITYSEARCH, INC., a Delaware Corporation By: /s/ Bradley Ramberg ------------------------------ Bradley Ramberg CFO Date: 11/14/98 ---------------------------- EX-10.13 9 a2041707zex-10_13.txt EXHIBIT 10.13 EXHIBIT 10.13 LEASE AMENDMENT NO. FOUR Lease Amendment No. Four dated July 9, 1999 to be attached to and form a part of that lease (which together with any amendments, modifications and extensions thereof is hereinafter called the "Lease") made on the 30th day of September, 1996 between SPIEKER PROPERTIES L.P., a California limited partnership (successor in interest to BPG Pasadena, L.L.C., a Delaware Limited Liability Company) as Landlord and TICKETMASTER ONLINE-CITYSEARCH, INC., a Delaware corporation, (successor in interest to CitySearch, Inc., a Delaware corporation) as Tenant, for the premises commonly known as 790 East Colorado Boulevard, Pasadena, CA 91101 (the "Project"). The above described Lease shall be modified as follows: RENTABLE AREA: Commencing September 1, 1999 through March 31, 2002, Tenant's Rentable Area shall also include the entire fourth floor (approximately 13,666 rentable square feet) commonly designated as Suite 400 and that portion of the fifth floor (approximately 1,999 rentable square feet) commonly designated as Suite 508 of the Project. These Premises (totaling approxmiately 15,665 rentable square feed) are more specifically outlined in red on the attached Exhibits "A1" and "A2". Therefore from September 1, 1999 through March 31, 2002, Tenant's total Rentable Area shall be 46,321 rentable square feet. OCCUPANCY OF PREMISES: It is hereby agreed that, if the above described fourth and fifth floor Premises become available to Tenant prior to September 1, 1999, this Lease Amendment No. Four shall commence one day thereafter. All terms and conditions of this Lease Amendment No. Four, including that of rental obligations, shall commence thereon. In the event the Premises are not available until after September 1, 1999, Tenant shall have the right to terminate this Lease Amendment No. Four. If Tenant elects to terminate this Lease Amendment No. Four, Tenant shall provide Landlord with written notice no later than one (1) day after Landlord notifies Tenant that the Premises will not be available until after September 1, 1999. In the event Tenant elects to occupy the premises after September 1, 1999, all the terms and conditions of this Lease Amendment No. Four, including that of rental obligations, shall commence one day after the Premises become available. BASIC MONTHLY RENTAL: The Basic Monthly Rental shall be increased to reflect the inclusion of these Premises. Therefore, the new rent schedule shall be as follows:
Period Current New Total - ------------------------------------------------------------------------------------------ Commencement - October 31, 2000 $53,135.40 $30,080.00 $83,215.40 November 1, 1999 - November 30, 1999 $53,870.38 $30,080.00 $83,950.38 December 1, 1999 - August 31, 2000 $54,513.50 $30,080.00 $84,593.50 September 1, 2000 - September 30, 2000 $54,513.50 $31,645.00 $86,158.50 October 1, 2000 - August 31, 2001 $55,123.50 $31,645.00 $86,768.50 September 1, 2001 - March 31, 2002 $55,123.50 $32,740.00 $87,863.50
TENANT'S PERCENTAGE SHARE OF OPERATING COSTS AND TAXES: The Premises constitutes 12% of the total rentable area of the Building. As of the commencement of this Lease Amendment No. Four, Tenant's percentage share of operating costs and taxes shall be increased by 12% to a total of 35.47%. BASE YEAR FOR OPERATING EXPENSES AND TAXES: Base Year for these additional Premises (Suites 400 and 508) shall be calendar year 1999. TENANT IMPROVEMENTS: Tenant accepts the Premises in its "as-is" condition. However, subject to Tenant's presenting to Landlord paid invoices for improvements performed to these Premises, Landlord shall pay Tenant the sum of $62,660 on or within 30 days from September 30, 2001. All improvements must be paid for by Tenant and approved by Landlord using Building Standard materials and colors and in the Building Standard manner. As used herein, "Building Standard" shall mean the standards for a particular item selected from time to time by Landlord for the Building or such other standards as may be mutually agreed upon between Landlord and Tenant in writing. PARKING: Tenant shall be allowed an additional forty-eight (48) unreserved parking spaces at the Building's prevailing rate. As of the commencement of this Lease Amendement, Tenant shall have a total of one hundred and sixty-eight (168) unreserved parking spaces. RESTORATION: Notwithstanding the terms set forth in Article 14 of the Lease, provided Tenant installs Landlord approved tenant improvements and provided the floor-plan is the same as Tenant's open floor plan on the second floor and third floor of the Project, Tenant shall not be required to restore the premises to the configuration upon which Tenant initially occupied the Premises. LEASE EXECUTION: In the event Landlord does not return a fully executed copy of this Lease Amendment No. Four to tenant within three (3) business days after Landlord's receipt of signed copies from Tenant, Tenant shall have the right to terminate this Lease Amendment No. Four by notifying Landlord in writing no later than four (4) business days after Landlord's receipt of signed copies from Tenant. CONTINGENCY: Tenant understands that these Premises are currently leased to other tenants. At such, this Lease Amemdment No. Four is contingent upon Landlord's successful termination of the existing leases on Suites 400, 508, and 700. All other terms and conditions of the Lease to remain the same. IN WITNESS WHEREOF, the parties hereto have signed and sealed this Lease Amendment No. Four as dated below. LANDLORD: SPIEKER PROPERTIES L.P., a California limited partnership By: Spieker Properties, Inc., a Maryland corporation Its: General Partner By: /s/ John Davenport ------------------------------------- John Davenport Regional Senior Vice President Date: 7/14/99 ----------------------------------- TENANT: TICKETMASTER ONLINE CITYSEARCH, INC., a Delaware corporation By: /s/ Tom McInerney ------------------------------------- Tom McInerney Chief Financial Officer Date: 7/12/99 ----------------------------------- EX-10.14 10 a2041707zex-10_14.txt EXHIBIT 10.14 EXHIBIT 10.14 LEASE AMENDMENT NO. FIVE Lease Amendment No. Five dated August 13, 1999 to be attached to and form a part of that lease (which together with any amendments, modifications and extensions thereof is hereinafter called the "Lease") made on the 30th day of September, 1996 between SPIEKER PROPERTIES L.P., a California limited partnership (successor in interest to BPG Pasadena, L.L.C., a Delaware Limited Liability Company) as Landlord and TICKETMASTER ONLINE - CITYSEARCH, INC., a Delaware corporation, (successor in interest to CitySearch, Inc., a Delaware corporation) as Tenant, for the premises commonly known as 790 East Colorado Boulevard, Pasadena, CA 91101 (the "Project"). The above described Lease shall be modified as follows: RENTABLE AREA: Commencing September 1, 1999 through March 31, 2002, Tenant's Rentable Area shall also include that portion of the fifth floor (approximately 1,873 rentable square feet) commonly designated as Suite 500 of the Project. The Premises are more specifically outlined in red on the attached Exhibit "A." Therefore from September 1, 1999 through March 31, 2002, Tenant's total Rentable Area shall be 48,194 rentable square feet. BASIC MONTHLY RENTAL: The Basic Monthly Rental shall be increased to reflect the inclusion of these Premises. Therefore, the new rent schedule shall be as follows:
Period Current New Total - -------------------------------------------------------------------------- Commencement - October 31, 1999 $83,215.40 $3,840.00 $87,055.40 November 1, 1999 - November 30, 1999 $83,950.38 $3,840.00 $87,790.38 December 1, 1999 - August 31, 2000 $84,593.50 $3,840.00 $88,433.50 September 1, 2000 - September 30, 2000 $86,158.50 $3,840.00 $89,998.50 October 1, 2000 - August 31, 2001 $86,768.50 $4,030.00 $90,798.50 September 1, 2001 - March 31, 2002 $87,863.50 $4,030.00 $91,893.50
TENANT'S PERCENTAGE SHARE OF OPERATING COSTS AND TAXES: The Premises constitutes 1.51% of the total rentable area of the Building. As of the commencement of this Lease Amendment No. Four, Tenant's percentage share of operating costs and taxes shall be increased by 1.45% to a total of 36.92%. BASE YEAR FOR OPERATING EXPENSES AND TAXES: Base Year for the additional Premises (Suite 500) shall be calendar year 1999. TENANT IMPROVEMENTS: Tenant accepts the Premises in its "as-is" condition. However, subject to Tenant's presenting to Landlord paid invoices for improvements performed to these Premises, Landlord shall pay Tenant the sum of $7,492.00 on or within 30 days from September 30, 2001. All improvements must be paid for by Tenant and approved by Landlord using Building Standard materials and colors and in the Building Standard manner. As used herein, "Building Standard" shall mean the standards for a particular item selected from time to time by Landlord for the Building or such other standards as may be mutually agreed upon between Landlord and Tenant in writing. PARKING: Tenant shall be allowed an additional six (6) unreserved parking spaces at the Building's prevailing rate. As of the commencement of this Lease Amendment, Tenant shall have a total of one hundred and seventy-four (174) unreserved parking spaces. All other terms and conditions of the Lease to remain the same. IN WITNESS WHEREOF, the parties hereto have signed and sealed this Lease Amendment No. Five as dated below. LANDLORD: SPIEKER PROPERTIES L.P., a California limited partnership By: Spieker Properties, Inc., a Maryland corporation Its: General Partner By: /s/ Jeffrey K. Nickell ----------------------------- Jeffrey K. Nickell Vice President Date: 9-3-99 --------------------------- TENANT: TICKETMASTER ONLINE - CITYSEARCH, INC., a Delaware corporation By: /s/ Bradley Serwin ----------------------------- Bradley Serwin General Counsel Date: 9/1/99 --------------------------- EX-10.15 11 a2041707zex-10_15.txt EXHIBIT 10.15 OFFICE LEASE AGREEMENT CARDINAL SHILOH 190 II, INC. LESSOR TICKETMASTER ONLINE CITYSEARCH, INC. LESSEE 31,311 Square Feet 3001 E. President George Bush Highway Suite 100 Richardson, Texas 75082 OFFICE LEASE AGREEMENT THIS LEASE AGREEMENT, made and entered into by and between Cardinal Shiloh 190 II, Inc. a Texas corporation as ""Lessor", and Ticketmaster Online-CitySearch, Inc. a Delaware corporation as ""Lessee": WITNESSETH; 1. PREMISES, COMMON AREA AND TERM. A. In consideration of the mutual obligations of Lessor and Lessee set forth herein, Lessor leases to Lessee, and Lessee hereby takes from Lessor the approximately 31,311 rentable square feet (which number is the final agreement of the parties and not subject to adjustment) more particularly outlined on the floor plan attached as Exhibit A-1 (the "Premises"), which Premises are part of that approximately 120,000 square foot (which number is the final agreement of the parties and not subject to adjustment) building (the "Building") located on the real property situated within the County of Collin, State of Texas, which real property is more particularly described on Exhibit A attached hereto and incorporated herein by reference (the "Land") together with all rights, privileges, easements, appurtenances, and amenities belonging to or in any way pertaining to the Premises, to have and to hold, subject to terms, covenants and conditions in this Lease. B. The term of this Lease shall begin on the Effective Date of this Lease (as defined in paragraph 22J) and shall end on the last day of the calendar month that is Sixty (60) full calendar months after the Rent Commencement Date. C. The Rent Commencement Date shall be the earlier of (i) the date Lessee occupies the Premises to conduct business or (ii) later of March 1, 2000 or ten (10) days after Lessor completes the Base Improvements provided if Lessee elects to Base Self Cure then provisions of Paragraph 1F will be used to determine the Rent Commencement Date. D. Lessee agrees to use all reasonable efforts to provide and construct the interior improvements in the Premises, in accordance with the plans and specifications described on Exhibit B-1 ("Leasehold Improvements"), on or before 120 days after the Effective Date. Lessor agrees to pay for cost of the Leasehold Improvements to the extent of the available Finishout Allowance in accordance with the terms and provisions of 1 Lessor MRM ------- Lessee TM ------- Exhibit B-4. All Leasehold Improvements shall be owned by Lessor and shall remain in the Premises at the expiration or earlier termination of this Lease. E. Lessor has provided and constructed, at its sole cost and expense, the lobbies, restrooms, stairs, main electric room and elevator improvements, in accordance with the plans and specifications described on Exhibit B-2 ("Common Area Improvements"). The lobbies, restrooms, stair, main electric room and elevator areas described and included in Exhibit B-2 are known as the "Common Area". Lessor shall have the right to modify the Common Area provided such changed Common Area provides substantially the same function to Lessee as required in this Lease. F. Lessor agrees to provide and construct, at its sole cost and expense, the "Base Improvements" as shown on Exhibit B-3 on or before 80 days after the Effective Date. Lessor agrees to pay for cost of the Base Improvements. All Base Improvements shall be owned by Lessor and shall remain in the Premises at the expiration or earlier termination of this Lease. If Lessor has not Substantially Completed the Exhibit B-3 Base Improvements on or before 95 days after the Effective Date (the "Final Required Completion Date") then Lessee shall have the right to either (i) promptly complete the Base Improvements and Lessor will reimburse Lessee for 110% of the reasonable actual cost incurred by Lessee to complete the Base Improvements "Base Self Cure" or (ii) declare this Lease null and void by notifying Lessor in writing of its intent on or before five (5) days after the Final Required Completion Date and receive back all prepaid Base Rent "Base Terminate Cure". Lessee's right to either Base Self Cure or Base Terminate Cure for failure of Lessor to Substantially Complete the Improvements on or before the Final Required Completion Date will be Lessee's sole remedy. If Lessee elects to Base Self Cure then the Rent Commencement Date shall be the earlier of (i) the date Lessee occupies the Premises to conduct business or (ii) April 1, 2000. If Substantial Completion of the Base Improvements is delayed due to reasons caused by Lessee then the Final Required Completion Date shall be extended paripassu. In addition if the building permit from the City of Richardson to construct the Base Improvements is not issued within 10 days after the Effective Date (due to reasons other than Lessor's negligence or willful misconduct), then the Final Required Completion Date shall be extended paripassu up to a maximum of 10 days. As used herein, the term "Substantially Complete", "Substantially Completed" or "Substantial Completion" shall mean that the Base Improvements have been completed in accordance with the Base Improvements plans and the Base Improvements are in good and satisfactory condition, subject only to completion of punch list items. If requested by Lessor, Lessee will provide Lessor with a written acknowledgment regarding the status of Lessee's rights pursuant to this Paragraph. G. Lessor and Lessee agree that the preparation of the Leasehold Improvement plans to be attached to this Lease as Exhibit B-1 will be prepared in accordance with the Work Agreement attached to this Lease as Exhibit B-4. In addition Lessor and Lessee agree to comply with the provisions of Exhibit B-4 regarding the Finishout Allowance by Lessor and obligations by Lessee. Lessor and Lessee agree that all work, materials and equipment for the Leasehold Improvements and Base Improvements including without limitation HVAC equipment, electric service from the main panel and all other electrical work in the Premises, plumbing, walls, ceilings, lights, doors, floor coverings, window treatments, lowering and addition of fire sprinkler heads and any other work required for Lessee's occupancy will (i) comply with City of Richardson Fire and Building Codes, State of Texas Accessibility Standards and Americans with Disability Act Title III legislation, (ii) be designed so as not to alter the structural integrity of the Building or the exterior aesthetics or design of the Building and (iii) be subject to the approval of Lessor, which shall not be unreasonably withheld. Lessee agrees that the specifications for Exhibit B-1 will require that (i) the doors and door hardware will be consistent with the doors and door hardware specified in Exhibit B-2; (ii) the hallway widths will be a minimum of 5'; (iii) the office sizes will be a minimum of 120 sq.ft.; (iv) the carpet will have a minimum weight of 28 ounces per sq.yd.; (v) the fire sprinkler heads will be semi-recessed; (vi) the fire extinguishers cabinets will be semi recessed wall mounted and (vii) the HVAC systems in the Premises will be consistent with the reasonable Building standards established by Lessor. 2 Lessor MRM ------- Lessee TM ------- H. Lessor and Lessee agree that HOK will serve as the architect ("Architect") for (i) Leasehold Improvements space planning and (ii) preparation of the Leasehold Improvements construction plans to be attached to this Lease as Exhibit B-1 (collectively (i) and (ii) are known as the "Finish Plans". Lessor and Lessee agree that HOK will serve as the MEP Engineer("MEP Engineer") for preparation of the MEP sections of the Finish Plans. The MEP Engineer will be required to have the MEP sections of the Finish Plans prepared and sealed by a State of Texas Registered Engineer. Lessee agrees to contract with and pay the Architect and the MEP Engineer for the Finish Plans preparation and any associated work or costs. The costs for preparation of the Finish Plans are considered "Architect Fees" and "MEP Fees" and will be reimbursed to Lessee by Lessor to the extent of the available Finishout Allowance after the Leasehold Improvements cost in accordance with the terms and provisions of Exhibit B-4. 2. BASE RENT and EXPENSES. A. Beginning on the Rent Commencement Date Lessee agrees to pay to Lessor Base Rent for the Premises, in advance, without demand, deduction or set off, at the rate of $44,018 per month. The first monthly installment shall be due and payable in advance on the date hereof and a like monthly installment shall be due and payable on or before the first day of each subsequent calendar month succeeding the Rent Commencement Date, except that all payments due hereunder for any fractional calendar month shall be prorated. B. Lessee agrees to pay as additional rent, its Proportionate Share (as defined in Paragraph 22B below) of Taxes (hereinafter defined) payable by Lessor pursuant to Paragraph 3A which are above the "Base Year Tax Expenses". The Base Year Tax Expenses are equal to the product obtained by multiplying the actual City of Richardson, Collin County and Plano ISD combined tax rate applicable to the Building for year 2000 times the greater of (i) the actual final (following such appeals as may be pursued by the Lessor by appropriate procedures) assessed valuation by Collin County for the Property for the year 2000 (the "Assessed Value") or (ii) $10,800,000. (note: At Lessor's option, the cost of interior leasehold and base improvements for other lessee's of the Building which are above $25/sq.ft. "Other Above Standard Improvements" shall be deducted from the Assessed Value for purposes of this paragraph 2B provided Lessor bills other lessees for the taxes associated with the Other Above Standard Improvements). (note: The cost of interior improvements in Lessee's Premises above the Finishout Allowance and the cost of the Generator System and System Enclosure "Lessee Above Standard Improvements" if included in the Assessed Value shall be deducted from the Assessed Value for purposes of this paragraph 2B and Lessee shall pay Lessor as additional rent for the taxes associated with the Lessee Above Standard Improvements). Taxes due from Lessee pursuant to this paragraph 2B are known as "Additional Tax Payments". C. Lessee agrees to pay as additional rent, its Proportionate Share (as defined in Paragraph 22B below) or actual share as reasonably determined by Lessor of the following expenses (the "Operating Expenses") which are above the "Base Year Operating Expenses". The Base Year Operating Expenses are the actual expenses for the Building for items defined in this Paragraph 2C for the 12 month period 1/1/2000 to 12/31/2000. Operating expenses due from Lessee pursuant to this paragraph 2C are known as "Additional Operating Expense Payments": (1) the cost of maintaining insurance pursuant to Paragragh 9A below (note: the cost of any deductible for the insurance referenced in Paragraph 9A is not part of the Base Year Operating Expenses), (2) the cost of repairs, replacements and services which are performed by Lessor pursuant to Paragraph 4B and other operating expenses required by this Lease (note: the cost of any repairs, replacements and services which are performed by Lessor pursuant to Paragraph 4B which are (i) due to damage caused by Lessee or its employees, customers or agents; or (ii) due to specific services related to Lessee's above standard use of the Building, Premises or Common Area are not part of the Base Year Operating Expenses), 3 Lessor MRM ------- Lessee TM ------- (3) the cost of Common Area Utility Costs as defined in Paragraph 8B (note: Premises Utilities as described in Paragraph 8A are not part of the Base Year Operating Expenses), (4) annual cost of all capital improvements made to the Building which although capital in nature can reasonably be expected to reduce the normal operating costs of the Building or are required in the reasonable opinion of Lessor for the safety of the occupants and users of the Building, as well as all capital improvements made in order to comply with any law hereinafter promulgated by any governmental authority, after the Commencement Date, as amortized (using a market interest rate) over the useful economic life of such improvements as reasonably determined by Lessor using generally accepted accounting principles (note: the cost of any captial improvements necessitated due to casualty as referenced in Paragraph 10 are not part of the Base Year Operating Expenses), (5) property management fee equal to two and one half percent (2.5%) of the Base Rent as defined in paragraph 2A for the entire Building. Lessor agrees not to charge any other property management fee to Lessee nor any construction management fee to Lessee for the initial interior improvements defined in Exhibit B-2 or for any alterations performed by Lessee in compliance with Paragraph 6. During each month of the term of this Lease (starting 12 months after the Rent Commencement Date), on the same day that Base Rent is due hereunder, Lessee shall escrow with Lessor an amount equal to 1/12 of the estimated annual cost of its Proportionate Share of Additional Tax Payments and Additional Operating Expense Payments. Lessee authorizes Lessor to use the funds deposited with Lessor under this paragraph 2C to pay such costs. The monthly escrow payments are will be based upon the estimated amounts for the year in question and shall be increased or decreased annually to reflect the projected actual cost of all Additional Tax Payments and Additional Operating Expense Payments. (Lessee shall have the right on an annual basis to review Lessor's accounting and maintenance records for the Building for the previous years expenses.) If Lessee's total escrow payments are less than Lessee's actual Proportionate Share of all such items, Lessor shall pay the difference to the Lessor within thirty (30) day after written request from Lessor to Lessee. If the total escrow payments of Lessee are more than Lessee's actual Proportionate Share of all such items, Lessor shall retain such excess and credit it against Lessee's next annual escrow payments or upon written request by Lessee, pay the difference to Lessee. Any excess for the last year of the term of this Lease shall by paid to Lessee within thirty (30) days after the expiration of this Lease. D. Lessee shall not be responsible for the following costs and such costs shall not be included in Building Costs: (1) captial improvements made to the Building, (other than capital improvements described in Paragraph 2(B)4 and capital improvements required due to damages caused by Lessee); (2) repair, replacements and general maintenance paid by proceeds of insurance or by Lessee or other third parties; (3) alterations attributable solely to other lessees of the Building; (4) interest, amortization or other payments on loans to Lessor; (5) depreciation of the Building; (6) leasing commissions; (7) legal expenses, other than those incurred for the general benefit of all lessees of the Building (e.g., tax disputes); (8) renovating or otherwise improving space for other lessees of the Building or vacant space in the Building; (9) correcting defects in the construction of the Building, Common Area and Base Improvements (not including the Exhibit B-1 Leasehold Improvements); (10) federal income taxes imposed on or measured by the income of Lessor from the operation of the Building. (11) rent concessions to other lessee's of the Building; (12) interest or amortization payments except as specifically provided herein; (13) general corporate overhead of Lessor; (14) advertisting and promotional expenses; 4 Lessor MRM ------- Lessee TM ------- (15) special services for other lessees of the Building (e.g. concierge or other services not listed in paragraph 2C); (16) costs for sculptures, paintings or other art objects; (17) costs required by or incurred to comply with any law enacted before the Commencement Date of the Lease [this paragraph 17 relates to the shell Building improvements, the Exhibit B-2 (Common Area Improvements) and Exhibit B-3 (Base Improvement) only and does not apply to Exhibit B-1 (Leasehold Improvements)]; (18) the cost of any repair to remedy damage caused by or resulting from the actual negligence of any other tenants in the Building (which negligence is proven to be caused by other tenants in the Building), together with the costs and expenses incurred by Lessor in attempting to recover such costs; (19) actual or reserves for bad debt loss or rent loss (from other tenants in the Building); (20) any Operating Expenses paid to an affiliate of Lessor to the extent the same is in excess of the reasonable cost of said item or service in an arms' length transaction; (21) Lessor's home office costs and general overhead including without limitation costs associated with selling, syndicating, financing, mortgaging or hypothecating any interest in the Building or the Land; costs of any disputes between Lessor and it's employees; and disputes between Lessor and the property management company; (22) any property management fees except for those specified in paragraph 2C(5) of this Lease Agreement; (23) electric, gas and phone service in the premises of other tenants in the Building; and (24) fines or penalties incurred by Lessor for Lessor's violation of any legal requirements applicable to the Building (excluding Leasehold Finish and violations caused by Lessee) (25) Expenses directly resulting from the gross negligence of Lessor, its agents, servants or employees. (26) Legal fees, space planners' fee, real estate brokers' leasing commissions and advertising expenses incurred in connection with the original development or original leasing of the Building or future leasing of the Building. (27) The expense of extraordinary services provided to other lessees in the Building. (28) The wages of any employee who does not devote substantially all of his or her time to the Building. (29) Amounts paid as ground rental by Lessor. (30) Earthquake or other type of insurance, unless insurance coverage was carried during the base year or, in the alternative, the base year Operating Costs have been "grossed-up" to include what such insurance coverage would have cost had it been carried during the base year. (31) Wages and fees incurred in connection with the ownership, management and operation of the parking structure. (32) Any Operating Costs incurred with the ground floor and mezzanine levels, or any other floor in the Building devoted to retail operation. (33) Mass transit or such other public transportation pass-through assessment, if any. (34) Expenses in connection with services or other benefits which are not provided to Lessee or for which Lessee is charged directly but which are provided to another lessee or occupant of the Building. (35) Any compensation paid to clerks, attendants or other persons in commercial concessions operated by Lessor or in the parking garage at the Building. (36) Rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature, except equipment not affixed to the Building which is used in providing janitorial or similar services. (37) Electric power costs for which any lessee directly contracts with the local public service company. (38) Legal costs incurred because Lessor or any other lessee violated any law or condition contained in a lease regarding the Building. It is understood that Operating Costs shall be reduced by all cash discounts, trade discounts, or quantity discounts received by Lessor or Lessor's managing agent in the purchase of any goods, utilities, or services in connection with the operation of the Building. Lessor shall make payments for goods, utilities and services in a timely manner to obtain the maximum possible discount. If capital items, which are customarily purchased by Lessors, of first class office buildings in the County where the Building is located are leased, rather than purchased, by Lessor, the decision by Lessor to lease items in question shall not serve to increase Lessee's proportionate share of Operating Costs beyond that which would have applied had the item in question been purchased. In the calculation of any expenses hereunder, it is understood that no expense shall be charged more than once. Lessor shall use its 5 Lessor MRM ------- Lessee TM ------- reasonable efforts to effect an equitable proration of bills for services rendered to the Building and to any other property owned by Lessor. Lessor agrees to keep books and records showing the Operating Expenses in accordance with generally accepted accounting principles consistently maintained on a year-to-year basis. E. In calculating Base Year Operating Expenses, and in subsequent years, Additional Operating Expense Payments, Lessor shall adjust those components of Operating Expenses which will vary with the rate of occupancy of the Building to the estimated amount that Lessor would have incurred had the Building been fully occupied throughout the calendar year in question. Lessor and Lessee covenant and agree that the following are the only components of Operating Expenses that will vary with the rate of occupancy of the Building: (1) Sink and toilet facility supplies in the Common Areas; (2) Maintenance and repair of parking areas and sidewalks; (3) Cleaning, maintenance and repair to the sink and toilet facilities in the Common Areas and to the carpet and flooring in the Common Areas, including common corridors of the Building; and (4) Property management fees, to the extent that such fees will be calculated under Paragraph 2C(5) above according to the receipt of Base Rent. Lessor and Lessee agree that the adjustment of such components will be effected by increasing the aggregate cost for such items in the applicable calendar year by a percentage equal to the result obtained by dividing 100% by the percentage of actual occupancy. For example, if the aggregate of such costs was equal to $50,000 and occupancy of the Building was 80%, then such components would be increased to $62,500 ($50,000 x (100%/80%) = $62,500). F. Except for costs associated with damage caused by Lessee or costs associated with Lessee's above standard use of the Building the Additional Operating Expense Payments for (i) the year 2002 shall not exceed 110% of the total Operating Expenses for the year 2001 (ii) the year 2003 shall not exceed 110% of the total Operating Expenses for the year 2002 and (iii) the year 2004 shall not exceed 110% of the total Operating Expenses for the year 2003 and (iv) the year 2005 shall not exceed 110% of the total Operating Expenses for the year 2004. 3. TAXES. A. Lessor agrees to pay in accordance with paragraph 2B all taxes, assessments and/or governmental charges of any kind and nature (collectively referred to herein as "Taxes") that accrue against the Premises, the Land and/or the Building. If at any time during the term of this Lease, there shall be levied, assessed or imposed on Lessor a capital levy or other tax directly on the rents received therefrom and/or a tax, assessment, levy or charge measured by or based, in whole or in part upon such rents from the Premises, the Land and/or the Building, then all such taxes, assessments, levies or charges or the part, thereof so measured or based, shall be deemed to be included within the term "Taxes" for the purposes hereof. The Lessor shall have the right to employ a tax consulting firm to attempt to assure a fair tax burden on the Building and grounds within the applicable taxing jurisdiction. The cost of the tax consulting firm shall be included in Taxes and shall not exceed $5,600 annually. Notwithstanding the preceding or any other provision of this Lease, any nonrecurring special assessments imposed with respect to new improvements constructed by a governmental authority and having a useful life of 3 years or more shall be amortized over the useful life of such improvements. B. Lessee shall be liable for all taxes levied or assessed against any personal property or fixtures placed in the Premises. If any such taxes are levied or assessed against Lessor or Lessor's property and Lessor pays the same of if the assessed value of Lessor's property is increased by inclusion of such personal property and fixtures and Lessor pays the increased taxes, then, upon demand by Lessor, Lessee shall pay to Lessor such taxes. Lessor shall provide Lessee a copy of the applicable tax bill with a written statement requesting payment. 6 Lessor MRM ------- Lessee TM ------- 4. LESSOR'S REPAIRS AND SERVICES. A. Lessor's Repairs Lessee understands and agrees that Lessor's maintenance, repair and replacement obligations which are paid by Lessor and not reimbursed by Lessee are limited to those set forth in this Paragraph 4A. Lessor, at its own cost and expense, shall be responsible only for roof replacement and for repair and replacement of only the foundation of the Building and the structural members of the exterior walls of the Building. The terms "roof" and "walls" as used herein shall not include, windows, glass or plate glass, doors, special store fronts or office entries. Lessee shall immediately give Lessor written notice of defect or need for repairs required per the terms of this Lease, after which Lessor shall repair same or cure such defect within thirty (30) days after receiving written notice from Lessee unless such cure cannot reasonably be accomplished within such thirty (30) days. Lessor shall have such additional time as is reasonably necessary to accomplish such cure provided Lessor promptly commences and diligently prosecutes such cure to completion. Lessor's liability with respect to any defects, repairs, replacement or maintenance for which Lessor is responsible hereunder shall be limited to the cost of such repairs or maintenance or the curing of such defect. B. Lessor's Services Lessor shall use all reasonable efforts to furnish: (1) Cooled or heated air in the Common Area in season to provide a temperature condition required, in Lessor's reasonable judgment (based on sound and prudent property management standards for comparable properties), for comfortable use of the Common Area daily from 7:00 AM to 6:00 PM (Monday thru Friday) and Saturdays 8:00 AM to 1:00 PM ("Normal HVAC Business Hours").. After Normal HVAC Business Hours, holidays and Sundays are excepted. (2) Lighting in the Common Area in capacity and type, in Lessor's reasonable judgment, for standard use of the Common Area daily from 7:00 AM to 10:00 PM (Monday thru Friday) and Saturdays 8:00 AM to 1:00 PM ("Normal Lighting Business Hours"). After Normal Lighting Business Hours, holidays and Sundays are excepted. (Lighting in the Common Area during hours which are not Normal Lighting Business Hours will be provided at a lower level which will allow for visible exiting of the Building.) (3) Cooled or heated air in the Premises in season to provide a temperature condition required, in Lessee's reasonable judgement, for comfortable use of the Premises during hours to be determined by Lessee. (note: all electric, gas and other utility costs associated with the Premises shall be paid by Lessee pursuant to Paragraph 8A) (4) Janitor service (including cleaning and restroom paper supplies) in the Premises and Common Area on weekdays other than holidays in substantial accordance with the Janitorial Standards attached as Exhibit G. Lessor reserves the right to bill Lessee separately (as reasonably mutually agreed upon by Lessor and Lessee) for extra janitorial service associated with Lessee's above standard use of the Premises or Common Area, if any. (5) Exterior and interior window washing as may from time to time be reasonably required in Lessor's judgment. (6) Passenger elevator service and stairway access for lessees occupying the second floor of the Building in common with other lessees of the Building. (7) Replacement of Building standard light bulbs in the Common Area and exterior of the Building and replacement of fluorescent tubes in the ceiling mounted fixtures which were installed by Lessor within the Premises. (8) Repairs and maintenance to the Common Area required, in Lessor's reasonable judgment, for comfortable use of the Common Area. (9) Maintenance of the elevator, roof, plumbing systems, heating and air conditioning systems and equipment within the Common Area. Lessor may, as determined by Lessor, enter into roof, elevator and HVAC 7 Lessor MRM ------- Lessee TM ------- maintenance agreements with competent and qualified contractors for regular care and maintenance consistent with the manufacturer's guidelines. (10) Maintenance of the roof, heating and air conditioning systems within the Premises. Lessor may, as determined by Lessor, enter into roof and HVAC maintenance agreements with competent and qualified contractors for regular care and maintenance consistent with the manufacturer's guidelines. (11) Engage a third party contractor to provide full time off site monitoring of the fire sprinkler system serving the Building including monitoring of the fire sprinkler flow and tamper switches. (12) Maintenance, repairs and replacements of (i) the parking areas and sidewalks associated with the Building, (ii) of all grass, shrubbery, landscape sprinkler and other landscape treatments surrounding the Building, (iii) of the exterior of the Building (including painting), exterior glass replacement, lobby glass and rear entry glass replacement, exterior lights and roof repairs, and (iv) of fire sprinkler systems and sewage lines. (13) Card key access system to the exterior doors serving the front Common Area. (Lessor will provide Lessee with 100 access cards at Lessor's expense, additional access cards will be provided to Lessee, upon Lessee's request and at Lessee's expense.) (14) Sink and toilet facilities in the Common Area for use by Lessee in common with other lessees of the Building. (15) Maintenance, repairs and replacements of plants in the Common Area. (16) Any other maintenance, repair or replacement items to the Building or Common Area, in Lessor's reasonable judgment, which are necessary for standard use of the Building and Common Area. Lessor reserves the right to bill Lessee separately for specific services related to Lessee's Premises (e.g. extra janitorial and the like), extra maintenance, repair or replacement items associated with Lessee's above standard use of the Building, Premises or Common Area, if any. Lessor's services shall not include security for the Building, Premises or Land. Such security shall be provided by Lessee at its expense to the extent Lessee deems necessary. C. Lessor's obligation to furnish services under this Paragraph 4 shall be subject to the rules and regulations of the suppliers of such services and applicable governmental rules and regulations. Lessor shall use reasonable efforts to restore any service that becomes unavailable; however, such unavailability shall not render Lessor liable for any damages caused thereby, be a constructive eviction of Lessee, constitute a breach of any implied warranty, or entitle Lessee to any abatement of Base Rent nor relieve Lessee from any covenant or agreement hereof, provided, however, in the event that (i) any material service is not provided, (ii) the Premises are untenantable as a result thereof, (iii) the non-provision of such material service is within the control of the Lessor and (iv) Lessee is unable to perform the material service, the Lessee shall have the right to abate Base Rent during the period commencing ten (10) business days following written notice from Lessee to Lessor that (i) such service is not being provided by Lessor and cannot be provided by Lessee and (ii) that the Premises are untenantable, and continuing until such period of untenantability terminates. In the event Lessor has not performed a specific service referenced in Paragraph 4(B) for a period of at least 5 consecutive business days after receiving written notice from Lessee that the service is not being performed and Lessor is in violation of the terms of this Lease, Lessee after providing Lessor with advance written notice may perform the specific service until Lessor is able to restore the affected service and upon demand Lessor shall reimburse Lessee for all actual reasonable costs incurred by Lessee for performing such service. Lessor shall use reasonable diligence to restore the affected service promptly. D. Lessor reserves the right, upon Lessee's default and failure to cure pursuant to the terms of this Lease Agreement to perform any items that are otherwise Lessee's obligations pursuant to the terms of this Lease Agreement, in which event, Lessee shall be liable for the actual reasonable cost and expense of such repair, replacement, maintenance and other such items. 8 Lessor MRM ------- Lessee TM ------- 5. LESSEE'S MAINTENANCE AND REPAIR OBLIGATIONS Lessee, at its own cost and expense, shall maintain all parts of the Premises in a clean, safe, operable and good condition, ordinary wear and tear, casualty required to be insured by Lessor under the terms of this Lease and condemnation excepted, and shall promptly make all necessary repairs and replacements to the Premises. Lessee shall use reasonable best efforts to protect the Building, Common Areas, parking areas, landscape areas and the Premises from waste or damage and shall, subject to Lessor's direction and supervision, repair or replace any damage caused by Lessee, it's agents, employees, contractors or invitees. 6. ALTERATIONS Non-Structural Alterations Except for the approved Leasehold Improvements as shown on Exhibit B-1 and except as provided below, Lessee shall not make any non-Structural alterations, additions or improvements to the Premises without the prior written consent of Lessor which consent shall not be unreasonably withheld. Lessee, without Lessor's consent, at its own cost and expense, may erect shelves, bins, pictures and trade fixtures as it desires provided that (a) such items do not overload or damage the Premises or Building; (b) such items may be removed without injury to the Building or Premises; and (c) the construction, erection or installation thereof complies with all applicable governmental laws, ordinances and regulations. Except for the approved Leasehold Improvements as shown on Exhibit B-1, all non-Structural alterations, shelves, bins, phone systems, pictures and related equipment and trade fixtures installed by Lessee, shall be removed on or before the earlier to occur of the date of termination of this Lease or vacating of the Premises by Lessee, at which time Lessee shall restore the Premises to their original condition, reasonable wear and tear excepted. All installations, removals and restoration shall be performed in a good and workmanlike manner so as not to damage or alter the primary structure or structural qualities of the Building or the Premises. Notwithstanding the preceding, Lessee shall have the right to make non-Structural alterations which do not exceed $50,000 without Lessor's consent provided that the non-Structural alterations do not materially alter the Leasehold Improvements as shown on Exhibit B-1. Structural Alterations Except for the approved Leasehold Improvements as shown on Exhibit B-1, Lessee shall not make any Structural alterations, additions or improvements to the Premises or the Building without the prior written consent of Lessor (which consent Lessor may withhold at its sole discretion). "Structural" shall mean any alteration to the landscaped areas of the Land, parking areas on the Land, Building exterior, Building roof, HVAC systems included in the Base Improvements, Common Area, interior walls of the Premises adjacent to the Common Area or exit stairs, Building fire sprinkler system included in the Base Improvements, Building foundation or Building slab. Except for the approved Leasehold Improvements as shown on Exhibit B-1, at the earlier to occur of the date of termination of this Lease or vacating of the Premises by Lessee, Lessee shall (i) remove all or part of any Structural additions to the Premises or the Building made by Lessee and/or (ii) restore any Structural alterations or removals to the Premises or the Building made by Lessee and repair all associated damages collectively (i) and (ii) are known as the "Restoration Requirements". The Restoration Requirements shall be determined by Lessor within ten (10) business days of the time Lessee provides Lessor with written notice and plans for the requested Structural alteration request. All installations, removals and restoration shall be performed in a good and workmanlike manner so as not to damage or alter the primary structure or structural qualities of the Building or the Premises. 9 Lessor MRM ------- Lessee TM ------- 7. SIGNS. Lessor agrees that Lessee shall have the right to install Lessee's name (the "Lessee Building Sign") on the exterior of the Building in the location shown on the plan attached as Exhibit C and in accordance with the sign criteria attached as Exhibit D. The Lessee Building Sign shall be installed at the sole expense of Lessee and shall be installed in compliance with the City of Richardson, Texas Building Codes. In addition, at the expiration or termination of this Lease Agreement Lessee agrees to remove the Lessee Building Sign and restore the affected areas of the Building where the Lessee Building Sign was installed to the same condition as existed prior to the Lessee Building Sign installation normal wear and tear, casualty and weathering excepted. Any other signage, decorations, advertising media, blinds, draperies, window treatments, bars and security installations Lessee desires for the Building or the Premises visible from the exterior of the Building or from the Common Area shall be subject to Lessor's prior written approval which may be withheld at Lessor's sole discretion. Lessee shall not, (i) make any changes to the exterior of the Building or the Premises, (ii) install any exterior lights, decorations, balloons, flags, pennants, banners or painting or (iii) erect or install any signs, windows or door lettering, decals, window and storefront stickers, placards, decorations or advertising media of any type that can be viewed from the exterior of the Building or the Common Area, without Lessor's prior written consent which may be withheld at Lessor's sole discretion. Lessor shall have the right to allow other lessees of the Building to install other signage in, on or about the Building. 8. UTILITIES. A. Premises Utilities Lessee shall obtain and pay for all water, gas, heat, light, power, telephone and other utilities and services used on or at the Premises, together with any taxes, penalties, surcharges or the like pertaining to the Lessee's use of the Premises and any maintenance charges for utilities. Electricity and Gas serving Lessee's Premises shall be separately metered directly from the public utilities applying service to the Building subject to Lessee's application for services. Lessee shall be responsible for making arrangements for and paying the cost of the installation, maintenance and repair of its own telephone system. Lessor agrees not to prohibit Lessee from obtaining telephone service from the incumbent local phone company serving the area where the Building is located. Lessor shall not be liable for any interruption or failure of utility service on or to the Premises unless such failure was caused by the negligence or willful misconduct, by Lessor in which case Lessor shall be liable for the actual reasonable cost for repairing the damage to the utility service to the extent of Lessor's negligence or willful misconduct. B. Common Utilities Lessor shall obtain and pay for all water, gas, heat, light, power, telephone, sewer, sprinkler charges and other utilities and services used on or at the Common Area, landscape areas and exterior Building areas, together with any taxes, penalties, surcharges and any maintenance charges for utilities (the "Common Area Utility Costs"). Lessor shall not be liable for any interruption or failure of utility service on or to the Common Area, landscape areas or exterior Building areas unless such failure was caused by the negligence or willful misconduct, by Lessor in which case Lessor shall be liable for the actual reasonable cost for repairing the damage to the utility service to the extent of Lessor's negligence or willful misconduct provided, however, in the event that (i) Common Area water, sewer or electricity is not provided due to Lessor's negligence or willful misconduct, (ii) the Premises are untenantable as a result thereof, and (iii) the non-provision of the Common Area water, sewer or electric service is within the control of the Lessor the Lessee shall have the right to abate Base Rent during the period commencing three (3) business days following written notice from Lessee to Lessor that (i) such Common Area water, sewer or electric service is not being provided by Lessor and (ii) that the Premises are 10 Lessor MRM ------- Lessee TM ------- untenantable, and continuing until such period of untenantability terminates. Lessee shall be responsible for paying it's Proportionate Share of the cost of all Common Area Utility Costs as part of the Building Costs. 9. INSURANCE. A. Lessor shall maintain insurance covering the Building, the Premises and the improvements as shown on Exhibit B-1, B-2 and B-3 and any Structural alterations actually made to the Building approved by Lessor in writing pursuant to the terms of Paragraph 6 in an amount not less than one hundred percent (100%) of the "replacement cost" thereof insuring against the perils and costs of fire, lightning, extended coverage, vandalism and malicious mischief, general liability insurance and rental interruption insurance and such other insurance as Lessor shall deem reasonably necessary. Lessee shall be liable for its Proportionate Share of the cost and expense of such insurance as part of the Building Costs. B. Lessee, at its own expense, shall maintain during the term of this Lease (1) a policy or policies of worker's compensation and commercial general liability insurance (with contractual liability endorsement). including personal injury and property damage in the amount of One Million Dollars ($1,000,000.00) per occurrence for property damage and Two Million Dollars ($2,000,000.00) per occurrence for personal injuries or deaths of persons occurring in or about the Premises and (2) fire and extended coverage insurance covering the replacement cost of all alterations, additions, partitions and improvements installed or placed on the Premises by Lessee and (3) umbrella liability coverage equal to or exceeding Three Million Dollars ($3,000,000), and (4) worker's compensation insurance for Lessee's employees in the amounts and on the terms required by applicable law. Said general liability and umbrella policies shall (i) name Lessor as an additional insured. Said policies shall (i) be issued by an insurance company which is authorized to operate in the State of Texas and which has an A.M. Best rating of "A" or better and (ii) provide that said insurance shall not be canceled unless thirty (30) days prior written notice shall have been given to Lessor. A certificate of insurance shall be delivered to Lessor by Lessee upon commencement of the term of the Lease and upon each renewal of said insurance. C. Lessee will not permit the Premises to be used for any purpose or in any manner that would void the insurance thereon. 10. FIRE AND CASUALTY DAMAGE. A. Lessee immediately shall give written notice to Lessor if the Premises or the Building are damaged or destroyed. If the Premises or the Building should be totally destroyed or so damaged by an insured peril and in Lessor's reasonable estimation, rebuilding or repairs cannot be completed within one hundred eighty (180) days after the date of Lessor's actual knowledge of such damage, then either party may terminate this lease in which event the rent shall be abated during the unexpired portion of this Lease, effective upon the date of the occurrence of such damage. B. If the Building or the Premises should be damaged by any insured peril, and in Lessor's estimation, rebuilding or repairs can be substantially completed within one hundred eighty (180) days after the date of Lessor's actual knowledge of such damage, this Lease shall not terminate and Lessor shall restore the Premises to substantially its previous condition, except that Lessor shall not be required to rebuild, repair or replace any part of (a) all alterations, additions, partitions and improvements installed or placed on the Premises by Lessee other than the Leasehold Improvements as shown on Exhibit B-1 and (b) all of Lessee's personal property contained within the Premises. Effective upon the date of the occurrence of such damage and ending upon Substantial Completion of the 11 Lessor MRM ------- Lessee TM ------- repairs, if the Premises are untenantable in whole or part during such period, the rent shall be reduced to such extent as may be fair and reasonable under all of the circumstances. If such repairs and rebuilding have not been Substantially Completed within one hundred eighty (180) days after the date of such damage Lessee, as Lessee's exclusive remedy, may terminate this Lease by delivering written notice of termination to Lessor within 10 days after said 180 day period has expired the in which event the rights and obligations hereunder shall cease and terminate. C. In connection with any repair or reconstruction to the Premises arising from or necessitated by fire or other casualty which is covered by the insurance provided pursuant to Paragraph 9A. above. Lessee shall pay Lessor, Lessee's Proportionate Share of the amount of the deductible of such insurance unless the cost of such repair or reconstruction is necessitated by the negligent act of the Lessor. D. Notwithstanding anything herein to the contrary, in the event that 50% or more of the Premises is destroyed by an insured peril and the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises requires that the insurance proceeds be applied to such indebtedness, then Lessor shall have the right to terminate this Lease by delivering written notice of termination to Lessee within thirty (30) business days after such requirement is made known by any such holder, whereupon all rights and obligations hereunder shall cease and terminate. E. Notwithstanding anything to the contrary set forth elsewhere in this Lease except as set forth in Paragraph 10C above, to the extent of a recovery of loss proceeds under the policies of insurance described in this Lease, Lessor and Lessee each hereby waive and release each other and any related parties and affiliates of and from any and all rights of recovery, claim, action or cause of action, against each other, their agents, officers and employees, for any loss or damage that may occur to the Premises, the Building, or personal property within the Building and/or Premises arising from or caused by fire or other casualty or hazard covered or required to be covered by hazard insurance under this Lease. Upon execution of the Lease, Lessor and Lessee shall notify their respective insurance companies of the mutual waivers contained herein and, if available, shall cause each policy described in this Lease to be so endorsed. 11. LIABILITY AND INDEMNIFICATION. Lessor shall indemnify, hold Lessee harmless and defend and protect Lessee its employees, partners, directors and officers from and against any and all claims, actions, damages or liability and all obligations, suits, losses, judgments (including without limitation, all reasonable costs, attorneys fees and expenses incurred in connection therewith) in connection with any loss, injury or damage to any person or property occurring in, on or about or arising out of all or part of the Premises and/or the Building or the use or occupancy thereof, or the conduct or operation of Lessor's business to the extent such injury or damage is caused by Lessor's gross negligence or willful misconduct. Lessee shall indemnify, hold Lessor harmless and defend and protect Lessor its employees, partners, directors and officers from and against any and all claims, actions, damages or liability and all obligations, suits, losses, judgments (including without limitation, all reasonable costs, attorneys fees and expenses incurred in connection therewith) in connection with any loss, injury or damage to any person or property occurring in, on or about or arising out of all or part of the Premises and/or the Building or the use or occupancy thereof, or the conduct or operation of Lessee's business when such injury or damage shall be caused by Lessee's gross negligence or willful misconduct. 12 Lessor MRM ------- Lessee TM ------- The provisions of this Paragraph 11 E shall survive the expiration or termination of this Lease with respect to any claims or liability occurring prior to such expiration or termination. The indemnification provided by this Paragraph 11 E is subject to Lessee's and Lessor's waiver of recovery in the preceding Paragraph 10E to the extent of either Lessee's or Lessor's recovery of loss proceeds under policies of insurance described in this Lease. The liability of Lessor to Lessee for any default or indemnification by Lessor under the terms of this Lease shall be limited to the proceeds of sale or execution of the interest of Lessor in the Building; and Lessor shall not be personally liable for any deficiency. 12. USE. A. The Premises shall be used only for the purpose of general office use by Lessee and for such other lawful purposes as may be incidental thereto. Lessee shall not use the Premises for the receipt, storage or handling of any product, material or merchandise that is explosive or highly inflammable or hazardous. Outside storage is prohibited. Lessee shall comply with all governmental laws, ordinances and regulations applicable to the use of the Premises, and promptly shall comply with all governmental orders and directives for the correction, prevention and abatement of nuisances in or upon, or connected with, the Premises, all at Lessee's sole expense. Lessee shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the Premises, nor take any other action that would constitute a nuisance or would disturb, unreasonably interfere with, or endanger other lessees of the Building, Lessor or surrounding property owners and users. B. Lessor shall provide Lessee from the Commencement Date of this Lease until Expiration or early termination of this Lease the use of 188 car parking spaces on the Land "Lessee Car Spaces". The 188 Lessee Car Spaces includes the parking spaces eliminated for the Generator system Enclosure and Lessee's Proportionate Share of (i) visitor spaces "Visitor Spaces" located in front and in back of the Building for use by Lessee and other lessees of the Building and (ii) handicap spaces "Handicap Spaces" located in front and in back of the Building for use by Lessee and other lessees of the Building. The initial overall parking plan for the Building is attached as Exhibit E. Lessee and it's agents, employees, contractors, vendors, customers and invitees (collectively "Lessee Car Spaces Users") do not have the right to use any specific parking spaces on the Land but only have the right to use the number of Lessee Car Spaces located in the parking areas on the Land generally. Lessee Car Spaces Users may not use additional parking spaces on the Land. Lessee Car Spaces Users shall not interfere with the rights of Lessor or other lessees of the Building or others entitled to similar use of the parking spaces on the Land. All parking facilities and Lessee Car Spaces furnished by Lessor shall be subject to the reasonable control and management of Lessor who may from time to time, establish, modify, and enforce reasonable rules and regulations with respect thereto. Lessor further reserves the right to change, construct or repair any portion thereof, and to restrict or eliminate the use of any parking areas on the Land without such actions being deemed an eviction of Lessee or a disturbance of Lessee's use of the Premises and without Lessor being deemed in default hereunder so long as Lessee's parking rights hereunder are not materially diminished. Lessor, subject to providing Lessee with 15 days advance written notice may at Lessor's cost and expense, convert the parking facilities on the Land to a reserved and/or controlled parking facility provided that Lessee is provided with its proportionate share of reserved spaces. Lessee Car Spaces Users shall not be required to pay parking lot rent or fees for use of the Lessee Car Spaces. Lessor reserves the right at any time to assign specific parking spaces for Lessee Car Spaces and/or other parking spaces used by others at the project and Lessee shall thereafter be responsible to insure that Lessee Car Spaces Users park in the specifically designated parking spaces. Lessee shall if requested by Lessor furnish to Lessor a complete list of the licensee plate numbers of all vehicles operated by Lessee, Lessee's employees and agents. Lessor shall not be liable for any damage of any nature to, or any theft of, vehicles or contents thereof, in on or about the parking facilities on the Land. Lessee Car Spaces Users shall not be allowed to park on the public streets surrounding the 13 Lessor MRM ------- Lessee TM ------- Building and the Land. Lessor shall not be responsible for enforcing Lessee Car Spaces Users parking rights against any third parties. In the event Lessee rents additional space in the Building pursuant to Paragraph 2E of this lease, Lessee will be entitled to additional Lessee Car Spaces at the rate of six (6) per 1,000 sq. ft. of additional rental space taken by Lessee. C. Lessee shall comply with the rules and regulations of the Building which are attached hereto as Exhibit F. Lessor may, from time to time, reasonably change such rules and regulations for the safety, care or cleanliness of the Building and related facilities including the Common Area and parking area, provided that such changes are applicable to all lessees of the Building and will not materially interfere with Lessee's use of the Premises and provided that Lessor notifies Lessee in writing. Lessee shall be responsible for the compliance with such rules and regulations by its employees, agents and invitees. Any conflicts between the Exhibit F rules and this Lease shall be controlled by the Lease. 13. INSPECTION. Lessor and Lessor's agent and representatives shall have the right to enter the Premises at any reasonable time during business hours (and at any time in case of emergency), to inspect the Premises and to make such repairs as may be required or permitted pursuant to this Lease. Except for emergencies or for Lessor's Repairs and Services as referenced in Paragraph 4(A) & (B) Lessor shall provide Lessee with reasonable advance written or telephonic notice prior to performing such inspections. During the period that is twelve (12) months prior to the end of this Lease term, Lessor and Lessor's representatives may enter the Premises during business hours after reasonable notice for the purpose of showing the Premises. In addition, Lessor shall have the right to erect a suitable sign outside the Building stating that the Premises are available. Lessee shall notify Lessor in writing at least thirty (30) days prior to vacating the Premises and shall arrange to meet with Lessor for a joint inspection of the Premises prior to vacating. If Lessee fails to give such notice then Lessor's inspection of the Premises shall be deemed correct for the purpose of determining Lessee's responsibility for repairs and restoration of the Premises. 14. ASSIGNMENT AND SUBLETTING. A. Lessee shall have the right to sublet all or part of the Premises or to assign, transfer or encumber this Lease, or any interest therein, subject to the prior written consent of Lessor, which shall not be unreasonably withheld or delayed. It shall not be considered unreasonable if the proposed sublease or assignment denial is based on (i) proposed tenant not in business that generally leases space in Class A office space, (ii) proposed tenant will excessively over park the project with automobiles (excessively overpark shall mean that the proposed tenant's parking will violate the terms of paragraph 12B of this Lease Agreement), (iii) proposed tenant has a record of environmental contamination, (iv) form of sublease or assignment is unacceptable (unacceptable form of sublease or assignment shall mean that the content and format of the form are not consistent with the terms of the Lease). Any attempted assignment, subletting, transfer or encumbrance by Lessee in violation of the terms and covenants of this Paragraph shall be void. If an event of default occurs while the Premises or any part thereof are assigned or sublet, then Lessor, in addition to any other remedies herein provided, or provided by law, may collect directly from such assignee, sublessee or transferee all rents payable to the Lessee and apply such rent against any sums due Lessor hereunder. No such collection shall be construed to constitute a novation or a release of Lessee from the further performance of Lessee's obligations hereunder. Notwithstanding anything set forth to the contrary in the Lease, the Lessee shall have the right to assign the Lease or sublet the Premises or any portion thereof, without the Lessor's consent and without extending any recapture or termination option to Lessor or without losing any other option or right granted to Lessee under this Lease, to (1) any corporation which controls, is controlled by or is under common control with or by Lessee or (2) to any person or entity which acquires all of the assets of Lessee's business as an ongoing concern, provided that (i) any such assignee or sublessee assumes, in full, all of the obligations of Lessee set forth in the Lease and (ii) Lessee remains fully liable for all of its obligations under the Lease and (iii) the use of the Premises is compatible with the permitted uses as set forth in the Lease. No assignment, subletting or other 14 Lessor MRM ------- Lessee TM ------- transfer, whether consented to by Lessor or not, or permitted hereunder, shall relieve Lessee of its liability hereunder. B. Upon the occurrence of an assignment or subletting whether consented to by Lessor or mandated by judicial intervention, Lessee hereby assigns, transfers and conveys to Lessor 50% all rents or other sums received by Lessee under any such assignment or sublease, which are in excess of the rents and other sums payable by Lessee under this Lease and which are in excess of the reasonable leasing expenses incurred by Lessee and agrees to pay such amounts to Lessor within ten (10) business days after receipt. C. If this Lease is assigned to any person or entity pursuant to the provisions of the Bankruptcy Code, 11 U.S.C. 101 et. seq., (the "Bankruptcy Code"), any and all moneys or other consideration payable or otherwise to be delivered in connection with such assignment shall be paid or delivered to Lessor, shall be and remain the exclusive property of Lessor and shall not constitute property of Lessee or of the estate of Lessee within the meaning of the Bankruptcy Code. Any and all moneys or other considerations constituting Lessor's property under the preceding sentence not paid or delivered to Lessor shall be held in trust for the benefit of Lessor and be promptly paid or delivered to Lessor. D. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code, shall be deemed, without further act or deed, to have assumed all of the obligations arising under this Lease on and after the date of such assignment. Any such assignee shall be upon demand execute and deliver to Lessor an instrument confirming such assumption. 15. CONDEMNATION. If more than ten (10%) of the Premises is taken for more than 30 consecutive days for any public or quasi-public use under governmental law, ordinance or regulation or by right of eminent domain, or by private purchase in lieu thereof and the taking prevents or materially interferes with the use of the Premises for the purpose for which they were leased to Lessee this Lease shall terminate and the rent shall be abated during the unexpired portion of this Lease, effective on the date of such taking. If less than ten (10%) of the Premises are taken for any public or quasi-public use under any governmental law, ordinance or regulation or by right of eminent domain, or by private purchase in lieu thereof this Lease shall not terminate, but the rent payable hereunder during the unexpired portion of this Lease shall be reduced to such extent as may be fair and reasonable under all of the circumstances and Lessor agrees to restore the remaining Premises as near as is reasonably possible to the condition which existed prior to the condemnation. All compensation awarded in connection with or as a result of any of the foregoing proceedings shall be the property of Lessor and Lessee hereby assigns any interest in any such award to Lessor; provided, however, Lessor shall have no interest in any award made to Lessee for relocation costs, loss of business or goodwill or for the taking of Lessee's fixtures and improvements, if a separate award for such items is made to Lessee. 16. HOLDING OVER. At the termination of this Lease by its expiration or otherwise, Lessee immediately shall deliver possession of the Premises to Lessor with all repairs and maintenance required herein to be performed by Lessee completed. If, for any reason, Lessee retains possession of the Premises after the expiration or termination of this Lease or fails to complete any repairs required hereby, unless the parties hereto otherwise agree in writing, such possession shall be subject to termination by either Lessor or Lessee at any time upon not less than ten (10) days advance written notice, and provided all of the other terms and provisions of this Lease shall be applicable during such period, except that Lessee shall pay Lessor from time to time, upon demand, as rental for the period of such possession, an amount equal to 125% of the rent in effect on the termination date, computed on a monthly basis for any day of each calendar month of such period. No holding over by Lessee, whether with or without consent of Lessor, shall operate to extend this Lease except as otherwise expressly 15 Lessor MRM ------- Lessee TM ------- provided. The preceding provisions of this Paragraph 16 shall not be construed as consent for Lessee to retain possession of the Premises in the absence of written consent thereto by Lessor. 17. QUIET ENJOYMENT. Lessor covenants that on or before the Commencement Date it will have good title to the Premises, free and clear of all liens and encumbrances, excepting only the lien for current taxes not yet due, such mortgage or mortgages as are permitted by the terms of this Lease, zoning ordinances and other building and fire ordinances and governmental regulations relating to the use of such property, and easements, restrictions and other conditions of record. Lessor represents that it has the authority to enter into this Lease and that so long as Lessee pays all amounts due hereunder and performs all other covenants and agreements herein set forth, Lessee shall peaceable and quietly have, hold and enjoy the Premises for the term hereof without hindrance or molestation from Lessor, subject to the terms and provisions of this Lease. Lessor shall have no right to relocate Lessee within the Building and replace the leased Premises with other areas of the Building. 18. EVENTS OF DEFAULT. Lessee Default The following events (herein individually referred to as an "event of default") each shall be deemed to be events of nonperformance by Lessee under this Lease: A. Lessee shall fail to pay any installment of the rent herein reserved within ten (10) days of receipt of written notice from Lessor that such payment is past due or any other payment or reimbursement to Lessor required herein within ten (10) days of receipt of written notice from Lessor that such payment is past due. B. The Lessee shall (i) become insolvent; (ii) make a general assignment for the benefit of creditors; (iii) commence any case, proceeding or other action seeking to have an order for relief entered on its behalf as a debtor or to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors or seeking appointment of a receive, trustee, custodian or other similar official for it or for all or of any substantial part of its property. C. Any case, preceding or other action against the Lessee hereunder shall be commenced seeking (i) to have an order for relief entered against it as debtor or to adjudicate it a bankrupt insolvent; (ii) reorganization, arrangement, adjustment, liquidation, dissolution or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors; (iii) appointment of a receiver, trustee, custodian or other similar official for it or for all or any substantial part of its property, and such case, proceeding or other action (a) results in the entry of an order for relief against it which it is not fully stayed within ten (10) business days after the entry thereof or (b) shall remain undismissed for a period of sixty (60) days. D. Lessee shall fail to discharge any lien placed upon the Premises in violation of Paragraph 21 hereof within thirty (30) days after written notice to Lessee that any such lien or encumbrance is filed against the Premises, unless such lien is contested in good faith by Lessee by appropriate judicial, administrative or other comparable proceedings in which case Lessee shall bond around such lien. E. Lessee shall fail to comply with any term, provision or covenant of this Lease (other than those listed in this Paragraph 18) and shall not cure such failure within thirty (30) days after written notice thereof to Lessee unless such cure cannot reasonably be accomplished within such thirty (30) days, in which event Lessee shall have such additional time as is reasonably necessary to accomplish such cure provided Lessee promptly commences and diligently prosecutes such cure to completion and provided that, in any event, such cure is accomplished within one hundred twenty (120) days. 16 Lessor MRM ------- Lessee TM ------- Lessor Default The following event shall be deemed to be an event of nonperformance by Lessor under this Lease: Lessor shall fail to comply with any term, provision or covenant of this Lease and shall not cure such failure within thirty (30) days after written notice thereof to Lessor unless such cure cannot reasonably be accomplished within such thirty (30) days, in which event Lessor shall have such additional time as is reasonably necessary to accomplish such cure provided Lessor promptly commences and diligently prosecutes such cure to completion provided that, in any event, such cure is accomplished within one hundred twenty (120) days. 19. REMEDIES. A. Upon each occurrence of an event of default, Lessor shall have the option to pursue any one or more of the following remedies without any notice of demand: (1) Terminate this Lease and pursue Lessee for actual damages; and/or (2) Enter upon and take possession of the Premises without terminating this Lease and/or (3) Alter all locks and other security devices at the Premises with or without terminating this Lease, deny access to Lessee and pursue, at Lessor's option, one or more remedies pursuant to this Lease. B. Upon the occurrence of any event of default, Lessee immediately shall surrender the Premises to Lessor and if Lessee fails so to do, Lessor, without waiving any other remedy it may have, may enter upon and take possession of the Premises and expel or remove Lessee and any other person who may be occupying such Premises or any part thereof, without being liable for prosecution or any claim of damages therefore. C. If Lessor repossesses the Premises with or without terminating the Lease, Lessee, at Lessor's option, shall be liable for and shall pay Lessor on demand all rental and other payments owed to Lessor hereunder, accrued to the date of such repossession, plus all amounts required to be paid by Lessee to Lessor until the date of expiration as such sums become due and payable hereunder without acceleration. Actions to collect amounts due by Lessee to Lessor under this Paragraph may be brought from time to time, on one or more occasions, without the necessity of Lessor's waiting until expiration of the Lease term. D. Upon an event of default, in addition to any sum provided to be paid herein, Lessee also shall be liable for and shall pay to (1) reasonable market brokers' fees incurred by Lessor in connection with any reletting of the whole or any part of the Premises for the remaining term of this Lease as if there was no early termination; (2) the costs of removing and storing Lessee's or other occupant's property; (3) the costs of repairing, altering, remodeling or otherwise putting the Premises into the condition required by this Lease as if the Lease had expired (4) all reasonable expenses incurred by Lessor in enforcing or defending Lessor's rights and/or remedies related to this event. If either party hereto institutes any action or proceeding to enforce any provision hereof by reason of any alleged breach of any provision of this lease, the prevailing party shall be entitled to receive from the losing party all reasonable attorney's fees and all court costs in connection with such proceeding. E. In the event Lessee fails to make any payment due hereunder within ten (10) days of when such payment is due, to help defray the additional cost to Lessor for processing such late payments, Lessee shall pay to Lessor on demand a late charge in an amount equal to $900 and the failure to pay such amount within ten (10) days after demand therefore shall be an additional event of default hereunder. Lessor agrees to reimburse Lessee for an 17 Lessor MRM ------- Lessee TM ------- actual late charge paid by Lessee to Lessor for a given month if Lessee is not late on any payments due for the 12 months following the late payment month. The provision for such late charge shall be in addition to all of Lessor's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Lessor's remedies in any manner. F. Exercise by Lessor of any one or more remedies hereunder granted or otherwise available, including without limitation, the institution by Lessor, its agents or attorneys of a forcible detainer or ejectment action to re-enter the Premises shall not be construed to be an election to terminate this Lease or relieve Lessee of its obligation to pay rent hereunder and shall not be deemed to be an acceptance of surrender of the Premises by Lessor, whether by agreement or by operation of law, it being understood that such surrender can be effected only by the written agreement of Lessor and Lessee. Lessee and Lessor further agree that forbearance by Lessor to enforce its rights pursuant to the Lease at law or in equity, shall not be a waiver of Lessor's right to enforce one or more of its rights in connection with any subsequent default. G. In the event of termination and/or repossession of the Premises for an event of default, Lessor shall use reasonable efforts to relet the Premises; provided, that, Lessee shall not be entitled to credit or reimbursement of any proceeds in excess of the rental owed hereunder. Lessor may relet the whole or any portion of the Premises for any period, to any lessee and for any use and purpose. H. If Lessor fails to commence to perform any of its obligations hereunder within thirty (30) days after written notice from Lessee specifying such failure, Lessee's exclusive remedy shall be an action for actual damages equal to the costs necessary to cure such default including reasonable attorneys fees associated with this event and Lessor shall not be liable for any incidental or consequential damages. Unless and until Lessor fails to so cure said default after such notice, Lessee shall not have any remedy or cause of action by reason thereof. All obligations of Lessor hereunder will be binding upon Lessor only during the period of its ownership of the Premises and not thereafter. The term "Lessor" shall mean only the owner, for the time being of the Premises, and in the event of the transfer by such owner of its interest in the Premises, such owner shall thereupon be released and discharged form all covenants and obligations of the Lessor thereafter accruing, but such covenants and obligations shall be binding during the Lease term upon each new owner for the duration of such owner's ownership. Notwithstanding any other provision hereof, Lessor shall not have any personal liability hereunder. In the event of any breach or default by Lessor in any term or provision of this Lease, and, as a consequence, if Lessee shall recover a money judgment against Lessor, such judgment shall be satisfied only out of the proceeds received at a judicial sale upon execution and levy against the right, title and interest of Lessor in the Building and in the rents or other income from the Building receivable by Lessor and neither Lessor nor Lessor's owners, partners or venturers shall have any personal, partnership, corporate or other liability hereunder. I. If Lessor repossesses the Premises pursuant to the authority herein granted, then Lessor shall have the right to (i) keep in place and use or (ii) remove and store all of the furniture, fixtures and equipment at the Premises, including that which is owned by or leased to Lessee at all times prior to any foreclosure there by Lessor or repossession thereof by any lessor thereof or third party having a lien thereon. Lessor also shall have the right to relinquish possession of all or any portion of such furniture, fixtures, equipment and other property to any person ("Claimant") who presents to Lessor a copy of any instrument represented by Claimant to have been executed by Lessee (or any predecessor of Lessee) granting Claimant the right under various circumstances to take possession of such furniture, fixtures, equipment or other property, without the necessity on the part of Lessor to inquire into the authenticity or legality of said instrument. Lessor may, at its sole option and without prejudice to, or waiver of any rights it may have (i) escort Lessee to the Premises to retrieve any personal belongings of Lessee and/or its employees or (ii) obtain a list from Lessee of the personal property of Lessee and/or its employees and make such property available to Lessee and or Lessee's employees; provided, however, Lessee first shall pay in cash all costs and estimated expenses to be incurred in connection with the removal of such property and making it available. The 18 Lessor MRM ------- Lessee TM ------- rights of Lessor herein stated shall be in addition to any and all other rights that Lessor has or may hereafter have at law or in equity and Lessee stipulates and agrees that the rights herein granted Lessor are commercially reasonable. J. Notwithstanding anything in this Lease to the contrary, all amounts payable by Lessee to or on behalf of Lessor under this Lease, whether or not expressly denominated as rent, shall constitute rent. K. This is a contract under which applicable law excuses Lessor from accepting performance from (or rendering performance to) any person or entity other than Lessee. L. Lessor and Lessee shall not be liable for any incidental or consequential damages. 20. MORTGAGES. This Lease shall be subject and subordinate to any mortgages and/or deeds of trust now or at any time hereafter constituting a lien or charge upon the Premises or the improvements situated thereon or the Building of which the Premises are a part. Lessee agrees to attorn to any mortgagee, trustee under a deed of trust or purchaser at a foreclosure sale or trustee's sale as Lessor under this Lease. Lessee, at any time hereafter, within ten (10) business days after demand, shall execute any instruments, releases or other documents that may be reasonably required by any mortgagee for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage provided Lessee is provided a non-disturbance agreement in a form reasonably satisfactory to Lessor and Lessee. Notwithstanding anything contained in this lease to the contrary, provided Lessee is not in default of any of the terms or conditions of this Lease, Lessee's rights and privileges under this Lease or any renewal or extension thereof shall not be diminished or interfered with by mortgagee or any purchaser upon foreclosure or sale. 21. MECHANIC'S LIENS. Lessee has no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind the interest of Lessor or Lessee in the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Lessee, including those who may furnish materials or perform labor for any construction or repairs. Lessee covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises and that it will save and hold Lessor harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of the Lessor in the Premises or under the terms of this Lease. Lessee agrees to give Lessor immediate written notice of the placing of any lien or encumbrance against the Premises. 22. MISCELLANEOUS. A. Words of any gender used in this Lease shall be held and construed to include any other gender and words in the singular number shall be held to include the plural, unless the context otherwise requires. The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease. B. Lessee's Proportionate Share, as used in this Lease, shall mean a fraction, the numerator of which is the space contained in the Premises (31,311 square feet) (which number is the final agreement of the parties and not subject to adjustment) and the denominator of which is the entire rentable space contained in the Building (120,000 square feet) (which number is the final agreement of the parties and not subject to adjustment). For purposes of this Lease Agreement, the square foot space contained in the Building is calculated based on the square foot roof area of the Building times two (roof area sq. ft. x 2). The roof area is calculated based on the exterior dimensions of the exterior walls of the Building. Lessor and Lessee agree that there is no deduction in the Building 19 Lessor MRM ------- Lessee TM ------- square foot area for any openings in the second floor including but not limited to, HVAC ducts, stairs, lobby areas, elevators, electrical, plumbing or mechanical rooms or chases. C. The terms, provisions and covenants and conditions contained in this Lease shall run with the land and shall apply, inure to the benefit of and be binding upon, the parties hereto and upon their respective heirs, executors, personal representatives, legal representatives, successors and permitted assigns, except as otherwise herein expressly provided. Lessor shall have the right to transfer and assign, in whole or in part, its rights and obligations in the Building and property that are the subject of this Lease. Each party agrees to furnish to the other, promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization of such party to enter into this Lease. D. Lessee (except as stated below) or Lessor shall not be held responsible for delays in the performance of its obligations hereunder when caused by material shortages, acts of God or labor disputes. (Lessee's obligation to pay rent or any other monetary obligations to Lessor as expressly set forth in this Lease are not subject to the provisions of this paragraph 22D). E. Lessee agrees, from time to time, within ten (10) days after request of Lessor, to deliver to Lessor, or Lessor's designee, an estoppel certificate in a form reasonably satisfactory to both Lessor and Lessee stating that this Lease is in full force and effect, the date to which rent has been paid, the unexpired term of this Lease, qualifications to statements in the estoppel certificate as are necessary to make the statements therein accurate and such other factual matters pertaining to this Lease as may be requested by Lessor. It is understood and agreed that Lessee's obligation to furnish such estoppel certificates in a timely fashion is a material inducement for Lessor's execution of this Lease. If Lessee fails to execute the same within such ten (10) day period, Lessor shall notify Lessee in writing (the "Estoppel Default Notice") that if Lessee does not provide the signed estoppel certificate to Lessor within three (3) business days after Lessee receives the Estoppel Default Notice then Lessee shall be deemed to be in default of this Lease Agreement and shall not be entitled to the notice and cure periods referenced in Paragraph 18 (E). In addition, Lessee agrees, from time to time, within ten (10) days after request of Lessor, to deliver to Lessor, or Lessor's designee, a copy of the Certificate of Occupancy issued by the City of Richardson, Texas for Lessee's Premises. F. This Lease constitutes the entire understanding and agreement of the Lessor and Lessee with respect to the subject matter of this Lease and contains all of the covenants and agreements of Lessor and Lessee with respect thereto. Lessor and Lessee each acknowledge that no representations, inducements, promises or agreements, oral or written, have been made by Lessor or Lessee, or anyone acting on behalf of Lessor or Lessee, which are not contained herein, and any prior agreements, promises, negotiations, or representations not expressly set forth in this Lease are of no force or effect. This lease may not be altered, changed or amended except by an instrument in writing signed by both parties hereto. G. All obligations of Lessee and Lessor hereunder not fully performed as of the expiration or earlier termination of the term of this Lease shall survive the expiration or earlier termination of the term hereof, including without limitation, all payment obligations with respect to Building Costs and all obligations concerning the condition and repair of the Premises. Upon the expiration or earlier termination of the term hereof, and prior to Lessee vacating the Premises, Lessee shall put the Premises in good condition and repair, reasonable wear and tear, casualty not required to be insured by Lessee under the terms of this Lease and condemnation excluded. H. If any clause or provision of this Lease is illegal, invalid or unenforceable under present or future laws effective during the term of this Lease, then and in that event, it is the intention of the parties hereto that the remainder of this Lease shall not be affected thereby, and it is also the intention of the parties to this Lease that in lieu of each clause or provision of this Lease that is illegal, invalid or enforceable, there be added, as a part of this 20 Lessor MRM ------- Lessee TM ------- Lease, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and be legal, valid and enforceable. J. All references in this Lease to "the date hereof" or Effective Date or similar references shall be deemed to refer to the last date, in point of time, on which all parties hereto have executed this Lease. K. Lessee and Lessor represents and warrants that it has dealt with no broker, agent or other person in connection with this transaction other than Cawley International and each party agrees to indemnify and hold the other party harmless from and against any claims by any other broker, agent or other persons claiming a commission or other form of compensation by virtue of having dealt with the party other than Cawley International with regard to this leasing transaction. Lessor covenants and agrees to pay the lease commissions due to Cawley International for services performed in connection with this Lease and pursuant to the written lease commission agreement between Lessor and Cawley International. L. If and when included within the term "Lessor", as used in this instrument, there is more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of a notice specifying same individual at some specific address for the receipt of notices and payments to Lessor. If and when included within the term "Lessee", as used in this instrument, there is more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of a notice specifying some individual at some specific address within the continental United States for the receipt of notices and payments to Lessee. All parties included within the terms "Lessor" and "Lessee", respectively, shall be bound by notices given in accordance with the provisions of Paragraph 23 hereof to the same effect as if each had received such notice. M. Lessee acknowledges that (1) after the Building is completed in accordance with the terms of this Lease, the buildings and improvements comprising the Premises will be suitable for the purpose for which the Premises are leased and Lessor has made no warranty, representation, covenant or agreement with respect to the merchantability or fitness for any particular purpose of the Premises, (2) no representations as to the repair of the Premises, nor promises to alter, remodel or improve the Premises have been made by Lessor, except as is set forth in this Lease and Exhibit B-1, B-2 and B-3 attached to this Lease, (3) there are no representations or warranties, expressed, implied or statutory, that extend beyond the description of the Premises. 23. NOTICES. Each provision of this Lease or of any applicable governmental laws, ordinances, regulations and other requirements with reference to the sending, mailing or delivering of notice or the making of any payment by Lessor to Lessee or with reference to the sending, mailing or delivering of any notice or the making of any payment by Lessee to Lessor shall be deemed to be complied with when and if the following steps are taken: A. All rent and other payments required to be made by Lessee to Lessor hereunder shall be payable to Lessor at the address for Lessor set forth below or at such other address as Lessor may specify from time to time by written notice delivered in accordance herewith. Lessee's obligation to pay rent and any other amounts to Lessor under the terms of this Lease shall not be deemed satisfied until such rent and other amounts have been actually received by Lessor. In addition to Base Rent due hereunder, all sums of money and all payments due Lessor hereunder shall be deemed to be additional rental owed to Lessor. Cardinal Shiloh 190 II, Inc. (RichardsonTX II) c/o Kennedy Associates 2400 Financial Center Building Seattle, Washington 98161 Attn: Vice President Asset Management 21 Lessor MRM ------- Lessee TM ------- B. All payments required to be made by Lessor to Lessee hereunder shall be payable to Lessee at the address set forth below, or at such other address within the continental United States as Lessee may specify from time to time by written notice delivered in accordance herewith. with a copy to: Ticketmaster Online-City One and Only Search, Inc. 3001 E. Pres. George Bush Freeway, #100 790 East Colorado Blvd. Richardson, Texas 75082 Suite 200 Attn: Real Estate Department Pasadena, CA 91101 Attn: General Counsel C. Any written notice or document required or permitted to be delivered hereunder shall be deemed to be delivered upon the earlier to occur of (1) tender of delivery (in the case of a hand-delivered notice) or (2) deposit in the United States Mail, postage prepaid, Certified or Registered Mail or overnight express addressed to the parties hereto at the respective addresses set out below, or at such other address as they have theretofore specified by written notice delivered in accordance herewith. If to Lessor: Cardinal Shiloh 190 II, Inc. (RichardsonTX II) c/o Kennedy Associates 2400 Financial Center Building Seattle, Washington 98161 Attn: Vice President Asset Management If to Lessee: with a copy to: Ticketmaster Online-City One and Only Search, Inc. 3001 E. Pres. George Bush Freeway, #100 790 East Colorado Blvd. Richardson, Texas 75082 Suite 200 Attn: Real Estate Department Pasadena, CA 91101 Attn: General Counsel 24. HAZARDOUS WASTE. The term "Hazardous Substances", as used in this Lease shall mean pollutants, contaminants, toxic or hazardous wastes, or any other substances, the removal of which is required or the use of which is restricted, prohibited or penalized by any "Environmental Law", which term shall mean any federal, state or local law or ordinance relating to pollution or protection of the environment. Lessee hereby agrees that (i) no activity will be conducted on the Premises, Building or Land by Lessee or its agents, customers, employees, contractors or subtenants that will produce any Hazardous Substances, except for such activities that are part of the ordinary course of Lessee's business activities (the "Permitted Activities") provided said Permitted Activities are conducted in accordance with all Environmental Laws and have been approved in advance in writing by Lessor, (ii) the Premises, Building and Land will not be used in any manner by Lessee or its agents, customers, employees, contractors or subtenants for the storage of any Hazardous Substances except for any temporary storage of such materials that are used in the ordinary course of Lessee's business (the "Permitted Materials") provided such Permitted Materials are properly stored in a manner and location meeting all Environmental Laws and approved in advance in writing by Lessor (Lessor acknowledges that the Permitted Materials shall include office supplies in reasonable amounts needed to conduct Lessee's office use and stored in compliance with City, State and Federal Laws including copier and printer toner cartridges and ink, white out, cleaners like Windex and Formula 409 and other similar normal and customary office supplies); (iii) no portion of the Premises, Building or Land will be used as a landfill or a dump; (iv) Lessee will not install any underground tanks of any type; (v) Lessee will not allow any surface or surface conditions to exist or come into existence that constitute, or with the passage of time may constitute a public or private nuisance; (vi) Lessee will not permit any Hazardous Substances to be brought onto the 22 Lessor MRM ------- Lessee TM ------- Premises, Building or Land, except for the Permitted Materials, and if so brought or found located thereon, the same shall be immediately removed, with proper disposal, and all required cleanup procedures shall be diligently undertaken pursuant to all Environmental Laws. If at any time during or after the term of the Lease, Lessee breaches its obligations as set for above or if the Premises is found to be contaminated by Lessee or it's agents, customers, employees, contractors or subtenants or subject to said conditions by Lessee or its agents, customers, employees, contractors or subtenants, Lessee agrees to indemnify and hold Lessor harmless from all claims, demands, actions, liabilities, costs, expenses, damages and obligations of any nature arising from or as a result of the use of the Premises, in violation of this Paragraph 24, by Lessee or its agents, customers, invitees, employees, contractors or subtenants. The foregoing indemnification shall survive the termination or expiration of this Lease. Lessor shall be responsible, at its expense, for the cost of clean up or any other remedial measures for any contamination by hazardous materials of the Premises existing prior to the Commencement Date of this Lease or caused by Lessor or its agents, employees or contractors. 25. MARKET RATE RENEWAL. Provided that Lessee is not in default of any of the terms, covenants and conditions hereof beyond any applicable cure period,, and this Lease has not been assigned or the Premises (or a part thereof) sublet, without written consent from Lessor except to a Permitted Assignee, Lessee shall have the right and option to extend the original term of this Lease for one (1) further term of sixty (60) months. Such extension of the original term shall be on the same terms, covenants and conditions as provided for in the original term except for this paragraph 25 and except that the rental rate specified in Paragraph 2A of this Lease during the extended term shall be at the fair market rental then in effect on comparable properties, of comparable size, in comparable areas taking into account all factors, including without limitation concessions to lessees (the "Fair Market Rent"). Lessee shall deliver written notice to Lessor of Lessee's intent to exercise the renewal option granted herein not more than twelve (12) months nor less than six (6) months prior to the expiration of the original term of this Lease. In the event Lessee fails to deliver such written notice within the time period set forth above, Lessee's right to extend the term hereof shall expire and be of no further force and effect. In the event Lessor and Lessee fail to agree in writing upon the Fair Market Rent within (30) days after exercise by Lessee of this renewal option, Lessee may either (i) waive its right to renew or (ii) elect to have the Fair Market Rent determined by the appraisal procedure set forth below: (a) If Lessee has elected to have the Fair Market Rent determined by an appraisal, then within ten (10) days after receipt of Lessee's written notice of such an election, each party, by giving written notice to the other party, shall appoint an appraiser to render a written opinion of the Fair Market Rent for the 60 month Renewal Period. Each appraiser must be a member of the Appraisal Institute of America (MAI) for at least five years and with at least five years experience in the appraisal of rental rates of office properties in the area in which the Premises are located and otherwise unaffiliated with either Lessor or Lessee. The two appraisers shall render their written opinion of the Fair Market Rent for the 60 month Renewal Period to Lessor and Lessee within twenty (20) days after the appointment of the second appraiser. If the Fair Market Rent of each appraiser is within five percent (5%) of each other, then the average of the two appraisals of Fair Market Rent shall be the Base Rent for the 60 month Renewal Period. If one party does not appoint its appraiser as provided above, then the one appointed shall determine the Fair Market Rent. The Fair Market Rent so determined under this subparagraph shall be binding on Lessor and Lessee. (b) If the Fair Market Rent determined by the appraisers is more than five percent (5%) apart, then the two appraisers shall pick a third appraiser within ten (10) days after the two appraisers have rendered their opinions of Fair Market Rent as provided above. If the two appraisers are unable to agree on the third appraiser within said ten (10) day period, Lessor and Lessee shall mutually agree on a third appraiser within ten (10) days thereafter. The third appraiser shall be a person who has not previously acted in any capacity for either party and must meet the qualifications stated above. 23 Lessor MRM ------- Lessee TM ------- (c) Within twenty (20) days after its appointment, the third appraiser shall render its written opinion of the Fair Market Rent for the 60 month Renewal Period ("Third Opinion"). The appraisal of Fair Market Rent made by Lessor's or Lessee's appraiser that is closest to the Fair Market Rent specified in the Third Opinion shall be the Base Rent during the 60 month Renewal Period. If the Fair Market Rent set forth in the Third Opinion is equidistant from the Fair Market Rent made by Lessor's or Lessee's appraiser, then the Fair Market Rent contained in the Third Opinion shall be the Base Rent during the 60 month Renewal Period. The Fair Market Rent so determined under this subparagraph shall be binding on Lessor and Lessee. (d) Each party shall bear the cost of its own appraiser and one-half (1/2) the cost of the third appraiser. (e) After the Fair Market Rent for the 60 month Renewal Period has been established in accordance with the foregoing procedure, Lessor and Lessee shall promptly execute an amendment to this Lease to reflect the Base Rent for the 60 month Renewal Period. 24 Lessor MRM ------- Lessee TM ------- 26. EXPANSION SPACE Beginning on the Effective Date of this Lease Agreement and ending on February 14, 2002, when all or part of the approximately 29,275 square fee of rentable space (the "Expansion Space") adjacent to the Premises which is outlined on Exhibit H to this Lease is offered (independently or as part of all or part of any of the space on the second floor of the Building) in writing by Lessor for lease to a third party (the "Third Party Offer") and provided that Lessee is not then in default hereunder then Lessor shall also make an offer to Lessee (the "Lessee Offer") to lease the part of the Expansion Space offered in the Third Party Offer, at the $16.87/rentable sq. ft./yr. base rental rate being paid by Lessee and with a finish allowance (as defined below) to be used consistent with the terms of this lease (less the cost of any improvements to the Expansion Space which have been or are being installed by Lessor at the time of the Lessee Offer) and at a lease term coterminous with Lessee's remaining lease term of this Lease and in accordance with the provisions of this Lease Agreement. If within ten (10) calendar days after Lessor delivers the Lease Offer with an Expansion Agreement to Lessee, Lessee does not elect to lease the offered Expansion Space as evidenced by Lessee returning three original signed copies of the amendment to Lease Agreement for the offered Expansion Space (the "Expansion Agreement") to Lessor; then Lessee's right to lease the offered Expansion Space shall expire and, except as provided below, Lessee shall have no further rights pursuant to this Lease to lease the offered Expansion Space, and Lessor may lease the part of the Expansion Space offered in the Third Party Offer to the third party. The Expansion Agreement will include a rent commencement date for the leased Expansion Space equal to the earlier of the date Lessee occupies the leased Expansion Space to conduct business or ten (10) days after the completion by Lessor of the base improvements for the leased Expansion Space. Lessee shall have no termination rights for the Expansion Agreement as are included in paragraph 1F of this Lease; however, Lessee shall Base Self Cure rights for the leased Expansion Space. If (i) the third party does not lease the offered Expansion Space or (ii) if the third party does lease the offered Expansion Space and the lease on the offered Expansion Space terminates prior to February 14, 2002, then Lessor agrees that Lessees rights pursuant to this Paragraph will be repeated for any new Third Party Offer on the offered Expansion Space subject and subordinate to any rights in favor of a third party that has leased the Expansion Space which is not part of the offered Expansion Space. If the third party does lease the offered Expansion Space, then this paragraph is void and are no longer a part of this Lease Agreement except as provided in the preceding sentence and except that if the third party did not lease all of the Expansion Space, this offer will be repeated for any then remaining Expansion Space not leased by the third party. After February 14, 2002 this paragraph is void and is no longer a part of this Lease Agreement. The finish allowance for the Expansion Space shall be equal to the number of rentable sq. ft. in the Expansion Space leased by Lessee multiplied by $16.14/sq. ft. less $.25/sq. ft. for each month between the Rent Commencement Date and the rent commences for the area leased in the Expansion Agreement. (example: If the rent commences for the area leased in the Expansion Agreement 8 months after the Rent Commencement Date, the finish allowance for the Expansion Area is equal to $14.14/sq. ft.) The Cancellation Fee pursuant to paragraph 28 will be increased by an amount equal to the number of rentable sq. ft. in the Expansion Space leased by Lessee multiplied by $19.43/sq. ft. 25 Lessor MRM ------- Lessee TM ------- 27. GENERATOR AND ENCLOSURE. Lessor agrees that Lessee may install, at Lessee's sole cost, liability and expense an emergency generator and battery system (the "Generator System") in the location shown on Exhibit I. Lessee agrees, prior to installation of the generator, to provide Lessor a detailed plan specifying the size, type and location of the Generator System, which will be subject to Lessor's approval, which shall not be unreasonably withheld, delayed or conditioned. Lessee agrees that the Generator System will be housed in a four sided masonry wall enclosure (the "System Enclosure") using materials and design consistent with the exterior Building walls. Lessee agrees that the System Enclosure (i) will not be larger than the minimum clearance requirements as specified by the equipment manufacturer which shall not exceed 20' in length and 15' in width and (ii) will be constructed by Lessee at Lessee's sole cost and expense. Lessee agrees that Generator System will not be higher than the top of the System Enclosure which shall not exceed 10'. Lessor acknowledges that, as a part of the Generator System, Lessee intends on installing a small above ground diesel fuel storage tanks for the Generator System and within the System Enclosure. Lessee shall be responsible for complying with all applicable City of Richardson, State of Texas and Federal rules, regulations and guidelines regarding the installation, monitoring, testing and use of the diesel storage tank. Lessee agrees to provide Lessor with a copy of all correspondence with City, State or Federal agencies regarding the diesel storage tanks and any associated leaks, spills or contamination. Lessor and Lessee shall both have access to the Generator System for inspection and to perform the requirements of this Lease. In addition Lessee shall be responsible for complying with the provisions of Paragraph 24 of this Lease. Lessee shall be responsible for maintaining the Generator System and System Enclosure and for complying with all applicable City of Richardson, Texas fire and building codes regarding the installation and use of the Generator System at Lessee's sole cost and expense. Lessor agrees to reimburse Lessee for the cost of the Generator System and System Enclosure to the extent of the available Finishout Allowance in accordance with the terms and provisions of Exhibit B-4. The Generator System and System Enclosure shall be owned by Lessor, the above, if Lessor reimburses Lessee for less than 25% of the cost of the Generator System, the Generator System shall be subject to removal by Lessee at the expiration or earlier termination of the Lease. 28. CANCELLATION OPTION. Provided that this Lease has not been assigned or the Premises (or a part thereof) sublet without written consent from Lessor, Lessee shall have the one time option to terminate this Lease Agreement effective thirty-six (36) full calendar months after the Rent Commencement Date. Exercise of such option by Lessee shall not relieve Lessee of any obligations hereunder that exist or accrue to the effective date of termination. Such termination is conditioned upon Lessee's providing prior written notice and paying the Cancellation Fee. Notice of Lessee's intention to terminate this Lease Agreement must be received by Lessor in writing not less than one hundred eighty days (180 days) prior to the effective date of termination (the "Notice Date"). Said date of termination would be effective as if the date had been the original termination date under this Lease Agreement. Accordingly, Lessee shall be liable and responsible for its obligation and liabilities under the Lease Agreement, which include but are not limited to restoration of the Premises to the condition required by this Lease Agreement. In addition Lessee shall pay Lessor, at the time of the Notice Date an amount equal to $608,000 representing the Cancellation Fee. In the event Lessee fails to deliver such notice of termination or pay the Cancellation Fee within the time period set forth above, this Lease Agreement shall remain in full force and effect. 29. SATELLITE DISH, ANTENNAE, CABLES. Satellite antenna dishes with associated antennae and cables (the "Satellite System") may be installed and operated on the roof of the Building at Lessee's sole cost and expense, provided that the Satellite System does not protrude above the parapet wall of the Building and the weight of the Satellite System does not impair the structural integrity of the roof. Prior to the installation of the Satellite System, Lessee shall obtain Lessor's prior approval, which will not be unreasonably withheld, delayed or conditioned, of the location and type of Satellite System. Lessee shall, upon the expiration or termination of this Lease, at its sole cost and expense, remove the Satellite System and repair any damage to the roof or other parts of the Building. Lessee shall, at its sole cost and expense, secure all necessary permits for the installation and operation of the Satellite System. 30. YEAR 2000 COMPLIANCE. Lessor represents that at the time of execution of this Lease by Lessor to the best of its knowledge the equipment and systems in the Building, Common Area and Premises installed by Lessor are Year 2000 Compliant to the extent they may impact Lessee's use, occupancy and 26 Lessor MRM ------- Lessee TM ------- enjoyment of the Premises and Lessee's rights as described in this Lease. As used herein, the term "Year 2000 Compliant" shall be deemed to mean that the computer controlled components (software driven and embedded microprocessor technology) of the Building and the Premises, including the furniture, fixtures, equipment, machinery and building systems contained therein, can accurately process date/time data (including, but not limited to calculating, comparing and sequencing) from, into, and between the twentieth and twenty-first centuries, and the years 1999 and 2000 ("Millennium Date Change"). Lessor agrees, at its cost and expense, to use commercially reasonable efforts to address Millennium Date Change issues associated with the Common Area Computer Systems in order to avoid disruption of Building services and operations. EXECUTED BY LESSOR, this 17th day of November, 1999. Attest/Witness Cardinal Shiloh 190 II, Inc. a Texas corporation By: /s/ Janette K. Todd By: /s/ [ILLEGIBLE] Title: Administrative Assistant Title: Vice President EXECUTED BY LESSEE, this 11 day of November, 1999. Attest/Witness Ticketmaster Online-CitySearch, Inc. a Delaware corporation By: /s/ Bradley K. Serwin By: /s/ Thomas McInerney Title: VP Title: EVP & CFO 27 Lessor MRM ------- Lessee TM ------- - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. EX-10.19 12 a2041707zex-10_19.txt EXHIBIT 10.19 EXHIBIT 10.19 TICKETMASTER ONLINE-CITYSEARCH, INC. -w- ARTISTdirect, INC. AGREEMENT This Agreement (this "Agreement") is entered into as of the 20th day of July, 2000, by and between Ticketmaster Online-CitySearch, Inc. ("TMCS") and ARTISTdirect, Inc. ("AD"). For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. ONLINE TICKETING. 1.1. TMCS will provide AD with a framed, co-branded ticketing solution within the network of web sites maintained by AD and located on the World Wide Web through WWW.ARTISTDIRECT.COM (the "AD Network") utilizing TMCS' main ticketing web site, located at the URL WWW.TICKETMASTER.COM ("ticketmaster.com"). TMCS will provide two different types of co-branded ticketing. The first type will include all live music events listed in the ticketmaster.com live event ticketing inventory and will be provided in real-time via a framed implementation of the ticketmaster.com site (the "Co-Branded Ticketing Site"). The second type will include all live music events for a particular artist listed in the ticketmaster.com live event ticketing inventory for each respective musical artist for whom AD operates an official Internet website (each, an "AD Artist"; collectively, "AD Artists") and will be provided in real-time via a framed implementation of the ticketmaster.com site (each an "Artist Channel Ticketing Site" and, collectively, the "Artist Channel Ticketing Sites"). 1.2. In each case, the frame will be served by AD into a site hosted by ticketmaster.com in the ticketmaster.com domain. The look and feel of the frame will be determined by AD subject to the reasonable approval of TMCS. The look and feel of the ticketmaster.com portion of the Co-Branded Ticketing Site and of the Artist Channel Ticketing Sites will be consistent with the look and feel of the ticketmaster.com website; provided, however, that TMCS will use commercially reasonable efforts to develop the ticketmaster.com portion of the Co-Branded Ticketing Site to incorporate more of the look and feel of the AD frame. AD acknowledges that TMCS believes such implementation will not be available for at least six months after execution hereof. 1.3. Neither party will have liability in the event that technological problems, event changes/cancellations or other acts outside of the control of TMCS or AD limit or prevent ticketmaster.com from selling some or all of the tickets expected to be available for sale to the general public or allocated to any pre-sale as described below. AD acknowledges that it has reviewed the ticketmaster.com web site and agrees to comply with all of the stated terms and conditions therein, as well as with any revisions to such terms and conditions which may be made in TMCS' sole discretion from time to time and of which TMCS has provided AD with at least 30 days prior notice (individually and collectively, "Revisions"). In the event that AD reasonably objects to any Revisions during the 30-day notice period, AD shall notify TMCS in writing of its objections, its reasons for such objections and its suggested revisions ("AD's Suggestions") to address its objections. If TMCS disagrees with AD's Suggestions, representatives of TMCS and AD shall meet to discuss AD's objections. If after such meeting the parties still have unresolved differences regarding TMCS' Revisions, and TMCS in fact implements those Revisions to which AD has objected in writing in a manner that is materially different from AD's Suggestions, then AD shall have the fight to terminate this Agreement upon notice in its sole and exclusive discretion. Notwithstanding the foregoing, AD will have no right to object to any Revisions that are made solely to comply with changes in applicable laws; provided, however, that any such Revisions are no broader or more extensive than reasonably necessary to comply with such changes in applicable laws. 1.4. AD agrees that TMCS will be responsible for customer service relating to the sale of tickets on the Co-Branded Ticketing Site and on the Artist Channel Ticketing Sites and that AD will refer all customer inquires to TMCS or Ticketmaster Corporation ("TM") as directed by TMCS from time to time. TMCS and TM agree to facilitate the referral of customer inquiries through mutually agreed procedures. AD agrees that all decisions regarding customer service matters will be made by TMCS and TM in their sole discretion. 2. PRE-SALE COOPERATION. 2.1. Subject to applicable venue and other third-party agreements (e.g., agreements between TMCS and third parties or TM and third parties), TMCS and AD will work together and use best efforts to cause their respective affiliates and musical artists to work together to enable and execute "ticket pre-sales" on the applicable Artist Channel Ticketing Sites (individually, a "Pre-Sale"; collectively, "Pre-Sales"). Without limiting the foregoing provisions of this Section 2.1, TMCS shall use its best efforts (and shall cause TM to use its best efforts) to cause Pre-Sales to be permitted when opportunities for artist Pre-Sales are presented by AD to TMCS or TM. 2.2. Without limiting any other provisions of this Section 2, TMCS agrees that Pre-Sales for AD Artists shall be offered on the applicable Artist Channel Ticketing Sites, on either an exclusive or non-exclusive basis, for no fewer than fifty percent (50%) of the presales conducted by TMCS annually for such artists. 2.3. TMCS and AD will enter into a separate agreement for each Pre-Sale, which agreement will set forth the dates of the Pre-Sale, any unique economic terms of the Pre-Sale, any special promotion to be provided by either party for the Pre-Sale, whether the Pre-Sale will be password protected (i.e. available only to certain persons or to members of the general public), whether or not the parties will make a press release about the Pre-Sale, and other terms that the parties shall agree upon with respect to the Pre-Sale. 3. AD TICKET NAVIGATION. 3.1. AD will create a tab titled "Tickets" on the top,of-network navigation bar (or in a location with substantially similar prominence), that will be displayed, among other places, on the home page of the AD web site, and which will link to a page (the "Ticket Directory Page") that will have prominent, above-the-fold ticketmaster.com branding and will feature, and link to, the Co-Branded Ticketing Site and the Artist Channel Ticketing Sites. 2 3.2. TMCS will have the right to reasonably approve the look and feel of any TMCS Material (as defined below) included on the Ticket Directory Page. Elsewhere on the AD Network, wherever links to the Co-Branded Ticketing Site and/or the Artist Channel Ticketing Sites are featured, AD will also feature either adjacent thereto or in as close proximity thereto as the particular context permits, ticketmaster.com branding and the words "available through ticketmaster.com" or similar wording providing attribution for the ticketing services to ticketmaster.com, in a manner that will be agreed upon by the parties (e.g., if the link appears in the middle of a paragraph, appropriate ticketmaster.com branding will appear at the end of, or beside, such paragraph). 4. TICKETING EXCLUSIVITY/CONFLICTS. 4.1. DEFINITIONS. 4.1.1. "Home Pages" means the home pages in each of the following domains: artistdirect.com, ubl.com, imusic.com, downloadsdirect.com and any other primary music-oriented domains within the AD Network. 4.1.2. "Legitimate Editorial Purposes" means the use of a Third-Party Mark for editorial purposes, as determined in the reasonable discretion of AD, as contrasted with advertising or promotional purposes. Non-inclusive examples of Legitimate Editorial Purposes include use of a Third-Party Mark in tour venue listings and in lists of companies that are offering for sale or serving as the agent for sale of live event tickets. 4.1.3. "Paid Advertising" means promotional content for which the party being promoted has tendered cash or in-kind consideration to the party displaying the promotional content. 4.1.4. "Third-Party Mark" means a name or mark of a non-TMCS/TM ticketing agent. 4.1.5. "Ticketing Page" means any page within the AD Network that incorporates a TMCS or TM mark and is primarily devoted (a) to the sale of tickets for live music events or (b) to companies that sell tickets to live music events; for avoidance of doubt, the Ticket Directory Page, the Co-Branded Ticketing Site and the Artist Channel Ticketing Sites shall not be considered Ticketing Pages. 4.2. CO-BRANDED TICKETING SITE AND ARTIST CHANNEL TICKETING SITE RESTRICTIONS. AD agrees it will not feature branding, Paid Advertising, unpaid advertising, or sponsorships on the Co-branded Ticketing Site or on the Artist Channel Ticketing Sites from any of the TMCS competitors identified on the attached Exhibit A (collective&y, "TMCS Competitors"), which Exhibit may be updated from time-to-time pursuant to the mutual approval of AD and TMCS, such approval not to be unreasonably withheld or delayed. 4.3. HOME PAGES, TICKETING DIRECTORY- PAGE AND TICKETING PAGES RESTRICTIONS. AD agrees it will not feature Paid Advertising, sponsorships or stylized logos of TMCS 3 Competitors on any of the Home Pages, the Ticketing Directory Page or any Ticketing Page. In addition, AD agrees that it will only display names or marks of TMCS Competitors on the Home Pages, the Ticketing Directory Page or any Ticketing Page for Legitimate Editorial Purposes, and, when it does so, it will cause the TMCS mark to be equally prominent as or more prominent than any Third-Party Mark featured on such page(s). 4.4. OTHER AD RESTRICTIONS. AD agrees it will not run Paid Advertising or sponsorships of TMCS Competitors on any other pages in web sites controlled by AD where TM or TMCS marks are featured pursuant to this Agreement, and AD agrees that if and when it displays any Third-Party Mark on such pages: (a) it will do so only for Legitimate Editorial Purposes; and (b) it will cause the TM or TMCS mark(s) to be equally prominent as or more prominent than any Third-Party Mark featured on such page(s). 4.5. OTHER PROVISIONS. AD shall at no time be prohibited from offering for sale tickets or ticketing solutions from any third party in the event that such offerings are for concerts or activities not offered by TMCS to AD pursuant to this Agreement. 4.6. TMCS RESTRICTIONS. TMCS will not provide to any musical artist web site hosted directly or indirectly by any third party (as compared with the artist) other than AD, a ticketmaster.com online ticketing solution substantially similar to the one described in Section 1 of this Agreement. TMCS further will not provide to any music-oriented web site hosted directly or indirectly by any third party other than AD, an artist-specific online ticketing solution substantially similar to the Artist Channel Ticketing Sites. 5. TICKETING SERVICE CHARGE SPLIT. 5.1. Standard. AD will receive $.30 per ticket for all tickets sold to buyers accessing the ticketmaster.com website as part of the Co-Branded Ticketing Site or the Artist Channel Ticketing Sites. TMCS shall provide AD with a monthly report of commissions payable, within 7 days after the end of each month of the Term Payments will be made quarterly in arrears, within 30 days of the end of each quarter of the Term Payments will be offset for commissions on any tickets returned or not paid for due to credit card charge-backs. AD must generate at least $1,000.00 in commissions to receive a quarterly payment. If AD does not generate this minimum in any one quarter, payment for that quarter will be included in the next quarterly payment. In no case, will payment be withheld for more than two consecutive quarters regardless of the amount of commissions payable. With respect to the Rage Against the Machine/Beastie Boys tour pre-sale ("RATM Pre-Sale"), notwithstanding anything in this agreement to the contrary, including the fact that the RATM Pre-Sale commenced prior to the execution of this Agreement, all tickets sold to buyers accessing the ticketmaster.com website from the AD Network (including without limitation the Rage Against the Machine and Beastie Boys sites) will qualify for the commission described in this Section 5.1 as if they were sold as part of the Co-Branded Ticketing Site or the Artist Channel Ticketing Sites. 5.2. Artist Controlled Tickets. Subject to applicable venue agreements, the venue's prior consent and payment to the venue of its share of applicable service charges and other fees under any existing TM contract or any contract TM enters into after the date of the Agreement, 4 in the event an artist affiliated with AD controls and has authorization with respect to the sale of all or a portion of the available tickets at a particular venue for a particular event, TMCS will cause TM to agree to serve as the exclusive agent to distribute (but not redistribute) those tickets controlled by such artists (as contrasted with tickets controlled by venues or other third parties) if: - the applicable venue has an exclusive ticketing contract with TM and the artist has rented and controls the entire venue and therefore controls distribution of all tickets; or - the applicable venue has an exclusive ticketing contract with TM and the artist has obtained an allocation of tickets from the venue for the purpose of selling those tickets to its fan club(s) but not to the general public and in an amount not to exceed 5% of the total tickets available for sale to the general public; or - the applicable venue does not have an exclusive ticketing contract with TM and the artist has obtained an allocation of tickets from the venue for the purpose of selling those tickets to its fan club(s) or to the general public and the venue represents to TM and TMCS in writing that it has the right to allow TM and TMCS to distribute these tickets and agrees to indemnify TM and TMCS for breaches of that representation. Notwithstanding the previous sentence, TM and TMCS shall have the right to approve the form and substance of such representation and indemnity in its sole discretion prior to becoming obligated to sell tickets for events at such a venue. In exchange for the appointment as the exclusive agent to distribute tickets under this provision, unless the parties agree to a different arrangement for the particular event, TMCS will pay to AD 50% of the net revenue from the distribution of such tickets (which AD may share with the applicable artist in its sole discretion) after deducting all applicable payments to the venue under then existing agreements between the venue and TM, if any, and TM's direct expenses which the parties agree to be $2.75 per ticket. 5.3. Audit Rights. AD will have the right to audit TMCS' books and records related to the commissions and other monies payable by TMCS to AD pursuant to this Agreement upon prior written notice to TMCS, at AD's expense; provided, however, that AD may conduct such audit only: (a) during TMCS' normal business hours; (b) upon reasonable notice to TMCS; and (c) within one (1) year after the date payments are rendered to AD hereunder. Each payment shall be deemed final and binding upon AD as an account stated and shall not be subject to any claim or objection by AD (i) unless AD notifies TMCS of AD's specific written objection to the applicable payment, stating the basis thereof in reasonable detail within one year after the date such payment is rendered hereunder, and (ii) unless, within ninety (90) days following said one (1) year period, AD makes proper service of process upon TMCS in a suit instituted in a court of proper jurisdiction pursuant to the terms of this Agreement. 6. ADVERTISING. AD will purchase advertising from TMCS in accordance with the following terms: 5 6.1. Provided that TMCS delivers 14 million click-throughs as described below, AD's total advertising buy over three years shall be $7 million (i.e., $0.50 per click-through), subject to the terms, conditions and payment schedule described in this Section 6. 6.2. TMCS will guarantee a minimum of 20,800,000 impressions per calendar quarter throughout the three year term. Such impressions will consist of banners, micro-banners, text links, tiles and other customized graphics as the parties will agree upon from time to time. AD advertising elements will be placed on ticketmaster.com unique concert pages, artist pages, music genre pages, ticket purchase confirmation pages, artist pages on LiveDaily.com, and mutually agreed-upon pages of store.ticketmaster.com. These advertising elements may include links to any and all of AD's online properties, including without limitation: - AD Official Artist Stores; - special offers within those Official Artist Stores; - Official Artist Sites hosted by AD; - Artist pages within UBL.com; - Artist bios within UBL.com; - Special events (e.g. live chats, etc...) and promotional offers relating to AD artists; and - Other special offers or programs from AD. The selection of particular advertising elements and the precise placement of those elements on TMCS properties will be mutually agreed to by AD and TMCS, with no agreement from either party to be unreasonably withheld or delayed, with a primary, but not exclusive, goal of selecting those placements that are likely to yield the highest click-through rates to AD. AD agrees that TMCS will be provided with the opportunity to run the maximum number of impressions reasonably necessary to allow TMCS to meet the goals of the program described in this Section 6. Subject to approval by AD, such approval not to be unreasonably withheld or delayed, and on at least seven days prior written notice, TMCS shall have the fight to add placements to optimize delivery of the targeted click-throughs to AD throughout the term of this Agreement. TMCS shall have the fight to reduce or withdraw placements with prior written notice to AD in the event TMCS reasonably and in good faith determines that it is likely to over-deliver the monthly click-through target of 388,889 click-throughs (as described in Section 6.3, below). TMCS and AD will work together to explore other opportunities for cost-effective delivery of advertising across other TMCS properties, but placement of advertising on any such properties shall be subject to AD's prior written approval. 6.3. TMCS will charge AD $0.50 per click-through. "Click-throughs" mean the act by users of a TMCS web site (other than users who are accessing the TMCS web site from a TMCS server) to direct their browsers to any site operated by AD on behalf of itself or its artist clients, through the process of "clicking" on an AD banner advertisement, link, icon or other graphic placed on TMCS sites pursuant to the terms of this Agreement. The goal of the TMCS placements will be to deliver 388,889 click-throughs per month. TMCS will use its best efforts to deliver 14,000,000 click-throughs over 36 months to be delivered equally across flight (i.e., 388,889 per month for 36 months). 6 6.4. AD will pay TMCS for the prior month's click-throughs monthly in arrears. The minimum quarterly amount payable by AD to TMCS in connection with advertising pursuant to this Section 6 shall be $250,000; provided, however, that, in the event TMCS delivers fewer than 20,800,000 impressions during a particular quarter, the minimum quarterly amount shall be reduced by multiplying it by a fraction, the numerator of which is equal to the number of impressions actually delivered during such quarter, and the denominator of which is equal to 20,800,000. In no event will AD be obligated to pay TMCS more than $194,444 per month, regardless of the number of click-throughs for the applicable month, other than pursuant to Section 6.9, below. 6.5. In the event that TMCS provides more than 388,889 click-throughs in an applicable month (the "Cap"), but fewer than 427,778 click-throughs (the "Excess Cap"), then the number of click-throughs in excess of the Cap but less than the Excess Cap will be carried forward and treated for all purposes as if they were delivered in the subsequent month. Any click-throughs in excess of the Excess Cap will not be carried forward and will be deemed provided to AD free of charge. 6.6. In the event that TMCS provides fewer click-throughs than the Cap in an applicable month, the difference between the actual amount delivered and the Cap will be added to the Cap for the subsequent month. The Cap will therefore be adjusted upwards beginning in the subsequent month. Likewise, such difference will be added to the Excess Cap beginning in the subsequent month. 6.7. The Cap and the Excess Cap will be reset to the original amounts once TMCS has delivered click-throughs equal to the applicable Cap, as such Cap might have been adjusted pursuant to Section 6.6, above, in a particular month. 6.8. In the event that AD has not paid TMCS the minimum quarterly amount in the ordinary course under this Section 6 for a particular quarter, TMCS will invoice AD for the difference between ordinary course AD payments and the minimum quarterly payment. Payment of any minimum quarterly amount will not affect the setting of the Cap or the Excess Cap. 6.9. AD can waive the Cap and the Excess Cap in its sole discretion in order to prevent TMCS from removing links or otherwise reducing click-throughs in any particular month. In the event that AD waives the Cap and the Excess Cap, it agrees to pay for all click-throughs in excess of the Excess Cap at the rate of $.35 per click. Such excess payments will not be applied against the total program cap of $7,000,000. No amount of click-throughs are guaranteed. 6.10. TMCS agrees to provide weekly reporting of impressions and click-throughs, and AD and TMCS will work together to modify placements and content to actively manage the advertising program to achieve targets for click-throughs. AD will have the right to audit the books and records of TMCS, at AD's cost, upon prior written notice for the purpose of confirming the TMCS monthly reports and AD's obligations to make related payments to 7 TMCS. AD may conduct such audits only during TMCS' normal business hours and upon reasonable notice to TMCS. 6.11. For avoidance of doubt, all monthly and quarterly commitments identified in this Agreement, including commitments as to impressions, click-throughs and payments, shall be calculated on a calendar basis, with appropriate pro-rations applied with respect to the first and last months/quarters of the term. 7. DATABASE DEVELOPMENT. 7.1. On a trial basis, until and unless AD requests in writing that TMCS cease the program described in this Section 7 as of a specified date (sometimes referred to hereinafter as the "Termination Date"), which date shall not be prior to the implementation of the program described in this Section 7 for at least two (2) artist tours, TMCS agrees to place an "artist newsletter sign-up" opt-in box on the confirmation page of live event ticket sales for the applicable AD artist client with a look and feel to be mutually agreed upon by the parties, for all AD artist clients (including those who may become associated with AD during the term of this Agreement). The opt-in box will encourage ticket-buyers to elect to receive the applicable artist's email communications that may be sent by AD, its affiliates, licensees, successors or assigns, on behalf of such artist in the future. The opt-in box will require that the user provide TMCS with, or authorize the use by TMCS of, the following information: name, email address, street address, event for which tickets were purchased, date of event, and location of event. TMCS will pre-populate those portions of the opt-in box for which TMCS has information to encourage opt-ins. TMCS will also inform users of the manner in which they can change or delete their information in the future. TMCS will display a link to AD's privacy policy adjacent to the opt-in box and state that users can learn how their information will be used by reviewing that policy. 7.2. TMCS will provide AD with all of the information collected from, or authorized for use pursuant to, the opt-in box for use by AD on behalf of its artist clients as discussed below. AD agrees to use such information only in accordance with its published privacy policy or such other published privacy policy that may be applicable with respect to such information and that is presented to a user at the time the user submits such information. AD agrees to comply with user requests to change or delete such information in AD's database upon receipt of such requests for same from TMCS or directly from the user. TMCS will have co-ownership of the individual information passed by TMCS to AD. Neither party will use any user data generated from "artist newsletter sign-up" opt-in boxes until the parties have coordinated their respective privacy policies and mutually agreed upon the rules with respect to usage of such data. 7.3. Pursuant to the further terms and conditions of Section 7.4, below, AD will pay to TMCS a fee in the amount of $4.00 ("User Acquisition Fee") for each user who chooses to register either by opting-in and completing the opt-in information him/herself, or by submitting a registration form after the opt-in box has been pre-populated by TMCS, but specifically excepting any user ("AD User") who, based on the email addresses provided by such user in the opt-in box, already is included in one or more user databases owned, controlled or operated by AD. In addition, in the event that AD engages in any particular marketing effort targeted 8 towards an AD User based solely on information obtained about such AD User from TMCS, then AD also shall pay to TMCS the User Acquisition Fee for such AD User if AD had not previously paid the User Acquisition Fee for such AD User. The payments described in this Section 7.3 will be in addition to any payments that may be owed to TMCS for "click-through" advertising pursuant to Section 6, above. For avoidance of doubt, no such payments under this Section 7.3 will become due subsequent to the Termination Date. 7.4. TMCS and AD will determine the amounts (if any) due under this Section 7 as follows: TMCS will provide AD on a weekly basis with a list of the email addresses of all persons who have opted in (as described in this Section 7), broken down on an artist-by-artist basis, in a mutually agreed-upon electronic form. AD will compare the email list with its existing database for the applicable artist and provide TMCS with a list of the pre-existing users in AD's databases, along with a check for the net number of new users registering via the opt-in process. Upon receipt of such list and check, TMCS will pass the remaining portions of the opt-in information to AD for new registered users. TMCS will have the right to audit the AD database with respect to this Section 7 upon prior written notice to AD, at TMCS' expense; provided, however, that TMCS may conduct such audit only: (a) during AD's normal business hours; (b) upon reasonable notice to AD; and (c) within one (1) year after the date payments are rendered to TMCS hereunder. Each payment shall be deemed final and binding upon TMCS as an account stated and shall not be subject to any claim or objection by TMCS (i) unless TMCS notifies AD of TMCS' specific written objection to the applicable payment, stating the basis thereof in reasonable detail within one year after the date such payment is rendered hereunder, and (ii) unless, within ninety (90) days following said one (1) year period, TMCS makes proper service of process upon AD in a suit instituted in a court of proper jurisdiction pursuant to the terms of this Agreement. 8. DATABASE MARKETING. AD and TMCS will work together to execute pre-event and/or post-event email campaigns to all purchasers of tickets from ticketmaster.com for AD artist client live events who have opted in to receive such messages either from TM/TMCS and/or AD, whether through an opt-in box or otherwise. The timing and number of such emails will be mutually agreed upon by the parties. AD will provide the artist content for each email, and TMCS will have the right to add reasonably appropriate local Citysearch.com, ticketmaster.com, TM client venue related or LiveDaily.com content to each email. TMCS will design, and deliver the emails for each program. AD will have the right to reasonably approve the look and feel of each email. AD will designate, in its reasonable discretion, 50% of the links contained within each email to link to sites they control. TMCS will designate, in its reasonable discretion, 50% of the links contained within each email to link to CitySearch.com, TM ticketing venue client sites, ticketmaster.com, or livedaily.com. The AD and TMCS links within such emails will be positioned in an equitable manner (e.g., an AD link will be the first link 50% of the time.,). 9. USER DATA. All aggregate non-personally identifiable user data (which, for avoidance of doubt, does not include collections of individual user data) collected by either party on users linking from the 9 other party's web sites shall be jointly owned by the parties. During the term of this Agreement, such aggregate user data shall be delivered to the other party upon such party's request therefor, in a mutually agreeable format and according to a mutually agreeable schedule. The parties agree to use such user data solely for marketing purposes. The parties shall not use such user data in any way that is directly competitive with the other party or in conflict with the other party's privacy policy. 10. TERMINATION. This Agreement may be terminated: (a) by either party upon a material breach by the other party of any representation, covenant, warranty or term of this Agreement that is not cured within thirty (30) days after the giving of written notice thereof by the non-breaching party describing the breach; or (b) by either party immediately in the event that (i) the other party files a petition for bankruptcy or is adjudicated a bankrupt, (ii) a petition in bankruptcy is filed against the other party which is not dismissed within 60 days of the filing thereof, (iii) the other party becomes insolvent or makes an assignment for the benefit of its creditors or an arrangement for its creditors pursuant to any bankruptcy law, (iv) an action is instituted by or against the other party seeking its dissolution or liquidation of such party's assets or seeking the appointment of a trustee, interim trustee, receiver or other custodian for such party's property or business and such action is not dismissed within sixty (60) days after the date upon which it was instituted; or (v) a receiver is appointed for the other party or its business; or (c) by either party in the event that the other party purposefully advertises, links to or otherwise promotes obscene or "hate" related materials or subject matter on its web site, which activity is not cured promptly following the receipt of written notice thereof from the other party, describing the offending activity in sufficient detail that it may be identified. 11. EFFECT OF TERMINATION. Upon the expiration or earlier termination of this Agreement for any reason, both parties shall discontinue use on their respective sites of the other party's services, content and branding, as well as all Links and back buttons. However, the parties shall continue to be entitled to receive and shall continue to pay, any and all amounts owing or owed for activities occurring up to the effective date of termination or expiration, as applicable, pursuant to the revenue and payment provisions hereof. Termination of this Agreement shall not act as a waiver of any breach of this Agreement or as a release of either party from any liability for breach of such party's obligations under this Agreement. For avoidance of doubt, the foregoing provisions of this Section 11 are not intended in any way to restrict or limit either party's rights under applicable laws following the expiration or earlier termination of this Agreement. 12. OWNERSHIP OF INTELLECTUAL PROPERS. 12.1. Each party shall own and retain all right, title and interest in and to its intellectual property rights, including without limitation all rights in the content and websites that such party maintains, operates, owns and/or controls (collectively, "IP Rights"). 10 12.2. Subject to all of the terms and conditions of this Agreement, TMCS hereby grants to AD a nonexclusive, nontransferable, nonsublicensable, limited license solely to use its TICKETMASTER and other marks, as well as any other TMCS IP Rights (collectively, the "TMCS Material") mutually agreed upon by the parties in advance and in writing, for the purpose of developing the Co-Branded Ticketing Web Site, Artist Channel Ticketing Sites and/or displaying, reproducing, distributing and performing the TMCS Material on the AD Sites as expressly provided in this Agreement. 12.3. Subject to all of the terms and conditions of this Agreement, AD hereby grants to TMCS a nonexclusive, nontransferable, nonsublicenseable, limited license solely to use the ARTISTDIRECT mark and other AD IP Rights (collectively, the "AD Material"), as mutually agreed upon by the parties in advance and in writing, for the purpose of designing and developing the links and/or displaying, reproducing, distributing and performing the AD Material in accordance with AD's current intellectual property usage policy (as updated from time to time; a current copy of which is attached as Exhibit B), on TMCS Sites as expressly provided in this Agreement. 12.4. Each use by TMCS of any AD Material shall be subject to AD's prior written approval, for purposes of protecting and controlling the quality of the AD Material. Each use by AD of any TMCS Material shall be subject to TMCS' prior written approval, for purposes of protecting and controlling the quality of the TMCS Material. Any rights not expressly granted hereunder to the other party are expressly reserved by the granting party. All use of the TMCS Material by AD shall inure solely and exclusively to the benefit of TMCS. All use of the AD Material by TMCS shall inure solely and exclusively to the benefit of AD. 12.5. Each party agrees to notify the other promptly of any unauthorized use of the other party's proprietary rights of which it has actual knowledge. 12.6. Each party shall have the sole right and discretion to bring proceedings alleging infringement of its proprietary rights or unfair competition related thereto; provided, however, that, upon the other party's request, each party agrees to provide the other with its reasonable cooperation and assistance with respect to any such infringement proceedings, at the requesting party's expense. 13. CONFIDENTIAL INFORMATION. The parties acknowledge that by reason of their relationship hereunder, they may from time to time disclose information regarding their business, products, services, software technology or other intellectual property that is confidential and of substantial value to the other party, which value would be impaired if such information were disclosed to third parties ("Confidential Information"). The terms of this Agreement, are deemed to be Confidential Information of both parties, provided that either party may disclose such terms to its legal and financial advisors, prospective acquirer, investors, underwriters, investment banks and to the United States Securities Exchange Commission in connection with a securities offering filing. Confidential Information shall not include information which (i)becomes a part of the public domain through no wrongful act or omission of the receiving party; (ii)was in the receiving 11 party's lawful possession prior to the disclosure and had not been subject to limitations on disclosure or use, as shown by the receiving party's files existing at the time of disclosure; (iii) is independently developed by the receiving party without use of the Confidential Information of the disclosing party; (iv) is lawfully disclosed hereafter to the receiving party, without restriction, by a third party; or (v) or as may be required in response to any summons or subpoena or in connection with any litigation. Each party agrees that it will not use in any way for its own account or the account of any third party, nor disclose to any third party, any Confidential Information revealed to it by the other party. Each party shall take every reasonable precaution to protect the confidentiality of the other party's Confidential Information. 14. PUBLICITY. The parties agree to issue a mutually acceptable joint press release announcing the relationship contemplated under this Agreement. Neither party shall make any public statement about this Agreement or statement including the name(s) or mark(s) of the other party without the other party's prior written consent, not to be unreasonably withheld or delayed. 15. REPRESENTATION AND WARRANTIES. 15.1. Each party hereto represents and warrants to the other party that: such party is an entity duly organized, validly existing and in good standing in the jurisdiction of its formation; such party has full authority to enter into this Agreement, to grant the rights granted herein, and to perform the obligations assumed hereunder; none of the rights granted by such party to the other party pursuant to this Agreement will infringe or violate the rights of any third party; this Agreement, when executed by both parties, represents such party's valid and binding obligation, enforceable against it in accordance with its terms, subject to certain general legal enforceability exceptions; and entering into this Agreement by such party does not violate any agreement which is binding on such party. 15.2. TMCS represents and warrants to AD that it shall not illegitimately seek to increase the number of click-throughs delivered pursuant to this Agreement by causing, inducing or requesting any third party, including any officers, directors, employees, independent contractors or other personnel of TMCS or its affiliates, parents, subsidiaries, successors, licensees or assigns, to click on AD banners, micro-banners, text links, tiles or other customized graphics, when such third party(ies) do not have a bona fide intention to browse and/or shop on AD's sites. 16. LIMITATIONS. 16.1 Limited Warranties. OTHER THAN AS EXPRESSLY STATED IN THIS AGREEMENT, AD AND TMCS MAKE NO WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THEIR SERVICES AND SITES, AND THE PARTIES SPECIFICALLY DISCLAIM ALL OTHER WARRANTIES OR CONDITIONS REGARDING THEIR SERVICES AND SITES, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT. 12 16.2 Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY. NOTWITHSTANDING THE FOREGOING, THIS SECTION NEITHER IS INTENDED TO LIMIT, NOR SHALL IT LIMIT, THE PARTIES' RESPECTIVE OBLIGATIONS UNDER SECTIONS 12, 13 AND/OR 17, HEREOF. 17. INDEMNIFICATION. 17.1 Indemnification by TMCS. TMCS will defend, indemnify and hold harmless AD, its successors, assigns, parent, subsidiaries, affiliates, and their respective officers, directors, agents, members and employees, from and against any action, suit or claim (including reasonable attorneys' fees and court costs) arising out of or in any way connected with (a) any claim that the TMCS Material provided to AD by TMCS, or any part thereof, infringes any intellectual property rights or other rights of any third party or (b) any breach by TMCS of the warranties and representations in Section 15 of this Agreement. AD will give TMCS prompt notice of any such claim or threatened claim. 17.2 Indemnification by AD. AD will defend, indemnify and hold harmless TMCS, its successors, assigns, parent, subsidiaries, affiliates, and their respective officers, directors, agents and employees, from and against any action, suit or claim (including reasonable attorneys' fees and court costs) arising out of or in any way connected with (a) any claim that the AD Material provided to TMCS by AD, or any part thereof, infringes any intellectual property rights or other rights of any third party or (b) any breach by AD of the warranties and representations in Section 15 of this Agreement. TMCS will give AD prompt notice of any such claim or threatened claim. 17.3. Procedure. The party entitled under this Section 17 to be indemnified (the "indemnified party") will: (a) promptly notify the indemnifying party of any claim, suit or proceeding (for purposes of this Section 17.3, collectively, a "Claim") for which defense or indemnity is claimed; (b) cooperate reasonably with the indemnifying party at the indemnifying party's expense; and (c) allow the indemnifying party to control the defense or settlement of any Claim (subject to the remaining provisions of this Section 17.3). The indemnified party will have the right to participate in any defense of a Claim with counsel of its own choosing at its sole expense. The indemnifying party shall not settle any Claim without first notifying the indemnified party of terms of any proposed settlement and obtaining its prior written consent thereto; provided, however, that if the indemnified party does not wish to consent to the proposed settlement, it shall nevertheless be deemed to have, consented thereto unless it posts, within ten (10) days after such notice, a bond, satisfactory to the indemnifying party in its reasonable discretion, to assure the indemnifying party of reimbursement for all damages, liabilities, costs and expenses (including legal expenses and counsel fees reasonably incurred) that the indemnifying party, in its reasonable business judgment, will incur as a result of the failure to settle such Claim on the proposed terms. The indemnifying party shall, upon demand, 13 pay the indemnified party for any payment made or required to be made by the indemnified party at any time (including after the Term) in respect of any liability, damage, or expense to which the foregoing indemnity relates. 18. GENERAL TERMS. 18.1 Governing Law/Jurisdiction/Attorneys' Fees. This Agreement shall be governed by, and its terms and conditions construed in accordance with, applicable common law and statutes of the State of California, without giving effect to the conflict of law rules of that State. Any controversy or claim arising out of or relating to this Agreement, or the breach of this Agreement, shall be brought only in the State and/or Federal Courts located in the greater Los Angeles area, in the State of California, and the parties consent to the exclusive jurisdiction of, and service of process by, such Courts for the purpose of resolving any disputes, and further consent to the propriety of venue in such Courts. The prevailing party in any dispute arising out of or related to this Agreement shall be entitled to recover its reasonable attorneys' fees and costs. 18.2 Survival. The following provisions shall survive the expiration or termination of this Agreement: Sections 9 and 11 - 18. 18.3 Assignment. Either party shall have the right to transfer this Agreement, and assign all of its rights and delegate all of its obligations hereunder, (a) to any currently existing affiliate of such party, or (b) to any successor by way of merger or consolidation or in connection with the sale or transfer of substantially all of its business and assets relating to this Agreement; provided, however, that: (i) any transfer of this Agreement or delegation of obligations pursuant to the foregoing clause (b) by AD to any competitor of TMCS as identified in the attached Exhibit A (which Exhibit may be updated from time-to-time pursuant to the mutual approval of AD and TMCS, such approval not to be unreasonably withheld or delayed) may be made only with the prior written consent of TMCS; and (ii) any transfer of this Agreement or delegation of obligations pursuant to the foregoing clause (b) by AD to any company whose primary business is competitive with a primary business of USA Networks may be made so long as the Co-Branded Ticketing Site will be presented only as part of one top level Internet domain and the Artist Channel Ticketing Sites will be presented in the context of a single network of top level Internet domains focused primarily on official artist web sites. Except as otherwise expressly provided in this Agreement, neither party may transfer or assign its rights or delegate its obligations hereunder (whether voluntarily or by operation of law) without the prior written consent of the other party, which consent shall not be withheld or delayed unreasonably. 18.4 Notices. All notices under this Agreement must be in writing in order to be effective, and shall be deemed to have been duly given or made (a) on the date delivered in person, (b) on the date indicated on the return receipt if mailed postage prepaid, by certified or registered U.S. Mail, with return receipt requested, or (c) IF sent by Federal Express, U.P.S. Next Day Air or other nationally recognized overnight courier service or overnight express U.S. Mail, with service charges or postage prepaid, THEN on the next business day after delivery to the courier service or U.S. Mail (if sent in time for and specifying next day delivery)." In each case (except for personal delivery) such notices, requests, demands, and other communications shall be sent to a party at the address set forth below: 14 If to TMCS: Ticketmaster Online-Citysearch, Inc. 790 E. Colorado, Suite 200 Pasadena, CA 91101 Attention: General Counsel FAX (626) 405-9929 If to AD: ARTISTdirect, Inc. 5670 Wilshire Blvd., Suite 200 Los Angeles, CA 90036 Attention: Senior Vice President, Business Affairs FAX (323) 634-4299 With a required copy to: Allen Lenard, Esq. Lenard & Gonzalez, LLP 1801 Century Park West, 6th Floor Los Angeles, CA 90067 FAX (310) 552-0740 18.5 Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges and supersedes all prior discussions between them. 18.6 Severability. If the application of any provision or provisions of this Agreement to any particular facts or circumstances shall be held to be invalid or unenforceable by any court of competent jurisdiction, then: (i) the validity and enforceability of such provision or provisions as applied to any other particular facts or circumstances and the validity of other provisions of this Agreement shall not in any way be affected or impaired thereby; and (ii) such provision or provisions shall be reformed without further action by the parties hereto and only to the extent necessary to make such provision or provisions valid and enforceable when applied to such particular facts and circumstances. 18.7 Independent Contractors. The parties are independent contractors, and nothing in this Agreement shall be construed to create a joint venture or partnership. Neither party shall have any right, power or authority to enter into any agreement for or on behalf of, or to incur any obligation or liability for, or to otherwise bind, the other party. This Agreement shall not be interpreted or construed to create an association, joint venture, co-ownership, co-authorship, or partnership between the parties or to impose any partnership obligation or liability upon either party. 18.8 Force Majeure. A party will not be deemed to have materially breached this Agreement to the extent that performance of its obligations" or attempts to cure any breach are delayed or prevented by reason of an act of God, fire, natural disaster, accident, act of government, or shortage of equipment, materials or supplies beyond the reasonable control of 15 such party (a "Force Majeure Event"); provided that the party whose performance is delayed or prevented promptly notifies the other party of the nature and duration of the Force Majeure Event. Notwithstanding the foregoing provisions of this Section 18.8, either party shall have the right to terminate this Agreement in the event that any Force Majeure Event affecting the other party's performance lasts for thirty (30) days or longer. 18.9 No Waiver. If either party waives any breach or default by the other party, such waiver shall not constitute a waiver of any subsequent breach or default. If either party resorts to a any remedy or remedies, such resort shall not limit that party's right to resort to any and all other legal and equitable remedies that are available to that party. 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. 18.10 No Modifications. No change, amendment or modification of any provision of this Agreement or waiver of any of its terms will be valid unless set forth in writing and signed by the party to be bound thereby. 18.11 Agreement Binding. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective heirs, administrators, successors and assigns. 18.12 Non-Reliance on Representations. Each of the Parties acknowledges that in executing this Agreement it does not rely and has not relied upon any representation or statement made by another Party or its officers, directors, agents, representatives or attorneys with regard to the subject matter, basis or effect of this Agreement. 18.13 Headings. The headings contained in this Agreement are for reference only and shall not affect the meaning of any of the provisions of this Agreement. 19. TERM. This Agreement will terminate three years after the launch of the Co-Branded Ticketing Site, unless terminated earlier as permitted herein. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the Effective Date by the undersigned duly authorized. TICKETMASTER ONLINE- CITYSEARCH, INC. ARTISTDIRECT, INC. By: /s/ Brad Serwin By: /s/ Keith Yokomoto ----------------------- ----------------------- Name: Brad Serwin Name: Keith Yokomoto ----------------------- ----------------------- Date: 7/24/00 Date: 7/20/00 ----------------------- ----------------------- 16 EX-10.20 13 a2041707zex-10_20.txt EXHIBIT 10.20 EXHIBIT 10.20 YAHOO! INC. CONTENT LICENSE AND PROMOTION AGREEMENT THIS CONTENT AND PROMOTION LICENSE AGREEMENT (the "AGREEMENT") is made as of this 28th day of September, 2000 (the "Effective Date") between Yahoo! Inc., a Delaware corporation with offices at 3420 Central Expressway, Santa Clara, CA 95051 ("YAHOO"), and Ticketmaster Online-Citysearch, Inc., a Delaware corporation with offices at 790 E. Colorado Blvd., Suite 200, Pasadena, California 91101 ("TMCS"). WHEREAS, the parties entered into a Content license, Promotion and Link Agreement dated June 1, 1998 as subsequently amended by the parties (collectively, the "Content Agreement"); WHEREAS, the parties now wish to enter into this Agreement to supersede the Content Agreement and the parties agree that upon execution of this Agreement, the Content Agreement is terminated and no longer in effect except for those provisions that survive termination. NOW, THEREFORE, in consideration of the mutual promises contained hereto, the parties agree as follows: SECTION 1: DEFINITIONS. "ADVERTISING RIGHTS" means the advertising and promotional rights sold or licensed with respect to Content Pages. "AFFILIATES" means any company or any other entity worldwide, including, without limitation, corporations, partnerships, joint ventures, and limited liability companies, in which Yahoo owns at least a twenty percent ownership, equity, or financial interest. "BUY TICKETS NOW LINK" means a placement that (a) contains a TMCS Brand Feature, (b) has dimensions equal to ** pixels wide by ** pixels high (c) has a maximum file size of no more than **, (d) does not contain animation and (e) permits users to navigate directly to a page on the TMCS Site dedicated to allowing the user to purchase tickets online for the event described on the page where the placement appears. "CONTENT PAGES" means those pages in the Yahoo Property on which TMCS Content is the sole substantive content. "ENHANCEMENTS" means any updates, improvements or modifications made to, or derivative works created from, the TMCS Content by TMCS. "INTELLECTUAL PROPERTY RIGHTS" means all rights in and to trade secrets, patents, copyrights, trademarks, know-how as well as moral rights and similar rights of any type under the laws of any governmental authority, domestic or foreign. "INTERNET" means the collection of computer networks commonly known as the Internet, and shall include, without limitation, the World Wide Web. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 1 "LOCAL EVENT REVIEWS" means reviews of local entertainment events by TMCS, including, without limitation, reviews of arts, concerts, sports, family, music, and movies that also includes the data described on Exhibit A. "LODGING REVIEWS" means reviews by TMCS of lodging, including without limitation, hotels, motels, inns, bed and breakfasts which may or may not already be reviewed or rated by Yahoo, its licensors or any users. "PAGE VIEW" means a user's request for a page on a Yahoo Property. "RESTAURANT REVIEWS" means reviews of TMCS-rated restaurants. "RESTRICTED COMPANIES" will mean general navigational guides or online services of any person, corporation, web site or other entity that of liars Internet-based programming and services similar to Yahoo including without limitation **. Yahoo reserves the right to specify additional Restricted Companies from time to time during the Term with written notice to TMCS. "TICKET CONTENT" means all or any portion of the complete event listings for all arts and entertainment events for which TMCS sells tickets online, including without limitation, arts, concerts, sports, family, museums, and theatre events, venue information (such as venue name, address) and the data described on EXHIBIT A. "TMCS BANNER" means an advertising unit that (a) has dimensions no larger than ** pixels wide by ** pixels high; (b) does not contain animation longer than ** seconds; (c) does not contain **; (d) has a file size no greater than **; and (e) permits users to navigate directly to a page on one of the TMCS Sites. "TMCS BRAND FEATURES" means all trademarks, service marks, logos and other distinctive brand features of TMCS that are used in or relate to the TMCS Content, including, without limitation, the trademarks, service marks and logos described in EXHIBIT B hereto. "TMCS CONTENT" means all or applicable portion of the materials, data, and similar information collected and owned by TMCS, as further described in EXHIBIT A attached hereto, including, Restaurant Reviews, Lodging Reviews, Local Event Reviews, Ticket Content and all Enhancements to the foregoing. "TMCS SEARCH RESULTS PAGES" means those pages displayed upon a user's search request on the Yahoo Main Site for the keywords set forth on EXHIBIT H. Yahoo will have the right to modify such keywords from time to time with substitute keywords that are mutually agreed to by the parties. TMCS and Yahoo may work together to optimize certain keywords, from time to time. For clarity, a search conducted within other Yahoo Properties that include special subject matter based search engines (e.g., Yahoo Auctions, Yahoo Classifieds, Yahoo Clubs, Yahoo News, Yahoo Shopping, Yahoo Yellow Pages) will not be considered a search of the Yahoo Main Site for purposes of this definition. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 2 "TMCS TICKET CONTENT PAGE" means that page where the Ticket Content appears. The TMCS Ticket Content Page will appear in a manner substantially similar to the example set forth in EXHIBIT F-4, and is anticipated to be distributed in Yahoo Entertainment Guide during the term of the Agreement, and other Yahoo Properties deemed appropriate by Yahoo. "TMCS SITE" means the following web sites owned or operated on behalf of TMCS: http://www.ticketmaster.com and http://www.citysearch.com "TEASER CONTENT" means any portion of the TMCS content that (i) appears on pages within the Yahoo Properties: (ii) contains a small excerpt of the TMCS Content (e.g., a headline) which does not change the meaning of the TMCS Content; and (iii) links directly to more TMCS Content. "YAHOO BRAND FEATURES" means all trademarks, service marks, logos and other distinctive brand features of Yahoo that are used in or relate to a Yahoo Property, including, without limitation, the trademarks, service marks and logos described in EXHIBIT B. "YAHOO ENTERTAINMENT GUIDE" means that U.S. based Yahoo Property dedicated to information on local events and currently located at http://guide.yahoo.com/. "YAHOO LODGING" means that U.S. based Yahoo Property dedicated to information on places to stay and currently located http://lodging.yahoo.com/. "YAHOO MAIN SITE" means that YAHOO PROPERTY that is (a) within the yahoo.com domain; and (b) targeted at users in the United States. For clarity, Yahoo Main Site does not include any Yahoo branded or co-branded property or service that is (1) outside the yahoo.com domain (e.g., http://www.broadcast.com or (2) targeted at users outside the United States, regardless of whether the property or service is within the yahoo.com domain (e.g.,http://espanol.yahoo.com). "YAHOO RESTAURANTS" means that U.S. based Yahoo Property dedicated to information on U.S. based restaurants and currently located at http://restaurants.yahoo.com/. "YAHOO TICKETS" means that U.S. based Yahoo Property that Yahoo intends to develop dedicated to information and resources on ticketed events in the U.S. "YAHOO PROPERTIES" means any Yahoo branded or co-branded media properties or services (which are defined as those properties or services that ** (or on the initial entry screen) where ** does not qualify), including, without limitation, those Internet guides, developed in whole or in part by Yahoo or its Affiliates and which are displayed on or which transfer information to and/or from any electronic device now known or later developed including, without limitation, personal computers, cellular phones, personal digital assistants, and pagers. SECTION 2: GRANT OF LICENSES. 2.1 GRANT OF LICENSE BY TMCS. Subject to the terms and conditions of this Agreement, TMCS hereby grants to Yahoo: (a) A non-exclusive, worldwide, fully paid license to use, modify, reproduce, distribute, display, transmit, and publicly perform the TMCS Content via the Internet - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 3 and third party networks (including, without limitation, telephone and wireless networks) in connection with Yahoo Properties, and to permit users of the Yahoo Properties to download and print the TMCS Content. Yahoo's license to modify the TMCS Content shall be limited to modifying the TMCS Content to ** Yahoo Property and to create Teaser Content provided that Yahoo does not ** of the TMCS Content. (b) A non-exclusive, worldwide, fully paid license to use, reproduce and display the TMCS Brand Features: (i) in connection with the presentation of the TMCS Content on the Yahoo Properties; and (ii) in connection with the marketing and promotion of the Yahoo Properties. (c) The right to sublicense the rights set forth in this Section 2.1 (i) to its Affiliates only for inclusion in Yahoo Properties; and (ii) in connection with any mirror site, derivative site, or distribution arrangement that are also Yahoo Properties, provided that any such sublicensees shall be subject to the same restrictions that apply to Yahoo. This right to sublicense permits the sublicensing of the Ticket Content and the TMCS Brand features either for wireless implementations or otherwise so long as such sublicense includes other nonticket related content or services presented on Yahoo Main Site. 2.2 GRANT OF LICENSES BY YAHOO. Subject to the terms and conditions of this Agreement, Yahoo hereby grants to TMCS a non-exclusive, worldwide, fully paid license to use, reproduce, distribute, transmit and display the Yahoo Brand Features set forth in EXHIBIT B to indicate the location of the Yahoo graphic link as further contemplated in Section 3.2 (e), for as long as Yahoo displays, on the Yahoo Properties, the TMCS Content linked to such graphic link. SECTION 3: RESPONSIBILITIES OF THE PARTIES. 3.1 YAHOO'S RESPONSIBILITIES. (a) Yahoo will be solely responsible for the design, layout, posting, and maintenance of the Content Pages and the Yahoo Properties. Yahoo agrees to use commercially reasonable efforts to integrate the TMCS Content in accordance to the time frame set forth in EXHIBIT C. Yahoo will include the TMCS Content within the Yahoo Properties as provided herein, however, Yahoo reserves the right to cease the posting or inclusion of any TMCS Content which: (i) Yahoo determines is not of substantially similar quality and detail as that depicted in Exhibit A; (ii) Yahoo reasonably believes, or in connection with which Yahoo receives any claim, notice, or is otherwise informed that, does not comply with any law, foreign or domestic; (iii) Yahoo reasonably believes, or in connection with which Yahoo receives any claim, notice, or is otherwise informed that, such TMCS Content violates or infringes the rights of any third party or is inaccurate or incomplete; or (iv) does not comply with any of Yahoo's policies, specifications or guidelines made available to or provided to TMCS in writing in advance. For the avoidance of doubt, the parties acknowledge that Yahoo is not obligated to post the entire TMCS Content provided to it and can, in its discretion, determine the portions of the TMCS Content and on which Yahoo Properties to post such TMCS Content. For example, 1) Yahoo will not be obligated to post more than ** restaurant reviews and (2) Yahoo will not be obligated to post TMCS's Lodging Reviews if Yahoo does not already display - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 4 lodging reviews for that lodging establishment. (b) Yahoo will maintain the links specified in Exhibit D. Subject to Section 3. l(a) above, Yahoo will place the Buy Tickets Now Link ** to applicable TMCS Content on those pages of the Yahoo Properties where such TMCS Content is presented. Yahoo will not ** to any **; provided that third party descriptions of events will be included on pages with the TMCS Content and may be ** the Buy Tickets Now Link, but not ** than the applicable TMCS Content. (c) Yahoo will include on the Content Pages any reasonable copyright or other proprietary notices (including trademark notices) that appear in the TMCS Content. 3.2 TMCS RESPONSIBILITIES. (a) TMCS will provide to Yahoo the TMCS Content and any other content mutually agreed in writing. TMCS will have sole responsibility for the TMCS Content creation and maintenance. TMCS will use commercially reasonable efforts to provide Local Event Reviews Content within ** months from the Effective Date. (b) TMCS will provide on-going assistance to Yahoo with regard to technical, administrative and service-oriented issues relating to the utilization, transmission and maintenance of the TMCS Content, as Yahoo may reasonably request. (c) TMCS will ensure that the TMCS Content is accurate and comprehensive according to the same standards used for TMCS Content posted on third party sites and the TMCS Sites. During the term of this Agreement, TMCS shall deliver updates of the TMCS Content to Yahoo in accordance with EXHIBIT C. TMCS also shall provide Yahoo with reasonable prior notice of any significant Enhancements that generally affect the appearance, updating, delivery or other elements of the TMCS Content, and shall make such Enhancements available to Yahoo upon commercially reasonable terms. (d) TMCS will maintain the hypertext links specified in EXHIBIT D. (e) TMCS will place a "Back to Yahoo!" graphic link on those pages of the TMCS Site to which users click-through from a link placed by Yahoo in connection with this Agreement. The Yahoo graphic link will (i) be placed on the TMCS Site in a manner reasonably approved by Yahoo (and similar to that Attached in Exhibit I for citysearch.com), (ii) contain the Yahoo name, property name and logo as provided by Yahoo, (iii) be no less than ** pixels wide and ** pixels high, and (iv) directly link the user back to the home page of the Yahoo Property where the user clicked-through (i.e, the home page of Yahoo Restaurants if the user clicked-through to the TMCS Site from a page that containing Restaurant Reviews). The "Back to Yahoo!" button placement on citysearch.com profile pages will be in the designated sponsorship area as exemplified in Exhibit I, subject to redesign in TMCS' reasonable discretion with prior notification to Yahoo. TMCS will not disable the "Back" button on the Internet browsers of - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 5 users who click-through from a link placed by Yahoo in connection with this Agreement. SECTION 4: COMPENSATION. 4.1 SLOTTING/ADVERTISING FEES. In consideration of Yahoo's performance and obligations as set forth herein, TMCS will pay Yahoo a non-refundable non-creditable slotting fee equal to ** dollars ($**). The Slotting Fee will be paid pursuant to the payment schedule set forth below. ** ($**) of the first payment is designated as a set-up fee in consideration of Yahoo's design, consultation and integration of the TMCS Banners.
PAYMENT AMOUNT DATE -------------- ---- ** Upon execution of this Agreement. ** On or before **. ** On or before **, or ** whichever is later. ** On or before **, or upon **, whichever is later. ** On or before **, or the **, whichever is later.
4.2 REVENUE SHARE. TMCS agrees to pay Yahoo a revenue ** percent (**%) of the gross ** collected by TMCS for tickets sold to buyers accessing the TMCS web site from Yahoo after the first ** calendar days that tickets for that particular event are first made available for sale on the TMCS web site, net of ** or ** associated with ** due to **. TMCS will pay such revenue share amounts quarterly within fifteen (15) days of the end of each quarter and will accompany each patent with a written report certified by an officer of TMCS that includes (a) the total number of tickets sold to users that click-through from a TMCS Ticket Content Page, (b) event information and other details about the tickets that are mutually approved by the parties and which will not exceed the information generally collected by TMCS in the ordinary course, and (c) the calculation of revenue share due to Yahoo. TMCS will maintain complete and accurate records in accordance with generally accepted methods of accounting for all such transactions and will allow Yahoo!, at its own expense, to direct an independent certified public accounting firm to inspect and audit such records during normal business hours with at least ten (10) days written notice to TMCS. In the event that any audit reveals an underpayment of more than **, TMCS will pay the reasonable cost of - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 6 such audit. Revenue share payments of less than $l,000 for the quarter will roll forward to the next quarterly payment that exceeds $1,000.00. 4.3 YAHOO OUTLOUD SPONSORSHIP. During the first ** months of 200l, if Yahoo decides to organize the Yahoo Outloud Concert Series ("Yahoo Outloud") and has the right to designate the sponsors of Yahoo Outloud, then TMCS ** sponsor of Yahoo Outloud. As part of this sponsorship, TMCS will receive (a) branded logos and links on promotions placed by Yahoo related to Yahoo Outloud on tile Yahoo Main Site and (b) logo placement on at least ** pieces of printed collateral (e.g. flyers, postcards, posters) which will be distributed to at least ** U.S. college campuses. TMCS agrees that they will charge the same service charge (no higher) for online ticket sales that ticketmaster Corporation charges which is to be based on the **. In consideration of this opportunity (and only if TMCS is in fact provided with this opportunity or a ** to TMCS), TMCS agrees to cause Ticketmaster Corporation to offer to Yahoo branding opportunities on the ticketbacks of a minimum ** ticketbacks (valued at $**) during the first ** months of 2001 which will be reasonably acceptable to Yahoo. This branding opportunity may be used for Yahoo Music or a Yahoo Property to be determined at Yahoo's discretion, which will be reasonably acceptable to TMCS. If Yahoo does not organize the Yahoo Outloud, then Yahoo will ** (valued at $**) subject to the approval of TMCS which in any event will be accepted or declined no later than ten (10) days after it is presented to TMCS by Yahoo. 4.4 PAYMENT INFORMATION. All payments herein are non-refundable and non-creditable and will be made by TMCS via wire transfer into Yahoo's main account pursuant to the wire transfer instructions set forth on EXHIBIT E. All payments to Yahoo will be exclusive of any applicable taxes, which, other than income taxes payable by Yahoo on amounts earned by Yahoo for which Yahoo will be solely responsible), will be the sole responsibility of TMCS. All fees are payable in U.S. dollars. Late payments will 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 TMCS to make payment, TMCS will be responsible for all reasonable expenses (including attorneys' fees) incurred by Yahoo! in collecting such amounts. 4.5 ADVERTISING RIGHTS. Yahoo shall have the sole right to sell and retain all Advertising Rights with respect to the Content Pages and the Yahoo Properties (except as expressly described in Section 5.2 regarding the TMCS Ticket Content Pages.) SECTION 5: LIMITED EXCLUSIVITY. 5.1 RESTRICTED COMPANIES. In no event will the ** on the TMCS Site that users reach by click-through directly from any ** in connection with the Agreement contain ** or similar material from Restricted Companies on such pages **. For example, it will be considered a material breach of this Agreement if TMCS or any of its agents or representatives - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 7 offer or sell any ** to Restricted Companies on such pages ** to such pages. 5.2 LIMITED EXCLUSIVITY. On the TMCS Ticket Content Pages, (1) Yahoo will not ** described on Exhibit G during the Term of the Agreement; and (2) Yahoo agrees that the TMCS Banners will be ** advertising banners that appear on the TMCS Ticket Content Pages during the first ** of the Agreement. In addition, Yahoo will not ** the Yahoo Main Site or any other web site the ** which is ** or to purposefully display ** on the Yahoo Main Site **. Except for the preceding sentence, Yahoo will not be restricted in any manner from placing content from any source on the TMCS Ticket Content Pages. Yahoo further agrees that it will not solely display the Buy Tickets Now Link or similar link without ** to the remainder of the applicable portion of the Ticketing Content Feed described in Section A of Exhibit A. SECTION 6: MEDIA PROGRAM. 6.1 Yahoo will place a TMCS Banner as a fixed placement in the north banner position on the TMCS Ticket Content Pages. For clarity, Yahoo will place a TMCS banner on each TMCS Ticket Content Page for ** of this agreement. TMCS will provide to Yahoo at least ** banners for rotation.TMCS will have the right to change such banners at least ** per calendar month. In addition, Yahoo will also provide ** Page Views of TMCS Banners on run of Yahoo Network to be delivered upon Yahoo's discretion. Beginning no earlier than **, Yahoo will provide (1) ** Page Views of TMCS Banners placed within Yahoo Yellow Pages (currently located at http://yp.yahoo.com) and/or Yahoo Maps (currently located at http://maps.yahoo.com) and (2) ** Page Views of TMCS Search Results Pages. All TMCS Banners will be placed subject to Yahoo's standard advertising terms and conditions. 6.2 In the event that Yahoo fails to deliver the number of Page Views set forth above before the expiration of the Term, Yahoo will "make good" the shortfall by extending its obligations under Section 6.1 in the areas set forth therein (or similar inventory mutually agreed upon by the parties) beyond the end of the Term until such Page View obligation is satisfied. The provisions of this Section 6.2 set forth the entire liability of Yahoo, and TMCS's sole remedy, for Yahoo's failure to meet its Page View obligation set forth in Section 6.1. 6.3 TMCS will provide all materials for the TMCS Banners within ** business days from the Effective Date and thereafter in accordance with Yahoo's policies in effect from time to time, including (without limitation) the manner of transmission to Yahoo and the lead-time prior to posting of the TMCS Banners. Notwithstanding anything to the contrary in this Agreement, Yahoo will have no obligation to post any TMCS Banners that is not in accordance with such policies. TMCS hereby grants to Yahoo a non-exclusive, worldwide, fully paid license to use, reproduce and display the TMCS Banners (and the contents, trademarks and brand features contained therein) in accordance herewith. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 8 6.4 All contents of TMCS Banners are subject to Yahoo's reasonable approval. Yahoo reserves the right to reject or cancel any TMCS Banners, insertion order, URL link, space reservation or position commitment, at any time, in its reasonable discretion for any failure to comply with Yahoo's standard advertising specifications, including those set forth at http://docs.yahoo.com/docs/advertising/and in accordance with clauses (iii), (iv) and (v) of Section 3.1(a). 6.5 Yahoo will make commercially reasonable efforts to provide a monthly report of the Page Views that Yahoo delivers on the TMCS Ticket Content Pages within fifteen days (15) days after the end of the previous month. 6.6 TMCS acknowledges and agrees that Page View statistics provided by Yahoo are the official, definitive measurements of Yahoo's performance. The processes and technology used to generate such statistics have been certified and audited by Ernst & Young an independent agency and their report is currently located at http://processcertify.com/yahoo/attestation.html. No other measurements or usage statistics (including those of TMCS or any third party) will be applicable to this Agreement. SECTION 7: INDEMNIFICATION TMCS, at its own expense, will indemnify, defend and hold harmless Yahoo, its Affiliates and their employees, representatives, agents and affiliates, against any claim, suit, action, or other proceeding brought against Yahoo or an Affiliate based on or arising from a claim that the TMCS Content as delivered to Yahoo or any TMCS Brand Feature, service, product or information produced, distributed or offered by TMCS (including without limitation, the sale of tickets) or any material presented on the TMCS Site infringes in any manner any Intellectual Property Right of any third party or contains any material or information that is obscene, defamatory, libelous, slanderous, that violates any person's right of publicity, privacy or personality, or has otherwise resulted in any tort, injury, damage or harm to any person; PROVIDED, HOWEVER, that in any such case: (x) Yahoo provides TMCS with prompt notice of any such claim; (y) Yahoo permits TMCS to assume and control the defense of such action, with counsel chosen by TMCS (who shall be reasonably acceptable to Yahoo); and (z) TMCS does not enter into any settlement or compromise of any such claim without Yahoo's prior written consent, which consent shall not be unreasonably withheld. TMCS will pay any and all costs, damages, and expenses, including, but not limited to, reasonable attorneys' fees and costs awarded against or otherwise incurred by Yahoo or an Affiliate in connection with or arising from any such claim, suit, action or proceeding. It is understood and agreed that Yahoo does not intend and will not be required to edit or review for accuracy or appropriateness any TMCS Content. Yahoo, at its own expense, will indemnify, defend and hold harmless TMCS and its employees, representatives, agents and affiliates, against any claim, suit, action, or other proceeding brought against TMCS or its affiliates based on or arising from a claim that the Yahoo Brand Features as delivered to TMCS or that any ** by Yahoo or its Affiliates (not authorized or contemplated under this Agreement) ** in any manner any ** of any third party; provided, HOWEVER, that in any such case: (x) TMCS provides Yahoo with prompt notice of any such claim; (y) TMCS permits Yahoo to assume and control the defense of such action, with counsel chosen by Yahoo (who shall be reasonably acceptable to TMCS); and (z) Yahoo does not enter into any - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 9 settlement or compromise of any such claim without TMCS' prior written consent, which consent shall not be unreasonably withheld. Yahoo will pay any and all costs, damages, and expenses, including, but not limited to, reasonable attorneys' fees and costs awarded against or otherwise incurred by TMCS in connection with or arising from any such claim, suit, action or proceeding. SECTION 8: LIMITATION OF LIABILITY. EXCEPT AS PROVIDED IN SECTION 7, UNDER NO CIRCUMSTANCES SHALL TMCS, YAHOO, OR ANY AFFILIATE BE LIABLE, TO ANOTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES ARISING FROM THIS AGREEMENT, EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE, OR ANTICIPATED PROFITS OR LOST BUSINESS. SECTION 9: TERM AND TERMINATION 9.1 INITIAL TERM AND RENEWALS. This Agreement will become effective as of the Effective Date and shall, unless sooner terminated as provided below or as otherwise agreed, remain effective for an initial term of ** from the Effective Date (the "Term"). In the event that Yahoo has not integrated the TMCS Content into any of the Yahoo Properties described on Exhibit C within ** from the Effective Date, Yahoo will use commercially reasonable efforts to integrate the TMCS Content by the ** and the term of the Agreement will, at TMCS' option and with written notice to Yahoo, extend for an additional term so that the contract terminates ** from the date in which the TMCS Content is integrated, with no additional compensation. 9.2 TERMINATION FOR CAUSE. Notwithstanding the foregoing, this Agreement may be terminated by either party immediately upon notice if the other party: (a) becomes insolvent; (b) files a petition in bankruptcy; (c) makes an assignment for the benefit of its creditors: or (d) breaches any of its obligations under this Agreement in any material respect, which breach is not remedied within thirty (30) days following written notice to such party. 9.3 EFFECT OF TERMINATION. Any termination pursuant to this Section 9 shall be without any liability or obligation of the terminating party, other than with respect to any breach of this Agreement prior to termination. The provisions of Sections 4, 6.2, 7, 8, 10, 11, 12 and this Section 9.3 shall survive any termination or expiration of this Agreement. Upon execution of this Agreement, the Content License, Promotion and Link Agreement entered into between the parties on June 1, 1998 (and subsequently amended) will automatically terminate. Neither party will have any obligation to the other under such agreement except for those provisions that survive termination. SECTION 10: OWNERSHIP. 10.1 BY TMCS. Yahoo acknowledges and agrees that: (i) as between TMCS on the one hand, and Yahoo and its Affiliates on the other, TMCS owns all right, title and interest in the TMCS Content and the TMCS Brand Features; (ii) nothing in this Agreement shall confer in Yahoo or an Affiliate any right of ownership in the TMCS Content or the TMCS Brand Features; and (iii) neither Yahoo nor its Affiliates shall now or in the future contest the validity of the TMCS Brand Features. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 10 10.2 BY-YAHOO. TMCS acknowledges and agrees that: (i) as between TMCS on the one hand, and Yahoo and its Affiliates on the other, Yahoo or the Affiliates own all right, title and interest in any Yahoo Property (except for any TMCS Content or TMCS Brand Features appearing thereon) and the Yahoo Brand Features; (ii) nothing in this Agreement shall confer in TMCS any right of ownership in the Yahoo Brand Features; and (iii) TMCS shall not now or in the future contest the validity of the Yahoo Brand Features. Yahoo and its Affiliates shall own any derivative works created hereunder which incorporate the TMCS Content or Teaser Content (e.g., the Content Pages), excluding the TMCS content and Teaser Content itself. Without limiting the foregoing and for the avoidance of doubt, Yahoo shall not be entitled to use, display or otherwise deal with the TMCS Content alter a date ending ** days after the end of the Term. 10.3 NO LICENSES. No licenses are granted by either party except for those expressly set forth in this Agreement. SECTION 11: PUBLIC ANNOUNCEMENTS. The parties will cooperate to create any and all appropriate public announcements relating to the relationship set forth in this Agreement. Neither party shall make any public announcement regarding the existence or content of this Agreement without the other party's prior written approval and consent. The terms and conditions of this Agreement will be considered confidential and will not be disclosed to any third parties except to such party's accountants, attorneys or except as otherwise required by law. If this Agreement or any of its terms must be disclosed under any law, rule or regulation (e.g., as part of a filing with the United States Securities and Exchange Commission), excluding an order or other discovery request issued by a court of competent jurisdiction, the disclosing party will (a) give written notice of the intended disclosure to the other party at least 5 business days in advance of the date of disclosure; (b) redact portions of this Agreement to the fullest extent permitted under any applicable laws, rules and regulations; and (c) submit a request, to be agreed upon by the other party, that such portions and other provisions of this Agreement requested by the other party receive confidential treatment under the laws, rules and regulations of the body or tribunal to which disclosure is being made or otherwise be held in the strictest confidence to the fullest extent permitted under the laws, rules or regulations of any other applicable governing body. Yahoo will work with TMCS on a press release to be issued by TMCS and subject to Yahoo's approval, within six business days of signature of this Agreement by both parties. SECTION 12: USER DATA. 12.1 USER DATA: Yahoo and TMCS agree that protecting users' privacy rights is a critical element of their business relationship. Accordingly, each party agrees to adhere to TRUSTe guidelines on the collection and use of all user data, will collect such data pursuant to written privacy policies that are conspicuously posted on all pages where a user is requested to provide personal or financial information and will continuously satisfy all applicable privacy and consumer protection laws and regulations. 12.2 DATA OWNERSHIP: All information and data provided to Yahoo by users of the Yahoo Properties or otherwise collected by Yahoo relating to user activity on the Yahoo Properties (including, without limitation, data submitted by Users on the TMCS Ticket Content and Content Pages) will be retained by and owned solely by Yahoo. TMCS will - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 11 have the right to use information provided by such users solely as necessary to provide the services generally available on the TMCS Sites requested by the user. All information and data provided to TMCS on the TMCS Sites or otherwise collected by TMCS relating to user activity on the TMCS Sites will be retained by and owned solely by TMCS. Each party agrees to use all personally identifying information only as authorized by the user that provided such information and will not disclose, sell, license or otherwise transfer any such user information to any third party other than in accordance with its published privacy policy or use the user information for the transmission of "junk mail," "spam" or any other unsolicited mass distribution of information. SECTION 13: NOTICE: MISCELLANEOUS PROVISIONS 13.1 NOTICES. All notices, requests and other communications called for by this agreement shall be deemed to have been given immediately if made by telecopy or electronic mail (confirmed by concurrent written notice sent first class U.S. mail, postage prepaid), if to Yahoo at 3400 Central Expressway, Suite 201, Santa Clara, CA 95051, Fax: ** Attention: Senior Vice President, Business Development (e-mail:**), with a copy to its General Counsel (e-mail:**), and if to TMCS at the physical and electronic mail addresses set forth on the signature page of this Agreement, or to such other addresses as either party shall specify, to the other. Notice by any other means shall be deemed made when actually received by the party to which notice is provided. 13.2 MISCELLANEOUS PROVISIONS. This Agreement will bind and inure to the benefit of each party's permitted successors and assigns. Neither party may assign this Agreement, in whole or in part, without the other party's written consent. Notwithstanding the foregoing, (i) Either party may assign this Agreement without such consent in connection with any merger, consolidation, any sale of all or substantially all of its assets or any other transaction in which more than fifty percent (50%) of such its voting securities are transferred except that any assignment or transfer to a competitor of the non-transferring party or to any entity that the non-transferring party does not reasonably believe has sufficient resources to fulfil its obligations under this Agreement will require the prior written consent of the non-transferring party, and (ii) in the event that the non- transferring party does not consent to a proposed assignment, the non-transferring party will have the right to terminate the Agreement with fifteen (15) days written notice to the transferring party. Any attempt to assign this Agreement other than in accordance with this provision shall be null and void. This Agreement will be governed by and construed in accordance with the laws of the State of California, without reference to conflicts of laws rules, and without regard to its location of execution or performance. If any provision of this Agreement is found invalid or unenforceable, that provision will be enforced to the maximum extent permissible, and the other provisions of this Agreement will remain in force. Neither this Agreement, nor any terms and conditions contained herein may be construed as creating or constituting a partnership, joint venture or agency relationship between the parties. No failure of either party to exercise or enforce any of its rights under this Agreement will act as a waiver of such rights. This Agreement and its exhibits are the complete and exclusive agreement between the parties with respect to the subject matter hereof, superseding and replacing any and all prior agreements, communications, and understandings, both written and oral, regarding such subject matter. This Agreement may only be modified, or any rights under it waived, by a - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 12 written document executed by both parties. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute a single instrument. Execution and delivery of this Agreement may be evidenced by facsimile transmission. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the date first written above. [signature page follows] 13 YAHOO, INC. TICKET MASTER ONLINE-CITY SEARCH By: /s/ Ellen Siminoff By: /s/ Daniel Marriott ----------------------------- --------------------------------- Title: SVP Title: EVP --------------------------- ------------------------------- Address: 3420 Central Expressway Address: 790 East Colorado Blvd Santa Clara, CA 95051 Suite 200 Pasadena, CA 91101 ------------------------- ----------------------------- Telecopy: ** Telecopy: ------------------------ ---------------------------- E-mail: ** E-mail: ** -------------------------- ------------------------------ - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 14 EX-10.21 14 a2041707zex-10_21.txt EXHIBIT 10.21 EXHIBIT 10.21 CONFIDENTIAL DISTRIBUTION AND PROMOTION AGREEMENT This Distribution and Promotion Agreement (the "AGREEMENT") is entered into as of November 20, 2000 (the "EFFECTIVE DATE") between Yahoo! Inc., a Delaware corporation with offices at 3420 Central Expressway, Santa Clara, CA 95051 ("YAHOO") and Match.com, a Delaware corporation and a wholly owned subsidiary of Ticketmaster Online-CitySearch, Inc., a Delaware corporation with offices at 790 E. Colorado Blvd., Suite 100, Pasadena, California 91101 ("Match"). In consideration of the mutual promises contained in this Agreement, Yahoo and Match hereby agree as follows: SECTION 1. DEFINITIONS. 1.1 "CO-BRANDED CONFIRMATION PAGE" means the Page within Yahoo Personals substantially similar in form to the example attached as Exhibit D (a) to which users will navigate directly if they click on the "Continue to Match.com, click here for more details" link (or such similar language determined by Yahoo) on the Preview Page, and (b) which contains (i) Yahoo and Match co-branding, (ii) appropriate privacy notices as determined by Yahoo, and (iii) the Send Link. 1.2 "CUSTOMER SERVICE HOURS" means the following hours maintained by Match's customer service department: 8:30 a.m. through 8:00 p.m. Central Time Monday through Thursday, 8:30 am. through 5:00 p.m. Central Time each Friday, and 9:30 a.m. through - 5:30 p.m. Central Time, each Sunday. 1.3 "DELIVERY FORMAT" means delivery as an HTTP POST to a single URL. 1.4 "EMAIL Registration" means the registration area within the Pre-Populated Page on the Match Site which requests that users who are eighteen (18) years old or older choose to receive promotional information by clicking on a box that says "Yes, I would like to receive unique offers and information from Match.com's partners" or such other language as Match.com shall determine, subject to Yahoo's approval, which shall not be unreasonably withheld. 1.5 "GETTING STARTED TEXT LINK" means a Link that permits users to navigate directly to the Getting Started Page substantially similar in form to the example attached hereto as EXHIBIT L. 1.6 "GETTING STARTED PAGE" means the Page within Yahoo Personals substantially similar in form to the example attached as EXHIBIT F that includes information advising users that they may also submit their responses to the Personal Ad Fields to Match to allow users the opportunity to create a Match Personal Ad. CONFIDENTIAL 1.7 "INFORMATION PAGE" means the Page within Yahoo Personals substantially similar in form to the example attached hereto as EXHIBIT G, which contains (a) Yahoo and Match co- branding, (b) information regarding the placement of Match Personal Ads on the Match Site, and (c) a Link to the first Page of the Post An Ad Process. 1.8 "INSIDE PERSONALS WEST MODULE" means the module located on the west side of the front Page of Yahoo Personals which contains a listing of certain text links as determined by Yahoo. 1.9 "INTELLECTUAL PROPERTY RIGHTS" means all rights in and to trade secrets, patents, copyrights, trademarks, know-how, as well as moral rights and similar rights of any type under the laws of any governmental authority, domestic or foreign. 1.10 "LINK" means a visible graphic or textual indicator located within a Page that permits a user to navigate the World Wide Web; when selected by a user, this indicator directs the user's Internet browser connection onward to a specified Page on the same or any other Web site via a URL, (whether perceptible or not) and establishes a direct connection between the browser and the new Page. 1.11 "MATCH BANNER" means an advertising unit that (a) promotes the Match Service; (b) contains Match Brand Features; (c) has dimensions of ** wide by ** high; (d) does not contain more than ** of animation; (e) does not contain **; (f) has a file size **; and (g) permits users to navigate directly to the Match Site. 1.12 "MATCH BANNER LAUNCH DATE" means the date the Parties mutually agree to launch the Match Banners which date shall be on or before January 1, 2001. 1.13 "MATCH BRAND FEATURES" means all trademarks, service marks, logos and other distinctive brand features of Match that are used in or relate to its business. 1.14 "MATCH DELIVERABLES" means those materials necessary for Yahoo to provide the Match Banners in accordance with this Agreement, including but not limited to text, artwork and other design elements, as well as all URLs, URL formats (as applicable) and other functional elements. 1.15 "MATCH LINKS" means any Link placed by Yahoo under this Agreement, including but not limited to the Links pursuant to the Yahoo Linking Program. 1.16 "MATCH INTEREST BOX" is the "check box" substantially similar in form to the example set forth in EXHIBIT H that (a) is set to default as "unselected" if a user does not affirmatively click to check the box, (b) users may check to indicate a desire to post a personal ad oil Match, (c) is located on the last Page of the Post An Ad Process, (d) will allow users to navigate directly to the Preview Page by clicking the "continue" button, and (e) contains Match Brand Features. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 2 CONFIDENTIAL 1.17 "MATCH PERSONAL AD" means a personal advertisement on the Match Site posted by a user by submitting the Personal Ad Data and completing the Email Registration, as such personal ad may be modified by time to time by such user on the Match Site. 1.18 "MATCH RESTRICTED COMPANY" means those entities listed in Exhibit I and any affiliates of those listed entities. 1.19 "MATCH SERVICE" means the online personals and matchmaking service operated by Match on the Match Site. 1.20 "MATCH SITE" means the Web site owned or operated on behalf on Match, which is dedicated to on-line personal ads and is currently located at HTTP://WWW.MATCH.COM. 1.21 "ONE&ONLY NETWORK" means the Web site owned or operated on behalf of Match, which is dedicated to on-line personal ads and is currently located at HTTP://WWW.ONEANDONLY.COM. 1.22 "OPT-IN USER" means each user (a) who has elected to check the Match Interest Box and continue to the Co-Branded Confirmation Page; (b) who has navigated to the Match Site by clicking on the Send Link: (c) who has completed the Email Registration, and (d) with respect to which Yahoo has provided Match his or her responses to the Personal Ad Fields; provided however, that an Opt-In User will not include any user (as identified by the user's email address) who has either previously been deemed an Opt-In User or who is already a registered Match or One&Only Network user. 1.23 "PAGE" means any World Wide Web page (or, for on-line media other than Web sites, the equivalent unit of the relevant protocol). 1.24 "PAGE VIEW" means a user's request for a Page as measured by Yahoo's advertising reporting system. 1.25 "PRE-POPULATED PAGE" means a Page within the Match Site substantially similar in form to the example attached as EXHIBIT J (a) on which a user's Personal Ad Data will automatically appear to that user as pre-populated responses to the same data field requests as contained in the Personal Ad Fields, (b) that a user must complete in order to create a Match Personal Ad, and (c) which contains the Email Registration. 1.26 "PRE-POPULATED PAGES" means a mechanism created by Match that causes a user's Personal Ad Data as delivered by Yahoo to automatically pre-populate and appear to that user on the Pre-Populated Page as pre-populated responses to the same data field requests as contained in the Personal Ad Fields. 1.27 "PREVIEW PAGE" means the Page within Yahoo Personals substantially similar in form to the example attached as EXHIBIT K (a) to which users will navigate directly if they have elected to check the Match Interest Box and clicked the "continue" button as shown on Exhibit H), (b) which will allow users to link to another Page within Yahoo Personals for 3 CONFIDENTIAL the purpose of editing their Yahoo Personal Ad and which Page may include the opportunity for the user to elect and implement optional features that relate specifically to a personal ad (e.g., photographs, edit text, voicemail), before linking back to the Preview Page, and (c) contains a link which navigates users directly to the Co-Branded Confirmation Page. 1.28 "PERSONAL AD DATA" means the responses to the Personal Ad Fields solely by a user who has both (a) checked the Match Interest Box and navigated to the Co-Branded Confirmation Page from the Preview Page; and (b) directly navigated to the Match Site by clicking the Send Link. 1.29 "PERSONAL AD FIELDS" means the following data fields which a user is asked to complete in order to submit his or her Yahoo Personal Ad on Yahoo Personals: Zip Code; Gender: Preference; Ethnicity; Education; Religion; Height; Body Type; Age; Smoke; Drink; Have Children; Ad Title; provided, however, that Yahoo may include additional data fields or delete certain data fields so long as Yahoo uses ** efforts to substitute a deleted data field with another reasonably similar data field. 1.30 "POST AN AD TEXT LINK" means a Link substantially similar in form to the example attached hereto as EXHIBIT L, that permits users to navigate directly to a Page within the Post An Ad Process. 1.31 "POST AN AD PROCESS" means the Page (or Pages as determined by Yahoo) located within Yahoo Personals which includes (a) the process for users to submit a Yahoo Personal Ad to Yahoo, and (b) the Match Interest Box at the end of the data field entry process. 1.32 "REACH MORE PEOPLE TEXT LINK" is a Link substantially similar in form to the example attached hereto as EXHIBIT L, that permits users to navigate directly to the information Page. 1.13 "RUN OF NETWORK" means advertising banner placements in the north banner position across the Yahoo Properties. 1.34 "SEND LINK" is a Link on the Co-Branded Confirmation Page that reads "Send my personal information to Match.com to create a Match.com profile," or similar language determined by Yahoo, that will allow a user to navigate directly to the Pre-Populated Page on the Match Site. 1.35 "TERM" means the period beginning on the Effective Date and continuing for a period of ** after the Yahoo Linking Program Launch Date, unless either party terminates this Agreement in accordance with Section 13.2. 1.36 "YAHOO BRAND FEATURES" means all trademarks, service marks, logos and other distinctive brand features of Yahoo that are used in or relate to its business. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 4 CONFIDENTIAL 1.37 "YAHOO EMAIL MESSAGE" means an Email message provided by Match pursuant to Section 4.1 which contains a Link substantially similar in form to the example attached hereto as Exhibit M and which will navigate users directly to the Yahoo Email Message Link Page. 1.38 "YAHOO EMAIL MESSAGE LINK Page" means a "jump page" designed by Yahoo and located within Yahoo Personals to which users will navigate directly from the Yahoo Email Messages. 1.39 "YAHOO LINKING PROGRAM" means the linking program described in Section 2.4. 1.40 "YAHOO LINKING PROGRAM LAUNCH DATE" means the date Yahoo publicly launches the Yahoo Linking Program or as otherwise provided in Section 8.3. 1.41 "YAHOO PERSONAL ADS" means personal advertisements created in accordance with the information submitted by users of the Yahoo Properties to appear within Yahoo Personals. 1.42 "YAHOO PERSONALS" means the U.S. targeted Yahoo Property dedicated to personal advertisements, currently located at HTTP://PERSONALS.YAHOO.COM. 1.43 "YAHOO RESTRICTED COMPANY" means those entities listed in EXHIBIT N and any affiliates of those listed entities. 1.44 "YAHOO PROPERTY" means any Yahoo branded or co-branded property or service that is (a) within the yahoo.com domain; (b) targeted at users in the United States; (c) developed in whole or in part by Yahoo; and (d) distributed or made available to the general public by Yahoo via the Internet or third party networks. "Yahoo Properties" will not be deemed to mean any Yahoo branded or co-branded property or service that is (1) outside the yahoo.com domain (e.g., HTTP://WWW.BROADCAST.COM); or (2) targeted at users outside the United States, regardless of whether the property or service is within the yahoo.com domain (e.g., http://espanol.yahoo.com). SECTION 2. YAHOO LINKING PROGRAM. 2.1 PRE-POPULATION PROCESS. Match will be solely responsible for creating and maintaining the Pre-Populated Page and the Pre-Population Process during the Term. Match agrees that it will not make any material changes to the Pre-Populated Page without the approval of Yahoo, which approval will not be unreasonably withheld. The Parties acknowledge that the Personal Ad Data provided by Yahoo to Match may include blank responses by users who have elected not to respond to certain Personal Data Fields that are optional. 2.2 DESIGN AND MAINTENANCE. Yahoo will be solely responsible for creating and maintaining the Yahoo Linking Program during the Term. Yahoo will be the "executive producer" of, and Yahoo will control and have sole discretion with respect to, the appearance, design, layout, service offerings, and look-and-feel of Yahoo Personals, all offerings within Yahoo Personals, and the Yahoo Linking Program, except as otherwise set forth in 5 CONFIDENTIAL Section 7.1 and the following sentence in this Section 2.2. Yahoo agrees that it will not make any material changes to Exhibits D, F, G and L solely with respect to the location, relative size, and relative prominence of the Match Brand Features, the location, relative size, and relative prominence of the Match Links, and the language of the text specifically relating to Match without the approval of Match, which approval will not be unreasonably withheld. In addition, Yahoo agrees that it will consider suggestions by Match to the Pages described in Exhibits D, F, G, and I, above relating to the enhancement of the user experience. 2.3 COMMENCEMENT. Yahoo will use ** to be "ready to commence" (as defined in Section 8.3) the Yahoo Linking Program by no later than December 22, 2000; provided, however, that Match acknowledges that Yahoo will not launch the Yahoo Linking Program until Match has created and implemented a functional Pre-Population Process and Pre-Population Page. Match will use ** to create and implement the Pre-Populated Page and Pre-Population Process by December 22, 2000. Yahoo and Match will use ** efforts to publicly launch the Yahoo Linking Program as soon as practical following the date on which both (1) Yahoo is ready to commence the Yahoo Linking Program and (2) Match has created and implemented a functional Pre-Population Process and Pre-Population Page. 2.4 PLACEMENT. The Yahoo Linking Program will consist of a mechanism created by Yahoo for providing the Personal Ad Data to Match via the Delivery Format, and placement of the following: (a) the Post an Ad Text Link, Reach More People Text Link and the Getting Started Text Link within the Inside Personals West Module; (b) the Getting Started Page, Information Page and the Co-Branded Confirmation Page; (c) the Match Interest Box; and (d) the Send Link. 2.5 PRIVACY NOTICES. Yahoo may include appropriate privacy notices in connection with the Yahoo Linking Program as it determines in its sole discretion. Match will include its privacy policy, as such policy may be amended front time to time in Match's discretion, on the Pre-Populated Page by hyperlink. 2.6 CUSTOMER SERVICE. Match will be responsible for all customer service relating to the Match Service. 2.7 ADVERTISING RIGHTS. Subject to Section 7.1, Yahoo will (a) have the sole right to sell, license or otherwise transfer the right to advertise on each Page of the Yahoo Properties, including but not limited to Yahoo Personals, and (b) retain all revenue generated from - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 6 CONFIDENTIAL the transfer of such right. All advertising strategy, rates and policies will be established by Yahoo in its sole discretion. SECTION 3. MATCH BANNERS. 3.1 MATCH BANNER. Commencing oil the Match Banner Launch Date, Yahoo will provide the Match Banner on a rotating basis through Run of Network until its Page View Obligation under Section 3.2 is met. 3.2 PAGE VIEWS OBLIGATION. With respect to the Match Banner, Yahoo will deliver ** Page Views (the "Page View Obligation") of the Match Banners. Yahoo will make ** to deliver these Page Views according to the specific breakdown set forth in EXHIBIT A. Such Page Views will be scheduled to be delivered evenly over the ** period commencing on the Match Banner Launch Date, unless otherwise agreed by the Parties ("Banner Period"). 3.3 MAKE GOOD. In the event that Yahoo fails to meet its Page View Obligation before expiration of the Term, Yahoo will "make good" the shortfall in the areas of placement set forth in EXHIBIT A by extending its obligations under Sections 3.2 until its Page Views Obligation is satisfied within ** following the end of the Term. The provisions of this Section 3.3 set forth the liability of Yahoo, and Match's sole remedy, for Yahoo's failure to meet its Page View Obligation. 3.4 INITIAL PAGE VIEW DELIVERY. Match will purchase and Yahoo will make ** to deliver, the first ** Page Views of the Page View Commitment by the ** anniversary date of the Yahoo Linking Program Launch Date Initial Page View Delivery"). In the event that either Party exercises its right of early termination pursuant to Section 13.2(a)(ii) and Yahoo fails to deliver the Initial Page View Delivery, Yahoo will "make good" the shortfall within ** after such early termination. The previous sentence of this Section 3.4 sets forth the entire liability of Yahoo, and Match's sole remedy, for Yahoo's failure to meet the Initial Page View Delivery of the Page View Obligation in the event of such early termination. 3.5 MATCH BANNER SPECIFICATIONS: The Match Banner promotion shall comply with Yahoo's applicable standard advertising specifications, including those set forth at HTTP://WWW.YAHOO.COM/DOCS/ADVERTISING/OPS/FRONT PAGE.HTML. The same may be modified by Yahoo at its discretion. In addition, Yahoo reserves the right, at any time, to redesign or modify the organization, structure, specifications, "look and feel," navigation. guidelines and other elements of any Yahoo Property on which a Match Banner is placed; provided, however, that in such event Yahoo will provide Match with reasonably similar placement of the Match Banners as provided pursuant to the Agreement. SECTION 4. MATCH EMAIL PROGRAM 4.1 MATCH EMAIL DELIVERY. Match will deliver ** Yahoo Email Messages ("Yahoo Email Obligation") and will use commercially reasonable efforts to - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 7 CONFIDENTIAL deliver the Yahoo Email Messages in accordance with the specific breakdown in EXHIBIT E and in an evenly distributed manner over the Term. Match will make commercially reasonable efforts to deliver the first ** Yahoo Email Messages by the ** anniversary date of the Yahoo Linking Program Launch Date ("Initial Yahoo Email Delivery"). In the event that (a) either Party exercises its right of early termination pursuant to Section 13.2(a)(ii) and Match fails to deliver the Initial Yahoo Email Delivery, Match will "make good" the shortfall in the areas of placement set forth in EXHIBIT E within ** after such early termination, or (b) neither Party exercises its right of early termination and Match fails to deliver the Yahoo Email Obligation before the expiration of the Term, Match will "make good" the shortfall in the areas and placement set forth in EXHIBIT E until the total number of Yahoo Email Messages are delivered in full within ** following the expiration of the Term. Such "make good" sets forth the entire liability of Match, and Yahoo's sole remedy, for Match's failure to meet its obligations with respect to the total number of Yahoo Email Messages to be delivered hereunder. Match will only deliver Yahoo Email Messages to users who have indicated a willingness to receive promotional offers from Match. The Parties agree more than one Yahoo Email Message may go to the same user provided that such Yahoo Email Messages are each unique. Yahoo will provide to Match the Yahoo-related text for the Yahoo Email Messages. Match will not send any Yahoo Email Messages referencing any Yahoo Restricted Company. Notwithstanding the foregoing, Match shall be permitted to include ** with ** in connection with such companies' ** properties. 4.2 MATCH RESTRICTED COMPANIES. In no event will Yahoo ** or ** or **, or ** or ** the placement on the Yahoo Email Message Link Page which contains any graphic or textual hyperlinks or promotions from any Match Restricted Companies. 4.3 COMPLIANCE WITH LAW. All content and material contained in the Yahoo-related text for the Yahoo Email Messages must ** comply, with all applicable federal, state and local laws, rules and regulations, including but not limited to consumer protection laws and rules and regulations governing product claims, truth in labeling and false advertising. SECTION 5. IMPLEMENTATION. 5.1 USER INTERFACE. Yahoo will be solely responsible for the user interface and placement of the Yahoo Linking Program. Except as otherwise provided in this Agreement, Yahoo reserves the right, at any time, to redesign or modify the organization, structure, specifications, "look and feel," navigation, guidelines and other elements of any Yahoo Property, including any Yahoo Property on which a Match Link or Match Banner is placed. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 8 CONFIDENTIAL 5.2 MATCH DELIVERABLES. Match will be solely responsible for and will provide Yahoo with all Match Deliverables in accordance with the specifications set forth in this Agreement and Yahoo's standard advertising guidelines, currently located under the "Facts and Figures" category at HTTP://FUSION.YAHOO.COM and subject to change from time to time. Match's compliance with the aforementioned specifications and guidelines will be determined by Yahoo in its reasonable discretion. Match will deliver to Yahoo (a) the Match Deliverables at least ** before the Match Banner Launch Date, and (b) any mutually agreed upon updates to those Match Deliverables at least ** prior to the scheduled activation date of the first affected Match Banner. 5.3 YAHOO RESTRICTED COMPANIES. In no event will Match sell or barter **, or **, for placement on the ** on the ** that users reach by click-through directly from any Match Banner which contains any graphic or textual hyperlinks or promotions from any Yahoo Restricted Companies in a manner that specifically targets such advertising to appear to users that click through from a Yahoo Property. For example, it will be considered a material breach of this Agreement if Match or any of its agents or representatives offer, sell, place, or barter any advertisement placements to or for Yahoo Restricted Companies on such pages based on any consideration that Yahoo users may click-through to such pages. Further, in no event will the first page on the Match Site that users reach by clicking-through directly from any Match Link pursuant to the Yahoo Linking Program contain graphic or textual hyperlinks or promotions of any Yahoo Restricted Company. 5.4 LINK BACK TO YAHOO. Match will place a Yahoo graphic link (Back to Yahoo Personals") on the top of the first Page of the Match Site to which users click through directly from any Link as part of the Yahoo Linking Program. The Yahoo graphic link will (a) be placed in a manner determined by Match and reasonably approved by Yahoo; (b) contain the Yahoo name and logo as provided by Yahoo in a mutually acceptable size; and (c) directly link the user back to a Page on the Yahoo Properties, as designated by Yahoo. 5.5 MATCH SITE PERFORMANCE. The Match Site shall be maintained to (a) handle ** simultaneous requests; (b) handle a ** uptime and ** downtime per ** of the Term (except for planned downtime that may be required for system enhancements, upgrades or preventative maintenance); and (c) initiate data transfers from the Match Site to the Yahoo Network within **, on average, of request. 5.6 COMPLIANCE WITH LAW; Disclaimers. All content and material contained in the Match Links and Match Banners must ** comply with all applicable federal, state and local laws, rules and regulations, including but not limited to consumer protection laws and rules and regulations governing product claims, truth in labeling and false advertising. All content and material contained in the Match Links and the Match Banners provided hereunder are subject to Yahoo's prior approval, which approval will not be unreasonably withheld. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 9 CONFIDENTIAL 5.7 USER EXPERIENCE. Yahoo and Match will use ** efforts to prevent their respective users from abusing the other's users (e.g., Yahoo and Match will attempt to reduce the "spam" that appears on the Yahoo Personals site from users of Match Site and the One&Only Network and vice versa). 5.8 QUARTERLY MEETINGS. The Parties will use ** efforts to cause the appropriate individuals from each Party to meet ** during the Term at the Yahoo offices in Santa Clara, California, to discuss the performance of the Yahoo Linking Program. SECTION 6. LICENSES. 6.1 YAHOO BRAND FEATURES. During the Term, Yahoo hereby grants to Match a non-exclusive, non-transferable, worldwide, royalty-free license to use, reproduce and display the Yahoo Brand Features solely as described in Sections 4.1 and 5.4. 6.2 MATCH BRAND FEATURES. During the Term, Match hereby grants to Yahoo a non-exclusive, non-transferable, worldwide, royalty-free license to use, reproduce and display the Match Brand Features solely (a) to indicate the location of the Match Links and in the Match Banners as set forth herein; (b) in connection with the marketing and promotion of the Yahoo Linking Program; and (c) subject to Match's prior approval, in connection with the marketing and promotion of the Yahoo Properties. SECTION 7. RESTRICTIONS AND RIGHT OF FIRST PRESENTATION 7.1 PROGRAM RESTRICTIONS. During the Term, in no event shall Yahoo ** to appear ** to any third party which allows users to ** to such third party's site from Yahoo Personals nor shall Yahoo, prior to the End Date (as defined in Section 7.2 below), offer any such program to any third party, whether or not such program is to appear on ** during or after the Term. Notwithstanding the foregoing, this provision shall not prevent Yahoo from accepting advertising on any Yahoo Property, including but not limited to **, from any advertiser; provided, however, Yahoo may not ** such **, or **, in it manner that specifically targets ** of Match Restricted Companies to appear on the same page as the Match Banners or within the Co-Branded Confirmation Page or the Information Page. For purposes of clarification, the parties acknowledge that advertising of Match Restricted Companies may appear on the same page as the Match Banners from time to time in connection with a "run of network" or similar advertising rotation. 7.2 RIGHT OF FIRST PRESENTATION. At least ** prior to the expiration of the Term, Yahoo will provide written notice to Match in the event that Yahoo, in its sole discretion, elects to extend the availability of the terms of the Yahoo Linking Program as combined with the terms of the placement of the Match Banners to Match. Yahoo will describe Yahoo's reasonable business requirements for such program in its written notice to Match. The parties will use good-faith efforts to negotiate and execute an agreement memorializing their respective relationship with respect to such program under - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 10 CONFIDENTIAL reasonable terms and conditions. If Match declines to commence good faith negotiations with Yahoo within ** after receiving such written notice from Yahoo, or if the parties fail to reach agreement within ** following the commencement of good faith negotiations (in either case, the "End Date"), Yahoo may offer the opportunity to any third party. The parties acknowledge that the opportunities and terms offered in any such program may differ substantially from those contained in this Agreement. SECTION 8. PAYMENTS. 8.1 SLOTTING FEE. Match will pay to Yahoo a non-refundable, non-creditable slotting fee of **. ** dollars ** of such fee shall apply towards the purchase of the Yahoo Linking Program and ** of such fee shall apply towards the purchase of the Match Banners. Such fee shall be paid to Yahoo in accordance with the payment schedule set forth on EXHIBIT B hereto. The first such payment shall be designated a non-refundable set up fee for the design, consultation, development, implementation and placement of the Yahoo Linking Program and the Match Banners. 8.2 CONVERSION OF SLOTTING FEE. In the event that Match fails in any material respects to provide Yahoo with the Match Deliverables in accordance with Section 5.2, all payments made or due hereunder for the Match Banners (as indicated on Exhibit P,) will be converted to a non-refundable holding fee for making the advertising inventory available to Match as provided herein until Match cures such deficiency. In the event that Match fails to provide a functioning Pre-Population Process and Pre-Populated Page at the title that Yahoo is ready to commence the Yahoo Linking Program (as described in Section 8.3), all payments made or due hereunder for the Yahoo Linking Program (as indicated on Exhibit B) will be converted to a non-refundable holding fee for making the Yahoo Linking Program available to Match as provided herein until Match cures any deficiency hereunder. 8.3 DELAY OF YAHOO LINKING PROGRAM LAUNCH DATE. In the event that Yahoo is ready to commence the Yahoo Linking Program by December 22, 2000, but Yahoo is prevented from launching the Yahoo Linking Program because Match has not developed and implemented a functioning Pre-Population Process or the Pre-Populated Page, Match will continue to be obligated to make all payments in accordance with the schedule specified on EXHIBIT B and the Yahoo Linking Program Launch Date will be deemed to be December 22, 2000, regardless of when the Pre-Population Process is implemented by Match. However, if Yahoo is not ready to commence the Yahoo Linking Program by December 22, 2000, then (a) Match will still be obligated to make the December 1, 2000 and the December 22, 2000 payments, and all payments relating to the Yahoo Promotion, as described on EXHIBIT B, and (b) the due date for the remaining payments for the Yahoo Linking Program will be adjusted by the number of days from December 22, 2000 until the Yahoo Linking Program Launch Date (e.g., if Match has provided the Pre-Population Process but Yahoo delays the Yahoo Linking Program Launch Date until December 30, - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 11 CONFIDENTIAL 2000, the due date for the ** payment will be adjusted to **, the ** payment, will be adjusted to ** and so forth). The Parties further agree that if Yahoo is not ready to commence the Yahoo Linking Program by **, then, notwithstanding Section 8.1, (a) Yahoo will ** upon execution of this Agreement equal to ** and the portion of the ** and ** to Yahoo attributable to the Yahoo Linking Program (as indicated on Exhibit B) and (b) the obligations of both Parties solely with respect to the Yahoo Linking Program shall terminate. Yahoo will be deemed "ready to commence" the Yahoo Linking Program as described in this Section when (a) Yahoo has developed (but not yet made publicly available) all of the links described in Section 2.4, and (b) Yahoo has developed (but not yet implemented) the mechanism to deliver the Personal Ad Data to Match in the Delivery Format, regardless of whether Match has developed the Pre-Population Process or the Pre-Populated Page. This provision describes Yahoo's sole liability for its failure to provide the Yahoo Linking Program by **. 8.4 OPT-IN FEE. In addition, Match will pay to Yahoo ** for each Opt-In User ** as measured on a cumulative basis during the Term (the "Opt-In Threshold"). Notwithstanding the foregoing, in no event will the total amount that Match pays to Yahoo in connection with the Agreement exceed **. After the Opt-In Threshold has been reached, Match's payments to Yahoo for Opt-In Users in excess of the Opt-In Threshold will be due and payable within thirty (30) days of the end of each month based on the number of Opt-In Users during that month. With each payment, Match will provide Yahoo a report certified by an officer of Match showing the number of Opt-In Users. Match will maintain complete and accurate records in accordance with generally accepted methods of accounting to revenue share transactions described in this section, and will allow Yahoo, at its own expense, to direct an independent certified public accounting firm or other qualified independent auditor to inspect and audit such records during normal business hours with written notice to Match to determine whether there has been any underpayment of payments herein. In the event that any audit reveals ail underpayment of more than **, Match will pay the reasonable cost of such audit and the amount equal to such underpayment. 8.5 PAYMENT INFORMATION. All payments herein are non-refundable and non-creditable and will be made by Match via wire transfer into Yahoo's main account according to the wire transfer instructions set forth in EXHIBIT C. 8.6 LATE PAYMENTS. Any portion of the above payments that has not been paid to Yahoo within 5 days after the dates set forth herein will bear interest at the lesser of (a) 1% per month or (b) the maximum amount allowed by law. SECTION 9. CONFIDENTIAL INFORMATION, PUBLICITY, AND USER DATA. 9.1 TERMS AND CONDITIONS. The terms and conditions of this Agreement will be considered confidential and will not be disclosed to any third parties, except to Match's or Yahoo's - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 12 CONFIDENTIAL accountants and attorneys, or except as otherwise required by law. Neither party will make any public announcement regarding the existence of this Agreement without the other party's prior written approval. If this Agreement or any of its terms must be disclosed under any law, rule or regulation (e.g., as part of a filing with the United States Securities and Exchange Commission), excluding an order or other discovery request that is issued under seal by a court of competent jurisdiction or that is otherwise subject to non-disclosure, the disclosing party will (a) give written notice of the intended disclosure to the other party at least 5 days in advance of the date of disclosure; (b) redact portions of this Agreement to the fullest extent permitted under any applicable laws, rules and regulations; and (c) submit a request, to be agreed upon by the other party, that such portions and other provisions of this Agreement requested by the other party receive confidential treatment under the laws, rules and regulations of the body or tribunal to which disclosure is being made or otherwise be held in the strictest coincidence to the fullest extent permitted under the laws, rules or regulations of any other applicable governing body. 9.2 PUBLICITY. Any and all public announcements relating to this Agreement and to subsequent transactions between Yahoo and Match and the method of their release must be approved in advance of the release, in writing, by both Yahoo and Match. Both parties will cooperate to prepare and distribute a press release from Match upon commencement of the Yahoo Linking Program which generally describes the Yahoo Linking Program within l0 business days of the date the Yahoo Linking Program is made publicly available. 9.3 NONDISCLOSURE AGREEMENT. Yahoo and Match acknowledge and agree that the terms of the Mutual Nondisclosure Agreement between the Parties dated effective as of November 20, 2000 will be incorporated by reference and made a part of this Agreement, and will govern the use and disclosure of confidential information and all discussions pertaining to or leading to this Agreement. 9.4 USER DATA. Yahoo and Match agree that protecting users' privacy rights is a critical element of their business relationship. Accordingly, each party agrees to adhere to TRUSTe guidelines on the collection and use of all user data. Match agrees that it will collect such data pursuant to written privacy policies that are conspicuously posted via hyperlinks on all pages where a user is requested to provide personal or financial information and will continuously satisfy all applicable privacy and consumer protection laws and regulations. Yahoo agrees that it will collect such data pursuant to written privacy policies that are conspicuously posted via hyperlinks on the pages where a user is requested to provide responses to the Personal Ad Fields pursuant to this Agreement and will continuously satisfy all applicable privacy and consumer protection laws and regulations. 9.5 DATA OWNERSHIP: All information and data provided to Yahoo by users of the Yahoo Properties or otherwise collected by Yahoo relating to user activity on the Yahoo Properties (including, without limitation, the Personal Ad Data) will be retained by and owned solely by Yahoo. Notwithstanding the foregoing and subject to the restrictions set 13 CONFIDENTIAL forth in Section 9.6 below, Yahoo will grant to Match an irrevocable (except as otherwise provided in Section 9.8), perpetual, limited, non-exclusive, non-transferable license (the "Data License") to use, display and reproduce the Personal Ad Data. provided, however. such user has expressed his or her consent by completing the Email Registration ("Shared User Data"). All other Personal Ad Data received by Match with respect to which a user has not completed the Email Registration will be immediately destroyed by Match. All other information and data provided to Match on the Match Site or otherwise collected by Match relating to user activity oil the Match Site will be retained by and owned solely by Match. Each party agrees to use all personally identifying information only as authorized by the user that provided such information and will not disclose, soil. license or otherwise transfer any such user information to any third party other than in accordance with its published privacy policy or use the user information for the transmission of "junk mail," "spam," or any other unsolicited mass distribution of information. 9.6 EMAIL REGISTRATION RESTRICTIONS: Match will include the Email Registration on the Pre- Populated Page for users who have both (a) checked the Match Interest Box and navigated to the Co-Branded Confirmation Page by clicking the "continue" button for more details; and (b) directly navigated to the Match Site by clicking the Send Link. In the event a user "opts-in" to receive such promotion or other information from Match by completing the Email Registration, Match agrees to use the information provided by such user and any Shared User Data solely for its own use and with the understanding that none of the information provided by such users and any Shared User Data. and reports or data or information containing such information, will be sold, loaned, rented or otherwise transferred or made available or otherwise disclosed or conveyed directly or indirectly to any third parties without prior approval of such user and, during the Term, Yahoo; provided that the public posting of information by a user who has affirmatively consented to such posting on the Match Site will not be considered to be a violation of the Data License. During the Term, Match further agrees that with respect to any email and/or other messages from Match to users who have completed the Email Registration, Match will not send messages referencing any Yahoo Restricted Company. Notwithstanding the foregoing, Match shall be permitted to include ** to its ** with **, ** in connection with such companies' ** properties. 9.7 PRIVACY OF USER DATA. Match shall use commercially reasonable efforts to ensure that all information provided by users pursuant to this Agreement is maintained, accessed and transmitted in a secure environment and in compliance with industry standard security specifications. Match shall provide a link to its policy regarding the protection of user data on those pages of the Match Site where the user is requested to provide personal information. 9.8 DATA LICENSE. The Parties agree that Yahoo may revoke the Data License in the event that (a) Match does not comply with any order issued by any Court of law relating to the Data license or (b) Match fails to pay any judgment against it relating to its failure to comply with the Data License. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 14 CONFIDENTIAL SECTION 10. LIMITATION OF LIABILITY. EXCEPT WITH RESPECT TO A PARTY'S INDEMNIFICATION OBLIGATIONS SET FORTH IN SECTION 12, UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY (A) IN EXCESS OF ** IN THE AGGREGATE (OTHER THAN WITH RESPECT TO PAYMENT OBLIGATIONS) AND (B) ANY AMOUNT WITH RESPECT TO ANY SUBJECT MATTER, OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE, THEORY FOR (I) ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, OR EXEMPLARY DAMAGES (INCLUDING BUT NOT LIMITED TO LOSS OF REVENUE OR GOODWILL OR ANTICIPATED PROFITS OR LOST OF BUSINESS), EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES: OR (II) THE COST OR PROCUREMENT OF SUBSTITUTE SERVICES. SECTION 11. REPRESENTATIONS AND WARRANTIES. 11.1 BY MATCH. Match represents and warrants that at all times during the Term (a) Match will comply in all material respects with its Terms of Use, privacy policy, user instructions regarding the use of their data, and any other guidelines posted on the Match Site; (b) Match will notify Yahoo within ** of any complaints that it receives relating to any Match Personal Ad placed in connection with the Yahoo Linking Program; (c) Match will remove any Match Personal Ad placed in connection with the Yahoo Linking Program for any reason within ** after receipt of a request by Yahoo during Customer Service Hours or, within ** of the next commencement of Customer Service Hours if such request is received by Match outside of Customer Service Hours; (d) Match has no notice as of the Effective Date that the Pre-Population Process violates any Intellectual Property of any third party; (e) Match has no knowledge that the Pre-Population Process violates any Intellectual Property of any third party; and (f) Match has obtained, through its ultimate parent company, USA Networks, Inc., and will keep in force during the Term and two (2) years thereafter, a blanket entertainment errors and omissions insurance policy in the amount of ** per occurrence and ** in the aggregate covering Match, USA Networks, Inc. and USA Networks, Inc.'s other subsidiaries, a copy of which has been provided to Yahoo, to cover all risks relevant to this Agreement (subject to the wording of the policy) and that Yahoo has been added to such policy as an additional insured. 11.2 BY YAHOO. Yahoo represents and warrants that at all times during the Term the Yahoo Brand Features and the Yahoo-related text for the Yahoo Email Messages as provided by Yahoo to Match do not infringe the rights of any third party, including without limitation any Intellectual Property Rights, rights of publicity, rights of personality, rights of privacy, rights to payment of royalties, or any other rights of third parties. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 15 CONFIDENTIAL SECTION 12. INDEMNIFICATION. 12.1 BY MATCH. Match must, at its own expense, indemnify, defend and hold harmless Yahoo, its affiliates and each of their respective officers, directors, employees, representatives, and agents from and against and in respect of any and all claims, liabilities, allegations, suits, actions, investigations, judgments, deficiencies, settlements, inquiries, demands or other proceedings of whatever nature or kind, whether formal or informal, brought against Yahoo, its affiliates or any of their respective officers, directors, employees, representatives, or agents, as well as from and against and in respect of any and all damages, liabilities, losses, costs, charges, fees and expenses, including without limitation reasonable legal fees and expenses, as and when incurred, relating to, based upon, incident to, arising from, or in connection with (a) any claim that Match has not complied with its Terms of Use, privacy policy, user instructions regarding the use of user data, or any other guidelines posted on the Match Site; (b) any claim that the Match Deliverables (including the Match Brand Features as provided by Match to Yahoo) infringe the rights of any third party, including without limitation any Intellectual Property Rights, rights of publicity, rights of personality. rights of privacy, rights to payment of royalties, or any other rights of third parties; (c) any violation by Match of the Data License or its failure to destroy the Personal Ad Data pursuant to Section 9.5; (d) any violation by Match of its obligations or restrictions specified in Section 9.6 with respect to user information and Shared User Data; (e) any breach by Match of its representations and warranties contained in Section 11.2; and (1) any other claim not otherwise subject to indemnity pursuant to Section 12.1(a) through (e) above that the services distributed, offered or provided by Match, including the Pre-Population Process, infringe in any manner any Intellectual Property Right of any third party or contains ally material or information that is obscene, defamatory, libelous, slanderous, violates any law or regulation, is negligently performed, or otherwise violates ally person's right of publicity, privacy or personality. or has otherwise resulted in any fraud, product liability, tort, breach of contract injury, damage or harm to any person or entity; provided, however, that solely with respect to this Section ** only, Match's indemnification obligations shall be **. 12.2 BY-YAHOO. Yahoo must, at its own expense, indemnify defend and hold harmless Match, its affiliates and each of their respective officers, directors, employees, representatives, and agents from and against and in respect of any and all claims, liabilities, allegations, suits, actions, investigations, judgments, deficiencies, settlements, inquiries, demands or other proceedings of whatever nature or kind. whether formal or informal, brought against Match, its affiliates or any of their respective officers, directors, employees, representatives, or agents, as well as from and against and in respect of any and all damages, liabilities, losses, costs, charges, fees and expenses, including without limitation reasonable legal fees and expenses, as and when incurred, relating to, based upon, incident to, arising from, or in connection with the breach by Yahoo of any of its ** contained in Section **. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 16 CONFIDENTIAL 12.3 PROCEDURE. All indemnification obligations under this Section will be subject to the following requirements: (a) the indemnified party will provide the indemnifying party with prompt written notice of any claim; (b) the indemnified party will permit the indemnifying party to assume and control the defense of any claim upon the indemnifying party's written acknowledgment of the obligation to indemnify and (c) the indemnifying party will not enter into any settlement or compromise of any claim without the indemnified party's prior written consent, which will not be unreasonably withheld. In addition, the indemnified party may, at its own expense, participate in its defense of any claim. SECTION 13. TERM AND TERMINATION. 13.1 TERM. This Agreement will commence upon the Effective Date and will remain in effect for the Term. 13.2 EARLY TERMINATION. (a) By Either PARTY. i. This Agreement may be terminated at any time by either party (1) 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 (2) ** after written notice to the other party of such other party's breach of any of its representations, warranties, or obligations under this Agreement in any material respect ** in the case of a failure to pay), which breach is not remedied within such notice period. In the event that Yahoo provides a notice of termination under clause (2) above with respect to a breach by Match of its representations or warranties, Yahoo shall have the right to suspend performance under Section 2.4 of this Agreement for the notice period unless and until the breach is fully remedied by Match prior to the expiration of the notice period and, in the event the breach is fully remedied, the Term shall be extended by the aggregate number of days Yahoo has suspended performance pursuant to this Section 13.2(a)i, not to exceed **. ii. In addition, either party will have the ** to terminate the Agreement as of the ** anniversary date of the Yahoo Linking Program Launch Date by providing the other party with at least ** written notice prior to such anniversary date. In the event either Party exercises its right of early termination pursuant to this Section 13.2(a)(ii), all obligations will end as of the effective date of such early termination other than (A) Yahoo's "make good" obligations, if any, with respect to delivery of ** Yahoo Page Views and Match's "make good" obligations, if any, with respect to ** Yahoo Email Messages under the Agreement, (B) Match's obligation to make payments - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 17 CONFIDENTIAL pursuant to Section 8.1 equal to least ** (which includes the first payment of **), ** of which will apply towards the payment for the Yahoo Linking Program, and (C) Match's obligation to pay any fees for Opt-In Users obtained prior to the date of termination pursuant to Section 8.4. (b) BY YAHOO. Further, Yahoo shall have the right to terminate this Agreement upon ** notice in the event that the aggregate of the Match Site the One&Only Network and all other matchmaking sites owned by USA Networks. Inc. and its affiliates is no longer one of the top ** sites for paid matchmaking and personals service as determined by Media Metrix reach index. In the event that Yahoo exercises its rights of termination pursuant to this Section prior to the end of the then-current Payment Period (as defined on Exhibit A), Yahoo agrees that it will shall ** attributable to the Yahoo Linking Program with respect to the remainder of such Payment Period. Such ** will be calculated by dividing the pre-paid slotting fee attributable to the Yahoo Linking Period by ** and multiplying the result by the ** remaining in the then-current Payment Period as of the effective date of termination under this Section 13.2(b). (c) NON-EXCLUSIVE REMEDY. Unless otherwise provided, the foregoing rights of termination will be in addition to any other legal or equitable remedies that the terminating party may have. (d) INJUNCTIVE-RELIEF. Yahoo and Match acknowledge that a breach of the obligations contained in this Agreement relating to privacy and Shared User Data, including without limitation, any breach of the Data License, will cause irreparable harm to Yahoo to which monetary damages would be inadequate. Accordingly, in addition to any other remedy to which Yahoo maybe entitled at law or in equity, Yahoo may be entitled to injunctive relief to prevent breaches of any provision of this Agreement and to specifically enforce the terms and provisions hereof. 13.3 EFFECT OF TERMINATION. The provisions of Sections 1, 8 (with respect to payments accrued through the date of expiration or termination) 9, 10, 11, 12, and 14 shall survive expiration or termination of this Agreement. SECTION 14. GENERAL PROVISIONS. 14.1 INDEPENDENT CONTRACTORS. It is the intention of Yahoo and Match that Yahoo and Match are, and will be deemed to be, independent contractors with respect to the subject matter of this Agreement, and nothing contained in this Agreement will be deemed or construed in any manner whatsoever as creating any partnership, joint venture, employment, agency, franchise, seller-salesperson, master-servant, fiduciary or other similar relationship between Yahoo and Match. - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 18 CONFIDENTIAL 14.2 ENTIRE AGREEMENT. This Agreement, including but not limited to all Exhibits attached hereto, each of which is incorporated herein be reference, represents the entire agreement between Yahoo and Match with respect to the subject matter hereof and thereof and will supersede all prior agreements and communications of the parties, oral or written, including but not limited to the Letter of Intent dated November 6. between Yahoo and Match. 14.3 AMENDMENT AND WAIVER. No amendment to, or waiver of, any provision of this Agreement will be effective unless in writing and signed by both parties. The waiver by any party of any breach or default will not constitute a waiver of any different or subsequent breach or default. 14.4 GOVERNING LAW. This Agreement will be governed by and interpreted in accordance with the laws of the State of California without regard to the conflict of laws principles thereof. 14.5 LEGAL FEES. The prevailing party in any legal action brought by one party against the other party and arising out of this Agreement will be entitled, in addition to any other rights and remedies it may have, to reimbursement for its expenses, including court and arbitration costs, as well as reasonable attorneys' fees. 14.6 SUCCESSORS AND ASSIGNS. Neither party may assign its rights or obligations under this Agreement without the prior written consent of the other party, which will not be unreasonably withheld. Notwithstanding the foregoing, either party may assign this Agreement to an entity that acquires substantially all of the stock or assets of a party to this Agreement; except that consent will be required in the event that the non-assigning party reasonably determines that the assignee will not have sufficient capital or assets to perform its obligations hereunder, or that the assignee ** provided that ** and its affiliates, as set forth in EXHIBIT O hereto (or any company formed as a result of a combination of such companies) shall in no event be considered a ** solely for purposes of this sentence. All terms and provisions of this Agreement will be binding upon and inure to the benefit of the parties hereto and their respective permitted transferees, successors and assigns. 14.7 FORCE MAJEURE. Neither party will be liable for failure to perform or delay in performing any obligation (other than the payment of money) under this Agreement if such failure or delay is due to fire, flood, earthquake, strike, war (declared or undeclared), embargo, blockade, legal prohibition, governmental action, riot, insurrection, damage, destruction or any other similar cause beyond the control of such party. If such event continues for more than 30 days, the other party may terminate this Agreement without further obligation. 14.8 NOTICES. All notices, requests, consents and other communications to Yahoo that are required or permitted under this Agreement will be deemed to have been made immediately if made by facsimile or electronic mail (confirmed by concurrent written - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 19 CONFIDENTIAL notice sent via overnight courier for delivery by the next business day) to Yahoo at 3420 Central Expressway, Santa Clara, CA 95051, Fax: ** Attention: Senior Vice President, Business Development (e-mail: **), with a copy to its General Counsel (e-mail: **) or such other address as Yahoo specifies to Match. All notices, requests, consents and other communications to Match that are required or permitted under this Agreement will be deemed to have been made immediately if made by facsimile or electronic mail (confirmed by concurrent written notice sent via overnight courier for delivery by the next business day) to Match at 3001 E President George Bush Hwy., Suite 100, Richardson, Texas 75028. Attn: President, Fax: (214) 576-9352, with a copy to Ticketmaster Online-Citysearch, Inc. at 790 E Colorado Blvd., Suite 100, Pasadena, California 91101, Fax: 626-405-0929. Attention: General Counsel, or to such other address as Match specifies to Yahoo. Notice by any other means will be deemed to have been made when actually received by the party to which notice is provided. 14.9 SEVERABILITY. If any provision of this Agreement is held to be invalid, illegal or unenforceable for any reason, such invalidity, illegality or unenforceability will not affect any other provisions of this Agreement, and this Agreement will be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 14.10 HEADINGS. The section headings contained in this Agreement are included for convenience only, and will not limit or otherwise affect the terms of this Agreement. 14.11 COUNTERPARTS. This Agreement may be executed in two counterparts, both of which taken together will constitute a single instrument. Execution and delivery of this Agreement may be evidenced by facsimile transmission. 14.12 AUTHORITY. Each of Yahoo anti Match represents and warrants that the negotiation and entry of this Agreement will not violate, conflict with, interfere with, result in a breach of, or constitute a default under any other agreement to which they are a party. [SIGNATURE PAGE FOLLOWS] - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 20 CONFIDENTIAL This Distribution and Promotion Agreement has been executed by the duly authorized representatives of the parties, effective as of the Effective Date. YAHOO! INC. MATCH.COM, INC. By: /s/ Ellen Siminoff By: /s/ Cynthia A. Hennesey ---------------------------- ---------------------------------- Name: Ellen Siminoff Name: Cynthia A. Hennesey ------------------------- -------------------------------- Title: Senior Vice President Title: President, Match.com ------------------------- -------------------------------- Date: November 20, 2000 Date: November 20, 2000 ------------------------- -------------------------------- Address: 3420 Central Expressway Address: 3001 E. Pres. George Bush Hwy. Santa Clara, CA 95051 Richardson, TX 75082 ----------------------- ------------------------------ Attn: Attn: Cynthia A. Hennesey Tel: ** Tel: ** Fax: Fax: ** Email: ** Email: ** - ------------- ** Ticketmaster has requested from the SEC confidential treatment of this information. A complete copy of this Exhibit has been sent to the SEC along with a request that this information be kept confidential. 21 EX-10.24 15 a2041707zex-10_24.txt EXHIBIT 10.24 Exhibit 10.24 (EXECUTION VERSION) LICENSE AND SERVICES AGREEMENT BETWEEN TICKETMASTER ONLINE-CITYSEARCH, INC. AND WALKERPLUS.COM, INC. THIS AGREEMENT (the "Agreement") is entered into as of April 6, 2000 ("COMMENCEMENT DATE"), by and between Ticketmaster Online-CitySearch, Inc., a Delaware corporation and having an office at 790 East Colorado Boulevard, Suite 200, Pasadena, California 91101 ("TMCS"), and Walkerplus.com, Inc., a corporation organized and existing under the laws of Japan and having its principal offices at 6-2 Goban-cho, Chiyoda-ku, Tokyo 102-0076, Japan ("PARTNER") (collectively, "PARTIES" or individually, a "PARTY"). WHEREAS, TMCS is a leading provider of locally-relevant online information and transaction services related to going out and getting things done, and for that purpose has developed a variety of proprietary business practices and supporting technologies; WHEREAS, PARTNER is a newly formed company formed for, among other things, a purpose of exploiting the intellectual property and certain technologies discussed herein and thereby conducting certain businesses; WHEREAS, PARTNER has advised TMCS that PARTNER was incorporated by Kadokawa Shoten Publishing Co., LTD.("KADOKAWA"), a Japanese company engaged, among other things, in the publishing business as its wholly owned subsidiary , and that, in accordance with the provisions of that certain Shareholders' Agreement (the "SHAREHOLDERS' AGREEMENT") to be executed by and among Kadokawa, TMCS and certain Japanese investors, such as Sumitomo Corporation ("SUMITOMO"), Trans Cosmos, Inc. ("TRANS COSMOS"), and JCB Co., Ltd., each a corporation organized and existing under the laws of Japan, (each an "INVESTOR" and collectively, the "INVESTORS"), Investors and TMCS are intended to become shareholders of PARTNER; WHEREAS, TMCS wishes to grant PARTNER, and PARTNER wishes to receive, among other things, a license to use the TMCS System, as defined in Section 1.1 below, and on the terms and conditions set forth in this Agreement; and WHEREAS, TMCS and PARTNER also desire to enter into certain content, branding, distribution and traffic sharing arrangements in connection with their respective online local information and transaction businesses. NOW, THEREFORE, in consideration of the premises and the mutual covenants set forth below, the Parties agree as follows: 1 1. DEFINITIONS. The terms set forth below shall have the following meanings for the purpose of this Agreement. 1.1 "BUSINESS SYSTEMS" means the TMCS proprietary methods and information for exploiting the Technology Systems, as defined below in this Section, to provide the Community Information Service, as defined in Section 1.2 below and described in Appendix A, including documentation and as updated from time to time. "TECHNOLOGY SYSTEMS" means the TMCS Technology Systems described in Appendix A, including any documentation, and any Upgrades, as defined in Section 1.5 below, excluding any technology systems licensed to PARTNER directly from third parties or which are generally commercially available. The technological version of the database and web server used in connection with the relevant Technology System shall be the latest version of those generally available to Network Affiliates anywhere in the world. "TMCS SYSTEM" means the Technology Systems and the Business Systems. 1.2 "COMMUNITY INFORMATION SERVICE" or "CIS" means the service of providing, through the use of the TMCS System, information of interest to residents of, and visitors to, a territory regarding such topics as may be designated from time to time. "PARTNER COMMUNITY INFORMATION SERVICE" or "JCIS" means the CIS created by PARTNER pursuant to this Agreement, which shall provide information within the Territory, as defined in Section 1.4 below, regarding such topics as the Parties shall agree from time to time. "PARTNER CUSTOMIZATIONS" means customizations to the TMCS System made by or on behalf of, and at the direction of, PARTNER that alter the TMCS System for the purpose of changing, enhancing or adding functionality to the JCIS, including changes required to make the Technology Systems work in the Japanese language or affecting the tag and template functionality provided by TMCS and the Partner Development Kit, and shall not include any content, methods, business models or ideas developed or provided by PARTNER that do not relate to the TMCS System. 1.3 "NETWORK AFFILIATE" means any entity operating a CIS other than PARTNER. 1.4 "TERRITORY" means the country of Japan. As between the Parties, PARTNER reserves all rights in the Two Byte Customizations and the Non-Two Byte Customizations both as defined in Section 10.1.1 below, including the possibility of entering into a license agreement with respect to same exclusively within the Territory, provided, however, that such license agreement does not violate the confidentiality, non-competition and territorial provisions of this Agreement, it being understood that the Two Byte Customizations include the underlying TMCS System and cannot be independently licensed to third parties by PARTNER outside the Territory. 2 1.5 "UPGRADES" means those enhancements or modifications, additions and updates to the Technology Systems compatible with the unmodified TMCS application made generally available without charge by TMCS to its Network Affiliates. Such Upgrades may or may not include, at TMCS' discretion, additional applications that are built on top of the underlying CIS. 2. GRANT OF RIGHTS. 2.1 GRANT. In consideration of the payment by PARTNER of the first annual License Fee, as defined in Section 7.1 below, and Initial Installation and Consulting Fee, as provided in Section 7.1 below, and subject to the terms of this Agreement, TMCS hereby grants to PARTNER during the Term, as defined in Section 3.1 below, of this Agreement, including any extension of the Term of this Agreement pursuant to Section 3.1 hereof, a non-transferable license to use the TMCS System to create and operate the JCIS, and to prepare PARTNER Customizations solely in connection with the JCIS. PARTNER may not use the TMCS System for any purpose outside the Territory. The Parties acknowledge that the license granted herein does not include information or technology relating to ticketmaster.com, cityauction.com, match.com or any of the other web sites owned or operated by TMCS. PARTNER may not sub-license the foregoing rights except with the consent of TMCS and each shareholder of PARTNER that holds in excess of 2% of the then issued and outstanding shares in PARTNER. Any sub-licensee hereunder shall be bound by Sections 1, 2, 4.1, 4.2, 4.4, 4.5, 4.6, 4.7, 6 and 8 through 24 of this Agreement, where and to the extent those Sections are applicable to a sub-licensee hereunder, and PARTNER and any sub-licensee hereunder shall be jointly and severally liable for breaches by any sub-licensee. Notwithstanding the foregoing, PARTNER shall have no rights to sub-license the foregoing rights to any entity in which a Competitor (as defined in Section 11 below) has any equity interest. 2.2 EXCLUSIVITY. The rights granted herein from TMCS to PARTNER are exclusive with respect to the TMCS System in the Territory, during the Term, including any extended period of the Term if this Agreement is renewed pursuant to Section 3.1 herein, provided that in the event that PARTNER breaches Section 4.3 of this Agreement, PARTNER will forfeit the exclusivity granted to PARTNER. 3. TERM AND OPTION TO RENEW. 3.1 AGREEMENT TERM. The initial term of this Agreement shall begin on the Commencement Date and continue until five (5) years after the date of the Launch, as defined in Section 4.3 below, of the first city/region in the Territory unless earlier terminated as provided in this Agreement ("TERM"). The Term shall automatically renew for one two (2) year increment unless PARTNER gives TMCS notice, at least ninety (90) days prior to the expiration of the Term, that the Term will not be renewed. In the event that the Term renews, 3 PARTNER will pay TMCS a renewal license fee of One Million Dollars (US$1,000,000) for the two year renewal term, which fee will be due within ten business days of the renewal date. Upon the expiration of the first renewal of the Term, the Parties agree to negotiate in good faith toward one or more further extensions of the Term. 4. OBLIGATIONS OF PARTNER. 4.1 CREATION AND OPERATION OF SITE. At no charge to TMCS, PARTNER agrees to create the JCIS, including, without limitation, making such modifications as PARTNER believes are required to cause the Technology Systems to function in accordance with TMCS' standards when used with the Japanese language. TMCS shall render assistance to PARTNER as provided in Section 5 of this Agreement. After the Launch (as defined in Section 4.3 below), PARTNER shall exercise commercially reasonable efforts to operate the JCIS twenty-four (24) hours each day, seven (7) days each week, except for limited periods required for servicing. PARTNER shall adhere to the operating obligations described in Appendix C. PARTNER shall be solely responsible for acquisition and/or creation, update and management of content for the JCIS in the Territory. 4.2 CO-BRANDING. PARTNER shall co-brand the JCIS with the name, logos, trademarks and other proprietary material ("MARKS") that are provided by TMCS together with the phrase, "part of the TMCS network" or similar wording as such phrase may be changed by TMCS over time. Such co-brand shall be contained on the home page and on each section home page of such JCIS, and the TMCS Marks shall appear above-the-fold and be reasonable in appearance on each such page. 4.3 LAUNCH. Subject to the terms of this Agreement, PARTNER agrees to use its best efforts to make the JCIS available to the public via the World Wide Web on the Internet ("LAUNCH") in at least one city/region in the Territory by October 31, 2000. 4.4 PRELAUNCH OBLIGATIONS. In preparation for and prior to Launch, PARTNER shall, at its expense: 4.4.1 Designate and train appropriate management and technical personnel, as agreed to by both Parties, to complete its responsibilities according to the PARTNER Operating Obligations attached as Appendix C. 4.4.2 Provide its personnel with reasonably sufficient resources to use the TMCS System. 4.4.3 Send its staff to TMCS' offices for training on a schedule as mutually agreed to by the Parties. This training will be free of charge, with the exception of 4 travel, lodging and entertainment expenses for PARTNER attendees, which will be PARTNER's responsibility. 4.4.4 Provide TMCS with remote login access to diagnose problems and to support and maintain the JCIS. 4.5 PROMOTION. PARTNER shall, and shall use its best efforts to cause each of the Investors to, diligently promote the JCIS using their respective traditional commercial assets in the Territory. 4.6 THIRD PARTY HARDWARE AND SOFTWARE. At no cost to TMCS, PARTNER shall acquire all third party hardware and software (including licenses, support or upgrades) required to operate the TMCS System that are not included in the Technology Systems. When feasible and as available, TMCS shall, upon PARTNER's request, assist PARTNER in obtaining and executing license(s) for such hardware or software on more favorable terms than are otherwise available to PARTNER, with no additional cost due to TMCS' involvement. 4.7 KEY PERFORMANCE INDICATOR AND BEST BUSINESS PRACTICES. Subject to any applicable confidentiality or non-disclosure obligations, PARTNER may choose to share with TMCS and the other Network Affiliates its best practices relating to the Launch and operation of the JCIS, including key performance indicator information similar to the data requested in Appendix E within twenty (20) calendar days of the end of each month end. PARTNER acknowledges that it will only be entitled to share the best practices and other key performance indicator information of TMCS and the other Network Affiliates to the extent that it shares its own such information. 5. OBLIGATIONS OF TMCS. 5.1 TMCS SERVICES. TMCS shall create and provide PARTNER with a detailed Launch plan for the JCIS and also provide PARTNER with initial installation assistance (timing of delivery is outlined in Appendix B), Upgrade installation assistance, consulting services, technical advice and other services associated with installing, upgrading and maintaining the TMCS System. PARTNER acknowledges that such installation, upgrades, services and advice will relate to the version of the Technology Systems designed to function in the English language and that PARTNER will be solely responsible for performing those PARTNER Customizations to make the Technology Systems work with the Japanese language, in accordance with TMCS's standards. TMCS shall advise and consult with PARTNER from time to time as to the scope of consulting, installation, training and other services necessary or desirable for the creation, improvement, maintenance, operation and promotion of the JCIS, and shall perform only those services requested in advance by PARTNER. TMCS shall provide PARTNER with the creation of the aforesaid Launch plan, training of PARTNER staff as provided in Section 4.4.3 and all reasonable Launch-related 5 assistance at no additional cost to PARTNER through the earlier of the Launch of the JCIS in the first city/region in the Territory or October 31, 2000. Thereafter, such services shall be provided by TMCS at the rates set forth in Appendix D hereto, except as otherwise provided herein; provided however that in the event that the delay in Launching the JCIS after October 31, 2000 is caused by TMCS, PARTNER will not be obligated to pay TMCS for such services until after the Launch of the JCIS in at least one city/region in the Territory. 5.2 UPGRADES. As provided in Section 5.1 above, TMCS shall assist in the installation and implementation of Upgrades as requested by PARTNER and as reasonably necessary. PARTNER agrees to accept and install all Upgrades, provided, however, that this shall not be applicable in the event that PARTNER finds technical difficulties. Unless explicitly stated to the contrary, fees paid by PARTNER in accordance with Section 7.2 do not include the costs of any third party equipment or third party software necessary for compatibility with the Upgrades or any PARTNER Customizations necessary to make the Upgrades work with the Japanese language. The lists of such third party equipment and third party software will be attached to this Agreement as an amendment after they have been agreed to by the Parties. TMCS will provide the Upgrades to PARTNER and provide a reasonable amount of training and support to PARTNER to install the Upgrades. All costs of such installation, along with customization of any other portions of the PARTNER's system to work with the Upgrades (such as further Two Byte Customizations) will be borne by PARTNER and not TMCS. 5.3 EFFECT OF PARTNER CUSTOMIZATIONS. PARTNER acknowledges that PARTNER Customizations may make it more difficult to integrate Upgrades to the TMCS Technology Systems. PARTNER shall be responsible for any additional costs incurred by TMCS in performing Upgrades due to the PARTNER Customizations. 5.4 SUPPORT. TMCS is not obligated to maintain any portions of the TMCS System replaced by Upgrades after the date six (6) months following the provision of such Upgrade to PARTNER. TMCS shall provide PARTNER with Upgrades, provided, however, that TMCS shall so provide PARTNER with Upgrades only after TMCS has released and reasonably tested such Upgrades in its owned and operated markets. 5.5 PROMOTION. TMCS shall promote the JCIS online by inclusion of each Launched JCIS city on the citysearch.com home page (http://www.citysearch.com) and by inclusion thereof in other TMCS city guide offerings, subject to approval of local editors. 5.6 HOSTING AND SUPPORT SERVICES. PARTNER shall host, design, produce, bill, and provide customer service and maintenance services for the JCIS, and 6 assume all costs related to such services. To the extent that PARTNER requests consulting assistance from TMCS for these items in excess of the normal assistance rendered by TMCS to a Network Affiliate after the Launch of the JCIS in the first city/region in the Territory, and unless otherwise provided herein, PARTNER shall pay TMCS for such services at the rates set forth in Appendix D. 5.7 REMEDY OF DEFECTS. Upon request from PARTNER made within one year of TMCS's installation of TMCS System or system element thereof or Upgrades, TMCS shall, within two business days, and at its own cost, analyze any material failure (a "DEFECT") of the Technology Systems in conformance with the specifications set forth in Appendix A, where such Defect has a material effect upon any aspect of the operation of the JCIS. Thereafter, as soon after receipt of the above request from PARTNER as is commercially reasonably possible, TMCS shall at its own cost resolve the Defect or create a suitable fix or workaround. The provisions herein constitute PARTNER's sole remedy in the event of a Defect if the Defect is corrected or a commercially reasonable workaround is made available within 90 days of the date TMCS received notice of the Defect. If the Defect is not corrected or a suitable workaround made available within 90 days of the date TMCS receives notice of the Defect, then PARTNER may terminate this Agreement. Upon such termination, the provisions of Section 8.4 will apply. In particular, PARTNER will have no rights to recover anything other than direct damages as a result of such termination and the provisions of Section 9.6 will apply. Such termination shall not release either Party from its obligations which were incurred prior to such termination. The Parties acknowledge that the specifications in Appendix A may be amended from time to time by agreement of the Parties. 5.8 EXCLUSIONS. TMCS's obligations under this Agreement, including, without limitation, Section 5.7 above, shall not extend to problems or obligations that result from the following: (i) PARTNER 's failure to implement all releases and Upgrades to the Technology Systems that are provided to PARTNER by TMCS pursuant to Section 5.4 above; (ii) changes to the operating system or physical, hardware or software environment that adversely affect the Technology Systems, including, without limitation, PARTNER Customizations, other than those made, directed, suggested or advised by TMCS; (iii) any alterations of or additions to the Technology Systems other than those made, directed, suggested or advised by TMCS in the case of services, or those made, directed, suggested or advised by TMCS in the case of products, including, without limitation, PARTNER Customizations and any interface between the PARTNER Customizations and the Technology Systems; (iv) misuse of the Technology Systems by Parties other than TMCS and those acting under the direction of TMCS; (v) use of the Technology Systems in conjunction with products not supplied or approved by TMCS; or (vi) any software or hardware not provided by TMCS. 7 5.9 SOURCE CODE. Within five (5) days after payment of the Initial Installation and Consulting Fee and the initial portion of the License Fee under Section 7.1 below, TMCS shall deliver the source code to the CIS Technology Systems and any related information as PARTNER reasonably requires to PARTNER and will schedule initial training in same with PARTNER. PARTNER shall use such source code for the sole purpose of creating, improving, maintaining and operating the JCIS under this Agreement and shall treat it as Confidential Information in accordance with Section 12 hereof. 5.10 KEY PERFORMANCE INDICATOR AND BEST BUSINESS PRACTICES. Provided PARTNER has supplied TMCS with the requisite information, and subject to Section 4.7 above, TMCS shall inform PARTNER as requested by PARTNER from time to time of PARTNER's performance relative to the key performance indicators for all Network Affiliates, including TMCS owned and operated services, provided that such information is then available. TMCS also agrees to share its best practices relating to CIS with PARTNER at no additional cost to PARTNER, subject to any applicable confidentiality or non-disclosure obligations and subject further to Section 4.7 above. 6. OTHER OBLIGATIONS OF THE PARTIES. 6.1 LINKING. Each Party agrees to consent (and TMCS agrees to use commercially reasonable efforts to cause its Network Affiliates to consent) to reasonable and appropriate links to designated pages on its site from the other Party's web site, or Network Affiliates' web sites. The JCIS shall include prominent hypertext links and TMCS icons "above the fold" on the entry page, area, topic and keyword pages within the JCIS and less prominent hypertext links and TMCS icons "above the fold" on all other pages within the JCIS. PARTNER shall provide and maintain hypertext links to the TMCS home page and TMCS icons on other pages within the JCIS as the Parties may agree. 6.2 DELAY IN PERFORMANCE. Each Party acknowledges that any delay in the performance of its obligations is likely to cause delay in the performance by the other Party of its obligations. Neither Party will be in default of its obligations under this Agreement to the extent that such Party's act or omission is caused by delay of the other Party. 6.3 REFERRALS. TMCS shall refer to PARTNER any inquiries that it receives relating to advertising and the supply of goods or services by means of the TMCS System, inside the Territory. PARTNER shall refer to TMCS any inquiries PARTNER receives with respect to advertising, and the supply of goods or services on the TMCS network outside of the Territory. 6.4 INTERFACE COMPATIBILITY. The Parties agree that the JCIS shall in general have an overall interface and functionality that is not confusing to typical TMCS 8 users entering the JCIS; subject to differences required or appropriate relating to differences between American and Japanese cultures, the use of Japanese scripts such as Kanji instead of or in addition to Roman characters. PARTNER agrees to maintain an interface in the JCIS that preserves in general the major functional elements in similar relative positions and sizes to those elements located within the TMCS service, provided, however, that this will subject to the contents provided, from time to time, from shareholders of PARTNER to PARTNER. Additionally, the JCIS is expected to contain similar content categories as most of the CIS, including categories which may be based upon local restaurants and bars, movies, music, the arts, sports, shopping and visitor information and services. If the Parties dispute the evolution of their respective interfaces, they agree to meet and confer to address reasonable concerns of either Party, and to make commercially reasonable efforts to accommodate such concerns, subject to the differences in cultures and written language. 6.5 USER REGISTRATION DATABASE. Subject to the JCIS Privacy Policy jointly established by TMCS and PARTNER, PARTNER shall provide TMCS with aggregate information on its users collected by the JCIS through "personalization," subscription or other online user registration services. 6.6 CONTENT, BRANDING, DISTRIBUTION AND TRAFFIC SHARING ARRANGEMENTS. Subject to any applicable confidentiality or non-disclosure obligations, each Party shall, upon the request of the other Party, enter into content, branding, distribution and/or traffic sharing arrangements with such other Party on terms and conditions negotiated by the Parties in good faith with due regard to customary industry practice. 6.7 MATCH.COM. PARTNER may, in its sole discretion, agree to distribute TMCS' Match.com online matchmaking service on the JCIS in a manner mutually acceptable to the Parties, but which will include at least one above the fold Match.com logo which will be linked to a Match.com home page designed for the Japanese market. In addition, PARTNER may, in its sole discretion, include prominent links to Match.com in the JCIS in contextually relevant areas of the site. If PARTNER chooses to so participate, TMCS will host and maintain a special co-branded version of the Match.com matchmaking service and a separate Japanese data base to which users will link from the JCIS. In exchange for this placement on the JCIS, TMCS shall pay to PARTNER 30% of the subscription revenues collected by TMCS from matchmaking subscriptions generated by users directed to the co-branded version of the Match.com site from the JCIS. 7. FEES AND PAYMENTS. 7.1 LICENSE FEE. In consideration of the initial delivery of Technology Systems and Business Systems and the continued exclusivity in favor of PARTNER in the Territory for the Term, PARTNER agrees to pay TMCS a "License Fee" in the amount of Five Million Dollars (US$5,000,000) in total in five (5) annual installments of One Million Dollars (US$1,000,000) each. The first installment 9 payment of One Million Dollar (US$1,000,000) shall be payable within seven days after this Agreement is executed and each of the other four US$1,000,000 installment payments shall be payable on each anniversary of the earlier to occur of (i) thirty (30) days after Launch of the first city/region in the Territory or (ii) October 31, 2000. Each of these installment payments will become non-refundable upon payment to TMCS. In consideration of the obligations of TMCS to provide PARTNER with initial installation of the TMCS System and training and consulting in connection with PARTNER's Launch of the first city/region in the Territory, PARTNER agrees to pay TMCS a one time, non-refundable "Initial Installation and Consulting Fee" of (Y)333,333,333 payable within seven days after this Agreement is executed. 7.2 CONSULTING SERVICE FEES, MATERIALS AND EXPENSES. Except as explicitly provided herein, ongoing business system transfers, technology and business consulting services, training, participation in conferences and teleconferences, and other technology, know-how and services as may be necessary or desirable for PARTNER's online local information and transaction businesses shall be billed on a time and materials basis. Consulting fee rates are set out in Appendix D hereto. As set out in Appendix D, such rates are subject to periodic adjustment. However, such rates shall not be adjusted until after the first anniversary of the date hereof at the earliest and in no event shall such rates be adjusted by more than twenty percent (20%) per year. TMCS shall notify PARTNER in writing of any change in such rates at least thirty (30) days prior to the effective date of such change. All invoices and requests for payment by TMCS shall be accompanied by appropriate documentation. Consulting fees and materials shall be paid in U.S. Dollars and are due within thirty (30) days of receipt of invoice. 7.3 COORDINATED ADVERTISING REVENUES. From time to time, each Party ("OFFEROR") may offer to the other Party ("OFFEREE") the opportunity to sell advertisements for placement simultaneously on Offeror's and Offeree's online services. In the event the Offeree places such advertisements on its service, the Offeree shall pay the Offeror thirty percent (30%) of gross revenues received for such advertisements, and Offeree shall retain the remainder. 7.4 TAXES AND FREIGHT. If PARTNER shall be required to deduct any withholding taxes imposed on any payments owed to TMCS hereunder, PARTNER may deduct such taxes from the amount owed to TMCS and will furnish TMCS tax receipts certifying the fact that those withholding taxes have been paid for the purpose of TMCS's use in the U. S. for tax purposes. PARTNER shall indemnify and hold TMCS harmless from any taxes and duties, including any Japanese consumption tax but not including any Japanese withholding tax that may be due from time to time, as may be levied upon TMCS for goods and services provided under this Agreement in accordance with applicable Japanese 10 tax laws. PARTNER shall pay to TMCS the cost of all media, insurance, freight and delivery charges reasonably incurred in connection with the supply of any goods or services to PARTNER under this Agreement. 7.5 OVERDUE PAYMENTS/DISPUTED PAYMENTS. Each invoice provided hereunder will include a reconciliation of outstanding invoices and recent payments. If either Party defaults in payment of any undisputed amount due under this Agreement, the other Party reserves the right to charge interest on all amounts outstanding at the rate of one and one half percent (1.5%) per month, or the maximum rate allowed by law, whichever is less, from the date of default until the date of payment of the amount outstanding. If PARTNER disputes any invoiced amount, PARTNER shall nonetheless pay the balance of the invoiced amounts other than any such disputed amounts. PARTNER shall give written notice to TMCS of the full reasons for dispute of the disputed amounts within thirty (30) days of receipt of invoice. 8. DEFAULT/BREACH/TERMINATION. 8.1 EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall be deemed to occur if: (i) except as provided in (vii) below, either Party fails to fulfill or perform any material obligation of this Agreement, including, but not limited to Section 5.7 of this Agreement, other than an obligation to pay money, that is not cured within sixty (60) days after receipt of written of notice of such default; (ii) either Party is in default of any payments, and fails to cure default within thirty (30) days of receipt of invoice; (iii) any proceedings are commenced, voluntary or involuntary, under any United States or Japanese bankruptcy law or debtor's relief law; (iv) an attachment is levied in respect of substantial debts (other than debts being contested in good faith) of a Party; (v) either Party is liquidated or dissolved; (vi) PARTNER fails to issue shares before June 15, 2000 in exchange for cash payments in an amount equivalent to at least (Y)3 billion yen for such shares (if TMCS doesn't pay its share of the capital, this alone will not be an Event of Default); or (vii) either Party fails to cure its failure to fulfill or perform its obligation under Section 10, 12 or 13 of this Agreement immediately upon receipt of written notice of such failure from the other Party. In addition, any material breach of the Shareholders' Agreement by any party thereto other than TMCS, which breach continues uncured for thirty (30) days, shall be deemed as an Event of Default hereunder if such material breach affects TMCS's rights hereunder adversely and therefore deeming such material breach as an Event of Default would be reasonable. 8.2 TERMINATION IN EVENT OF DEFAULT. In the event that either Party is responsible for an Event of Default, the other Party may, by giving notice in writing while such Event of Default is continuing, terminate this Agreement, setting out the reasons and referring to this provision of this Agreement; provided, however, that this Section 8.2 shall not be applicable where Section 5.7 of this Agreement is applicable and such termination shall not release the Party responsible for an Event of Default from making all payments then due to the other Party. 11 8.3 SUSPENSION OF PERFORMANCE. In the event that either Party breaches any material term of this Agreement, whether as to the payment of money or otherwise, and fails to cure such default within thirty (30) days after notice specifying such default and requesting it be corrected, the other Party may, in addition to any other remedy it may have under this Agreement, suspend the performance of its obligations for so long as such default continues, and no such failure to perform shall be considered a breach of this Agreement for so long the default remains uncured. 8.4 RIGHTS AND DUTIES UPON EXPIRATION OR TERMINATION. PARTNER and all sub-licensees (if any) shall cease use of the TMCS System immediately on the effective date of any termination or expiration of this Agreement. PARTNER shall, within ninety (90) days of the effective date of any termination or expiration of this Agreement, return to TMCS all originals and copies of the TMCS System or certify their destruction or permanent erasure on the effective date of any termination or expiration of this Agreement from PARTNER's systems. Each Party shall immediately cease using the other Party's Marks. Notwithstanding the foregoing provided in this Section, if this Agreement is terminated by PARTNER in accordance with Section 8.2 upon the occurrence of a TMCS Event of Default, or in accordance with Section 5.7, PARTNER shall be entitled, at its option, (i) to continue to operate, use, improve and otherwise modify the JCIS in the Territory using the TMCS System then available to PARTNER and all PARTNER Customizations without any obligation to pay any installments of the License Fee not due and payable on such date of termination, but subject to all of the other same terms and conditions of the license granted to PARTNER hereunder and having each Party comply with all of their obligations hereunder; provided, however, that the exclusivity granted to PARTNER under Section 2.2 hereof and each Party's use of the other Party's Marks shall immediately cease upon such termination or (ii) pursue any other remedies available under this Agreement or at law. 8.5 LIQUIDATED DAMAGES. As provided above, in the Event of Default under Section 8.1 (vi) hereof, TMCS shall be entitled to terminate this Agreement immediately upon written notice to PARTNER with no further obligations between the Parties hereto except that TMCS shall return to PARTNER all funds paid by PARTNER to TMCS hereunder except for US$1,000,000 which TMCS shall be entitled to retain as liquidated damages from such Event of Default. The foregoing will be TMCS' exclusive remedy in such Event of Default. IT IS ACKNOWLEDGED BY THE PARTIES HERETO THAT IT WOULD BE EXTREMELY DIFFICULT AND IMPRACTICABLE, IF NOT IMPOSSIBLE, TO ASCERTAIN WITH ANY DEGREE OF CERTAINTY PRIOR TO SIGNING THIS AGREEMENT, THE AMOUNT OF DAMAGES WHICH WOULD BE SUFFERED BY TMCS IN THE EVENT OFDEFAULT UNDER SECTION 8.1 (vi) HEREOF. THEREFORE, IN THE EVENT OF DEFAULT UNDER SECTION 8.1 (vi) HEREOF, TMCS SHALL BE ENTITLED TO LIQUIDATED 12 DAMAGES IN THE AMOUNT OF ONE MILLION DOLLARS ($1,000,000). 9. WARRANTIES AND INDEMNITIES. 9.1 STANDARD WARRANTIES. Each Party warrants and represents that: (i) it is a corporation duly formed and validly existing, and, in the case of TMCS, in good standing under the laws of its state and/or country of incorporation; (ii) it has the right, power and authority to enter into this Agreement and to perform its obligations; (iii) the execution and delivery of this Agreement and the performance of its obligations have been duly authorized; (iv) performance of its obligations hereunder will not violate any applicable law or regulation or any contract, license or other agreement to which such Party is party; and (v) its covenants, representations and warranties in this Agreement are true and correct. 9.2 TMCS WARRANTIES. TMCS warrants that it owns or controls the necessary copyright, trade secret, trademark and service mark rights and title to the TMCS System and any products or services provided by TMCS to PARTNER (other than those which TMCS notifies PARTNER are the property of third parties) to perform its obligations hereunder and that such performance of its obligations or the use of the TMCS System by PARTNER under this Agreement (and in accordance with any licensing agreements entered into by PARTNER with any third parties providing property to PARTNER, or to TMCS for provision to PARTNER, in connection with this Agreement) will not violate any applicable U.S. law and/or regulation, any Japanese law and/or regulation relating to intellectual property rights or the proprietary or personal rights of any third party. PARTNER's sole remedy, and TMCS's sole liability, for breach of such warranty shall be TMCS's indemnity obligations under Section 9.5 hereof. TMCS assumes no liability for infringement claims arising from the combination of the TMCS System with products not provided by TMCS if the cause of such infringement claims relates only to such products not provided by TMCS or provided by third parties to TMCS for delivery to PARTNER. TMCS shall not be obligated to refund any portion of the fees paid hereunder if PARTNER abandons its efforts to modify the Technology Systems to support the Japanese language after reasonable commercial efforts are made by PARTNER to do so; provided that in such event PARTNER shall be released from making further payments hereunder and shall lose its rights to exclusivity within the Territory after TMCS receives notice of such abandonment of the effort to so modify the Technology Systems. 9.3 NO WARRANTIES REGARDING FINANCIAL SUCCESS. Neither Party makes any warranties nor representations, express or implied, as to the anticipated revenue to be generated from the license of the TMCS System hereby or the profitability of the business to be conducted under this Agreement. Other than as expressly set forth in this Agreement, each Party hereby disclaims all warranties with respect to any products, services, or software provided under this Agreement, whether such 13 warranties are express or implied, oral or written, including without limitation any and all implied warranties of merchantability, fitness for a particular purpose, or non-infringement. TMCS makes no warranties whatsoever regarding the Business Systems' capability of supporting the Japanese language. PARTNER acknowledges that the Business Systems have never been publicly used with a "two byte" language such as Japanese, that TMCS expects the Business Systems to require extensive and expensive modification to support Japanese and that TMCS makes no representation or warranty that the Business Systems can be so modified. PARTNER further agrees that TMCS shall not be obligated to refund any portion of the fees paid hereunder if PARTNER abandons its efforts to modify the Business Systems to support the Japanese language after reasonable commercial efforts are made by PARTNER to do so; provided that in such event PARTNER shall be released from making further payments hereunder and shall lose its rights to exclusivity within the Territory after TMCS receives notice of such abandonment of the effort to so modify the Business Systems. 9.4 PARTNER WARRANTIES. PARTNER warrants that it or its permitted sub-licensees will own or control the necessary copyright, trade secret, trademark and service mark rights or any other title, as the case may be, in and to the JCIS, PARTNER Customizations, any products or services provided by PARTNER to TMCS, and the content on JCIS necessary to perform its obligations hereunder. PARTNER further represents, warrants, and covenants that its performance under this Agreement will not violate any applicable law and/or regulation or the proprietary or personal rights of any third party. 9.5 INDEMNITY. Each Party, at its own expense, shall defend, indemnify, and hold harmless the other Party and/or each of its affiliates, officers or directors from any claim, loss, debt, liability, damage, obligation, demand, judgment, or settlement of any nature (including attorneys' fees and costs of defending same), incurred by the other Party and/or each of its affiliates, officers or directors, arising from or relating to a breach of the warranties in Section 9 and Section 10 of this Agreement provided that the indemnified Party provides the indemnifying Party with (i) prompt notice of such claim, (ii) sole control over the defense and (iii) proper and full information and assistance to settle and/or defend any such claim, at the indemnifying Party's expense. The indemnified Party may participate, at its own expense, in the defense of any such claim. 9.6 LIMITATION OF LIABILITY. EXCEPT BY WAY OF INDEMNITY UNDER SECTION 9.5, FOR BREACH OF THE WARRANTIES MADE IN SECTIONS 9, 10, 12 AND 13 THE MAXIMUM AGGREGATE LIABILITY OF EITHER PARTY TO THE OTHER PURSUANT TO THIS AGREEMENT SHALL BE LIMITED TO THE TOTAL AMOUNTS PAID BY PARTNER TO TMCS UNDER THIS AGREEMENT, AND NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL OR INDIRECT DAMAGES ARISING OUT OF THIS AGREEMENT, WHETHER BASED ON WARRANTY, CONTRACT, TORT, 14 OR OTHERWISE; PROVIDED HOWEVER THAT THIS SHALL NOT BE APPLICABLE FOR ANY DAMAGES FROM INFRINGEMENT OF ANY THIRD PARTY'S INTELLECTUAL PROPERTY RIGHT. 10. COPYRIGHT AND TRADEMARK RIGHTS. 10.1 OWNERSHIP OF INTELLECTUAL PROPERTY. 10.1.1 TMCS SYSTEM. As between the Parties, TMCS shall retain ownership of the TMCS System, the source code for the TMCS System and all materials, enhancements, improvements and Upgrades, except as expressly otherwise provided herein. PARTNER shall reproduce on PARTNER Customizations all applicable proprietary notices and legends that appear on the TMCS System, and shall not make any grant of interest or license in the TMCS System or any part thereof to any third party without TMCS's prior written consent except as permitted by Section 2.1 hereof. PARTNER agrees to disclose and provide copies of all PARTNER Customizations to TMCS. As between the Parties, PARTNER shall retain all right, title and interest in and to the content contained in the JCIS and the PARTNER Customizations and all copyright, patent, proprietary information and other intellectual property rights relating thereto. If and to the extent permitted by the Investors and/or shareholders of PARTNER who have certain rights in the PARTNER Customizations, TMCS shall have a non-exclusive, non-transferable, royalty-free, perpetual license with the right to sublicense such rights to certain PARTNER Customizations (as defined, the "NON-TWO BYTE CUSTOMIZATIONS") to use such Non-Two Byte Customizations outside the Territory in conjunction with or for the TMCS System. The Non-Two Byte Customizations will consist of all PARTNER Customizations except those which consist of, or are primarily related to, the changes made to the TMCS System to enable it to be used with "two byte" languages such as Japanese (the "TWO BYTE CUSTOMIZATIONS"). If and to the extent permitted by the Investors and/or shareholders of PARTNER who have certain rights to the PARTNER Customizations, TMCS shall have a non-exclusive, non-transferable, royalty-free, perpetual license without the right to sublicense such rights to use such Two Byte Customizations outside the Territory in conjunction with or for the TMCS System. Each Party hereby reserves any rights not explicitly granted in this Agreement. Each Party agrees to take all precautions to maintain control over, and the confidentiality of, the other Party's Intellectual Property (as defined below) which it takes with respect to its own most sensitive Intellectual Property. PARTNER further agrees to cooperate with TMCS' efforts to stop unauthorized uses of its Intellectual Property in the Territory. PARTNER acknowledges that notwithstanding its agreement to provide rights in the PARTNER Customizations to Investors and/or shareholders of PARTNER who have created the PARTNER Customizations, no Investor or shareholders of PARTNER will have any rights to use such PARTNER Customizations or any other portions of the TMCS System for any purpose outside of Japan. 15 10.1.2 JCIS CONTENT. Unless provided to PARTNER by TMCS, as between the Parties, PARTNER shall own all right, title and interest in and to the content in the JCIS, including all logos, copy, information, and other content of any nature. Without limiting the generality of the foregoing, TMCS acknowledges that one or more of the Investors and/or shareholders of PARTNER may have certain right, title, and interest in and to the JCIS content. 10.2 NOTICE OF INFRINGEMENT/FURTHER ASSURANCES. Each Party shall promptly notify the other in the event that it becomes aware of any infringement of the other Party's copyright, trademark or other intellectual property rights embodied in materials related to the subject matter of this Agreement (collectively, "INTELLECTUAL PROPERTY"), including the TMCS System, the JCIS, or the PARTNER Customizations. Each Party shall at its sole cost take all steps necessary in its discretion to protect its Intellectual Property rights relating to this Agreement. The other Party shall, at the first Party's expense, actively cooperate in such proceedings as reasonably requested. At the requesting Party's sole cost and expense, the other Party shall execute reasonable documents necessary to secure ownership or protection of the Intellectual Property of the requesting Party under the provisions of this Agreement. 10.3 TRADEMARK LICENSES. 10.3.1 CROSS LICENSE. During the Term as it may be extended upon renewal hereof pursuant to Section 3.1, TMCS grants to PARTNER the right to use the trademarks, service marks and trade names adopted by TMCS along with marks that TMCS may adopt from time to time ("TMCS MARKS"), solely to place icons and links from the JCIS to the TMCS web sites and in material conformance with TMCS policies and direction for such use. TMCS hereby reserves all rights in the TMCS Marks not explicitly granted in this Section 10. During the Term as it may be extended upon renewal hereof pursuant to Section 3.1, PARTNER grants to TMCS the right to use the trademarks, service marks, and trade names adopted by PARTNER ("PARTNER MARKS") solely to place icons and links from the TMCS web sites to the JCIS and in material compliance with PARTNER's policies and direction for such use. PARTNER hereby reserves all rights in the PARTNER Marks not explicitly granted in this Section 10. Each Party shall execute such documents and render such assistance as may be requested by the other Party to have such Party's rights and licenses to use such other Party's Marks in accordance with this Section 10.3 duly registered with competent authorities. 10.3.2 APPROVAL OF TRADEMARKS. Each Party shall submit to the other all representations of the other Party's Marks that it intends to use, for such other Party's prior approval, which is not to be unreasonably withheld or delayed. 10.3.3 GOODWILL IN MARKS. If either Party, in the course of performing its services under this Agreement, or in connection with the operation of this 16 Agreement, acquires any goodwill or reputation accruing in any of the other Party's Marks, all such goodwill or reputation shall automatically vest in and inure to the benefit of such other Party. Neither Party shall challenge the validity of the other Party's ownership of, or apply for registration for, the other Party's Marks with the United States or Japanese Patent and Trademark Office, InterNIC, or any other body, domestic or foreign, that registers or adjudicates rights to names, domain names, marks, or logos. 11. ASSIGNMENT OR CHANGE OF CONTROL. Either Party may assign this Agreement to a party acquiring all, or substantially all, of that Party's assets, except that PARTNER shall not assign this Agreement to a competitor of TMCS. Competitors of TMCS shall mean Yahoo!, Excite, City.Net, Microsoft, America Online, Digital Cities, Zip2 Corporation, CityView, CityWeb, Real Cities and/or similar online services publishing or assisting others to publish local community information which are reasonably agreed upon between the Parties from time to time and whose names are provided in writing to PARTNER periodically (collectively, "COMPETITORS"). In the event a Competitor gains control of PARTNER through a stock purchase, merger, consolidation or other form of amalgamation, TMCS shall have the right to terminate this Agreement immediately upon written notice. In no other instances may a Party assign or delegate this Agreement or any of its rights or obligations hereunder to any third party without the prior written consent of the other Party. 12. CONFIDENTIALITY. 12.1 CONFIDENTIAL INFORMATION. "CONFIDENTIAL INFORMATION" means the terms and conditions of this Agreement and any information disclosed by either Party or any Network Affiliate to a Party or to any Network Affiliate pursuant to the terms and conditions of this Agreement, either directly or indirectly, in writing, orally (so long as such oral information is put down in writing and delivered to the Party receiving the oral information within 30 days of disclosure by the disclosing Party) or by inspection of tangible objects which is designated, orally (which designation is put down in writing within 30 days) or in writing, as "Confidential," "Proprietary" or some similar designation. Confidential Information shall not, however, include any information which (i) was publicly known prior to the time of disclosure by the disclosing Party or Disclosing Network Affiliate; (ii) becomes publicly known after disclosure by the disclosing Party or Network Affiliate to the receiving Party or receiving Network Affiliate through no action or inaction of the receiving Party or receiving Network Affiliate; (iii) is already in the possession of the receiving Party or receiving Network Affiliate at the time of disclosure by the disclosing Party or disclosing Network Affiliate; (iv) is obtained by the receiving Party or receiving Network Affiliate from a third party without a breach of any obligations of confidentiality of such third party to the party wishing to keep such information confidential; or (v) is independently developed by the receiving Party or receiving Network Affiliate without use of or reference to the disclosing Party's or disclosing Network Affiliate's Confidential Information. 17 12.2 NON-USE AND NON-DISCLOSURE. Except as provided or contemplated herein, each Party agrees not to use any Confidential Information disclosed by or belonging to the other Party. Each Party agrees not to disclose any Confidential Information disclosed by or belonging to the other Party to third parties or to such Party's employees, except (i) to those third parties, and to those employees, agents, or representatives (including attorneys and accountants) of such Party and its affiliates (collectively, the "Receiving Persons") who are required to have the information in order to exercise the receiving Party's rights and perform the receiving Party's obligations under this Agreement, provided, however, that the receiving Party shall enter into a confidentiality agreement with the Receiving Persons, pursuant to which the Receiving Persons shall be subject to substantially the same confidentiality obligations as those imposed on the receiving Party hereunder, and those imposed by Section 10.1.1 on Investors or shareholders of PARTNER in the case the Receiving Persons are Investors or shareholders of PARTNER, unless such Receiving Persons are otherwise already required to comply with confidentiality obligations at a level no less restrictive on the receiving Party than those imposed under this Section 12.2 or under Section 10.1.1, and (ii) as required by law to be disclosed by the receiving Party, provided that the receiving Party gives the disclosing Party prompt notice of such requirement prior to such disclosure and assistance in obtaining an order protecting the information from public disclosure or narrowing such disclosure to the fullest extent reasonably possible. Neither Party shall reverse engineer, disassemble or decompile any prototypes, software or other tangible objects which embody the other Party's Confidential Information and which are provided to the Party under this Agreement. 13. MAINTENANCE AND DISPOSITION OF CONFIDENTIAL INFORMATION. Each Party agrees that it shall take reasonable measures to protect the secrecy of and avoid the disclosure and unauthorized use of the Confidential Information of the other Party. Neither Party shall remove any property of the other from the latter's premises without the latter's prior written consent. Immediately upon expiration or termination of this Agreement, subject to the provisions of Section 8.4 hereof, each Party shall (i) immediately cease all use of Confidential Information of the other, (ii) return or destroy all copies of Confidential Information of the disclosing Party and all memoranda, notes or other written material (whether in written or electronic form), or those portions thereof, that contain such Confidential Information or extracts thereof, and (iii) provide certification of the return or destruction of the other's Confidential Information, signed by an officer of the Party, upon request of the other Party. 18 14. NON-COMPETITION AND NON-SOLICITATION. For purposes of this paragraph, (a) "Affiliate" shall mean (i) a party controlled by, controlling, or under common control with, another party or (ii) any party which owns 15% or more of the stock of PARTNER and (b) "control" shall mean the power, directly or indirectly, to appoint or elect a majority of the board of directors or other governing body of a business entity. During the effective term of the Agreement, as it may be extended upon renewal pursuant its terms, each of TMCS and PARTNER shall not, and shall cause all of its Affiliates not to, engage in any business of providing online local information and transaction services substantially similar to or competitive with those conducted by PARTNER in Japan under the Agreement (in the case of TMCS) or those conducted by TMCS outside Japan (in the case of PARTNER). The Parties acknowledge that the foregoing restrictions do not apply to (a) any business that is being conducted by any party affected by the restrictions on the date this Agreement is signed, (b) any business to be jointly conducted with TMCS by any of the affected parties in the future or (c) any other business to which TMCS consents in writing. From the Commencement Date and extending one year after expiration or termination of this Agreement, neither Party shall solicit for employment nor hire nor retain as a consultant any person who has been compensated by the other Party for services rendered during the prior calendar year, without the consent of the other Party. 15. WAIVER OF JURY TRIAL/INJUNCTIVE RELIEF. PARTNER and TMCS specifically waive any right to trial by jury in any court with respect to any contractual, tortious or statutory claim, counterclaim or cross-claim against the other arising out of or connected in any way to this Agreement, because the Parties hereto, both of whom are represented by counsel, believe that the complex commercial and professional aspects of their dealing with each other make a jury determination neither desirable nor appropriate. Both Parties acknowledge that any breach by one Party of its obligations hereunder will cause the other Party irreparable harm for which there is no adequate remedy at law and, in the event of such breach, such other Party shall be entitled to injunctive or other equitable relief. 16. UNENFORCEABILITY. Any Section of this Agreement, or any part thereof, which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable any provisions in any other jurisdiction. 19 17. ENTIRE AGREEMENT; MODIFICATION. This Agreement constitutes the entire agreement between the Parties concerning the subject matter of this Agreement, and supercedes and terminates all former agreements, arrangements or understandings pertaining to the subject matter of this Agreement, including, without limiting the generality of this Agreement, all licenses and rights granted thereunder. This Agreement is intended by the Parties as a final expression of their agreement and as a complete and true statement of terms. Except as and only to the extent expressly incorporated by reference in this Agreement, no course of prior dealings between the Parties and no usage of trade shall be relevant or admissible to supplement, explain or vary any of the terms of this Agreement. Any waiver, variation or amendment of any term or condition of this Agreement shall be effective only if signed by authorized representatives of both Parties. 18. PRESS RELEASES AND ADVERTISING. Neither Party shall issue, publish or display any press releases, announcements, advertisements, or exhibitions of any kind using any trademarks, service marks, or trade names of the other Party or regarding this Agreement or the terms of this Agreement without the express written agreement of the other Party, which shall not be unreasonably withheld or delayed. The Parties will endeavor to coordinate the content and timing of any press releases. 19. FORCE MAJEURE. Notwithstanding any other provision in this Agreement, no default, delay or failure to perform on the part of either Party shall be considered a breach of this Agreement if such default, delay or failure to perform is shown to be due entirely to an act of God; strike, lockout or other interference with work; war, declared or undeclared; blockade; riot; lightning; fire; earthquake; storm; flood; explosion; governmental or quasi governmental restraint, expropriation, prohibition, intervention, direction, or embargo; uncontrollable unavailability or delay in availability of Internet or World Wide Web access, global postal or courier services, equipment or transport; inability to obtain or delay of governmental or quasi governmental approvals, consents, permits, licenses, authorities, or allocations; or any other cause whether of the kind specifically enumerated above or otherwise which is not reasonably within the control of the Party affected. 20. NO WAIVER. Any failure to enforce any rights under this Agreement, irrespective of the length of time for which such failure continues, or any acquiescence in any default of the performance of any obligation under this Agreement or delay in respect of the same by a Party shall not constitute a waiver of those or any other rights or alter the rights of the Party not in default to enforce those rights in respect of the same or any future default. 20 21. GOVERNING LAW/ARBITRATION/LANGUAGE. This Agreement and the legal relations of the Parties shall be governed by and construed in accordance with the applicable laws of the State of California, United States of America. The Parties agree that except for claims for a preliminary injunction, temporary restraining order or other temporary equitable relief, which may be brought in any court of competent jurisdiction, any controversy or claim arising out of or relating to this Agreement, or breach thereof, shall be settled by arbitration administered by the International Chamber of Commerce under its rules of arbitration then in effect and held in a "neutral" English-speaking country such as the United Kingdom, Australia or Singapore, and shall be conducted in the English language before a panel of three (3) arbitrators. The decision of the arbitrators shall be binding and conclusive upon the Parties and their successors and assigns, and judgment upon the award of the arbitrators may be entered in any court having competent jurisdiction. This Agreement shall be interpreted in the English language. 22. RELATIONSHIP OF THE PARTIES. Neither Party, nor any contractor or sublicensee of such Party, shall have any right, power or authority, or represent that it has the right, power or authority, to bind the other Party, or to assume or to create any obligation or responsibility, express or implied, on behalf of the other Party or in the other Party's name. Nothing stated in this Agreement shall be construed as constituting PARTNER and TMCS as partners, or creating the relationship of principal and agent between PARTNER and TMCS. 23. NOTICES. Any notice or other communication required or permitted to be served by a Party on the other Party pursuant to this Agreement shall be in writing and shall be deemed served upon delivery by courier service or registered mail. Notice shall be prominently marked for the attention of persons designated below for receiving such notice. Notices shall be delivered to the following persons: If to PARTNER: If to TMCS: Mr. Yoshihiko Tsuchiya Mr. Charles Conn Walkerplus.com, Inc. Ticketmaster Online-CitySearch, Inc 6-2 Goban-cho, , Chiyoda-ku 790 East Colorado Blvd., Ste. 200 Tokyo 102-0076 Pasadena, CA 91101 Japan USA Telephone: +81 (3) 3234-4611 Telephone: +1 (626) 405-0050 Fax: +81 (3) 3234-4613 Fax: +1 (626) 405-9929 with a copy to With a copy to Bradley K. Serwin, General Counsel
24. SURVIVAL OF PROVISIONS. Sections 1. 8.2, 8.4, 9.5, 9.6, 10, 12 and 13, the last sentence of Section 14, Sections 15 through 23 of this Agreement shall survive its 21 expiration or earlier termination. IN WITNESS WHEREOF, the Parties have executed this Agreement by their representatives duly authorized in that regard on the day and year first set forth above. Walkerplus.com, Inc. Ticketmaster Online-CitySearch, Inc. Name: Yoshihiko Tsuchiya Name: Charles Conn Signed: Signed: -------------------------------- ------------------------------ Title: Representative Director Title: Chief Executive Officer
22 EX-21.1 16 a2041707zex-21_1.txt EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARY PLACE OF INCORPORATION - ---------- ---------------------- Ticketmaster Multimedia Holdings, Inc. Delaware Match.com, Inc. Delaware Cityauction, Inc. California 2b Technology, Inc. Virginia Sidewalk.com, Inc. Nevada TicketWeb, Inc. Delaware Citysearch Canada Inc. Ontario, Canada Ticketmaster Online-Citysearch Canada, Ltd. Ontario, Canada Ticketmaster Online-Citysearch UK Limited United Kingdom Ticketweb (UK) Ltd. (wholly-owned through United Kingdom TicketWeb, Inc. EX-23.1 17 a2041707zex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements: Form S-8 (No. 333-71059) dated January 22, 1999, pertaining to the 1996 Stock Option Plan, the 1998 Stock Plan and the 1998 Employee Stock Purchase Plan; Form S-8/S-3 (No. 333-77797) dated May 5, 1999, pertaining to the CityAuction, Inc. 1998 Stock Plan and Restrictive Stock Purchase Agreements; Form S-4 (No. 333-83753) dated July 26, 1999, as amended September 8, 1999, pertaining to the registration of 2,574,233 Class B Common Stock issued and issuable in connection with the acquisition of WebMedia Ventures, L.L.C.; Form S-3 (No. 333-95709) dated January 28, 2000, pertaining to the registration of 243,620 shares of Class B Common Stock issued in connection with an equity investment in Active.com, Inc.; Form S-8 (No. 333-30794) dated February 18, 2000, pertaining to the 1999 Stock Plan; Form S-3 (No. 333-30884) dated February 22, 2000, as amended March 22, 2000, to register 458,005 shares of Class B Common Stock issued or issuable in connection with the acquisition of 2b Technology, Inc.; Form S-3 (No. 333-81761) dated May 22, 2000, as a post effective amendment to Form S-3 to Form S-1 dated June 29, 1999, to register 99,714 shares of Class B Common Stock in connection with the acquisition of Match.com, Inc.; Form S-3 (333-39230) dated June 14, 2000, as amended June 28, 2000, to register 1,865,434 shares of Class B Common Stock issued or issuable in connection with the acquisition of TicketWeb, Inc.; Form S-8 (333-40966) dated July 7, 2000, pertaining to the 1999 Stock Plan; Form S-8 (No. 333-41018) dated July 7, 2000, pertaining to the TicketWeb Inc. 2000 Stock Plan; and Form S-3 (No. 333-54304) dated January 25, 2001, to register 299,954 shares of Class B Common Stock issued and issuable in connection with the acquisition of 2b Technology, Inc., of our report dated January 29, 2001, with respect to the financial statements of Ticketmaster included in the Annual Report (Form 10-K) for the year ended December 31, 2000 filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Los Angeles, California March 23, 2001 -----END PRIVACY-ENHANCED MESSAGE-----