-----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, DpH/B+vxXMotECJxwAl86OkN4I8OeqUxuSRuGBp2svxrnbItamDffu4Zijrj++1D jqHzKl2pduXhYrJCV0ffUw== 0001012870-98-001838.txt : 19980721 0001012870-98-001838.hdr.sgml : 19980721 ACCESSION NUMBER: 0001012870-98-001838 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 19980717 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITYSEARCH INC CENTRAL INDEX KEY: 0001006637 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 954546874 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-57437 FILM NUMBER: 98668342 BUSINESS ADDRESS: STREET 1: 4502 DYER STREET CITY: LA CRESCENTA STATE: CA ZIP: 91214 BUSINESS PHONE: 6264050050 MAIL ADDRESS: STREET 1: 790 E COLORADO BLVD STREET 2: SUITE 200 CITY: PASADENA STATE: CA ZIP: 91101 S-1/A 1 AMENDMENT NO. 2 TO FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998 REGISTRATION NO. 333-57437 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- CITYSEARCH, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- DELAWARE 7375 95-4546874 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) ---------------- CITYSEARCH, INC. 790 E. COLORADO BOULEVARD, SUITE 200 PASADENA, CA 91101 (626) 405-0050 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- CHARLES CONN CHIEF EXECUTIVE OFFICER CITYSEARCH, INC. 790 E. COLORADO BOULEVARD, SUITE 200 PASADENA, CA 91101 (626) 405-0050 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- COPIES TO:
LARRY W. SONSINI CRAIG E. SHERMAN JOHN T. SHERIDAN GLEN R. VAN LIGTEN NAN H. KIM ADAM J. ROSENBERG WILSON SONSINI GOODRICH & ROSATI VENTURE LAW GROUP PROFESSIONAL CORPORATION A PROFESSIONAL CORPORATION 650 PAGE MILL ROAD 2800 SAND HILL ROAD PALO ALTO, CA 94304 MENLO PARK, CA 94025 (650) 493-9300 (650) 854-4488
---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ---------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- CALCULATION OF REGISTRATION FEE
===================================================================================== PROPOSED MAXIMUM TITLE OF EACH PROPOSED MAXIMUM AGGREGATE AMOUNT OF CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(1)(2) FEE - ------------------------------------------------------------------------------------- Common Stock, $.01 par value................. 4,600,000 $13.00 $59,800,000 $17,641(3) =====================================================================================
(1) Includes shares that the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) promulgated under the Securities Act of 1933, as amended. (3) Previously paid $14,750 in connection with the Registration Statement filed on June 22, 1998. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. =============================================================================== ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION DATED JULY 17, 1998 4,000,000 SHARES [LOGO OF CITYSEARCH.COM] COMMON STOCK All of the shares of Common Stock offered hereby are being offered by CitySearch, Inc. ("CitySearch" or the "Company"). Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $11.00 and $13.00 per share. See "Underwriting" for a discussion of factors to be considered in determining the initial public offering price. USA Networks, Inc., an existing stockholder of the Company that owned 12.9% of the Company's Common Stock on an as-converted basis as of June 30, 1998, has committed to purchase 1,332,093 shares in this offering, subject to certain limitations. See "Certain Transactions" and "Principal Stockholders." Application has been made to have the Common Stock approved for listing on the Nasdaq National Market under the symbol "CTYS." THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================ Price to Underwriting Proceeds to Public Discount(1) Company(2) - -------------------------------------------------------------------------------- Per Share..................................... $ $ $ Total(3)...................................... $ $ $ ================================================================================
(1) See "Underwriting" for information concerning indemnification of the Underwriters and other matters. (2) Before deducting offering expenses payable by the Company estimated at $800,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to an additional 600,000 shares of Common Stock solely to cover over- allotments, if any. If the Underwriters exercise this option in full, the Price to Public will total $ , the Underwriting Discount will total $ and the Proceeds to Company will total $ . See "Underwriting." USA Networks has committed to purchase 89,400 shares if the over-allotment option is exercised in full, subject to certain limitations. The shares of Common Stock are offered by the Underwriters named herein, subject to receipt and acceptance by them, and subject to their right to reject any order in whole or in part. It is expected that delivery of the certificates representing the shares will be made against payment therefor at the office of NationsBanc Montgomery Securities LLC on or about , 1998. ----------- NationsBanc Montgomery Securities LLC BancAmerica Robertson Stephens Donaldson, Lufkin & Jenrette , 1998 [ARTWORK] The inside cover will contain four images consisting of screen shots from the Company's city guide web sites. An image of the Company's home page (www.citysearch.com) primarily containing a map of the U.S. will appear in the upper left corner. An arrow will point from the area of the map indicating the location of Toronto, Ontario to an image in the upper right area of the page containing a screen shot from the home page of the Toronto city guide web site (www.starcitysearch.com). Another arrow will lead from the area of the U.S. map indicating the location of Raleigh/Durham/Chapel Hill to an image in the lower right area of the page containing a screen shot from the home page of the Raleigh/Durham/Chapel Hill city guide web site (www.citysearch11.com). A third arrow will lead from the area of the U.S. map indicating the location of San Francisco to an image in the lower left area of the page containing a screen shot from the home page of the San Francisco city guide web site (www.citysearch7.com). CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING THE PURCHASE OF THE COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." The CitySearch logo is a registered United States trademark of the Company. "CitySearch" is a registered United States trademark of a third party, and the Company is the exclusive third party licensee of this trademark in its field of use. See "Risk Factors--Uncertain Protection of Intellectual Property; Risks of Third Party Licenses." This Prospectus also contains trademarks and tradenames of other companies. 2 The page will be divided by a vertical line roughly two-thirds of the distance across the page. The left area of the page will contain four screen shots from the Company's web site. The first screen shot depicts a home page from one of the Company's city guides. The second screen shot depicts an "arts and entertainment" topic page indicating a search for "jazz" events in the search box. The third screen shot depicts an event description created by the Company describing a jazz event. The fourth screen shot depicts the Web site of a business customer that hosts jazz events. The right column of the page will describe the content available on each of the four pages, e.g., "The home page indicates the content areas within the site, and contains the branding of CitySearch and its local market media partners." The page will contain three boxes. The first box will contain the names and/or logos of the Company's licensees, including washingtonpost.com, Los Angeles Times, the Toronto Star, The Melbourne Age, Big Colour Pages, The Sydney Morning Herald, The Dallas Morning News, Schibsted ASA, Scandinavia Online and The Baltimore Sun. The second box will contain names and/or logos of the Company's marketing partners, including American Express, Earthlink, Internet Travel Network, Guess?, WebTV Networks, Inc. etc. The third box will contain names and/or logos of the Company's local market media partners organized by the city in which the service is available, including KGO-TV, WTVD, other television stations and radio stations owned by CBS, Citadel Communications Corp., Clear Channel, and others who consent to use of their trademarks. PROSPECTUS SUMMARY The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information, including "Risk Factors" and the Consolidated Financial Statements and Notes thereto, appearing elsewhere in this Prospectus. The discussion in this Prospectus includes forward-looking statements. The outcome of the events described in such forward-looking statements is subject to risks and uncertainties. The Company's actual results may differ materially from those discussed in such forward-looking statements. Factors that may cause or contribute to such differences include those discussed in sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as those discussed elsewhere in this Prospectus. Except as otherwise specified, all information in this Prospectus reflects (i) a two-for-three reverse stock split of the Company's outstanding Common Stock which will occur prior to the completion of the offering (the "Reverse Stock Split"), (ii) the conversion of each outstanding share of Preferred Stock into Common Stock upon completion of this offering and (iii) no exercise of the Underwriters' over- allotment option. THE COMPANY CitySearch produces and delivers comprehensive local city guides on the World Wide Web (the "Web"), providing up-to-date information regarding arts and entertainment events, community activities, recreation, businesses, shopping, professional services and news/sports/weather to consumers in metropolitan areas. Each local city guide consists primarily of original content developed and designed specifically for the Web by the Company and its partners. The Company designs and produces custom-built Web sites and related services for local and regional businesses, aggregates them in a local city guide environment and provides these businesses the ability to regularly update and expand their sites. The CitySearch sites offer local and regional businesses the opportunity to reach and interact with targeted consumers. The Company builds its city sites with the involvement of local government, community and volunteer associations, business and professional groups, educational institutions and local media companies. In addition, content generated by consumers through e-mail and bulletin boards, available in most sites, enhances the sense of community in CitySearch sites. CitySearch and its partners create comprehensive locally focused content that can be accessed using targeted, sophisticated searches across all content residing on a CitySearch site. In contrast, many search engines and navigational guides access pre-existing content from third-party Web sites that may be incomplete or out of date. In its owned and operated markets, CitySearch offers a broad array of updated, local content that is relevant to consumers. In certain other markets, CitySearch provides local media companies with the necessary technology and business expertise to design, launch and operate a co- branded CitySearch site. The Company's city guides have received numerous awards and recognition for design, functionality and content, including PC Magazine's Editor's Choice, USA Today/Intelliquest's survey leader and recognition by the New York Times as best overall online guide to New York City. CitySearch launched its initial site in the Raleigh-Durham-Chapel Hill metropolitan area in May 1996. The Company and its partners have since launched additional local city guides in Austin, Dallas, Los Angeles, Nashville, New York City, Portland, Salt Lake City/Utah, the San Francisco Bay Area and Washington, D.C. in the U.S., and in Melbourne, Sydney and Toronto internationally. The Company plans to expand its service to additional national and international markets both by leveraging the standardized roll-out model it has developed through previous city launches and by partnering with major media companies in certain cities. The Company has, for instance, partnered with The Baltimore Sun, The Dallas Morning News, the Los Angeles Times, The San Diego Union-Tribune, The Washington Post, The Melbourne Age, Schibsted ASA/Scandinavia Online (Copenhagen, Oslo and Stockholm), The Sydney Morning Herald and the Toronto Star. These major media partners bring capital, brand recognition, promotional strength and local knowledge to their CitySearch sites and allow the Company to build out its national and international network of sites faster than it could solely through owned and operated sites. The Company has also reached an agreement with Classified Ventures, L.L.C. ("Classified Ventures"), a leading provider of online classified advertising products and services to the newspaper industry that was formed by seven leading newspaper companies. The Company will license elements of its technology and business systems and provide services to Classified Ventures. The Company has also reached an agreement with American Express Travel Related Services Company, Inc. ("American Express") that provides for marketing of the Company's services to American Express merchant customers and various other electronic commerce and marketing initiatives. The Company's equity investors include Washingtonpost.Newsweek Interactive Company, The Times Mirror Company, CPQ Holdings, Inc. (entity affiliated with Compaq Computer Corporation), Global Retail Partners, L.P. and its affiliates, American Express, Intel Corporation, AT&T Ventures, T. Rowe Price Threshold Fund III, L.P. and Schibsted ASA. The Company was organized under the laws of Delaware in September 1995. The Company's principal executive offices are located at 790 E. Colorado Boulevard, Suite 200, Pasadena, California 91101, and its telephone number at that address is (626) 405-0050. 3 THE OFFERING Common Stock offered............... 4,000,000 shares Common Stock to be outstanding after this offering............... 20,788,507 shares(1) Use of proceeds.................... The Company intends to use the net proceeds of this offering for general corporate purposes, including working capital and capital expenditures relating to the CitySearch site such as enhancements to the Company's server and networking infrastructure. See "Use of Proceeds." Proposed Nasdaq symbol............. CTYS
SUMMARY CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM SIX MONTHS SEPTEMBER 20, YEAR ENDED ENDED 1995 (DATE OF DECEMBER 31, JUNE 30, FORMATION) TO ------------------ ------------------ DECEMBER 31, 1995 1996 1997 1997 1998 ----------------- -------- -------- -------- -------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Subscription and services............. $ -- $ 203 $ 4,913 $ 1,508 $ 5,577 Licensing and royalty. -- -- 1,271 -- 1,221 ------- -------- -------- -------- -------- Total revenues...... -- 203 6,184 1,508 6,798 Loss from operations... (313) (14,112) (36,741) (18,122) (16,742) Net loss............... (308) (13,897) (36,526) (18,018) (16,482) Historical basic and diluted net loss per share(2).............. $ (0.06) $ (2.37) $ (5.80) $ (2.87) $ (2.50) Pro forma basic and diluted net loss per share(2).............. $ (0.05) $ (1.65) $ (2.94) $ (1.56) $ (1.02) Shares used to compute historical basic and diluted net loss per share(2).............. 5,263 5,857 6,301 6,282 6,582 Shares used to compute pro forma basic and diluted net loss per share(2).............. 5,640 8,431 12,430 11,515 16,139
JUNE 30, 1998 ------------------------ ACTUAL AS ADJUSTED (3) ------- --------------- BALANCE SHEET DATA: Cash and cash equivalents............................. $15,512 $59,352 Working capital....................................... 10,731 54,571 Total assets.......................................... 22,490 66,330 Long-term obligations, less current portion........... 2,319 2,319 Redeemable Convertible Preferred Stock................ 77,840 -- Stockholders' equity (deficit)........................ (63,741) 57,939
- -------- (1) Based on shares outstanding as of June 30, 1998. Does not include (i) 2,608,514 shares of Common Stock issuable upon exercise of options outstanding at June 30, 1998 at a weighted average price of $5.20 per share under the Company's 1996 Stock Option Plan, (ii) 624,234 shares of Common Stock available for future grant or issuance under the Company's 1996 Stock Option Plan, 1998 Director Option Plan and 1998 Employee Stock Purchase Plan and (iii) 62,077 shares of Common Stock issuable upon exercise of an outstanding warrant at an exercise price of $13.29 per share held by NationsBanc Montgomery Securities LLC. See "Capitalization," "Management-- Employee Benefit Plans," "Underwriting" and Note 7 of Notes to Consolidated Financial Statements. (2) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the determination of the number of shares used to compute historical and pro forma basic and diluted net loss per share. (3) Adjusted to reflect (i) the sale and issuance of the 4,000,000 shares of Common Stock offered hereby at an assumed initial public offering price of $12.00 per share and after deducting the underwriting discount and estimated offering expenses and (ii) the conversion of all outstanding shares of Preferred Stock into Common Stock upon the closing of this offering. See "Capitalization." 4 RISK FACTORS This offering involves a high degree of risk. In addition to the other information set forth in this Prospectus, the following risk factors should be considered carefully in evaluating the Company and its business before purchasing any of the shares of Common Stock of the Company. This Prospectus contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this Prospectus should be read as being applicable to all forward-looking statements wherever they appear in this Prospectus. The Company's actual results could differ materially from the results discussed in this Prospectus. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this Prospectus. LIMITED OPERATING HISTORY The Company was incorporated in September 1995 and launched its initial local city guide service in the Raleigh-Durham-Chapel Hill metropolitan area in May 1996. Accordingly, the Company has an extremely limited operating history upon which an evaluation of the Company and its prospects can be based. The Company's prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development, particularly companies in new and rapidly evolving markets such as the Company's. Such risks include, but are not limited to, an evolving and unpredictable business model, management of growth, the Company's ability to anticipate and adapt to a developing market, acceptance by Internet users and business customers of the Company's local city guide concept and the ability of the Company to enter into relationships with additional media partners. To address these risks, the Company must, among other things, attract and retain an audience of frequent users of its service in its target markets, maintain its customer base and attract a significant number of new business customers in its target markets, respond to competitive developments, continue to form and maintain relationships with media partners, continue to attract, retain and motivate qualified persons, provide superior customer service, and continue to develop and upgrade its technologies and commercialize its services incorporating such technologies. There can be no assurance that the Company will be successful in addressing such risks, and a failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." ANTICIPATED CONTINUED OPERATING LOSSES The Company incurred net losses of $308,000, $13.9 million and $36.5 million for the period from September 20, 1995 (date of formation) to December 31, 1995, and the years ended December 31, 1996 and 1997, respectively, and $16.5 million for the six months ended June 30, 1998. At June 30, 1998, the Company had an accumulated deficit of $67.2 million. The Company believes that its future profitability and success will depend in large part on, among other things, its ability to generate sufficient revenues from sales of business Web sites to businesses and the licensing of its technology and business systems to partners setting up CitySearch services in partner-led markets, its ability to effectively maintain existing relationships with its media partners and its ability to successfully enter into new strategic relationships for distribution and increased usage of its offerings. Accordingly, the Company intends to expend significant financial and management resources on the roll- out of its service in new owned and operated and partner-led markets, site and content development, strategic relationships, technology and operating infrastructure. As a result, the Company expects to incur significant additional losses and continued negative cash flow from operations for the foreseeable future. There can be no assurance that the Company's revenues will increase or even continue at their current levels or that the Company will achieve or maintain profitability or generate cash from operations in future periods. In view of the rapidly evolving nature of the Company's business and its limited operating history, the Company believes that period-to-period comparisons of its operating results are not meaningful and should not be relied upon as an indication of future performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 5 FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING The Company requires substantial working capital to fund its business and expects to use a significant portion of the net proceeds of this offering to fund its operating losses. Since inception, the Company has experienced negative cash flow from operations and expects to continue to experience significant negative cash flow from operations for the foreseeable future. The Company currently believes that its existing capital resources, combined with the net proceeds of this offering, will be sufficient to meet its presently anticipated cash requirements through at least the next 12 months. Thereafter, the Company may be required to raise additional funds. No assurance can be given that the Company will not be required to raise additional financing prior to such time. If additional funds are raised through the issuance of equity securities, stockholders of the Company may experience significant dilution. Furthermore, there can be no assurance that additional financing will be available when needed or that if available, such financing will include terms favorable to the Company or its stockholders. If such financing is not available when required or is not available on acceptable terms, the Company may be unable to develop or enhance its services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." UNPREDICTABILITY OF FUTURE REVENUES; FLUCTUATIONS IN OPERATING RESULTS As a result of the Company's limited operating history and the emerging nature of the local city guide market in which the Company competes, the Company is unable to accurately forecast its revenues. The Company's current and future expense levels are based predominantly on its operating plans and estimates of future revenues and are to a large extent fixed. The Company's business model, particularly in its owned and operated markets, requires significant staffing to develop content and to create and maintain relationships with small and medium size businesses. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues would likely have an immediate material adverse effect on the Company's business, financial condition and results of operations. Further, the Company currently intends to increase its operating expenses to roll out its service in new markets, to fund increased sales and marketing and customer service operations and to further develop its technology infrastructure. To the extent such expenses precede or are not subsequently followed by increased revenues, the Company's operating results will fluctuate and net anticipated losses in a given quarter may be greater than expected. The Company expects to experience significant fluctuations in its future operating results due to a variety of factors, many of which are outside of the Company's control. Factors that may adversely affect the Company's operating results include, but are not limited to, the ability of its partners to meet roll-out schedules for the Company's city guide service, the timing and amount of license and royalty payments from the Company's partners, the Company's ability to retain existing business customers, attract new business customers at a steady rate and maintain customer satisfaction, the timing and volume of new business Web site orders and the Company's capacity to meet such orders, the Company's ability to maintain or increase current rates of sales productivity, the announcement or introduction of new or enhanced sites and services by the Company or its competitors, the amount of traffic on the Company's online sites, the amount of expenditures for online advertising by businesses, the level of use of online services and consumer acceptance of the Internet for services such as those offered by the Company, the Company's ability to upgrade and develop its systems and attract personnel in a timely and effective manner, the amount and timing of operating costs and capital expenditures relating to expansion of the Company's business and infrastructure, technical difficulties, system downtime or Internet brownouts, political or economic events affecting the cities in which the Company operates and general economic conditions. Unfavorable changes in any of the above factors could adversely affect the Company's revenues, gross margins and results of operations in future periods. Accordingly, the Company believes that period-to-period comparisons of its results of operations should not be relied upon as an indication of future performance. In addition, the results of any quarterly period are not indicative of results to be expected for a full fiscal year. Finally, as a result of the foregoing factors, the Company's annual or quarterly results of 6 operations may be below the expectations of public market analysts or investors, in which case the market price of the Common Stock could be materially and adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." NEW AND UNCERTAIN MARKET; UNPROVEN MARKET ACCEPTANCE; RISK OF SIGNIFICANT BUSINESS CUSTOMER TURNOVER The markets for the Company's service have only recently begun to develop, are rapidly evolving and are characterized by a number of entrants that have introduced or plan to introduce online city guides. As is typical in the case of a new and rapidly evolving industry, demand and market acceptance for recently introduced services are subject to a high level of uncertainty and risk. Because the markets for the Company's services are new and evolving, it is difficult to predict the size and future growth rate, if any, of these markets. There can be no assurance that the markets for the Company's services will develop or that demand for the Company's services will emerge or become economically sustainable. In particular, the success of the Company's city guide service will depend on the willingness of local businesses to pay for custom business Web sites developed by the Company and to retain the service, which in turn may depend on the popularity of the guides to consumers and on the actual or perceived revenues attributable to the Company's services. If such businesses are unwilling to pay for the Company's service or retain the service, if the markets for the Company's service otherwise fail to develop or develop more slowly than anticipated, or if business customer turnover rates are higher than projected by the Company, the Company's business, financial condition and results of operations will be materially and adversely affected. In addition, the turnover rate of business customers using the Company's service has been higher than the Company had anticipated and there can be no assurance that such turnover rates would be at levels which would not in the future materially and adversely affect the Company's business, financial condition and results of operations. RELIANCE ON STRATEGIC RELATIONSHIPS An important element of the Company's current business strategy is to enter into agreements with local media companies to establish and support city guides. The Company has entered into, and intends to enter into, agreements with media companies to address opportunities. In these "partner-led markets" markets, the Company develops and designs a city guide for local media companies and licenses certain intellectual property to such companies in exchange for certain up-front and continuing license payments and royalty payments. These royalty payments are based on the amount of revenues generated by such companies through the partner-led city guides. The Company currently anticipates that royalty payments from such agreements will constitute a significant portion of its revenues in future periods. Accordingly, the Company's success will depend in large part upon the ability of its partners to timely launch city guides in the Company's partner-led markets and the extent to which these partners are able to generate revenue through their city guides. Under the terms of the Company's agreements with its media company partners, the Company has very limited control over the amount of time and financial resources that a partner devotes to the launch of a city guide or over the day-to-day operations and management of the city guide, including the marketing and sale of business Web sites to potential business customers. For example, one of the Company's partners did not launch its city guide in accordance with the Company's initial expectations, thereby delaying revenues subject to royalty payments payable to the Company. Furthermore, some of the Company's agreements grant exclusivity in certain territories. There can be no assurance that the Company's partners that are in the process of developing new city guides or the Company's future partners will launch their sites in a timely manner, or at all, or that if launched, such sites will generate revenues consistent with the Company's expectations or that the exclusivity provisions in some of the Company's agreements will not prevent the Company from licensing its intellectual property to other partners. There also can be no assurance that the Company will successfully enter into partnerships with media companies in additional cities. Furthermore, due to the Company's limited experience with partner-led city guides, the Company is unable to accurately forecast its revenues to be derived from these agreements with such partners. In addition, certain of the Company's agreements with its media company partners may be terminated for non-performance or material breach. Any failure by one of the Company's proposed partner-led city guides to launch in a timely manner or by one of the Company's existing partner-led city guides to generate sufficient revenues, or a failure by the Company to enter into or to renew agreements with media company partners on terms 7 favorable to the Company or early termination of certain existing agreements could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has recently entered into a license and services agreement with Classified Ventures, pursuant to which CitySearch will license elements of its technology and business systems to Classified Ventures and provide services in automotive and real estate classified advertising categories. The Company expects to receive significant revenues from licensing and service fees under this agreement. Under this agreement, the Company is restricted from entering certain classified advertising markets and from licensing its technology and business systems to competitors of Classified Ventures. In addition, this agreement may be terminated effective 2001 by Classified Ventures and there can be no assurance that it will be renewed on terms favorable to the Company. The failure of the Company to meet certain milestones under this agreement, early termination of this agreement or the inability of the Company to compete with Classified Ventures or to license technology to competitors of Classified Ventures may have a material adverse effect on the Company's business, financial condition and results of operations. In its owned and operated markets, the Company has entered into co-promotion or distribution agreements with a number of television, radio, print media and online companies. Some of these agreements are of a short duration and there can be no assurance that the Company's co-promotion or distribution partners will not terminate their agreements with the Company or that the Company will secure additional co-promotion or distribution partners in the future. See "Business--Strategic Alliances." DEPENDENCE ON SALES PERSONNEL The Company currently derives and, for the foreseeable future, intends to derive a substantial portion of its revenues from sales of business Web sites to local businesses in markets in which the Company owns and operates city guides. The Company depends on its direct sales force to sell business Web sites in these markets. The creation of new revenue from the Company's city guide service and its roll-out in additional cities requires the services of a highly trained sales force working directly for the Company. Accordingly, a shortage in the number of trained salespeople could limit the Company's ability to sell business Web sites as it rolls out its service in new cities or to maintain or increase its number of business customers in cities in which the Company already operates. The Company has in the past and expects in the future to experience a high rate of turnover in its direct sales force. There can be no assurance that such turnover will not increase in the future or have a material adverse effect on the Company's sales, which could have a material adverse effect on the Company's business, financial condition and results of operations. UNCERTAIN ACCEPTANCE AND MAINTENANCE OF CITYSEARCH BRAND The Company believes that establishing and maintaining the CitySearch brand is critical to its efforts to attract consumers and business customers to its sites and that the importance of brand recognition will increase due to the growing number of Internet sites and relatively low barriers to entry to providing Internet content. Promotion of the CitySearch brand will depend largely on the success of the Company and its media company partners in providing high quality Internet content. Under the terms of its agreements with its media company partners, the Company has very limited control over the content provided on the partners' sites. If consumers and business customers do not perceive the content of the Company's or its partners' existing sites to be of high quality, the Company will be unsuccessful in promoting and maintaining its brand. Furthermore, not all of the Company's partners promote the CitySearch brand on their services with a high level of prominence. Other than links to the Company's city sites, the Company has not entered into a significant distribution relationship with any major online search or navigation company. In order to attract and retain consumers and business customers, and to promote the CitySearch brand in response to competitive pressures, the Company may find it necessary to increase its budget for content or otherwise to increase substantially its financial commitment to creating and maintaining a distinct brand loyalty among consumers and business customers. If either the Company or its media company partners are unable to provide high quality content or otherwise fail to promote and maintain the CitySearch brand, or if the Company incurs excessive expenses in an attempt to improve its content or promote and maintain its brand, the Company's business, financial condition and results of operations will be materially and adversely affected. 8 RISKS ASSOCIATED WITH ROLL-OUT OF CITYSEARCH SERVICE The Company's future success will depend to a significant extent on the Company's ability, on its own and with partners, to rapidly roll out its local city guide service in additional cities in the United States and internationally. As of July 15, 1998, the Company had launched its local city guide service in 13 metropolitan areas and intends to expand its service in additional cities in the U.S. and internationally. There can be no assurance that the Company will be able to launch its service in additional markets in a cost-effective or timely manner or in accordance with its planned schedule, or that any newly launched service will achieve market acceptance. Any new service that is not favorably received by local businesses or consumers could damage the Company's reputation or the CitySearch brand. Launching the CitySearch service will also require significant additional expenses and will strain the Company's management, financial and operational resources. In particular, the launch of the CitySearch service in additional cities will require the Company to expand and upgrade its technology infrastructure and business systems, including its enterprise management system (i.e., an integrated set of software tools and business processes for sales force management, Web site production, customer service and billing) and its business Web site production system. The Company is in the process of launching a new version of the software underlying its CitySearch service. There can be no assurance that this new version will function as intended, and any failure of the Company's software could have a material adverse effect on the Company's business, financial condition and results of operations. Moreover, the strain placed on the Company's resources by simultaneous launches in multiple cities may adversely affect the roll-out schedule or quality of the service in a particular city. The Company's failure to launch its service in new markets in a timely and cost effective manner in accordance with its planned schedule or the lack of market acceptance of new services would have a material adverse effect on the Company's business, financial condition and results of operations. COMPETITION The markets for local interactive content and services are highly competitive. Currently, the Company's primary competitors include Digital City, Inc., a company wholly owned by America Online, Inc. and Tribune Company, Microsoft Corporation (Sidewalk) and Zip2 Corporation. The Company also competes against search engine and other site aggregation companies such as Excite, Inc. (City.Net), Lycos, Inc. (Lycos City Guide) and Yahoo! Inc. (Yahoo! Local) which primarily serve to aggregate links to sites providing local content. In addition, the Company competes against offerings from media companies, including Cox Interactive Media and Knight-Ridder, Inc., as well as offerings from several telecommunications and cable companies and Internet service providers that provide local interactive programming such as SBC Communications Inc. (At Hand) and U.S. West, Inc. (Dive-In). Many of these companies have greater financial and marketing resources than the Company and may have significant competitive advantages through other lines of business and existing business relationships. There are also numerous niche competitors which focus on a specific category or geography and compete with specific content offerings provided by CitySearch. The Company may also compete with online services and other Web site operators, as well as traditional media such as television, radio and print, for a share of advertisers' total advertising budgets. Furthermore, additional major media and other companies with financial and other resources greater than those of the Company may introduce new Internet products and services addressing these markets in the future. There can be no assurance that the Company's competitors will not develop services that are superior to those of the Company or that achieve greater market acceptance than the Company's offerings. The Company believes that the principal competitive factors in its markets include depth, quality and comprehensiveness of content, ease of use, distribution, search capability and brand recognition. There can be no assurance that the Company will be able to successfully compete against its current or future competitors or that competition will not have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, as a strategic response to changes in the competitive environment, the Company may make certain pricing, service or marketing decisions or enter into acquisitions or new ventures that could have a material adverse effect on the Company's business, financial condition and results of operations. RISKS ASSOCIATED WITH OFFERING NEW SERVICES The Company plans to introduce new and expanded services in order to generate additional revenues, attract more consumers and respond to competition. For example, the Company recently introduced business Web sites 9 containing new and enhanced functionality for its business customers. The Company also may in the future offer services facilitating the purchase of goods by consumers from the Company's business customers. There can be no assurance that the Company will be able to offer any new services in a cost- effective or timely manner or that any such efforts would be successful. Furthermore, any new service launched by the Company that is not favorably received by consumers could damage the Company's reputation or its brand name. Expansion of the Company's services in this manner would also require significant additional expenses and development and may strain the Company's management, financial and operational resources. The Company's inability to generate revenues from such expanded services sufficient to offset their cost could have a material adverse effect on the Company's business, financial condition and results of operations. MANAGEMENT GROWTH; RISKS ASSOCIATED WITH EXPANSION The Company's business has grown rapidly in recent periods. The growth of the Company's business and expansion of its business customer base have placed a significant strain on the Company's management and operations. The Company's expansion has resulted, and is expected in the future to result, in growth in the number of its employees, in the establishment of offices in disparate regions of the country and in increased responsibility for both existing and new management personnel. In addition, this growth has and will put additional pressure on the Company's existing operational, financial and management information systems. The Company's success depends to a significant extent on the ability of its executive officers and other members of senior management, none of whom has any prior executive management experience in public companies, to operate effectively, both independently and as a group. To manage its growth, the Company must continue to implement and improve its operational, financial and management information systems and hire and train additional qualified personnel, including sales and marketing staff. There can be no assurance that the Company will be able to manage its recent or any future expansions successfully, and any failure of the Company to do so could have a material adverse effect on the Company's business, financial condition and results of operations. There also can be no assurance that the Company will be able to sustain the rate of expansion that it has experienced in the past. See "Management--Executive Officers and Directors." DEPENDENCE UPON KEY PERSONNEL; NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL The Company's success depends to a significant degree upon the continued contributions of its executive management team, including Charles Conn, the Company's co-founder and Chief Executive Officer, and Thomas Layton, the Company's President and Chief Operating Officer. The loss of the services of Mr. Conn or Mr. Layton or other members of the Company's management team could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's success will also depend upon the continued service of the other members of its senior management team and its technical, marketing and sales personnel. The Company's employees, including its senior officers, may voluntarily terminate their employment with the Company at any time, and competition for qualified employees is intense. The Company's success also depends upon its ability to attract and retain additional highly qualified management, technical and sales and marketing personnel. The process of locating and hiring such personnel with the combination of skills and attributes required to carry out the Company's strategy is often lengthy. The loss of the services of key personnel or the inability to attract additional qualified personnel could have a material adverse effect on the Company's business, financial condition and results of operations. DEPENDENCE UPON CONTINUED CONTENT DEVELOPMENT The Company's success depends in part upon its ability to deliver compelling interactive content such as recreation, business, shopping, professional services and news/sports/weather in order to attract consumers with demographic characteristics valuable to the Company's business customers. The markets for the Company's services are characterized by rapidly changing technology, emerging industry standards and consumer requirements that are subject to rapid change and frequent new service introductions. These characteristics are exacerbated by the emerging nature of the local interactive content and service market and the expectation that many companies may introduce new Internet products and services addressing this market in the near future. 10 There can be no assurance that the Company will be successful in developing new content and services or enhancing its existing local city guide service on a timely basis, or that such content and services will effectively address consumer requirements and achieve market acceptance. If the Company, for technological or other reasons, is unable to develop and enhance its local interactive content and service in a manner compatible with emerging industry standards and that allows it to attract, retain and expand a consumer base possessing demographic characteristics attractive to business customers, the Company's business, financial condition and results of operations would be materially and adversely affected. DEPENDENCE ON INCREASED USAGE AND STABILITY OF THE INTERNET AND THE WEB The usage of the Web for services such as those offered by the Company will depend in significant part on continued rapid growth in the number of households and commercial, educational and government institutions with access to the Web, in the level of usage by individuals and in the number and quality of products and services designed for use on the Web. Because usage of the Web as a source for information, products and services is a relatively recent phenomenon, it is difficult to predict whether the number of users drawn to the Web will continue to increase and whether any significant market for usage of the Web for such purposes will continue to develop and expand. There can be no assurance that Internet usage patterns will not decline as the novelty of the medium recedes or that the quality of products and services offered online will improve sufficiently to continue to support user interest. Failure of the Web to stimulate user interest and be accessible to a broad audience at moderate costs would jeopardize the markets for the Company's local city guide service. Moreover, issues regarding the stability of the Internet's infrastructure remain unresolved. The rapid rise in the number of Internet users and increased transmission of audio, video, graphical and other multimedia content over the Web has placed increasing strains on the Internet's communications and transmission infrastructures. Continuation of such trends could lead to significant deterioration in transmission speeds and reliability of the Web and could reduce the usage of the Web by businesses and individuals. In addition, to the extent that the Web continues to experience significant growth in the number of users and level of use without corresponding increases and improvements in the Internet infrastructure, there can be no assurance that the Internet will be able to support the demands placed upon it by such continued growth. Any failure of the Internet to support such increasing number of users due to inadequate infrastructure or otherwise would seriously limit the development of the Web as a viable source of local interactive content and services, which could materially and adversely affect the acceptance of the Company's services, which would, in turn, materially and adversely affect the Company's business, financial condition and results of operations. SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS The Company's revenues and results of operations will be subject to fluctuations based upon the general economic conditions of the United States and other countries in which its local city guide service is offered. If there were to be a general economic downturn or a recession in the United States or any other country in which the Company's service is provided, the Company expects that business enterprises, including its customers and potential customers, will substantially and immediately reduce their advertising and marketing budgets. In the event of such an economic downturn, the Company's business, financial condition and results of operations could be materially and adversely affected. RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION A key component of the Company's strategy is to continue to expand its local city guide service into international markets. The Company anticipates that it will expend significant financial and management resources to operate overseas and create localized user interfaces through the launch of additional partner- led markets. If the revenues generated by these international operations are insufficient to offset the expense of establishing and maintaining such operations, the Company's business, financial condition and results of operations will be materially and adversely affected. To date, the Company has limited experience in developing localized versions of its online sites and marketing and distributing its products and services internationally. 11 There can be no assurance that the Company or its partners will be able to successfully market or sell its services in these international markets. In addition to the uncertainty as to the Company's ability to expand its international presence, there are certain risks inherent in conducting business on an international level, such as unexpected changes in regulatory requirements, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, political instability, currency rate fluctuations and potentially adverse tax consequences. There can be no assurance that one or more of the foregoing factors will not have a material adverse effect on the Company's current and future international operations and, consequently, on its business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." CAPACITY CONSTRAINTS AND SYSTEM DISRUPTIONS The satisfactory performance, reliability and availability of the Company's city guides and its network infrastructure are critical to attracting Web users and maintaining relationships with business customers and consumers. System interruptions that result in the unavailability of the Company's sites or slower response times for consumers would reduce the number of business Web sites and advertisements purchased and reduce the attractiveness of the Company's local city guides to business customers and consumers. The Company has experienced system interruptions in the past and believes that such interruptions will continue to occur from time to time in the future. Additionally, any substantial increase in traffic on the Company's local city services will require the Company to expand and adapt its network infrastructure. The Company's inability to add additional software and hardware to accommodate increased traffic on its local city guides may cause unanticipated system disruptions and result in slower response times. In addition, the Company currently depends on a limited number of suppliers for certain key technologies used to roll out and manage the CitySearch service. There can be no assurance that the Company will be able to expand its network infrastructure on a timely basis to meet increased demand or that key technology suppliers will continue to provide the Company with products and services that meet the Company's requirements. Any increase in system interruptions or slower response times resulting from the foregoing factors could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure and other events beyond the Company's control. Substantially all of the Company's server equipment is currently located in California in areas that are susceptible to earthquakes. The Company's business interruption insurance may not be sufficient to compensate the Company for losses that may occur, and any losses or damages incurred by the Company could have a material adverse effect on its business, financial condition and results of operations. See "Business--Technology" and "-- Facilities." LIABILITY FOR ONLINE CONTENT The Company may face potential liability for defamation, negligence, copyright, patent or trademark infringement and other claims based on the nature and content of the materials that appear on the Company's or its partners' online sites. Such claims have been brought, and sometimes successfully pressed, against online services. Although the Company carries general liability insurance, the Company's insurance may not cover claims of these types or may not be adequate to indemnify the Company for any liability that may be imposed. Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could have a material adverse effect on the Company's reputation and its business, financial condition and results of operations. UNCERTAIN PROTECTION OF INTELLECTUAL PROPERTY; RISKS OF THIRD PARTY LICENSES The Company regards its copyrights, service marks, trademarks, trade dress, trade secrets and similar intellectual property as critical to its success, and relies on trademark and copyright law, trade secret protection and confidentiality and/or license agreements with the Company's employees, customers, partners and others to protect its proprietary rights. The Company pursues the registration of certain of its key trademarks and service 12 marks in the United States and internationally. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which the Company's products and services are made available online. The Company has licensed in the past, and expects that it may license in the future, certain of its proprietary rights, such as trademarks or copyrighted material, to third parties. In addition, the Company has licensed in the past, and expects that it may license in the future, certain content, including trademarks and copyrighted material, from third parties. While the Company attempts to ensure that the quality of its brand is maintained by such licensees, there can be no assurance that such licensees will not take actions that might materially adversely affect the value of the Company's proprietary rights or reputation, which could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that third parties will not infringe or misappropriate the Company's copyrights, trademarks, trade dress and similar proprietary rights. In addition, there can be no assurance that other parties will not assert infringement claims against the Company. The Company licenses the trademark "CitySearch" from a third party, and there can be no assurance that the Company will be able to continue to license the trademark on terms acceptable to the Company. The Company may be subject to legal proceedings and claims from time to time in the ordinary course of its business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties by the Company and its licensees. Such claims, even if not meritorious, could result in the expenditure of significant financial and managerial resources which could result in a material adverse effect on the Company's business, financial condition and results of operations. RISK ASSOCIATED WITH REGULATORY MATTERS The Company is subject to regulations applicable to businesses generally and laws or regulations directly applicable to access to online commerce. Although there are currently few laws and regulations directly applicable to the Internet and commercial online services, it is possible that a number of laws and regulations may be adopted with respect to the Internet or commercial online services covering issues such as user privacy, pricing, content, copyrights, distribution, antitrust and characteristics and quality of products and services. Furthermore, the growth and development of the market for online commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business online. The adoption of any additional laws or regulations may decrease the growth of the Internet or commercial online services, which could, in turn, decrease the demand for the Company's products and services and increase the Company's cost of doing business, or otherwise have a material adverse effect on the Company's business, financial condition and results of operations. Moreover, the applicability to the Internet and commercial online services of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve. For example, tax authorities in a number of states are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject the Company to additional state sales and income taxes. Any such new legislation or regulation, the application of laws and regulations from jurisdictions whose laws do not currently apply to the Company's business, or the application of existing laws and regulations to the Internet and commercial online services could have a material adverse effect on the Company's business, financial condition and results of operations. RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS As part of its business strategy, the Company may make acquisitions of, or significant investments in, complementary companies, products or technologies, although the Company has no present understandings, commitments or agreements with respect to any acquisition or investment. Any such future acquisitions would be accompanied by the risks commonly encountered in acquisitions of companies. Such risks include, among other things, the difficulty of assimilating the operations and personnel of the acquired companies, the potential disruption of the Company's ongoing business, the diversion of resources from the Company's existing businesses, sites and technologies, the inability of management to maximize the financial and strategic position of the Company through the successful incorporation of the acquired technology into the Company's products 13 and services, additional expense associated with amortization of acquired intangible assets, the maintenance of uniform standards, controls, procedures and policies and the impairment of relationships with employees and customers as a result of any integration of new management personnel. There can be no assurance that the Company would be successful in overcoming these risks or any other problems encountered with such acquisitions, and the Company's inability to overcome such risks could have a material adverse effect on its business, financial condition and results of operations. SECURITY RISKS Although the Company has not in the past experienced attempts by programmers or "hackers" to penetrate the Company's network security, there can be no assurance that such actions will not occur in the future. If successful, such actions could have a material adverse effect on the Company's business, financial condition and results of operations. A party who is able to penetrate the Company's network security could misappropriate proprietary information or cause interruptions in the Company's Web site. The Company may be required to expend significant capital and resources to protect against the threat of such security breaches or to alleviate problems caused by such breaches. Concerns over the security of Internet transactions and the privacy of users may also inhibit the growth of the Internet generally, particularly as a means of conducting commercial transactions. Security breaches or the inadvertent transmission of computer viruses could expose the Company to a risk of loss or litigation and possible liability. There can be no assurance that contractual provisions attempting to limit the Company's liability in such areas will be successful or enforceable, or that other parties will accept such contractual provisions as part of the Company's agreements, any of which could have a material adverse effect on the Company's business, results of operations and financial condition. RISKS ASSOCIATED WITH DOMAIN NAMES The Company currently holds various Web domain names relating to its brand, including the "citysearch.com" domain name. The acquisition and maintenance of domain names generally is regulated by governmental agencies and their designees. For example, in the United States, the National Science Foundation has appointed Network Solutions, Inc. as the exclusive registrar for the ".com," ".net" and ".org" generic top-level domains. The regulation of domain names in the United States and in foreign countries is subject to change. Governing bodies may establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, there can be no assurance that the Company will be able to acquire or maintain relevant domain names in all countries in which it conducts business. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear. The Company, therefore, may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of its trademarks and other proprietary rights. Any such inability could have a material adverse effect on the Company's business, financial condition and results of operations. YEAR 2000 RISK Many older computer systems and software products currently in use are coded to accept only two digit entries in the date code field. These date code fields will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, in less than two years, computer systems and/or software used by many companies may need to be upgraded to comply with such "Year 2000" requirements. Significant uncertainty exists in the software industry concerning the potential effects associated with such compliance. Although the Company licenses to its partners software products that are designed to be Year 2000 compliant, there can be no assurance that the Company's software products contain all necessary date changes. In addition, although the Company licenses software from third parties that it believes are Year 2000 compliant, there can be no assurance that such software will be compliant. Any Year 2000 compliance problems could result in a material adverse affect on the Company's business, financial condition and results of operations. 14 CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT STOCKHOLDERS As of June 30, 1998, the directors, executive officers and stockholders owning 5% of the Company's Common Stock and their respective affiliates in the aggregate beneficially own approximately 61.8% of the outstanding Common Stock (on an as-converted basis and including shares issuable upon exercise of stock options to purchase shares of Common Stock which are exercisable within 60 days of June 30, 1998). In addition, USA Networks, Inc., formerly HSN, Inc. ("USA Networks"), which beneficially owns approximately 12.9% of the outstanding Common Stock as of June 30, 1998 (on an as-converted basis), has committed to purchase 1,332,093 shares in this offering (plus an additional 89,400 shares if the Underwriters' over-allotment option is exercised in full), subject to certain limitations. Furthermore, USA Networks has the right to elect a member of the Board of Directors until November 12, 2007, subject to certain limitations. Pursuant to a voting agreement, certain holders of the Company's Preferred Stock and Common Stock are required to vote all of the Company's voting securities owned by them to elect to the Board of Directors a designee of the holders of a majority of the shares of Series C Preferred Stock outstanding immediately prior to the closing of this offering. As of June 30, 1998, entities affiliated with Goldman, Sachs & Co. own approximately 79.6% of the outstanding Series C Preferred Stock. As a result, these directors, executive officers and stockholders owning 5% of the Company's Common Stock and their respective affiliates will possess significant influence over the Company, giving them the ability, among other things, to elect a majority of the Company's Board of Directors and approve significant corporate transactions. Such share ownership and control may also have the effect of delaying or preventing a change in control of the Company, impeding a merger, consolidation, takeover or other business combination involving the Company or discourage a potential acquiror from making a tender offer or otherwise attempting to obtain control of the Company which could have a material adverse effect on the market price of the Company's Common Stock. See "Management--Board Composition" and "Certain Transactions." LACK OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Company's Common Stock, and there can be no assurance that an active trading market will develop or be sustained. The initial public offering price for the Common Stock to be sold by the Company has been established by negotiations among the Company and the Representatives of the Underwriters and may bear no relationship to the price at which the Common Stock will trade after completion of the offering. See "Underwriting" for factors to be considered in determining such offering price. The market price of the Common Stock could be subject to significant fluctuations in response to quarter-to-quarter variations in the Company's operating results, announcements of technological innovations or new products by the Company or its competitors, and other events or factors. For example, a shortfall in revenues or net income, or an increase in losses from levels expected by securities analysts, could have an immediate and significant adverse effect on the market price of the Company's Common Stock. In addition, the stock market in recent years has experienced extreme price and volume fluctuations that have often dramatically affected the market prices of many high technology companies, particularly those companies doing business on the Internet. These fluctuations have often been unrelated or disproportionate to the operating performance of the companies. Such fluctuations, as well as general economic and market conditions, may adversely affect the market price for the Common Stock. ANTITAKEOVER EFFECT OF CERTAIN CHARTER AND CONTRACTUAL PROVISIONS Certain provisions of the Company's Restated Certificate of Incorporation and Bylaws, which will become effective upon the closing of this offering, may have the effect of delaying, deferring or preventing a change of control of the Company. These provisions will provide, among other things, that the Board of Directors is divided into three classes to serve staggered three-year terms, that stockholders may not take actions by written consent, that certain provisions of the Company's Restated Certificate of Incorporation and Bylaws may be amended only by the affirmative vote of 66 2/3% of the Common Stock and that the stockholders may not call special meetings. After completion of this offering, the Company will also be authorized to issue up to 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 additional shares of Preferred Stock in one or more series, to establish from time to 15 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. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change of control of the Company and may adversely affect the voting and other rights of the holders of Common Stock, which could have an adverse impact on the market price of the Common Stock. In addition, the Company will be subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law ("DGCL"), which will prohibit the Company from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Such provisions may have the effect of preventing changes in the management or control of the Company. The Sixth Amended and Restated Stockholders' Agreement by and among the Company and certain stockholders of the Company dated May 26, 1998 (the "Stockholders' Agreement") provides that the Company may not (i) adopt a rights agreement (or other similar device) with an ownership threshold that would limit USA Networks' ability to own or purchase securities of the Company or (ii) amend its bylaws, certificate of incorporation or fail to take an action under Section 203 of the DGCL, in each case which would limit USA Networks' ability to own or purchase securities of the Company. See "Certain Transactions," "Description of Capital--Antitakeover Effects of Provisions of Certificate of Incorporation and Bylaws" and "--Effect of Delaware Antitakeover Statute." SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial amounts of Common Stock in the public market after this offering or the anticipation of such sales could have a material adverse effect on then-prevailing market prices. Upon completion of the offering, the Company will have 20,788,507 shares of Common Stock outstanding, assuming no exercise of currently outstanding options or warrants. Of these shares, the 4,000,000 shares sold in this offering (plus any additional shares sold upon exercise of the Underwriters' over-allotment option) will be freely transferable without restriction under the Securities Act of 1933, as amended (the "Securities Act"), unless they are held by "affiliates" of the Company as that term is used under the Securities Act and the regulations promulgated thereunder ("Affiliates"). The remaining 16,788,507 shares of Common Stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 of the Securities Act (the "Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act. As a result of contractual restrictions and the provisions of Rules 144 and 701, additional shares will be available for sale in the public market as follows: (i) approximately 498,574 Restricted Shares will be eligible for immediate sale on the effective date of this offering; (ii) approximately 4,334 Restricted Shares will be eligible for sale 90 days after the date of this offering; (iii) approximately 4,949,461 Restricted Shares will be eligible for sale without restriction and 10,601,970 Restricted Shares will be eligible for sale subject to volume limitations, in each case 180 days after the effective date of this offering and (iv) the remainder of the Restricted Shares will be eligible for sale from time to time thereafter upon expiration of their respective holding periods under Rule 144. In addition, 1,224,944 shares will be issuable upon exercise of vested stock options and eligible for sale 180 days after the date of this offering upon the expiration pre-existing contractual lock-up agreements. NationsBanc Montgomery Securities LLC, on behalf of the Underwriters, may, in its sole discretion and at any time without notice, release all or any portion of securities subject to the lock-up agreement with the Underwriters. Upon the effective date of this offering, the holders of 8,740,795 shares of Common Stock have the right in certain circumstances to require the Company to register their shares under the Securities Act for resale to the public. If such holders, by exercising their demand registration rights, cause a large number of shares to be registered and sold in the public market, such sales could have a material adverse effect on the market price for the Company's Common Stock. If the Company were required to include in a Company-initiated registration shares held by such holders and holders of an additional 5,820,956 shares of Common Stock pursuant to the 16 exercise of their piggyback registration rights, such sales may have a material adverse affect on the Company's ability to raise new capital. In addition, the Company expects to file a registration statement on Form S-8 registering a total of approximately 3,232,748 shares of Common Stock subject to outstanding stock options or reserved for issuance under the Company's 1996 Stock Plan, 1998 Directors Option Plan and 1998 Employee Stock Purchase Plan. The Form S-8 registration statement is expected to be filed and to become effective immediately following the effective date of this offering. Shares registered under such registration statement will be available for sale in the open market, subject to Rule 144 volume limitations applicable to Affiliates, unless such shares are subject to vesting restrictions with the Company or the lock-up agreements described above. See "Description of Capital Stock-- Registration Rights" and "Shares Eligible for Future Sale." NO SPECIFIC USE OF PROCEEDS The Company has not designated any specific use for the net proceeds from the sale by the Company of the Common Stock offered hereby. The Company intends to use the net proceeds of this offering for general corporate purposes, including working capital and capital expenditures relating to the CitySearch site such as enhancements to the Company's server and networking infrastructure. A portion of the proceeds also may be used to acquire or invest in complementary businesses, technologies or service offerings. Accordingly, management will have significant flexibility in applying the net proceeds of this offering. The failure of management to apply such funds effectively could have a material adverse effect on the Company's business, financial condition and results of operations. See "Use of Proceeds." DILUTION The initial public offering price is substantially higher than the book value per share of the outstanding Common Stock. At an assumed initial public offering price of $12.00 per share, investors purchasing shares of Common Stock in the offering will incur immediate, substantial dilution in the amount of $9.21 per share. In addition, investors purchasing shares of Common Stock in this offering will incur additional dilution to the extent outstanding options and warrants are exercised. See "Dilution." 17 USE OF PROCEEDS The net proceeds to the Company from the sale of 4,000,000 shares of Common Stock offered hereby are estimated to be $43.8 million ($50.5 million if the over-allotment option is exercised in full) at an assumed initial public offering price of $12.00 per share and after deducting the underwriting discount and estimated offering expenses. The Company intends to use the net proceeds of this offering for general corporate purposes, including working capital and capital expenditures relating to the CitySearch site such as enhancements to the Company's server and networking infrastructure. A portion of the proceeds also may be used to acquire or invest in complementary businesses, technologies or service offerings. In the ordinary course of business, the Company evaluates potential acquisitions of such businesses, technologies or service offerings. However, the Company has no present understandings, commitments or agreements with respect to any such acquisition, and the Company is not currently engaged in any negotiations with respect to any such transaction. Pending use of the net proceeds for the above purposes, the Company intends to invest such funds in short-term, interest- bearing, investment-grade securities. DIVIDEND POLICY The Company has never declared or paid any cash dividends on its capital stock. The Company currently anticipates that it will retain any future earnings for use in its business and does not anticipate paying any cash dividends for the foreseeable future. 18 CAPITALIZATION The following table sets forth the capitalization of the Company as of June 30, 1998 (i) on an actual basis, and (ii) on an as-adjusted basis to reflect the conversion of all outstanding shares of Preferred Stock into Common Stock upon the closing of this offering and the receipt of the net proceeds from the sale of the 4,000,000 shares of Common Stock offered hereby at an assumed initial public offering price of $12.00 per share and after deducting the underwriting discount and estimated offering expenses.
JUNE 30, 1998 --------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Long-term obligations, less current portion(1)........... $ 2,319 $ 2,319 Redeemable Convertible Preferred Stock(2)................ 77,840 -- Stockholders' equity(3): Preferred Stock, $0.01 par value: 2,241,173 shares authorized, actual; 2,000,000 shares authorized, as adjusted; 2,080,165 shares issued and outstanding, actual; no shares issued and outstanding, as adjusted.. 3,056 -- Common Stock, $0.01 par value; 75,000,000 shares authorized, actual; 6,660,886 shares issued and outstanding, actual; 20,788,507 shares issued and outstanding, as adjusted............................... 1,635 126,371 Deferred stock compensation.............................. (1,219) (1,219) Accumulated deficit...................................... (67,213) (67,213) -------- -------- Total stockholders' equity (deficit)..................... (63,741) 57,939 -------- -------- Total capitalization.................................... $ 16,418 $ 60,258 ======== ========
- -------- (1) See Notes 2 and 5 of Notes to Consolidated Financial Statements. (2) See Note 6 of Notes to Consolidated Financial Statements. (3) Based on shares outstanding as of June 30, 1998. Does not include (i) 2,608,514 shares of Common Stock issuable upon exercise of options outstanding at June 30, 1998 at a weighted average price of $5.20 per share under the Company's 1996 Stock Option Plan, (ii) 624,234 shares of Common Stock available for future grant or issuance under the Company's 1996 Stock Option Plan, 1998 Director Option Plan and 1998 Employee Stock Purchase Plan and (iii) 62,077 shares of Common Stock issuable upon exercise of an outstanding warrant at an exercise price of $13.29 per share held by NationsBanc Montgomery Securities LLC. See "Management-- Employee Benefit Plans," "Underwriting" and Note 7 of Notes to Consolidated Financial Statements. 19 DILUTION The pro forma net tangible book value of the Company as of June 30, 1998 was $14.1 million, or $0.84 per share of Common Stock, assuming the conversion of all outstanding shares of Preferred Stock into shares of Common Stock. "Pro forma net tangible book value per share" is determined by dividing the number of outstanding shares of Common Stock into the net tangible book value of the Company (total tangible assets less total liabilities). After giving effect to the application of the estimated net proceeds from the sale by the Company of the 4,000,000 shares of Common Stock offered hereby (based upon an assumed initial public offering price of $12.00 per share and after deducting the underwriting discount and estimated offering expenses), the pro forma net tangible book value of the Company as of June 30, 1998 would have been $57.9 million, or $2.79 per share. This represents an immediate increase in pro forma net tangible book value of $1.95 per share to existing stockholders and an immediate dilution of $9.21 per share to new investors purchasing shares at the initial public offering price. The following table illustrates the per share dilution: Assumed initial public offering price............................ $ 12.00 Pro forma net tangible book value as of June 30, 1998.......... $0.84 Increase in pro forma net tangible book value attributable to new investors................................................. 1.95 ----- Pro forma net tangible book value after offering................. 2.79 ------- Dilution to new investors........................................ $ 9.21 =======
The following table summarizes on a pro forma basis as of June 30, 1998, the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price per share paid by the existing stockholders and by the investors purchasing shares of Common Stock in this offering, based upon an assumed initial public offering price of $12.00 per share (before deducting the underwriting discount and estimated offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE ------------------ -------------------- PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ------------ ------- --------- Existing stockholders(1)...... 16,788,507 80.8% $ 83,590,107 63.5% $ 4.98 New Investors(1).............. 4,000,000 19.2 48,000,000 36.5 12.00 ---------- ----- ------------ ----- Total....................... 20,788,507 100.0% $131,590,107 100.0% ========== ===== ============ =====
- -------- (1) If the Underwriters' over-allotment is exercised in full, the number of shares held by new investors will be increased to 4,600,000, or 21.5% of the total shares of Common Stock to be outstanding after this offering. The foregoing computations assume no exercise of any outstanding stock options or warrants. As of June 30, 1998, there were options outstanding to purchase a total of 2,608,514 shares of Common Stock at a weighted average exercise price of $5.20 per share and warrants outstanding to purchase a total of 62,077 shares of Common Stock at an exercise price of $13.29 per share. In addition, as of June 30, 1998, 624,234 shares of Common Stock were reserved for future issuance under the Company's 1996 Stock Option Plan, 1998 Director Option Plan and 1998 Employee Stock Purchase Plan. To the extent that any shares available for issuance upon exercise of outstanding stock options or warrants or reserved for future issuance under the Company's 1996 Stock Option Plan, 1998 Directors Option Plan or 1998 Employee Stock Purchase Plan are issued, there will be future dilution to new investors. See "Management-- Employee Benefit Plans," "Underwriting" and Note 7 of Notes to Consolidated Financial Statements. 20 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below for the period from September 20, 1995 (date of formation) through December 31, 1995 and for, and as of the end of, each of the years in the two-year period ended December 31, 1997, are derived from the consolidated financial statements of the Company, which consolidated financial statements have been audited by Ernst & Young LLP, independent certified public accountants, and are included elsewhere in this Prospectus. The consolidated balance sheet data as of December 31, 1995 is derived from audited consolidated financial statements of the Company that are not included herein. The consolidated statements of operations data for the six-month periods ended June 30, 1997 and 1998 and the consolidated balance sheet data at June 30, 1998 are derived from unaudited consolidated financial statements included elsewhere in this Prospectus. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's results of operations for such periods and financial condition at such dates. The results of operations for the six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the full year or future periods. The selected consolidated financial data set forth is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus.
PERIOD FROM SEPTEMBER 20, 1995 (DATE OF YEAR ENDED SIX MONTHS FORMATION) TO DECEMBER 31, ENDED JUNE 30, DECEMBER 31, ------------------ ------------------ 1995 1996 1997 1997 1998 ------------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: Subscription and services............... $ -- $ 203 $ 4,913 $ 1,508 $ 5,577 Licensing and royalty... -- -- 1,271 -- 1,221 ------ -------- -------- -------- -------- Total revenues........ -- 203 6,184 1,508 6,798 Costs and expenses: Cost of revenues........ -- 2,908 10,846 4,457 7,446 Sales and marketing..... 57 6,369 19,014 9,210 9,065 Research and development............ 152 2,563 7,182 3,220 3,395 General and administrative......... 104 2,475 5,883 2,743 3,634 ------ -------- -------- -------- -------- Total costs and ex- penses............... 313 14,315 42,925 19,630 23,540 ------ -------- -------- -------- -------- Loss from operations..... (313) (14,112) (36,741) (18,122) (16,742) Interest income, net..... 5 217 223 104 260 ------ -------- -------- -------- -------- Loss before provision for income taxes............ (308) (13,895) (36,518) (18,018) (16,482) Provision for income taxes................... -- (2) (8) -- -- ------ -------- -------- -------- -------- Net loss................. $ (308) $(13,897) $(36,526) $(18,018) $(16,482) ====== ======== ======== ======== ======== Historical basic and diluted net loss per share................... $(0.06) $ (2.37) $ (5.80) $ (2.87) $ (2.50) ====== ======== ======== ======== ======== Pro forma basic and diluted net loss per share................... $(0.05) $ (1.65) $ (2.94) $ (1.56) $ (1.02) ====== ======== ======== ======== ======== Shares used to compute historical basic and diluted net loss per share................... 5,263 5,857 6,301 6,282 6,582 ====== ======== ======== ======== ======== Shares used to compute pro forma basic and diluted net loss per share................... 5,640 8,431 12,430 11,515 16,139 ====== ======== ======== ======== ========
JUNE 30, DECEMBER 31, 1998 ----------------------- -------- 1995 1996 1997 ------ ------- ------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents.................... $1,413 $ 7,527 $25,227 $15,512 Working capital.............................. 1,323 4,257 19,375 10,731 Total assets................................. 1,490 13,370 31,655 22,490 Long-term obligations, less current portion.. -- 1,451 2,420 2,319 Redeemable Convertible Preferred Stock....... -- 20,309 70,882 77,840 Stockholders' equity (deficit)............... 8,366 (11,943) (47,911) (63,741)
21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto included elsewhere in this Prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this Prospectus. OVERVIEW CitySearch produces and delivers comprehensive local city guides on the World Wide Web (the "Web"), providing up-to-date information regarding arts and entertainment events, community activities, recreation, businesses, shopping, professional services and news/sports/weather to consumers in metropolitan areas. Each local city guide consists primarily of original content developed and designed specifically for the Web by the Company and its partners. The Company designs and produces custom-built Web sites and related services for local and regional businesses, aggregates them in a local city guide environment and provides these businesses the ability to regularly update and expand their sites. From the Company's founding and incorporation in September 1995 through May 1996, the Company's operating activities consisted primarily of recruiting employees, developing new services and technology, raising capital, engaging in marketing activities, and negotiating strategic partnerships. The Company launched its first city guide in Chapel Hill, North Carolina in May 1996. The Company first commenced selling business Web sites to local businesses in February 1996 and recognized its initial revenues in June 1996. CitySearch has two primary means of providing its local city guides. In its "owned and operated" markets, the Company systematically produces the majority of its own content, hires and rapidly deploys a direct sales force to sell custom-built Web sites as well as related services to local and regional businesses and launches a presence in approximately six months. In other markets, the Company partners with a local media company that contracts with CitySearch to assist in developing, designing and launching a city guide. These partners license CitySearch's systems and provide royalty payments to the Company for revenues derived from operations. While the Company's initial site launches were all on an "owned and operated" basis, the Company is increasingly launching city guides in conjunction with local newspaper companies in its partner-led markets. These major media partners bring capital, brand recognition, promotional strength and local knowledge to their CitySearch sites and allow the Company to build out its national and international network of sites faster than it could solely through owned and operated sites. The Company's current owned and operated sites are Austin, Nashville, New York City, Portland, Raleigh-Durham-Chapel Hill, Salt Lake City/Utah and the San Francisco Bay Area, and current partner-led markets include Dallas, Los Angeles, Washington D.C., Melbourne, Sydney and Toronto. Additional partner-led markets where roll-out teams have been deployed include Baltimore, Copenhagen, San Diego and Stockholm. In its owned and operated markets, the Company derives its revenues primarily from subscription fees resulting from the creation, hosting and maintenance of local business Web sites. Business customers typically enter into 12 month agreements that automatically convert to month to month contracts upon expiration. The Company recognizes revenue from sales of local business Web sites on a monthly basis over the term of each contract as services are rendered. The Company's business customers in its owned and operated markets increased from approximately 1,300 as of December 31, 1996 to approximately 8,900 as of June 30, 1998. As of June 30, 1998, the Company believes that there were approximately 6,800 business customers in its partner-led markets. The average monthly revenue from new business customers signed up in its owned and operated markets in December 1996 was approximately $50 and in June 1998 was approximately $160. To a lesser extent, the Company derives revenue from banner advertising purchased by national and regional advertisers and from barter agreements with television, radio and media alliances. Banner revenue is recognized as earned. With barter agreements, the Company receives television and radio broadcast advertising in exchange for Web site design, 22 hosting and maintenance. Barter revenue and expense are recognized monthly over the term of each contract. For each barter agreement, revenue and expense are equal and are recognized at a rate based on the estimated cost of the specific services provided by the Company. In partner-led markets, the Company derives revenues from the licensing of its business and technology systems, from royalties on Web site subscriptions, banners, sponsorships and other ancillary offerings, from consulting and technology customization services, and from hosting and back office services, including Web site production, customer service and billing. Royalty, consulting and technology customization revenues have not been significant to date, but are expected to increase as a percentage of revenues as partner-led markets mature and as more partner-led market sites are launched. Licensing revenue under license agreements entered into prior to December 31, 1997 is recognized upon the completion and installation of the Company's business and technology systems and training of partner personnel in each partner-led market. Pursuant to SOP 97-2, the Company is recognizing revenues from the sale of licenses for use of the Company's business and technology systems over the term of the license agreement or the period over which the relevant services are delivered beginning with contracts signed in 1998. See Note 1 of Notes to Consolidated Financial Statements. Royalty revenue is recognized as earned and is typically a percentage of partner-led market Web site subscriptions, banners, sponsorships and other ancillary offerings. In the second quarter of 1998, the Company began to derive revenue from providing back office services, including business Web site design, hosting, customer service and billing, to certain of its partners. The Company has recorded deferred stock compensation of $255,000 for the year ended December 31, 1997 and $1.1 million for the six months ended June 30, 1998 as a result of stock options granted during 1997 and the first six months of 1998. Amortization of deferred stock compensation of $10,000 was recognized in 1997, and $84,000 was recognized in the six months ended June 30, 1998. Amortization of deferred stock compensation is allocated to costs of revenues or to operating expenses depending on the responsibilities of the relevant employee. Deferred stock compensation is amortized over the vesting period of the options, generally four years. As a result, amortization of deferred stock compensation will adversely impact the Company's operating results for the next four years. The Company incurred net losses of $308,000, $13.9 million and $36.5 million for the period from September 20, 1995 (date of formation) to December 31, 1995, and the years ended December 31, 1996 and 1997, respectively, and $16.5 million for the six months ended June 30, 1998. At June 30, 1998, the Company had an accumulated deficit of $67.2 million. The net losses and accumulated deficit resulted from the Company's lack of substantial revenues and the significant operation, infrastructure and other costs incurred in the development and initial roll-outs of the Company's services. Given its limited operating history, the Company believes that an analysis of its cost and expense categories as a percentage of revenues is not meaningful. As a result of its aggressive expansion plans, the Company expects to incur significant additional losses from operations for the foreseeable future. Although the Company has experienced revenue growth in recent periods, there can be no assurance that such growth rates are sustainable and, therefore, they should not be considered indicative of future operating results. There can be no assurance that the Company will ever achieve significant revenues or profitability or, if significant revenues and profitability are achieved, that they could be sustained. RESULTS OF OPERATIONS Revenues. The Company's revenues increased from $1.5 million for the six months ended June 30, 1997 to $6.8 million for the six months ended June 30, 1998, and increased from $203,000 for the year ended December 31, 1996 to $6.2 million for the year ended December 31, 1997. The Company did not recognize any revenue from September 20, 1995 (date of formation) to December 31, 1995 (the "Inception Period"). The Company has two revenue sources: (i) subscription and services revenue and (ii) licensing and royalty revenue. Subscription and services revenue was $1.5 million and $5.6 million for the six months ended June 30, 1997 and 1998, respectively, and was $203,000 and $4.9 million for the years ended December 31, 1996 and 1997 respectively. Subscription and services revenue increased in each period primarily as the result of increases in business Web site subscription revenue due to increases in the number of city guides launched, an increased number of business Web sites in each city guide market, and an increase in the average sales price for business 23 Web sites. The increases in subscription and services revenue also resulted from increases in consulting revenue, barter revenue, and banner revenue. Licensing and royalty revenue was $0 and $1.2 million for the six months ended June 30, 1997 and 1998, respectively, and was $0 and $1.3 million for the years ended December 31, 1996 and 1997, respectively. Cost of Revenues. Cost of revenues consists primarily of the expenses associated with the design, layout, photography, customer service and editorial resources used in the production and maintenance of business Web sites and editorial content, network infrastructure maintenance and the costs of consulting services in partner-led markets. Cost of revenues is expensed as incurred. The Company had no cost of revenues for the Inception Period. Cost of revenues were $4.5 million and $7.4 million for the six months ended June 30, 1997 and 1998, respectively, and were $2.9 million and $10.8 million for the years ended years December 31, 1996 and 1997, respectively. The increases were due primarily to increased personnel and freelance labor required to produce and maintain the increased number of business Web sites and amount of editorial content. Sales and Marketing Expenses. Sales and marketing expenses consist primarily of the costs related to compensation of sales and marketing personnel, advertising, public relations, travel, sales force training and marketing literature. Sales and marketing expenses were $9.2 million and $9.1 million for the six months ended June 30, 1997 and 1998, respectively, and were $57,000, $6.4 million and $19.0 million for the Inception Period and for the years ended December 31, 1996 and 1997, respectively. These increases were due primarily to increased headcount and, to a lesser extent, increases in marketing and advertising programs. The Company expects that sales and marketing expenses will continue to increase in absolute dollars as the Company expands its direct sales force, hires additional marketing personnel and increases expenditures for marketing and promotional activities. Research and Development Expenses. Research and development expenses include the costs to develop, test and upgrade the CitySearch online service and the enterprise management systems. 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 $3.2 million and $3.4 million for the six months ended June 30, 1997 and 1998, respectively, and were $152,000, $2.6 million and $7.2 million for the Inception Period and for the years ended December 31, 1996 and 1997, respectively. The increases in research and development expenses were primarily attributable to increased staffing levels required to design, test, deploy and support expanded city guide functionality and back- office systems. The Company believes that timely deployment of new and enhanced products and technology are critical to attaining its strategic objectives and to remain competitive. Accordingly, the Company intends to continue recruiting and hiring experienced research and development personnel and make other investments in research and development. As such, the Company expects that research and development expenditures will increase in absolute dollars in future periods. The Company has expensed research and development costs as incurred. General and Administrative Expenses. General and administrative expenses consist primarily of administrative and executive personnel costs, fees for professional services and the costs of in-house infrastructure to support the operations of the Company. General and administrative expenses were $2.7 million and $3.6 million for the six months ended June 30, 1997 and 1998, respectively, and were $104,000, $2.5 million and $5.9 million for the Inception Period and for the years ended December 31, 1996 and 1997, respectively. These increases were due primarily to increased staffing levels to manage and support the Company's expanding operations. The Company anticipates hiring additional personnel and incurring additional costs related to being a publicly held entity, including directors' and officers' liability insurance, investor relations programs and professional service fees. Accordingly, the Company anticipates that general and administrative expenses will continue to increase in absolute dollars. Interest Income, Net. Net interest income consists primarily of interest earned on the Company's cash, cash equivalents and short term investments, less interest expense on capital lease obligations. The Company had net interest income of $104,000 and $260,000 for the six months ended June 30, 1997 and 1998, respectively, and $5,000, $217,000 and $223,000 for the Inception Period and for the years ended December 31, 1996 and 1997, respectively. The Company invests its cash balances in short-term investment grade, interest-bearing securities. 24 INCOME TAXES The provision for income, franchise and capital taxes of $800, $1,600 and $8,330 for the Inception Period and for the years ended December 31, 1996 and December 31, 1997, respectively, is based solely on minimum state tax requirements. The Company's effective tax rate differs from the statutory federal income tax rate, primarily as a result of operating losses not benefited. Due to the uncertainty surrounding the timing or realizing the benefits of its favorable tax attributes in future tax returns, the Company has placed a valuation allowance against its otherwise recognizable deferred tax assets. At December 31, 1997, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $47.5 million. The federal carryforwards expire principally in the period from 2010 to 2012, and the state carryforwards expire principally in 2003. See Note 4 of Notes to Consolidated Financial Statements. The Tax Reform Act of 1986 imposes substantial restrictions on the utilization of net operating losses and tax credits in the event of an "ownership change" of a corporation. The Company's ability to utilize net operating loss carryforwards may be limited as a result of an "ownership change" as defined in the Internal Revenue Code. This offering, together with prior issuances of Preferred Stock, may constitute an "ownership change" that could result in limitations on the use of net operating loss carryforwards in future periods. SELECTED QUARTERLY OPERATING RESULTS The following table sets forth certain consolidated statement of operations data for the Company's six most recent quarters. This information has been derived from the Company's unaudited consolidated financial statements. In management's opinion, this unaudited information has been prepared on the same basis as the annual consolidated financial statements and includes all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation for the quarters presented. This information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. The operating results for any quarter are not necessarily indicative of results for any future period.
THREE MONTHS ENDED ---------------------------------------------------------- MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, 1997 1997 1997 1997 1998 1998 --------- -------- --------- -------- --------- -------- (IN THOUSANDS) Revenues: Subscription and services.............. $ 470 $ 1,038 $ 1,478 $ 1,927 $ 2,563 $ 3,014 Licensing and royalty.. -- -- 677 594 528 693 ------- ------- ------- ------- ------- ------- Total revenues....... 470 1,038 2,155 2,521 3,091 3,707 Costs and expenses: Cost of revenues....... 2,040 2,417 3,155 3,234 3,634 3,812 Sales and marketing.... 4,519 4,691 4,506 5,298 4,383 4,682 Research and development........... 1,713 1,507 1,729 2,233 1,655 1,740 General and administrative........ 1,363 1,380 1,520 1,620 1,568 2,066 ------- ------- ------- ------- ------- ------- Total costs and expenses............ 9,635 9,995 10,910 12,385 11,240 12,300 ------- ------- ------- ------- ------- ------- Loss from operations.... (9,165) (8,957) (8,755) (9,864) (8,149) (8,593) Interest income, net.... 84 20 -- 119 173 87 ------- ------- ------- ------- ------- ------- Provision for income tax.................... -- -- -- (8) -- -- ------- ------- ------- ------- ------- ------- Net loss................ $(9,081) $(8,937) $(8,755) $(9,753) $(7,976) $(8,506) ======= ======= ======= ======= ======= =======
Subscription and services revenue increased each period primarily as the result of business Web site subscription revenue growth due to an increased number of city guides launched, a greater number of business Web sites in each city guide and an increase in the average sales price for business Web sites. Licensing and royalty revenue has fluctuated with the timing of license agreements in partner-led markets. 25 Cost of revenues has increased each period as the Company continues to sell new business Web sites, add editorial content, host and maintain an increasing number of business Web sites and, to a lesser extent, provide increasing services in partner-led markets. Sales and marketing expenses fluctuate primarily due to the timing of advertising and promotional campaigns. During the three months ended December 31, 1997, the increase in sales and marketing expense was primarily due to increased advertising expenditures. Research and development expenses fluctuate primarily due to the periodic use of technology consultants. During the three months ended December 31, 1997, consultants were retained to assist with the development of version CS 2.5 of the Company's online city guide application. General and administrative expenses have increased due primarily to increased staffing levels to manage and support the Company's expanding operations. During the three months ended June 30, 1998, general and administrative expenses increased primarily due to higher professional fees incurred during the quarter. The Company's operating results have varied on a quarterly basis during its short operating history and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside the Company's control. Factors that may affect the Company's quarterly operating results include, but are not limited to, the ability of its partners to meet roll-out schedules for the Company's city guide service, the timing and amount of license and royalty payments from the Company's partners, the Company's ability to retain existing business customers, attract new business customers at a steady rate and maintain customer satisfaction, the timing and volume of new business Web site orders and the Company's capacity to meet such orders, the Company's ability to maintain or increase current rates of sales productivity, the announcement or introduction of new or enhanced sites and services by the Company or its competitors, the amount of traffic on the Company's online sites, the amount of expenditures for online advertising by businesses, the level of use of online services and consumer acceptance of the Internet for services such as those offered by the Company, the Company's ability to upgrade and develop its systems and attract personnel in a timely and effective manner, the amount and timing of operating costs and capital expenditures relating to expansion of the Company's business and infrastructure, technical difficulties, system downtime or Internet brownouts, political or economic events affecting the cities in which the Company operates and general economic conditions. Unfavorable changes in any of the above factors could adversely affect the Company's revenues, gross margins and results of operations in future periods. Accordingly, the Company believes that period-to-period comparisons of its results of operations should not be relied upon as an indication of future performance. In addition, the results of any quarterly period are not indicative of results to be expected for a full fiscal year. Finally, as a result of the foregoing factors, the Company's annual or quarterly results of operations may be below the expectations of public market analysts or investors, in which case the market price of the Common Stock could be materially and adversely affected. LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has financed its operations primarily through the private placement of equity securities, raising $81.0 million, and capital equipment leases. At June 30, 1998, the Company had $15.5 million in cash and cash equivalents. The Company has had significant negative cash flows from operating activities in each fiscal and quarterly period to date. Net cash used in operating activities was $15.8 million and $16.1 million for the six months ended June 30, 1997 and 1998, respectively, and $213,000, $10.5 million and $30.1 million for the Inception Period and for the years ended December 31, 1996 and 1997, respectively. Cash used in operating activities from Inception through June 30, 1998 consisted primarily of net operating losses and increases in accounts receivable, which were partially offset by increases in deferred revenues, accrued expenses and accounts payable. Net cash used in investing activities was $1.1 million and $54,000 for the six months ended June 30, 1997 and 1998, respectively, and was $82,000, $3.5 million and $2.0 million for the Inception Period and for the years ended December 31, 1996 and 1997, respectively. Net cash used in investing activities in these periods consisted primarily of capital expenditures for computer equipment, purchased software, office equipment, and leasehold improvements. As of December 31, 1997, the Company also had commitments under non-cancelable operating leases of $5.3 million. Net cash provided by financing activities was $15.7 million and $6.5 million for the six 26 months ended June 30, 1997 and 1998, respectively, and was $1.7 million, $20.2 million and $49.7 million for the Inception Period and the years ended December 31, 1996 and 1997, respectively, attributable to the private sale of Preferred Stock. The Company believes that net proceeds from this offering, together with existing cash, cash equivalents and short-term investments, will be sufficient to meet its working capital and capital expenditures requirements for at least the next 12 months. Thereafter, the Company may be required to raise additional funds. No assurance can be given that the Company will not be required to raise additional financing prior to such time. If additional funds are raised through the issuance of equity securities, stockholders of the Company may experience significant dilution. Furthermore, there can be no assurance that additional financing will be available when needed or that if available, such financing will include terms favorable to the Company or its stockholders. If such financing is not available when required or is not available on acceptable terms, the Company may be unable to develop or enhance its products and services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on the Company's business, financial condition and results of operations. See "Risk Factors--Future Capital Needs; Uncertainty of Additional Financing." RECENT ACCOUNTING PRONOUNCEMENT In October 1997, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 97-2, Software Revenue Recognition, which supersedes SOP No. 91-1. The Company adopted SOP No. 97-2 prospectively for software transactions entered into beginning January 1, 1998. SOP No. 97-2 generally requires revenue earned on software arrangements involving multiple elements to be allocated to each element based on the relative fair values of the elements. The fair value of an element must be based on evidence that is specific to the vendor. If a vendor does not have evidence of the fair value for all elements in a multiple-element arrangement, all revenue from the arrangement is deferred until such evidence exists or until all elements are delivered. Beginning with contracts signed in 1998 pursuant to SOP 97-2, the Company is recognizing revenues from the sale of licenses for use of the Company's business and technology systems over the term of the license agreement or the period over which the relevant services are delivered. See Note 1 of Notes to Consolidated Financial Statements. 27 BUSINESS The discussion in this Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." OVERVIEW CitySearch produces and delivers comprehensive local city guides on the World Wide Web (the "Web"), providing up-to-date information regarding arts and entertainment events, community activities, recreation, businesses, shopping, professional services and news/sports/weather to consumers in metropolitan areas. Each local city guide consists primarily of original content developed and designed specifically for the Web by the Company and its partners. The Company designs and produces custom-built Web sites and related services for local and regional businesses, aggregates the sites in a local city guide environment and provides these businesses the ability to regularly update and expand their sites. This service offers local and regional businesses the opportunity to reach and interact with targeted consumers. The Company builds its city sites with the involvement of local government, community and volunteer associations, business and professional groups, educational institutions and local media companies. In addition, content generated by consumers through e-mail and bulletin boards, available in most sites, enhances the sense of community in CitySearch sites. CitySearch and its partners create comprehensive locally focused content that can be accessed using targeted, sophisticated searches across all content residing on a CitySearch site. In contrast, many search engines and navigational guides access pre-existing content from third-party Web sites that may be incomplete or out of date. In its owned and operated markets, CitySearch offers a broad array of updated, local content that is relevant to consumers. In certain other markets, CitySearch provides local media companies with the necessary technology and business expertise to design, launch and operate a co-branded CitySearch site. The Company's city guides have received numerous awards and recognition for design, functionality and content, including PC Magazine's Editor's Choice, USA Today/Intelliquest's survey leader, the 1998 Webby award for best travel site, recognition by The New York Times as the best overall online guide to New York City, How Magazine's Design Award and Net Guide's Platinum "Best of the Web" Award. CitySearch launched its initial site in the Raleigh-Durham-Chapel Hill metropolitan area in May 1996. The Company and its partners have since launched additional local city guides in Austin, Dallas, Los Angeles, Nashville, New York City, Portland, Salt Lake City/Utah, the San Francisco Bay Area and Washington, D.C. in the U.S., and in Melbourne, Sydney and Toronto internationally. The Company plans to expand its service to additional national and international markets both by leveraging the standardized roll- out model it has developed through previous city launches and by partnering with major media companies in certain cities. The Company has, for instance, partnered with The Baltimore Sun, The Dallas Morning News, the Los Angeles Times, The San Diego Union-Tribune, The Washington Post, The Melbourne Age, Schibsted ASA/Scandinavia Online (Copenhagen, Oslo and Stockholm), The Sydney Morning Herald and the Toronto Star. These major media partners bring capital, brand recognition, promotional strength and local knowledge to their CitySearch sites and allow the Company to build out its national and international network of sites faster than it could solely through owned and operated sites. The Company has also reached an agreement with Classified Ventures, a leading provider of online classified advertising products and services to the newspaper industry that was formed by seven leading newspaper companies. The Company will license elements of its technology and business systems and provide services to Classified Ventures. The Company has also reached an agreement with American Express that provides for marketing of the Company's services to American Express merchant customers and various other electronic commerce and marketing initiatives. The Company's equity investors include Washingtonpost.Newsweek Interactive Company, The Times Mirror Company, CPQ Holdings, Inc. (entity affiliated with Compaq Computer Corporation), Global Retail Partners, L.P. and its affiliates, American Express, Intel Corporation, AT&T Ventures, T. Rowe Price Threshold Fund III, L.P. and Schibsted ASA. 28 INDUSTRY BACKGROUND The Internet and the World Wide Web The Internet is an increasingly significant global interactive medium for communications, content and commerce. International Data Corporation ("IDC") estimates that the number of Web users worldwide will increase from 69 million at the end of 1997 to 320 million by the year 2002. According to The Media Audit, in certain of the markets where CitySearch has offerings, including Austin, Portland, Raleigh-Durham-Chapel Hill, Salt Lake City, San Francisco and Washington, D.C., more than four in ten adults are online. Growth in Internet usage has been fueled by a number of factors, including the large and growing installed base of personal computers in the workplace and home, advances in the performance and speed of personal computers and modems, improvements in network infrastructure, easier and cheaper access to the Internet and increased awareness of the Internet among businesses and consumers. As Internet accessibility, usage and functionality continue to grow, the Internet is increasingly being used as a medium for direct communication among users (e.g., via e-mail and bulletin boards) as well as a rapidly growing sales and marketing channel. The Demand for Local, Community-Oriented Information over the Internet The Company believes that as users spend more time on the Web, they are increasingly seeking local information relevant to their daily lives. The Company believes that consumers spend a large majority of their time and money in their local communities and that, as a result, Web users are increasingly seeking targeted, relevant information concerning local events, places of interest, shopping and other information that is pertinent to their local activities. According to a survey conducted by Find/SVP, over half of U.S. Internet users accessed some type of online local news and information during the first three months of 1997. Additionally, businesses are seeking cost- effective means to target advertising and direct marketing efforts based on demographic characteristics, specific interests and geographic location. McCann-Erickson estimates that businesses spent approximately $77 billion in 1997 on traditional, indirect advertising efforts in local markets. With the Internet, businesses can directly interact with consumers, receive immediate feedback on their marketing efforts and refine advertising campaigns on a real-time basis. The Company believes that the Web is becoming a more effective and efficient means for businesses to reach consumers. Consumers have limited Web resources available to provide focused and relevant local information. Similarly, many local businesses lack Web resources enabling them to effectively advertise to targeted local consumers. As the Internet has evolved, Web users have used sites devoted to local areas within navigational guides, such as search engines and directories, and Web sites provided by newspapers and other traditional media sources. Local content within large navigational guides is often comprised of hypertext links to multiple, disparate Web sites that may provide the user with inconsistent and confusing user interfaces, outdated information and no common database to enable useful information searches. While Web sites for traditional media, including newspapers and television stations, effectively provide Web users with updated news coverage, they often lack the internal resources to structure easy-to-use, interactive guides for Web users, resulting in Web sites with limited functionality. In addition, the Company believes these sites frequently do not provide businesses with useful geographic and topical context for a business' Web presence. Finally, many traditional media organizations, while possessing strong brand names in their local markets, do not have experience in fielding, training and managing a sales and production force skilled at selling Web sites to local businesses, producing high quality Web-based advertising or providing necessary customer support. The Company believes there is a growing demand for online city guides that provide frequently updated local information organized in an intuitive manner and targeted at metropolitan consumers. The Company believes that consumers are seeking a guide that provides extensive information on local events, business listings and community activities, offers a user-friendly interface to facilitate rapid information access and allows users to search within a city-specific site. The Company also believes that as Internet users are increasingly seeking such information, traditional media sources are also seeking to partner with companies that are able to provide the appropriate technology and business processes to develop an online presence. Similarly, businesses are 29 seeking content and technology solutions that not only offer Web users a rich and focused local guide so as to provide a highly effective context for the marketing of their goods and services, but also provide small and medium sized businesses a low cost, high quality Web presence. Indicative of this opportunity, Jupiter Communications estimates that the amount of local business advertising online will grow from 9% of total online advertising revenues in 1996 to 37% in 1998 and 54% of the $7.7 billion in online advertising in 2002. For local businesses seeking a means of establishing a Web presence, the current alternatives include either building their own Web site or placing an advertisement with an electronic yellow pages site. Most custom Web sites are expensive to develop and maintain, and may not attract high levels of Web site traffic without significant promotion. Placing an advertisement with an electronic yellow pages typically does not provide an appropriate context for a local business' site and no assistance on how to effectively reach consumers. As a result, the Company believes a significant opportunity exists for a local city guide that meets consumers' demands for local information and businesses' objectives for targeting, interacting and selling to these local consumers. THE CITYSEARCH SOLUTION CitySearch produces and delivers comprehensive local city guides on the Web, providing up-to-date information regarding arts and entertainment events, community activities, recreation, businesses, shopping, professional services and news/sports/weather to consumers in metropolitan areas. Each local city guide primarily consists of original content developed and designed specifically for the Web by the Company and its partners. The Company designs and produces custom-built Web sites and related services for local and regional businesses, aggregates them in a local city guide environment and provides business customers the ability to regularly update and expand their sites. The CitySearch sites offer local and regional businesses the opportunity to reach and interact with targeted consumers. CitySearch typically targets medium to large sized cities with a combination of high personal computer penetration, high Internet use, strong population growth, significant high technology employment, a large university population and a government presence. CitySearch has two primary means of providing its local city guides. In its "owned and operated" markets, the Company systematically produces the majority of its own content, hires and rapidly deploys a direct sales force to sell custom-built Web sites as well as related services to local businesses and launches a presence in approximately six months. In other markets, the Company partners with a local media company that contracts with CitySearch to assist in developing, designing and launching a city guide. These partners license CitySearch's systems and provide royalty payments to the Company for revenues derived from operations. As of July 15, 1998, the Company provided local guides in 13 cities, seven of which are owned and operated and six of which are operated by its local newspaper partners ("partner-led markets"). The Company and its partners are in the process of rolling out their services in four additional partner-led markets in Baltimore, Copenhagen, San Diego and Stockholm. Key elements of the Company's solution include the following: Leading and Experienced Local Online Service. The Company is a leader in providing online local guides. CitySearch has launched or initiated a roll-out of Web-based local city guides with an easy-to-use interface in major national and international markets, including Austin, Baltimore, Dallas, Los Angeles, Nashville, New York City, Portland, Raleigh-Durham-Chapel Hill, Salt Lake City/Utah, San Diego, the San Francisco Bay Area, Washington, D.C., Copenhagen, Melbourne, Stockholm, Sydney and Toronto. The Company believes the success of its approach is evidenced by the over 8,900 local and regional business Web sites that were online as of June 30, 1998 in its owned and operated markets, the over 6,800 business Web sites that the Company believes were online as of June 30, 1998 in its partner-led markets and by its consumer base penetration and consumer usage. According to Relevant Knowledge, CitySearch had approximately 810,000 unique adult users in its owned and operated markets, and the Company believes that approximately 7.4% of the local market online consumers used the CitySearch service in these markets in June 1998. 30 Differentiated Service Offering. The Company believes its local city guides differ substantially from competitive offerings. CitySearch develops and regularly updates its own content, both internally and in conjunction with local media partners, and offers consumers the opportunity to perform sophisticated searches since all Web content resides in the CitySearch site database. Unlike navigational guides that typically access content from third- party Web sites that may be incomplete or out of date, CitySearch sites encompass a broad array of updated, community-specific content that is easily accessed through CitySearch's common interface. The Company's city guides have received numerous awards and recognition for design, functionality and content including PC Magazine's Editor's Choice, USA Today/Intelliquest's survey leader, the 1998 Webby award for best travel site, recognition by the New York Times as best overall online guide to New York City, How Magazine's Design Award and Net Guide's Platinum "Best of the Web" award. Strategic Partnerships. The Company is engaged in a number of strategic partnerships with media, content and other companies in order to build the CitySearch brand name and network of city guides. The Company has established or signed agreements to develop city guides in partnership with The Baltimore Sun, The Dallas Morning News, Washingtonpost.Newsweek Interactive Company, the Los Angeles Times, The San Diego Union-Tribune, The Melbourne Age, Schibsted ASA/Scandinavia Online (Copenhagen, Oslo and Stockholm), The Sydney Morning Herald and the Toronto Star. Several of the Company's strategic relationships involve equity investments from the Company's partners, including Washingtonpost.Newsweek Interactive Company, The Times Mirror Company, owner of the Los Angeles Times and The Baltimore Sun, Schibsted ASA and Toronto Star Newspapers Limited. These major media partners also bring capital, brand recognition, promotional strength and local knowledge to their CitySearch sites and allow the Company to build out its national and international network of sites faster than it could solely through owned and operated sites. In July 1998, the Company reached an agreement with Classified Ventures, a leading provider of online advertising products and services to the newspaper industry. According to information provided by Classified Ventures, Classified Ventures is funded by Central Newspapers Inc., Gannett Co., Inc., Knight Ridder, The McClatchy Company, The Times Mirror Company, Tribune Company and The Washington Post Company, and has a network of over 130 affiliated newspapers in 42 states, including 35 of the nation's top 50 markets. CitySearch will license elements of its technology and business systems to Classified Ventures and provide services in automotive and real estate classified advertising categories. Certain CitySearch owned and operated services may also participate as Classified Ventures affiliates in their respective markets. In CitySearch owned and operated markets, the Company partners with local media companies to assist it in developing content and expanding its promotional activities. For example, CitySearch has partnered in Salt Lake City/Utah with the CBS television station (KUTV) and six radio stations owned by Citadel Communications Corporation, in San Francisco with the ABC television station (KGO) and two CBS-owned radio stations and in Raleigh- Durham-Chapel Hill with the national public radio station (WUNC) and with four radio stations owned by Capstar Broadcasting Corporation. In addition, the Company has entered into an agreement with American Express Travel Related Services Company, Inc. ("American Express") that provides for an equity investment by American Express in the Company, the distribution of co-branded marketing materials for the sale of business Web sites to American Express merchant customers on CitySearch guides, American Express sponsorship and banner advertising, introduction of electronic commerce products and services and sponsorship of other promotions. To further supplement the information and services it provides its consumers, the Company also entered into a relationship with Ticketmaster Group, Inc. ("Ticketmaster") to develop a system to enable consumers to purchase tickets to events listed on the CitySearch service. CitySearch has also reached agreements or arrangements with Earthlink Network, Inc., The Walt Disney Company's Family.com, Cnet Snap!, Planet Direct, At Home Network and Internet Travel Network to expand its distribution efforts. Differentiated Presence on the Web For Local and Regional Businesses. The Company creates Web sites for local and regional businesses, aggregates the Web sites in a local city guide environment and provides businesses the ability to regularly update and expand their sites. The Company believes its service offers local and regional businesses the opportunity to reach and interact with targeted audiences in a cost-effective manner. 31 The Company provides business customers with integrated solutions to establish customized, multi-page Web sites including design, layout, photography, posting of updated information, hosting and maintenance. Businesses are able to provide a targeted audience with updated information about their products and services, including photographs, prices, store location, schedules of live entertainment, specials or sales and other relevant information. The Company typically creates a customized, multi-page Web site for its customers with a minimal up-front fee and monthly fees ranging from $60 to $750 per month. The Company believes its broad offering of services and prices compares favorably to other Web advertising options available to businesses. Such options range from low cost, low quality scanned-in information to free-standing custom- designed sites that may cost in excess of $10,000 in up-front fees to produce and that rely on significant promotion to attract traffic. By providing a high quality Web presence at an affordable price, the Company believes that its services address the demand of the large number of businesses whose online needs fall between these market extremes. Community-Based Approach. CitySearch differentiates itself from most national developers of local city guides by building many of its owned and operated sites with involvement from city governments, chambers of commerce, community associations, schools and others, and by focusing its hiring efforts within the local community. The Company builds free Web sites for selected community organizations, provides tools for e-mail to constituents and community forums and maintains guides to community services and volunteer organizations, thereby enhancing the sense of community each CitySearch site provides. The Company believes that its community-based approach builds consumer interest in the site both directly, since the content it provides is of interest to many individuals and is not generally covered by competing city sites, and indirectly, because it builds broad support and "ownership" in the community. The Company has secured strong community support for its service in each of its markets, and the launch of many of its owned and operated markets have been presided over by the mayor or governor. THE CITYSEARCH STRATEGY The Company's objective is to be the category leader for comprehensive local city guides that will attract a new and larger group of consumers to the Internet and provide an easy-to-use resource for local information that is relevant to people's daily lives. The Company's strategy is focused on rapidly rolling out its service in the most attractive, Web-penetrated markets worldwide, establishing a dominant presence in these markets and using the CitySearch service as a platform for multiple revenue streams. The following are key elements of this strategy: Leverage Systematic City Launch Process. The Company believes it derives a competitive advantage from its ability to launch its service rapidly. CitySearch has developed and refined its detailed roll-out process in its 13 city guide launches to date. The Company's roll-out teams are led by experienced managers who prepare for launch by setting up operations, hiring and training local management teams, building the initial community relationships, negotiating promotional arrangements with local media, training a direct sales force of Internet Business Advisors ("IBAs") and selling initial sites. The Company's documented roll-out processes typically enable it to launch its service in approximately six months in owned and operated markets. In partner-led markets, the Company provides its roll-out expertise, professional personnel and technical infrastructure to assist its partners in creating effective sites and initiating rapid and successful launches. Rapidly Build National and International Network and Brand Awareness. The Company intends to establish its service as the category leader for local information on the Web by linking its local city guides together in a national and international network. As of July 15, 1998, the Company's service operated in 13 metropolitan areas worldwide, and CitySearch had initiated roll-out for launches in four additional metropolitan areas. The Company will continue to aggressively enter targeted markets through either an owned and operated market presence or by entering into partnerships and strategic alliances with major newspapers. The Company believes that as the number of its sites and usage of its service increases, it is creating a readily recognizable brand name for local content on the Internet. The Company believes that its branded worldwide network of local guides in Web-penetrated markets will increasingly attract local, regional and national advertisers that seek to efficiently target local markets and consumers seeking information about cities where they live or that they intend to visit. 32 Continue Penetration of Established Markets. The Company emphasizes an aggressive, on-going process of increasing penetration of businesses in its metropolitan markets and continued community involvement. The Company strives to retain its business customers through continuing direct contact by Internet Marketing Advisers ("IMAs") employed by the Company in most cities and by providing customers with a high level of customer support. IMAs also educate existing customers about the benefits of upgrading and expanding their Web presence. The Company continues to emphasize local community involvement in each city by maintaining Web sites for and communication with selected city governments, chambers of commerce, community associations, schools, local charities and others. Through direct and ongoing contact with businesses and continuing emphasis on the community, the Company believes it creates a local presence that is difficult for subsequent competitive entrants to displace or replicate. Continue to Enter into Strategic Alliances. The Company intends to continue to differentiate its service by entering into agreements with local radio, television and other media companies in its future owned and operated markets and with major newspapers and other media companies in its partner-led markets. The Company believes major newspapers, in particular, are trusted sources for local information and possess strong brand names in their communities. The Company intends to increase its number of local newspaper partnerships as a primary growth vehicle. The Company believes its partnerships with local newspapers provide a significant barrier to entry to competing local city guides that will be difficult to replicate. In addition, the Company intends to enter into additional strategic relationships, such as its current relationships with local television and radio stations, Classified Ventures, American Express and distribution partners. Develop Platform with Multiple Revenue Streams. The Company believes that its local city guides provide a platform for multiple revenue streams. In owned and operated markets, the Company derives recurring revenue fees from the sale of Web sites to local businesses in the communities CitySearch serves, as well as banner and sponsorship advertising. Part of the Company's strategy is to increase average monthly revenue from new customers, in part through the introduction of new services. Between June 1997 and June 1998, average monthly revenue from new customers more than doubled. In partner-led markets, the Company derives licensing and royalty revenues from the licensing of the Company's technology and business systems, consulting services provided by CitySearch personnel to develop and establish local sites, and from the providing back office and hosting services. The Company also offers or intends to offer electronic commerce functionality and other innovative features allowing businesses to better serve consumers, including ticketing, reservations, sales events notifications, electronic coupons, newsletters and other transactions. The Company believes these types of services offer the Company the opportunity to further attract both consumers and businesses to its sites and to derive revenues through increased fees from businesses for additional services and potentially from online product sales. THE CITYSEARCH SERVICE FOR CONSUMERS CitySearch produces and delivers comprehensive local city guides on the Web, providing up-to-date information regarding arts and entertainment events, community activities, recreation, businesses, shopping, professional services and news/sports/weather to consumers in metropolitan areas. Each local city guide consists primarily of original content developed and designed specifically for the Web by the Company and its partners. The CitySearch service is topically organized by categories, such as arts and entertainment, restaurants and bars, community, shops and services, sports and outdoors, hotels and tourism, local news and professional services. By using the CitySearch service, consumers can search shopping areas, obtain maps, contact community organizations and vendors by e-mail, and engage in bulletin board discussions with individuals such as local public officials and celebrities. Some consumers can also access video streams, including recent news and other information, from local television station partners. CitySearch offers local and regional businesses the opportunity to reach and interact with targeted consumers. In addition, content generated by consumers through e-mail and bulletin boards enhances the sense of community in CitySearch sites. 33 The CitySearch service has been launched in markets across the United States and in selected international markets. The Company plans to continue to expand its service both in owned and operated markets and by partnering with major media companies in other markets. These major media partners bring capital, brand recognition, promotional strength and local knowledge to their city guides and allow the Company to build out its national and international network of sites faster than it could solely through owned and operated sites. The following table lists the Company's owned and operated and partner-led markets:
MARKETS DATE OF LAUNCH PARTNERS - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- OWNED AND OPERATED: Raleigh-Durham-Chapel May 1996 WUNC (public radio station) Hill Capstar Broadcasting Corporation (4 radio stations) WCHL AM The Independent (weekly arts and entertainment publication) San Francisco Bay October 1996 KGO (ABC) Area CBS Radio (2 radio stations) Austin February 1997 KTBC (Fox) Clear Channel Communications, Inc. (4 radio stations) Salt Lake City/Utah March 1997 KUTV (CBS) Citadel Communications Corporation (6 radio stations) Nashville May 1997 WZTV (Fox) Dick Broadcasting (2 radio stations) Portland June 1997 KATU (ABC) KKCW FM New York September 1997(/1/) Time Out New York (weekly arts and entertainment publication) PARTNER-LED: Melbourne July 1997 The Melbourne Age Big Colour Pages Sydney September 1997 The Sydney Morning Herald Big Colour Pages Toronto September 1997 Toronto Star Washington, D.C. December 1997 Washingtonpost.Newsweek Interactive Company Los Angeles(/2/) April 1998 Los Angeles Times Dallas July 1998 The Dallas Morning News Baltimore 1998* The Baltimore Sun Copenhagen 1998* Schibsted ASA/Scandinavia Online Stockholm 1998* Schibsted ASA/Scandinavia Online Oslo 1999* Schibsted ASA/Scandinavia Online San Diego 1999* The San Diego Union-Tribune
* Estimated launch dates (1) CitySearch acquired MetroBeat, Inc. in June 1996 and relaunched the MetroBeat site as a CitySearch site in September 1997. (2) Includes Pasadena, California, which was launched as a beta test site in January 1996. 34 THE CITYSEARCH SERVICE FOR BUSINESS CUSTOMERS The Company creates and hosts Web sites for local and regional businesses and organizations for a monthly fee. CitySearch offers local businesses a wide range of options in creating Web presences, from a basic Web presence costing as little as $60 per month to a multi-page site with additional features and functionality costing up to $750 per month. Most business customers have entered into a 12 month agreement that automatically converts into a month-to- month contract. By aggregating a customer's Web site with those of numerous other businesses in a comprehensive local city guide, CitySearch provides categorical and geographic context to a customer's Web presence to generate usage by consumers, as well as significant Internet traffic. Based on internal studies, the Company believes that CitySearch users are more evenly split between men and women, better educated, slightly older and have higher annual incomes than the typical Internet user. The Company believes that these demographics are attractive to its business customers. The Company provides an integrated solution for businesses to establish a Web presence, including design, photography, lay out, posting of updated information, hosting and maintenance. Businesses are able to provide a targeted audience with current information about their stores and services including photographs, prices, store location, schedules of live entertainment, sales and other relevant information. Unlike traditional media such as yellow-pages advertising, the Company offers business customers a certain number of free updates each month. CitySearch's business customers also receive usage reports, e-mails from interested consumers and access to an expanded base of potential buyers including tourists and out-of-town users. The Company has recently introduced a strategy of bundling enhanced features and functionality, including panoramic images and audio clips. These services, when bundled with the Company's basic services, are typically priced from $200 to $750 per month, and have accounted for significant increases in the average selling prices of the Company's offerings. The Company believes its broad offering of services and prices compares favorably to other Web advertising options available to businesses. Such options range from low cost, low quality scanned-in information to free-standing custom-designed sites that may cost in excess of $10,000 in up-front fees to produce and that rely on significant promotion to attract traffic. By providing a high quality Web presence at an affordable price, the Company believes that its services address the demand of the large number of businesses whose online needs fall between these market extremes. The Company's proprietary site design tools and production economies enable it to build customized multi-page Web sites for customers for a minimal up- front fee. The production of business Web sites for CitySearch owned and operated markets and certain partner-led markets is managed centrally in the Company's headquarters to better control quality and cost and provide rapid production. Business Web site creation follows a standardized process. First, IBAs in the field work with customers to design their sites and gather images and text. Once content is collected, IBAs forward this information to CitySearch's central production site in Pasadena, where data entry personnel input the text. Graphic designers then use the Company's proprietary software to combine the text and scanned images to create custom sites designed to reflect the nature and style of each business customer. Once the Web site designers have completed their work, the business Web site is checked for accuracy and published online after a 14 day customer proofing period. The entire process, from the receipt of content by the Company to putting a site online, takes approximately one month to complete. Each step of the sales and production process is monitored by an enterprise management system to ensure that the process is consistent and complete. The Company believes the systems and processes it has developed to produce business Web sites allow it to create higher quality, more informative sites in a more cost-effective and timely manner than that of its competitors. The Company offers or intends to offer electronic commerce functionality and other innovative features allowing businesses to better serve consumers, including ticketing, reservations, sales events notifications, electronic coupons, newsletters and other transactions. These types of services offer the Company the opportunity to further attract both consumers and businesses to its sites and to derive revenues through increased fees from businesses for additional services and potentially from online product sales. STRATEGIC ALLIANCES The Company has entered into partnerships and strategic alliances with third parties in order to (i) rapidly build its national and international network, (ii) generate licensing revenue in its partner-led markets, 35 (iii) facilitate branding, (iv) gain access to additional content and (v) drive traffic on the CitySearch network of sites. Management intends to continue to negotiate further partnerships and alliances. Newspaper Partnerships. CitySearch has entered into strategic partnerships with major newspapers and media companies such as The Baltimore Sun, The Dallas Morning News, the Los Angeles Times, The San Diego Union-Tribune, The Washington Post, Schibsted ASA/Scandinavia Online (Copenhagen, Oslo and Stockholm), The Melbourne Age, The Sydney Morning Herald and the Toronto Star. In these partner-led markets, the partner provides the capital and management, while CitySearch contributes technology, a business model, consulting services, and business systems and processes. CitySearch typically receives up-front license fees, ongoing license fees for delivery of upgrades and support, and royalties based on revenues that the newspaper partner generates through the city guide service. In addition, the Company 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 compensation for business Web site production, customer service, billing and hosting services. The terms of the partner agreements are typically five to eight years in length, and contain customary termination rights in the event of material breach or non-performance. The Company believes these arrangements allow it to expand its national and international network of cities in a more rapid and cost-effective manner than a solely owned and operated network would allow. In July 1998, the Company reached an agreement with Classified Ventures, a leading provider of online advertising products and services to the newspaper industry. According to information provided by Classified Ventures, Classified Ventures is funded by Central Newspapers, Inc., Gannett Co., Inc., Knight Ridder, The McClatchy Company, The Times Mirror Company, Tribune Company and The Washington Post Company, and has a network of over 130 affiliated newspapers in 42 states, including 35 of the nation's top 50 markets. CitySearch will license elements of its technology and business systems to Classified Ventures and provide services in automotive and real estate classified advertising categories. Certain CitySearch owned and operated services may also participate as Classified Ventures affiliates in their respective markets. Television and Radio Media Alliances. CitySearch has entered into co- promotion agreements with local television and radio stations in most of its 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 site, while the partner offers promotion and a recognized brand within the market. CitySearch typically receives significant on-air promotion from these television and radio stations that increases brand awareness and drives traffic to the CitySearch site. For example, CitySearch has partnered in Salt Lake City/Utah with the CBS television station (KUTV) as well as radio stations owned by Citadel Communications Corporation and, in Raleigh-Durham-Chapel Hill, with the national public radio station (WUNC) and radio stations owned by Capstar Broadcasting Corporation. In San Francisco, the Company has agreements with the ABC television station (KGO) and radio stations owned by CBS. Marketing Agreements. The Company has entered into both local and national marketing agreements. For example, the Company recently reached a wide-ranging agreement with American Express, including an equity investment in the Company. The agreement provides for distribution of co-branded marketing materials to American Express merchant customers in the Company's local markets that will offer merchant customers online presences through the Company's local city guides. The parties intend to create areas within the Company's sites to aggregate promotions and discounts offered to consumers by American Express merchant customers as well as develop additional electronic commerce products. In addition, American Express will purchase sponsorships and banner advertising on the Company's sites. The Company has also entered into an agreement with Ticketmaster to develop a system to enable consumers to purchase tickets to Ticketmaster events featured on the CitySearch service along with local market online promotion of various Ticketmaster events. In addition, the Company enters into a wide variety of national and local marketing agreements. For example, the Company has reached an agreement with GUESS? Inc. that involves banner and in-store promotions in all of the Company's owned and operated markets, and an agreement with Levi Strauss Associates Inc.'s Dockers Khakis to provide sponsorship, editorial features and contests relating to two 1998 San Francisco film festivals. The Company intends to continue to aggressively pursue such marketing agreements in order to attract additional business customers and increase usage of the service by consumers. 36 Distribution and Vertical Content Alliances. The Company has entered into agreements with a number of companies to expand its distribution efforts and user base. For example, the Company has entered into agreements or arrangements with Earthlink Network, Inc., The Walt Disney Company's Family.com, Cnet Snap!, Planet Direct, At Home Network and Internet Travel Network to distribute content across relevant sites. MARKETING AND SALES The Company emphasizes marketing activities in its owned and operated markets aimed at increasing awareness of its local city guides for both consumers and business customers. The Company seeks to build each site as a community project. From the outset, the Company approaches city councils, chambers of commerce, volunteer groups, community associations and clubs, visitors bureaus, schools and other local groups. The Company begins by creating an online presence for selected organizations free of charge. This approach builds consumer interest in the site, both directly, since this content is of interest to the community and not typically covered by commercial city sites, and indirectly because it builds goodwill with a broad group. The Company's roll-out teams are led by experienced professionals who prepare for launch by negotiating promotional arrangements with local media, training a direct sales force and selling initial sites. The roll-out team initiates advertising and public relations campaigns through low-cost "guerilla" marketing efforts and CitySearch's local media partners in radio, television and print advertising to both drive business customer sales and consumer usage. The Company also purchases targeted advertising on Web sites such as Infoseek, Preview Travel and Yahoo! as well as through traditional media such as radio, print and outdoor. Market roll-out is supported by integrated business system software that guides operations, production, billing and customer service. The roll-out strategy and software is designed to enable CitySearch to rapidly penetrate key targeted vendor categories and neighborhoods. These integrated, enterprise-wide tools facilitate lead management, sales cycle management, problem tracking resolution, mass mailing fulfillment, and in-bound and out- bound call handling. In partner-led markets, the Company'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. The Company provides its partners both with a roll-out team to launch the service and ongoing support, including assistance with recruiting, sales strategy and back office operations. Once a city site has been launched, the Company and its partners rely upon a direct sales force to accelerate the momentum established by the roll-out team. As of June 30, 1998, the Company employed approximately 140 IBAs in seven owned and operated markets selling directly to local businesses and approximately 15 IMAs in these markets to maintain regular contact with business customers and facilitate up-selling of Web site functionality. Each IBA and IMA completes a one week intensive training program at the Company's headquarters with follow up field training. The Company's proprietary enterprise management system tracks sales leads and prospect status and allows sales managers to track performance. IBAs and IMAs participate in ongoing training sessions in sales techniques and new products. OPERATIONS The Company has created a systematic approach to market roll-out that is designed to enable it to launch its service in owned and operated markets in approximately six months and to support a local service once launched. In addition, the Company licenses its roll-out capabilities to media companies in its partner-led markets. The Company has analyzed and documented the best 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, the Company has built custom systems that streamline the site creation and maintenance process. 37 The Company's customer service operation is located in the Company's Pasadena headquarters. The Company's enterprise management systems enable customer service staff to view the customer's full profile, billing and interactive history as they take the call, and to use the software tools to make changes to the business customer's site in real time. TECHNOLOGY The Company has developed and implemented a number of technologies to support its local service and business operations, including (i) an online city guide application, (ii) a set of content creation and management tools and (iii) a suite of integrated enterprise management systems. CitySearch Online Application The CitySearch online application provides a user interface intended to support novice online users while providing easily accessible advanced features for experienced Web users. The core end-user functionality of the CitySearch application includes (i) concurrently performed keyword, spatial and temporal searches; (ii) personalization that permits consumers, for example, to receive newsletters in areas of interest, and register for special offers from CitySearch business customers that have chosen to implement a one- to-one marketing approach; (iii) dynamic map rendering and "nearby" functionality; (iv) real-time chat; and (v) message boards. CitySearch has to date employed an object-relational database to support Web publishing and searching. With version CS 2.5 of its service, which the Company intends to deploy in all of its markets in 1998, CitySearch will employ a multi-tiered architecture, separating a standard relational database from business rules and presentation logic. CS 2.5 is designed to permit city guide publishers to create and change the appearance and, generally, the function of the product using any commercially available Web page design tool or text editor. As a result, the Company believes that CitySearch and its partners will be able to respond more quickly to changes in the marketplace and evolving user preferences. In addition, the object-oriented architecture is designed to provide for rapid development cycles and code reuse. The Company has made a substantial investment in its product development infrastructure and intends to continue to release product enhancements that address changing demands of business customers and consumers. Content Creation and Management Tools The Company has created the following applications to support editorial and advertising content production: (i) SiteWorks, for design of business Web sites and editorial features; (ii) EditWorks, for editorial content entry; (iii) User Interface Tree editor, for defining and managing the site hierarchy; and (iv) MediaWorks, to enable remote content partners, typically television and radio stations, to submit content directly to the site. These tools are designed to minimize the technical knowledge that editorial and advertising content producers need to possess. 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, customer service, accounting, billing and commissions systems. CitySearch has also designed a sophisticated tool to manage the planning, scheduling, forecasting and tracking of business Web sites, banners and other services through the various stages of design and production. This tool enables the Company to manage the large number of business Web sites and banners developed simultaneously and originating from numerous cities. The Company 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. 38 COMPETITION The markets for local interactive content and services are highly competitive. Currently, the Company's primary competitors include Digital City, Inc., a company wholly owned by America Online Inc. and Tribune Company, Microsoft Corporation (Sidewalk) and Zip2 Corporation. The Company also competes against search engine and other site aggregation companies such as Excite, Inc. (City.Net), Lycos, Inc. (Lycos City Guide) and Yahoo! Inc. (Yahoo! Local) which primarily serve to aggregate links to sites providing local content. In addition, the Company competes against offerings from media companies, including Cox Interactive Media and Knight-Ridder, Inc., as well as offerings from several telecommunications and cable companies and Internet service providers that provide local interactive programming such as SBC Communications Inc. (At Hand) and U.S. West, Inc. (Dive-In). Many of these companies have greater financial and marketing resources than the Company and may have significant competitive advantages through other lines of business and existing business relationships. There are also numerous niche competitors which focus on a specific category or geography and compete with specific content offerings provided by CitySearch. The Company may also compete with online services and other Web site operators, as well as traditional media such as television, radio and print, for a share of advertisers' total advertising budgets. Furthermore, additional major media and other companies with financial and other resources greater than those of the Company may introduce new Internet products and services addressing these markets in the future. There can be no assurance that the Company's competitors will not develop services that are superior to those of the Company or that achieve greater market acceptance than the Company's offerings. The Company believes that the principal competitive factors in its markets include depth, quality and comprehensiveness of content, ease of use, distribution, search capability and brand recognition. There can be no assurance that the Company will be able to successfully compete against its current or future competitors or that competition will not have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, as a strategic response to changes in the competitive environment, the Company may make certain pricing, service or marketing decisions or enter into acquisitions or new ventures that could have a material adverse effect on the Company's business, financial condition and results of operations. PROPRIETARY RIGHTS The Company regards its copyrights, service marks, trademarks, trade dress, trade secrets and similar intellectual property as critical to its success, and relies on trademark and copyright law, trade secret protection and confidentiality and/or license agreements with the Company's employees, customers, partners and others to protect its proprietary rights. The Company pursues the registration of certain of its key trademarks and service marks in the United States and internationally. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which the Company's products and services are made available online. The Company has licensed in the past, and expects that it may license in the future, certain of its proprietary rights, such as trademarks or copyrighted material, to third parties. In addition, the Company has licensed in the past, and expects that it may license in the future, certain content, including trademarks and copyrighted material, from third parties. While the Company attempts to ensure that the quality of its brand is maintained by such licensees, there can be no assurance that such licensees will not take actions that might materially and adversely affect the value of the Company's proprietary rights or reputation, which could have a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate or that third parties will not infringe or misappropriate the Company's copyrights, trademarks, trade dress and similar proprietary rights. In addition, there can be no assurance that other parties will not assert infringement claims against the Company. The Company licenses the trademark "CitySearch" from a third party, and there can be no assurance that the Company will be able to continue to license the trademark on terms acceptable to the Company. The Company may be subject to legal proceedings and claims from time to time in the ordinary course of its business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties by the Company and its licensees. Such claims, even if not meritorious, could result in the 39 expenditure of significant financial and managerial resources which could result in a material adverse effect on the Company's business, financial condition and results of operations. EMPLOYEES As of June 30, 1998, CitySearch employed 555 persons, including 207 persons in functions related to cost of revenue, 245 persons in sales and marketing, 54 persons in research and development and 49 persons in general and administrative areas. None of the Company's employees is represented by a labor union, and CitySearch considers its employee relations to be good. FACILITIES The Company's headquarters are located in Pasadena, California, where the Company currently leases approximately 28,000 square feet under a lease expiring in 2002. The Company also leases approximately 4,500 square feet in Austin, 3,900 square feet in Morrisville, North Carolina, 7,900 square feet in Research Triangle Park, North Carolina, 4,600 square feet in Nashville, 10,000 square feet in New York, 4,700 square feet in Portland, 4,600 square feet in Salt Lake City and 5,800 square feet in San Francisco under leases which expire in 2002, 2001, 2003, 2000, 2004, 2002, 2001 and 1999, respectively. The Company believes that its facilities are adequate in those cities in which the Company currently does business. LEGAL PROCEEDINGS The Company is not currently subject to any material legal proceedings. The Company may from time to time become a party to various legal proceedings arising in the ordinary course of business. 40 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth certain information regarding the executive officers and directors of the Company as of June 30, 1998:
NAME AGE POSITION ---- --- -------- Charles Conn............ 36 Chief Executive Officer and Director Thomas Layton........... 35 President, Chief Operating Officer, Treasurer and Director Douglas McPherson....... 36 Chief Legal Officer and Vice President, Business Development Bradley Ramberg......... 34 Chief Financial Officer, Vice President, Finance and Administration and Secretary Robert Kavner(1)........ 54 Chairman of the Board Gerald Breslauer(2)..... 69 Director Barry Diller............ 56 Director Joseph Gleberman(2)..... 40 Director William Gross(1)........ 39 Director Yves Sisteron(2)........ 43 Director Alan Spoon.............. 47 Director Thomas Unterman(1)...... 53 Director
- -------- (1)Member of the Compensation Committee (2)Member of the Audit Committee Mr. Conn has served as Chief Executive Officer and a director since he co- founded the Company in September 1995 and served as President of the Company from September 1995 to October 1996. From September 1990 to September 1995, he was a consultant at McKinsey & Company, where he was elected Partner. From September 1986 to September 1988, Mr. Conn worked with the Boston Consulting Group in Boston and Tokyo and in 1989 with Canon, Inc. in Japan. Mr. Conn holds a B.A. from Boston University, a B.A. and M.A. from Oxford University, where he was a Rhodes Scholar and a M.B.A. from Harvard Business School, where he was a Baker Scholar. Mr. Layton has served as President since October 1996, Chief Operating Officer since November 1995, a director since May 1996 and Treasurer of the Company since September 1995. He also served as Vice President, Sales and Marketing from November 1995 to October 1996. From May 1994 to November 1995, he was with Score Learning Corporation, a leading educational learning center, where he was promoted from Chief Financial Officer to President and Chief Operating Officer. From January 1989 to October 1992, Mr. Layton was Vice President and General Manager of the Western Region for Leasecomm, Inc., a national equipment leasing company, and was previously with the Boston Consulting Group. Mr. Layton holds a B.S. from the University of North Carolina at Chapel Hill and a M.B.A. from Stanford University. Mr. McPherson has served as Chief Legal Officer and Vice President, Business Development since he joined the Company in July 1996. From November 1992 to July 1996, Mr. McPherson was with the law firm of Heller Ehrman White & McAuliffe, where he specialized in intellectual property law and general commercial litigation. From September 1991 to September 1992, he served as a law clerk for a federal district judge. From 41 June 1986 to June 1988, he served as Assistant to the Vice President at The Rockefeller Foundation in New York City. He holds a B.A. from the University of North Carolina at Chapel Hill, a M.A. from the University of California, Berkeley and a J.D. from Stanford Law School. Mr. Ramberg has served as the Chief Financial Officer and Vice President, Finance and Administration since he joined the Company in April 1996 and as Secretary since February 1998. From January 1994 to April 1996, he was Vice President of Finance and Operations at the Fresh Gourmet Company, a joint venture between CPC International Inc. and Prepco. From December 1992 to January 1994, he was vice president, operations and finance at Pro-Towel, a start-up consumer products venture. He holds an A.B. from Brown University and a M.B.A. from Harvard Business School. Mr. Kavner has served as a director of the Company since December 1995 and Chairman of the Board of Directors since March 1996. Mr. Kavner has served as the Chief Executive Officer, President and a director of On Command Corporation, a provider of hotel in-room entertainment and movies, since September 1996 and was a consultant in the area of Internet services and content, interactive entertainment and telecommunications from September 1995 to August 1996. From June 1994 to September 1995, Mr. Kavner was the head of Creative Artists Agency's business advisory group. From 1984 to 1994, Mr. Kavner held a number of senior executive positions in AT&T, Inc. Mr. Kavner has a B.A. from Adelphi University. He also serves as a director of Fleet Financial Group and Earthlink Networks, Inc. Mr. Breslauer has served as a director of the Company since December 1995. Since June 1952, he has been a Partner of Breslauer & Rutman, a financial management company. Mr. Breslauer holds a B.A. from the University of California, Los Angeles. Mr. Diller has served as a director of the Company since December 1997. He has been a director and Chairman of the Board and Chief Executive Officer of USA Networks since August 1995. He was Chairman of the Board and Chief Executive Officer of QVC, Inc. from December 1992 through December 1994. From 1984 to 1992, Mr. Diller served as the Chairmen of the Board and Chief Executive Officer of Fox, Inc. Prior to joining Fox, Inc., Mr. Diller served for ten years as Chairman of the Board and Chief Executive Officer of Paramount Pictures Corporation. Mr. Diller is also a director of The Seagram Company, Ltd., Ticketmaster Group, Inc. and Golden Books Family Entertainment, Inc. Mr. Gleberman has served as a director of the Company since May 1996. He is a Managing Director in the Principal Investment Area of Goldman, Sachs & Co. He joined Goldman, Sachs & Co. in 1982. He holds a B.A. and M.A. from Yale University and a M.B.A. from Stanford University. Mr. Gleberman serves as a director of Applied Analytical Industries, Inc., Biofield Corp., and Dade International, Inc. Mr. Gross has served as a director of CitySearch since he co-founded it in September 1995. Since March 1996, Mr. Gross has been Chairman of the Board, Chief Executive Officer and President of bill gross' idealab!, a corporation which generates ideas for and creates new companies. In 1991, he founded Knowledge Adventure Inc., a corporation which developed educational software for children. He served as the Chairman of Knowledge Adventure, Inc. from June 1991 to January 1997. He was a developer at Lotus Development Corporation from 1986 to 1991. Prior to joining Lotus Development Corporation, Mr. Gross founded, in 1980, GNP Loudspeaker, Inc. to manufacture and sell his patented designs. In 1995, Mr. Gross was elected to the Board of Trustees of California Institute of Technology as the first Young Alumni Trustee. Mr. Gross holds a B.S. from the California Institute of Technology. Mr. Sisteron has served as a director of the Company since December 1997. Mr. Sisteron has been a Principal of Global Retail Partners, L.P. since January 1996 and Manager, U.S. Investments of Carrefour S.A. since 1993. Mr. Sisteron has a J.D. and an L.L.M. from the Lyon Law School and an L.L.M. in Comparative Law from New York University School of Law. Mr. Sisteron also serves as a director of InterWorld Technology Ventures, Inc. and P.F. Chang's China Bistro, Inc. 42 Mr. Spoon has served as a director of the Company since December 1997. Mr. Spoon has been President of The Washington Post Company since September 1993 and Chief Operating Officer and a director since May 1991. Prior to that, Mr. Spoon held a wide variety of positions at The Washington Post Company, including President of Newsweek from September 1989 to May 1991. Mr. Spoon has a B.S. from the Massachusetts Institute of Technology, a M.S. from the M.I.T. Sloan School of Management and a J.D. from Harvard Law School. He is also a director of American Management Systems, Inc. and Human Genome Sciences, Inc. Mr. Unterman has served as a director of the Company since June 1997. Since March 1998, he has served as an Executive Vice President and Chief Financial Officer and from August 1995 to March 1998, he served as a Senior Vice President and Chief Financial Officer of The Times Mirror Company. From February 1995 to August 1995, Mr. Unterman was a Senior Vice President and General Counsel, and from September 1992 to February 1995 was a Vice President and General Counsel, of The Times Mirror Company. He has an A.B. from Princeton University and a J.D. from the University of Chicago. BOARD COMPOSITION The Board of Directors is currently comprised of 10 directors, including eight non-employee directors. Messrs. Diller and Sisteron were elected pursuant to rights granted to USA Networks and Global Retail Partners, L.P. (together with its affiliates, "GRP"), respectively, under the Company's Restated Certificate of Incorporation. Pursuant to the Company's Restated Certificate of Incorporation, USA Networks has a right to elect one member of the Board of Directors until the earlier of (i) November 12, 2007 or (ii) the date USA Networks owns less than 50% of the capital stock of the Company that it owned on November 12, 1997. In the event that the Company grants any other stockholder or stockholders, voting as a separate class, a right to elect more than one director, USA Networks will be entitled to elect the same number of directors. The Company's Restated Certificate of Incorporation also provides that GRP has a right to elect one member of the Board of Directors until the later of (i) November 20, 1999, (ii) the one-year anniversary of the closing of this offering or (iii) the date GRP owns less than 100% of the capital stock of the Company that it owned on November 20, 1997. Mr. Gleberman was elected to the Board of Directors pursuant to the Company's Restated Certificate of Incorporation, which provides that the holders of Series C Preferred Stock, voting together as a separate class, have a right to elect one member of the Board of Directors. This right terminates upon the closing of this offering. Certain holders of the Company's Preferred Stock and Common Stock have entered into a voting agreement (the "Voting Agreement") pursuant to which such stockholders are required to vote, from and after the closing of the offering, all of the shares of the Company's voting securities owned by them to elect to the Board of Directors the designee or designees (the "Series C Directors") of the holders of a majority of the shares of Series C Preferred Stock outstanding immediately prior to the closing of this offering (the "Series C Holders"). The Series C Holders are entitled to designate one candidate for election to the Board of Directors, except that if any other stockholder or stockholders, voting as a separate class, are entitled, by virtue of a right granted by the Company, to elect more than one director, the number shall be increased to the number of directors that such other stockholder or stockholders are entitled to elect. The Company has agreed to use its best efforts to cause the nomination and election of the Series C Directors in accordance with the Voting Agreement. The Voting Agreement terminates upon the date the Series C Holders hold less than 7.5% of the then outstanding Common Stock (on a fully diluted basis). As of June 30, 1998, the holders of the Series C Preferred hold 10.9% of the outstanding Common Stock of the Company (on a fully diluted, as-converted basis). As of June 30, 1998, entities affiliated with Goldman, Sachs & Co. owned 79.6% of the outstanding Series C Preferred Stock. The Company's Restated Certificate of Incorporation to be effective upon the completion of this offering provides that the Board of Directors will be divided into three classes to serve staggered three-year terms. The Board of Directors has a Compensation Committee, currently comprised of Mr. Kavner, Mr. Gross and Mr. Unterman, that makes recommendations to the Board of Directors concerning salaries and incentive 43 compensation for officers and employees of the Company. The Board of Directors also has an Audit Committee, currently comprised of Mr. Breslauer, Mr. Gleberman and Mr. Sisteron, that reviews the results and scope of the annual audit and other accounting related matters. DIRECTOR COMPENSATION The members of the Board of Directors are not compensated for their services to the Company other than for reimbursement of their expenses incurred in connection with such services and their eligibility for stock option grants under the Company's 1996 Stock Option Plan. In March and April 1996, Mr. Kavner received options to purchase 33,334, 6,667 and 54,454 shares of Common Stock under the 1996 Stock Option Plan at an exercise price of $0.15, $0.15 and $0.38 per share, respectively. In March 1996, Mr. Breslauer received an option to purchase 6,667 shares of Common Stock under the 1996 Stock Option Plan at an exercise price of $0.15 per share. Upon completion of this offering, directors who are employees of the Company will be eligible to receive stock options pursuant to the 1996 Stock Option Plan, while non- employee directors will receive stock options pursuant to the automatic option grant provisions of the 1998 Director Option Plan. See "--Employee Benefit Plans." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the Compensation Committee is an officer or employee of the Company. No interlocking relationship exists between the Company's Board of Directors or Compensation Committee and the board of directors or compensation committee of any other company, nor has such an interlocking relationship existed in the past. EXECUTIVE COMPENSATION The following table sets forth certain summary information concerning the compensation awarded to, earned by or paid for services rendered to the Company in all capacities during the year ended December 31, 1997 by the Company's Chief Executive Officer and the one executive officer who earned in excess of $100,000 in compensation during the year ended December 31, 1997 (the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ------------ AWARDS ------------ ANNUAL COMPENSATION SECURITY ------------------- OTHER ANNUAL UNDERLYING NAME AND PRINCIPAL POSITIONS SALARY BONUS COMPENSATION OPTIONS (#) - ---------------------------- ------------------- ------------ ------------ Charles Conn..................... $ 93,333 $ 40,000 -- 83,334 Chief Executive Officer and Di- rector Thomas Layton.................... 86,667 25,000 -- 50,000 President, Chief Operating Officer, Treasurer and Director
44 OPTION GRANTS IN 1997 The following table sets forth certain information regarding option grants to each of the Named Executive Officers during the year ended December 31, 1997.
INDIVIDUAL GRANTS ----------------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES PERCENT OF TOTAL OF STOCK PRICE NUMBER OF OPTIONS APPRECIATION FOR SECURITIES GRANTED TO EXERCISE OPTION TERMS(4) UNDERLYING EMPLOYEES IN PRICE --------------------- NAME OPTIONS GRANTED (1) 1997(2) PER SHARE(3) EXPIRATION DATE 5% 10% - ---- ------------------- ---------------- ------------ --------------- ---------- ---------- Charles Conn............ 83,334 12.1% $3.00 10/01/07 $ 157,225 $ 398,439 Thomas Layton........... 50,000 7.3 3.00 10/01/07 94,334 239,061
- -------- (1) All options were granted under the Company's 1996 Stock Option Plan and vest one forty-eighth per month at the end of each month commencing September 1, 1997; provided, however that upon a substantial merger or an acquisition of the Company, the unvested portion of such options will vest immediately. (2) Based on options to purchase 689,010 shares granted to employees, including the Named Executive Officers, during the year ended December 31, 1997 (excluding options to purchase 56,643 shares of Common Stock which were granted to employees and subsequently canceled during the fiscal year ended December 31, 1997). (3) The exercise price per share of each option was equal to the fair market value of the underlying Common Stock on the date of grant as determined by the Board of Directors. (4) Potential gains are calculated net of the exercise price but before taxes associated with the exercise. The 5% and 10% assumed annual rates of compounded stock appreciation are mandated by the rules of the Securities and Exchange Commission ("Commission") and do not represent the Company's estimate or projection of the future Common Stock price. Actual gains, if any, on stock option exercises are dependent on the future financial performance of the Company, overall market conditions and the option holder's continued employment through the vesting period. OPTION EXERCISES AND FISCAL YEAR-END VALUES The following table sets forth the number of shares acquired upon the exercise of stock options during the year ended December 31, 1997 and the number of shares covered by both exercisable and unexercisable stock options held by each of the Named Executive Officers at December 31, 1997.
NUMBER OF SECURITIES VALUE OF UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT YEAR-END(1) AT YEAR-END(2) SHARES ACQUIRED VALUE ------------------------- ------------------------- NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- --------------- -------- ----------- ------------- ----------- ------------- Charles Conn............ -- $ -- 6,944 76,390 $ 62,496 $687,510 Thomas Layton........... -- -- 170,834 45,833 2,012,507 412,497
- -------- (1) Options shown were granted under the 1996 Stock Option Plan. See "Employee Benefit Plans" for a description of the material terms of these options. (2) Based on the assumed initial public offering price of $12.00 per share, less the exercise price. EMPLOYMENT AGREEMENTS On May 9, 1996 and July 2, 1997, respectively, the Company entered into at- will employment agreements with each of Charles Conn and Thomas Layton, the Company's Chief Executive Officer and President, respectively. Pursuant to such employment agreements, in the event that Mr. Conn's or Mr. Layton's, as the case may be, employment is terminated, he will be entitled to receive severance payments until the earlier of (i) such time as he is employed by a recognized company or (ii) six months after termination. Such severance payments will equal his full salary for the first three months after termination and half of his salary for the second three months after termination. 45 EMPLOYEE BENEFIT PLANS 1996 Stock Option Plan. The Board of Directors adopted and the stockholders approved the Company's 1996 Stock Option Plan (the "Stock Plan") and the reservation of 1,666,667 shares of Common Stock thereunder on March 1, 1996. On September 18, 1996, the Board of Directors and the stockholders approved an increase of 333,333 reserved for issuance under the Stock Plan. The Board of Directors and the stockholders approved a further increase of 666,667 shares on November 18, 1996 and November 20, 1996, respectively. Subject to approval by the stockholders, the Company plans to increase the number of shares reserved for issuance by 1,000,000 shares to an aggregate of 3,666,667 shares of the Common Stock reserved under the Stock Plan. The Stock Plan, as proposed to be amended, provides that the aggregate number of shares reserved thereunder will automatically be increased each year on the first day of the Company's fiscal year beginning in 1999 by a number of shares equal to the lesser of (i) 666,667 shares of Common Stock, (ii) 3% of the then outstanding shares of Common Stock on such date or (iii) a lesser amount determined by the Board of Directors. The Stock Plan provides for the granting to employees (including officers and employee directors) of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and for the granting to employees (including officers and employee directors) and consultants (including non-employee directors) of nonstatutory stock options. Unless terminated sooner, the Stock Plan will terminate automatically in March 2006. The Board of Directors has the authority to amend, suspend or terminate the Stock Plan, provided that no such action may affect any share of Common Stock previously issued and sold or any option previously granted under the Stock Plan. The Stock Plan may be administered by the Board of Directors or a committee consisting of members of the Board of Directors. The administrator has the power to determine the terms of each option granted, including the exercise price, the number of shares subject to the option and the exercisability thereof, and the form of consideration payable upon exercise. No employee or consultant may be granted, in any fiscal year of the Company, options to purchase more than 500,000 shares (plus 1,000,000 shares in the case of a new employee's or consultant's initial employment with the Company). Unless determined otherwise by the administrator, an option granted under the Stock Plan is not transferable by the optionee other than by will or by the laws of descent or distribution, and is exercisable during the lifetime of the optionee only by such optionee. An option granted under the Stock Plan must be exercised within three months after termination of the optionee's status as an employee or consultant of the Company (or within 12 months after termination of such status by death or disability), but in no event later than the expiration of the option in accordance with its terms. The exercise price of nonstatutory stock options is determined by the administrator, but with respect to nonstatutory stock options intended to a qualify as "performance- based compensation" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, the exercise price must at least be equal to the fair market value of the Common Stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of the Company's outstanding capital stock, the exercise price of any incentive stock option must equal at least 110% of the fair market value on the grant date and the term of the option must not exceed five years. The term of all other options granted under the Stock Plan may not exceed ten years. The shares subject to options granted under the Stock Plan may be fully and immediately exercisable or may be exercisable cumulatively over time or upon satisfaction of specified performance criteria, as determined by the administrator. In most cases, 25% of the shares subject to options granted under the Stock Plan are exercisable at the end of one year with one forty- eighth of the shares subject to the option becoming exercisable each month thereafter. The Stock Plan provides that in the event of a merger of the Company with or into another corporation, outstanding stock options will either be assumed by the acquiring corporation or terminated as of the date of the closing of the merger, and immediately prior to the consummation of any dissolution or liquidation of the Company, outstanding stock options will be terminated. 46 1998 Director Option Plan. Subject to approval by the stockholders, the Company intends to adopt the 1998 Director Option Plan (the "Director Plan"). The Director Plan provides for the automatic grant of nonstatutory stock options to non-employee directors. The Director Plan has a term of ten years, unless terminated sooner by the Board of Directors. A total of 200,000 shares of Common Stock have initially been reserved for issuance under the Director Plan. In addition, the Director Plan provides for annual increases on the first day of the Company's fiscal year beginning in 1999 by a number equal to the lesser of (i) the number of shares needed to restore the maximum aggregate number of shares available for sale under the Director Plan to 200,000 shares or (ii) a lesser number of shares determined by the Board of Directors. The Director Plan provides that on the date of the closing of this offering (the "Closing Date"), any Current Outside Director (as defined below) who is the Chairman of the Board of Directors as of the Closing Date shall automatically be granted an option to purchase 33,334 shares of Common Stock and each other Current Outside Director shall automatically be granted an option to purchase 16,667 shares of Common Stock. Each New Outside Director (as defined below) shall automatically be granted an option to purchase 13,334 shares of Common Stock on the date which such person first becomes a non- employee director. In addition, each New Outside Director shall automatically be granted an option to purchase 3,334 shares on the date of each of the Company's annual meeting of stockholders, if on such date he or she shall have served on the Board of Directors for at least six months. Each option granted under the Director Plan shall have a term of ten years. Twenty-five percent of the shares subject to the options will vest one year from the date of grant and one forty-eighth of the optioned stock shall vest each month thereafter, provided that the individual continues to serve as a director on such dates. The exercise price of each option shall be 100% of the fair market value per share of the Common Stock on the date of grant. The term "Current Outside Director" shall mean any person who is a non-employee director of the Company on the Closing Date, and the term "New Outside Director" shall mean any person who joins the Board of Directors after the Closing Date. In the event of a substantial merger or an acquisition of the Company, each outstanding option granted to a Current Outside Director shall become fully vested and exercisable. Each outstanding option may be assumed or an equivalent option substituted for by the successor corporation. If an option is assumed or substituted for by the successor corporation, it shall continue to vest as provided in the Director Plan so long as the optionee continues to serve as a director of the Company or the successor corporation, as applicable. If the successor corporation does not assume an outstanding option or substitute for it an equivalent option, the option will terminate as of the closing of the merger or asset sale. Options granted under the Director Plan must be exercised within three months of the end of the optionee's tenure as a director of the Company, or within 12 months after such director's termination by death or disability, but in no event later than the expiration of the option's ten-year term. Options granted under the Director Plan are generally not transferable by the optionee other than by will or the laws of descent and distribution, and each option is exercisable, during the lifetime of the optionee, only by such optionee. 1998 Employee Stock Purchase Plan. Subject to approval by stockholders, the Company plans to adopt the 1998 Employee Stock Purchase Plan (the "Purchase Plan") and reserve an aggregate of 200,000 shares of Common Stock thereunder. The number of shares reserved will be increased automatically each year on the first day of the Company's fiscal year beginning in 1999 by an amount equal to the lesser of (i) 266,667 shares of Common Stock, (ii) 1.0% of the outstanding shares of Common Stock on such date or (iii) 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 will run for 12 months and will be divided into consecutive purchase periods of approximately six months. The initial offering under the Purchase Plan will commence on the date of this Prospectus and terminate on October 31, 1999. Thereafter, new 12 month offering periods will commence every six months on each May 1 and November 1. Unless otherwise determined by the Board of Directors, employees are eligible to participate in the Purchase Plan only if they are customarily employed by the Company or a subsidiary of the Company designated by the 47 Board of Directors for at least 20 hours per week and for at least five months per calendar year. Amounts deducted and accumulated by the participant are used to purchase shares of Common Stock at the end of each purchase period. Employees who participate in an offering may have up to 15% of their compensation withheld pursuant to the Purchase Plan. The price of Common Stock purchased under the Purchase Plan will be equal to 85% of the fair market value of the Common Stock at the commencement date of each offering period or the relevant purchase date, whichever is lower. In the event the fair market value at the end of a purchase period is less than the fair market value at the beginning of the offering period, the participants will be withdrawn from the current offering period following exercise and automatically re-enrolled in a new offering period. The new offering period will use the lower fair market value as of the first date of the new offering period to determine the purchase price for future purchase periods. Employees may end their participation in any offering period at any time during any offering period, and participation ends automatically on termination of employment with the Company. The maximum number of shares that a participant may purchase during each purchase period is 3,334 shares during any purchase period. In addition, no person may purchase shares under the Purchase Plan to the extent such person would own 5% or more of the total combined value or voting power of all classes of the capital stock of the Company or any of its subsidiaries, or to the extent that such person's rights to purchase stock under all employee stock purchase plans would exceed $25,000 for any calendar year. The Purchase Plan will terminate ten years from the date of adoption of the Purchase Plan, unless terminated earlier in accordance with the provisions of the Purchase Plan. In the event of a proposed sale of all or substantially all the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option will be assumed or an equivalent option substituted by the successor corporation. In the event the successor corporation does not assume or substitute for the option, any offering periods then in progress shall be shortened to a new date prior to the proposed sale or merger. The Board of Directors has the authority to amend or terminate the Purchase Plan, provided, that no such action may adversely affect any outstanding rights to purchase Common Stock. 401(k) Plan. The Company participates in a tax-qualified employee savings and retirement plan (the "401(k) Plan") which covers all of the Company's full-time employees who are at least 21 years of age and who have been employed with the Company for at least three months. Pursuant to the 401(k) Plan, eligible employees may defer up to 20% of their pre-tax earnings, subject to the Internal Revenue Service's annual contribution limit. The 401(k) Plan permits additional discretionary matching contributions by the Company on behalf of all participants in the 401(k) Plan in such a percentage amount as may be determined annually by the Board of Directors. To date, the Company has made no such matching contributions. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue of 1986, as amended, so that contributions by employees or by the Company to the 401(k) Plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan, and so that contributions by the Company, if any, will be deductible by the Company when made. The trustee under the 401(k) Plan, at the direction of each participant, invests the assets of the 401(k) Plan in any of a number of investment options. LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS The Company's Restated Certificate of Incorporation, which will become effective upon the closing of this offering, limits the liability of directors for breach of fiduciary duty as a director to the maximum extent permitted by the DGCL. The DGCL provides that a corporation's certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director for monetary damages for breach of their fiduciary duties as directors, except for liability (i) for any breach of their duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided for in Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. The Company's Restated Certificate of Incorporation also provides that the Company is required to indemnify to the fullest extent permitted by law any director, officer or employee of the Company. The Company's Bylaws, which will also become effective upon the closing of this offering, provide that (i) the Company is required to indemnify its directors and officers to the maximum extent permitted by the 48 DGCL, subject to certain very limited exceptions, (ii) the Company may indemnify its other employees and agents to the maximum extent permitted by the DGCL, (iii) the Company is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding, subject to certain very limited exceptions and (iv) the rights conferred in the Bylaws are not exclusive. The Company will enter into indemnification agreements with its officers and executive directors containing provisions that may require the Company, among other things, to indemnify such officers and directors against certain liabilities that may arise by reason of their status or service as directors or officers (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain directors' and officers' insurance if available on reasonable terms. At present, there is no pending litigation or proceeding involving any director, officer, employee or agent of the Company where indemnification will be required or permitted. The Company is not aware of any threatened litigation or proceeding that might result in a claim for such indemnification. 49 CERTAIN TRANSACTIONS PRIVATE PLACEMENTS OF SECURITIES On September 22, 1995, the Company issued an aggregate of 4,415,291 shares of its Common Stock to William Gross, a co-founder and director of the Company, for services provided to the Company and aggregate proceeds of $5,000. On December 9, 1995, the Company repurchased 1,333,334 shares of Common Stock from Mr. Gross for an aggregate price of $1,510. On October 11, 1995 the Company sold an aggregate of 2,822,344 shares of its Common Stock to Charles Conn, Thomas Layton, Jeffrey Brewer and certain other key employees (together with shares of Common Stock issued to William Gross, the "Founders' Stock") for aggregate proceeds of $84,670. Pursuant to the terms of the applicable subscription agreement, Founders' Stock may not be transferred without the written consent of the Board of Directors. To date, 1,245,784 shares of Founders' Stock have been transferred by Mr. Gross and certain key employees with the approval of the Board of Directors. However, Mr. Gross retains voting power over 1,118,875 of shares transferred by him until the closing of this offering. Between May 15, 1996 and July 31, 1996, the Company issued and sold an aggregate of 3,261,024 shares of Series C Preferred Stock (or 2,113,458 shares of Common Stock on an as-converted basis and as adjusted for the Reverse Stock Split) at a per share price of $3.4665. Entities affiliated with Goldman, Sachs & Co., which entities together hold more than 5% of the capital stock of the Company, purchased 2,596,278 of these shares (or 1,682,646 shares of Common Stock on an as-converted basis and as adjusted for the Reverse Stock Split) for an aggregate purchase price of approximately $9.0 million. Mr. Gleberman, a director of the Company, is a Managing Director in the Principal Investment Area of Goldman, Sachs & Co. Between December 13, 1996 and October 22, 1997, the Company issued and sold an aggregate of 4,430,313 shares of Series D Preferred Stock (or 2,865,063 shares of Common Stock on an as-converted basis and as adjusted for the Reverse Stock Split) at a per share price of $6.5251. These sales included the following: 766,272 shares (or 495,548 shares of Common Stock on an as- converted basis and as adjusted for the Reverse Stock Split) to were sold to The Times Mirror Company for an aggregate purchase price of approximately $5.0 million; 475,085 shares (or 307,232 shares of Common Stock on an as-converted basis and as adjusted for the Reverse Stock Split) were sold to entities affiliated with Goldman, Sachs & Co. for an aggregate purchase price of approximately $3.1 million; 459,763 shares (or 297,328 shares of Common Stock on an as-converted basis and as adjusted for the Reverse Stock Split) were sold to Washingtonpost.Newsweek Interactive Company, for an aggregate purchase price of approximately $3.0 million; and 12,674 shares (or 8,196 shares of Common Stock on an as-converted basis and as adjusted for the Reverse Stock Split) were sold to Byters for an aggregate purchase price of approximately $83,000. Mr. Unterman, a director of the Company, is an Executive Vice President and Chief Financial Officer of The Times Mirror Company. Mr. Spoon, a director of the Company, is President of The Washington Post Company. Mr. Breslauer, a director of the Company, is a general partner of Byters. Between November 11, 1997 and November 26, 1997, the Company issued and sold an aggregate of 4,714,286 shares of Series E Preferred Stock (or 3,103,875 shares of Common Stock on an as-converted basis and as adjusted for the Reverse Stock Split) at a per share price of $7.00. USA Networks purchased 2,857,143 of these shares (or 1,881,142 shares of Common Stock on an as- converted basis and as adjusted for the Reverse Stock Split) for an aggregate purchase price of approximately $20.0 million. Mr. Diller, a director of the Company, is Chairman and Chief Executive Officer of USA Networks. In addition, 714,286 shares (or 470,283 shares of Common Stock on an as-converted basis and as adjusted for the Reverse Stock Split) were sold to Global Retail Partners, L.P. and its affiliates for an aggregate purchase price of approximately $5.0 million and 306,509 shares (or 201,805 shares of Common Stock on an as- converted basis and as adjusted for the Reverse Stock Split) were sold to Washingtonpost.Newsweek Interactive Company for an aggregate purchase price of approximately $2.1 million. Mr. Sisteron, a director of the Company, is a Principal of Global Retail Partners, L.P. On May 26, 1998, the Company issued and sold an aggregate of 1,000,000 shares of Series E Preferred Stock (or 658,399 shares of Common Stock on an as-converted basis and as adjusted for the Reverse Stock Split) 50 at a per share price of $7.00. USA Networks purchased 428,571 of these shares (or 282,171 shares of Common Stock on an as-converted basis and as adjusted for the Reverse Stock Split) for an aggregate purchase price of approximately $3.0 million. Until the closing of this offering, the holders of the Series C Preferred Stock have a right to elect directors pursuant to the Company's Restated Certificate of Incorporation and from and after the closing of this offering pursuant to the Voting Agreement. USA Networks and GRP have a right to elect directors pursuant to the Company's Restated Certificate of Incorporation. See "Management--Board Composition." Pursuant to the Stockholders' Agreement, USA Networks has a right to purchase that number of shares of this offering (the "IPO Shares") which will enable USA Networks to own up to 14.9% of the Company (on a fully diluted, as- converted basis); provided that USA Networks may not purchase more than 50% of the IPO Shares. As of June 30, 1998, USA Networks owns 11.1% of the Company (on a fully diluted, as-converted basis). USA Networks has committed to purchase 1,332,093 shares of Common Stock in this offering (plus an additional 89,400 shares if the Underwriters' over-allotment option is exercised in full) pursuant to the Stockholders' Agreement. If the actual price of the IPO Shares is above the range specified in this offering, USA Networks will no longer be obligated to purchase any IPO Shares. In addition, the Stockholders' Agreement provides that the Company may not (i) adopt a rights agreement (or other similar device) with an ownership threshold that would limit USA Networks' ability to own or purchase securities of the Company or (ii) amend its bylaws, certificate of incorporation or fail to take an action under Section 203 of the DGCL which would limit USA Networks' ability to own or purchase securities of the Company. In May 1997, the Company entered into a cross-promotional agreement with Ticketmaster Group, Inc., an affiliate of USA Networks ("Ticketmaster"). Pursuant to the agreement, Ticketmaster agreed to provide banner advertising promoting the Company's owned and operated city sites on the Ticketmaster Web site, to provide access to Ticketmaster ticket and information Web pages and to provide "music-on-hold" and/or direct mail opportunities. CitySearch agreed to provide promotion of the Ticketmaster name and logo in selected advertising and marketing materials, to co-produce with Ticketmaster broadcast advertising, to provide banner advertising promoting Ticketmaster on the CitySearch Web sites and to promote Ticketmaster events and publications. In June 1997, the Company entered into a license and services agreement with the Los Angeles Times, a division of The Times Mirror Company. The agreement provides for the license of the Company's intellectual property and consulting services in exchange for an up-front license fee, ongoing royalties based on the revenues generated by the city guide developed by the parties and fees for consulting services. The agreement contains customary termination provisions for material breach or non-performance. In November 1997, the Company entered into a license and services agreement with Washingtonpost. Newsweek Interactive Company. The agreement provides for the license of the Company's intellectual property and consulting services in exchange for an up-front license fee, ongoing royalties based on the revenues generated by the city guide developed by the parties and fees for consulting services. The agreement contains customary termination provisions for material breach or non-performance. The Company believes that the terms of each of the transactions described above, taken as a whole, were no less favorable than the Company could have obtained from unaffiliated third parties. All future transactions between the Company and its officers, directors and principal stockholders and their affiliates will be approved by a majority of the Board of Directors, including a majority of the independent and disinterested outside directors. The Company has entered into employment agreements with each of Charles Conn and Thomas Layton, the Company's Chief Executive Officer and President, respectively. See "Management--Employment Agreement." 51 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Company's Common Stock on an as-converted basis and as adjusted to reflect the sale of the 4,000,000 shares of Common Stock offered hereby by (i) each person or entity who is known by the Company to own beneficially 5% or more of the Company's outstanding Common Stock; (ii) each director of the Company; (iii) each of the Named Executive Officers; and (iv) all directors and executive officers of the Company as a group.
PERCENTAGE OF SHARES BENEFICIALLY OWNED(2) NAME AND ADDRESS OF NUMBER OF SHARES ------------------------------ BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) BEFORE OFFERING AFTER OFFERING - ------------------- --------------------- --------------- -------------- William Gross(3).......... 2,356,882 14.0 11.3 USA Networks, Inc. ....... 2,163,313 12.9 16.8(4) 152 West 57th Street, 38th Floor New York, NY 10019 Barry Diller(5)........... 2,163,313 12.9 16.8(4) Entities affiliated with 11.9 9.6 The Goldman Sachs Group, L.P.(6).................. 1,989,878 85 Broad Street New York, NY 10004 Joseph Gleberman(7)....... 1,989,878 11.9 9.6 Charles Conn(8)........... 1,084,645 6.5 5.2 Thomas Layton(9).......... 639,006 3.8 3.1 Thomas Unterman(10)....... 500,250 3.0 2.4 Alan Spoon(11)............ 499,133 3.0 2.4 Yves Sisteron(12)......... 470,283 2.8 2.3 Robert Kavner(13)......... 149,549 * * Gerald Breslauer(14)...... 61,067 * * Executive officers and directors as a group (12 persons)(15)......... 10,454,442 61.8 50.0
- -------- * Less than 1% of the Company's outstanding Common Stock. (1) Unless otherwise indicated, the address of each of the named individuals is: c/o CitySearch, Inc., 790 E. Colorado Boulevard, Suite 200, Pasadena, CA 91101. (2) Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect to securities. Except as indicated by footnote, and subject to community property laws where applicable and the terms of the Voting Agreement relating to the election of the Series C Director, the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. Percentage of beneficial ownership is based on 16,788,507 shares of Common Stock outstanding as of June 30, 1998, and 4,000,000 shares of Common Stock after completion of this offering. Amounts shown in the above table and the following notes include shares issuable upon stock options to purchase shares of Common Stock which are exercisable within 60 days of June 30, 1998. (3) Excludes 1,118,875 shares which Mr. Gross transferred previously but as to which he retains voting power until the closing of this offering. Includes 393,800 shares held by bill gross' idealab!, as to which Mr. Gross disclaims beneficial ownership. (4) Percentage calculation includes the 1,332,093 shares of Common Stock to be purchased by USA Networks in this offering. See "Certain Transactions." (5) Includes 2,163,313 shares held by USA Networks, as to which Mr. Diller disclaims beneficial ownership. (6) Represents 1,989,878 shares owned by certain investment partnerships, of which affiliates of The Goldman Sachs Group, L.P. ("GS Group") are the general partner, managing general partner or investment manager. Includes 1,248,511 shares held of record by GS Capital Partners II, L.P., 496,332 shares held of record by GS Capital Partners II Offshore, L.P., 46,050 shares held of record by Goldman, Sachs & Co. 52 Verwaltungs GmbH, 118,573 shares held of record by Stone Street Fund 1996, L.P. and 80,412 shares held of record by Bridge Street Fund 1996. L.P. GS Group disclaims beneficial ownership of the shares owned by such investment partnerships to the extent attributable to partnership interests therein held by persons other than GS Group and its affiliates. Each of such investment partnerships shares voting and investment power with certain of its respective affiliates. (7) Includes 1,989,878 shares held by entities affiliated with the GS Group. Mr. Gleberman, a director of the Company, is a managing director of Goldman, Sachs & Co., the general partner of which is GS Group. Mr. Gleberman disclaims beneficial ownership of the shares owned by the GS Group, except to the extent of his pecuniary interest therein. See footnote (6). (8) Includes 27,430 shares issuable upon exercise of stock options to purchase shares of Common Stock which are exercisable within 60 days of June 30, 1998. (9) Includes 19,791 shares issuable upon exercise of stock options to purchase shares of Common Stock which are exercisable within 60 days of June 30, 1998. (10) Includes 495,548 shares held by The Times Mirror Company, as to which Mr. Unterman disclaims beneficial ownership, and 4,702 shares held by The Thomas and Janet Unterman Living Trust dated 12/30/94. (11) Includes 499,133 shares held by Washingtonpost.Newsweek Interactive Company, as to which Mr. Spoon disclaims beneficial ownership. (12) Includes 470,283 shares held by Global Retail Partners, L.P. and its affiliates, as to which Mr. Sisteron disclaims beneficial ownership. (13) Includes 72,693 shares issuable upon exercise of stock options to purchase shares of Common Stock which are exercisable by Mr. Kavner within 60 days of June 30, 1998. (14) Includes 54,400 shares held by Byters and 6,667 shares issuable upon exercise of stock options to purchase shares of Common Stock which are exercisable within 60 days of June 30, 1998. (15) See footnotes (2) through (14). Includes 141,227 shares issuable upon exercise of stock options to purchase shares of Common Stock which are exercisable within 60 days of June 30, 1998. 53 DESCRIPTION OF CAPITAL STOCK As of June 30, 1998, assuming the conversion of all outstanding Preferred Stock into Common Stock, there were 16,788,507 shares of Common Stock held of record by 265 stockholders and options to purchase 2,608,514 shares of Common Stock outstanding. COMMON STOCK Upon the closing of this offering, the Company will be authorized to issue 75,000,000 shares of Common Stock. Subject to preferences that may apply to shares of Preferred Stock outstanding from time to time, the holders of outstanding shares of Common Stock are entitled to receive dividends out of assets legally available therefor at such times and in such amounts as the Board of Directors may from time to time determine. Each stockholder is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in the Company's Restated Certificate of Incorporation; therefore, the holders of a majority of the shares voted can elect all of the directors then standing for election. The Common Stock is not entitled to preemptive rights and is not subject to conversion or redemption. Upon a liquidation, dissolution or winding-up of the Company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the Common Stock and any participating Preferred Stock outstanding at that time after payment of liquidation preferences, if any, on any outstanding Preferred Stock and payment of other claims of creditors. Each outstanding share of Common Stock is, and all shares of Common Stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. PREFERRED STOCK Upon the closing of this offering, the Company will be 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. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company and may adversely affect the voting and other rights of the holders of Common Stock, which could have an adverse impact on the market price of the Common Stock. The Company has no current plan to issue any shares of Preferred Stock. ANTITAKEOVER EFFECTS OF PROVISIONS OF CERTIFICATE OF INCORPORATION AND BYLAWS The Company's Restated Certificate of Incorporation provides that, effective upon the closing of this offering, all stockholder actions must be effected at a duly called meeting and not by consent in writing. Provisions of the Restated Certificate of Incorporation and Bylaws provide that the stockholders may amend certain provisions of the Restated Certificate of Incorporation and the Bylaws only with the affirmative vote of holders of 66 2/3% of the Company's capital stock. Further, the Bylaws (i) provide that only the Board of Directors, the Chairman of the Board of Directors or the President may call special meetings of the stockholders and (ii) establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of stockholders of the Company, including proposed nominations of persons for election to the Board of Directors. In addition, the Restated Certificate of Incorporation provides that the Board of Directors will be divided into three classes to serve staggered three-year terms. These provisions of the Restated Certificate of Incorporation and Bylaws may have the effect of delaying, deferring or preventing a change of control of the Company. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and in the policies formulated by the Board of Directors and to discourage certain types of transactions that may involve an actual or threatened change of control of the Company. These provisions are designed to reduce the vulnerability of the Company to an unsolicited acquisition proposal. The 54 provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for the Company's shares and, as a consequence, they also may inhibit fluctuations in the market price of the Company's shares that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in the management of the Company. The Stockholders' Agreement provides that the Company may not (i) adopt a rights agreement (or other similar device) with an ownership threshold that would limit USA Networks' ability to own or purchase securities of the Company or (ii) amend its bylaws, certificate of incorporation or fail to take an action under Section 203 of the DGCL, in each case in a manner which would limit USA Networks' ability to own or purchase securities of the Company. See "Risk Factors--Anti-takeover Effects of Certain Charter and Contractual Provisions." EFFECT OF DELAWARE ANTITAKEOVER STATUTE The Company is subject to Section 203 of the DGCL (the "Antitakeover Law"), which regulates corporate acquisitions. The Antitakeover Law prevents certain Delaware corporations, including those whose securities are listed for trading on the Nasdaq National Market, from engaging under certain circumstances in a "business combination" with any "interested stockholder" for three years following the date that such stockholder became an interested stockholder. For purposes of the Antitakeover Law, a "business combination" includes, among other things, a merger or consolidation involving the Company and the interested stockholder and the sale of more than ten percent of the Company's assets. In general, the Antitakeover Law defines an "interested stockholder" as any entity or person beneficially owning 15% or more of the outstanding voting stock of the Company and any entity or person affiliated with or controlling or controlled by such entity or person. A Delaware corporation may "opt out" of the Antitakeover Law with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws resulting from amendments approved by the holders of at least a majority of the Company's outstanding voting shares. The Company has not "opted out" of the provisions of the Antitakeover Law. REGISTRATION RIGHTS After this offering, the holders of 14,561,751 shares of Common Stock will be entitled to certain rights with respect to the registration of such shares under the Securities Act. Under the terms of the agreement between the Company and the holders of such registrable securities, if the Company proposes to register any of its securities under the Securities Act, either for its own account or for the account of other security holders exercising registration rights, such holders are entitled to notice of such registration and are entitled to include shares of such Common Stock therein. Additionally, of such holders, holders of 8,740,795 shares of Common Stock are also entitled to certain demand registration rights pursuant to which they may require the Company to file a registration statement under the Securities Act at its expense with respect to their shares of Common Stock, and the Company is required to use its best efforts to effect such registration. All of these registration rights are subject to certain conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in such registration and the right of the Company not to effect a requested registration within six months following an offering of the Company's securities, including the offering made hereby. TRANSFER AGENT The Transfer Agent and Registrar for the Common Stock is ChaseMellon Shareholder Services, L.L.C. 55 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no public market for the Common Stock of the Company. Future sales of substantial amounts of Common Stock in the public market could materially adversely affect prevailing market prices. Furthermore, since only a limited number of shares will be available for sale shortly after the offering because of certain contractual and legal restrictions on resale described below, sales of substantial amounts of Common Stock of the Company in the public market after restrictions lapse could materially adversely affect the prevailing market price and the ability of the Company to raise equity capital in the future. Upon completion of the offering, the Company will have 20,788,507 shares of Common Stock outstanding, assuming no exercise of currently outstanding options. Of these shares, the 4,000,000 shares sold in this offering (plus any additional shares sold upon exercise of the Underwriters' over-allotment option) will be freely transferable without restriction under the Securities Act, unless they are held by "affiliates" of the Company as that term is used under the Securities Act and the regulations promulgated thereunder ("Affiliates"). The remaining 16,788,507 shares of Common Stock held by existing stockholders are "restricted securities" as that term is defined in Rule 144 of the Securities Act (the "Restricted Shares"). Restricted Shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act. As a result of contractual restrictions and the provisions of Rules 144 and 701, additional shares will be available for sale in the public market as follows: (i) approximately 498,574 Restricted Shares will be eligible for immediate sale on the effective date of this offering; (ii) approximately 4,334 Restricted Shares will be eligible for sale 90 days after the effective date of this offering; (iii) approximately 4,949,461 Restricted Shares will be eligible for sale without restriction and 10,601,970 Restricted Shares will be eligible for sale subject to volume limitations, in each case 180 days after the effective date of this offering and (iv) the remainder of the Restricted Shares will be eligible for sale from time to time thereafter upon expiration of their respective holding periods under Rule 144. In addition, 1,224,944 shares will be issuable upon exercise of vested stock options 180 days after the effective date of this offering upon the expiration of contractual pre- existing lock-up agreements. NationsBanc Montgomery Securities LLC, on behalf of the Underwriters, may, in its sole discretion and at any time without notice, release all or any portion of securities subject to the lock-up agreement with the Underwriters. Upon the effective date of this offering, the holders of 8,740,795 shares of Common Stock have the right in certain circumstances to require the Company to register their shares under the Securities Act for resale to the public. If such holders, by exercising their demand registration rights, cause a large number of shares to be registered and sold in the public market, such sales could have a material adverse effect on the market price for the Company's Common Stock. If the Company were required to include in a Company-initiated registration shares held by such holders and holders of an additional 5,820,956 shares of Common Stock pursuant to the exercise of their piggyback registration rights, such sales may have a material adverse affect on the Company's ability to raise new capital. See "Description of Capital Stock-- Registration Rights." In addition, the Company expects to file a registration statement on Form S- 8 registering a total of approximately 3,232,748 shares of Common Stock subject to outstanding stock options or reserved for issuance under the Company's 1996 Stock Option Plan, 1998 Director Option Plan and 1998 Employee Stock Purchase Plan. The Form S-8 registration statement is expected to be filed and to become effective immediately following the date of this offering. Shares registered under such registration statement will be available for sale in the open market, subject to Rule 144 value limitations applicable to Affiliates, unless such shares are subject to vesting restrictions with the Company or the lock-up agreements described above. In general, under Rule 144 as currently in effect, beginning 90 days after the effective date of the offering, an Affiliate of the Company or person (or persons whose shares are aggregated) who has beneficially owned restricted shares (as defined under Rule 144) for at least one year is entitled to sell within any three-month period a number of shares that does not exceed the greater of (i) one percent of the then outstanding shares of the Company's Common Stock or (ii) the average weekly trading volume of the Company's Common Stock in the Nasdaq National Market during the four calendar weeks immediately preceding the date on which the notice of 56 the sale is filed with the Commission. Sales pursuant to Rule 144 are subject to certain requirements relating to the manner of sale, notice, and availability of current public information about the Company. A person (or persons whose shares are aggregated) who is not an Affiliate of the Company at any time during the 90 days immediately preceding the sale, and who has beneficially owned restricted shares for at least two years is entitled to sell such shares under Rule 144(k) without regard to the limitations described above. An employee, officer or director of the Company or a consultant to the Company who purchased or was awarded shares or options to purchase shares pursuant to a written compensatory plan or contract is entitled to rely on the resale provisions of Rule 701 of the Securities Act, which permits Affiliates and non-Affiliates to sell their Rule 701 shares without having to comply with Rule 144's holding period restrictions, in each case commencing 90 days after the date of this offering. In addition, non-Affiliates may sell Rule 701 shares without complying with the public information, volume and notice provisions of Rule 144. 57 UNDERWRITING The Underwriters named below (the "Underwriters"), represented by NationsBanc Montgomery Securities LLC, BancAmerica Robertson Stephens and Donaldson, Lufkin & Jenrette Securities Corporation (the "Representatives"), have severally agreed, subject to the terms and conditions set forth in the Underwriting Agreement, to purchase from the Company the number of shares of Common Stock indicated below opposite their respective names at the initial public offering price less the underwriting discount set forth on the cover page of this Prospectus. The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters are committed to purchase all of the shares if they purchase any.
NUMBER OF UNDERWRITERS SHARES ------------ --------- NationsBanc Montgomery Securities LLC.............................. BancAmerica Robertson Stephens..................................... Donaldson, Lufkin & Jenrette Securities Corporation................ --------- Total............................................................ 4,000,000 =========
The Representatives have advised the Company that the Underwriters initially propose to offer the shares of Common Stock to the public on the terms set forth on the cover page of this Prospectus. The Underwriters may allow to selected dealers a concession of not more than $ per share, and the Underwriters may allow, and such dealers may reallow, a concession of not more than $ per share to certain other dealers. After the offering, the offering price and concessions and other selling terms may be changed by the Representatives. No change in such terms shall change the amount of proceeds to be received by the Company as set forth on the cover page of this Prospectus. The Common Stock is offered subject to receipt and acceptance by the Underwriters and to certain other conditions, including the right to reject orders in whole or in part. The Company has granted an option to the Underwriters, exercisable during the 30-day period after the date of this Prospectus, to purchase up to a maximum of additional shares of Common Stock to cover over-allotments, if any, at the same price per share as the initial shares to be purchased by the Underwriters. To the extent the Underwriters exercise this option, each of the Underwriters will be committed to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may purchase such shares only to cover over-allotments made in connection with this offering. The Underwriting Agreement provides that the Company will indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or will contribute to payments the Underwriters may be required to make in respect thereof. All of the Company's officers and directors and certain stockholders have agreed that, subject to certain exceptions, for a period of 180 days after the date of this Prospectus, they will not, without the prior written consent of NationsBanc Montgomery Securities LLC, directly or indirectly, sell, offer to sell or otherwise dispose of any such shares of Common Stock or any right to acquire such shares. In addition, the Company has agreed that, for a period of 180 days after the date of this Prospectus, it will not, without the prior written consent of NationsBanc Montgomery Securities LLC, issue, offer, sell, grant options to purchase or otherwise dispose of any of the Company's equity securities or any other securities convertible into or exchangeable for the Common Stock or other equity security, other than the grant of options to purchase Common Stock, or the issuance of 58 shares of Common Stock under the Company's stock option and stock purchase plans, the issuance of shares of Common Stock in connection with certain acquisitions and the issuance of shares of Common Stock pursuant to the exercise of outstanding options. Prior to this offering, there has been no public market for the Common Stock. Consequently, the initial public offering price will be determined by negotiations between the Company and the Representatives. Among the factors to be considered in such negotiations will be the history of, and the prospects for, the Company and the industry in which it competes, an assessment of the Company's management, the prospects for future earnings of the Company, the present state of the Company's development, the general condition of the securities markets at the time of the offering, the market prices of and demand for publicly traded common stock of comparable companies in recent periods and other factors deemed relevant. The Representatives, on behalf of the Underwriters, may engage in over- allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities and Exchange Act of 1934. Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Syndicate covering transactions involve purchases of shares of Common Stock in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the Representatives to reclaim a selling concession from a syndicate member when the shares of Common Stock originally sold by such syndicate member are purchased in a syndicate covering transaction to cover syndicate short positions. Such stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the Common Stock to be higher than it would otherwise be in the absence of such transactions. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. The Representatives have informed the Company that the Underwriters do not expect to make sales in excess of five percent of the number of shares of Common Stock offered hereby to accounts over which they exercise discretionary authority. In consideration of the services rendered by NationsBanc Montgomery Securities LLC as placement agent for the Company's Series E Preferred Stock financing, the Company paid to NationsBanc Montgomery Securities LLC a fee equal to $1,546,182 in November 1997. As additional consideration for such services, the Company granted to NationsBanc Montgomery Securities LLC a warrant to purchase 94,286 shares of Series E Preferred Stock (or 62,077 shares of Common Stock on an as-converted basis and as adjusted to reflect the Reverse Stock Split). The warrant is exercisable at any time at an exercise price of $8.75 per share of Series E Preferred Stock (or $13.29 per share of Common Stock on an as-converted basis and as adjusted to reflect the Reverse Stock Split). Any unexercised portion of the warrant is automatically convertible into Common Stock immediately prior to the closing of this offering for that number of shares of Series E Preferred Stock equal to (x) the value of the unexercised portion as of the date of the closing of this offering, which value shall equal the difference between the aggregate exercise price and the aggregate value of the shares of Series E Preferred Stock issuable upon exercise of the unexercised portion of the warrant, at a per share price equal to the initial offering price divided by (y) the initial offering price. Bayview Investors, Ltd., an entity affiliated with BancAmerica Robertson Stephens, holds 25,941 shares of Series D Preferred Stock (or 16,776 shares of Common Stock on an as-converted basis and as adjusted to reflect the Reverse Stock Split). Global Retail Partners, L.P. and its affiliates, each an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation, holds 714,286 shares of Series E Preferred Stock (or 470,283 shares of Common Stock on an as-converted basis and as adjusted to reflect the Reverse Stock Split). Under the Company's Restated Certificate of Incorporation, GRP is entitled to elect one member of the Board of Directors until the later of (i) November 20, 1999, (ii) the one- year anniversary of the closing of this offering or (iii) the date GRP owns less than 100% of the capital stock of the Company that it owned on November 20, 1997. Mr. Sisteron, a director of the Company, is a Principal of Global Retail Partners, L.P. 59 CITYSEARCH, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONTENTS Report of Independent Auditors............................................ F-2 Consolidated Balance Sheets at December 31, 1996 and 1997 and at June 30, 1998 (unaudited)......................................................... F-3 Consolidated Statements of Operations for the period from September 20, 1995 (date of formation) to December 31, 1995, the years ended December 31, 1996 and 1997 and the six months ended June 30, 1997 and 1998 (unaudited) ............................................................. F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the period from September 20, 1995 (date of formation) to December 31, 1995, the years ended December 31, 1996 and 1997 and the six months ended June 30, 1998 (unaudited)......................................................... F-5 Consolidated Statements of Cash Flows for the period from September 20, 1995 (date of formation) to December 31, 1995, the years ended December 31, 1996 and 1997 and the six months ended June 30, 1997 and 1998 (unaudited).............................................................. F-6 Notes to Consolidated Financial Statements................................ F-7
F-1 REPORT OF INDEPENDENT AUDITORS BOARD OF DIRECTORS AND STOCKHOLDERS CITYSEARCH, INC. We have audited the accompanying consolidated balance sheets of CitySearch, Inc. as of December 31, 1996 and 1997 and the related statements of operations, stockholders' equity, and cash flows for the period from September 20, 1995 (date of formation) to December 31, 1995 and for each of the two years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of CitySearch, Inc. at December 31, 1996 and 1997, and the consolidated results of its operations and its cash flows for the period from September 20, 1995 (date of formation) to December 31, 1995 and for each of the two years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Ernst & Young LLP Los Angeles, California March 11, 1998, except for Note 10, as to which the date is July 14, 1998 The foregoing report is in the form that will be signed upon the completion of the restatement of capital accounts described in Note 10 to the financial statements. /s/ Ernst&Young LLP Los Angeles, California July 14, 1998 F-2 CITYSEARCH, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
PRO FORMA STOCKHOLDERS' DECEMBER 31, EQUITY AT ------------------ JUNE 30, JUNE 30, 1996 1997 1998 1998 -------- -------- -------- ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents......... $ 7,527 $ 25,227 $ 15,512 Accounts receivable, net of allowance for doubtful accounts of $25 in 1997 and $61 in 1998... 34 100 407 Due from licensees................ -- 193 735 Prepaid expenses and other current assets........................... 249 119 149 -------- -------- -------- Total current assets............. 7,810 25,639 16,803 Computers, software, equipment and leasehold improvements: Computers and software............ 2,074 7,716 8,879 Furniture and equipment........... 391 194 194 Leasehold improvements............ 194 275 275 Enterprise system development in process.......................... 1,315 -- -- -------- -------- -------- 3,974 8,185 9,348 Accumulated depreciation.......... (329) (2,169) (3,661) -------- -------- -------- 3,645 6,016 5,687 Intangible asset, net of accumulated amortization of $422 in 1996........................... 1,915 -- -- -------- -------- -------- Total assets..................... $ 13,370 $ 31,655 $ 22,490 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.................. $ 1,975 $ 2,197 $ 2,480 Accrued payroll and related liabilities...................... 174 664 1,186 Other accrued liabilities......... 991 760 453 Deferred subscription and license revenue.......................... 327 1,836 980 Current portion of obligations under capital leases............. 86 807 973 -------- -------- -------- Total current liabilities........ 3,553 6,264 6,072 Deferred rent...................... 33 189 202 Deferred purchase price of subsidiary........................ 1,336 891 446 Obligations under capital leases, net of current portion............ 82 1,340 1,671 Commitments Redeemable Convertible Preferred Stock (Series C, D, and E): Authorized shares -- 12,500 at December 31, 1997 and June 30, 1998 (pro forma: none) Issued and outstanding -- 4,706 at December 31, 1996 and 12,406 at December 31, 1997 and 13,406 at June 30, 1998 (pro forma: none) Liquidation preference -- $20,731 at December 31, 1996 and $73,212 at December 31, 1997 and $80,212 at June 30, 1998 (pro forma: none)............................ 20,309 70,882 77,840 $ -- Stockholders' equity (deficit): Convertible Preferred Stock $0.01 par value, (Series A and B): Authorized shares -- 2,241 at December 31, 1997 and June 30, 1998 Issued and outstanding -- 1,948 at December 31, 1996 and 2,016 at December 31, 1997 and 2,080 at June 30, 1998 (pro forma: none) Liquidation preference -- $2,165 at December 31, 1996 and $2,610 at December 31, 1997 and $3,056 at June 30, 1998 (pro forma: none)........................... 2,165 2,610 3,056 -- Common Stock $0.01 par value: Authorized shares -- 75,000 at December 31, 1997 and June 30, 1998 Issued and outstanding shares -- 5,876 at December 31, 1996 and 6,360 at December 31, 1997 and 6,660 at June 30, 1998 (pro forma: 16,789).................. 97 455 1,635 82,531 Deferred compensation............. -- (245) (1,219) (1,219) Accumulated deficit............... (14,205) (50,731) (67,213) (67,213) -------- -------- -------- ------- Total stockholders' equity (deficit)....................... (11,943) (47,911) (63,741) $14,099 -------- -------- -------- ======= Total liabilities and stockholders' equity (deficit).................... $ 13,370 $ 31,655 $ 22,490 ======== ======== ========
See accompanying notes to consolidated financial statements. F-3 CITYSEARCH, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM SEPTEMBER 20, SIX MONTHS 1995 (DATE OF YEAR ENDED ENDED FORMATION) TO DECEMBER 31, JUNE 30, DECEMBER 31, ------------------ ------------------ 1995 1996 1997 1997 1998 ------------- -------- -------- -------- -------- (UNAUDITED) Revenues: Subscription and services .............. $ -- $ 203 $ 4,913 $ 1,508 $ 5,577 Licensing and royalty .. -- -- 1,271 -- 1,221 ------ -------- -------- -------- -------- -- 203 6,184 1,508 6,798 Cost and expenses: Cost of revenues........ -- 2,908 10,846 4,457 7,446 Sales and marketing .... 57 6,369 19,014 9,210 9,065 Research and development ....................... 152 2,563 7,182 3,220 3,395 General and administrative ........ 104 2,475 5,883 2,743 3,634 ------ -------- -------- -------- -------- 313 14,315 42,925 19,630 23,540 ------ -------- -------- -------- -------- Loss from operations..... (313) (14,112) (36,741) (18,122) (16,742) Interest income.......... 5 229 494 161 371 Interest expense......... -- (12) (271) (57) (111) ------ -------- -------- -------- -------- 5 217 223 104 260 ------ -------- -------- -------- -------- Loss before provision for income taxes............ (308) (13,895) (36,518) (18,018) (16,482) Provision for income taxes................... -- (2) (8) -- -- ------ -------- -------- -------- -------- Net loss................. $ (308) $(13,897) $(36,526) $(18,018) $(16,482) ====== ======== ======== ======== ======== Historical basic and diluted net loss per share................... $(0.06) $ (2.37) $ (5.80) $ (2.87) $ (2.50) ====== ======== ======== ======== ======== Pro forma basic and diluted net loss per share................... $(0.05) $ (1.65) $ (2.94) $ (1.56) $ (1.02) ====== ======== ======== ======== ======== Shares used to compute historical basic and diluted net loss per share................... 5,263 5,857 6,301 6,282 6,582 ====== ======== ======== ======== ======== Shares used to compute pro forma basic and diluted net loss per share................... 5,640 8,431 12,430 11,515 16,139 ====== ======== ======== ======== ========
See accompanying notes to consolidated financial statements. F-4 CITYSEARCH, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
CONVERTIBLE PREFERRED STOCK (SERIES A AND B) COMMON STOCK ----------------- -------------- DEFERRED ACCUMULATED SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT TOTAL -------- -------- ------ ------ ------------ ----------- -------- Initial issuance of Common Stock, September 20, 1995............... -- $ -- 4,415 $ 5 $ -- $ -- $ 5 Repurchase of Common Stock.................. -- -- (1,333) (2) -- -- (2) Issuance of Common Stock.................. -- -- 2,822 85 -- -- 85 Issuance of Convertible Preferred Stock........ 1,791 1,620 -- -- -- -- 1,620 Net loss................ -- -- -- -- -- (308) (308) ------- -------- ------ ------ ------- -------- -------- Balance at December 31, 1995............. 1,791 1,620 5,904 88 -- (308) 1,400 Repurchase of Common Stock.................. -- -- (77) (2) -- -- (2) Exercise of stock options................ -- -- 49 11 -- -- 11 Issuance of Series B Convertible Preferred Stock.................. 157 545 -- -- -- -- 545 Net loss................ -- -- -- -- -- (13,897) (13,897) ------- -------- ------ ------ ------- -------- -------- Balance at December 31, 1996............. 1,948 2,165 5,876 97 -- (14,205) (11,943) Exercise of stock options................ -- -- 484 103 -- -- 103 Issuance of Series B Convertible Preferred Stock.................. 68 445 -- -- -- -- 445 Deferred compensation... -- -- -- 255 (255) -- -- Amortization of deferred compensation........... -- -- -- -- 10 -- 10 Net loss................ -- -- -- -- -- (36,526) (36,526) ------- -------- ------ ------ ------- -------- -------- Balance at December 31, 1997............. 2,016 2,610 6,360 455 (245) (50,731) (47,911) Exercise of stock options (unaudited).... -- -- 300 122 -- -- 122 Issuance of Series B Convertible Preferred Stock (unaudited)...... 64 446 -- -- -- -- 446 Deferred compensation (unaudited)............ -- -- -- 1,058 (1,058) -- -- Amortization of deferred compensation (unaudited)............ -- -- -- -- 84 -- 84 Net loss (unaudited).... -- -- -- -- -- (16,482) (16,482) ------- -------- ------ ------ ------- -------- -------- Balance at June 30, 1998 (unaudited)..... 2,080 $ 3,056 6,660 $1,635 $(1,219) $(67,213) $(63,741) ======= ======== ====== ====== ======= ======== ========
See accompanying notes to consolidated financial statements. F-5 CITYSEARCH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD FROM SEPTEMBER 20, SIX MONTHS 1995 (DATE OF YEAR ENDED ENDED FORMATION) TO DECEMBER 31, JUNE 30, DECEMBER 31, ------------------ ------------------ 1995 1996 1997 1997 1998 ------------- -------- -------- -------- -------- (UNAUDITED) OPERATING ACTIVITIES Net loss................. $ (308) $(13,897) $(36,526) $(18,018) $(16,482) Adjustments to reconcile net loss to net cash used in operating activities: Equity interest in loss from partnership....... -- -- 259 20 -- Write-down of investment in partnership......... -- -- 321 321 -- Depreciation............ 5 325 1,841 654 1,492 Amortization............ -- 422 1,915 957 -- Change in operating assets and liabilities, net of assets acquired and liabilities assumed: Accounts receivable..... -- (34) (67) (49) (306) Due from licensees...... -- -- (193) (466) (542) Prepaid expenses and other current assets... -- (249) 129 71 (31) Accounts payable........ 90 2,537 317 (643) 284 Accrued payroll and related liabilities.... -- -- 489 575 523 Other accrued liabilities............ -- -- (221) (325) (305) Deferred subscription and license revenue.... -- 327 1,510 1,069 (856) Deferred rent........... -- 33 157 48 12 Deferred compensation... -- 84 ------ -------- -------- -------- -------- Net cash used in operating activities.. (213) (10,536) (30,069) (15,786) (16,127) INVESTING ACTIVITIES Purchases of software, equipment and leasehold improvements............ (82) (3,547) (1,391) (774) (54) Investment in partnership............. -- -- (580) (324) -- ------ -------- -------- -------- -------- Net cash used in investing activities.... (82) (3,547) (1,971) (1,098) (54) FINANCING ACTIVITIES Payments on capital leases.................. -- (121) (840) (247) (613) Exercise of stock options................. -- 11 103 60 121 Issuance of Common Stock. 90 -- -- -- -- Repurchases of Common Stock................... (2) (2) -- -- -- Issuance of Preferred Stock, net.............. 1,620 20,309 50,477 15,881 6,958 ------ -------- -------- -------- -------- Net cash provided by financing activities.... 1,708 20,197 49,740 15,694 6,466 ------ -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents............. 1,413 6,114 17,700 (1,190) (9,715) Cash and cash equivalents at beginning of year.... -- 1,413 7,527 7,527 25,227 ------ -------- -------- -------- -------- Cash and cash equivalents at end of year.......... $1,413 $ 7,527 $ 25,227 $ 6,337 $ 15,512 ====== ======== ======== ======== ======== Supplemental disclosure of cash flow information: Cash paid for: Interest................ $ -- $ 12 $ 271 $ 57 $ 111 Income taxes............ $ 1 $ 2 $ 8 $ -- $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES During 1996 and 1997, the Company purchased computers and office equipment under financing leases totaling $288,000 and $2,820,000, respectively. On June 19, 1996, the Company acquired its Metrobeat, Inc. in exchange for an initial payment of Series B Convertible Preferred Stock valued at $544,497. During the year ended December 31, 1997 and the six months ended June 30, 1998, the Company made its second and third annual installment of Series B Convertible Preferred Stock valued at $445,495 and $445,494, respectively, pursuant to the acquisition. The remaining purchase price of $446,000 is payable in two annual installments, principally of Series B Convertible Preferred Stock. During 1997, the Company issued 14,670 shares of Series D Preferred Stock valued at $95,725 as payment for accrued advertising and recruiting fees. During the six months ended June 30, 1997 and 1998, the Company purchased computers and office equipment under financing leases totaling $1,835,000 and $1,109,000, respectively. See accompanying notes to consolidated financial statements. F-6 CITYSEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY AND BASIS OF PRESENTATION CitySearch, Inc. (the "Company"), a Delaware corporation, was organized on September 20, 1995. The Company and its wholly owned subsidiaries Metrobeat, Inc. ("Metrobeat") and CitySearch Ontario, Inc. ("CitySearch Ontario"), produce and deliver comprehensive local city guides on the World Wide Web (the "Web"), providing up-to-date information regarding arts and entertainment events, community activities, recreation, business, shopping, professional services and news/sports/weather to consumers in metropolitan areas. Each local city guide consists primarily of original content developed and designed specifically for the Web by the Company and its media partners. The Company 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. Customers include restaurants, taverns, movie theaters, museums and retail stores. The Company currently owns and operates sites in Austin, TX, Nashville, TN, New York, NY, Portland, OR, Raleigh-Durham-Chapel Hill, NC, Salt Lake City, UT, Los Angeles, CA, and San Francisco, CA. Through partnership and licensing agreements, the Company has an internet presence in Washington D.C., Melbourne and Sydney, Australia, and Toronto, Canada. The Company has experienced operating losses and negative cash flows from operations since its formation on September 20, 1995. Since its formation, the Company has raised significant capital through the sale of Preferred Stock to outside investors and expects to continue to raise capital in 1998. The Company has also successfully licensed its product domestically and internationally generating additional revenue streams. Management anticipates that its investment in new markets and technology will result in operating losses in the near term but believes that anticipated revenues, existing cash, cash equivalents, working capital and new capital contributions will be sufficient to fund operations over the next year. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Metrobeat and CitySearch Ontario. All significant intercompany amounts have been eliminated. INTERIM FINANCIAL INFORMATION The accompanying balance sheet as of June 30, 1998 and the statements of operations and cash flows for the six months ended June 30, 1997, and 1998 and the statement of changes in shareholders equity (deficit) for the six months ended June 30, 1998 are unaudited. In the opinion of management, the statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of interim periods. The data disclosed in these notes to the financial statements for these periods is also unaudited. The results of operations and cash flows for the interim period are not necessarily indicative of the results to be expected for any other interim future period. 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 F-7 CITYSEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 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. REVENUE RECOGNITION The Company generates revenue from the sale of subscriptions for business Web sites and advertising on its owned and operated city guides on the internet, the sale of licenses for use of the Company's business and technology systems to its licensees establishing the CitySearch service in certain markets, the receipt of royalties under its license agreements in exchange for customer support and certain upgrade rights, and the performance of consultation and design services. The Company recognizes subscription revenues over the period the services are provided. Licensing revenue, under agreements entered into prior to December 31, 1997, for partner-led markets is recognized upon the completion of the delivery and installation of the business and technology systems and training of partner personnel in each partner-led-market. Royalty revenues are recognized when earned. Revenue from consultation and design services is recognized as the services are provided. Advertising revenues, which have not been significant, are recognized as earned and are included in subscription and service revenues. Effective January 1, 1998, the Company adopted Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition," which impacts the manner companies recognize revenue on sales and licensing of software. The Company, during 1997, accounted for licensing of its software under the provisions of SOP 91- 1. Under the provision of SOP 97-2 revenues from the sale of licenses for use of the Company's business and technology systems to its partner-led markets generally will be 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 nine years. Licensing and royalty revenues, on a pro forma basis, for the year ended December 31, 1997, and the six months ended June 30, 1997 and 1998 would have been $253,000, $73,000 and $304,000, respectively, had SOP 97-2 been effective January 1, 1997. SOP 97-2 is not expected to have a material effect on revenues from royalties, services, and subscriptions. Deferred revenues arise upon the prepayment of subscription services and license agreements. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of trade accounts receivable and cash deposits at financial institutions. Concentration of credit risk with respect to trade receivables is limited due to the large number of customers and their geographic dispersion. The Company requires no collateral from its customers. The Company places its cash deposits with high-credit quality financial institutions. At times, balances in the Company's cash accounts may exceed the Federal Deposit Insurance Corporation (FDIC) limit. 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. Assets F-8 CITYSEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 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 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. ADVERTISING COSTS Advertising costs are expensed as incurred. Advertising costs for the years ended December 31, 1996 and 1997, amounted to $1,305,859 and $2,464,641, respectively. There was no advertising expense for the period from September 20, 1995 (date of formation) to December 31, 1995. During 1996 and 1997 the Company entered into several barter arrangements whereby the Company has assisted in the design of a Web site in exchange for broadcast advertising. The Company valued these barter transactions at $60,000 and $1,158,000 for the years ended December 31, 1996 and 1997, respectively, based on the estimated cost of the specific services provided by the Company. Such amounts are included in subscription and services revenue as well as recognized in sales and marketing expense in the accompanying consolidated statements of operations. Reciprocal noncash advertising on the Internet is not valued in the consolidated financial statements and no barter revenue is recorded for any such agreements. PRO FORMA AND HISTORICAL NET LOSS PER SHARE Pro forma net loss per share is computed using the weighted average number of shares of Common Stock outstanding. Common equivalent shares from convertible Preferred Stock (using the if converted method) have been included in the computation when dilutive, except that the Convertible Preferred Stock which will convert into Common Stock in connection with the Company's initial public offering is included as if converted at the original date of issuance, for both basic and diluted net loss per share, even though inclusion is antidilutive, based on the conversion price disclosed in Note 6. Historical net loss per share is computed as described above except that it excludes the Convertible Preferred Stock because it is antidilutive for periods which incurred a net loss. INTANGIBLE ASSET The intangible asset is stated at cost and consists of goodwill resulting from the purchase of Metrobeat in June 1996 (see Note 2). STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation" (SFAS 123), requires that stock awards granted subsequent to January 1, 1995, be recognized as compensation F-9 CITYSEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) expense based on their fair value at the date of grant. Alternatively, a company may use Accounting Principles Board Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees," and disclose pro forma results of operations which would have resulted from recognizing such awards at their fair value. The Company will continue to account for stock-based compensation under APB 25 and make the required pro forma disclosures for compensation (see Note 8). Under APB 25 compensation expense is calculated based on the difference between the exercise price and the fair market value of the underlying stock on the date of grant. The amount of compensation expense calculated under APB 25 is recognized over the vesting period of the options. RECLASSIFICATIONS Certain reclassifications have been made to the prior years' balances to conform to the current year presentation. YEAR 2000 -- UNAUDITED The Company could be adversely affected if its computer systems and those of its service providers do not properly process and calculate date-related information and data from and after January 1, 2000. The Company is taking steps that it believes are reasonably designed to address these issues and to obtain reasonable assurances that comparable steps are being taken by each of the Company's service providers. Management believes such efforts and any remedies will be completed by 1999 and all expenses incurred in assessing and remedying this issue will be expensed as incurred and are not expected to be material to the consolidated financial statements. 2. ACQUISITION OF METROBEAT On June 19, 1996, the Company purchased Metrobeat for approximately $2,337,300. The Company assumed net liabilities of $456,303 and issued 157,074 shares of Series B Convertible Preferred Stock valued at $544,497. During the year ended December 31, 1997 and the six months ended June 30, 1998, the Company made its second and third annual installment of Series B Convertible Preferred Stock valued at $445,495 and $445,494, respectively. The remaining purchase price of $445,506 is payable in one annual installment, principally of Series B Convertible Preferred Stock. The remaining installment has been recorded as a deferred purchase price liability in the accompanying consolidated balance sheets. The transaction was accounted for using the purchase method of accounting. The excess of the purchase price over the net assets acquired has been allocated to goodwill and was initially to be amortized over three years. Effective January 1, 1997, the Company reassessed the future life of the goodwill recorded in connection with the Metrobeat acquisition and concluded the remaining life was one year. Accordingly, the unamortized goodwill as of December 31, 1996 was fully amortized to expense in 1997. 3. INVESTMENT IN PARTNERSHIP On February 17, 1997, CitySearch Ontario entered into a partnership, Toronto Star CitySearch, with others to launch CitySearch sites in Canada. CitySearch Ontario contributed the Company's technology through a licensing agreement valued by the other partners at $390,500 and cash of $319,171 in exchange for a 20% interest in the partnership. The other partners collectively contributed cash of $2,811,600 in exchange for the remaining 80% interest. Profits are shared in accordance with the respective partnership interests. Losses are allocated to one of the other partners up to a cumulative loss limit, and thereafter losses of the partnership shall be allocated to CitySearch Ontario and the other partners at a ratio of 10% and 90%, respectively. CitySearch Ontario is committed to funding up to 10% of any losses of the partnership. F-10 CITYSEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) Summarized unaudited financial information of Toronto Star CitySearch as of and for the year ended December 31, 1997 is as follows (in thousands): As of December 31, 1997: Current assets.................................................... $ 1,520 Total liabilities................................................. 2,006 Partners' capital................................................. 758 For the period ended December 31, 1997: Revenues.......................................................... $ 123 Loss from operations.............................................. (2,658) Net loss.......................................................... (2,806)
CitySearch Ontario carries its investment in Toronto Star CitySearch at zero. CitySearch Ontario's share of partnership losses ($258,937) is included in costs of revenues and sales and marketing expenses. 4. INCOME TAXES Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax expense is determined by the change in the net asset or liability for deferred taxes. The provision for income, franchise and capital taxes of $800, $1,600 and $8,330 is based solely on minimum state tax requirements. The Company's effective tax rate differs from the statutory federal income tax rate, primarily as a result of operating losses not benefited. The tax effect of temporary differences resulted in net deferred income tax assets and liabilities at December 31 are as follows:
1996 1997 ------- -------- (IN THOUSANDS) Deferred tax assets: Net operating loss and tax credits...................... $ 5,485 $ 21,239 Various accruals........................................ 58 636 Deferred rent........................................... 14 77 ------- -------- 5,557 21,952 Less valuation allowance................................ (5,103) (19,650) ------- -------- Net deferred tax assets................................... 454 2,302 Deferred tax liabilities: Federal benefit for state income taxes.................. (427) (1,499) Excess of tax depreciation and amortization............. (27) (803) ------- -------- Deferred tax liabilities.................................. (454) (2,302) ------- -------- $ -- $ -- ======= ========
F-11 CITYSEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) Due to the uncertainty surrounding the timing of the realization of the benefits from its favorable tax attributes in future tax returns, the Company has placed a valuation allowance against its otherwise recognizable deferred tax assets. The Company had federal and state operating loss carryforwards of $47,450,000 at December 31, 1997. The federal carryforwards expire principally in the period from 2010 to 2012, and the state carryforwards expire principally in 2003. The Company has generated tax credit carryforwards for federal and state purposes in the amounts of $329,723 and $107,353, respectively, at December 31, 1997. Utilization of the above carryforwards is subject to utilization limitations which may inhibit the Company's ability to use carryforwards in the future. The following table reconciles the provision for taxes based on income before taxes to the statutory federal income tax rate of 35%:
PERIOD FROM SEPTEMBER 20, 1995 (DATE OF FORMATION) TO YEAR ENDED DECEMBER 31, DECEMBER 31, ----------------------- 1995 1996 1997 -------------- ----------- ------------ (IN THOUSANDS) Tax benefit at statutory rate..... $(108) $ (4,864) $ (12,781) Increase related to: State taxes, net of federal bene- fit.............................. 1 1 5 Meals and entertainment......... 1 17 30 Amortization of goodwill........ -- 143 670 Foreign operations.............. -- -- 203 Valuation reserve on deferred taxes.......................... 106 4,705 11,881 ----- ----------- ------------ $ -- $ 2 $ 8 ===== =========== ============
F-12 CITYSEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 5. COMMITMENTS LEASES The Company entered into noncancelable capital lease obligations for computers and equipment during the year ended December 31, 1997. In addition, the Company leases its facilities and other office equipment under noncancelable operating lease agreements expiring through 2004. 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:
OPERATING CAPITAL LEASES LEASES --------- ------- (IN THOUSANDS) December 31: 1998.................................................... $1,321 $1,115 1999.................................................... 1,191 1,028 2000.................................................... 1,167 517 2001.................................................... 1,043 4 2002.................................................... 265 -- Thereafter.............................................. 332 -- ------ ------ $5,319 2,664 ====== Less amount representing interest......................... 517 ------ Net present value of net minimum lease payments (including approximately $807,000 payable currently)................ $2,147 ======
Computers, software and equipment under capital leases had an original cost basis of $288,419 and $2,819,842 at December 31, 1996 and 1997, respectively. The net book value of the related computers, software and equipment was $231,267 and $2,157,717 at December 31, 1996 and 1997, respectively. Rent expense related to operating leases was $7,800, $291,000 and $1,372,000 for the period from September 20, 1995 (date of formation) to December 31, 1995 and for the years ended December 31, 1996 and 1997, respectively. F-13 CITYSEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 6. CONVERTIBLE PREFERRED STOCK At December 31, 1997 and June 30, 1998, the Company was authorized to issue 14,741,082 and 15,741,082 shares, respectively of Convertible Preferred Stock with a par value of $0.01 per share. The Company has designated 1,791,173 shares as Series A Convertible Preferred Stock, 450,000 shares as Series B Convertible Preferred Stock, 3,261,024 shares as Series C Redeemable Convertible Preferred Stock, 4,430,313 shares as Series D Redeemable Convertible Preferred Stock, and 5,808,572 shares as Series E Redeemable Convertible Preferred Stock. Convertible Preferred Stock issued and outstanding as of December 31, 1997 and June 30, 1998 are as follows:
ORIGINAL AMOUNT PER SHARE SHARES (NET OF ISSUANCE OUTSTANDING ISSUANCE COST) PRICE DATE FIRST ISSUED ----------- -------------- --------- ----------------- (IN THOUSANDS) Series A............. 1,791 $ 1,620 $0.904 October 31, 1995 Series B............. 157 545 3.467 June 19, 1996 Series B............. 68 445 6.525 June 19, 1997 Series B............. 64 445 7.000 June 21, 1998 Series C............. 3,261 11,261 3.467 May 15, 1996 Series D............. 4,431 28,265 6.525 December 13, 1996 Series E............. 4,714 31,356 7.000 November 10, 1997 Series E............. 1,000 6,959 7.000 May 26, 1998 ------ ------- 15,486 $80,896 ====== =======
Preferred Stock contains a liquidation preference of an amount per share equal to the price for which such share of Preferred Stock was originally issued, adjusted for any stock dividends, combinations or splits with respect to such shares, plus any declared and unpaid dividends on the Preferred Stock. The Series C Preferred Stock contains a May 2006 mandatory redemption provision. The Series D and E Preferred Stock contain mandatory redemption provisions with a minimum of an 80% favorable vote, by the holders, beginning December 2004. Each share of Preferred Stock shall be, at the option of the holder, convertible at any time into the number of shares of Common Stock as determined by dividing the original issue price by the conversion price, as defined. At the date of issuance, the conversion price for each series of Preferred Stock was equal to the original per share issuance price. The conversion price is subject to adjustment for stock splits and stock combinations of the Company's outstanding Common Stock. The conversion price for Series C, D and E Preferred Stock is also adjusted for the forfeiture of Common Stock options outstanding from the date of issuance to the date of conversion. The Preferred Stock has an automatic conversion feature which provides for each share of Preferred Stock to be automatically converted into shares of Common Stock based on the then effective conversion price immediately upon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of shares of the Corporation's Common Stock priced above $7.70 per share, with aggregate net proceeds to the Company of not less than $20,000,000. At June 30, 1998, on an unaudited pro forma basis, giving effect to Common Stock option forfeitures through June 30, 1998, each share of Series A, B, C, D and E Preferred Stock was convertible into approximately .667, .667, .648, .647 and .658 shares of Common Stock, respectively. F-14 CITYSEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 7. STOCK OPTIONS The Company has adopted the 1996 Stock Option Plan (the "Plan") which authorizes 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, 1997 and June 30, 1998 the maximum number of shares of Common Stock to be issued under the plan was 2,666,667 and 3,666,667 shares, respectively. All options granted under the Plan have been made at prices not less than fair market value of the stock at the date of grant. Options granted under the Plan are exercisable at various dates over their ten-year life. Options granted under the Plan vest principally 25% after the first year and ratably over the remaining vesting period. The following table summarizes certain information related to options for Common Stock:
NUMBER OF SHARES PRICE PER SHARE -------------- ----------------- (IN THOUSANDS) Balance at January 1, 1996.................. -- Granted during 1996....................... 2,147 $ 0.15 to $ 1.13 Forfeited................................. 209 0.15 to 1.13 Exercised................................. 49 0.15 to 1.13 ----- ---------------- Outstanding at December 31, 1996............ 1,889 0.15 to 1.13 Granted during 1997....................... 740 1.13 to 4.50 Forfeited................................. 323 0.15 to 3.00 Exercised................................. 484 0.15 to 3.00 ----- ---------------- Outstanding at December 31, 1997............ 1,822 0.15 to 4.50 Granted................................... 1,246 4.50 to 12.00 Forfeited................................. 159 0.15 to 8.25 Exercised................................. 300 0.15 to 4.50 ----- ---------------- Outstanding at June 30, 1998................ 2,609 0.15 to 12.00 ===== ================
Options granted during the year ended December 31, 1997 and the six months ended June 30, 1998 resulted in a total compensation amount of $255,000 and $1,058,000, respectively, and was recorded as deferred compensation in stockholders equity. The deferred compensation amount will be recognized as compensation expense over the vesting period. During the year ended December 31, 1997 and the six months ended June 30, 1998, such compensation expense amounted to $10,000 and $84,000, respectively. Information with respect to stock options outstanding is as follows:
DECEMBER 31, ----------------- 1996 1997 --------- ------- (NUMBER OF SHARES IN THOUSANDS) Weighted average price per share........................... $0.39 $1.29 Exercisable options........................................ 740 661 Options available for future grants........................ 729 313 Weighted average remaining contractual life................ 9.5 years 9 years
F-15 CITYSEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) In connection with the Series E Redeemable Convertible Preferred Stock issuance, the Company granted warrants to a private placement selling agent to purchase 94,286 shares of Series E Redeemable Convertible Preferred Stock at an exercise price of $8.75 per share in exchange for services. The warrants expire upon a closing of an initial public offering or five years from the grant date, whichever is earlier. Pro forma information regarding the effect on operations is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using the minimum- value method, which utilizes a near-zero volatility factor.
1996 1997 ------- ------- Expected life (years)...................................... 6 years 5 years Risk-free interest rate.................................... 6.30% 6.30% Dividend yield............................................. -- --
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 DECEMBER 31, ------------------------ 1996 1997 ----------- ----------- (IN THOUSANDS) Net loss, as reported............................. $ (13,897) $ (36,526) Pro forma net loss................................ (13,953) (36,608) Pro forma basic and diluted historical loss per share............................................ $ (2.38) $ (5.81) Pro forma basic and diluted loss per share........ (1.66) (2.95)
The effects of applying Statement 123 in this pro forma disclosure may not be indicative of future amounts. Additional awards in future years are anticipated. 8. DEFINED CONTRIBUTION PLAN In July 1997, the Company 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 year ended December 31, 1997. 9. RELATED PARTY TRANSACTIONS Included in revenues for the year ended December 31, 1997 and the six months ended June 30, 1998 is approximately $1,049,000 and $1,417,000 of revenues, respectively, generated under the Company's license agreements with stockholders or other related parties. Included in due from licensees at December 31, 1997 and June 30, 1998 is $136,000 and $234,000, respectively, due from stockholders and other related parties. F-16 CITYSEARCH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) (INFORMATION AT JUNE 30, 1998 AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED) 10. PROPOSED INITIAL PUBLIC OFFERING AND OTHER SUBSEQUENT EVENTS The Company is contemplating filing an amended registration statement with the Securities and Exchange Commission, relating to an initial public offering of shares of its unissued Common Stock. If the initial public offering is consummated under the terms presently anticipated, all of the Preferred Stock outstanding will automatically convert into Common Stock. At June 30, 1998, on an unaudited pro forma basis, using a conversion price calculated based on Common Stock option forfeitures through June 30, 1998, 10,127,621 shares of Common Stock would be issued upon automatic conversion of Preferred Stock. The pro forma effect on stockholders' equity, as adjusted for the assumed conversion of the Preferred Stock, is set forth on the accompanying balance sheet. In connection with the Company's initial public offering, the Board of Directors authorized a two-for-three reverse stock split prior to the completion of the Company's initial public offering. Accordingly, all common stock share and per share information has been retroactively restated to give effect to the two-for-three reverse stock split. F-17 The back inside cover will contain a selection of five to fifteen overlapping screen shots of home pages of the Company's business customers. The screen shots will represent business customers in a variety of service categories (e.g., restaurants, professional services, entertainment venues, etc.). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- No dealer, salesperson or other person has been authorized to give any infor- mation or to make any representations other than those contained in this Pro- spectus in connection with this offering and, if given or made, such informa- tion or representation must not be relied upon as having been authorized by the Company or any Underwriter. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered hereby in any jurisdiction to any person to whom it is unlawful to make such offer in such jurisdiction. Neither the delivery of this Prospectus nor any sale made hereun- der shall, under any circumstances, create any implication that the information herein is correct as of any time subsequent to the date hereof or that there has been no change in the affairs of the Company since such date. -------------------------- TABLE OF CONTENTS --------------------------
Page ---- Prospectus Summary........................................................ 3 Risk Factors.............................................................. 5 Use of Proceeds........................................................... 18 Dividend Policy........................................................... 18 Capitalization............................................................ 19 Dilution.................................................................. 20 Selected Consolidated Financial Data...................................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 22 Business.................................................................. 28 Management................................................................ 41 Certain Transactions...................................................... 50 Principal Stockholders.................................................... 52 Description of Capital Stock.............................................. 54 Shares Eligible for Future Sale........................................... 56 Underwriting.............................................................. 58 Legal Matters............................................................. 60 Experts................................................................... 60 Additional Information.................................................... 60 Index to Consolidated Financial Statements............................................................... F-1
--------------- Until , 1998 (25 days after the date of this Prospectus), all dealers effecting transactions in the Common Stock, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as Underwrit- ers and with respect to their unsold allotments or subscriptions. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4,000,000 SHARES [LOGO OF CITYSEARCH.COM] COMMON STOCK --------------- PROSPECTUS --------------- NationsBanc Montgomery Securities LLC BancAmerica Robertson Stephens Donaldson, Lufkin & Jenrette , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts, commissions and certain accountable expenses, payable by the Company in connection with the sale of Common Stock being registered. All amounts are estimates except the SEC registration fee and the NASD filing fee. SEC Registration Fee............................................... $ 17,691 NASD Filing Fee.................................................... 6,480 Nasdaq Listing Fee................................................. 93,000 Printing Fees and Expenses......................................... 150,000 Legal Fees and Expenses............................................ 250,000 Accounting Fees and Expenses....................................... 175,000 Blue Sky Fees and Expenses......................................... 10,000 Transfer Agent and Registrar Fees.................................. 10,000 Miscellaneous...................................................... 87,829 -------- Total............................................................ $800,000 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law permits a corporation to include in its charter documents, and in agreements between the corporation and its directors and officers, provisions expanding the scope of indemnification beyond that specifically provided by the current law. The Registrant's Restated Certificate of Incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware law. The Registrant's Bylaws provide for the indemnification of officers, directors and third parties acting on behalf of the Registrant if such person acted in good faith and in a manner reasonably believed to be in and not opposed to the best interest of the Registrant, and, with respect to any criminal action or proceeding, the indemnified party had no reason to believe his conduct was unlawful. The Registrant has entered into indemnification agreements with its directors and executive officers, in addition to indemnification provided for in the Registrant's Bylaws, and intends to enter into indemnification agreements with any new directors and executive officers in the future. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since inception of Registrant (September 20, 1995), the Registrant has issued and sold the following unregistered securities (as adjusted to reflect the two-for-three reverse stock split anticipated to be consummated immediately prior to the closing contemplated hereby): (1) From September 20, 1995 to June 30, 1998, Registrant granted options to purchase 6,206,040 shares of Common Stock pursuant to its 1996 Stock Option Plan at exercise prices ranging from $0.15 to $12.00. (2) From September 20, 1995 to June 30, 1998, Registrant issued and sold an aggregate of 833,919 shares of Common Stock to its employees, directors and consultants upon exercise of stock options granted pursuant to its 1996 Stock Option Plan at exercise prices ranging from $0.15 to $4.50 for an aggregate consideration of $220,990.70. (3) In September 1995; at Registrant formation, Registrant issued and sold 4,415,291 shares of Common Stock to William Gross for an aggregate cash consideration of $5,000 and for services provided to the Company. II-1 (4) In October 1995, Registrant issued and sold an aggregate of 2,822,344 shares of its Common Stock for an aggregate cash consideration of $84,670. These shares were issued to the following key founding employees: Charles Conn, III; Thomas Layton; Jeffrey Brewer; Kristen Ding; Caskey Dickson; David Holtz; Tamar Halpern; Brad Haugaard; Taylor Wescoatt; Linda Gross; Karen DeDea; Lee Husiuk and Michael Radford. (5) From November 1995 to December 1995, Registrant issued and sold an aggregate 1,791,173 shares of Series A Preferred Stock for an aggregate cash consideration of approximately $1.6 million. Shares of Series A Preferred Stock were issued to the following: David M. Balkin; Robert McLean; Morris Ventures; Robert W. Shaw, Jr.; Philip E. Berney; WS Investment Company 95B; William N. Melton; Stuart Cohen; Robert Kavner; Edwin C. Cohen; Peter R. Bleyleben; Steven Spielberg; Gerald Breslauer; Barry S. Volpert; Pando Associates, Ltd.; John Wylie; Jeffrey Glynn and Victoria Jo Edwards, Co-Trustees of the Edwards Family Trust of 1995; Charles R. Conn, II; Taylor Wescoatt; North American Trust Co., TTEE FBO L&W Dickson #410280. (6) In June 1996, Registrant issued an aggregate 157,074 shares of Series B Preferred Stock at $3.4665 per share as part consideration for the acquisition of MetroBeat, Inc. Such shares were issued to the following shareholders of MetroBeat, Inc.: Mark Davies and Joshua White. (7) From May 1996 to July 1996, Registrant issued and sold an aggregate 3,261,024 shares of Series C Preferred Stock for an aggregate cash consideration of approximately $11.3 million. Shares of Series C Preferred Stock were issued to the following: GS Capital Partners II, L.P; GS Capital Partners II Offshore, L.P.; Goldman, Sachs & Co. Verwaltungs GmbH; The Goldman Sachs Group, L.P.; AT&T Venture Fund I, L.P.; AT&T Venture Fund II, L.P.; Steven Spielberg; Edwin C. Cohen; Pamela C. Alexander; Barry S. Volpert; Alexander Communications, Inc.; Jeffrey G. Edwards; IRA MSTC Custodian; Morris Ventures; Byters; David White; Robert W. Shaw, Jr.; Charles R. Conn, II; The Pacific Bank, N.A., Trustee E. Keith Thomson IRA; Michael Barton; Eric Higgs; Mark Lewyn; Emily Martin; Douglas M. McPherson; Ted Meisel. (8) From December 1996 to October 1997, Registrant issued and sold an aggregate 4,430,313 shares of Series D Preferred Stock for an aggregate cash consideration of approximately $28.0 million and for services provided to the Company. Such shares of Series D Preferred Stock were issued to the following: GS Capital Partners II, L.P.; GS Capital Partners II Offshore, L.P.; Goldman, Sachs & Co. Verwaltungs GmbH; Stone Street Fund 1996, L.P.; Bridge Street Fund 1996, L.P.; Edwin C. Cohen; EnCompass Group, Inc.; Michael Barton; Mark Lewyn; Brian A. Goler; Emily Bloomfield; Bradley Ramberg; Lamar Rutherford; Kristen Brown; James R. McGovern; AnneMarie Weibel; Debra J. Wilkens; Francesca Colloredo-Mansfeld; Kathryn Takach; Byters; Comcast CitySearch, Inc.; Far West Capital Partners, L.P.; Robert McLean; Morris Ventures; Steven Spielberg; David White; CPQ Holdings, Inc.; Intel Corporation; Bayview Investors, Ltd.; Toronto Star Newspapers Limited; AT&T Venture Fund I, L.P.; AT&T Venture Fund II, L.P.; Bill Gross' idealab!; Alexander Communications, Inc.; The Times Mirror Company; Paul S. Larsen; ServiceMaster Venture Fund L.L.C.; Digital Ink Company and Korn/Ferry International. (9) In June 1997, Registrant issued an aggregate 68,274 shares of Series B Preferred Stock at $6.5251 per share as additional consideration for the acquisition of Metro Beat, Inc. Such shares were issued to the following shareholders of MetroBeat, Inc.: Mark Davies and Joshua White. (10) In November 1997, Registrant issued and sold an aggregate 4,714,286 shares of Series E Preferred Stock for an aggregate cash consideration of approximately $33.0 million. Such shares of Series E Preferred Stock were issued to the following: USA Networks, Inc.; Comcast CitySearch, Inc.; Far West Capital Partners, LP; Intel Corporation; Endurance Fund; Gary Lauder; The Thomas and Janet Unterman Living Trust dated 12/30/94; East Peak Partners; Margaret L. Taylor; David A. Duffield Trust dated 7/14/88; Orchid & Co.; Digital Ink Company; Global Retail Partners, L.P.; DLJ Diversified Partners, L.P.; GRP Partners, L.P.; Global Retail Partners Funding, Inc.; DLJ First ESC L.P. and Schibsted ASA. II-2 NationsBanc Montgomery Securities LLC ("NationsBanc") acted as placement agent. As consideration for such services, Registrant paid NationsBanc $1,546,182 in cash and issued a warrant to purchase 94,286 shares of Series E Preferred Stock, which terms and conditions are described in item (11) below. (11) In November 1997, as part consideration for services provided as placement agent, Registrant issued to NationsBanc a warrant to purchase 94,286 shares of Series E Preferred Stock. The warrant is exercisable at any time at an exercise price equal to $8.75 per share and any unexercised portion of the warrant is automatically convertible immediately prior to the closing of this offering. (12) In May 1998, Registrant issued an sold an aggregate 1,000,000 shares of Series E Preferred Stock for an aggregate cash consideration of approximately $7.0 million. Such shares of Series E Preferred Stock were issued to the following: USA Networks, Inc. and American Express Travel Related Services, Inc. (13) In June 1998, Registrant issued an aggregate 63,644 shares of Series B Preferred Stock at $7.00 per share as additional consideration for the acquisition of MetroBeat, Inc. Such shares were issued to the following shareholders of MetroBeat, Inc.: Mark Davies and Joshua White. The sales of the securities described in Items 15(1) and 15(2) were deemed to be exempt from registration under the Securities Act in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act as transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The sale of the securities described in Items 15(3) through 15(13) 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. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients either received adequate information about the Registrant or had access, through employment or other relationships, to such information. II-3 ITEM 16. EXHIBITS (a) Exhibits 1.1* Form of Underwriting Agreement. 2.1* +Agreement and Plan of Reorganization, among Registrant, MS Acquisition Corporation, MetroBeat, Inc., Mark Davies and Joshua White, dated May 31, 1996. 3.1* Restated Certificate of Incorporation, as currently in effect. 3.2 Restated Certificate of Incorporation, to be filed prior to the consummation of the offering. 3.3 Restated Certificate of Incorporation, to be filed immediately following the consummation of the offering. 3.4* Bylaws, as currently in effect. 3.5* Restated Bylaws, to be effective upon the closing of the offering. 4.1 Specimen Common Stock Certificate. 4.2* Sixth Amended and Restated Stockholders' Agreement by and among Registrant and certain stockholders of the Registrant, dated May 26, 1998. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, as to the legality of the securities being registered. 10.1* Form of Indemnification Agreement for directors and officers. 10.2 1996 Stock Plan and form of agreement thereunder. 10.3 1998 Employee Stock Purchase Plan. 10.4 1998 Director Option Plan. 10.5* +License Agreement between Registrant and Perly, Inc., dated March 9, 1996. 10.6* +Marketing Agreement between Registrant and American Express Travel Related Services Company, Inc., dated May 26, 1998. 10.7* Employment Agreement between Registrant and Charles Conn, dated May 9, 1996. 10.8* +Partnership Agreement between Metroland Printing, Publishing & Distributing Ltd. 1217554 Ontario Inc., Registrant and Torstar Corporation, dated February 17, 1997. 10.9* +License and Services Agreement between Registrant and 1217554 Ontario Inc., dated February 17, 1997. 10.10* +Noncompetition Agreement between Registrant, 1217554 Ontario Inc., Torstar Corporation and Metroland Printing, Publishing & Distributing Ltd., dated February 17, 1997. 10.11* +Assignment Agreement between Registrant, 1217554 Ontario Inc., and Toronto Star CitySearch, dated February 17, 1997. 10.12 Lease Agreement by and between Registrant and West End Land Development Co., L.P., dated November 7, 1996. 10.13 Standard Form of Lease, Aeriel Center Executive Park, between Pizzagalli Investment Company and Registrant, dated May 8, 1996. 10.14 Standard Office Lease between Registrant and Sage Realty Corporation, dated May 6, 1997. 10.15 Standard Office Lease between Registrant and H. Naito Corporation, dated March 6, 1997. 10.16 Standard Office Lease between Registrant and Brazos Austin Centre, Ltd., dated August 15, 1996. 10.17 Standard Office Lease between Registrant and Judge Building Group, dated September 10, 1996. 10.18 Standard Office Lease between Registrant and Sobel Building Development, dated May 31, 1996. 10.19 Standard Office Lease between Registrant and BPG Pasadena, L.L.C. (later assigned to Spieker Properties), dated September 30, 1996. 10.20* Lease Agreement between Registrant and Secured Properties Investors II, L.P., dated May 13, 1998. 10.21* Amended and Restated Voting Agreement by and among Registrant and certain stockholders of Registrant, dated November 12, 1997. 10.22* Employment Agreement between Registrant and Thomas Layton, dated July 2, 1997. 10.23* +License and Services Agreement between Registrant and Classified Ventures. 21.1* Subsidiaries of the Registrant. 23.1 Consent of Independent Auditors. 23.2 Consent of Counsel (included in Exhibit 5.1). 24.1** Power of Attorney. 27.1 Financial Data Schedule (available in EDGAR format only).
(b) Schedules Schedule II--Valuation and Qualifying Accounts - -------- * Previously filed. **Partly filed herewith and partly previously filed. + Confidential treatment requested. II-4 ITEM 17. UNDERTAKINGS The Registrant hereby undertakes to provide the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions described in Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933, and will be governed by the final adjudication of such issue. The undersigned Registrant undertakes that: (1) for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus as filed as part of the registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective, and (2) for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT ON FORM S-1 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PASADENA, STATE OF CALIFORNIA, ON THE 17TH DAY OF JULY, 1998. CITYSEARCH, INC. /s/ Charles Conn By___________________________________ CHARLES CONN CHIEF EXECUTIVE OFFICER PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Charles Conn Chief Executive - ------------------------------------- Officer and July 17, 1998 CHARLES CONN Director (Principal Executive Officer) /s/ Bradley Ramberg Chief Financial - ------------------------------------- Officer and Vice July 17, 1998 BRADLEY RAMBERG President, Finance and Administration and Secretary (Principal Financial Officer and Principal Accounting Officer) * President, Chief - ------------------------------------- Operating Officer, July 17, 1998 THOMAS LAYTON Treasurer and Director * Director - ------------------------------------- July 17, 1998 GERALD BRESLAUER * Director - ------------------------------------- July 17, 1998 JOSEPH GLEBERMAN * Director - ------------------------------------- July 17, 1998 WILLIAM GROSS
II-6
SIGNATURE TITLE DATE --------- ----- ---- * Director July 17, 1998 - ------------------------------------- ROBERT KAVNER * Director July 17, 1998 - ------------------------------------- YVES SISTERON * Director July 17, 1998 - ------------------------------------- THOMAS UNTERMAN /s/ Charles Conn *By: ___________________________ CHARLES CONN ATTORNEY-IN-FACT
POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Charles Conn and Bradley Ramberg and each one of them, acting individually and without the other, as his or her attorney-in-fact, each with full power of substitution, for him and her in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
/s/ Barry Diller - ------------------------------------- Director July 17, 1998 BARRY DILLER - ------------------------------------- Director July , 1998 ALAN SPOON
II-7 CITYSEARCH, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ---------- --------------------- ---------- ---------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER THE END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- ---------- ---------- ---------- ---------- ---------- Period from September 20 (date of formation) through December 31, 1995................... $ -- $ -- $-- $ -- $ -- Year ended December 31, 1996................... -- -- -- -- -- Year ended December 31, 1997................... -- 114,000 -- 89,000(a) 25,000
- -------- (a) Represents amounts written-off against the allowance for doubtful accounts, net of recoveries and reversals. EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ----------- ----------- 1.1* Form of Underwriting Agreement. 2.1* +Agreement and Plan of Reorganization, among Registrant, MS Acquisition Corporation, MetroBeat, Inc., Mark Davies and Joshua White, dated May 31, 1996. 3.1* Restated Certificate of Incorporation, as currently in effect. 3.2 Restated Certificate of Incorporation, to be filed prior to the consummation of the offering. 3.3 Restated Certificate of Incorporation, to be filed immediately following the consummation of the offering. 3.4* Bylaws, as currently in effect. 3.5* Restated Bylaws, to be effective upon the closing of the offering. 4.1 Specimen Common Stock Certificate. 4.2* Sixth Amended and Restated Stockholders' Agreement by and among Registrant and certain stockholders of the Registrant, dated May 26, 1998. 5.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, as to the legality of the securities being registered. 10.1* Form of Indemnification Agreement for directors and officers. 10.2 1996 Stock Plan and form of agreement thereunder. 10.3 1998 Employee Stock Purchase Plan. 10.4 1998 Director Option Plan. 10.5* +License Agreement between Registrant and Perly, Inc., dated March 9, 1996. 10.6* +Marketing Agreement between Registrant and American Express Travel Related Services Company, Inc., dated May 26, 1998. 10.7* Employment Agreement between Registrant and Charles Conn, dated May 9, 1996. 10.8* +Partnership Agreement between Metroland Printing, Publishing & Distributing Ltd. 1217554 Ontario Inc., Registrant and Torstar Corporation, dated February 17, 1997. 10.9* +License and Services Agreement between Registrant and 1217554 Ontario Inc., dated February 17, 1997. 10.10* +Noncompetition Agreement between Registrant, 1217554 Ontario Inc., Torstar Corporation and Metroland Printing, Publishing & Distributing Ltd., dated February 17, 1997. 10.11* +Assignment Agreement between Registrant, 1217554 Ontario Inc., and Toronto Star CitySearch, dated February 17, 1997. 10.12 Lease Agreement by and between Registrant and West End Land Development Co., L.P., dated November 7, 1996. 10.13 Standard Form of Lease, Aeriel Center Executive Park, between Pizzagalli Investment Company and Registrant, dated May 8, 1996. 10.14 Standard Office Lease between Registrant and Sage Realty Corporation, dated May 6, 1997. 10.15 Standard Office Lease between Registrant and H. Naito Corporation, dated March 6, 1997. 10.16 Standard Office Lease between Registrant and Brazos Austin Centre, Ltd., dated August 15, 1996. 10.17 Standard Office Lease between Registrant and Judge Building Group, dated September 10, 1996. 10.18 Standard Office Lease between Registrant and Sobel Building Development, dated May 31, 1996. 10.19 Standard Office Lease between Registrant and BPG Pasadena, L.L.C. (later assigned to Spieker Properties), dated September 30, 1996. 10.20* Lease Agreement between Registrant and Secured Properties Investors II, L.P., dated May 13, 1998. 10.21* Amended and Restated Voting Agreement by and among Registrant and certain stockholders of Registrant, dated November 12, 1997. 10.22* Employment Agreement between Registrant and Thomas Layton, dated July 2, 1997. 10.23* +License and Services Agreement between Registrant and Classified Ventures. 21.1* Subsidiaries of the Registrant. 23.1 Consent of Independent Auditors. 23.2 Consent of Counsel (included in Exhibit 5.1). 24.1** Power of Attorney. 27.1 Financial Data Schedule (available in EDGAR format only).
- -------- *Previously filed. **Partly filed herewith and partly previously filed. +Confidential treatment requested. EX-3.2 2 RESTATED CERTIFICATE OF INCORP. (PRIOR TO CONSUM.) EXHIBIT 3.2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CITYSEARCH, INC. A DELAWARE CORPORATION CitySearch, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of Delaware (the "Corporation"), does hereby certify as follows: FIRST: The original Certificate of Incorporation of the Corporation was filed under the name of "PerfectMarket, Inc." with the Secretary of State of the State of Delaware (the "Secretary") on September 20, 1995, amended by the Certificate of Amendment of Certificate of Incorporation filed with the Secretary on November 27, 1995, by the Restated Certificate of Incorporation filed with the Secretary on May 15, 1996, by the Certificate of Amendment of the Certificate of Incorporation filed with the Secretary on June 25, 1996, by the Certificate of Amendment of the Certificate of Incorporation filed with the Secretary on July 25, 1996, by the Restated Certificate of Incorporation filed with the Secretary on December 12, 1996, by the Restated Certificate of Incorporation filed with the Secretary on December 23, 1996, by the Restated Certificate of Incorporation filed with the Secretary on November 12, 1997 and by the Restated Certificate of Incorporation filed with the Secretary on May 22, 1998. SECOND: This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware by the Board of Directors of the Corporation. THIRD: This Amended and Restated Certificate of Incorporation was approved by written consent of the stockholders pursuant to Section 228 of the General Corporation Law of the State of Delaware. FOURTH: The Restated Certificate of Incorporation of this Corporation is amended and restated in its entirety to read as follows: I. The name of the Corporation is CitySearch, Inc. II. The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. III. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. IV. The Corporation is authorized to issue two classes of stock to be designated, respectively, "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 ninety-two million seven hundred and forty-one thousand and eighty-two (92,741,082) shares. Seventy-five million (75,000,000) shares shall be Common Stock and fifteen million seven hundred and forty-one thousand and eighty-two (17,741,082) shares shall be Preferred Stock. 1,791,173 shares of Preferred Stock shall be designated "Series A Preferred Stock" (hereinafter "Series A Preferred"), 450,000 shares of Preferred Stock shall be designated "Series B Preferred Stock" (hereinafter "Series B Preferred"), 3,261,024 shares of Preferred Stock shall be designated "Series C Preferred Stock" (hereinafter "Series C Preferred"), 4,430,313 shares of Preferred Stock shall be designated "Series D Preferred Stock" (hereinafter "Series D Preferred"), 5,808,572 shares of Preferred Stock shall be designated "Series E Preferred Stock" (hereinafter "Series E Preferred" and, together with the Series A Preferred, Series B Preferred, Series C Preferred, and Series D Preferred, the "Preferred Stock") and 2,000,000 shares shall be undesignated Preferred Stock, which undesignated Preferred Stock shall not be issuable until the closing of a Qualified IPO (as defined herein). Effective immediately upon the filing of this Amended and Restated Certificate of Incorporation, there shall be a two for three reverse stock split (the "Reverse Split") pursuant to which each three outstanding shares of Common Stock shall be consolidated and converted, automatically and without further action, into two shares of Common Stock. Such combination shall be effected on a certificate-by-certificate basis. No fractional share of Common Stock shall be issued in connection with such conversion, and the number of shares of Common Stock to be issued shall be rounded up to the nearest whole share. The 2,000,000 shares of undesignated Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below -2- the number of shares in any such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. The authority of the Board of Directors with respect to each such class or series shall include, without limitation of the foregoing, the right to determine and fix: (a) the distinctive designation of such class or series and the number of shares to constitute such class or series; (b) the rate at which dividends on the shares of such class or series shall be declared and paid, or set aside for payment, whether dividends at the rate so determined shall be cumulative or accruing, and whether the shares of such class or series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so, on what terms; (c) the right or obligation, if any, of the Corporation to redeem shares of the particular class or series of Preferred Stock and, if redeemable, the price, terms and manner of such redemption; (d) the special and relative rights and preference, if any, and the amount or amounts per share, which the shares of such class or series of Preferred Stock shall be entitled to receive upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (e) the terms and conditions, if any, upon which shares of such class or series shall be convertible into, or exchangeable for, shares of capital stock of any other class or series, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) the obligation, if any, of the Corporation to retire, redeem or purchase shares of such class or series pursuant to a sinking fund or fund of similar nature or otherwise, and the terms and conditions of such obligation; (g) voting rights, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; (h) limitations, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; and (i) such other preferences, powers, qualifications, special or relative rights and privileges thereof as the Board of Directors of the Corporation, acting in accordance with this Restated Certificate of Incorporation, may deem advisable and are not inconsistent with law and the provisions of this Restated Certificate of Incorporation. The rights, preferences, restrictions and other matters relating to the Preferred Stock are as follows: -3- 1. LIQUIDATION PREFERENCE. ---------------------- (a) The Preferred Stock shall, with respect to rights upon liquidation, dissolution or winding up, rank prior to the shares of Common Stock and of any other class of stock of the Corporation ranking junior to the Preferred Stock and in the event of any Transaction (as defined below), whether voluntary or involuntary, the holders of the Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, the distributions described herein before any distribution is made to holders of shares of Common Stock or any other junior stock. (b) At any time, in the event of any of the following occurrences (each, a "Transaction"): (i) Any dissolution of the Corporation, liquidation or winding up of the Corporation; (ii) Any liquidation or winding up of the Corporation as a result of a bankruptcy, reorganization or similar proceeding; (iii) Any foreclosure by creditors of the Corporation on all or substantially all of the assets or equity interests in the Corporation; or (iv) An acquisition, merger or consolidation of the Corporation occurs in which more than 50% of the outstanding capital stock of the Corporation is being acquired for cash and the price per share of Common Stock (on a fully diluted basis) is below the Series E Conversion Price (as defined in Section 2 below) then in effect; the Corporation shall take appropriate steps in connection with such Transaction to ensure that the assets of the Corporation available for distribution shall be distributed at the closing of the Transaction in the order and priority as follows: (x) the holders of the Preferred Stock shall be entitled to receive the amount of $.90446 (the "Series A Preference Amount") for each share of Series A Preferred then held by them, the amount of $3.4665 (the "Series B Preference Amount") for each share of Series B Preferred then held by them, the amount of $3.4665 (the "Series C Preference Amount") for each share of Series C Preferred then held by them, the amount of $6.5251 (the "Series D Preference Amount") for each share of Series D Preferred then held by them and the amount of $7.00 (the "Series E Preference Amount", together with the Series A Preference Amount, the Series B Preference Amount, the Series C Preference Amount and the Series D Preference Amount, collectively, the "Preference Amounts" and, individually, a "Preference Amount") for each share of Series E Preferred then held by them. Each of the Preference Amounts shall be adjusted for any stock dividends, combinations or splits with respect to such shares, plus any declared and unpaid dividends on the Preferred Stock; and -4- (y) all remaining assets available for distribution shall be distributed pro rata among the holders of the Common Stock based on the number of shares held by each. If upon the occurrence of a Transaction, the assets and funds available for distribution (the "Distribution Assets") are less than the sum of the Preference Amounts of all shares of Preferred Stock (the "Aggregate Preference Amount"), the distribution on account of each share of Preferred Stock pursuant to paragraph (x) above shall be an amount equal to (a) (i) the respective Preference Amount of such share of Preferred Stock multiplied by (ii) the Distribution Assets divided by (b) the Aggregate Preference Amount. (c) With respect to any Transaction, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (i) Securities not subject to investment letter or other similar restrictions on free marketability: (A) If traded on a securities exchange or through Nasdaq, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty (30) trading day period ending three (3) days prior to the closing; (B) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) trading day period ending three (3) days prior to the closing; and (C) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock with respect to any Transaction. (ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (i)(A), (B) or (C) to reflect the approximate fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of such Preferred Stock. (d) In the event the requirements of this Section 1 are not complied with, this Corporation shall forthwith either: (i) cause such closing to be postponed until such time as the requirements of this Section 1 have been complied with; or -5- (ii) cancel such Transaction to the extent permitted by law, in which event the rights, preferences and privileges of the holders of the Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Section 1(e) hereof. (e) The Corporation shall give each holder of record of Preferred Stock written notice of such impending Transaction not later than twenty (20) days prior to the stockholder's meeting called to approve such Transaction, or twenty (20) days prior to the closing of such Transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such Transaction. The first of such notices shall describe the material terms and conditions of the impending Transaction and the provisions of this Section 1, and the Corporation shall thereafter give such holders prompt notice of any material changes. The Transaction shall in no event take place sooner than twenty (20) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such Preferred Stock. 2. CONVERSION. The holders of the Preferred Stock have conversion rights ---------- as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Preferred Stock shall be ---------------- convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for the Preferred Stock, into such number of fully paid and nonassessable shares of Common Stock as is determined: in the case of the Series A Preferred, by dividing $0.90446 by the Series A Conversion Price, determined as hereinafter provided, in effect at the time of the conversion; in the case of the Series B Preferred, by dividing $3.4665 by the Series B Conversion Price, determined as hereinafter provided, in effect at the time of the conversion; in the case of Series C Preferred, by dividing $3.4665 by the Series C Conversion Price, determined as hereinafter provided, in effect at the time of the conversion; in the case of the Series D Preferred, by dividing $6.5251 by the Series D Conversion Price, determined as hereinafter provided, in effect at the time of the conversion; and in the case of the Series E Preferred, by dividing $7.00 by the Series E Conversion Price, determined as hereinafter provided, in effect at the time of the conversion. The price at which shares of Common Stock shall be deliverable upon conversion of the Series A Preferred (the "Series A Conversion Price") shall initially be $0.90446 per share of Common Stock. The price at which shares of Common Stock shall be deliverable upon conversion of the Series B Preferred (the "Series B Conversion Price") shall initially be $3.4665 per share of Common Stock. The price at which shares of Common Stock shall be deliverable upon conversion of the Series C Preferred (the "Series C Conversion Price") shall initially be $3.4665 per share of Common Stock. The price at which shares of Common Stock shall be deliverable upon conversion of the Series D Preferred (the "Series D Conversion Price") shall initially be $6.5251 per share of Common Stock. The price at which shares of Common Stock shall be deliverable upon conversion of the Series E Preferred (the "Series E Conversion Price") shall initially be $7.00 per share of Common Stock. The term "Conversion Price," as used herein shall refer to the respective Conversion Price of each series of Preferred Stock. Each such Conversion Price shall be subject to adjustment as hereinafter -6- provided. Upon conversion, all declared and unpaid dividends on the Preferred Stock shall be paid, to the extent funds are legally available therefor, either in cash or in shares of Common Stock of the Corporation, at the election of the Corporation, wherein the shares of Common Stock shall be valued at the fair market value at the time of such conversion, as determined in good faith by the Board. (b) Automatic Conversion. Each share of Preferred Stock shall -------------------- automatically be converted into shares of Common Stock at the then effective Conversion Price upon: (i) the closing of a firm underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of shares of the Corporation's Common Stock with an aggregate net proceeds (after deduction of underwriter's discounts and commissions and offering expenses) to the Company of not less than $20,000,000, the price per share to the public of which was not less than $7.70 per share (a "Qualified IPO"); or (ii) the written election of holders of not less than a majority of the then outstanding Preferred Stock and a majority of each of the then outstanding Series C Preferred and Series E Preferred. In the event of the automatic conversion of the Preferred Stock upon a public offering as aforesaid, the person(s) entitled to receive the Common Stock issuable upon such conversion of Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities. (c) Mechanics of Conversion. No fractional shares of Common Stock ----------------------- shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled (after aggregating all shares of Preferred Stock held by such holder such that the maximum number of whole shares of Common Stock is issued to such holder upon conversion), the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock and to receive certificates therefor, such holder shall surrender the certificate or certificates evidencing such Preferred Stock, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same; provided, however, that in the event of an automatic conversion pursuant to paragraph (b) hereof, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent, and provided further that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Preferred Stock are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable after such delivery, or after such agreement and indemnification, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled as aforesaid and a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock -7- to be converted, or, in the case of automatic conversion, on the date of closing of the offering or the date of written election to convert, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (d) Adjustments of the Conversion Price. ----------------------------------- (i) If the number of shares of Common Stock outstanding at any time after the date upon which any shares of Series E Preferred were first issued (the "Series E Original Issue Date") is increased by split or subdivision of the outstanding shares of Common Stock or the receipt by holders of Common Stock of a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the number of shares of Common Stock issuable on conversion of each share of Preferred Stock shall be increased in proportion to such increase in outstanding shares by means of an adjustment to the applicable Conversion Price. (ii) If the number of shares of Common Stock outstanding at any time after the Series E Original Issue Date is decreased by a combination of the outstanding shares of Common Stock (including the Reverse Split), then, following the record date of such combination, the number of shares of Common Stock issuable on conversion of each share of Preferred Stock shall be decreased in proportion to such decrease in outstanding shares by means of an adjustment to the applicable Conversion Price. (iii) If at any time or from time to time the Corporation distributes to all holders of the Corporation evidences of indebtedness or assets of the Corporation (other than cash dividends), the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock the amount of such evidences of indebtedness or assets of the Corporation as such holders of Preferred Stock would have been entitled to receive had they converted their shares of Preferred Stock into shares of Common Stock immediately prior to such distribution. (e) Adjustments for Certain Corporate Transactions. If the Common ---------------------------------------------- Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock of the Corporation or another corporation, whether by merger, consolidation, sale of all or substantially all of the assets of the Corporation, liquidation, capital reorganization, reclassification or otherwise (other than a dividend, subdivision, combination or consolidation of shares provided for above) (a "Reorganization"), the Conversion Price then in effect shall, concurrently with the effectiveness of such Reorganization, be proportionately adjusted such that the Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock of the Corporation or other corporation, as the case may be, equivalent to the number of shares -8- of Common Stock that would have been subject to receipt by the holders upon conversion of such shares of Preferred Stock immediately before such Reorganization. Furthermore, in the event of an acquisition, merger or consolidation of the Corporation whereby the Corporation's stockholders of record immediately prior to such acquisition, merger or consolidation hold less than 50% of the voting power of the surviving entity immediately after such acquisition, merger or consolidation and (i) such acquisition, merger or consolidation shall be effected in such a way that the holders of the Corporation's Common Stock shall be entitled to receive stock, securities or assets other than cash and (ii) the surviving entity is not subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Securities Act of 1934, as amended, immediately after such acquisition, merger or consolidation, appropriate provisions shall be made with respect to the rights and interests of holders of the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred and the Series E Preferred to the end that the rights, preferences and privileges of the Series A Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred and the Series E Preferred as set forth in this Restated Certificate, as applicable (including without limitation provisions for adjustments of the Conversion Price), shall thereafter be incorporated into any shares of stock or securities thereafter deliverable upon the exercise of such conversion rights. (f) Adjustment of Series C Conversion Price. Upon any conversion of --------------------------------------- any shares of Series C Preferred to Common Stock in accordance with this Section 2, the Series C Conversion Price shall be adjusted to the extent necessary to an amount equal to the following: Series C Conversion Price = $45 million ------------------------------------------ Series C Measurement Shares plus Series C Option Shares For purposes of this Section 2(f), (i) the term "Series C Measurement Shares" shall equal 10,690,196 shares of Common Stock (as adjusted for stock splits, stock dividends or similar recapitalizations after the Series E Original Issue Date) and (ii) the term "Series C Option Shares" shall equal the 2,291,181 shares of Common Stock issuable upon exercise of stock options ("Original Issue Date Options") outstanding as of the date upon which any shares of Series C Preferred were first issued (the "Series C Original Issue Date") less such number of Option Shares that were subject to Original Issue Date Options that were canceled as a result of the termination of employment or consulting services on or prior to (i) June 30, 1998 in the event that the Company completes a Qualified IPO on or prior to December 31, 1998 or (ii) the date of conversion of the Series C Preferred in the event that the Company does not complete a Qualified IPO on or prior to December 31, 1998 (as adjusted for stock splits, stock dividends or similar recapitalizations after the Series E Original Issue Date). (g) Adjustment of Series D Conversion Price. Upon any conversion of --------------------------------------- any shares of Series D Preferred to Common Stock in accordance with this Section 2, the Series D Conversion Price shall be adjusted to the extent necessary to an amount equal to the following: Series D Conversion Price = $110 million ----------------------------------------- Series D Measurement Shares plus Series D Option Shares For purposes of this Section 2(g), (i) the term "Series D Measurement Shares" shall equal 14,011,324 shares of Common Stock (as adjusted for stock splits, stock dividends or similar recapitalizations after -9- the Series E Original Issue Date) and (ii) the term "Series D Option Shares" shall equal 2,846,776 shares of Common Stock issuable upon exercise of stock options ("Series D Original Issue Date Options") outstanding as of the date upon which any shares of Series D Preferred were first issued (the "Series D Original Issue Date") less such number of Series D Option Shares that were subject to Series D Original Issue Date Options that were canceled as a result of the termination of employment or consulting services on or prior to (i) June 30, 1998 in the event that the Company completes a Qualified IPO on or prior to December 31, 1998 or (ii) the date of conversion of the Series D Preferred in the event that the Company does not complete a Qualified IPO on or prior to December 31, 1998 (as adjusted for stock splits, stock dividends or similar recapitalizations after the Series E Original Issue Date). (h) Adjustment of Series E Conversion Price. Upon any conversion of --------------------------------------- any shares of Series E Preferred to Common Stock in accordance with this Section 2, the Series E Conversion Price shall be adjusted to the extent necessary to an amount equal to the following: Series E Conversion Price = $ 152,662,601 ----------------------------------------- Series E Measurement Shares plus Series E Option Shares For purposes of this Section 2(h), (i) the term "Series E Measurement Shares" shall equal 19,173,153 shares of Common Stock (as adjusted for stock splits, stock dividends or similar recapitalizations after the Series E Original Issue Date) and (ii) the term "Series E Option Shares" shall equal 2,635,790 shares of Common Stock issuable upon exercise of stock options ("Series E Original Issue Date Options") outstanding as of the Series E Original Issue Date less such number of Series E Option Shares that were subject to Series E Original Issue Date Options that were canceled as a result of the termination of employment or consulting services on or prior to (i) June 30, 1998 in the event that the Company completes a Qualified IPO on or prior to December 31, 1998 or (ii) the date of conversion of the Series E Preferred in the event that the Company does not complete a Qualified IPO on or prior to December 31, 1998 (as adjusted for stock splits, stock dividends or similar recapitalizations after the Series E Original Issue Date). (i) No Fractional Shares as to Adjustments. No fractional shares -------------------------------------- shall be issued upon the conversion of any share or shares of the Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded down to the nearest whole share. (j) No Impairment. The Corporation will not, by amendment of this ------------- Amended and Restated Certificate of Incorporation or through any Reorganization, issuance or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 2 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Stock against impairment. (k) Certificate as to Adjustments. Upon the occurrence of each ----------------------------- adjustment of the Conversion Price pursuant to this Section 2, the Corporation at its expense shall promptly compute such adjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate -10- setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of such holder's shares of Preferred Stock. 3. MANDATORY REDEMPTION. -------------------- (a) The Corporation shall redeem, from any source of funds legally available therefor, all then outstanding shares of Series C Preferred on the ten-year anniversary date (the "Series C Redemption Date") of the Series C Original Issue Date. The Corporation shall effect such redemption on the Series C Redemption Date by paying in exchange for the outstanding shares of Series C Preferred Stock cash in the amount equal to the liquidation value of such shares pursuant to Section 1 above (the "Series C Redemption Price"). (b) The Corporation shall redeem, from any source of funds legally available therefor, all then outstanding shares of Series D Preferred at any time on or after the seven-year anniversary date of the Series D Original Issue Date upon the written election of holders of not less than eighty percent (80%) of the then outstanding Series D Preferred. "Series D Redemption Date" shall mean forty-five (45) days from the date of the receipt by the Corporation of such written election. The Corporation shall effect such redemption on the Series D Redemption Date by paying in exchange for the outstanding shares of Series D Preferred, cash in the amount equal to the liquidation value of such shares pursuant to Section 1 above (the "Series D Redemption Price"). (c) The Corporation shall redeem, from any source of funds legally available therefor, all then outstanding shares of Series E Preferred at any time on or after the seven-year anniversary date of the Series D Original Issue Date upon the written election of holders of not less than eighty percent (80%) of the then outstanding Series E Preferred. "Series E Redemption Date" shall mean forty-five (45) days from the date of the receipt by the Corporation of such written election and the term "Redemption Date" shall mean a Series C Redemption Date, a Series D Redemption Date or a Series E Redemption Date. The Corporation shall effect such redemption on the Series E Redemption Date by paying in exchange for the outstanding shares of Series E Preferred, cash in the amount equal to the liquidation value of such shares pursuant to Section 1 above (the "Series E Redemption Price" and together with the Series C Redemption Price and Series D Redemption Price, a "Redemption Price"). (d) At least fifteen (15) but no more than thirty (30) days prior to any Redemption Date, written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption to be effected, specifying the applicable Redemption Date, the applicable Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his or her certificate or certificates representing the Series C Preferred, the Series D Preferred -11- or the Series E Preferred, as the case may be, (the "Redemption Notice"). Except as provided in Section 3(e) below, on or after such Redemption Date, each holder of Series C Preferred, the Series D Preferred or the Series E Preferred, as the case may be, shall surrender to the Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the applicable Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. (e) From and after any Redemption Date, unless there shall have been a default in the payment of the applicable Redemption Price, all rights of the holders of shares of Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, (except the right to receive the applicable Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, on any Redemption Date are insufficient to redeem the total number of shares of Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, based on their holdings of Series C Preferred, Series D Preferred or Series E Preferred, as the case may be. The shares of Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, such funds will immediately be used to redeem the balance of the shares to the extent of such additional funds until all shares of Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, are redeemed. (f) At least ten days prior to any Redemption Date, the Corporation shall deposit the applicable Redemption Price of all shares of Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, with a bank or trust corporation having aggregate capital and surplus in excess of $100,000,000 as a trust fund for the benefit of the respective holders of the Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, with irrevocable instructions and authority to the bank or trust corporation to pay the applicable Redemption Price for such shares to their respective holders on or after such Redemption Date upon receipt of notification from the Corporation that such holder has surrendered his or her share certificate to the Corporation pursuant to Section 3(d) above. As of such Redemption Date, the deposit shall constitute full payment of the shares to their holders, and from and after such Redemption Date the shares of Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, shall be redeemed and shall be deemed to be no longer outstanding, and the holders thereof shall cease to be stockholders with respect to such shares and shall have no rights with respect thereto except the rights to receive from the bank or trust corporation payment of the applicable Redemption Price of the shares, without interest, upon surrender of their certificates therefor. Such instructions shall also provide that any moneys deposited by the Corporation pursuant to this Section 3(f) for the redemption of shares thereafter converted into shares of the Corporation's Common Stock pursuant to Section 2 hereof prior to such Redemption Date shall be returned to the Corporation -12- forthwith upon such conversion. The balance of any moneys deposited by the Corporation pursuant to this Section 3(f) remaining unclaimed at the expiration of two years following such Redemption Date shall thereafter be returned to the Corporation upon its request expressed in a resolution of its Board of Directors. (g) Notwithstanding anything to the contrary in this Section 3, in the event the Corporation is precluded by applicable law from redeeming any of Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, hereunder, the Corporation shall redeem such Series C Preferred, Series D Preferred or Series E Preferred, as the case may be, at the earliest date permitted under applicable law. (h) The provisions of this Section 3 shall terminate upon the closing of a Qualified IPO. 4. VOTING RIGHTS. ------------- (a) General. Except as otherwise provided herein or required by law, ------- the holder of each share of Common Stock issued and outstanding shall have one vote and the holder of each share of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such share of Preferred Stock could be converted at the record date for determination of the stockholders entitled to vote on such matters, or, if no such record date is established, at the date such vote is taken or any written consent of stockholders is solicited, such votes to be counted together with all other shares of stock of the Corporation having a general voting power and not separately as a class. Holders of Common Stock and Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes by the holders of Preferred Stock shall not, however, be permitted and any fractional voting rights shall (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) be rounded to the nearest whole number. (b) Holders of stock of any class or series of this corporation shall not be entitled to cumulate their votes for the election of directors or any other matter submitted to a vote of the stockholders, unless such cumulative voting is required pursuant to Sections 2115 and/or 301.5 of the California Corporations Code, in which event each such holder shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) such holder would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and the holder may cast all of such votes for a single director or may distribute them among the number of directors to be voted for, or for any two or more of them as such holder may see fit, so long as the name of the candidate for director shall have been placed in nomination prior to the voting and the stockholder, or any other holder of the same class or series of stock, has given notice at the meeting prior to the voting of the intention to cumulate votes. (c) Protective Provisions. --------------------- -13- (i) So long as any shares of Series C Preferred remain outstanding, the Corporation shall not, without the vote or written consent of not less than a majority of such outstanding shares of Series C Preferred voting together as a single class: (A) Increase or decrease the total number of authorized shares of Series C Preferred; (B) Alter or change by amendment to this Restated Certificate of Incorporation or otherwise the terms and provisions of the Series C Preferred or any other terms so as to affect adversely the rights, preferences or privileges of the Series C Preferred; or (C) Create or issue any new shares or any other securities convertible into equity securities of the Corporation or reclassify any existing shares into equity securities or any other securities convertible into equity securities of the Corporation having a preference senior to the Series C Preferred with respect to voting, dividends, redemption or upon liquidation. (ii) So long as any shares of Series D Preferred remain outstanding, the Corporation shall not, without the vote or written consent of not less than a majority of such outstanding shares of Series D Preferred voting together as a single class: (A) Increase or decrease the total number of authorized shares of Series D Preferred; (B) Alter or change by amendment to this Restated Certificate of Incorporation or otherwise the terms and provisions of the Series D Preferred or any other terms so as to affect adversely the rights, preferences or privileges of the Series D Preferred; or (C) Create or issue any new shares or any other securities convertible into equity securities of the Corporation or reclassify any existing shares into equity securities or any other securities convertible into equity securities of the Corporation having a preference senior to the Series D Preferred with respect to voting, dividends, redemption or upon liquidation. (iii) So long as any shares of Series E Preferred remain outstanding, the Corporation shall not, without the vote or written consent of not less than a majority of such outstanding shares of Series E Preferred voting together as a single class: (A) Increase or decrease the total number of authorized shares of Series E Preferred; (B) Alter or change by amendment to this Restated Certificate of Incorporation or otherwise the terms and provisions of the Series E Preferred or any other terms so as to affect adversely the rights, preferences or privileges of the Series E Preferred; or -14- (C) Create or issue any new shares or any other securities convertible into equity securities of the Corporation or reclassify any existing shares into equity securities or any other securities convertible into equity securities of the Corporation having a preference senior to the Series E Preferred with respect to voting, dividends, redemption or upon liquidation. 5. STATUS OF CONVERTED OR REDEEMED STOCK. In the case any shares of ------------------------------------- Preferred Stock shall be redeemed or converted pursuant to the terms hereof, the shares so converted or redeemed shall be canceled and shall not be issuable by the Corporation. From time to time, this Restated Certificate of Incorporation shall be appropriately revised to reflect the corresponding reduction in the Corporation's authorized capital stock. V. 1. NUMBER OF DIRECTORS. From and after the closing of a Qualified IPO, ------------------- the number of directors which constitutes the whole Board of Directors of the corporation shall be designated in the Bylaws of the corporation. Unless precluded by Section 301.5 of the California Corporation Code or otherwise precluded by law, the directors shall be divided into three classes with the term of office of the first class (Class I) to expire at the annual meeting of stockholders held in 1999; the term of office of the second class (Class II) to expire at the annual meeting of stockholders held in 2000; the term of office of the third class (Class III) to expire at the annual meeting of stockholders held in 2001; and thereafter for each such term to expire at each third succeeding annual meeting of stockholders after such election. 2. ELECTION OF DIRECTORS. --------------------- (a) The holders of Series C Preferred voting together as a separate class shall have the right to elect one (1) member of the Board of Directors until the earlier of (i) a Qualified IPO or (ii) at such time as the outstanding Series C Preferred (including shares of Common Stock issuable upon conversion of the Series C Preferred) shall be less than five percent (5%) of the then outstanding Common Stock of the Company (including shares of Common Stock issuable upon conversion, exchange or exercise of securities convertible into or exercisable for or exchangeable for Common Stock). At such time as any other stockholder or stockholders, voting as a separate class, are entitled, by virtue of a right granted by the Company and not solely as a result of the number of shares held by such stockholder or stockholders, to elect two (2) or more directors, for purposes of the preceding sentence, the holders of the Series C Preferred voting together as a separate class shall have the right to elect a number of directors equal to the number of directors such stockholder or stockholders are entitled to elect. (b) USA Networks, Inc. ("USA Networks") shall have the right to elect one (1) member of the Board of Directors (the "USA Networks Director") (i) at each annual meeting prior to a Qualified IPO and (ii) at each annual meeting at which the stockholders elect the successors of the class of directors set forth in Article (V)(1) above to which the USA Networks Director is a member from and after a Qualified IPO until the earlier of (x) November 11, 2007 or (y) the date USA Networks owns less than 50% of the capital stock of the Company (on an as converted to Common -15- Stock basis and as adjusted for stock dividends, stock splits, stock combinations, recapitalizations and the like) that it owned as of November 11, 1997. At such time as any other stockholder or stockholders, voting as a separate class, are entitled, by virtue of a right granted by the Company and not solely as a result of the number of shares held by such stockholder or stockholders, to elect two (2) or more directors, for purposes of the preceding sentence, USA Networks shall have the right to elect a number of directors equal to the number of directors such stockholder or stockholders are entitled to elect. (c) Global Retail Partners, L.P. (together with its affiliates "GRP") shall have the right to elect one (1) member of the Board of Directors (the "GRP Director") (i) at each meeting prior to a Qualified IPO and (ii) at each annual meeting at which the stockholders elect the successors of the class of directors set forth in Article (V)(1) above to which the GRP Director is a member from and after a Qualified IPO until the later of (x) November 20, 1999 or (y) the one- year anniversary of the closing of a Qualified IPO; provided GRP owns 100% of the capital stock of the Company (on an as converted to Common stock basis and as adjusted for stock dividends, stock splits, stock combinations, recapitalizations and the like) that it owned as of November 20, 1999. (d) Elections of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. VI. Subject to Article VII hereof, the Board is expressly authorized to make, alter or repeal Bylaws of the Corporation, but the stockholders may make additional Bylaws and may alter or repeal any Bylaw whether adopted by them or otherwise. VII. Effective upon the closing of a Qualified IPO, no action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Bylaws and no action shall be taken by the stockholders by written consent. Effective upon the closing of a Qualified IPO, the affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the then outstanding voting securities of the corporation, voting together as a single class, shall be required for the amendment, repeal or modification of the provisions of Article IV(4)(b), Article V(1) or Article VII of this Restated Certificate of Incorporation or Sections 2.3, 2.4, 2.6, 2.10, 2.11 or Article IX of the Corporation's Bylaws to be effective upon the closing of the Qualified IPO. VIII. 1. To the fullest extent permitted by the Delaware General Corporation Law as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. -16- 2. The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer or employee of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director, officer or employee at the request of the Corporation or any predecessor to the Corporation. 3. Neither any amendment nor repeal of this Article VIII, nor the adoption of any provision of the Corporation's Restated Certificate of Incorporation inconsistent with this Article VII, shall eliminate or reduce the effect of this Article VIII in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VIII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. FIFTH: That written notice of this Amended and Restated Certificate of Incorporation was duly given to the stockholders of this corporation who did not consent in writing to the foregoing resolutions. IN WITNESS WHEREOF, CitySearch, Inc. has caused this Restated Certificate of Incorporation to be signed by its Chief Executive Officer and attested to by its Secretary this _____ day of July 1998. _______________________________________ Charles Conn, III Chief Executive Officer ATTEST: _____________________________ Bradley O. Ramberg Secretary -17- EX-3.3 3 RESTATED CERT. OF INCORP. (FOLLOWING CONSUM.) EXHIBIT 3.3 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CITYSEARCH, INC. CitySearch, Inc., a corporation organized and existing under and by virtue of the General Corporation Law (the "Corporation"), does hereby certifies as follows: FIRST: The original Certificate of Incorporation of the Corporation was filed under the name of "PerfectMarket, Inc." with the Secretary of State of the State of Delaware (the "Secretary") on September 20, 1995, amended by the Certificate of Amendment of Certificate of Incorporation filed with the Secretary on November 27, 1995, by the Restated Certificate of Incorporation filed with the Secretary on May 15, 1996, by the Certificate of Amendment of the Certificate of Incorporation filed with the Secretary on June 25, 1996, by the Certificate of Amendment of the Certificate of Incorporation filed with the Secretary on July 25, 1996, by the Restated Certificate of Incorporation filed with the Secretary on December 12, 1996, by the Restated Certificate of Incorporation filed with the Secretary on December 23, 1996, by the Restated Certificate of Incorporation filed with the Secretary on November 12, 1997, by the Restated Certificate of Incorporation filed with the Secretary on May 22, 1998 and by the Restated Certificate of Incorporation filed with the Secretary on July __, 1998. SECOND: This Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware by the Board of Directors of the Corporation. THIRD: This Amended and Restated Certificate of Incorporation was approved by written consent of the stockholders pursuant to Section 228 of the General Corporation Law of the State of Delaware. FOURTH: The Restated Certificate of Incorporation of this Corporation is amended and restated in its entirety to read as follows: I. The name of the Corporation is CitySearch, Inc. II. The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. III. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. IV. The Corporation is authorized to issue two classes of shares of stock to be designated, respectively, "Common Stock" and "Preferred Stock", all of which have a par value of $0.01. The total number of shares that the Corporation is authorized to issue is seventy-seven million (77,000,000) shares. Seventy-five million (75,000,000) shall be Common Stock and two million (2,000,000) shall be Preferred Stock. 1. PREFERRED STOCK. The Preferred Stock may be issued from time to time --------------- in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the board). The Board of Directors is further authorized to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares in any such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series. The authority of the Board of Directors with respect to each such class or series shall include, without limitation of the foregoing, the right to determine and fix: (a) the distinctive designation of such class or series and the number of shares to constitute such class or series; (b) the rate at which dividends on the shares of such class or series shall be declared and paid, or set aside for payment, whether dividends at the rate so determined shall be cumulative or accruing, and whether the shares of such class or series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so, on what terms; (c) the right or obligation, if any, of the corporation to redeem shares of the particular class or series of Preferred Stock and, if redeemable, the price, terms and manner of such redemption; (d) the special and relative rights and preferences, if any, and the amount or amounts per share, which the shares of such class or series of Preferred Stock shall be entitled to receive upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (e) the terms and conditions, if any, upon which shares of such class or series shall be convertible into, or exchangeable for, shares of capital stock of any other class or series, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) the obligation, if any, of the corporation to retire, redeem or purchase shares of such class or series pursuant to a sinking fund or fund of a similar nature or otherwise, and the terms and conditions of such obligation; (g) voting rights, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; (h) limitations, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; and (i) such other preferences, powers, qualifications, special or relative rights and privileges thereof as the Board of Directors of the corporation, acting in accordance with this Restated Certificate of Incorporation, may deem advisable and are not inconsistent with law and the provisions of this Restated Certificate of Incorporation. 2. VOTING RIGHTS. Holders of stock of any class or series of this ------------- Corporation shall not be entitled to cumulate their votes for the election of directors or any other matter submitted to a vote of the stockholders, unless such cumulative voting is required pursuant to Sections 2115 and/or 301.5 of the California Corporations Code, in which event each such holder shall be entitled to as many votes as shall equal the number of votes which (except for this provision as to cumulative voting) such holder would be entitled to cast for the election of directors with respect to his shares of stock multiplied by the number of directors to be elected by him, and the holder may cast all of such votes for a single director or may distribute them among the number of directors to be voted for, or for any two or more of them as such holder may see fit, so long as the name of the candidate for director shall have been placed in nomination prior to the voting and the stockholder, or any other holder of the same class or series of stock, has given notice at the meeting prior to the voting of the intention to cumulate votes. 3. STATUS OF CONVERTED OR REDEEMED STOCK. In the case any shares of ------------------------------------- Preferred Stock shall be redeemed or converted pursuant to the terms hereof, the shares so converted or redeemed shall be canceled and shall not be issuable by the Corporation. From time to time, this Restated Certificate of Incorporation shall be appropriately revised to reflect the corresponding reduction in the Corporation's authorized capital stock. V. 1. NUMBER OF DIRECTORS. The number of directors which constitutes the ------------------- whole Board of Directors of the corporation shall be designated in the Bylaws of the corporation. The directors shall be divided into three classes with the term of office of the first class (Class I) to expire at the annual meeting of stockholders held in 1999; the term of office of the second class (Class II) to expire at the annual meeting of stockholders held in 2000; the term of office of the third class (Class III) to expire at the annual meeting of stockholders held in 2001; and thereafter for each such term to expire at each third succeeding annual meeting of stockholders after such election. 2. ELECTION OF DIRECTORS. --------------------- (a) USA Networks, Inc. ("USA Networks") shall have the right to elect one (1) member of the Board of Directors (the "USA Networks Director") at each annual meeting at which the stockholders elect the successors of the class of directors set forth in Article (V) (1) above to which the USA Networks Director is a member until the earlier of (i) November 1, 2007 or (ii) the date USA Networks owns less than 50% of the capital stock of the Corporation (on an as converted to Common Stock basis and as adjusted for stock dividends, stock splits, stock combinations, recapitalizations and the like) that it owned as of November 11, 1997. At such time as any other stockholder or stockholders, voting as a separate class, are entitled, by virtue of a right granted by the Corporation and not solely as a result of the number of shares held by such stockholder or stockholders, to elect two (2) or more directors, for purposes of the preceding sentence, USA Networks shall have the right to elect a number of directors equal to the number of directors such stockholder or stockholders are entitled to elect. (b) Global Retail Partners, L.P. ("together with its affiliates "GRP") shall have the right to elect one (1) member of the Board of Directors (the "GRP Director") at each annual meeting at which the stockholders elect the successors of the class of directors set forth in Article (V) (1) above to which the GRP Director is a member until the later of (i) November 20, 1999 or (ii) the one- year anniversary of the date hereof [date of closing of Qualified IPO], provided GRP owns 100% of the capital stock of the Corporation (on an as converted to Common Stock basis and as adjusted for stock dividends, stock splits, stock combinations, recapitalizations and the like) that it owned as of November 20, 1997. (c) Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. VI. Subject to Article VII hereof, the Board of Directors is expressly authorized to make, alter or repeal the Bylaws of the Corporation, but the stockholders may make additional Bylaws and may alter or repeal any Bylaw whether adopted by them or otherwise. VII. No action shall be taken by the stockholders of the corporation except at an annual or special meeting of the stockholders called in accordance with the Bylaws and no action shall be taken by the stockholders by written consent. The affirmative vote of sixty-six and two-thirds percent (66 2/3%) of the then outstanding voting securities of the corporation, voting together as a single class, shall be required for the amendment, repeal or modification of the provisions of Article IV(2), Article V(1) or Article VII of this Restated Certificate of Incorporation or Sections 2.3, 2.4, 2.6, 2.10, 2.11 or Article IX of the Corporation's Bylaws. VIII. 1. To the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. 2. The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person or his or her testator or intestate is or was a director, officer or employee of the Corporation, or any predecessor of the Corporation, or serves or served at any other enterprise as a director, officer or employee at the request of the Corporation or any predecessor to the Corporation. 3. Neither any amendment nor repeal of this Article VIII, nor the adoption of any provision of the Corporation's Restated Certificate of Incorporation inconsistent with this Article VIII, shall eliminate or reduce the effect of this Article VIII, in respect of any matter occurring, or any action or proceeding accruing or arising or that, but for this Article VIII, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. IN WITNESS WHEREOF, CitySearch, Inc. has caused this Restated Certificate of Incorporation to be signed by its Chief Executive Officer and attested to by its Secretary this _____ day of _____ , 1998. ________________________________________ Charles Conn Chief Executive Officer EX-4.1 4 SPECIMEN COMMON STOCK CERTIFICATE EXHIBIT 4.1 COMMON STOCK COMMON STOCK NUMBER SHARES CTYS [LOGO OF CITYSEARCH APPEARS HERE] THIS CERTIFICATE IS TRANSFERABLE IN SEE REVERSE FOR CERTAIN NEW YORK, NY OR RIDGEFIELD PARK, NJ DEFINITIONS AND A STATEMENT AS TO THE RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS ON SHARES INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 17878A 10 0 THIS CERTIFIES THAT IS THE OWNER OF FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $0.01 PAR VALUE PER SHARE, OF CITYSEARCH, INC. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: /s/ BRADLEY O. RAMBERG /s/ CHARLES CONN SECRETARY CHIEF EXECUTIVE OFFICER [CITYSEARCH CORPORATE SEAL APPEARS HERE] CITYSEARCH, INC. CORPORATE SEAL 1995 DELAWARE COUNTERSIGNED AND REGISTERED: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE A statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights as established, from time to time, by the Certificate of Incorporation of the Corporation and by any certificate of determination, the number of shares constituting each class and series, and the designations thereof, may be obtained by the holder hereof upon request and without charge at the principal office of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT-.........Custodian......... TEN ENT - as tenants by the (Cust) (Minor) entireties under Uniform Gifts to JP TEN - as joint tenants with Minors Act.................. right of survivorship (State) and not as tenants in UNIF TRF MIN ACT- .....Custodian (until age..) common (Cust) ......under Uniform Transfer (Minor) to Minors Act............... (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, _____________________________ hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE _____________________________ _____________________________ ________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) ________________________________________________________________________________ ________________________________________________________________________________ _________________________________________________________________________ Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ________________________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ____________________________ X __________________________________ X __________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By_________________________________ THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE MEDALLION GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-5.1 5 OPINION OF WILSON SONSINI GOODRICH & ROSATI Exhibit 5.1 July 17, 1998 CitySearch, Inc. 790 E. Colorado Blvd. Suite 200 Pasadena, CA 91101 RE: REGISTRATION STATEMENT NO. 333-57437 ON FORM S-1 Ladies and Gentlemen: We have examined the Registration Statement on Form S-1 filed by you with the Securities and Exchange Commission on June 22, 1998 (Registration No. 333- 57437), Amendment No. 1 thereto filed June 26, 1998 and Amendment No. 2 thereto filed July 17, 1998 (the "Registration Statement") in connection with the registration under the Securities Act of 1933, as amended, of 4,600,000 shares of your Common Stock (the "Shares"). The Shares include an over-allotment option for 600,000 shares granted to the underwriters. The Shares are to be sold to the underwriters for resale to the public as described in the Registration Statement and pursuant to the Underwriting Agreement filed as an exhibit thereto. As your counsel, we have examined the proceedings proposed to be taken in connection with the sale and issuance of the Shares. It is our opinion that, upon completion of the proceedings being taken or contemplated by us, as your counsel, to be taken prior to the issuance of the Shares, and upon completion of the proceedings being taken in order to permit such transactions to be carried out in accordance with the securities laws of the various states, where required, the Shares when issued and sold in the manner referred to in the Registration Statement will be legally and validly issued, fully paid and nonassessable. We consent to the use of this opinion as an exhibit to the Registration Statement, and further consent to the use of our name wherever appearing in the Registration Statement, including the prospectus constituting a part thereof, and any amendment thereto. Very truly yours, WILSON SONSINI GOODRICH & ROSATI Professional Corporation /s/ Wilson Sonsini Goodrich & Rosati EX-10.2 6 1996 STOCK PLAN EXHIBIT 10.2 CITYSEARCH, INC. 1996 STOCK OPTION PLAN (As Amended Effective [Date of IPO]) 1. Purposes of the Plan. The purposes of this Stock Option Plan are to -------------------- attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company's business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or nonstatutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Administrator" means the Board or any of its Committees ------------- appointed pursuant to Section 4 of the Plan. (b) "Applicable Laws" means the 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 are, or will be, granted under the Plan. (c) "Board" means the Board of Directors of the Company. ----- (d) "Code" means the Internal Revenue Code of 1986, as amended. ---- (e) "Committee" means a Committee appointed by the Board of Directors --------- in accordance with Section 4 of the Plan. (f) "Common Stock" means the Common Stock of the Company. ------------ (g) "Company" means CitySearch, Inc., a Delaware corporation. ------- (h) "Consultant" means any person who is engaged by the Company or ---------- any Parent or Subsidiary to render consulting or advisory services and is compensated for such services, and any director of the Company whether compensated for such services or not. (i) "Continuous Status as an Employee or Consultant" means that the ---------------------------------------------- employment or consulting relationship with the Company, any Parent, or Subsidiary, is not interrupted or terminated. Continuous Status as an Employee or Consultant shall not be considered interrupted in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. A leave of absence approved by the Company shall include sick leave, military leave, or any other personal leave approved by an authorized representative of the Company. For purposes of Incentive Stock Options, no such leave may exceed 90 days, unless reemployment upon expiration of such leave is guaranteed by statute or contract, including Company policies. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 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. (j) "Employee" means any person, including Officers and directors, -------- employed by the Company or any Parent or Subsidiary of the Company. The payment of a director's fee by the Company shall not be sufficient to constitute "employment" by the Company. (k) "Exchange Act" means the Securities Exchange Act of 1934, as ------------ amended. (l) "Fair Market Value" means, as of any date, the value of Common ----------------- Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock on the last market trading day prior to the day of determination, or; (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator. (m) "Incentive Stock Option" means an Option intended to qualify as ---------------------- an incentive stock option within the meaning of Section 422 of the Code. (n) "Nonstatutory Stock Option" means an Option not intended to ------------------------- qualify as an Incentive Stock Option. (o) "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. (p) "Option" means a stock option granted pursuant to the Plan. ------ (q) "Optioned Stock" means the Common Stock subject to an Option. -------------- -2- (r) "Optionee" means an Employee or Consultant who receives an -------- Option. (s) "Parent" means a "parent corporation", whether now or hereafter ------ existing, as defined in Section 424(e) of the Code. (t) "Plan" means this 1996 Stock Option Plan. ---- (u) "Section 16(b)" means Section 16(b) of the Securities Exchange ------------- Act of 1934, as amended. (v) "Share" means a share of the Common Stock, as adjusted in ----- accordance with Section 11 below. (w) "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 11 of ------------------------- the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 3,666,667 Shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 1999 equal to the lesser of (i) 666,667 shares, (ii) 3% of the outstanding shares on such date or (iii) a lesser amount determined by the Board. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, or is surrendered pursuant to an option exchange program, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, -------- however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares are repurchased by the Company at their original purchase price, and the original purchaser of such Shares did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership. 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 -3- 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. (b) Powers of the Administrator. Subject to the provisions of the --------------------------- Plan and, in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, including the approval, if required, of any stock exchange upon which the Common Stock is listed, the Administrator shall have the authority, in its discretion: (i) to determine the Fair Market Value of the Common Stock, in accordance with Section 2 of the Plan; (ii) to select the Employees and Consultants to whom Options may from time to time be granted hereunder; (iii) to determine whether and to what extent Options are granted hereunder; (iv) to determine the number of shares of Common Stock to be covered by each such award granted hereunder; (v) to approve forms of agreement for use under the Plan; (vi) to determine the terms and conditions of any award granted hereunder; (vii) to determine whether and under what circumstances an Option may be settled in cash under subsection 9(e) instead of Common Stock; (viii) 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 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; -4- (ix) to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option has declined since the date the Option was granted; and (ix) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan. (c) Effect of Administrator's Decision. All decisions, determinations ---------------------------------- and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options. 5. Eligibility. ----------- (a) Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if otherwise eligible, be granted additional Options. 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 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 Employee or Consultant 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, an Employee or Consultant 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. -5- (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 12. (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 12), 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. The Plan shall become effective upon the earlier to ------------ occur of its adoption by the Board of Directors or its approval by the stockholders of the Company, as described in Section 18 of the Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 14 of the Plan. 8. Term of Option. The term of each Option shall be the term stated in -------------- the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 9. Option Exercise Price and Consideration. --------------------------------------- (a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator, but shall be subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in the preceding paragraph, 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, -6- 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) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option have been owned by the Optionee for more than six months on the date of surrender and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or (6) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 10. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times and under such conditions as determined by the Administrator, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. With respect to Options granted after February 2, 1998 unless the Administrator provides otherwise, the vesting of such Options 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 to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 9(b) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 12 of the Plan. -7- Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Employment or Consulting Relationship. In the ---------------------------------------------------- event of termination of an Optionee's Continuous Status as an Employee or Consultant with the Company (but not in the event of an Optionee's change of status from Employee to Consultant (in which case an Employee's Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the date three (3) months and one day from the date of such change of status) or from Consultant to Employee), such Optionee may, but only within such period of time as is determined by the Administrator, with such determination in the case of an Incentive Stock Option not exceeding three (3) months after the date of such termination (but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise his or her Option to the extent that Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the event of termination of an ---------------------- Optionee's consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall automatically convert to a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that Optionee is not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. In the event of the death of an Optionee, the ----------------- Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the expiration of the term of such Option as set forth in the Notice of Grant), by the Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent that the Optionee was entitled to exercise the Option at the date of death. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the Shares covered by the unexercisable portion of the Option shall immediately revert to the Plan. If, after death, the Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance does not exercise the Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (e) 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. -8- 11. Non-Transferability of Options. Unless determined otherwise by the ------------------------------ Administrator, an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate. 12. Adjustments Upon Changes in Capitalization or Merger. ---------------------------------------------------- (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 (which if such option was outstanding on July __, 1998, was adjusted for a two for three reverse split effected on July __, 1998), and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option (which if such option was outstanding on July __, 1998, was adjusted for a two for three reverse split effected on July __, 1998), shallbe 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 after [the IPO Date]; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Administrator shall notify the Optionee at least fifteen (15) days prior to such proposed action. To the extent it has not been previously exercised, the Option will terminate immediately prior to the consummation of such proposed action. (c) Merger. In the event of a merger of the Company with or into ------ another corporation, the Option may be assumed or an equivalent option may be substituted by such successor corporation or a parent or subsidiary of such successor corporation. If, in such event, the Option is not assumed or substituted, the Option shall terminate as of the date of the closing of the merger. For the purposes of this paragraph, the Option shall be considered assumed if, following the merger, the option confers the right to purchase, for each Share of Optioned Stock subject to the Option immediately prior to the merger, the consideration (whether stock, cash, or other securities or property) received in the merger 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 was not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option for each Share of -9- Optioned Stock subject to the Option to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger. 13. Time of Granting Options. The date of grant of an Option shall, for ------------------------ all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant. 14. 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 Administrator, 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. 15. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. 16. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful -10- 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. 17. Agreements. Options shall be evidenced by written agreements in such ---------- form as the Administrator shall approve from time to time. 18. Stockholder Approval. Continuance of the Plan shall be subject to -------------------- approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under applicable state and federal law and the rules of any stock exchange upon which the Common Stock is listed. -11- CITYSEARCH, INC. 1996 STOCK OPTION PLAN STOCK OPTION AGREEMENT Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Stock Option Agreement. I. NOTICE OF STOCK OPTION GRANT ---------------------------- [Optionee's Name and Address] You have been granted an option to purchase Common Stock of the Company, subject to the terms and conditions of the Plan and this Option Agreement, as follows: Grant Number _________________________ Date of Grant _________________________ Vesting Commencement Date _________________________ Exercise Price per Share $________________________ Total Number of Shares Granted _________________________ Total Exercise Price $_________________________ Type of Option: ___ Incentive Stock Option ___ Nonstatutory Stock Option Term/Expiration Date: _________________________ Vesting Schedule: ---------------- Subject to your Continuous Status as an Employee or Consultant, this Option may be exercised, in whole or in part, in accordance with the following schedule: 25% of the Shares subject to the Option shall vest twelve months after the Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter. Termination Period: ------------------ You may exercise this Option for three months after your employment or consulting relationship with the Company terminates, or for such longer period upon your death or disability as provided in the Plan. If your status changes from Employee to Consultant or Consultant to Employee, this Option Agreement shall remain in effect. In no case may you exercise this Option after 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 attached as Part I of this Agreement (the "Optionee") an option (the "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 14(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 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. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. -2- 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. Termination of Relationship. In the event an Optionee's --------------------------- Continuous Status as an Employee or Consultant terminates, Optionee may, to the extent otherwise so entitled at the date of such termination (the "Termination Date"), exercise this Option during the Termination Period set out in the Notice of Grant. To the extent that Optionee was not entitled to exercise this Option at the date of such termination, or if Optionee does not exercise this Option within the time specified herein, the Option shall terminate. An Optionee's Continuous Status as a Consultant shall terminate at the completion of any three month period in which the Optionee works less than one hour on behalf of the Company in each of the three months. 7. Disability of Optionee. Notwithstanding the provisions of ---------------------- Section 6 above, in the event of termination of an Optionee's consulting relationship or Continuous Status as an Employee as a result of his or her disability, Optionee may, but only within twelve (12) months from the date of such termination (and in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination; provided, however, that if such disability is not a "disability" as such term is defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock Option such Incentive Stock Option shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option on the day three months and one day following such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so -3- entitled within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 8. Death of Optionee. In the event of termination of Optionee's ----------------- Continuous Status as an Employee or Consultant as a result of the death of Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), by Optionee's estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee could exercise the Option at the date of death. 9. Tax Consequences. Some of the federal tax consequences relating ---------------- to this Option, as of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES. (a) Exercising the Option. --------------------- (i) Nonstatutory Stock Option. The Optionee may incur ------------------------- regular federal income tax liability upon exercise of a NSO. The Optionee will be treated as having received compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price. If the Optionee is an Employee or a former Employee, the Company will be required to withhold from his or her compensation or collect from Optionee and pay to the applicable taxing authorities an amount in cash equal to a percentage of this compensation income at the time of exercise, and may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (ii) Incentive Stock Option. If this Option qualifies as an ---------------------- ISO, the Optionee will have no regular federal income tax liability upon its exercise, although the excess, if any, of the Fair Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price will be treated as an adjustment to alternative minimum taxable income for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. In the event that the Optionee ceases to be an Employee but remains a Service Provider, any Incentive Stock Option of the Optionee that remains unexercised shall cease to qualify as an Incentive Stock Option and will be treated for tax purposes as a Nonstatutory Stock Option on the date three (3) months and one (1) day following such change of status. (b) Disposition of Shares. --------------------- (i) NSO. If the Optionee holds NSO Shares for at least one --- year, any gain realized on disposition of the Shares will be treated as long- term capital gain for federal income tax purposes. -4- (ii) ISO. If the Optionee holds ISO Shares for at least one --- year after exercise and two years after the grant date, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes. If the Optionee disposes of ISO Shares within one year after exercise or two years after the grant date, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the excess, if any, of the lesser of (A) the difference between the Fair Market Value of the Shares acquired on the date of exercise and the aggregate Exercise Price, or (B) the difference between the sale price of such Shares and the aggregate Exercise Price. Any additional gain will be taxed as capital gain, short-term or long-term depending on the period that the ISO Shares were held. (c) Notice of Disqualifying Disposition of ISO Shares. If the ------------------------------------------------- Optionee sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on or before the later of (i) two years after the grant date, or (ii) one year after the exercise date, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that he or she may be subject to income tax withholding by the Company on the compensation income recognized from such early disposition of ISO Shares by payment in cash or out of the current earnings paid to the Optionee. 10. 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 California. 11. 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. By your signature and the signature of the Company's representative below, you and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator -5- upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE: CITYSEARCH, INC. __________________________________ ________________________________________ Signature By __________________________________ ________________________________________ Print Name Title __________________________________ Residence Address __________________________________ -6- EXHIBIT A --------- 1996 STOCK OPTION PLAN EXERCISE NOTICE CitySearch, Inc. 790 E. Colorado Blvd., Suite 200 Pasadena, CA 91101 Attention: Secretary 1. Exercise of Option. Effective as of today, ________________, ------------------ 199__, the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of CitySearch, Inc. (the "Company") under and pursuant to the 1996 Stock Option Plan (the "Plan") and the Stock Option Agreement dated _____________, 19___ (the "Option Agreement"). 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 12 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. 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 -1- 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 California. Submitted by: Accepted by: PURCHASER: CITYSEARCH, INC. ________________________________ _______________________________________ Signature By ________________________________ _______________________________________ Print Name Its Address: Address: - ------- ------- _________________________________ 790 E. Colorado Blvd., Suite 200 _________________________________ Pasadena, CA 91101 ________________________________ Date Received -2- EX-10.3 7 1998 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.3 CITYSEARCH, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN The following constitute the provisions of the 1998 Employee Stock Purchase Plan of CitySearch, Inc. 1. Purpose. The purpose of the Plan is to provide employees of the ------- Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company through accumulated payroll deductions. It is the intention of the Company to have the Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of the Plan, accordingly, shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. Definitions. ----------- (a) "Board" shall mean the Board of Directors of the Company. ----- (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. ---- (c) "Common Stock" shall mean the common stock of the Company. ------------ (d) "Company" shall mean CitySearch, Inc. and any Designated ------- Subsidiary of the Company. (e) "Compensation" shall mean all base straight time gross earnings ------------ and commissions, but exclusive of payments for overtime, shift premium, incentive compensation, incentive payments, bonuses and other compensation. (f) "Designated Subsidiary" shall mean any Subsidiary which has been --------------------- designated by the Board from time to time in its sole discretion as eligible to participate in the Plan. (g) "Employee" shall mean any individual who is an Employee of the -------- Company for tax purposes whose customary employment with the Company is at least twenty (20) hours per week and more than five (5) months in any calendar year. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on sick leave or other leave of absence approved by the Company. Where the period of leave exceeds 90 days and the individual's right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the 91st day of such leave. (h) "Enrollment Date" shall mean the first Trading Day of each --------------- Offering Period. (i) "Exercise Date" shall mean the last Trading Day of each Purchase ------------- Period. (j) "Fair Market Value" shall mean, as of any date, the value of ----------------- Common Stock determined as follows: (1) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq 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 on the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; (2) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for the Common Stock on the date of such determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; (3) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board; or (4) For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value shall be the initial price to the public as set forth in the final prospectus included within the registration statement in Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Company's Common Stock (the "Registration Statement"). (k) "Offering Periods" shall mean the periods of approximately twelve ---------------- (12) months during which an option granted pursuant to the Plan may be exercised, commencing on the first Trading Day on or after May 1 and November 1 of each year and terminating on the last Trading Day in the periods ending twelve (12) months later; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before October 31, 1999. The duration and timing of Offering Periods may be changed pursuant to Section 4 of this Plan. (l) "Plan" shall mean this 1998 Employee Stock Purchase Plan. ---- (m) "Purchase Period" shall mean the approximately six month period --------------- commencing after one Exercise Date and ending with the next Exercise Date, provided, that the first Purchase Period of any Offering Period shall commence on the Enrollment Date and end with the next Exercise Date; provided further, that the first Purchase Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and shall end on the last Trading Day on or before April 30, 1999. -2- (n) "Purchase Price" shall mean 85% of the Fair Market Value of a -------------- share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be adjusted by the Board pursuant to Section 20. (o) "Reserves" shall mean the number of shares of Common Stock -------- covered by each option under the Plan which have not yet been exercised and the number of shares of Common Stock which have been authorized for issuance under the Plan but not yet placed under option. (p) "Subsidiary" shall mean a corporation, domestic or foreign, of ---------- which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary. (q) "Trading Day" shall mean a day on which national stock exchanges ----------- and the Nasdaq System are open for trading. 3. Eligibility. ----------- (a) Any Employee who shall be employed by the Company on a given Enrollment Date shall be eligible to participate in the Plan. (b) Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) to the extent that, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Subsidiary, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans of the Company and its subsidiaries accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year in which such option is outstanding at any time. 4. Offering Periods. The Plan shall be implemented by consecutive, ---------------- overlapping Offering Periods with a new Offering Period commencing on the first Trading Day on or after May 1 and November 1 of each year, or on such other date as the Board shall determine, and continuing thereafter until terminated in accordance with Section 20 hereof; provided, however, that the first Offering Period under the Plan shall commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company's Registration Statement effective and ending on the last Trading Day on or before October 31, 1999. The Board shall have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future offerings without stockholder approval if such change is announced prior to the scheduled beginning of the first Offering Period to be affected thereafter. -3- 5. Participation. ------------- (a) An eligible Employee may become a participant in the Plan by completing a subscription agreement authorizing payroll deductions in the form of Exhibit A to this Plan and filing it with the Company's payroll office prior to the applicable Enrollment Date. (b) Payroll deductions for a participant shall commence on the first payroll following the Enrollment Date and shall end on the last payroll in the Offering Period to which such authorization is applicable, unless sooner terminated by the participant as provided in Section 10 hereof. 6. Payroll Deductions. ------------------ (a) At the time a participant files his or her subscription agreement, he or she shall elect to have payroll deductions made on each pay day during the Offering Period in an amount not exceeding fifteen percent (15%) of the Compensation which he or she receives on each pay day during the Offering Period. (b) All payroll deductions made for a participant shall be credited to his or her account under the Plan and shall be withheld in whole percentages only. A participant may not make any additional payments into such account. (c) A participant may discontinue his or her participation in the Plan as provided in Section 10 hereof, or may increase or decrease the rate of his or her payroll deductions during the Offering Period by completing or filing with the Company a new subscription agreement authorizing a change in payroll deduction rate. The Board may, in its discretion, limit the number of participation rate changes during any Offering Period. The change in rate shall be effective with the first full payroll period following five (5) business days after the Company's receipt of the new subscription agreement unless the Company elects to process a given change in participation more quickly. A participant's subscription agreement shall remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof. (d) Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's payroll deductions may be decreased to zero percent (0%) at any time during a Purchase Period. Payroll deductions shall recommence at the rate provided in such participant's subscription agreement at the beginning of the first Purchase Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in Section 10 hereof. (e) At the time the option is exercised, in whole or in part, or at the time some or all of the Company's Common Stock issued under the Plan is disposed of, the participant must make adequate provision for the Company's federal, state, or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock. At any time, -4- the Company may, but shall not be obligated to, withhold from the participant's compensation the amount necessary for the Company to meet applicable withholding obligations, including any withholding required to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Employee. 7. Grant of Option. On the Enrollment Date of each Offering Period, each --------------- eligible Employee participating in such Offering Period shall be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of the Company's Common Stock determined by dividing such Employee's payroll deductions accumulated prior to such Exercise Date and retained in the Participant's account as of the Exercise Date by the applicable Purchase Price; provided that in no event shall an Employee be permitted to purchase during each Purchase Period more than 3,334 shares of the Company's Common Stock (subject to any adjustment pursuant to Section 19), and provided further that such purchase shall be subject to the limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of the Company's Common Stock an Employee may purchase during each Purchase Period of such Offering Period. Exercise of the option shall occur as provided in Section 8 hereof, unless the participant has withdrawn pursuant to Section 10 hereof. The option shall expire on the last day of the Offering Period. 8. Exercise of Option. ------------------ (a) Unless a participant withdraws from the Plan as provided in Section 10 hereof, his or her option for the purchase of shares shall be exercised automatically on the Exercise Date, and the maximum number of full shares subject to option shall be purchased for such participant at the applicable Purchase Price with the accumulated payroll deductions in his or her account. No fractional shares shall be purchased; any payroll deductions accumulated in a participant's account which are not sufficient to purchase a full share shall be retained in the participant's account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the participant as provided in Section 10 hereof. Any other monies left over in a participant's account after the Exercise Date shall be returned to the participant. During a participant's lifetime, a participant's option to purchase shares hereunder is exercisable only by him or her. (b) If the Board determines that, on a given Exercise Date, the number of shares with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares available for sale under the Plan on such Exercise Date, the Board may in its sole discretion (x) provide that the Company shall make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect, or (y) provide that the Company shall make a pro rata allocation of the shares available for purchase on such Enrollment Date or -5- Exercise Date, as applicable, in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 20 hereof. The Company may make pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Company's stockholders subsequent to such Enrollment Date. 9. Delivery. As promptly as practicable after each Exercise Date on -------- which a purchase of shares occurs, the Company shall arrange the delivery to each participant, as appropriate, of a certificate representing the shares purchased upon exercise of his or her option. 10. Withdrawal. ---------- (a) A participant may withdraw all but not less than all the payroll deductions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by giving written notice to the Company in the form of Exhibit B to this Plan. All of the participant's payroll deductions credited to his or her account shall be paid to such participant promptly after receipt of notice of withdrawal and such participant's option for the Offering Period shall be automatically terminated, and no further payroll deductions for the purchase of shares shall be made for such Offering Period. If a participant withdraws from an Offering Period, payroll deductions shall not resume at the beginning of the succeeding Offering Period unless the participant delivers to the Company a new subscription agreement. (b) A participant's withdrawal from an Offering Period shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering Periods which commence after the termination of the Offering Period from which the participant withdraws. 11. Termination of Employment. ------------------------- Upon a participant's ceasing to be an Employee, for any reason, he or she shall be deemed to have elected to withdraw from the Plan and the payroll deductions credited to such participant's account during the Offering Period but not yet used to exercise the option shall be returned to such participant or, in the case of his or her death, to the person or persons entitled thereto under Section 15 hereof, and such participant's option shall be automatically terminated. The preceding sentence notwithstanding, a participant who receives payment in lieu of notice of termination of employment shall be treated as continuing to be an Employee for the participant's customary number of hours per week of employment during the period in which the participant is subject to such payment in lieu of notice. -6- 12. Interest. No interest shall accrue on the payroll deductions of a -------- participant in the Plan. 13. Stock. ----- (a) Subject to adjustment upon changes in capitalization of the Company as provided in Section 19 hereof, the maximum number of shares of the Company's Common Stock which shall be made available for sale under the Plan shall be 200,000 shares, plus an annual increase to be added on the first day of the Company's fiscal year beginning in 1999 equal to the lesser of (i) 266,667 shares, (ii) 1.0% of the outstanding shares on such date or (iii) a lesser amount determined by the Board. (b) The participant shall have no interest or voting right in shares covered by his option until such option has been exercised. (c) Shares to be delivered to a participant under the Plan shall be registered in the name of the participant or in the name of the participant and his or her spouse. 14. Administration. The Plan shall be administered by the Board or a -------------- committee of members of the Board appointed by the Board. The Board or its committee shall have full and exclusive discretionary authority to construe, interpret and apply the terms of the Plan, to determine eligibility and to adjudicate all disputed claims filed under the Plan. Every finding, decision and determination made by the Board or its committee shall, to the full extent permitted by law, be final and binding upon all parties. 15. Designation of Beneficiary. -------------------------- (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to an Exercise Date on which the option is exercised but prior to delivery to such participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death prior to exercise of the option. If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. -7- 16. Transferability. Neither payroll deductions credited to a --------------- participant's account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in Section 15 hereof) by the participant. Any such attempt at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof. 17. Use of Funds. All payroll deductions received or held by the Company ------------ under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. 18. Reports. Individual accounts shall be maintained for each participant ------- in the Plan. Statements of account shall be given to participating Employees at least annually, which statements shall set forth the amounts of payroll deductions, the Purchase Price, the number of shares purchased and the remaining cash balance, if any. 19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, --------------------------------------------------------------------- Merger or Asset Sale. -------------------- (a) Changes in Capitalization. Subject to any required action by the ------------------------- stockholders of the Company, the Reserves, the maximum number of shares each participant may purchase each Purchase Period (pursuant to Section 7), as well as the price per share and the number of shares of Common Stock covered by each option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration". Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, the Offering Period then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Board. The New Exercise Date shall be before the date of the Company's proposed dissolution or liquidation. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New -8- Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. (c) Merger or Asset Sale. In the event of a proposed sale of all or -------------------- substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, any Purchase Periods then in progress shall be shortened by setting a new Exercise Date (the "New Exercise Date") and any Offering Periods then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company's proposed sale or merger. The Board shall notify each participant in writing, at least ten (10) business days prior to the New Exercise Date, that the Exercise Date for the participant's option has been changed to the New Exercise Date and that the participant's option shall be exercised automatically on the New Exercise Date, unless prior to such date the participant has withdrawn from the Offering Period as provided in Section 10 hereof. 20. Amendment or Termination. ------------------------ (a) The Board of Directors of the Company may at any time and for any reason terminate or amend the Plan. Except as provided in Section 19 hereof, no such termination can affect options previously granted, provided that an Offering Period may be terminated by the Board of Directors on any Exercise Date if the Board determines that the termination of the Offering Period or the Plan is in the best interests of the Company and its stockholders. Except as provided in Section 19 and this Section 20 hereof, no amendment may make any change in any option theretofore granted which adversely affects the rights of any participant. To the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any other applicable law, regulation or stock exchange rule), the Company shall obtain stockholder approval in such a manner and to such a degree as required. (b) Without stockholder consent and without regard to whether any participant rights may be considered to have been "adversely affected," the Board (or its committee) shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company's processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant's Compensation, and establish such other limitations or procedures as the Board (or its committee) determines in its sole discretion advisable which are consistent with the Plan. (c) In the event the Board determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Board may, in its discretion and, to the -9- extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to: (1) altering the Purchase Price for any Offering Period including an Offering Period underway at the time of the change in Purchase Price; (2) shortening any Offering Period so that Offering Period ends on a new Exercise Date, including an Offering Period underway at the time of the Board action; and (3) allocating shares. Such modifications or amendments shall not require stockholder approval or the consent of any Plan participants. 21. Notices. All notices or other communications by a participant to the ------- Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof. 22. Conditions Upon Issuance of Shares. Shares shall not be issued with ---------------------------------- respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law. 23. Term of Plan. The Plan shall become effective upon the closing date ------------ of the Company's initial public offering of its equity securities registered on Form S-1 with the Securities and Exchange Commission. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 20 hereof. 24. Automatic Transfer to Low Price Offering Period. To the extent ----------------------------------------------- permitted by any applicable laws, regulations, or stock exchange rules if the Fair Market Value of the Common Stock on any Exercise Date in an Offering Period is lower than the Fair Market Value of the Common Stock on the Enrollment Date of such Offering Period, then all participants in such Offering Period shall be automatically withdrawn from such Offering Period immediately after the exercise of their -10- option on such Exercise Date and automatically re-enrolled in the immediately following Offering Period as of the first day thereof. -11- EXHIBIT A --------- CITYSEARCH, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN SUBSCRIPTION AGREEMENT _____ Original Application Enrollment Date: ___________ _____ Change in Payroll Deduction Rate _____ Change of Beneficiary(ies) 1. _______________________________ hereby elects to participate in the CitySearch, Inc. 1998 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to purchase shares of the Company's Common Stock in accordance with this Subscription Agreement and the Employee Stock Purchase Plan. 2. I hereby authorize payroll deductions from each paycheck in the amount of ____% of my Compensation on each payday (not to exceed 15%) during the Offering Period in accordance with the Employee Stock Purchase Plan. (Please note that no fractional percentages are permitted.) 3. I understand that said payroll deductions shall be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Employee Stock Purchase Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option. 4. I have received a copy of the complete Employee Stock Purchase Plan. I understand that my participation in the Employee Stock Purchase Plan is in all respects subject to the terms of the Plan. I understand that my ability to exercise the option under this Subscription Agreement is subject to stockholder approval of the Employee Stock Purchase Plan. 5. Shares purchased for me under the Employee Stock Purchase Plan should be issued in the name(s) of (Employee or Employee and Spouse only):_________ _________________________________________________. 6. I understand that if I dispose of any shares received by me pursuant to the Plan within 2 years after the Enrollment Date (the first day of the Offering Period during which I purchased such shares) or one year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price which I paid for the shares. I - hereby agree to notify the Company in writing --------------------------------------------- within 30 days after the date of any disposition of my shares and I will ------------------------------------------------------------------------ make adequate provision for Federal, state or other tax withholding ------------------------------------------------------------------- obligations, if any, which arise upon the disposition of the Common Stock. ------------------------------------------------------------------------- The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the 2-year and 1-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (1) the excess of the fair market value of the shares at the time of such disposition over the purchase price which I paid for the shares, or (2) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain. 7. I hereby agree to be bound by the terms of the Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Employee Stock Purchase Plan. 8. In the event of my death, I hereby designate the following as my beneficiary(ies) to receive all payments and shares due me under the Employee Stock Purchase Plan: NAME: (Please print)______________________________________________ (First) (Middle) (Last) ________________________________ _____________________________________________ Relationship _____________________________________________ (Address) -2- Employee's Social Security Number: ____________________________________ Employee's Address: ____________________________________ ____________________________________ ____________________________________ I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME. Dated:_________________________ _____________________________________ Signature of Employee _____________________________________ Spouse's Signature (If beneficiary other than spouse) -3- EXHIBIT B --------- CITYSEARCH, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN NOTICE OF WITHDRAWAL The undersigned participant in the Offering Period of the CitySearch, Inc. 1998 Employee Stock Purchase Plan which began on ____________, 19____ (the "Enrollment Date") hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned under stands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned shall be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement. Name and Address of Participant: _____________________________________ _____________________________________ _____________________________________ Signature: _____________________________________ Date:________________________________ EX-10.4 8 1998 DIRECTOR OPTION PLAN EXHIBIT 10.4 CITYSEARCH, INC. 1998 DIRECTOR OPTION PLAN 1. Purposes of the Plan. The purposes of this 1998 Director Option Plan -------------------- are to attract and retain the best available personnel for service as Outside Directors (as defined herein) of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board. All options granted hereunder shall be nonstatutory stock options. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "Board" means the Board of Directors of the Company. (b) "Closing Date" means the closing date of the Company's initial public offering of its equity securities registered on Form S-1 with the Securities and Exchange Commission. (c) "Common Stock" means the common stock of the Company. (d) "Code" means the Internal Revenue Code of 1986, as amended. (e) "Company" means CitySearch, Inc., a Delaware corporation. (f) "Current Outside Director" means a Director who is an Outside Director as of the Closing Date. (g) "Director" means a member of the Board. (h) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (i) "Employee" means any person, including officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a Director's fee by the Company shall not be sufficient in and of itself to constitute "employment" by the Company. (j) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (k) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Board. (l) "Inside Director" means a Director who is an Employee. (m) "New Outside Director" means an Outside Director who joins the Board after the Closing Date. (n) "Option" means a stock option granted pursuant to the Plan. (o) "Optioned Stock" means the Common Stock subject to an Option. (p) "Optionee" means a Director who holds an Option. (q) "Outside Director" means a Director who is not an Employee. (r) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (s) "Plan" means this 1998 Director Option Plan. (t) "Share" means a share of the Common Stock, as adjusted in accordance with Section 10 of the Plan. (u) "Subsidiary" means a "subsidiary corporation," whether now or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of 1986. 3. Stock Subject to the Plan. Subject to the provisions of Section 10 of ------------------------- the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 200,000 Shares, plus an annual increase to be added on the first day of the Company's fiscal year (beginning in 1999) equal to the lesser of (i) the number of Shares needed to restore the maximum aggregate number of Shares available for sale under the Plan to 200,000 Shares, or (ii) a lesser amount determined by the Board (the "Pool"). The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan. -2- 4. Administration and Grants of Options under the Plan. All grants of --------------------------------------------------- Options to Outside Directors under this Plan shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions: (a) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options. (b) Each Current Outside Director who is a Chairman of the Board as of the Closing Date shall be automatically granted an Option to purchase 33,334 Shares (the "Chairman Option") and each Current Outside Director shall be automatically granted an option to purchase 16,667 Shares (a "Current First Option") on the date effective date of this Plan as determined in accordance with Section 6 hereof. (c) Each New Outside Director shall be automatically granted an Option to purchase 13,334 Shares ( a "New First Option", together with a Chairman Option and a Current First Option, a "First Option") on the date which such person first becomes an Outside Director, whether through election by the stockholders of the Company or appointment by the Board to fill a vacancy; provided, that an Inside Director who ceases to be an Inside Director but who remains a Director shall not receive a New First Option. (d) Each New Outside Director shall be automatically granted an Option to purchase 3,334 Shares (a "Subsequent Option") on the date of the annual meeting of the stockholders of each year provided he or she is then an Outside Director and if as of such date, he or she shall have served on the Board for at least the preceding six (6) months. (e) Notwithstanding the provisions of subsections (b) and (c) hereof, any exercise of an Option granted before the Company has obtained stockholder approval of the Plan in accordance with Section 16 hereof shall be conditioned upon obtaining such stockholder approval of the Plan in accordance with Section 16 hereof. (f) The terms of a First Option and Subsequent Option granted hereunder shall be as follows: (i) the term of the Option shall be ten (10) years. (ii) the Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Sections 8 and 10 hereof. (iii) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date of grant of the Option. (iv) subject to Section 10 hereof, the Option shall become exercisable as to twenty-five percent (25%) of the Shares subject to the Option on the first anniversary of its date of grant, and 1/48 of the Shares subject to the Option at the end of each full month thereafter, provided that the Optionee continues to serve as a Director on such dates. (g) In the event that any Option granted under the Plan would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased under Options to exceed the Pool, then the remaining Shares available for Option grant shall be granted under -3- Options to the Outside Directors on a pro rata basis. No further grants shall be made until such time, if any, as additional Shares become available for grant under the Plan through action of the Board or the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder. 5. Eligibility. Options may be granted only to Outside Directors. All ----------- Options shall be automatically granted in accordance with the terms set forth in Section 4 hereof. The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate the Director's relationship with the Company at any time. 6. Term of Plan. The Plan shall become effective on the Closing Date. ------------ It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 11 of the Plan. 7. Form of Consideration. The consideration to be paid for the Shares to --------------------- be issued upon exercise of an Option, including the method of payment, shall consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (iv) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan, or (v) any combination of the foregoing methods of payment. 8. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Stockholder. Any Option ----------------------------------------------- granted hereunder shall be exercisable at such times as are set forth in Section 4 hereof; provided, however, that no Options shall be exercisable until stockholder approval of the Plan in accordance with Section 16 hereof has been obtained. An Option may not be exercised for a fraction of a Share. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 7 of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a -4- stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment shall be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 10 of the Plan. Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Continuous Status as a Director. Subject to ---------------------------------------------- Section 10 hereof, in the event an Optionee's status as a Director terminates (other than upon the Optionee's death or Disability), the Optionee may exercise his or her Option, but only within three (3) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of such termination, and to the extent that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (c) Disability of Optionee. In the event Optionee's status as a ---------------------- Director terminates as a result of Disability, the Optionee may exercise his or her Option, but only within twelve (12) months following the date of such termination, and only to the extent that the Optionee was entitled to exercise it on the date of such termination (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of termination, or if he or she does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. (d) Death of Optionee. In the event of an Optionee's death, the ----------------- Optionee's estate or a person who acquired the right to exercise the Option by bequest or inheritance may exercise the Option, but only within twelve (12) months following the date of death, and only to the extent that the Optionee was entitled to exercise it on the date of death (but in no event later than the expiration of its ten (10) year term). To the extent that the Optionee was not entitled to exercise an Option on the date of death, and to the extent that the Optionee's estate or a person who acquired the right to exercise such Option does not exercise such Option (to the extent otherwise so entitled) within the time specified herein, the Option shall terminate. 9. Non-Transferability of Options. Unless provided otherwise by the ------------------------------ Administrator, the Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate. -5- 10. 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 covered by each outstanding Option, the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per Share covered by each such outstanding Option, and the number of Shares issuable pursuant to the automatic grant provisions of Section 4 hereof shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option. (b) Dissolution or Liquidation. In the event of the proposed -------------------------- dissolution or liquidation of the Company, to the extent that an Option has not been previously exercised, it shall terminate immediately prior to the consummation of such proposed action. (c) Merger or Asset Sale. In the event of a substantial merger -------------------- or an acquisition of the Company, the Chairman Options and the Current First Options shall have their vesting fully accelerated, prior to the consummation of such merger or acquisition. All outstanding Options may be assumed or equivalent options may be substituted by the successor corporation or a Parent or Subsidiary thereof (the "Successor Corporation"). If an Option is assumed or substituted for, the Option or equivalent option shall continue to be exercisable as provided in Section 4 hereof for so long as the Optionee serves as a Director or a director of the Successor Corporation. If the Successor Corporation does not assume an outstanding Option or substitute for it an equivalent option, the Option shall terminate as of the date of the closing of the merger or asset sale. For the purposes of this Section 10(c), an Option shall be considered assumed if, following the merger or acquisition, the Option confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or acquisition, the consideration (whether stock, cash, or other securities or property) received in the merger or acquisition 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). If such consideration received in the merger or acquisition is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of -6- 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 acquisition. 11. Amendment and Termination of the Plan. ------------------------------------- (a) Amendment and Termination. The Board may at any time amend, ------------------------- alter, suspend, or discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with any applicable law, regulation or stock exchange rule, the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or ---------------------------------- termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated. 12. Time of Granting Options. The date of grant of an Option shall, for ------------------------ all purposes, be the date determined in accordance with Section 4 hereof. 13. Conditions Upon Issuance of Shares. Shares shall not be issued ---------------------------------- pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 14. Reservation of Shares. The Company, during the term of this Plan, --------------------- will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. -7- 15. Option Agreement. Options shall be evidenced by written option ---------------- agreements in such form as the Board shall approve. 16. 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 degree and manner required under applicable state and federal law and any stock exchange rules. -8- CITYSEARCH, INC. 1998 DIRECTOR OPTION PLAN DIRECTOR OPTION AGREEMENT 1. Grant of Option. Effective as of today, _______________, 19__, --------------- CitySearch, Inc., a Delaware corporation (the "Company"), hereby grants to _______________________ (the "Optionee"), a nonstatutory stock option to purchase a total of ___________ (_____) shares of the Company's Common Stock ("Common Stock"), at the price determined as provided herein, and in all respects subject to the terms, definitions and provisions of the Company's 1998 Director Option Plan (the "Plan") adopted by the Company which is incorporated herein by reference. The terms defined in the Plan shall have the same defined meanings herein. 2. Exercise Price. The exercise price is $_______ for each share of -------------- Common Stock. 3. Exercise of Option. This Option shall be exercisable during its term ------------------ in accordance with the provisions of Section 8 of the Plan as follows: (a) Right to Exercise. ----------------- (i) This Option shall become exercisable in installments cumulatively with respect to twenty-five percent (25%) of the shares subject to the Option on the first anniversary of the date of grant, and as to an additional 1/48 of the shares subject to the Option at the end of each full month thereafter, subject to Optionee continuing to provide services as a Director, so that one hundred percent (100%) of the Optioned Stock shall be exercisable four years after the date of grant; provided, however, that in no event shall any Option be exercisable prior to the date the stockholders of the Company approve the Plan. (ii) This Option may not be exercised for a fraction of a share. (iii) In the event of Optionee's death, Disability or other termination of service as a Director, the exercisability of the Option is governed by Section 8 of the Plan. (b) Method of Exercise. This Option shall be exercisable by written ------------------ notice which shall state the election to exercise the Option and the number of Shares in respect of which the Option is being exercised. Such written notice, in the form attached hereto as Exhibit A, shall be signed by the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company. The written notice shall be accompanied by payment of the exercise price. 4. Method of Payment. Payment of the exercise price shall be by any of ----------------- the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; or (c) surrender of other shares which (x) in the case of Shares acquired upon exercise of an option, have been owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; or (d) delivery of a properly executed exercise notice together with such other documentation as the Company and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price. 5. Restrictions on Exercise. This Option may not be exercised if the ------------------------ issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulations, or if such issuance would not comply with the requirements of any stock exchange upon which the Shares may then be listed. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. 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 this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 7. Term of Option. This Option may not be exercised more than ten (10) -------------- years from the date of grant of this Option, and may be exercised during such period only in accordance with the Plan and the terms of this Option. 8. Taxation Upon Exercise of Option. Optionee understands that, upon -------------------------------- exercise of this Option, he or she will recognize income for tax purposes in an amount equal to the excess of the then Fair Market Value of the Shares purchased over the exercise price paid for such Shares. Since the Optionee is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain limited circumstances the measurement and timing of such income (and the commencement of any capital gain holding period) may be deferred, and the Optionee is advised to contact a tax advisor concerning the application of Section 83 in general and the availability a Section 83(b) election in particular in connection with the exercise of the Option. Upon a resale of such Shares by the Optionee, any difference between the sale price and the Fair Market Value of the Shares on the date of exercise of the Option, to the extent not included in income as described above, will be treated as capital gain or loss. -2- Optionee acknowledges receipt of a copy of the Plan, a copy of which is attached hereto, and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under the Plan. OPTIONEE: CITYSEARCH, INC. ______________________________ ___________________________________ Signature By ______________________________ ___________________________________ Print Name Title ______________________________ Residence Address ______________________________ -3- EXHIBIT A --------- 1998 DIRECTOR OPTION PLAN DIRECTOR OPTION EXERCISE NOTICE CitySearch, Inc. [Address] Attention: Secretary 1. Exercise of Option. The undersigned ("Optionee") hereby elects to ------------------ exercise Optionee's option to purchase ______ shares of the Common Stock (the "Shares") of CitySearch, Inc. (the "Company") under and pursuant to the Company's 1998 Director Option Plan and the Director Option Agreement dated _______________ (the "Agreement"). 2. Representations of Optionee. Optionee acknowledges that Optionee has --------------------------- received, read and understood the Agreement. 3. Tax Consequences. Optionee understands that Optionee may suffer ---------------- adverse tax consequences as a result of Optionee's purchase or disposition of the Shares. Optionee represents that Optionee has consulted with any tax consultant(s) Optionee deems advisable in connection with the purchase or disposition of the Shares and that Optionee is not relying on the Company for any tax advice. 4. Delivery of Payment. Optionee herewith delivers to the Company the ------------------- aggregate purchase price for the Shares that Optionee has elected to purchase and has made provision for the payment of any federal or state withholding taxes required to be paid or withheld by the Company. 5. Entire Agreement. The Agreement is incorporated herein by reference. ---------------- This Exercise Notice, the Plan and the Agreement constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof. This Exercise Notice, the Plan and the Agreement are governed by California law except for that body of law pertaining to conflict of laws. Submitted by: Accepted by: PURCHASER: CITYSEARCH, INC. ______________________________ ___________________________________ Signature By ______________________________ ___________________________________ Print Name Its Address: Address: - ------- ------- ______________________________ ___________________________________ ______________________________ ___________________________________ ______________________________ Date Received -2- EX-10.12 9 LEASE AGREEMENT WITH WEST END LAND DEVELOPMENT EXHIBIT 10.12 LEASE AGREEMENT by and between WEST END LAND DEVELOPMENT CO., L.P. ("Landlord") and CITYSEARCH, INC. ("Tenant") dated November 7th, 1996 for Fourth Floor containing 4,556 square feet of net rentable area at One Church Street 101 Church Street Nashville, Tennessee Term: 5 Years TABLE OF CONTENTS
PAGE ---- Article I SUMMARY OF LEASE PROVISIONS AND EXHIBITS..................... 1 SECTION 1.1 - Fundamental Lease Provisions........................ 1 Article II PREMISES AND TERM............................................ 3 SECTION 2.1 - Demised Premises.................................... 3 SECTION 2.2 - Term and Right of Termination....................... 3 SECTION 2.3 - Completion and Occupancy............................ 5 Article III CONSTRUCTION................................................. 6 SECTION 3.1 - Landlord's Work..................................... 6 SECTION 3.2 - Early Commencement Date............................. 6 SECTION 3.3 - Ownership of Improvements........................... 6 Article IV RENT......................................................... 7 SECTION 4.1 - Payment............................................. 7 SECTION 4.2 - Fixed Minimum Rent.................................. 7 SECTION 4.3 - Adjustment of Fixed Minimum Rent.................... 7 SECTION 4.4 - Operating Expenses.................................. 7 SECTION 4.5 - Late Payment Penalty................................ 9 SECTION 4.6 - Additional Rent..................................... 9 SECTION 4.7 - Rent for a Partial Month............................ 9 SECTION 4.8 - Payment by Automatic Transfer....................... 9 SECTION 4.9 - Services Provided to Landlord....................... 10 Article V UTILITY SERVICES............................................. 10 SECTION 5.1 - Utilities........................................... 10 Article VI LANDLORD'S ADDITIONAL COVENANTS.............................. 11 SECTION 6.1 - Repairs by Landlord................................. 11 SECTION 6.2 - Quiet Enjoyment..................................... 12 SECTION 6.3 - Landlord's Liability................................ 12 SECTION 6.4 - Services............................................ 12 SECTION 6.5 - Common Areas........................................ 13 SECTION 6.6 - Signage............................................. 13 SECTION 6.7 - Indemnity........................................... 13 Article VII TENANT'S ADDITIONAL COVENANTS................................ 13 SECTION 7.1 - Affirmative Covenants............................... 13 SECTION 7.2 - Negative Covenants.................................. 17
i Article VIII DESTRUCTION AND CONDEMNATION.................................... 18 SECTION 8.1 - Fire or other Casualty............................... 18 SECTION 8.2 - Eminent Domain....................................... 19 Article IX DEFAULTS AND REMEDIES........................................... 20 SECTION 9.1 - Default.............................................. 20 SECTION 9.2 - Bankruptcy........................................... 20 SECTION 9.3 - Remedies of Landlord................................. 21 SECTION 9:4 - Waiver of Jury Trial; Tenant Not to Counterclaim..... 22 SECTION 9.5 - Holdover by Tenant................................... 22 SECTION 9.6 - Landlord's Right to Cure Defaults.................... 22 SECTION 9:7 - Effect of Waivers of Default......................... 23 SECTION 9.8 - Security Deposit..................................... 23 SECTION 9.9 - Landlord's Default................................... 23 Article X MISCELLANEOUS PROVISIONS........................................ 23 SECTION 10.1 - Notices.............................................. 23 SECTION 10.2 - Estoppel Certificates................................ 23 SECTION 10.3 - Applicable Law and Construction...................... 24 SECTION 10.4 - Cancellation......................................... 24 SECTION 10.5 - Binding Effect of Lease.............................. 24 SECTION 10.6 - Effect of Unavoidable Delays......................... 24 SECTION 10.7 - Subordination........................................ 25 SECTION 10.8 - No Waiver............................................ 26 SECTION 10.9 - No Oral Changes...................................... 26 SECTION 10.10 - No Representations by Landlord....................... 26 SECTION 10.11 - Changes in Entrances and Other Public Areas.......... 26 SECTION 10.12 - Risk of Loss or Damage to Personal Property, Etc..... 27 SECTION 10.13 - Rules and Regulations................................ 27 SECTION 10.14 - Real Estate Commissions.............................. 27 SECTION 10.15 - Attorney's Fees...................................... 27
ii ARTICLE I --------- SUMMARY OF LEASE PROVISIONS AND EXHIBITS SECTION 1.1 - Fundamental Lease Provisions: - ------------------------------------------ DATE: November 7/th/, 1996 COMMENCEMENT DATE: December 1, 1996 subject to adjustment pursuant to Section 2.2 TERMINATION DATE: November 30, 2000 LANDLORD: West End Land Development Co., L.P. ADDRESS OF LANDLORD: West End Land Development Co., L.P. c/o Grace Development, Inc. 3309 Fairmont Drive Nashville, Tennessee 37203 TENANT: CitySearch Inc. ADDRESS OF TENANT: CitySearch, Inc. Attn: Chief Financial Officer 790 Colorado Boulevard Pasadena, California 91101 BUILDING ADDRESS: One Church Street 101 Church Street Nashville, Tennessee 37219 FIXED MINIMUM RENT: Year 1 $47,844 - $3,987 per month ($10.50 psf) Year 2 $47,844 - $3,987 per month ($10.50 psf) Year 3 $47,844 - $3,987 per month ($10.50 psf) Year 4 $47,844 - $3,987 per month ($10.50 psf) Year 5 $47,844 - $3,987 per month ($10.50 psf) 1 NET RENTABLE AREA: 4,556 square feet TENANT'S PRO-RATA PERCENTAGE AND OPERATING EXPENSES: 15.07% 1997 Base Year Operating Expense Stop LEASE TERM AND RIGHT OF EARLY TERMINATION: Five (5) years. Right of termination following year three (3) of Lease as set forth in Section 2.2. RENEWAL OPTIONS: One (1) Renewal Option of Five (5) years. PERMITTED USE: Office SECURITY DEPOSIT: N/A SECTION 1.2 - Effect of Summary and Reference to Fundamental Lease Provisions: - ----------------------------------------------------------------------------- Each reference in this Lease to any of the Fundamental Lease Provisions contained in Section 1.1 shall be construed to incorporate all of the terms provided under such Fundamental Lease Provision. SECTION 1.3 - EXHIBITS: - ---------------------- The exhibits listed in this Section and attached to this Lease are hereby incorporated in and made a part of this Lease: Exhibit "A" - Site Plan and Legal Description Exhibit "B" - Space Plan Exhibit "C" - Description of Landlord's Work 2 ARTICLE II PREMISES AND TERM SECTION 2.1 - Demised Premises: - ------------------------------ Landlord hereby leases to Tenant and Tenant hires and takes from Landlord the premises (the "Premises" or "Demised Premises") consisting of 4,556 net rentable square feet located on the Fourth Floor of the building known as One Church Street, 101 Church Street, Nashville, Tennessee (the "Building") on the parcel of land (the "Parcel") shown and described on Exhibit "A" hereof and ----------- located at Nashville, Tennessee, the Premises being that certain space and being delineated on the Space Plan, attached hereto as Exhibit "B", subject to and ----------- with the benefits of the terms of this Lease, together with the appurtenances specifically granted in this Lease, but reserving and excepting to Landlord (i) the use of (a) the exterior faces of the walls and (b) the roof, and (ii) the right to install, maintain, use, repair and replace pipes, ducts, conduits and wires through the Demised Premises serving the other parts of the Building provided that Landlord's reserved and excepted uses and rights shall not unreasonably interfere with Tenant's use of the Premises. SECTION 2.2 - Term and Right of Termination: - ------------------------------------------- The term of this Lease shall be for a period of five (5) years commencing on the Commencement Date (as hereinafter defined), which is anticipated to be on or about December 1, 1996, plus the period from the Commencement Date to the first day of the calendar month next following said Commencement Date if the Commencement Date occurs on a day other than the first day of the calendar month (the "Term"). The Term shall end five (5) years thereafter (the "Expiration Date"), subject to the right of Tenant to terminate this Lease as provided for in this Section 2.2. Landlord and Tenant agree to execute an addendum or letter agreement following the execution of the Lease specifying the Commencement Date if it is other than December 1, 1996. The Commencement Date shall be the earlier of: (i) the date the Demised Premises are ready for Tenant's occupancy, or (ii) the date Tenant occupies the Demised Premises with the consent of the Landlord, and shall end at noon at the end of the Lease Term, unless sooner terminated as hereinafter provided; subject, however, to the provisions of Section 2.3. Prior to the Commencement Date, and during the time of Landlord's carrying out of the completion of the Landlord's Work as set forth in Section 3.1 herein, Tenant shall have the right following the date of the execution of a letter of intent by Landlord and Tenant to occupy temporary space in the Building, consisting of approximately 2,000 square feet located on the Third Floor of the Building (the "Temporary Premises"). Tenant shall pay rent to Landlord for Tenant's occupancy of the Temporary Premises in the amount of $1,500.00 per month calculated on a pro-rata basis for the number of days of occupancy until the Commencement Date. Tenant shall observe and perform all of its obligations under this Lease, except for the payment of the 3 Fixed Minimum Rent as provided for herein, from and after the date upon which the Temporary Premises are made available to Tenant until the Commencement Date of the Term of this Lease in the same manner as though the Commencement Date of the Term of this Lease began when the Temporary Premises were so made available to Tenant. Tenant shall have the option, upon the terms and conditions set forth herein, to extend the Term for the Premises for one (1) period of five (5) years (the "Renewal Term"), by notifying Landlord in writing of its exercise of said option at least one hundred twenty (120) days prior to the expiration date of the Term. Rent payable for the Renewal Term period shall be at a fair market rental rate. Following notice by Tenant to Landlord of Tenant's exercise of the option to renew as provided for herein, Landlord and Tenant shall negotiate this rate and, if a fair market rental rate cannot be determined and mutually agreed to by Landlord and Tenant within thirty (30) days of the date of Tenant's notice of the exercise of the option, the option to extend the Term shall expire and be of no further force or effect. Tenant's right to exercise the foregoing option to extend the Term for lease of the Premises is subject to this Lease being in full force and effect and Tenant not being in default under any provisions of this Lease at the time notice of the exercise of such option to renew is given, or on the last day of the Term immediately preceding the commencement of the ensuing Renewal Term. Failure by Tenant to notify Landlord of Tenant's exercise of any option herein granted in the manner and within the time period set forth herein shall constitute a waiver of said option to renew. Tenant shall have the right of first refusal to lease the Fourth Floor adjacent space to the Premises in the Building, as set forth herein. If such Fourth Floor space shall become vacant or available for lease to the general public, and prior to Landlord agreeing to lease any of such space to a prospective tenant, Landlord shall offer such space for lease to Tenant upon terms and conditions similar to the terms offered to any prospective tenant of such space. Said offer to Tenant shall be conveyed in writing or verbal, at Landlord's sole discretion. Tenant shall have twenty (20) days to exercise said right of first refusal following the date of Landlord's notice to Tenant of such right to lease. If Tenant exercises said right, Tenant shall enter into a lease agreement substantially similar to the form of this Lease, except for such terms as the rental, term, and other provisions which were contained in the offer to the prospective tenant for said adjacent space. Failure by Tenant to notify Landlord of Tenant's exercise of such right of first refusal shall constitute a waiver of said right. Notwithstanding the foregoing, but only so long as Tenant has not breached any of the terms, provisions, and covenants of this Lease, Tenant shall have the right following the first three (3) years of the Term of this Lease, and upon not less than one hundred eighty (180) days advance written notice from Tenant to Landlord computed following the expiration of said three (3) years, and following payment by Tenant to Landlord in advance of all unamortized construction costs of Landlord which constitute Landlord's Work (as hereinafter defined) and any unamortized real estate commissions payable hereunder (the "Termination Fee"), to terminate this Lease. The Termination Fee is payable to Landlord as of the time of the notice of Tenant's 4 exercise of said right, but Tenant nevertheless shall be liable for the Fixed Minimum Rent and any other amounts due hereunder for said one hundred eighty (180) day period, as well as any other provisions of this Lease during such period. SECTION 2.3 - Completion and Occupancy: - -------------------------------------- 2.3.1 Subject to delay by causes beyond the reasonable control of Landlord, or by the action or inaction of Tenant, Landlord shall endeavor to have the Premises ready for Tenant's occupancy on or before a reasonable period of time following execution of this Lease but not to exceed sixty (60) days. If the Demised Premises are not ready for the Tenant's occupancy on such date, then this Lease shall not be affected thereby but, in such case, such date shall be postponed until the date when the Demised Premises are ready for Tenant's occupancy. and Tenant shall not have any claim against Landlord, and Landlord shall have no liability to Tenant, by reason of any such postponement of such specific date. Notwithstanding the foregoing, if the Demised Premises are not ready for the Tenant's occupancy within ninety (90) days of the date of Landlord and Tenant's execution of this Lease, Tenant shall have the right to terminate this Lease. 2.3.2 The Demised Premises shall be conclusively deemed ready for Tenant's occupancy as soon as (i) a certificate (temporary or final) permitting occupancy of the Demised Premises has been issued by the governmental authority having jurisdiction, and (ii) the initial installations and work to be done by Landlord (referred to on Exhibit "C" annexed hereto and made a part hereof) in the ----------- Demised Premises have been substantially completed by Landlord in accordance with the obligations assumed by Landlord hereunder. Tenant shall cooperate with Landlord in obtaining a certificate of occupancy for the Premises. The Fixed Minimum Rent and all additional rent to be paid under this Lease shall commence on the Commencement Date. Notwithstanding the aforesaid, Tenant shall pay the first monthly installment of Fixed Minimum Rent on the execution of this Lease. The Demised Premises shall not be deemed to be unready for Tenant's occupancy or incomplete, nor shall the Commencement Date be delayed. if only minor or insubstantial details of construction, decoration or mechanical adjustments remain to be done in the Premises, or if the delay in the availability of the Premises for occupancy shall be due to special work, changes, alterations or additions required or made by Tenant in the layout or finish of the Premises or any part thereof or shall be caused in whole or in part by Tenant through the delay of Tenant in submitting any plans and/or drawings (including, but not limited to, the final plans and drawings referred to on Exhibit "C" hereof), ----------- supplying information, approving estimates or giving authorizations or shall be caused in whole or in part by delay and/or default on the part of Tenant. Notwithstanding the foregoing, Landlord and Tenant shall approve the final punch-list for the construction of the Demised Premises prior to the time that the Demised Premises shall be deemed to be ready for Tenant's occupancy. 2.3.3 Landlord and Tenant acknowledge the final plans and drawings for completion of the Landlord's Work (as shown on the drawings attached hereto as Exhibit "C") If Tenant delays in submitting to Landlord any additional - ----------- information required for the Landlord's carrying out of the Landlord's Work, such as approving estimates, or in giving authorizations or otherwise or 5 if Tenant makes any changes, alterations or additions to said plans, any additional cost to Landlord in connection with the completion of the Premises in accordance with the terms of this Lease and said Exhibit "C" shall be promptly ----------- paid by Tenant to Landlord as additional rent. ARTICLE III ----------- CONSTRUCTION SECTION 3.1 - Landlord's Work: - ----------------------------- Landlord shall perform the work ("Landlord's Work") with respect to the Demised Premises on behalf of Tenant as set forth in the description of the Landlord's Work attached -hereto as Exhibit "C". As an accommodation to Tenant, ----------- Landlord shall give Tenant thirty (30) days advance notice of the estimated date for completion of the Landlord's Work. The giving of such notice of the estimated date of completion of the Landlord's Work, or the failure to give such notice, shall not affect the respective obligations of the parties under this Lease. SECTION 3.2 - Early Commencement Date: - ------------------------------------- If Landlord has substantially completed the Landlord's Work prior to the specific date mentioned in Section 2.2 hereof, Tenant may, with the prior written consent of Landlord, enter into possession of the Demised Premises. Under such circumstances, the Lease Term shall commence on the date ("Early Commencement Date") Landlord delivers possession of the Demised Premises to Tenant, and all rent, Additional Rent and other charges payable by Tenant hereunder, shall accrue on and after the Early Commencement Date. SECTION 3.3 - Ownership of Improvements: - --------------------------------------- All structural installations, alterations, additions or improvements (the "Improvements") upon the Premises made by either party, shall, at the option of the Landlord, become the property of the Landlord and shall remain upon and be surrendered with the Premises as a part thereof at the expiration or sooner termination of the Lease Term. Notwithstanding the foregoing, Landlord may, at its option, specify which Improvements that have been made by the Tenant shall be removed from the Demised Premises at the expiration or sooner termination of the Lease Term. Tenant, at its own expense, shall remove such specified Improvements, and Tenant shall, at its expense, promptly repair any damage caused by such removal. Movable office furniture and trade fixtures which are installed by Tenant at its expense shall remain the property of Tenant and may be removed at any time prior to the expiration of the Lease Term, provided Tenant promptly repairs any damage caused by such removal. 6 ARTICLE IV ---------- RENT SECTION 4.1 - Payment: - --------------------- All Fixed Minimum Rent and other charges payable to Landlord under any provision of this Lease shall be paid to Landlord, or as Landlord may otherwise designate, in lawful money of the United States which shall be legal tender in payment of all debts and dues, public and private, at the time of payment at the Address of Landlord or at such other place as Landlord in writing may designate, without any set-off or deduction whatsoever and without any prior demand therefor. Ln addition to the payment of Fixed Minimum Rent and other charges. Tenant shall also pay to Landlord, at the time of payment of such Fixed Minimum Rent and other charges, all sales, use or occupancy taxes payable by virtue of any such payments. SECTION 4.2 - Fixed Minimum Rent: - -------------------------------- Tenant shall pay the annual Fixed Minimum Rent in equal monthly installments in advance on the first day of each calendar month included in the Lease Term. The first monthly installment of Fixed Minimum Rent shall be paid on the signing of this Lease as provided in Section 2.3.2 hereof. SECTION 4.3 - Adjustment of Fixed Minimum Rent: N/A. - ---------------------------------------------- SECTION 4.4 - Operating Expenses: - -------------------------------- 4.4.1 In addition to the Fixed Minimum Rent, Tenant shall pay to Landlord its pro-rata share of the increase in Operating Expenses (as such term is hereinafter defined) over the first Lease year which shall be defined as 1997. Such pro-rata share shall be determined by multiplying the Operating Expenses by the Tenant's Percentage referred to in Section 1.1 hereof. The Operating Expenses for each prospective calendar year shall be determined and estimated by Landlord. Tenant agrees to pay its share of Operating Expenses, as additional rent, in monthly payments in advance during the term of this Lease as may be estimated by Landlord. At the end of each calendar year, Landlord shall advise Tenant of Tenant's share of the Operating Expenses payable for such year as computed on the accrual basis based upon the costs thereof to Landlord. Tenant upon written request to Landlord shall be provided with an itemized cost analysis in reasonable detail and shall have the right to review the records in support of Landlord's calculation of Tenant's share of the Operating Expenses. If Tenant's review of Landlord's records in support of Tenant's share of the Operating Expenses results in a finding that Landlord overcharged Tenant, Tenant shall have the right to require Landlord to bill Tenant for Tenant's share of Operating Expenses annually as opposed to being paid in monthly payments as provided for in this Section 4.4.1. If there shall have been an underpayment by Tenant, Tenant shall forthwith pay the difference, and if there shall be an overpayment by Tenant, Tenant shall be given a credit towards the next due payment(s) of its share of Operating Expenses. The 7 Operating Expenses payable by Tenant as provided for herein shall not increase from the immediately preceding annual period by more than four percent (4%); and, provided that any and all non-controllable items which comprise the Operating Expenses (such as real estate taxes, premiums paid for insurance on the Building and similar items) shall be payable by Tenant and not subject to such limitation. 4.4.2 For the purposes of this Section 4.4, the term "Operating Expenses" shall include all reasonable and customary costs and expenses relating to the operation and maintenance of the Building as an office building, including, but not limited to, costs of replacement for tools and equipment, reasonable amounts paid to managing agents of the Building, amounts paid for legal or other professional services related to the Premises, costs of clerical and accounting staff and costs of telephone, telegraph, postage, stationery supplies and other materials required by such staff, amounts paid to contractors for services, materials and supplies (including without limitation, the servicing and maintenance of the elevator, plumbing, heating, air conditioning, ventilating, lighting, electrical, security and fire alarms and other systems and equipment), reasonable premiums paid for insurance, cost of equipment rental, including applicable taxes, costs of electricity, water and other utilities, Real Estate Taxes (hereinafter defined), and costs of painting the Premises or Common Areas. The term "Operating Expenses" shall also include all costs and expenses relating to the operation and maintenance of the Parcel and all improvements thereon, including without limitation all costs of landscape maintenance and the materials and supplies incident thereto, all costs and expenses relating to the maintenance and operation of all entrances, exits, parking areas, driveways, curbs, walks, and exterior lighting, reasonable premiums for public liability and other insurance. For the purposes of this Section 4.4, the term "Real Estate Taxes" shall include all real estate taxes, assessments (general and special) and other governmental impositions and charges of every kind and nature whatsoever, extraordinary as well as ordinary, foreseen or unforeseen, and each and every installment thereof, which shall or may during the Lease Term be levied, assessed, imposed, become due and payable, or liens upon, or arise in connection with the use, occupancy or possession of, or grow due or payable out of, or for, the Building or any part thereof, the Parcel and all improvements thereon. Operating Expenses and Real Estate Taxes do not include, nor shall Tenant be obligated to contribute towards, any expenses associated in any way with Landlord's compliance with the Americans with Disabilities Act, toxic or hazardous materials regulations (whether federal, state or local) or asbestos abatement or containment other than materials introduced into the Premises by Tenant. SECTION 4.5 - Late Payment Penalty: - ---------------------------------- A penalty of three and one-half percent (3-1/2%) per month of the Fixed Minimum Rent and any additional rent provided for in this Lease shall be assessed, due and payable immediately upon tender of the payment for the Fixed Minimum Rent and additional rent if said payment is not received by the tenth (lOth) day next following the due date of such rental payment. If payment is received after the twentieth (2Oth) day of the month, the penalty shall be increased to eight percent (8%) per month if such payment is not made. 8 SECTION 4.6 - Additional Rent: N/A - ----------------------------- SECTION 4.7 - Rent for a Partial Month: - -------------------------------------- For any portion of a calendar month at the beginning or end of the Lease Term, Tenant shall pay 1/3Oth of the monthly installment of Fixed Minimum Rent and additional rent for each day of such portion of a month payable in advance at the beginning of such period. SECTION 4.8 - Payment by Automatic Transfer: - ------------------------------------------- Instead of requiring Tenant to pay Fixed Minimum Rent, Operating Expenses, or other charges in a manner pursuant to Section 4.1, Landlord may, if Tenant shall agree to the same upon not less than thirty (30) days' prior notice to Tenant, request Tenant to execute promptly and deliver to Landlord any documents, instruments, authorizations, or certificates required by Landlord to give effect to an automated debiting system, whereby any or all payments by Tenant (as designated from time to time by Landlord) of whatsoever nature required or contemplated by this Lease shall be debited monthly or from time to time, as determined by Landlord, from Tenant's account in a bank or financial institution designated by Tenant and credited to Landlord's bank account as Landlord shall designate from time to time. Tenant shall promptly pay all reasonable service fees and other reasonable charges connected therewith including, without limitation, any charges resulting from insufficient funds in Tenant's bank account or any charges imposed on the Landlord. In the event that Tenant elects to designate a different bank or financial institution from which any Fixed Minimum Rent. Operating Expenses, or other charges under this Lease are automatically debited, notification of such change and the required documents, instruments, authorizations, and certificates as specified in this Section 4.8 must be received by Landlord no later than thirty (30) days prior to the date such change is to become effective. Tenant agrees that it shall remain responsible to Landlord for all payments of Fixed Minimum Rent, Operating Expenses. and other charges pursuant to this Lease, even if Tenant's bank account is incorrectly debited in any given month. Such Fixed Minimum Rent, Operating Expenses, and other charges shall be immediately payable to Landlord upon written demand. SECTION 4.9 - Services Provided to Landlord: - ------------------------------------------- Tenant acknowledges that Landlord has undertaken to pay the entire cost of the Landlord's Work as provided for in Section 3.1 herein, which cost is in excess of the cost of Landlord's original estimates to construct suitable space for Tenant in the Building. In consideration of the foregoing, Tenant shall provide to Landlord, or any of its affiliates, for a period of three (3) years from the date of publication (i.e., the date of publication of an information site on the World Wide Web) an information site consisting of up to 14 pages within the CitySearch Nashville service at a rate of fifty percent (50%) of the standard commercial rate charged for such 9 information site. Such services shall include design, photography and lay-out, updates and any similar services provided by Tenant. Prior to providing such services, Landlord shall execute Tenant's standard Information Site Agreement. In exchange for the above, Landlord agrees to use its reasonable best efforts to promote the CitySearch service to its other tenants and other vendors and business associates of Landlord. For example, Landlord agrees to promote Tenant in Landlord's newsletter, presentations and contacts with other vendors and business associates. ARTICLE V --------- UTILITY SERVICES SECTION 5.1 - Utilities: - ----------------------- Provided that Tenant is not in default hereunder, Landlord agrees to furnish to the Premises electricity for normal desk top office equipment and normal copying equipment, and heating, ventilation and air conditioning ("HVAC") as required in Landlord's judgment for the comfortable use and occupancy of the premises, 365 days per year, 24 hours per day at no additional cost to Tenant. Landlord shall also maintain and keep lighted the common stairs, common entries and restrooms in the Building. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the Rent be abated by reason of (i) the installation, use or interruption of use of any equipment in connection with the furnishing of any of the foregoing services if beyond the reasonable control of Landlord, (ii) failure to furnish or delay in furnishing any such services where such failure or delay is caused by accident or any condition or event beyond the reasonable control of Landlord, or by the making of necessary repairs or improvements to the Premises, Building or Project, or (iii) the limitation, curtailment or rationing of, or restrictions on, use of water, electricity, gas or any other form of energy serving the Premises. Building or Project if beyond the reasonable control of Landlord. Landlord shall not be liable under any circumstances for a loss of or injury to property or business, however occurring, through or in connection with or incidental to failure by third parties to furnish any such services. If Tenant uses heat generating machines or equipment in the Premises which affect the temperature otherwise maintained by the HVAC system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation, operation and maintenance thereof, shall be paid by Tenant to Landlord upon demand by Landlord. Landlord shall use reasonable efforts to correct all services provided for hereunder. Tenant shall not, without the written consent of Landlord, use any apparatus or devise in the Premises, including without limitation, electronic data processing machines, punch card machines or machines using in excess of 120 volts, which consumes more electricity than is usually furnished or supplied for the use of premises as general office space, as determined by Landlord. Tenant shall not connect any apparatus with electric current except through existing electrical outlets in the Premises. Tenant shall not consume water or electric current in excess of that usually furnished or supplied for the use of Premises as general office space (as determined by Landlord), without first procuring the written consent of Landlord, which Landlord may refuse, and in the event of consent. Landlord may have installed a water meter or electrical current meter in the Premises to measure the amount of water or electric current consumed. The cost of any such meter and of its installation, maintenance and repair shall be paid for by the Tenant and Tenant agrees to pay to Landlord promptly upon demand for all such water and electric current consumed as shown by said meters, at the rates charged for such services by the local public utility plus any additional expense incurred in keeping account of the water and electric current so consumed. If a separate meter is not installed, the excess cost for such water and electric current shall be established by an estimate made by a utility company or electrical engineer hired by Landlord at Tenant's expense. ARTICLE VI ---------- LANDLORD'S ADDITIONAL COVENANTS SECTION 6.1 - Repairs by Landlord: - --------------------------------- Landlord covenants to keep, in good order, repair and condition the foundations and roof of the Building and the structural soundness of the floors and walls thereof and the pipes, ducts, conduits and wires running through the Demised Premises and installed therein as part of the Landlord's Work (but not including Tenant's service connections thereto) except as affected by any work by or for Tenant or the negligence, act or omission of Tenant, its employees, agents and invitees. Landlord shall not be required to commence any repair until after notice from the Tenant that the same is necessary, which notice, except in the case of an emergency, shall be in writing and shall allow Landlord seven (7) days in which to commence such repair. The provisions of this Section shall not apply in the case of damage by fire or casualty or by eminent domain, in which events the obligations of the Landlord shall be controlled by the applicable provisions of this Lease. Except as provided in this Section, Landlord shall not be obligated to make repairs, replacements or improvements of any kind upon the Demised Premises or upon any equipment or facilities or fixtures contained herein, all of which shall be the responsibility of Tenant. Landlord acknowledges that Tenant shall have no responsibility for completion of the Landlord's Work and for the Premises following such work to be in compliance with applicable building, health and environmental ordinances or regulations of any federal, state and local entities. SECTION 6.2 - Quiet Enjoyment: - ----------------------------- Landlord covenants that Tenant, on paying the Fixed Minimum Rent and additional rent and performing Tenant's obligations under this Lease shall peacefully and quietly have, hold and enjoy the Demised Premises throughout the Lease Term, subject to the other terms and provisions of this Lease and to all mortgages and underlying leases to which this Lease may be or become subject and subordinate. Landlord covenants that any construction or renovation in the Building 11 following the date of the execution of this Lease shall not unreasonably or adversely affect Tenant's ability to conduct its business within the Premises. SECTION 6.3 - Landlord's Liability: - ---------------------------------- In the event of a sale or assignment by Landlord of its interest in the Building, then, and in that event, Landlord shall thereupon be entirely relieved of all terms, covenants, and obligations thereafter to be performed by Landlord under this Lease and it shall be deemed and construed, without further agreement, that the transferee or lessee, as the case may be, has assumed and agreed to carry out any and all covenants and obligations of Landlord hereunder. SECTION 6.4 - Services: - ---------------------- Landlord will furnish the following services to Tenant: (a) Automatically operated elevator service at all times and on all days throughout the year subject to such security arrangements (by key operation or otherwise) during non-business hours as Landlord shall deem prudent and necessary. (b) Heat and air conditioning, as necessary, to the public portions of the Building. (c) Landlord shall furnish such cleaning of the Demised Premises as in the judgment of Landlord is normal and usual in office buildings similar to the Building provided that (i) the Premises are kept in order by Tenant; (ii) Landlord shall not be required to clean storage rooms data processing, computers or similar equipment; and (iii) any shampooing or cleaning of carpets more than one (1) time per year and other than normal vacuuming shall be at Tenant's own expense. Such services shall be provided so long as the Tenant is not in default under any of the terms, provisions, covenants and conditions of this Lease, subject to interruptions caused by repairs, renewals, improvements, changes of service, alterations, strikes, lockouts, labor controversies, inability to obtain fuel or power, accidents, breakdowns, catastrophes, national or local emergencies, acts of God, and conditions and causes beyond the reasonable control of Landlord; and upon such happening, no claim for damages or abatement of rent for failure to furnish any such services shall be made by the Tenant or allowed by the Landlord. SECTION 6.5 - Common Areas: - -------------------------- Tenant and Tenant's agents, employees and invitees shall have the right to use, in common with Landlord and Landlord's tenants and the agents, employees, and invitees of each, the public sidewalks, entrances, lobbies, vestibules, stairways, corridors, elevators, public toilets, and other public areas of the Building subject, however, to applicable rules, regulations, and security measures; and Tenant and Tenant's agents, employees, and invitees shall not obstruct or litter, 12 or use for storage, temporary or otherwise, or for any purpose other than the intended or normal purpose, any of the public sidewalks, entrances, lobbies, vestibules, stairways, corridors, elevators, public toilets, and other public areas of the Building. SECTION 6.6 - Signage: - --------------------- Tenant may have installed a sign identifying Tenant at Tenant's entrance to its suite subject to Landlord's reasonable approval. Tenant shall also be identified in the lobby directory. Both such signs shall be paid for by Landlord. SECTION 6.7 - Indemnity: - ----------------------- To defend and save Tenant harmless and indemnified from all loss, claims or damage (including attorney's fees and disbursements) to any person or property arising from, related to or in connection with any work performed by or for Landlord in the Building, other than losses, claims or damage resulting from or caused by Tenant's negligence or any of its agents or employees. ARTICLE VII ----------- TENANT'S ADDITIONAL COVENANTS SECTION 7.1 - Affirmative Covenants: - ----------------------------------- Tenant covenants, at its own expense, at all times during the Lease Term: 7.1.1 To perform promptly all of the obligations of Tenant set forth in this Lease and in the exhibits attached hereto and to pay, when due, the Fixed Minimum Rent and other charges and additional rents which by the terms of this Lease are to be paid by Tenant. 7.1.2 To use the Demised Premises only for the Permitted Use and to abide by and conform to any and all use restrictions set forth in the certificate of occupancy issued for the Demised Premises, all applicable occupation permits, the recorded plat, all agreements filed of record and all other laws, orders, rules and regulations of any governmental authority having or claiming jurisdiction over the Demised Premises. 7.1.3 Except for repairs required to be performed by Landlord pursuant to the provisions of this Lease, to keep the Demised Premises, including the equipment, facilities and fixtures therein, at Tenant's sole costs and expense, in good order, repair, condition and free of vermin. 7.1.4 Other than the Landlord's Work as set forth in Section 3.1, and except for the work described in Section 4.4.2, to pay promptly, when due, the entire costs of any work to the Demised Premises, including equipment, facilities and fixtures therein, undertaken by Tenant when permitted or required to do so under the provisions of this Lease so that the Demised 13 Premises shall at all times be free of liens for labor and materials; to procure all necessary permits before undertaking such work; to do all such work in a good and workmanlike manner acceptable to Landlord, employing materials of good quality; to perform such work in such manner as to insure proper maintenance of labor relationships; to comply with all governmental requirements relating thereto and to save Landlord harmless and indemnified from all injury, loss, claims or damage to any person or property occasioned by or growing out of such work. 7.1.5 To defend and save Landlord harmless and indemnified from all injury, loss, claims or damage (including attorney's fees and disbursements) to any person or property arising from, related to or in connection with any work performed by or for Tenant in the Demised Premises, other than losses, claims or damage resulting from or caused by Landlord's negligence or any of its agents or employees. 7.1.6 To maintain in responsible companies approved by Landlord (i) liability insurance, with contractual liability endorsement covering the matters set forth in this Lease, against all claims, demands or actions for injury to or death of any one person in an amount of not less than $1,000,000 and for injury to or death of more than one person in any one accident or occurrence to the limit of not less than $2,000,000 and for damage to property in an amount not less than $1,000,000 made by or on behalf of any person or persons, firms or corporations arising from, relating to or connected with the conduct and operation of Tenant's business at the Demised Premises or caused by actions or omissions to act, where there is a duty to act, of Tenant, its agents, servants and contractors; and (ii) fire insurance, with such extended coverage endorsements as Landlord may reasonably from time to time require, covering all of Tenant's fixtures, furniture, furnishing, floor coverings and equipment at the Demised Premises in an amount not less than one hundred percent (100%) of their full replacement cost. All of said insurance shall be in form satisfactory to Landlord and shall provide that it shall not be subject to cancellation, termination or change except after at least thirty (30) days prior written notice to Landlord. All insurance provided by Tenant as required under this Section shall be carried in favor of Landlord and Tenant, as their respective interests may appear. All liability policies shall provide that although the Landlord is named insured, it shall nevertheless be entitled to recover under said policies for any loss or damage to Landlord resulting from Tenant's negligence. The policies, or duly executed certificates for the same, including any renewals, together with satisfactory evidence of the payment of the premium thereof, shall be deposited with Landlord within twenty (20) days of the written request of Landlord. If Tenant fails to comply with such requirement, Landlord may, but shall not be obligated to, obtain such insurance and keep the same in effect and Tenant shall pay Landlord the premium costs thereof upon demand 7.1.7 To pay on demand any increase in premiums that may be charged on insurance carried by Landlord or for which Landlord may be obligated to make reimbursement to other tenants or occupants of the Building under the terms of their respective leases or occupancy agreements resulting from Tenant's use or occupancy of the Demised Premises, or from any vacancy of the Demised Premises, provided, however, Tenant shall not be required to pay any amounts that exceed ten percent (10%) from the immediately preceding policy term, whether or 14 not Landlord has consented to same. In determining whether increased premiums are the result of Tenant's use or occupancy or vacancy of the Demised Premises, a schedule or "make-up" rate of the organization issuing the coverage, or any and all risk insurance rates for said premises, or any rule books issued by the rating organization or similar bodies or by rating procedures or rules of Landlord's insurance company shall be conclusive evidence of the items and charges which make up the insurance rates and premiums on the Demised Premises and the Building. 7.1.8 To waive all claims for loss or damage to Tenant's business or damage to personal property sustained by Tenant or any person claiming through Tenant resulting from any accident or occurrence in or upon the Demised Premises or the Building, unless caused by or resulting from the negligence of Landlord, its agents, servants or employees. 7.1.9 To permit Landlord or Landlord's agents to enter upon the Demised Premises at all reasonable times to examine same and to make such repairs, alterations, improvements or additions in the Demised Premises or in the Building as may be necessary and to allow Landlord to take all materials into and upon said premises that may be required therefor without the same constituting an eviction of Tenant, in whole or in part, and all rents shall in no wise abate while such repairs, alterations, improvements, or additions are being made by reason of loss or interruption of business of Tenant because of the performance of any such work. Landlord or Landlord's agents shall also have the right to enter upon the Demised Premises at reasonable times to show them to prospective mortgage or or purchasers of the Building. During the 90 days prior to the expiration of the Term of this Lease, Landlord may show the Demised Premises to prospective tenants and Landlord may also place upon the Demised Premises the usual notices "To Let" or "For Rent", which notices Tenant shall permit to remain thereon without molestation. If, during the last month of the Term. Tenant shall have removed all or substantially all of Tenant's property therefrom, Landlord may immediately enter and alter, renovate and redecorate the Demised Premises without elimination or abatement of rent or additional rent or other compensation and such action shall have no effect upon this Lease. 7.1.10 To pay Landlord's expenses, including reasonable attorney's, architect's and engineer's fees, incurred in enforcing any obligation of Tenant under this Lease or incurring any default by Tenant under this Lease, assuming Landlord is the prevailing party in such enforcement action. 7.1.11 Forthwith to cause to be discharged of record (by payment, bond, order of a court of competent jurisdiction or otherwise) any mechanic's lien at any time filed against the Demised Premises or the Building for any work, labor, services or materials claimed to have been performed at, or furnished to Tenant, excluding the Landlord's Work. If Tenant shall fail to cause such lien to be discharged upon demand, then, in addition to any other right or remedy of Landlord, Landlord may, but shall not be obligated to, discharge the same by paying the amount claimed to be due or by bonding or other proceeding deemed appropriate by Landlord and the amount so paid by Landlord and/or all costs and expense, including reasonable attorney's fees, incurred by Landlord in procuring the discharge of such lien shall be deemed to be additional rent. Nothing in this Lease contained shall be construed as a consent on the part of the Landlord 15 to subject Landlord's estate in the Demised Premises or the Building to any lien or liability under any laws, orders, rules and regulations of any governmental authority having or claiming jurisdiction over the Demised Premises. The Tenant shall not have any authority to create any liens for labor or material on the Landlord's interest in the Demised Premises or the realty of which the Demised Premises form a part and all persons contracting with the Tenant for the destruction or removal of any facilities or other improvements or for the erection, installation, alteration, or repair of any facilities or other improvements on or about the Demised Premises, and all materialmen, contractors, mechanics, and laborers, are hereby charged with notice that they must look only to the Tenant and to the Tenant's interests in the Demised Premises to secure the payment of any bill for work done or material furnished at the request or instruction of Tenant. 7.1.12 Upon the expiration or other termination of the Lease Term, to quit and surrender to Landlord the Demised Premises, broom clean, in good order and condition, ordinary wear and tear excepted, and at Tenant's expense, to remove all property of Tenant, to repair all damages to the Demised Premises caused by such removal and restore the Demised Premises to the condition in which they were prior to the installation of the articles so removed. Any property not so removed shall be deemed to have been abandoned by Tenant and may be retained or disposed of by Landlord, as Landlord shall desire, and if Landlord shall decide to dispose of same, such disposal shall be at the cost and expense of Tenant. 7.1.13 To remove all rubbish, dirt and debris from the Demised Premises, at its own cost and expense, utilizing a company approved by Landlord, subject to the obligation of Landlord to furnish normal and usual cleaning services as provided in Section 6.4 hereof. 7.1.14 To remain fully obligated under this Lease, notwithstanding any assignment or sublease or any indulgence granted by Landlord to Tenant or to any assignee or sublessee. SECTION 7.2 - Negative Covenants: - -------------------------------- Tenant covenants at all times during the Lease Term and such further time as Tenant occupies the Demised Premises, or any part thereof: 7.2.1 Not to injure, overload, deface or otherwise harm the Demised Premises or any equipment or installation therein; nor commit any waste or nuisance; nor permit the emission of any objectionable noise or odor; nor burn any trash or refuse in or about the Demised Premises; nor make any use of the Demised Premises, or any part thereof or equipment therein, which is improper, offensive or contrary to any law or ordinance or to reasonable rules or regulations of Landlord as such may be promulgated from time to time; nor park or permit its employees, agents, visitors or invitees to park automobiles or other vehicles so as to interfere with the use of driveways, entrances, exits, walks, roadways, highways, streets, or parking areas. Without limiting the foregoing provisions pertaining to overloading and noise, Tenant further covenants that (a) Tenant shall not place a load upon any floor of the Demised Premises which exceeds the load per square foot which such floor was designed to carry or which is allowed by law and (b) 16 business machines and mechanical equipment belonging to Tenant which cause noise, vibration or any other nuisance that may be transmitted to the structure or other portions of the Building or to the Demised Premises to such a degree as to be objectionable to Landlord, or which interfere with the use or enjoyment by other tenants of their premises or the public portions of the Building, shall be placed and maintained by Tenant, at Tenant's cost and expense, in settings sufficient to eliminate noise or vibration. Landlord reserves the right to approve the weight and position of all safes which Tenant desires to bring into the Demised Premises. 7.2.2 Except for placement and display of art work, erasable boards, other display materials, and routine cables (reparable with minor patching) and telephone lines, not to make any alterations or additions to the Demised Premises or the Building, nor permit the making of any holes in the walls, ceilings, or floors thereof installed as part of Landlord's Work, without on each occasion obtaining prior written consent of the Landlord, in which event the provisions of Paragraph 7.1.5 shall control. 7.2.3 Not to assign, sell, mortgage, encumber, pledge or in any manner transfer this Lease or any interest therein or sublet the Demised Premises or any part or parts thereof. or grant any concession or license or otherwise permit occupancy of all or any part thereof by anyone with, through, or under it, without the prior written consent of the Landlord, which consent may not be unreasonably withheld. 7.2.4 Not to place, install or maintain any sign, advertisement, notice or any other lettering upon the Parcel or any part thereof, the entrance door or doors to the Demised Premises, or upon or within the interior of the Building or any part thereof, except for such sign and/or lettering placed or installed by Landlord at its expense pursuant to Section 6.5 hereof. 7.2.5 Not to place or install any blinds, shades or other window coverings or treatments in the windows of the Demised Premises other than those furnished by Landlord without the prior written approval of Landlord; not to place or display any signs, advertising or other things of whatsoever kind, nature or description in the windows of the Demised Premises or within the Demised Premises so that the same are visible from outside of the Demised Premises; and not to wash or permit or suffer any contractor, employee or agent of Tenant to wash the exterior of any windows in the Demised Premises. ARTICLE VIII ------------ DESTRUCTION AND CONDEMNATION SECTION 8.1 - Fire or other Casualty: - ------------------------------------ 8.1.1 Tenant shall give prompt notice to Landlord in case of fire or other damage to the Demised Premises or the Building. 17 8.1.2 If (i) the Demised Premises shall be damaged to the extent of more than twenty-five percent (25%) of the cost of replacement thereof; or (ii) the proceeds of Landlord's insurance recovered or recoverable as a result of the damage shall be insufficient to pay fully for the cost of replacement of so much of the Demised Premises and/or the Building in which they are located as was included in the Landlord's Work referred to in Section 3.1 hereof; or (iii) the Demised Premises or the Building shall be damaged as a result of a risk which is not covered by Landlord's insurance; or (iv) the Demised Premises shall be damaged in whole or in part during the last six (6) months of the Lease Term; or (v) the Building of which the Demised Premises are a part shall be damaged to the extent of fifty percent (50%) or more of the cost of replacement thereof, whether or not the Demised Premises shall be damaged, then, and in any of such events, Landlord may terminate this Lease by notice given within sixty (60) days after such event in which case this Lease shall terminate effective upon the date the damage occurred and Tenant shall vacate and surrender the Demised Premises to Landlord. If the casualty, repairing or rebuilding shall render the Demised Premises untenantable in whole or in part, an equitable abatement of the Fixed Minimum Rent shall be allowed from the date when the damage occurred until completion of the repairs or rebuilding or, in the event Landlord elects to terminate this Lease, until said date of termination, taking into account, among other things, the amount and location of the floor space of the Demised Premises rendered untenantable. 8.1.3 If this Lease shall not be terminated as provided above, Landlord shall, at its expense, proceed with the repair or restoration of the Demised Premises and the Building. All repairs and restoration of the Demised Premises not included in Landlord's Work shall be performed by Tenant at its expense. All work of restoration by Landlord shall be done in conformity with Exhibit "C". ----------- All salvage from repair or restoration work done at any time pursuant to this Section shall belong to Landlord, who shall not be accountable therefor to Tenant. 8.1.4 If the Demised Premises shall be damaged or destroyed due to the fault and/or negligence of Tenant, its agents, employees or invitees, the cost of repairing or restoring the Demised Premises shall be paid by Tenant and the Fixed Minimum Rent and all other additional rents and charges herein shall not abate. SECTION 8.2 - Eminent Domain: - ---------------------------- 8.2.1 If the whole of the Demised Premises shall be taken by any public or quasi-public authority under the power of condemnation, eminent domain or expropriation, or in the event of a conveyance in lieu thereof, the Lease Term shall cease as of the date possession shall be taken by such authority. 8.2.2 If twenty-five percent (25%) or less of the Floor Space of the Demised Premises shall be so taken or conveyed, the Lease Term shall cease only with respect to the part so taken or conveyed, as of the date possession shall be taken by such authority. 18 8.2.3 If more than twenty-five percent (25%) of the Floor Space of the Demised Premises shall be so taken or conveyed, the Lease Term shall cease only with respect to the part so taken or conveyed, as of the date possession shall be taken by such authority, and either party shall have the right to terminate this Lease upon notice in writing within thirty (30) days after such taking of possession. 8.2.4 In the event of any such taking or conveyance of the Demised Premises, or any portion thereof, Tenant shall pay Fixed Minimum Rent and additional rent to the day when possession thereof shall be taken by such authority, with an appropriate refund by Landlord of such rent as may have been paid in advance for a period subsequent to such date. If this Lease shall continue in effect as to any portion of the Demised Premises not so taken or conveyed, the Fixed Minimum Rent shall be equitably reduced and the other charges shall thereafter be recomputed on the basis of the remaining Floor Space. If this Lease shall so continue, Landlord shall, at its expense, but only to the extent of an equitable proportion of the award or other compensation for the portion taken or conveyed of the Building in which the Demised Premises are located, make all necessary repairs or alterations so as to constitute the remaining Demised Premises a complete architectural and tenantable unit. 8.2.5 All compensation awarded for any such taking or conveyance, whether for the whole or a part of the Demised Premises or otherwise, shall be the property of Landlord, and Tenant hereby assigns to the Landlord all of Tenant's right, title and interest in and to any and all such compensation. ARTICLE IX ---------- DEFAULTS AND REMEDIES SECTION 9. 1 - Default: - ---------------------- 9.1.1 If Tenant defaults in fulfilling any of the covenants of this Lease, including, without limitation, the payment of Fixed Minimum Rent when due, or for the making of any other payment herein provided for, or for the performance of any other covenant on Tenant's part to be performed hereunder, and, in the case of Tenant's failure to pay Fixed Minimum Rent or other required charges and such failure continues for ten (10) days after such payment is due and following written notice from Landlord that the same is due, or in the case where Tenant fails to promptly and fully perform any other covenant, condition or agreement contained herein and such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant, provided that if such failure cannot be cured within thirty (30) days, if Tenant does not use reasonably diligent efforts to commence to cure such failure within said thirty (30) day period, then, in any one or more of such events, Landlord may serve upon Tenant a written notice ("Notice of Termination") that this Lease will terminate on a date to be specified therein, which shall not be less than fifteen (15) days after the giving of such notice, and upon the date so 19 specified, Tenant shall then quit and surrender the Demised Premises to Landlord, but Tenant shall remain liable as hereinafter set forth. 9.1.2 If the Notice of Termination provided for in the above paragraph shall have been given and this Lease shall be terminated, then, and in such event, Landlord may seek such remedies for recovery of possession of the Demised Premises, and for damages incurred, as provided for under the laws of the State of Tennessee. SECTION 9.2 - Bankruptcy: - ------------------------ 9.2.1 If there shall be filed against Tenant in any court, pursuant to any statute either of the United States or of any state, a petition in bankruptcy or insolvency or reorganization or the appointment of a receiver or trustee of all or a portion of Tenant's property and is not dismissed within sixty (60) days, or if Tenant shall voluntarily file any such petition, then, and in the event, the Lease shall be deemed canceled and terminated, subject to the right of the trustee, with the court's approval, to timely assume the unexpired Lease. If Tenant shall make an assignment for the benefit of creditors or enter into an arrangement, this Lease shall be deemed canceled and terminated, in which event neither Tenant nor any person claiming through or under Tenant shall be entitled to acquire or remain in possession of the Demised Premises and Landlord shall have no further liability hereunder to Tenant and any such person, if in possession, shall forthwith quit and surrender the Demised Premises. If this Lease shall be so canceled and terminated, Landlord, in addition to the other rights or remedies of Landlord contained herein, or by virtue of any statute or rule of law, may retain as liquidated damages the Security Deposit or any monies received by Landlord from Tenant or others on behalf of Tenant. In addition, Landlord shall be entitled to recover from Tenant, as liquidated damages, an amount equal to the difference between (i) the sum of (a) the annual Fixed Minimum Rent, and (b) all additional rents due for the remaining term of the Lease; and (ii) the present rental value of the Demised Premises at the time of termination for such unexpired term. If the Demised Premises, or any part thereof, be relet by Landlord for the unexpired term of said Lease, or any part thereof, before presentation of proof of such liquidated damages to any court, the amount of rent received upon such reletting shall be deemed prima facie to be the fair and reasonable rental value for the part of the whole of the premises so relet during the term of the reletting. SECTION 9.3 - Remedies of Landlord: - ---------------------------------- 9.3.1 In case of any such default, and Landlord elects not to terminate this Lease, (i) the Fixed Minimum Rent and additional rent shall become due thereupon and be paid up to the time of such default; (ii) Landlord may relet the Demised Premises, or any part or parts thereof, for a term which may at Landlord's option be less than or exceed the period which would have otherwise constituted the balance of the term of this Lease and may grant concessions or free rent; and (iii) Tenant or the legal representative of Tenant shall also pay Landlord, as liquidated damages for the failure of Tenant to observe and perform Tenant's covenants herein contained, for each month of the period constituting the balance of the Lease Term, any deficiency between (a) the sum of (1) one monthly installment of the Fixed Minimum Rent, and (2) the monthly 20 charge for Operating Expenses and other charges and (b) the net amount, if any, of the rents collected on account of the lease or leases of the Demised Premises for each month of the period which would otherwise have constituted the balance of the Lease Term. In computing such liquidated damages, there shall be added to the said deficiency such expenses as Landlord may incur in connection with the reletting, such as court costs, attorney's fees and disbursements, brokerage, and for putting and keeping the Demised Premises in good order or for preparing same for reletting, together with interest on the expenses so incurred at the then maximum lawful rate from the date of such expenditure to the date of repayment thereof to Landlord. Any such liquidated damages shall be paid in monthly installments by Tenant on the rent date specified in this Lease and any suit brought to collect the amount of deficiency for any month shall not prejudice in any way the rights of Landlord to collect the deficiency for any subsequent month by a similar proceeding. Landlord at Landlord's option, may make such alterations, repairs, replacements and/or decorations of the Demised Premises as Landlord, in Landlord's sole judgment, considers advisable and necessary for the purpose of reletting the Demised Premises and the making of such alterations and/or declaration shall not operate or be construed to release Tenant from liability hereunder. 9.3.2 In the case of such default and the Lease is terminated, Landlord may recover from Tenant, or the legal representative of Tenant, as liquidated damages (i) the worth at the time of termination of any unpaid Fixed Minimum Rent, additional rent, and other charges earned at the time of such termination; plus (ii) the worth at the time of the termination of the amount of the unpaid Fixed Minimum Rent, additional rent and other charges which Tenant would have paid for the remaining term of the Lease plus (iii) such expenses on other amounts to compensate Landlord for all the detriment proximately caused by Tenant's failure to fulfill any of the covenants of this Lease or which in the ordinary course of things would be likely to result therefrom, including without limitation, any costs or expenses incurred by Landlord in (1) maintaining or preserving the Premises after such default, (2) recovering possession of the Premises, including attorneys fees therefor, (3) expenses of reletting the Premises including necessary renovations or alterations of the Premises including necessary renovations or alterations of the Premises, attorneys fees and leasing commissions incurred, plus (4) such other amounts in addition to or in lieu of the foregoing as may be permitted by law. As used in Paragraph (i) above, the "worth at the time of termination" is computed by allowing interest on unpaid amounts at the maximum rate allowed by law. As used in Paragraph (ii) above the "worth at the time of termination" is computed by discounting such amount at the discount rate of the nearest Federal Reserve Bank in effect at the time of the award plus one percent (1%). 9.3.3 In the event of a breach by Tenant of any of the covenants or provisions hereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy in law or in equity. 21 SECTION 9.4 - Waiver of Jury Trial; Tenant Not to Counterclaim: N/A - -------------------------------------------------------------- SECTION 9.5 - Holdover by Tenant: - -------------------------------- In the event Tenant remains in possession of the Demised Premises after the expiration of the tenancy created hereunder, and without the execution of a new lease, Tenant, at the option of Landlord, shall be deemed to be occupying said Demised Premises as a tenant from month to month, at a monthly rental equal to one hundred fifty percent (150%) of the sum of (i) the monthly installment of Fixed Minimum Rent during the last month of the Lease Term; (ii) the monthly Operating Expenses payable for such month; and (iii) all other charges payable hereunder, subject to all of the other conditions, provisions and obligations of this Lease insofar as the same are applicable to a month-to-month tenancy. SECTION 9.6 - Landlord's Right to Cure Defaults: - ----------------------------------------------- Landlord may, but shall not be obligated to, cure, at any time, upon fifteen (15) days prior written notice to Tenant (except that notice shall not be required in the event of emergencies), any default by Tenant under this Lease and whenever Landlord so elects, all costs and expenses incurred by Landlord in curing such default, including, without limitation, reasonable attorneys' fees, together with interest on the amount of costs and expenses so incurred at the then maximum lawful rate, shall be paid by Tenant to Landlord on demand and shall be recoverable as additional rent. SECTION 9.7 - Effect of Waivers of Default: - ------------------------------------------ No consent or waiver, express or implied, by landlord to or of any breach of any covenant, condition or duty of Tenant shall be construed as a consent or waiver to or of any other breach of the same or any other covenant, condition or duty unless in writing signed by the Landlord. SECTION 9.8 - Security Deposit: N/A - ------------------------------ SECTION 9.9 - Landlord's Default: - -------------------------------- If Landlord fails to perform any covenant, condition, or agreement contained in this Lease within thirty (30) days after receipt of written notice from Tenant specifying such failure (or if such failure cannot reasonably be cured within thirty (30) days, if Landlord does not commence to cure the failure within that thirty (30) day period), then such failure shall constitute a default hereunder and Landlord shall be liable to Tenant for any damages sustained by Tenant as a result of Landlord's default. 22 ARTICLE X --------- MISCELLANEOUS PROVISIONS SECTION 10.1 - Notices: - ---------------------- Any notice or demand from Landlord to Tenant or from Tenant to Landlord shall be in writing and shall be deemed duly delivered if mailed by registered or certified mail, return receipt requested, addressed, if to Tenant, at the address of Tenant or such other address as Tenant shall have last designated by notice in writing to Landlord, and, if to Landlord, at the address of Landlord or such other address as Landlord shall have last designated by written notice to Tenant. Provided, however, notices to Tenant shall be deemed duly served or given if delivered or mailed to Tenant at the Premises. SECTION 10.2 - Estoppel Certificates: - ------------------------------------ Tenant agrees that it will, at reasonable intervals, within ten (10) days following written notice by Landlord, execute, acknowledge and deliver to Landlord a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been any modifications, that the same is in full force and effect as modified, stating the modifications) and the dates to which Fixed Minimum Rent and other payments due hereunder from Tenant have been paid in advance, if any, and stating whether or not to the best knowledge of the Tenant the Landlord is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default. SECTION 10.3 - Applicable Law and Construction: - ---------------------------------------------- The laws of the State of Tennessee shall govern the validity, performance and enforcement of this Lease. The invaliditv or unenforceability of any provision of this Lease shall not affect or impair any other provision. All negotiations, considerations, representations and understandings between the parties are incorporated in this Lease. The headings of the several articles and sections contained herein are for convenience only and do not define, limit or construe the contents of such articles or sections. SECTION 10.4 - Cancellation: - --------------------------- If Landlord shall be unable to deliver the Demised Premises ready for Tenant's occupancy within ninety (90) days of the date of the complete execution of the Lease (except that such date shall be extended as a result of (a) Unavoidable Delays of the type referred to in Section 10.6 hereof and (b) any delay caused by Tenant), this Lease shall, at the option of either Landlord or Tenant (exercisable by the giving of written notice of cancellation to the other party within ten (10) days after the specific date hereinbefore mentioned in this Subsection 10.4 as the same may be extended as herein provided), cease and be deemed canceled. Upon any such cancellation, this Lease shall be of no further force or effect and neither party shall have any right or claim 23 hereunder against the other except that upon such cancellation, Landlord shall be required to return to Tenant, without interest, the monthly installment of Fixed Minimum Rent and any other amounts paid upon the execution of this Lease. SECTION 10.5 - Binding Effect of Lease: - -------------------------------------- The covenants, agreements and obligations herein contained, except as herein otherwise specifically provided, shall extend to, bind and inure to the benefit of the parties hereto and their respective personal representatives, successors and permitted assigns. Each covenant, agreement, obligation or other provision herein contained shall be deemed and construed as a separate and independent covenant of the party bound by, undertaking or making the same, not dependent on any other provision of this Lease unless otherwise expressly provided. If any term, covenant, agreement or provision of this Lease shall be held by any court of competent jurisdiction to be against public policy and/or null and void, such term, covenant, agreement or provision shall be deemed not to have been included in this Lease and shall not affect the validity of the remaining terms, covenants, agreements or provisions of this Lease. SECTION 10.6 - Effect of Unavoidable Delays: - ------------------------------------------- The provisions of this Section shall be applicable if there shall occur, during the Lease Term, or prior to the commencement thereof, any (i) strike, lockout or labor dispute; (ii) inability to obtain labor or materials or reasonable substitutes therefor; or (iii) acts of God, governmental restrictions, regulations or controls, enemy or hostile governmental action, civil commotion, fire or other casualty or other conditions similar or dissimilar to those enumerated in this item (iii) any other circumstances beyond the reasonable control of the party obligated to perform. If Landlord or Tenant shall, as a result of any of the above described events, fail punctually to perform any obligation on its part to be performed under this Lease, then such failure shall be excused and not be a breach of this Lease by the party in question, but only to the extent occasioned by such event. If any right or option of any party to take any action under or with respect to this Lease is conditioned upon the same being exercised within any prescribed period of time or at or before a named date, then such prescribed period of time and such named date shall be deemed to be extended or delayed, as the case may be, for a period equal to the period of the delay occasioned by any above described event. Notwithstanding anything herein contained, however, the provisions of this Section shall not be applicable to Tenant's obligation to pay the Fixed Minimum Rent or additional rent under the provisions of Article IV or its obligation to pay any other sums, monies, costs, charges or expenses required to be paid by Tenant hereunder, unless the Premises are untenantable. SECTION 10.7 - Subordination: - ---------------------------- 10.7.1 Subject to Landlord and Tenant executing a reasonably satisfactory non-disturbance agreement, this Lease is subject and subordinate to all ground leases and/or underlying leases now or hereafter covering the real property of which the Demised Premises form a part and to all mortgages which may now or hereafter be placed on or affect such leases and/or such real 24 property, or any part or parts thereof, and/or Landlord's interest therein and to all renewals, modifications, amendments, consolidations, replacements or extensions thereof. This clause shall be self-operative and no further instrument of subordination shall be required by any mortgagee. In confirmation of such subordination, Tenant shall execute promptly any certificate that Landlord may request. Tenant hereby constitutes and appoints Landlord as the Tenant's attorney-in-fact to execute any such certificate or certificates for and on behalf of Tenant. 10.7.2 At the option of the Landlord or any successor Landlord or the holder of any mortgage affecting the Demised Premises, Tenant agrees that neither the foreclosure of a mortgage affecting the Demised Premises nor the institution of any suit, action, summary or other proceeding against the Landlord herein or any successor Landlord or any foreclosure proceeding brought by the holder of any such mortgage to recover possession of such property shall, by operation of law or otherwise, result in a cancellation or termination of this Lease or the obligations of Tenant hereunder, and upon the request of any such Landlord, successor Landlord or the holder of such mortgage, Tenant covenants and agrees to execute an instrument in writing satisfactory to such Landlord, successor Landlord or to the holder of such mortgage or to the purchaser of the mortgaged premises in foreclosure whereby Tenant attorns to such successor in interest. 10.7.3 If, in connection with obtaining financing for the Building and/or the Parcel, a banking, insurance or other recognized institutional lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications that increase the obligations of Tenant hereunder or materially adversely affect the leasehold interest hereby created or Tenant's use and enjoyment of the Demised Premises shall be accompanied by a reasonable rent reduction to be negotiated in good faith by Landlord and Tenant. SECTION 10.8 - No Waiver: - ------------------------ The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease or any of the Rules and Regulations now or hereafter adopted or promulgated by Landlord shall not prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation. The receipt by Landlord of Fixed Minimum Rent or additional rent or any other charges payable under this Lease with knowledge of the breach of any covenant of this Lease by Tenant shall not be deemed a waiver of such breach. No provision of this Lease shall be deemed to have been waived by Landlord unless such waiver be in writing and signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly payments required to be made hereunder shall be deemed to be other than on account of the earliest stipulated Fixed Minimum Rent or additional rent or other charges payable hereunder nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy in this Lease provided. 25 SECTION 10.9 - No Oral Changes: - ------------------------------ This Lease may not be changed or terminated orally but only by an agreement in writing signed by the parties hereto. SECTION 10.10 - No Representations by Landlord: - ---------------------------------------------- Landlord or Landlord's agents have made no representations, warranties or promises with respect to the Demised Premises or the Building except as herein expressly set forth. SECTION 10.11 - Changes in Entrances and Other Public Areas: - ----------------------------------------------------------- Landlord shall have the right at any time and from time to time, whether before or after the completion of the Building, without thereby creating an actual or constructive eviction of incurring any liability to Tenant therefor, to change the arrangement or location of such of the following as are not contained within the Demised Premises or any part thereof: entrances, passageways, doors and doorways, corridors, stairs, toilets and other public service portions of the Building provided that such changes do not unreasonably interfere with Tenant's use of the Premises. Landlord shall also have the right at any time and from time to time to change the entrances, exits, parking areas, driveways, walks, exterior lighting, landscaping and other common areas of the Parcel without creating an actual or constructive eviction or incurring any liability to Tenant therefor provided that such changes do not unreasonably interfere with Tenant's use-of the Premises. SECTION 10.12 - Risk of Loss or Damage to Personal Property, Etc.: - ----------------------------------------------------------------- Supplementing the provisions of Section 7.1.9 hereof and without limiting the generality of said Section 7.1.9, it is agreed that all personal property at any time placed or kept within the Demised Premises shall be placed or kept therein at the risk of the Tenant or other owner thereof; that Landlord shall not be liable for any theft or loss of any personal property placed or kept within the Demised Premises unless such theft or loss is due to the fault and/or negligence of Landlord, its agents, representatives or invitees; and that Landlord shall not be liable to Tenant or to any other person whomsoever for any damage to any personal property at any time placed or kept within the Demised Premises arising from the bursting or leaking of water pipes unless such bursting or leaking is due to the fault and/or negligence of Landlord, its agents, representatives or invitees, or from any negligence of any tenant or occupant of space within the Building. SECTION 10.13 - RULES AND REGULATIONS: - ------------------------------------- Tenant, its employees, agents, visitors and invitees shall comply with all reasonable rules and regulations Landlord may adopt from time to time for operation of the Building and the Parcel and the protection and welfare of the Building, its tenants, visitors and occupants. Any rules and regulations shall become a part of this Lease and Tenant hereby agrees to comply with 26 the same upon delivery of a copy thereof to Tenant, providing the same do not unreasonably interfere with or deprive Tenant of its rights established under this Lease or its lawful use of the Premises. SECTION 10.14 - Real Estate Commissions: - --------------------------------------- Landlord and Tenant each warrant and represent to the other that no real estate brokers were involved on its behalf in negotiating or consummating this Lease, other than Landlord's broker, Frank L. Smith Co., and Tenant's broker. Cherry and Associates, and each agrees to indemnify and hold the other party harmless from and against any and all claims for any other brokerage commissions arising out of any communications or negotiations had by such party with any other brokers regarding the Premises and/or the consummation of this Lease. Landlord shall pay within thirty (30) days of the Commencement Date of the Lease a cash-out commission equal to four percent (4%) to Cherry and Associates and a cash-out commission equal to two percent (2%) to Frank L. Smith Co., of the gross rentals to be received by Landlord during the Term of the Lease. Tenant acknowledges that it shall be responsible for the unamortized portion of said commissions payable by Landlord hereunder in the event Tenant exercises its right of termination as set forth in Section 2.2 herein. SECTION 10.15 - Attorney's Fees: - ------------------------------- In the event either Landlord or Tenant is required to retain an attorney to bring any action to enforce or construe any of the terms, provisions or covenants of this Lease, such party shall be entitled to the recovery of reasonable attorney's fees and expenses from the other so long as such party is the prevailing party in such action. IN WITNESS WHEREOF, Landlord and Tenant have hereunto executed this Lease as of this 7th day of November, 1996. LANDLORD: Date: 11/07/96 500 CHURCH STREET, L.P. ---------------- By: GRACE DEVELOPMENT, INC., Its: General Partner By: /s/ John R. Grace, V.P. ------------------------------------------ John R. Grace, Vice President TENANT: Date: 11/07/96 CITYSEARCH, INC. ---------------- By: [SIGNATURE ILLEGIBLE] ------------------------------------------ Its: [SIGNATURE ILLEGIBLE] ----------------------------------------- 27 RULES AND REGULATIONS --------------------- 1. No sign, advertisement, display, notice, or other lettering or picture shall be exhibited, inscribed, painted or affixed on any part of the outside of the Office Building or inside, if visible from the outside, without Landlord's written consent. 2. No awning or other projection shall be attached to the outside walls of the Premises or the Office Building without, in each instance, the prior written consent of Landlord. 3. All loading and unloading of goods shall be done only at such times, in the areas and through the entrances designated for such purposes by Landlord. 4. No loudspeakers, television sets, phonographs, radios or other devices shall be used in a manner so as to be heard or seen outside of the Premises without the prior written consent of the landlord. 5. No auction, fire, bankruptcy, second-hand or going-out-of-business sales or other promotions or sales (except for periodic sales in the normal course of business) shall be conducted on or about the Premises without the prior written consent of the landlord. 6. Tenant shall keep the Premises at a temperature sufficiently high to prevent freezing of water in pipes and fixtures. 7. The corridors immediately adjoining the Premises shall not be obstructed by the Tenant, and Tenant shall not place or permit any obstructions in such areas or in the stairwells. 8. Tenant shall not operate any coin or token operated vending machine or similar device for the sale of any goods, wares, merchandise, food, beverages, or services, including but not limited to, pay telephones, pay lockers, scales, amusement devices and machines for the sale of beverages, foods, chewing gum, candy, cigarettes or other commodities without the prior written consent of the Landlord. 9. Tenant shall not suffer, allow or permit any vibration, noise, light, odor or other effect to emanate from the Premises, or from any machine or other installation therein, or otherwise suffer, allow or permit the same to constitute a nuisance or otherwise interfere with the safety, comfort or convenience of Landlord or any of the other occupants of the Office Building or their customers, clients, agents or invitees or any others lawfully in the Office Building. Tenant shall not store gasoline, kerosene, or any inflammable or combustible or hazardous substance on the Premises without the prior written consent of Landlord. Upon notice by Landlord to Tenant that any of the aforesaid is occurring, Tenant agrees to forthwith remove or control the same. 10. Tenant shall not go onto the roof without the express written consent of Landlord obtained first in each instance. 28 11. Tenant's entry doors shall at all times, except when in actual use, be kept closed. 12. No furniture, freight or equipment of any kind shall be brought into or removed from the Premises without the consent of Landlord, except that Tenant shall have the right to move furniture and equipment into the leased portion of the Office Building without the express consent of Landlord; and all moving of same into or out of Premises, by Tenant, shall be done at such time and in such manner as Landlord shall designate. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Premises, and also the times and manner of moving the same in and out of the premises. Landlord shall not be responsible for loss or damage to any such safe or property from any cause; but all damage done to the Premises by moving or maintaining any such safe or property shall be repaired at the expense of Tenant by contractors or mechanics named by Landlord. 13. Tenant shall not alter any lock or install any new additional locks or bolts on any door of the premises, without the express written consent of Landlord. 14. Tenant agrees not to have duplicate keys made without the consent of Landlord. Upon termination of the Lease, Tenant shall surrender all keys, provided, however, that the surrender of such keys shall not in itself be considered as a termination of the Lease or a surrender of the Premises. 15. Landlord or Landlord's representative shall not be liable for excluding any person from the Office Building who is intoxicated or under the influence of liquor or drugs or who shall in any manner do any act in violation of any of the rules and regulations of the Office Building. 16. Doors of the Premises are to be closed and securely locked when Tenant closes, and Tenant must observe strict care and caution that all water faucets and other apparatus (other than computers and facsimile machines) are regulated and monitored to prevent waste and damage before Tenant's employees leave the Premises, and that all electricity, gas or air shall likewise be carefully monitored to prevent waste or damage. 17. Tenant shall not disturb, solicit or canvas any occupancy of the Office Building and shall cooperate to prevent the same. 29 EXHIBIT "A" (PROPERTY DESCRIPTION) BEING A PARCEL OF LAND IN THE FIRST CIVIL DISTRICT OF DAVIDSON COUNTY, TENNESSEE, LOCATED ON CHURCH STREET BETWEEN FIRST AVENUE NORTH AND SECOND AVENUE NORTH, BEING PART OF LOT NO.12 IN THE ORIGINAL TOWN OF NASHVILLE, NOT OF RECORD, AND BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT THE POINT OF INTERSECTION OF THE WESTERLY MARGIN OF FIRST AVENUE NORTH AND THE SOUTHERLY MARGIN OF CHURCH STREET, THENCE WITH SAID MARGIN OF FIRST AVENUE NORTH S 27 degrees 02' OO" E 78.30 FEET TO THE OUTSIDE EDGE (CORNER) OF BUILDING; THENCE LEAVING SAID MARGIN S 62 degrees 38' 00" W 208.76 FEET, TO THE EASTERLY MARGIN OF SECOND AVENUE NORTH; THENCE WITH SAID MARGIN N 27 degrees 01' 00" W 18.85 FEET TO A POINT, SAID POINT BEING 59.1 FEET SOUTH OF THE SOUTHERLY MARGIN OF CHURCH STREET; THENCE LEAVING SAID SECOND AVENUE NORTH, N 62 degrees 32' 00" E 103.00 FEET TO A POINT; THENCE N 27 degrees 01' 00" W 59.07 FEET TO THE SOUTHERLY MARGIN OF CHURCH STREET; THENCE WITH SAID MARGIN N 62 degrees 32' 00" E 105.74 FEET TO THE POINT OF BEGINNING, CONTAINING 10,221 SQUARE FEET OR 0.23 ACRES MORE OR LESS, DESCRIBED ACCORDING TO THE SURVEY DATED OCTOBER 25, 1994 PREPARED BY HOWARD W ANDERSON, TENNESSEE NO.527, A & A ENGINEERS, INC., P.O. BOX 40048, NASHVILLE, TENNESSEE 37204, JOB NO. 5321-94. EXHIBIT "B" SPACE PLAN ---------- [TO BE ATTACHED] 31 EXHIBIT "C" DESCRIPTION OF LANDLORD'S WORK ------------------------------ Landlord represents and warrants that the Landlord's Work on the Demised Premises as described herein will be completed pursuant to applicable building codes administered in Nashville, Davidson County, Tennessee as of the date of the issuance of the use and occupancy permit for the Demised Premises. EX-10.13 10 STANDARD FORM OF LEASE EXHIBIT 10.13 STANDARD FORM OF LEASE AERIAL CENTER EXECUTIVE PARK LEASE SUMMARY LESSOR: Pizzagalli Investment Company ----------------------------------------------------------------------- LESSOR'S ADDRESS: 50 Joy Drive, P. O. Box 2009 --------------------------------------------------------------- South Burlington Vermont 05403 ---------------------------------------------------------------- LESSEE: PerfectMarket, Inc. ------------------------------------------------------------------------- LESSEE'S ADDRESS (FOR NOTICE AND BILLING):______________________________________ 4502 Dyer Street, Suite 201 La Crescenta. California 91216 - -------------------------------------------------------------------------------- LESSEE'S REPRESENTATIVE: Thomas Layton ------------------------------------------------------- BUILDING: 3000 Aerial Center, Suite 140 ----------------------------------------------------------------------- RENTABLE SQUARE FEET OF LESSEE'S SPACE: 3,900 ----------------------------------------- RENTABLE SQUARE FEET OF BUILDING: 50,900 ----------------------------------------------- TERM COMMENCEMENT DATE: June 1, 1996 --------------------------------------------------------- TERM EXPIRATION DATE: May 31, 2001 APPROXIMATE TERM: 60 Months --------------- ---------------------------
BASE RENT SCHEDULE: BASE RATE RENT/ BASE MONTHLY YEAR SQ.FT. RENT ---- ----- ---- 1 $13.50 $4,387.50 2 $13.91 $4,519.13 3 $14.32 $4,654.70 4 $14.75 $4,794.34 5 $15.19 $4,938.17
ESCALATIONS: N.A. -------------------------------------------------------------------- SECURITY DEPOSIT: $4,387.50 --------------------------------------------------------------- PERMITTED USES: General Office Use ----------------------------------------------------------------- EXHIBITS: Exhibit A Floor Plan of the Premises Exhibit B Master Plan Exhibit C Work Letter Exhibit D Rules and Regulations Exhibit E Janitorial Schedule Exhibit F Renewal Option Exhibit G Additional Provisions i TABLE OF CONTENTS AERIAL CENTER EXECUTIVE PARK
PAGE Article 1. Premises 1 Article 2. Term 1 Article 3. Rent 1 Article 4. Permitted Uses 2 Article 5. Acceptance of Premises; Repairs; Alterations 2 Article 6. Maintenance 2 Article 7. Assignment 2 Article 8. Termination not to affect liability for rent 3 Article 9. Signs 3 Article 10. Removal of Fixtures 3 Article 11. Attorney's Fees 3 Article 12. Loss of personal property 3 Article 13. Comply with laws 3 Article 14. Duty to keep Premises is good order 3 Article 15. Entire agreement herein 4 Article 16. Remedies cumulative; Nonwaiver 4 Article 17. Rental Adjustment for Services and Taxes 4 Article 18. Services by Lessor 4 Article 19. Lessee's Obligations 5 Article 20. Exculpation of personal liability 6 Article 21. Self-help by Lessor 7 Article 22. Lessor's rights 7 Article 23. Subordination; Mortgagee's Rights 7 Article 24. Damage to property; eminent domain 8 Article 25. Default and remedies 8 Article 26. Captions 9 Article 27. Lessor's right to sell 9 Article 28. Joint and several liability 9 Article 29. Liability insurance 9 Article 30. Fire Insurance 9 Article 31. Lease not to be recorded 9 Article 32. Severability 9 Article 33. Notice 9 Article 34. Mortgagee approval 10 Article 35. Indemnification 10 Article 36. Relocation 10 Article 37. Riders and Exhibits 10
ii STATE OF NORTH CAROLINA COUNTY OF WAKE STANDARD FORM OF LEASE AERIAL CENTER EXECUTIVE PARK ---------------------------- THIS AGREEMENT dated this 8 day of May, 1996, by and between Pizzagalli Investment Company, a Vermont general partnership having an office at 50 Joy Drive, Post Office Box 2009, South Burlington, Vermont 05407-2009 (hereinafter called "Lessor") and PerfectMarket, Inc., a California corporation with its principal office at 4502 Dyer St., # 201 La Crescenta, CA, 91214 (hereinafter called "Lessee") W I T N E S S E T H ARTICLE 1. PREMISES: (a) The Lessor does hereby rent and lease to --------- the Lessee and the Lessee does hereby rent and lease from the Lessor certain space described on the attached Exhibit A (hereinafter called "Premises") located in a building known as 3000 Aerial Center, Suite 140, Morrisville, North Carolina 27560 (hereinafter called the "Building"), together with the right (i) of ingress and egress to the Premises through designated areas and under conditions approved by the Lessor and (ii) to use the designated parking lot in common with others. No easement for light or air is granted hereunder. (b) For all purposes of this lease, the Premises shall be deemed to Contain 3,900 square feet of rentable floor area and said Building shall be deemed to contain a total of 50,900 square feet of rentable floor area. ARTICLE 2. TERM: To have and to hold said Premises for a term ----- commencing on June 1, 1996, and, unless sooner terminated as herein provided, extending through May 31, 2001. ARTICLE 3. RENT: (a) Lessee hereby agrees and covenants to pay to ----- the Lessor as rental for the Premises in advance on the first day of each month during the term hereof the "base rent schedule" as follows:
BASE RENT/ BASE MONTHLY YEAR SQ.FT. RENT ---- ------ ---- 1 $ 13.50 $ 4,387.50 2 $ 13.91 $ 4,519.13 3 $ 14.32 $ 4,654.70 4 $ 14.75 $ 4,794.34 5 $ 15.19 $ 4,938.17
said base rent to be prorated for portions of the calendar month at the beginning and end of said term and to be paid to Lessor at the address first set forth above, or at such other place as Lessor shall designate in writing to the Lessee in the manner provided herein. Said rental shall be paid promptly without notice or demand and without setoff or deduction of any kind. (b) Lessee has deposited with Lessor the sum of "Four Thousand Three Hundred Eighty Seven and Seventeen Cents ($4,387.50)", as security for the full and faithful performance of every provision of this Lease to be performed by Lessee. If Lessee defaults with respect to any provisions of this Lease, including but not limited to the provisions relating to the payment of rent, Lessor may use, apply or retain all or any part of this security deposit for the payment of any rent or any other sum in default or for the payment of any other amount which Lessor may spend or become obligated to spend by reason of Lessee's default, or to compensate Lessor for any other loss, cost or damage which Lessor may suffer by reason of Lessee's default. If any portion of said deposit is so used or applied, Lessee shall, within five (5) days after written demand therefore, deposit cash with Lessor in an amount sufficient to restore the security deposit to its original amount and Lessee's failure to do so shall be a breach of this Lease. Lessor shall not, unless otherwise required by law, be required to keep this security deposit separate from its general fund, nor pay interest to its Lessee. If Lessor is required to maintain said deposit in an interest bearing account, Lessor will retain the maximum amount permitted under applicable law as a bookkeeping and administrative charge. If Lessee shall fully and faithfully perform every provision of this Lease to be performed by it, the security deposit or any balance thereof shall be returned to Lessee (or, at Lessor's option, to the last transferee of Lessee's interest hereunder) at the expiration of the Lease term and upon Lessee's vacation of the Premises. In the event the Building is sold, the security deposit will be transferred to the new owner, and the Lessor named herein shall have no further liability in connection therewith. (c) Any payment of rent or other sum due hereunder not received by Lessor by the first (1st) day of the month shall be subject to a late payment charge of eighteen (18%) percent per annum from the due date to the date of payment or $15.00, whichever is greater. ARTICLE 4. PERMITTED USES: (a) Lessee shall use and occupy the --------------- Premises for the following described purposes and for none other: GENERAL OFFICE USE. (b) The Premises shall not be used for any illegal purpose, nor in violation of any valid regulation of any governmental body, nor in any manner to create any nuisance or trespass, nor in any manner to vitiate the insurance or increase the rate of insurance on the Premises or on the Building. (c) In the event that Lessee fails to comply with this provision, then (i) Lessee shall reimburse Lessor, as additional rent hereunder, for that portion of all insurance premiums previously or thereafter paid by Lessor which shall have been charged because of such failure by Lessee to so comply, such payment to be made within thirty days after payment of charges by Lessor, and (ii) Lessor may exercise any other remedy provided for herein with respect to default by Lessee. ARTICLE 5. ACCEPTANCE OF PREMISES; REPAIRS; ALTERATIONS: The --------------------------------------------- Lessee, by taking possession of the Premises, shall accept and shall be held to have accepted same as suitable for the use intended by the Lessee. The Lessor shall not be required, after possession of the Premises has been delivered to the Lessee, to make any repairs or improvements to the Premises, except repairs necessary for safety and tenantability and customary office or building maintenance. The Lessee shall make no alterations in, or additions to, the Premises, without first obtaining in writing the Lessor's written consent for such alterations or additions, which such alterations or additions shall be at the sole cost and expense of the Lessee. In connection therewith, Lessee shall comply with all applicable rules, regulations, laws, or orders of any governmental authority, or any rules or conditions established by Lessor or Lessors insurance carrier. ARTICLE 6. MAINTENANCE: Lessee shall, at its own expense, keep and ------------ maintain the said Premises and appurtenances and every part thereof in good order and repair except portions of the Premises to be repaired by the Lessor under the terms of Article 5 above. Lessee shall at once report in writing to Lessor any defective condition known to him which the Lessor is required to repair, and the failure to so report shall make the Lessee responsible for damages resulting from such defective condition. ARTICLE 7. ASSIGNMENT: Lessee shall not, without the prior written ----------- consent of Lessor, assign this Lease, or any interest thereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than the Lessee. Consent to one assignment or sublease shall not destroy or waive this provision, and all later assignments and subleases shall likewise be made only on the prior written consent of the Lessor. Subtenants or assignees shall be liable to the Lessor for all obligations of the Lessee hereunder. Provided however, that notwithstanding such consent at any time given, the Lessee shall remain as fully liable hereunder as if no subletting had taken place. Provided further, that Lessor, prior to such subletting, shall have the right to require that all (or any portion) of the Premises which Lessee proposes to sublease or as to which Lessee proposes to assign this Lease (if the subtenant or assignee is not an entity controlled by the same interest which controls Lessee) be surrendered to Lessor for the term of the proposed sublease or assignment in consideration of the appropriate prorata adjustment of, or cancellation of, the Lessee's obligations hereunder. ARTICLE 8. TERMINATION NOT TO AFFECT LIABILITY FOR RENT: No --------------------------------------------- termination of this lease prior to the normal ending thereof, by lapse of time or otherwise, shall affect Lessor's right to collect rent for the period prior to the termination thereof. ARTICLE 9. SIGNS: Lessee shall not paint or place any signs, ------ displays, advertising devices, or other things upon the windows of the Premises or at any other location in, upon or about the Premises or the Building which are visible from outside of the Premises or the Building. Lessee may, however, erect a suitable sign at the door to its Premises, the design, construction, and erection procedure of which shall first be approved in writing by the Lessor, which approval shall not be unreasonably withheld. Lessee acknowledges that Lessor may from time to time erect and maintain signs to identify the Building or signs displaying the name or logotype of another lessee of the Building; provided, however, that no such signs shall obstruct any window of the Premises. Lessee shall also have the right, at Lessor's expense, to include its name in a common directory in the lobby of the Building. ARTICLE 10. REMOVAL OF FIXTURES: Lessee may (if not in default -------------------- hereunder) prior to the expiration of this Lease, or any extension thereof, remove all fixtures and equipment which it has placed in the Premises provided that Lessee repairs all damages to the Premises caused by such removal. ARTICLE 11. ATTORNEY'S FEES: If Lessee defaults and any rent owing ---------------- under this Lease is collected by or through an Attorney at Law, Lessee agrees to pay all reasonable attorneys' fees and related costs of collection. ARTICLE 12. LOSS OF PERSONAL PROPERTY: Lessee agrees that all -------------------------- personal property brought into the Premises shall be at the risk of the Lessee only and the Lessor shall not be liable for theft thereof or any damage thereto occasioned from any acts of cotenants or other occupants of said Building or any other person. ARTICLE 13. COMPLY WITH LAWS: Lessee agrees that it will promptly ----------------- comply at its own expense with all requirements of any governmental authority having competent jurisdiction, which requirements are made necessary by reason of Lessee's occupancy of said Premises. ARTICLE 14. DUTY TO KEEP PREMISES IN GOOD ORDER: Lessee hereby ------------------------------------ covenants and agrees to keep the Premises in as good order, repair and condition as the same are in as of the commencement of the term hereof, or may be put in thereafter, damage by fire or unavoidable casualty and reasonable wear and tear excepted; and at the termination hereof, to peaceably yield up said Premises and all additions, alterations, and improvements thereto in such good order, repair and condition leaving the Premises clean, neat and tenantable. If Lessor in writing permits Lessee to leave any such goods and chattels in the Premises, and the Lessee does so, Lessee shall have no further claims and rights in such goods and chattels as against the Lessor or those claiming by, through or under the lessor. ARTICLE 15. ENTIRE AGREEMENT HEREIN: This Lease contains the entire ------------------------ agreement of the parties and no representations, inducements, promises or agreements between the parties not embodied herein shall be of any force or effect. ARTICLE 16. REMEDIES CUMULATIVE; NONWAIVER: No remedy herein or ------------------------------- otherwise conferred upon or reserved to Lessor or Lessee shall be considered exclusive of any other remedy, but the same shall be distinct, separate and cumulative and shall be in addition to every other remedy given hereunder, or now or hereafter existing at law or in equity; and every power and remedy given by this Lease may be exercised from time to time as often as occasion may arise or as may be deemed expedient. No delay or omission of Lessor to exercise any right or power arising from any default on the part of Lessee shall impair any such right or power, or shall be construed to be a waiver of any such default, or an acquiescence therein. The acceptance of rent by Lessor with knowledge of a default by Lessee hereunder shall not constitute a waiver of such default. **** ARTICLE 18. SERVICES BY LESSOR: (a) Lessor covenants and agrees to ------------------- furnish services to the Premises as follows: (2) Water for ordinary drinking, cleaning, lavatory and toilet facilities. (3) Cleaning and janitor service. (4) Maintenance and repair of the Building in a safe and tenantable condition, except maintenance and repair which is the obligation of the Lessee hereunder or with respect to which the Lessor is specifically excused from responsibility; provided, however, that any such maintenance or repairs made necessary by fault or neglect of the Lessee or the employees and visitors of the Lessee shall be at the expense of the Lessee and Lessee shall pay all costs thereof. (5) Window washing. (b) Lessor shall not be liable to anyone for interruption in or cessation of any service rendered to the Premises or Building or agreed to by the terms of this Lease, due to any accident, the making of repairs, alteration or improvements, labor difficulties, trouble in obtaining fuel, electricity service or supplies from the sources from which they are usually obtained for said Building, or any cause beyond the lessor's control, except to the extent that the liability of the Lessor is insured by virtue of a general comprehensive Lessor's public liability insurance policy, which the Lessor agrees to maintain on the Building. (c) In the event Lessee wishes to provide outside services for the Premises over and above those services to be provided by Lessor as set forth herein, Lessee shall first obtain the prior written approval of Lessor for the installation and/or utilization of such services, which approval shall not be unreasonably withheld. "Outside services" shall include but shall not be limited to cleaning and moving services, television and so-called "canned music" services, security services, catering services and the like. In the event Lessor approves the installation and/or utilization of such services, such installation and utilization shall be at Lessee's sole cost, risk and expense. **** ARTICLE 19. LESSEE'S OBLIGATIONS: Lessee covenants and agrees as --------------------- follows: (1) to pay, when due, all rents and other charges set forth herein; all charges for electricity, gas, telephone and other communications systems used at, supplied to, or furnished to the Premises; Lessor to provide initial (1) lamps, ballasts and bulbs. (2) not to place a load upon any floor of the Premises in excess of 80 pounds live load per square foot or in violation of what is allowed by law. (3) that, without limitation of any other provision herein, the Lessor and its employees shall not be liable for any injuries to any person or damages to property due to the Building, or any part thereof, or any appurtenance thereof, becoming out of repair or due to the happening of any accident in or about the Building or the Premises or due to any act or neglect of any lessee of the Building or of any employee or visitor of any lessee. Without limitation, this provision shall apply to injuries and damage caused by nature, rain, snow, ice, wind, water, steam, gas, or odors in any form or by the bursting or leaking of windows, doors, walls, ceilings, floors, pipes, gutters, or other fixtures; and to damage caused to fixtures, furniture, equipment and the like situated in the Premises, whether owned by the Lessee or others. Provided however, that Lessor shall be liable for its negligence and the negligence of its employees to the extent that liability of the Lessor is insured by virtue of a Lessor's general comprehensive public liability insurance policy, which the Lessor agrees to maintain on the Building. (4) to permit Lessor or its agents to examine the Premises at reasonable times and, if Lessor shall so elect, to make any repairs or additions Lessor may deem necessary and, at Lessee's expense, to remove any alterations, signs, drapes, curtains, shades, awnings, aerials, flagpoles, or the like, not consented to in writing. (5) to permit Lessor to show the Premises to prospective purchasers, mortgagees and to prospective lessees of the Building. (6) to permit Lessor at any time or times to decorate and to make, at its own expense, repairs, alterations, additions, improvements, structural or otherwise, in or to the Building or any part thereof, and during such operations to take into and through the Premises or any part of the Building all materials required and to close or temporarily suspend operation of entrances, doors, corridors, elevators or other facilities, Lessor agreeing, however, that it will carry out such work in a manner which will cause minimum inconvenience and interference to the business of the Lessee. (7) not to install any vending machines or food services equipment in or upon the Premises without first obtaining Lessor's written consent, which consent shall not be unreasonably withheld. (8) not to permit any employee of the Lessee to violate any covenant or obligation of Lessee hereunder. (9) not to suffer or permit any lien of any nature or description to be placed against the Building, the Premises, or any portion thereof, and, in the case of any such lien attaching by reason of the conduct of Lessee, to immediately pay and remove the same. This provision shall not be interpreted as meaning that the Lessee has any authority or power to permit any lien of any nature or description to attach to or be placed upon the Lessor's title or interest in the Building, the Premises, or any portion thereof. (10) to keep the Premises equipped with all safety appliances required by law or public authority because of the use made by the Lessee of the Premises. (11) to use electric current in such manner as not to overload the Building's wiring installation and not to use any electrical equipment which in Lessor's opinion, reasonably exercised, will overload such installations or interfere with the use thereof by other lessees in the Building. ARTICLE 20. EXCULPATION OF PERSONAL LIABILITY: It is agreed that none ---------------------------------- of the partners who constitute the Lessor here-under, nor any person having a beneficial interest in the Premises or the Building, shall be personally liable under this Agreement in any way whatsoever to the Lessee, and the Lessee shall be entitled to make claim, for any liability it is alleged to have suffered, only against the Lessor's property. Furthermore, if Lessor, or any successor in interest of Lessor, shall be a mortgagee in possession, or an individual, joint venture, trust, tenancy in common, corporation or partnership, general or limited, it is specifically understood and agreed that there shall be absolutely no personal liability on the part of such mortgagee in possession, or such individual or on the part of the stockholders of such corporation or the members of such partnership or joint venture or the beneficiaries of such trust with respect to any of the terms, covenants and conditions of this lease, and Lessee shall look solely to the equity of Lessor, or such successor in interest, in the estate of Lessor in the Premises for the satisfaction of each and every remedy of Lessee in the event of any breach by Lessor, or by such successor in interest, of any of the terms, covenants and condi- tions of this Lease to be performed by Lessor, such exculpation of personal liability to be absolute and without any exception whatsoever. ARTICLE 21. SELF-HELP BY LESSOR: If the Lessee shall at any time -------------------- breach or default in the performance of any of the obligations of Lessee under this Lease, Lessor shall have the right to enter upon the Premises and to perform such obligation of the Lessee including the payment of money and the performance of any other act. All sums paid by the Lessor and all necessary incidental costs and expenses in connection therewith shall be deemed to be additional rent under this Lease and shall be payable to Lessor immediately upon demand. ARTICLE 22. LESSOR'S RIGHTS: Lessor may, without limitation of ---------------- anything elsewhere herein contained: (1) designate and change the name and street address of the Building; provided however that the Lessor shall first give reasonable notice thereof to the Lessee. (2) designate, restrict and control all sources from which Lessee may obtain maintenance services for the Premises and any service in or to the Building and its tenants. (3) retain and use in appropriate instances keys to all doors within and into the Premises. No locks shall be changed by Lessee without the prior written consent of the Lessor. **** (5) enter upon the Premises and exercise any and all of Lessor's rights without being deemed guilty of any eviction or disturbance of Lessee's use or possession and without being liable in any manner to Lessee. (6) establish such reasonable rules and regulations, as described on the attached Exhibit D for the conduct and operation of the Premises and the Building as are not inconsistent with the express terms of this Lease. (7) change the arrangement and/or location of public entrances, doorways, doors, passageways, corridors, elevators, toilets, stairs, or other public parts of the Building. ARTICLE 23. SUBORDINATION; MORTGAGEE'S RIGHTS: (A) Lessee agrees, at ---------------------------------- the request of Lessor, to subordinate this Lease to any mortgage or mortgages placed upon the Premises by Lessor and to any ground or underlying leases and, if required by the mortgagee or mortgagees, or such ground or underlying lessor, to agree not to prepay rent more than ten (10) days in advance, provided such mortgagee or lessor shall agree that, in the event such holder takes possession of the Premises or forecloses such mortgage or takes a deed in lieu of foreclosure, or terminates its ground or underlying lease, Lessee shall continue its occupancy of the Premises in accordance with the terms and provisions of this Lease so long as Lessee shall then recognize such holder as Lessor hereunder and continue to pay the rent when due and otherwise punctually perform all Lessee's obligations hereunder. (b) Lessee agrees that it will not cancel or terminate this Lease by reason of any act, omission, breach or default by Lessor, or for any other cause except the normal expiration hereof, without first giving written notice of such act, omission, breach or default to any mortgagee of the Building or ground or underlying lessor and affording such party the opportunity to remedy such act, omission, breach or default within ten (lO) days from receipt of such written notice or within such longer time as may be reasonably necessary under the circumstances. ARTICLE 24. DAMAGE TO PROPERTY; EMINENT DOMAIN: If the Premises or ----------------------------------- Building, or any substantial part thereof, shall be taken by any exercise of the right of eminent domain or shall be destroyed or damaged by fire or unavoidable casualty or by action of any public or other authority, or shall suffer any direct consequential damage for which Lessee and Lessor, or either of them, shall be entitled to compensation by reason of anything done in pursuance of any public or other authority during this Lease or any extension thereof, then this Lease shall terminate at the election of Lessor which election may be made whether or not Lessor's entire interest has been divested; and if Lessor shall not so elect, then in case of such taking, destruction or damage rendering the Premises unfit for use and occupation, a just proportion of said rent according to the nature and extent of the injury shall be abated until the Premises, or in the case of a partial taking, what may remain thereof, shall have been put in proper condition for use and occupation. Lessor reserves and accepts all rights to damages to said Premises and Building and the leasehold hereby created, accrued or substantially accruing by reason of anything lawfully done in pursuance of any public, or other authority; and by way of confirmation, Lessee grants to Lessor all Lessee's rights to such damages and covenants to execute and deliver such further instruments of assignment thereof as Lessor may from time to time request. Lessor shall give Lessee notice of its decision to terminate this Lease or restore said Premises within two (2) days after any occurrence giving rise to Lessor's right to so terminate or restore. ARTICLE 25. DEFAULT AND REMEDIES: (a) If Lessee shall continue in --------------------- default in the payment of any rental or other sum of money becoming due hereunder for a period of 10 days after written notice of such default has been given to Lessee, or if Lessee shall default in the performance of any other of the terms, conditions, or covenants contained in this Lease to be observed or performed by it and does not remedy such default within 30 days after written notice thereof or does not within such 30 days commence such act or acts promptly, or if Lessee shall become bankrupt or insolvent, or file any debtor proceedings, or file in any court pursuant to any statute, either of the United States or of any State a petition in bankruptcy or insolvency or for reorganization, or file or have filed against it a petition for the appointment of a receiver or trustee for all or substantially all of the assets of Lessee and such appointment shall not be vacated or set aside within 15 days from the date of such appointment, or if Lessee makes an assignment for the benefit of creditors, or petitions for or enters into an arrangement, or if Lessee shall abandon the Premises or suffer the Lease to be taken under any writ of execution and such writ is not vacated or set aside within 15 days, then in any such event the Lessor shall have the immediate right of reentry without resort to legal proceedings and the right to terminate and cancel this Lease. If Lessor should elect to reenter as herein provided, or should it take possession pursuant to legal proceedings, it may either terminate this Lease or it may from time to time without terminating this Lease, relet the Premises for such term and at such rentals and upon such other terms and conditions as the Lessor may deem advisable. If such reletting shall yield rentals insufficient for any month to pay the rental due by Lessee hereunder for that month, Lessee shall be liable to Lessor for the deficiency and same shall be paid monthly. No such reentry or taking possession of the Premises by Lessor shall be construed as an election to terminate this Lease unless a written notice of such intention be given by Lessor to Lessee at the time of such reentry; but, notwithstanding any such reentry and reletting without termination, Lessor may at any time thereafter elect to terminate this Lease for such previous breach. If as a result of Lessee's default hereunder, Lessor shall institute legal proceedings for the enforcement of Lessee's obligations, Lessee shall pay all costs incurred by Lessor, including reasonable attorney's fees. (b) Lessee shall also pay to Lessor such expenses as Lessor may incur in connection with reletting including, but not by way of limitation, reasonable attorney's fees, brokerage and advertising costs, and expenses for keeping the Premises in good order or for preparing same for reletting. ARTICLE 26. CAPTIONS: The captions are inserted only as a matter of --------- convenience and for reference and in no way define, limit or describe the scope of this Lease nor the intent of any provision hereof. ARTICLE 27. LESSOR'S RIGHT TO SELL: Lessor shall have the right to ------------------------- sell, assign, transfer or otherwise alienate its interest in the Building. Upon such sale, assignment, transfer or alienation, the new owner shall succeed to all of Lessor's obligations hereunder, and Lessee shall be bound to the new owner to the same extent as it was bound to Lessor. At such time, Lessor hereunder shall be entirely freed and relieved of any further obligation or responsibility under this Lease. ARTICLE 28. JOINT AND SEVERAL LIABILITY: If Lessee is more than one ---------------------------- person or party, Lessee's obligations shall be joint and several. Unless repugnant to the context, "Lessor" and "Lessee" mean the person or persons, natural or corporate, named above as Lessor and Lessee respectively, and their respective heirs, executors, administrators, successors and assigns. ARTICLE 29. LIABILITY INSURANCE: Lessee shall procure and maintain ------------------- during the term of this Lease comprehensive general liability insurance written by good and solvent insurance companies licensed to do, and doing, business in North Carolina and reasonably acceptable to Lessor, naming Lessor as an additional insured, with limits of not less than $1,000,000 for injury or death to any one person and not less than $1,000,000 for injuries or deaths arising out of any one occurrence. Copies of such policies or certificates thereof, together with evidence of payment of premiums, shall be furnished to the Lessor. Such insurance policies shall provide that the insurance company agrees not to cancel or modify the coverage without first giving thirty (30) days advance written notice to Lessor. If the term of this Lease (including any renewal options) exceeds five (5) years, the aforesaid limits shall be doubled after the fifth lease year. ARTICLE 30. FIRE INSURANCE: It is acknowledged and understood by the -------------- parties hereto that such insurance for fire and extended coverage as Lessor elects to purchase shall be for the sole benefit of the Lessor, and that such insurance shall not cover Lessee's personal property, trade fixtures, leasehold improvements, and other appurtenances, and that in the event of damage to or loss of any such items, Lessor shall have no obligation to repair or replace same. Lessor and Lessee hereby release and waive all right of recovery against each other or any one claiming through or under each of them by way of subrogation or otherwise and arising out of any loss by fire or other similar casualty. ARTICLE 31. LEASE NOT TO BE RECORDED: Lessor and Lessee agree that ------------------------- this Lease shall not be recorded. Lessor and Lessee shall enter into a Memorandum of Lease in recordable form. ARTICLE 32. SEVERABILITY: If any provision of this Lease or its ------------ application to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of this Lease or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. ARTICLE 33. NOTICE: Any notice required to be given by the terms ------- hereof shall be deemed duly served if sent by certified mail, return receipt requested, through the United States Postal Service, if to Lessee at said premises after the term of this Lease has commenced and prior thereto at: PERFECTMARKET, INC. 4502 Dyer St., #201 La Crescenta, CA 91214 or to the Lessor at the place from time to time established for the payment of rent in accordance with Article 3 hereof, or to either party at such place as may, from time to time, be established in the manner aforesaid. ARTICLE 34. MORTGAGES APPROVAL: This Lease is subject to the approval ------------------ of Lessor's mortgagee, and the parties agree hereby to execute an amendment to the Lease, in such form as said mortgagee might reasonably require, in the event that any technical changes are required. It is understood that any such changes will not affect such substantive items as the rent or term provided for herein. ARTICLE 35. INDEMNIFICATION: Lessee agrees to indemnify and save ---------------- harmless Lessor against all claims for damages to persons or property by reason of the use or occupancy of the Premises, the Building or Lessor's adjoining land and all expenses incurred by Lessor on account thereof, including reasonable attorney's fees and court costs. Lessee further shall be liable for and shall hold Lessor harmless in connection with damage or injury to Lessor, the Premises, the Building and the land and property or persons of Lessor's other tenants, or anyone else, if due to act or neglect of Lessee, or anyone in its control or employ . ARTICLE 36. RELOCATION: (a) Lessor shall have the right during the ----------- term of this Lease to relocate Lessee to other comparable office space within Aerial Executive Park. Lessor shall give written notice to Lessee of its intent to relocate Lessee at least three (3) days in advance of the proposed relocation date. All costs necessitated by the relocation of Lessee shall be borne by Lessor. All other terms and conditions contained herein shall apply to the premises to which the Lessee is relocated. Upon such relocation, the parties shall enter into a new lease in substantially the same form as this Lease. (b) Lessee may terminate this Lease by giving written notice of intent to terminate within four (4) days of receipt of notice from lessor to relocate. If notice is not given as aforesaid, Lessee's right to terminate will be void and of no further effect . ARTICLE 37. RIDERS AND EXHIBITS: The following riders and exhibits are ------------------- hereby incorporated herein by reference and to the extent that any of such riders or exhibits conflict with any of the foregoing provisions, the provisions of such riders or exhibits shall prevail: Exhibit A Floor Plan of the Premises Exhibit B Master Plan Exhibit C Work Letter Exhibit D Rules and Regulations Exhibit E Janitorial Schedule Exhibit F Renewal Option Exhibit G Additional Provisions IN WITNESS WHEREOF the parties hereto have executed this Lease as of the day and date first written above. In the presence of: PIZZAGALLI INVESTMENT COMPANY /s/ [SIGNATURE ILLEGIBLE] - ------------------------------- /s/ [SIGNATURE ILLEGIBLE] BY /s/ Ronald I. Bouchard - ------------------------------- ----------------------------- In the presence of: PERFECTMARKET, INC. /s/ [SIGNATURE ILLEGIBLE] - ----------------------------- BY /s/ Thomas Layton _____________________________ ------------------------------- State of Vermont ) (SS Chitlenden County ) At South Borlington in said County on the 9th day of May, 1996 Ronald I. Bouchard, Partner of Pizzagalli Investment Company personally appeared and he executed the above instrument and acknowledged the same to be his free act and deed and the free act and deed of said Company. Before me, /s/ [SIGNATURE ILLEGIBLE] ----------------------------------- Notary Public My Commission Expires 2/10/99 State of North Carolina ) (SS Franklin County ) At Morrisville in said County on the 8th day of May, 1996 Thomas Layton, of Perfectmarket Inc. personally appeared and he executed the above instrument and acknowledged the same to be his free act and deed and the free act and deed of said Company. Before me, /s/ [SIGNATURE ILLEGIBLE] ----------------------------------- Notary Public My Commission Expires 2/16/99 EXHIBIT "A" ----------- [FLOOR PLAN OF THE PREMISES APPEARS HERE] PERFECTMARKET, INC. 3000 AERIAL CENTER, SUITE 140 3,900 RENTABLE SQUARE FEET EXHIBIT "B" ----------- [MASTER PLAN APPEARS HERE] PERFECTMARKET, INC. 3000 AERIAL CENTER, SUITE 140 3,900 RENTABLE SQUARE FEET EXHIBIT "C" ----------- WORK LETTER PERFECTMARKET, INC. 3000 AERIAL CENTER, SUITE 140 3,900 RENTABLE SQUARE FEET The following above standard work shall be provided by Lessor at its cost and expense: OFFICE AREA - ----------- 1) Place new building standard carpet in the entire office area to include vinyl wall boards. (Lessee will choose carpet type and color) 2) Paint the entire office area. (Lessee will choose paint color) 3) Perform a one time general clean-up of the entire office to include lighting lenses, windows and the replacing of burned out bulbs. 4) Install 8' X 10' +/- window in space where overhead door was located installation to be performed no later than June 10, 1996. 5) Electrical outlets and conduit will be installed at 12' intervals on walls in Open Area #1, Open Area #2 and along the 54" Wall #1, #2 and #3. 6) Space will be modified per the attached floor plan (Exhibit "A"). SIGNAGE - ------- 1) Building directory sign will be provided at Lessor's expense. 2) Door sign will be provided at Lessee's expense and conform with Aerial Center's Building Standard. 3) Signage will be made available on the building exterior per the Aerial Center's Building Standard and will be at Lessee's expense. EXHIBIT "D" ----------- RULES AND REGULATIONS PERFECTMARKET, INC. 3000 AERIAL CENTER, SUITE 140 3,900 RENTABLE SQUARE FEET 1. The sidewalks, halls, passages, exits, entrances, elevators and stairways shall not be obstructed by Lessee or used for any purpose other than ingress and egress to the premises. The halls, passages, exits, entrances, stairways, balconies and roof are not for use by the general public, and Lessor shall in all cases retain the right to control and prevent access thereto by all persons whose presence in the judgement of Lessor may be prejudicial to the safety, character, reputation or best interests of the Building and its tenants. Nothing herein contained shall be construed to prevent such access to persons with whom Lessee conducts business, unless such persons are engaged in illegal activities. No Lessee and no employees or invitees of any Lessee shall go upon the roof of the Building. 2. Lessee shall not alter any lock or install any new or additional locks or bolts on any door of the Premises. 3. No restroom fixture shall be used for any purpose other than that for which it was constructed; no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of the above rule shall be borne by Lessee or employees or invitees of Lessee. 4. **** 5. Except with the written consent of Lessor, no person or persons other than those approved by Lessor shall be permitted to enter the Premises or Building for the purpose of cleaning same. Lessee shall not cause any unnecessary labor by reason of Lessee's carelessness or indifference in the preservation of good order and cleanliness. Janitorial services shall include ordinary dusting and cleaning by the janitor assigned to such work and shall not include cleaning of carpets or rugs, except normal vacuuming, or moving of furniture or other special services. 6. Lessee shall not use, keep or permit any foul or noxious gas or substance in the Premises, or permit or allow the Premises to be occupied or used in a manner which interferes with business or is offensive or objectionable to Lessor or other occupants of the Building by reason of noise, odors and/or vibrations. No animals or birds shall be brought in or about the Premises or the Building. 7. The following shall not be permitted by Lessee on the Premises: cooking, storing of merchandise, washing clothes, lodging, or for any improper, objectionable or immoral purposes. 8. Lessee shall not use, keep, or permit in the Premises or the Building any kerosene, gasoline, inflammable or combustible fluid or material, or use any method of heating or air conditioning other than that supplied by Lessor. 9. Lessor will direct electricians as to where and how telephone and telegraph wires are to be introduced. No boring or cutting for wires is permitted without the prior consent of Lessor. 10. Upon termination of its tenancy, Lessee shall deliver to Lessor all Building keys which shall have been furnished Lessee or which Lessee shall have had made. In the event of loss of any keys so furnished, Lessee shall pay Lessor for the replacement of keys and/or any necessary locks. 11. Lessee shall not install linoleum, tile, carpet or other similar floor covering so that the same shall be affixed to the floor of the Premises in any manner except as approved by Lessor. The expense of repairing any damage resulting from violation of this rule or from removal of any floor covering shall be borne by the Lessee by whom, or by whose contractors, employees or invitees, the damage shall have been caused. 12. Lessee shall see that the doors of the Premises are closed and securely locked before leaving the Building. All water faucets or water apparatus and all electricity shall be shut off before Lessee or Lessee's employees leave the Building, so as to prevent waste or damage, and for any default or carelessness Lessee shall make good all injuries sustained by Lessor and/or other tenants or occupants of the Building. 13. Lessor reserves the right to exclude or expel from the Building any person who, in the judgement of Lessor is intoxicated or under the influence of liquor or drugs, or who shall in any manner violate the Building rules and regulations. 14. Lessee shall not disturb, solicit, or canvas any occupant of the Building and shall cooperate to prevent the same. 15. Without the written consent of Lessor, Lessee shall not conduct any auction upon the Premises or use the name of the Building in promoting or advertising the business of Lessee except as Lessee's address. EXHIBIT "E" ----------- JANITORIAL SCHEDULE PERFECTMARKET, INC. 3000 AERIAL CENTER, SUITE 140 3,900 RENTABLE SQUARE FEET I. GENERAL CLEANING a. Empty all waste baskets and trash containers. (D) b. Replace soiled trash liners as needed. (or W) c. Empty and damp wipe all ash trays. (D) d. Dust all horizontal surfaces below 6' high. (W) e. Dust all vertical surfaces below 6' high. (W) f. Dust all high ledges, shelves, picture frames, etc. (M) g. Dust all baseboards and preform all low dusting not done daily. (W) h. Clean and sanitize all drinking fountains. (D) i. Dust all venetian blinds. (2 TIMES PER Y) j. Sweep or vacuum upholstered furniture. (M) k. Polish brass main lobby doors (D) l. Break room maintained per restroom guidelines. II. FLOOR/WORK - HARD RESILIENT a. Dust mop or sweep. (D) b. Spot mop and remove spillage. (D) c. Damp mop or wet mop. (2 TIMES W) d. Buff or spray buff. (W) e. Machine clean. (M) f. Add water one time per week to restroom floor drains (W) III. CARPET CARE a. Vacuum all traffic lanes. D b. Remove all spots and stains when possible. (D) c. Completely vacuum all carpets including edges. (3 TIMES W) IV. RESTROOMS a. Polish mirrors and all metal surfaces. (D) b. Clean and disinfect all toilets and urinals. (D) c. Clean and polish wash basins. (D) d Mop floors using disinfectant. (D) e Fill soap dispensers, towel and tissue holders. (D) f. Clean partitions and ledges. (D) g. Scrub bathroom floors and ceramic tile. (M) V. WALLS, WOODWORK AND OVERHEAD a. Remove hand prints from door frames and around light switches. (D) b. Clean air vents and diffusers. (1 TIME Y) c. Dust or vacuum bottom surface of light fixtures. (1 TIME Y) VI. OTHER REQUESTED OPERATIONS a. Spot clean entrance door glass. (D) b. Spot clean partition glass. (D) c. Clean windows inside and outside. (2 TIMES Y) d Clean exterior surfaces of vending machines. (M) e Polish all brass thresholds and doors. (W) f. Police 20' on each side of main doors. g. Empty any outside ash cans or trash cans. (D) (D) - Daily cleaning (5 times per week) (W) - Weekly cleaning (M) - Monthly cleaning EXHIBIT "F" ---------- RENEWAL OPTION PERFECTMARKET, INC. 3000 AERIAL CENTER, SUITE 140 3,900 RENTABLE SQUARE FEET a) Lessor hereby grants unto Lessee the right and option to renew and extend this Lease, if Lessee is not then in default under any of the terms or conditions of the lease at the time notice is given, nor at any time prior to the commencement of the extended term, for all of such space as then comprises the Premises for one (1) renewal term of two (2) years. Said renewal term to begin immediately upon expiration of the initial term of this Lease as the case may be. Said option for renewal shall be exercised by Lessee giving notice to Lessor, as provided herein with respect to notices, of Lessee's election to renew, at least six (6) months prior to the expiration of the initial term and if notice as aforesaid is not given, said option shall lapse and be of no further force and effect. Time is agreed to be of the essence with respect to this notice requirement. b) Said renewal term shall be upon the same conditions as herein agreed upon for the initial term, except that the base rent during the first year (year six) of the renewal term shall be $5,000.00 per month, the next year (year seven) of the renewal term the base rent shall be $5,150.00, then Lessor and Lessee prior to the first day of the renewal term shall enter into an amendment to this Lease for the purpose of confirming said rental. C) Whenever in this Lease words are used such as "during the term hereof" or words of similar effect, it is agreed that upon the valid exercise by Lessee of this renewal option, such words shall also mean "during any renewal term hereof", and all of the provisions of the initial term shall apply to the renewal term, except as provided herein with respect to the base rent. EXHIBIT "G" ---------- ADDITIONAL PROVISIONS PERFECTMARKET, INC. 3000 AERIAL CENTER, SUITE 140 3,900 RENTABLE SQUARE FEET The following additional provisions are incorporated as part of the Lease and are numerically referenced in the body of the Lease: 1. Add: "and replacement" 2. Insert: "sixty (60)" 3. Insert: "ninety (90)" 4. Insert: "twenty (20)" EX-10.14 11 STANDARD OFFICE LEASE WITH SAGE REALTY EXHIBIT 10.14 [LETTERHEAD OF SAGE REALTY CORPORATION APPEARS HERE] May 6, 1997 CitySearch, Inc. 790 East Colorado Blvd. Suite 200 Pasadena, CA 91101 Re: Lease, dated May 6, 1997 (the "Lease"), between Sage Realty Corporation, as Agent ("Landlord"), and CitySearch Inc. ("Tenant"), for a portion of the third (3rd) floor (the "Demised Premises") in the building known as 320 West 13th Street, New York, New York --------------------------------------------- Gentlemen: This letter shall serve to confirm our understanding with respect to the referenced Lease. All capitalized terms used herein shall have the meaning ascribed to them in the Lease unless otherwise indicated. Landlord, as agent for the owner of the building located 747 Third Avenue, New York, New York (the "Building"), and Tenant hereby agree that Tenant shall occupy that portion of the 34th floor of the Building as shown on Exhibit A annexed hereto and made a part hereof (the "Temporary Space") during the period (the "Temporary Space Term") commencing on the date hereof and ending on the earlier to occur of (i) the Commencement Date or (ii) October 1, 1997. During the Temporary Space Term, Tenant shall occupy the Temporary Space in accordance with all of the terms and conditions of the Lease which would be applicable to the -2- Temporary Space if the Temporary Space were the Demised Premises, except that Tenant shall have no obligation to pay Fixed Rent or additional rent due under Article 3 of the Lease and in lieu thereof, Tenant shall pay to Landlord the sum of $2,647.88 per month for each month (pro-rated for any partial month) occurring during the Temporary Space Term. It is understood and agreed that Tenant shall not be obligated to pay to Landlord Fixed Rent or other charges for usual services in connection with its occupancy of the Temporary Space but if Tenant specifically requests and receives any overtime or additional services from Landlord, Tenant shall pay Landlord's customary charges therefor. In the event that Tenant shall fail to vacate and surrender the Temporary Space on or prior to October 1, 1997, all of the provisions of Article 28 of the Lease shall be applicable to Tenant with respect to the Temporary Space as if the Temporary Space were the Demised Premises under the Lease, and Landlord shall have all of the rights of Landlord set forth in the Lease with respect to the Temporary Space as if the Temporary Space were the Demised Premises. For the purposes of Section 28.03, the average rent and additional rent referred to therein shall with respect to the Temporary Space be deemed to be $8,726.48 per month. -3- Please execute a copy of this Letter Agreement where indicated to acknowledge your agreement with the foregoing. SAGE REALTY CORPORATION, AGENT By: [SIGNATURE ILLEGIBLE] ----------------------------- Accepted and Agreed to this 1st day of May, 1997. CITYSEARCH, INC. By: [SIGNATURE ILLEGIBLE] ------------------------ [LETTERHEAD OF SAGE REALTY CORPORATION APPEARS HERE] May 6, 1997 CitySearch, Inc. 790 East Colorado Boulevard Suite 200 Pasadena, CA 91101 Re: Proposed lease (the "Lease") between Sage Realty Corporation, as Agent ("Landlord"), and CitySearch, Inc. ("Tenant") for space located in 320 West 13th Street, New York, NY (the "Building") -------------------------------------------------- Gentlemen: Notwithstanding the requirement contained in Section 3.01 of the Lease to the effect that Tenant's checks must be drawn on a member of the New York Clearinghouse Association, provided checks are received by Landlord on or before the fifth (5th) Business Day of each calendar month, Tenant may utilize checks which are drawn on a Californai bank which is not a member of the New York Clearinghouse Association. In the event that any check is received after the fifth (5th) Business Day of any calendar month, Tenant acknowledges that Landlord may strictly enforce the terms and conditions of Section 3.01 and require checks to be drawn on a bank which is a member of the New York Clearinghouse Association. Please sign a copy of this letter where indicated to acknowledge your consent to the foregoing. SAGE REALTY CORPORATION, AS AGENT By: /s/ Robert Kaufman ---------------------------------------- Robert Kaufman, Executive Vice President Accepted and Agreed to this 1st day of May, 1997 CITYSEARCH, INC. By: [SIGNATURE ILLEGIBLE] ------------------------ SAGE REALTY CORPORATION, AGENT LANDLORD and CITYSEARCH, INC. TENANT INDENTURE OF LEASE PREMISES: Part of the Third Floor 320 West 13th Street New York, New York 10014 TABLE OF CONTENTS ----------------- 1. DEFINITIONS, TERM................................................. 1 2. COMMENCEMENT OF TERM.............................................. 2 3. FIXED RENT, ADDITIONAL RENTS AND RENT ADJUSTMENTS................. 3 REAL ESTATE TAX ADJUSTMENT........................................ 5 4. ELECTRICITY....................................................... 7 5. USE............................................................... 13 6. REPAIRS, ALTERATIONS AND LIENS.................................... 13 7. FLOOR LOAD, NOISE, WINDOW CLEANING................................ 20 8. LAWS, ORDINANCES, REQUIREMENTS OF PUBLIC AUTHORITIES ............. 21 9. INSURANCE, PROPERTY LOSS, REIMBURSEMENT........................... 22 10. DAMAGE OR DESTRUCTION BY FIRE OR OTHER CAUSE...................... 25 11. ASSIGNMENT, SUBLETTING, MORTGAGING................................ 27 12. NO LIABILITY ON LANDLORD.......................................... 33 13. MOVING OF HEAVY EQUIPMENT......................................... 34 14. CONDEMNATION...................................................... 34 15. ENTRY, RIGHT TO CHANGE PUBLIC PORTIONS OF THE BUILDING............ 35 16. BANKRUPTCY........................................................ 37 17. DEFAULTS AND REMEDIES AND WAIVER OF REDEMPTION.................... 38 18. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS ................. 41 19. COVENANT OF QUIET ENJOYMENT....................................... 42 20. EXCAVATION........................................................ 42 21. SERVICES AND EQUIPMENT............................................ 42 22. DEFINITION OF LANDLORD............................................ 46 23. INVALIDITY OF ANY PROVISION....................................... 47 24. BROKER............................................................ 47 25. SUBORDINATION..................................................... 47 26. ESTOPPEL CERTIFICATE.............................................. 49
27. LEGAL PROCEEDINGS, WAIVER OF JURY TRIAL........................... 50 28. SURRENDER OF PREMISES/HOLDOVER.................................... 52 29. RULES AND REGULATIONS............................................. 53 30. NOTICES........................................................... 53 31. NO WAIVER; ENTIRE AGREEMENT....................................... 54 32. CAPTIONS.......................................................... 55 33. INABILITY TO PERFORM.............................................. 55 34. REPRESENTATION BY LANDLORD........................................ 56 35. NAME OF BUILDING.................................................. 56 36. SUCCESSORS AND ASSIGNS............................................ 56 37. DEFERRED COLLECTIONS.............................................. 56 38. FEES/INTEREST/LATE CHARGES........................................ 57 39. ABATEMENT OF RENT................................................. 57 40. SECURITY DEPOSIT.................................................. 58 41. TENANT'S EXPANSION OPTION......................................... 59 42. TENANT'S EXTENSION OPTION. ....................................... 62
Schedule A Floor Plan Schedule B Work Letter Schedule C Rule and Regulations Schedule D Form of Letter of Credit Schedule E Schedule of Building Holidays Schedule F Electric Survey ii INDENTURE OF LEASE made as of this 6th day of May, 1997, between SAGE REALTY CORPORATION, a New York corporation having its principal office at 777 Third Avenue, New York, New York 10017, Agent for the owner of the Building hereinafter mentioned (herein "Landlord"), and CITYSEARCH, INC., a Delaware corporation having its office at 790 East Colorado Boulevard, Suite 200, Pasadena, California 91101 (herein "Tenant"). W I T N E S S E T H: ARTICLE 1. DEFINITIONS, TERM ----------------- Section 1.01. The terms defined in this Article shall, for all purposes of this Lease and all agreements supplemental thereto, have the meanings herein specified unless the context otherwise requires. (a) "Building" shall mean the office building known as 320 West 13th Street, in the Borough of Manhattan, City and State of New York. The plot of land on which the Building is erected is hereinafter called the "Land." (b) "Business Days" shall mean all days excluding Saturdays, Sundays and days observed by the State of New York or Federal Government as legal holidays, and further excluding holidays established by any union contract applicable to employees at the Building. A schedule of holidays for calendar year 1997 is attached hereto as Schedule E. (c) "Commencement Date" shall have the meaning set forth in Section 2.02. (d) "Demised Premises" shall mean a portion of the third (3rd) floor of the Building, as shown on the Floor Plan annexed hereto as Schedule A and made a part of this Lease, including all fixtures and equipment which at the Commencement Date or during the Term of this Lease are attached thereto and which become a part thereof. (e) "Expiration Date" shall mean the last day of the month in which the day prior to the seventh (7th) anniversary of the Commencement Date occurs, or any sooner date of termination pursuant to the provisions hereof. (f) "Fixed Rent" shall mean the annual rental payable by Tenant for the Demised Premises in equal monthly installments as provided for in Article 3 of this Lease. (g) "Interest Rate" shall mean the lesser of (i) 2% above the prime commercial lending rate of Marine Midland Bank, N.A. in effect from time to time or (ii) the maximum applicable legal rate, if any. -2- (h) "Landlord's Work" shall mean the work agreed to be done by Landlord in the Demised Premises as provided for in Schedule B hereof. (i) "Lease" shall mean this Indenture of Lease and any and all Schedules annexed hereto. (j) "Term of this Lease" and "Term" shall mean the term of years commencing on the Commencement Date and expiring on the Expiration Date, subject to the terms and conditions hereinafter set forth. Section 1.02. Landlord hereby leases to Tenant, and Tenant hereby rents from Landlord, the Demised Premises, subject to the provisions hereinafter set forth, together with appurtenances, including the right to use in common with others the lobbies, elevators and other public portions of the Building. TO HAVE AND TO HOLD unto Tenant, its successors and permitted assigns, for the Term of this Lease or until the Term of this Lease sooner terminates as hereinafter provided. ARTICLE 2. COMMENCEMENT OF TERM -------------------- Section 2.01. Except as provided in Section 2.02 hereof, Tenant acknowledges that it has examined the Demised Premises and is taking same "as is" as of the Commencement Date. Tenant acknowledges that Landlord is not required to do any work with respect thereto, except as set forth in Schedule B. Section 2.02. The Term of this Lease and the payment of rent shall commence on the date that the Demised Premises shall be Substantially Completed, as defined in Schedule B (herein the "Commencement Date"). Promptly after the Commencement Date, Landlord and Tenant agree to execute an agreement ("Commencement Date Agreement") in form and substance satisfactory to Landlord setting forth, among other things, the Commencement Date and the Expiration Date of this Lease. The taking of possession by Tenant of the Demised Premises shall be deemed an acceptance of same by Tenant and shall be conclusively deemed Substantial Completion (as defined in Schedule B) of Landlord's Work. Such taking of possession shall also be conclusive evidence, as against Tenant, that the Demised Premises and the Building of which the same form a part were in good and satisfactory condition at the time of such occupancy (except for so-called "punchlist" items and latent defects, if any) and that the Demised Premises were substantially as shown on Schedule A. Landlord shall, however, thereafter complete any "punchlist" items required for completion of Landlord's Work. -3- Section 2.03. If Landlord shall be unable to give possession of the Demised Premises on the date anticipated for the commencement of the Term hereof for any reason whatsoever, Landlord shall not be subject to any liability, nor shall the validity of this Lease nor the obligations of Tenant hereunder be thereby affected. Landlord shall use diligent efforts to substantially complete the work necessary to deliver possession of the Demised Premises promptly, subject to any delays beyond the reasonable control of Landlord. In the event that Landlord shall be unable to give possession of the Demised Premises on or prior to August 1, 1997 (the" Outside Completion Date") (subject to extension by reason of force majeure [set forth immediately below]), Tenant shall be entitled to a credit against the first installments of Fixed Rent due hereunder (after taking into account any abatement of Fixed Rent as provided in Article 39 hereof), in the amount of $395.52 per day for each day beyond the Outside Completion Date that Landlord shall remain unable to deliver possession of the Demised Premises. Any delay in Landlord's substantial completion of Landlord's Work caused by labor trouble, governmental controls, act of God, or any other cause beyond Landlord's reasonable control shall extend such time period for Landlord to substantially complete Landlord's Work and give possession of the Demised Premises to Tenant. Without limiting the foregoing, the parties hereto expressly negate the provisions of Section 223-a of the Real Property Law and agree that such Section shall be inapplicable hereto. Tenant agrees that the provisions of this Article are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a. If by reason of such delay, the Term of this Lease shall commence subsequent to such anticipated date, the Term of this Lease shall be deemed extended for the same period. ARTICLE 3. FIXED RENT, ADDITIONAL RENTS AND RENT ADJUSTMENTS ------------------------------------------------- Section 3.01. During the Term of this Lease, Tenant shall pay, at Landlord's address as herein set forth, or at such other address that Landlord may from time to time designate, a Fixed Rent payable in lawful money of the United States of America (by check of Tenant drawn on a bank that is a member of the New York Clearinghouse Association) in equal monthly installments in advance on the first day of each calendar month, without notice or demand, and without setoff or deduction whatsoever at annual rates as follow: (i) $164,785.44 per annum for the period beginning on the Commencement Date and continuing through the day prior to the first (1st) anniversary of the Commencement Date; (ii) $173,605.44 per annum for the period beginning on the first (1st) anniversary of the Commencement Date -4- and continuing through the day prior to the second (2nd) anniversary of the Commencement Date; (iii) $178,060.44 per annum for the period beginning on the second (2nd) anniversary of the Commencement Date and continuing through the day prior to the third (3rd) anniversary of the Commencement Date; (iv) $191,515.44 per annum for the period beginning on the third (3rd) anniversary of the Commencement Date and continuing through the day prior to the fourth (4th) anniversary of the Commencement Date; (v) $205,240.44 per annum for the period beginning on the fourth (4th) anniversary of the Commencement Date and continuing through the day prior to the fifth (5th) anniversary of the Commencement Date; and (vi) $214,735.44 per annum for the period beginning on the fifth (5th) anniversary of the Commencement Date and continuing through the day prior to the sixth (6th) anniversary of the Commencement Date; and (vii) $224,365.44 per annum for the period beginning on the sixth (6th) anniversary of the Commencement Date and continuing through the Expiration Date. If Tenant's obligation to pay Fixed Rent shall commence on a date other than the first day of a calendar month, the first installment of Fixed Rent shall be in an amount equal to that required to cover the period up to and including the last day of the month wherein the obligation to pay Fixed Rent occurs, computed on a per diem basis. Section 3.02. The Fixed Rent does not take into account increases of real estate taxes and/or expenses during the Term of this Lease or other adjustments in rent, or other payments to be made by Tenant, during the Term of this Lease. Provision therefor is hereinafter made. Section 3.03. All costs, expenses, adjustments and payments which Tenant is obligated to pay to Landlord pursuant to this Lease and/or its Schedules shall be deemed additional rent whether or not denominated as such and, in the event of nonpayment thereof, Landlord shall have all rights and remedies with respect thereto as herein provided for in case of nonpayment of Fixed Rent. Tenant covenants and agrees to pay the Fixed Rent and additional rent as in this Lease provided, when due. -5- Section 3.04. For the purposes of this Section 3.04, the following definitions shall apply: (a) The term "Base Tax Year" as hereinafter set forth for the determination of real estate tax escalation shall mean the period commencing on July 1, 1997 and ending on June 30, 1998. (b) The term "the Percentage" shall mean 2.38%. (c) The term "Real Estate Taxes" shall mean all real estate taxes, assessments, water and sewer rents, governmental levies, county taxes or any other governmental charges, general or special, ordinary or extraordinary, unforeseen as well as foreseen, of any kind or nature whatsoever, which are or may be assessed or imposed upon the Land, the Building and the sidewalks, plazas or streets in front of or adjacent thereto, including any tax, excise or fee measured by or payable with respect to any rent, and levied against Landlord and/or the Land and/or Building, under the laws of the United States, the State of New York, or any political subdivision thereof, or by the City of New York, or any political subdivision thereof. If, due to a future change in the method of taxation or in the taxing authority, a franchise, income, transit, profit or other tax or governmental imposition, however designated, shall be levied against Landlord, and/or the Land and/or the Building, in substitution in whole or in part for said Real Estate Taxes, or in lieu of additional real estate taxes, then such franchise, income, transit, profit or other tax or governmental imposition shall be deemed to be included within the definition of "Real Estate Taxes" for the purposes hereof. In the event that the Real Estate Taxes for the Base Tax Year shall include any charge with respect to any so called "Business Improvement District" or similar charge (a "Bid Charge"), and if any such Bid Charge is subsequently discontinued or eliminated, then, as of the date of such discontinuance or elimination, the Real Estate Taxes for the Base Tax Year shall be recalculated as if the Bid Charge had not originally been included therein. (d) The term "Tax Year" shall mean every twelve-month consecutive period commencing each July 1st during the Term of this Lease. Real Estate Tax Adjustment In the event that the Real Estate Taxes payable for any Tax Year shall exceed the amount of such Real Estate Taxes, as finally determined, payable with respect to the Base Tax Year, Tenant shall pay to Landlord, as additional rent ("Tenant's Tax Payment") for such Tax Year, an amount equal to the Percentage of the excess. By or after the start of the Tax Year following the Base Tax Year, and by or after the start of each Tax Year thereafter, Landlord shall furnish to Tenant a statement of the -6- Real Estate Taxes payable with respect to such Tax Year, and a statement of the Real Estate Taxes payable during the Base Tax Year. Notwithstanding the foregoing, in the event that the Real Estate Taxes for any Tax Year shall be more than fifty (50%) percent in excess of the Real Estate Taxes for the preceding Tax Year (or, with regard to the First Tax Year, more than fifty (50%) percent in excess of the Real Estate Taxes for the Base Tax Year), Tenant's Tax Payment shall be limited to the amount that Tenant's Tax Payment would be if there had been only a fifty (50%) percent year to year increase in Real Estate Taxes. Within thirty (30) days after the issuance by the governmental authority having jurisdiction thereover of tax bills for Real Estate Taxes assessed, levied and/or imposed upon the Land and Building for any Tax Year, Landlord shall submit to Tenant a photostatic copy of such bill and/or bills and thereafter on or about each respective anniversary date shall submit a copy of the tax bill and/or bills for the Real Estate Taxes assessed, levied or imposed upon the Land and Building for such Tax Year, together with a statement which shall indicate the amount, if any, of Tenant's Tax Payment. Landlord's failure to submit copies of bills as aforesaid shall not be considered a default by Landlord or a defense by Tenant to such tax payment. Within thirty (30) days after the issuance of the statement Tenant shall pay Tenant's Tax Payment in the amount set forth on such statement. Such statement shall be conclusively deemed binding upon Tenant unless Tenant shall have objected thereto in writing within thirty (30) days of receipt thereof. In the event Landlord shall receive a final reduction or refund of Real Estate Taxes for any Tax Year for which Tenant is obligated to pay any additional rent under the provisions of this subsection B of Section 3.04, the amount or the proceeds of such reduction or refund, less legal fees and other expenses incurred in collecting the same or achieving such reduction, shall be applied and allocated to the periods for which such final reduction or refund was obtained, and proper adjustment shall be made between Landlord and Tenant. Tenant has been advised that proceedings to protest the Real Estate Tax Assessment for the Base Tax Year may have been filed and may result in a reduction of Real Estate Taxes for the Base Tax Year. Any payments or refunds due hereunder for any period of less than a full Tax Year at the commencement or end of the Term of this Lease shall be equitably prorated to reflect such event. In addition to Tenant's obligation to pay Tenant's Tax Payment as aforesaid, Tenant shall pay to Landlord as additional rent payable upon demand, any occupancy tax or rent tax now in effect or hereafter enacted, if payable by Landlord in the first instance or hereafter required to be paid by Landlord. -7- Section 3.05. Upon the date of the expiration or any sooner termination of this Lease, whether the same be the date hereinabove set forth as the expiration of the Term of this Lease or any prior or subsequent date, a proportionate share of the Fixed Rent, adjustments and additional rents for the year (calendar or fiscal) in which such expiration or termination occurs, shall immediately become due and payable by Tenant to Landlord as hereinafter provided, if not theretofore already billed and paid. Such proportionate share shall be based upon the length of time that this Lease shall have been in existence during such year. Promptly after any such expiration or termination, Landlord shall compute the amounts due from Tenant, as aforesaid, which computations shall either be based on that year's actual figures or be an estimate based on the most recent statements theretofore prepared by Landlord and furnished to Tenant pursuant to this Lease. If an estimate is used, then Landlord shall promptly cause statements to be prepared on the basis of the comparative year's actual figures as soon as they are available, and within ten (10) days after such statement or statements are prepared by Landlord and furnished to Tenant, Landlord and Tenant shall make appropriate adjustments of any estimated payments theretofore made. Tenant's obligation to pay any and all rents, adjustments and additional rents under this Lease shall continue and shall cover all periods up to the Expiration Date. Landlord's and Tenant's obligations to make the adjustments hereinabove referred to shall survive any expiration or termination of this Lease. Any delay or failure of Landlord in billing any Fixed Rent or additional rent herein provided for shall not constitute a waiver of or in any way impair the continuing obligation of Tenant to pay such rent adjustments hereunder. ARTICLE 4. ELECTRICITY ----------- Section 4.01. The Fixed Rent reserved in this Lease includes the agreed sum of $20,785.44 per annum in consideration of which Landlord, as an additional service, will supply Tenant with electricity for normal use in the Demised Premises between the hours 8:00 A.M. and 6:00 P.M. on Business Days. Landlord and Tenant agree that the aforesaid sum was determined based on an electrical survey, a copy of which is annexed hereto as Schedule F and made a part hereof (the "Electric Survey"). Electricity shall be supplied 24 hours a day, seven days a week, however in the event Tenant uses electricity in excess of that contemplated in the Electric Survey, the Fixed Rent reserved herein may be increased as provided in Section 4.03 hereof. If Landlord's electric rates (i.e., the public utility rate schedule at the time in question, including all surcharges, taxes, fuel adjustments, taxes regularly passed on to consumers by the public -8- utility, and other sums payable in respect thereof for the supply of electric energy to Landlord for the Building) are increased, the Fixed Rent reserved in this Lease shall be adjusted by applying to the sum specified above, the same percentage as such rate increase, and such adjusted Fixed Rent shall be billed by Landlord to Tenant, with effect as of the date of the increase of Landlord's electric rate. Landlord shall not be liable in any way to Tenant for any failure or defect in the supply or character of electric energy furnished to the Demised Premises by reason of any requirement, act or omission of the public utility serving the Building with electricity or for any other reason not attributable to the Landlord. At Landlord's option, Tenant shall purchase from the Landlord or Landlord's agent all lighting tubes, lamps, bulbs and ballasts used in the Demised Premises and Tenant shall pay Landlord's reasonable charges therefor which shall be commercially competitive, for providing and installing same on demand, as additional rent; if Landlord's charges shall cease to be commercially competitive, Tenant shall no longer be required to purchase same from Landlord or Landlord's agent Section 4.02. Tenant's use of electric energy in the Demised Premises shall not at any time exceed the capacity of any of the electrical conductors, machinery and equipment in or otherwise serving the Demised Premises. In order to insure that such capacity is not exceeded and to avert possible adverse effect upon the Building electric service, Tenant shall not, without Landlord's prior written consent in each instance, connect any additional fixtures, machinery, appliances or equipment to the Building electric distribution system or make any alteration or addition to the equipment specified on the Electric Survey, or the electric system of the Demised Premises existing on the Commencement Date other than lamps, typewriters, copiers, computer terminals, copying machines, communications equipment such as telephones, fax machines, appliances, and other small office machines necessary for Tenant's use of the Demised Premises that consume comparable or less amounts of electricity. Should Landlord grant such consent, all additional risers or other equipment required therefor shall be provided by Landlord, and the cost thereof shall be paid by Tenant upon Landlord's demand. As a condition to granting such consent, Landlord may require Tenant to agree to an increase in the Fixed Rent by an amount which will reflect the value to Tenant (which shall be based upon what Tenant would pay the public authority for such service if the same were supplied directly to Tenant) of the additional service to be furnished by Landlord, that is, the potential additional electrical energy to be made available to Tenant based upon the estimated additional capacity of such additional risers or other equipment. If Landlord and Tenant cannot agree on the amount of such increase, Tenant shall nevertheless pay the same as billed until such amount shall be determined by an independent utility consultant to be selected by Landlord and paid equally by Landlord and Tenant. The determination of the consultant shall be binding upon the -9- parties. When the amount of such increase is so determined, the parties shall execute an agreement supplementary hereto to reflect such increase in the amount of the Fixed Rent stated in this Lease and in the amount set forth in Section 4.01, effective from the date such additional service is made available to Tenant, but such increase shall be effective from such date even if such supplementary agreement is not executed. Section 4.03. If there shall be an increase in the space constituting the Demised Premises, or if Tenant's failure to maintain its machinery and equipment in good order and repair causes greater consumption of electrical current, or if Tenant uses electricity in excess of that contemplated in the Electric Survey, the Fixed Rent herein reserved shall be increased accordingly. The amount of such increase shall be billed by Landlord to Tenant, effective as of the date of the increased usage. Such sum shall be due, and shall be paid by Tenant, as additional rent hereunder at the time billed. If Tenant disputes the amount of such increase, Tenant shall nevertheless pay the same as billed, and the amount shall be determined by an independent utility consultant to be selected and paid equally by Landlord and Tenant. The determination of the consultant shall be binding upon the parties. Section 4.04. A. Landlord reserves the right to discontinue furnishing electric energy to Tenant in the Demised Premises at any time upon not less than ninety (90) days prior written notice to Tenant provided that Landlord shall have made such election as to the majority of all tenants occupying the Building and further provided that electric service is available directly from the public utility servicing the Building (Landlord hereby agreeing, unless otherwise required by law, not to discontinue furnishing electricity to Tenant until such time as Tenant is able to obtain same directly from the public utility). If Landlord exercises such right of termination, this Lease shall continue in full force and effect and shall be unaffected thereby, except only that, from and after the effective date of such termination, Landlord shall not be obligated to furnish electric energy to Tenant and the Fixed Rent under this Lease shall be reduced by the amount set forth in Section 4.01, plus or minus the amount of any change pursuant to Sections 4.01, 4.02, 4.03 and 4.05. If Landlord so discontinues furnishing electric energy to Tenant, Tenant shall arrange to obtain electric energy directly from the public utility company furnishing electric service to the Building. Such electric energy may be furnished to Tenant by means of the then existing Building system feeders, risers and wiring to the extent that the same are available, suitable and safe for such purposes. All meters and additional panel boards, feeders, risers, wiring and other conductors and equipment which may be required to obtain electric energy directly from such public utility company shall be installed and maintained by Tenant at its expense. -10- B. In the event that Landlord shall discontinue furnishing electric energy to Tenant as provide above, if Tenant's cost of electric energy as charged by the public utility shall be in excess of one hundred thirty (130%) percent of the amount Tenant was paying to Landlord immediately preceding such discontinuance (and provided that Tenant has not used amounts of electricity more than when Landlord was furnishing electric energy to Tenant), then Tenant shall have the option to terminate this Lease upon ten (10) days prior written notice to Landlord and upon the expiration of such ten (10) day period, this Lease shall cease and terminate and be of no further force or effect. Section 4.05. Tenant covenants and agrees that at no time will the connected electrical load serving the Demised Premises exceed 5 watts per square foot. Should Landlord consent to an increase in the connected electrical load, as a condition to granting such consent, Landlord may require Tenant to agree to an increase in the Fixed Rent by an amount which will reflect the value to Tenant of the additional connected electrical load. If Tenant disputes the amount, Tenant shall nevertheless pay the same as billed, and the amount shall be determined by an independent utility consultant to be selected and paid equally by Landlord and Tenant. The determination of the consultant shall be binding upon the parties. Section 4.06. If any tax is imposed upon Landlord with respect to electrical energy furnished as a service to Tenant by any Federal, State or Municipal Authority, Tenant covenants and agrees that where permitted by law or applicable regulations, Tenant's pro rata share of such taxes shall be reimbursed by Tenant to Landlord. Section 4.07. (a) Landlord shall have the right to procure periodic surveys made by an independent utility consultant selected by Landlord and if such utility consultant determines that there has been (i) an increase in Tenant's use of electrical current or (ii) the amount set forth in Section 4.01 is insufficient, then, the amount set forth in Section 4.01 shall be adjusted and in addition to the other requirements and obligations imposed on Tenant in this Article, Landlord shall pay the fees of the utility consultant making such survey. The findings of such utility consultant shall be binding and conclusive upon the parties. Notwithstanding anything contained in this Article 4 to the contrary, provided Tenant continues to use amounts of electricity as contemplated in the Electric Survey, Landlord agrees that the amount set forth in Section 4.01 shall not be subject to increase for a period of two (2) years after the Commencement Date. (b) If Tenant wishes to dispute any determination of the additional rental value of electricity service to the Demised Premises on the basis of any survey made pursuant to Section 4.07(a) or as otherwise determined pursuant -11- to Sections 4.02 and 4.03 hereof, it shall notify Landlord to such effect within thirty (30) days after receipt of written notice of such determination. Unless and until such dispute is determined in Tenant's favor, Tenant shall pay the Fixed Rent as computed in accordance with such determination. The dispute shall be determined in the following manner: Tenant shall retain an independent electrical engineer or consultant ("Tenant's Consultant") to review Landlord's survey or other basis of Landlord for such determination, as the case may be, and, if deemed advisable, to make an independent survey. Not later than thirty (30) days after Tenant shall have given Landlord the notice of dispute, Tenant shall deliver to Landlord (i) Tenant's Consultant's comments on Landlord's survey or on Landlord's other basis for such determination, and/or (ii) Tenant's Consultant's survey. Landlord shall refer such comments and/or survey to the consultant who prepared the original survey or to its electrical consultant ("Landlord's Consultant") who shall meet with Tenant's Consultant for the purpose of reaching agreement upon the additional rental value of the electricity service to the Demised Premises. If they are unable to reach such agreement within thirty (30) days after the delivery of such comments or report, Landlord's Consultant and Tenant's Consultant shall appoint a disinterested third electrical consultant, who shall, within twenty (20) days thereafter, resolve whatever differences may remain between Landlord's Consultant and Tenant's Consultant and on the basis of such resolution determine the additional rental value of the electricity service to the Demised Premises. If Landlord's Consultant and Tenant's Consultant are unable to agree upon a disinterested third electrical consultant within the thirty (30) day period above specified for agreement between Landlord's Consultant and Tenant's Consultant, and if the parties are unable to agree upon such a third electrical consultant within ten (10) days thereafter, either party, upon written notice to the other, may apply for the appointment of such a third electrical consultant to the President of the Real Estate Board of New York, Inc. or any organization successor thereto, or in his absence or refusal or failure to act, to the Supreme Court of the State of New York in the County of New York. The fees and expenses of Landlord's Consultant shall be borne entirely by Landlord. The fees and expenses of Tenant's Consultant shall be borne entirely by Tenant. The fees and expenses of the disinterested third electrical consultant shall be shared equally by Landlord and Tenant. If and to the extent that the additional rental value of the electricity service to the Demised Premises shall be so determined to be less than the value originally determined by Landlord's Consultant, the amount of the resulting overpayment of the Fixed Rent shall be refunded by Landlord to Tenant on Tenant's demand therefor. Section 4.08. Notwithstanding the aforesaid provisions of this Article, if, pursuant to an action of the Public Service Commission of the State of New York, or otherwise, submetering of electricity is permitted at the Building then Landlord shall, -12- have the option, at Landlord's sole cost and expense, of installing submeters to measure Tenant's electricity consumption. Upon installation of the submeters, Tenant's electricity consumption and demand shall be measured by said submeters, and subject to the terms and conditions of Section 4.09 hereof, Tenant agrees to purchase such electricity from Landlord or Landlord's designated agent at Landlord's electric rates, plus five (5%) percent thereof to reimburse Landlord for administrative services in connection with supplying and billing such electricity and for line loss. All such sums shall be paid by Tenant to Landlord as additional rent hereunder. If more than one meter measures the electricity consumption and demand of Tenant in the Building, the service rendered through each meter shall be aggregated and billed in accordance with the above rate classification, unless Landlord shall elect separate billing on a per-meter basis. Landlord may at any time render bills for Tenant's consumption and demand and Tenant shall pay the same within thirty (30) days following the date the same are rendered. If Landlord exercises such right of submetering, this Lease shall continue in full force and effect and shall be unaffected thereby, except only that, from and after the effective date of such submetering, the Fixed Rent under this Lease shall be reduced by the amount set forth in Section 4.01, plus or minus the amount of any change pursuant to Sections 4.01, 4.02, 4.03 and 4.05, and Tenant shall purchase electric energy pursuant to this Section 4.08. Section 4.09. If at any time during the Term of this Lease Tenant shall be legally able to obtain electric energy from a third party supplier, Landlord agrees that Tenant, upon not less than 30 days prior written notice, shall have the option to do so. Such electric energy furnished by said third party supplier may be furnished to Tenant by means of the then existing Building system feeders, risers and wiring but only to the extent that same are available, suitable and safe for such purposes. Any meters, panel boards, feeders, risers, wiring and other conductors and equipment which may be required to obtain electric energy directly from such third party supplier shall be installed and maintained by Tenant at its sole cost and expense. If Tenant exercises its option as aforesaid, this Lease shall continue in full force and effect and shall be unaffected thereby, except only that, from and after the date Tenant begins receiving electric energy from said third party supplier, Landlord shall not be obligated to furnish electric energy to Tenant and the Fixed Rent under this Lease shall be reduced by the amount set forth in Section 4.01, plus or minus the amount of any change pursuant to Sections 4.01, 4.02, 4.03 and 4.05. -13- ARTICLE 5. USE --- Section 5.01. Tenant shall use and occupy the Demised Premises for administrative, executive and general business office purposes only and for no other purposes. Section 5.02. Tenant shall not suffer or permit the Demised Premises or any part thereof to be used in any manner, or suffer or permit anything to be done therein, or suffer or permit anything to be brought into or kept in the Demised Premises which would in any way (i) violate any law or requirement of public authorities, (ii) cause structural injury to the Building or any part thereof, (iii) interfere with the normal operation of the heating, air conditioning, ventilating, plumbing or other mechanical or electrical systems of the Building or the elevators installed therein, (iv) constitute a public or private nuisance, or (v) alter the appearance of the exterior of the Building or of any portion of the interior thereof other than the Demised Premises. Tenant's signage on its entrance door shall be subject to Landlord's approval. Section 5.03. Tenant shall not, without the prior written consent of Landlord (which shall not be unreasonably withheld or delayed), allow a "Servicing Company" (defined below) to install any telephone, data, information or other communications equipment in the Demised Premises to service premises occupied by persons other than Tenant and/or its affiliates. For example, the Demised Premises may not be used as a so-called "switching" or "relay" station serving third parties (that is, parties other than Tenant and its affiliates) without such consent by Landlord. In granting such consent, Landlord may require that the Servicing Company enter into a license agreement with Landlord confirming that the Servicing Company shall have no independent rights in the Demised Premises and that upon termination of this Lease, for whatever reason, the Servicing Company will have no right to leave its equipment in the Demised Premises. Landlord may make a reasonable charge to the Servicing Company for allowing it to install its equipment in the Demised Premises. A "Servicing Company" shall mean a person, firm, corporation or other entity other than ---------- Tenant whose equipment services not only the Demised Premises, but other - ------ premises or parties as well. ARTICLE 6. REPAIRS, ALTERATIONS AND LIENS ------------------------------ Section 6.01. Tenant shall take good care of the Demised Premises and the fixtures and appurtenances and equipment therein and, at its sole cost and expense, make all repairs thereto as and when needed to preserve the aforesaid in good working order and condition (other than structural repairs and repairs to plumbing, wiring and other Building equipment for the general -14- supply of water, heat, air-conditioning, gas and electricity which are not caused by the carelessness, omission, neglect, improper conduct or other cause of Tenant, its servants, employees, agents, visitors or licenses). Except to the extent caused by the negligence of Landlord and its agents, all damage or injury to the Demised Premises and to its fixtures, appurtenances and equipment or to the Building of which the same form a part, or to its fixtures, appurtenances and equipment caused by Tenant moving property, or resulting from any air-conditioning unit or system, any short circuit, flow or leakage of water, steam, illuminating gas, sewer gas, sewerage or odors, or by frost or by bursting or leaking of pipes or plumbing works or gas, or from any other cause of any other kind or nature whatsoever due to carelessness, omission, neglect, improper conduct or other cause of Tenant, its servants, employees, agents, visitors or licenses, shall be repaired, restored or replaced promptly by Tenant, at its sole cost and expense, to the satisfaction of Landlord. If Tenant fails to commence and diligently prosecute such repairs, restorations or replacements, within the time period set within Section 17.01, (except in the event of an emergency in which cease no notice shall be required), same may be made by Landlord at the expense of Tenant and any actual out-of-pocket costs incurred by Landlord therefor shall be collectible as additional rent or otherwise, and shall be paid by Tenant within thirty (30) days after rendition of a bill or statement therefor. Section 6.02. Landlord shall, at its expense, make all repairs and replacements, structural and otherwise, necessary in order to keep in good order and repair the exterior of the Building and the public portions of the Building, the need for which Landlord shall have knowledge (including the public halls and stairways, plumbing, wiring and other Building equipment for the general supply of water, heat, air-conditioning, gas and electricity) except repairs hereinabove provided to be made by Tenant and repairs, the need for which Tenant has not reported to Landlord. Except in the event of an emergency, all repairs to be performed by Landlord which affect the Demised Premises shall be performed upon not less than three (3) days prior written notice to Tenant, and Landlord shall use reasonable efforts not to interfere with the conduct of Tenant's business; provided that the foregoing shall not be deemed to require that Landlord employ labor on an overtime or premium pay basis. Section 6.03. All repairs, restorations or replacements by either party shall be of first-class quality and done in good and workmanlike manner. Tenant shall, and shall include in all contracts, subcontracts and purchase orders, a requirement that such contractors, subcontractors or materialmen, as the case may be, shall, cause all workers at the Demised Premises to work in a cooperative manner with each other and with Building personnel and in a manner which will not disrupt access to or use of the common areas of the Building, cause any labor dispute with other -15- workers in the Building, cause inconvenience to the other tenants in the Building or interfere with the conduct of other tenants' business. Tenant agrees that should Tenant, its agents and/or contractors, enter upon the Demised Premises for the purpose of performing any work, the labor employed by Tenant or anyone performing such work, for or on behalf of Tenant, shall always be cooperative and compatible with the labor employed by Landlord or any contractors or subcontractors of Landlord so as to prevent any labor dispute or walk-out by Landlord's contractors and subcontractors. Should such labor be uncooperative or incompatible, Landlord may require Tenant to withdraw such labor from the Demised Premises. In the event Tenant or Tenant's contractor shall enter upon the Demised Premises or any other part of the Building, Tenant agrees to indemnify and save Landlord free and harmless, from and against any and all claims whatsoever arising out of said entry or such work, except to the extent such claim is due to the negligence of Landlord, its agents or contractors. Tenant's agents and contractors and their employees shall comply with the special rules, regulations and requirements of Building management (which are applicable generally to all tenants of the Building), with respect to the performance and coordination of said agents, contractors and their employees so as to avoid intrusion into the operation of the Building and to avoid disturbing the quiet enjoyment of other tenants. Section 6.04. Tenant shall not store or place any materials or other obstructions in the lobby or other public portions of the Building, or on the sidewalk adjacent to the Building. Section 6.05. Tenant shall do no work and shall make no alterations, decorations, installations, additions or improvements in or to the Demised Premises, including, but not limited to, installation of a water cooler, an air- conditioning or cooling system unit or part thereof, or other apparatus of like or other nature without Landlord's prior written consent, which consent shall not be unreasonably withheld or delayed in the cease of alterations, decorations, installations, additions or improvements in the Demised Premises which are non-structural in nature and do not affect the structure, exterior or common areas of the Building or adversely affect the functioning of the heating, ventilating or air-conditioning, electrical, mechanical, plumbing or elevator systems of the Building or other tenants' use thereof, and then only by contractors or mechanics approved by Landlord ("Approved Contractors"). Such approval must be obtained prior to any bidding for said work. For purposes hereof, Landlord agrees that the term "decorations" shall not include the hanging of paintings, pictures, artwork and bulletin boards in the Demised Premises which are capable of being removed from the Demised Premises without damage to the pictures or artwork and without damage, except to a de minimis extent, to the Demised Premises. Landlord agrees that it shall respond to any request for its consent to Tenant's proposed alterations, -16- decorations, installations, additions or improvements within five (5) Business Days after receipt of all information and documents relevant thereto and if Landlord shall fail to so respond within said five (5) Business Days, Landlord shall be deemed to have consented to Tenant's proposed alterations, decorations, installations, additions or improvements provided that Tenant's request for consent contained a legend in bold typeface to the effect that Landlord's failure to respond within said five (5) Business Days shall be deemed Landlord's consent. If Landlord shall reject Tenant's proposed alterations, decorations, installations, additions or improvements, in whole or in part, Landlord shall state with reasonable specificity the basis for such rejection and shall suggest changes, which, if incorporated, would make Tenant's proposed alterations, decorations, installations, additions or improvements acceptable to Landlord. Landlord covenants that it will maintain a list with a minimum of two (2) Approved Contractors for each category of work (other than for electric work, for painting and for carpeting, for which there may be only one (1) Approved Contractor, for each such category) during the Term. The charges of such Approved Contractors and the quality of their work shall be reasonably competitive with other reputable contractors of comparable skill and experience for similar work in similar buildings in Manhattan. A current list of Approved Contractors has heretofore been delivered to Tenant, but Tenant understands and agrees that such list may be changed in Landlord's sole discretion from time to time, provided that Landlord shall always maintain the minimum number of Approved Contractors as provided herein. Landlord shall throughout the Term, deliver to Tenant an updated list of Approved Contractors upon Tenant's request therefor. In the event Tenant claims that the charges of any such Approved Contractor are not competitive as aforesaid, Tenant shall send notice to Landlord asserting such claim, and if Landlord and Tenant cannot resolve such dispute within fifteen (15) days after Landlord's receipt of Tenant's notice, then, at Tenant's option such dispute shall be resolved by arbitration in Manhattan by an arbitrator selected from the panel of retired judges maintained by Comprehensive Alternative Dispute Resolution Enterprises, Inc. ("CADRE"). If CADRE shall no longer exist or shall be unwilling or unable to act, such dispute shall be resolved by another reputable commercial arbitration company which has expedited arbitration procedures, as Landlord shall select (the "Company"), provided, however, that Tenant may dispute Landlord's choice of the Company, in which event the parties shall mutually agree upon the Company, and if the parties shall be unable to agree upon the Company, the Company shall be appointed by any judge of a court of competent jurisdiction in the City of New York. Upon selection of the Company, the parties agree that the balance of this Section 6.05 shall continue to apply with the substitution of the Company in lieu of CADRE. If Tenant so desires to submit such dispute to CADRE, Tenant shall notify Landlord of such desire, and within ten (10) Business Days thereafter, Tenant shall make such submission and deliver all applicable -17- applications and documents to CADRE with a copy of the entire submission being delivered simultaneously to Landlord. The arbitration shall be conducted pursuant to the then existing rules, regulations, practices and procedures of CADRE for expedited arbitration, it being the intent of the parties to conduct the arbitration in the most expeditious manner permitted by the rules. Any determination pursuant to this Section shall be final and binding upon the parties and each party shall pay its respective costs of any proceedings pursuant to this Section (except that the prevailing party shall have the right to be reimbursed for its reasonable fees and expenses within twenty (20) days after submission of a bill therefor to the losing party). All such work, alterations, decorations, installations, additions or improvements shall be done at Tenant's sole expense and at such times and in such manner as Landlord may from time to time designate and in full compliance with all governmental bodies having jurisdiction thereover. Tenant's work, alterations, decorations, installations, additions or improvements shall be completed free of all liens and encumbrances and, as a condition to Landlord's consent to the making by Tenant of alterations, decorations, installations, additions or improvements to the Demised Premises, Tenant agrees to obtain, and deliver to Landlord, at the earliest opportunity permitted by applicable law, written and unconditional waivers of mechanics' liens upon the real property in which the Demised Premises are located, for all work, labor and services to be performed and materials to be furnished by them in connection with such work, signed by all contractors, subcontractors, materialmen and laborers to become involved in such work. As a condition to Landlord's permission to Tenant to make any alterations, decorations, installations, additions or improvements to the Demised Premises prior to the Commencement Date (including any initial installations), Landlord may require that Tenant agree with Landlord to fixing the Commencement Date of this Lease. Landlord shall not be liable for any failure of the air-conditioning and ventilating equipment in the Demised Premises installed by Landlord caused by any work, alterations, decorations, installations, additions or improvements by Tenant, and Tenant shall correct any such condition causing such failure promptly upon notice from Landlord of the need therefor. If Tenant shall fail to correct same, Landlord may make such correction and charge Tenant for the cost thereof. Such sum due Landlord shall be deemed additional rent and shall be paid by Tenant promptly upon being billed therefor. Section 6.06. Prior to commencing any work pursuant to the provisions of Section 6.05, Tenant shall furnish to Landlord: (i) Copies of all governmental permits and authorizations which may be required in connection with such work. -18- (ii) A certificate evidencing that Tenant (or Tenant's contractors) has (have) procured workers' compensation insurance covering all persons employed in connection with the work who might assert claims for death or bodily injury against Landlord, "Overlandlord" (as hereinafter defined), Tenant or the Building. (iii) Such additional personal injury and property damage insurance (over and above the insurance required to be carried by Tenant pursuant to the provisions of Article 9) as Landlord may reasonably require because of the nature of the work to be performed by Tenant. Section 6.07. All work, alterations, decorations, installations, additions or improvements upon the Demised Premises made by either party, including all paneling, decorations, partitions, railings, mezzanine floors, galleries and the like, affixed to the realty or for which Tenant shall have received a credit or contribution shall, unless Landlord elects otherwise (which election shall be made by giving a notice pursuant to the provisions of Article 30 not less than thirty (30) days prior to the expiration or other termination of this Lease or any renewal or extension thereof) become the property of Landlord and shall remain upon, and be surrendered with the Demised Premises as a part thereof at the end of the Term or renewal or extension term, as the case may be. In the event that Landlord shall elect otherwise, then such alterations, decorations, installations, additions or improvements which are atypical of an ordinary office installation (atypical shall be deemed to include, but not be limited to, a raised floor, louvered windows, any kitchen facility, any vault and any audio or video installation), made by Tenant upon the Demised Premises as Landlord shall select shall be removed by Tenant, and Tenant shall restore the Demised Premises to its original condition as of the Commencement Date (ordinary wear and tear and damage by fire or other casualty excepted), at its own cost and expense, at or prior to the expiration of the Term. Landlord hereby agrees that no item of Landlord's Work shall be required to be removed by Tenant at the end of the Term hereof. Where furnished by or at the expense of Tenant (except where same is a replacement of an item theretofore furnished and paid for by Landlord or against which Tenant has received a credit or contribution from Landlord), all movable property, furniture, furnishings and trade fixtures other than those affixed to the realty so that they cannot be removed without material damage shall remain the property of Tenant and shall be removed from the Demised Premises on or before the Expiration Date. In the event of damage to the Demised Premises or the Building by reason of such removal, Tenant shall restore the same to good order and condition (normal wear and tear excepted). If Tenant should desire to leave any part of such property in the Demised Premises upon the expiration of the Term, it shall so notify Landlord in writing not less than thirty (30) days prior to the expiration of -19- the Term, specifying the items of property which it desires to so leave. If within fifteen (15) days after the service of such notice Landlord shall request Tenant to remove any of the said property, Tenant shall, at its expense, at or before the expiration of the Term, remove said property and, in case of damage to the Demised Premises or the Building by reason of such removal, restore the Demised Premises to good order and condition (normal wear and tear and damage by fire or other casualty excepted). Section 6.08. Landlord shall not be responsible for supervision and/or coordination in respect to Tenant's activities pursuant to this Lease. Landlord's managing agent shall perform such supervision and coordination and, with respect to any work, alteration, decoration, addition or improvement costing more than $15,000, Tenant agrees to pay such managing agent, promptly upon being billed therefor, a sum equal to six (6%) percent of the cost of such work for indirect costs, field supervision and coordination in connection therewith. Tenant agrees to keep records of Tenant's work, alterations, decorations, additions and improvements costing in excess of $15,000 and of the cost thereof. Tenant agrees to furnish to Landlord's managing agent copies of such records certified as correct by Tenant within forty-five (45) days after Landlord's managing agent's request therefor. Notwithstanding anything contained herein to the contrary, the supervisory fee described above shall not apply to any work performed by Tenant in preparation for its initial occupancy of the Demised Premises. Section 6.09. Tenant will not do any act or suffer any act to be done which will in any way encumber the title of Landlord or Tenant in and to the Demised Premises or the Building or the Land, nor will the interest or estate of Landlord or Tenant in the Demised Premises or the Building or the Land be in any way subject to any claim by way of lien or encumbrance, whether by operation of law or by virtue of any express or implied contract by Tenant. Section 6.10. Tenant will not suffer or permit any liens to stand against the Demised Premises, the Building or the Land or any part thereof, by reason of any work, labor, services or materials done for, or supplied to, or claimed to have been done for, or supplied to, Tenant, or anyone holding the Demised Premises or any part thereof through or under Tenant. If any such lien is at any time filed against the Demised Premises or the Building or the Land, Tenant will cause the same to be discharged of record within thirty (30) days after the date that Tenant first has actual knowledge of filing of the same, by either payment, deposit or bonding (and the failure of Tenant to do so shall be a material default hereunder entitling Landlord to give a notice to Tenant pursuant to the provisions of Section 17.01 (1) hereof). In addition to any other right or remedy of Landlord Landlord may, but will not be obligated to, procure the -20- discharge of such lien either by paying the amount claimed to be due by deposit in court or bonding, and/or Landlord will be entitled, if Landlord so elects, to compel the prosecution of an action for the foreclosure of such lien by the lienor and to pay the amount of the judgment, if any, in favor of the lienor with interest computed at the Interest Rate, costs and allowances. Any amount paid or deposited by Landlord for any of the aforesaid purposes, and all legal and other expenses of Landlord, including, without limitation, attorneys' fees incurred in defending such action or in procuring the discharge of such lien, with all necessary disbursements in connection therewith, will become due and payable on the date of payment or deposit, as additional rent. Section 6.11. Nothing in this Lease will be deemed to be, or construed in any way as constituting, the consent or request of Landlord, express or implied by inference or otherwise, to any person, firm or corporation for the performance of any labor or the furnishing of any materials for any construction, rebuilding, alteration or repair of or to the Demised Premises, the Building or the Land or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials which might in any way give rise to the right to file any lien against Landlord's interest in the Demised Premises, the Building or the Land. ARTICLE 7. FLOOR LOAD, NOISE, WINDOW CLEANING ---------------------------------- Section 7.01. Tenant shall not place a load upon any floor of the Demised Premises which exceeds 120 pounds per square foot which is the load per square foot which such floor was designed to carry and which is allowed by law. Section 7.02. Business machines and mechanical equipment belonging to Tenant which cause noise or vibration that may be transmitted to the structure of the Building or the Demised Premises to such a degree as to be objectionable to Landlord shall be placed and maintained by the party owning the machines or equipment, at such party's expense, in settings of cork, rubber or spring type vibration eliminators sufficient to eliminate noise or vibration. Section 7.03. Tenant will not clean, nor require, permit, suffer or allow any window in the Demised Premises to be cleaned from the outside in violation of Section 202 of the Labor Law or of the rules of the Board of Standards and Appeals or of any other board or body having or asserting jurisdiction. Prior to the Commencement Date, Landlord, at its sole cost and expense, shall (i) replace any broken glass in the exterior windows of the Demised Premises and (ii) clean the inside and outside (to the extent practical) of such windows. -21- ARTICLE 8. LAWS, ORDINANCES, REQUIREMENTS OF PUBLIC AUTHORITIES ---------------------------------------------------- Section 8.01. Tenant shall, at its expense, comply with all laws, orders, ordinances and regulations or any direction made pursuant to any law, ordinance, rule, regulation or order of any public office or officer which or who shall, with respect to the particular manner of use of the Demised Premises (as opposed to mere use and occupancy as contemplated by Article 5) or to any abatement of nuisance, impose any violation, order or duty upon Landlord or Tenant arising from Tenant's particular manner of use of the Demised Premises (as opposed to mere use and occupancy as contemplated by Article 5), or as a result of any installations made therein (whether or not in compliance with the work article hereof) by Tenant or at Tenant's request, or required by reason of a breach of any of Tenant's covenants or agreements hereunder. Section 8.02. If Tenant should desire to contest the validity of any such law, ordinance, rule, regulation or order with which Tenant is obligated to comply, it may, at its expense, carry on such contest and non-compliance by it during such contest (so long as Tenant proceeds with due diligence) shall not constitute a breach of this Lease provided that it shall, to the satisfaction of Landlord, indemnify and hold Landlord harmless from and against all liability for any loss, damages and expenses (including, without limitation, attorneys' fees) which might result from or be incurred in connection with such contest or noncompliance. Notwithstanding the foregoing, non-compliance as aforesaid shall not commence or continue if it might subject Landlord to any fine or penalty or to prosecution for a crime, or if it would constitute a default by Landlord under any mortgage or lease affecting the Building and/or the Land. Section 8.03. If Tenant receives written notice of any violation of law, ordinance, rule, regulation or order applicable to the Demised Premises, it shall give prompt notice thereof to Landlord. Section 8.04. Except as aforesaid, Landlord shall, at its expense, comply with or cause to be complied with, all laws, ordinances, rules, regulations and orders of federal, state, county and municipal authorities and any direction made pursuant to law of any public officer or officers which shall, with respect to the public portions of the Building, impose any violation, order or duty upon Landlord or Tenant and with respect to which Tenant is not obligated by Section 8.01 to comply. Except as aforesaid, Landlord shall further, at its expense, comply with or cause to be complied with, all laws, ordinances, rules, regulations and orders of federal, state, county and municipal authorities and any direction made pursuant to law of any public officer or officers which affect Tenant's use or enjoyment of, or access to, the Demised Premises and with respect -22- to which Tenant is not obligated by Section 8.01 to comply. Landlord may, at its expense, contest the validity of any such law, ordinance, rule, order or regulation. Section 8.05. Landlord hereby agrees to comply with all present and future laws, ordinances, rules, regulations and orders which are violated as a result of any conditions to the Demised Premises which exist immediately prior to the Commencement Date ("Pre-Existing Conditions"). Landlord further agrees to indemnify and hold Tenant harmless from and against any loss, costs or expenses which Tenant may incur arising out of the existence of any such Pre-Existing Condition which violates any present or future laws, ordinances, rules, regulations and orders as aforesaid. ARTICLE 9. INSURANCE, PROPERTY LOSS, REIMBURSEMENT --------------------------------------- Section 9.01. Tenant shall not do or permit to be done any act or thing upon the Demised Premises which will invalidate or be in conflict with the Certificate of Occupancy or the terms of the New York State standard form of fire, boiler, sprinkler, water damage or other insurance policies covering the Building and the fixtures and property therein and Tenant shall, at its own expense, comply with all rules, orders, regulations or requirements of the New York Board of Fire Underwriters or any other similar body having jurisdiction and shall not knowingly do or permit anything to be done in or upon the Demised Premises in a manner which increases the rate of fire insurance upon the Building or on any property or equipment located therein over the rate in effect at the commencement of the Term of this Lease. Landlord agrees to provide Tenant with a copy of any notice of increase in the rate of fire insurance caused by Tenant, and Tenant shall have the right to take action to prevent such increase if any cure period is available to Landlord to remedy the conditions which caused such increase. Section 9.02. If, by reason of any action or omission of Tenant, the rate of fire, boiler, sprinkler, water damage or other insurance (with extended coverage) on the Building or on the property and equipment of Landlord shall be higher than it otherwise would be, Tenant shall reimburse Landlord for that part of the fire, boiler, sprinkler, water damage or other insurance premiums thereafter paid by Landlord which shall have been charged because of such failure by Tenant, and Tenant shall make the reimbursement on the first day of the month following such payment by Landlord or such other tenants. In any action or proceeding wherein Landlord and Tenant are parties, a schedule or "make up" of any insurance rate for the Building or Demised Premises issued by the New York Fire Insurance Exchange, or other body establishing fire insurance rates for the Building, shall be conclusive evidence of the facts therein stated and of the several items and charges in the insurance rates then applicable -23- to the Building or Demised Premises. Landlord agrees to provide Tenant with a copy of any notice of increase in the rate of fire insurance caused by Tenant, and Tenant shall have the right to take action to prevent such increase if any cure period is available to Landlord to remedy the conditions which caused such increase. Section 9.03. Tenant, at Tenant's own cost and expense, shall maintain insurance protecting and indemnifying Landlord and Tenant (and at Landlord's request, the landlord under any ground or underlying lease [herein "Overlandlord"], as well as the holder of any mortgage affecting the Land, the Building or both) against any and all claims for injury or damage to persons or property for the loss of life or of property occurring upon, in or about the Demised Premises and the public portions of the Building used by Tenant, its employees, agents, contractors, customers and invitees arising out of the negligent act or omission of any of the foregoing, such insurance to afford minimum protection during the Term of this Lease of not less than a single combined limit of $2,000,000 in respect of property damage and bodily injury or death to any one person or in respect of any one occurrence or accident (which may be maintained by umbrella coverage). Landlord may from time to time require that the amount of liability insurance to be maintained by Tenant under this Article be increased so that Landlord shall be adequately protected giving due consideration to all relevant circumstances and conditions. Landlord hereby agrees to maintain throughout the Term the insurance required to be maintained by Landlord pursuant to the mortgage currently encumbering the Building (or, if no mortgage shall encumber the Building, commercially reasonable levels of fire and extended coverage insurance covering the Building and general liability insurance in amounts and types customarily carried by owners of similar buildings in the area of the Building. All such insurance shall be effected under valid and enforceable policies (which may cover the Demised Premises and other locations), shall be issued by insurers of recognized responsibility and shall contain a provision whereby the insurer agrees not to cancel the insurance without ten (10) days' prior written notice to Landlord. On or before the Commencement Date of this Lease, Tenant shall furnish Landlord with a certificate evidencing the aforesaid insurance coverage and renewal certificates shall be furnished to Landlord at least thirty (30) days prior to the expiration date of each policy for which a certificate was theretofore required to be furnished. Section 9.04. Tenant shall give Landlord immediate notice in case of a fire or accident in the Demised Premises or the Building, or of defects therein or in any fixtures or equipment promptly after Tenant becomes aware of the same. -24- Section 9.05. Tenant shall indemnify and hold Landlord harmless from and against all liabilities, suits, claims, demands and actions, and costs and expenses of any kind or nature, due to or arising out of any injury to person or property, including death resulting at any time therefrom, occurring in or about the Demised Premises (unless caused by or due to the negligence or willful misconduct of Landlord, its agents, employees, contractors or invitees, in which event Tenant's indemnification herein shall be only to the extent, if any, of Tenant's negligence or willful misconduct or that of Tenant's agents, employees, contractors or invitees). To the extent of any valid and collectible insurance furnished by Tenant for the protection of Landlord, Tenant's obligation to indemnify and hold Landlord harmless against liability which is covered by such insurance shall be deemed, to the extent thereof, to be satisfied. Section 9.06. Landlord and Tenant shall each endeavor to secure an appropriate clause in, or an endorsement upon, each fire or extended coverage or rent insurance policy obtained by it and covering the Building, the Demised Premises or the personal property, fixtures and equipment located therein or thereon, pursuant to which the respective insurance companies waive subrogation or permit the insured, prior to any loss, to agree with a third party to waive any claim it might have against said third party. The parties hereto shall give prompt notice to the other in the event such clause is or becomes unavailable. The waiver of subrogation or permission for waiver of any claim shall extend to the agents of each party and the employees of each party and its respective agents and, in the case of Tenant, shall also extend to all other persons and entities occupying or using the Demised Premises. If and to the extent that such waiver or permission can be obtained only upon payment of an additional charge, then the party benefiting from the waiver or permission shall pay such charge upon written demand, or shall be deemed to have agreed that the party obtaining the insurance coverage in question shall be free of any further obligations under the provisions hereof relating to such waiver or permission. Subject to the foregoing provisions of this Section 9.06, each party hereby releases the other with respect to any claim (including a claim for negligence) which it might otherwise have against the other party for loss, damages or destruction with respect to its properly by fire or other casualty (including rental value or business interest, as the case may be) occurring during the Term of this Lease. Section 9.07. Tenant agrees to look solely to Landlord's estate and interest in the Land and Building, or the lease of the Building, or of the Land and Building, and the Demised Premises, and the proceeds of any casualty insurance policy thereon, for the satisfaction of any right or remedy of Tenant for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord, in the event of any liability -25- by Landlord, and no other property or assets of Landlord shall be subject to levy, execution, attachment, or other enforcement procedure for the satisfaction of Tenant's remedies under or with respect to this Lease, the relationship of Landlord and Tenant hereunder, or Tenant's use and occupancy of the Demised Premises, or any other liability of Landlord to Tenant. ARTICLE 10. DAMAGE OR DESTRUCTION BY FIRE OR OTHER CAUSE -------------------------------------------- Section 10.01. If the Building or the Demised Premises shall be partially or totally damaged or destroyed by fire or other cause, then whether or not the damage or destruction shall have resulted from the fault or neglect of Tenant, or its employees, agents or visitors (and if this Lease shall not have been terminated as in this Article 10 hereinafter provided), Landlord shall to the extent permitted by available insurance proceeds, repair the damage and restore and rebuild the Building and/or the Demised Premises (without limiting the rights of any insurance company, subrogated to Landlord's rights hereunder pursuant to the terms of any insurance policy as to which Landlord shall have been unable to obtain a waiver of subrogation in accordance with Section 9.06 hereof to seek recovery from Tenant, and any rights of Landlord under any other provisions of this Lease or at law or in equity), with reasonable dispatch after notice to it of the damage or destruction; provided, however, that Landlord shall not be required to repair or replace any of Tenant's property. Notwithstanding anything contained herein to the contrary, in no event shall Tenant be relieved of liability or responsibility for damage or destruction resulting from the fault or neglect of Tenant if the insurance policies carried by Landlord on the Building do not contain a waiver of the right of subrogation. Section 10.02. If the Building or the Demised Premises shall be partially destroyed by fire or other cause, the rents payable hereunder shall be abated to the extent that the Demised Premises shall have been rendered untenantable and for the period from the date of such damage or destruction to the date the damage shall be repaired or restored. If the Demised Premises or a major part thereof shall be totally (which shall be deemed to include substantially completely) untenantable on account of fire or other cause, the rent shall abate as of the date of the damage or destruction and until Landlord shall repair, restore and rebuild the Building and the Demised Premises, provided, however, that should Tenant occupy or reoccupy a portion of the Demised Premises during the period the Demised Premises are made completely untenantable, rents allocable to such portion shall be payable by Tenant from the date of such occupancy. Section 10.03. If the Building or Demised Premises shall be totally damaged or destroyed by fire or other cause, or if the -26- Building shall be so damaged or destroyed by fire or other cause that Landlord shall decide not to restore or rebuild it, then in either such case Landlord may terminate this Lease by giving Tenant notice to such effect within ninety (90) days after the date of the casualty, provided, however, that in the event of a total damage or destruction to the Building, Landlord shall have made such election as to all or substantially all of the tenants occupying the Building. If the Demised Premises shall be substantially damaged or destroyed during the final two (2) years of the Term, each of Landlord and Tenant shall have the option, to be exercised by giving written notice to the other, within thirty (30) days of the occurrence of such damage, to terminate this Lease and the Term and estate hereby granted as of the date of such damage or destruction. In case of any damage or destruction mentioned in this Article 10, Tenant may terminate this Lease by notice to Landlord, (x) unless, in the reasonable opinion of a reputable architect or contractor selected by Landlord, and reasonably satisfactory to Tenant, who shall be experienced with regard to restoration of comparable buildings following such a casualty (which opinion shall be delivered to Tenant within forty-five (45) days following the occurrence of such damage), the damage or destruction can be repaired and restored such that the Building and the Demised Premises shall be tenantable within nine (9) months following the occurrence of such damage (subject to extension as set forth immediately below), or (y) if Landlord has not completed the making of the required repairs and restored and rebuilt the Building and the Demised Premises within nine (9) months from the date of such damage or destruction, or within such period after such date (not exceeding three (3) months) as shall equal the aggregate period Landlord may have been delayed in doing so by adjustment of insurance, labor trouble, governmental controls, act of God, or any other cause beyond Landlord's reasonable control, and such termination shall be effective upon the expiration of thirty (30) days after the date of such notice. Upon the termination of this Lease as provided above, Tenant may remove its fixtures, personal property and inventory from the Demised Premises. Section 10.04. No damages, compensation or claim shall be payable by Landlord for inconvenience, loss of business or annoyance arising from any repair or restoration of any portion of the Demised Premises or of the Building pursuant to this Article 10. Landlord shall endeavor to effect such repair or restoration promptly and in such manner as not unreasonably to interfere with Tenant's business, provided no additional costs, for labor at overtime or premium rates, or otherwise, are incurred thereby. Section 10.05. Tenant covenants and agrees to cooperate with Landlord, the landlord under any ground or underlying lease to which this Lease is subject and subordinate or any mortgagee of any mortgage to which this Lease is subordinate in their -27- attempts to collect insurance proceeds (including rent insurance proceeds) payable to any of such parties. Section 10.06. Landlord will not carry separate insurance of any kind on Tenant's property and Landlord shall not be obligated to repair any damage thereto or replace the same. Section 10.07. In the event of the termination of this Lease pursuant to any of the provisions of this Article 10, this Lease and the Term and estate hereby granted shall expire as of the date of such termination with the same effect as if that were the Expiration Date, and the Fixed Rent and additional rent payable hereunder shall be apportioned as of such date. Section 10.08. The provisions of this Article 10 shall be considered an express agreement governing any case of damage or destruction of the Demised Premises by fire or other casualty, and Section 227 of the Real Property Law of the State of New York providing for a contingency in the absence of an express agreement, and any other law of like import, now or hereafter in force, shall have no application to the Demised Premises and this Lease. ARTICLE 11. ASSIGNMENT, SUBLETTING, MORTGAGING ---------------------------------- Section 11.01. (a) Tenant will not by operation of law or otherwise, assign, mortgage or otherwise encumber this Lease, nor the estate and Term hereby granted, nor sublet or permit the Demised Premises or any part thereof to be used by others, without Landlord's prior written consent in each instance. The consent by Landlord to any assignment or subletting shall not in any manner be construed to relieve Tenant from obtaining Landlord's express written consent to any other or further assignment or subletting. If Tenant desires to assign or sublet all or any portion of the Demised Premises, Tenant agrees to use as its exclusive rental agent for such purpose the then designated leasing agent of the Building and to notify such leasing agent of its desire to assign this Lease or sublet the Demised Premises. Upon obtaining a proposed assignee or sublessee, upon terms satisfactory to Tenant, Tenant shall submit to Landlord in writing (1) the name of the proposed assignee or subtenant; (2) the terms and conditions of the proposed assignment or subletting; (3) the nature and character of the business of the proposed assignee or subtenant and any other information reasonably requested by Landlord. Upon receipt of the foregoing submission from Tenant Landlord shall have the following options to be exercised within fifteen (15) Business Days from the date of such receipt: -28- 1. If an assignment shall be proposed or if a proposed subletting shall be for all or substantially all of the Demised Premises, Landlord shall have the option to terminate this Lease effective as of the date proposed by Tenant for such assignment or subletting. 2. If a proposed sublease shall be for less than all or substantially all of the Demised Premises or if it shall be for less than the balance of the Term of this Lease, Landlord shall have the option to terminate this Lease as to the portion of the Demised Premises proposed to be sublet for such portion of the Term as is included in such proposed sublease, effective as of the effective date of such proposed sublease. In the event of the exercise of such option under this subparagraph 2, the rent and all other charges payable hereunder shall be equitably apportioned, and Tenant shall be responsible for the cost of constructing any necessary demising walls. 3. (a) Landlord shall have the option to require Tenant to execute an assignment or sublease to Landlord, or to any party designated by Landlord, upon the same terms and conditions as contemplated with the proposed assignee or subtenant, except that (A) Landlord (or Landlord's designee) as assignee or sublessee shall have an express unlimited right to further assign or sublease to others and to make any alterations required in connection therewith, and (B) the rent or consideration payable under such assignment or sublease to Landlord (or Landlord's designee) shall be the lower of (i) the rental payable by Tenant to Landlord under this Lease, or (ii) the rental payable by the proposed assignee or subtenant pursuant to the assignment or sublease originally proposed by Tenant. (b) If Landlord shall not exercise any of its foregoing options within the time set forth above, provided Tenant shall not then be in default hereunder, Landlord's consent to any such proposed assignment or subletting shall not be "unreasonably" withheld, as described in paragraph (c) of this Section 11.01. If Landlord shall not exercise any of the options described in paragraph (a) above and Tenant shall thereupon assign this Lease or sublet all or any portion of the Demised Premises, then and in that event Tenant shall pay to Landlord as additional rent the difference, if any, between the Fixed Rent plus additional rent allocable to that part of the Demised Premises affected by such assignment or sublease pursuant to the provisions of this Lease, and the Fixed Rent and additional rent payable by the assignee or sublessee to Tenant. Such additional rent payments shall be made monthly within five (5) days after receipt of the same by Tenant. Any other cash or other consideration payable to Tenant in connection with such assignment or sublease or the sale of Tenant's property in connection therewith shall be similarly paid over to Landlord when and as received by Tenant. -29- If Tenant fails to consummate any proposed assignment or subletting to which Landlord shall have consented within sixty (60) days after granting such consent, paragraph (a) shall again apply to said proposed assignment or subletting. No option exercised by Landlord pursuant to the above provisions of paragraph (a), and no assignment or sublease made to Landlord under the above provisions of paragraph (a), shall be binding upon any purchaser of any ground or underlying lease who acquires such ground or underlying lease by reason of the foreclosure of any mortgage to which this Lease is subordinate, nor upon any assignee of any ground or underlying lease who takes such assignment in lieu of such foreclosure, it being understood, however, that such purchaser or assignee may, at its option, elect to enforce such option, assignment or sublease. (c) In determining reasonableness with respect to its consent to a proposed assignment or sublease by Tenant, Landlord may take into consideration all relevant factors surrounding the proposed assignment or sublease, including, without limitation, the following: (i) the financial stability and business reputation of the proposed assignee or subtenant; (ii) the nature of the business and the proposed use of the Demised Premises by the proposed assignee or subtenant in relation to the majority of other tenants in the Building; (iii) that the proposed assignee or subtenant shall not be a tenant of other space in the Building or a party which has dealt with Landlord or Landlord's agent (directly or through a broker) with respect to space in the Building during the six (6) months immediately preceding Tenant's request for Landlord's consent, provided Landlord has space in the Building for such proposed assignee or subtenant; (iv) restrictions contained in leases of other tenants of the Building; (v) the effect that the proposed assignee's or subtenant's occupancy or use of the Demised Premises would have upon the operation and maintenance of the Building and Landlord's investment therein; (vi) that not more than one entity shall occupy the Demised Premises at any time. Section 11.02. If this Lease shall be assigned, or if the Demised Premises or any part thereof be sublet or occupied by any person or persons other than Tenant, Landlord may after default by Tenant, collect rent from the assignee, subtenant or occupant and apply the net amount collected to the rent herein reserved, -30- but no such assignment, subletting, occupancy or collection of rent shall be deemed a waiver of the covenants in this Article, nor shall it be deemed acceptance of the assignee, subtenant or occupant as a tenant, or a release of Tenant from the full performance by Tenant of all the terms, conditions and covenants of this Lease. Section 11.03. Each assignee or transferee shall assume and be deemed to have assumed this Lease and shall be and remain liable jointly and severally with Tenant for the payment of the rent, additional rent and adjustments of rent, and for the due performance of all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the Term of this Lease. Notwithstanding the forgoing, in the event of an assignment of this Lease to an entity whose business and intended use of the Demised Premises is acceptable to Landlord and which has a net worth, as determined in accordance with generally accepted accounting principals, at least equal to the net worth, similarly determined, of Tenant as of the date of this Lease then, in such event, Landlord agrees to release Tenant from any and all liability arising under this Lease from after the effective date of such assignment. No assignment shall be binding on Landlord unless such assignee or Tenant shall deliver to Landlord a duplicate original of the instrument of assignment which contains a covenant of assumption by the assignee of all of the obligations aforesaid and shall obtain from Landlord the aforesaid written consent prior thereto. Section 11.04. For the purposes of this Lease, any sale, transfer or assignment of any of the stock of a corporate Tenant or any transfer in the control of Tenant by operation of law or otherwise shall be deemed an assignment. Section 11.05. The listing of any name other than that of Tenant, whether on the doors of the Demised Premises, on the Building directory or otherwise, shall not operate to vest any right or interest in this Lease or the Demised Premises. It is expressly understood that any such listing is a privilege extended by Landlord that is revocable at will by written notice to Tenant. Section 11.06. Tenant shall reimburse Landlord for any costs incurred by Landlord to review the requested consent provided in Article 11, including attorneys' fees. Section 11.07. If Landlord shall recover or come into possession of the Demised Premises before the Expiration Date, Landlord shall have the right to take over any sublease made by Tenant and to succeed to all lights of Tenant thereunder, Tenant hereby assigning (effective as of the date of Landlord's succession of Tenant's estate in the Demised Premises) such subleases as Landlord may elect to take over. Every subletting hereunder shall be subject to the condition that, from and after -31- the termination of this Lease or re-entry by Landlord hereunder or other succession by Landlord to Tenant's estate in the Demised Premises, the subtenant under such sublease shall waive any right to surrender possession or to terminate the sublease and, at Landlord's election, shall be bound to Landlord for the balance of the term thereof and shall attorn to and recognize Landlord, as its landlord, under all of the then executory terms of such sublease, except that Landlord shall not be (a) liable for any previous act, omission or negligence of Tenant under such sublease, (b) subject to any counterclaim, defense or offset theretofore accruing to such subtenant against Tenant, (c) bound by any previous modification or amendment of such sublease made without Landlord's consent or by any previous prepayment of more than one month's rent and additional rent unless paid as provided in the sublease, or (d) obligated to perform any repairs or other work in the subleased space or the Building beyond Landlord's obligations under this Lease, and each subtenant shall execute and deliver such instruments as Landlord may reasonably request to evidence and confirm such attornment. Section 11.08. Notwithstanding anything to the contrary elsewhere contained herein (including Section 11.01(a) hereof), provided that Tenant shall not be in default in any of the terms of this Lease beyond notice and the expiration of any applicable grace period, Tenant may, without Landlord's consent but upon not less than ten (10) days' prior written notice to Landlord, sublet to any corporations or other business entities which control, are controlled by, or are under common control with Tenant (herein referred to as a "Related Entity") all or part of the Demised Premises or permit any Related Entity to occupy the same for any of the purposes permitted to Tenant, subject however to compliance with Tenant's obligations under this Lease. Such subletting or occupancy shall not be deemed to vest in any such Related Entity any right or interest in this Lease nor shall such subletting or occupancy relieve, release, impair or discharge any of Tenant's obligations hereunder. Tenant shall deliver to Landlord a copy of any such sublease or occupancy agreement for all or any portion of the Demised Premises. Section 11.09. Notwithstanding anything to the contrary elsewhere contained herein (including Section 11.01(a), which shall not be applicable to an assignment or transfer pursuant to this Section 11.09), Tenant may, upon prior written notice to Landlord, assign or transfer its entire interest in this Lease and the leasehold estate hereby created to a "Successor Corporation" (as such term is hereinafter defined) of Tenant, provided that Tenant shall not be in default in any of the terms of this Lease beyond notice and the expiration of any applicable grace period. A "Successor Corporation", as used in this Section, shall mean (a) a corporation into which or with which Tenant, its corporate successors or permitted assigns, is merged or consolidated, in accordance with applicable statutory provisions for the merger or consolidation of a corporation, -32- provided that by operation of law or by effective provisions contained in the instruments of merger or consolidation, the liabilities of the corporations participating in such merger or consolidation are assumed by the corporation surviving such merger or consolidation, or (b) a corporation, partnership or other business entity acquiring this Lease and the Term and the estate hereby granted, the goodwill and all or substantially all of the other property and assets (other than capital stock of such acquired corporation) of Tenant, its corporate successors or permitted assigns, and assuming all or substantially all of the liabilities of Tenant, its corporate successors or permitted assigns, or (c) any corporate successor to a Successor Corporation becoming such by either of the methods described in subdivisions (a) and (b) above, provided that, (x) immediately after giving effect to any such merger or consolidation, or such acquisition and assumption, as the case may be, the corporation, partnership or other business entity surviving such merger or created by such consolidation or acquiring such assets and assuming such liabilities, as the case may be, shall have a net worth, as determined in accordance with generally accepted accounting principles, at least equal to the greater of (i) the net worth, similarly determined, of Tenant, immediately prior to such merger or consolidation or such acquisition and assumption, as the case may be, or (ii) the net worth, similarly determined, of Tenant as of the date of this Lease and (y) proof of such net worth, as evidenced by a statement from a certified public accounting firm reasonably satisfactory to Landlord shall have been delivered to Landlord at least ten (10) days prior to the effective date of any such merger or consolidation, or acquisition and assumption, as the case may be. Upon the compliance with the foregoing provisions of this Section 11.09, and the delivery to Landlord of the agreement of the Successor Corporation, in form and substance satisfactory to Landlord, to assume all the terms of this Lease to be performed by Tenant, and to be bound thereby, the corporation, partnership or other business entity so assigning or transferring this Lease shall thereafter be released and discharged from any obligations thereafter arising under this Lease. Section 11.10. In the event that any subtenant approved by Landlord pursuant to the terms and conditions of this Article 11 (not including any subtenant for which Landlord's consent is not required pursuant to the terms and conditions of this Article 11) occupies substantially all of the Demised Premises for the balance of the Term and provided such subtenant agrees to attorn to Landlord upon all of the terms and conditions of this Lease (including the Fixed Rent and additional rent payable under this Lease by Tenant (computed at the rate per square foot payable by Tenant hereunder)), Landlord shall, upon the written request of Tenant, deliver to such subtenant a non- disturbance/attornment agreement in Landlord's then standard form. -33- ARTICLE 12. NO LIABILITY ON LANDLORD ------------------------ Section 12.01. Landlord or its agents shall not be liable for any damage to property of Tenant or of others entrusted to employees of the Building, nor for the loss of or damage to any property of Tenant by theft or otherwise. Landlord or its agents shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain or snow, leaks from any part of the Building or from the pipes, appliances or plumbing works or from the roof, street or sub-surface or from any other place or by dampness or by any other cause of whatsoever nature, unless caused by or due to the negligence of Landlord, its agents, servants or employees; nor shall Landlord or its agents be liable for any such damage caused by other tenants or persons in the Building or caused by operations in construction of any private, public or quasi-public work; nor shall Landlord be liable for any latent defect in the Demised Premises or in the Building of which they form a part. If at any time any windows of the Demised Premises are temporarily closed ("temporarily" for the purposes of this Section 12.01 meaning a period not in excess of thirty (30) consecutive days), darkened or bricked up for any reason whatsoever (other than by reason of Landlord's own arbitrary, unjustified acts), Landlord shall not be liable for any damage Tenant may sustain thereby, and Tenant shall not be entitled to any compensation therefor nor abatement of rent nor shall the same release Tenant from its obligations hereunder nor constitute an eviction. In the event that the windows are closed, darkened or bricked up for more than thirty (30) consecutive days (and same shall not have been required by law), there shall be, as Tenant's sole remedy, an equitable abatement for the Fixed Rent and additional rent hereunder until such condition shall be remedied. Landlord agrees that Landlord will not permanently close, darken or brick up the windows of the Demised Premises unless required by law. ARTICLE 13. MOVING OF HEAVY EQUIPMENT ------------------------- Section 13.01. Tenant shall not move any safe, heavy equipment or bulky matter in or out of the Building without Landlord's written consent, which consent Landlord agrees not to unreasonably withhold or delay. For purposes hereof, the term "bulky matter" shall not include ordinary personal computers and related equipment. If the movement of such items requires special handling, Tenant agrees to employ only persons holding a Master Riggers License to do said work and all such work shall be done in full compliance with the Administrative Code of the City of New York and other municipal requirements. All such movements -34- shall be made during hours which will least interfere with the normal operations of the Building, and all damage caused by such movement shall be promptly repaired by Tenant at Tenant's expense. ARTICLE 14. CONDEMNATION ------------ Section 14.01. In the event that the whole or any material portion of the Demised Premises shall be lawfully condemned or taken in any manner for any public or quasipublic use, this Lease and the Term and estate hereby granted shall forthwith cease and terminate as of the date of vesting of title. In the event that only an immaterial part of the Demised Premises shall be so condemned or taken, then, effective as of the date of vesting of title, the rent hereunder for such part shall be abated. In the event that only a part of the Building shall be so condemned or taken, then (a) if substantial structural alteration or reconstruction of the Building shall in the reasonable opinion of Landlord be necessary or appropriate as a result of such condemnation or taking (whether or not the Demised Premises be affected), Landlord may, at its option, terminate this Lease and the Term and estate hereby granted as of the date of such vesting of title by notifying Tenant in writing of such termination within sixty (60) days following the date on which Landlord shall have received notice of vesting of title, or (b) if Landlord does not elect to terminate this Lease, as aforesaid, this Lease shall be and remain unaffected by such condemnation or taking, except that the Fixed Rent and additional rent shall be abated to the extent, if any, hereinbefore provided in this Article 14. In the event that only a part of the Demised Premises shall be so condemned or taken and this Lease and the Term and estate hereby granted are not terminated as hereinbefore provided, Landlord will, at its expense, restore with reasonable diligence the remaining structural portions of the Demised Premises as nearly as practicable to the same condition as it was prior to such condemnation or taking. In the event of termination in any of the cases hereinabove provided in this Article 14, this Lease and the Term and estate hereby granted shall expire as of the date of such termination with the same effect as if that were the date hereinbefore set for the expiration of the Term of this Lease, and the rent hereunder shall be apportioned as of such date. In the event of any condemnation or taking hereinabove mentioned of all or a part of the Building, Landlord shall be entitled to receive the entire award in the condemnation proceeding, including any award made for the value of the estate vested by this Lease in Tenant, and Tenant hereby expressly assigns to Landlord any and all right, title and interest of Tenant now or hereafter arising in or to any such award or any -35- part thereof, and Tenant shall be entitled to receive no part of such award. ARTICLE 15. ENTRY, RIGHT TO CHANGE PUBLIC PORTIONS OF THE BUILDING ------------------------------------------------------ Section 15.01. Tenant shall permit Landlord to erect, use and maintain pipes and conduits in and through the Demised Premises. All such pipes and conduits shall either be concealed above the suspended ceiling area, or within the demising walls or installed in the service columns, or shall be installed along the walls of the Demised Premises and appropriately enclosed, where feasible. In the event the construction deprives the Tenant of the use of a material or substantial portion of the usable area of the Demised Premises (other than on a temporary basis), the Tenant shall be entitled to an pro rata abatement of rent for the space so permanently taken. Landlord agrees that in the event more than ten (10%) of the Demised Premises is permanently taken pursuant to this Article 15 and such taking materially interferes with Tenant's ability to conduct its business in the balance of the Demised Premises, Tenant shall, within thirty (30) days after such permanent taking, have the right to cancel and terminate this Lease upon written notice to Landlord. Landlord or its agents or designees shall have the right, but only upon not less than ten (10) days prior notice (except in emergencies, in which event no notice shall be required) given to Tenant or any authorized employee of Tenant at the Demised Premises, to enter the Demised Premises at reasonable times during business hours, for the purpose of making such repairs or alterations as shall be required or as Landlord shall have the right to make by the provisions of this Lease. Landlord shall be allowed to take all material into and upon the Demised Premises that may be required for the repairs and alterations above mentioned without the same constituting an eviction of Tenant in whole or in part, and the rent reserved hereunder shall in no wise abate, except as otherwise provided in this Lease, while said repairs or alterations are being made, by reason of loss or interruption of the business of Tenant because of the prosecution of any such work, or otherwise. Landlord agrees to do any work pursuant to this Article in such a manner so as not to unreasonably interfere with Tenant's business, provided no additional costs, for labor at overtime or premium rates, or otherwise, are incurred thereby (unless the health or safety of Tenant's employees is threatened, in which event Landlord shall employ overtime labor if doing so will eliminate such threat) and at Tenant's option a representative of Tenant may be present during the performance of any such work. Section 15.02. During the twelve (12) months prior to the expiration of the Term of this Lease, Landlord may exhibit the Demised Premises to prospective tenants. Landlord shall also have the right to enter the Demised Premises for the purpose of -36- inspecting the same or exhibiting the same to prospective purchasers or lessees of the entire Building or to prospective mortgagees of the property of which the Demised Premises forms a part. The holders of any mortgage of Landlord's interest in the property, or such holders' agents or designees, shall also have such right of inspection for itself and for any prospective assignees of any such mortgagees. Landlord agrees, to the extent practicable, to give Tenant reasonable prior notice of any exhibition or inspection pursuant to this Section 15.02 and to perform any such exhibition or inspection at times convenient to Tenant and in a manner so as to minimize interference with Tenant's business. Section 15.03. Landlord shall have the right at any time without thereby creating an actual or constructive eviction or incurring liability to Tenant therefor, to change the arrangement or location of such of the following as are not contained within the Demised Premises or any part thereof: entrances, passageways, elevators, doors and doorways, corridors, stairs, toilets and other like public service portions of the Building, provided any such changes do not require Tenant to perform any work in the Demised Premises and further provided such changes do not unreasonably interfere with Tenant's access to and use of the Demised Premises. ARTICLE 16. BANKRUPTCY ---------- Section 16.01. (a) Anything elsewhere in this Lease to the contrary notwithstanding, this Lease may be cancelled by Landlord by the sending of a written notice to Tenant within a reasonable time after the happening of any one or more of the following events: (i) Tenant shall (A) have applied for or consented to the appointment of a receiver, trustee, liquidator, or other custodian of Tenant or any of its properties or assets, (B) have made a general assignment for the benefit of creditors, (C) have commenced a voluntary case for relief as a debtor under the United States Bankruptcy Code or filed a petition to take advantage of any bankruptcy, reorganization, insolvency, readjustment of debts, dissolution or liquidation law or statute or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or (D) be adjudicated a bankrupt or insolvent; or (ii) without the acquiescence or consent of Tenant an order, judgment or decree shall have been entered by any court of competent jurisdiction approving as properly filed a petition seeking relief under the United States Bankruptcy Code or any bankruptcy, reorganization, insolvency, readjustment of debts, dissolution or liquidation law or statute with respect to Tenant or appointing a receiver, trustee, liquidator or other custodian of all or a substantial part of its properties or assets, and such order, judgment or decree shall have continued unstayed and in effect for any period -37- of not less than sixty (60) days. Neither Tenant, nor any person claiming through or under Tenant (except for any subtenant who has received a non- disturbance/attornment agreement from Landlord in accordance with Section 11.10 hereof) or by reason of any statute or order of court, shall thereafter be entitled to possession of the Demised Premises, but shall forthwith quit and surrender the Demised Premises. If this Lease shall be assigned in accordance with its terms, the provisions of this Article shall be applicable only to the party then owning Tenant's interest in this Lease. (b) It is stipulated and agreed that in the event of the termination of this Lease pursuant to paragraph (a) hereof, Landlord shall forthwith, notwithstanding any other provisions of this Lease to the contrary but subject to applicable law, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rent reserved hereunder for the unexpired portion of the Term demised and the then fair and reasonable rental value of the Demised Premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the Demised Premises for the period for which such installment was payable shall be discounted to the date of termination at one (1%) percent above the then prime commercial lending rate of Marine Midland Bank N.A. If the Demised Premises or any part thereof be re-let by Landlord for the unexpired Term of this Lease, or any part thereof, before the presentation of proof of such liquidated damages to any court, commission or tribunal, the amount of rent reserved upon such re-letting shall be prima facie evidence as to the fair and reasonable rental value for the part or the whole of the Demised Premises so re- let during the term of the re-letting. Nothing herein contained shall limit or prejudice the Right of Landlord to prove for and obtain as liquidated damages by reason of such termination, an amount equal to the maximum allowed by any statute or rule in effect at the time when, and governing the proceedings in which, such damages are to be approved, whether or not such amount be greater, equal to, or less than the amount of the difference referred to above. Notwithstanding the foregoing provisions of this Section 16.01(b), if this Lease shall be terminated as a result of any of the conditions described in Section 16.01(a), then, in such event, Landlord agrees to use commercially reasonable efforts to relet the Demised Premises and thus to mitigate Tenant's damages provided for in this Section 16.01(b). -38- ARTICLE 17. DEFAULTS AND REMEDIES AND WAIVER OF REDEMPTION ---------------------------------------------- Section 17.01. (1) If (A) Tenant defaults in fulfilling any of the covenants of this Lease, (i) with respect to the covenant for the payment of Fixed Rent or additional rent, if such default shall continue for five (5) days, and (ii) with respect to any other covenants, if such default shall continue for twenty (20) days, in either event, after Landlord shall have given to Tenant a written notice specifying such default, or (B) the Demised Premises become vacant or abandoned, or (C) in the case of the happening of a default or omission (other than in the payment of Fixed Rent, additional rent or other charges hereunder and other than the failure to cause a lien against the Demised Premises, the Building or the Land to be discharged of record within the time period provided elsewhere in this Lease) which cannot with due diligence be completely cured or remedied within such twenty (20) day period, if Tenant shall not have diligently commenced curing such default within such twenty (20) day period, and shall not thereafter with reasonable diligence and in good faith be proceeding to remedy or cure such default, then, in any such case, Landlord may give to Tenant a notice of intention to terminate this Lease upon the expiration of five (5) days from the service of such notice of intention, and upon the expiration of said five (5) days, this Lease and the Term hereof shall terminate, and Tenant shall then quit and surrender the Demised Premises to Landlord, but Tenant shall remain liable as hereinafter provided. (2) If (A) the notice provided for in (1) hereof shall have been given, and the Term shall expire as aforesaid; or (B) if Tenant shall make any default in the payment of Fixed Rent or additional rent herein reserved, or any part of either, or in making any other payment herein provided within the time period provided for in subsection (1) above; or (C) if any execution or attachment shall be issued against Tenant or any of Tenant's property whereupon the Demised Premises shall be taken or occupied or attempted to be taken or occupied by someone other than Tenant; or (D) if Tenant shall fail to move into or take possession of the Demised Premises within ninety (90) days after commencement of the Term of this Lease, of which facts Landlord shall be the sole judge; then in any of such events Landlord may, to the extent legally permissible without further notice, re-enter the Demised Premises either by force or otherwise, and dispossess Tenant and the legal representatives of Tenant or any other occupants of the Demised Premises by summary proceedings or otherwise and remove their effects and hold the Demised Premises as if this Lease had not been made. If Tenant shall make default hereunder, beyond the expiration of any applicable notice and cure periods, prior to the date fixed as the commencement of any renewal or extension of this Lease, Landlord may cancel and terminate such renewal or extension agreement by written notice, but Tenant shall remain liable as hereinafter provided. -39- Section 17.02. In case of any such default, after the expiration of the applicable notice and cure periods provided in Section 17.01(1), re-entry, expiration and/or dispossess by summary proceedings or otherwise, (i) the rent shall become due thereupon and be paid up to the time of such re-entry, dispossess and/or expiration together with such costs as Landlord may incur for legal expenses, reasonable attorneys' fees, brokerage and/or putting the Demised Premises in good order, or for preparing the same for re-rental; (ii) Landlord may re-let the Demised Premises or any part or parts thereof, either in the name of Landlord or otherwise, for a term or terms, which may at Landlord's option be less than or exceed the period which would otherwise have constituted the balance of the Term of this Lease and may grant concessions or free rent; and/or (iii) Tenant or the legal representatives of Tenant shall also pay Landlord as liquidated damages for the failure of Tenant to observe and perform Tenant's covenants herein contained, at the election of Landlord, either: (a) a sum which at the time of such termination of this Lease or at the time of any such re-entry by Landlord, as the case may be, represents the then value of the excess, if any, of (1) the aggregate of the installments of Fixed Rent and the additional rent (if any) which would have been payable hereunder by Tenant, had this Lease not so terminated, for the period commencing with such earlier termination of this Lease or the date of any such re-entry, as the case may be, and ending with the date hereinbefore set for the expiration of the full term hereby granted pursuant to Articles 1 and 2 hereof, over (2) the aggregate rental value of the Demised Premises for the same period, said lump sum to be discounted to the Expiration Date of this Lease at the then prevailing prime rate of interest; or (b) sums equal to the aggregate of the installments of Fixed Rent and additional rent (if any) which would have been payable by Tenant had this Lease not so terminated, or had Landlord not so re-entered the Demised Premises, payable upon the due dates therefor specified herein following such termination or such re-entry and until the date hereinbefore set for the expiration of the full Term hereby granted; provided, however, that if Landlord shall re-let the Demised Premises during said period, Landlord shall credit Tenant with the net rents received by Landlord for such re-letting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such re-letting the expenses incurred or paid by Landlord terminating this Lease or of re-entering the Demised Premises and of securing possession thereof, including, without limitation, attorneys' fees and costs of removal and storage of Tenant's property, as well as the expenses of re-letting, including repairing, restoring, altering, decorating and preparing the Demised Premises for new tenants, brokers' commissions, advertising costs, reasonable attorneys' fees, and all other similar or dissimilar expenses chargeable against the Demised Premises and the rental therefrom in connection with such -40- re-letting, it being understood that any such re-letting may be for a period equal to or shorter or longer than the remaining Term of this Lease; provided, further, that (1) in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder, (2) in no event shall Tenant be entitled in any suit for the collection of damages pursuant to this paragraph (b) to a credit in respect of any net rents from a re-letting except to the extent that such net rents are actually received by Landlord prior to the commencement of such suit, and (3) if the Demised Premises or any part thereof should be re-let in combination with other space, then proper apportionment on a square foot area basis shall be made of the rent received from such re-letting and of the expenses of re-letting. For the purpose of paragraph (a) of this Section 17.02, the amount of additional rent which would have been payable by Tenant under Article 3 hereof for each year, as therein provided, ending after such termination of this Lease or such re-entry, shall be deemed to be an amount equal to the amount of such additional rent payable by Tenant for the calendar year and Tax Year ending immediately preceding such termination of this Lease or such re-entry. Suit or suits for the recovery of such damages, or any installments thereof, may be brought by Landlord from time to time at its election, and nothing contained herein shall be deemed to require Landlord to postpone suit until the date when the Term of this Lease would have expired if it had not been terminated under the provisions of Articles 16 or 17 hereof, or under any provision of law, or had Landlord not re-entered the Demised Premises. Landlord, at Landlord's option, may make such alterations, repairs, replacements and/or decorations in the Demised Premises as Landlord in Landlord's sole judgment considers advisable and necessary for the purpose of re-letting the Demised Premises; and the making of such alterations and/or decorations shall not operate or be construed to release Tenant from any liability hereunder as aforesaid. Landlord shall in no event be liable in any way whatsoever for failure to re-let the Demised Premises, or in the event that the Demised Premises are re-let, for failure to collect the rent thereof under such reletting. In the event of a breach or threatened breach by Tenant of any of the covenants or provisions hereof, Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity as if re-entry, summary proceedings and other remedies were not herein provided for. Mention in this Lease of any particular remedy shall not preclude Landlord from any other remedy, in law or in equity. Tenant hereby expressly waives any and all rights of redemption granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause, or in the event of Landlord obtaining possession of the Demised Premises, by reason of the violation by Tenant of any of the covenants and conditions of this Lease, or otherwise. -41- ARTICLE 18. LANDLORD'S RIGHT TO PERFORM TENANT'S OBLIGATIONS ------------------------------------------------ Section 18.01. If Tenant shall default in the observance or performance of any term or covenant on its part to be observed or performed under or by virtue of any of the terms or provisions in any Article of this Lease and such default shall continue beyond any applicable notice and cure period (provided, however, in the case of an emergency neither notice nor the expiration of any cure periods shall be necessary), Landlord, without being under any obligation to do so and without thereby waiving such default, may remedy such default for the account and at the expense of Tenant. If Landlord makes any expenditures or incurs any obligations for the payment of money in connection therewith, including, but not limited to, attorneys' fees in instituting, prosecuting or defending any action or proceedings, such sums paid or obligations incurred with interest computed at the Interest Rate and costs shall be deemed to be additional rent hereunder and shall be paid to it by Tenant on demand. ARTICLE 19. COVENANT OF QUIET ENJOYMENT --------------------------- Section 19.01. Landlord covenants that upon Tenant paying the rent and additional rents and observing and performing all the terms, covenants and provisions of this Lease on Tenant's part to be observed and performed, Tenant may peaceably and quietly enjoy the Demised Premises, subject nevertheless to the terms and conditions of this Lease. ARTICLE 20. EXCAVATION ---------- Section 20.01. In the event that an excavation should be made for building or other purposes upon land adjacent to the Building, or should be authorized to be made, Tenant shall, if necessary, afford to the person or persons causing or authorized to cause such excavation, license to enter upon the Demised Premises for the purpose of doing such work as shall reasonably be necessary to protect or preserve the wall or walls of the Building, or the Building, from injury or damage and to support them by proper foundations, pinning and/or underpinning. ARTICLE 21. SERVICES AND EQUIPMENT ---------------------- Section 21.01. So long as Tenant is not in default under any of the covenants of this Lease, Landlord shall, at its cost and expense: -42- (a) Provide necessary elevator facilities on Business Days from 8:00 A.M. to 6:00 P.M. and shall have sufficient elevators available at all other times. At Landlord's option, the elevators shall be operated by automatic control or by manual control, or by a combination of both of such methods. Tenant shall have access to the Demised Premises twenty-four (24) hours a day, seven (7) days per week. (b) Maintain and keep in good order and repair the heating system installed by Landlord. The aforesaid system will be operated by Landlord when seasonably required on Business Days, and shall be effective from 8:00 A.M. to 6:00 P.M. Landlord shall have no responsibility or liability for the ventilating conditions and/or temperature of the Demised Premises during the hours or days Landlord is not required to furnish heat pursuant to this paragraph. Any use or occupancy of the Demised Premises during the hours or days Landlord is not so required to furnish heat to the Demised Premises shall be at the sole risk, responsibility and hazard of Tenant. If the Demised Premises shall be uninhabitable during such times as Landlord is not required to furnish heat to the Demised Premises pursuant to this paragraph, such condition shall not constitute nor be deemed to be a breach or a violation of this Lease or of any provision thereof, nor shall it be deemed an eviction nor shall Tenant claim or be entitled to claim any abatement of rent nor make any claim for any damages or compensation by reason of such condition of the Demised Premises. It is Landlord's recommendation that Tenant cause all of the windows in the Demised Premises to be kept closed to facilitate proper functioning of the heating system. If Tenant shall elect not to do so, any improper functioning of the heating system resulting therefrom shall be the sole responsibility of Tenant to cure (at Tenant's sole cost and expense). Tenant shall keep entirely unobstructed all of the vents, intakes, outlets and grilles, at all times and shall comply with and observe all reasonable regulations and requirements prescribed by Landlord for the proper functioning of the heating system. (c) Air-conditioning service ("A/C Service") shall be furnished to the Demised Premises by way of an existing air-cooled package type air-conditioning unit (the "A/C Unit"). Tenant shall, at Tenant's expense, maintain and repair and replace (as necessary) the A/C Unit, including, without limitation, the periodic cleaning of filters, replacement of fuses and bets, the calibration of thermostats and all start-up and shutdown maintenance of the A/C Unit. Landlord hereby agrees to "balance" the A/C Service in the Demised Premises as part of Landlord's Work, however, it is understood that Landlord shall have no further obligation to "balance" the A/C Service after the Commencement Date. Such maintenance obligations shall be performed throughout the Term by a reputable air-conditioning maintenance company engaged by Tenant at Tenant's expense (and first approved by Landlord). Tenant shall pay on demand all -43- expenses incurred in connection with the maintenance and repair of the A/C Unit. In the event of the total breakdown of the A/C Unit In such a manner that the same cannot reasonably be repaired, Landlord shall replace the A/C Unit at its own cost and expense. All electricity used in connection with the operation of the A/C Unit shall be supplied by Landlord upon and subject to all of the terms and conditions contained in Article 4 hereof. The existing A/C Unit, and any replacements thereof or additional units installed by Tenant during the Term, shall be and remain at all times the property of Landlord, and Tenant shall surrender the A/C Unit and all such repairs and replacements to Landlord in good working order and condition on the Expiration Date. If any permit or license shall be required for the operation of any A/C Unit serving the Demised Premises, Landlord shall have the option of obtaining the same on Tenant's behalf and at Tenant's expense, or requiring Tenant, at Tenant's expense, to obtain and maintain any such permit or license. It is Landlord's recommendation that Tenant cause all of the windows in the Demised Premises to be kept closed to facilitate proper functioning of the A/C Unit. If Tenant shall elect not to do so, any improper functioning of the A/C Unit resulting therefrom shall be the sole responsibility of Tenant to cure (at Tenant's sole cost and expense). Tenant shall keep entirely unobstructed all of the vents, intakes, outlets and grilles, at all times and shall comply with and observe all reasonable regulations and requirements prescribed by Landlord for the proper functioning of the A/C Unit. (d) Furnish hot and cold water for lavatory, drinking and office cleaning purposes. If Tenant requires, uses or consumes water for any other purpose, Tenant agrees to Landlord installing a meter or meters or other means to measure Tenant's water consumption, and Tenant further agrees to reimburse Landlord for the cost of the mater or meters and the installation thereof, and to pay for the maintenance of said meter equipment and/or to pay Landlord's cost of other means of measuring such water consumption by Tenant. Tenant shall reimburse Landlord the cost of all water consumed, as measured by said meter or meters or as otherwise measured, including sewer rents. Section 21.02. A. Landlord reserves the right to interrupt, curtail or suspend the services required to be furnished by Landlord under this Article 21 when the necessity therefor arises by reason of accident, emergency, mechanical breakdown, or when required by any law, order or regulation of any federal, state, county or municipal authority, or for any other cause beyond the reasonable control of Landlord. Landlord shall use due diligence to complete all required repairs or other necessary work as quickly as possible so that Tenant's inconvenience resulting therefrom may be for as short a period of time as circumstances will permit. No diminution or abatement of rent or other compensation shall or will be claimed by Tenant as a result therefrom, nor shall this Lease or any of the -44- obligations of Tenant be affected or reduced by reason of such interruption, curtailment or suspension. B. Notwithstanding the foregoing, in the event that as a result of such interruption, curtailment or suspension of services not necessitated by Tenant's acts and not occurring as a result of a requirement of law or a situation beyond Landlord's reasonable control, Tenant shall be unable to conduct and shall actually discontinue conducting its normal business operations in the Demised Premises for a period of ten (10) consecutive Business Days or longer and shall notify Landlord of such discontinuance at the inception of such period (the "Inception Notice"), then Tenant shall be entitled to an abatement of the Fixed Rent and additional rent payable with respect to the Demised Premises for the period beginning on the day after the Demised Premises were so rendered unusable for the conduct of Tenant's normal business operations (and such Inception Notice was given) and ending on the earlier of the date on which (a) Tenant resumes occupancy of the Demised Premises for the conduct of its business or (b) the Demised Premises are rendered usable for the conduct of Tenant's business operations (regardless of any delay by Tenant in thereafter resuming such business operations). Section 21.03. Landlord will not be required to furnish any other services, except as otherwise provided in this Lease. Section 21.04. (a) Tenant, at its sole cost and expense, shall cause the Demised Premises to be exterminated on a monthly basis to the satisfaction of Landlord and shall for such purposes employ exterminators designated by Landlord, which exterminators charges shall be reasonably comparable to the charges of other exterminators of similar skill, quality and experience for similar services in similar buildings in Manhattan. (b) If Tenant shall have facilities on the Demised Premises for cooking, drinking, eating, washing and/or storage of food, or similar items, Tenant shall, on a weekly basis, cause the portion of the Demised Premises on which such facilities are located to be exterminated to the satisfaction of Landlord by exterminators designated by Landlord. The foregoing shall not, however, constitute any approval or consent to the use of the Demised Premises for such purposes. (c) If Tenant fails to comply with the provisions of this Section, Landlord, in addition to any other remedies available to it under this Lease or pursuant to law, may perform such service, and the cost therefor shall be paid by Tenant on demand as additional rent hereunder. Section 21.05. Tenant shall clean the Demised Premises and arrange for the removal of all rubbish and refuse therefrom in accordance with the standards of the Building (the "Building -45- Standard"). Tenant shall employ for such purposes only the maintenance and trash removal contractors designated by Landlord for use in the Building (such contractors' charges to be reasonably comparable to the charges of other contractors of similar skill, quality and experience for similar services in similar buildings in Manhattan). All such charges shall be paid promptly by Tenant directly to such contractors. Section 21.06. It is expressly agreed that only Landlord or any one or more persons, firms or corporations authorized in writing by Landlord will be permitted to sell, deliver or furnish any food or beverages, either personally or through the use of vending machines, for consumption within the Demised Premises or elsewhere in the Building. Landlord expressly reserves the light to act as or to designate at any time, or from time to time, an exclusive supplier or suppliers of such food and beverages; and Landlord further expressly reserves the right to exclude from the Building any person, firm or corporation attempting to deliver or purvey any such food or beverages but not so designated by Landlord. It is understood, however, that Tenant or regular office employees of Tenant who are not employed by any supplier of such food or beverages or by any person, firm or corporation engaged in the business of purveying such food or beverages, may personally bring food or beverages into the Building for consumption within the Demised Premises by employees and invitees of Tenant, but not for resale to or for consumption by any other tenant. Landlord may fix in its absolute discretion, at any time and from time to time, the hours during which, the regulations under which, foods and beverages may be brought into the Building by regular employees of Tenant. Notwithstanding the foregoing, it is understood that Tenant or regular office employees of Tenant who are not employed by any supplier of such food or beverages or by any person, firm or corporation engaged in the business of purveying such food or beverages, may personally bring food or beverages into the Building for consumption within the Demised Premises by employees of Tenant, but not for resale to or for consumption by any other tenant. It is further understood that Tenant may order food and beverages for delivery to Tenant in the Demised Premises for consumption by Tenant's employees and invitees from contractors, restaurants and caterers selected by Tenant, without obtaining Landlord's prior consent, provided, however, that if Landlord determines that the delivery by any such contractor, restaurant or caterer poses a security risk to the Building personnel or to other tenants in the Building or otherwise causes a nuisance or disruption in the Building, Landlord may exclude same from the Building. ARTICLE 22. DEFINITION OF LANDLORD ---------------------- Section 22.01. The term "Landlord" wherever used in this Lease shall be limited to mean and include only the owner or -46- owners at the time in question of the Land and the Building or the Building or the tenant under a ground or underlying lease affecting the Land and the Building or the Building, or both, to whom this Lease may be assigned, or a mortgagee in possession, so that in the event of any sale, assignment or transfer of the Land and the Building or the Building, or of such ground or underlying lease, such owner, tenant under a ground lease or mortgagee in possession shall thereupon be released and discharged from all covenants, conditions and agreements of Landlord thereafter accruing hereunder; but such covenants, conditions and agreements shall be binding upon each new owner, tenant under a ground or underlying lease, or mortgagee in possession for the time being of the Land and the Building, until sold, assigned or transferred. ARTICLE 23. INVALIDITY OF ANY PROVISION --------------------------- Section 23.01. If any term, covenant, condition or provision of this Lease or the application thereof to any circumstance or to any person, firm or corporation shall be invalid or unenforceable to any extent, the remaining terms, covenants, conditions and provisions of this Lease, or the application thereof to any circumstances or to any person, firm or corporation other than those as to which any term, covenant, condition or provision is held invalid or unenforceable, shall not be affected thereby and each remaining term, covenant, condition and provision of this Lease shall be valid and shall be enforceable to the fullest extent permitted by law. ARTICLE 24. BROKER ------ Section 24.01. The parties hereto agree that Janet Liff and SageGroupAssociates Inc. (collectively, the "Brokers") were the only brokers who negotiated and brought about this transaction, and Landlord agrees to pay the Brokers a commission therefor as per separate agreements. Tenant represents and warrants that it has not dealt with any broker other than the Brokers with respect to the Demised Premises, and Tenant agrees to indemnify and save Landlord harmless from any claims made by other brokers claiming to have dealt with Tenant. Landlord represents that it has not dealt with any broker other than the Brokers, and Landlord agrees to indemnify and save Tenant harmless from any claims made by other brokers claiming to have dealt with Landlord. ARTICLE 25. SUBORDINATION ------------- -47- Section 25.01. This Lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the Building of which the Demised Premises forms a part, and to all renewals, modifications, consolidations, replacements and extensions thereof. This clause shall be self-operative, and no further instrument of subordination shall be required by any mortgagee. In confirmation of such subordination, Tenant shall execute promptly any certificate that Landlord may request. Tenant hereby constitutes and appoints Landlord the Tenant's attorney-in-fact to execute any such certificate or certificates for and on behalf of Tenant. Section 25.02. At the option of Landlord or any successor landlord or the holder of any mortgage affecting the Demised Premises, Tenant agrees that neither the cancellation nor termination of any ground or underlying lease to which this Lease is now or may hereafter become subject or subordinate, nor any foreclosure of a mortgage affecting said premises, nor the institution of any suit, action, summary or other proceeding against Landlord herein or any successor landlord, or any foreclosure proceeding brought by the holder of any such mortgage to recover possession of such property, shall by operation of law or otherwise result in cancellation or termination of this Lease or the obligations of Tenant hereunder, and upon the request of any such landlord, successor landlord, or the holder of such mortgage, Tenant covenants and agrees to attorn to Landlord or to any successor to Landlord's interest in the Demised Premises, or to such holder of such mortgage or to the purchaser of the mortgaged premises in foreclosure. Section 25.03. In the event of any act or omission by Landlord which would give Tenant the right to terminate this Lease or to claim a partial or total eviction, pursuant to the terms of this Lease, if any, Tenant will not exercise any such right until: (i) it has given written notice of such act or omission to the following (whose names and addresses shall previously have been furnished to Tenant) by delivering such notice of such act or omission addressed to the last address so furnished: (a) the holder of any first mortgage, and (b) the landlord under any ground or underlying lease to which this Lease is subject and subordinate; and (ii) a reasonable period for remedying such act or omission shall have elapsed following such giving of notice during which such parties, or any of the parties, with reasonable diligence, following the giving of such notice, has not commenced and continued to remedy such act or omission or to cause the same to be remedied. -48- Section 25.04. If, in connection with obtaining financing, a banking, insurance or other recognized institutional lender shall request reasonable modifications in this Lease as a condition to such financing, Tenant will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not, in Tenant's good faith opinion, increase the obligations of Tenant hereunder or materially or adversely affect the leasehold interest hereby created or Tenant's use and enjoyment of the Demised Premises or reduce Landlord's obligations under the Lease. Section 25.05. Landlord agrees to use its best efforts to obtain from its current and any future mortgagee for the benefit of Tenant a Subordination, Non- disturbance and Attornment Agreement in such mortgagee's standard form, provided that such "best efforts" shall not require Landlord to expend any sum of money (other than its legal expenses and processing expenses (if any) charged by the mortgagee for processing said Subordination, Non-disturbance and Attornment Agreement) and further provided that Landlord shall have no liability whatsoever, and the obligations of the parties hereto shall not be affected in any manner whatsoever, if any such mortgagee shall fail to deliver such agreement. ARTICLE 26. ESTOPPEL CERTIFICATE -------------------- Section 26.01. Tenant agrees, at any time, and from time to time, upon not less than ten (10) days prior notice from Landlord, to execute, acknowledge and deliver to Landlord a statement in writing addressed to Landlord certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), stating the dates to which the Fixed Rent, additional rental and other charges have been paid, and stating whether or not to the best knowledge of the signer of such certificate, there exists any default in the performance of any covenant, agreement, term, provision or condition contained in this Lease, and any claim or offset in favor of Tenant, and, if any, specifying each such default, claim or offset in favor of Tenant, and, if any, specifying each such default, claim or offset of which signer may have knowledge, it being intended that any such statement delivered pursuant hereto may be relied upon by Landlord and by any purchaser or prospective purchaser of the Building and/or the Land and by any mortgagee or prospective mortgagee of any mortgage affecting the Building and/or the Land, and by any landlord under a ground or underlying lease affecting the Land or the Building. Section 26.02. Landlord agrees, at any time, and from time to time, upon not less than ten (10) days prior notice from Tenant, to execute, acknowledge and deliver to Tenant a statement -49- in writing addressed to Tenant certifying that this Lease is unmodified and in full force and effect (or, if there have been modifications, that the same is in full force and effect as modified and stating the modifications), stating the dates to which the Fixed Rent, additional rent and other charges have been paid, and stating whether or not, to the best knowledge of the signer of such certificate for and on behalf of Landlord, there exists any default in the performance of any covenant, agreement, term, provision or condition contained in this Lease and, if any, specifying each such default of which such signer may have knowledge. ARTICLE 27. LEGAL PROCEEDINGS, WAIVER OF JURY TRIAL --------------------------------------- Section 27.01. Landlord and Tenant hereby waive, to the extent such waiver is not prohibited by law, the right to a jury trial in any action, summary proceeding or legal proceeding between or among the parties hereto or their successors arising out of this Lease or Tenant's occupancy of the Demised Premises or Tenant's right to occupy the Demised Premises. Section 27.02. Tenant hereby waives the right to interpose a counterclaim (other than a mandatory counterclaim) in any summary proceeding instituted by Landlord against Tenant or in any action instituted by Landlord for unpaid rent or additional rent under this Lease. Section 27.03. A. Subject to the provisions of Section 27.03B, in the event Tenant claims or asserts that Landlord has violated or failed to perform a covenant of Landlord not to unreasonably withhold or delay Landlord's consent or approval, or in any case where Landlord's reasonableness in exercising its judgment is in issue, Tenant's sole remedy shall be an action for specific performance, declaratory judgment or injunction, and in no event shall Tenant be entitled to any money damages for a breach of such covenant, and in no event shall Tenant claim or assert any claims in any money damages in any action or by way of set-off, defense or counterclaim, and Tenant hereby specifically waives the right to any money damages or other remedies. B. In the event that Tenant shall request Landlord's consent to an assignment of this Lease or a proposed subletting or occupancy of all or any portion of the Demised Premises or to any proposed alteration, decoration, installation, addition or improvement ("Tenant Improvement") to the Demised Premises and Tenant believes that Landlord has unreasonably withheld or delayed the same, such dispute, but no other matter whatsoever (except for any other matter under this Lease for which arbitration is provided as the method of dispute resolution, in which event such matter shall be resolved in a separate arbitration proceeding), shall be resolved by -50- arbitration in Manhattan by an arbitrator selected from the panel of retired judges maintained by Comprehensive Alternative Dispute Resolution Enterprises, Inc. ("CADRE"). If CADRE shall no longer exist or shall be unwilling or unable to act, such dispute shall be resolved by another reputable commercial arbitration company which has expedited arbitration procedures which meet the time frame set forth herein, as Landlord shall select (the "Company"), provided, however, that Tenant may dispute Landlord's choice of the Company, in which event the parties shall mutually agree upon the Company, and if the parties shall be unable to agree upon the Company, the Company shall be appointed by any judge of a court of competent jurisdiction in the City of New York. Upon selection of the Company the parties agree that the balance of this Section 27.03B shall continue to apply with the substitution of the Company in lieu of CADRE. If Tenant so desires to submit such dispute to CADRE, Tenant shall notify Landlord of such desire, and within ten (10) Business Days thereafter, Tenant shall make such submission and deliver all applicable applications and documents to CADRE with a copy of the entire submission being delivered simultaneously to Landlord. The arbitration shall be conducted pursuant to the then existing rules, regulations, practices and procedures of CADRE and provided such rules so permit, CADRE shall select a single arbitrator (who shall be impartial and shall have experience regarding the matter to be determined) within five (5) Business Days after Tenant's submission or application, the arbitration shall commence two (2) Business Days thereafter and shall be conducted for at least seven (7) hours on each Business Day thereafter until completion, each party having no more than a total of fifteen (15) hours to present its case and to cross-examine or interrogate persons supplying information or documentation on behalf of the other party. If such rules do not permit such expedited procedure, then such rules of CADRE shall govern, it being the intent of the parties to conduct the arbitration in the most expeditious manner permitted by the rules. The arbitrator shall make a determination within five (5) Business Days after conclusion of the arbitration; such determination to be strictly limited to whether or not Landlord's failure to consent to any proposed assignment of this Lease or proposed sublease or occupancy of all or any portion of the Demised Premises or proposed Tenant Improvement, was reasonable, and, if such failure shall be found to be unreasonable, whether the same was in bad faith. No monetary award shall be awarded as a result of any proceeding pursuant to this Section, Landlord's sole responsibility in the event of a negative determination being the requirement of granting its consent to Tenant's proposed assignment, sublease or occupancy or proposed Tenant Improvement, as the case may be, except that (i) the prevailing party shall have the right to be reimbursed for its reasonable fees and expenses within twenty (20) days after submission of a bill therefor to the losing party, and (ii) in the event that pursuant to this arbitration procedure Landlord shall be found to have acted in bad faith in withholding its consent to Tenant's -51- proposed assignment, sublease or occupancy, but, due solely to the delay caused by such procedure, Tenant's proposed assignee or sublessee or occupant shall not be obligated to assume this Lease or sublease or occupy the proposed portion of the Demised Premises, Landlord shall, at Tenant's option be required to step into the position of such assignee or sublessee or occupant upon the terms and conditions contained in the submission required to be made to Landlord (including, if the same would have been the obligation of the subtenant or occupant, constructing, at Landlord's own cost and expense any required demising walls). Any determination pursuant to this Section shall be final and binding upon the parties and each party shall pay its respective costs of any proceedings pursuant to this Section (except that the prevailing party shall have the right to be reimbursed for its reasonable fees and expenses within twenty (20) days after submission of a bill therefor to the losing party). ARTICLE 28. SURRENDER OF PREMISES/HOLDOVER ------------------------------ Section 28.01. Upon the expiration or other termination of the Term of this Lease, Tenant shall quit and surrender the Demised Premises in good order and condition, ordinary wear and tear and damage by fire or other casualty, the elements and any cause beyond Tenant's reasonable control excepted, and shall remove all its property therefrom, except as otherwise provided in this Lease. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of the Term of this Lease. Section 28.02. If at any time during the last month of the Term of this Lease, Tenant shall have removed all or substantially all of Tenant's property from the Demised Premises, Landlord may, and Tenant irrevocably grants to Landlord a license to, immediately enter and alter, renovate and redecorate the Demised Premises, without diminution or abatement of rent, or incurring liability to Tenant for any compensation, and such acts shall have no effect on this Lease. Section 28.03. Tenant agrees it shall indemnify and save Landlord harmless against all costs, claims, loss or liability resulting from delay by Tenant in surrendering the Demised Premises upon expiration or sooner termination of the term of this Lease, including, without limitation, any claims made by any succeeding tenant founded on such delay unless such delay was caused by Landlord. The parties recognize and agree that the damage to Landlord resulting from any failure by Tenant timely to surrender the Demised Premises will be substantial, will exceed the amount of monthly rent theretofore payable hereunder, and will be impossible of accurate measurement. Tenant therefore agrees that if possession of the Demised Premises is not surrendered to Landlord within two (2) days after the date of the -52- expiration or sooner termination of the Term of this Lease, then Tenant will pay Landlord as liquidated damages for each month and for each portion of any month during which Tenant holds over in the Demised Premises after expiration or sooner termination of the Term of this Lease, a sum equal to two (2) times the average rent and additional rent which was payable per month under this Lease during the six (6) month period preceding such expiration or termination of the Term of this Lease. Notwithstanding, the foregoing, provided that during the six (6) month period immediately preceding the Expiration Date, Tenant has entered into a new lease or has been negotiating in good faith the terms of a new lease, in either case to commence on or prior to the Expiration Date, then Tenant shall pay Landlord as liquidated damages for each month and for each portion of any month, not to exceed six (6) months, during which Tenant holds over in the Demised Premises after expiration of the Term of this Lease, only a sum equal to the average rent and additional rent which was payable per month under this Lease during the six (6) month period preceding such expiration of the Term of this Lease. After six (6) months beyond the Expiration Date, the provisions of the immediately preceding sentence shall not apply. The aforesaid obligations shall survive the expiration of sooner termination of the Term of this Lease. ARTICLE 29. RULES AND REGULATIONS --------------------- Section 29.01. Tenant, its servants, employees, agents, visitors, and licensees shall observe faithfully and comply strictly with the rules and regulations set forth in Schedule C attached hereto and made a part hereof. Landlord shall have the right from time to time during the Term of this Lease to make reasonable changes in and additions to the rules thus set forth. Landlord agrees not to enforce the rules and regulations against Tenant in a discriminatory manner unless compliance is necessitated due to the manner in which Tenant uses and occupies the Demised Premises, or any act or omission by Tenant. Section 29.02. Any failure by Landlord to enforce any rules and regulations now or hereafter in effect, either against Tenant or any other tenant in the Building, shall not constitute a waiver of any such rules and regulations. ARTICLE 30. NOTICES ------- Section 30.01. Any notice, request or demand permitted or required to be given by the terms and provisions of this Lease, or by any law or governmental regulation, either by Landlord to Tenant or by Tenant to Landlord, shall be in writing. Unless otherwise required by such law or regulation, such notice, -53- request or demand shall be given, and shall be deemed to have been served and given by Landlord and received by Tenant, when Landlord (1) shall have deposited such notice, request or demand by registered or certified mail enclosed in a securely closed postpaid wrapper, in a United States Government general or branch post office, addressed to Tenant at the Demised Premises, and (2) until Tenant has moved its offices to the Demised Premises, shall have deposited such notice, request or demand by registered or certified mail enclosed in a securely closed postpaid wrapper in such a post office addressed to Tenant at its address as stated on the first page of this Lease. Additionally a copy of all notices to Tenant shall be sent to Tenant at: CitySearch, Inc., 790 East Colorado Boulevard, Suite 200, Pasadena, CA 91101 Att: Chief Financial Officer. Such notice, request or demand shall be given, and shall be deemed to have been served and given by Tenant and received by Landlord, when Tenant shall have deposited such notice, request or demand by registered or certified mail enclosed in a securely closed postpaid wrapper in such a post office addressed to Landlord at 777 Third Avenue, New York, New York 10017. Either party may, by notice as aforesaid, designate a different address or addresses for notices, requests or demands to it. ARTICLE 31. NO WAIVER; ENTIRE AGREEMENT --------------------------- Section 31.01. The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease, or any of the Rules and Regulations set forth or hereafter adopted by Landlord shall not prevent a subsequent act which would have originally constituted a violation from having all the force and effect of an original violation. The receipt by Landlord of rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach. The failure of Landlord to enforce any of the Rules and Regulations set forth, or hereafter adopted, against Tenant and/or any other tenant in the Building shall not be deemed a waiver of any such Rules and Regulations. No provision of this Lease shall be deemed to have been waived by Landlord, unless such waiver be in writing signed by Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy in this Lease provided. Section 31.02. This Lease with the Schedules annexed hereto, if any, contains the entire agreement between Landlord and Tenant, and any executory agreement hereafter made between -54- Landlord and Tenant shall be ineffective to change, modify, waive, release, discharge, terminate, or effect an abandonment of this Lease, in whole or in part, unless such executory agreement is in writing and signed by the party against which enforcement of the change, modification, waiver, release, discharge, termination or the effecting of the abandonment is sought. ARTICLE 32. CAPTIONS -------- . . Section 32.01. The captions of Articles in this Lease are inserted only as a matter of convenience and for reference, and they in no way define, limit or describe the scope of this Lease or the intent of any provision thereof. ARTICLE 33. INABILITY TO PERFORM -------------------- Section 33.01. This Lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on the part of Tenant to be performed shall in no way be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this Lease or to supply or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make, or is delayed in making any repair, additions, alterations or decorations or is unable to supply or is delayed in supplying any equipment or fixtures if Landlord is prevented or delayed from so doing by reason of strike or labor troubles or any outside cause whatsoever including but not limited to, governmental preemption in connection with a National Emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reason of the conditions of supply and demand which have been or are affected by war or other emergency. This Lease and the obligation of Landlord to perform all of the covenants and agreements hereunder on the part of Landlord to be performed shall, except as otherwise specifically set forth herein, in no way be affected, impaired or excused because Tenant is unable to fulfill any of its obligations under this Lease (expressly excluding the obligation of Tenant to pay any Fixed Rent, additional rent or any other monetary item hereunder) if Tenant is prevented or delayed from so doing by reason of strike or labor troubles or any outside cause whatsoever beyond the reasonable control of Tenant (which shall not be deemed to include Tenant's failure to possess or inability to procure sufficient funds or to obtain labor and/or materials at a below average price) including but not limited to, governmental preemption in connection with a National Emergency or by reason of any rule, order or regulation of any department or subdivision thereof of any government agency or by reason of -55- the conditions of supply and demand which have been or are affected by war or other emergency. ARTICLE 34. NO REPRESENTATION BY LANDLORD ----------------------------- Section 34.01. Landlord or Landlord's agents have made no representations or promises with respect to the Building, the Land or the Demised Premises except as herein expressly set forth, and no rights, easements or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in the provisions of this Lease. The taking of possession of the Demised Premises by Tenant shall be conclusive evidence, as against Tenant, that Tenant accepts said premises and that the Demised Premises and the Building of which the same form a part were in good and satisfactory condition at the time such possession was so taken subject to Landlord's obligation under Section 2.02 hereof. ARTICLE 35. NAME OF BUILDING ---------------- Section 35.01. The Building may be known as or by such name as Landlord, in its sole discretion, may elect, and Landlord shall have the right from time to time to change such designation or name without Tenant's consent. ARTICLE 36. SUCCESSORS AND ASSIGNS ---------------------- Section 36.01. The covenants, conditions and agreements contained in this Lease shall bind and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and, except as otherwise provided herein, their assigns. ARTICLE 37. DEFERRED COLLECTIONS -------------------- Section 37.01. If all or any part of the Fixed Rent or additional rents, as above defined, shall at any time become uncollectible, reduced or required to be refunded by virtue of any rules, regulations, orders, laws and ordinances (including, without limitation, rent control or stabilization laws), or governmental or quasi-governmental authorities having jurisdiction ("Laws and Ordinances"), then for the period prescribed by said Laws and Ordinances, Tenant shall pay to Landlord the maximum amounts permitted pursuant to said Laws and Ordinances. Upon the expiration of the applicable period of time -56- during which such amounts shall be uncollectible, reduced or refunded, Tenant shall pay to Landlord as additional rent, within fifteen (15) days after demand, all such uncollected, reduced or refunded amounts that would have been payable for the period absent such Laws and Ordinances; provided, however, that the retroactive collection thereof shall then be lawful. ARTICLE 38. FEES/INTEREST/LATE CHARGES -------------------------- Section 38.01. Whenever any default by Tenant causes Landlord to incur attorneys' fees and/or any other costs or expenses, Tenant agrees that it shall pay and/or reimburse Landlord for such fees, costs or expenses promptly upon being billed therefor. Landlord and Tenant hereby agree that the non-prevailing party in any legal proceeding between them shall pay the reasonable legal fees and disbursements of the prevailing party within thirty (30) days after receipt of a bill therefor. In the event of any settlement of such proceeding, or any partial award to either party, the parties shall each pay their own legal fees and disbursements and neither party shall be responsible for payment to the other for the same. Section 38.02. If any monies owing by Tenant under this Lease are paid more than ten (10) days after the date such monies are payable pursuant to the provisions of this Lease, Tenant shall pay Landlord interest thereon, at the Interest Rate, for the period from the date such monies were originally payable to the date such monies are paid. In the event that three (3) times in any twelve (12) month period Tenant shall have defaulted beyond any applicable notice and cure period in the payment of Fixed Rent or additional rent, or any part of either, then any further default by Tenant within such twelve (12) month period shall permit Landlord to collect from Tenant, upon demand, in addition to any interest payable pursuant to this Article 38, or elsewhere in this Lease, a late charge equal to the amount of Fixed Rent and additional rent so due multiplied by a percentage equal to the then prime rate of interest charged by Marine Midland Bank, N.A. as compensation to Landlord for the costs incurred by it as a result of such defaults, Landlord and Tenant acknowledging that the actual amount of such costs would be impossible to ascertain. ARTICLE 39. ABATEMENT OF RENT ----------------- Section 39.01. Anything herein to the contrary notwithstanding, provided this Lease shall be in full force and effect and Tenant shall not be in default hereunder beyond any applicable notice and grace periods, the Fixed Rent shall abate -57- at the rate of $4,166.66 per month for a period of six (6) months from and after the Commencement Date. ARTICLE 40. SECURITY DEPOSIT ---------------- Section 40.01. Upon execution of this Lease, Tenant shall deliver to Landlord an irrevocable letter of credit (the "Letter of Credit") in the amount of $26,250 issued by a New York City commercial bank acceptable to Landlord in its discretion, and in the form of the letter of credit annexed hereto as Schedule D, to be held by Landlord as security ("Security Deposit") for the faithful performance and observance by Tenant of the terms, provisions and conditions of this Lease. It is agreed that in the event Tenant defaults, in respect of any of the terms, provisions and conditions of this Lease, including, but not limited to, the payment of Fixed Rent or additional rent, Landlord may draw down upon the Letter of Credit and use, apply or retain the whole or any part of the proceeds thereof to the extent required for the payment of any Fixed Rent and additional rent or any other sum as to which Tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default in respect of any of the terms, covenants and conditions of this Lease, including, but not limited to, any damages or deficiency in the re- letting of the Demised Premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Landlord. In the event that Tenant shall fully and faithfully comply with all of the terms, provisions, covenants and conditions of this Lease, the Security Deposit shall be returned promptly to Tenant after the date fixed as the Expiration Date hereof and after delivery of entire possession of the Demised Premises to Landlord. In the event of an assignment by Landlord of its interest in the Lease, Landlord shall have the right to transfer the Security Deposit to the assignee and Landlord shall thereupon be released by Tenant from all liability for the return of such Security Deposit and Tenant agrees to look to the assignee solely for the return of said Security Deposit, and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the Security Deposit to a new assignee. Tenant further covenants that it will not assign or encumber or attempt to assign or encumber the Security Deposit and that neither Landlord nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. Section 40.02. In the event of a default by Tenant of any of the terms, provisions and conditions of this Lease Landlord shall be permitted to draw down the entire amount of the Letter of Credit (or a portion thereof) and apply the proceeds (or a portion thereof) in accordance with Section 40.01 of this Article -58- and retain the balance for the Security Deposit required hereunder. Section 40.03. If Landlord shall apply all or any portion of the Security Deposit (by way of a draw on the Letter of Credit), then Tenant shall deposit with Landlord, upon demand, a sufficient amount of cash or an additional Letter of Credit to bring the balance of cash and the Letter of Credit held by Landlord hereunder to the amount of the Security Deposit. Any use by Landlord of all or any portion of the Security Deposit pursuant to the provisions hereof shall be deemed an involuntary payment by Tenant and shall not be deemed a waiver by Landlord of Tenant's default or Landlord's right to terminate this Lease pursuant to the provisions of this Lease. Section 40.04. Provided Tenant has not been in default under the terms and conditions of the Lease during the first eighteen (18) months of the Term, Landlord shall return the Letter of Credit to Tenant upon the expiration of said eighteen (18) month period. Upon the return of the Letter of Credit as aforesaid, this Article 40 shall be deemed to be null and void and of no further force and effect. ARTICLE 41. TENANT'S EXPANSION OPTION ------------------------- Section 41.01. In the event that Tenant has notified Landlord in writing that it desires to lease additional space in the Building (any such space is hereinafter referred to as the "Expansion Space") and provided same becomes available for direct leasing (i.e., a lease of such space expires or is ---- terminated and such space is not leased again by the same tenant or occupant, or the successors or assigns or subtenants of such tenant or occupant, by renewal or a new lease or modification of a previous lease, and such space is not subject to any other lease or an option contained in another lease, or the space is not subject to a lease as of the date hereof, and the space is not one with respect to which Landlord has commenced negotiations with any other proposed tenant), then, Landlord shall send Tenant a notice setting forth the date on which Landlord has obtained, or anticipates obtaining, vacant possession of the Expansion Space. Upon Landlord giving such a notice, provided this Lease shall be in full force and effect and provided that Tenant shall not be in default hereunder beyond any applicable notice and grace period either as of the date of Tenant's exercise of the expansion option herein described or as of the day which would otherwise be the first day of Tenant's leasing of the Expansion Space (which conditions regarding default may be waived by Landlord in its sole discretion), and further provided that there shall be not less than five (5) years remaining in the Term as of the Expansion Space Commencement Date (as hereinafter defined) (unless Tenant shall simultaneously exercise its extension option contained in Article 42 hereof), then Tenant shall have the -59- option, exercisable by notice to Landlord given within five (5) days after Landlord's notice to Tenant, time being of the essence with respect to Tenant's notice, to lease the Expansion Space from Landlord upon the terms and conditions hereinafter set forth. In the event Tenant fails to exercise its option to accept the Expansion Space within five (5) days from the date of the applicable notice from Landlord, Landlord shall have the right to lease the Expansion Space to any other proposed tenant for any term whatsoever and Tenant shall be deemed to have waived its rights to the Expansion Space. Section 41.02. If Tenant exercises its option to lease the Expansion Space in a timely manner, then on the date (the "Expansion Space Commencement Date") Landlord delivers possession of the Expansion Space to Tenant, the Expansion Space shall be added to the Demised Premises. Tenant acknowledges that it will take the Expansion Space "as-is", and Landlord shall not be obligated to perform any work, furnish any materials, or give Tenant any rent credit or work allowance or any sum of money with respect thereto, and the Expansion Space shall become part of the Demised Premises upon and subject to all of the terms and conditions of this Lease (including the provisions of Section 2.02 hereof with regard to latent defects and Section 8.05 with respect to Pre-Existing Conditions), except that the Fixed Rent payable by Tenant for the Expansion Space shall be equal to the greater of (i) the Fixed Rent then in effect from time to time for the Demised Premises (on a per square foot basis) including all escalations and additional rent payable as herein provided or (ii) the fair market rental value of the Expansion Space (the "Expansion FMRV"). The Expansion FMRV shall be determined in accordance with the following procedure: (i) Immediately after the exercise by Tenant of its option contained herein, Landlord and Tenant shall use their best efforts to agree upon the Expansion FMRV. In the event Landlord and Tenant cannot reach agreement within fifteen (15) Business Days after the date of Tenant's notice of exercise of its option contained herein, Landlord and Tenant shall each select a reputable, licensed real estate broker having an office in New York County and familiar with the rentals then being charged in the Building and in comparable buildings (respectively, "Landlord's Broker" and "Tenant's Broker") who shall confer promptly after their selection by Landlord and Tenant and shall use their best efforts to agree upon the Expansion FMRV, taking into consideration all relevant factors, including, as a primary factor, the rental which Landlord is then commanding or requiring for leases of comparable space in the Building (or, if there is then no comparable space in the Building, taking into consideration the quality of non-comparable space in the Building relative to the Expansion Space). If -60- Landlord's Broker and Tenant's Broker cannot reach agreement within forty- five (45) days after the date of Tenant's notice of exercise of its option contained herein, then within ten (10) days thereafter, they shall designate a third reputable, licensed real estate broker having an office in New York County (the "Independent Broker"). Upon the failure of Landlord's Broker and Tenant's Broker to agree upon the designation of the Independent Broker, then the Independent Broker shall be appointed by the appropriate official of the Real Estate Board of New York, Inc. upon ten (10) days notice, or by any other real estate trade organization exercising functions similar to those exercised by The Real Estate Board of New York, Inc. Concurrently with such appointment, Landlord's Broker and Tenant's Broker shall each submit a letter to the Independent Broker, with a copy to Landlord and Tenant, setting forth such broker's estimate of the Expansion FMRV, taking into consideration the factors described above (respectively, "Landlord's Broker's Letter" and "Tenant's Broker's Letter"). (ii) In the event the Expansion FMRV set forth in Landlord's Broker's Letter and Tenant's Broker's Letter shall differ by less than $2.50 per square foot for any year during the remainder of the Term, then the Expansion FMRV shall not be determined by the Independent Broker, and the Expansion FMRV shall be the average of the Expansion FMRV set forth in Landlord's Broker's Letter and Tenant's Broker's Letter. In the event the Expansion FMRV set forth in Landlord's Broker's Letter and Tenant's Broker's Letter shall differ by more than $2.49 per square foot per annum for any year during the remainder of the Term, the Independent Broker shall conduct such investigations and hearings as he may deem appropriate and shall, within sixty (60) days after the date of his designation, choose either the rental set forth in Landlord's Broker's Letter or Tenant's Broker's Letter to be the Expansion FMRV during the Term and such choice shall be binding upon Landlord and Tenant. Landlord and Tenant shall each pay the fees and expenses of its respective broker. The fees and expenses of the Independent Broker shall be shared equally by Landlord and Tenant. Section 41.03. In the event the Fixed Rent for the Expansion Space shall not have been determined prior to the Expansion Space Commencement Date, then the Fixed Rent for the Expansion Space to be paid by Tenant to Landlord until such determination has been made shall be the Fixed Rent for the Demised Premises (on a per square foot basis) immediately -61- preceding the Expansion Space Commencement Date, including all escalations or additional rent payable pursuant to Article 3 hereof or as otherwise provided herein. After such determination of the Fixed Rent for the Expansion Space has been made, any excess rental for the Expansion Space theretofore paid by Tenant to Landlord shall be credited by Landlord against the next ensuing monthly installments of Fixed Rent payable by Tenant to Landlord and any deficiency in Fixed Rent due from Tenant to Landlord attributable to the Expansion Space shall be immediately paid. Section 41.04. Promptly after Tenant exercises its option to lease the Expansion Space and the Fixed Rent for the Expansion Space shall have been determined, Landlord and Tenant shall execute and deliver an agreement (i) incorporating the Expansion Space into the definition of the Demised Premises, (ii) setting forth the Fixed Rent for the Expansion Space, (iii) amending Section 3.04 to reflect the increase in the Percentage attributable to the Expansion Space and the increase in the Wage Rate Factor attributable to the Expansion Space and (iv) amending Section 4.01 to reflect the increase in the dollar amount set forth therein attributable to such Expansion Space; provided the failure of the parties to enter into such an agreement shall not affect their respective rights and obligations hereunder. Section 41.05. Under no circumstances shall Landlord have any liability for the failure of any occupant of all or a portion of the Expansion Space to vacate same at the end of the term of such occupant's lease. Landlord agrees to take such actions as are reasonable, in its sole judgment, to obtain vacant possession of any such space at the end of such term provided Landlord's failure to deliver such possession to Tenant shall in no event affect the enforceability of this Lease. ARTICLE 42. TENANT'S EXTENSION OPTION ------------------------- Section 42.01. Provided this Lease shall then be in full force and effect and Tenant shall not be in default hereunder beyond any applicable notice or grace period either as of the date of Tenant's exercise of the extension option described herein or as of the day which would otherwise be the first day of the Extension Term, as defined herein (which conditions regarding default may be waived by Landlord in its sole discretion), Tenant shall have the right, at its option, to extend the Term for a single five (5) year period (the "Extension Term"). The Extension Term shall commence on the day immediately following the original Expiration Date and shall expire on the day prior to the fifth (5th) anniversary of such date unless the Extension Term shall sooner end pursuant to any of the terms, covenants or conditions of this Lease or pursuant to law. Tenant shall give Landlord written notice of Tenant's intention to exercise such -62- option on or before the date which is nine (9) months prior to the original Expiration Date, the time of exercise being of the essence, and upon the giving of such notice, this Lease and the Term shall be extended without execution or delivery of any other or further documents, with the same force and effect as if the Extension Term had originally been included in the Term and the Expiration Date shall thereupon be deemed to be the last day of the Extension Term. All of the terms, covenants and conditions of this Lease shall continue in full force and effect during the Extension Term, including items of additional rent and escalation which shall remain payable on the terms herein set forth, except that the Fixed Rent shall be as determined in accordance with Section 42.02 of this Article and Tenant shall have no further right to extend the Term pursuant to this Article. Section 42.02. The Fixed Rent payable by Tenant for the Demised Premises during the Extension Term shall be the greater of (i) the Fixed Rent then in effect, including all escalations and additional rent payable as herein provided, or (ii) the fair market rental value of the Demised Premises taking into consideration all relevant factors, including, as a primary factor, the rental which Landlord is then commanding or requiring for comparable space in the Building (or, if there is then no comparable space in the Building, taking into consideration the quality of non-comparable space in the Building relative to the Demised Premises) (fair market rental value taking into account the foregoing is hereinafter referred to as the "FMRV"). The FMRV shall be determined in accordance with the following procedure: (i) Immediately after the exercise by Tenant of its option under Section 42.01 above, Landlord and Tenant shall use their best efforts to agree upon the FMRV. In the event Landlord and Tenant cannot reach agreement within fifteen (15) Business Days after the date of Tenant's notice of exercise of its option, Landlord and Tenant shall each select a reputable qualified, licensed real estate broker having an office in New York County and familiar with the rentals then being charged in the Building and in comparable buildings (respectively, "Landlord's Broker" and "Tenant's Broker") who shall confer promptly after their selection by Landlord and Tenant and shall use their best efforts to agree upon the FMRV. If Landlord's Broker and Tenant's Broker cannot reach agreement within sixty (60) days after the date of Tenant's notice of exercise of its option, then within ten (10) days thereafter, they shall designate a third reputable, licensed real estate broker having an office in New York County (the "Independent Broker"). Upon the failure of Landlord's Broker and Tenant's Broker to agree upon the designation of the Independent Broker, then the Independent Broker shall be appointed by the appropriate official of The Real Estate Board of New York, Inc. upon ten (10) days notice, or by any other real estate trade -63- organization having jurisdiction and exercising functions similar to those exercised by The Real Estate Board of New York, Inc. Concurrently with such appointment, Landlord's Broker and Tenant's Broker shall each submit a letter to the Independent Broker, with a copy to Landlord and Tenant, setting forth such broker's estimate of the FMRV (respectively, Landlord's Broker's Letter" and "Tenant's Broker's Letter"). (ii) In the event the FMRV set forth in Landlord's Broker's Letter and Tenant's Broker's Letter shall differ by less than $2.50 per square foot for each year during the Extension Term, then the FMRV shall not be determined by the Independent Broker, and the FMRV shall be the average of the FMRV set forth in Landlord's Broker's Letter and Tenant's Broker's Letter. In the event the FMRV set forth in Landlord's Broker's Letter and Tenant's Broker's Letter shall differ by more than $2.49 per square foot per annum for any year during the Extension Term, the Independent Broker shall conduct such investigations and hearings as he may deem appropriate and shall, within sixty (60) days after the date of his designation, choose either the rental set forth in Landlord's Broker's Letter or Tenant's Broker's Letter to be the FMRV during the Extension Term and such choice shall be binding upon Landlord and Tenant. Landlord and Tenant shall each pay the fees and expenses of its respective broker. The fees and expenses of the Independent Broker shall be shared equally by Landlord and Tenant. Section 42.03. In the event the Extension Term shall commence prior to determination of the Fixed Rent during the Extension Term as herein provided, then the Fixed Rent to be paid by Tenant to Landlord until such determination has been made shall be the Fixed Rent for the twelve (12) month period immediately preceding the commencement of the Extension Term, including all escalations or additional rent payable pursuant to Article 3 hereof or as otherwise provided herein. After such determination has been made for the Fixed Rent during the Extension Term, any excess rental for the Extension Term theretofore paid by Tenant to Landlord shall be credited by Landlord against the next ensuing monthly Fixed Rent payable by Tenant to Landlord and any deficiency in Fixed Rent due from Tenant to Landlord during the Extension Term shall be immediately paid. Section 42.04. Promptly after the Fixed Rent has been determined, Landlord and Tenant shall execute and deliver an agreement setting forth the Fixed Rent for the Extension Term, as finally determined, provided the failure of the parties to do so shall not affect their respective rights and obligations hereunder. -64- IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this Lease as of the day and year first above written. SAGE REALTY CORPORATION, AGENT By: [SIGNATURE ILLEGIBLE] ----------------------------------- Landlord CITYSEARCH, INC. By: [SIGNATURE ILLEGIBLE] ----------------------------------- Tenant State of California County of Los Angeles On May 1, 1997 before me, BETTYE FUSSELL, NOTARY PUBLIC ----------- ------------------------------------------------------ DATE NAME, TITLE OF OFFICER . E.G. "JANE DOE, NOTARY PUBLIC" personally appeared DOUGLAS MCPHERSON ------------------------------------------------------------- NAME(S) OF SIGNER(S) [_] personally known to me - OR - [X] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the, person(s) acted, executed the instrument. [SEAL APPEARS HERE] WITNESS my hand and official seal. /s/ Bettye Fussell ---------------------------------------- SIGNATURE OF NOTARY - --------------------------------- OPTIONAL ------------------------------------- Though the data below is not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent reattachment of this form. CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT [_] INDIVIDUAL [_] CORPORATE OFFICER OFFICE LEASE _______________________________ --------------------------------------- TITLE(S) TITLE OR TYPE OF DOCUMENT [_] PARTNER(S) [_] LIMITED [_] GENERAL ///////////////////////// --------------------------------------- NUMBER OF PAGES [_] ATTORNEY-IN-FACT [_] TRUSTEE(S) [_] GUARDIAN/CONSERVATOR ///////////////////// [_] OTHER:_________________________ --------------------------------------- _______________________________ DATE OF DOCUMENT _______________________________ SIGNER IS REPRESENTING: NAME OF PERSON(S) OR ENTITY(IES) ONE --------------------------------------- ___________________________________ SIGNER(S) OTHER THAN NAMED ABOVE ___________________________________ ACKNOWLEDGEMENTS State of New York ) ss.: County of Queens ) On the 7th day of May 1997, before me personally came Robert Kaufman to me known, who being by me duly sworn, did depose and say that he resides at [SIGNATURE ILLEGIBLE] that he is the Executive VP of SAGE REALTY COPORATION, the corporation described in and which executed the foregoing instrument; and that he signed his name thereto by authority of the Board of Directors of said corporation. [SIGNATURE ILLEGIBLE] --------------------------------- Notary Public CORPORATE TENANT - ---------------- State of New York ) ss.: County of New York) On the ____ day of __________________ 1997, before me personally came ______________________ to me known, who being by me duly sworn, did depose and say that he resides at _________________________________; that (s)he is the ____________ of CITYSEARCH, INC., the corporation described in and which executed the above instrument; and that (s)he signed (her) his name by authority of the Board of Directors of such corporation. ______________________________ Notary Public SCHEDULE "A" FLOOR PLAN SEE ATTACHED [FLOOR PLAN APPEARS HERE] SCHEDULE "B" LANDLORD'S WORK I. PLANS AND WORK 1. Plan Submission --------------- Tenant has submitted to Landlord for review and approval complete and detailed final architectural, mechanical and engineering plans and specifications labeled 3-GN, 3-WL, 3-KC, 3-DM, 3-ET (all dated 4/22/97) and 3-CP and 3-DT (all dated 4/28/97) prepared by Emery Roth Associates showing the alterations required by Tenant to the Demised Premises in order to prepare the Demised Premises for Tenant's occupancy. In addition to submission of the aforesaid plans and specifications, Tenant shall also furnish any and all documents and information which Landlord may reasonably require for submission to its insurance compan(ies), mortgagee(s), contractors and other interested parties. 2. Authorization to Proceed ------------------------ The plans and specifications, as approved by Landlord, are hereinafter referred to as the "Final Plans" and all work required by the Final Plans to be preformed by Landlord is hereinafter referred to as "Landlord's Work." Landlord shall perform Landlord's Work in accordance with good construction practices using new or like new materials. The submission of the Final Plans to Landlord shall be deemed authorization by Tenant for Landlord to proceed with the work shown on the Final Plans, subject to the provisions hereof. Any approvals required to be given by either party shall be deemed given, unless within five (5) days after any submission the party receiving the same notifies the submitting party of an objection thereto. Any architect or designer now or hereafter acting for or on behalf of Tenant shall be deemed an agent of Tenant and authorized to bind Tenant in all respects. 3. Compliance with Laws & Codes ---------------------------- Landlord hereby agrees to be responsible for Landlord's Work meeting applicable laws, rules, ordinances, requirements and or regulations of any governmental or quasi-governmental authority having jurisdiction thereover. Neither Landlord's approval of the Final Plans, performance of the Landlord's Work nor any statement made herein or in the body of the Lease shall constitute an express or implied representation of Landlord that any or all work performed and installation supplied pursuant to the Final Plans is suitable for the particular requirements of Tenant or any specific or general use and purpose of Tenant. -2- 4. Filing with Governmental Agencies --------------------------------- Landlord shall cause the Final Plans and/or appropriate building notices and forms relating thereto to be filed with and approved by any governmental and quasi-governmental authorities having jurisdiction over Landlord's Work. All costs, fees and expenses incurred in connection with obtaining the approvals of and filings with such governmental and quasi- governmental authorities as well as all engineering and architectural costs associated therewith, if any, shall be paid for by Landlord. Any additional approvals or filings necessitated by changes made by Tenant to the Final Plans shall be at the sole cost and expense of Tenant. 5. Architectural & Engineering Services ------------------------------------ The Final Plans shall be prepared by Tenant at Landlord's own cost and expense. The air conditioning system to serve the Demised Premises will be designed and initially balanced at Landlord's expense. Any changes to the Final Plans and any changes to the original air-conditioning design necessitated by any changes made by Tenant to the Final Plans shall be at Tenant's expense. 6. Entry by Tenant --------------- Prior to the Commencement Date, entry by Tenant, its agents, contractors or subcontractors, in or on the Demised Premises for performance of work in the Demised Premises not included within Landlord's Work, or for any other purpose whatsoever, shall be at Tenant's sole risk and responsibility. Upon the request of Landlord, Tenant shall deliver to Landlord policies and certificates of insurance reasonably satisfactory to Landlord. In the event Tenant or Tenant's contractor shall enter upon or perform work in the Demised Premises or any other part of the Building, Tenant agrees to indemnify and save Landlord free and harmless, from and against any and all claims whatsoever arising out of said entry or such work. Tenant agrees that should Tenant, its agents, contractors or subcontractors, enter upon the Demised Premises for the purpose of performing any work not included within Landlord's Work, or for any other purpose whatsoever, the labor employed by Tenant or anyone performing such work, for or on behalf of Tenant, shall always be harmonious and compatible with the labor employed by Landlord or any agents, contractors or subcontractors of Landlord. Should such labor be unharmonious or incompatible, Landlord may require Tenant, its agents and/or contractors to withdraw from the Demised Premises. Tenant's agents, contractors and subcontractors and their respective employees shall comply with the special rules, regulations and requirements of Building management for the performance and coordination of said agents, -3- contractors, subcontractors and their employees so as to avoid the intrusion into the operation of the Building and to avoid disturbing the quiet enjoyment of other tenants. As a condition to Landlord's permission to Tenant to make any of Tenant's installations in the Demised Premises, Landlord may require that Tenant agree with Landlord the fixing of the Commencement Date of this Lease. Landlord agrees to remain responsible for one (1) year following substantial completion of Landlord's Work to cure all defects in workmanship, design, materials or equipment with respect to Landlord's Work (notice of which shall be given to Landlord within such one (1) year period), and for a longer period, if and to the extent that the cure of any such defect is covered under the terms of any warranty or guaranty that Landlord may have received from any supplier, contractor or subcontractor. II. SUBSTANTIAL COMPLETION ---------------------- Landlord's Work shall be deemed to be substantially completed ("Substantially Completion" or "Substantial Completion") on the date (the "Substantial Completion Date") when Landlord's Work shall have been completed in accordance with the Final Plans with the exception of punchlist items (i.e., insubstantial details of construction, mechanical adjustment or decoration which remain to be performed in connection with Landlord's Work which shall be completed with reasonable promptness after the Commencement Date). Landlord hereby agrees to cause its contractor to cooperate with Tenant's contractors in order to phase the construction of Landlord's Work with Tenant's work provided that completion of Landlord's Work will not be delayed nor the cost of Landlord's Work be increased thereby. III. DELAYS ------ The term "Tenant Delay" shall mean any delay that Landlord may encounter in the completion Landlord's Work by reason of any act, neglect, failure or omission of Tenant, its agents, servants, contractors, architect or employees, in the performance of Tenant's obligations under this Schedule B, including: l. Changes ------- Any delay due to changes made by or on behalf of Tenant in the Final Plans; 2. Tenant Work ----------- Any delay caused by work by or on behalf of tenant, other than Landlord's Work as described in the Final Plans; and -4- 3. Non-payment of Tenant Contribution ---------------------------------- Non-payment of any installment of Tenant's Contribution (as defined in Section IV below), or any other payment required of Tenant under this Schedule B or elsewhere in the Lease, when due. If the Substantial Completion Date shall be delayed by reason of a Tenant Delay, the Demised Premises shall be deemed to be Substantially Completed for purposes of the Commencement Date (as defined in the Lease) as of the date that the Demised Premises would have been Substantially Completed but for any such Tenant Delay, as determined by Landlord in its reasonable discretion, whether or not any such Tenant Delay could have been avoided by the commitment by Landlord of additional personnel to the performance of Landlord's Work. In addition, Tenant shall, promptly upon demand, reimburse Landlord for all damages resulting from such Tenant Delay. IV. LIABILITY FOR ABOVE BUILDING STANDARD WORK ------------------------------------------ Tenant shall be liable to Landlord or Landlord's designated agent for costs incurred by Landlord in the completion of Landlord's Work to the extent that such costs are incurred as a result of a change requested by Tenant in the work as shown on the Final Plans. In computing the cost to Tenant of any change to the Final Plans requested by Tenant, Landlord agrees to charge Tenant only for the increased cost of Landlord's Work (i.e. deducting any savings which it realizes by reason of such change from any increase it incurs by reason of such change). Landlord or Landlord's agent shall inform Tenant by notice of the cost of such extra work which shall be payable by Tenant together with a handling and supervision fee as charged by Landlord's contractor which shall not exceed twenty-one percent (21%) (such costs together with such fee being collectively, "Tenant's Contribution") as additional rent within ten (10) days of delivery to Tenant of an invoice for same. Landlord shall perform such extra work only if Tenant approves the cost thereof in writing within three (3) days from Landlord's notice thereof. SCHEDULE "C" RULES AND REGULATIONS --------------------- l. The rights of tenants in the entrances, corridors, elevators and escalators of the Building are limited to ingress to and egress from the tenants' premises for the tenants and their employees, licensees and invitees, and no tenant shall use, or permit the use of, the entrances, corridors, escalators or elevators for any other purpose. No bicycles, dogs or other animals may be brought into the Building by Tenant, or its employees, licensees or invitees. No tenant shall invite to the tenant's premises, or permit the visit of, persons in such numbers or under such conditions as to interfere with the use and enjoyment of any of the plazas, entrances, corridors, escalators, elevators and other facilities of the Building by other tenants. Fire exits and stairways are for emergency use only, and they shall not be used for any other purposes by the tenants, their employees, licensees or invitees. No tenant shall encumber or obstruct, or permit the encumbrance or obstruction of, any of the sidewalks, plazas, entrances, corridors, escalators, elevators, fire exits or stairways of the Building. Landlord reserves the right to control and operate the public portions of the Building and the public facilities, as well as facilities furnished for the common use of the tenants, in such manner as it deems best for the benefit of the tenants generally. 2. The cost of repairing any damage to the public portions of the Building or the public facilities or to any facilities used in common with other tenants, caused by a tenant or the employees, licensees or invitees of the tenant, shall be paid by such tenant. 3. Landlord may refuse admission to the Building outside of ordinary business hours to any person not known to the watchman in charge or not having a pass issued by Landlord or not properly identified, and may require all persons admitted to or leaving the Building outside of ordinary business hours to register. Tenant's employees, agents and visitors shall be permitted to enter and leave the Building whenever appropriate arrangements have been previously made between Landlord and Tenant with respect thereto. Each tenant shall be responsible for all persons for whom he requests such permission and shall be liable to Landlord for all acts of such persons. Any person whose presence in the Building at any time shall, in the judgment of Landlord, be prejudicial to the safety, character, reputation and interests of the Building or its tenants may be denied access to the Building or may be ejected therefrom. In case of invasion, riot, public excitement or other commotion, Landlord may prevent all access to the Building during the continuance of the same, by closing the doors or otherwise, for the safety of the tenants and protection of property in the Building. Landlord may require any person leaving the Building with any package or other object to exhibit a pass from the tenant from whose C-2 premises the package or object is being removed, but the establishment and enforcement, or failure to enforce, of such requirements shall not impose any responsibility on Landlord for the protection of any tenant against the removal of property from the premises of the tenant. Landlord shall, in no way, be liable to any tenant for damages or loss arising from the admission, exclusion or ejection of any person to or from the tenant's premises or the Building under the provisions of this rule. 4. Except to the extent otherwise permitted in the lease, no tenant shall obtain or accept or use in its premises ice, drinking water, food, beverage, towel, barbering, boot blacking, floor polishing, lighting maintenance, cleaning or other similar services from any persons not authorized by Landlord in writing to furnish such services, provided always that the charges for such services by persons authorized by Landlord are not excessive. Such services shall be furnished only at such hours, in such places within the tenant's premises and under such regulations as may be fixed by Landlord. 5. No awnings or other projections over or around the windows shall be installed by any tenant and only such window blinds as are supplied, or permitted by Landlord shall be used in a tenant's premises. 6. There shall not be used in any space, or in the public halls of the Building, either by Tenant or by jobbers or others, in the delivery or receipt of merchandise or mail, any hand trucks, except those equipped with rubber tires and side guards. 7. All entrance doors in each tenant's premises shall be left locked when the tenant's premises are not in use. Entrance doors shall not be left open at any time. All windows in each tenant's premises shall be kept closed at all times, and all blinds or drapes therein above the ground floor shall be lowered or closed when and as reasonably required because of the position of the sun, during the operation of the Building air conditioning system to cool or ventilate the tenant's premises. 8. No noise, including the playing of any musical instruments, radio or television, which, in the judgment of Landlord, might disturb other tenants in the Building shall be made or permitted by any tenant and no cooking shall be done in Tenant's premises except as expressly approved by Landlord. Tenant may heat food (but not cook) items in the Demised Premises using a microwave or toaster oven. Nothing shall be done or permitted in any tenant's premises and nothing shall be brought into or kept in any tenant's premises which would impair or interfere with any of the Building services or the proper and economic heating, cleaning or other servicing of the Building or the premises, or the use or enjoyment by any other tenant of any other premises, nor shall there be installed by any tenant any C-3 ventilating, air conditioning, electrical or other equipment of any kind which, in the judgment of Landlord, might cause any such impairment or interference. No dangerous, inflammable, combustible or explosive object or material shall be brought into the Building by any tenant or with the permission of any tenant (which shall not be deemed to include ordinary office supplies in small quantities as shall be necessary for the conduct of Tenant's business.) 9. Tenant shall not permit any cooking or food odors emanating from the Demised Premises to seep into other portions of the Building. 10. No acids, vapors or other materials shall be discharged or permitted to be discharged into the waste lines, vents or flues of the Building which may damage them. The water and wash closets and other plumbing fixtures in or serving any tenant's premises shall not be used for any purpose other than the purpose for which they were designed or constructed, and no sweepings, rubbish, rags, acids or other foreign substances shall be deposited therein. All damages resulting from any misuse of the fixtures shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees, shall have caused the same. 11. No signs, advertisement, notice or other lettering shall be exhibited, inscribed, painted or affixed by any tenant on any part of the outside or inside the premises or the Building without the prior written consent of Landlord. In the event of the violation of the foregoing by any tenant, Landlord may remove the same without any liability, and may charge the expense incurred by such removal to the tenant or tenants violating this rule. Interior signs and lettering on doors and elevators shall be inscribed, painted, or affixed for each tenant by Landlord at the expense of such tenant, and shall be of a size, color and style acceptable to Landlord. 12. No additional locks or bolts of any kind shall be placed upon any of the doors or windows in any tenant's premises, and no lock on any door therein shall be changed or altered in any respect. Duplicate keys for a tenant's premises and toilet rooms shall be procured only from Landlord, which may make a reasonable charge therefor which charge shall be equal to Landlord's out of pocket cost therefor. Upon the termination of a tenant's lease, all keys to the tenant's premises and toilet rooms shall be delivered to Landlord. 13. No tenant shall mark, paint, drill into, or in any way deface any part of the Building or the premises demised to such tenant (which shall not be deemed to include display or installation of such items as bulletin boards, pictures, etc.) Not boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as C-4 Landlord may direct. Not tenant shall install any resilient tile or similar floor covering in the premises demised to such tenant except in a manner approved by Landlord. 14. No tenant shall use or occupy, or permit any portion of the premises demised to such tenant to be used or occupied, as an office for a public stenographer or typist, or as a barber or manicure shop, or as an employment bureau. No tenant or occupant shall engage or pay any employees in the Building, except those actually working for such tenant or occupant in the Building or advertise for laborers giving an address at the Building. 15. No premises shall be used, or permitted to be used, at any time, as a store for the sale or display of goods or merchandise or any king, or as a restaurant, shop, booth, bootblack or other stand, or for the conduct of any business or occupation which involves direct patronage of the general public on the premises demised to such tenant, or for manufacturing or for other similar purposes. 16. The requirements of tenants will be attended to only upon application at the office of the Building. Employees of Landlord shall not perform any work or do anything outside for the regular duties, unless under special instructions from the office of the Landlord. 17. Each tenant shall, at its expense, provide artificial light in the premised demised to such tenant for Landlord's agents, contractors and employees while performing janitorial or other cleaning services and making repairs or alterations in said premises. 18. Employees of Tenant shall not loiter around the hallways, stairways, elevators, front, roof or any other part of the Building used in common by the occupants thereof. 19. Any cuspidors or similar containers or receptacles used in the Demised Premises shall be cared for and cleaned by and at the expense of Tenant. 20. Any and all wet and/or food garbage, including coffee grinds, is to be deposited in a plastic liner bag in a waste basket or other receptacle. 21. Tenant shall separate all refuse and rubbish of Tenant in accordance with the methods and procedures set forth, from time to time, by Landlord. SCHEDULE "D" FORM OF LETTER OF CREDIT Dated:____________________ Sage Realty Corporation, As Agent 777 Third Avenue New York, New York 10017 Re: Irrevocable Clean Letter of Credit ---------------------------------- Gentlemen: By order of our client, ________________________________________, we hereby open our clean Irrevocable Letter of Credit No. _____ in your favor for an amount not to exceed in the aggregate $_______________ U.S. Dollars effective immediately. Funds under this credit are available to you against your site draft drawn on us mentioning thereon our Credit No. _______. This Letter of Credit shall expire sixteen months from the date hereof, provided, however, that it is a condition of this Letter of Credit that it shall be deemed automatically extended, from time to time, without amendment, for one year from the expiry date hereof and from each and every future expiry date, unless at least thirty (30) days prior to any expiry date we shall notify you by registered mail that we elect not to consider this Letter of Credit renewed for any such additional period. This Letter of Credit is transferable and may be transferred one or more times. However, no transfer shall be effective unless advice of such transfer is received by us in the form attached signed by you. We hereby agree with you that all drafts drawn or negotiated in compliance with the terms of this Letter of Credit will be duly and promptly honored upon presentment and delivery of your draft to our office at __________________________________ if negotiated on or prior to the expiry date as the same may from time to time be extended. D-2 Except as otherwise specified herein, this Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500. Very truly yours, (Name of Bank) By:____________________ Re: Credit ___________________ Issued By: ___________________ Gentlemen: For value received, the undersigned beneficiary irrevocably transfers to: ____________________________ (Name of Second Beneficiary) ____________________________ (Address) all rights of the undersigned beneficiary to draw under the above Letter of Credit in its entirety. By this transfer, all rights of the undersigned beneficiary in such Letter of Credit are transferred to the second beneficiary and the second beneficiary shall have the sole rights of beneficiary thereof, including the sole rights relating to any amendments whether increases or extensions or other amendments and whether now existing or hereafter made. All amendments are to be advised direct to the second beneficiary without necessity of any consent of or notice of the undersigned beneficiary. The advice of such Letter of Credit is returned herewith, and we ask you to endorse the assignment on the reverse thereof and forward it direct to the second beneficiary with your customary notice of transfer. Enclosed is remittance of $100.00 in payment of your transfer commission and in addition thereto we agree to pay you on demand any expenses which may be incurred by you in connection with this transfer. Very truly yours, Signature of Beneficiary SIGNATURE AUTHENTICATED (Bank) (Authorized Signature) 1997 HOLIDAY OBSERVANCES SCHEDULE" "E"
LOCAL #32B/J LOCAL #94 SAGE REALTY LIFT CO. (CLEANING)* (ENGINEERS) * (ELEVATORS) NEW YEAR'S DAY WEDNESDAY, JANUARY 1 X X X X - ----------------------------------------------------------------------------------- MARTIN LUTHER KING DAY MONDAY, JANUARY 20 X - - - - ----------------------------------------------------------------------------------- LINCOLN'S BIRTHDAY WEDNESDAY, FEBRUARY 12 - - - X - ----------------------------------------------------------------------------------- PRESIDENT'S DAY MONDAY, FEBRUARY 17 X - X X - ----------------------------------------------------------------------------------- GOOD FRIDAY FRIDAY, MARCH 28 X - - - - ----------------------------------------------------------------------------------- MEMORIAL DAY MONDAY, MAY 26 X X X X - ----------------------------------------------------------------------------------- INDEPENDENCE DAY FRIDAY, JULY 4 X X X X - ----------------------------------------------------------------------------------- LABOR DAY MONDAY, SEPTEMBER 1 X X X X - ----------------------------------------------------------------------------------- COLUMBUS DAY MONDAY, OCTOBER 13 X - X X - ----------------------------------------------------------------------------------- VETERAN'S DAY TUESDAY, NOVEMBER 11 - - - X - ----------------------------------------------------------------------------------- THANKSGIVING DAY THURSDAY, NOVEMBER 27 X X X X - ----------------------------------------------------------------------------------- DAY AFTER THANKSGIVING FRIDAY, NOVEMBER 28 X - X X - ----------------------------------------------------------------------------------- CHRISTMAS THURSDAY, DECEMBER 25 X X X X - ----------------------------------------------------------------------------------- DAY AFTER CHRISTMAS FRIDAY, DECEMBER 26 - - X - - ----------------------------------------------------------------------------------- NEW YEAR'S DAY THURSDAY, JANUARY 1, 1998 X X X X - ----------------------------------------------------------------------------------- DAY AFTER NEW YEAR'S FRIDAY, JANUARY 2, 1998 - - X - - -----------------------------------------------------------------------------------
LOREC INC. ELECTRIC EVALUATION REPORT -------------------------- For: Sage Realty Corporation Date: 4/25/97 Re: CitySearch 3rd floor, Portion 320 West 13th Street, NYC SUMMARY OF DATA PROVIDED: - ------------------------- ------------------------ Energy Demand Kwhrs Kw ------------------------ Lighting 2,593 11.99 Misc Equipment 672 2.90 Computers 2,784 9.90 HVAC 5 mos 2,188 10.96 ------------------------ Totals 8,237 35.75 ------------------------ Evaluation Under Utility Rate - ----------------------------- Utility: Con Edison Rate: SC4-I Winter/Summer rates averaged Fuel Adj 0.008611 Rate Adj 0.080526
Energy $237 kwhrs@ $0.0543 $447.24 Fuel Adj: $237 kwhrs@ $0.008611 $70.92 Demand 35.7 kw@ $26.93 $962.70 Subtotal $1,480.86 Rate Adj Av 1996 8.0526% $119.25 Subtotal $1,600.11 Sales Tax 8.25% $132.01 --------- Total Value per Month $1,732.12 --------------------- ---------------------------------- Annual Value: $20,785.44 ==================================
LOREC. inc - -------------------------------------------------------------------------------- Electricity Evaluation Report For: Sage Realty Corporation Date 4/25/97 Re: CitySearch 3rd Floor, Portion, 320 West 13 Street, NYC Data Submitted:
QTY W Each Description Comm Coinc Hours: Kw K whrs Load Factor month Demand - --------------------------------------------------------------------------------------------------------------------------- Lighting - --------------------------------------------------------------------------------------------------------------------------- 1 11,625 Lighting per space 11,625 1.00 210 11.63 2,441 - --------------------------------------------------------------------------------------------------------------------------- 28 20 Dark Lamp 560 0.50 165 0.28 94 - --------------------------------------------------------------------------------------------------------------------------- 2 40 Exit 80 1.00 730 0.08 38 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Lighting Totals 12,265 11.99 2,593 - --------------------------------------------------------------------------------------------------------------------------- Misc Equipment - --------------------------------------------------------------------------------------------------------------------------- 1 400 Refrigerator 400 0.65 100 0.30 40 - --------------------------------------------------------------------------------------------------------------------------- 1 1,200 Micro Wave 1,200 0.10 2 0.10 2 - --------------------------------------------------------------------------------------------------------------------------- 1 500 Coffee Maker 500 0.50 40 0.30 20 - --------------------------------------------------------------------------------------------------------------------------- 1 400 Phone Switch 400 1.00 730 0.40 292 - --------------------------------------------------------------------------------------------------------------------------- 1 26 Fax 26 1.00 80 0.00 2 - --------------------------------------------------------------------------------------------------------------------------- 1 26 Fax 36 0.50 10 0.00 0 - --------------------------------------------------------------------------------------------------------------------------- 1 2,200 Copier 2,200 0.69 100 1.30 220 - --------------------------------------------------------------------------------------------------------------------------- 1 1,200 Copier 1,200 0.40 80 0.50 96 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Equipment Totals 5,962 2.90 672 - --------------------------------------------------------------------------------------------------------------------------- Computers - --------------------------------------------------------------------------------------------------------------------------- 25 344 PC + Monitor 9,632 0.90 210 8.70 2,923 - --------------------------------------------------------------------------------------------------------------------------- 25 0 Lamp 0 0.00 0 0.00 0 - --------------------------------------------------------------------------------------------------------------------------- 1 150 Printer 150 0.90 150 0.10 23 - --------------------------------------------------------------------------------------------------------------------------- 1 150 Printer 150 0.50 50 0.10 8 - --------------------------------------------------------------------------------------------------------------------------- 1 500 File Server 500 0.90 730 0.50 365 - --------------------------------------------------------------------------------------------------------------------------- 1 500 SQL Server 500 0.90 730 0.50 365 - --------------------------------------------------------------------------------------------------------------------------- Computer Totals 10,932 9.90 2,784 - --------------------------------------------------------------------------------------------------------------------------- HVAC - --------------------------------------------------------------------------------------------------------------------------- 2 17,300 15 Ton A/C 35,000 0.75 150 26.30 5,250 - --------------------------------------------------------------------------------------------------------------------------- (5 Month/Yr) - --------------------------------------------------------------------------------------------------------------------------- HVAC Total 35,000 26.30 5,250 - --------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------
Installation List Page 1 EX-10.15 12 STANDARD OFFICE LEASE WITH H. NAITO CORP. EXHIBIT 10.15 Standard Form of OFFICE BUILDING LEASE Developed by PORTLAND METROPOLITAN ASSOCIATION OF BUILDING OWNERS AND MANAGERS OFFICE LEASE [LOGO OF PORTLAND APPEARS HERE] This lease, made and entered into at Portland, Oregon, this 6th day of March 1997 by and between H. NAITO CORPORATION, an Oregon Corporation, LANDLORD: and CitySearch, Inc., a Delaware Corporation, TENANT: Landlord hereby leases to Tenant the following: Suite 700 (the Premises) in Montgomery Park (the Building) at 2701 NW Vaughn St., Portland, Oregon, containing approximately 4,696 rentable square feet as outlined in red on the attached Exhibit A calculated using a load factor of twelve percent. Tenant's Proportion Share for purposes of Section 19 shall be 0.701%. This lease is for a term commencing April 1, 1997, 1997 and continuing through March 31, 2002 at a Monthly Base Rental as follows: Six Thousand Eight Hundred Forty Eight and no/100 Dollars ($6,848.00). Rent is payable in advance on the 1st day of each month commencing April 1, 1997. Landlord and Tenant covenant and agree as follows: 1.1 Delivery of Possession. Should Landlord be unable to deliver possession of the Premises on the date fixed for the commencement of the term, commencement will be deferred and Tenant shall owe no rent until notice from Landlord tendering possession to Tenant. If possession is not so tendered within 90 days following commencement of the term, then Tenant may elect to cancel this lease by notice to Landlord within 10 days following expiration of the 90-day period. Landlord shall have no liability to Tenant for delay in delivering possession, nor shall such delay extend the term of this lease in any manner unless the parties execute a written extension agreement. 2.1 Rent Payment. Tenant shall pay the Base Rent for the Premises and any additional rent provided herein without deduction or offset. Rent for any partial month during the lease term shall be prorated to reflect the number of days during the month that Tenant occupies the Premises. Additional rent means amounts determined under Section 19 of this Lease and any other sums payable by Tenant to Landlord under this Lease. Rent not paid when due shall bear interest at the rate of one percent per month until paid. Landlord may at its option impose a late charge of $.05 for each $1 of rent for rent payments made more than 10 days late in lieu of interest for the first month of delinquency, without waiving any other remedies available for default. Failure to impose a late charge shall not be a waiver of Landlord's rights hereunder. 3.1 Lease Consideration. Upon execution of the lease Tenant has paid the Base Rent for the first full month of the lease term for which rent is payable and in addition has paid the sum of $ 6,848.00 as lease consideration. Landlord may apply the lease consideration to Please Initial [ILLEDGIBLE] __________ ------------ Landlord Tenant At no time shall Tenant be liable for any costs, abatement fines, penalties, or charges resulting from Landlord's lack of compliance with local, state or federal ordinances, laws, rules or regulations. If Tenant does incur such costs, fines or penalties resulting from Landlord's failure to Comply with local, state or federal ordinances, laws, rules or regulations, Landlord agrees to hold harmless and indemnify Tenant for all liabilities incurred by Tenant within 30 days of receipt of an itemized accounting of liability pay the cost of performing any obligation which Tenant fails to perform within the time required by this lease, but such application by of Landlord shall not be the exclusive remedy for Tenant's default. If the lease consideration is applied by Landlord, Tenant shall on demand pay the sum necessary to replenish the lease consideration to its original amount. To the extent not applied by Landlord to cure defaults by Tenant, the lease consideration shall be applied against the rent payable for the last month of the term. The lease consideration shall not be refundable. 4.1 Use. Tenant shall use the Premises as a business office and for no other purpose without Landlord's written consent. In connection with its use, Tenant shall not annoy, obstruct, or interfere with the rights of other tenants of the Building. Tenant shall create no nuisance nor allow any objectionable fumes, noise, or vibrations to be emitted from the Premises. Tenant shall not conduct any activities that will increase Landlord's insurance rates for any portion of the Building or that will in any manner degrade or damage the reputation of the Building. 4.2 Equipment Tenant shall install in the Premises only such office equipment as is customary for general office use and shall not overload the floors or electrical circuits of the Premises or Building or alter the plumbing or wiring of the Premises or Building. Landlord must approve in advance the location of and manner of installing any wiring or electrical, heat generating or communication equipment or exceptionally heavy articles. All telecommunications equipment, conduit, cables and wiring, additional dedicated circuits and any additional air conditioning required because of heat generating equipment or special lighting installed by Tenant shall be installed and operated at Tenant's expense. Landlord shall have no obligation to pay for installation of equipment by any telecommunications provider whose equipment is not then servicing the Building. 4.3 Signs. No signs, awnings, antennas, or other apparatus shall be painted on or attached to the Building or anything placed on any glass or woodwork of the Premises so as to be visible from outside the Premises without Landlord's written approval as to design, size, location, and color. All signs installed by Tenant shall comply with Landlord's standards for signs and all applicable codes and all signs and sign hardware shall be removed upon termination of this lease with the sign location restored to its former state unless Landlord elects to retain all or any portion thereof. See Exhibit "B", paragraph 7. 5.1 Utilities and Services. Landlord will furnish water and electricity to the Building at all times and will furnish heat and air conditioning (if the Building is air conditioned) during the normal Building hours as established by Owner*. Janitorial service will be provided in accordance with the regular schedule of the Building. which schedule and service may change from time to time. Tenant shall comply with all government laws or regulations regarding the use or reduction of use of utilities on the Premises. Interruption of services or utilities shall not be deemed an eviction or disturbance of Tenant's use and possession of the Premises, render Landlord liable to Tenant for damages, or relieve Tenant from performance of Tenant's obligations under this lease. *Landlord shall take all reasonable steps to correct any interruptions in service. Electrical service furnished will be 110 volts unless different service already exists in the Premises. Tenant shall provide its own surge protection for power furnished to the Premises. *8:00 a.m. to 6:00 p.m. Monday through Friday and 8:00 a.m. to 12:00 noon Saturday. 5.2 Extra Usage. If Tenant uses excessive amounts of utilities or services of any kind because of operation outside of normal Building hours, high demands from office machinery and equipment, nonstandard lighting, or any other cause. Landlord may impose a reasonable charge for supplying such extra utilities or services, which charge shall be payable monthly by Tenant in conjunction with rent payments In case of dispute over any extra charge under this paragraph, Landlord shall designate a qualified independent engineer whose decision shall be conclusive on both parties. Landlord and Tenant shall each pay one-half of the cost of such determination. 5.3 Security. Landlord may but shall have no obligation to provide security service or to adopt security measures regarding the Premises, and Tenant shall cooperate with all reasonable security measures adopted by Landlord. Tenant may install a security system within the leased Premises with Landlord's written consent which will not be unreasonably withheld. Landlord will be provided with an access code to any security system and shall not have any liability for accidentally setting off Tenant's security system. Landlord may modify the type or amount of security measures or services provided to the Building or the Premises at any time. 6.1 Maintenance and Repair. Landlord shall have no liability for failure to perform required maintenance and repair unless written notice of such maintenance or repair is given by Tenant and Landlord fails to commence efforts to remedy the problem in a reasonable time and manner. Landlord shall have the right to erect scaffolding and other apparatus necessary for the purpose of making repairs, and Landlord shall have no liability for interference with Tenant's use-because of repairs and installations. Tenant shall have no claim against Landlord for any interruption or reduction of services or interference with Tenant's occupancy, and no such interruption or reduction shall be construed as a constructive or other eviction of Tenant.* Repair of damage caused by negligent or intentional acts or breach of this lease by Tenant, its employees or invitees shall be at Tenant's expense. * Except where caused by the negligence or willful misconduct of Landlord or its agents. Please Initial [ILLEDGIBLE] __________ ------------ Landlord Tenant Tenant shall not make any significant alterations, additions, or improvements to the Premises, change the color of the interior, or install any wall or floor covering without Landlord's prior written consent which may be withheld in Landlord's sole discretion. Any such improvements, alterations, wiring, cables or conduit installed by Tenant shall at once become part of the Premises and belong to Landlord except for removable machinery and unattached movable trade fixtures. Landlord may at its option require that Tenant remove any improvements, alterations, wiring, cables or conduit installed by or for Tenant and restore the Promises to the original condition upon termination of this lease.* Landlord shall have the right to approve the contractor used by Tenant for any work in the Premises, and to post notices of nonresponsibility in connection with work being performed by Tenant in the Premises. Work by Tenant shall comply with all laws then applicable to the Promises. *So long as Landlord provided notice to Tenant prior to commencement of construction of such improvement, alterations, etc. 7.1 Indemnity. Tenant shall not allow any liens to attach to the Building or Tenant's interest in the Premises as a result of its activities. Tenant shall indemnify and defend Landlord and its managing agents from any claim, liability, damage, or loss occurring on the Premises, arising out of any activity by Tenant, its agents, or invitees or resulting from Tenant's failure to comply with any term of this lease. Neither Landlord nor its managing agent shall have any liability to Tenant because of loss or damage to Tenant's property or for death or bodily injury caused by the acts or omissions of other Tenants of the Building, or by third parties (including criminal acts).* 7.2 Insurance. Tenant shall carry liability insurance with limits of not less than ONE Million Dollars ($1,000,000) combined single limit bodily injury and property damage which insurance shall have an endorsement naming Landlord and Landlord's managing agent, if any, as an additional insured, cover the liability insured under paragraph 7.1 of this lease and be in form and with companies reasonably acceptable to Owner. Prior to occupancy, Tenant shall furnish a certificate evidencing such insurance which shall state that the coverage shall not be cancelled or materially changed without 10 days advance notice to Landlord and Landlord's managing agent, if any. A renewal certificate shall be furnished at least 10 days prior to expiration of any policy, upon request from Landlord. 8.1 Fire or Casualty. "Major Damage" means damage by fire or other casualty to the Building or the Promises which causes the Premises or any substantial portion of the Building to be unusable, or which will cost more than 25 percent of the pre-damage value of the Building to repair, or which is not covered by insurance. In case of Major Damage, Landlord may elect to terminate this lease by notice in writing to the Tenant within 30 days after such date. If this lease is not terminated following Major Damage, or if damage occurs which is not Major Damage, Landlord shall promptly restore the Premises to the condition existing just prior to the damage. Tenant shall promptly restore all damage to tenant improvements or alterations installed by Tenant or pay the cost of such restoration to Landlord if Landlord elects to do the restoration of such improvements. Rent shall be reduced from the date of damage until the date restoration work being performed by Landlord is substantially complete, with the reduction to be in proportion to the area of the Premises not useable by Tenant. 8.2 Waiver of Subrogation. Tenant shall be responsible for insuring its personal property and trade fixtures located on the Premises and any alterations or tenant improvements it has made to the Premises. Neither Landlord, its managing agent nor Tenant shall be liable to the other for any loss or damage caused by water damage, sprinkler leakage, or any of the risks that are or could be covered by a special all risk property insurance policy, or for any business interruption, and there shall be no subrogated claim by one party's insurance carrier against the other party arising out of any such loss.* This waiver is binding only if it does not invalidate the insurance coverage of either party hereto. *Except where caused by the negligence or willful misconduct of Landlord or its agents. 9.1 Eminent Domain. If a condemning authority takes title by eminent domain or by agreement in lieu thereof to the entire Building or a portion sufficient to render the Premises unsuitable for Tenant's use, then either party may elect to terminate this lease effective on the date that the condemning authority.* Rent shall be reduced for the remainder of the term in an amount proportionate to the reduction in area of the Premises caused by the taking. All condemnation proceeds shall be shared with Tenant according to the percentage the leased premises bear to the total. * authorizes condemnation. 10.1 Assignment and Subletting. This lease shall bind and inure to the benefit of the parties, their respective heirs, successors, and assigns, provided that Tenant shall not assign its interest under this lease or sublet all or any portion of the Premises without first obtaining Landlord's consent in writing. This provision shall apply to all transfers by operation of law including but not limited to mergers and changes in control of Tenant. No assignment shall relieve Tenant of its obligation to pay rent or perform other obligations required by this lease, and no consent to one assignment or subletting shall be a consent to any further assignment or subletting. Landlord shall not unreasonably withhold its consent to any assignment or subletting provided the proposed Tenant is compatible with Landlord's normal standards for the Building. If Tenant proposes a subletting or assignment to which Landlord is required to consent under this paragraph. Landlord shall have the option if terminating this lease and dealing directly with the proposed subtenant or assignee, or any third party. If an assignment or subletting is permitted, any cash profit, or the net value of any other consideration received by Tenant as a result of such transaction shall be paid to Landlord promptly following its receipt by Tenant. Tenant shall pay any reasonable costs incurred by Landlord in connection with a request for assignment or subletting. including reasonable attorneys' fees. See Exhibit "B", paragraph 7. * Except where caused by the negligence or willful misconduct of Landlord or its agents. Please Initial [ILLEDGIBLE] __________ ------------ Landlord Tenant 11.1 Default. Any of the following shall constitute a default by Tenant under this lease: (a) Tenant's failure to pay rent or any other charge under this lease within 20 days after it is due, or failure to comply with any other term or condition within 20 days following written notice from Landlord specifying the noncompliance. If such noncompliance cannot be cured within the 20-day period, this provision shall be satisfied if Tenant commences correction within such period and thereafter proceeds in good, faith and with reasonable diligence to effect compliance as soon as possible. Time is of the essence of this lease. (b) Tenant's insolvency, business failure or assignment for the benefit of its creditors. Tenant's commencement of proceedings under any provision of any bankruptcy or insolvency law or failure to obtain dismissal of any petition filed against it under such laws within the time required to answer, or the appointment of a receiver for all or any portion of Tenant's properties or financial records. (c) Assignment or subletting by Tenant in violation of paragraph 10.1. (d) Failure to occupy the Premises within twenty (20) days after notice from Landlord tendering possession. 11.2 Remedies for Default. In case of default as described in paragraph 11.1 Landlord shall have the right to the following remedies which are intended to be cumulative and in addition to any other remedies provided under applicable law: (a) Landlord may at its option terminate the lease by notice to Tenant. With or without termination, Landlord may retake possession of the Premises and may use or relet the Premises without accepting a surrender or waiving the right to damages. Following such retaking of possession, efforts by Landlord to relet the Premises shall be sufficient if Landlord follows its usual procedures for finding tenants for the space at rates not less than the current rates for other comparable space in the Building, if Landlord has other vacant space in the Building, prospective tenants may be placed in such other space without prejudice to Landlord's claim to damages or loss of rentals from Tenant only if the other space is significantly better suited for prospective Tenant's needs. (b) Landlord may recover all damages caused by Tenant's default which shall include an amount equal to rentals lost because of the default, lease commissions paid for this lease, and the unamortized cost of any tenant improvements installed by Landlord to meet Tenant's special requirements. Landlord may sue periodically to recover damages as they occur throughout the lease term, and no action for accrued damages shall bar a later action for damages subsequently accruing. Landlord may elect in any one action to recover accrued damages plus damages attributable to the remaining term of the lease. Such damages shall be measured by the difference between the rent under this lease and the reasonable rental value of the Premises for the remainder of the term, discounted to the time of judgement at the prevailing interest rate on judgements. (c) Landlord may make any payment or perform any obligation which Tenant has failed to perform, in which case Landlord shall be entitled to recover from Tenant upon demand all amounts so expended, plus interest from the date of the expenditure at the rate of one (1%) percent per month. Any such payment or performance by Landlord shall not waive Tenant's default. 12.1 Surrender. On expiration or early termination of this lease Tenant shall deliver all keys to Landlord and surrender the Premises vacuumed, swept, and free of debris and in the same condition as at the commencement of the term subject only to reasonable wear from ordinary use. Tenant shall remove all of its furnishings and trade fixtures that remain its property and repair all damage resulting from such removal. Failure to remove shall be an abandonment of the property, and Landlord may dispose of it in any manner without liability. If Tenant fails to vacate the Premises when required, including failure to remove all its personal property, Landlord may elect either: (i) to treat Tenant as a tenant from month to month, subject to the provisions of this lease except that rent shall be 125% of the total rent being charged when the lease term expired, and any option or other rights regarding extension of the term or expansion of the Premises shall no longer apply, or (ii) to eject Tenant from the Premises and recover damages caused by wrongful holdover. 13.1 Regulations. Landlord shall have the right but shall not be obligated to make, revise and enforce reasonable regulations or policies consistent with this lease for the purpose of promoting safety, health (including moving, use of common areas and prohibition of smoking), order, economy, cleanliness, and good service to all tenants of the Building. All such regulations and policies shall be complied with as if part of this lease. 14.1 Access. During times other than normal Building hours Tenant's officers and employees or those having business with Tenant may be required to identify themselves or show passes in order to gain access to the Building. Landlord shall have no liability for permitting or refusing to permit access by anyone. Landlord may regulate access to any Building elevators outside of normal Building hours. Landlord shall have the right to enter upon the Premises at any time by passkey or otherwise to determine Tenant's compliance with this lease, to perform necessary services, maintenance and repairs or alterations to the Building or the Premises or to show the Premises to any prospective tenant or purchasers. Except in case of emergency such entry shall be at such times and in such manner as to minimize interference with the reasonable business use of the Premises by Tenant. Entry during normal business hours, except in emergency situations, shall take place with reasonable advance notice. 14.2 Furniture and Bulky Articles. Tenant shall move furniture and bulky articles in and out of the Building or make independent use of the elevators only at times approved by Landlord following at least 24 hours written notice to Landlord of the intended move. Landlord will not unreasonably withhold its consent under this paragraph. Please Initial ________ ______________ Landlord Tenant 15.1 Notices. Notices between the parties relating to this lease shall be in writing, effective when delivered, or if mailed, effective on the second day following mailing, postage prepaid, to the address for the party stated in this lease or to such other address as either party may specify by notice to the other. Notice to Tenant shall be delivered to Chief Financial Officer CitySearch 790 E. Colorado Blvd., Suite 200 Pasadena, CA 91101. Rent shall be payable to Landlord at the same address and in the same manner, but shall be considered paid only when received. 16.1 Subordination and Attornment. This lease shall be subject to and subordinate to any mortgages, deeds of trust, or land sale contracts (here after collectively referred to as encumbrances) now existing against the Building. At Landlord's option this lease shall be subject and subordinate to any future encumbrance hereafter placed against the Building (including the underlying land) or any modifications of existing encumbrances, and Tenant shall execute such documents as may reasonably be requested by Landlord or the holder of the encumbrance to evidence this subordination. If any encumbrance is foreclosed, then if the purchaser at foreclosure sale gives to Tenant a written agreement to recognize Tenant's lease. Tenant shall attorn to such purchaser and this Lease shall continue. See Exhibit B, paragraph 9 for non-disturbance agreement. 16.2 Transfer of Building. If the Building is sold or otherwise transferred by Landlord or any successor, Tenant shall attorn to the purchaser or transferee and recognize it as the lessor under this lease, and, provided the purchaser or transferee assumes all obligations hereunder, the transferor shall have no further liability hereunder. 16.3 Estoppels. Either party will within 10 days after notice from the other execute, acknowledge and deliver to the other party a certificate certifying whether or not this lease has been modified and is in full force and effect: whether there are any modifications or alleged breaches by the other party; the dates to which rent has been paid in advance, and the amount of any security deposit or prepaid rent; and any other facts that may reasonably be requested. Failure to deliver the certificate within the specified time shall be conclusive upon the party of whom the certificate was requested that the lease is in full force and effect and has not been modified except as may be represented by the party requesting the certificate. If requested by the holder of any encumbrance, or any ground lessor, Tenant will agree to give such holder or lessor notice of and an opportunity to cure any default by Landlord under this lease. 17.1 Attorneys' Fees. In any litigation arising out of this lease, the prevailing party shall be entitled to recover attorneys' fees at trial and on any appeal. 18.1 Quiet Enjoyment. Landlord warrants that so long as Tenant complies with all terms of this lease it shall be entitled to peaceable and undisturbed possession of the Premises free from any eviction or disturbance by Landlord. Neither Landlord nor its managing agent shall have any liability to Tenant for loss or damages arising out of the acts, including criminal acts, of other tenants of the Building or third parties, nor any liability for any reason which exceeds the value of its interest in the Building, except where caused by the negligence or wilful misconduct of Landlord or its agents. ***** 19.2 Additional Rent-Cost-of-Living Adjustment. On each anniversary date of this lease, the Landlord shall adjust the base rental in the same percentage as the increase, if any, in the Consumer Price Index published by the United States Department of Labor, Bureau of Labor Statistics. The charge shall be computed by comparing the schedule entitled "U.S. City Average, All Items, All Urban Consumers, 1982 - 84 = 100* for the latest available month preceding the month in which the lease term commenced with the same figure for the same month in the years for which the adjustment is computed. All comparisons shall be made using index figures derived from the same base period and in no event shall this provision operate to decrease the monthly rental for the Premises below the initial stated monthly rental, plus property tax adjustments and operating expense adjustments as provided in this Lease. If the index cited above is revised or discontinued during the term of this Lease then the index that is designated by the Portland Metropolitan Association of Building Owners and Managers to replace it shall be used. The above notwithstanding, the CPI adjustment shall not exceed 4% of the previous year's Base Rental. ****** Please Initial ________ ______________ Landlord Tenant 19.4 Disputes. If Tenant disputes any computation of additional rent or rent adjustment under paragraphs 19.1 through 19.3 of this lease, it shall give notice to Landlord not later than one year after the notice from Landlord describing the computation in question, but in any event not later than 30 days after expiration or earlier termination of this lease. If Tenant fails to give such a notice, the computation by Landlord shall be binding and conclusive between the parties for the period in question. 20.1 Complete Agreement; No Implied Covenants. This lease and the attached Exhibits and Schedules if any, constitute the entire agreement of the parties and supersede all prior written and oral agreements and representations and there are no implied covenants or other agreements between the parties except as expressly set forth in this Lease. Neither Landlord nor Tenant is relying on any representations other than those expressly set forth herein. 20.2 Space Leased AS IS. Unless otherwise indicated on Exhibit C and stated in this Lease, the Premises are leased AS IS in the condition now existing with no alterations or other work to be performed by Landlord. 20.3 Captions. The titles to the paragraphs of this lease are descriptive only and are not intended to change or influence the meaning of any paragraph or to be part of this lease. 20.4 Nonwaiver. Failure by Landlord to promptly enforce any regulation, remedy or right of any kind under this Lease shall not constitute a waiver of the same and such right or remedy may be asserted at any time after Landlord becomes entitled to the benefit thereof notwithstanding delay in enforcement. 20.5 Exhibits. The following Exhibits are attached hereto and incorporated as a part of this lease: See EXHIBITS A, B, C, AND D. Please Initial [ILLEDGIBLE] __________ ------------ Landlord Tenant IN WITNESS WHEREOF, the duly authorized representatives of the parties have executed this lease as of the day and year first written above. LANDLORD: By: [SIGNATURE ILLEGIBLE] ----------------------------- Address for notices: P.O. BOX 3458 - ------------------------ Title: Chief Legal Officer ------------------------- Portland, OR 97208 - ------------------------ By._____________________________ TENANT: Title:__________________________ Address for notices: Chief Financial Officer - ------------------------ City Search - ------------------------ 790 E. Colorado Blvd., Suite 200 Pasadena, CA 91101 EXHIBIT "A" MONTGOMERY PARK [MONTGOMERY PARK 7th FLOOR PLAN APPEARS HEAR] EXHIBIT "B" Additional Lease Provisions Lease between H. Naito Corporation and CitySearch, Inc. 1. PARKING During the term of this lease, Landlord shall provide parking for Tenant's customers while they are conducting business with Tenant. Landlord shall also provide Tenant with fourteen (14) monthly parking space(s). Said space(s) may be unassigned and/or limited to a designated lot. Up to 31 additional parking spaces will be provided at a monthly fee of $40.00 per space per month, subject to the annual CPI adjustments not to exceed 4% as described in paragraph 19.2 2. COMPLETION OF BUILDING Construction of additional tenant improvements in the Building may take place after the commencement of the term of this lease. Landlord's construction work shall be done in such a way as to interfere as little as reasonably possible with the use of the premises by Tenant. Landlord may close entrances, doors, corridors, elevators, parking areas, roads, drives, walkways and other facilities as may be reasonably necessary to complete said work, provided that Tenant shall have access to the premises sufficient for the conduct of Tenant's business. Tenant and Tenant's guests shall have no inconvenience, interference, disturbance or annoyance resulting from Landlord's performance of any such work pursuant to this paragraph. 3. RULES AND REGULATIONS Tenant shall comply and cause Tenant's employees, agents, invitees and customers to comply with the rules and regulations respecting the use of the premises and the Building set forth in Exhibit "D." Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed to the right to amend any of the rules and regulations from time to time. Without limiting the generality of the foregoing, such rules may establish hours during which the building shall be open for use, may regulate the parking area, may regulate the receiving and delivery of goods and merchandise to the premises and may regulate the removal of garbage and refuse from the premises. 4. TENANT IMPROVEMENTS Landlord, at its cost, agrees to remove part of the existing build-out in suite 700 and construct new office improvements as shown and described in the attached Exhibit C. These improvements shall be completed in a workmanlike manner according to industry and comparable office building standards. 5. OCCUPANCY OF TEMPORARY SPACE Landlord agrees to make suite 770 available to Tenant as temporary space commencing February 15, 1997. Tenant agrees to pay $1,667.00 month, or the appropriate prorated daily amount, for so many days as Tenant occupies suite 770. Lease payments for suite 770 will cease on April 1 or on the day before Tenant occupies suite 700, whichever occurs earlier. 6. AFTER-HOURS HEATING, VENTILATION AND IF AIR CONDITIONING (HVAC) After-hours HVAC service will be available at a cost of $8.10 for any given two-hour period or fraction or multiple thereof: or if 24-hour, seven-day-per-week service is required, at a cost of $461.53 per month. Said cost shall be subject to annual CPI adjustments not to exceed 4% as specified in paragraph 19.2. 7. CONSENT BY LANDLORD TO BE REASONABLE Whenever Landlord's consent is called for in this lease, Landlord agrees not to unreasonably withhold such consent or approval. 8. RIGHTS OF FIRST REFUSAL a. Tenant shall have the first right of refusal to lease, subject to the same terms as this lease, the adjoining suite 762 and 730 (outlined in blue on "Exhibit A" hereof) when the present lease expires on June 30, 1997. However, this right shall be secondary to the present tenant's right to renew or extend its lease, and it shall under all circumstances expire at midnight on July 31, 1997, unless extended by mutual written agreement. b. Suite 730 is currently vacant and offered for lease by Landlord. So long as Tenant is not in default, Tenant shall have a first right of refusal on said space or any part thereof following the successful effort by Landlord to lease said premises to a third party tenant. The first right of refusal shall be exercised by Tenant within three business days of written notice of the terms offered by a bona fide prospective lessee, subject only to rights of the third party Tenant to whom Landlord leases said space. 9. NON-DISTURBANCE In the event of any attornment by Tenant pursuant to paragraph 16.1, it is understood and agreed that this Lease and Tenant's rights hereunder shall continue undisturbed while Tenant is not in default hereunder, subject however to the provisions of the terms of Article 16.1. 10. OPTION TO TERMINATE Tenant shall have the right to terminate the entire lease or any independently leasable portion of the leased premises anytime after the third year of the lease. Tenant shall provide nine (9) months' advance written notice of its intent to exercise this option. It is agreed and understood that the penalty for such termination shall be the repayment to Landlord of any unamortized tenant improvements and leasing commissions attributable to the portion or portions of space so terminated, calculated at an annual rate of 10 percent interest. 11. ACCESS Tenant and Tenant's employees shall have access to the Premises 24 hours each day, seven days each week upon presentation of appropriate identification. 12. CONFIDENTIALITY CLAUSE No publicity concerning the tenancy of CitySearch shall be allowed by Landlord or its agents. Any information provided by CitySearch to Landlord shall not be used for any purpose other than evaluating the proposed lease, and for the purpose of listing Tenant's name on building directories, tenant lists and rental rolls necessary for the regular operation of the building. EXHIBIT "C" ----------- "DESCRIPTION OF TENANT IMPROVEMENT WORK TO BE DONE IN SUITE 700" Landlord shall, at its sole cost and expense, build Tenant premises according to the plan attached hereto as part of this "Exhibit C". This will include but not necessarily be limited to the following: A. DEMOLITION. - -------------- Demo Center Island Area, cabinets, two offices, one conference room, one storage room, one conference room wall and part of kitchen cabinetry per plans. Includes removing electrical & communication wiring, unwanted wall trim in back conference room. Demo carpet and base. B. CONSTRUCTION. - ---------------- 1. Build demising wall to separate Suite 700 from that part of the former Suite 700 which is not included in the present lease (future Suite 730). 2. Build two 36' X 54" pony walls, one 35' X 54" and one 9' 10" X 54" pony wall. And one 14' pony wall per plans; finish ready to paint. Includes all duplex receptacles shown on plan, and running conduit as needed for electrical. 3. Minor ceiling tile work; and patching/finishing wall ends ready to paint. 4. Move fire extinguisher in kitchen to post including patching wall hole where removed. 5. Patch walls where trim removed. 6. Cut 6 desks 4" shorter. 7. Frame & hang two new doors, (one with window) including special hardware & wiring for emergency exit fire door. 8. Remove small table in kitchen & phone jack, new wall paper, new flooring. 9. HVAC as necessary to modify system appropriately to allow for changes in suite. 10. Electrical necessary to change unwanted existing recessed lighting to 2' X 4' drop-in fluorescence fixtures (leaving recessed in reception area). Add 3 duplex receptacles behind new reception wall. Add exit sign over fire door. 11. Add duplex on outside wall of smallest conference room, run conduit down post and provide duplex receptacle on separate circuit for copier. Install one power pole for freestanding wall. Install dedicated circuit with quadplex receptacle and grounding bar in phone room. And change sensors to switches in 6 conference rooms. Including Conf. "F". 12. Electrical and building permits. 13. Add sound proofing to door between conference rooms A & E. C. Install new carpet and base as selected by Landlord and approved by Tenant. - -- D. Paint and otherwise finish the space to make ready for occupancy. - -- "EXHIBIT C" PAGE 2 [DEMOLITION PLAN APPEARS HERE] "EXHIBIT A" Page 3 [CONSTRUCTION PLAN APPEARS HERE] EXHIBIT "D" RULES AND REGULATIONS 1. Use of Common Areas. The sidewalks, halls, passages, exits, entrances, ------------------------- elevators, and stairways of the Building shall not be obstructed by any of the lessees or used by them for any purpose, other than for ingress to and egress from their respective premises. The halls, passages, exits, entrances, elevators and stairways are not for the general public, and Lessor shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgement of Lessor would be prejudicial to the safety, character, reputation and interests of the Building and its lessees, provided that nothing herein shall be construed to prevent such access to persons with whom any lessee normally deals in the ordinary course of its business unless such persons are engaged in illegal activities. The roof of the Building is not a common area. No lessee, and no employees or invitees of any lessee, shall go upon the roof of the Building except as authorized by Lessor. 2. Prohibited Uses. The premises shall not be used for manufacturing or --------------------- for lodging. No cooking shall de done or permitted by any lessee on the premises, except that use by Lessee of equipment including microwave approved by Underwriter's Laboratory for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, provided that such use is in accordance with all applicable federal, state, and city laws, codes, ordinances, rules and regulations. 3. Keys. Lessor will furnish each lessee free of charge with one key for ---------- each employee plus two additional keys to each door lock in the premises. Lessor may make a reasonable charge for any additional keys. No lessee shall have any keys made. No lessee shall alter any lock or install a new or additional lock or any bolt on any door of its premises without the prior written consent of Lessor. Lessee shall in each case furnish Lessor with a key for any such lock. Each lessee, upon termination of its tenancy, shall deliver to Lessor all keys to doors in the Building which shall have been furnished to Lessee. 4. Nuisances and Dangerous Substances. No lessee shall use or keep in the -------------------------------------- premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material, other than limited quantities thereof reasonably necessary for the operation or maintenance of office equipment, or without Lessor's prior written approval, use any method of heating or air conditioning, other than that supplied by Lessor. No lessee shall use or keep or permit to be used or kept any foul or noxious gas or substance in the premises, or permit or suffer the premises to be occupied or used in a manner offensive or objectionable to Lessor or other occupants of the Building by reason of noise, odors or vibrations, or interfere in any way with other lessees of those having business therein. Nor shall any animals or birds be brought in or kept in or about the premises of the Building. 5. Building Directory. The directory of the Building will be provided for ------------------------ the display of the name and location of lessees and in Lessor's discretion a reasonable number of the principal officers and employees of lessees, and lessor reserved the right to exclude any other names therefrom. Any additional name which any lessee shall desire to place upon said directory must first be approved by Lessor, and if so approved, a charge may be made therefor. 6. Window Coverings. No curtains, draperies, blinds, shutters, shades, ---------------------- screens or other coverings, hangings or decorations shall be attached to, hung or placed in, or used in connection with, any window of the Building without the prior written consent of Lessor. In any event with the prior written content of lessor such items shall be installed on the office side of Lessors standard window covering and shall in no may be visible from the exterior of the Building. 7. Heating, Ventilating and Air Conditioning. Lessee shall cooperate with ----------------------------------------------- Lessor in obtaining maximum effectiveness of the heating, ventilating and air conditioning (HVAC) system. Lessee shall not obstruct, alter or in any way impair the efficient operation of Lessor's HVAC system, and shall not tamper with or change the setting of any thermostats, temperature control vanes, or discharge or return air registers or ducts. 8. Floor Coverings. No lessee shall lay linoleum, tile, carpet or any --------------------- other floor covering so that the same shall be affixed to the floor of its premises in any manner, except as approved in writing by Lessor. The expense of repairing any damage resulting from a violation of this rule or removal of any floor covering shall be borne by the lessee by whom, or by whose contractors, employees or invitees, the damage shall have been caused. 9. Closing Procedure. Each lessee shall see that the doors of its ----------------------- premises are closed and locked and that all water faucets, water apparatus are shut off before lessee or its employees leave the premises, so as to prevent waste or damage, and for any default or carelessness by a lessee in this regard, the lessee shall be liable for all injuries sustained by other lessees or, occupants of the Building or Lessor. All lessees shall keep the doors to the building corridors closed at all times, except for ingress and egress. 10. Plumbing Facilities. The toilets, urinals, wash bowls and other ------------------------ apparatus shall not be used for any purpose, other than that for which they are constructed; no foreign substance of any kind whatsoever shall be thrown therein and the expense of any similar breakage, stoppage or damage resulting from the violation of this rule shall be borne by the lessee who, or whose employees or invitees, shall have caused it. 11. Use of Hand Trucks. There shall not be used in any space, or in the ------------------------ public halls of the Building, whether by any lessee or others, any hand trucks, except those equipped with rubber tires and side guards or such other material handling equipment as Lessor may approve. No other vehicles of any kind shall be brought by any lessee into the Building or kept in or about its premises. 12. Soliciting. Canvassing, peddling, soliciting and distribution of ---------------- handbills or any other written materials in the Building are prohibited, and each lessee shall cooperate to prevent the same. 13. Lessee's Requirements. The reasonable requirements of the lessees will --------------------------- be attended to, but only upon application by telephone or in person at the office Building. Employees of the Lessor or its manager shall no perform any work or do anything outside or their regular duties unless under special instructions from Lessor. 14. Parking. All parking ramps and areas, walkways, plaza and other ------------- public areas forming a part of the Building shall be under the sole and absolute control of Lessor, with the exclusive right to regulate and control these areas. Lessee and its employees and invitees shall park their cars and trucks only in areas designated by Lessor from time to time for that purpose, and further agrees to conform to the rules and regulations that may be established by Lessor for these areas from time to time. 15. Fire and Safety Regulations. Lessees shall comply with all safety, --------------------------------- fire protection and evacuation procedures and regulations established by Lessor or any governmental agency. 16. Responsibility for Theft. Lessee assumes any and all responsibility ------------------------------ for protecting its premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the premises closed. 17. Enforcement. Lessor may waive any one or more of these Rules and ---------------- Regulations for the benefit of any particular lessee or lessees, no such waiver by Lessor shall be construed as a waiver of such Rules and Regulations in favor of any lessee or lessees, nor prevent Lessor from thereafter enforcing any such Rules and Regulations against any or all of the lessees of the Building. 18. Effect on Lease. These Rules and Regulations are in addition to, and --------------------- shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of premises in the Building. 19. Additional and Amended Rules. Lessor reserves the right to make such ---------------------------------- other and reasonable rules and regulations as in its judgement may from time to time be needed for the safety, care and cleanliness of the Building and for the preservation of good order therein and the right to amend any of the rules and regulations from time to time. 20. Smoking Prohibited. Smoking of cigarettes, pipes and cigars shall be ------------------------ prohibited in the Premises. Under the Oregon Indoor Clean Air Act (ORS 433.835 through 433.875), smoking shall be prohibited in the common areas of the building including, but not limited to, restrooms, public corridors, meeting rooms, the atrium, elevators, and elevator lobbies. Smoking shall be permitted only in a designated smoking room or rooms. Landlord reserves the right at any time and at its sole discretion to eliminate any or all designated smoking room or rooms. 21. Signage. Tenant shall not place, or cause to be placed or maintained, ------------- any sign or advertising matter of any kind anywhere within the Montgomery Park Building, except in the interior of the Leased Premises, without Landlord's prior written approval. NO HANDWRITTEN SIGNS SHALL BE PERMITTED. No symbol, design, name, mark or insignia adopted by Landlord for the Montgomery Park Building shall be used without the prior written consent of Landlord. No illuminated signs located in the interior of the Leased Premises and which are visible from outside of the Leased Premises shall advertise any product. All signs located in the interior of the Leased Premises shall be in good taste so as not to detract from the general appearance of the Leased Premises and the Montgomery Park Building. Tenant shall maintain in good condition and repair at all times any sign or advertising matter of any kind which has been approved by Landlord for use by Tenant. Landlord approved signs shall be displayed only in the display areas designated as such by Landlord, unless otherwise specifically agreed to in writing by Landlord. EX-10.16 13 STANDARD OFFICE LEASE WITH BRAZOS AUSTIN CENTRE EXHIBIT 10.16 AUSTIN CENTRE LEASE AGREEMENT By and Between BRAZOS AUSTIN CENTRE, LTD. ("Landlord") and CITYSEARCH, INC. ("Tenant") AUSTIN CENTRE LEASE AGREEMENT ----------------------------- This Lease is entered into as of August 15, 1996, between BRAZOS AUSTIN CENTRE, LTD., a Texas Corporation ("Landlord"), whose address for purposes of notice hereunder is 701 Brazos Suite 190, Austin, Texas, 78701 and CitySearch, Inc., a Delaware corporation, "Tenant"), whose address prior to the Commencement Date (defined in Section 2.01 hereof) and for purposes of notice is 4502 Dyer St., Suite 201, La Crescenta, California 91314 and whose address after the Commencement Date shall be 701 Brazos, Suite 440, Austin, Texas. 78701. W I T N E S S E T H: ARTICLE 1 1.01 PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases -------- from Landlord, for the rent and subject to the provisions of this Lease, the space (the "Premises") reflected on the floor plan(s) attached as Exhibit A hereto, located on floor four (4) of the building (the "Building") known as Austin Centre located at 701 Brazos, Austin Travis County, Texas (such Building, the enclosed arrium area and ground-level open areas and walkways appurtenant to the Building, any parking areas and garages serving the Building, any other structure or improvement utilized in the operation or maintenance of the Building, and the land (the "Land") on which all such improvements are located said Land being more particularly described on Exhibit B attached hereto and made a part hereof for all purposes and any present or future associated underground or elevated pedestrian tunnels or walkways being hereinafter collectively referred to as the "Project"). As used herein, the term "Project" does not include the building located on the land that is now known and operated as Omni Austin Hotel of Austin Centre (the "Hotel"). Landlord and Tenant hereby agree that the Premises contain 4,473 square feet of rentable area and the Project contains 343,664 square feet of rentable area. ARTICLE 2 2.01 TERM. Subject to the other provisions hereof, and any exhibits ---- hereto, this Lease shall be for a term of approximately sixty-six and one half (66 1/2) months commencing on the Commencement Date (defined in Section 2.02 hereof) and expiring on March 31, 2002 (the "Expiration Date"). Such term, as it may be modified, is herein called the "Term." 2.02 COMMENCEMENT. As used herein, "Commencement Date" means the latter ------------ to occur of: (a) the date Tenant's leasehold improvements are substantially completed (or would have been substantially completed except for delays caused by Tenant) in accordance with Exhibit C attached hereto and made a part hereof for all purposes, or (b) September 16, 1996. Notwithstanding the foregoing, if Tenant occupies all or any part of the Premises prior to (a) or (b) above, the Commencement Date shall be the date of such occupancy. If Landlord is unable to deliver possession of the Premises to Tenant on or before September 16, 1996, Landlord agrees that it will continue to provide Tenant with office space on the third and fourth floors and the use of twenty-five (25) telephones at no cost (excluding long distance and information charges) until the Landlord delivers possession. Within five (5) days after the Commencement Date and at any time thereafter upon the request of Landlord, Tenant shall execute and deliver to Landlord a declaration (in the form of Exhibit F hereto) specifying, among other things, the date upon which the same occurred. 2 ARTICLE 3 3.01 BASE RENT. Tenant, in consideration for this Lease, agrees to pay to --------- Landlord a base rental ("Base Rent") in the amounts and installments indicated below for each square foot of rentable area agreed by Landlord and Tenant to be within the Premises, payable at Landlord's address herein provided in legal tender of the United States of America without notice, demand, counterclaim, set-off or abatement, in advance on the first day of each calendar month throughout the Term: Lease Dates Base Rent ----------- --------- 09/16/1996 - 03/15/1997 Free Rent Period (No Base Rent or Rental Adjustment) 03/16/1997 - 03/31/1993 $3,727.50 per month (based on a rental rate of $10.00 per rental square foot per year) 04/01/1998 - 03/31/1999 $3,913.88 per month (based on a rental rate of $10.50 per rental square foot per year) 04/01/1999 - 03/31/2000 $4,100.25 per month (based on a rental rate of $11.00 per rental square foot per year) 04/01/2000 - 03/31/2001 $4,286.63 per month (based on a rental rate of $11.50 per rental square foot per year) 04/01/2001 - 03/31/2002 $4,473.00 per month (based on a rental rate of $12.00 per rental square foot per year) 3.02 RENTAL ADJUSTMENT Tenant's pro rata share of all Operating ----------------- Expenses (defined in Section 3.03 hereof) for purposes of rental adjustment is agreed to be 1.3016% ("Tenant's Pro Rata Share"). On or before the Commencement Date and thereafter on or before the first day of each calendar year of the Term, Landlord shall provide to Tenant the Estimated Operating Expense (defined in Section 3.03 hereof) for the upcoming year. In addition to the Base Rent, Tenant shall pay in advance on the first day of each calendar month during the Term, installments equal to one-twelfth (1/12) of Tenant's Pro Rata Share of the Estimated Operating Expense. Within one hundred fifty (150) days after the end of each calendar year during the Term, Landlord shall furnish to Tenant a statement certified by Landlord of the Actual Operating Expense (defined in Section 3.03 hereof) for the immediately preceding calendar year, which statement shall specify the various types of Operating Expenses and set forth Landlord's calculations of Tenant's Pro Rata Share thereof. If Tenant's Pro Rata Share of the Estimated Operating Expense paid to Landlord during the previous calendar year exceeds Tenant's Pro Rata Share of the Actual Operating Expense, then Landlord shall refund the difference to Tenant at the time Landlord furnishes the statement of the Actual Operating Expense. Otherwise, within fifteen (15) days after Landlord furnishes such statement to Tenant, Tenant shall make a lump sum payment to Landlord equal to Tenant's Pro Rata Share of the positive difference between the Actual Operating Expense and the Estimated Operating Expense theretofore paid by Tenant. As used in this Lease the term "Rent" shall refer collectively to the Base Rent and all rental adjustments. If the Term commences on a day other than the first day of the month or calendar year, or terminates on a day other than the last day of a month or calendar year, then Tenant shall be required to pay only a pro rata portion of the installments and adjustments of Rent due for such month or year. 3.03 OPERATING EXPENSES. ------------------- (a) "Operating Expenses" shall mean and include all reasonable amounts, expenses, and costs of whatsoever nature incurred because of or in connection with the ownership, management, operation, repair, maintenance or security of the Project, all additional facilities which may be added to the Project, and Landlord's personal property which may be utilized in connection therewith. Operating Expenses shall not include capital improvements, depreciation, interest and principal payments on mortgage and 3 other nonoperating debts of Landlord, management fees and management overhead to the extent they exceed market rates, attorney's fees related to disputes with other tenants, and specific costs for special items or services billed to and paid by specific tenants. Operating Expenses shall, however, include the amortization of capital improvements (over the expected payback period) which are primarily for the purpose of reducing Operating Expenses or which are required by governmental or quasi- governmental authorities. Operating Expenses shall be determined on an accrual basis in accordance with generally accepted accounting principles consistently applied. The "Estimated Operating Expense" (currently 58.25. per rental square foot per year) shall equal the Landlord's estimate of Operating Expenses for the applicable calendar year. Landlord's statement of Estimated Operating Expense shall control for the year specified in such statement and for each succeeding year during the Term until Landlord provides a new statement of the Estimated Operating Expense." The Actual Operating Expense" shall equal the operating expenses actually incurred for the applicable calendar year. Notwithstanding any provision contained herein to the contrary, if less than 95% of the total square feet of rentable area in the Building is occupied by tenants or Landlord is not supplying services to 95% of the total square feet of rentable area of the Building at any time during any calendar year. Operating Expenses for such calendar year shall be determined to be an amount equal to the like expense which would normally be expected to be incurred had such occupancy been 95% of the Building's total square feet of rentable area and had Landlord been supplying services to 95% of the Building's total square feet of rentable area throughout such calendar year. (b) Operating Expenses from the Commencement Date through September 15, 1997 shall not exceed $8.25 per rentable square foot; for the balance of 1997, Operating Expenses shall not exceed $8.50 per rentable square foot. Controllable Operating Expenses (defined as all Operating Expenses except real estate taxes, insurance and utilities) shall not increase more than eight percent (8%) per year. 3.04 SECURITY DEPOSIT. Tenant shall deposit with Landlord on the date ---------------- Tenant executes this Lease the sum of Thirteen Thousand Four Hundred Nineteen and No/100 Dollars ($13,419.00) as a "Security Deposit" on the understanding: (a) the Landlord shall apply $6,709.50 to the payment of the first accruing rental installment due and subsequent rental installments until exhausted, provided Tenant is not in default under this Lease at that time: (b) that the Security Deposit or any portion thereof may be applied to the curing of any Default (defined in Section 13.01 hereof), without prejudice to any other remedy or remedies which the Landlord may have on account thereof, and upon such application Tenant shall pay Landlord on demand the amount so applied which shall be added to the Security Deposit so the same will be restored to its original amount: (c) that Landlord shall not be obligated to hold the Security Deposit as a separate fund, but may commingle it with other funds: and (d) that if no Default exists and no event has occurred that with notice and/or the passage of time would constitute a Default, the remaining balance of the Security Deposit shall be returned to Tenant, without interest, within thirty (30) days after the expiration of the Term; provided, however, that Landlord shall have the right to retain and expend such remaining balance for cleaning and repairing the Premises if Tenant shall fail to deliver the Premises at the termination of this Lease in a near and clean condition and in as good a condition as existed at the date of possession of same by Tenant, ordinary wear and tear only excepted. ARTICLE 4 4.01 USE. Tenant shall use and occupy the Premises only for office purposes --- and for no other purposes. Tenant shall not do or permit anything to be done in or about the Premises nor bring or keep anything therein that will in any way increase the existing rate of or affect any fire or other insurance upon the Project or any of its contents, or cause cancellation of any insurance policy covering the Project or any part thereof or any of its contents. Tenant shall not do or permit anything to be done in or about the Premises that will in any way obstruct or interfere with the rights of other tenants or occupants of the Project or injure or annoy them or tend to lower the first class character of the building or create unreasonable elevator loads or otherwise interfere with standard Building operations. Tenant shall not permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. Tenant shall not use the Premises or permit anything to be done in or about the Premises that will in any way conflict with any reasonable rule or 4 regulation of Landlord, any reasonable restrictive covenant imposed by Landlord, or any law, statute, ordinance or any governmental or quasi-governmental authority now in force or that may hereafter be enacted or promulgated. ARTICLE 5 5.01 LANDLORD'S SERVICES. Provided Tenant is not in default hereunder, ------------------- Landlord shall, at Landlord's expense, except as provided to the contrary in this Lease, furnish to Tenant the following services: (a) Subject to curtailment as required by governmental laws, rules or regulations, air conditioning and central heat, in season, at such temperatures and in such amounts as are deemed by Landlorn to be standard for first class office buildings in Austin, Texas, during normal Building hours, which are presently scheduled to be 7:00 a.m. through 6:00 p.m. on weekdays and 8:00 a.m. through 2:00 p.m. on Saturdays, exclusive of normal business holidays. Normal business holidays for purposes of this Lease shall include, without limitation New Year's Day, Martin Luther King Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, the Friday following Thanksgiving Day and Christmas Day. If in the case of any holiday described herein a different day shall be observed than the respective day described then the day which constitutes the day observed by national banks in Austin, Texas, on account of such holiday shall constitute the holiday under this Lease. (b) Janitorial services in the Premises and public portions of the Building for all days except Saturdays, Sundays, and normal business holidays. (c) Water at those points of supply provided for drinking, toilet, and lavatory purposes. (d) Normal and customary routine maintenance for all public, structural, and exterior portions of the Project according to Landlord's standards. (e) Electric lighting service for all public portions of the Project in the manner and to the extent deemed by Landlord to be in keeping with the standards of a first class office building in Austin, Texas. (f) Reasonably adequate, non-exclusive automatic passenger elevator service at all times for access to and egress from the Premises. Freight elevator service, in common with other tenants, shall be provided during reasonable business hours as prescribed by Landlord, exclusive of Saturdays, Sundays, and normal business holidays. (g) Electric energy that Tenant shall require for standard office equipment such as personal computers, typewriters, dictation machines, calculators, other machines of a similar low electrical consumption, and Building Standard (defined in Exhibit C attached hereto) lighting in the Premises. Without Landlord's prior written consent, Tenant shall not be entitled to employ lighting on the Premises that consumes electrical current in excess of Building Standard lighting nor utilize any office equipment that requires a voltage other than 120 volts single phase. (h) Building security to encourage compliance with the Rules and Regulations (defined in Section 15.09 hereof) and to limit after-hour access to the Building; provided, however, Landlord shall have no responsibility to prevent, and shall not be liable to Tenant for, liability or loss to Tenant, its agents, employees and visitors arising out of losses due to theft, burglary, or damage or injury to persons or property caused by persons having or gaining access to the Building or the Premises, unless caused by Landlord's negligence, and Tenant hereby releases Landlord from all liability relating thereto. (i) Window washing services for the outside portions of the Building at least one (1) time per calendar year. 5 (j) Replacement of florescent light bulbs in any florescent light fixtures which are located in the Premises and which contain the Building Standard light bulbs (Paralux 3 tube Florescent Lighting). 5.02 ADDITIONAL SERVICE COST. Tenant shall pay Landlord, upon demand, such ----------------------- additional amounts as are necessary to recover additional costs incurred by Landlord in performing or providing janitorial, maintenance, security, or other services or requirements of Tenant(and in paying additional taxes) as to any non-Building Standard installations in the Premises. Tenant shall pay Landlord, upon demand, monthly as billed charges for providing off-hour and nonstandard air conditioning, heating and electricity; provided, however, that there shall be no charge for off-hour air conditioning and heating prior to September 1, 1997, and the charge thereafter shall be $7.50 per hour. 5.03 SERVICE INTERRUPTION. To the extent any of the services described -------------------- above require electricity, gas, water or other services supplied by public utilities. Landlord's covenants hereunder shall impose on Landlord only the obligation to use its good faith efforts to cause the applicable public utilities to furnish the same. Any failure or defect in the services described above shall not be construed as an eviction of Tenant nor entire Tenant to any reduction, abatement, offset, or refund of Rent or to any damages from Landlord. Landlord shall not be in breach or default under this Lease, provided Landlord uses reasonable diligence during normal business hours to restore any such failure or defect after Landlord receives written notice thereof. ARTICLE 6 6.01 ALTERNATIONS Tenant shall not make or allow to be made any ------------ alterations, installations, additions or improvements in or to the Premises, or place safes, vaults or other heavy furniture or equipment within the Premises, without Landlord's prior written consent. All alterations, installations, additions or improvements, other than movable furniture and movable trade fixtures, made by Tenant to the Premises shall remain upon and be surrendered with the Premises and become the property of Landlord at the expiration or termination of this Lease or the termination of Tenant's right to possession of the Premises: provided, however, that Landlord may require Tenant, at Tenant's cost, to remove any or all of such items that are not Building Standard upon the expiration or termination of this Lease or the termination of Tenant's riitht to possession of the Premises. Tenant, at its sole cost and prior to the expiration or termination of this Lease. shall remove all of T enant's property from the Premises and make, or reimburse Landlord for the reasonable cost of, all repairs to the Premises and/or Project for damage resulting from such removal, provided that Landlord has indicated that it will require such removal at the time of providing consent to such alterations, installations, additions or improvements. All work shall be completed promptly and in a good and workmanlike matter and shall be performed in such a manner that no mechanic's, materialman's or other similar liens shall attach to Tenant's leasehold estate, and in no event shall Tenant permit, or be authorized to permit, any such liens or other claims to be asserted against Landlord or Landlord's rights, estate and interests with respect to the project or this Lease. Landlord may require, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to the estimated cost of any improvements, additions or alterations in the Premises. 6.02 TENANT REPAIRS By taking possession of the Premises, Tenant shall be -------------- deemed to have accepted the Premises as being in good, sanitary order, condition and repair. Tenant shall, at Tenant's sole cost and expense, keep the Premises in good condition and repair, damage thereto from causes beyond the reasonable control of Tenant and ordinary wear and tear damage excepted. Any injury or damage to the Premises or Project, or the appurtenances or fixtures thereof, caused by or resulting from the act, omission or neglect of Tenant or Tenant's employees, servants, agents, invitees, assignees, or subtenants shall be repaired or replaced by Tenant, or at Landlord's option by Landlord, at the expense of Tenant. If Tenant fails to maintain the Premises or falls to repair or replace any damage to the Premises or Project resulting from the negligence or intentional act of Tenant, its employees, servants, agents, invitees, assignees or subtenants, Landlord may, but shall not be obligated to, cause such maintenance, repair or replacement to be done, as Landlord deems necessary, and Tenant shall immediately pay to Landlord all reasonable costs related thereto plus a charge for overhead of 15% of such costs. 6 6.03 LANDLORD REPAIRS: Unless otherwise Stipulated herein, Landlord shall ---------------- not be required to make any improvements to or repairs of any kind or character to the Premises during the Term, except such repairs to Building Standard improvements as may be deemed necessary by Landlord for normal maintenance operations; provided, however, non-Building Standard leasehold improvements will, at Tenant's written request, be maintained by Landlord at Tenant's expense, at a cost or charge equal to the costs incurred in such maintenance plus an additional charge or 15%. Notwithstanding any provisions of this Lease to the contrary, all repairs, alterations or additions to the base Building or its systems (as opposed to those involving only Tenant's Leasehold improvements), and all repairs, alterations or additions to Tenant's non- Building Standard leasehold improvements which affect the Building's structural components or major mechanical, electrical or plumbing systems in the Building, to be made by or for or on behalf of Tenant, shall be made by Landlord or its contractor only, and, except as otherwise provided in Exhibit C attached hereto, shall be paid for by Tenant in an amount equal to Landlords, costs plus an additional charge of 15%. ARTICLE 7 7.01 LANDLORD INSURANCE. Landlord shall insure the Project and shall ------------------ maintain liability and other insurance in such amounts as may be required by Landlord's mortgagee, or in such greater amounts as Landlord, in its sole discretion, may deem appropriate. The cost of such insurance, including any deductible paid thereunder by Landlord, shall be an "Operating Expense" as defined in Section 3.03 hereof. Such insurance shall be for the sole benefit of Landlord and, if required, Landlord's mortgagee. If the annual premiums to be paid by Landlord exceed the standard rates because of Tenant's operations within or contents of the Premises or because improvements to the Premises are beyond Building Standard, Tenant shall promptly pay the excess amount of the premium upon request by Landlord (and if necessary, Landlord may allocate the insurance costs of the Building to give effect to this sentence). 7.02 TENANT INSURANCE. Tenant shall, at Tenant's expense fully insure its ---------------- property located in the Premises against fire and other casualty and shall maintain comprehensive general liability insurance insuring Landlord and Tenant against any liability arising out of ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto, including contractual liability insurance (with respect to Section 7.04 hereof), with insurance companies approved by Landlord and with limits of liability of at least $2,000.000 in each occurrence for Bodily Injury and Property Damage combined and $2,000,00O general aggregate for Bodily Injury and Property Damage combined with the endorsement of comprehensive general liability CG-2504. Tenant shall cause Landlord to be named as an additional insured under such policies and shall, not less than twenty (20) days prior to (a) the Commencement Date, and (b) the expiration of old policies, furnish Landlord with certificates of insurance with loss payable clauses satisfactory to Landlord. The limit of such insurance shall not, however, limit the liability of Tenant hereunder. Tenant may carry such insurance under a blanket policy, provided such insurance has a Landlord's protective liability endorsement attached thereto. If Tenant fails to procure and maintain said insurance, Landlord may, but shall not be required to, procure and maintain same, but at the expense of Tenant. No policy shall be cancelable or subject to reduction of coverage except after thirty (30) days prior written notice to Landlord. 7.03 WAIVER OF SUBROGATION. Whenever (a) any loss, cost, damage or expense --------------------- resulting from fire, explosion or any other casualty or occurrence is incurred by either of the parties to this Lease in connection with the Premises or the Project, and (b) such party is then covered (or is required under this Lease to be covered) in whole or in part by insurance with respect to such loss, cost, damage or expense, then the party so insured hereby releases the other party from any liability it may have on account of such loss, cost, damage or expense to the extent of any amount recovered by reason of such insurance, and waives any right of subrogation which might otherwise exist on account thereof, provided that such release of liability and waiver of the right to subrogation shall not be operative in any case where the effect thereof is to invalidate such insurance coverage or increase the cost thereof (provided, that in the case of increased cost, the other party shall have the right, within thirty (30) days following written notice, to pay such increased costs, thereupon keeping such release and waiver in full force and effect). Landlord and Tenant shall use their respective best efforts to obtain such a release and 7 waiver of subrogation from their respective insurance carriers and shall obtain any special endorsements, if required by their insurer, to evidence compliance with the aforementioned waiver. 7.04 INDEMNITY. Tenant hereby indemnifies and holds Landlord harmless from --------- and against any and all claims arising from Tenant's use of the Premises for the conduct of its business or from any activity, work or other thing done, permitted or suffered by Tenant on or about the Project and shall further indemnify and hold harmless Landlord from and against any and all claims arising from any breach or default in the performance of any obligation on Tenant's part to be performed under the terms of this Lease, or arising from any act or omission of, or due to the negligence of, the Tenant, or any officer, agent, employee, guest or invitee of Tenant, and from and against all costs, attorney's fees expenses and Liabilities incurred in or related to any such claim or any action or proceeding brought thereon. Tenant as a material part of the consideration to Landlord, hereby assumes all risk of damage to property or injury to persons including death in, upon or about the Project except for such, damage or injury caused by Landlord's negligence, and Tenant hereby waives all claims in respect thereof against Landlord. ARTICLE 8 8.01 CASUALTY. Tenant shall give Landlord written notice of any fire or -------- other casualty occurring within the Premises on the next business day following such occurrence or Tenant's knowledge thereof, whichever is later. If the Premises or Project (provided such damage to the Project would constitute an interference with Tenant's quiet enjoyment of the Premises), or any portion of either, shall be damaged by fire or other casualty covered by the insurance carried by Landlord hereunder and the cost of repairing such damage shall not be greater than 10% of the then full replacement cost thereof, then, subject to the following provisions of this Article. Landlord shall repair the Premises and/or Project. If the Premises or Project shall be damaged (a) by fire or other casualty not covered by insurance carried by Landlord hereunder, (b) by fire or other casualty covered by insurance carried by Landlord hereunder and Landlord's mortgagee requires that such insurance proceeds be used to retire the mortgage debt, or (c) to an extent greater than 40% of the then full replacement cost thereof, then Landlord shall have the option (i) to repair or reconstruct the damaged Premises or Project to substantially the same condition as immediately prior to such fire or other casualty, or (ii) to terminate this Lease by so notifying Tenant within one hundred twenty (120) days after the date of such fire or other casualty, such termination to be effective as of the date of such fire or other casualty. The Rent required to be paid hereunder shall be abated in proportion to the portion of the Premises, if any, which is rendered untenantable by fire or other casualty hereunder until repairs of the Premises are completed or if the Premises are not repaired, until the Expiration Date hereunder. Other than such rental abatement, no damages, compensation or claims shall be payable by Landlord for loss of the use of the whole or any part of the Premises, Tenant's personal property, or any inconvenience, loss of business, or annoyance arising from any such repair and reconstruction. If the damage results from the fault or negligence of Tenant, its agents, employees, licensees or invitees, Tenant shall not be entitled to any abatement or reduction of any Rent or other sums due hereunder, and such damage shall be repaired by Tenant, or at Landlord's option by Landlord, at Tenant's expense. If this Lease is terminated as provided in (c)(ii) above, all Rent shall be apportioned and paid up to the date of such termination. Landlord shall not be required to repair or replace any furniture, furnishings, or other personal property that Tenant may be entitled to remove from the Premises or any property constructed and installed by or for Tenant pursuant to Section 6.01 hereof or any installations in excess of Building Standard. 8.02 END OF TERM CASUALTY. Notwithstanding anything to the contrary in -------------------- this Article, Landlord shall not have any obligation whatsoever to repair, reconstruct or restore the Premises or the Project when the damage resulting from any casualty covered under this Article occurs during the last twelve (12) months of Term or any extension thereof. 8 ARTICLE 9 9.01 CONDEMNATION. If more than 20% of the Premises should be taken for ------------ any public or quasi-public use, by right of eminent domain or otherwise, or should be sold in lieu of condemnation, then either party hereof shall have the right, at its option, to terminate this Lease as of the date when physical possession of the Premises is taken by the condemning authority. If 20% or less of the Premises is so taken or sold or if this Lease is not terminated upon any taking or sale of greater than 20% of the Premises, the Rent payable hereunder (including an appropriate adjustment of the Pro Rata Share) shall be abated in proportion to the portion of the Premises which is rendered untenantable by such condemnation and Landlord shall, to the extent Landlord deems feasible and if permitted by Landlord's mortgagee, ground lessor or other secured parry, restore the Premises to substantiallv its former condition, but Landlord shall not in any event be required to spend for such work an amount in excess of the amount received by Landlord as compensation for such taking. If any part of the Project other than the Premises may be so taken or sold, Landlord shall have the right at its option to terminate this Lease as of the date when physical possession of such part of the Project is taken by the condemning authority. Al1 amounts awarded upon taking of any part or all of the Project or the Premises shall belong to Landlord and Tenant shall not be entitled to, and expressly assigns all claims, rights and interests to, any such compensation to Landlord. ARTICLE 10 10.01 ENTRY. Landlord, its agents, employees and representatives, shall ----- have the right to enter the Premises at any time upon reasonable notice to Tenant under the circumstances (which notice may be oral and not in compliance with Section 15.08 hereof, but no notice shall be required in the case of routine maintenance or an emergency) to show the Premises to prospective tenants or purchasers or for any purpose that Landlord may reasonably deem necessary for the operation and maintenance of the Project. Tenant hereby waives any claim for damages or for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and any other loss occasioned thereby. For each of the aforesaid purposes. Landlord shall at all times have and retain a key with which to unlock all of the doors in upon and about the Premises, excluding Tenant's vaults, safes and files. Landlord shall have the right to use any and all means which Landlord may deem proper to open the doors in, upon and about the Premises in an emergency in order to obtain entry to the Premises without liability to Tenant, except for any failure to exercise due care for Tenant's property. ARTICLE II 11.01 SUBORDINATION. This Lease is and shall be subject and subordinate to ------------- any and all ground or similar leases affecting the Project, and to all mortgages, deeds of trust, and security agreements that may now or hereafter encumber or affect the Project or any interest of Landlord therein and/or the contents of the Building, and to any advances made on the security thereof and to any and all increases, renewals, modifications, consolidations, replacements and extensions of any such leases, mortgages. deeds of trust and/or security agreements. This clause shall be self-operative and no further instrument of subordination need be required by any owner or holder of such ground lease mortgage, deed of trust or security agreement. Tenant agrees to execute and return any estoppel certificate, consent or agreement reasonably requested by any such lessor, mortgagee, trustee or secured party in connection with this Section within ten (10) days after receipt of same, and Tenant hereby irrevocably appoints Landlord as Tenant's attorney-in-fact to execute the same if Tenant fails to respond within such period. Tenant shall furnish any mortgagee of Landlord secured by a lien on the Project, any lessor to Landlord under a ground lease of the Project, or any secured party under a security agreement encumbering the interest of Landlord, with written notice of any default or breach by Landlord at least sixty (60) days prior to the exercise by by Tenant of any rights and/or remedies of Tenant hereunder arising out of such default or breach. 11.02 ATTORNMENT. If any ground or similar such lease, mortgage, deed of ---------- trust or security agreement is enforced by the ground lessor, the mortgagee, the trustee, or the secured party, Tenant shall, upon 9 request attorn to the lessor under such lease or the mortgage or purchaser at such foreclosure sale, or any person or party succeeding to the interest of LandLord as a result of such enforcement as the case may be, and execute instrument(s) confirming such attornment: provided however, that if this Lease was approved and accepted in writing by such lessor, mortgagee, trustee or secured party. Tenant's attornment shall be conditioned upon the agreement by such successor to landlord's interest not to disturb Tenant's possession hereunder during the Term so 1ong as Tenant performs its obligations under this Lease. In the event of such enforcement and upon Tenant's attornment as aforesaid. Tenant will automatically become the tenant of the successor to Landlord's interest without charge in the terms or provisions of this Lease; provided, however, that such successor to Landlord's interest shall not be bound by (a) any payment of Rent for more than one month in advance (except prepayments for security deposits, if any), (b) any amendments or modifications of this Lease made without the prior written consent of such lessor or mortgagee, or (c) any credits, offsets, defenses or claims which Tenant may have against Landlord. 11.03 QUIET ENJOYMENT. Tenant, on paying the Rent and keeping and --------------- performing the conditions and covenants herein contained, shall and may peaceably and quietly enjoy the Premises for the Term, subject to the aforesaid underlying leases, mortgages, deeds of trust and security agreements, all applicable laws and other governmental and legal requirements, applicable insurance requirements and regulations, and the provisions of this Lease. It is understood and agreed that this covenant and any and all other covenants of Landlord contained in this Lease shall be binding upon Landlord and its successors only with respect to breaches occurring during its and their respective ownership of the Landlord's interest hereunder. ARTICLE 12 12.01 ASSIGNMENT AND SUBLETTING. Tenant shall not, voluntarily, by ------------------------- operation of law, or otherwise, assign, transfer, mortgage, pledge, or encumber this Lease or sublease the Premises or any part thereof, or suffer any person other than Tenant, its employees, agents, servants and invitees to occupy or use the Premises or any portion thereof, without the express prior written consent of Landlord which will not be unreasonably withheld. Any attempt to do any of the foregoing without such written consent shall be null and void and of no effect and shall further constitute a material default under this Lease. If Tenant so requests Landlord's consent, said request shall be in writing specifying the identity of the proposed transferee, the duration of said desired sublease or assignment, the date same is to occur, the exact location of the space affected thereby and the proposed rentals on a square foot basis chargeable thereunder, and shall be submitted to Landlord at least thirty (30) days in advance of the date on which Tenant desires to make such assignment or sublease or allow such occupancy or use. Upon such request Landlord may, with reasonable business judgment, (a) grant such consent subject to Landlord's approval of the assignee, transferee, subtenant, or mortgagee, or (b) deny such consent. If Landlord does not give such consent in writing within fifteen (15) days of the date such consent is requested, then Landlord's consent shall be deemed to have been denied. In no event may Tenant assign this Lease or sublease the Premises or any portion thereof to any party whose operations in the Project would not be in keeping with, or would detract from, the operations of other tenants in the Project. Tenant shall advise Landlord within thirty (30) days of any change in a majority of the voting rights or other controlling rights or interests of Tenant. In any situation in which Landlord consents to an assignment or sublease hereunder. Tenant shall promptly deliver to Landlord a fully executed copy of the final sublease agreement or assignment instrument and all ancillary agreements relating thereto. No assignment shall be effective unless the assignee has agreed within the assignment instrument to assume the obligations of Tenant hereunder and to be personally bound by all of the covenants, terms and conditions hereof on the part of Tenant to be performed or observed hereunder. 12.02 CONTINUED LIABILITY. Tenant shall, despite any permitted assignment ------------------- or sublease, remain directly and primarily liable for the performance of all of the covenants, duties, and obligations of Tenant hereunder, and Landlord shall be permitted to enforce the provisions of this Lease against Tenant or any assignee or sublessee without demand upon or proceeding in any way against any other person. 12.03 CONSENT. Consent by Landlord to a particular assignment or sublease ------- shall not be deemed a consent to any other or subsequent transaction. If this Lease is assigned or if the Premises are subleased without 10 the permission of Landlord, then LandLord may nevertheless collect Rent from the assignee or sublessee and apply the net amount collected to the Rent payable hereunder, but no such transaction or collection of Rent or application thereof by Landlord shall be deemed a waiver of any provision hereof or a release of Tenant from the performance of the obligations of the Tenant hereunder. 12.04 PROCEEDS. All cash or other proceeds of any assignment, sale or -------- sublease of Tenant's interest in this Lease, whether consented to by Landlord or not, shall be paid to Landlord notwithstanding the fact that such proceeds exceed the Rent called for hereunder, and Tenant hereby assigns all rights it might have or ever acquire in any such proceeds to Landlord. ARTICLE 13 13.01 DEFAULT. Each of the following shall constitute a "Default" by ------- Tenant: (a) The failure of Tenant to pay the Rent or any part thereof when due, and the failure to cure the problem within five (5) days of receipt of written notice from Landlord; provided, however that Landlord shall not be obligated to give written notice more than three (3) times in any twelve month period: (b) Tenant shall become insolvent or unable to pay its debts as they become due, or Tenant notifies Landlord that it anticipates either condition: (c) Tenant takes any action to, or notifies Landlord that Tenant intends to, file a petition under any section or chapter of the United States Bankruptcy Code, as amended from time to time or under any similar law or statute of the United States or any state thereof: or a petition shall be filed against Tenant under any such statute or Tenant notifies Landlord that it knows such a petition will be filed: or the appointment of a receiver or trustee to take possession of substantiallv all of Tenant's assets located at the Premises or of Tenant's interest in this Lease: or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease; unless the application of this subsection 13.01(c) shall contravene any applicable law: (d) Tenant shall fail to fulfill or perform, in whole or in part, any of its obligations under this Lease (other than the payment of Rent) and such failure or nonperformance shall continue for a period of thirty (30) days after written notice thereof has been given by Landlord to Tenant: (e) Tenant shall vacate or abandon the Premises or any significant portion thereof: (f) Tenant shall fail to take possession of the Premises when Landlord notifies Tenant that the Premises are ready for occupancy; (g) The occurrence of any event or condition having a material and adverse effect on the assets, liabilities, financial condition, business or operations of Tenant as they exist on the date of this Lease, or the ability of Tenant to meet its obligations under this Lease on a timely basis as provided herein: or (h) Any representation or warranty by Tenant in this Lease or in any certificate, statement or other document furnished pursuant to or under this Lease, including, without limitation, financial statements, proves to be or becomes incorrect in any material respect. 13.02 RIGHTS UPON DEFAULT. If a Default by Tenant occurs, then at any time ------------------- thereafter prior to the curing thereof, with or without notice or demand, Landlord may exercise any and all rights and remedies available to Landlord under this Lease, at law or in equity, including without limitation, termination of this Lease and termination of Tenant's right to possession without terminating the Lease. If Tenant is in Default for nonpayment of Rent and if Tenant fails to pay same in full within five (5) days after Landlord hand delivers to the 11 Premises written notice of Landlord's intent to exercise its lockout rights, then Landlord shall be entitled to change or modify door locks on all entry doors of the Premises and Tenant shall not be entitled to a key to re-enter the Premises until all delinquent Rent is paid in full: provided, however, Landlord shall immediately thereafter post a notice on an entry door to the Premises, stating that Landlord has exercised such lockout rights. If Tenant vacates or abandons the Premises or any significant portion thereof. Landlord may permanently change the locks without notice to Tenant, and Tenant shall not be entitled to a key to re-enter the Premises. The two preceding sentences shall supersede any conflicting provisions of Section 93.002 of the Texas Property Code or any successor statue In the event of a Default, Landlord may, without additional notice and without court proceedings, re-enter and repossess the Premises and remove all persons and property therefrom, and Tenant hereby agrees to surrender possession of the Premises, waives any claim arising by reason thereof or by reason of issuance of any distress warrant or writ of sequestration, and agrees to hold Landlord harmless from any such claims. If Landlord elects to terminate this Lease, it may treat the default as an entire breach of this Lease and Tenant shall immediately become liable to Landlord for damages equal to the total of (a) the cost of recovering, reletting, including, without limitation, the cost of leasing commissions attributable to the unexpired portion of the Term of this Lease, and remodeling the Premises, (b) all unpaid Rent and other amounts earned or due through such termination, including interest thereon at the rate specified in Section 13.04 hereof, plus (c) the present value (discounted at the rate of 8% per annum) of the balance of the Rent for the remainder of the Term less the present value (discounted at the same rate) of the fair market rental value of the Premises for said period and (d) any other sum of money and damages owed by Tenant to Landlord. If Landlord elects to terminate Tenant's right to possession of the Premises without terminating this Lease. Landlord may (but shall not be obligated to) rent the Premises or any part thereof for the account of Tenant to any person or persons for such rent and for such terms and conditions as Landlord deems appropriate, and Tenant shall be liable to Landlord for the amount, if any, by which the Rent for the unexpired balance of the Term exceeds the net amount, if any, received by Landlord from such reletting, being the gross amount so received by Landlord less the costs of repossession, reletting, remodeling, and other expenses incurred by Landlord. Such sum or sums shall be paid by Tenant in monthly installments on the first day of each month of the Term. In no case shall Landlord be liable for failure to relet the Premises or to collect the rent due under such reletting, and in no event shall Tenant be entitled to more than 50% of any excess rents received by Landlord. All rights and remedies of Landlord shall be cumulative and not exclusive. 13.03 COSTS. If a Default by Tenant occurs, then Tenant shall reimburse ----- Landlord on demand for all costs reasonably incurred by Landlord in connection therewith including, but not limited to, reasonable attorney's fees, court costs, and related costs, plus interest thereon from the date such costs are paid by Landlord until Tenant reimburses Landlord, at the rate specified in Section 13.04 hereof. 13.04 INTEREST. ALL late payments of Rent, costs or other amounts due from -------- Tenant under this Lease shall bear interest from the date due until paid at the rate of 18% per annum; provided, however, in no event shall the rate of interest hereunder exceed the maximum non-usurious rate of interest (the Maximum Rate) permitted by the applicable laws of the State of Texas or the United States of America, whichever shall permit the higher non-usurious rate, and as to which Tenant could not successfully assert a claim or defense of usury, and to the extent that the Maximum Rate is determined by reference to the laws of the State of Texas the Maximum Rate shall be the indicated rate ceiling (as defined and described in Texas Revised Civil Statutes, Article 5069-1.04, as amended) at the applicable time in effect. 13.05 LANDLORD'S LIEN. Landlord reserves (and is hereby granted) a first and --------------- superior lien and security interest (which shall be in addition to and not in lieu of the statutory landlord's lien) on all fixtures, equipment, and personal property (tangible and intangible) (excluding any confidential or proprietary information or trade secrets, or trade secret information, stored in any form) now or hereafter placed by Tenant in or on the Premises to secure all sums due by Tenant hereunder, which lien and security interest may be enforced by Landlord in any manner provided by law, including, without limitation, under and in accordance with the Texas Uniform Commercial Code. The provisions of this Section shall constitute a security agreement under the Texas Uniform Commercial Code and, at Landlord's request. Tenant shall execute and file, where appropriate, all documents required to perfect the security interest herein granted in accordance with the Texas Uniform Commercial Code. Landlord may at its election at any time file a copy of this Lease as a financing statement. Unless otherwise provided by law and for the purpose of exercising any right pursuant to this Section. Landlord 12 and Tenant agree that reasonable notice shall be met if such notice is given by five days' written notice, certified mail, return receipt requested, to Landlord or Tenant at the address specified herein. 13.06 NON-WAIVER. The failure of Landlord to seek redress for violation ---------- of, or to insist upon the strict performance of, any covenant or condition of this Lease shall not prevent a subsequent act or omission that would have originally constituted a violation of this Lease from having all the force and effect of an original violation. The receipt by Landlord of Rent with or without knowledge of the breach of any provision of this Lease shall not be deemed a waiver of such breach, shall not reinstate this Lease or Tenant's right of possession if either or both have been terminated, and shall not otherwise affect any notice, election, action, or suit by Landlord. No provision of this Lease shall be deemed to have been waived by Landlord unless such waiver is in writing signed by Landlord. No act or thing done by Landlord during the Term shall be deemed an acceptance of a surrender of the Premises and no agreement to accept such surrender shall be valid, unless express and in writing signed by Landlord. ARTICLE 14 14.01 FINANCIAL STATEMENTS. Tenant, at the reasonable request of Landlord -------------------- from time to time, shall deliver to Landlord current financial statements, including, without limitation, balance sheets, profit and loss statements, reconciliations of capital and surplus, changes in financial condition, schedules of sources and applications of funds, and operating statements with respect to the business of Tenant, all of which shall, at the request of Landlord, be certified by an independent certified public accountant. Landlord agrees that such information shall be kept confidential. 14.02 CORPORATE RESOLUTIONS. If Tenant is a corporation, Tenant shall, --------------------- within thirty (30) days following the execution and delivery of this Lease, deliver a fully executed Certificate of the Secretary in the form attached hereto as Exhibit G. Such certificate shall have attached a copy of the resolution(s) of Tenant's corporate board authorizing its officers to enter into this Lease; the resolution(s) may be in the form indicated or otherwise. ARTICLE 15 15.01 AMENDMENT. Any agreement hereafter made between Landlord and Tenant --------- shall be ineffective to modify, release, or otherwise affect this Lease, in whole or in part unless such agreement is in writing and signed by the party to be bound thereby. 15.02 SEVERABILITY. If any term or provision of this Lease shall, to any ------------ extent, be held invalid or unenforceable by a final judgment of a court of competent jurisdiction, the remainder of this Lease shall all not be affected thereby. 15.03 ESTOPPEL LETTERS. Tenant shall promptly upon request from Landlord ---------------- execute and acknowledge a certificate containing such information as may be reasonably requested for the benefit of Landlord, any prospective purchaser or any current or prospective mortgagee of all or any portion of the Project. 15.04 LANDLORD'S LIABILITY AND AUTHORITY. The liability of Landlord to ---------------------------------- Tenant for any default by Landlord under the terms of this Lease shall be limited to the interest of Landlord in the Project, it being intended that Landlord, its officers, directors and employees shall not be personally liable for any judgment or deficiency. Whenever in this Lease there is imposed upon Landlord the obligation to use its best efforts, reasonable efforts, diligence or act in good faith, Landlord shall be required to do so only to the extent the same is economically feasible and otherwise will not impose upon Landlord extreme financial or other burdens. 15.05 HOLDOVER. If Tenant shall remain in possession of the Premises after -------- the Expiration Date or earlier termination of this Lease, then Tenant shall be deemed a tenant-at-will whose tenancy is terminable at any time. In such event, Tenant shall pay Rent at one and one quarter the daily rental rate prevailing on the date of 13 such termination or expiration, but otherwise shall be subject to all of the obligations of Tenant under this Lease. Additionally, Tenant shall pay to LandLord all damages sustained by Landlord on account of such holding over by Tenant. 15.06 SURRENDER. Upon the expiration or earlier termination of the Term. --------- Tenant shall peaceably quit and surrender the Premises in good order and condition excepting ordinary wear and tear, but subject to Sections 6.01 and 6.02 hereof. All obligations of Tenant for the period of time prior to the expiration or earlier termination of the Term shall survive such expiration or termination. 15.07 PARTIES AND SUCCESSORS. Subject to the limitations and conditions ---------------------- set forth elsewhere herein, this Lease shall bind and inure to the benefit of the respective heirs, legal representatives, successors, and permitted assigns and/or sublessees of the parties hereto. The term "Landlord", as used in this Lease, so far as the performance of any covenants or obligations on the part of Landlord under this Lease are concerned, shall mean only the owner of the Project at the time question, so that in the event of any transfer of title to the Project, the party by whom may such transfer is made shall be relieved of all liability and obligations of the Landlord arising under this Lease from and after the date of such transfer. Landlord shall have the right to transfer, sell, assign, mortgage or encumber, in whole or in part, all of its rights and obligations hereunder and in the Building, the Land, the Project and other property of Landlord referred to herein. 15.08 NOTICE. Except as otherwise provided herein, any statement, notice ------ or other communication that Landlord or Tenant may desire or be required to give to the other shall be deemed sufficiently given or rendered if hand delivered, or if sent by registered or certified mail, return receipt requested, addressed at the address(es) first hereinabove given or at such other addresses(es) as the other parry shall designate from time to time by prior written notice, and such notice shall be effective when the same is received or in the case of mail notice, the earlier of when delivery is attempted or acceptance of a letter is declined, and otherwise upon receipt, if mailed as herein provided. 15.09 RULES AND REGULATIONS. Tenant, its servants, employees, agents, --------------------- visitors, invitees, and licensees, shall observe faithfully and comply strictly with the Rules and Regulations set forth in Exhibit D hereto, and shall abide by and conform to such further Rules and Regulations as Landlord may from time to time reasonably make, amend or adopt, after Tenant receives a copy thereof. 15.10 CAPTIONS. The captions in this Lease are inserted only as a matter -------- of convenience and for reference and they in no way define, limit, or describe the scope of this Lease or the intent of any provision hereof. 15.11 NUMBER AND GENDER. All genders used in this Lease shall include the ----------------- other genders, the singular shall include the plural, and the plural shall include the singular, whenever and as often as may be appropriate. 15.12 GOVERNING LAW. This Lease shall be governed by and construed in ------------- accordance with the Laws of the State of Texas. 15.13 INABILITY TO PERFORM. Notwithstanding Section 15.18 hereof, whenever -------------------- a period of time is herein prescribed for the taking of any action by Landlord, Landlord shall not be liable or responsible for, and there shall be excluded from the computation of such period of time, any delays due to strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions, or any other cause whatsoever beyond the control of Landlord, and such nonperformance or delay in performance by Landlord shall not constitute a breach or default by Landlord under this Lease nor give rise to any claim against Landlord for damages or constitute a total or partial eviction, constructive or otherwise. 15.14 USE OF NAME. Tenant shall not, except to designate Tenant's business ----------- address (and then only in a conventional manner and without emphasis or display), use the name or mark "Austin Centre" for any purpose whatsoever. 14 15.15 BROKER. Tenant represents and warrants that Tenant has dealt with, ------ and only with OMNI Commercial Realty Advisors, Inc. as Landlord's exclusive broker and Tynes Realty as Tenant's exclusive broker in connection with this Lease and that, insofar as Tenant knows, no other broker(s) negotiated this Lease or are entitled to any commission in connection herewith. Tenant shall indemnify and hold harmless Landlord from and against all claims (and costs of defending against and investigating such claims) of any other broker(s) or similar parties claiming under Tenant in connection with this Lease. Landlord shall indemnify and hold harmless Tenant from and against all claims (and costs of defending against and investigating such claims) of any other broker(s) or similar parties claiming under Landlord in connection with this Lease. 15.16 MEMORANDUM OF LEASE. Without the prior written consent of Landlord ------------------- (which may be granted or withheld in Landlord's sole discretion), Tenant shall not record this Lease or any memorandum or other instrument with respect to this Lease. Upon the date of execution of this Lease, or at any time thereafter, and at the request of Landlord, Tenant and Landlord shall execute a memorandum in recordable form setting forth the material terms and conditions of this Lease. 15.17 ENTIRE AGREEMENT. This Lease, including all Exhibits attached ---------------- hereto (which Exhibits are hereby incorporated herein and shall constitute a portion hereof), contains the entire agreement between Landlord and Tenant with respect to the subject matter hereof. Tenant hereby acknowledges and agrees that neither Landlord nor Landlord's agents or representatives have made any representations, warranties, or promises with respect to the Project, the Premises, Landlord's services, or any other matter or thing except as herein expressly set forth, and no rights, easements, or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in this Lease. The taking of possession of the Premises by Tenant shall be conclusive evidence, as against Tenant, that Tenant accepts the Premises and the Project, and that same were in good and satisfactory condition at the time such possession was so taken. Further, the terms and provisions of this Lease shall not be construed against or in favor of a party hereto merely because such party is the "Landlord" or the "Tenant" hereunder or such party or its counsel is the draftsman of this Lease. 15.18 TIME OF ESSENCE. Time is of the essence of this Lease and each and --------------- all of its provisions in which performance is a factor. 15.19 PARKING. Tenant shall have the right to use the parking facilities ------- of the Building, subject to the monthly rates, rules and regulations, and any other charges of Landlord for such parking facilities, all as more particularly set forth on Exhibit E hereto. 15.20 TENANT TAXES. Tenant shall pay, or cause to be paid, before ------------ delinquency any and all taxes levied or assessed and which become payable during the Term upon all of Tenant's leasehold improvements, equipment, furniture, fixtures and personal property located in the Premises; except such property which has been paid for by Landlord and is the standard of the Building. 15.21 ATTORNEY'S FEES. In the event Tenant defaults in the performance of --------------- any of the terms, agreements or conditions contained in this Lease and Landlord places the enforcement of this Lease, or any part thereof, or the collection of any rent due or to become due hereunder, or recovery of the possession of the Premises, in the hands of any attorney who files suit upon the same, the Tenant shall pay the Landlord's reasonable attorney's fees. 15.22 LANDLORD ALTERATIONS OR MODIFICATIONS. Notwithstanding anything ------------------------------------- herein to the contrary, Landlord expressly reserves the right in its sole discretion to temporarily or permanently change the location of, close, block or otherwise alter any entrances, corridors, skywalks, tunnels, doorways, or walkways leading to or providing access to the Building or any part thereof or otherwise restrict the use of same provided such acts do not unreasonably impair Tenant's access to the Premises. Landlord shall not incur any liability whatsoever to Tenant as a consequence thereof and such acts shall not be deemed to be a breach of any of Landlord's obligations hereunder. Landlord agrees to exercise good faith in notifying Tenant within a reasonable time in advance of any alterations, modification or other acts of Landlord under this Section. 15 15.23 NAME CHANGE. Landlord and Tenant covenant and agree that Landlord ----------- hereby reserves and shall have the right at any time and from time to time to change the name of the Building as Landlord may deem advisable, and Landlord shall not incur any liability whatsoever to Tenant as a consequence thereof. LANDLORD: BRAZOS AUSTIN CENTRE, LTD. By:_______________________________ Printed Name:_____________________ Title:____________________________ Date:_____________________________ TENANT: CITYSEARCH, INC. By: [SIGNATURE ILLEGIBLE] ------------------------------- Printed Name: Bradley Ramberg --------------------- Title: CFO - VP Finance ---------------------------- Date: ---------------------------- 16 EXHIBITS: EXHIBIT A: FLOOR-PLANS EXHIBIT B: LEGAL DESCRIPTION EXHIBIT C: WORK-LETTER EXHIBIT D: RULES AND REGULATIONS EXHIBIT E: PARKING EXHIBIT F: COMMENCEMENT DATE DECLARATION EXHIBIT G: CERTIFICATE OF THE SECRETARY EXHIBIT H: NONE EXHIBIT I: NONE EXHIBIT J: RIGHT OF FIRST REFUSAL EXHIBIT K: NONE EXHIBIT L: MEMORANDUM OF LEASE EXHIBIT M: LIMITED TERMINATION OPTION 17 EXHIBIT A --------- TO LEASE BETWEEN BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD AND CITYSEARCH, INC., AS TENANT FLOOR-PLANS ----------- [SEE ATTACHED] INITIALED FOR IDENTIFICATION BY LANDLORD ______ AND TENANT ILLEGIBLE] ----------- EXHIBIT A [PLAN OF CITYSEARCH SUITE 440 APPEARS HERE] EXHIBIT B --------- TO LEASE BETWEEN BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD AND CITYSEARCH, INC., AS TENANT LEGAL DESCRIPTION ----------------- A FIELD NOTE DESCRIPTION OF A 1.75 ACRE TRACT OF LAND BEING ALL OF BLOCK 85 ORIGINAL CITY OF AUSTIN, TRAVIS COUNTY, TEXAS. PLAT OF SAID ORIGINAL CITY OF AUSTIN BEING RECORDED AT THE GENERAL LAND OFFICE IN AUSTIN, TEXAS. SAID 1.75 ACRE TRACT BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS: COMMENCING at a concrete monument found in the intersection or the centerlines of East Eighth Street and Brazos Street. THENCE S 26 degrees 03'0l" E, a distance of 56.52 feet to a punchhole set in concrete at the intersection of the south right-of-way line of East Eighth Street and the east right-of-way lines of Brazos Street, and being a perpendicular distance of 40.00 feet east of the said monumented centerline of Brazos Street and being a perpendicular distance of 40.00 feet south of the monumented centerline of East Eighth Street for the northwest corner and POINT OF BEGINNING hereof: THENCE with the west line of said Block 85 being parallel to and a perpendicular distance of 40.00 feet east of the said monumented centerline of Brazos Street S 19 degrees 00'00" W, for a distance of 276.69 feet to an iron pin in the north right-of-way line of East Seventh Street and being a perpendicular distance of 40.00 feet north of the monumented centerline of East Seventh Street for the southwest corner hereof: THENCE with the south line of said Block 85 being parallel to and a perpendicular distance of 40.00 feet north of the monumented centerline of East Seventh Street S 71 degrees 06"5l" E, a distance of 276.17 feet to an iron pin set in the west right-of-way line of San Jacinto Street and being a perpendicular distance of 40.00 feet to the west of said monumented centerline of San Jacinto Street for the southeast corner hereof: THENCE with the east line of said Block 85 being parallel to and a perpendicular distance of 40.00 feet west of the monumented centerline of San Jacinto Street N 18 degrees 59'22" E, for a distance of 276.52 feet to an iron pin set in the south right-of-way line of East Eighth Street and being a perpendicular distance of 40.00 feet south of the said monumented centerline of East Eighth Street for the northeast corner hereof: THENCE with the north line of said Block 85 being parallel to and a perpendicular distance of 40.00 feet south of the monumented centerline of East Eighth Street N 71 degrees 06"03" W, a distance of 276.12 feet to the POINT OF BEGINNING and containing 1.75 acres of land, more or less. INITIALED FOR IDENTIFICATION BY LANDLORD ______ AND TENANT [SIGNATURE ILLEGIBLE] --------------------- EXHIBIT C --------- TO LEASE BETWEEN BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD AND CITYSEARCH, INC., AS TENANT WORK-LETTER ----------- 1. Prior to the Commencement Date, Landlord shall, at its sole cost and expense, do the work described and reflected in the approved plans (herein called the "Work") necessary to furnish and install within the Premises, the tenant improvements defined below as Building Standard. The cost of the Work shall be advanced by Landlord for the benefit of Tenant, to be repaid by Tenant in the form of Base Rent. All Work completed by Landlord will meet applicable building codes. For purposes of this Lease. "Building Standard" shall mean those improvements and other items as approved by Landlord as standard for buildout purposes on initial space and for expansion and additional space in the Building. The following shall apply unless otherwise specified in this Lease or in the plans and specifications for the Work: a. Ceiling Systems: 2' X 4" suspended lay-in acoustical ceiling. Ceiling --------------- tile is regular edged and is cut to resemble 1' X 1'. b. HVAC System: A multi-zoned heating, ventilating, and air conditioning ----------- system is provided with perimeter slot diffusers, light fixture mounted supply troffers and ceiling mounted supply and return air grilles. Main duct runs and mixing boxes are provided on each floor for spin-in connections to supply points. Each zone is individually controlled by a wall mounted thermostat. Landlord's central plant will provide heat and conditioned air to each floor in quantities necessary to support typical office use occupancy during ordinary business hours as set forth in this Lease. c. Window Wall: Window blinds in Landlord selected color will be provided ----------- at each exterior window. Interior window blinds will be provided to Tenant if they are determined by Landlord to be appropriate for the project. d. Public Restroom: Complete men's and women's restroom facilities are --------------- provided on each floor. All restrooms meet current handicap requirements. e. Interior Partition: One (1) linear foot of latex flat painted ------------------ partition with rubber base per twelve (12) square feet of rentable area. Measurement will be through door openings. f. Demising Partitions: One-half (1/2) the total length of demising ------------------- partitions separating tenants on multi-tenant floors will be added to interior partition footage. g. Interior Doors: One (1) solid core wood veneer door with hollow metal -------------- frames and latchset will be provided per three hundred (300) square feet of rentable area. h. Entry Doors: Front and rear entry doors will be provided with ----------- a building standard lockset and closer. Two (2) keys will be supplied with each lockset. i. Light Fixtures: One (1) 2' X 4' parabolic lay-in fluorescent light -------------- fixture will be provided for each ninety (90) square feet of rentable area. Light fixtures are capable of receiving saddle type air troffer for supply air or adjustable slots for return air. INITIALED FOR IDENTIFICATION BY LANDLORD ______ AND TENANT [SIGNATURE ILLEGIBLE] --------------------- C-1 j. Light Switches: One (1) single pole wall switch for lighting control -------------- will be provided for each three hundred twenty five (325) square feet of rentable area. k. Duplex Outlets: One (1) 120 volt house circuited duplex wall outlet -------------- will be provided for each one hundred twenty five (125) square feet of rentable area. l. Telephone Outlets: One (1) wall mounted telephone pull string will be ----------------- provided for each two hundred twenty (220) square feet of rentable area. m. Flooring: Building standard flooring will be 32 ounce carpet glued -------- directly to the concrete slab. Standard line VCT can be installed in lieu of carpet at no additional cost. In order to ensure that the Landlord is able to maintain and monitor the quality of the building construction, the design intent of the systems, including warranties, guarantees, etc. and to further protect the unit prices established for the Building Standard items, it shall be understood that all Work will be performed by Landlord's contractor unless otherwise provided herein. It shall be understood that all mechanical, structural, electrical, plumbing and fire sprinkler engineering required to develop Tenant's improvements through modifications to Building Standard requested by Tenant and approved by Landlord to accommodate Tenant's layout will be done by the Landlord's engineers at Tenant's expense. 2. Landlord shall provide, in consultation with Tenant, architectural working drawings for the improvements to the Premises (hereinafter called "Drawings"). The Drawings shall include partition and door location drawings, telephone and electric drawings and reflect ceiling drawings, and include any specifications required by Tenant including, but not limited to, paint colors, finish details, and non-standard construction work to be performed within the Premises by Landlord's contractors. Tenant covenants and agrees to deliver to Landlord all information necessary to cause said Drawings to be prepared in a timely matter. Landlord will, at Landlord's sole cost and expense, have mechanical (sprinkler, air conditioning, hearing, electric and plumbing) drawings prepared by Landlord's mechanical engineer or contractor covering, and limited to the mechanical elements of the Work as shown on the Drawings as the Work relates specifically to Building Standard installations as set forth in Paragraph 1 above. The cost of mechanical drawings relating to Work in addition to or exceeding Building Standard installations shall be paid by Tenant. 3. Except as set forth in Paragraph 1 and Paragraph 2, Landlord has no other agreement with Tenant and has no other obligation to do any other work with respect to the Premises. Any other work in the Premises that may be permitted by Landlord pursuant to the terms and conditions of this Lease shall be done at Tenant's sole cost and expense and in accordance with said terms and conditions. If Landlord agrees to perform, at Tenant's request and upon submission by Tenant (at Tenant's sole cost and expense) of all necessary drawings, plans and specifications (the "Extra Work Drawings"), any other work in addition to the Work (the"Extra Work"), such Extra Work will be done at Tenant's sole cost and expense. Landlord shall submit to Tenant written estimates of the cost of Extra Work. Such estimate shall include a charge of 7 % of the total expenses and costs otherwise chargeable for the Extra Work, for Landlord's overhead (exclusive of and in addition to the general contractor's overhead and profit), whether the Extra Work is to be performed by Landlord or others). If Tenant shall fail to approve said estimates within seven (7) days from the receipt thereof, the same shall be deemed disapproved in all respects by Tenant and Landlord shall not be authorized to proceed thereon. Upon Landlord's approval of the Extra Work Drawings, Tenant agrees to pay 50% of the cost of the Extra Work to Landlord and the balance of the cost upon being billed therefor by Landlord at any time and from time to time thereafter. Landlord shall not be liable for any damages, nor shall the Commencement Date be delayed, nor any Rent abated, as a result of the construction or performance of any Extra Work or any delay in such construction or performance. 4. Landlord, at Landlord's discretion, may permit Tenant and Tenant's agents to enter the Premises prior to the Commencement Date in order that Tenant may do such other work as may be required by Tenant to INITIALED FOR IDENTIFICATION BY LANDLORD ______ AND TENANT BR --------------- C-2 make the Premises ready for Tenant's use and occupancy thereof. If Landlord permits such entry prior to commencement of the Term, then such permission is conditioned upon Tenant and Tenant's agents, contractors, workmen, mechanics, suppliers and invitees, working in harmony and not interfering with Landlord and Landlord's agents in doing Landlord's work in the Premises or for other tenants and occupants of said Building. If at any time such entry shall cause or threaten to cause such disharmony or interference. Landlord shall have the right to withdraw such permission upon twenty-four (24) hours written notice to Tenant. Tenant agrees that any such entry into and occupation of the Premises shall be deemed to be under all of the terms, covenants, conditions and provisions of this Lease except as to the covenant to pay Rent, and further agrees Landlord shall not be liable in any way for any injury, loss or damage that may occur to any of Tenant's work and installations made in the Premises or to properties placed therein prior to the Commencement Date, the same being at Tenant's sole risk. 5. Tenant agrees that in the event Tenant shall have: (A) caused changes to be made in the Drawings after they have been prepared by Landlord or in the mechanical drawings and/or specifications thereof or work or improvements required thereby (notwithstanding Landlord's approval of such changes), or (B) directly, or indirectly through any person, firm or corporation employed by Tenant, unreasonably interfered with or delayed the work of Landlord's contractor, or (C) caused any delay in Landlord's completion of the Premises through any fault or negligence of Tenant or its agents. thereby delaying Tenant's occupancy of the Premises, Tenant shall commence payment of Rent on the Commencement Date specified in Article 2 of this Lease. INITIALED FOR IDENTIFICATION BY LANDLORD ______ AND TENANT [SIGNATURE ILLEGIBLE] C-3 EXHIBIT D --------- TO LEASE BETWEEN BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD AND CITYSEARCH INC., AS TENANT RULES AND REGULATIONS --------------------- 1. The sidewalks, walks, plaza entries, corridors, concourses, ramps, staircases, escalators and elevators of the Project shall not be obstructed or used by Tenant, or the employees, agents, servants, visitors or licensees of Tenant for any purpose other than ingress and egress to and from the Premises. No bicycle or motorcycle shall be brought into the Building or kept on the Premises without the prior written consent of Landlord. 2. No freight, furniture or bulky matter of any description will be received into the Project or carried into the elevators except in such a manner, during such hours and using such elevators and passageways as may be approved by Landlord, and then only upon having been scheduled in advance. Any hand trucks, carryalls of similar equipment used for the delivery or receipt of merchandise or equipment shall be equipped with rubber tires, side guards and such other safeguards as Landlord shall require. 3. Landlord shall have the right to prescribe the weight, position and manner of installation of safes or other heavy equipment which shall, if considered necessary by Landlord, be installed in a manner that shall insure satisfactory weight distribution. All damage done to the Premises shall be repaired at the expense of Tenant. The time, routing and manner of moving safes or other heavy equipment shall be subject to prior approval by Landlord. 4. Only persons authorized by Landlord will be permitted to furnish newspapers, ice, towels, barbering, shoe shining, janitorial services, floor polishing and other similar services and concessions to Tenant, and only at hours and under regulations fixed by Landlord. Tenant shall use no other method of heating or cooling than that supplied by Landlord without Landlord's prior written consent. 5. Neither Tenant nor the employees, agents, servants, visitors or licensees of Tenant shall at any time place, leave or discard any rubbish paper, articles or objects of any kind whatsoever outside the doors of the Premises or in the corridors or passageways of the Project. No animals or birds shall be brought or kept in or about the Project. 6. Landlord shall have the right to prohibit any advertising by Tenant which in Landlord's opinion, tends to impair the reputation of the Project or its desirability for offices and, upon written notice from Landlord, Tenant will refrain from or discontinue such advertising. 7. Tenant shall not place or cause or allow to be placed, any sign, placard, picture, advertisement, notice or lettering whatsoever, in, about or on the exterior of the Premises, Building or Project except in and at such places as may be designated by Landlord and consented to by Landlord in writing. Any such sign, placard, advertisement, picture, notice or lettering and graphics on corridor doors shall conform to the building standard prescribed by Landlord. No trademark shall be displayed in any event. 8. Canvassing, soliciting or peddling in the Building and/or Project is prohibited and Tenant shall cooperate to prevent same. 9. Landlord shall have the right to exclude any person from the Project other than during customary business hours as set forth in the Lease, and any person in the Project will be subject to identification by employees and agents of Landlord. All persons in or entering the Project shall be required to comply with the security policies of the Project. INITIALED FOR IDENTIFICATION BY LANDLORD _____ AND TENANT BR --------------- D-1 If Tenant desires additional security service for the Premises, Tenant shall have the right (with the prior written consent of Landlord) to obtain such additional service at Tenant's sole cost and expense. Tenant shall keep doors to unattended areas locked and shall otherwise exercise reasonable precautions to protect property from theft, loss or damage. Landlord shall not be responsible for the theft, loss or damage of any property or for any error with regard to the exclusion from or admission to the Project of any person. In case of invasion, mob, riot or public excitement, the Landlord reserves the right to prevent access to the Project during the continuance of same by closing the doors or taking other measures for the safety of the tenants and protection of the Project and property or persons therein. 10. Only workmen employed, designated or approved by Landlord may be employed for repairs, installations, alterations, painting, material moving and other similar work that may be done in or on the Premises. 11. Tenant shall not conduct any restaurant, luncheonette, automat or cafeteria for the sale of food or beverages to its employees or to others. Tenant may, however, operate a coffee bar and microwave oven by and for its employees. 12. Tenant shall not bring or permit to be brought or kept in or on the Premises or Project any inflammable, combustible, corrosive, caustic, poisonous, or explosive substance, or cause or permit any odors to permeate in or emanate from the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of light, radiation, magnetism, noise, odors and/or vibrations, or interfere in any way with other tenants or those having business in the Project. 13. Tenant shall not mark paint, drill into, or in any way deface any part of the Project or the Premises, provided that Tenant may hang artwork, whiteboards, corkboards and similar items as a part of their normal business operations. No boring, driving of nails or screws, cutting or stringing of wires shall be permitted, except with the prior consent of Landlord and as Landlord may direct. Tenant shall not install any resilient tile or similar floor covering in the Premises except with the prior approval of Landlord. The use of cement or other similar adhesive material is expressly prohibited. 14. No additional locks or bolts of any kind shall be placed by Tenant on any door in the Project or the Premises, and no lock on any door therein shall be changed or altered by Tenant in any respect. Landlord shall furnish two keys for each lock on exterior doors to the Premises and shall on Tenant's request and at Tenant's expense, provide additional duplicate keys. All keys shall be returned to Landlord upon the termination of this Lease, and Tenant shall give to Landlord the explanations of the combinations of all safes, vaults and combination locks remaining with the Premises. Landlord may at all times keep a pass key to the Premises. All entrance doors to the Premises shall be left closed at all times and left locked when the Premises are not in use. 15. Tenant shall give immediate notice to Landlord in case of theft, unauthorized solicitation or accident in the Premises or in the Project or of defects therein or in any fixtures or equipment, or of any known emergency in the Project. 16. Tenant shall not allow the Premises to be used for photographic, lithographic or multigraphic reproductions except in connection with its own business and not as a service for others without Landlord's prior written consent. 17. Tenant shall not use or permit any portion of the Premises to be used as an office for a public stenographer or typist, offset printing, the sale of liquor or tobacco, a barber or manicure shop, an employment bureau, a labor union office, a doctor's or dentist's office, a dance or music studio, any type of school, or for any use other than those specifically granted in this Lease. 18. Tenant shall not advertise for laborers giving the Premises as an address, nor pay such laborers at a location in the Premises. INITIALED FOR IDENTIFICATION BY LANDLORD __________AND TENANT [SIGNATURE ILLEGIBLE] - --------------------- D-2 19. The requirements of Tenant will be attended to only upon application at the office of Landlord in the Building or at such other address as may be designated by Landlord in the Lease. Employees of Landlord shall not perform any work or do anything outside of their regular duties, unless under special instructions from the office of Landlord. 20. Tenants shall not place a load upon any floor of the Premises that exceeds the load per square foot that such floor was designed to carry and that is allowed by law. Business machines and mechanical and electrical equipment belonging to Tenant that cause noise, vibration, electrical or magnetic interference, or any other nuisance that may be transmitted to the structure or other portions of the Project or to the Premises to such a degree as to be objectionable to Landlord or that interfere with the use or enjoyment by other tenants of their premises or the public portions of the Project shall be placed and maintained by Tenant, at Tenant's expense, in settings of cork, rubber, spring type, or other vibration eliminators sufficient to eliminate noise or vibration. 21. No awnings, draperies, shutters or other interior or exterior window coverings that are visible from the exterior of the Building or from the exterior of the Premises within the Building may be Installed by Tenant. 22. Tenant shall not place, install or operate within the Premises or any other part of the Project any engine, stove or machinery, or conduct mechanical operations therein, without the written consent of Landlord. 23. No portion of the Premises or any other part of the Project other than that portion of the Project operated as a hotel shall at any time be used or occupied as sleeping or lodging quarters. 24. Tenant shall at all times keep the Premises neat and orderly. 25. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, no foreign substance of any kind whatsoever shall be thrown therein, and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who or whose employees or invitees shall have caused it. 26. Landlord reserves the right to exclude or expel from the Project any person who, in the judgement of Landlord, is intoxicated or under the Influence of liquor or drugs, or who shall in any manner do any act in violation of any of the Rules and Regulations of the Project. 27. No noxious, illegal or offensive activities shall be carried on in the Premises or the Project, nor shall anything be done which is an annoyance or nuisance or which interferes with the quiet enjoyment of other occupants of the Project. No activity is permitted which increases the rate of insurance for the Project or causes any insurance policy to be cancelled or not renewed, or which will impair the structural integrity of the Project. 28 . Tenants and their employees, agents, visitors and licensees shall conduct themselves in an orderly, polite and inoffensive manner throughout the Project. Any tenant or employee, agent, visitor or licensee of any tenant who is intoxicated or under the influence of alcoholic beverages or drugs anywhere in the Project will be in violation of these rules and regulations. 29. Landlord reserves the right, without the approval of Tenant, to rescind any Rules or Regulations, to add new reasonable Rules or Regulations or make reasonable amendments thereto, and to waive any Rules or Regulations with respect to any tenant or tenants. INITIAL FOR IDENTIFICATION BY LANDLORD _____ AND TENANT BR ---------------- D-3 EXHIBIT E --------- TO LEASE BETWEEN BRAZOS AUSTIN CENTRE, LTD. AS LANDLORD AND CITYSEARCH, INC. AS TENANT PARKING ------- (a) Guaranteed Spaces - Austin Centre Garage. Landlord agrees to provide, ---------------------------------------- and Tenant agrees to rent through the Term of the Lease, six (6) unreserved spaces for the parking of automobiles in the parking garage located at Austin Centre, Austin, Travis County, Texas. Tenant shall rent all such spaces unless and until Landlord releases Tenant from such spaces after Tenant gives at least sixty (60) days prior written notice to Landlord that Tenant desires to take fewer spaces, but Landlord shall be under no obligation to later make available to Tenant any spaces relinquished by Tenant. As rental for such parking spaces provided to Tenant hereunder, Tenant shall pay to Landlord or the operator of the garage, as may be designated from time to time by Landlord, monthly in advance in the same manner and in addition to the Base Rent provided in the Lease, rental on each such parking space at the rate of $80.00 for each unreserved space per month, plus tax. (b) Guaranteed Spaces - St. David's Garage. Landlord also agrees to make -------------------------------------- available to Tenant through the term of the Lease up to fourteen (14) spaces in the St. David's Garage at an initial cost of $68.00 per space per month, plus tax; rates for these spaces may be adjusted from time to time as specified by the operator of the garage. Landlord shall have no obligation to make available to Tenant any such spaces used and later relinquished by Tenant. (c) Optional Spaces - St. David's Garage. If Tenant has used all of its ------------------------------------ Guaranteed Spaces in the St. David's Garage, then, subject to availability. Tenant may lease up to five (5) additional spaces in the St. David's Garage on a month to month basis at the rates specified from time to time by the operator of the garage. (d) Default in Payment of Parking Fees. Upon the failure of Tenant to pay ---------------------------------- any parking fees when due, and the failure to cure such problem within five (5) days of receipt of written notice from Landlord (provided, however, that Landlord shall not be obligated to give written notice more than three (3) times in any twelve month period), Landlord shall be relieved of any further obligations under this Exhibit E furthermore, if Tenant has not paid such overdue amounts within ninety (90) days of receipt of the written notice or if Tenant is otherwise in default under the Lease at such time, then Tenant's failure to pay will be deemed to be a default under the Lease and Landlord may then exercise any other remedy allowed under this Lease. (e) Miscellaneous. Tenant shall comply with all traffic, security, safety ------------- and other rules and regulations promulgated from time to time by Landlord. Tenant shall indemnify and hold harmless Landlord from and against all claims, losses, liabilities, damages, costs and expenses (including, but not limited to, attorneys' fees and court costs) arising or alleged to arise out of Tenant's use of any such parking spaces, except to the extent caused by Landlord's negligence. In the event any of the guaranteed parking spaces are or become unusable at any time or from time to time throughout the Term, whether due to casualty or any other cause, this Lease shall continue in full force and effect; provided however, (i) Landlord shall make reasonable efforts to provide alternate parking and (ii) Tenant shall be entitled to an abatement of the rent due for any such space for so long as it is unavailable for use by Tenant during normal Building hours. INITIALED FOR IDENTIFICATION BY LANDLORD _____ AND TENANT [SIGNATURE ILLEGIBLE] --------------------- FOR EXAMPLE PURPOSES ONLY -- TO BE COMPLETED UPON ACTUAL OCCUPANCY OF THE PREMISES. EXHIBIT F --------- TO LEASE BETWEEN BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD AND CITYSEARCH, INC., AS TENANT COMMENCEMENT DATE DECLARATION ----------------------------- This declaration is executed with respect to that certain Austin Centre Lease Agreement (the "Lease") dated August 15, 1996 by and between Brazos Austin Centre, Ltd., a Texas corporation ("Landlord"), and CitySearch Inc., a Delaware corporation ("Tenant"), covering approximately 4,473 square feet of rentable area on floor four (4) of the Building. Capitalized terms used but not defined herein shall have the meanings given to them in the Lease. By their respective execution below. Landlord and Tenant each hereby stipulates and agrees that: (1) The Commencement Date (as defined in Section 2.02 of the Lease) occurred on_________, 1996 and the Expiration Date is March 31, 2002; (2) The Premises contain 4,473 rentable square feet: (3) Tenant's Pro Rata Share for purposes of calculating rental adjustments based on payment of Operating Expenses is 1.3016%; and (4) Base Rent is payable in monthly installments as follows: Lease Dates Base Rent ----------- --------- 09/16/1996 - 03/15/1997 Free Rent Period (No Base Rent or Rental Adjustment) 03/16/1997 - 03/31/1998 $3,727.50 per month (based on a rental rate of $10.00 per rental square foot per year) 04/01/1998 - 03/31/1999 $3,913.88 per month (based on a rental rate of $10.50 per rental square foot per year) 04/01/1999 - 03/31/2000 $4,100.25 per month (based on a rental rate of $11.00 per rental square foot per year) 04/01/2000 - 03/31/2001 $4,286.63 per month (based on a rental rate of $11.50 per rental square foot per year) INITIALED FOR IDENTIFICATION BY LANDLORD_____ AND TENANT BR ---------------- F-1 04/01/2001 - 03/31/2002 $4,473.00 per month (based on a rental rate of $12.00 per rental square foot per year) This declaration may be relied upon by any person having or acquiring an interest in the Lease or the Building, without notice to or consent of Landlord or Tenant. LANDLORD: BRAZOS AUSTIN CENTRE, LTD. By:_________________________________ Printed Name:_______________________ Title:______________________________ Date:_______________________________ TENANT: CITYSEARCH, INC. By:_________________________________ Printed Name:_______________________ Title:______________________________ Date:_______________________________ INITIALED FOR IDENTIFICATION BY LANDLORD____________AND TENANT___________ F-2 EXHIBIT G --------- TO LEASE BETWEEN BRAZOS AUSTIN CENTRE LTD., AS LANDLORD AND CITYSEARCH INC., AS TENANT CERTIFICATE OF THE SECRETARY ---------------------------- The undersigned, Secretary of CitySearch, Inc., a Delaware corporation (the "Corporation"), hereby certifies that attached is a true and correct copy of the resolutions duly adopted by unanimous consent dated 03/30/91, 1996, of all directors of the Board of Directors of the Corporation and that the same have not been amended, altered or rescinded and are now in full force and effect; that the Corporation is duly organized and existing under the laws of the State of Delaware; that all franchise and other taxes, if any, required to maintain the corporate existence of the Corporation have been paid when due and that no such taxes are delinquent that no proceedings are pending for the forfeiture of the Certificate of Incorporation of the Corporation or for its dissolution, voluntary or involuntary; that the Corporation is duly qualified to do business in the State of Texas and is in good standing in such state; that there is no provision of the Articles of Incorporation or Bylaws of the Corporation limiting the powers of the Board of Directors to pass or consent to the resolutions set out in the instrument attached hereto and that said resolutions are in conformity with the provisions of said Articles of Incorporation and Bylaws; and that the Secretary is the keeper of the records and minutes of the proceedings of the Board of Directors of the Corporation. This is to further certify that the persons named below are the duly elected and qualified officers of the Corporation, holding the respective offices set forth opposite their names, that they continue to hold these offices at the present time, and that the respective signatures set opposite their names are the genuine, original signatures of each respectively: Name Title Signature Charles Conn President /s/ Charles Conn ------------------ ----------------------- Bradley Ramberg Vice President /s/ Bradley Ramberg ------------------ ----------------------- Jeffrey Brewer Secretary /s/ Jeffrey Brewer ------------------ ----------------------- Thomas H. Layton Treasurer /s/ Thomas H. Layton ------------------ ----------------------- INITIALED FOR IDENTIFICATION BY LANDLORD______ AND TENANT BR ---------------- G-1 IN WITNESS WHEREOF I have hereunto affixed my name as Secretary and have caused the corporate seal of the Corporation to be hereto affixed this 3rd day of August, 1996. /s/ Jeffrey Brewer --------------------------------- Secretary The undersigned, Charles Comm, President of the Corporation, hereby certifies that Jeffrey Brewer is the duly elected and qualified Secretary of the Corporation, that the signature above is his (her) genuine signature, that attached is a true and correct copy of the resolutions duly adopted by the Board of Directors of the Corporation, which are now in full force and effect and that the foregoing certificate is true and correct. /s/ Charles Comm --------------------------------- President INITIAL FOR IDENTIFICATION BY LANDLORD____________AND TENANT ILLEGIBLE --------- G-2 RESOLUTIONS OF CORPORATE BOARD ------------------------------ RESOLVED: That CitySearch Inc. (this "Corporation") enter into the Austin Centre Lease Agreement (the "Lease") dated August 15, 1996, with Brazos Austin Centre, Ltd., a Texas corporation ("Landlord"), covering premises located on the 4th floor of Austin Centre (the "Building"). FURTHER RESOLVED: That the Lease shall be in form and substance satisfactory to Landlord and in form and substance approved by the officer of this Corporation executing the same, his approval of each such instrument to be conclusively evidenced by his execution thereof. FURTHER RESOLVED: That the President or any Vice President of this Corporation be and each hereby is severally authorized and directed for and on behalf, and as the act and deed of this Corporation to execute and deliver to Landlord the Lease and any addenda, amendments and supplements thereto, and to take such other action in the consummation of the transaction herein contemplated as the officer acting shall deem to be necessary or desirable, without the necessity of attestation by the secretary or any other officer of this Corporation and with or without the seal of this Corporation; any and all acts heretofore taken by the President or any Vice President of this Corporation to such end are hereby expressly ratified and confirmed as the acts and deeds of this Corporation. INITIALED FOR IDENTIFICATION BY LANDLORD_____________AND TENANT ILLEGIBLE --------- G-3 EXHIBIT J --------- TO LEASE BETWEEN BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD AND CITYSEARCH, INC., AS TENANT RIGHT OF FIRST REFUSAL ---------------------- 1. Landlord hereby grants to Tenant a right of first refusal (the "Right of First Refusal") exercisable as hereinafter set forth, covering the property designated as Refusal Space on Exhibit A. All rights of Tenant to lease the Refusal Space pursuant to the Right of First Refusal shall be applicable to the entire Refusal Space or to any portion thereof which may become available from time to time. The Right of First Refusal shall be as follows: (a) Upon receipt of a bona fide offer for the lease of any portion of the Refusal Space, which offer Landlord wishes to accept, and provided Tenant is not at such time in default under the Lease, Landlord shall give Tenant notice (the "Notice") in writing of the terms and conditions of the offer. Tenant may exercise the Right of First Refusal by delivering to Landlord written notice of Tenant's election on or before the tenth (10th) calendar day after the date of Landlord's delivery to Tenant of the Notice. In the event Tenant exercises its Right of First Refusal, it shall be required to lease the Refusal Space on the same terms and conditions provided in the Notice, subject to section (c) below. (b) In the event Landlord does not actually receive notice of Tenant's election to lease the Refusal Space described in the Notice within the period provided herein, then Landlord shall be free to lease such space to one or more third parties. (c) All Refusal Space leased to Tenant pursuant to the Right of First Refusal, shall at Landlord's option, be for a term which is coterminous with the initial Term of this Lease and any renewal or extension thereof. (d) The term "Premises", as used in this Lease and/or the Underlying Lease, shall include all expansions thereof that may occur from time to time pursuant to this Right of First Refusal. (e) This Right of First Refusal shall terminate at the end of the twelfth month following the Commencement Date. INITIALED FOR IDENTIFICATION BY LANDLORD _____ AND TENANT [SIGNATURE ILLEGIBLE] --------------------- EXHIBIT L --------- TO LEASE BETWEEN BRAZOS AUSTIN CENTRE, LTD., AS LANDLORD AND CITYSEARCH, INC., AS TENANT MEMORANDUM OF LEASE ------------------- THE STATE OF TEXAS (S) (S) KNOW ALL MEN BY THESE PRESENTS THAT: COUNTY OF TRAVIS (S) This Memorandum of Lease is executed in connection with that certain Austin Centre Lease Agreement (the "Lease") between Brazos Austin Centre, Ltd., a Texas corporation ("Landlord") and CitySearch, Inc., a Delaware corporation ("Tenant") dated August 15, 1996, relating to the real property (the "Land") situated on Travis County, Texas, described in Exhibit "B" attached hereto and ----------- made a part hereof for all purposes, which land has a street address of 701 Brazos Street, Austin, Travis County, Texas. Landlord has leased to Tenant, and Tenant has leased from Landlord for the rent and subject to the provisions of the Lease, certain space described in the Lease located on floor four (4) of the building known as Austin Centre as more particularly described on Exhibit "A" hereto. ---------- The initial term of the Lease commences on ___________ and expires on March 31, 2002. This Memorandum of Lease is executed for purposes of giving public notice of the matter contained herein, and shall not operate to add to, reduce, or change any of the substantive rights of any of the parties to the Lease. LANDLORD: BRAZOS AUSTIN CENTRE LTD. By:________________________________ Printed Name:______________________ Title:_____________________________ Date:______________________________ TENANT: CITYSEARCH, INC. By: /s/ Bradley Ramberg -------------------------------- Printed Name: Bradley Ramberg ---------------------- Title: CFO ----------------------------- Date: 9/12/96 ------------------------------ INITIALED FOR IDENTIFICATION BY LANDLORD______ AND TENANT [SIGNATURE ILLEGIBLE] --------------------- L-1 THE STATE OF TEXAS (S) (S) COUNTY OF TRAVIS (S) THIS INSTRUMENT was acknowledged before me on ________________________, 1996, by _________________ ,__________________ of Brazos Austin Centre Ltd., a Texas corporation, on behalf of said corporation. __________________________________ Notary Public in and for The State of Texas __________________________________ Typed or Printed Name of Notary My Commission Expires:____________ THE STATE OF CALIFORNIA (S) (S) COUNTY OF LOS ANGELES (S) THIS INSTRUMENT was acknowledged before me on Sept 12, 1996, by Bradley Ramberg, CFO of CitySearch Search, Inc., a Delaware corporation on behalf of said corporation. [STAMP APPEARS HERE] [SIGNATURE ILLEGIBLE] --------------------------------------- NotarY Public in and for The State of California Kevin Asaturian --------------------------------------- Typed or Printed Name of Notary My Commission Expires: Jan 15, 2000 INITIALED FOR IDENTIFICATION BY LANDLORD___________ AND TENANT_________ L-2 EXHIBIT M --------- TO LEASE BETWEEN BRAZOS AUSTIN CENTRE LTD., AS LANDLORD AND CITYSEARCH, INC., AS TENANT LIMITED RIGHT OF TERMINATION ---------------------------- Notwithstanding anything to the contrary contained in the Lease. Tenant shall have the limited right to change the Expiration Date of the Lease to March 15, 2000. Tenant may do so if, and only, if, (i) Tenant delivers written notice of the new Expiration Date to Landlord no later than September 15, 1999, (ii) Tenant is not then in default under the Lease, and (iii) Tenant pays to Landlord at the time notice is given the sum of the following amounts: (a) the full amount of the unamortized portion of the Tenant improvement costs incurred by Landlord and the real estate commission paid by Landlord to the Broker; (b) one half (1/2) of the full rental abatement given to Tenant in Section 3.01 of the Lease: and (c) the sum of $1,000.00 to cover after hours utility charges. For purposes of calculating the unamortized portion of the improvement costs and Broker's commission, such expenses shall be deemed to be amortizing on a straight line basis over the unmodified lease term. INITIALED FOR IDENTIFICATION BY LANDLORD___________ AND TENANT [SIGNATURE ---------- ILLEGIBLE - --------- [LOGO OF CONSTRUCTIONS CONSTRUCTIONS & ASSOCIATES, INC & ASSOCIATES, INC Date: 29-Jul-98 APPEARS HERE] FOR: CITY SEARCH SUITE 440 4,473 SF 701 BRAZOS
----------------------------------------------------------------------------------------- COSTS PERCENT SUMMARY OF REMODEL COSTS TOTALS /SF OF TOTALS ----------------------------------------------------------------------------------------- DEMOLITION/CONC CUT & FOUR SACK $ 1,025 $ 0.13 1% MILLY/CRK $ 1,500 $ 0.34 2% DOORS/FRAMES/HARDWARE $ 9,329 $ 2.09 13% GLASS AND GLAZING $ 910 $ 0.21 1% DRYWALL/ACCUSTICAL $10,850 $ 2.43 15% FLOORING $ 7,290 $ 1.63 10% PAINT $ 5,554 $ 1.24 8% SIGNAGE (ALLOWANCE) N/A $ 0.00 0% FOOD SERVICE EQUIPMENT $ 675 $ 0.15 1% METAL SHELVING $ 395 $ 0.09 1% FIRE PROTECTION $ 2.185 $ 0.48 3% PLUMBING $ 3,344 $ 0.76 5% HVAC $ 8,871 $ 1.49 9% ELECTRICAL $12,524 $ 2.80 18% -------------------------------------------- SUBTOTAL $62,241 $13.91 87% GENERAL CONDITIONS $ 5,550 $ 1.24 8% -------------------------------------------- SUBTOTAL $87,791 $15.16 95% OVERHEAD AND PROFIT 5.00% $ 3,390 $ 0.76 5% -------------------------------------------- SUBTOTAL $71,187 $15.81 100% STATE REMODEL TAX 5.25% N/A $ 0.00 0% -------------------------------------------- N/A SHELL SPACE SUBTOTAL $71,181 $15.81 100% ----------------------------------------------------------------------------------------- TOTAL PROJECT COST $71,181 $15.81 100% ----------------------------------------------------------------------------------------- QUALIFICATIONS: ----------------------------------------------------------------------------------------- 1. POWER TO LOW WALLS BY POLE TO PLENUM SPACE. 2. OWNER TO REMOVE EXISTING BUILDING STOCK IN SPACE. 3. WE ASSUME AVAILABLE SPACE IN EXISTING ELECTRICAL PANEL NO NEW PANEL BE NECESSARY. UTAH SAN ANTONIO HOUSTON DALLAS FORT WORTH DENVER NEW YORK BOSTON WASHINGTON LONDON
[LOGO OF CITYSEARCH APPEARS HERE] VIA FEDERAL EXPRESS AUGUST 20, 1996 Mr. Casey Beasley OMNI Commercial Realty Advisors 823 Congress Avenue, Suite 111 Austin, TX 78701 Dear Casey: I am enclosing two copies of the Austin Centre Lease Agreement by and between Brazos Austin Centre, Ltd. and CitySearch Inc. both of which have been executed by us. As we discussed, we are holding onto Exhibits G and L. As soon as all of our Board members are in town, we will return Exhibit G. I will return Exhibit L next week. I am also enclosing three copies of the approved space plan. Please return one fully executed lease and space plan to me. If you have questions, please call me at (818) 542-3862. Sincerely, /s/ Bradley Ramberg Bradley Ramberg Chief Financial Officer BR/pc Enclosures EX-10.17 14 STANDARD OFFICE LEASE WITH JUDGE BUILDING GROUP EXHIBIT 10.17 LEASE OFFICE BUILDING PARTIES THIS LEASE made this 10th day of September 1996 between Judge Building Group Lessor, and City Search, Inc., as Lessee. WITNESSETH: PREMISES Lessor does hereby lease to Lessee and Lessee hereby hires from Lessor those certain premises (hereinafter called "premises") consisting ofapproximately 4,645 rentable square feet, said premises being situated on the third floor of building, located at Judge Building, Suite 300 Salt Lake City, Utah 84111. Said letting and hiring is upon and subject to the terms, covenants and conditions herein set forth and the Lessee covenants as a material part of the consideration for this Lease to keep and perform each and all of said terms, covenants and conditions by it to be kept and performed and that this Lease is made upon the conditions of such performance. 1. PURPOSE. The premises are to be used for the conduct of general offices and such other uses as are compatible or necessary thereto and for no other purpose without the written consent of Lessor. TERM AND POSSESSION. The term of this Lease shall commence on the date that possession is provided to Lessee which shall be on or before See Addendum A, and the term shall expire at midnight following the expiration of 5 years from the commencement date. If the Lessor, for any reason whatsoever, cannot deliver possession of the said premises to Lessee at the commencement of the term hereof, this Lease shall not be void or voidable, nor shall Lessor be liable to Lessee for any loss or damage resulting therefrom, but in that event all rent shall be abated during the period between the commencement of the said term and the time when Lessor delivers possession. 3. RENT. Lessee shall pay as base annual rent on the leased premises during the term hereof the amount set forth on the schedule below, with one-twelfth (1/12) of said amount to be paid each month. On the commencement date, Lessee shall pay in advance the rent attributable to the calendar or fractional calendar month with which the term of this Lease begins (if prorated) together with the rent attributable to the first full calendar month. Lessee shall pay in advance one-twelfth of the annual rent specified in this Section 3. Each rental payment or other sum required to be paid by Lessee under this Lease shall be delivered to Lessor at Judge Building Group, C/O D.M. Properties, Inc., 2180 E. 4500 So. #110 Accounting Office SLC, UT 84117 or to such other address as Lessor may hereafter designate in a written notice given to Lessee. Any installment of rent, other sum, or any portion of such installment or sum required under this Lease to be paid by Lessee which has not been paid within ten (10) days after the due date thereof shall, whether or not demand therefore is made or notice of default is given, bear interest at the rate of twelve percent (12%) per annum from the due date thereof until paid in full. In addition thereto, Lessor may charge a sum equal to five percent (5%) of each unpaid amount as a service fee to compensate Lessor for the additional time and expense necessitated in the handling of delinquent payments. The rental schedule for base rent is as follows: Year #1 $ 61,546.25 per year payable at the rate of ---------- $ 5,128.85 on or before the first day of each month. ---------- Year #2 $ 64,623.56 per year payable at the rate of ---------- $ 5,385,29 on or before the first day of each month. ---------- Year #3 $ 67,854.74 per year payable at the rate of ---------- $ 5,654 56 on or before the first day of each month. ---------- Year #4 $ 71,247.47 per year payable at the rate of ---------- $ 5,937.28 on or before the first day of each month. ---------- Year #5 $ 74,809.84 per year payable at the rate of ---------- $ 6,234.15 on or before the first day of each month. ----------
4. RENTAL ADJUSTMENTS FOR BUILDING OPERATING EXPENSES. Lessee agrees to pay as additional rent for the premises an amount equal to Lessee's proportionate share of the increase in Operating Expenses (as hereinafter defined) in connection with the premises, the office building, and the common areas (hereinafter collectively referred to as the "Property"), which in the aggregate are in excess of $ 1996 Base Year ("Base Operating Expenses") per annum. ------------------- Operating Expenses As used herein, the term "Operating Expenses" shall include (but not be limited to) the following costs of operation and maintenance: Real property taxes and assessments; rent taxes (if applicable); water and sewer charges; insurance premiums; utilities; supply and materials costs; license and permit fees; costs incurred in the management of the Property, including professional management fees; costs for services of independent contractors, and costs of employee compensation (including salaries, employment taxes and fringe benefits) connected with the day-to-day operation, repair, and maintenance of the Property, including without limitation, janitorial service, gardening, security, parking, elevator, painting, plumbing, electrical, carpentry, heating, ventilation, air conditioning, window washing, parking and grounds maintenance, snow removal, and refuse service. Operating expenses shall not include depreciation on the building on which the premises are a part or equipment therein, loan payments, or brokerage commissions. Leasee's proportionate share of any increase in Operating Expenses is 5.75%. This percentage is that portion of the total gross rentable area of the building occupied by the Lessee hereunder. Lessor shall give to Lessee on or before the first day of April of each year following the year in which the Lease commences a statement of the increase in rent payable by Lessee hereunder (both on an annual basis and on a monthly installment basis), but failure -1- 14 No Lessee shall lay linoleum, tile, carpet or other similar floor covering so that the same shall be affixed to the floor of the premises in any manner except as approved by the Lessor. The expense of repairing any damage resulting from a violation of this rule or removal of any floor covering shall be borne by the Lessee by whom, or by whose contractors, employees or invitees, the damage shall have been caused. 15 No furniture, packages, supplies, equipment or merchandise will be received in the building or carried up or down in the elevators, except between such hours and in such elevators as shall be designated by Lessor. 16 On Saturdays, Sundays and legal holidays, and on other days between the hours of 6:00 P.M. and 8:00 A.M. the following day, access to the building, or to the halls, corridors, elevators or stairways in the building, or to the premises may be refused unless the person seeking access is known to the person or employee of the building in charge and has a pass or is properly identified. The Lessor shall in no case be liable for damages for any error with regard to the admission to or exclusion from the building of any person. In case of invasion, mob, riot, public excitement, or other commotion, the Lessor reserves the right to prevent access to the building during the continuance of the same by closing the doors or otherwise, for the safety of the Lessees and protection of property in the building and the building. 17 Lessee shall see that the doors of the premises are closed and securely locked before leaving the building and must observe strict care and caution that all water faucets or water apparatus are entirely shut off, so as to prevent waste or damage, and for any default of carelessness Lessee shall make good all injuries sustained by other tenants or occupants of the building of Lessor. 18 Lessor reserves the right to exclude or expel from the building any person who, in the judgment of Lessor, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the building. 19 The requirements of Lessee will be attended to only upon application at the Office of the Building. Employees of Lessor shall not perform any work or do anything outside of their regular duties unless under special instructions from the Lessor, and no employee will admit any person (Lessee or otherwise) to any office without specific instructions from the Lessor. 20 No vending machine or machines of any description or kind may be maintained or operated upon the premises without the written consent of Lessor. 21 Lessor shall have the right, exercisable without notice and without liability to Lessee, to change the name and the street address of the building of which the premises are a part. 22 Lessee shall not disturb, solicit, or canvass any occupant of the building and shall cooperate to prevent same. 23 Without the written consent of Lessor, Lessee shall not use the name of the building in connection with or in promoting or advertising the business of Lessee except as Lessee's address. 24 The word "building" as used herein means the building of which the premises are a part. -2- Lessor to give such Statement by said date shall not constitute a waiver by Lessor of its right to require an increase in rent, so long as such notice is given not later than December 31 of the year in question. Upon receipt of said Statement, Lessee shall pay in full, within fifteen (15) days thereafter. Lessee's share of the total amount of the increase due (based upon the number of months the Lease was in effect during the prior year), and in addition for the then current year Lessee shall pay the Lessor an amount equal to one monthly installment multiplied by the number of months from January in the calendar year in which the Statement is rendered to the month of such payment, both months inclusive. Subsequent monthly installments shall be payable concurrently with the regular monthly rent payments for the balance of that calendar year, and shall continue until the next comparison year's Statement is rendered. If the next or any succeeding comparison year results in a greater increase in Operating Expenses, then upon receipt of the Statement from Lessor, Lessee shall pay a lump sum equal to Leasee's share of such total increase in Operating Expenses less the total of the monthly installments of estimated increase paid in the previous calendar year for which comparison is then being made; and the estimated monthly installments to be paid for the next year following said comparison year shall be adjusted to reflect such increase. If in any comparison year the Leasee's share of Operating Expenses are less than the preceeding year, then upon receipt of Lessor's Statement, any overpayment made by Lessee on the monthly installment basis provided above shall be credited towards the next monthly rent following due and the estimated monthly installments of Operating Expenses to be paid shall be adjusted to reflect such lower Operating Expenses for the most recent comparison year. By way of example and illustration of the above provisions, the following hypothetical Lease is assumed: (a) Leasee's base monthly rent is $1,000; (b) Leasee's Lease commenced on July 1 of the prior year; (c) Lessee's portion of the increase in Operating Expenses for the comparison year is $360, or $30 per month; and (d) the Statement is delivered to Lessee on March 1 of the current calendar year. Under the above facts, Lessee would be required to pay to Lessor upon receipt of the Statement the sum of $240, representing the monthly increase attributable to the last six months of the year in which the Lease commenced and the first two months of the current calendar year, and commencing March of the current calendar year, Leasee's total monthly rent would be increased to $1,030. Lessor agrees to maintain records concerning the cost of Operating Expenses for all comparison years for a period not less than 150 days after the date Lessor delivers to Lessee the Statement setting forth the previous year's cost increase. Lessee shall have the right to inspect and copy such records. If the Lease term has expired and Lessee has vacated the premises, when the final determination is made of Lessee's share of Operating Expense increases for the year in which this Lease terminates, Lessee shall immediately pay any increase due over the estimated expenses paid, and conversely, any overpayment made in the event said expense is decreased shall be immediately rebated by Lessor to Lessee. USES PROHIBITED. Lessee shall not do or permit anything to be done in or about the premises nor being or keep anything herein which will in any way increase the existing rate of or affect any fire or other insurance upon the building or any of its contents, or cause a cancellation of any insurance policy covering said building or any part thereof or any of its contents. Lessee shall not do or permit anything to be done in or about the premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the building or injure or annoy them or use or allow the premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Lessee cause, maintain or permit any nuisance in, on or about the premises. Lessee shall not commit or suffer to be committed any waste in or upon the premises. 6. COMPLIANCE WITH LAW. Lessee shall not use the premises or permit anything to be done in or about the premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Lessee shall at its sole cost and expense promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force and with the requirements of any board of fire underwriters or other similar body now or hereafter constituted relating to or affecting the condition, use or occupancy of the premises excluding structural changes not related to or affected by Leasee's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Lessee in any action against Lessee, whether Lessor be a party thereto or not, that Lessee has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between Lessor and Lessee. 7. ALTERATIONS. As of the date Lessor delivers the premises to Tenant and continuing thereafter until the original term expires, Lessee shall have the right to make non-structural alterations, additions and improvements to the premises, including, but not limited to, the installation of partitions, carpeting, light fixtures, window hangings, wall hangings, furnitures, and trade fixtures (the "Improvements"); provided, in no event shall Lessee make such alterations or improvements without first obtaining Lessor's prior approval of the proposed improvement, which consent shall not be unreasonably withheld. Lessee may contract with a third party or Lessor for the construction of such improvements; provided, Lessor shall have the right to approve any such third party contractor, which approval shall not be unreasonably withheld. Upon the expiration or termination of the Lease, Lessee, upon Lessor's demand, shall at its cost remove any improvements to the premises which are designated by Lessor to be removed and Lessee shall forthwith and with all due diligence and at its sole cost and expense, repair any damage to the premises caused by such removal. Upon the expiration or termination of the Lease, Lessee shall have the right to remove all improvements owned by it which are not attached or affixed to the premises. 8. REPAIRS AND DAMAGES. By entry hereunder Lessee accepts the premises as being in good, sanitary order, condition and repair. Lessee hereby waives all rights to make repairs at the expense of Lessor as provided by any law, statute or ordinance now or hereafter in effect. Lessee shall, upon the expiration or sooner termination of the term hereof, surrender the premises to Lessor in the same condition as when received, ordinary wear and tear and damage by fire, earthquake, act of God or the elements excepted. It is specifically understood and agreed that Lessor has no obligation and has made no promises to any part thereof and that no representations respecting the condition of the premises or the building of which the premises are a part have been made by Lessor to Lessee except as specifically herein set forth. 9. ABANDONMENT. Lessee shall not vacate or abandon the premises at any time during the term, and if Lessee shall abandon, vacate or surrender said premises, or be dispossessed by process of law, or otherwise, any personal property belonging to Lessee and left on the premises shall be deemed to be abandoned. 10. LIENS. Lessee shall keep the premises and the property in which the premises are situated free from any liens arising out or any work performed, materials furnished or obligations incurred by Lessee. 11. ASSIGNMENT AND SUBLETTING. Lessee shall not assign, transfer, mortgage, pledge, hypothecate or encumber this Lease, or any interest therein, and shall not sublet the said premises or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person (the agents and servants of Lessee excepted) to occupy or use the said premises, or any portion thereof, without the written consent of Lessor first had and obtained, which consent shall not be unreasonably withheld, and a consent to one assignment, subletting, occupation or use by another person. Any such assignment or subletting without such consent shall be void, and shall at the option of Lessor, terminate this Lease. Any sublease or assignment agreed to by Lessor shall in no way relieve Lessee of responsibility of making rent payments to Lessor in the event of a default by the assignee or "sub-lessee" in making their rent payments for the terms of the original lease or any extensions thereof. This Lease shall not, nor shall any interest therein, be assignable as to the interest of Lessee by operation of law, without the written consent of Lessor. 12. INDEMNIFICATION OF LESSOR. Lessor shall not be liable to Lessee, and Lessee hereby waives all claims against Lessor, for any injury or damage to any person or property in or about the premises by or from any cause whatsoever, and, without limiting the generality of the foregoing, whether caused by water leakage of any character from the roof, walls, basement or other portion of the premises or the building, or caused by gas, fire, oil, electricity or any cause whatsoever in, on or about the premises of the building or any part thereof, Lessee shall hold Lessor harmless from any and all claims or liability from injury or damage to any person or property whatsoever: (1) occurring in or about the premises or any part thereof and (2) occurring in or about any facilities without -2- prejudice to the generality of the term "facilities," elevators, stairways, passageways, hallways and parking areas, the use of which Lessee may have in conjunction with other tenants of the building, when such injury or damage shall be caused in part or in whole by the act, neglect, fault of or omission of any duty with respect to the same by Lessee, its agents, servants, employees or invitees. 13. INSURANCE. Lessee agrees during the term hereof to carry public liability insurance covering the premises in an amount of not less than Two Hundred Fifty Thousand Dollars ($250,000.00)for injury and/or death to any one person and Five Hundred Thousand Dollars ($500,000.00) for injury and/or death to any number of persons in any one accident, and property damage insurance in an amount of One Hundred Thousand Dollars($100,000.00) in companies satisfactory to Lessor in the name of Lessee (with Lessor named as an additional insured), to pay the premiums therefor and to deliver said policies or certificates thereof to Lessor, and the failure of Lessee either to effect said insurance in the names herein called for, or to permit Lessor to procure said insurance, or to pay the requisite premiums therefor or to deliver said policies or certificates or duplicates thereof to Lessor, shall permit Lessor to procure said insurance and pay the requisite premiums therefor, which premiums shall be repayable to Lessor with the next installment of rent. Each insurer under the policies required hereunder shall agree by endorsement on the policy issued by it or by independent instrument furnished to Lessor that it will give Lessor no fewer than ten (10) days written notice before the policy or policies in question shall be altered or cancelled. 14. SERVICES AND UTILITIES. Lessor agrees to furnish to the premises during reasonable hours of generally recognized business days, to be determined by Lessor, and subject to the rules and regulations of the building of which the premises are a part, water and electricity suitable for the intended use of the premises, heat and air conditioning necessary for the comfortable use and occupation of the premises, and janitorial service. Lessor shall also maintain and keep lighted the common stairs, entries and toilet rooms in the building of which the demised premises are a part. Lessee shall not be entitled to any abatement or reduction of rental by reason of Lessor's failure to furnish any of the foregoing when such failure is caused by accidents, breakage, repairs, strikes, lockouts of other labor disturbances or labor disputes of any character, or by any other similar cause, beyond the reasonable control of Lessor; provided, should Lessor fail to furnish such services for a continuous period of time in excess of ten (10) days unless the result of causes beyond Lessor's reasonable control, Lessee shall, as of the eleventh (11th) day have the right to reduce its rental by reason of such failure to supply services. Wherever heat generating machines or equipment are used in the premises which affect the temperature otherwise maintained by the air conditioning system. Lessor reserves the right to install supplementary air conditioning units in the premises and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Lessee to Lessor upon demand by Lessor. Lessee will not, without the written consent of Lessor, use any apparatus or device in the premises, including but without limitation thereto, computers, electronic data processing machines, punch card machines and machines using current in excess of 110 volts, which will in any way increase the amount of electricity or water usually furnished or supplied for use of the premises as general office space; nor connect with electric current, except through existing electrical outlets in the premises, or water pipes, any apparatus or device, for the purposes of using electric current or water. If Lessee shall require water or electric current in excess of that usually furnished or supplied for use of the premises as general office space, Lessee shall first procure the consent of Lessor, which Lessor may refuse, to the use thereof and Leasee may cause a water meter or electric current meter to be installed in the premises, so as to measure the amount of water and electric current consumed for any such use. The cost of any such meters and installation, maintenance and repair thereof shall be paid for by Lessee and Lessee agrees to pay to Lessor promptly upon demand therefor by Lessor for all such water and electric current consumed as shown by said meters, at the rates charged for such services by the local public utility furnishing the same, plus any additional expenses incurred in keeping account of the water and electric current so consumed. 15. PERSONAL PROPERTY TAXES. Lessee agrees to pay or cause to be paid, before delinquency, any and all taxes levied or assessed and which become payable during the term hereof upon all equipment, furniture, fixtures and other personal property located in the premises; except that which may be owned by Lessor. 16. RULES AND REGULATIONS. Lessee shall faithfully observe and comply with the rules and regulations printed as Exhibit "A" to this Lease and all reasonable modifications of and additions thereto from time to time put into effect by Lessor, provided that in such event Lessor shall give notice thereof to Lessee. Lessor shall not be responsible to Lessee for the non-performance by any other tenant or occupant of the building of any of said rules and regulations. 17. HOLDING OVER. If, with Lessor's consent, Lessee holds possession of the premises after the term of this Lease, Lessee shall become a tenant from month to month upon the terms herein specified but at a monthly rental equivalent to the then prevailing rental paid by Lessee at the expiration of the term of this Lease pursuant to all of the provisions of Paragraphs 4 and 5 hereof payable in advance on or upon the first day of each month, and Lessee shall continue in possession until such tenancy shall be terminated by Lessor, or until Lessee shall have given to Lessor a written notice at least one month prior to the date of termination of such monthly tenancy of his intention to terminate such tenancy. 18. ENTRY BY LESSOR. Lessor reserves and shall at any and all times have the right to enter the premises to inspect the same, to supply janitorial service and any other service to be provided by Lessor to Lessee hereunder, and submit said premises to prospective purchasers or tenants, to post notices of nonresponsibility, and to alter, improve or repair the premises and any portion of the building of which the premises are a part, without abatement of rent, and may for that purpose erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, always providing the entrance to the premises shall not be blocked thereby, and further providing that the business of Lessee shall not be interfered with unreasonably. Lessee hereby waives any claim for damages for any injury or inconvenience to or interference with Lessee's business, any loss of occupancy or quiet enjoyment of the premises, and any other loss occasioned thereby. For each of the aforesaid purposes, Lessor shall at all times have and retain a key with which to unlock all of the doors in, upon and about the premises, excluding Lessee's vaults and safes, and Lessor shall have the right to use any and all means which Lessor may deem proper to open said doors in an emergency, in order to obtain entry to the premises, and any entry to the premises obtained by Lessor by any of said means, or otherwise shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the premises or an eviction of Lessee from the premises or any portion thereof. 19. DEFAULT. The occurrence of any of the following shall constitute a material default and breach of this Lease by Lessee: (i) Any failure by Lessee to pay the rental or to make any other payments required to be made by Lessee hereunder (where such failure continues for ten [10] days after written notice thereof by Lessor to Lessee). (ii) The abandonment or vacation of the premises by Lessee. (iii) A failure by Lessee to observe and perform any other provision of this Lease to be observed or performed by Lessee, where such failure continues for thirty (30) days after written notice thereof by Lessor to Lessee; provided, however, that if the nature of such default is such that the same cannot reasonably be cured within such thirty day period Lessee shall not be deemed to be in default of Lessee shall within such period commence such cure and thereafter diligently prosecute the same to completion. (iv) The making by Lessee of any general assignment for the benefit of creditors; the filing by or against Lessee of a petition to have Lessee adjudged a bankrupt or of a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days): the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the premises or of Lessee's interest in this Lease, including an attempted assumption of this Lease by the Trustee under Section 70B of the Bankruptcy Act, where possession is not restored to Lessee within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. In the event of any such default by Lessee, then in addition to any other remedies available to Lessor at law or in equity, Lessor shall have the immediate option to terminate this Lease and all rights of Lessee hereunder by giving written notice of such intention to terminate. In the event that Lessor shall elect to so terminate this Lease then Lessor may recover from Lessee: (i) The worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus -3- (ii) The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss Lessee proves could have been reasonably avoided; plus (iii) The worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Lessee proves could be reasonably avoided; plus (iv) Any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee's failure to perform his obligation under this Lease or which in the ordinary course of things would be likely to result therefrom, and (v) At Lessor's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law. The term "rent," as used herein, shall be deemed to be and to mean the rental, rental adjustment payments and all other sums required to be paid by Lessee pursuant to the term of this Lease. As used in subparagraphs (i) and (ii) above, the "worth at the time of award" is computed by allowing interest at the rate of ten percent (10%) per annum. As used in paragraph (iii) above, the "worth at the time of award" is computed by discounting such amount at the discount rate of the Federal Reserve Bank at the time of award plus one percent (1%). In the event of any such default by Lessee, Lessor shall also have the right, with or without terminating this Lease, re-enter the premises and remove all persons and property from the premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Lessee. In the event of the vacation or abandonment of the premises by Lessee or in the event that Lessor shall elect to reenter as provided above or shall take possession of the premises pursuant to legal proceeding or pursuant to any notice provided by law, then if Lessor does not elect to terminate this Lease as provided above, then Lessor may from time to time, without terminating this Lease, either recover all rental as it becomes due or relet the premises or any part thereof for such term or terms and conditions as Lessor in its sole discretion may deem advisable with the right to make alterations and repairs to the premises. In the event that Lessor shall elect to so relet, then rentals received by Lessor from such reletting shall be applied; first, to the payment of any indebtedness other than rent due hereunder from Lessee to Lessor; second, to the payment of any cost of such reletting; third, to the payment of the cost of any alteration and repairs to the premises; fourth, to the payment of rent due and unpaid hereunder; and the residue, if any, shall be held by Lessor and applied in payment of future rent as the same may become due and payable hereunder. Should that portion of such rentals received from such reletting during any month which is applied by the payment of rent hereunder, be less than the rent payable during that month by Lessee hereunder, then Lessee shall pay such deficiency to Lessor immediately upon demand therefor by Lessor. Such deficiency shall be calculated and paid monthly. Lessee shall also pay to Lessor, as soon as ascertained, any costs and expenses incurred by Lessor in such reletting or in making such alterations and repairs not covered by the rentals received from such reletting. No re-entry or taking possession of the premises by Lessor pursuant to this Paragraph 19 shall be construed as an election to terminate this Lease unless a written notice of such intention be given to Lessee or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any reletting without termination by Lessor because of any default by Lessee, Lessor may at any time after such reletting elect to terminate this Lease for any such default. 20. RECONSTRUCTION. In the event the premises or the building of which the premises are a part are damaged by fire or other perils covered by extended coverage insurance, Lessor agrees to forthwith repair the same; and this Lease shall remain in full force and effect, unless otherwise terminated in accordance with this Article, except that Lessee shall be entitled, to a proportionate reduction of rent while such repairs are being made, such proportionate reduction to be based upon the extent to which the making of such repairs shall interfere with the business carried on by Lessee in the premises. Provided, however, if the damage or destruction renders the premises or the common areas of the building providing access to the premises unusable, Lessee may terminate this Lease effective as of the date of the damage and destruction by giving notice thereof in writing to Lessor unless Lessor shall, after receipt of the notice, immediately take all necessary emergency action so that the premises can be utilized for Leasee's normal business use with a minimum of disruption and thereafter Lessor, within seven (7) days of the date Leasee's notice is given commences removal of the debris and the restoration of the premises. If notwithstanding such damage or destruction the building in which the premises is located remains open for business with the public, Lessor's restoration and repair shall be completed as soon as reasonably feasible and in no event later than one-hundred twenty (120) days after such damage and destruction. If the premises and/or the building are so damaged or destroyed that it will not be open to the public or usable by Lessee for a period in excess of one hundred twenty (120) days, Lessee shall have the right to terminate this Lease by giving Lessor written notice thereof, said notice to be effective as of the date it is given. In the event the destruction of the premises or of the building is to an extent greater than twenty-five percent (25%) of the then full replacement value, then Lessor shall have the option either: (1) to repair or restore such damage, this Lease continuing in full force and effect; provided, Lessee has not terminated this Lease in accordance with the provisions of this Article, but the rent to be proportionately reduced as provided above in this paragraph; or (2) give notice to Lessee at any time within thirty (30) days after such damage, terminating this Lease as of the date of such notice. In the event of giving of such notice, this Lease shall expire and all interest to the Lessee in the premises shall terminate on the date so specified in such notice and the rent, reduced by any proportionate reduction, based upon the extent, if any, to which such damage interfered with the business carried on by Lessee in the premises, shall be paid up to date of such termination. Notwithstanding anything to the contrary contained in this Paragraph, Lessor shall not have any obligation whatsoever to repair, reconstruct or restore the premises when the damage resulting from any casualty covered under this Paragraph occurs during the last twelve (12) months of the term of this Lease or any extension thereof. Lessor shall not be required to repair any injury or damage by fire or other cause, or to make any repairs or replacement of any panels, decoration, office fixtures, railing, ceiling, floor covering partitions, or any other property installed in the premises by Lessee. 21. EMINENT DOMAIN. If all or any part of the premises shall be taken or appropriated by any public or quasi-public authority under the power of eminent domain, either party hereto shall have the right, at its option, to terminate this Lease, and Lessor shall be entitled to any and all income, rent, award, or any interest therein whatsoever which may be paid or made in connection with such public or quasi-public use or purpose, and Lessee shall have no claim against Lessor for the value of any unexpired term of this Lease. If a part of the premises shall be so taken or appropriated and neither party hereto shall elect to terminate this Lease, the rental thereafter to be paid shall be equitably reduced. Before Lessee may terminate this lease by reason of taking or appropriation as above provided, such taking or appropriation shall be of such an extent and nature as to substantially handicap, impede or impair Lessee's use of the premises for a period in excess of sixty (60) days. If any part of the building other than the premises shall be so taken or appropriated, Lessor shall have the right, at its option, to terminate this Lease and shall be entitled to the entire award, as above provided. 22. PLATS AND RIDERS. Clauses, plats and riders, if any, signed or initialed by Lessor and Lessee and endorsed on or affixed to this Lease are a part hereof. 23. SALE BY LESSOR. In the event of a sale or conveyance by Lessor of the building containing the premises, the same shall operate to release Lessor from any future liability upon any of the covenants or conditions, express or implied, herein contained in favor of Lessee, and in such event Lessee agrees to look solely to the responsibility of the successor in interest of Lessor in and to this Lease. This Lease shall not be affected by any such sale, and Lessee agrees to attorn to the purchaser or assignee. 24. ATTORNEYS' FEES. In the event of any action or proceeding brought by either party against the other under this Lease the prevailing party shall be entitled to recover for the fees of its attorneys in such action or proceeding such amount as the Court may adjudge reasonable as attorneys' fees. -4- EXHIBIT "A" RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE 1 No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside or inside of the building without the written consent of Lessor first having been obtained and Lessor shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Lessee. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of Lessee by a person approved of by Lessor. Lessor shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside the premises; provided, however, the Lessor is to furnish and install a building standard drapery or blinds at all exterior windows. 2 The bulletin board or directory of the building will be provided exclusively for the display of the name and location of Lessee only and Lessor reserves the right to exclude any other name therefrom. 3 The sidewalks, halls, passages, exits, entrances, elevators and stairways shall not be obstructed by any of the Lessees or used by them for any purpose other than for ingress to and egress from their respective premises. The halls, passages, exits, entrances, elevators, stairways, balconies and roof are not for the use of the general public and the Lessor shall in all cases retain the right to control and prevent access thereto by all persons whose presence in the judgment of the Lessor shall be prejudicial to the safety, character, reputation and interests of the building and its Lessees, provided that nothing herein contained shall be construed to prevent such access to persons with whom the Lessee normally deals in the ordinary course of Lessee's business unless such persons are engaged in illegal activities. No Lessee and no employees or invitees of any Lessee shall go upon the roof of the building. 4 Lessee shall not alter any lock or install any new or additional locks or any bolts on any door of the premises. 5 The toilet rooms, urinals, wash bowls, and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Lessee who, or whose employees or invitees shall have caused it. 6 Lessee shall not overload the floor of the premises or mark, drive nail, screw or drill into the partitions, woodwork or plaster, or in any way deface the premises of any part thereof, without Lessor's written consent. 7 No furniture, freight or equipment of any kind shall be brought into the building without the consent of Lessor and all moving of the same into or out of the building shall be done at such time and in such manner as Lessor shall designate. Lessor shall have the right to prescribe the weight, size and position of all safes and other heavy equipment brought into the building and also the times and manner of moving the same in and out of the building. Safes or other heavy objects shall, if considered necessary by Lessor, stand on wood strips of such thickness as is necessary to properly distribute the weight. Lessor will not be responsible for loss of or damage to any such safe or property from any cause and all damage done to the building by moving or maintaining any such safe or other property shall be repaired at the expense of Lessee. 8 Lessee shall not employ any person or persons other than the janitor of Lessor for the purpose of cleaning the premises unless otherwise agreed to by Lessor. Except with the written consent of Lessor, no person or persons other than those approved by Lessor shall be permitted to enter the building for the purpose of cleaning the same. Lessee shall not cause any unnecessary labor by reason of Lessee's carelessness or indifference in the preservation of good order and cleanliness. Lessor shall in no way be responsible to any Lessee for any loss of property on the premises, however occurring, or for any damage done to the effects of any Lessee by the janitor or any other employee or any other person. Janitor service shall include ordinary dusting and cleaning by the janitor assigned to such work and shall not include cleaning of carpets or rugs, except normal vacuuming, or moving of furniture or other special services. 9 Lessee shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the premises, or permit or suffer the premise to be occupied or used in a manner offensive or objectionable to the Lessor or other occupants of the building by reason of noise, odors and/or vibrations, or interfere in any way with other Lessees or those having business therein, nor shall any animals or birds be brought in or kept in or about the premises or building. 10 No cooking shall be done or permitted by any Lessee on the premises, nor shall the premises be used for the storage of merchandise, for washing clothes, for lodging, or for any improper, objectionable or immoral purposes. 11 Lessee shall not use or keep in the premises or the building any kerosene, gasoline or inflammable or combustible fluid or material, or use any method of heating or airconditioning other than that supplied by Lessor. 12 Lessor will direct electricians as to where and how telephone and telegraph wires are to be introduced. No boring or cutting for wires will be allowed without the consent of Lessor. The location of telephones, call boxes and other office equipment affixed to the premises shall be subject to the approval of Lessor. 13 Each Lessee, upon the termination of the tenancy, shall deliver to the Lessor the keys of offices, rooms and toilet rooms which shall have been furnished the Lessee or which the Lessee shall have had made, and in the event of loss of any keys so furnished, shall pay the Lessor therefor. -1- 25. SURRENDER OF PREMISES. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and shall at the option of the Lessor, terminate all or any existing sublease or subtenancies, or may, at the option of Lessor, operate as an assignment to it of any or all such subleases or subtenancies. 26. WAIVER. The waiver by Lessor of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition or any subsequent breach of the same or any other term, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of any term, covenant or condition of this Lease, other than the failure of Lessee to pay the particular rental so accepted, regardless of Lessor's knowledge of such preceding breach at the time of acceptance of such rent. 27. NOTICES. All notices and demands which may or are required to be given by either party to the other hereunder shall be in writing. All notices and demands by the Lessor to the Lessee shall be sent by United States certified or registered mail, postage prepaid, addressed to the Lessee as follows, or to such other place as the Lessee may from time to time designate in a notice to the Lessor. All notices and demands by the Lessee to the Lessor shall, be sent by United States certified or registered mail, postage prepaid, addressed to the Lessor as follows, or to such other person or place as the Lessor may from time to time designate in a notice to the Lessee. LESSOR'S ADDRESS LESSEE'S ADDRESS Judge Building Group City Search, Inc. - ------------------------------------------ ------------------------------ Judge Building, Suite 200 4502 Dyer Street, Suite 201 - ------------------------------------------ ------------------------------ 8 East Broadway, Salt Lake City, Utah 84111 La Cresenta, CA 91214 - ------------------------------------------ ------------------------------ Attention: Daniel A Miller Attention: Chief Financial - ------------------------------------------ ------------------------------ Officer ------------------------------ Whenever this Lease requires Lessee to obtain consent from Lessor prior to acting, such consent shall be obtained from the General Partner of Lessor. 28. DEFINED TERMS AND MARGIN HEADINGS. The words "Lessor" and "Lessee" as used herein shall include the plural as well as the singular. Words used in masculine gender include the feminine and neuter. If there be more than one Lessee the obligations hereunder imposed upon Lessee shall be joint and several. The marginal headings and titles to the paragraphs of the Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. 29. TIME. Time is of the essence of this Lease and each and all of its provisions. 30. SUCCESSORS AND ASSIGNS. The covenants and conditions herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators, and assigns of the parties hereto. 31. COMMON AREAS - All those portions of the Property not occupied by the buildings thereon or not set aside for the exclusive use of the Lessor or of a particular Lessee shall be common area available for the joint use of Lessor and all tenants of the Property, their customers, invitees, and employees for receipt of goods, and for general right of passage access to the respective buildings, stores, suites, and rented or leased areas. Lessor reserves the right to construct additional buildings on the Property or to enclose or otherwise devote portions of the common area to the exclusive use of the Lessor or of specific tenant or tenants. 32. SECURITY DEPOSIT. Lessee has deposited with Lessor the sum of $5,128.85 --------- ________________________________________________________________________________ ________________________________________________________________________________ Said sum shall be held by Lessor as security for the faithful performance by Lessee of all of the terms, covenants, and conditions of this Lease to be kept and performed by Lessee during the term hereof. If Lessee defaults with respect to any provisions of this Lease, including but not limited to the provisions relating to the payment of rent, and maintaining premises in good condition, Lessor may (but shall not be required to) use, apply or retain all or any part of this security deposit for the payment of any rent or any damages, or other sum in default, or for the payment of any other amount which Lessor may spend by reason of Leasee's default or to compensate Lessor for any other loss or damage which Lessor may suffer by reason of Lessee's default. If any portion of said deposit is so used or applied. Lessee shall, upon demand therefor, deposit cash with Lessor in an amount sufficient to restore the security deposit to its original amount and Lessee's failure to do so shall be a material breach of this Lease. Lessor shall not be required to keep this security deposit separate from its general funds, and Lessee shall not be entitled to interest on such deposit. If Lessee shall fully and faithfully perform every provision of this Lease to be performed by it, the security deposit or any balance thereof shall be returned to Lessee (or, at Lessee's option, to the last assignee of Lessee's interest hereunder)at the expiration of the Lease term. In the event of termination of Lessor's interest in this Lease, Lessor shall transfer said deposit to Lessor's successor in interest. 33. COMPLETION OF PREMISES. If applicable, Lessor shall use reasonable speed and diligence in completing the premises for the certification of occupancy no later than the commencement date of this Lease. In the event Lessor is delayed in obtaining certification of occupancy due to an act of God, fire, earthquake, explosion, war, riot, inability to procure materials of labor, failure of transportation, strikes, action of labor unions, condemnation, lawful orders of government authorities or any other cause not within the reasonable control of Lessor, the commencement date and the ending date of this Lease shall be changed commensurate with the delay as aforesaid. 34. FORCE MAJEURE. Except for purpose of rental, Lessor and Lessee shall be excused for the period of any delay in the performance of any obligations hereunder when prevented from so doing by cause or causes beyond the respective control of each including labor disputes, civil commotion, war, governmental regulations or controls, fire or other casualty, weather, inability to obtain any material or services, or acts of God. 35. SUBORDINATION, ATTORNMENT. This Lease, at Lessor's option, shall be subordinate to the lien of any first deed of trust or first mortgage subsequently placed upon the real property of which the demised premises are a part, and to any and all advances made on the security thereof, and thereof; provided, however, that as to the lien of any such deed of trust or mortgage Lessee's right to quiet possession of the premises shall not be disturbed if Lessee is not in default and so long as Lessee shall pay rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust, or ground lease, and shall give written notice to Lessee, this Lease shall be deemed prior to such mortgage, deed of trust, or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by the Lessor covering the demised premises, Lessee shall attorn to the purchaser upon any much foreclosure or sale and recognize such purchaser as the Lessor under this Lease. 36. WAIVER OF SUBROGATION. So long as their respective insurers so permit, Lessee and Lessor hereby mutually waive their respective rights of recovery against each other for any loss insured by liability, fire, extended coverage and other property insurance -5- policies existing for the benefit of the respective party. Each party shall obtain any special endorsements, if required by their insurer evidence compliance with the aforementioned waiver. 37. LESSOR LIABILITY. Lessee covenants and agrees that, if Lessor is a partnership or corporation, any claims that Lessee may have now or hereafter against Lessor shall be asserted against, and satisfiable only out of the assets of the Lessor partnership or corporation, as may be the case, and not from any of the personal assets of any of the individual partners, officers, directors or stockholders of Lessor, and Lessee hereby waives and releases each of the individual partners, officers, directors and stockholders, now or hereafter existing in Lessor's partnership or corporation, as may be the case, together with their estates, representatives and assigns. IN WITNESS WHEREOF Lessor and Lessee have executed this Lease the day and year first above written. LESSOR LESSEE JUDGE BUILDING GROUP CITY SEARCH, INC. - -------------------------------------- ---------------------------------------- By By /s/ Daniel A. Miller By /s/ Brad Ramberg ----------------------------------- ------------------------------------- Daniel A. Miller Brad Ramberg Owner/Partner Chief Financial Officer Lessee agrees to comply and conform with municipal, state, and federal laws and statutes that are in effect concerning hazardous waste, toxic substances, and chemical substances. Lessee agrees to indemnify Lessor and hold Lessor free and harmless from any liability and cost caused by Lessee's maintenance of hazardous waste and other toxic substances on or about the premises. Lessee shall have the obligation to store and dispose of such waste at Lessee's expense. Exhibits "A" and "B" attached hereto are incorporated herein by this reference. EXHIBIT 'B' [THIRD LEVEL FLOOR PLAN APPEARS HERE] LEASE ADDENDUM "A" ------------------- This Lease Addendum "A" ("Addendum") is entered into on this 10th day of September, 1996, by and between Judge Building Group, as Lessor, and City Search, Inc., as Lessee, and modifies and supersedes the provisions of the printed form lease agreement ("Lease") entered into between the parties on the same date hereof covering Suite 300 ("Premises") at the Judge Building, 8 East Broadway, Salt Lake City, Orem, Utah, in the event of any inconsistencies between the two. 1. Lease commencement date shall be the date of completion of improvements to the Premises, which is estimated to be 45 days from execution of the Lease. Lessee shall pay first month's rent and security deposit upon execution of the Lease. 2. Lessor shall build-out the Premises in accordance with the layout and specifications contained in Exhibit "B" attached hereto. Lessor will install dedicated conduit for all electrical, telephone, and data outlets indicated on Exhibit "B." Carpeting allowance shall be $14.00 per yard installed. Build-out shall be done in accordance with building standard construction (vanilla finish) for wall, doors, jambs, base, lighting, standard grid ceiling, and HVAC. Any upgrades desired by Lessee shall be at Lessee's expense. Lessee, however, may elect to have "open ceiling environment" instead of a grid ceiling, in which case Lessee shall pay 50% of the net additional cost of the open ceiling environment. Within seven days of execution of the Lease, Lessor shall submit to Lessee an estimate of the net additional cost of the open ceiling environment, and Lessee shall notify Lessor within five days thereafter if it desires to have an open ceiling environment. If Lessee does not notify Lessor of its decision within said five day period, Lessor shall be entitled to proceed with installation of the standard grid ceiling. In the event Lessee selects the open ceiling environment, Lessee understands that sound acoustics of the Premises will diminish and that certain exposed equipment and fixtures that serve the Premises will make the Premises noisier and louder, and Lessee agrees that Lessor shall have no responsibility or obligation to mitigate such increased sound or noise levels. 3. Lessee shall have access to the premises seven days a week. Lessee's business hours may extend to after normal business hours and weekends, with use of HVAC at no extra cost. However, Lessee agrees not to work multiple shifts or have over-lapping shifts. Further, Lessee agrees not to have more than 40 employees that work throughout the day at the premises, excepting out of town personnel that work on a non-recurring basis and regional sales meetings. Lessor will, however, allow Lessee to exceed said limit to meet demand during periodic peak business cycles as long as the use of additional employees does not interfere with any other tenant's peaceful enjoyment of their premises; and provided, further, that the limit in no event can exceed 50 people without first obtaining Lessor's prior written consent. 4. Upon execution of the Lease and Pending completion of the premises, Lessee shall have free use of the space directly east of the Premises, known as Suite 310. Suite 310 consists of approximately 3,000 feet. Lessor shall install ceiling lights and light fixtures in Suite 310, but Lessee shall otherwise occupy Suite 301 in its "as-is" condition, and shall be responsible for all other improvements it needs or desires, including additional electrical, walls, carpeting, etc. Lessee shall also provide its own janitorial service for said suite. Lessee shall vacate Suite 310 at the time of completion of the Premises. 5. Lessee shall have the right to five (5) free parking spaces in the Convenience Parking Lot, located between 400 South and 500 South and Main Street, for as long as Lessor has the right to lease such parking from the owner of said lot. In the event Lessor looses the right to lease any of said parking spaces, there shall be a rent credit to Lessee in the amount of $35.00 per month per space. In addition, Lessee shall have the right to rent an additional 13 spaces in said lot at the same rate that Lessor pays (currently around $35 per month), provided Lessee rents such spaces concurrently with the execution of this Lease. If Lessee later reduces the amount of such parking spaces, Lessor shall have no obligation to provide the "surrendered" spaces to Lessee for the remainder of the Lease term. Lessee shall also have the right to two unreserved parking spaces, at the prevailing monthly rates, in the Exchange Place Garage, located to the east of the Judge Building. The cost of such parking shall be paid by Lessee. Other than as provided above, Lessor shall have no further obligation to provide parking to Lessee. 6. Lessee shall have an option to extend the term of the Lease for an additional five years under the following terms and conditions: a. Lessee must deliver written notice to Lessor of its intention to extend the term of the Lease at least 6 months prior to the expiration of the initial term of the Lease. b. The base lease rate for the first year of the extension term shall be 5% greater than the base rate for the fifth year of the initial Lease term (or at such mutually agreed to rate that is 2 determined within 30 days after Lessee serves notice of its desire to extend the term of the Lease), with 5% annual base rate increases thereafter. The expense pass-through provisions of Paragraph 4 of the Lease, as modified herein, shall continue in effect. c. Lessee must not be in breach or default of the Lease at the time of exercise of the extension option, or have been more than 10 days late in the payment of rent more than 5 times during the initial Lease term, unless waived by Lessor. d. All other terms and provisions of the Lease and Addendum shall remain in full force and effect during the extension term. 7. Effective one year after the Lease commencement date, Lessee shall have a limited, one time, right of first refusal to lease Suite 310 in accordance with the following terms and conditions: a. Lessee must have been timely in its rent payments and not otherwise in breach of the Lease. b. Lessee shall have the right to lease Suite 310 under the same terms as Lessor is willing to lease such space to a new tenant ("New Tenant"). Lessee shall have three days in which to elect in writing to lease Suite 310 after Lessor informs Lessee in writing of the lease terms for the New Tenant. In the event Lessee exercises it right of first refusal, it shall have a tenant improvement allowance equal to Lessor's cost of providing tenant improvement for the New Tenant, with any additional improvement cost to be borne by Lessee. c. Lessee shall execute a new lease for Suite 310 within four days after exercise of it right of first refusal, and its failure to timely do so shall result in a relinquishment and release of its right of first refusal. d. If Lessee does not timely elect to lease such space within the three day notice period as above provided, Lessee shall have no further right of first refusal to lease such space, unless Lessor fails to consummate a lease with the New Tenant. If Lessor fails to consummate a lease with the New Tenant, then Lessee shall continue to have a right of first refusal, on the same terms provided herein, until such time as Lessor consummates a lease with a New Tenant for Suite 310. e. Time is strictly of the essence herein, it being acknowledged by Lessee that the right of first refusal granted to Lessee hereby is an impediment to Lessor's ability to freely lease Suite 310. 8. The 12% interest charge provided in Paragraph 3 of the Lease shall be applicable only if and when Lessee is more than 30 days 3 late in its payment of rent. 9. Paragraph 4 of the Lease is modified as follows: Notwithstanding Lessee's calculated portion of increases in operating expenses above base year expenses in any given year, as per paragraph #4 of the Lease, Lessee's portion of increase in any given year shall not exceed the equivalent of a 2% increase in Lessee's then prevailing base lease rate. This 2% "cap" on expense pass-throughs shall be cumulative annually. The 15 days reference in the fourth paragraph of Paragraph 4 of the Lease shall be extended to 30 days. 10. Paragraph 5, line 2, of the Lease is modified by deleting the words "or other" and adding the word "liability." 11. Paragraph 6, line 6, of the Lease is modified by adding the phrase "and excluding any noncomplying conditions existing prior to the commencement of Lessee's lease" after the phrase "Lessee's improvements or acts." 12. Paragraph 7 of the Lease is modified as follows: Lessee shall have the right to make non-structural modifications or additions not exceeding $2,000 in cost without obtaining Lessor's consent. For any modifications or additions that require Lessor's consent, Lessor shall indicate whether it will require removal of such modifications or additions at the time Lessor gives its consent. 13. Paragraph 8 of the Lease is modified as follows: The second sentence of said paragraph is hereby deleted, and the following sentence substituted in lieu thereof: "Any repairs to the Premises (other than those required because of the nature of Lessee's operations) that are required to be made by Lessor in order to comply with applicable law, statute, or ordinance now or hereafter in effect, shall not be made without the joint approval of Lessor and Lessee." 14. Paragraph 12 of the Lease is modified as follows: The indemnification and waiver provisions therein shall be mutual between Lessor and Lessee, and shall not be applicable for any damage or injuries caused by the negligence, recklessness, or wanton disregard of the parties. 15. Paragraph 13 of the Lease is modified as follows: Lessee shall only be required to provide insurance information upon Lessor's request. 16. Paragraph 14, second paragraph, of the Lease and Regulation #6 shall be modified as follows: (a) Lessee shall be entitled to drive nails and screws to hang art, whiteboard, corkboards, etc, as part of normal business operations without the prior written consent of Lessor; (b) The failure to provide services and rent reduction 4 right time periods are changed from 10 and 11 days, respectively, to 3 & 4 days respectively; (c) Lessee shall have the right to use computers (except for main frame type computers). 17. To the extent that Paragraph 19, sixth paragraph, beginning with the phrase "As used in subparagraphs (i) and (ii) above" is considered to include prejudgment interest, it shall be applicable only if Utah law allows prejudgment interest. 18. Paragraph 20 of the Lease is modified as follows: (a) 25% is changed to 30%; (b) The phrase "as of the date notice is given" is changed to "as of the date the premises becomes unusable." 19. Paragraph 23 of the Lease is changed by adding the following sentence: "Lessee, however, shall have the right to deliver a statement to Lessor's successor in interest that sets forth any claims or grievances that Lessee has against Lessor." 20. Paragraph 26, line 1, of the Lease is amended by adding the phrase "or by Lessee" after the words "by Lessor." 21. All notices sent by Lessor pursuant to Paragraph 27 of the Lease shall be noted: "Attention: Chief Financial Officer." 22. The sentence of Regulation #8 beginning with the phrase "Lessor in no way shall be responsible" is hereby deleted. 23. Regulations #10 & #15 are hereby deleted. 24. Regulation #21 is modified as follows: Lessor shall give notice to Lessee of any building name or address changes. 25. Concurrently with the execution of the Lease and this Addendum, Lessee shall deliver to Lessor a corporate resolution duly authorizing Lessee's execution of the Lease and Addendum. IN WITNESS WHEREOF Lessor and Lessee have executed this Addendum "A" the day and year first above written. Lessor: The Judge Building Group by: [SIGNATURE ILLEGIBLE] ----------------------- Managing Partner Lessee: City Search, Inc by: [SIGNATURE ILLEGIBLE] ------------------------ Its ____________________ 5 EX-10.18 15 STANDARD OFFICE LEASE WITH SOBEL BUILDING DEV. Exhibit 10.18 SOBEL BUILDING DEVELOPMENT PARTNERS 680 Eighth Street San Francisco, California 94103 (415) 861-4443 THIS LEASE executed this 31st day of May 1996, between SOBEL BUILDING DEVELOPMENT PARTNERS, a California general partnership (hereinafter "Landlord"), and, Perfect Market, Inc., DBA; City Search, A Delaware Corporation, (hereinafter "Tenant" without distinction as to number or gender). RECITALS -------- A. Pursuant to the provisions of that certain Lease ("the Master Lease") dated January 10, 1986, between Sheron Sugarman, Cynthia Morris, Joanne Liss and Steve Cohen (who, along with their successors and assignees, are referred to herein collectively as "Owner") and Landlord, Landlord has leased that certain improved real property and the improvements thereon (collectively, the "Building") commonly known as 680-Eighth Street, in the City and County of San Francisco, California and described more fully in Exhibit A attached hereto and incorporated herein. B. This Lease is a sublease of part of the Building and, as such, is expressly made subject to all of the terms and provisions of the Master Lease and the rights of the Owner thereunder. C. A copy of the Master Lease and any amendments thereto is available for inspection at reasonable times at the office of the Landlord. NOW, THEREFORE, FOR VALUABLE CONSIDERATION, Landlord and Tenant hereby agree as follows: 1. Premises. Landlord hereby leases to Tenant and Tenant hereby -------- hires from and takes from Landlord those certain premises (the "Premises") situated in the building, more particularly described as follows: Suite 240 consisting of approximately 5,200 rentable square feet on the second floor, as set forth in Exhibit B attached and incorporated herein. The Building in which the Premises are located contains approximately 76,500 rentable square feet. The Premises consist of 6.8% of the total rentable square footage of the Building. 2. Term. The term of this lease shall be for Three (3) years and ---- fifteen (15) days, commencing on June 15, 1996 and ending on June 30, 1999. If the term of the Lease extends beyond December 31, 2010, the effectiveness of any portion of the term of this Lease after such date is conditioned upon Landlord's exercising its option to extend the term of the Master Lease beyond such date. See paragraph 34 for option terms. 3. Rent. The rent under this Lease shall be paid in monthly ---- installments in advance, payable on the first day of each month, which Tenant agrees to pay to Landlord, at the office of the Landlord, or such other place or places as may be designated from time to time by Landlord, in United States Legal Tender, as follows: 1
Period Rent per Month June 15, 1996 through June 30, 1996 $3,900.00 July 1, 1996 through June 30, 1997 7,800.00 July 1, 1997 through June 30, 1998 8,034.00 July 1, 1998 through June 30, 1999 8,275.00
It is hereby mutually understood and agreed that the above letting and hiring is upon the following terms and conditions. 4. The Master Lease. Tenant hereby recognizes that the estate of ---------------- Landlord in the Premises and the Building is that of the "Lessee" under the Master Lease. Tenant agrees that all rights, power, privileges and options granted to Tenant by this Lease are subject to the provisions of the Master Lease and no such right, power, privilege or option may be exercised or enjoyed by Tenant if and to the extent that the exercise or enjoyment thereof would not be permitted by, or would violate the terms of, the Master Lease, and that Tenant will not commit or suffer any act of omission or commission which would violate any of the terms or conditions of the Master Lease. 5. Delivery of Possession. If Tenant occupies the Premises prior to ---------------------- the commencement of the term, such occupancy shall not advance the termination date. Tenant at its option, along with any of its vendors, contractors, agents, etc., shall be permitted to enter the Premises at any time during normal business hours prior to the Commencement Date, with no obligation to pay rent, for the purpose of installing furniture fixtures, and equipment, provided that Tenant does not interfere or delay Landlord's work. Landlord agrees that Tenant shall receive 5 days of free rent for each day premises are delivered late (beyond the expected June 15, 1996 (at 11 a.m.) delivery date). 6. Payment of Rent. Tenant agrees to pay Landlord the rental herein --------------- reserved at the time and in the manner herein provided without any demand therefore or deduction or offset therefrom whatsoever, free of any and all claims and demands against Landlord of any kind or character, except as specifically provided in Paragraph 15.6 of this Lease. 7. Use of Premises. The Premises shall be used, occupied and --------------- conducted exclusively as and for offices and for no other purpose (see paragraph 29). No unusual or heavy machinery or equipment which will by reason of its weight, vibration or noise (a) affect the structure of the Building, (b) constitute a nuisance, or (c) affect or disturb the quiet use and possession of any part of the Building by Landlord or any other tenant in the Building, shall be maintained in or upon the Premises. The Premises shall be used, occupied and conducted by Tenant without any annoyance, disturbance, detriment or injury to Landlord or to any of the tenants of Landlord in, or occupants of, or other persons lawfully in, other parts of the Building or to the business of such other tenants, occupants or persons. Tenant shall not maintain or permit or suffer to be maintained or permitted any nuisance or waste in or about the Premises, or bring or keep anything therein which will in any way affect or increase fire or other insurance on the Building or any of its contents. Tenant will not use or allow the Premises to be used for any unlawful, immoral or objectionable purpose, See paragraph 29. 8. Assignment and Subletting. Tenant agrees not to assign this Lease ------------------------- or any interest therein nor to sublet the whole or any part of the Premises unless and until the area encompassed by the proposed sublease or assignment is first offered in writing to Landlord for a period of ten (10) days, with Landlord having the 2 option to take said proposed assigned or sublet space for its own account and to relet the same for its own account and proportionately abating Tenant's rent during the term of said proposed sublease or assignment. If Landlord chooses not to exercise this option, Tenant with Landlord's written consent first obtained may sublet or assign all or a portion of the Premises, providing the proposed sublessee or assignee first pays in advance two months' rent which will be applied to the rent due during the last two months of the proposed subleasing or assignment and provided further that, in the event said sublessee or assignee pays rent (or other form of compensation however designated) greater than that due from Tenant, said excess shall be paid over to Landlord by Tenant as received and the same shall constitute additional rent due Landlord from Tenant under this Lease. Consent to any assignment or subletting shall apply only in the given instance and a further assignment or subletting by Tenant or its assignee or subtenant shall be made only after obtaining Landlord's prior written consent as provided in Section 8. Nothing contained herein will obligate Landlord to consent to any proposed assignment or sublease if the proposed sublessee or assignee does not meet Landlord's reasonable financial criteria or would otherwise be considered an undesirable tenant, because of its business or business reputation, the character of the Building and the types and mix of other tenants. Upon any subletting, nothing contained herein shall be construed to relieve Tenant of any of its obligations contained in this Lease including, without limitation, the obligation to pay rent. Tenant shall not require Landlord's consent to sublease Premises or assign the lease to a bona fide subsidiary or affiliate of the Tenant. 9. Acceptance, Alterations, Repairs and Inspection. Landlord shall, ----------------------------------------------- at its sole cost, keep, repair and maintain the structural portions of the Building, common areas in the Building, exterior walls and roof of the Building, Building utility systems and sidewalks adjacent to the Building in good and sanitary order, condition and repair, except where said conditions exist because of the lack of ordinary care by Tenant, in which case Tenant shall promptly reimburse Landlord for any expenses incurred in connect herewith. Tenant shall, at its sole cost and expense, keep the premises in good and sanitary order, condition and repair, except where such disrepair is due to a violation of the Lease by Landlord, in which case Landlord shall make such repair. By entry hereunder, and subject to the completion of any improvements referred to in Exhibit C, Tenant accepts the Premises and the Building as being in good and sanitary order, condition and repair and agrees that on the last day of the term of this Lease or, upon sooner termination of this Lease, to surrender to Landlord all of the Premises in the same condition as when received, reasonable wear and tear thereof excepted. Unless otherwise provided by written agreement, all additions to, improvements and alterations of premises, except movable furniture and trade fixtures, shall become the property of Landlord at Landlord's option, and shall remain upon and be surrendered with the premises. Tenant shall not make any additions or improvements to or alterations or modifications of the premises without the prior written consent of Landlord, which shall not be unreasonably withheld. As a condition to any such consent Landlord may, among other things, require performance or completion bonds for the work, copies of plans and specifications and other relevant information. Notwithstanding the foregoing, Tenant may make non structural additions, improvements, alterations or modifications to the Premises with an aggregate cost not exceeding One Thousand Dollars ($1,000.00) in any six month period without seeking Landlord's prior consent. Tenant shall keep the Premises and the Building free from any liens arising out of any work performed, materials furnished, or obligations incurred by Tenant. Tenant agrees that if it shall make any repairs, alterations, modifications or improvements, after having obtained Landlord's consent where required, it will not commence such 3 action until two (2) days after written notice to Landlord in order that Landlord may post appropriate notices of non responsibility to avoid any liability for liens. Tenant will at all times permit such notices to be posted and remain posted until the completion and acceptance of the work. If Tenant fails to remove any liens promptly, Landlord may, at its option, do so, in which case Tenant shall immediately upon demand reimburse Landlord for all such amounts paid and costs and expenses incurred. All such amounts shall constitute additional rent due Landlord from Tenant under this lease. 10. Compliance with Law. Tenant shall, at its sole cost and expense, -------------------- comply with all the requirements of all Municipal, State and Federal authorities now in force or which may hereinafter be in force pertaining to the Premises, and shall faithfully observe in the use of the premises all Municipal ordinances and State and Federal statutes now in force or which may hereinafter be in force. The judgment of any court of competent jurisdiction, or the admission of Tenant in any action or proceeding against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any such ordinance or statute in the use of the Premises shall be conclusive of the fact as between Landlord and Tenant. Nothing contained in this Section 10 shall require Tenant to make any structural changes or any changes affecting Building utility systems. Tenant will not be responsible for the cost of compliance with the Americans with Disabilities Act or any comparable State or Local statute. 11. Exculpation of Landlord and Owner. Tenant waives all claims --------------------------------- against Landlord, Owner and their agents and employees for damage to person or property arising from any reason, except that Landlord shall be liable for damage to Tenant from the negligent or willful acts or omissions of Landlord or its agents or employees. 12. Indemnity. Tenant on behalf of itself, its agents, its --------- employees, its guests and invitees shall defend and indemnify and hold Landlord, Owner and their agents and employees harmless from and against all damages, which result from the acts or omissions of Tenant or its agents or employees, including reasonable attorneys' fees, arising out of any damage to any such person or their property occurring in, on or about the Premises or the Building, unless such damages result from Landlord's negligent or willful acts or omissions. 13. Liability and Property Insurance. Landlord agrees to carry and -------------------------------- keep in force during the term hereof a standard fire and extended coverage insurance policy of the Building. Tenant agrees to take out and keep in force during the term hereof, at Tenant's expense, (a) bodily injury and property damage liability insurance in companies and through brokers approved by Landlord (with at least a Best A-Rating) to protect against any liability to the public incident to the use of or resulting from any accident occurring in or about the Premises or the Building, the liability under such insurance to be not less that One Million Dollars ($1,000,000.00) for any one person injured or $1,000,000.00 for any one accident and (b) property insurance of $1,000,000.00 covering loss or damage to the Premises (including any improvements constructed). These policies (1) shall name Owner (Cynthia & Craig Morris, Joanne and Robert Liss, Sheron & Charles Sugarman, THE LISS LIVING TRUST U/A DATED 4/15/91 and THE CHARLES AND SHERRI SUGARMAN LIVING TRUST U/A DATED 8/24/90) and Landlord (Sobel Building Development Partners) and such lenders, if any, as may be designated by Landlord, as additional insureds, (2) a certificate of insurance is to be delivered to the Landlord upon issuance and renewal 4 and (3) shall contain a written obligation on the part of the insurance carriers to notify Landlord in writing thirty (30) days prior to any cancellation thereof. Notwithstanding the foregoing, Owner, Landlord and their lenders, if any, need not be named as additional insureds for Tenant's furniture, equipment and personal property. Tenant agrees that, if it does not keep such insurance in full force and effect, Landlord may, at its option, take out the necessary insurance and pay the premium. In such a case, Tenant shall reimburse Landlord for the amount so paid and such amount shall constitute additional rent due Landlord from Tenant under this Lease. The policies provided for herein together with proof of payment of premium therefore shall be delivered to Landlord within ten (10) days after the date of execution of this Lease, and renewal certificates and proof of payment of premiums therefor shall be delivered to Landlord not less than fifteen (15) days prior to the renewal date of any such insurance policies. 14. Defaults: Remedies. 14.1 Defaults. The occurrence of any one or ------------------ -------- more of the following events shall constitute a material default and breach of this Lease by Tenant: (a) The vacating or abandonment of the Premises by Tenant: (b) The failure by Tenant to make any payment of rent or any other payment required to be made by Tenant here under, within five (5) days of written notice following the date such amount is due; (c) The failure by Tenant to observe or perform any of the covenants, conditions or provisions of this lease to be observed or performed by Tenant other than described in Section 14.1(b)above, where such failure shall continue for a period of thirty (30) days after written notice from Landlord to Tenant, provided, however, that if the nature of Tenant's default is such that more than thirty (30) days are reasonably required for its cure, the Tenant shall not be deemed to be in default if Tenant commences such cure within said 30-day period and thereafter diligently prosecutes such cure to completion; (d) (i) The making by Tenant of any general arrangement for the benefit of creditors; (ii) The filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or a petition for re-organization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against the Tenant, the same is dismissed within sixty (60) days); (iii) The appointment of a trustee or receiver to take possession of all or substantially all of Tenant's assets located at the premises or of Tenant's interest in this Lease. (iv) The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets located at the premises or of Tenant's interest in this lease where such seizure is not discharged within thirty (30) days. (e) The discovery by Landlord that any financial statement given to Landlord by Tenant, any sublessee or assignee of Tenant, any successor in interest of Tenant or any guarantor of Tenant's obligations here under, or any of them, was materially false. 5 14.2 Remedies. In the event of any such material default or breach by -------- Tenant, Landlord may at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have by reason of such default or breach take any of the following actions: (a) Terminate Tenant's right to possession of the Premises by any means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Premises to Landlord. In such event, Landlord shall be entitled to recover from Tenant: (1) the worth at the time of award of the unpaid rent which had been earned at the time of termination: (2) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided: (3) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (4) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. (b) Have this Lease continue in effect for so long as Landlord does not terminate this Lease and Tenant's right to possession of the Premises, in which event Landlord shall have the right to enforce all of Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due under this Lease. (c) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the State of California. (d) The "worth at the time of award" of the amounts referred to in Sections 14.2(a)(1) and 14.2(a)(2) above shall be computed by allowing interest at the maximum annual interest rate allowed by law for business loans (not primarily for personal, family or household purposes) not exempt from the usury law at the time of termination or, if there is no such maximum annual interest rate, at the Bank of America N.T. & S.A. "Prime Rate" charged on such termination then in effect plus two (2) percentage points. The "worth at the time of award" of the amount referred to in Section 14.2(a)(3) above shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one percent (1%) per annum. For the purpose of determining unpaid rent under Sections 14.2(a)(1), (2) and (3) above, such unpaid rent shall be the rent payable by Tenant in accordance with all of the provisions of this Lease. 14.3 Default by Landlord. Landlord shall not be in default unless ------------------- Landlord fails to perform obligations required of Landlord within a reasonable time, but in no event later than thirty (30) days after written notice by Tenant to Landlord and to any lenders whose names and addresses shall have been theretofore furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligation, provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for the performance, then Landlord shall not be in default if Landlord commences the performance within such 30-day period and thereafter diligently prosecutes the same to completion. Tenant's sole remedy in the event of Landlord's default shall be in damages. Tenant shall not have the right to any rent abatement or reduction, but may terminate this Lease if Landlord fails to cure its default. 6 15. Damage or Destruction. --------------------- 15.1 Partial Damage -- Insured. Subject to the provisions of Sections ------------------------- 15.3, 15.4 and 15.5, if the Premises are damaged and such damage was caused by a casualty covered under any insurance policy required to be maintained by Tenant pursuant to Section 13 or any insurance policy carried by Landlord, Landlord shall first apply the proceeds paid under any such policy of insurance to the repair of such damage as soon as reasonably possible and this Lease shall continue in full force and effect. Notwithstanding the foregoing to the contrary, Landlord shall have no duty to repair or replace Tenant's fixtures, equipment, personal property, alterations or improvements to the Premises, including without limitation those described in Exhibit C, and Tenant shall promptly, at its sole cost and expense, repair and replace such items, unless such damage results from Landlord's negligent or willful acts. 15.2 Partial Damage -- Uninsured. Subject to the provisions of --------------------------- Sections 15.3, 15.4 and 15.5, if the Premises are damaged, except by a negligent or willful act of Tenant or Landlord (in which event Tenant or landlord shall make all required repairs at its own expense), and such damage was caused by a casualty not covered under an insurance policy required to be maintained by Tenant under Section 13, or otherwise maintained by Landlord, Landlord may, at its option, either (i) repair such damage as soon as reasonably possible, at Landlord's expense, in which event this lease shall continue in full force and effect, or (ii) give written notice to Tenant within sixty (60) days after the date of the occurrence of such damage of Landlord's intention to cancel and terminate this Lease as of the date of occurrence of such damage. In the event Landlord elects to give such notice of Landlord's intention to cancel and terminate this Lease, Tenant shall have the right within ten (10) days after receipt of such notice to give written notice to Landlord of Tenant's intention to repair such damage at Tenant's expense, without reimbursement from Landlord, in which event this Lease shall continue in full force and effect and Tenant shall proceed to make such repairs as soon as is reasonably possible. If Tenant does not give such notice within such 10-day period, this Lease shall be canceled and terminated as of the date of the occurrence of such damage. Notwithstanding the foregoing to the contrary, if Landlord elects to repair the premises after an uninsured casualty, Landlord shall have no duty to repair or replace any of Tenant's fixtures, equipment, personal property or alterations or improvements to the Premises, including without limitation those described in Exhibit C, and Tenant shall promptly, at its sole cost and expense, repair and replace such items unless such damage was caused by a negligent or willful act of landlord. 15.3 Total Destruction. If at any time during the term hereof the ----------------- Premises are totally destroyed from any cause whether or not covered by insurance required to be maintained under this Lease (including any total destruction required by an authorized public authority), this Lease shall automatically terminate as of the date of such total destruction. 15.4 Damage Near End of Term. If the Premises are partially destroyed ----------------------- or damaged during the last one (1) year of the term of this Lease, Landlord may, at Landlord's option, cancel and terminate this Lease as of the date of the occurrence of such damage by giving written notice to Tenant of Landlord's election to do so within sixty (60) days after the date of the occurrence of such damage. 7 15.5 Damage to Building. In the event of any casualty to the Building ------------------ (whether or not including damage to the Premises), the repair or restoration of which would in Landlord's reasonable judgment cost in excess of fifty percent (50%) of the full replacement cost of the Building, Landlord may, at its option, terminate this Lease by written notice given to Tenant within sixty (60) days of the date of such damage. 15.6 Abatement of Rent: Tenant's Remedies. (a) If the Premises are ------------------------------------ partially destroyed or damage and Landlord or Tenant repairs or restores them pursuant to the provisions of this Section 15, the rent payable here under for the period during which such damage, repair or restoration continues shall be abated in proportion to the degree to which Tenant's use of the Premises is impaired. Except for abatement of rent, if any, Tenant shall have no right to claim against Landlord for any damage suffered by reason of such damage, destruction, repair or restoration except where such damage or destruction was the result of Landlord's negligence. (b) If Landlord shall be obligated to repair or restore the Premises under the provisions of this Section 15, it shall commence said repairs within sixty (60) days after such obligation accrues, unless prevented by any governmental agency, Acts of God, labor interruptions or strikes or events of a similar nature, and if Landlord fails to commence such repair or restoration within said sixty (60) day period, Tenant may, at its option, cancel and terminate this Lease by giving Landlord written notice of Tenant's election to do so at any time prior to the commencement of such repair or restoration. In such event, this Lease shall terminate as of the date of such notice. 15.7 Termination -- Advance Payments. Upon termination of this lease ------------------------------- pursuant to this Section 15, an equitable adjustment shall be made concerning advance rent and any advance payment made by Tenant to Landlord. Landlord shall, in addition, return to Tenant so much of Tenant's security deposit as has not theretofore been applied by Landlord. 15.8 Waiver. Tenant waives the provisions of California Civil Code ------ Sections 1932(2) and 1933(4) which relate to termination of leases when the thing leased is destroyed and agrees that such event shall be governed by the terms of this Lease. 16. Holding Over. On the last day of the term of this Lease or sooner ------------ termination of this Lease, Tenant agrees to peacefully and quietly surrender and yield possession of the premises unto Landlord in as good order, state and condition as the same were at the time of delivery of possession of the premises to Tenant, reasonable use and wear and tear thereof excepted. Should Tenant hold over said term hereby created with the consent of Landlord, such tenancy shall be deemed to be merely one from month-to-month, at a monthly rental of one hundred ten percent (110%) of the monthly rental in effect at the end of the term of this Lease and upon all the other terms and conditions contained in this Lease. 17. Non-Waiver. The waiver of any breach of this Lease by either of ---------- the parties or the failure or omission of the parties to exercise and remedy for a violation of any of its terms, conditions or covenants shall in no way be deemed to be a consent by the parties to such violation and shall in no way estop or prevent the parties from exercising any of their rights under this Lease thereafter either for 8 such or any subsequent violation of any term, condition or covenant. The acceptance or payment of rent here under shall not be, and shall not be construed to be, a waiver of any breach, term, covenant or condition of this Lease. 18. Utilities and Services. ---------------------- (a) Landlord agrees to furnish power to the premises, and heat and air for the normal use of the premises. (b) Landlord shall provide Tenant with after-hours control of heating, ventilation and air conditioning (HVAC) for the Premises. Landlord shall install a new electrical submeter in Tenant's Premises. (c) Landlord to pay twelve cents (SO.12) per month, per usable square foot, for Tenant's utilities service. Tenant to pay any additional cost for said monthly service. (d) Normal janitorial service shall be provided to the premises, and the common areas of the Building, five nights per week. The foregoing services and utilities shall be provided in an amount and at such times customarily used in similar type buildings in the geographical area in which the Landlord competes. The interruption or curtailment of any such services caused by any event beyond the control of Landlord, including repairs, renewals, improvements, alterations, strikes, lockouts, accidents, inability to obtain fuel or supplies, or voluntary or involuntary governmental regulation shall not constitute eviction or disturbance of Tenant's use of the Premises and shall not entitle Tenant to abatement of rent or any other claim against Landlord. Landlord shall use its best efforts at all times to continue said service to the common areas. 19. Security Deposit. Tenant has, contemporaneously with the execution ---------------- of this Lease, deposited with Landlord the sum of $7,800.00 (Seven Thousand Eight Hundred Dollars) receipt of which is hereby acknowledged by Landlord. This sum shall be held by Landlord as security for the faithful performance by Tenant on all of the terms, covenants and conditions of this Lease by Tenant to be kept and performed during the term hereof. If at any time during the term of this Lease any of the rent herein reserved shall be overdue and unpaid or any other sum payable by Tenant to Landlord here under shall be overdue and unpaid, the Landlord May, at its option (but Landlord shall not be required to), appropriate and apply any portion of said $7,800.00 to the payment of any such overdue rent or other sum. In the event of the failure of Tenant to keep and perform all of the terms, covenants and conditions of this Lease to be kept and performed by Tenant, then at the option of Landlord, it may, after terminating this Lease, appropriate and apply said entire $7,800.00 (or so much thereof as may be necessary) to compensate Landlord for all loss or damage sustained or suffered by Landlord due to such breach on the part of Tenant. Should the entire $7,800.00 (or any portion thereof) be appropriated or applied by Landlord for the payment of overdue rent or other sums then due and payable to Landlord by Tenant here under, then Tenant shall, upon written demand of Landlord, forthwith remit to Landlord a sufficient amount in cash to restore said security to the original sum of $7,800.00. Tenant's failure to do so within ten (10) days after receipt of such demand shall constitute a breach of this Lease. Should Tenant comply with all of said terms, covenants and conditions and promptly pay all of the rental herein provided as it falls due, and all other sums payable by Tenant to Landlord here under, then said 9 falls due, and all other sums payable by Tenant to Landlord here under, then said sum shall be returned in full to Tenant at the end of the term of this Lease or upon the earlier termination of the Lease under the provisions of Section 15 hereof. 20. Operating Expenses and Property Taxes. (a) Landlord shall pay for ------------------------------------- the cost of insurance for the Building, water and sewer, elevator, maintenance management, scavenger and other services and expenses related to the Premises and the Building. Landlord shall also pay for PG&E, scavenger and janitorial for the common areas of the Building. (b) Tenant shall be responsible for paying its proportionate share of increases in actual operating expenses and real property taxes for the Premises above a Base Year of 1996. Said increases shall not exceed ten percent (10%) in any given year. Tenant shall not be required to pay for any capital repairs or alterations other than those which may be required by applicable codes, law or regulations which become effective after lease commencement, and only then depreciated over the useful life of the repair or alteration. Tenant shall not pay operating expense and real estate tax increases until after the first anniversary of the Commencement Date of the lease. Tenant shall be entitled to review the documentation for such expenses. 21. Building Directory/Signage. Landlord, at its cost, shall place, -------------------------- construct and maintain a directory, which shall be located in the lobby of the Building, exclusively for the display of the names of tenants in the Building and their respective suite numbers. (a) Tenant and Landlord shall agree on all signage requested by Tenant, which signage must comply with Building standards already in place. All signage shall be furnished and installed at Tenant's expense. Landlord shall cooperate, without charge to Tenant, in assisting Tenant in obtaining any required government approvals. 22. Parking. Landlord agrees Super Parking, Inc., a tenant of ------- Landlord, shall provide twenty five (25) parking stalls in the surface parking lots adjacent to and within one block of the Building. The rate charged to Tenant by Super Parking, Inc. for these parking stalls shall be $75.00 per month per stall for the first year of the lease, subject to fair market increases not to exceed three percent (3%) per annum. 23. Real Property Taxes. Landlord shall be responsible for the payment ------------------- of all "real property" taxes on the property of which the Premises is a part during the lease term. Tenant shall not be responsible for any increase in taxes due to a sale or transfer of the property. "Real property tax" as used herein shall include all real estate and personal property taxes (excluding any personal property taxes assessed any other tenant of the Building), assessments and any and all other impositions, fees and charges, whether extraordinary or ordinary, general or special, which may at any time or from time to time during the term of this Lease be levied or assessed or imposed or charged against or with respect to, or become a lien against, (i) the Premises, (ii) the Building, (iii) the land on which the Building is located, (iv) any part of the foregoing, (v) this Lease, (vi) the operation of the Building or the Premises or any part thereof by Landlord, Tenant, or Owner (including, without limitation, any and all payroll, transit impact, housing fund, child care funds, license, business and occupation taxes, fees, charges and other impositions), and any taxes or other impositions imposed in lieu of said taxes, assessments, fees, charges and other impositions, and any taxes, assessments, fees and other impositions imposed 10 upon the rental here under or under the Master Lease by any government authority having jurisdiction thereover. Without limiting the generality of the foregoing, "real property" tax shall also include all taxes on Owner or Landlord measured by gross receipts from the Building levied during the term hereof under the provisions of the Gross Receipts Tax Ordinance of the City and County of San Francisco as from time to time amended, or any statutory successor, or under the provisions of any statute, ordinance or regulation of any other governmental body. "Real property" taxes shall be prorated at the commencement and at the expiration of the term hereof. "Real property" taxes shall not include any estate or inheritance taxes or any net income tax of Landlord or owner unless the same is imposed in lieu of or as a replacement for what would otherwise be a "real property" tax, or any taxes which Landlord is not required to pay under the terms of the Master Lease. 24. Personal Property Taxes. ----------------------- (a) Tenant shall pay prior to deliquency all taxes assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property (collectively "personal property") of Tenant contained in the Premises or elsewhere. When possible, Tenant shall cause all personal property to be assessed and billed separately from the Premises, Building or land on which they are located. (b) If any of Tenant's personal property shall be assessed with any real property of Owner or Landlord, Tenant shall pay Landlord the taxes attributable to Tenant's personal property within ten (10) days after receipt of a written statement setting forth the taxes applicable. 25. Rental Adjustments. See paragraph 3. ------------------ 26. Condemnation. If the Premises or any portion thereof are taken ------------ under power of eminent domain, or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than fifteen percent (15%) of the floor area of the Premises is taken by condemnation, Tenant may, at Tenant's option, to be exercised in writing only within ten (10) days after Landlord shall have given Tenant written notice of such taking (or in the absence of such notice, within ten [10] days after the condemning authority shall have taken possession), terminate this Lease as of the date the condemning authority takes such possession. If Tenant does not terminate the Lease in accordance with the foregoing, the Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the rent shall be reduced in the proportion of the floor area taken bears to the total floor area of the Premises. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the power of eminent domain shall be the property of Landlord, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee (or any interest therein), or as severance damages; provided, however, that Tenant shall be entitled to any award for loss of or damage to Tenant's trade fixtures and removable personal property, Tenant's relocation expenses and interruption of Tenant's business. In the event that this Lease is not terminated by reason of such condemnation, Landlord shall, to the extent of severance damages received by Landlord in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Tenant has been reimbursed therefor by the condemning authority. Tenant shall pay any amount in excess of 11 such severance damages required to complete such repair. If there is a condemnation of any portion of the Building or the land on which the Building is located, and such taking is of so much of the Building that Landlord determines that it cannot resonably and economically operate the Building for the purpose for which it was operated prior to such condemnation, Landlord may, in such an event terminate this Lease by giving Tenant written notice thereof with ninety (90) days of the date of such condemnation and, in such a case, any award will be located as provided above. 27. Attornment. See Exhibit E Recognition and Attornment Agreement. ---------- 28. General Provisions. ------------------ 28.1 Estoppel Certificate. (a) Tenant shall at any time upon not less -------------------- than ten (10) days prior written notice from Landlord execute, acknowledge and deliver to Landlord a statement in writing certifying (i) that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, (ii) that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or specifying such defaults if any are claimed, and (iii) such other matters as may be reasonably requested by Landlord. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Land and improvements in which the Premises are located or any interest therein. (b) Tenant's failure to deliver such statement within such time shall be a material breach of this Lease and shall be conclusive upon the Tenant (i) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (ii) that there are no uncured defaults in Landlord's performance, and (iii) that not more than one month's rent has been paid in advance. (c) If Landlord desires to finance or refinance its interest in the property and improvements upon which the Premises are located, or any parts thereof, Tenant hereby agrees to deliver to any lender designated by Landlord such financial statements of Tenant as may be reasonably required by lender. Such statements shall include the past three (3) years' financial statements of Tenant. All such financial statements shall be received by Landlord in confidence and shall be used only for the purposes herein set forth. 28.2 Severability. If the invalidity of any provision of this Lease is ------------ determined by a court of competent jurisdiction, it shall in no way affect the validity of any other provision hereof. 28.3 Late Charges. Tenant hereby acknowledges that the late payment ------------ by Tenant to Landlord of rent or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amounts of which would be impossible to ascertain. Such cost include, but are not limited to, processing and accounting charges, late charges which may be imposed upon Landlord by the terms of the Master Lease or any mortgage or deed of trust covering Landlord's interest in the property on which the Premises is located, interest penalties and lost opportunity. Accordingly, if any installment of rent or an other sum due from Tenant shall not be received by Landlord within five (5) days after such amount shall be due, Tenant shall pay Landlord a late charge equal to Five Hundred Dollars 12 ($500.00) The parties hereby agree that such late charge represent a fair and reasonable estimate of the costs Landlord will incur by reason of late payment by Tenant. Acceptance of such late charge by Landlord after Tenant's first late payment shall in no event constitute a waiver of Tenant's default with respect to such overdue amount nor prevent Landlord from exercising any other rights and remedies granted hereunder. 28.4 Interest on Past-Due Obligations. Except as expressly provided -------------------------------- herein, any amount due Landlord and not paid when due shall bear interest from the date due at a rate equal to the lesser of (a) three percent (3%) above the reference rate or the publicly announced prime rate of interest charged on such due date by the San Francisco Main Office of Bank of America, N.T. & S.A. (or any successor bank thereto) to substantial commercial borrowers for ninety (90) day loans or (b) the maximum rate permitted by law. Such payment of interest shall not excuse or cure any default by Tenant under this Lease; provided, however, that interest shall not be payable on late charges incurred by Tenant. 28.5 Time is of the Essence. Time is of the essence. ---------------------- 28.6 Captions. Section headings in this Lease are for convenience -------- purposes only and shall not be interpreted as a substantive part of this Lease. 28.7 Recording. Tenant shall not record this Lease or any memorandum --------- of this Lease without Landlord's prior written consent, and such recordation shall, at the option of Landlord, constitute a noncurable default of Tenant hereunder. 28.8 Cumulative Remedies. No remedy or election hereunder shall be ------------------- deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. 28.9 Covenants and Conditions. Each provision of this Lease ------------------------ performable by Tenant shall be deemed both a covenant and a condition. 28.10 Binding Effect: Choice of Law. Subject to any provisions hereof ----------------------------- restricting assignment or subletting by Tenant, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State of California. 28.11 Subordination. (a) This Lease, at Landlord's option, shall be ------------- subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation or security now or hereafter placed upon the real property of which the Premises are a part (or upon Landlord's leasehold interest in such real property) and to any and all advance made on the security thereof and to all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed by Landlord or any person succeeding to Landlord's interest in the Premises if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of this Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and shall give written notice thereof to Tenant, this Lease shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of 13 recording thereof. (b) Tenant agrees to execute any documents required to effectuate such subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be, and failing to do so within ten (10) days after written demand, does hereby make, constitute and irrevocably appoint Landlord as Tenant's attorney-in-fact and in Tenant's name, place and stead, to do so. 28.12 Waiver of Subrogation. So long as the applicable policy is not --------------------- affected and the cost thereof is not increased thereby, each of the parties hereto does hereby waive its entire right of recovery against the other for any damages caused by an occurrence insured against such party and the rights of any insurance carrier to be subrogated to the rights of the insured under the applicable policy. 28.13 Modification of Public Areas. Landlord shall have the right to ---------------------------- change or modify public areas of the Building wherein the Premises are located so long as said changes or modifications do not materially interfere with or affect Tenant's quiet enjoyment. 28.14 Quitclaim Deed. At the expiration of the term of this Lease or -------------- its earlier termination under the terms hereof, Tenant, upon Landlord's written request, shall provide within ten (10) days a quitclaim deed in favor of Landlord or its assigns whereby Tenant releases any and all of its interest in the Premises or the land and improvements of which the Premises are a part. 28.15 Merger. The voluntary or other surrender of the Lease by Tenant, ------ or a mutual cancellation thereof, or a termination by Landlord, shall not work as a merger, and shall, at the option of Landlord, operate as an assignment to Landlord of any or all subtenancies. 28.16 Corporate Authority. If any party executing this Lease is a ------------------- corporation, such individual executing this Lease on behalf of said corporation represents and warrants that she/he is duly authorized to execute and deliver this Lease on behalf of said corporation. 28.17 Quiet Possession. Upon Tenant paying the fixed rent reserved ---------------- hereunder and observing and performing all of the covenants, conditions and provisions on Tenant's part to be observed and performed hereunder, Tenant shall have quiet possession of the premises for the entire term hereof subject to all of the provisions of this Lease. 28.18 Advertisements and Signs. Landlord reserves the exclusive ------------------------ right to use the exterior walls and roof of the Premises and the Building and access thereto and Tenant shall not inscribe, paint or affix any signs, advertisements, placards or awnings on the exterior walls, windows or roof of the Premises or the Building without prior written consent of Landlord. It is understood and agreed that any sign so placed on the premises or building with consent of Landlord shall be removed by Tenant at termination of this Lease and any damage or injury to the Premises resulting therefrom shall be repaired by Tenant at its sole cost. In the event of the failure of Tenant to remove such signs or repair any damage resulting there from, Landlord may remove said signs and repair at the Tenant's expense. 28.19 Auctions. Tenant shall hold no auction upon the Premises without -------- 14 the prior written consent of Landlord. 28.20 Entry by Landlord and Owner. Tenant shall permit Owner and --------------------------- Landlord and their agents to enter into and upon the premises with twenty four (24) hour notice to Tenant, except in the case of emergency, for the purpose of inspecting the same, for the purpose of showing the Premises to prospective tenants, prospective buyers, lenders and insurance carriers, and for the purpose of maintaining the Building in which the Premises are situated, or for the purpose of making repairs. 28.21 Cost of Suit. If either party becomes a party to any ------------ litigation concerning this Lease, the Premises, or the Building or the land thereunder, by reason of any act or omission of the other party or its authorized representatives, and not by any act or omission of the party that becomes a party to that litigation or any act or omission of its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to that party for reasonable attorneys' fees and court costs incurred by it in the litigation as fixed by a court of competent jurisdiction. If either party commences an action against the other party arising out of or in connection with this Lease, the prevailing party shall be entitled to have and recover from the losing party reasonable attorneys' fees and costs of suit as fixed by a court of competent jurisdiction. 28.22 Notices. All notices or demands to be given to Landlord or ------- Tenant shall be deemed sufficiently served if the same is in writing and is enclosed in a sealed envelope and is delivered personally or is deposited in the United States Mail, certified or registered mail, return receipt requested, postage prepaid and addressed to the Tenant at City Search, 4502 Dyer Street, Suite 201, La Crecenta, CA 91214, and to Landlord at 680 Eighth St., San Francisco, California 94103. Any such notice shall be deemed to have been served and received upon such personal delivery or upon such mailing; provided, however, if such notice pertains to the change of address of either party, such notice shall be deemed to have been served only upon actual receipt thereof. 28.23 Sale or Transfer of Premises. If Landlord sells or transfers all ---------------------------- or any portion of its interest in the land and improvements of which Premises are a part, Landlord, on consummation of the sale or transfer, shall be released and discharged from any liability under this Lease upon the transfer of all prepaid rent and any unexpended security deposit to Landlord's successor. 28.24 Financial Statements. Tenant shall cause to be furnished to -------------------- Landlord within ten (10) days of preparation its most current financial statement and balance sheet prepared in accordance with generally accepted accounting principles. Said information as a minimum shall be furnished not less frequently than annually. 28.25 Brokerage. Julien J. Studley, Inc. is acting as Tenant's --------- exclusive agent in this transaction. Landlord shall pay to Julien J. Studley, Inc. a brokerage commission of five percent (5%) of the fully serviced rental paid by Tenant during the initial lease term. The first half of the commission will be due and payable upon complete execution of the lease. The second half will be due and payable sixty (60) days from the Commencement Date of the lease. 28.26 Exhibits. Exhibits A through E inclusive, are incorporated in -------- 15 this Lease and made a part hereof. 28.27 Integrated Agreements -- Modification. This Lease contains all ------------------------------------- the agreements of the parties and cannot be amended or modified except by a written agreement executed by all parties or their successors. 28.28 Rules and Regulations. The Commencement of the lease term is ---------------------- expressly conditioned upon Landlord being able to complete the desired remodeling to his satisfaction and further conditioned upon Landlord being able to obtain all of the necessary permits. Tenant shall comply with Landlord's rules and regulations for the Building attached hereto as Exhibit D and to such modifications and amendments thereto as may be made by Landlord after the date of this Lease. 28.29 Joint and Several Liability. All of the terms, covenants and --------------------------- conditions contained in this Lease to be performed by either party, if such party shall consist of more than one person or organization, shall be deemed joint and several. 29. Primary Use. In no event shall the premises be used for any ----------- purpose other than as described in paragraph 7 herein. 30. Insolvency or Bankruptcy. The appointment of a receiver to take ------------------------ possession of all or substantially all of the assets of Tenant or of the operations of Tenant in the demised premises, or a general assignment by Tenant for the benefit of creditors, or the filing of proceedings in insolvency or bankruptcy by or against Tenant shall entitle Landlord, at its option to terminate the lease; provided, however, if Tenant cures its insolvency or bankruptcy within thirty (30) days of written notice thereof, the lease shall not terminate. 31. Freight Movement. Furniture, merchandise and other bulk objects ---------------- shall be brought into and removed from the Building only through the freight entrance, and the time and manner of movement of such objects shall be subject to reasonable requirements of Landlord. Freight movement to and from the premises shall be accomplished as promptly as possible. Such moving shall be at Tenant's sole expense. No such objects shall be brought into or removed from the Building during any major market exhibition without the prior written consent of Landlord. 32. Prior Entry. Tenant shall have the right to install telephone and ----------- computer cables, and equipment so long as Tenant performs such work through a licensed contractor and said work is done in a good workmanlike manner to City and County specifications. Lessee shall be responsible for all costs and expenses occasioned by such installation and work. In such event, lessee shall be bound by all of the terms, covenants and conditions of this Lease Agreement. 33. Option Premises/Right of First Refusal. Suite 244, the option -------------------------------------- premises (600 rentable square feet, approximately). Tenant shall have the option to lease the Option Premises, by providing written notice to Landlord within one hundred twenty (120) days of the Commencement Date of the lease. The Option Premises shall be leased under the same terms and conditions as the Initial Premises, including Tenant Improvements to be determined. The Commencement Date for the Option Premises shall be within sixty (60) days of the date the option is exercised. (a) Tenant shall be granted the continuing Right of First Refusal to lease 16 Option Premises and contiguous space to the Premises, that is or comes available throughout the initial lease or renewal term, including the Option Premises. The Lease of Suite 255 expires on May 31, 2001. The Lease of Suite 231 expires on June 30, 1997 and there is one (1) three (3) year option, which if exercised, expires on June 30, 2000. (b) Landlord shall provide written notifications to Tenant of all good faith acceptable offers received for any space that comes available pursuant to this right of first refusal. Tenant shall have seven (7) business days in which to elect to lease such space, or any portion thereof, at the terms presented in such written notification from the Landlord, including rent at fair market value. Landlord, at Landlord's sole cost, shall construct in the First Refusal premises tenant improvements of the same quality and scope as those constructed in the Initial Premises. In the event Tenant elects not to exercise its right to lease any such space, Landlord may offer such space to third parties upon substantially the same terms and conditions that it offered the space to Tenant. 34. Option To Extend. Tenant shall have the right to renew the lease ---------------- for one (1) three (3) year period. Notice for the renewal option shall be given to Landlord in writing no later than four (4) months prior to the expiration of the prior term. If said Option is exercised by Tenant, the rent shall be increased by 3% at the end of years three (3), four (4), and five (5). Executed at San Francisco, California, on May 31, 1996. ------ LANDLORD TENANT SOBEL BUILDING DEV. PARTNERS [SIGNATURE ILLEGIBLE] /s/ Thomas Layton - ---------------------------- -------------------------------- For Leon Baumgarten Thomas Layton General Partner Chief Operating Officer Perfect Market, Inc. 17 ALL OF THE REAL PROPERTY SITUATE IN THE CITY AND COUNTY OF SAN FRANCISCO, STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: PARCEL ONE: ---------- BEGINNING AT THE POINT OF INTERSECTION OF THE NORTHWESTERLY LINE OF TOWNSEND STREET AND THE SOUTHWESTERLY LINE OF EIGHTH STREET IN THE CITY OF SAN FRANCISCO; THENCE SOUTH 45 DEGREES 08 FEET 40 INCHES (THE BEARING OF SAID NORTHWESTERLY LINE OF TOWNSEND STREET BEING TAKEN AS SOUTH 45 DEGREES 08 FEET 40 INCHES WEST FOR THE PURPOSE OF THIS DESCRIPTION) ALONG SAID NORTHWESTERLY LINE OF TOWNSEND STREET, A DISTANCE OF 81.75 FEET TO THE POINT OF BEGINNING OF THE PROPERTY TO BE DESCRIBED; THENCE FROM SAID POINT OF BEGINNING SOUTH 45 DEGREES 08 FEET 40 INCHES WEST ALONG SAID NORTHWESTERLY LINE OF TOWNSEND STREET, A DISTANCE OF 18.53 FEET TO THE POINT OF INTERSECTION OF SAID NORTHWESTERLY LINE OF TOWNSEND STREET AND THE NORTHERLY LINE OF DIVISION STREET; THENCE SOUTH 25 DEGREES 39 FEET 21 INCHES WEST ALONG SAID NORTHERLY LINE OF DIVISION STREET, A DISTANCE OF 207.19 FEET TO A POINT ON THE EASTERLY LINE OF THAT CERTAIN PARCEL OF LAND CONVEYED BY THE WESTERN PACIFIC RAILROAD COMPANY TO THE STATE OF CALIFORNIA, BY DEED RECORDED FEBRUARY 26, 1952, IN BOOK 5876, PAGE 453 OFFICIAL RECORDS OF SAN FRANCISCO COUNTY; THENCE NORTHWESTERLY ALONG A 1147.0 FOOT RADIUS CURVE TO THE LEFT (THE CENTER OF SAID CURVE BEARS SOUTH 23 DEGREES 06 FEET 03 INCHES WEST) THROUGH AN ANGLE OF 4 DEGREES 59 FEET 48 INCHES, AN ARC DISTANCE OF 100.03 FEET; THENCE NORTHEASTERLY ALONG A 372.745 FOOT RADIUS CURVE TO THE RIGHT (THE CENTER OF SAID CURVE BEARS SOUTH 65 DEGREES 15 FEET 13 INCHES EAST) THROUGH AN ANGLE OF 9 DEGREES 39 FEET 53 INCHES, AN ARC DISTANCE OF 62.88 FEET; THENCE TANGENT TO SAID CURVE NORTH 34 DEGREES 24 FEET 40 INCHES EAST, A DISTANCE OF 141.77 FEET TO A POINT ON SAID SOUTHWESTERLY LINE OF EIGHTH STREET; THENCE SOUTH 44 DEGREES 51 FEET 20 INCHES EAST ALONG SAID SOUTHWESTERLY LINE OF EIGHTH STREET, A DISTANCE OF 166.30 FEET; THENCE SOUTH 45 DEGREES 08 FEET 40 INCHES WEST, A DISTANCE OF 81.75 FEET; THENCE SOUTH 44 DEGREES 51 FEET 20 INCHES EAST, A DISTANCE OF 93.0 FEET TO THE POINT OF BEGINNING, CONTAINING 39, 808 SQUARE FEET, MORE OR LESS, AND BEING A PORTION OF 100 VARA BLOCK NO. 420. PARCEL TWO: ---------- BEGINNING AT THE POINT OF INTERSECTION OF THE NORTHWESTERLY LINE OF TOWNSEND STREET AND THE SOUTHWESTERLY LINE OF EIGHTH STREET IN THE CITY AND COUNTY OF SAN FRANCISCO; THENCE FROM SAID POINT OF BEGINNING SOUTH 45 DEGREES 08 FEET 40 INCHES WEST (THE BEARING OF SAID NORTHWESTERLY LINE OF TOWNSEND STREET BEING TAKEN AS SOUTH 45 DEGREES 08 FEET 40 INCHES WEST FOR THE PURPOSE OF THIS DESCRIPTION) ALONG SAID NORTHWESTERLY LINE OF TOWNSEND STREET, A DISTANCE OF 81.75 FEET TO A POINT ON THE NORTHEASTERLY LINE OF PARCEL CONVEYED BY THE WESTERN PACIFIC RAILROAD COMPANY TO J.W. EHRLICH, TRUSTEE FOR THE HEIRS OF THE PRINCIPALS OF MAX SOBEL WHOLESALE LIQUORS, BY DEED RECORDED OCTOBER 18, 1955, IN BOOK 6717 OF OFFICIAL RECORDS, AT PAGES 161 TO 166, INCLUSIVE IN THE OFFICE OF THE RECORDER OF THE CITY AND COUNTY OF SAN FRANCISCO; THENCE NORTH 44 DEGREES 51 FEET 20 INCHES WEST ALONG SAID NORTHEASTERLY LINE, A DISTANCE OF 93.00 FEET; THENCE AT A RIGHT ANGLE NORTH 45 DEGREES 08 FEET 40 INCHES EAST ALONG THE SOUTHEASTERLY LINE OF SAID PARCEL CONVEYED TO J.W. EHRLICH, TRUSTEE, A DISTANCE OF 81.75 FEET TO A POINT ON SAID SOUTHWESTERLY LINE OF EIGHTH STREET; THENCE SOUTH 44 DEGREES 51 FEET 20 INCHES EAST ALONG SAID SOUTHWESTERLY LINE OF EIGHTH STREET, A DISTANCE OF 93.00 FEET TO THE POINT OF BEGINNING. BEING PART OF 100 VARA BLOCK NO. 420. EXHIBIT "A" PARCEL THREE ------------ BEGINNING AT THE MOST NORTHERLY CORNER OF THAT CERTAIN PARCEL OF LAND CONVEYED BY THE WESTERN PACIFIC RAILROAD COMPANY, TO J. W. EHRLICH, TRUSTEE FOR SHERON SOBEL, CYNTHIA SOBEL, JOANNE COHEN AND STEVEN COHEN, AS RECORDED OCTOBER 18, 1955 IN VOLUME 6717, AT PAGES 161 TO 166 INCLUSIVE, OFFICIAL RECORDS, OF THE CITY AND COUNTY OF SAN FRANCISCO, SAID POINT OF BEGINNING, ALSO BEING ON THE SOUTHERLY LINE OF 8TH STREET, SAID CITY OF SAN FRANCISCO; THENCE FROM SAID POINT OF BEGINNING SOUTH 34 DEGREES 24 FEET 40 INCHES WEST ALONG THE WESTERLY LINE OF SAID PARCEL CONVEYED TO J.W. EHRLICH, TRUSTEE, A DISTANCE OF 141.77 FEET; THENCE CONTINUING ALONG SAID WEST LINE ON THE ARC OF A CURVE TO THE LEFT HAVING A RADIUS OF 372,745 FEET (THE CENTER OF SAID CURVE BEARS SOUTH 55 DEGREES 35 FEET 20 INCHES EAST), THROUGH A CENTRAL ANGLE OF 9 DEGREES 39 FEET 53 INCHES, AN ARC DISTANCE OF 62.88 FEET, TO A POINT ON THE NORTHEASTERLY LINE OF THE PARCEL OF LAND CONVEYED BY THE WESTERN PACIFIC RAILROAD COMPANY TO THE STATE OF CALIFORNIA, AS RECORDED FEBRUARY 26, 1952 IN VOLUME 5876, AT PAGE 453, OFFICIAL RECORDS OF THE CITY AND COUNTY OF SAN FRANCISCO; THENCE NORTHERLY AND WESTERLY ALONG SAID NORTHEASTERLY PROPERTY LINE ALONG THE ARC OF A CURVE TO THE LEFT HAVING A RADIUS OF 1,147.00 FEET (THE CENTER OF SAID CURVE BEARS SOUTH 78 DEGREES 06 FEET 15 INCHES WEST), THROUGH A CENTRAL ANGLE OF 4 DEGREES 59 FEET 29 INCHES, AN ARC DISTANCE OF 99.92 FEET; THENCE ON THE ARC OF A CURVE TO THE RIGHT HAVING A RADIUS OF 372.245 FEET (THE CENTER OF SAID CURVE BEARS SOUTH 73 DEGREES 57 FEET 51 INCHES EAST), THROUGH A CENTRAL ANGLE OF 24 DEGREES 11 FEET 13 INCHES, AN ARC DISTANCE OF 157.14 FEET, TO A POINT ON THE SOUTHERLY LINE OF 8TH STREET; THENCE SOUTH 44 DEGREES 51 FEET 20 INCHES EAST ALONG SAID SOUTHERLY LINE OF 8TH STREET, A DISTANCE OF 68.49 FEET TO THE POINT OF BEGINNING. BEING A PORTION OF 100 VARA BLACK 420. RESERVING FROM Parcel One of said real property (i) the free-standing sign on the southerly portion of said Parcel One and (ii) an easement of ingress and egress from Division Street across said Parcel One and of use of the area within said Parcel One immediately surrounding said sign for the purposes of operating, maintaining, repairing and replacing said sign for the benefit of Grantors, their assigns, agents and invitees. EXHIBIT C --------- Landlord shall provide Tenant's improvements as follows: 1. Three (3) private offices with sliding glass doors. 2. Two (2) conference rooms with glass windows (panels). 3. Four, fifty four inch (54") high walls. 4. Open kitchen with sink, counter and cabinetry. 5. Vinyl tile in kitchen. 6. Supply room or shelving. 7. Carpet throughout of Tenant's choice (not to exceed $15.00 per square yard) installed. 8. Painting throughout in colors of Tenant's choice with Landlord approval. 9. The exposed structural columns within the Premises shall be "fired-out" with a finish acceptable to Tenant. 10. Lighting sufficient to illuminate desk-heights surfaces. 11. Electrical outlets, located at a ratio of one (1) outlet per twelve (12) lineal feet of partition for the office areas, including the fifty four (54") high walls. Landlord agrees to install conduit (for cabling) at each electrical outlet. 12. Electrical outlets shall be fifty percent (50%) duplex and fifty percent (50%) fourplex. Four dedicated outlets will be installed. 13. Tenant to plan, install, and pay for all telephone equipment, computer cables, and computer equipment. 14. Landlord shall improve to building standard the appearance of the secondary entrance of the stairway from Eighth Street. 15. See Exhibit C-1 for Tenant's floor plan. 16. Landlord agrees that all improvements shall be to the standard of Suite 244. EXHIBIT C-1(a) [EIGHTH STREET -- PARTIAL SECOND FLOOR PLAN] EXHIBIT B [EIGHTH STREET -- PARTIAL SECOND FLOOR PLAN] EXHIBIT C-1(b) PERFECT MARKET/CITY SEARCH [EIGHTH STREET -- PARTIAL SECOND FLOOR PLAN] EXHIBIT D --------- RULES AND REGULATIONS --------------------- 1. The sidewalks, halls, passages, exits, entrances, elevators and stairways of the building shall not be obstructed by any of the tenants or used by them for any purpose other than for ingress to and egress from their respective premises. The halls, passages, exits, entrances, and stairways are not for the general public, and Landlord shall, in all cases, retain the right to control and prevent access thereto of all persons whose presence, in the judgment of Landlord, would be prejudicial to the safety, character, reputation and interests of the building and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. 2. No sign, placard, picture, name, advertisement or notice visible from the exterior of any tenant's premises shall be inscribed, painted, affixed of otherwise displayed by any tenant on any part of the building without the prior written consent of Landlord. Landlord will adopt and furnish to tenant general guidelines relating to signs inside the building on the office floors. Tenant agrees to conform to such guidelines, but may request approval of Landlord for modifications, which approval will not be unreasonably withheld. All approved signs of lettering on doors shall be printed, painted, affixed or inscribed at the expense of the tenant by a person approved by Landlord, which approval will not be unreasonably withheld. Material visible from outside the building will not be permitted. Landlord may from time to time replace the directory sign with a new sign of equal or better quality. Landlord may, from time to time, remove and/or relocate signs placed outside of any tenant's premises. 3. The premises shall not be used for lodging. No cooking shall be done or permitted by any tenant on the premises, except that use by the tenant of Underwriters's Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages shall be permitted, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations. 4. Landlord will furnish each tenant free of charge a key to each door lock in the premises. Landlord may make a EXHIBIT D --------- -1- reasonable charge for any additional keys. No tenant shall have any duplicate keys made without prior written approval of Landlord, no tenant shall alter any lock or install a new or additional lock or any bolt on any door of its premises without the prior written consent of Landlord. Tenant shall in each case furnish Landlord with a key for any such lock. Each tenant, upon the termination of its tenancy, shall deliver to Landlord all keys to doors in the building which shall have been furnished to tenant. 5. No tenant shall use or keep in the premises or the building any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities thereof reasonably necessary for the operation or maintenance of office equipment, or, without Landlord's prior written approval, use any method of heating or air conditioning other than supplied by Landlord, no tenant shall use or keep or permit to be used or kept any foul or noxious gas or substance in the premises, or permit or suffer the premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the building by reason of noise, odors or vibrations, or interfere in any way with other tenants or those having business therein. 6. Landlord shall have the right, exercisable without notice and without liability to any tenant, to change the name and street address of the building. 7. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it. 8. The Premises shall not be used for manufacturing of any kind, or any business or activity other than that specifically provided for in Tenant's lease. EXHIBIT D --------- -2- 9. 110 tenant shall install any radio or television antenna, loudspeaker, or other device on the roof or exterior walls of the building. 10. There shall not be used in any space, or in the public halls of the building, either by any tenant or others, any hand trucks except those equipped with rubber tires and side guards or such other material handling equipment as Landlord may approve. No other vehicles of any kind shall be brought by any tenant into the Building or kept in or about its premises. 11. EACH TENANT SHALL STORE ALL ITS TRASH AND GARBAGE WITHIN ITS ------------------------------------------------------------ PREMISES. - -------- 12. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the City of San Francisco without being in violation of any low or ordinance governing such disposal. All garbage and refuse disposal shall be made only through entryways and elevators provided for such purposes and at such times as Landlord shall designate. 13. Canvassing, peddling, soliciting, and distribution of handbills or any other written materials in the building are prohibited, and each tenant shall cooperate to prevent the same. 14. Landlord may waive any or more of these rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the building. 15. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend in whole or in part the terms, covenants, agreements and conditions of any lease of premises in the building. 16. Landlord reserves the right to make such other and reasonable rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the building, and for the preservation of good order therein. EXHIBIT D --------- -3- EXHIBIT E RECOGNITION AND ATTORNMENT AGREEMENT This Agreement ("Agreement") is made on __________________________________, 19__ between Cynthia Morris, THE LISS LIVING TRUST U/A DATED 4/15/91 and CHARLES, AND SHERRI SUGARMAN LIVING TRUST U/A DATED 8/24/90 (collectively "Masterlandlord"), whose address is 5710 Paradise Drive, Suite 3A, Corte Madera, CA 94925, SOBEL BUILDING DEVELOPMENT PARTNERS, a California General Partnership ("Landlord"), whose address is 680 Eighth Street, San Francisco, CA 94103, and Perfect Market, Inc. DBA: City Search ("Tenant"), whose address is - ------------------------------------- 680 Eighth Street, Suite 240 who agree as follows: - ---------------------------- San Francisco, CA 94103 1. RECITALS. This Agreement is made with reference to the following facts and objectives. (a) Master Landlord is the owner in fee of improved real property located in the City of San Francisco, County of San Francisco, commonly known as 680 Eighth Street. (b) On January 10, 1986, Master Landlord leased to Landlord and Landlord leased from Master Landlord, the real property described in this Agreement. The lease between Master Landlord and Landlord shall be referred to as 'the Master Lease. (c) Landlord and Tenant are contemplating entering into a sublease of a part of the real property (the "Premises"), a copy of which sublease Master Landlord has received. The sublease shall be referred to as the "Lease". (d) The parties desire, under the provisions set forth in this Agreement, to assute to Tenant possession of the Premises for the entire term of the Lease even if Landlord defaults under the Master Lease or the Master Lease terminates before expiration of the Lease. 2. MASTER LANDLORD'S CONSENT TO LEASE. Master Landlord consents to Landlord and Tenant entering into the Lease, without waiver of the restriation in the Master Lease concerning further assignment or subletting. 3. ATTORNMENT. If after expiration of the applicable period that Landlord has in which to cure its defaults, Landlord defaults under the Master Lease, the Master Landlord shall notify the Tenant of the default. On receipt of the notice from Master Landlord, Tenant shall attorn to Master Landlord and perform all Tenant's obligations under the Lease directly to Master Landlord as if Master Landlord were the Landlord under the Lease. If Tenant is not, at the time of the notice, in default, Master Landlord shall continue to recognize the estate of Tenant created under the Lease. If Tenant is not in default, the Lease shall continue with the same force and effect as if Master Landlord and Tenant had entered into a Lease on the same provisions as those contained in the Lease. 4. TERMINATION OF MASTER LEASE BY DESTRUCTION OR CONDEMATION. If Master Lease terminates as provided in paragraphs 18 & 20 of the Master Lease, the Lease shall also terminate on the date that the Master Lease terminates. 5. TENANT'S LIABILITY TO LANDLORD. From the date Tenant attorns to Master Landlord as provided in this Agreement, Tenant shall not be further liable to Landlord for performance under the Lease, and Landlord shall return to Tenant, immediately on Tenant's demand, the security deposit plus accrued interest and other prepaid sums the Tenant paid to Landlord under provisions of the Lease. 6. CONDITIONS OF MASTER LANDLORD'S RECOGNITION AND TENANT'S ATTORNMENT. Master, Landlord's obligation to recognize Tenant's rights under the Lease, and Tenant's obligation to attorn to Master Landlord, are subject to the following: (a) Master Landlord and Tenant, from the date of recognition and attornment, shall have the same rights that can be enforced against each other as Landlord and Tenant have that can be enforced against each other under the Lease. Master Landlord shall not be liable for any act or omission of Landlord and its authorized representatives, shall not be subject to any offsets or defenses that Tenant has against Landlord, and shall not be bound by any prepaid rent, security deposit or other prepaid sum that Tenant has paid in advance to Landlord. (b) Master Landlord and Tenant immediately shall enter into a written agreement with the same provisions as those in the Lease, except for any changes that are necessary because of the substitution of Master Landlord in the place of Landlord. 7. AMENDMENT OF LEASE. Landlord and Tenant shall not enter into any agreement that amends the Lease without Master Landlord's consent. Any amendment of the Lease in violation of this provision shall have no force or effect on Master Landlord. 8. MISCELLANEOUS. (a) No Effect on Master Lease. Nothing in this Agreement shall be deemed to change in any manner the provisions of the Master Lease between Master Landlord and Landlord, or to waive any right that Master Landlord may now have or later acquire against Landlord by reason of the Master Lease. (b) Attorney's Fees. If any commences an action against any of the other parties arising out of or in connection with this Agreement, the prevailing party shall be entitled to recover from the losing party reasonable attorney's fees and costs of suit. (c) Notice. Any notice, demand, request, consent, approval, or communication that any party desires or is required to give to another party or any other person shall be in writing and either served personally or sent by prepaid, first-class-mail. Any notice, demand, request, consent, approval, or communication that any party desires or is required to give to the other party at the address set forth in the introductory paragraph of this Agreement. Any party may change its address by notifying the other parties of the change of Address. Notice shall be deemed communicated within forty-eight(48) hours from the time of mailing if mailed as provided in this paragraph. (d) Successors. This Agreement shall be binding on and inure to the benefit of the parties and their successors. MASTER LANDLORD LANDLORD TENANT By______________________ By [SIGNATURE ILLEGIBLE] By [SIGNATURE ILLEGIBLE] -------------------- -------------------- Title___________________ Title Agent for Title COO ----------------- ---------------- Leon Baungerton General Partner Page 2 EX-10.19 16 STANDARD OFFICE LEASE WITH BPG PASADENA EXHIBIT 10.19 OFFICE LEASE 790 EAST COLORADO BOULEVARD PASADENA, CALIFORNIA 91101 Lessor: BPG PASADENA, L.L.C., a Delaware Limited Liability Company and Lessee: CITYSEARCH, INC., a Delaware Corporation Dated: September 30, 1996 BARKER PACIFIC GROUP October 3, 1996 Mr. Brad Ramberg CitySearch, Inc. 4502 Dyer Street Suite 201 La Crescenta, CA 91214 Dear Brad: Attached is a fully executed copy of the Lease for your files. I am assuming that I will continue to coordinate directly with you concerning the build-out. Please keep me advised relative to the computer room facility as I do not want to let the ball drop on our end, relative to special work that needs to be done in that area. We look forward to having you relocate to the building, and I will be in touch with your associate, Bob Dinan, concerning the public information program. Very truly yours, /s/ Michael D. Barker Michael D. Barker Managing Director attachment cc: Bob Fitzgerald Drew Planting MDB/cer 790 EAST COLORADO BOULEVARD --------------------------- SUMMARY OF BASIC LEASE INFORMATION ---------------------------------- The undersigned hereby agree to the following terms of this Summary of Basic Lease Information (the "Summary"). This Summary is hereby incorporated into and made a part of the attached Office Lease (this Summary and the Office Lease to be known collectively as the "Lease") which pertains to the office building and parking structure the "Project") located at 790 East Colorado Boulevard, Pasadena, California 91101. Each reference in the Office Lease to any term of this Summary shall have the meaning as set forth in this Summary for such term. In the event of a conflict between the terms of this Summary and the Office Lease, the terms of the Office Lease shall prevail. Any capitalized terms used herein and not otherwise defined herein shall have the meaning as set forth in the Office Lease.
TERMS OF LEASE DESCRIPTION -------------- ----------- (References are to the Office Lease) 1. Date: September 30, 1996 2. Lessor: BPG Pasadena, L.L.C. 790 East Colorado Boulevard Pasadena, California 91101 Attention: Natalie P. Loucks With copy to: Attention: Richard J.Johnson Barker Pacific Group, Inc. 100 First, Suite 2200 San Francisco, CA 94105 3. Lessee: CITYSEARCH, INC. 4502 Dyer Street, Suite 201 La Crescenta, CA 91214 Attention: Chief Financial Officer and 790 East Colorado Boulevard Suite 200 Pasadena, California 91101 Attention: Chief Financial Officer (After Lease Commencement Date)
4. a. Premises (Article I): 22.389 rentable square feet of space comprising all of Level 2 and a portion of Level 3 of the Project as set forth in Exhibit B-I attached hereto. b. Expansion Premises 5.173 rentable square feet of space located on the 3rd floor of the Project as set forth in Exhibit B-2, attached hereto. 5. Term (Article 3): Five (5) years, Lessee may terminate the Lease after 36 months, subject to: 5.1 Lease Term: (a) no material default of Lease: (b) nine (9) months prior written notice: (c) payment of five (5) months Base Rental: and (a) payment of all unamortized Lessee improvement provided by Lessor and unamortized Lease commissions paid by Lessor at 12% interest rate. 6 Lease Commencement Date: The earlier of (i) the date Lessee commences business in the Premises, and (ii) the later of (A) November 1, 1996 or (B) the date of Substantial Completion of the Premises by Lessor (subject to acceleration pursuant to Section 5 of Exhibit B attached to the Office Lease). The Lease Commencement Date is scheduled to be November 1, 1996. Lessor shall endeavor to deliver to Lessee thirty (30) days' prior written notice of Lessor's estimate of when the date of Substantial Completion of the Premises shall occur. Lessor shall abate the Annual Base Rental three (3) days for each day the Lease premises are not substantially complete by November 20. 1996. Lessor's obligation hereunder shall be subject to Lessee's compliance with its scheduled commitments as set forth in the Work Letter (Exhibit D). 7. Lease Expiration Date: The last day of the month in which the 60th month anniversary of the Lease Commencement Date occurs. 8. Base Rent (Article 4)
Annual Monthly Rental Rate Lease Annual Installment per Rentable Year Base Rent of Base Rent Square Foot ----- --------- ------------ ------------ Months 1-9 416,435.00 34,702.95 $18.60 Months/9-12 512,653.20 42,721.10 $18.60 2 529,190.40 44,099.20 $19.20 3 562,264.80 46,855.40 $21.00 4 578,802.00 48,233.50 $21.00 5 578,802.00 48,233.50 $21.00
9. Additional Rent (Article 4) 9.1 Base Year: Basic costs for Calendar year 1997. 9.2 Lessee's Initial Share 21.10% (based upon a Building rentable area). The percentage share is based of Direct Expenses: on Lessee's ratio of leased premises to the total rentable area of the Buildings as defined by the BOMA. The percentage share will be adjusted to include the Expansion Premises upon commencement of the Lease of the Expansion Premises. 10. Security Deposit (Article 4.9): One month's rent. 11. a. Parking Passes (Article 20.20): Lessee shall be granted a ratio of four (4) parking passes for each 1.000 square feet of its Premises and expansion premises and right of first offer space. Monthly parking passes, based on stipulated ratio of passes, shall be: Months 1 - 6 No charge Months 6 - 12 $35.00 Months 13 - 24 $40.00 Months 25 - 36 $45.00 Months 37 - 48 $50.00 Months 49 - 60 $55.00 The above monthly amounts shall not exceed comparable parking charges in comparable office buildings located in the Lake Street office corridor of Pasadena. b. Additional Parking Subject to availability and subject to the prior rights of other lessees at the Project, Lessee may acquire additional parking passes at the market rate for such spaces, and shall receive additional parking preferential to those who are not Building occupants. 12. Brokers (Section 20.16): Lessee Agent: Drew Planting and Robert Fitzgerald Cushman & Wakefield of California 555 S. Flower Street, Suite 4200 Los Angeles, CA 90071-2418 and Lessor Agent: Barker Pacific Group, L.L.C. 790 E. Colorado Boulevard, 9th Floor Pasadena, CA 91101
The foregoing terms of this Summary are hereby agreed to by Lessor and Lessee. "LESSOR": BPG PASADENA, L.L.C. By:___________________________________ Its: Managing Member ---------------------------------- "LESSEE": CITYSEARCH, INC. By: /s/ [SIGNATURE ILLEGIBLE] ----------------------------------- Its: Chief Financial Officer ---------------------------------- "90 EAST COLORADO BOULEVARD -------------------------- OFFICE LEASE ------------ TABLE OF CONTENTS -----------------
ARTICLE SUBJECT MATTER PAGE - ------- -------------- ---- ARTICLE 1 REAL PROPERTY, BUILDING AND PREMISES.................................... 1 ARTICLE 2 PLANS AND CONSTRUCTION.................................................. 4 ARTICLE 3 TERM, USE, COMPLIANCE WITH LAWS......................................... 5 ARTICLE 4 RENTAL.................................................................. 7 ARTICLE 5 SERVICES AND UTILITIES.................................................. 12 ARTICLE 6 REPAIRS................................................................. 13 ARTICLE 7 ADDITIONS AND ALTERATIONS............................................... 14 ARTICLE 8 COVENANT AGAINST LIENS.................................................. 15 ARTICLE 9 INSURANCE............................................................... 15 ARTICLE 10 DAMAGE AND DESTRUCTION.................................................. 17 ARTICLE 11 NON-WAIVER.............................................................. 18 ARTICLE 12 EMINENT DOMAIN.......................................................... 18 ARTICLE 13 ASSIGNMENT AND SUBLETTING............................................... 19 ARTICLE 14 SURRENDER OF PREMISES OWNERSHIP AND REMOVAL OF TRADE FIXTURES........... 21 ARTICLE 15 HOLDING OVER............................................................ 22 ARTICLE 16 ESTOPPEL, ATTORNMENT AND SUBORDINATION.................................. 22 ARTICLE 17 DEFAULTS: REMEDIES...................................................... 23 ARTICLE 18 GRAPHICS................................................................ 25 ARTICLE 19 LESSOR'S RIGHT TO CURE DEFAULT; PAYMENT BY LESSEE....................... 25 ARTICLE 20 MISCELLANEOUS PROVISIONS................................................ 26
EXHIBITS - -------- A. LEGAL DESCRIPTION B. OUTLINE OF FLOOR PLAN OF PREMISES C. LESSEE WORK LETTER D. LESSEE'S FINAL SPACE PLAN E. NOTICE OF LEASE TERM DATES F. RULES AND REGULATIONS G. FORM OF LESSEE ESTOPPEL CERTIFICATE H. CLEANING SPECIFICATIONS
INDEX OF MAJOR DEFINED TERMS ---------------------------- DEFINED TERMS LOCATION OF DEFINITION IN OFFICE LEASE --------------- Additional Rental............................................ Article 4.6 Adjacent Parking Structure................................... Article 1.1 Base Rent.................................................... Article 8 of Summary Base Year................................................... Article 9.1 of Summary Basic Costs.................................................. Article 4.4 Calendar Year................................................ Article 4.3.2 Basic Services............................................... Article 5.1 Commencement Date............................................ Article 3.1 Expense Rental............................................... Article 4.1(b) Expense Rental Adjustment.................................... Article 4.2(b) Expense Year................................................. Article 4.3.3 Force Majeure................................................ Article 4.27 Hazardous Material........................................... Article 20.24 Holidays..................................................... Article 5.1 Impositions.................................................. Article 4.4(1) Scheduled Commencement Date.................................. Article 2.2(c) Lease Expiration Date........................................ Article 7 of Summary Lease Term................................................... Article 5 of Summary Operating Expenses........................................... Article 4.2.5 Preliminary Plans............................................ Article 2.1(a) Premises..................................................... Article 4 of Summary Project...................................................... Article 1.1 Rentable Area................................................ Article 1.5 Security Deposit............................................. Article 4.9 Signage...................................................... Article 5.6 Systems and Equipment........................................ Article 5.1 Lessee Work Letter........................................... Article 2.1(b) Transfer Notice.............................................. Article 13.1 Transfer Premium............................................. Article 13.1 Transferee................................................... Article 13.1 Transfers.................................................... Article 13.1
790 EAST COLORADO BOULEVARD --------------------------- OFFICE LEASE ------------ This Office Lease, which includes the preceding Summary of Basic Lease Information (the "Summary") attached hereto and incorporated herein by the reference (the Office Lease and Summary to be known sometimes collectively hereafter as the "Lease"), dated as of the date set forth in Section 1 of the Summary, is made by and between BPG PASADENA, L.L.C., a Delaware Limited Liability Company ("Lessor"), and CITYSEARCH, INC., a Delaware Corporation ("Lessee"). ARTICLE I --------- REAL PROPERTY, BUILDING AND PREMISES ------------------------------------ 1.1 Real Property, Building and Premises. Upon and subject to the ------------------------------------ terms, covenants and conditions hereinafter set forth in this Lease, Lessor hereby leases to Lessee and Lessee hereby leases from Lessor the premises set forth in Section 4 of the Summary (the "Premises"), which Premises are located in the "Project," as that term is defined in this Section 1.1. The outline of the floor plan of the Premises is set forth in Exhibit B attached hereto. The --------- Premises are a part of the office building (the "Project") located at 790 East Colorado Boulevard, Pasadena, California 91101. The office building, the parking garage facility located adjacent to the office building ("Adjacent Parking Structure"), the outside plaza areas, land and other improvements surrounding the Project which are designated from time to time by Lessor as common areas appurtenant to or servicing the Project, and the land upon which any of the foregoing are situated, are herein sometimes collectively referred to as the "Real Property." Lessee is hereby granted the right to the nonexclusive use of the common corridors and hallways, stairwells, elevators, rest rooms and other public or common areas located on the "Real Property," provided, however, that the manner in which such public and common areas are maintained and operated shall be at the sole discretion of Lessor and the use thereof shall be subject to such rules, regulations and restrictions as Lessor may make form time to time, subject to non-discrimination standards. Lessor reserves the right to make alterations or additions to or change the location of elements of the Real Property and the common areas thereof provided however, that Lessor shall not make any alterations or changes to the Common Areas that would materially decrease the level of service provided to Lessee. Except when and where Lessee's right of access is specifically excluded above and elsewhere on this Lease, Lessee shall have the right of access to the Premises twenty-four (24) hours per day, seven (7) days per week during the Lease Term. 1.2 Condition of the Premises. Except as specifically set forth ------------------------- in this Lease and in the Lessee Work Letter attached hereto as Exhibit C. Lessor shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises. Lessee also acknowledges that Lessor has made no representation or warranty regarding the condition of the Premises or the Project except as specifically set forth in this Lease and the Lessee Work Letter. Lessor shall deliver the Premises free and clear of debris, and shall thoroughly clean the Premises, following Lessee's move into the Premises. Lessor thereafter warrants that the Project will be leased, operated and maintained as an institutional quality office building. 1.3 Common Area. Appurtenant to the Premises and subject to ----------- reasonable rules and regulations from time to time made by the Lessor of which Lessee is given notice, Lessee shall have the right to the use of the following common ("Common Areas"): (a) Building Common Area. The common stairways, corridors -------------------- and accessways, vending or mail areas, lobbies and foyers, entrances, stairs, escalators, elevators, rest rooms, janitorial, telephone, mechanical and electrical rooms and any passageways thereto, and the common pipes, ducts, conduits, wires and appurtenant equipment serving the Premises. 1 (b) Land Common Area. The common walkways and sidewalks ----------------- necessary for access to the Project. Lessee's acceptance of the Premises shall constitute an acknowledgment and acceptance of the various temporary inconveniences that may be associated with the use of the Common Areas. 1.4 Lessor's Reserved Rights in Premises and Common Areas. Lessor ----------------------------------------------------- reserves the right, provided that the exercise of such right does not materially decrease the level of service provided to Lessee from time to time. (a) Building Changes. To install, use, maintain, repair and ---------------- replace pipes, ducts, conduits, wires and appurtenant meters and equipment for service to other parts of the Project above the ceiling surfaces, below the floor surfaces, within the walls and in the central core areas, and to relocate any pipes, ducts, conduits, wires and appurtenant meters and equipment in the Premises which are so located or located elsewhere outside the Premises. (b) Boundary Changes. To change the lines of the lot on which ---------------- the office building and parking structure stands ("Lot") and to redesign and restripe the parking facilities in the Garage and make other reasonable changes and grant others rights thereto, including without limitation the granting of easements, rights of way and rights of ingress and egress and similar rights to users of parcels adjacent to the Lot. (c) Facility Changes. To alter or relocate any other common ---------------- areas of facilities associated with the Project. (d) Garage Parking and Storage. To grant exclusive use to -------------------------- portions of the Garage in the Project to other Tenants of the Building and to impose parking charges from time to time for use of the Garage, except however, as limited by the parking charges to be paid by Lessee as set forth in the Summary and per article 20.20 below 1.5 Rentable Area. The term "Rentable Area" shall be deemed to ------------- include. (a) in the case of a single tenancy floor the aggregate of (i) all floor area of the Premises measured from the inside surface of the outer glass and extensions of the plane thereof in non-glass areas to the inside surface of the opposite outer glass and extensions of the plane thereof in non- glass areas and shall include all areas within the outside walls, excluding only the areas ("Service Areas") used for elevator mechanical rooms, building stairs, fire towers, elevator shafts, flues, vents, stacks, vertical pipe shafts and vertical ducts, but including any such Service Arears which are for the specific use of the particular tenant such as special stairs or elevators, and (ii) Lessee's Percentage Share (defined in Article 1.6 below of the square footage of the Project's elevator and main mechanical rooms, fire control stations and building lobbies ("Building Areas"); and (b) in the case of a partial tenancy floor, the aggregate of (i) all floor area of the Premises within the inside surface of the outer glass and extensions of the plane thereof in non-glass areas to the mid-point of the demising walls separating the Premises from areas leased by or held for lease to other tenants or from Project Common Areas located on such floor and other similar facilities for the use of all tenants on such floor, (ii) Lessee's allocable portion based upon the ratio which the Rentable Area of the Premises bears to the Rentable Area of the floor ("Lessee's Floor Share") of the Project Common Areas located on such floor and other similar facilities for the use of all tenants on such floor, and (iii) Lessee's Percentage Share of the Project Areas. In determining Rentable Area, no deductions shall be made for columns or projections necessary for the Project. The Rentable Area of the Premises and the Rentable Area of the Project (which for the purposes of this Lease is exclusive of retail and storage or basement uses) have been calculated on the basis of the foregoing definition and shall be consistent with the standards established by the Building Owners and Management Association, "BOMA", are hereby stipulated for all purposes hereof to be the approximate amounts stated in the Basic Lease Information, subject to confirmation by actual measurement by Lessor's architect, at the request of either party prior to Lessee's occupancy. 2 1.6 Lessee's Percentage Share. The term "Lessee's Percentage Share" ------------------------- shall mean the percentage figure specified in the Basic Lease Information which represents the ratio that the Rentable Area of the Premises bears one hundred (100%) of the Rentable Area then leased in the Project. In the event Lessee's Percentage Share is changed during a calendar year by reason of a change in the Rentable Area of the Premises or a charge in the total Rentable Area of the Project, Lessee's Percentage Share shall be re-calculated pursuant to the aforementioned formula and shall be determined on the basis of the number of days during such calendar year at each such percentage, provided however that Lessee's financial obligation shall not be increased thereby. 1.7 Right of First Offer. During the term of the Lease, Lessee -------------------- shall have a right of first offer to lease that portion of the rentable area of seventh (7th) floor of the Project consisting of approximately 13.896 rentable square feet, as depicted on Exhibit B, attached hereto, (the First Offer Space) --------- which becomes available for lease as described hereinbelow, Lessee's right of first offer shall be on the terms and conditions set forth in this Section 1.7. Lessee shall not have any such first offer right to lease the First Offer Space (and/or Initial Space as the case may be) pursuant to this Section 1.7 until (A) with respect to the First Offer Space, after a Vacant Space Lease has been executed for such Vacant Space and such First Offer Space becomes available for lease following the expiration of such Vacant Space Lease (including renewals) and the Lessee thereunder has vacated such Vacant Space. 1.8 Procedure for Offer. Upon receipt of a written offer from a ------------------- third party for all or a portion of the subject Space, Lessor shall give Lessee written notice (the "First Offer Notice") that the First Offer Space requires a response pursuant to the terms of Lessee's Right of First Offer, as set forth in this Article 1. Pursuant to such First Offer Notice, Lessor shall offer to lease to Lessee the First Offer Space for a term coterminous with the Lease Term. The First Offer Notice shall describe the space so offered to Lessee including without limitation, Lessor's determination of the rentable square footage thereof, and shall set forth the "First Offer Rent" as that term 15 defined in Section 1.10 below, and the other terms upon which Lessor is willing to lease such space to Lessee. 1.9 Procedure for Acceptance. If Lessee wishes to exercise Lessee's ------------------------ right of first offer with respect to the space described in the First Offer Notice, then within ten (10) business days of delivery of the First Offer Notice to Lessee. Lessee shall deliver notice to Lessor of Lessee's exercise of its Right of First Offer in respect to the space described in the First Offer Notice at the First Offer Rent and upon the terms contained in such notice. If Lessee does not wish to exercise its Right of First Offer within such ten (10) business day period, then Lessor shall be free to lease the space described in the First Offer Notice to anyone to whom Lessor desires on any terms Lessor desires, whereupon, Lessee's Right of First Offer shall terminate with respect to such First Offer Space. Notwithstanding anything to the contrary contained herein, Lessee must elect to exercise its Right of First Offer, if at all, with respect to all of the space offered by Lessor to Lessee at any particular time, and Lessee may not elect to lease only a portion thereof. 1.10 First Offer Space Rent. The rent payable by Lessee for the ---------------------- First Offer Space (the "First Offer Rent") shall be equal to the Fair Market Rental Rate for the First Offer Space. In the event Lessor and Lessee cannot mutually agree upon the terms for such space, an Arbitrator will be appointed consistent with the terms of Article 3.7. 1.11 Construction In First Offer Space. Subject to any improvement --------------------------------- allowance granted to Lessee or Lessee improvement work to be provided by Lessor as a component of First Offer Rent, Lessee shall take the First Offer Space in its "as-is" condition as of the date of delivery of such space, and the construction of improvements in the First Offer Space shall be Lessee's sole responsibility (except that Lessor will provide a tenant improvement allowance equal to the Tenant Improvement Allowance for the Initial Premises reduced pro- rata by the remaining Lease Term), with any such construction to comply with the terms of Article 8 of this Lease. Notwithstanding the foregoing, should Tenant exercise its Right of First Offer within 12 calendar months prior to its Termination Rights and should Tenant receive a Tenant Improvement Allowance, then should Tenant exercise its Termination Right, Tenant in addition to paying the unamortized costs shall also pay on a penalty, equal to one month's Base Rent as set forth in Section 8 of the Summary of Basic Lease Information. The parties will consider the condition of the Space to determine the Fair Market Rental Rate. 3 1.12 Amendment to Lease. If Lessee timely exercises Lessee's right ------------------ to lease the First Offer Space, Lessor and Lessee shall within thirty (30) days thereafter execute an amendment to the Lease memorializing Lessee's lease for such First Offer Space upon the terms and conditions set forth in this Article 1. Lessee shall commence payment of Rent for the First Offer Space, and the term of the First Offer Space shall commence upon the date of delivery of the First Offer Space to Lessee in a condition mutually agreed by the parties (the "First Offer Commencement Date") and terminate coterminous with the termination of the Lease Term. 1.13 Suspension of Right of First Offer. Lessee shall not have the ---------------------------------- right to lease any First Offer Space if, as of the date of the attempted exercise of any right of first offer by Lessee, or as of the scheduled date of delivery of such First Offer Space to Lessee. Lessee is in material default under this Lease beyond any applicable notice and cure periods. In addition, the rights to lease the First Offer Space shall be personal to the Original Lessee, or any affiliate entity acquiring entity or restructured entity, which is comprised of Lessee, subject to the creditworthiness of the subject affiliate, acquiring or restructured entity executing this Lease (the "Original Lessee") and may only be exercised by the Original Lessee (and not by any assignee or any sublessee or other, transferee of Lessee's interest in this Lease or the Premises, or any part thereof) if, at the time of the attempted exercise of any such right of first offer, the Original Lessee is in physical occupancy and possession of the entire Premises. 1.14 Expansion Premises. On or before Nine (9) months from the ------------------ Commencement Date, Lessee hereby commits the lease, occupy and use all the remaining Space not initially leased on Level 3 as depicted in Exhibit B-2. The terms and conditions of the Expansion Premises shall be the same rental and same level of tenant improvements, to be provided by Lessor subject to Lessee's submittal of an Approved Space Plan for the Expansion Premises. The term of the lease for the Expansion Premises shall terminate on the same date as the lease covering the Initial Premises and all terms and conditions set forth in this lease shall be applicable to the Expansion Premises. ARTICLE 2 ------- PLANS AND CONSTRUCTION ---------------------- 2.1 Plans. ----- (a) Preliminary Plans. Lessor and Lessee have approved the ----------------- preliminary plans and outline specifications identified in Exhibit D for the construction of the Premises ("Preliminary Plans"). (b) Work Letter. Lessee has delivered to Lessor for Lessor's ----------- review and approval the Space Plan (and any revisions thereto) and the Working Drawings (substantially in conformity with the Space Plan), containing the information required by the Work Letter attached hereto as Exhibit C for the construction of the Premises (defined more completely in the Work Letter as "Improvements"). Any changes to the Improvements requested by Lessee shall only be made in accordance with the terms of the Work Letter. 2.2 Construction of Improvements and Payment. ---------------------------------------- (a) Construction. Lessor shall construct or install the ------------- Improvements in the Premises substantially in accordance with the Working Drawings and pursuant to the schedule set forth in the Work Letter. (b) Payment. Lessor shall determine Lessee's share of the cost ------- of constructing or installing the Improvements based on the parties' obligations as specified in the Work Letter. Lessee shall be solely responsible for the payment of Lessee Extra Work (as defined in the Work Letter). (c) Completion. Lessor shall use diligence to construct or ----------- install the 4 Improvements in a professional workmanlike manner in the Premises so that they are Substantially Complete (as defined in the Work Letter) by the Scheduled Commencement Date set forth in the Basic Lease Information; provide, however, that the Scheduled Commencement Date shall be extended for a period equal to the period of any delays affecting the construction of the Improvements because of fire, earthquake, weather, acts of God, acts or the public enemy, riot, insurrection, governmental authorities (permitting or inspection), governmental regulations of the sales of materials or supplies or the transportation thereof, strikes of boycotts, unavailability of material or labor at reasonable and customary prices, moratoria Lessee Delays (as defined in the Work Letter) at the time and in the manner described in the Work Letter. (d) Delays. Except for Lessee delays, if for any reason Lessor ------ cannot deliver possession of the Premises to Lessee on the Scheduled Commencement Date, this Lease shall not be void or voidable, except however, Lessee shall be granted three (3) days for each work day the Premises are not delivered by Lessor in a Substantially Complete form. Should Lessee Delay contribute to the delay, Lessor shall be granted one additional work day of delay for each day of delay resulting from Lessee Delays. Notwithstanding the foregoing, if possession of the Premises has not been delivered to Lessee within three (3) months following the Scheduled Commencement Date, this Lease shall automatically terminate. No delay in delivery of possession shall operate to extend the Lease term. ARTICLE 3 ------- TERM: USE: COMPLIANCE WITH LAWS ------------------------------- 3.1 Commencement of Term. Subject to and upon the terms and -------------------- conditions set forth herein, and receipt by Lessee of a thirty (30) day prior written notice of Lessor's intent to deliver the Premises, the term shall be for a period specified in the Summary as Term, commencing upon the earliest of the following dates ("Commencement Date"): (a) The date on which the Improvements to the Premises are Substantially Complete (defined in the Work Letter, Exhibit C); (b) The date on which the Improvements to the Premises would have been Substantially Complete had there been no Lessee Delays (defined in the Work Letter); or (c) The date upon which Lessee actually commences to do business in the Premises with Lessor's written consent. (d) November 20, 1996 (except for the area referred to as the computer room). Upon the Commencement Date, Lessor and Lessee shall execute an amendment to this Lease, as shown in Exhibit E attached herewith and made a part of this Lease setting forth the Commencement Date and Term Expiration Date. 3.2 General Use and Compliance with Laws. Lessee shall only use the ------------------------------------ Premises for general office, administrative and for any other legally permissible use comparable with a first class office building but for no other use without the prior written consent of Lessor. Subject to Article 4.4 (4) (i), Lessee shall comply with and faithfully observe all of the requirements of municipal, county, state, federal and other applicable governmental authorities, or which may hereafter be in force, pertaining to the use and occupancy of the Premises, Lot. Garage and Project and shall secure any necessary permits pertaining to Lessee's use and occupancy of the Premises. In Lessee's use and occupancy of the Premises. Lessee shall not subject the Premises to any use that would tend to damage any portion thereof or which shall in any way increase the existing rate of any insurance on the Project or any portion thereof or cause any cancellation of any insurance policy covering the Project or any portion thereof. Lessee shall not do or permit anything to be done in or about the Premises which shall in any way obstruct or interfere with the rights of other tenants of the Project, or injure or annoy them, or use or allow the 5 Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Lessee or Lessee's customers cause, maintain, or permit any nuisance in, on or about the Premises or commit or suffer to be committed any waste in, on or about the Premises. Lessee shall not bring into the office building, or keep or arrange in the Premises any furniture, equipment, materials or other objects which individually or collectively overload Premises or the office building. Lessor reserves the right to prescribe the weight and position of all safes, fixtures and heavy installations that Lessee desires to place in the Premises so as to distribute properly the weight, or to rescure plans prepared by a qualified structural engineer for such heavy objects at Lessee's sole cost and expense. Notwithstanding the foregoing Lessor shall have no liability for damage caused by the installation of such safes and heavy equipment. Furthermore, business machines and mechanical equipment belonging to Lessee that cause noise and or vibration that may be transmitted to the structure of the office building or to any other tenants in the office building shall be placed and maintained by Lessee, at Lessee's sole cost and expense, in settings of cork, rubber or spring type noise and or vibration eliminators and Lessee shall take such other measures directed by Lessor as needed to eliminate such vibration and/or noise. Lessee recognizes that the Project is maintained by Lessor as a location for first-class type of office business and retail occupancy. 3.3 Option Right. In the event Lessee has not elected to exercise ------------ its termination right as set forth in the Summary. Lessor hereby grants to Lessee one (1) option to extend the Lease Term for a period of five (5) years (the "Option Term"). The option shall be exercisable only by written notice delivered by Lessee to Lessor as provided below, provided that, as of the date of delivery of such notice. Lessee is not in material default under this Lease beyond any applicable notice and cure periods. Upon the proper exercise of such option to extend, and provided that, as of the end of the initial Lease Term, Lessee is not in material default under this Lease beyond any applicable notice and cure periods, the Lease Term as it applies to the Premises, and any Expansion Premises or any Premises leased in the Project by Lessee, shall be extended for the Option Term. The rights contained in this Section 3.3 shall be personal to the Original Lessee or its permitted assignee such as affiliates, acquiring entity or restructured entity, but not by any assignee, or any sublessee or other non-approved transferee of Lessee's interest in this Lease or the Premises, or any part thereof. 3.4 Option Rent. The rent payable by Lessee during the Option ----------- Term (the "Option Rent") shall equal ninety-five percent (95%) of the "Fair Market Rental Rate" for the Premises. The term "Fair Market Rental Rate" for the Premises during the Option Term and the Fair Market Rental Rate for the First Offer Space for purposes of determining the First Offer Rent pursuant to Section 1.7) shall mean the annual amount per rentable square foot being charged on a full service basis by Lessor as of the first day of the Option Term (or the First Offer Commencement Date for the First Offer Rent, as the case may be) for unencumbered non-sublease, non-equity space comparable to the Premises (or First Offer Space as applicable) in the Office Building (defined as those signed within 6 months of the valuation date) or if not enough comparable transactions exist in the office building then the annual amount per rentable square foot being charged on a full service basis for comparable space in Comparable Buildings (as that term is defined below, giving appropriate consideration to (appropriate concessions) "Rent Concessions and to all economic terms, such as annual rental rates per rentable square foot, escalation clauses (such as net, base year or expense stop), commercial provisions, relocation payments, locating free rent, if any, length of the lease term, size and location of premises being leased and other generally acceptable terms and conditions for the tenancy of the space in question, including Lessee improvements or allowances provided or to be provided for such comparable space (provided, however, that the amount of such improvements or allowances shall be reduced, when calculating the Option Rent for First Offer Rent, as the case may be by deducting the value of the existing improvements in the Premises (or First Offer Space, as the case may be), as of the first day of the Option Term, (or First Offer Commencement Date, as the case may be) with such value to be based upon the age, of the improvements provided, however, in calculating the Fair Market Rental Rate, no consideration shall be given in to the fact that (i) any rental abatement is or is not given such Lessees in connection with the construction of improvements in such comparable space, or (ii) Lessor is or is not required to pay a real estate brokerage commission in connection with the Option Term for First Offer Space, or the fact that comparable deals do or do not involve the payment of real estate brokerage commissions. If in determining the Fair Market Rental Rent. Rent Concessions are granted Lessor may at Lessor's sole option, elect any or a portion of the following: 6 (a) To grant some or all of the Rent Concessions to Lessee in the form as described above of as free rent and/or an improvement allowance): or. (b) To adjust the rental rate component of the Fair Market Rental Rate to be an effective rental rate which takes into consideration the total dollar value of such Rent Concessions (in which case the Rent Concessions evidenced in the effective rental rate shall not be granted to Lessee). The term "Comparable Building" as used in this Lease shall mean first-class office buildings located in the Lake Street Corridor of the Central Business District of Pasadena, California. 3.5 Exercise of Option. The Lease Extension Option shall be ------------------ exercised by Lessee, if at and only in the following manner: (1) Lessee shall deliver written notice to Lessor not more than fourteen (14) months nor less than nine (9) months prior to the expiration of the initial Lease Term, stating that Lessee may be interested in exercising its option: (ii) Lessor, after receipt of Lessee's notice, shall deliver notice the "Option Rent Notice") to Lessee not less than thirty (30) days, setting forth the Option Rent and, (iii) if Lessee wishes to exercise such option, Lessee shall, on or before the date occurring nine (9) months prior to the expiration of the initial Lease Term, exercise the option by delivering written notice thereof to Lessor, and upon, and concurrent with, such, exercise Lessee may, at its option, object to the Option Rent contained In the Option Rent Notice, in which case the parties shall follow the procedure, and the Option Rent shall be determined, as set forth in Section 3.6 below. 3.6 Determination of Option Rent. In the event Lessee timely and ----------------------------- objects in writing to the Option Rent (or First Offer Rent, as the case may be) initially determined by Lessor and based on ninety-five percent (95%) of the then Fair Market Value for comparable space on comparable buildings located in Pasadena, California, Lessor and Lessee shall attempt to agree upon the Option Rent (or First Offer Rent, as the case may be), using their best good-faith efforts. If Lessor and Lessee fail to reach agreement within twenty (b) dave following Lessee's objection to the Option Rent( or First Offer Rent, as the case may be) (the "Outside Agreement Date"), then each party shall submit to tine other party a separate written determination of the Option Rent (or First Offer Rent, as the case may be) within ten (10) business days after the Outside Agreement Date, and such determinations shall be submitted to arbitration in accordance with the provisions herein. Failure of Lessee or Lessor to submit a written determination of the Option Rent (or First Offer Rent, as the case may be) within such ten (10) business day period shall conclusively be deemed to be the non-determining party's approval of the Option Rent (or First Offer Rent, as the case may be) submitted within such ten (10) business day period by the other party. 3.7 Option Terms - Arbitration. Lessor and Lessee shall each --------------------------- appoint one arbitrator who shall by profession be an independent real estate broker who shall have been active over the five (5) year period ending on the date of such appointment in the leasing of first-class office buildings in Pasadena, California. The determination of the arbitrators shall be limited solely to the issue of whether Lessor's or Lessee's submitted Option Rent (or First Offer Rent, as the case may be) is the closest to the actual Option Rent (or First Offer Rent, as the case may as determined by the arbitrators, taking into account the requirements of Section 3.6 of this Lease with respect to the Option Rent and Section 1.10 of this Lease with respect to the First Offer Rent. Each such arbitrator shall be appointed within thirty (30) days after the Outside Agreement Date and adopt procedures as follows: (a) The two (2) arbitrators so appointed shall within ten (10) days of the date of the appointment of the last appointed arbitrator agree upon and appoint a third arbitrator who shall be qualified under the same criteria set forth hereinabove for qualification of the initial two (2) arbitrators: (b) The three (3) arbitrators shall with in thirty (30) days after the appointment of the third arbitrator reach a decision as to whether the panel shall use Lessor's or Lessee's submitted Option Rent (or First Offer Rent, as the case may be) and shall notify Lessor and Lessee thereof: (c) The decision of the majority of the three (3) arbitrators shall be binding upon Lessor and Lessee: 7 (d) If either Lessor or Lessee fails to appoint an arbitrator within thirty (30) days after the applicable Outside Agreement Date, the arbitrator appointed by one of them shall reach a decision, notify Lessor and Lessee thereof, and such arbitrator's shall be binding upon Lessor and Lessee; (e) If the two (2) arbitrators fail to agree upon and appoint a third arbitrator within the time period provided above, then the parties shall mutually select the third arbitrator. If Lessor and Lessee are unable to agree upon the third arbitrator within ten (10) days, then either party may upon at least five (5) days prior written notice to the other party, request the Presiding judge of the Los Angeles County Superior Court, acting in his her private and non-judicial capacity, to appoint the third arbitrator. Following the appointment the third arbitrator the panel, of arbitrators shall within thirty (30) days thereafter reach a decision as to whether Lessor's or Lessee's Option Rent (or First Offer Rent, as the case may be shall be used and shall notify Lessor and Lessee thereof; and (f) The cost of the arbitrators and the arbitration proceeding shall be paid by Lessor and Lessee equally, except that each party shall pay for the cost of its own witnesses, agents and attorneys. ARTICLE 4 ------- RENTAL ------ 4.1 Rent. Lessee shall pay, without notice or demand, to Lessor at ---- such place as Lessor may from time to time designate in writing, in currency or a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, "Rent" as set forth in Section 8 of the Summary, pay payable in equal monthly installments in advance on or before the first day of each and every month during the Lease Term, without any set off or deduction whatsoever. Rental shall collectively mean the following sums (collectively "Rent"). (a) Base Rental. Base Rental as specified in The Summary of ----------- Basic Lease information includes a component applicable to Basic Costs (defined in Article 4.4). The Base Year for the calculation of Basic Costs is 1997, and the Base Year "shall mean the period set forth in Section 9.1 of the Basic Lease Information adjusted to reflect 95% building occupancy. The "Expense Year" shall mean each calendar year in which any portion, of the Lease Term falls, through and including the calendar year in which the Lease Term expires. 4.2 Calculation and Payment of Additional Rent. ------------------------------------------ (a) Base Rental Adjustment. The Base Rental adjustments for the ---------------------- Term are set forth in the Summary. (b) Additional Rent Estimate. The amount to be paid initially as ------------------------ Expense Rental has been estimated by Lessor for the calendar year, 1997, Lessee's first full calendar year of the Term. Thereafter, Lessee's payment of Basic Costs shall be estimated and adjusted by Lessor as soon as reasonably possible after the end of each calendar year. The estimates and adjustments shall be made in accordance with the following procedures. (c) Calculation of Excess. If for any Expense Year ending or --------------------- commencing within the Lease Term, Tenant's Share of Direct Expenses for each Expense Year exceeds Tenant's proportionate share of the amount of Direct Expenses applicable to the Base Year, then Tenant shall pay to Landlord, in the manner set forth herein, as Additional Rent an amount equal to the excess. The foregoing shall be referred to as Lessee's share of Basic Costs. (d) Statement of Actual Direct Expenses and Payment by Tenant. --------------------------------------------------------- Within 120 days following the end of each Expense Year, Lessor shall deliver to Lessee a Statement ("Statement") which Statements should be derived from a audit conducted by an, independent certified public accountant (which accountant is a 8 member of a nationally recognized accounting firm) which shall state the Basic Costs on a line item basis as to the general categories of Basic Costs, incurred or accrued for each preceding Expense Year and which shall indicate the amount, if any, of any Excess. Upon receipt of the Statement for each Expense Year ending during the lease term if an Excess in present, Tenant shall pay with its next installment of Base Rent due but in no event prior to thirty (30) days after the receipt of such Statement the full amount of the excess for such Expense Year, less the amount, if any, paid during such Expense Year as defined. In the event that a Statement shows that the amount paid by Tenant exceeds Tenant's Share of the Increase in Basic Cost for the Expense Year in question ("overpayment") Tenant may credit the amount of such overpayment against the next due installments of Base Rent and Additional Rent provided that even though the Lease Term has expired and Tenant has vacated the premises, when the final determination is made to Tenant's Share of the Basic Cost for the Expense Year in which this Lease expires or earlier terminates taking into consideration that the Lease expiration date may have occurred prior to the final day of the applicable Expense Year if (i) any overpayment is present then Landlord shall concurrent with Landlords delivery to Tenant of the Statement pay to Tenant the amount of such over payment or (ii) an excess is present. Tenant shall within thirty (30) days pay to Landlord an amount as calculated pursuant to the provisions herein. (e) Prior to the commencement of each calendar year after Base Year, or as soon thereafter as practicable, Lessor shall give Lessee written notice of its estimate of Basic Costs for the ensuing twelve (12) month period; provided that if such notice is not given twenty (20) days prior to the commencement of the calendar year, Lessee shall continue to pay on the basis of the then applicable Lessee's Percentage Share of Basic Costs until the month after such notice is given. 4.3 Basic Costs. The term "Basic Costs" shall consist of all ----------- operating expenses of the Project including without limitation those specified below, which shall be computed on a cash basis and shall consist of all expenditures by Lessor to maintain in quality, first-class condition all facilities in operation from the beginning of the Term of this Lease and such additional facilities in subsequent years as may be determined by Lessor to be necessary or generally beneficial to the Project. The term Basic Costs as used herein shall mean all expenses, costs and disbursements of every kind and nature which Lessor shall pay or become obligated to pay because of or in connection with the ownership, management and operation of the Project, including without limitation the following: (a) Wages, salaries, taxes, insurance and related expenses and benefits of all on-site and off-site employees directly engaged in the operation, maintenance or access control of the Project. (b) All supplies, tools, equipment and materials directly used in the operation and maintenance of the Project, including any lease payments therefor. (c) Cost of all utilities for the Project, including the cost of water, power, sewer, heating, lighting, air conditioning and ventilating for the Project. Such cost of utilities shall expressly exclude any utility costs paid by any Lessees in the Project, or reimbursed to Lessor by any Lessees for separately metered services. ------- (d) Cost of all maintenance, repair and replacement expenses, janitorial, building engineering, landscaping, security, legal, other consulting fees and service agreements for the Project and the equipment therein, excluding such costs that exceed the amounts as determined by Article 4.4(i), including without limitation alarm service, window cleaning and elevator maintenance. (e) Cost of all insurance relating to the Project including without limitation the cost of casualty, earthquake, rental abatement and personal injury and property liability insurance applicable to the Project and Lessor's personal property used in connection therewith. (f) All real property taxes and assessments levied against the Project and the various estates therein and the underlying land, all personal property taxes levied on personal property of Lessor used in the management operation, maintenance and repair of the Project, all taxes, assessments and reassessments 9 of every kind and nature whatsoever levied or assessed in lieu of or in substitution for existing or additional real or personal property taxes and assessments on the Project or the sale, conveyance, assignment, ground lease or other transfer thereof, service payment in lieu of taxes, excises, transit charges and fees, housing, park and child care assessment, development and other assessments: reassessments, levies, fees or charges, general and special, ordinary and extraordinary, unforeseen as well as foreseen, of any kind which are assessed, levied, charged, confirmed, or imposed by any public authority upon the Project, its operations or the Rent provided for in this Lease, or amounts necessary to be expended because of governmental orders, whether general or special, ordinary or extraordinary, unforeseen as well as foreseen, or any kind and nature for public improvements, services, benefits, or any other purposes which are assessed, levied, confirmed, imposed or become a lien upon the Premises or Project or become payable during the Term (hereinafter collectively "Impositions"). (i) Installment Election. In the case of any Impositions -------------------- which may be evidenced by improvement or other bonds or which may be paid in annual or other periodic installments, Lessor shall elect to cause such bonds to be issued or cause such assessment to be paid in installments over the maximum period permitted by law. (ii) Limitation. Nothing contained in this Lease shall ---------- require Lessee to pay any franchise, estate, inheritance or succession transfer tax of Lessor, or any income, profits or revenue tax or charge, upon the net income of Lessor from all sources: provided, however, that if at any time during the Term under the laws of the United States government or the State of California, or any political subdivision thereof, a tax or excise on Rent, or any tax however described, is levied or assessed by any such political body against Lessor on account of Rent, or a portion thereof, Lessee shall pay one hundred percent (100%) of any such tax or excise as Additional Rent (defined in Article 4.6). (iii) Real Property Tax Reassessment. If the Project is ------------------------------ sold, conveyed or title otherwise transferred, and if, as a result thereof, the taxing authorities increase the real and personal property taxes, assessments, levies and fees set forth in Article 4.4(f) and other surcharges levied against the Project ("Property Taxes") in accordance with California Constitution Article XIIIA (such events together with the dollar amount of increased Property Taxes is a "Proposition 13 Readjustment"), Basic Costs shall be adjusted so that Basic Costs include (I) the Lessor of (a) the amount of Property Taxes payable after the Proposition 13 Readjustment, inclusive of any increase allowed under Proposition 13 had there been no such transfer, or (b) the Property Taxes as adjusted in accordance with the actual increase in the Consumer Price Index ("CPI") for All Urban Consumers. All Items for the Los Angeles Long Beach Area, as published by the Bureau of Labor Statistics of the U.S. Department of Labor as follows: the Property Taxes shall be adjusted by multiplying the Property Taxes as of the first full year of operation of the Property by a factor computed by adding one (1) to a fraction, the numerator of which shall be the difference between the CPI for the month nearest preceding the Proposition 13 Readjustment ("Adjustment Index") less the CPI for the month nearest preceding the Commencement Date ("Base Index") and the denominator of which shall be the Base Index, (II) all increases in Property Taxes which would occur notwithstanding such Proposition 13 Readjustment, including without limitation construction assessments, annual notification of new values and supplemental assessments, and (III) all increases in Property Taxes which occur because of changes in the laws, ordinances, orders, rules and regulations or because of voter action relating to Property Taxes. (g) Repairs, replacements and general maintenance (excluding repairs and general maintenance paid by proceeds of insurance or by Lessee or other third parties, and alterations attributable solely to tenants of the Building other than Lessee). (h) All maintenance costs relating to public and service areas of the Project, including without limitation sidewalks, landscaping, service areas, mechanical rooms and Project exteriors. (i) Amortization of the useful life of the cost of installation of capital improvement terms which are primarily for the purpose of reducing operating costs or which may be required by governmental authority. Notwithstanding this clause, any costs incurred by Lessor which may be expended to bring the Building into compliance with the American Disability Act (ADA) or hazardous material regulations, shall be fully borne by Lessor and shall be excluded from Base Costs. 10 (j) Lessor's central accounting costs and audit fees attributable to the Project. (k) A management cost recovery equal to three percent (3%) of Rent collections, provided that Lessor operate the Project through a full-time manager in a first-class efficient and as cost-effective a manner as possible so as to minimize operating expenses. (l) All costs and expenses associated with the operation and maintenance of the Garage. Except as specifically provided above, Basic Costs shall not include replacement of capital Improvement items, specific costs billed to and paid by specific tenants, expenses attributable to retail or commercial tenants, or expenses attributable to the management or operation of the visitor parking areas of the Garage. Notwithstanding any other provision herein to the contrary, it is agreed that in the event the office building is not at least ninety-five percent (95%) occupied during any calendar year of the Lease Term, an adjustment shall be made in computing the Basic Costs for such year so that the Basic Costs shall be computed for such year as though the office building had been ninety-five percent (95%) occupied during such year, Lessor and Lessee agree that Lessee's Percentage Share of Basic Costs shall be paid during the entire term of this Lease, beginning with the Commencement Date commencement and continuing to the day of termination. At its expense, Lessee shall have the right at any time to review and copy Lessor's books and records relating to the Basic Costs for the previous year. Lessor and Lessee acknowledge that certain of the costs of management, operation and maintenance of the Project are allocated entirely to the office tenants of the Project. Certain or such costs are allocated entirely to the retail operations, and certain of such costs are allocated among the office tenants of the office building and retail operations. The determination of such costs and their allocation shall be in accordance with generally accepted accounting principles applied on a consistent basis. 4.5 Monthly Rental Payments. Rental under Article 4.1(a) and (b) ----------------------- shall be due and payable in twelve (12) equal installments of one-twelfth (1/12) each on the first day of each calendar month during the Term and any extensions or renewals thereof without demand, counterclaim or offset. If the Term commences on a day other than the first day of a calendar month or ends on a day other than the last day of a calendar month, then the Rental under Article 4.1 (a) and (b) for the first and last fractional months shall be appropriately prorated. If the Term commences on a day other than the first day of a calendar year for purposes of calculating Lessee's Percentage Share of Basic Costs, the Basic Costs and the Expense Factor shall each be reduced by the proportion, that the number of days of the Term falling within such calendar year bears to three hundred sixty-five (365) days. Rental under Article 4.l (c) and any other amounts due under this Lease shall be collected pursuant to written notices from Lessor and payment shall be due within thirty (30) days of such notice. 4.6 Additional Rental. Lessee shall also pay as additional rental ----------------- all such other sums of money (including without limitation parking rental pursuant to Article 20.20) and rental in the initial amount specified in the Summary for use of storage space which may be subject to its availability, separately leased by Lessee. The initial rental shall be $1.00 per square foot per month without services and shall be subject to adjustment in like manner as provided in Article 4.2. as shall become due and payable by Lessee to Lessor, (" Additional Rental"). Such Additional Rental shall not be subject to abatement, set-off or deduction whatsoever, including without limitation all amounts Lessee shall be responsible for paying pursuant to the terms of Article 7.3 of this Lease. Except for amounts billed to Lessee under the terms of the Work Letter (which shall be payable pursuant to the terms of the Work Letter), Lessee shall pay to Lessor all amounts of Additional Rental within thirty (30) days of Lessee's receipt of a bill therefor. Lessor shall have the same remedies of default for the payment of Additional Rental as are available to Lessor in the payment of Rental. All Rental amounts due under Article 4.1 of this Lease and all amounts of Additional Rental shall be collectively referred to as "Rent". 11 4.7 No Deduction or Offer. Rent shall be paid to Lessor, without --------------------- deduction or offset, in lawful money of the United States of America at Lessor's address as set forth in the Summary or to such other person or at such place as Lessor may from time to time designate in writing. No payment by Lessee or receipt by Lessor of a lessor amount of Rent shall be other than on account of the earliest rental or payment due, nor shall any endorsement or statement on any check or letter accompanying any such check or payment constitute an accord and satisfaction and Lessor may accept any such check or payment or pursue any other remedy under this Lease, at law or in equity. 4.8 Late Payment and Interest. If any installment of Rent is not ------------------------- paid within five (5) days of the date when due, subject to three (3) days prior written notice, such past due Rent shall bear interest from five (5) days after the due date until paid at the lesser of (a) three per cent (3%) per annum over the prime rate of interest announced from time to time by Wells Fargo National Association, Los Angeles, California. In the event such late charge; is imposed by Lessor for two (2) consecutive months for whatever reason Lessor shall have that option to require that, beginning with the first payment of Rent due following the imposition of the second consecutive late charge. Lessee shall increase the amount of the Security Deposit required under Article 4.9 by one hundred percent (100%) which additional Security Deposit shall be retained by Lessor. This provision shall not relieve Lessee from payment of Rent at the time and in the manner herein specified. The payment by Lessee and receipt by Lessor of the payment charges interest is not a release on waiver by the Lessor of a default by Lessee. 4.9 Security Deposit. Upon execution of this Lease, Lessee shall ---------------- deposit the amount specified in the Summary as a security deposit ("Security Deposit"), with Lessor. The Security Deposit shall secure Lessee's obligations under this Lease to pay Rent and other monetary amounts, to maintain the Premises and repair damages thereto, to surrender the Premises to Lessor in clean condition and repair upon termination of this Lease and to discharge Lessee's other obligations hereunder. If Lessee fails to perform Lessee's obligations hereunder, Lessor may, but without any obligation to do so, apply all or any portion of the Security Deposit towards fulfillment of Lessee's unperformed obligations. If Lessor does so apply any potion of the Security Deposit, Lessee, upon demand by Lessor, shall immediately pay Lessor a sufficient amount in cash to restore the Security Deposit to the original amount. Lessee's failure to forthwith remit to Lessor an amount in cash sufficient to restore the Security Deposit to the original sum deposited within five (5) days after receipt of such demand shall constitute an Event of Default defined in Article 17). The Security Deposit shall be held by Lessor with liability for interest at the annual rate or five and one-half percent (5.5%) for the time such deposit is held by Lessor. Lessor is entitled to commingle the security deposits with its own funds and the Lessor is not to be deemed a trustee of fiduciary for Lessee in respect of the security deposit. Upon termination of this Lease, if Lessee has then performed all of Lessee's obligations hereunder, Lessor shall return the Security Deposit to Lessee. If Lessor sells or otherwise transfers Lessor's right or interest under this Lease, Lessor may deliver the Security Deposit to the transferee, whereupon Lessor shall be released from any further liability to Lessee with respect to the Security Deposit. ARTICLE 5 --------- SERVICES AND UTILITIES ---------------------- 5.1 Basic Services. Lessor shall provide the following Basic -------------- Services to the Project on all days during the Lease Term, unless otherwise stated below. (a) Subject to all governmental rules, regulations and guidelines applicable thereto, Lessor shall provide heating and air conditioning for normal comfort for normal office use in the Premises, from Monday through Friday, during the period from 7:00 a.m. to 6:00 p.m., and on Saturday during the period from 8:00 a.m. to 1:00 p.m. except for the date of observation of New Year's Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day (collectively the "Holidays"). Lessor will provide heating and air conditioning during other time periods as requested by Lessee at a rate not to exceed Lessor's actual cost for Premises. 12 (b) Lessor shall provide adequate electrical wiring and facilities and power for normal general office use defined as 5 watts per rentable square foot as depicted in the Preliminary Plan as approved by Lessor and Lessee. Such electrical capacity excludes twenty-four (24) hour HVAC systems as may be required for installation in the Premises by Lessee. Lessor shall replace, as part of Basic Costs, lamps, starters and ballasts for Building standard lighting fixtures within the Premises. (c) Lessor shall provide city water from the regular Building outlets for drinking, lavatory and plumbing requirements within the Premises. (d) Lessor shall provide janitorial services five (5) days per week, except the date of observation of the Holidays, in and about the Premises and window washing services according to the specifications set forth in Exhibit H. (e) Lessor shall provide nonexclusive automatic passenger elevator service at all times. (f) Lessor shall provide nonexclusive freight elevator service subject to scheduling by Lessor. (g) Subject to Lessee's repair obligations set forth in Article 6 below, Lessor shall operate and maintain, as a Basic Cost Expense, the Project (including the structural components of the Project and the Project's Systems and Equipment) in a first-class manner and condition. (h) Lessor shall maintain as a Basic Cost Expense, twenty-four (24) hours per day, seven (7) days per week, a reasonable security and supervision program for the Project, which may include, without limitation, security personnel, cameras, roving patrols, a keyboard system and/or any other security measures which Lessor deems appropriate. 5.2 Over Standard Use. Lessee shall not, without Lessor's prior ----------------- written consent, use heat generating machines, machines other than normal fractional horsepower office machines, or equipment or lighting other than building standard lights in the Premises, which may affect the temperature otherwise maintained by the air conditioning system or increase the water normally furnished for the Premises by Lessor pursuant to the terms of Section 5.1. If such consent is given, Lessor shall have the right to install supplementary air conditioning units or other facilities in the Premises, including supplementary or additional metering devices, and the cost thereof including the cost of installation, operation and maintenance, increased wear and tear on existing equipment and other similar charges, shall be paid by Lessee to Lessor upon billing by Lessor. If Lessee uses water or heat or air conditioning in excess of that supplied by Lessor pursuant to Section 5.1 such special HVAC units to provide twenty-four (24) hour service to specified areas within the Premises. Lessee shall pay to Lessor, upon billing, the actual cost of such excess consumption, the cost of the installation, operation, and maintenance of equipment which is installed in order to supply such excess consumption, and the cost of the increased wear and tear on existing equipment caused by such excess consumption and Lessor may install devices to separately meter any increased use and in such event Lessee shall pay the increased cost directly to Lessor, on demand, including the cost of such additional metering devices. 5.3 Interruption of Use. Lessee agrees that Lessor shall not be ------------------- liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water or other fuel at the Project after reasonable effort to do so by any accident or casualty whatsoever by act or default of Lessee or other panics or by any other cause beyond Lessor's reasonable control and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Lessee's use and possession of the Premises or relieve Lessee from paying Rent or performing any of its obligations under this Lease. Furthermore, Lessor shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Lessee's business, including, without 13 limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities unless caused by Lessor's negligence or intentional misconduct. If Lessee's use of the Premises is prevented, either due to an interruption of building services or otherwise rendering the Premises untenantable (e.g. fire or casualty), for a consecutive period of three (3) days or more, resulting in the inability of Lessee to conduct its normal business activities, Lessee's Base Rent. Additional Rent and parking charges shall be abated for the period of time such interruption of services occurs. 5.4 Additional Services. Lessor shall also have the exclusive ------------------- right, but not the obligation, to provide any additional services which may be requested by Lessee, including, without limitation, locksmithing, lamp replacement for non-Building standard lamps or fixtures, additional janitorial service and additional repairs and maintenance, provided that Lessee shall pay to Lessor upon billing, the actual cost to Lessor of providing such additional services, plus a reasonable administration fee for any service which Lessee is required to pay from time to time hereunder, shall be deemed Additional Rent hereunder and shall be billed on a monthly basis. 5.5 Graphics. Lessor shall provide identification of Lessee's name -------- and suite numerals at the main entrance door to the Premises. All graphics of Lessee visible in or from public corridors or the exterior of the Premises, or Project shall be subject to Lessor's reasonable approval. Special graphics, logos and other Lessee graphics may be installed within the Premises at Lessee's expense. 5.6 Signage. Lessee shall be granted the right to non-exclusive ------- space on the Building's Colorado Boulevard monument sign, and or appropriate walls and doors within the Premises, identifying Lessee's presence in the Building. Such signage will be installed at Lessor's expense. 5.7 Keys and Locks. Lessor shall furnish Lessee two (2) keys for --------------- each corridor door entering the Premises. Additional keys shall be furnished at a charge by Lessor on an order signed by Lessee. All such keys shall remain the property of Lessor. No additional locks shall be allowed on any door of the Premises without Lessor's prior written permission, and Lessee shall not make or permit to be made any duplicate keys, except those furnished by Lessor. Upon termination of this Lease, Lessee may surrender to Lessor all keys of the Premises, and give to Lessor the combination of all locks for safes, safe cabinets and vault doors, if any, in the Premises. ARTICLE 6 ------- REPAIRS ------- 6.l Lessee shall, at Lessee's own expense, keep the Premises (for the purpose of this Article 6.1 Premises shall mean from area below the suspended ceiling and in front of the walls, excluding special Tenant installation e.g. separate HVAC units or computer equipment), including all tenant improvements located within the Premises fixtures and furnishings therein, in good order, repair and condition at all times during the Lease Term. In addition, Lessee shall, at Lessee's own expense but under the supervision and subject to the prior approval of Lessor, and within any reasonable period of time specified by Lessor, promptly and adequately repair all damage to the Premises and replace or repair all damaged or broken fixtures and appurtenances; provided however, that, at Lessor's option, or if Lessee fails to make such repairs. Lessor may, but need not, make such repairs and replacements, and Lessee shall pay Lessor the cost thereof, including an additional three percent (3%) of the cost thereof, as reimbursement to Lessor for all actual overhead, general conditions, fees and other actual costs or expenses arising from Lessor's management and coordination of repairs and replacements. Upon being billed for same, Lessor may, but shall not be required to, enter the Premises at all reasonable times to make such repairs, alternations, improvements and additions to the Premises or to the Project or to any equipment located in the Project as Lessor shall desire or deem necessary or as Lessor may be required to do by governmental or quasi-governmental authority or court order or decree. Lessee hereby waives and releases its right to make repairs at Lessor's expense under sections 1941 and 1942 of the California Civil Code or under any similar --------------------- law, statute, or ordinance now or hereafter in effect. 14 ARTICLE 7 --------- ADDITIONS AND ALTERNATIONS -------------------------- 7.1 Lessor's Consent to Alternations. Lessee may not make any -------------------------------- improvements, alterations, additions or changes to the Premises (collectively, the "Alterations") without first procuring the prior written consent of Lessor to such Alterations, which consent shall be requested by Lessee not less than thirty (30) days prior to the commencement thereof, and which consent shall not be unreasonably withheld, conditioned or delayed, by Lessor. The construction of the initial improvements to the Premises shall be governed by the terms of the Lessee Work Letter Exhibit C to this Lease. 7.2 Manner of Construction. Lessor may impose as a condition of its ---------------------- consent to all Alterations or repairs of the Premises or about the Premises, such requirements as Lessor in its reasonable discretion may deem desirable, including, but not limited to, the requirement that upon Lessor's request, Lessee shall, at Lessee's expense, remove such Alterations upon the expiration or any early termination of the Lease Term, and/or the requirement that Lessee utilize for such purposes only contractors, materials, mechanics and management selected by Lessee and approved by Lessor (which approval shall not be unreasonably withheld, conditioned or delayed): provided, however, that Lessee shall utilize subcontractors of Lessor's selection to perform all work that may affect the Systems and Equipment, structural aspects of the Project, the Base, Sheil and Core, or exterior appearance of the Project or common areas, provided that Lessor shall cause such subcontractors selected by Lessor to charge Lessee for such work in an amount equal to the cost that comparable first-class reputable and reliable subcontractors would have charged Lessee if selected pursuant to competitive bidding procedures. Lessee shall construct such Alterations and perform such repairs in conformance with any and all applicable rules and regulations of any federal state, country or municipal code or ordinance and pursuant to a valid building permit issued by the City of Pasadena in conformance with Lessor's construction rules and regulations Lessor's approval of the plans, specifications and working drawings for Lessee's Alterations shall create no responsibility or liability on the part of Lessor for their completeness, design sufficiency, or compliance with all laws, rules and regulations of governmental agencies or authorities. All work with respect to any Alterations must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Premises shall at all times be a complete unit except during the period of work. In performing the work of any such Alterations, Lessee shall have the work performed in such manner is not to obstruct access to the Project for any other Lessee of the Project, and is not to obstruct the business of Lessor or other Lesses in the Project, or interfere with the labor force working in the Project. In the event that Lessee makes any Alterations, Lessee agrees to carry "Builder's All Risk" insurance in an amount reasonably approved by Lessor covering the construction of such Alterations, and such other insurance is Lessor may require, it being understood and agreed that all of such Alteration shall be insured by Lessee pursuant to Article 9 immediately upon completion thereof. In addition, Lessor may, in its reasonable discretion, require Lessee to obtain a lien and completion bond or some alternate form of security satisfactory to Lessor in an amount sufficient to ensure the lien-free completion of such Alterations and naming Lessor as a co- obligee. Upon completion of any Alterations, Lessee agrees to cause a Notice of Completion to be recorded in the Office of the Recorder of the County of Los Angeles in accordance with section 3093 of the Civil Code of the State of ---------- California or any successor statute and Lessee shall deliver to the Building management office a reproducible copy of the "as built" drawing of the Alterations. 7.3 Payment for Improvements. The cost of all Alterations ------------------------ shall be paid Lessee. In the event Lessee orders any Alteration or repair directly from Lessor, or from the contractor selected by Lessor, the charges for such work shall be deemed Additional Rent under this Lease, payable upon billing therefor, either periodically during construction or upon the substantial completion of such work, at Lessor's option. Upon completion of such work Lessee shall deliver to Lessor, if payment is made directly to contractors, evidence of payment, contractors affidavit; and full and final waivers of all liens for labor, services or materials. If Lessee orders any work directly from Lessor, Lessee shall pay to Lessor an amount sufficient to reimburse Lessor for all ?????? overhead, general conditions fees and other actual costs and expenses arising from Lessor's involvement with such work and for all amounts paid to subcontractors by Lessor. If Lessee does not order any work directly from Lessor, Lessee shall reimburse Lessor for Lessor's reasonable out-of-pocket costs and expenses actually incurred in connection with Lessor's review of and or involvement with such work. 15 7.4 Lessor's Property and Fixtures. All Alternations, improvements, ------------------------------- fixtures and/or equipment which may be installed or placed in or about the Premises, and all signs, other than those described in Article 5.6 installed in, on or about the Premises from time to time, shall be at the sole cost of Lessee and shall be and become the property of Lessor, except that Lessee may remove any Alterations, improvements, fixtures and/or equipment which Lessee can substantiate to Lessor have not been paid for with any Lessee improvement allowance funds provided to Lessee by Lessor, provided Lessee repairs any damage to the Premises and Project caused by such removal. Furthermore, if Lessor, as a condition to Lessor's consent to any Alterations requires that Lessee remove any Alternations upon the expiration or early termination of the Lease Term. Lessor may by written notice to Lessee prior to the end of the Lease Term, or given upon any earlier termination of this Lease require Lessee at Lessee's expense to remove such, Alterations and to repair any damage to the Premises and Project caused by such removal. If Lessee fails to complete such removal and/or to repair any damage caused by the removal of any Alterations. Lessor may do so and may charge the cost thereof to Lessee. Lessee hereby, indemnifies and holds Lessor harmless from any liability, cost, obligation, expense or claim of lien in any mannerr relating to the installation, placement, removal or financing of any such Alterations, improvements, fixtures and/or equipment in, on or about the Premises. ARTICLE 8 ------- COVENANT AGAINST LIENS ---------------------- 8.l Lessee has no authority or power to cause or permit any lien or encumbrance of any kind whatsoever, whether created by act of Lessee, operation of law or otherwise, to attach to or be placed upon the Real Property, Project or Premises, and any and all liens and encumbrances created by Lessee shall attach to Lessee's interest only. Lessor shall have the right at all times to post and keep posted on the Premises any notice which it deems necessary for protection from such liens. Lessee covenants and agrees not to suffer or permit any lien of mechanics or materialmen or others to be placed against the Real Property to the Premises with respect to work or services claimed to have been performed for or materials claimed to have been furnished to Lessee or the Premises, and in case of any such lien attaching or notice of any lien. Lessee covenants and agrees to cause in to be immediately released and removed of record. Notwithstanding anything to the contrary set forth in this Lease, in the event such lien is not released and removed on or before the date notice of such lien is delivered by Lessor to Lessee. Lessor, at its sole option, may immediately take all action necessary to release and remove such lien, without any duty to investigate the validity thereof, and all sums, costs and expenses, including reasonable attorneys' fee and costs, incurred by Lessor in connection with such lien shall be deemed. Additional Rent under this Lease and shall immediately be due and payable by Lessee. ARTICLE 9 ------- INSURANCE --------- 9.l Lessor Coverage. During the Term. Lessor shall procure and --------------- maintain in full force and effect with respect to the Project a policy or policies of commercial and liability insurance including sprinkler, vandalism and malicious mischief coverage, including earthquake and flood coverage at Lessee's option, and any other endorsements required by the holder of any fee or leasehold mortgage) in an amount that is customarily carrieds by first-class office buildings in Los Angeles. If because of the nature of Lessee's operations the annual premiums charged Lessor for such insurance exceed the standard premium rates or result in increased exposure then Lessee, within thirty (30) days of receipt of appropriate premium invoices, shall reimburse Lessor for such increased amount. 9.2 Lessee Coverage. --------------- (a) Commercial Insurance. During the Term and at its own -------------------- cost and expense, Lessee shall maintain in full force and effect a policy or policies of special cause of loss form insurance (including 16 sprinkler, vandalism and malicious mischief coverage, including earthquake and flood coverage at Lessee's option and any other endorsements required by the holder of any fee or leasehold mortgage) in an amount adequate to cover damage to the Premises, including without limitation Lessee's Improvements as defined in Exhibit D. Merchandise fixtures, trade fixtures, furniture, furnishings equipment goods, inventory and other personal property located on the Premises or in the Project insuring the full replacement value of such items. (b) General Liability. During the Term and at its own cost and ----------------- expense, Lessee shall maintain in full force and effect a policy, or policies of comprehensive commercial general liability insurance insuring Lessee's activities with respect to the Premises. Building and/or Project against loss, damage or liability for personal injury or death of any person or loss or damage to property occurring in, upon or about the Premises, Building and or Project with a combined single limit of One Million Dollars ($1,000,000): such comprehensive commercial general liability insurance shall include broad form contractual liability insurance coverage which shall insure Lessee's performance of the indemnity provisions and elsewhere in this Lease. (c) Workers' Compensation. During the Term and at its own cost --------------------- and expense. Lessee shall maintain in full force and effect the statutory amount of workers' compensation insurance required by the State of California for the benefit of Lessee's employees, and employer's liability insurance with no less than $1,000,000 per employee per occurence. Lessee agrees that if Lessee does not procure and maintain such insurance continuously, Lessor may (but shall not be required to) procure such insurance on Lessee's behalf and Lessee shall pay to Lessor the cost thereof, as Additional Rental within thirty (30) days of Lessee's receipt of a bill therefor. 9.3 General Insurance Requirements ------------------------------ (a) All insurance required under this Article 9 shall be issued by such good and reputable insurance companies qualified to do and doing business in California and having a rating of not less than "A" or a class rating of not less than "13" and a financial rating of not less than "X" as rate in the most current copy to Best's Insurance report in the form customary to the locality. All such Lessee insurance shall include (i) an endorsement expressly providing that such policies shall not be cancelable or subject to reduction or coverage or otherwise by subject to modification except after thirty (30) days prior written notice to the parties named as insureds in this Article 9, (ii) an endorsement providing that Lessor, its successors, assigns, and nominees holding any interest in the Premises, including without limitation any ground lessor and the holder to any fee or leasehold mortgage, shall be named as additional insureds under such policy of insurance maintained by Lessee pursuant to this Lease, (iii) an endorsement providing that such insurance as is afforded under Lessee's policy in primary as respects lessor and that any other insurance maintained by Lessor is excess and non-contributing with other insurance required under this Article 9, (iv) an endorsement deleting any employee exclusion on personal injury covered, (v) an endorsement including employees as additional insureds, (vi) an endorsement deleting any liquor liability exclusion and (vii) an endorsement providing for coverage of employer's automobile ownership liability. All such insurance shall provide for severability of interests: shall provide that an act or omission of one of the named insureds; and shall not reduce or avoid coverage to the other named insured: and shall afford coverage for all claims based in acts, omissions injury and damage which claims occurred or arose (or the onset of which occurred or arose) in full or in part during the policy period. Expiration of Lessee's policy shall not limit recovery thereunder: "claims made" insurance policies are not acceptable to satisfy Lessee's insurance requirements under this Article 9. Lessee shall furnish to Lessor, upon the Commencement Date and thereafter within thirty (30) days prior to the expiration of each such policy, a Certificate of Insurance and endorsement(s) affording evidence of the above insurance requirements issued by the insurance carrier of each policy of insurance carried by Lessee pursuant hereto. (b) Lessee's Use. Lessee will not keep, use, sell or ------------ offer for sale in, or upon the Premises any article which may be prohibited by any insurance policy periodically in force covering the Project. If Lessee is occupancy or business in or on the Premises, whether or not Lessor has consented to the same, results in any increase in premiums for the insurance periodically carried by Lessor with respect to the Project, Lessee shall pay any such increase in premiums as Additional Rental within ten (10) days after being billed thereof by Lessor. 17 In determining whether increased premiums are a result of Lessee's use of the Premises, a schedule issued by the organization computing the insurance rate on the Project or the Lessee Improvements showing the various components or such rate, shall be conclusive evidence of the several items and changes which make up such rate. (c) Waiver of Subrogation. Any policy or policies of special --------------------- cause of loss form and comprehensive commercial general liability insurance, which either party obtains in connection with the Premises, or Lessee's personal property therein, shall include a clause or endorsement denying the insurer any rights of subrogation against the other party to the extent rights have been waived by the insured prior to the occurrence of injury or loss. Lessor and Lessee hereby waive any rights of recovery against the other for injury or loss due to hazards covered by insurance containing such a waiver of subrogation clause or endorsements to the extent of the injury or loss covered thereby and agree to obtain such a waiver from their respective insurance carriers and deliver a copy thereof to the other party; each party shall provide written notice to the other party if such waiver is not obtained and shall indemnify, defend and hold the other harmless from all liabilities, penalties, losses, costs, expenses, demands, causes of action, claims, judgments or damages arising from the indemnifying party's failure to obtain such a waiver from its insurance company. ARTICLE 10 ---------- DAMAGE AND DESTRUCTION ---------------------- 10.1 Repair of Damage to Premises by Lessor. Lessee shall promptly -------------------------------------- notify Lessor of any damage to the Premises resulting from fire or any other casualty or condition existing in the Premises as a result of a fire or other casualty that would give rise to the terms of this Article 10. If the Premises or any common areas of the Building serving or providing access to the Premises shall be damaged by fire or other casualty or be subject to a condition existing as a result of a fire or other casualty. Lessor shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Lessor's reasonable control, and subject to all other terms of this Article 10, restore the base, shell, and core of the Premises and such common areas to substantially the same condition as existed prior to the casualty, expect for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building or any other modifications to the common areas deemed desirable by Lessor, provided access to the Premises and any common restrooms serving the Premises shall not be materially impaired. Notwithstanding any other provision of this Lease, upon the occurrence of any damage to the Premises, Lessee may assign to Lessor (or to any party designated by Lessor) all insurance proceeds payable to Lessee under Lessee's insurance required under this Lease, and along with the proceeds received by Lessor from the Tenant Improvement Insurance. Lessor shall repair any injury or damage to the Tenant Improvements installed in the Premises and shall return such Lessee Improvements to their original condition. In connection with such repairs and replacements. Lessee shall, prior to the commencement of construction, submit to Lessor for Lessor's review and approval, all plans, specifications and working drafts relating thereto, and Lessor shall reasonably approve the contractors selected by Lessee to perform such improvement work. Such submittal of plans and construction of improvements shall be performed in substantial compliance with the terms of the Work Letter as though such construction of improvements were the initial construction of the Tenant Improvements. Neither Lessor nor Lessee shall be liable for any inconvenience or annoyance to Lessee or its visitors, or injury to Lessee's business resulting in any way from such damage or the repair thereof: provided however, that if such fire or other casualty shall have damaged the Premises or common areas necessary to Lessee's occupancy. Lessor shall allow Lessee a proportionate abatement of Rent, during the time and to the extent the Premises are unfit for occupancy for the normal conduct of Lessee's business, and not occupied by Lessee as a result thereof, provided, further, if the Premises is damaged such that the remaining portion thereof is not sufficient to allow Lessee to conduct its operations therefrom. Lessor shall allow Lessee a total abatement of Rent during the time and to the extent the Premises are unfit for occupancy for the normal conduct of Lessee's business, and not occupied by Lessee as a result of the subject damage. 10.2 Lessor's Option to Repair. Notwithstanding the terms of ------------------------- Section 10.1 of this Lease. Lessor may elect not to rebuild and or restore the Premises and or Project and instead terminate this Lease by notifying Lessee in writing of such termination within sixty (60) days after the date of damage, such notice to include a termination date giving Lessee ninety (90) days to vacate the Premises, but Lessor may so elect only if the Project shall be damaged by fire or other casualty or cause whether or not the Premises are affected, and one or 18 more of the following conditions is present: (a) repairs cannot reasonably be completed withinin one hundred twenty (l20) days of the date of damage (when such repairs are made without the payment of overtime or other premiums), (b) the holder of any mortgage on the Building or ground or underlying lessor with respect to the Real Property and or the Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt or shall terminate the ground or underlying lease, as the case may be: or (c) the damage is nor fully covered, except for deductible amounts, by Lessor's insurance policies. l0.3 Damage Near End of Term. In addition, in the event that ----------------------- the Premises or the Project is destroyed or damaged to any substantial extent during the last twenty-four (24) months of the Lease Term, Lessor shall have the option to terminate this Lease by giving written notice to Lessee of the exercise of such option within thirty (30) days after such damage or destruction, in which event this Lease shall cease and terminate as of the date of such notice Upon any such termination of this Lease pursuant to this Section 10.2. Lessee shall pay the Base Rent and Additional Rent, properly apportioned up to such date of termination, and both parties hereto shall thereafter be freed and discharged of all further obligations hereunder, except as provided for in provisions of this Lease which by their terms survive the expiration or earlier termination of the Lease Term. 10.4 Waiver of Statutory Provisions. The provisions of this ------------------------------ Lease, including this Article l0 constitute an express agreement between Lessor and Lessee with respect to any and all damage to, or destruction of, all or any part of the Premises, the Project or any other portion of the Real Property, and any statute or regulation of the State of California, including, without limitation, sections 1932(2) and 1933(4) of the California Civil Code, with --------------------- respect to any rights or obligations concerning damage or destruction in the absence of an express agreement with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Project or any other portion of the Real Property. ARTICLE ll ---------- NON-WAIVER ---------- 11.1 No waiver of any provision of this Lease shall be implied by any failure of Lessor to enforce any remedy on account of the violation of such provision, even if such violation shall continue or be repeated subsequently, any waiver by Lessor of any provision of this Lease may only be in writing, and no express waiver shall affect any provision other than the one specified in such waiver and that one only for the time and in the manner specifically stated. No receipt of monies by Lessor from Lessee after the termination of this Lease shall in any way alter the length of the Lease Term or of Lessee's right of possession hereunder or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Lessee prior to the receipt of such monies. It being agreed that after the service of notice or the commencement of a suit or after final judgment for possession of the Premises. Lessor may receive and collect any Rental due, and the payment of said Rental shall not waive or affect said notice, suit or judgment. ARTICLE 12 ---------- EMINENT DOMAIN -------------- l2.1 Condemnation and Loss or Damage. If the whole or ------------------------------- any part of the Premises or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises or Project, or if Lessor shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation. Lessor shall have the option to terminate this Lease upon ninety (90) days notice, provided such notice is given no later than one hundred eighty (180) days after the date of such taking, condemnation, reconfiguration, vacation, deed or other instrument. If more than twenty-five percent (25%) of the rentable square 19 feet of the Premises is taken, or if access to the Premises is substantially impaired. Lessee shall have the option to terminate this Lease upon ninety (90) days' notice, provided such notice is given no later than one hundred eighty (180) days after the date of such taking Lessor shall be entitled to receive the entire award or payment in connection therewith, except that Lessee shall have the right to file any separate claim available to Lessee for any taking of Lessee's personal property and fixtures belonging to Lessee and removable by Lessee upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claim does not diminish the award available to Lessor, its ground lessor with respect to the Real Property or its mortgagee, and such claim is payable seperately to Lessee. All Rental shall be apportioned as of the date of such termination, or the date of such taking, whichever shall first occur. 12.2 Temporary Taking. Notwithstanding anything to the ---------------- contrary contained in this Article 12 in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and eighty (180) days or less, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. Lessor shall be entitled to receive the entire award made in connection with any such temporary taking. 12.3 Total Destruction. A total destruction of the Project ----------------- shall automatically terminate the Lease. ARTICLE 13 ---------- ASSIGNMENT AND SUBLETTING ------------------------- l3.1 Transfers. Lessee shall not, without the prior written --------- consent of Lessor, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder or permit any assignment or other such foregoing transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or permit the use of the Premises by any persons other than Lessee and its employees (all of the foregoing are hereinafter sometimes referred to collectively as "Transfers" and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a "Transferee"). If Lessee shall desire Lessor's consent to any Transfer, Lessee shall notify Lessor in writing, which notice (the "Transfer Notice") shall include: (a) the proposed effective date of the Transfer, which shall not be less then fifteen (15) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice: (b) a description of the portion of the Premises to be transferred (the "Subject Space"); (c) all of the terms of the proposed Transfer and the consideration therefor, including a calculation of the "Transfer Premium," as that term is defined in Section 13.3 below, in connection with such Transfer, the name and address of the proposed Transferee, and a copy of all existing and/or proposed documentation pertaining to the proposed Transfer, including all existing operative documents to be executed to evidence such Transfer or the agreements incidental or related to such Transfer; and, (d) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, and any other information required by Lessor, which will enable Lessor to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee's business and proposed use of the Subject Space. Lessee shall, thirty (30) days after written request by Lessor, reimburse Lessor for all reasonable costs and expenses (including reasonable attorneys' fees) incurred by Lessor in connection with its review of a proposed Transfer. 13.2 Lessor's Consent. Lessor shall not unreasonably ---------------- withhold, condition or delay its 20 consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice. The parties hereby agree that it shall be reasonable under this Lease and under any applicable law for Lessor to withhold consent to any proposed Transfer where one or more of the following apply: (a) The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building, or would be a significantly less prestigious occupant of the Project than Lessee: (b) The Transferee intends to use the Subject Space for purposes which are not permitted hereunder. (c) The Transferee is either a governmental agency or instrumentality thereof: (d) The Transfer will result in more than a reasonable and safe number of occupants per floor: (e) The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities involved under the Lease on the date consent is requested: (f) The proposed Transfer would cause Lessor to be in violation of another lease or agreement to which Lessor is a party, or would give an occupant of the Project a right to cancel its lease: (g) The terms of the proposed Transfer will allow the Transferee (subject to Transferee qualifying as an affiliate entity, acquiring entity, related entity, merging entity, or company that has a financial interest in Lessee) to exercise a right of renewal, right of expansion, right of first offer, or other similar right held by Lessee (or will allow the Transferee to occupy space leased by Lessee pursuant to any such right): 13.3 Effect of Transfer. If Lessor consents to a Transfer, ------------------ (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Lessee or a Transferee, (iii) Lessee shall deliver to Lessor, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Lessor, (iv) Lessee shall furnish upon Lessor's request a complete statement, certified by an independent certified public accountant, or Lessee's chief financial officer, setting forth in detail the computation of any premium Lessee has derived and shall derive from such Transfer, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Lessor's consent, shall relieve Lessee or any guarantor of the Lease from liability under this Lease. Lessor or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Lessee relating to any Transfer, and shall have the right to make copies thereof if the premium respecting any Transfer shall be found understated. Lessee shall, within thirty (30) days after demand, pay the deficiency and Lessor's costs of such audit, and if understated by more than ten percent (10%), Lessor shall have the right to cancel this Lease upon thirty (30) days' notice to Lessee. 13.4 Transfer Profits. In the event a sublease of Lessee's ---------------- space results in net rental greater than the Base Rental plus Additional Rental less the unamortized cost of the Lessee Improvements or the costs of any Sublease improvements (costs such as Tenant Improvements or Lease Commissions), such net profits shall be shared fifty percent (50%) by Lessor and fifty percent (50%) by Lessee. l3.5 Additional Transfers. For purposes of this Lease, the term -------------------- "Transfer" shall also include: (i) if Lessee is a partnership, the withdrawal or change, voluntary, involuntary or by operation of law, of fifty percent (50%) or more of the partners, or transfer of fifty percent (50%) or more of partnership interests, within a twelve (l2) month period, or the dissolution of the partnership without immediate reconstitution thereof. 21 ARTICLE 14 ------- SURRENDER OF PREMISES OWNERSHIP ------------------------------- AND REMOVAL OF TRADE FIXTURES ----------------------------- 14.1 Surrender of Premises. No act or thing done by Lessor or --------------------- any agent or employee of Lessor during the Lease Term shall be deemed to constitute an acceptance by Lessor of a surrender of the Premises unless such intent is specifically acknowledged in a writing signed by Lessor. The delivery of keys to the Premises to Lessor or any agent or employee of Lessor shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Lessor, and notwithstanding such delivery. Lessee shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been property terminated. The voluntary or other surrender of this Lease by Lessee, whether accepted by Lessor or not, or a mutual Termination hereof, shall not work a merger, and at the option of Lessor shall operate as an assignment to Lessor of all subtenancies or subtenancies affecting the Premises. 14.2 Removal of Tenant Property by Lessee. Upon the ------------------------------------ expiration of the Lease Term, or upon any earlier termination of this Lease, Lessee shall, quit and surrender possession of the Premises to Lessor in as good order and condition as when Lessee took possession and as thereafter improved by Lessor, reasonable wear and tear and repairs which are specifically made the responsibility of Lessor hereunder excepted. Upon such expiration or termination, Lessee shall, without expense to Lessor, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment free-standing cabinet worked other articles of personal property owned by Lessee or installed or placed by Lessee at its expense in the Premises, and such similiar articles of any other persons claiming under Lessee, as Lessor may, in its sole discretion, require to be removed, and Lessee shall repair at its own expense all damage to the Premises and Project resulting from such removal. ARTTCLE 15 ---------- HOLDING OVER ------------ If Lessee holds over after the expiration of the Lease Term hereof, with or without the express or implied consent of Lessor, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term, and in such case Base Rent shall be payable at a monthly rate equal to one hundred thirty percent (130%), of the Base Rent applicable during the last rental period of the Lease Term under this Lease. Such month-to-month tenancy shall be subject to every other term, covenant and agreement contained herein. Nothing contained in this Lease shall be construed as consent by Lessor to any holding over by Lessee, and Lessor expressly reserves the right to require Lessee to surrender possession of the Premises to Lessor as provided in this Lease upon the expiration or other termination of this Lease. The provisions of this Lease shall not be deemed to limit or constitute a waiver of any other rights or remedies of Lessor provided herein or at law. If Lessee fails to surrender the Premises upon thirty (30) days following the termination or expiration of this Lease, in addition to any other liabilities to Lessor accruing therefrom, Lessee shall protect, defend, indemnify and hold Lessor harmless from all loss, costs (including reasonable attorneys' fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding Lessee founded upon such failure to surrender, and any lost profits to Lessor resulting therefrom. ARTTCLE 16 ---------- ESTOPPEL ATTORNMENT AND SUBORDINATION ------------------------------------- 16.1 Estoppel Certificate. Within ten (10) days after request therefor by either Lessee or Lessor, or if on any sale, assignment or hypothecation by Lessor of Lessor's interest in the Building or the Project, or any part thereof, an Estoppel Certificate shall be required: Lessee or Lessor, as the case may be, shall deliver, in 22 recordable form, a certificate to any proposed mortgagee or purchaser, and to Lessor, certifying (if such be the case) that this Lease is in full force and effect; the date of Lessee's most recent payment of Rent, and that Lessee has no defenses or offsets outstanding, or stating those claimed by Lessee and any other information reasonably requested. (a) this Lease is in full force and effect without modification, except as may be represented by Lessor; (b) there are no uncured defaults in Lessor's performance and Lessee has no right of offset couterclaim or deduction against Rent hereunder; and, (c) no more than one month's Base Rental has been paid in advance. 16.2 Attornment. In the event any proceedings are brought ---------- for the foreclosure of, or in the event of exercise of the power of sale under any mortgage or deed of trust made by lessor, its successors or assigns, encumbering the Premises, or any part thereof, or in the event of termination of a ground lease, if any, and if so requested. Lessee shall attorn to the purchaser upon such foreclosure or sale or upon any grant of a deed in lieu of foreclosure and recognize such purchaser as Lessor under this Lease. 16.3 Lease Superior. The rights of Lessee hereunder are and -------------- shall superior to the lien of such mortgage securing the Building, or the lien resulting from any other method of financing or refinancing, now or hereafter in force against the Project, and to all advances made or hereafter to be made upon the security. Provided that Lessee is not in default under any of the terms, covenants and conditions of this Lease, neither this Lease nor any of the rights of Lessee hereunder shall be terminated or subject to termination by any trustee's sale, any action to enforce the security or by any proceeding or action in foreclosure. If requested, Lessor and Lessee agrees to execute documentation may be required to further effect the provisions of this Articie 16. ARTICLE l7 ---------- DEFAULTS REMEDIES ----------------- 17.1 Events of Default. The occurrence of any or the ----------------- following events shall constitute an "Event of Default" on the part of Lessee without notice from Lessor unless otherwise provided: (a) Vacation or Abandonment. Vacation or abandonment ----------------------- of the Premises; (b) Payment. Failure to pay any installment of ------- Base Rental. Additional Rental or other monies due and payable hereunder upon the date when said payment is due, the failure continuing for a period of five (5) days; (c) Performance. Default in the performance of any of ----------- Lessee's covenants, agreements or obligations hereunder (except default in the payment of Rent), the default continuing for thirty (30) days after written notice thereof from Lessor (provided that Lessee shall continuously and diligently pursue the remedy of such default at all times until such default is cured); (d) Assignment. A general assignment by Lessee for the ---------- benefit of creditors; (e) Bankruptcy. The filing of a voluntary petition by ---------- Lessee, or the filing of an involuntary petition by any of Lessee's creditors seeking the rehabilitation, liquidation or reorganization of Lessee under any law relating to bankruptcy, insolvency or other relief of debtors: (f) Receivership The appointment of a receiver or other ------------ custodian to take possession of substantially all of Lessee's assets or of the Premises or any interest of Lessee therein. 23 (g) Insolvency or Dissolution. Lessee shall become insolvent or ------------------------- unable to pay its debts, or shall fail generally to pay its debts as they become due; or any court shall enter a decree or order directing the winding up or liquidation of Lessee or of substantially all of its assets; or Lessee shall take any action toward the dissolution or winding up of its affairs or the cessation or suspension of its use of the Premises; and. (h) Attachment. Attachment, execution or other judicial ---------- seizure of substantially all of Lessee's assets or the Premises or any interest of Lessee under this Lease. l7.2 Lessor's Remedies. If an Event of Default shall occur, at any ----------------- time thereafter and without limiting Lessor in the exercise of any other right or remedy at law or in equity, Lessor may elect any of the following remedies: (a) Continuation of Lease. Notwithstanding Lessee's breach --------------------- of the Lease and abandonment of the Premises, Lessor may continue the Lease in full force and effect and enforce all of the Lessor's rights and remedies under the Lease, as provided by California Civil Code section 1951.4. including the ---------- right to recover rents as it becomes due, so long as Lessor does not terminate Lessee's right to possession. Acts of maintenance or preservation or efforts to relet the Premises or the appointment of a receiver upon initiative of Lessor to protect Lessor's interest under this Lease shall not constitute a termination of Lessee's right to possession. At any time subsequent to vacation or abandonment of the Premises by Lessee, Lessor may give notice of termination and shall thereafter have all of the rights set forth in Article 17. ??(b) below. (b) Termination. So long as the default continues Lessor shall ----------- have the right to terminate this Lease by written notice to Lessee setting forth: (i) the default: (ii) the requirements to cure it and (iii) a demand for possession, which shall be effective upon the later of three (3) days after it is given or the expiration of the times specified in Article 17.l hereinabove. (c) Possession. Following termination of the Lease under ---------- Article 17.2(b) and without prejudice to any other remedies Lessor may have by reason of Lessee's default or of such termination. Lessor may then or at anytime thereafter: (i) peaceably re-enter the Premises or any part thereof upon voluntary surrender by Lessee or expel or remove Lessee therefrom and any other persons occupying them, using such legal proceedings as are then available: (ii) repossess and enjoy the Premises, or relet the Premises or any part thereof for such term or terms (which may be for a term extending beyond the Term) at such rental or rentals and upon such other terms and conditions as Lessor in its sole discretion shall determine, with the right to make reasonable alterations and repairs to the Premises: and (iii) remove all personal property therefrom, store such personal property at Lessee's expense and sell property and apply the proceeds therefrom pursuant to applicable California law, all as attorney-in- fact for Lessee. Lessee shall not be entitled to any reimbursement for the unamortized cost of Lessee Extra Work. (d) Recovery. Following termination under Article 17 2(b) above -------- Lessor shall have all the rights and remedies to recover from Lessee damages as provided by California Civil Code section 1951.2 (or any successor law) ---------- including without limitation: (i) the worth at the time of the award of the unpaid Rent and other amounts which had been earned at the time of termination: (ii) the worth at the time of the award of the amount by which the unpaid Rent which would have been earned after termination until the time of the award exceeds the amount of such Rent loss that Lessee proves could have been reasonably avoided: (iii) the worth at the time of the award of the amount by which the unpaid Rent loss Lessee proves could be reasonably avoided: and (iv) any other amount necessary to compensate Lessor for all detriment approximately caused by Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom. The "worth at the time of the award" of the amounts referred to in (i) and (ii) are computed by allowing interest at the rate of three percent (3%) per annum over the prime rate of interest announced by Wells Fargo Bank, National Association Los Angeles, California applicable to the time of award, but not to exceed the highest rate legally permissible at the time of the award. The "worth at the time of the award" of the amount referred to in (iii) above shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). 24 (e) Receivership. Upon application by Lessor, Lessor may have a ------------ receiver appointed for Lessee to take possession of the Premises and to apply all rental collected from the Premises and to exercise all other rights and remedies granted to Lessor as attorney-in-fact for Lessee pursuant to Article 17.2(c) above. (f) Additional Remedies. In addition to the foregoing remedies ------------------- so long as this Lease is not terminated, Lessor shall have the right to remedy any default of Lessee, to maintain or improve the Premises without terminating the Lease, to incur expenses on behalf of Lessee in seeking a new subtenant or to cause a receiver to be appointed to administer the Premises and new or existing subleases, and to add to the Rent payable hereunder all of Lessor's reasonable costs in doing so, with interest at the maximum rate set by statute. Lessor may pursue any and all other remedies available to Lessor at law or in equity, by statute or otherwise. (g) Other Breaches. If Lessee causes or threatens a breach of -------------- any of the covenants, agreements, terms or conditions contained in this Lease, Lessor shall be entitled to retain all sums held by Lessor for Lessee's account or in any account provide for herein to enjoin such breach or threatened breach, and to invoke any right and remedy allowed at law or in equity or by statute or otherwise as though re-entry, summary proceedings and other remedies were not provided for in this Lease. (h) Cumulative. Each right and remedy of Lessor provided for in ---------- this Lease shall be cumulative and shall be in addition to every other right or remedy provided for in this Lease or now or hereafter existing at law or in equity or by statute or otherwise. The exercise or beginning of the exercise by Lessor of any one or more of the rights or remedies provided for in this Lease, or nor or hereafter existing at law or in equity or by, statute or otherwise, shall not preclude the simultaneous or later exercise by Lessor of any or all other rights or remedies provided for in this Lease or now or hereafter existing at law or in equity or statute or otherwise. (i) No Waiver. Notwithstanding, no failure by Lessor to insist -------- upon the strict performance of any term hereof or to exercise any right or remedy consequent upon a breach thereof and no acceptance of full or partial payment of Rent during the continuance of any such breach shall constitute a waiver of any such breach or of any such term. Efforts by Lessor to mitigate the damages caused by Lessee's breach of this Lease shall not be construed to be a waiver of Lessor's right to recover damages under this Article l7. Nothing in this Article 17 affects the right of Lessor to be indemnified and/or held harmless by Lessee in accordance with the provisions of this Lease for liability arising prior to the termination of this Lease for personal injuries or property damage. ARTICLE 18 ---------- GRAPHICS -------- 18.1 In General. Lessee shall be entitled, at Lessor's cost, ---------- building standard to identification signage outside of Lessee's Premises on the floor on which Lessee's Premises are located. The location, quality, design, style, lighting and size of such signage shall be consistent with the Lessor's Building standard signage program and shall be subject to Lessor's prior written approval, in its sole discretion. Upon the expiration or earlier termination of this Lease, Lessee shall be responsible, at its sole cost and expense, for the removal of such signage and the repair of all damage to the Building caused by such removal. l8.2 Building Directory. At Lessor's cost Lessee shall be ------------------- entitled to utilize up to tyventy (20) lines on the office building directory to display Lessee's name and location in the Project. l8.3 Prohibited Signage and Other Items. Any signs, notices, logos, ---------------------------------- pictures, names or advertisements which are installed and that have not been individually approved by Lessor may be removed without notice by Lessor at the sole expense of Lessee. Lessee may not install any signs on the exterior or roof of the office building or the common areas of the Project. Any signs, window coverings, or blinds (even if the same are located 25 behind the Lessor approved window coverings for the office building), or other items visible from the exterior of the Premises are subject to the prior approval of Lessor, in its sole discretion. ARTICLE 19 ------- LESSOR'S RIGHT TO CURE DEFAULT PAYMENTS BY LESSEE ------------------------------------------------- l9.l Lessor's Cure. All covenants and agreements to be kept or ------------- performed by Lessee under this Lease shall be performed by Lessee at Lessee's sole cost and expense and without any reduction of Rent. If Lessee shall fail to perform any of its obligations under this Lease within a reasonable time after such performance is required by the terms of this Lease. Lessor may, but shall not be obligated to, after reasonable prior notice to Lessee make any such payment or perform any such act on Lessee's part without waiving its right based upon any default of Lessee and without releasing Lessee from any obligations hereunder. 19.2 Lessee's Reimbursement. Except as may be specifically provided ---------------------- to the contrary in this Lease, Lessee shall pay to Lessor, within fifteen (15) days after delivery by Lessor to Lessee of statements therefor:(i) sums equal to expenditures reasonably made and obligations incurred by Lessor in connection with the remedying by Lessor of Lessee's defaults pursuant to the provisions of Section 17.1; (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 9 of this Lease: and (iii) sums equal to all expenditures made and obligations incurred by Lessor in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Lessor under this Lease or pursuant to law, including, without limitation all legal fees and other amounts so expended. Lessee's obligations under this Section 19.2 shall survive the expiration or sooner termination of the Lease Term. ARTICLE 2O ------- MISCELLANEOUS PROVISIONS ------------------------ 20.1 Terms. The necessary grammatical changes required to make the ----- provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require shall in all cases be assumed as though in each case fully expressed. 20.2 Binding Effect. Each of the provisions of this Lease shall -------------- extend to and shall, as the case may require, bind or inure to the benefit not only of Lessor and of Lessee, but also of their respective successors or assigns. 20.3 Easements. Lessor reserves the right to: (i) alter the --------- boundaries of the Lot: and, (ii) grant easements on the Lot and dedicate for public use portions thereof without Lessee's consent: provided, however, that no such grant or dedication shall materially interfere with Lessee's use of the Premises. 20.4 No Light Air or View Easement. Any diminution or shutting off ----------------------------- of light, air or view by any structure which may be erected on lands adjacent to or in the vicinity of the Project shall in no way affect this Lease or impose any liability on Lessor. 20.5 Authorization. If Lessee executes this Lease as a corporation ------------- or partnership, then Lessee and the persons executing this Lease on behalf of Lessee, represent and warrant that such entity is duly qualified to do business in California and that the individuals executing this Lease on Lessee's behalf are duly authorized to execute and deliver this Lease on its behalf. In the case of a corporation, in accordance with a duly adopted resolution of the board of directors of the Lessee, a copy of which is to be delivered to Lessor on execution hereof, and in accordance with the by-laws of Lessee and that this Lease is binding upon Lessee in accordance with its terms, and in the case of a partnership agreement and the most current amendment thereto, if any, copies of which are to be delivered to Lessor with the execution hereof. 26 20.6 Accord and Satisfaction. No payment by Lessee or receipt by ----------------------- Lessor of a lesser amount than the Rent herein stipulated shall be deemed to be other than on account of the Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Lessor may accept such check or payment without prejudice to Lessor's right to recover the balance of such Rent or pursue any other remedy provided in this Lease. 20.7 Peaceful Enjoyment. Subject to the other terms hereof. Lessee ------------------ shall and may peacefully have hold and enjoy the Premises, provided that Lessee pays the Rent and other sums herein to be paid by Lessee and performs all of Lessee's covenants and agreements contained herein. It is understood and agreed that this covenant and any and all other covenants of Lessor contained in this Lease shall be binding upon Lessor and its successors only with respect to breaches occurring when Lessor has an ownership interest in the Project, and shall be binding on Lessor's successors only with respect to breaches occurring when such successors have an ownership interest in the Project. Lessor will provide, upon execution of the Lease, a commercially reasonable non-disturbance agreement from the Project lender recognizing Lessee's rights to the leased premises. 20.8 Limitation of Lessor's Liability. The obligations of Lessor -------------------------------- under this Lease shall not constitute personal obligations of the partners, directors, officers or shareholders of Lessor, and Lessee shall look solely to the real estate that is the subject of this Lease and to no other assets of Lessor for satisfaction of any liability in respect of this Lease and shall not seek recourse against the partners, directors, officers or shareholders of Lessor or any of their personal assets for such satisfaction. 20.9 Time, Calendar Year: Calendar Days. Time is of the essence in ---------------------------------- the performance of all obligations under this Lease. As used in this Lease, the term "calendar year" shall mean January l through December 3l. Except as otherwise expressly provided herein, all references to days in this Lease shall mean calender days, not working or business days: provided, however, that if a certain date falls on a weekend or holiday, the next business day shall be substituted for the applicable date. 20.10 Professional Fees. In any action or proceeding which Lessor or ----------------- Lessee may be required to prosecute to enforce its respective rights hereunder,the unsuccessful parties therein shall pay all costs and expenses incurred by the prevailing party therein, including without limitation actual professional fees such as appraisers, accountants and reasonable attorneys' fees and expenses, to be fixed by the court, and such costs and attorneys' fees and expenses shall be made a part of the judgment in such action. In any situation in which a dispute is settled other than by action or proceeding, including a default by Lessee, Lessee shall pay all Lessor's costs and, attorney's fees and expenses relating thereto. 20.11 Severability. If any term or provisions of this Lease, or the ------------ application thereof to any person or circumstance, the deletion of which shall not adversely affect the receipt of any material benefit of Lessor or Lessee, shall be invalid, void or unenforceable to any extent, the remainder of this Lease, and the application of such terms or provisions to other persons or circumstances, shall not be affected, impaired or invalidated thereby and shall be enforced to the greatest extent permitted by law. 20.12 Applicable Law. This Lease, and the rights and obligations of -------------- the parties hereto, shall be construed and enforced in accordance with the laws of the State of California. 20.13 Submission of Lease. The submission of this document for ------------------- examination and negotiation neither constitutes an offer to lease, nor a reservation of, nor option for leasing the Premises. This document shall become effective and binding only upon execution and delivery by Lessor. No act or omission of any employee or agent of Lessor or of Lessor's broker or managing agent shall alter, change or modify any of the provisions hereof. 20.14 Rules and Regulations At all times during the Term. Lessee --------------------- shall comply with rules and regulations (and such amendments as Lessor may reasonably adopt) for the Project as set forth in Exhibit F attached hereto and by this reference made a part hereof ("Rules and Regulations"). 27 20.15 No Nuisance. Lessee shall conduct it's business and control ----------- its agents, employees, invitees and visitors in such a manner as not to create any nuisance or interfere with, annoy or disturb any other tenant or Lessor in its operation of the Building. 20.16 Broker. Lessee warrants that it has had no dealings with any ------ real estate broker or agent other than Lessee's Broker set forth in the Summary ("Broker") in connection with the negotiation of this Lease, and that it knows of no other real estate broker or agent other than Lessee's Broker, who may be entitled to any commission or finder's fee in connection with this Lease. Lessee hereby indemnifies, defends, protects and holds Lessor harmless from and against any and all claims, demands, losses, liabilities, lawsuits, judgements, costs and expenses with respect to any leasing commission or equivalent compensation alleged to be owing on account of Lessee's dealings with any real estate broker or agent other than Broker as set forth in Broker's separate agreement with Lessor. 20.17 Lessor's Right to Perform. Upon Lessee's failure to perform ------------------------- any obligation of Lessee hereunder, subject to notice and reasonable period of time, including without limitation, payment of Lessee's insurance premiums or charges of contractors who have supplied materials or labor to the Premises. Lessor shall have the right to perform such obligation of Lessee on behalf of Lessee and, or to make payment on behalf of Lessee to such parties. Lessee shall reimburse Lessor the reasonable cost of Lessor's performing such obligation on Lessee's behalf, including any amounts that may be expended by Lessor, plus interest at the rate set forth in Article 4.6 for past due installments of Rent, as Additional Rental. 20.18 Modification for Lender. If, in connection with obtaining ----------------------- construction interim or permanent financing for the Project, the lender or any ground lessor shall request reasonable modifications in this Lease as a condition to such financing. Lessee will not unreasonably withhold, delay or defer its consent thereto, provided that such modifications do not increase the obligations of Lessee hereunder or materially adversely affect the leasehold interest hereby created or Lessee's rights hereunder. 20.19 Recording. Neither Lessor nor Lessee shall record this Lease ---------- nor a short form memorandum thereof without the written consent of the other. 20.20 Parking Facilities ------------------ (a) The Garage is available for the use of tenants of the Project and their visitors and customers. All parking rights are subject to the rules, regulations, charges, rates, validation and identification systems set forth by Lessor from time to time. Lessor may restrict certain portions of the Garage for the exclusive use of one or more tenants of the Project and may designate other areas to be used at large only by customers and visitors of tenants of the Project. Lessor reserves the right to delegate the operation of the Garage to a parking operator which shall be entitled to all of the obligations and benefits of Lessor. (b) During the Lease Term Lessee shall have the right in common with other tenants of the Project to rent use the number of undesignated spaces in the Garage specified in the Summary Information: additional parking spaces for Lessee's customers and visitors may be allowed at Lessor's option, and as further provided in the Summary, subject to availability. Lessee shall pay to Lessor as Additional Rental the parking space rental specified in the Summary Information, which amount is the charge currently in effect for the rental use of such parking facilities. Notwithstanding the foregoing. Lessor reserves the right, from time to time, to make reasonable changes in, additions to and deletions from the parking facilities and the purposes to which the same may be devoted, provided that Lessor does not permanently reduce the number of Lessee's parking spaces specified above. Furthermore, Lessor reserves the right, from time to time, to make changes in the rental for such parking facilities based upon the fair market value of such parking facilities as determined solely by Lessor or governmental authorities. (c) Lessor shall have the right to cause to be removed any vehicles of Lessee, its customers or visitors that are parked in violation of this Lease or in violation of the Rules and Regulations of the 28 Building without liability of any kind to Lessor and Lessee agrees to indemnify, defend, protect and hold Lessor harmless from and against any and all claims, losses, damages, demands, costs and expenses (including without limitation reasonable attorney's fees and expenses) asserted or arising with respect to or in connection with the removal of any such automobile(s) as aforesaid. Lessor shall not be liable for any claims, losses, damages, expenses or demands with respect to any vehicles of Lessee, its customers or visitors that are parked in the Garage, except for such loss or damage as may be caused by Lessor's gross negligence or willful misconduct, and Lessee agrees to indemnify, defend, protect and hold Lessor harmless from and against any such claim, loss, damage, demand, cost or expense (including without limitation reasonable attorneys' fees and expenses). From time to time, upon request of Lessor, Lessee shall supply Lessor with a list of license plate numbers of all automobiles owned by its employees and agents granted parking privileges. 20.2l No Merger. The voluntary' or other surrender of this --------- Lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and at the option of Lessor shall terminate all or any existing assignments, sublessees, or subtenancies, or at the option of Lessor may operate as an assignment to it of any or all such assignments, subleases or subtenancies. 20.22 Amendment. Except as otherwise provided herein, --------- no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Lessor or Lessee unless in writing and executed by Lessor and Lessee. 20.23 Financial Statements. No more often than once per annum. -------------------- Lessee shall upon twenty (20) days prior written notice from Lessor provide Lessor with a most recent annual financial statement. Such statements shall be prepared in accordance with generally accepted accounting principles. 20.24 Hazardous Substances: Indemnification. ------------------------------------- (a) Except for general offices supplies typically used in an office area in the ordinary course of business, such as copier toner, liquid paper, glue, ink, and cleaning solvents, for use in the manner for which they were designed, in such amounts as may be normal for the office business operations conducted by Lessee in the Premises, neither Lessee nor its agents, employees, contractors, licensees, sublesses, assignees, concessionaires or invitees shall use, handle, store or dispose of any Hazardous Substances in, on, under or about the Premises or the Project. Except for Hazardous Substances customarily used in connection with general office uses. Lessee shall not cause or permit any Hazardous Substance to be used, stored, generated or disposed of on or in the Building or the Premises by Lessee. Lessee's agents, employees, contractors, or invitees without first obtaining Lessor's written consent. If any Hazardous Substances are used, stored, generated, or disposed of on or in the Premises including those customarily used in connection with general office uses, or if the Premises become affected by any release or discharge of a Hazardous Substance. Lessee shall, if caused by a violation of the above, indemnify, defend and hold harmless the Lessor from and against any and all claims, damages, fines, judgments, penalties, costs, liabilities, or losses (including, without limitation, a decrease in value of the Premises, damages caused by loss or restriction of rentable or usable space, or any damages caused by a diverse impact on marketing of the space, and any and all sums paid for settlement of claims, attorneys' fees, consultant, and expert fees) arising during or after the term of this Lease and arising as a result of such contamination, release or discharge. This indemnification includes, without limitation, any and all costs incurred because of any investigation of the site or any clean-up, remediation, removal, or restoration mandated by federal, state or local agency or political subdivision. Without limitation of the foregoing, if Lessee causes or permits the presence of any Hazardous Substance on the Premises and the same results in any contamination, release or discharge. Lessee shall promptly, at its sole expense, take any and all necessary actions to return the Premises to the conditions existing prior to the presence of any such Hazardous Substance on the Premises. Lessee shall first obtain Lessor's approval for any such remedial action. Furthermore, Lessee shall immediately notify Lessor of any inquiry, test, investigation or enforcement proceeding by or against Lessee or the Property concerning the presence of any Hazardous Substance. Lessee acknowledges that Lessor, at Lessor's election, shall have the sole right, at Lessee's expense, to negotiate, defend, approve and appeal any action taken or order issued by any governmental authority with regard to any Hazardous Substance contamination which Lessee is obligated hereunder to remediate. 29 (b) Lessor represents and warrants that Lessor has nor knowingly used or permitted the use of any portion of Lessee's Premises, the Project or Garage to be used in violation of any governmental law ordinances, regulations or orders relating to environmental conditions including but not limited to asbestos, soil and ground water conditions and Hazardous Materials. (c) As used herein. "Hazardous Substance" means asbestos, any petroleum fuel, polychorobiphenyls ("PCBs") and any hazardous or toxic substance, material or waste which is or becomes regulated by any local governmental authority, the State of California or the United States government, including, but not limited to, any material or substance defined as a "hazardous waste", "extremely" hazardous waste", "restricted hazardous waste", "hazardous substances", "hazardous material" or "toxic pollutant" under the California Health and Safety Code and/or under the Comprehensive Environmental Response, Compensation and Liability Act. 42. U.S.C. section T9901, et. seq. 20.25 No Warranty. In executing and delivering this Lease, ----------- Lessee has not relied on any representation including, but not limited to, any representation whatsoever as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Lessor is furnishing the same services to other Lessees, at all, on the same level or on the same basis or any warranty or any statement of Lessor which is not set forth herein or in one or more of the exhibits attached hereto. 20.26 Entire Agreement. It is understood and acknowledged that ---------------- there are no oral agreements between the parties hereto affecting this Lease and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Lessor to Lessee with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. This Lease and any side letter or separate agreement executed by Lessor and Lessee in connection with this Lease and dated of even date herewith contain all of the terms, covenants, conditions, warranties and agreements of the parties relating in any manner to the rental, use and occupancy of the Premises, shall be considered to be the only agreement between the parties hereto and their representatives and agents, and none of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto. All negotiations and oral agreements acceptable to both parties have been merged into and are included herein. There are no other representations or warranties between the parties, and all reliance with respect to representations is based totally upon the representations and agreements contained in this Lease. 20.27 Force Majeure. Any prevention, delay or stoppage due to ------------- strikes, lockouts, labor disputes, Acts of God, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Lessee pursuant to this Lease (collectively, the "Force Majeure"), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party's performance caused by a Force Majeure. 20.28 Waiver of Redemption. Lessor hereby waives for Lessee and -------------------- for all those claiming under Lessee all right now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ. Lessee's right of occupancy of the Premises after any termination of this Lease. 20.29 Joint and Several. If there is more than one Lessee, the ----------------- obligations imposed upon Lessee under this Lease shall be joint and several. 20.30 Attorneys' Fees. If either party commences litigation --------------- against the other for the specific performance of this Lease, for damages for the breach hereof or otherwise for enforcement of any remedy hereunder. In the event of any such commencement of litigation, the prevailing party shall be entitled to recover 30 from the other party such costs and reasonable attorneys' fees as may have been incurred, including any and all costs incurred in enforcing, perfecting and executing such judgment. 20.31 Independent Covenants. This Lease shall be construed as --------------------- though the covenants herein between Lessor and Lessee are independent and not dependent and Lessee hereby expressly waives the benefit of any statute to the contrary and agrees that if Lessor fails to perform its obligations set forth herein, Lessee shall not be entitled to make any repairs or perform any acts hereunder at Lessor's expense or to any set-off of the Rent or other amounts owing hereunder against Lessor: provided, however, that the foregoing shall in no way impair the right of Lessee to commence a separate action against Lessor for any violation by Lessor of the provisions hereof so long as notice is first given to Lessor and any holder of a mortgage or deed of trust covering the Building. Real Property or any portion thereof, of whose address Lessee has therefore been notified, and an opportunity is granted to Lessor and such holder to correct such violations as provided above. 20.32 Project Name and Signage. Lessor shall have the right at ------------------------ any time to change the name of the Project and to install, affix and maintain any and all signs on the exterior and on the interior of the Project as Lessor may, in Lessor's sole discretion, desire. 20.33 Transportation Management. Lessee shall fully comply with ------------------------- all present or future programs intended to manage parking, transportation or traffic in and around the Project, and in connection therewith. Lessee shall take responsible action for the transportation, planning and management of all employees located at the Premises by working directly with Lessor, any governmental transportation management organization or any other transportation-related committees or entities. Such programs may include, without limitation: (i) restrictions on the number of peak-hour vehicle trips generated by Lessee. (ii) increased vehicle occupancy; (iii) implementation of an in-house ride-sharing program and an employee transportation coordinator: (iv) working with employees and any Project or area-wide ride-sharing program manager: (v) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to ride-share: and (vi) utilizing flexible work shifts for employees. 20.34 No Discrimination. Lessee covenants by and for itself, ----------------- its heirs, executors, administrators and assigns, and all persons claiming under or through Lessee, and this Lease is made and accepted upon and subject to the following conditions: that there shall be no discrimination against or segregation of any person or group of persons, on account of race, color, creed, sex, religion, marital status, ancestry, or national origin in the leasing, subleasing, transferring, use or employment of the Premises, nor shall Lessee itself, or any person, use claiming under or through Lessee, establish or permit such practice or practices of discrimination or segregation with reference to the selection, location, number, use or occupancy of tenants, lessees, sublessees, subtenants or vendees in the Premises. 31 IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be executed the day and date first above written. "Lessor": BPG PASADENA, L.L.C., a Delaware Limited Liability Company [SIGNATURE ILLEGIBLE] - ----------------------------------- Its: Managing Member -------------------------- "Lessee": CITY SEARCH, INC., a Delaware Corporation [SIGNATURE ILLEGIBLE] By:---------------------------------- Its: ?????????????????? ---------------------------- 32 EXHIBIT A --------- 790 EAST COLORADO BOULEVARD --------------------------- LEGAL DESCRIPTION ----------------- All the certain real property located in the County of Los Angeles. State of California, described as follows: APN 5734-013-022 PARCEL l OF THE PARCEL MAP NO.12432. IN THE CITY OF PASADENA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA. AS PER MAP RECORDED IN BOOK 138, PAGES 66 AND 67 OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXHIBIT A - PAGE 1 EXHIBIT B --------- 790 EAST COLORADO BOULEVARD --------------------------- OUTLINE OF FLOOR PLAN OF PREMISES --------------------------------- (TO BE PROVIDED BY LESSOR) EXHIBIT B - PAGE 1 EXHIBIT B --------- 790 E. COLORADO BLVD. [SECOND FLOOR PLAN APPEARS HERE] EXHIBIT C --------- 790 EAST COLORADO BOULEVARD --------------------------- WORK LETTER ----------- This Work Letter shall set forth the terms and conditions relating to the construction of the Lessee improvements in the Premises. This Work Letter is essentially organized chronologically and addresses the issues of the construction of the Premises, in sequence, as such issues will arise during the actual construction of the Premises. All capitalized terms used but not defined herein shall have the meanings given such terms in this Lease. All references in this Work Letter to Articles or Sections of "this Lease" shall mean the relevant portion of Articles 1 through 20 of this Lease to and of which this Work Letter forms a part. All references in this Work Letter to Sections of "this Work Letter" shall mean the relevant portion of Sections 1 through 6 of this Work Letter. AGREEMENT --------- SECTION l --------- DESIGN AND CONSTRUCTION OF LESSEE IMPROVEMENTS ---------------------------------------------- 1.l Construction Drawings for Lessee Improvements. Prior to the --------------------------------------------- execution of this Lease, Lessor and Lessee have approved a detailed space plan and supplemental specifications for the construction of certain improvements in the Premises a copy of which is included as Exhibit D to the Lease (the "Final Space Plan"). Based upon and in conformity with the Final Space Plan. Lessor shall cause its architect and engineers to prepare and deliver to Lessee, for Lessee's reasonable approval, detailed specifications and engineered working drawings for the Lessee improvements shown on the Final Space Plan (the "Working Drawings"). To the extent that the finishes and specifications are not completely set forth in the Final Space Plan for any portion of the Lessee improvements depicted thereon, the actual specifications and finish work shall be in accordance with the specifications for the building's standard improvement package items, as determined by Lessor. Within three (3) days after Lessee's receipt of the Working Drawings. Lessee shall approve or disapprove the same, which approval shall not be unreasonably withheld; provided, however, that Lessee may only disapprove the Working Drawings to the extent such Working Draw ings are inconsistent with the Final Space Plan and only if Lessee delivers to Lessor, within such thirty (30) day period, specific changes proposed by Lessee which are consistent with the Final Space Plan and do not constitute changes which would result in any of the circumstances described in items (i) through the below. If any such revisions are timely and properly proposed by Lessee, Lessor shall cause its architect and engineers to revise the Working Drawings to incorporate such revisions and submit the same for Lessee's approval in accordance with the foregoing provisions and the parties shall follow the foregoing procedures for approving the Working Drawings until the same are finally approved by Lessor and Lessee. Upon Lessor's and Lessee's approval of the Working Drawings, the same shall be known as the "Approved Working Drawings". Once the Approved Working Drawings have been approved by Lessor and Lessee. Lessee shall make no changes or modifications thereto without the prior written consent of Lessor, which consent may be withheld in Lessor's sole discretion if such change or modification would: (i) directly or indirectly delay the "Substantial Completion", as that term is in defined section 5 below, of the Premises: (ii) increase the cost of designing or constructing the Lessee Improvements above the cost of the Lessee Improvements depicted in the Final Space Plan: (iii) be of a quality lower than the quality of the standard improvement package items for the office building; and or (iv) require any changes to the Base, Shell and Core of the Project. The Lessee improvements shown on the Approved Working Drawings, excluding any of Lessee's furniture, computer systems, telephone systems, equipment or other personal property which may be depicted thereon, shall be referred to herein as the "Lessee Improvements". 1.2 Limitation on Lessor's Liability. Lessor's submittal and/or approval -------------------------------- of the Final Space Plan. Working Drawings and Approved Working Drawings (collectively, the "Construction Drawings") as set forth in this Section 5 shall not imply Lessor review of the same, or obligate Lessor to review the same for quality, design, compliance with codes or other like matters. EXHIBIT B --------- [790 E. COLORADO BLVD. -- THIRD FLOOR PLAN] SECTION 2 --------- CONSTRUCTION COSTS AND OVER-ALLOWANCE AMOUNT -------------------------------------------- Lessor and Lessee hereby agree that Lessor shall at Lessor's sole cost and expense, improve Lessee's Premises consistent with the space plan developed by City Spaces and approved by CitySearch. The intention of the parties herein is to develop at Landlord expense, standard professional office space in all areas of Lessee's Premises except for the Computer Room. Specifically, Lessor shall at Lessor's sole cost and expense provide all necessary improvements to the Premises, including but not limited to, suspended ceilings, lighting, walls, doors, floor coverings, furniture low wall partition systems, telecommunications, cabling, fourplex electrical outlets (as required), a men's & women's shower facility, and breakroom including sink coffee and storage area. Lessor shall also build the demised area for the Computer Room consistent with buildings standards for the Premises. Lessee, at Lessee's sole cost and expense shall be responsible for the development of the Computer Room beyond building standard including any additional air conditioning units, fire suppression systems, floor support system, etc. SECTION 3 --------- CONTRACTOR'S WARRANTIES AND GUARANTIES -------------------------------------- Lessor will, upon completion of the Lessee Improvements and Lessee's acceptance of the Premises, assign to Lessee all warranties and guaranties by the contractor who constructs the Lessee Improvements (the "Contractor") relating to the Lessee Improvements, and Lessee hereby waives all claims against Lessor relating to, or arising out of the construction of the Lessee Improvements except to extent of Lessor's cross negligence or willful misconduct. SECTION 4 --------- LESSEE'S COVENANTS ------------------ Lessee shall use its good faith efforts to cooperate with Lessor to cause a Notice of Completion to be recorded in the Office of the Recorder of the County of Los Angeles in accordance with section 3093 of the Civil Code ---------- of the State of California or any successor statute, including the execution of any appropriate documents if necessary; provided, however, Lessor may itself execute and file the same on behalf of Lessee as Lessee's agent for such purpose SECTION 5 --------- COMPLETION OF THE LESSEE IMPROVEMENTS: -------------------------------------- LEASE COMMENCEMENT DATE ----------------------- Except as provided in this Section 5, the Lease Commencement Date shall occur as set forth in the Summary and Article 3 of this Lease. For purposes of this Lease "Substantial Completion" of the Premises shall occur upon the completion of construction of the Lessee Improvements in the Premises pursuant to the Approved Working Drawings, with the exception of any punch list items and any Lessee fixtures, work-stations, built-in furniture, or equipment to be installed by Lessee or under the supervision of a Contractor. If there shall be a delay or there are delays in the Substantial Completion of the Premises or in the occurrence of any of the other conditions precedent to the Lease Commencement Date as set forth in the Summary of this Lease as a result of: 5.1 Lessee's failure to timely approve any matter requiring Lessee's approval: 5.2 A breach by Lessee of the terms of this Work Letter or this Lease; EXHIBIT C - PAGE 2 5.4 Lessee's request for changes in any of the Construction Drawings, the changes of which result in added time to the construction schedule: 5.5 Lessee's requirement for materials, components, finishes or improvements which are not available in a commercially reasonable time (given the anticipated Lease Commencement Date as set forth in this Lease) or which are different than Lessor's standard improvement package items for the office building: 5.6 Any other acts or omissions of Lessee, or its agents, or employees except for computer room; then, notwithstanding anything to the contrary set forth in this Lease or this Work Letter and regardless of the actual date of the Substantial Completion of the Premises, the Lease Commencement Date shall be deemed to be the date the Lease Commencement Date would have occurred pursuant to the Summary if no Lessee Delay or delays, as set forth above had occurred. SECTION 6 --------- MISCELLANEOUS ------------- 6.1 Lessee's Entry Into the Premises Prior to Substantial Completion. ---------------------------------------------------------------- Provided that Lessee and its agents do not interfere with Contractor's work in the Project and the Premises. Contractor shall allow Lessee access to the Premises prior to the Substantial Completion of the Premises for the purpose of Lessee installing over-standard equipment or fixtures ( including Lessee's data and telephone equipment, wall and floor coverings, security systems and millwork) in the Premises. Prior to Lessee's entry into the Premises as permitted by the terms of this Section 6.1. Lessee shall submit a schedule to Lessor and Contractor, for their approval, which schedule shall detail the timing and purpose of Lessee's entry. Lessee shall hold Lessor harmless from and indemnity, protect and defend Lessor against any loss or damage to the Project or Premises and against injury to any persons caused by Lessee's actions pursuant to this Section 6.1. 6.2 Freight Elevators. Lessor shall, consistent with its obligations to ----------------- other tenants of the Project, and subject to the needs of Lessor with respect to Lessor's construction work in the Project, make the freight elevator reasonably available to Lessee in connection with initial decorating, furnishing and moving into the Premises. 6.3 Lessee's Representative. Lessee has designated Bradley Ramberg as its ----------------------- sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Lessor, shall have full authority and responsibility to act on behalf of the Lessee as required in this Work Letter. 6.4 Lessor's Representative. Lessor has designated Michael D. Barker as ----------------------- its sole representative with respect to the matters set forth in this Work Letter, who, until further notice to Lessee, shall have full authority and responsibility to act on behalf of the Lessor as required in this Work Letter. 6.6 Time of the Essence in This Work Letter. Unless otherwise indicated, --------------------------------------- all references herein to a " number of days" shall mean and refer to calendar days. In all instances where Lessee is required to approve or deliver an item, if no written notice of approval is given or the item is not delivered within the stated time period, at Lessor's sole option, at the end of such period the item shall automatically be deemed approved or delivered by Lessee and the next succeeding time period shall commence. 6 7. Lessee's Material Default. Notwithstanding any provision to the ------------------------- contrary contained in this Lease, if an event of default as described in Article 17 of this Lease, or a default by Lessee under this Work Letter, has occurred at any time on or before the Substantial Completion of the Premises, then (i) in addition to all other rights and remedies granted to Lessor pursuant to this Lease, Lessor shall have the right to cause Contractor to cease the construction of the Premises (in which case, Lessee shall be responsible for any delay in the Substantial Completion of the Premises caused by such work stoppage as set forth in Section 5 of this Work Letter), and (ii) all other obligations of Lessor under the terms of this Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of this Lease. EXHIBIT C - PAGE 3 EXHIBIT D --------- 790 EAST COLORADO BOULEVARD ---------------------------- LESSEE'S FINAL SPACE PLAN ------------------------- EXHIBIT E --------- 790 EAST COLORADO BOULEVARD --------------------------- NOTICE OF LEASE TERM DATES -------------------------- To: City Search, Inc. Date: September ____, 1996 4502 Dyer Street, Suite 201 La Crescenta, CA 91214 Re: Office Lease dated ____________________, 19___, between BPG Pasadena, L.L.C., Lessor, and, CitySearch. Inc., Lessee. concerning Suite 200, located at 790 East Colorado Boulevard, Pasadena, California 91101. In accordance with the subject Lease, we wish to advise you and/or confirm as follows: l. The Premises have been accepted by the Tenant as being substantially complete in accordance with the Lease and there is no deficiency in construction. 2. Tenant has possession of the Premises and acknowledges that under the provisions of the Lease, the term of said Lease shall commence as of November 1, 1996 for a term of five (5) years, ending on October 31, 2001. 3. In accordance with the Lease, Rent commenced to accrue on ________________. 4. If the commencement date of the Lease is other than the first day of the month, the first billing will contain a pro rata adjustment. Each billing thereafter shall be for the full amount of the monthly installment as provided for in the Lease. 5. Rent is due and payable in advance on the first day of each and every month. Rent checks should be made payable to BPG Pasadena, L.L.C. and delivered to: 6. Nationwide Remittance Centers - California, Inc. Department 66099 El Monte, CA 91735-6099 7. The number of rentable square feet in the Premises is ___________. EXHIBIT E - PAGE 8. Tenant's Percentage Share is _________________%. AGREED AND ACCEPTED: Lessor: Lessee: BPG Pasadena. L.L.C., City, Search, Inc., a Delaware Limited Liability Company a Delaware Corporation 790 East Colorado Boulevard 4502 Dyer Street, Suite 201 Pasadena, CA 91101 La Crescenta, CA 91214 By:__________________________________ By:_____________________________________ Managing Member _____________________________________ ________________________________________ [Print Name] [Print Name] EXHIBIT E - PAGE EXHIBIT F --------- 790 EAST COLORADO BOULEVARD --------------------------- RULES AND REGULATIONS --------------------- Lessee shall faithfully observe and comply with the following Rules and Regulations. Lessor shall not be responsible to Lessee for the non-performance of any of said Rules and Regulations by or otherwise with respect to he acts or omissions of any other tenants or occupants of the Project. 1. Lessee shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Lessor's prior written consent. Lessee shall bear the cost of any lock changes or repairs required by Lessee. Two keys will be furnished by Lessor for the Premises, and any additional keys required by Lessee must be obtained from Lessor at a reasonable cost to be established by Lessor. 2. All doors opening to public corridors shall be kept closed at all times except for normal ingress and agrees to the Premises, unless electrical hold-backs have been installed. 3. Lessor reserves the right to close and keep locked all entrance and exit doors of the office building during such hours as are customary for comparable buildings in the vicinity of the Project. Lessee, its employees and agents must be sure that the doors to the office building are securely closed and locked when the leaving Premises if it is after the normal hours of business for the Project. Any Lessee, its employees, agents persons entering or leaving the Project at any time when it is so locked, or any time when it is considered to be after normal business hours for the Project, may be required to sign the security register when so doing. Access to the Project may be refused unless the person seeking access has proper identification or has made a previous arrangement with regard to the admission to or exclusion from the Project of any person. In case of invasion, mob, riot, public excitement, or other commotion, Lessor reserves the right to prevent access to the Project during the continuance of same by any means it deems appropriate for the safety and protection of life and property. 4. Lessor shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Project. Safes and other heavy objects shall, if considered necessary by Lessor, stand on supports of such thickness as is necessary to properly distribute the weight. Lessor shall not be responsible for loss or damage to any such safe or property in any case. All damage done to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility of Lessee and any expense of said damage or injury shall be borne by Lessee. 5. No furniture, freight, packages, supplies, equipment or merchandise will be brought into or removed from the Building or carried up or down in the elevators, except upon prior notice to Lessor, and in such manner, in such specific elevator, and between such hours as shall be designated by Lessor. Lessee shall provide Lessor with not less than 24 hours prior notice of the need to utilize an elevator for any such purpose, so as to provide Lessor with a reasonable period to schedule such use and to install such padding or take such other actions or prescribe such procedures as are appropriate to protect against damage to the elevators or other parts of the Building. In no event shall Lessee's use of the elevators for any such purpose be permitted during the hours of 7:00 a.m. - 9:00 a.m., 11:30 a.m. - 1:30 p.m. and 4:30 p.m. - 6:30 p.m. 6. Lessor shall have the right to control and operate the public portions of the Building, the public facilities, the heating and air conditioning, and any other facilities furnished for the common use of tenants, in such manner as is customary for comparable buildings in the vicinity of the Building. 7. The requirements of Lessee will be attended to only upon application at the Office of the Building or at such office location designated by Lessor. Employees of Lessor shall not perform any work or do anything outside their regular duties unless under special instructions from Lessor. EXHIBIT F - PAGE 8. Lessee shall not disturb, solicit, or canvass any occupant of the Building and shall cooperate with Lessor or Lessor's agents to prevent same. 9. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein. The expense or any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Lessee who, or whose employees or agents, shall have caused it. 10. Lessee shall not overload the floor of the Premises, nor mark, drive nails or screws, or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof without Lessor's consent first had and obtained, which consent shall not be unreasonably withheld or delayed; provided, however, that Lessee may without Lessor's prior consent, place pictures and normal wall hangings on the Premises so long as Lessee repairs any damage resulting therefrom and Lessee restores the Premises to its condition prior to the placement of such items. 11. Except for vending machines rented for the sole use of Lessee's employees and invitees, no vending machine or machines of any description other than fractional horsepower office machines, shall be installed, maintained or operated upon the Premises without the written consent of Lessor. 12. Lessee shall not use or keep in or on the Premises or the Building any kerosene, gasoline or other inflammable or combustible fluid or material. 13. Lessee shall not use any method of heating or air conditioning other than that which may be supplied by Lessor without the prior written consent of Lessor. 14. Lessee shall not use, keep or permit to be used or kept any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Lessor or other occupants of the Building by reason of noise, odors, or vibrations, or interfere in any way with other tenants or those having business therein. 15. Lessee shall not bring into or keep within the Building or the Premises any animals, birds, bicycles or other vehicles. 16. No cooking shall be done or permitted by any Lessee on the Premises, nor shall the Premises be used for the storage of merchandise, for lodging or for any improper, objectionable or immoral purposes. Notwithstanding the foregoing. Underwriters' laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages, provided that such use is in accordance with all applicable federal, state and city laws, codes, ordinances, rules and regulations, and does not cause odors which are objectionable to Lessor and other tenants. 17. Lessor will approve where and how telephone and telegraph wires are to be introduced to the Premises. No boring or cutting for wires shall be allowed without the consent of Lessor. The location of telephone, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Lessor. 18. Lessor reserves the right to exclude or expel from the Building any person who, in the judgment of Lessor, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations. 19. Lessee, its employees and agents shall not loiter in the entrances or corridors, nor in any way obstruct the sidewalks, lobby, halls, stairways or elevators, and shall use the same only as a means of ingress and egress for the Premises. EXHIBIT F - PAGE 20. Lessee shall not waste electricity, water or air conditioning and agrees to cooperate fully with Lessor to ensure the most effective operation of the Building's heating and air conditioning system, and shall refrain from attempting to adjust any controls. This includes the closing of exterior blinds, disallowing the sun rays to shine directly into areas adjacent to exterior windows. 21. Lessee shall store all its trash and garbage within the interior of the Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in Los Angeles County without violation of any law or ordinance governing such disposal. All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Lessor shall designate. 22. Lessee shall comply with all safety, fire protection and evacuation procedures and regulations established by Lessor or any governmental agency. 23. Lessee shall assume any and all responsibility for protecting the Premises from robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed when the Premises are not occupied. 24. Lessor may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants but no such waiver by Lessor shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Lessor from thereafter enforcing any such Rules or Regulations against any or all tenants of the Building. 25. No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Lessor. No curtains, blinds, shades or screens shall be attached to or hung in or used in connection with any window or door of the Premises without the prior written consent of Lessor. All electrical ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent and or of a quality, tape, design and bulb color approved by Lessor. 26. The sashes, sash doors, skylights, windows and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Lessee, nor shall any bottles, parcels or other articles be placed on the window sills. 27. The washing and or detailing of, or the installation of windshields, radios, telephones in or general worK on automobiles shall not be allowed on the Real Property. 28. Food vendors shall be allowed in the Building upon receipt of a written request from the Lessee. Food vendor shall service only those tenants which have a written request on file in the Building Management Office. Under no circumstance shall the food vendor display their products in the public or common area of the Building, including corridors and elevator lobbies. Any failure to comply with this rule shall result in immediate, permanent withdrawal of the vendor from the Building. 29. Lessees must comply with requests made by the Lessor relative to informing Lessee's employees of any items of importance affecting them as so deemed by the Lessor. 30. Lessee shall comply with any non-smoking ordinance adopted by any applicable governmental authority. 3l. Lessor reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Lessor's judgment may, from time to time be necessary for the management, safety, care and cleanliness of the Premises and Building, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants. Lessor shall not be responsible to Lessee or to any other person for the non-observance of said Rules Regulations by another EXHIBIT F - PAGE Lessee or other person. Lessee shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises. EXHIBIT F - PAGE EXHIBIT G ------- 790 EAST COLORADO BOULEVARD --------------------------- FORM OF LESSEE'S ESTOPPEL CERTIFICATE ------------------------------------- The undersigned as Lessee under that certain Office Lease (the "Lease") made and entered into as of 19__ and between BPG Pasadena L.L.C., a Delaware Limited Liability Company, and the undersigned as Lessee for Premises on the floor(s) of the Office Building located at 790 East Colorado Boulevard, Pasadena, California 91101 certifies as follows: 1 . Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto. The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises. 2. The undersigned has commenced occupancy of the Premises described in the Lease currently occupies the Premises, and the Lease Term commenced on November 1, 1996. 3. The Lease is in full force and effect and has not been modified, supplemented or amended in any way. 4. Lessee has not transferred, assigned or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto, except as follows: 5. Lessee shall not modify the Lease document or prepay any amounts owing under the Lease to Lessor in excess of thirty (30) days without the prior written consent of Lessor's mortgagee. 6. Base Rent became payable on November 1, 1996. 7. The Lease Term expires on October 31, 2001. 8. All conditions of the Lease to be performed by Lessor necessary to the enforceability of the Lease have been satisfied and Lessor is not in default thereunder. 9 No rental has been paid in advance and no security has been deposited with Lessor except as provided in the Lease. 10. As of the date hereof, there are no existing defenses or offsets that the undersigned has, which preclude enforcement of the Lease by Lessor. 11. All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through. The current monthly installment of Base Rent is $___________________. 12. The undersigned acknowledges that this Estoppel Certificate may be delivered to Lessor's prospective mortgagee, or a prospective purchaser, and acknowledges that it recognizes that if the same is done, said mortgagee, prospective mortgagee, or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part, and in accepting an assignment of the Lease as collateral security, and that receipt by it of this certificate is a condition of making of the loan or acquisition of such property. EXHIBIT G - PAGE 13. If Lessee is a corporation or partnership each individual executing this Estoppel Certificate on behalf of Lessee hereby represents and warrants that Lessee is a duly formed and existing entity qualified to do business in California and that Lessee has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Lessee is authorized to do so. Executed at ________________ on the _________ day of _____________, 19____. " Lessee": CitySearch, Inc., a Delaware Corporation________________________ By:___________________________ Its:__________________________ BY:___________________________ ITS:__________________________ EXHIBIT G - PAGE EXHIBIT H ------- CLEANING SPECIFICATIONS ----------------------- JANITORIAL SPECIFICATIONS GENERAL SERVICES Daily Services Clean Entry Glass Doors. Sweep with Chemically-Treated Dust Mop or Vacuum all Floors. Spot Clean Composition Floors and Carpets Dust Desk, Chairs and all other Office Furniture. Clean all Ash Trays and Sand Urns. Properly Position Furniture in Offices. Empty all Waste Baskets and Carry Trash to Pick Up Area. Spot Clean Door, Door Frames and Counters. Spot Clean Partition and Door Glass. Spot Clean around Wall Switches. Clean and Polish Drinking Fountains. Clean Elevator and Elevator Tracks. Leave on Designated Lights. Police Stairway Entries. Weekly Services Dust Ledges and Window Sills. Perform Los Dusting. Dust the Baseboards. Sweep Vacuum Stairways Dust Rails. Remove Fingerprints form Woodwork, Walls and Partitions. Monthly Services Perform High Dusting, i.e.. Door Sashes and Tops of Partitions. RESTROOM SERVICES Daily Services Empty and Wipe Out all Waste Paper receptacles. Empty Sanitary Napkin Containers and Replace Insert. Polish all Metal and Mirrors. Clean and Polish all Dispensers. Clean and Disinfect Wash Basins, Toilet Bowls and Urinals. Disinfect Underside and Tops of Toilet Seats. Spot Clean Tile Walls and Toilet Partitions. Spot Clean Walls Around Wash Basins. Clean Floors with a Germicidal Solution. Refill Soap, Towel, Tissue and Seat Cover Dispensers. Weekly Services Wash Down Ceramic Tile Walls and Toilet Compartment Partitions. Perform High Dusting. Monthly Services Brush Down Vents. Machine Scrub Floors. EXHIBIT H - PAGE EX-23.1 17 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITOR We consent to the reference to our firm under the captions "Experts" and "Selected Financial Data" and to the use of our report dated March 11, 1998 (except Note 10, as to which the date is May 26, 1998), in the Registration Statement Form S-1 and related Prospectus (the Registration Statement) of CitySearch, Inc. dated June 22, 1998. Our audit also included the financial statement schedule of CitySearch, Inc. listed in Item 16(b). The schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the schedule based on our audit. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Ernst & Young LLP Los Angeles, California July 14, 1998 The foregoing consent is in the form that will be signed upon the completion of the restatement of the capital accounts described in note 10 to the financial statements. /s/ Ernst & Young LLP Los Angeles, California July 14, 1998 EX-27.1 18 FINANCIAL DATA SCHEDULE
5 1,000 YEAR 3-MOS DEC-31-1997 JUN-30-1998 JAN-01-1997 JAN-01-1998 DEC-31-1997 JUN-30-1998 25,227 15,512 0 0 318 1,203 25 61 0 0 25,639 16,803 8,185 9,348 2,169 3,661 31,655 22,490 6,264 6,072 0 0 70,882 77,840 2,610 3,056 455 1,635 (245) (1,219) 31,655 22,490 6,184 6,798 6,184 6,798 10,846 7,446 36,741 16,742 0 0 115 50 271 111 (36,518) (16,482) (8) 0 (36,526) (16,482) 0 0 0 0 0 0 (36,526) (16,482) (2.94) (1.02) (2.94) (1.02)
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