-----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, S6TL3F+kN1dSmdcdDAgdlVKpFnozWVL+CPXGqdHr3dJJAM58XV35R900TwW6zfBC CldwWKMcYq5EGAgXQi800A== 0001012870-99-001415.txt : 19990506 0001012870-99-001415.hdr.sgml : 19990506 ACCESSION NUMBER: 0001012870-99-001415 CONFORMED SUBMISSION TYPE: S-8 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19990505 EFFECTIVENESS DATE: 19990505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TICKETMASTER ONLINE 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-8 SEC ACT: SEC FILE NUMBER: 333-77797 FILM NUMBER: 99611137 BUSINESS ADDRESS: STREET 1: 790 E COLORADO BLVD STREET 2: STE 200 CITY: PASADENA STATE: CA ZIP: 91101 BUSINESS PHONE: 6264050050 MAIL ADDRESS: STREET 1: 790 E COLORADO BLVD STREET 2: SUITE 200 CITY: PASADENA STATE: CA ZIP: 91101 FORMER COMPANY: FORMER CONFORMED NAME: CITYSEARCH INC DATE OF NAME CHANGE: 19980617 S-8 1 FORM S-8 As filed with the Securities and Exchange Commission on May, 5 1999 Registration No. ================================================================================
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-8/S-3 REGISTRATION STATEMENT (Including Registration of Shares for Resale by Means of a Form S-3 Prospectus) Under The Securities Act of 1933 TICKETMASTER ONLINE-CITYSEARCH, INC. (Exact name of Registrant as specified in its charter) Delaware 95-4546874 (State of incorporation) (I.R.S. Employer Identification No.) 790 E. Colorado Boulevard, Suite 200 Pasadena, California 91101 (Address of principal executive offices) CityAuction, Inc. 1998 Stock Plan Restricted Stock Purchase Agreements (Full Title of the Plan) Charles Conn Chief Executive Officer Ticketmaster Online-CitySearch, Inc. 790 E. Colorado Boulevard, Suite 200 Pasadena, California 91101 (626) 405-0050 (Name, address, and telephone number, including area code, of agent for service) Copy to: John T. Sheridan, Esq. Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Road Palo Alto, CA 94304 (415) 493-9300
CALCULATION OF REGISTRATION FEE ================================================================================
Proposed Maximum Proposed Maximum Title of Securities Maximum Amount to be Offering Price Aggregate Offering Amount of to be Registered Registered(1) Per Share Price Registration Fee Class B Common Stock, $0.01 par value 671,929 shares(3) $31.56(2) $ 21,206,079.24 $ 5,895.29 Issued under CityAuction, Inc. Restricted Stock Purchase Agreements.. - ------------------------------------------------------------------------------------------------------------------------------------ To be issued upon exercise of 6,274 shares(3) $ 0.36(4) $ 2,258.64 $ 0.63 outstanding options under the CityAuction, Inc. 1998 Stock Plan... - ------------------------------------------------------------------------------------------------------------------------------------ Total.............................. 678,203 shares $ 21,208,337.88 $ 5,895.92
================================================================================ (1) For the sole purpose of calculating the registration fee, the number of shares to be registered under this Registration Statement has been broken down into two subtotals. (2) Computed in accordance with Rule 457(h) under the Securities Act. Such computation is based on the average of the high and low prices reported on the Nasdaq National Market on May 3, 1999. (3) Certain of such shares are subject to vesting. (4) Computed in accordance with Rule 457(h) under the Securities Act. Such computation is based on the exercise price of $0.36 per share covering authorized but unissued shares to be issued upon exercise of outstanding options under the CityAuction, Inc. 1998 Stock Option Plan. ================================================================================ PROSPECTUS May 5, 1999 671,929 Shares [LOGO] Class B Common Stock ------------ These shares may be offered and sold from time to time by certain stockholders of Ticketmaster Online-CitySearch, Inc. identified in this prospectus. See "Selling Stockholders." The selling stockholders acquired the shares on March 29, 1999 in connection with the acquisition of CityAuction, Inc., by Ticketmaster Online-CitySearch, Inc. pursuant to an Agreement of Merger and Plan of Reorganization dated as of January 8, 1999 by and among Ticketmaster Online- CitySearch, Inc., Nero Acquisition Corporation, CityAuction, Inc., Andrew Rebele and Monica Lee, as amended (the "Merger Agreement"). The selling stockholders will receive all of the net proceeds from the sale of the shares. These stockholders will pay all underwriting discounts and selling commissions, if any, applicable to the sale of the shares. Ticketmaster Online- CitySearch, Inc. will not receive any proceeds from the sale of the shares. YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 3 OF THIS PROSPECTUS BEFORE PURCHASING ANY OF THE COMMON STOCK. Ticketmaster Online-CitySearch, Inc.'s Class B common stock is quoted on the Nasdaq National Market under the symbol "TMCS." On May 3, 1999, the last reported sale of the Class B common stock was $30.56 per share. -------------- THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------- -------------- TABLE OF CONTENTS
Page ---- Ticketmaster Online-CitySearch, Inc........................................... 2 Recent Developments........................................................... 2 Risk Factors.................................................................. 5 Where to Find More Information About Ticketmaster Online-CitySearch, Inc...... 30 Information Incorporated by Reference......................................... 30 Selling Stockholders.......................................................... 31 Plan of Distribution.......................................................... 31 Indemnification of Directors and Officers..................................... 32
-------------- You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The selling stockholders are offering to sell, and seeking offers to buy, shares of Ticketmaster Online-CitySearch, Inc. common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of the shares. FORWARD LOOKING INFORMATION This prospectus, including the information incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"). Our actual results could differ materially from those projected in the forward-looking statements as a result of the risk factors set forth below. In addition, please review the sections captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K for the fiscal year ended December 31, 1998, which report is incorporated herein by reference and such section of any subsequently filed Exchange Act reports. In connection with forward-looking statements which appear in these disclosures, prospective purchasers of the shares offered hereby should carefully consider the factors set forth in this prospectus under "Risk Factors." 1 TICKETMASTER ONLINE-CITYSEARCH, INC. Ticketmaster Online-CitySearch, Inc. ("Ticketmaster Online-CitySearch") is a leading provider of local city guides, local advertising and live events ticketing on the Internet. Ticketmaster Online-CitySearch is integrating its local CitySearch city guides with its Ticketmaster Online live events ticketing and merchandise distribution capabilities to offer online ticketing, merchandise, electronic coupons and other transactions to a broader audience of consumers. The CitySearch city guides provide 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. Ticketmaster Online offers consumers up-to-date information on live entertainment events and a convenient means of purchasing tickets for live events and related merchandise on the World Wide Web in 43 states and in Canada and the United Kingdom. Consumers can access the Ticketmaster Online service at www.ticketmaster.com and from CitySearch owned and operated city guides at www.citysearch.com through numerous direct links from banners and event profiles. Ticketmaster Online-CitySearch's principal offices are located at 790 E. Colorado Boulevard, Suite 200, Pasadena, California, 91101, and the telephone number at that address is (626) 405-0050. RECENT DEVELOPMENTS On February 9, 1999, USA Networks, Inc. ("USAi"), Lycos, Inc. ("Lycos") and Ticketmaster Online-CitySearch announced that they had entered into definitive agreements (the "Agreements") relating to the combination of Ticketmaster Online-CitySearch, Lycos and USAi's Home Shopping Network, Ticketmaster and Internet Shopping Network/First Auction businesses (the "Contributed Businesses") in a new company to be named USA/Lycos Interactive Networks, Inc. ("USA/Lycos"). The transactions will be effected by mergers of Lycos and Ticketmaster Online-CitySearch with subsidiaries of USA/Lycos and the contribution by USAi to USA/Lycos of the Contributed Businesses, in exchange for the consideration summarized below (the "Transactions"). Pursuant to the Agreements, upon consummation of the Transactions: i) each share of Lycos Common Stock will be converted into the right to receive (a) 1 share of USA/Lycos Common Stock and (b) 0.2963 of a share of USA/Lycos Series A Convertible Redeemable Preferred Stock (the "Series A Preferred Stock"); ii) each share of Ticketmaster Online-CitySearch Class B Common Stock (the publicly traded Ticketmaster Online-CitySearch stock) will be converted into the right to receive (x) 0.4464 of a share of USA/Lycos Common Stock and (y) 0.0584 of a share of Series A Preferred Stock; iii) each share of Ticketmaster Online-CitySearch Class A Common Stock will be converted into the right to receive 0.4464 of a share of USA/Lycos Class B Common Stock; and iv) USAi will receive 88,353,398 shares of USA/Lycos Class B Common Stock and 1,938,853 shares of Series A Preferred Stock in exchange for the Contributed Businesses. Both the USA/Lycos Common Stock and Series A Preferred Stock will be publicly traded. The USA/Lycos Class B Common Stock will not be publicly traded. Except as otherwise provided by Delaware law, the USA/Lycos Common Stock will have one vote per share, and the USA/Lycos Class B Common 2 Stock will have 15 votes per share on all matters submitted to a vote of USA/Lycos' stockholders, including the election of directors of USA/Lycos. Upon closing of the Transactions, based on the expected initial ownership of USA/Lycos on an adjusted fully diluted basis, former Lycos shareholders will own 30% of the USA/Lycos equity, former Ticketmaster Online-CitySearch shareholders (other than USAi) will own 8.5% of the USA/Lycos equity and USAi will own 61.5% of the USA/Lycos equity (including 10.9% relating to USAi's controlling interest in Ticketmaster Online-CitySearch). Upon the closing, USAi will beneficially own shares of USA/Lycos stock representing approximately 96% of the combined voting power of USA/Lycos, assuming all holders of Ticketmaster Online-CitySearch Class A Common Stock, other than USAi, convert their shares into shares of Ticketmaster Online-CitySearch Class B Common Stock prior to the closing. The terms of the Series A Preferred Stock provide for the issuance in certain circumstances of additional shares of USA/Lycos Common Stock to the holders thereof following the 39-month anniversary of the closing of the transactions. Each share of Series A Preferred Stock will be, following such anniversary, automatically converted into the right to receive a number of shares of USA/Lycos Common Stock based on the "Final Market Price" of the USA/Lycos Common Stock, which is equal to the sum of (i) .5 times the average of the 90-day, volume-weighted average closing price (the "Market Price") of the USA/Lycos Common Stock ending on (x) the 90th day following the closing, (y) the 15-month anniversary of the closing and (z) the 27-month anniversary of the closing, and (ii) .5 times the Market Price for the 90-day period ending on the 39-month anniversary of the closing (the sum of (i) and (ii), the "Final Market Price"). If the Final Market Price is equal to or greater than $257.88 (which would imply a market capitalization, based on USA/Lycos's expected initial capitalization at closing, of $45 billion), each share of Series A Preferred Stock will be converted into 1 share of USA/Lycos Common Stock, if the Final Market Price is equal to or less than $143.27 (which would imply a market capitalization, based on USA/Lycos' expected initial capitalization at closing, of $25 billion), each Series A Preferred Stock share will be convertible into no shares of USA/Lycos Common Stock and the shares of Series A preferred stock will be redeemed by USA/Lycos for $.01 per share. At Final Market Prices between $143.27 and $257.88, the shares to be issued will vary, on an interpolated basis. The Series A Preferred Stock will contain customary anti-dilution adjustments for the Final Market Price and the conversion ratio. The terms of the Series A Preferred Stock are set forth in Exhibit B to the Agreement and Plan of Reorganization, which is incorporated by reference in Ticketmaster Online-CitySearch's Form 10-K for the year ended December 31, 1998, File No. 000-25041, as filed with the Securities and Exchange Commission (the "SEC") on March 31, 1999. The parties have also entered into option agreements, which under certain circumstances provide USAi and Ticketmaster Online-CitySearch with the right to acquire, in the aggregate, up to 19.9% of the outstanding Lycos Common Stock. The Transactions are subject to Lycos shareholder approval as well as receipt of required regulatory approvals and other customary conditions. Upon closing of the Transactions, Barry Diller, Chairman and Chief Executive Officer of USAi will be Chairman of the Board of USA/Lycos; Robert J. Davis, the President and Chief Executive Officer of Lycos, will be the President and Chief Executive Officer of USA/Lycos; and Edward M. Philip, Chief Operating Officer and Chief Financial Officer of Lycos, will be the Chief Financial Officer of USA/Lycos. In addition to Mr. Diller, Messrs. Davis and Philip will be directors of USA/Lycos. Lycos will be entitled to appoint one additional director to serve for a one-year term, and USAi will appoint the remaining directors of USA/Lycos. 3 The agreements summarized above are incorporated by reference in Ticketmaster Online-CitySearch's Form 10-K for the year ended December 31, 1998, File No. 000-25041, as filed with the SEC on March 31, 1999, and the foregoing summary descriptions of the agreements are qualified in their entirety by reference to such exhibits. 4 RISK FACTORS You should carefully consider the risks described below before making an investment decision. The risks and uncertainties described below are not the only ones facing our company. The risk factors set forth in this Prospectus reflect those risks known to management as of the date of this Prospectus and which management believes could be material to our business, operating results and financial condition. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. Such risk factors may change over time and may differ materially from those set forth in this Prospectus. If any of the following risks actually occur, our business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of our common stock could decline and you may lose all or part of your investment. This Prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statement as a result of a variety of factors, including those set forth in the following risk factors or elsewhere in, or incorporated by reference into, this Prospectus. Limited Operating History CitySearch was incorporated in September 1995 and launched its initial local city guide service in the Raleigh-Durham-Chapel Hill metropolitan area in May 1996. Ticketmaster Online commenced online ticket sales in November 1996. Accordingly, the CitySearch and Ticketmaster Online businesses each have an extremely limited operating history upon which an evaluation of Ticketmaster Online-CitySearch and its prospects can be based. Our 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 those in which we compete. These risks include, but are not limited to: * evolving and unpredictable business models; * management of growth; * our ability to anticipate and adapt to developing markets; * acceptance of our services by Internet users, consumers and business customers; and * our ability to establish relationships with additional strategic partners. To address these risks, we must, among other things, do the following: 5 * attract and retain an audience of frequent users of our city guide, ticketing and auction services in our target markets; * maintain our business customer base; * attract a significant number of new CitySearch business customers in target markets; * expand our sales of tickets and merchandise through Ticketmaster Online; * respond to competitive developments; * continue to form and maintain relationships with media partners; * continue to attract, retain and motivate qualified personnel; * provide superior customer service; and * continue to develop and upgrade our technologies and commercialize our services incorporating these technologies. There can be no assurance that we will be successful in addressing these risks, and a failure to do so could have a material adverse effect on our business, financial condition and results of operations. Furthermore, we have a limited history as a company with public reporting obligations, and operating with these obligations will place substantial demands on management and our operating systems. These increased demands are requiring further expenditures to hire management personnel and to expand our operating systems. To the extent these expenditures precede or are not subsequently followed by increased revenues, our business, financial condition and results of operations could be materially and adversely affected. Anticipated Continued Operating Losses Ticketmaster Online incurred net losses of $615,000 for the year ended January 31, 1997, generated net income of $2.3 million for the year ended January 31, 1998 and incurred net losses of $17.2 million for the eleven months ended December 31, 1998. As a result of the merger of Ticketmaster Online with a wholly-owned subsidiary of CitySearch in September 1998 (the "Merger"), we have recorded a significant amount of goodwill which will adversely affect our earnings and profitability for the foreseeable future. We recorded an aggregate of $315.9 million of goodwill and other intangibles, $154.8 million of which related to the transaction in which Ticketmaster Group, Inc. became a wholly-owned subsidiary of USAi, and is to be amortized through 2008, and $161.1 million of which related directly to the Merger and is to be amortized through 2003. In addition, our acquisition of CityAuction, Inc. resulted in $28.1 million in goodwill which will be amortized through 2004. To the extent the amount of such recorded goodwill is increased or we have future losses and are unable to demonstrate our ability to recover the amount of goodwill recorded during these time periods, the period of amortization could be shortened, which may further increase annual amortization charges. In this case, our business, financial condition and results of operations could be materially and adversely affected. We believe that our future profitability and success will depend in large part on, among other things: * our ability to generate sufficient revenues from online ticketing, online auctions, sales of our Web sites to businesses and from the licensing of our technology and business systems to partners setting up our services in partner-led markets; 6 * the ability of Ticketmaster Corp. to maintain existing relationships and enter into new relationships with live event venues, sports franchises, promoters and other clients for which it sells live event tickets; * the ability of Ticketmaster Corp. to obtain or retain for us the right to sell live event tickets and related merchandise online; * our ability to effectively maintain existing relationships with our media partners; * our ability to successfully enter into new strategic relationships for distribution and increased usage of our services; and * our ability to generate sufficient online traffic and sales volume to achieve profitability. Accordingly, we expect to expend significant financial and management resources on the roll-out of our service in new owned and operated and partner- led markets, site and content development on our CitySearch.com, CityAuction.com and Ticketmaster.com sites, integration of the CitySearch, CityAuction and Ticketmaster Online services, strategic relationships, technology and operating infrastructure. As a result, we expect to incur significant additional losses and continued negative cash flow from operations for the foreseeable future. There can be no assurance that our revenues will increase or even continue at their current levels or that we will achieve or maintain profitability or generate cash from operations in future periods. In view of the rapidly evolving nature of our business, the limited operating history of CitySearch and Ticketmaster Online and the risks associated with integrating these businesses, we believe that period-to-period comparisons of operating results are not meaningful and should not be relied upon as an indication of future performance. Dependence on Relationship with Ticketmaster Corp. In connection with the merger of CitySearch and Ticketmaster Online, Ticketmaster Online, Ticketmaster Corp. and USAi entered into a license agreement, which designates, subject to certain limitations, Ticketmaster Online as Ticketmaster Corp.'s exclusive agent for online live event ticket sales and as its non-exclusive agent for the online sale of merchandise. We anticipate that, for the foreseeable future, a majority of our revenues will be derived from the online sale of tickets by Ticketmaster Online. Ticketmaster Online currently derives and, for the foreseeable future, will continue to derive a substantial portion of its revenues from per ticket convenience charges and per order handling charges paid by consumers in connection with online purchases of tickets to live events presented or promoted by clients of Ticketmaster Corp. Ticketmaster Online does not have contractual relationships with the entities for which it sells tickets as Ticketmaster Corp.'s agent and it is restricted under the license agreement from having such relationships, whether with current Ticketmaster Corp. clients or its potential clients. Accordingly, Ticketmaster Online's future revenues and business success are dependent on Ticketmaster Corp.'s ability to maintain and renew relationships with its existing clients and to establish relationships with additional clients. For the year ended December 31, 1998, Ticketmaster Corp. processed ticket sales for over 3,750 clients. Approximately 20% of Ticketmaster Corp.'s client contracts are subject to renewal each year. Ticketmaster Online is dependent upon Ticketmaster Corp.'s ability to enter into and maintain client contracts on terms that are favorable to Ticketmaster Corp. and Ticketmaster Online. There can be no assurance that Ticketmaster Corp. will be able to enter into or maintain client contracts on such terms. All of Ticketmaster Online's ticket sales are processed through Ticketmaster Corp.'s systems. Under the license agreement, Ticketmaster Corp. is generally obligated to provide order fulfillment services at least 7 at the same level as such services were generally provided as of the date of the license agreement. The license agreement obligates Ticketmaster Corp. to process a specified number of tickets sold online each year through December 31, 2001. As a result, Ticketmaster Online's future revenues are dependent upon Ticketmaster Corp.'s ability to process such online ticket sales in an accurate and timely manner. While we believe that, due to the perpetual right of Ticketmaster Online to serve as Ticketmaster Corp.'s exclusive agent for online live event ticket sales, Ticketmaster Corp. has a substantial interest in its relationship with Ticketmaster Online, there can be no assurance that Ticketmaster Corp. will provide fulfillment services to Ticketmaster Online in excess of the requirements of the Ticketmaster license agreement and, in particular, after December 31, 2001. Ticketmaster Online's ability to generate ticket and merchandise sales on its Web sites is also dependent in part on Ticketmaster Corp.'s ability to maintain and enhance the Ticketmaster brand name. Any failure on the part of Ticketmaster Corp. to maintain its existing base of clients, to establish relationships with new clients upon terms favorable to Ticketmaster Online, to obtain or retain for Ticketmaster Online the right to sell tickets and merchandise online for Ticketmaster Corp.'s clients, to process Ticketmaster Online's online ticket sales in a timely and accurate manner or at levels necessary to support Ticketmaster Online's business or to maintain and enhance the Ticketmaster brand name would have a material adverse effect on our business, financial condition and results of operations. Control by and Relationship with USA Networks We are currently a direct, majority-owned subsidiary of Ticketmaster Corp., which is an indirect wholly-owned subsidiary of USAi. As of March 31, 1999, USAi owned approximately 58.7% of the total outstanding Common Stock (on a converted to Class B Common Stock basis), representing approximately 66.6% of the total voting power of the Common Stock. As a result of its ownership of Class A Common Stock, USAi has the ability to control the outcome of any matter submitted for the vote or consent of our stockholders, except where a separate vote of the holders of Class B Common Stock is required by Delaware law. Subject to applicable Delaware law, USAi is generally not restricted with regard to its ability to control the election of our directors, to cause the amendment of our Amended and Restated Certificate of Incorporation or generally to exercise a controlling influence over our business and affairs. This control relationship may have the effect of delaying or preventing a change in control of our company and might adversely affect the market price of the Class B Common Stock. Subject to applicable Delaware law, USAi could elect to sell all or a substantial portion of its equity interest in us to a third party, which would represent a controlling or substantial interest in us, without offering to our other stockholders the opportunity to participate in such a transaction. See "Recent Developments" for a description of the pending Lycos/USA Networks transaction. In the event of a sale of USAi's interest to a third party, that third party may be able to control us in the manner that USAi is able to control us, including the ability to control the election of 8 directors. This could adversely affect the market price of the Class B Common Stock and may adversely affect our business, financial condition and results of operations. USAi is currently controlled by Barry Diller, who is also a director of our company. Mr Diller is the Chairman and Chief Executive Officer of USAi. Under stockholder and governance agreements with Liberty Media and Universal Studios (two other significant USAi stockholders), Mr. Diller generally has the right to control the outcome of any matter requiring the approval of USAi stockholders, other than with respect to specified fundamental changes relating to USAi or its subsidiaries. To engage in these fundamental changes, the approval of each of Mr. Diller, Liberty Media and Universal Studios is generally required. Copies of the governance and stockholders agreements among USAi, Universal Studios, Liberty Media and Mr. Diller have been filed with the SEC as Appendices B and C, respectively, to USAi's Definitive Proxy Statement, dated January 12, 1998 and are available from the SEC. Mr. Diller does not have an employment agreement with USAi, although he has been granted options to purchase a substantial number of shares of USAi common stock. The vesting of the unvested portion of these options, which should occur in the next two years, is conditioned on Mr. Diller remaining at USAi. If Mr. Diller no longer serves in his positions at USAi, generally Universal Studios and Liberty Media will be able to control USAi. Any change in the governance, management, operations or business of USAi could have a material adverse effect on our relationship with USAi and Ticketmaster Corp., and could materially and adversely affect our business, financial condition and results of operations. Potential Conflicts of Interest Conflicts of interest may arise between us, including Ticketmaster Online, on the one hand, and USAi and its affiliates, including Ticketmaster Corp., on the other hand, in areas relating to past, ongoing and future relationships. These relationships include: * our license agreement; * corporate opportunities: * indemnity arrangements; * tax and intellectual property matters; * potential acquisitions or financing transactions; * sales or other dispositions by USAi of shares of the our Class A Common Stock held by it; and * the exercise by USAi of its ability to control our management and affairs. These conflicts also may include disagreements regarding the our license agreement, including possible amendments to, or modifications or waivers of provisions of, the agreement. Due to USAi's ability to control our board of directors and subject to Delaware law, USAi may be able to effect these amendments without seeking the approval of any other party. These amendments, modifications or waivers may adversely affect our business, financial condition and results of operations. Ownership interests of our directors or officers in the USAi common stock, or service as both a director or officer of us and a director, officer or employee of USAi, could create or appear to 9 create potential conflicts of interest when directors and officers are faced with decisions that could have different implications for us and USAi. Eight of the members of our board of directors are also directors, officers or employees of USAi. In addition, USAi is engaged in a diverse range of media and entertainment- related businesses, including businesses engaged in electronic and online commerce (including Home Shopping Network and its USA Interactive business), and these businesses may have interests that conflict or compete in some manner with our businesses. Subject to applicable Delaware law, USAi is under no obligation, and has not indicated any intention, to share any future business opportunities available to it with us except as expressly provided by our license agreement with Ticketmaster Corp. Our Amended and Restated Certificate of Incorporation also includes provisions which provide that: * USAi shall have no duty to refrain from engaging in the same or similar activities or lines of our business, thereby competing with us; * USAi, its officers, directors and employees shall not be liable to us or our stockholders for breach of any fiduciary duty by reason of any activities of USAi in competition with us; and * USAi shall have no duty to communicate or offer corporate opportunities to us and shall not be liable for breach of any fiduciary duty as a stockholder of us in connection with these opportunities, provided that certain procedures set forth in the Amended and Restated Certificate of Incorporation are followed. There can be no assurance that any conflicts that may arise between us and USAi, any loss of a corporate opportunity to USAi that might otherwise be available to us, or any engagement by USAi (subject to the limitations of our license agreement) in any activity that is similar to our businesses will not have a material adverse effect on our business, financial condition and results of operations or our other stockholders. Possible Future Sales of Common Stock by USAi Subject to applicable federal securities laws and the restrictions set forth below, USAi may sell a significant portion of the shares of Class A Common Stock beneficially owned by it (which at March 31, 1999 represented approximately 82.1% of the outstanding Common Stock on a converted to Class B Common Stock basis) or distribute any or all of such shares of Class A Common Stock to its stockholders. Pursuant to our Amended and Restated Certificate of Incorporation, each share of Class A Common Stock will be converted automatically into one share of Class B Common Stock upon any transfer by the initial registered holder (except in certain cases such as transfers to affiliates or other holders of Class A Common Stock). Any sales or distribution by USAi of substantial amounts of Class B Common Stock issuable upon conversion of the Class A Common Stock held by USAi in the public market or to its stockholders, or a transfer of beneficial ownership of shares of Class A Common Stock that does not constitute a transfer pursuant to the Amended and Restated Certificate of Incorporation, or the perception that these transfers, sales or distribution could occur, could adversely affect the prevailing market prices for the Class B Common Stock. USAi is not subject to any obligation to retain any portion of its controlling interest in us, except that USAi has agreed not to sell or otherwise dispose of any shares of our capital stock for a period of 180 days after the date of the Prospectus filed by us on December 3, 1998 without the prior written consent of NationsBanc Montgomery Securities LLC, the representative of the underwriters in the public offering. 10 Company Integration Risks Before the transactions that have combined CitySearch, CityAuction and Ticketmaster Online, CitySearch and CityAuction operated independently and Ticketmaster Online operated as a wholly-owned subsidiary of Ticketmaster Corp. and USAi. Our future success will depend to a significant extent on the efficient, effective and timely integration of the companies' operations. This integration includes the combination of different business models, different technologies and personnel with different expertise and backgrounds and the development of services in which CitySearch's local content, CityAuction's auction functionality, and Ticketmaster Online's live event-specific content and transactional capabilities are integrated with each other. We are also evaluating our existing technologies and our ability to support the expanded range of products and services we are expected to offer. We are currently linking the Ticketmaster Online ticketing service more closely with some of our CitySearch city guides and promoting CityAuction's services throughout the city guides. We have not executed this integration in the past, and this integration could require adaptation of existing technologies or development of new technologies. There can be no assurance that we will be able to coordinate either operational or technological integration effectively or efficiently with each other. Failure to effectively accomplish the integration of the companies' operations or the loss of any of our key employees could have a material adverse effect on our business, financial condition and results of operations. Dependence on Increased Ticket and Sponsorship Sales Our future success, and in particular our revenues and operating results, depends in large part upon our ability to increase the dollar volume of transactions through Ticketmaster Online, either by generating significantly higher levels of traffic to our CitySearch and Ticketmaster Online Web sites or by increasing the percentage of visitors to our online sites who purchase tickets or merchandise, or through some combination of the two. Our ability to increase ticket sales depends in part upon Ticketmaster Corp.'s ability to obtain the rights to sell tickets online for new Ticketmaster Corp. clients. We must also increase the number of repeat purchasers of tickets and merchandise through Ticketmaster Online. Under our license agreement with Ticketmaster Corp., Ticketmaster Corp. is generally obligated to provide order fulfillment services at least at the same level as such services were generally provided as of the date of the agreement. The license agreement obligates Ticketmaster Corp. to process a specified number of tickets sold online each year through 2001. While we believe that, due to the perpetual right of Ticketmaster Online to serve as Ticketmaster Corp.'s exclusive agent for online live event ticket sales, Ticketmaster Corp. has a substantial interest in its relationship with Ticketmaster Online, there can be no assurance that Ticketmaster Corp. will provide fulfillment services to Ticketmaster Online in excess of the requirements of the Ticketmaster license agreement and, in particular, after December 31, 2001. In addition, in order to generate sufficient revenues from sponsorship and advertising on the Ticketmaster Online Web sites, we must deliver a high level of service and compelling content in order to attract users with demographic characteristics valuable to sponsors and advertisers. There can be no assurance that we will be able to increase the dollar volume of transactions booked through our online sites, increase traffic to our online sites, increase the percentage of visitors who purchase tickets or merchandise, increase the number of repeat purchasers or increase our sponsorship and advertising revenues. In addition, there can be no assurance that we will be able to offer our online ticketing services through our city guides in our partner-led markets on terms acceptable to us. The failure to do one or more of the foregoing would likely have a material adverse effect on our business, financial condition and results of operations Future Capital Needs; Uncertainty of Additional Financing Since inception, CitySearch has experienced negative cash flow from operations and we expect to continue to experience significant negative cash flow from operations for the foreseeable future. USAi has no obligation or agreement to provide any future capital or other funding to us. We may be 11 required to raise additional funds at some point in the future. If additional funds are raised through the issuance of equity securities, our stockholders 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 our stockholders or us. If this financing is not available when required or is not available on acceptable terms, we may be unable to develop or enhance our services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations. Unpredictability of Future Revenues; Fluctuations in Operating Results As a result of our limited operating history, and the emerging nature of the markets in which we compete, we are unable to accurately forecast our future revenues. Our current and future expense levels are based predominantly on our operating plans and estimates of future revenues and are to a large extent fixed. For example, the CitySearch business model, particularly in our owned and operated markets, requires significant staffing to develop content and to create and maintain relationships with small- and medium-size businesses. We 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 our business, financial condition and results of operations. Furthermore, we currently intend to increase our operating expenses to roll out our CitySearch service in new markets, to fund increased sales and marketing and customer service operations, to attempt to further develop our technology infrastructure and to integrate our local content with the event-specific content and transactional capabilities of Ticketmaster Online. To the extent these expenses precede or are not subsequently followed by increased revenues, our operating results will fluctuate and net anticipated losses in a given quarter may be greater than expected. We expect to experience significant fluctuations in our future operating results due to a variety of factors, many of which are outside of our control. Factors that may adversely affect our operating results include, but are not limited to: * Ticketmaster Corp.'s ability to maintain and increase the number of clients for which it provides online ticketing services and convenience charges; * the ability of our partners to meet roll-out schedules for CitySearch city guide services; * the timing and amount of license and royalty payments from our partners; * our ability to increase the volume of online ticket sales through the Ticketmaster Online Web site; * our ability to increase the number of users of the CityAuction service and revenues generated from auctions; * our 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 our capacity to meet such orders; * our ability to maintain or increase current rates of sales productivity; * the announcement or introduction of new or enhanced sites and services by us or our competitors; 12 * the amount of traffic on our online sites; * the amount of expenditures for online advertising by businesses; * the level of use of the Web and online services and consumer acceptance of the Internet for services such as those offered by us; * our ability to upgrade and develop our systems and attract personnel in a timely and effective manner; * the amount and timing of operating costs and capital expenditures relating to expansion of our business and infrastructure, technical difficulties, system downtime or Internet brownouts; * political or economic events affecting the cities in which we operate; and * general economic conditions. Unfavorable changes in any of the above factors could adversely affect our revenues, gross margins and results of operations in future periods. In addition, Ticketmaster Online derives a majority of its revenues directly or indirectly from the sale of tickets and related merchandise for live entertainment, sporting and leisure events and is directly affected by the popularity, frequency and location of these events. Factors affecting the demand for and attendance of such events include, without limitation, general economic conditions, consumer trends and work stoppages. Any occurrence or condition that results in decreased attendance or demand for such entertainment, sporting and leisure events would likely have a material adverse effect on our business, financial condition and results of operations. As a result of the foregoing, we believe that period-to-period comparisons of our 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. The foregoing factors which are largely unpredictable and may cause significant fluctuations in operating results may cause our annual or quarterly results of operations to be below the expectations of public market analysts or investors. New and Uncertain Markets; Unproven Market Acceptance; Risk of Significant Business Customer Turnover The markets for our services have only recently begun to develop, are rapidly evolving and are characterized by a number of entrants that have introduced or plan to introduce competing services. As is typical in the case of new and rapidly evolving industries, demand and market acceptance for recently introduced services are subject to a high level of uncertainty and risk. It is therefore difficult to predict the size and future growth rate, if any, of these markets. There can be no assurance that the markets for our services will develop or that demand for our services will emerge or become economically sustainable. The success of the Ticketmaster Online service will depend on the willingness of consumers to purchase tickets to live events and related merchandise online and on Ticketmaster Online's ability to significantly increase online traffic and sales volume. The success of the CityAuction service will depend, in part, on users' willingness to post and purchase goods or services online. The success of CitySearch's city guide service will depend on the willingness of local businesses to pay for custom business Web sites developed by CitySearch 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 services. If such businesses are unwilling to pay for the CitySearch service or retain the service, if the markets for our services otherwise fail to develop or develop more slowly than anticipated or if business customer turnover rates are higher than expected by us, our business, financial condition and results of operations could be materially and adversely affected. The turnover rate of business customers using CitySearch's service has been higher than we had anticipated, and there can be no assurance that such turnover rates would be at levels which would not in the future materially 13 and adversely affect our business, financial condition and results of operations. Specifically, the turnover rate has been higher than expected due to several factors, including: * our early belief that our services would be suited to a broader base of business customers; * the challenges of proving advertising value to a broad range of small businesses that may not have significant experience with online services; * our continuing refinements to our sales, production and customer service processes to meet the needs of our business customers; and * our initial underestimation of the need for continuous marketing support of our business customers. There can be no assurance that businesses will elect to outsource the design, development and maintenance of their Web sites to services such as CitySearch. Businesses may elect to perform such tasks internally, particularly if third-party providers of such services prove to be unreliable, ineffective or too expensive or if software companies offer user-friendly and cost-effective tools for such purpose. In the event that a significant number of businesses internalize such tasks, such event may have a material adverse effect on our business, financial condition and results of operations. Dependence on Continued Growth of Online Commerce Our future revenues and any future profits are substantially dependent upon the widespread acceptance and use of the Web and online services as an effective medium of commerce by consumers. Rapid growth in the use of and interest in the Web, the Internet and commercial online services is a recent phenomenon, and there can be no assurance that acceptance and use will continue to develop or that a sufficiently broad base of consumers will adopt, and continue to use, the Web and online services as a medium of commerce, particularly for purchasing tickets to live events and related merchandise. Demand for recently introduced services and products over the Web and online services is subject to a high level of uncertainty, and there are relatively few proven services and products. The development of the Web and online services as a viable commercial marketplace is subject to a number of factors, including: * continued growth in the number of Internet users and users of such services; * concerns about transaction security; * continued development of the necessary technological infrastructure; and * the development of complementary services and products. If the Web and online services do not become a viable commercial marketplace, our business, financial condition and results of operations would be materially and adversely affected. CitySearch's Reliance on Strategic Relationships An important element of our current business strategy with respect to the CitySearch service is to enter into agreements with local media companies to establish and support city guides. We have entered into, and intend to enter into, agreements with media companies to address opportunities. In these "partner-led" markets, we develop and design a city guide for local media companies and license certain intellectual property to such companies in exchange for certain up-front and continuing license payments and royalty 14 payments. These royalty payments are based on the amount of revenues generated by such companies through the partner-led city guides. We currently anticipate that royalty payments from such agreements will constitute an increasing portion of our revenues in future periods. Accordingly, our success will depend in large part upon the ability of our partners to timely launch city guides in partner- led markets and the extent to which these partners are able to generate revenue through their city guides. Under the terms of our agreements with our media company partners, we have 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 our partners did not launch our city guide in accordance with our initial expectations, thereby delaying revenues subject to royalty payments payable to us. Furthermore, some of our agreements grant exclusivity in certain territories. There can be no assurance that our partners that are in the process of developing new city guides or future partners will launch their sites in a timely manner, or at all, or that if launched, such sites will generate revenues consistent with our expectations. Furthermore, we are unable to accurately forecast our revenues to be derived from these agreements with the partners. Exclusivity provisions in some of our agreements place certain limitations on our ability to license our intellectual property to other partners. There also can be no assurance that we will successfully enter into partnerships with media companies in additional cities with respect to the CitySearch service. In addition, some of our agreements with our media company partners may be terminated for failure to meet performance criteria. Any failure by one of our proposed partner-led city guides to launch in a timely manner or by one of our existing partner-led city guides to generate sufficient revenues, or a failure by us to enter into or to renew agreements with media company partners on terms favorable to us or early termination of certain existing agreements could have a material adverse effect on our business, financial condition and results of operations. We have entered into a license and services agreement with Classified Ventures, pursuant to which we license elements of our technology and business systems to Classified Ventures and provide services in automotive and real estate classified advertising categories. We receive significant revenues from licensing and service fees under this agreement. Under this agreement, we are restricted from entering into certain classified advertising markets and from licensing our 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 us. Our failure to meet certain milestones under this agreement, early termination of this agreement or our inability to compete with Classified Ventures or to license technology to competitors of Classified Ventures may have a material adverse effect on our business, financial condition and results of operations. In our owned and operated markets, we have 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 our co-promotion or distribution partners with respect to the CitySearch business will not terminate their agreements with us or that we will secure additional co-promotion or distribution partners in the future which could have a material adverse effect on our business, financial condition and results of operations. Ticketmaster Online's Reliance on Strategic Relationships Ticketmaster Online's business is to an extent dependent on its and Ticketmaster Corp.'s relationships with certain strategic partners relating to the sharing of certain Ticketmaster Online Web site and user links. We expect to derive significant benefits, including increased revenues and consumer awareness, from these agreements. The arrangements also include, in certain cases, non-competition provisions that restrict our ability to engage in similar activities on our own or with other partners. There can be no assurance that these relationships will continue, that such strategic relationships will be successful in 15 any respect or that we will be able to find suitable additional or replacement strategic partners. The failure of these relationships could have a material adverse effect on our business, financial condition and results of operations. Dependence on Sales Personnel We currently derive and, for the foreseeable future, intend to derive a substantial portion of our revenues from sales of business Web sites to local businesses in markets in which we own and operate CitySearch city guides. We depend on our direct sales force to sell business Web sites in these markets. The creation of new revenue from CitySearch's city guide service and our roll- out in additional cities requires the services of a highly trained sales force working directly for us. Accordingly, a shortage in the number of trained salespeople could limit our ability to sell business Web sites as we roll out our service in new cities or to maintain or increase our number of business customers in cities in which we already operate. We have in the past and expect in the future to experience a high rate of turnover in our direct sales force. There can be no assurance that turnover will not increase in the future or have a material adverse effect on our sales, which could have a material adverse effect on our business, financial condition and results of operations. In addition, we currently derive a portion of our Ticketmaster Online revenues from the sale of banner advertising and sponsorships. A shortage in the number of trained salespeople could limit our ability to sell additional banner advertising or sponsorships or renew existing sponsorship or advertising relationships, which could have a material adverse effect on our business, financial condition and results of operations. Dependence on Key Personnel; Need to Hire Additional Qualified Personnel Our success depends to a significant degree upon the continued contributions of our executive management team, including Charles Conn, our Chief Executive Officer. The loss of the services of Mr. Conn or other members of our management team could have a material adverse effect on our business, financial condition and results of operations. In addition, Ticketmaster Online has been managed historically by the management of Ticketmaster Corp. The success of the Company will depend upon a successful transition of Ticketmaster Online's management responsibility to our senior management team. Our employees, including our senior officers, may voluntarily terminate their employment with us at any time, and competition for qualified employees is intense. Our success also depends upon our 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 our 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 our business, financial condition and results of operations. Uncertain Acceptance and Maintenance of CitySearch Brand We believe that establishing and maintaining the CitySearch brand is critical to our efforts to attract consumers and business customers to our 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 our success and our media company partners in providing high quality Internet content. Under the terms of our agreements with media company partners, we have very limited control over the content provided on the CitySearch partners' sites. If consumers and business customers do not perceive the content of our or our partners' existing sites to be of high quality, we will be unsuccessful in promoting and maintaining the CitySearch brand. Furthermore, not all of our partners promote the CitySearch brand on their services with a high level of prominence. In addition, users accessing partner-led market sites that contain different interfaces from our owned and operated sites may be confused by the differences in interface or navigation, and any such confusion may inhibit our ability to develop our 16 brand and network. Other than links to CitySearch's city sites, we have 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, we may find it necessary to increase our budget for content or otherwise to increase substantially our financial commitment to creating and maintaining a distinct brand loyalty among consumers and business customers. If either we or our media company partners are unable to provide high quality content or otherwise fail to promote and maintain the CitySearch brand or if we incur excessive expenses in an attempt to improve our CitySearch content or promote and maintain the CitySearch brand, our business, financial condition and results of operations could be materially and adversely affected. Risks Associated with Roll Out of Services Our future success will depend to a significant extent on our ability, on our own and with partners, to rapidly roll out the CitySearch local city guide service in additional cities in the United States and internationally. As of March 31, 1999, we had launched our local city guide service in 24 metropolitan areas and intend to expand our service in additional cities in the United States and internationally. There can be no assurance that we will be able to launch the CitySearch service in additional markets in a cost-effective or timely manner or in accordance with our 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 our reputation or the CitySearch brand. Launching the CitySearch service or future services offered by us will also require significant additional expenses and will strain our management, financial and operational resources. In particular, the launch of the CitySearch service in additional cities will require us to expand and upgrade our technology infrastructure and business systems, including our enterprise management system and our business Web site production system. We are in the process of launching a new version of the software underlying the CitySearch service. There can be no assurance that this new version will function as intended, and any failure of the software could have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that the existing technology used with respect to our Ticketmaster Online services would be able to accommodate increased volumes of traffic and transactions that may arise in the future. Expansion of our technology capabilities could result in significant expenses. Moreover, the strain placed on our resources by simultaneous launches of the CitySearch service in multiple cities and our efforts to integrate CitySearch's local content with the event-specific content and transactional capabilities of Ticketmaster Online may adversely affect the roll-out schedule or quality of the service in a particular city. Our failure to launch the CitySearch service in new markets in a timely and cost effective manner in accordance with our planned schedule or the lack of market acceptance of new services would have a material adverse effect on our business, financial condition and results of operations. Risks of Fixed-Price Contracts The services offered by us to CitySearch business customers typically consist of the design, implementation, hosting and maintenance of customized Web sites, for which the customers are billed on a fixed-price basis, consisting of an up-front fee and monthly fees. Our failure to estimate accurately the resources and time required for providing such services, to manage client expectations effectively regarding the scope of services to be delivered for the estimated fees or to complete the services within budget, on time and to clients' satisfaction would expose us to risks associated with cost overruns and customer dissatisfaction, which could have a material adverse effect on our business, financial condition and results of operations. 17 Competition The markets for local interactive content and services are highly competitive. Currently, CitySearch's primary competitors include Digital City, Inc., a company wholly-owned by America Online, Inc. and Tribune Company, and Microsoft Corporation (Sidewalk). CitySearch also competes against search engine and other site aggregation companies which primarily serve to aggregate links to sites providing local content such as Excite, Inc. (City.Net), Lycos, Inc. (Lycos City Guide) and Yahoo! (Yahoo! Local). In addition, CitySearch competes against offerings from media companies, including Cox Interactive Media, Inc., Knight Ridder, Inc. and Zip2 Corporation, 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 MediaOne Group, Inc. (DiveIn). There are also numerous niche competitors which focus on a specific category or geography and compete with specific content offerings provided by us. We 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. We face different competitors in most of our CitySearch markets. For example, competitors in the San Francisco Bay Area primarily include Microsoft Corporation (Sidewalk), America Online, Inc. (Digital City) and Yahoo! (SF Bay). Competitors in Raleigh-Durham-Chapel Hill primarily include the Web site operated by The Raleigh News & Observer, WRAL-TV, trianglerestaurants.com, Digital Center (raleighonline.com), Yahoo! Local and Internet Presentations, Inc. (citydirect.com). Furthermore, additional major media and other companies with financial and other resources greater than ours may introduce new Internet products and services addressing these markets in the future. There can be no assurance that competitors will not develop services that are superior to ours or that achieve greater market acceptance than our offerings. The markets for the business of selling live event tickets and related merchandise is highly competitive and diverse. Ticketmaster Corp.'s and Ticketmaster Online's competitors include event facilities and promoters that handle their own ticket sales and distribution through online and other distribution channels, live event automated ticketing companies with Web sites which may or may not currently offer online transactional capabilities and certain Web-based live event ticketing companies which only conduct business online. Where facilities and promoters decide to utilize the services of a ticketing company, Ticketmaster Corp. and Ticketmaster Online compete with international, national and regional ticketing services, including TicketWeb, Telecharge (Shubert Ticketing Services), NEXT Ticketing, Advantix, ETM Entertainment Network, Dillard's, Prologue, Capital Tickets and Lasergate (Lasergate Systems, Inc.). Several of Ticketmaster Corp.'s and Ticketmaster Online's competitors have operations in multiple locations throughout the United States and compete with Ticketmaster Corp. and Ticketmaster Online on a national level, while others compete with Ticketmaster Corp. and Ticketmaster Online principally in one specific geographic region. Ticketmaster Corp. is a leading provider of live event automated ticketing services in the United States, with over 3,750 clients, and has a widely recognized brand name in the live event ticketing business. We believe that our right to act as Ticketmaster Corp.'s exclusive agent for online live event ticket sales with the exclusive, worldwide right to use the Ticketmaster trademark for such online sales will enable it to compete effectively with other online ticketing services. However, in certain specific geographic regions, including certain of the local markets in which CitySearch provides or intends to provide our local city guide service, one or more of Ticketmaster Corp.'s and Ticketmaster Online's competitors may serve as the primary ticketing service in the region. We believe that Ticketmaster Online will experience significant difficulty in establishing a significant online presence in such regions and, as a result, any local city guide for such a region may be unable to provide significant ticketing capabilities. In addition, there can be no assurance that one or more of these regional automated ticketing companies will not expand into other regions or nationally, which could have a material adverse effect on our business, financial condition and results of operations. 18 Furthermore, certain of Ticketmaster Online's competitors may have financial and other resources greater than those of the Company and may introduce new Internet products and services in these markets in the future. There can be no assurance that Ticketmaster Online's competitors will not develop services superior to those of Ticketmaster Online or achieve greater acceptance than Ticketmaster Online's offerings. In addition, pursuant to our license agreement with Ticketmaster Online, Ticketmaster Online is restricted from entering into agreements with facilities, promoters or other ticket sellers for the online sale of live event tickets. As a result, Ticketmaster Online is dependent on the ability of Ticketmaster Corp. to acquire and maintain live event ticketing rights, including online ticketing rights, with facilities and promoters and to negotiate commercially favorable terms for such rights. Furthermore, substantially all of the tickets sold through Ticketmaster Online's Web site are also sold by Ticketmaster Corp. by telephone and through independent retail outlets. These sales by Ticketmaster Corp. could have a material adverse effect on Ticketmaster Online's online sales, and as a result, on our business, financial condition and results of operations. The online auction market is highly competitive. Currently, eBay.com dominates the online auction market, both in terms of number of users and value of goods auctioned. Search engine companies and other site aggregation companies also offer auction functionality to Web users, and there can be no assurance that other auction offerings will not attract more users and greater volumes of goods auctioned than CityAuction. We believe that the principal competitive factors for all our services include: * depth, quality and comprehensiveness of content; * ease of use; * distribution; * search capability; and * brand recognition. Many of our competitors have greater financial and marketing resources than we and may have significant competitive advantages through other lines of business and existing business relationships. There can be no assurance that we will be able to successfully compete against our current or future competitors or that competition will not have a material adverse effect on our business, financial condition and results of operations. Furthermore, as a strategic response to changes in the competitive environment, we may make certain pricing, servicing or marketing decisions or enter into acquisitions or new ventures that could have a material adverse effect on our business, financial condition and results of operations. Risks Associated with Offering New Business and Consumer Services We expect to introduce new and expanded services in order to generate additional revenues, attract more businesses and consumers, and respond to competition. For example, we recently introduced business Web sites containing new and enhanced functionality for our CitySearch business customers. We also offer services facilitating the purchase of goods by consumers from CitySearch's business customers or others. A key element of our strategy is to technologically enable our city guides so that consumers and our business customers can buy and sell goods and services online through our city guides. We have limited experience in building e-commerce functionality with our city guides. There can be no assurance that we will be able to offer e-commerce or other new services in a cost-effective or timely manner or that our efforts would be successful. Furthermore, any new service launched by us that is not favorably received by consumers could damage our reputation or our brand names. Expansion of our services in this manner would also require 19 significant additional expenses and development and may strain our management, financial and operational resources. Our inability to generate revenues from such expanded services sufficient to offset their cost could have a material adverse effect on our business, financial condition and results of operations. Management of Potential Growth; Risks Associated with Expansion Our businesses have grown rapidly in recent periods. The growth of these businesses and expansion of our consumer bases have placed a significant strain on management and operations. The growth of our businesses has resulted, and is expected in the future to result, in the growth in the number of our 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 existing operational, financial and management information systems. Our success will depend to a significant extent on the ability of our executive officers and other members of senior management to operate effectively, both independently and as a group. To manage our growth, we must continue to implement and improve operational, financial and management information systems and hire and train additional qualified personnel, including sales and marketing staff. There can be no assurance that we will be able to manage recent or any future expansions successfully, and any failure by us to do so could have a material adverse effect on our business, financial condition and results of operations. There also can be no assurance that our CitySearch, CityAuction or Ticketmaster Online services will be able to sustain the rate of expansion that each has experienced in the past. Dependence Upon Continued Content Development Our success depends in part upon our ability to deliver compelling interactive content on our CitySearch service, such as local events information, recreation, business, shopping, professional services and news/sports/weather and online ticketing services in order to attract consumers with demographic characteristics valuable to CitySearch's business customers, as well as our ability to develop and integrate compelling content with existing ticketing capabilities on the Ticketmaster Online Web site. There can be no assurance that we will be successful in developing new content and services or enhancing CitySearch's existing local city guide service, the Ticketmaster Online service or the CityAuction service on a timely basis, or that such content and services will effectively address consumer requirements and achieve market acceptance. If we, for technological or other reasons, are unable to develop and enhance CitySearch's, Ticketmaster Online's and CityAuction's local interactive content and services in a manner compatible with emerging industry standards and that allows us to attract, retain and expand a consumer base possessing demographic characteristics attractive to CitySearch's business customers, Ticketmaster Online's advertisers and sponsors, and CityAuction's users, our 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 us 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 our services. 20 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 an 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 our services, which would, in turn, materially and adversely affect our business, financial condition and results of operations. Risks Associated with International Expansion A component of our strategy is to continue to expand our services into international markets. We expect to expend significant financial and management resources to operate overseas and, with respect to the CitySearch service, create localized user interfaces through the launch of additional partner-led markets. We believe Ticketmaster Corp. intends to continue to expand its operations outside of the United States, which will require additional resources from Ticketmaster Online to the extent it distributes tickets online in those markets. If the revenues generated by these international operations are insufficient to offset the expense of establishing and maintaining such operations, our business, financial condition and results of operations will be materially and adversely affected. To date, we have limited experience in developing localized versions of our CitySearch online sites and marketing and distributing our products and services internationally. There can be no assurance that our partners or we will be able to successfully market or sell our services in these international markets. In addition to the uncertainty as to our ability to expand our 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 our current and future international operations and, consequently, on our business, financial condition and results of operations. Capacity Constraints and System Disruptions; Reliance on Third-Party Systems The satisfactory performance, reliability and availability of our city guides, online ticketing services, auction services and our network infrastructures are critical to attracting Web users and maintaining relationships with business customers and consumers. System interruptions that result in the unavailability of sites or slower response times for consumers would reduce the number of business Web sites and advertisements purchased and reduce the attractiveness of our CitySearch local city guides, CityAuction service, and Ticketmaster Online's online services to business customers and consumers. Our services have experienced 21 system interruptions in the past and believe that such interruptions will continue to occur from time to time in the future. Additionally, any substantial increase in traffic on our services will require us to expand and adapt our network infrastructure. Our inability to add additional software and hardware to accommodate increased traffic on our services may cause unanticipated system disruptions and result in slower response times. In addition, we currently depend on a limited number of suppliers for certain key technologies used to roll out and manage our services, including Exodus Communications, Inc., which hosts the CitySearch city guides, and PSINet, which hosts the Ticketmaster Online service. There can be no assurance that we will be able to expand our network infrastructure on a timely basis to meet increased demand or that key technology suppliers will continue to provide us with products and services that meet our requirements. Any increase in system interruptions or slower response times resulting from the foregoing factors could have a material adverse effect on our business, financial condition and results of operations. Our operations are vulnerable to interruption by fire, earthquake, power loss, telecommunications failure and other events beyond our control. Substantially all of our server equipment is currently located in California in areas that are susceptible to earthquakes. Our business interruption insurance may not be sufficient to compensate us for losses that may occur and would not compensate us for the loss of consumer goodwill due to disruption of service, and any losses or damages incurred by us could have a material adverse effect on our business, financial condition and results of operations. In addition, our Ticketmaster Online operations are substantially dependent upon services and infrastructure provided by Ticketmaster Corp. that enable Ticketmaster Online to access information on ticket and merchandise inventory, events and consumers maintained by Ticketmaster Corp. In addition, Ticketmaster Corp. has agreed to provide all order processing, payment processing and fulfillment services for tickets to live events and merchandise ordered through Ticketmaster Online pursuant to the terms and subject to the limitations of our license agreement. Any discontinuation or disruption of these services by Ticketmaster Corp. would be disruptive to the Ticketmaster Online business and would likely have a material adverse effect on our business, financial condition and results of operations. We use a custom-developed system for our Ticketmaster Online ticketing operations and certain aspects of transaction processing. Ticketmaster Online has experienced temporary system interruptions, which may continue to occur in the future from time to time. Any substantial increase in the volume of traffic on our online sites or the number of tickets purchased by consumers may require us to expand and upgrade further Ticketmaster Online technology, transaction- processing systems and network infrastructure. The Ticketmaster Online service has experienced, and we expect to continue to experience, temporary capacity constraints due to sharply increased traffic for certain events, which may cause unanticipated system disruptions, slower response times and degradation in levels of service. In addition, to the extent we experience delays in processing ticketing confirmations and reporting accurate financial information, our operations would be adversely affected. There can be no assurance that Ticketmaster Online's transaction-processing systems and network infrastructure will be able to accommodate such increases in traffic in the future, or that we will, in general, be able to accurately project the rate or timing of such increases or upgrade our systems and infrastructure to accommodate future traffic levels on our online sites. In addition, there can be no assurance that Ticketmaster Online will be able to effectively upgrade and expand its transaction-processing systems in a timely manner or to successfully integrate any newly developed or purchased components of its existing systems. Any inability to do so could have a material adverse effect on our business, financial condition and results of operations. Online Commerce and Database Security Risks A fundamental requirement for online commerce and communications is the secure transmission of confidential information over public networks. We rely on encryption and authentication technology licensed 22 from third parties to provide the security and authentication necessary to effect secure transmission of confidential information, such as consumers credit card numbers. In addition, we maintain an extensive confidential database of consumer profiles and transaction information. There can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments will not result in a compromise or breach of the methods used by us to protect consumer transaction and personal data contained in our database. If any such compromise of our security were to occur, it could have a material adverse effect on our reputation and on our business, operating results and financial condition. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. Concerns over the security of transactions conducted on the Internet and commercial online services and the privacy of users may also inhibit the growth of the Web and online services as a means of conducting commercial transactions. To the extent that our activities or those of third- party contractors involve the storage and transmission of proprietary information, such as credit card numbers or other personal information, security breaches could expose us to a risk of loss or litigation and possible liability. In addition, we may suffer losses as a result of orders placed with fraudulent credit card data, even though the consumer's payment for such orders has been authorized by the associated financial institution. Under current credit card practices, a merchant is liable for fraudulent credit card transactions where, as is the case with the transactions processed by us, no cardholder signature is obtained. There can be no assurance that we will not suffer significant losses as a result of fraudulent use of credit card data in the future, which could have a material adverse effect on our business, financial condition and results of operations. Rapid Technological Change The Internet and the online commerce industry are characterized by the following: * rapid technological change; * changes in user and customer requirements and preferences; * frequent new product and service introductions embodying new technologies; and * the emergence of new industry standards and practices that could render our existing online sites and proprietary technology and systems obsolete. The emerging nature of these products and services and their rapid evolution will require that we continually improve the performance, features and reliability of our online services, particularly in response to competitive offerings. Our success will depend, in part, upon: * on our ability to enhance our existing services; * to develop new services and technology that address the increasingly sophisticated and varied needs of our prospective customers; and * to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. The development of online sites and other proprietary technology entails significant technical and business risks and requires substantial expenditures and lead time. There can be no assurance that we will successfully use new technologies effectively or adapt our online sites, proprietary technology and transaction-processing systems to customer requirements or emerging industry standards. If we are unable, 23 for technical, legal, financial or other reasons, to adapt in a timely manner in response to changing market conditions or customer requirements, our business, operating results and financial condition could be materially adversely affected. Year 2000 The widespread use of computer programs that rely on two-digit dates to perform computation and decision-making functions may cause computer systems, including systems and software used by us and our Web services, to malfunction prior to or in the Year 2000 and lead to significant business delays and disruptions in our business and operations in the United States and internationally. We have developed a plan to minimize the impact of this Year 2000 problem. Pursuant to the plan, we have established a Year 2000 Committee consisting of senior managers from relevant functional areas. The Year 2000 Committee has reviewed all areas of our business and operations that may be affected and has assigned responsibility for each area to individuals knowledgeable about their respective areas. The Year 2000 Committee has made these individuals responsible for the initial assessment of risk and initial estimate of hardware cost, software cost and time required to achieve compliance. We concluded our initial assessment in the fourth quarter of 1998 and are commencing implementation of remediation necessary to achieve compliance. Remediation has continued in 1999. We estimate that the dollar cost of Year 2000 compliance is approximately $200,000. However, we have not yet completed our comprehensive assessment of remediation costs and actual costs could materially differ. Several systems provided by third parties are required for the operation of our services, any of which may contain software code that is not Year 2000 compliant. These systems include: * server software used to operate our network servers; * software controlling routers; * switches and other components of our data network; * disk management software used to control our data disk arrays; * firewall, security, monitoring and back-up software used by us; and * desktop PC applications software. In most cases, we employ widely available software applications and other products from leading third party vendors, and expect that such vendors will provide any required upgrades or modifications in a timely fashion. However, any failure of third party suppliers to provide Year 2000 compliant versions of the products used by us could result in a temporary disruption of our services or otherwise disrupt our operations. In addition, our partners may operate their city guide sites in proximity to other applications that may not be Year 2000 compliant. While we intend to assign an individual to coordinate each partner's compliance efforts to ensure uninterrupted operations, we have limited ability to influence decisions by our partners. Non-compliant systems that adjoin partners' city guide applications could result in interruption or disruption of our city guide service, which in turn could reduce royalties or other amounts due to us. There can no assurance that we, our third party suppliers or our partners will be Year 2000 compliant at the end of the millennium. Failure to achieve compliance could result in complete failure or inaccessibility of our or our partners' services, and could adversely affect our business, financial condition and results of operations. Year 2000 compliance problems could also undermine the general infrastructure necessary to support our operations. For instance, we depend on third party Internet service providers for connectivity to the 24 Internet. Any interruption of service from our Internet service providers could result in a temporary interruption of our services. Moreover, the effects of Year 2000 compliance deficiencies on the integrity and stability of the Internet are difficult to predict. A significant disruption in the ability of businesses and consumers to reliably access the Internet or portions of it would have an adverse effect on demand for our services and adversely impact our business, financial condition and results of operations. Liability for Online Content We 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 CitySearch, CityAuction or Ticketmaster Online sites or on sites operated by our partners. These claims have been brought, and sometimes successfully pressed, against online services. Although we intend to maintain our general liability insurance at current levels, our insurance may not cover claims of these types or may not be adequate to indemnify us 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 our reputation and our business, financial conditions and results of operations. Uncertain Protection of Intellectual Property; Risks of Third-Party Licenses We regard our copyrights, service marks, trademarks, trade dress, trade secrets, proprietary software and similar intellectual property as critical to our success, and rely on trademark and copyright law, trade secret protection and confidentiality and/or license agreements with employees, customers, partners and others to protect our proprietary rights. We do not hold any patents. We pursue the registration of certain of our key trademarks and service marks in the United States and internationally. Effective trademark, service mark, copyright and trade secret protection may not be available or sought by us in every country in which our products and services are made available online. We have licensed in the past, and expect to license in the future, certain proprietary rights, such as trademarks or copyrighted material, to third parties. In addition, we have licensed in the past, and expect that we may license in the future, certain content, including trademarks and copyrighted material, from third parties. While we attempt to ensure that the quality of our brands is maintained by such licensees, there can be no assurance that such licensees will not take actions that might materially adversely affect the value of our proprietary rights or reputation, which could have a material adverse effect on our business, financial condition and results of operations. There can be no assurance that the steps taken by us to protect our proprietary rights will be adequate or that third parties will not infringe or misappropriate our copyrights, trademarks, trade dress and similar proprietary rights. In addition, there can be no assurance that other parties will not assert infringement claims, including patent infringement claims, against us. We license the trademark "CitySearch" from a third party, and there can be no assurance that we will be able to continue to license the trademark on terms acceptable to us. We license the trademark "Ticketmaster" and related trademarks from Ticketmaster Corp. pursuant to our license agreement with Ticketmaster Corp. We may be subject to legal proceedings and claims of alleged infringement of the trademarks and other intellectual property rights of third parties by us and our 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 our business, financial condition and results of operations. We are dependent upon Ticketmaster Corp. to maintain and assert its rights to the trademarks and defend infringement claims, if any. Risks Associated with Regulatory Matters 25 We are 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, taxation, 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 our products and services and increase our cost of doing business, or otherwise have a material adverse effect on our 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 us 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 our business, or the application of existing laws and regulations to the Internet and commercial online services could have a material adverse effect on our business, financial condition and results of operations. Ticketmaster Online is regulated by certain state and local regulations, including, but not limited to, a law in Georgia that establishes maximum convenience charges on tickets for certain sporting events. Other legislation that could affect the way Ticketmaster Online does business, including bills that would regulate the amount of convenience charges and handling charges, are introduced from time to time in federal, state and local legislative bodies. We are unable to predict whether any such bills will be adopted and, if so, whether such legislation would have a material effect on our business, financial condition and results of operations. Potential Governmental Investigations and Litigations From time to time, federal, state and local authorities have conducted investigations or inquiries with respect to Ticketmaster Corp.'s compliance with antitrust, unfair business practice and other laws. The most recent federal investigation was commenced in 1994 by the Antitrust Division of the Department of Justice and was concluded in 1995 with no enforcement action being taken against Ticketmaster Corp. In addition, we are a party to various legal proceedings involving commercial disputes and intellectual property issues arising in the ordinary course of business. While the outcomes of these proceedings are uncertain, we do not currently expect that they will have a material adverse effect on our business, financial condition or results of operations. USAi is a defendant (along with several of USAi's directors) in lawsuits brought in connection with the Lycos/USAi transaction. See "Recent Developments." Seven of the lawsuits are brought on behalf of our shareholders and allege that the non-USAi shareholders of our company will receive consideration in the Transactions that is "grossly inadequate" and unfair and that defendants, including USAi, breached alleged fiduciary duties to our shareholders in negotiating and approving the Transactions. These complaints seek an injunction against completion of the Transactions, rescission in the event it is completed, and damages in an unspecified amount. The remaining six lawsuits are brought on behalf of shareholders of Lycos, alleging that USAi aided and abetted alleged breaches of fiduciary duty by Lycos' directors, in that the consideration Lycos shareholders will receive in the Transactions is alleged to be grossly inadequate and unfair. These complaints seek an injunction against completion of the Transactions, rescission in the event it is completed, and damages in an unspecified 26 amount. All these actions are pending in the Court of Chancery of the State of Delaware. The time for defendants to answer has not yet elapsed, and discovery has not yet been scheduled. USAi believes that the allegations against USAi and its directors do not have merit. During 1994, Ticketmaster Corp. was named as a defendant in 16 federal class action lawsuits filed in United States District Courts purportedly on behalf of consumers who were alleged to have purchased tickets to various events through Ticketmaster Corp. These lawsuits alleged that Ticketmaster Corp.'s activities violated antitrust laws. On December 7, 1994, the Judicial Panel on Multidistrict Litigation transferred all of the lawsuits to the United States District Court for the Eastern District of Missouri for coordinated and consolidated pretrial proceedings. After an amended and consolidated complaint was filed by the plaintiffs, Ticketmaster Corp. filed a motion to dismiss and, on May 31, 1996, the District Court granted that motion ruling that the plaintiffs had failed to state a claim upon which relief could be granted. On April 10, 1998, the United States Court of Appeals for the Eighth Circuit issued an opinion affirming the district court's ruling that the plaintiffs lack standing to pursue their claims for damages under the antitrust laws and held that the plaintiffs' status as indirect purchasers of Ticketmaster Corp.'s services did not bar them from seeking equitable relief against Ticketmaster Corp. Discovery on the plaintiffs' remanded claim for equitable relief is ongoing in the District Court and a trial date of July 17, 2000 has been set. On July 9, 1998, the plaintiffs filed a petition for writ of certiorari to the United States Supreme Court seeking review of the decision dismissing their damage claims. Plaintiff's petition for writ of certiorari in the United States Supreme Court was denied on January 19, 1999. Ticketmaster Corp. has stated that the Court's affirmance of the decision prohibiting plaintiffs from obtaining monetary damages against Ticketmaster Corp. eliminates the substantial portion of plaintiffs' claims. With respect to injunctive relief, the Antitrust Division of the United States Department of Justice had previously investigated Ticketmaster Corp. for in excess of 15 months and closed its investigation with no suggestion of any form of injunctive relief or modification of the manner in which Ticketmaster Corp. does business. In March 1995, MovieFone, Inc. ("MovieFone") and The Teleticketing Company, L.P. filed a complaint against Ticketmaster Corp. in the United States District Court for the Southern District of New York. Plaintiffs allege that they are in the business of providing movie information and teleticketing services, and that they are parties to a contract with Pacer Cats Corporation, a wholly owned subsidiary of Wembley plc ("Pacer Cats"), to provide teleticketing services to movie theaters. Plaintiffs also allege that, together with Pacer Cats, they had planned to begin selling tickets to live entertainment events, and that Ticketmaster Corp., by its conduct, frustrated and prevented plaintiffs' ability to do so. Plaintiffs further allege that Ticketmaster Corp. has interfered with and caused Pacer Cats to breach its contract with plaintiffs. The complaint asserts that Ticketmaster Corp.'s actions violate Section 7 of the Clayton Act and Sections 1 and 2 of the Sherman Act, and that Ticketmaster Corp. tortiously interfered with contractual and prospective business relationships and seeks monetary and injunctive relief based on such allegations. Ticketmaster Corp. filed a motion to dismiss. The court heard oral argument on September 26, 1995. In March 1997, prior to the rendering of any decision by the Court on Ticketmaster Corp.'s motion to dismiss, Ticketmaster Corp. received an amended complaint in which the plaintiffs assert essentially the same claims as in the prior complaint but have added a RICO claim and tort claims. Ticketmaster Corp. filed a motion to dismiss the amended complaint in April 1997, which is still pending. Some of the claims in this litigation are similar to claims that were the subject of an arbitration award in which MovieFone was a claimant and Pacer Cats a respondent. Among other things, the award included damages from Pacer Cats to MovieFone of approximately $22.75 million before interest and an injunction against some entities, which may include affiliates of Ticketmaster Corp., restricting or prohibiting their activity with respect to aspects of the movie teleticketing business for a specified period of time. Neither USAi, Ticketmaster Corp., nor any entity owned or controlled by Ticketmaster Corp., were parties to the arbitration. In May 1998, MovieFone filed a petition 27 in New York state court to hold an entity affiliated with Ticketmaster Corp. in contempt of the injunction provision of the arbitration award on the grounds that such entity is a successor or assignee of, or otherwise acted in concert with, Pacer Cats. In November 1998, the court ruled that the Ticketmaster Corp. affiliate is bound by the arbitrators' findings that it is the successor to Pacer Cats and, as such, liable for breaches committed by Pacer Cats and subject to the terms of the arbitration award's injunction. The court further found that the Ticketmaster Corp. affiliate had violated the injunction and awarded MovieFone approximately $1.38 million for losses it incurred as a result of such violations. The Ticketmaster Corp. affiliate has filed a notice of appeal of the court's decision, including to seek reversal of the ruling regarding successor liability. There can be no assurance that we, Ticketmaster Online or Ticketmaster Corp. or our affiliates will not become the subject of future governmental investigations or inquiries or be named as a defendant in claims alleging violations of federal or state antitrust laws or any other laws. Any adverse outcome in such litigation, investigation or proceeding against us, Ticketmaster Online or Ticketmaster Corp. or our affiliates could limit or prevent Ticketmaster Online from engaging in its online ticketing business or subject us to potential damage assessments, all of which could have a material adverse effect on our business, financial condition or results of operations. Regardless of its merit, source or outcome, any such litigation, investigation or proceeding would at a minimum be costly and could divert the efforts of our management and other personnel from productive tasks, which could have a material adverse effect on our business, financial condition or results of operations. Risks Associated with Potential Acquisitions As part of our business strategy, we may make acquisitions of, or significant investments in, complementary companies, products or technologies. Any such future acquisitions would be accompanied by the risks commonly encountered in acquisitions of companies. These risks include, among other things: * the difficulty of assimilating the operations and personnel of the acquired companies; * the potential disruption of our ongoing business; * the diversion of resources from our existing businesses, sites and technologies; * the inability of management to maximize our financial and strategic position through the successful incorporation of the acquired technology into our products 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 we would be successful in overcoming these risks or any other problems encountered with such acquisitions, and our inability to overcome such risks could have a material adverse effect on our business, financial condition and results of operations. 28 Risks Associated with Domain Names We currently hold and license various Web domain names relating to our brand, including the "citysearch.com", "cityauction.com" and "ticketmaster.com" domain names. 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 we 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. We, therefore, may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of our trademarks and other proprietary rights. Any such inability could have a material adverse effect on our business, financial condition and results of operations. Anti-takeover Effect Of Certain Charter Provisions Certain provisions of our Restated Certificate of Incorporation and the Restated Bylaws and Delaware General Corporation Law Section 203 may render more difficult, or have the effect of discouraging, unsolicited takeover bids from third parties or the removal of incumbent management of the Company. These provisions include the right of the holders of the Class A Common Stock to 15 votes per share, versus one vote per share for the holders of Class B Common Stock and provide that the stockholders may not call special meetings. In addition, our Restated Certificate of Incorporation authorizes the Board of Directors to issue, without stockholder approval, 2,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"), with voting, conversion and other rights and preferences that could adversely affect the voting power or other rights of the holders of our Common Stock. Although we have no current plans to issue any shares of Preferred Stock, the issuance of Preferred Stock or rights to purchase Preferred Stock could render more difficult, or have the effect of discouraging, unsolicited takeover bids from third parties or the removal of incumbent management, or otherwise adversely affect the market price for the Class B Common Stock. Although such provisions do not have a substantial practical significance to investors while USAi, through its ownership of Class A Common Stock, is in a position to effectively control all matters affecting us, such provisions could have the effect of depriving stockholders of an opportunity to sell their shares at a premium over prevailing market prices should USAi no longer be in such control. 29 WHERE TO FIND MORE INFORMATION ABOUT TICKETMASTER ONLINE-CITYSEARCH We file special reports and other information with the SEC. You may read and copy any document we file at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. Our SEC filings are also available to the public from the SEC's Web site at http://www.sec.gov. This Prospectus contains information concerning Ticketmaster Online- CitySearch and the sale of its Class B Common Stock by the Selling Stockholders, but does not contain all the information set forth in the Registration Statement on Form S-8/S-3 (the "Registration Statement") which Ticketmaster Online- CitySearch has filed with the SEC under the Securities Act of 1933, as amended (the "Securities Act"). Statements made in this Prospectus as to the contents of any referenced contract, agreement or other document are not necessarily complete, and such statement shall be deemed qualified in its entirety by reference thereto. The Registration Statement, including various exhibits, may be obtained upon payment of the fee prescribed by the SEC, or may be examined without charge at the SEC's office in Washington, D.C. INFORMATION INCORPORATED BY REFERENCE The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you by referring you to those documents that we have previously filed with the SEC or documents that we will file with the SEC in the future. The information incorporated by reference is considered to be part of this Prospectus, and later information that we file with the SEC will automatically update and supersede this information. We incorporate by reference the documents listed below, and any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, until the selling stockholders sell all the shares. This Prospectus is part of a Registration Statement we filed with the SEC. The documents we incorporate by reference are: (1) Ticketmaster Online-CitySearch's Annual Report on Form 10-K for the fiscal year ended December 31, 1998; (2) Ticketmaster Online-CitySearch's Current Report on Form 8-K dated April 29, 1999 for the acquisition of CityAuction, Inc.; and (3) The description of the Ticketmaster Online-CitySearch's Common Stock contained in our Registration Statement on Form S-1, No. 333-64855, filed on December 2, 1998. We also incorporate by reference all documents subsequently filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective amendment which indicates that all securities registered have been sold or which deregisters all securities then remaining unsold. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of the Registration Statement or this Prospectus to the extent that a statement contained herein, in a Prospectus Supplement or in any other document subsequently filed with the Commission which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of the Registration Statement or this Prospectus. 30 You may request a copy of these filings, at no cost, by writing or telephoning us at the following address: Ticketmaster Online-CitySearch, Inc., 790 E. Colorado Boulevard, Suite 200, Pasadena, California 91101; the telephone number is (626) 405-0050. SELLING STOCKHOLDERS None of the Selling Stockholders is an executive officer or director of Ticketmaster Online-CitySearch, except that Andrew Rebele became an Executive Vice President of Ticketmaster Online-CitySearch in connection with our acquisition of CityAuction, Inc. pursuant to the Merger Agreement (the "CityAuction Merger"). None of the Selling Stockholders beneficially owns, individually or in the aggregate, more than 1% of the outstanding Class B Common Stock of Ticketmaster Online-CitySearch prior to this offering, except as set forth below. All of the shares of Class B Common Stock held by the Selling Stockholders are being registered hereunder and were issued upon exercise of rights granted under restricted stock purchase agreements with CityAuction, Inc. for CityAuction Common Stock, which were subsequently converted into Ticketmaster Online-CitySearch Class B Common Stock pursuant to the CityAuction Merger. Ten percent of the shares held by the selling stockholders are held in escrow pursuant to the Merger Agreement.
Name Number of Shares Being Offered Andrew Rebele....................... 589,619 Monica Lee.......................... 65,512 Stephen Walther..................... 16,798 TOTAL............................... 671,929
As of March 31, 1999, Mr. Rebele beneficially owned 6.5% of the Class B Common Stock of the Company. Beneficial ownership calculations are determined in accordance with the Rules of the SEC and are based on 9,238,109 shares outstanding as of March 31, 1999 as adjusted to reflect the issuance of approximately 800,000 shares of Class B Common Stock in connection with the CityAuction Merger; in computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of Class B Common Stock that were exercisable or that will become exercisable within 60 days of March 31, 1999 are deemed outstanding for such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. PLAN OF DISTRIBUTION Ticketmaster Online-CitySearch has been advised by the Selling Stockholders that they intend to sell all or a portion of the shares offered hereby from time to time in the Nasdaq National Market and that sales will be made at prices prevailing in the Nasdaq National Market at the times of such sales. As used herein, "Selling Stockholders" includes donees and pledgees selling shares received from a Selling Stockholder after the date of this Prospectus. The Selling Stockholders may also make private sales directly or through a broker or brokers, who may act as agent or as principal. Further, the Selling Stockholders may choose to dispose of the shares offered hereby by gift to a third party or as a donation to a charitable or other non-profit entity. In connection with any sales, the Selling Stockholders and any brokers participating in such sales may be deemed to be underwriters within the meaning of the Securities Act. Any broker-dealer participating in such transactions as agent may receive commissions from the Selling Stockholders and, if such broker acts as agent for the purchaser of such shares, from such purchaser. 31 Usual and customary brokerage fees will be paid by the Selling Stockholders. Broker-dealers may agree with the Selling Stockholders to sell a specified number of shares at a stipulated price per share, and, to the extent such a broker-dealer is unable to do so acting as agent for the Selling Stockholders, to purchase as principal any unsold shares at the price required to fulfill the broker-dealer commitment to the Selling Stockholders. Broker-dealers who acquire shares as principal may thereafter resell such shares from time to time in transactions (which may involve crosses and block transactions and which may involve sales to and through other broker-dealers, including transactions of the nature described above) in the over-the-counter market, in negotiated transactions or otherwise at market prices prevailing at the time of sale or at negotiated prices, and in connection with such resales may pay to or receive from the purchasers of such shares commissions computed as described above. Ticketmaster Online-CitySearch has advised the Selling Stockholders that Regulation M promulgated under the Exchange Act may apply to sales in the market and has informed them of the possible need for delivery of copies of this Prospectus. The Selling Stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act. Any commissions paid or any discounts or concessions allowed to any such broker- dealers, and, if any such broker-dealers purchase shares as principal, any profits received on the resale of such shares, may be deemed to be underwriting discounts and commissions under the Securities Act. Upon Ticketmaster Online-CitySearch's being notified by the Selling Stockholders that any material arrangement has been entered into with a broker- dealer for the sale of shares through a cross or block trade, a supplemental prospectus will be filed under Rule 424(c) under the Securities Act, setting forth the name of the participating broker-dealer(s), the number of shares involved, the price at which such shares were sold by the Selling Stockholders, the commissions paid or discounts or concessions allowed by the Selling Stockholders to such broker-dealer(s), and where applicable, that such broker- dealer(s) did not conduct any investigation to verify the information set out in this Prospectus. Any securities covered by this Prospectus which qualify for sale pursuant to Rules 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this Prospectus. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including any person who may be deemed to be an "affiliate" of Ticketmaster Online-CitySearch, is entitled to sell within any three month period "restricted shares" beneficially owned by him or her in an amount that does not exceed the greater of (i) 1% of the then outstanding shares of Class B Common Stock or (ii) the average weekly trading volume in shares of Class B Common Stock during the four calendar weeks preceding such sale, provided that at least one year has elapsed since such shares were acquired from Ticketmaster Online-CitySearch or an affiliate of Ticketmaster Online-CitySearch. Sales are also subject to certain requirements as to the manner of sale, notice and availability of current public information regarding Ticketmaster Online-CitySearch. However, a person who has not been an "affiliate" of Ticketmaster Online-CitySearch at any time within three months prior to the sale is entitled to sell his or her shares without regard to the volume limitations or other requirements of Rule 144, provided that at least one year has elapsed since such shares were acquired from Ticketmaster Online- CitySearch or an affiliate of Ticketmaster Online-CitySearch. There can be no assurance that the Selling Stockholders will sell any or all of the shares of Common Stock offered hereunder. 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. 32 Ticketmaster Online-CitySearch's Restated Certificate of Incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware Law. Insofar as indemnification by Ticketmaster Online-CitySearch for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Ticketmaster Online-CitySearch pursuant to the provisions referenced in Prospectus or otherwise, Ticketmaster Online- CitySearch has been advised that in the opinion of the SEC, 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 Ticketmaster Online-CitySearch of expenses incurred or paid by a director, officer, or controlling person of Ticketmaster Online-CitySearch in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, Ticketmaster Online- CitySearch will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. 33 TICKETMASTER ONLINE-CITYSEARCH, INC. REGISTRATION STATEMENT ON FORM S-8 PART II INFORMATION REQUIRED IN REGISTRATION STATEMENT ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE. There are hereby incorporated by reference in this Registration Statement the following documents and information heretofore filed with the SEC: (1) Ticketmaster Online-CitySearch's Annual Report on Form 10-K for the fiscal year ended December 31, 1998; (2) Ticketmaster Online-CitySearch's Current Report on Form 8-K dated April 29, 1999 for the acquisition of CityAuction, Inc.; and (3) The description of the Ticketmaster Online-CitySearch's Common Stock contained in the Company's Registration Statement on Form S-1, No. 333-64855, filed on December 2, 1998. All documents subsequently filed by Ticketmaster Online-CitySearch pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective amendment which indicates that all securities registered have been sold or which deregisters all securities then remaining unsold, shall be deemed to be incorporated by reference in this Registration Statement and to be part hereof from the date of filing of such documents. ITEM 4. DESCRIPTION OF SECURITIES. Not applicable. ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL. Not applicable. ITEM 6. 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. Ticketmaster Online-CitySearch's Restated Certificate of Incorporation provides for the indemnification of directors to the fullest extent permissible under Delaware Law. Ticketmaster Online-CitySearch's Bylaws provides for the indemnification of officers, directors and third parties to the fullest extent permissible under Delaware Law, which provisions are deemed to be a contract between Ticketmaster Online-CitySearch and each director and officer who serves in such capacity while such bylaw is in effect. II-1 ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED. The issuance of the shares being offered by the Form S-3 resale prospectus 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, or Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. 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 instruments issued in such transactions. All recipients had adequate access, through their relationship with Ticketmaster Online-CitySearch, to information about Ticketmaster Online-CitySearch. ITEM 8. EXHIBITS.
Exhibit Description Number 5.1 Opinion of counsel as to legality of securities being registered. 10.1 CityAuction, Inc. 1998 Stock Plan, including form of Stock Option Agreement. 10.2 Restricted Stock Purchase Agreement by and between CityAuction, Inc. and Monica Lee, as amended. 10.3 Restricted Stock Purchase Agreement by and between CityAuction and Andrew Rebele, as amended. 10.4 Restricted Stock Purchase Agreement by and between CityAuction and Stephen Walther, as amended. 23.1 Consent of counsel (contained in Exhibit 5.1). 23.2 Independent Auditors' Consent. 24.1 Power of Attorney (see page II-4).
ITEM 9. UNDERTAKINGS. A. Ticketmaster Online-CitySearch hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post- effective amendment to this registration statement to include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment 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-2 (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. B. Ticketmaster Online-CitySearch hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of Ticketmaster Online-CitySearch's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in the Registration Statement 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. C. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of Ticketmaster Online-CitySearch pursuant to law, Ticketmaster Online- CitySearch's Certificate of Incorporation or Bylaws, Ticketmaster Online- CitySearch has been informed that in the opinion of the SEC 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 Ticketmaster Online-CitySearch of expenses incurred or paid by a director, officer or controlling person of Ticketmaster Online-CitySearch in a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, Ticketmaster Online-CitySearch will, unless in the opinion of its counsel the matter has already been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-8/S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Pasadena, State of California, on this 5th day of May, 1999. TICKETMASTER ONLINE-CITYSEARCH, INC. By: /s/ Charles Conn Charles Conn Chief Executive Officer POWER OF ATTORNEY Know All Men By These Presents, that each person whose signature appears below constitutes an appoints Charles Conn, Douglas McPherson and Bradley Ramberg, jointly and severally, his attorney-in-fact, each with the power of substitution for him or her in any and all capacities, to sign any amendments to this Registration Statement on Form S-8/S-3, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Signature Title Date - --------------------------------------- ------------------------------------- --------------------- /s/ Charles Conn Chief Executive Officer (Principal May 5, 1999 - --------------------------------------- Executive Officer) and Director Charles Conn /s/ Bradley Ramberg Chief Financial Officer and May 5, 1999 - --------------------------------------- Vice President, Finance and Bradley Ramberg Administration and Secretary (Principal Financial and Accounting Officer) /s/ Barry Baker Director May 5, 1999 - --------------------------------------- Barry Baker /s/ Terry Barnes Director May 5, 1999 - --------------------------------------- Terry Barnes
II-4 /s/ Alan Citron Director May 5, 1999 - --------------------------------------- Alan Citron /s/ Eugene L. Cobuzzi Director May 5, 1999 - --------------------------------------- Eugene L. Cobuzzi /s/ Stuart W. Depina Director May 5, 1999 - --------------------------------------- Stuart W. Depina /s/ Barry Diller Director May 5, 1999 - --------------------------------------- Barry Diller /s/ Joseph Gleberman Director May 5, 1999 - --------------------------------------- Joseph Gleberman /s/ William Gross Director May 5, 1999 - --------------------------------------- William Gross /s/ Victor A. Kaufman Director May 5, 1999 - --------------------------------------- Victor A. Kaufman /s/ Robert Kavner Director May 5, 1999 - --------------------------------------- Robert Kavner /s/ William D. Savoy Director May 5, 1999 - --------------------------------------- William D. Savoy /s/ Allan Spoon Director May 5, 1999 - --------------------------------------- Allan Spoon /s/ Thomas Unterman Director May 5, 1999 - --------------------------------------- Thomas Unterman
II-5 INDEX TO EXHIBITS
Exhibit Description Number 5.1 Opinion of counsel as to legality of securities being registered. 10.1 CityAuction, Inc. 1998 Stock Plan, including form of Stock Option Agreement. 10.2 Restricted Stock Purchase Agreement by and between CityAuction, Inc. and Monica Lee, as amended. 10.3 Restricted Stock Purchase Agreement by and between CityAuction and Andrew Rebele, as amended. 10.4 Restricted Stock Purchase Agreement by and between CityAuction and Stephen Walther, as amended. 23.1 Consent of counsel (contained in Exhibit 5.1). 23.2 Independent Auditors' Consent. 24.1 Power of Attorney (see page II-4).
EX-5.1 2 OPINION OF COUNSEL LEGALITY OF SECURITIES REGISTER EXHIBIT 5.1 May 5, 1999 Ticketmaster Online-CitySearch, Inc. 790 E. Colorado Boulevard, Suite 200 Pasadena, CA 91101 RE: REGISTRATION STATEMENT ON FORM S-8/S-3 Ladies and Gentlemen: We have examined the Registration Statement on Form S-8/S-3 to be filed by you with the Securities and Exchange Commission on May 5, 1999 (as such may thereafter be amended or supplemented, the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended, of 678,203 shares of your Class B Common Stock, $0.01 par value (the "Shares"), of which 671,929 have been issued under certain CityAuction, Inc. Restricted Stock Purchase Agreements, and 6,274 are reserved for issuance pursuant to options granted under the CityAuction, Inc. 1998 Stock Plan. As your legal counsel, we have examined the proceedings taken, and are familiar with the proceedings proposed to be taken, by you 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, the Shares, when issued and sold in the manner described in the Registration Statement and in accordance with the resolutions adopted by the Board of Directors of Ticketmaster Online-CitySearch, Inc., 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 amendments thereto. Very truly yours, /s/ WILSON SONSINI GOODRICH & ROSATI WILSON SONSINI GOODRICH & ROSATI Professional Corporation EX-10.1 3 CITY AUCTION: 1998 STOCK PLAN EXHIBIT 10.1 CITYAUCTION, INC. 1998 STOCK PLAN 1. Purposes of the Plan. The purposes of this Stock 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 non-statutory 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. Stock purchase rights may also be granted under the Plan. 2. Definitions. As used herein, the following definitions shall apply: ----------- (a) "ADMINISTRATOR" means the Board or any of its Committees 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 other country or jurisdiction where Options or Stock Purchase Rights are 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 the Committee appointed by the Board of Directors in accordance with paragraph (a) of Section 4 of the Plan. (f) "COMMON STOCK" means the Common Stock of the Company. (g) "COMPANY" means CityAuction, Inc., a California corporation. (h) "CONSULTANT" means any person, including an advisor, who is engaged by the Company or any Parent or Subsidiary to render advisory or consulting services and is compensated for such services, and any director of the Company whether compensated for such services or not; provided that if and in the event the Company registers any class of any equity security pursuant to the Exchange Act, the term Consultant shall thereafter not include directors who are not compensated for their services or are paid only a director's fee by the Company. (i) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any interruption or termination of the employment relationship by the Company or any Subsidiary. Continuous Status as an Employee shall not be considered interrupted in the case of: (i) sick leave, military leave or any other leave of absence approved by the Board, provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (ii) in the case of transfers between locations of the Company or between the Company, its Subsidiaries or its successor. (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 National Market System of the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") System, 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 system or exchange 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 quoted on the NASDAQ System (but not on the National Market System thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high and low asked prices for the Common Stock; 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. (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) "OPTION" means a stock option granted pursuant to the Plan. (p) "OPTIONED STOCK" means the Common Stock subject to an Option. (q) "OPTIONEE" means an Employee or Consultant who receives an Option. (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 Stock Plan, as amended from time to time. (t) "PURCHASER" means an Employee or Consultant who exercises a Stock Purchase Right. (u) "SHARE" means a share of the Common Stock, as adjusted in accordance with Section 12 of the Plan. (v) "STOCK PURCHASE RIGHT" means the right to purchase Restricted Stock granted pursuant to Section 11 of the Plan. (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 12 of the ------------------------- Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is 300,000 Shares of Common Stock. The shares may be authorized, but unissued, or reacquired Common Stock. If an Option or Stock Purchase Right should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. 4. Administration of the Plan. -------------------------- (a) Procedure. --------- (i) Administration. The Plan shall be administered by the Board or by a -------------- Committee designated by the Board to administer the Plan. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all in accordance with the legal requirements relating to the administration of incentive stock option plans, if any, of California corporate and securities laws and of the Code (the "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, 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 officers, Consultants and Employees to whom Options and Stock Purchase Rights may from time to time be granted hereunder; (iii) to determine whether and to what extent Options and Stock Purchase Rights or any combination thereof, 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, not inconsistent with the terms of the Plan, of any award granted hereunder (including, but not limited to the share price and any restriction or limitation, based in each case on such factors as the Administrator shall determine, in its sole discretion); (vii) to determine the terms and restrictions applicable to Stock Purchase Rights and the Restricted Stock purchased by exercising such Stock Purchase Rights; (viii) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of qualifying for preferred tax treatment under foreign tax laws; (ix) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option or Stock Purchase Right that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees 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; and (x) to make any other such determinations with respect to awards under the Plan as it shall deem appropriate, including (without limitation) determinations with respect to vesting, exercisability and price adjustments. (c) Effect of Committee's Decision. All decisions, determinations and ------------------------------ interpretations of the Administrator shall be final and binding on all Optionees and Purchasers and any other holders of any Options or Rights. 5. Eligibility for Options. ----------------------- (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 he is otherwise eligible, be granted an additional Option or Options. (b) Each Option shall be designated in the written option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of the Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options. (c) For purposes of Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (d) The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with his right or the Company's right to terminate his employment or consulting relationship at any time, with or without cause. 6. Term of Plan. The Plan shall become effective upon the earlier to occur of ------------ its adoption by the Board of Directors or its approval by the shareholders of the Company as described in Section 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. 7. Term of Option. The term of each Option shall be the term stated in the -------------- Option Agreement; provided, however, that in the case of any Stock Option, the term shall be no more than ten (10) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 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 such Incentive Stock Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. 8. 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 Board, 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, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option (A) granted to a person who, at the time of the grant of such Option, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of the grant. (B) granted to any person, the per Share exercise price shall be no less than 85% of the Fair Market Value per Share on the date of grant. (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (i) cash, (ii) check, (iii) other Shares which (x) in the case of Shares acquired upon exercise of an Option either have been owned by the Optionee for more than six months on the date of surrender or were not acquired, directly or indirectly, from the Company, 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) authorization for the Company to retain from the total number of Shares as to which the Option is exercised that number of Shares having a Fair Market Value on the date of exercise equal to the exercise price for the total number of Shares as to which the Option is exercised, (v) delivery of a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds required to pay the exercise price, (vi) by delivering an irrevocable subscription agreement for the Shares which irrevocably obligates the option holder to take and pay for the Shares not more than twelve months after the date of delivery of the subscription agreement, (vii) any combination of the foregoing methods of payment, (viii) or such other consideration and method of payment for the issuance of Shares to the extent permitted under Applicable Laws. In making its determination as to the type of consideration to accept, the Board shall consider if acceptance of such consideration may be reasonably expected to benefit the Company. 9. Exercise of Option. ------------------ (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted ----------------------------------------------- hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan. (i) 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 the Administrator has determines that payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Administrator, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. 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. (ii) Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. 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 11 of the Plan. (b) Termination of Employment. In the event of termination of an ------------------------- Optionee's consulting relationship or Continuous Status as an Employee with the Company (as the case may be), such Optionee may, but within no less than thirty (30) days after the date of such termination (or such other longer period as is set out by the Administrator in the Option Agreement, but 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 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. Notwithstanding anything to the contrary contained herein, in the event that the Optionee's employment has terminated for cause (as determined by the Administrator in accordance with the policies of the Company), the Option shall terminate immediately on the date of termination of employment. (c) Disability of Optionee. Notwithstanding the provisions of Section 9(b) ---------------------- above, in the event of termination of an Optionee's Consulting relationship or Continuous Status as an Employee as a result of his disability (as determined by the Administrator in accordance with the policies of the Company), Optionee may, but within no less than six (6) months from the date of such termination (or such other longer period as is set out by the Administrator in the Option Agreement, but 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. 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 entitled within the time specified herein, the Option shall terminate. (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 date of the term of such Option as set forth in the Option Agreement), 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 the Optionee was entitled to exercise the Option at the date of death. 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 entitled within the time specified herein, the Option shall terminate. 10. Non-Transferability of Options. 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. 11. Stock Purchase Rights. --------------------- (a) Rights to Purchase Restricted Stock. Stock Purchase Rights may be ----------------------------------- issued either alone, in addition to, or in tandem with other awards granted under the Plan and/or cash awards made outside of the Plan. After the Administrator determines that it will offer Stock Purchase Rights under the Plan, it shall advise the offeree in writing of the terms, conditions and restrictions related to the offer, including the number of Shares that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept such offer, which shall in no event exceed one- hundred twenty (120) days from the date of grant of the Stock Purchase Right. For these purposes, the-price to be paid shall be no less than 85% of fair market value on the date of grant of the Stock Purchase Right or, in the case of a greater than 10% shareholder, no less than 100% of the fair market value on the date of grant. The offer shall be accepted by execution of a Restricted Stock agreement in the form determined by the Administrator. Shares purchased pursuant to the grant of a Stock Purchase Right shall be referred to herein as "Restricted Stock." (b) Repurchase Option. Unless the Administrator determines otherwise, the ----------------- Restricted Stock agreement shall grant the Company a repurchase option exercisable upon the voluntary or involuntary termination of the Purchaser's employment with the Company for any reason (including death or Disability). The purchase price for Shares repurchased pursuant to the Restricted Stock agreement shall be the original price paid by the Purchaser and may be paid by cancellation of any indebtedness of the purchaser to the Company. The repurchase option with respect to the Restricted Stock shall lapse at such rate as the Committee may determine, but in no event as to less than 20% of the total shares granted annually. (c) Other Provisions. The Restricted Stock agreement shall contain such ---------------- other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Administrator in its sole discretion. In addition, the provisions of Restricted Stock agreements need not be the same with respect to each purchaser. (d) Rights as a Shareholder. Once the Stock Purchase Right is exercised, ----------------------- the Purchaser shall have the rights equivalent to those of a shareholder, and shall be a shareholder when his or her purchase is entered upon the records of the duly authorized transfer agent of the Company. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Stock Purchase Right is exercised, except as provided in Section 12 of the Plan. 12. Adjustments Upon Changes in Capitalization or Merger. ---------------------------------------------------- (a) Changes in Capitalization. Subject to any required action by the ------------------------- shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or Stock Purchase Right, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options or Stock Purchase Rights have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or Stock Purchase Right, as well as the price per share of Common Stock covered by each such outstanding Option or Stock Purchase Right, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option or Stock Purchase Right. (b) Corporate Transactions. In the event of the proposed dissolution or ---------------------- liquidation of the Company, or of a merger in which the successor corporation does not agree to assume the Option or Stock Purchase Right or substitute an equivalent Option or Stock Purchase Right, the Board shall notify Optionees and Purchasers at least fifteen (15) days prior to such proposed action and, in its discretion, permit Optionees to exercise their Options to the extent already vested or make a determination to accelerate vesting of any outstanding Options or Stock Purchase Right. To the extent it has not been previously exercised, the Option or Stock Purchase Right will terminate immediately prior to the consummation of such proposed action. 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 discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee or Purchaser under any grant theretofore made, without his or her consent. In addition, to the extent necessary and desirable to comply with Applicable Laws, the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. (b) Effect of Amendment or Termination. Any such amendment or termination ---------------------------------- of the Plan shall not affect Options and Stock Purchase Rights already granted and such Options and Stock Purchase Rights shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee or Purchaser and the Board, which agreement must be in writing and signed by the Optionee or Purchaser and the Company. 15. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to ---------------------------------- the exercise of an Option or Stock Purchase Right unless the exercise of such Option or Stock Purchase Right and the issuance and delivery of such Shares 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 or Stock Purchase Right, the Company may require the person exercising such Option or Stock Purchase Right to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required 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 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 and Stock Purchase Rights shall be evidenced by written ---------- agreements in such form as the Board shall approve from time to time. 18. Shareholder Approval. Continuance of the Plan shall be subject to approval -------------------- by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such shareholder approval shall be obtained in the degree and manner required under applicable state and federal law. 19. Information to Optionees. The Company shall provide to each Optionee, ------------------------ during the period for which such Optionee has one or more Options outstanding, annual financial statements of the Company. The Company shall not be required to provide such information if the issuance of Options under the Plan is limited to key employees whose duties in connection with the Company assure their access to equivalent information. CITYAUCTION, INC. 1998 STOCK PLAN NOTICE OF STOCK OPTION GRANT ---------------------------- [Optionee's Name] [Address] You have been granted an option, consisting of the Stock Option Agreement attached hereto as Exhibit A and this Notice of Stock Option Grant (together, the "Option") to purchase Common Stock of CityAuction, Inc., (the "Company") as follows: Date of Grant _______________________________________ Vesting Date _______________________________________ Option Price Per Share $ --------------------------------------- Total Number of Shares Granted _______________________________________ Total Price of Shares Granted $ --------------------------------------- Type of Option __ Incentive Stock Option __ Nonqualified Stock Option Term/Expiration Date 10 years/ _________________ Exercise Schedule: ----------------- This Option may be exercised, in whole or in part, in accordance with the Vesting Schedule set out below. Vesting Schedule ---------------- Date of Vesting Number of Shares --------------- ---------------- First Annual Anniversary of Vesting Date(_______) 25%(_________) Thereafter, monthly on the _____ day of each month, 1/48 (_____) of the total number of Shares until fully vested. In the event of fractional Shares, the monthly number of Shares shall be adjusted accordingly to the nearest whole Share. Termination Period: ------------------ Option may be exercised for thirty (30) days after termination of ---------------- employment or consulting relationship except as set out in Sections 7 and 8 of the Stock Option Agreement (but in no event later than the Expiration Date). Form of Exercise: ----------------- Exercise of this Option shall be with cash or check, on a form of Exercise Notice provided by the Company. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THIS OPTION IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1998 STOCK PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE. Optionee acknowledges receipt of a copy of the Plan and certain information related to it and represents that he or she is familiar with the terms and provisions of the Plan and this Option. Optionee accepts this Option subject to all such terms and provisions. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option and fully understands all provisions of the Option. 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 1998 STOCK PLAN and the Stock Option Agreement, all of which are attached and made a part of this document. OPTIONEE: CITYAUCTION, INC. a California corporation _____________________________ By _____________________________ Signature _____________________________ Title __________________________ Print Name I am unmarried ___. Spousal consent attached____. I am married and have previously filed a spousal consent with the Company._____ CONSENT OF SPOUSE ----------------- The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option. In consideration of the Company's granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option. _____________________________ Spouse of Optionee CITYAUCTION, INC. 1998 STOCK PLAN EXHIBIT A TO NOTICE OF GRANT TERMS OF STOCK OPTION AGREEMENT ------------------------------- 1. Grant of Option. CityAuction, Inc., a California corporation (the --------------- "COMPANY"), hereby grants to the Optionee (the "OPTIONEE") named in the Notice of Grant, an option (the "OPTION") to purchase a 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, conditions and definitions of the 1998 Stock Plan (the "PLAN") adopted by the Company, which is incorporated herein by reference. 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 Option Agreement shall prevail. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Option Agreement. If designated in the Notice of Grant as an Incentive Stock Option, this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. 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. In the event of Optionee's death, Disability or other termination of Optionee's employment or consulting relationship, the exercisability of the Option is governed by 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 provided by the Company (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 to the holder's investment intent with respect to the Exercised Shares as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be signed by the Optionee and, if required by the Company, by the Optionee's spouse, and shall be delivered in person or by certified mail to the Secretary of the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of such fully executed Exercise Notice accompanied by such aggregate Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with all relevant provisions of law and the requirements of any stock exchange upon which the Shares are then listed. 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. 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; or (b) check; or (c) such other consideration as is indicated on the Notice of Grant. 4. Optionee's Representations. In the event the Shares purchasable pursuant -------------------------- to the exercise of this Option have not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, deliver to the Company an Investment Representation Statement in the form attached as EXHIBIT A to the Exercise Notice. 5. Restrictions on Exercise. This Option may not be exercised until such ------------------------ time as the Plan has been approved by the shareholders of the Company, or if the issuance of such Shares upon such exercise or the method of payment of consideration for such shares would constitute a violation of any applicable federal or state securities or other law or regulation, including any rule under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as promulgated by the Federal Reserve Board. As a condition to the exercise of this Option, the Company may require Optionee to make any representation and warranty to the Company as may be required by any applicable law or regulation. 6. Termination of Relationship. In the event of termination of Optionee's --------------------------- consulting relationship or Continuous Status as an Employee, 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. In the event that the Optionee is terminated for cause, the Option shall expire on the Termination Date. 7. Disability of Optionee. Notwithstanding the provisions of Section 6 ---------------------- above, in the event of termination of Optionee's Continuous Status as an Employee as a result of disability (as determined by the Board in accordance with the policies of the Company), Optionee may, but only within six (6) months from the date of termination of employment (but in no event later than the date of expiration of the term of this Option as set forth in Section 10 below), exercise the Option to the extent otherwise so entitled at the date of 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 otherwise so entitled) within the time specified herein, the Option shall terminate. 8. Death of Optionee. In the event 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. 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 him. The terms of this Option shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. 10. 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. The limitations set out in Section 7 of the Plan regarding Option terms and Options granted to more than ten percent (10%) shareholders shall apply to this Option. 11. Tax Consequences. Some of the federal and California 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) Nonqualified Stock Option ("NSO"). If this Option does not qualify --------------------------------- as an ISO, the Optionee may incur regular federal income tax and California income tax liability upon exercise. 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, 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 equal to a percentage of this compensation income at the time of exercise. (ii) Incentive Stock Option ("ISO"). If this Option qualifies as an ISO, ------------------------------ the Optionee will have no regular federal income tax or California 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 the alternative minimum tax for federal tax purposes and may subject the Optionee to alternative minimum tax in the year of exercise. (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. (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. (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) the date two years after the grant date, or (ii) the date 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. EX-10.2 4 RESTRICTED STOCK PURCHASE AGREEMENT EXHIBIT 10.2 RESTRICTED STOCK PURCHASE AGREEMENT ----------------------------------- THIS AGREEMENT is made as of the ____ day of September 1998, by and between CityAuction, Inc., a California corporation (the "Company"), and Monica Lee (the "Purchaser"). In consideration of the mutual covenants and representations herein set forth, the Company and Purchaser agree as follows: 1. Purchase and Sale of Stock. Subject to the terms and conditions -------------------------- of this Agreement, the Company hereby agrees to sell to Purchaser and Purchaser agrees to purchase from the Company at the Closing an aggregate of 234,000 shares of the Company's Common Stock (the "Stock") at a price of $.001 per share, for an aggregate purchase price of $234. 2. Closing. The purchase and sale of the Stock shall occur at a ------- Closing to be held on the date hereof (the "Closing Date"). The Closing will take place at the principal office of the Company or at such other place as shall be designated by the Company. At the Closing, the Company will issue the Stock registered in the name of Purchaser. 3. Purchase Option. --------------- 3.1 Grant of Purchase Option. Beginning on the Closing Date, the ------------------------ Stock shall be subject to the right and option of the Company to repurchase the Stock (the "Purchase Option") as set forth in this Section 3. In the event Purchaser's employment or consulting relationship with the Company (including a parent or subsidiary of the Company) shall cease for any reason, or no reason, with or without cause, including death, disability or involuntary termination ("Termination"), the Company shall have the right, as provided in Section 3.2 hereof, to purchase from Purchaser or its personal representative, as the case may be, at the purchase price of $.01 per share (the "Option Price"), all of the Stock that has not been released from the Purchase Option in accordance with the following schedule: (i) 1/4 (25%) of the shares of the Stock (58,500 shares) shall be released from the Purchase Option on January 1, 1999; (ii) On the first day of each month commencing with February 1, 1999, an additional one forty-eighth (1/48th) of the shares of Stock (4,875 shares) will be released from the Purchase Option. -1- 3.2 Exercise of Purchase Option. Within ninety (90) days following --------------------------- Termination, the Company shall notify Purchaser by written notice delivered or mailed as provided in Section 9.3 as to whether it wishes to purchase the Stock pursuant to exercise of the Purchase Option. If the Company (or its assignees) elects to purchase the Stock hereunder, it shall specify a date (which shall not be later than thirty (30) days from the date of the above described notice) and a place for the closing of the transaction. At such closing, the Company (or its assignees) shall tender payment for the Stock and the certificates representing the Stock so purchased shall be cancelled. Purchaser hereby authorizes and directs the Secretary or Transfer Agent of the Company to transfer the Stock as to which the Purchase Option has been exercised from Purchaser to the Company (or its assignees). The Option Price may be payable, at the option of the Company, in cancellation of all or a portion of any outstanding indebtedness of Purchaser to the Company, or by check, or both. 3.3 No Limit on Rights. Nothing in this Agreement shall affect in any ------------------ manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to terminate Purchaser's employment or consulting relationship, for any reason, with or without cause, subject to Section 3.4 below. 3.4 Escrow of Stock. Purchaser agrees at the Closing hereunder, to --------------- deliver to and deposit with the Escrow Agent named in the Escrow Agreement of even date and delivered herewith, the certificate or certificates evidencing the Stock and the duly executed Assignments. Such documents are to be held by the Escrow Agent until delivered pursuant to the terms of such Escrow Agreement. Shares of the Stock which are subject to the Purchase Option shall not be transferable by the Purchaser. 4. Restriction on Transfer; Rights of First Refusal. ------------------------------------------------ 4.1 Rights of First Refusal. Before any shares of Stock registered in ----------------------- the name of Purchaser may be sold or transferred (including transfer by operation of law other than as excepted pursuant to Section 4.2 hereof), Purchaser must first obtain the written consent of the Company. If such written consent is not given, then the Company or, if the Company desires, the other shareholders of the Company, shall have a right of first refusal to purchase such shares for the same price and on the same terms and conditions offered to such prospective purchaser, in accordance with the procedures set forth below (the "Rights of First Refusal"). If the proposed price per share is to be other than in cash, then an equivalent cash value shall be determined in good faith by the Board of Directors of the Company. If a transfer other than a voluntary sale is proposed to be made, then the -2- price per share for purposes of the Rights of First Refusal shall be determined by the mutual agreement of Purchaser and the Company or, if no agreement can be reached, the price shall be the fair market value of such shares, as determined in good faith by the Company's Board of Directors. Prior to any sale or transfer of any shares of the Stock, Purchaser, or the legal representative of Purchaser, shall promptly deliver to the Secretary of the Company a written notice of the price and other terms and conditions of the offer by the prospective purchaser, the identity of the prospective purchaser, and, in the case of a sale, Purchaser's bona fide intention to sell or dispose of such shares together with a copy of a written agreement between Purchaser and the prospective purchaser conditioned only upon the satisfaction of the procedures set forth in these Rights of First Refusal. If the Company does not give its written consent to such transfer, then the Company (or its assignees) shall, for thirty (30) days after such notice from Purchaser, have the right under this Section 4 to purchase some or all such shares, as set forth herein. After the expiration of the Rights of First Refusal, or upon the written consent of the Company to the proposed transfer, Purchaser may sell or transfer the shares specified in the notice to the Company, on the terms and conditions specified in such notice; provided, however, that the sale must be consummated within three (3) months after the date of the notice and that all shares sold or transferred shall remain subject to the provisions and restrictions of this Agreement and shall carry a legend to that effect. If the Rights of First Refusal under this Section 4 are not exercised but Purchaser fails to consummate such sale on the same terms and conditions as set forth in the notice to the Company within three (3) months after the date of the notice, then such Rights of First Refusal shall be reinstated. 4.2 Termination; Exceptions. The provisions of this Section 4 shall ----------------------- terminate on the closing date of an underwritten public offering of Common Stock of the Company. The provisions of Section 4.1 shall not apply to a transfer of any shares of Stock by Purchaser to the assignees or successors of Purchaser; provided, in each such case a transferee shall receive and hold such shares subject to the provisions and restrictions on transfer of this Agreement and there shall be no further transfer of such shares except in accordance herewith. 4.3 Effect of Transfers Not in Compliance. The Company shall not be ------------------------------------- required to transfer on its books any shares of Stock of the Company which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or the Security Agreement, or to treat as owner of such shares, or to accord the right to vote as such owner or to pay dividends to, any transferee to whom such shares shall have been so transferred. -3- 5. Stock Splits, etc. If, from time to time during the term of the ----------------- Purchase Option or Rights of First Refusal as provided in Sections 3 and 4 hereof, there is any stock dividend, stock split or other change in the character or amount of any of the outstanding securities of the Company or if there is any consolidation, merger or sale of all, or substantially all, of the assets of the Company, then in such event any and all new, substituted or additional securities to which Purchaser is entitled by reason of its ownership of Stock shall be immediately subject to the Purchase Option and Rights of First Refusal and be included in the term "Stock" for all purposes of this Agreement with the same force and effect as the shares of Stock presently subject to this Agreement. 6. Legends. All certificates representing any shares of Stock of the ------- Company subject to the provisions of this Agreement shall have endorsed thereon substantially the following legends: (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON AND OBLIGATIONS WITH RESPECT TO TRANSFER AND RIGHTS OF REPURCHASE AND RIGHTS OF FIRST REFUSAL AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY." (b) "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED." (c) Any legend required under applicable state securities laws. 7. Investment Intent; Covenant. In purchasing the Stock, Purchaser --------------------------- represents to the Company as follows: (a) Purchaser has had an opportunity to discuss the business prospects and business plan of the Company with the officers and directors of the Company. Purchaser has a preexisting personal or business relationship with the Company or one of its officers, directors or controlling persons and/or by reason of its business or financial experience it has the capacity to protect its own interests in connection with the transactions contemplated by this Agreement. Purchaser further acknowledges that the Stock is highly speculative and involves a high degree of risk, -4- and represents and warrants that it is able, without impairing its financial condition, to hold the Stock for an indefinite period of time and suffer a complete loss of its investment therein. (b) Purchaser is acquiring the Stock for investment and not with a view to or for sale in connection with any distribution of said Stock or with any present intention of distributing or selling said Stock and it does not presently have reason to anticipate any change in circumstances or any particular occasion or event which would cause it to sell said Stock. Purchaser understands that the Stock has not been registered under the Securities Act of 1933, as amended, (the "Act") and may not be sold or otherwise disposed of except pursuant to an effective Registration Statement filed under the Act or pursuant to an exemption from the registration requirements of such Act. Purchaser acknowledges that the Company is under no obligation to register the Stock under the Act on its behalf. Purchaser represents and warrants that it understands that the Stock constitutes restricted securities within the meaning of Rule 144 promulgated under the Act; that the exemption from registration under Rule 144 will not be available in any event for at least one year from the date of purchase and payment for the Stock, and even then will not be available unless the terms and conditions of Rule 144 are complied with and will be subject to the limitations on amount set forth therein. (c) Without limiting the representations and warranties set forth above, Purchaser agrees it will not make any transfer of all or any part of the Stock unless (i) there is a Registration Statement under the Act in effect with respect to such transfer and such transfer is made in accordance therewith, or (ii) Purchaser has furnished the Company an opinion of counsel satisfactory to the Company and its counsel to the effect that such transfer will not require registration under the Act. Purchaser agrees that, prior to the closing of the Company's initial public offering registered under the Act, it will not transfer any of such securities in a public offering without the Company's prior consent, even if it is otherwise permitted to transfer them pursuant to Rule 144(k) under the Act. 8. Lock-up Agreement. In the event the Company sells any of its ----------------- securities in an underwritten initial public offering pursuant to a registration filed pursuant to the Act, Purchaser agrees (but only if each officer and director of the Company also agrees), upon request from the Company or the managing underwriter of such initial or other public offering, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of, any of the Stock, without the prior written consent of the Company or such underwriter, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as the Company or the underwriter may specify. Purchaser further agrees that the Company may place stop-transfer notations with the transfer agent of the Stock to enforce this provision. -5- 9. Miscellaneous. ------------- 9.1 Further Assurances. The parties agree to execute such further ------------------ instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 9.2 Entire Agreement. This Agreement, including any exhibits, is the ---------------- entire agreement of the parties with respect to the subject matter hereof and supersedes all prior oral and written understandings of the parties. 9.3 Notices. Any notice required or permitted hereunder shall be ------- given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to Purchaser at its address shown on the Company's employment records and to the Company at the address of its principal corporate offices (attention: President) or at such other address as such party may designate by ten (10) days' advance written notice to the other party hereto. 9.4 Assignment of Rights; Binding Upon Successors. The Company may --------------------------------------------- assign its rights and delegate its duties under Section 3 and/or 4 hereof. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, be binding upon Purchaser, its heirs, executors, administrators, successors and assigns. 9.5 Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of California as applied to contracts between California residents to be wholly performed within the State of California. -6- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY AUCTION, INC. a California corporation By: /s/ Andrew Rebele Title: President PURCHASER Monica Lee By: /s/ Monica Lee ----------------------------- Title: Director, Business Development _______________________________ Address: -7- ASSIGNMENT SEPARATE FROM CERTIFICATE ------------------------------------ FOR VALUE RECEIVED, I, _________________________, hereby sell, assign and transfer unto, _________________________ (__________) shares of the Common Stock of CITY AUCTION, INC. standing in my name on the books of said corporation represented by Certificate No. _____ herewith and do hereby irrevocably constitute and appoint _________________________ to transfer said stock on the books of the within-named corporation with full power of substitution in the premises. Dated: _______________________ Signature: By: /s/ Monica Lee --------------------------------- This Assignment Separate from Certificate was executed in conjunction with the terms of a Restricted Stock Purchase Agreement between the above assignor and CITYAUCTION, INC. dated September ____, 1998. INSTRUCTION: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. - ----------- ESCROW AGREEMENT ---------------- September ____, 1998 General Counsel Associates LLP 1891 Landings Drive Mountain View, CA 94043 Dear Sir or Madam: As Escrow Agent for both CITY AUCTION, INC., a California corporation ("Company"), and the undersigned purchaser of stock of the Company ("Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement"), dated of even date herewith, in accordance with the following instructions: 1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Purchase Option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. 2. At the closing, you are directed (i) to date the stock assignments necessary for the transfer in question, (ii) to fill in the number of shares being transferred, and (iii) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company against the simultaneous delivery to you of the purchase price (by check or by cancellation of any debt owed by Purchaser to the Company) for the number of shares of stock being purchased pursuant to the exercise of the Purchase Option. 3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as its attorney-in- fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with the Department of Corporations of the State of California of an Application for Consent to Transfer Securities Subject to Legend or Escrow Condition Pursuant to Section 25151 of the California Corporate -9- Securities Law of 1968, if required. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a stockholder of the Company while the stock is held by you. 4. Upon written request of Purchaser after each successive one-year period from the date of the Agreement, unless the Purchase Option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Purchase Option. Ninety days after cessation of Purchaser's service to the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares sold and issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Purchase Option. 5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of same to Purchaser and shall be discharged of all further obligations hereunder. 6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and in the exercise of your own good judgment, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. -10- 9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 10. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. 11. Your responsibilities and rights as Escrow Agent hereunder shall pass to any successor of the Company. 12. If you reasonably require other or further instruments in connection with this Escrow Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 13. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction, but you shall be under no duty whatsoever to institute or defend any such proceedings. 14. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to Purchaser at its address shown on the Company's employment records and to you and the Company at the address of its principal corporate offices (attention Secretary and attention: President, respectively) or at such other address as such party may designate by ten (10) days' advance written notice to the other parties hereto. 15. By signing this Escrow Agreement, you become a party hereto only for the purpose of said Escrow Agreement; you do not become a party to the Agreement. -11- 16. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. Very truly yours, COMPANY CITY AUCTION, INC. a California corporation By: /s/ Andrew Rebele Title: President PURCHASER By: /s/ Monica Lee ----------------------------------- Name: Monica Lee ESCROW AGENT GENERAL COUNSEL ASSOCIATES LLP By: /s/ John B. Montgomery Title: Partner -12- ELECTION UNDER SECTION 83(b) OF ------------------------------- THE INTERNAL REVENUE CODE OF 1986 --------------------------------- The undersigned Taxpayer hereby elects, pursuant to the provisions of the federal income tax law noted above, to include in gross income for the Taxpayer's current taxable year, as compensation for services, the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property. 1. Taxpayer's Name: Monica Lee ---------- Taxpayer's Address: ____________________________________________________ ____________________________________________________ ____________________________________________________ Federal Tax I.D.#: _____________________________________________________ 2. The property with respect to which the election is made is described as follows: 234,000 shares of Common Stock of CITY AUCTION, INC., California ------- corporation (the "Company"), which is Taxpayer's employer or the corporation for whom the Taxpayer has performed services. 3. The date on which the shares were transferred was September ____, 1998, and this election is made for calendar year 1998. 4. The shares are subject to the following restrictions: The Company may repurchase all or a portion of the shares at the Taxpayer's original purchase price under certain conditions at the time of Taxpayer's termination of employment or services. 5. The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $.001 per share at the time of transfer. 6. The amount paid for such shares was $.001 per share. 7. The Taxpayer has submitted a copy of this statement to the Company as the Taxpayer's employer or the corporation for whom the Taxpayer has performed services. THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS") (AT THE OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS) WITHIN 30 DAYS AFTER -------------- THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S INCOME TAX RETURNS FOR THE CALENDAR YEAR ABOVE STATED. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS. Dated: September ____, 1998 TAXPAYER: By: _____________________________________ Name: Monica Lee Amendment No. 1 to Restricted Stock Purchase Agreement This Amendment No. 1 to Restricted Stock Purchase Agreement dated September ____, 1998 by and between CityAuction, Inc., a California corporation (the "Company"), and Monica Lee (the "Purchaser") (the "Agreement") is made as of March 29, 1999. In consideration of the mutual covenants and representations herein set forth, the Company and Purchaser agree as follows: 1. Amendment to Section 3. Section 3 of the Agreement is amended and ---------------------- restated in its entirety to read as follows: "3. Purchase Option. --------------- 3.1 Grant of Purchase Option. Beginning on the Closing Date, the ------------------------ Stock shall be subject to the right and option of the Company or any affiliate (as the term "affiliate" is defined in Rule 501 of Regulation D of the Securities Act of 1933, as amended) to repurchase the Stock (the "Purchase Option") as set forth in this Section 3. In the event Purchaser's employment or consulting relationship with the Company (including a parent or subsidiary of the Company) shall cease for any reason, or no reason, with or without cause, including death, disability or involuntary termination ("Termination"), the Company shall have the right, as provided in Section 3.2 hereof, to purchase from Purchaser or its personal representative, as the case may be, at the purchase price of $.001 per share (the "Option Price"), all of the Stock that has not been released from the Purchase Option in accordance with the following schedule: (i) 1/4 (25%) of the shares of the Stock (58,500 shares) shall be released from the Purchase Option on January 1, 1999; (ii) On the first day of each month commencing with February 1, 1999, an additional one forty-eighth (1/48th) of the shares of Stock (4,875 shares) will be released from the Purchase Option. Notwithstanding the foregoing, in the event of an Acquisition Event (as defined below), 1/8 th of the shares of the Stock (29,250 shares) shall be released from the Purchase Option, along with any additional compensation or acceleration granted to other Company stockholders and optionholders in their capacity as such as a result of the Acquisition Event. For purposes of this Section 3.1, an Acquisition Event shall mean the sale of all or substantially all of the assets of the Company (or any successor), a merger or consolidation of the Company (or any successor) with or into any other corporation or corporations, or the merger of any other corporation or corporations into the Company (or any successor), or any other corporate reorganization, in which sale of assets, consolidation, reorganization or merger the stockholders of the Company (or any successor) receive distributions in cash or securities of another corporation or corporations as a result of such sale of assets, consolidation, reorganization or merger, unless the shareholders of the Company (or any successor) hold as a result of their stock holdings in the Company (or any successor) more than fifty percent (50%) of the voting equity securities of the successor or surviving corporation immediately following such merger, sale of assets, reorganization or consolidation. Neither the transaction contemplated by that Agreement and Plan of Reorganization dated January 8, 1999, by and among purchaser, the Company, Ticketmaster Online - CitySearch, Inc., Nero Acquisition Corporation and Andrew Rebele (the "Merger") nor the transaction contemplated by that agreement dated February 9, 1999 by and among USA Networks, Inc., Lycos, Inc. and Ticketmaster Online - City Search, Inc. relating to the combination of Ticketmaster Online - CitySearch, Inc.Company, Lycos and certain businesses of USAI shall be an Acquisition Event; provided, however, that notwithstanding the foregoing, upon the effective time of the Merger, 50% of the shares of Stock shall be released from the Purchase Option and the remaining 50% of the shares of Stock shall be released from the Purchase Option at the rate of one twenty-fourth (1/24th) of the shares of Stock (4,875) on each monthly anniversary of February 15, 1999 subject to her continuing her employment or consulting relationship with the Company as set forth above." 2. Amendment to Section 4. Section 4 of the Agreement is amended and ---------------------- restated in its entirety to read as follows: "4. [This Section is intentionally left blank.]" 3. Amendment to Section 8. Section 8 of the Agreement is amended and ---------------------- restated in its entirety to read as follows: "1 Lock-up Agreement. In the event Ticketmaster Online - CitySearch, ----------------- Inc. sells any of its securities in an underwritten public offering pursuant to a registration filed pursuant to the Act, Purchaser agrees (but only if each executive officer and director of Ticketmaster Online -- CitySearch, Inc. also agrees), upon request from Ticketmaster Online -- CitySearch, Inc. or the managing underwriter of such public offering, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of, any of the Stock, without the prior written consent of Ticketmaster Online -- CitySearch, Inc. or such underwriter, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as Ticketmaster Online -- CitySearch, Inc. or the underwriter may specify. Purchaser further agrees that Ticketmaster Online -- CitySearch, Inc. may place stop-transfer notations with the transfer agent of the Stock to enforce this provision." IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to the Agreement as of the day and year first above written. CITY AUCTION, INC. a California corporation By: /s/ Andrew Rebele ----------------------------------- Title: President -------------------------------- PURCHASER Monica Lee By: /s/ Monica Lee Title: Director, Business Development EX-10.3 5 RESTRICTED STOCK PURCHASE AGREEMENT ANDREW REBELE EXHIBIT 10.3 RESTRICTED STOCK PURCHASE AGREEMENT ----------------------------------- THIS AGREEMENT is made as of the ____ day of September 1998, by and between CityAuction, Inc., a California corporation (the "Company"), and Andrew Rebele (the "Purchaser"). In consideration of the mutual covenants and representations herein set forth, the Company and Purchaser agree as follows: 1. Purchase and Sale of Stock. Subject to the terms and conditions -------------------------- of this Agreement, the Company hereby agrees to sell to Purchaser and Purchaser agrees to purchase from the Company at the Closing an aggregate of 2,106,000 shares of the Company's Common Stock (the "Stock") at a price of $.001 per share, for an aggregate purchase price of $2,106. 2. Closing. The purchase and sale of the Stock shall occur at a ------- Closing to be held on the date hereof (the "Closing Date"). The Closing will take place at the principal office of the Company or at such other place as shall be designated by the Company. At the Closing, the Company will issue the Stock registered in the name of Purchaser. 3. Purchase Option. --------------- 3.1 Grant of Purchase Option. Beginning on the Closing Date, the ------------------------ Stock shall be subject to the right and option of the Company to repurchase the Stock (the "Purchase Option") as set forth in this Section 3. In the event Purchaser's employment or consulting relationship with the Company (including a parent or subsidiary of the Company) shall cease for any reason, or no reason, with or without cause, including death, disability or involuntary termination ("Termination"), the Company shall have the right, as provided in Section 3.2 hereof, to purchase from Purchaser or its personal representative, as the case may be, at the purchase price of $.01 per share (the "Option Price"), all of the Stock that has not been released from the Purchase Option in accordance with the following schedule: (i) On the date of this Agreement, 745,975 shares will be released from the Purchase Option. (ii) On the first day of each month commencing with October 1, 1998, an additional one forty-eighth (1/48th) of the shares of Stock (43,875) will be released from the Purchase Option. -1- Notwithstanding the foregoing, in the event of a Change in Control of the Company, the lesser of (i) 25% of the shares of Stock or (ii) all remaining shares of Stock will be released from the Purchase Option. For the purposes of this Section 3.1 "Change in Control" means the occurrence of any of the ----------------- following events: (A) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), excluding existing beneficial owners as of the date of this Agreement, is or becomes the "beneficial owner" (as defined in Section 13d-3 of said Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company's then outstanding voting securities; (B) The shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the shareholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; (C) Any other provision of this subsection notwithstanding, the term Change in Control shall not include either of the following events undertaken at the election of the Company: (i) Any transaction, the sole purpose of which is to change the state of the Company's incorporation; or (ii) A transaction, the result of which is to sell all or substantially all of the assets of the Company to another corporation (the "surviving corporation") provided that the surviving corporation is owned directly or indirectly by the shareholders of the company immediately following such transaction in substantially the same proportions as their ownership of the Company's common stock immediately preceding such transaction. -2- 3.2 Exercise of Purchase Option. Within ninety (90) days following --------------------------- Termination, the Company shall notify Purchaser by written notice delivered or mailed as provided in Section 9.3 as to whether it wishes to purchase the Stock pursuant to exercise of the Purchase Option. If the Company (or its assignees) elects to purchase the Stock hereunder, it shall specify a date (which shall not be later than thirty (30) days from the date of the above described notice) and a place for the closing of the transaction. At such closing, the Company (or its assignees) shall tender payment for the Stock and the certificates representing the Stock so purchased shall be cancelled. Purchaser hereby authorizes and directs the Secretary or Transfer Agent of the Company to transfer the Stock as to which the Purchase Option has been exercised from Purchaser to the Company (or its assignees). The Option Price may be payable, at the option of the Company, in cancellation of all or a portion of any outstanding indebtedness of Purchaser to the Company, or by check, or both. 3.3 No Limit on Rights. Nothing in this Agreement shall affect in any ------------------ manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to terminate Purchaser's employment or consulting relationship, for any reason, with or without cause, subject to Section 3.4 below. 3.4 Escrow of Stock. Purchaser agrees at the Closing hereunder, to --------------- deliver to and deposit with the Escrow Agent named in the Escrow Agreement of even date and delivered herewith, the certificate or certificates evidencing the Stock and the duly executed Assignments. Such documents are to be held by the Escrow Agent until delivered pursuant to the terms of such Escrow Agreement. Shares of the Stock which are subject to the Purchase Option shall not be transferable by the Purchaser. 4. Restriction on Transfer; Rights of First Refusal. ------------------------------------------------ 4.1 Rights of First Refusal. Before any shares of Stock registered in ----------------------- the name of Purchaser may be sold or transferred (including transfer by operation of law other than as excepted pursuant to Section 4.2 hereof), Purchaser must first obtain the written consent of the Company. If such written consent is not given, then the Company or, if the Company desires, the other shareholders of the Company, shall have a right of first refusal to purchase such shares for the same price and on the same terms and conditions offered to such prospective purchaser, in accordance with the procedures set forth below (the "Rights of First Refusal"). If the proposed price per share is to be other than in cash, then an equivalent cash value shall be determined in good faith by the Board of Directors of the Company. If a transfer other than a voluntary sale is proposed to be made, then the price per share for purposes of the Rights of First Refusal shall be determined by the mutual agreement of Purchaser and the Company or, if no agreement can be reached, -3- the price shall be the fair market value of such shares, as determined in good faith by the Company's Board of Directors. Prior to any sale or transfer of any shares of the Stock, Purchaser, or the legal representative of Purchaser, shall promptly deliver to the Secretary of the Company a written notice of the price and other terms and conditions of the offer by the prospective purchaser, the identity of the prospective purchaser, and, in the case of a sale, Purchaser's bona fide intention to sell or dispose of such shares together with a copy of a written agreement between Purchaser and the prospective purchaser conditioned only upon the satisfaction of the procedures set forth in these Rights of First Refusal. If the Company does not give its written consent to such transfer, then the Company (or its assignees) shall, for thirty (30) days after such notice from Purchaser, have the right under this Section 4 to purchase some or all such shares, as set forth herein. After the expiration of the Rights of First Refusal, or upon the written consent of the Company to the proposed transfer, Purchaser may sell or transfer the shares specified in the notice to the Company, on the terms and conditions specified in such notice; provided, however, that the sale must be consummated within three (3) months after the date of the notice and that all shares sold or transferred shall remain subject to the provisions and restrictions of this Agreement and shall carry a legend to that effect. If the Rights of First Refusal under this Section 4 are not exercised but Purchaser fails to consummate such sale on the same terms and conditions as set forth in the notice to the Company within three (3) months after the date of the notice, then such Rights of First Refusal shall be reinstated. 4.2 Termination; Exceptions. The provisions of this Section 4 shall ----------------------- terminate on the closing date of an underwritten public offering of Common Stock of the Company. The provisions of Section 4.1 shall not apply to a transfer of any shares of Stock by Purchaser to the assignees or successors of Purchaser; provided, in each such case a transferee shall receive and hold such shares subject to the provisions and restrictions on transfer of this Agreement and there shall be no further transfer of such shares except in accordance herewith. 4.3 Effect of Transfers Not in Compliance. The Company shall not be ------------------------------------- required to transfer on its books any shares of Stock of the Company which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or the Security Agreement, or to treat as owner of such shares, or to accord the right to vote as such owner or to pay dividends to, any transferee to whom such shares shall have been so transferred. 5. Stock Splits, etc. If, from time to time during the term of the ----------------- Purchase Option or Rights of First Refusal as provided in Sections 3 and 4 hereof, -4- there is any stock dividend, stock split or other change in the character or amount of any of the outstanding securities of the Company or if there is any consolidation, merger or sale of all, or substantially all, of the assets of the Company, then in such event any and all new, substituted or additional securities to which Purchaser is entitled by reason of its ownership of Stock shall be immediately subject to the Purchase Option and Rights of First Refusal and be included in the term "Stock" for all purposes of this Agreement with the same force and effect as the shares of Stock presently subject to this Agreement. 6. Legends. All certificates representing any shares of Stock of the ------- Company subject to the provisions of this Agreement shall have endorsed thereon substantially the following legends: (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON AND OBLIGATIONS WITH RESPECT TO TRANSFER AND RIGHTS OF REPURCHASE AND RIGHTS OF FIRST REFUSAL AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY." (b) "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED." (c) Any legend required under applicable state securities laws. 7. Investment Intent; Covenant. In purchasing the Stock, Purchaser --------------------------- represents to the Company as follows: (a) Purchaser has had an opportunity to discuss the business prospects and business plan of the Company with the officers and directors of the Company. Purchaser has a preexisting personal or business relationship with the Company or one of its officers, directors or controlling persons and/or by reason of its business or financial experience it has the capacity to protect its own interests in connection with the transactions contemplated by this Agreement. Purchaser further acknowledges that the Stock is highly speculative and involves a high degree of risk, and represents and warrants that it is able, without impairing its financial condition, to -5- hold the Stock for an indefinite period of time and suffer a complete loss of its investment therein. (b) Purchaser is acquiring the Stock for investment and not with a view to or for sale in connection with any distribution of said Stock or with any present intention of distributing or selling said Stock and it does not presently have reason to anticipate any change in circumstances or any particular occasion or event which would cause it to sell said Stock. Purchaser understands that the Stock has not been registered under the Securities Act of 1933, as amended, (the "Act") and may not be sold or otherwise disposed of except pursuant to an effective Registration Statement filed under the Act or pursuant to an exemption from the registration requirements of such Act. Purchaser acknowledges that the Company is under no obligation to register the Stock under the Act on its behalf. Purchaser represents and warrants that it understands that the Stock constitutes restricted securities within the meaning of Rule 144 promulgated under the Act; that the exemption from registration under Rule 144 will not be available in any event for at least one year from the date of purchase and payment for the Stock, and even then will not be available unless the terms and conditions of Rule 144 are complied with and will be subject to the limitations on amount set forth therein. (c) Without limiting the representations and warranties set forth above, Purchaser agrees it will not make any transfer of all or any part of the Stock unless (i) there is a Registration Statement under the Act in effect with respect to such transfer and such transfer is made in accordance therewith, or (ii) Purchaser has furnished the Company an opinion of counsel satisfactory to the Company and its counsel to the effect that such transfer will not require registration under the Act. Purchaser agrees that, prior to the closing of the Company's initial public offering registered under the Act, it will not transfer any of such securities in a public offering without the Company's prior consent, even if it is otherwise permitted to transfer them pursuant to Rule 144(k) under the Act. 8. Lock-up Agreement. In the event the Company sells any of its ----------------- securities in an underwritten initial public offering pursuant to a registration filed pursuant to the Act, Purchaser agrees (but only if each officer and director of the Company also agrees), upon request from the Company or the managing underwriter of such initial or other public offering, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of, any of the Stock, without the prior written consent of the Company or such underwriter, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as the Company or the underwriter may specify. Purchaser further agrees that the Company may place stop-transfer notations with the transfer agent of the Stock to enforce this provision. 9. Miscellaneous. ------------- -6- 9.1 Further Assurances. The parties agree to execute such further ------------------ instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 9.2 Entire Agreement. This Agreement, including any exhibits, is the ---------------- entire agreement of the parties with respect to the subject matter hereof and supersedes all prior oral and written understandings of the parties. 9.3 Notices. Any notice required or permitted hereunder shall be ------- given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to Purchaser at its address shown on the Company's employment records and to the Company at the address of its principal corporate offices (attention: President) or at such other address as such party may designate by ten (10) days' advance written notice to the other party hereto. 9.4 Assignment of Rights: Binding Upon Successors. The Company may --------------------------------------------- assign its rights and delegate its duties under Sections 3 and/or 4 hereof. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, be binding upon Purchaser, its heirs, executors, administrators, successors and assigns. 9.5 Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of California as applied to contracts between California residents to be wholly performed within the State of California. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY AUCTION, INC. a California corporation By: /s/ Andrew Rebele Title: President PURCHASER -7- Andrew Rebele By: /s/ Andrew Rebele Title: individually Address: -8- ASSIGNMENT SEPARATE FROM CERTIFICATE ------------------------------------ FOR VALUE RECEIVED, I, _______________________________, hereby sell, assign and transfer unto, _____________________________________ (_____________) shares of the Common Stock of CITY AUCTION, INC. standing in my name on the books of said corporation represented by Certificate No.__________ herewith and do hereby irrevocably constitute and appoint __________________________________ to transfer said stock on the books of the within-named corporation with full power of substitution in the premises. Dated: ____________________ Signature: By: /s/ Andrew Rebele This Assignment Separate from Certificate was executed in conjunction with the terms of a Restricted Stock Purchase Agreement between the above assignor and CITYAUCTION, INC. dated September _____, 1998. INSTRUCTION: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. - ----------- ESCROW AGREEMENT - ---------------- September ____, 1998 General Counsel Associates LLP 1891 Landings Drive Mountain View, CA 94043 Dear Sir or Madam: As Escrow Agent for both CITY AUCTION, INC., a California corporation ("Company"), and the undersigned purchaser of stock of the Company ("Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement"), dated of even date herewith, in accordance with the following instructions: 1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Purchase Option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. 2. At the closing, you are directed (i) to date the stock assignments necessary for the transfer in question, (ii) to fill in the number of shares being transferred, and (iii) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company against the simultaneous delivery to you of the purchase price (by check or by cancellation of any debt owed by Purchaser to the Company) for the number of shares of stock being purchased pursuant to the exercise of the Purchase Option. 3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as its attorney-in- fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with the Department of Corporations of the State of California of an Application for Consent to Transfer Securities Subject to Legend or Escrow Condition Pursuant to Section 25151 of the California Corporate -10- Securities Law of 1968, if required. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a stockholder of the Company while the stock is held by you. 4. Upon written request of Purchaser after each successive one-year period from the date of the Agreement, unless the Purchase Option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Purchase Option. Ninety days after cessation of Purchaser's service to the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares sold and issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Purchase Option. 5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of same to Purchaser and shall be discharged of all further obligations hereunder. 6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and in the exercise of your own good judgment, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. -11- 9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 10. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. 11. Your responsibilities and rights as Escrow Agent hereunder shall pass to any successor of the Company. 12. If you reasonably require other or further instruments in connection with this Escrow Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 13. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction, but you shall be under no duty whatsoever to institute or defend any such proceedings. 14. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to Purchaser at its address shown on the Company's employment records and to you and the Company at the address of its principal corporate offices (attention Secretary and attention: President, respectively) or at such other address as such party may designate by ten (10) days' advance written notice to the other parties hereto. 15. By signing this Escrow Agreement, you become a party hereto only for the purpose of said Escrow Agreement; you do not become a party to the Agreement. -12- 16. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. Very truly yours, COMPANY CITY AUCTION, INC. a California corporation By: /s/ Andrew Rebele Title: President PURCHASER By: /s/ Andrew Rebele Name: Andrew Rebele ESCROW AGENT GENERAL COUNSEL ASSOCIATES LLP By: /s/ John B. Montgomery Title: Partner -13- ELECTION UNDER SECTION 83(b) OF ------------------------------- THE INTERNAL REVENUE CODE OF 1986 --------------------------------- The undersigned Taxpayer hereby elects, pursuant to the provisions of the federal income tax law noted above, to include in gross income for the Taxpayer's current taxable year, as compensation for services, the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property. 1. Taxpayer's Name: Andrew Rebele ------------- Taxpayer's Address: 18 Orben Pl San Francisco CA 94115 _________________________________________ _________________________________________ _________________________________________ Federal Tax I.D.#: ###-##-#### __________________________________________ 2. The property with respect to which the election is made is described as follows: 1,360,025 shares of Common Stock of CITY AUCTION, INC., California --------- corporation (the "Company"), which is Taxpayer's employer or the corporation for whom the Taxpayer has performed services. 3. The date on which the shares were transferred was September ____, 1998, and this election is made for calendar year 1998. 4. The shares are subject to the following restrictions: The Company may repurchase all or a portion of the shares at the Taxpayer's original purchase price under certain conditions at the time of Taxpayer's termination of employment or services. 5. The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $.001 per share at the time of transfer. 6. The amount paid for such shares was $.001 per share. 7. The Taxpayer has submitted a copy of this statement to the Company as the Taxpayer's employer or the corporation for whom the Taxpayer has performed services. THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS") (AT THE OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS) WITHIN 30 DAYS AFTER -------------- THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S INCOME TAX RETURNS FOR THE CALENDAR YEAR ABOVE STATED. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS. Dated: September ____, 1998 TAXPAYER: By: /s/ Andrew Rebele Name: Andrew Rebele AMENDMENT NO. 1 TO RESTRICTED STOCK PURCHASE AGREEMENT This Amendment No. 1 to Restricted Stock Purchase Agreement dated September _____, 1998 by and between CityAuction, Inc., a California corporation (the "Company"), and Andrew Rebele (the "Purchaser") (the "Agreement") is made as of March 29, 1999. -- In consideration of the mutual covenants and representations herein set forth, the Company and Purchaser agree as follows: 1. Amendment to Section 3. Section 3 of the Agreement is amended and ---------------------- restated in its entirety to read as follows: "3. Purchase Option. --------------- 3.1 Grant of Purchase Option. Beginning on the Closing Date, the Stock ------------------------ shall be subject to the right and option of the Company or any affiliate (as the term "affiliate" is defined in Rule 501 of Regulation D of the Securities Act of 1933, as amended) to repurchase the Stock (the "Purchase Option") as set forth in this Section 3. In the event Purchaser's employment or consulting relationship with the Company (including a parent or subsidiary of the Company) shall cease for any reason, or no reason, with or without cause, including death, disability or involuntary termination ("Termination"), the Company shall have the right, as provided in Section 3.2 hereof, to purchase from Purchaser or its personal representative, as the case may be, at the purchase price of $.001 per share (the "Option Price"), all of the Stock that has not been released from the Purchase Option in accordance with the following schedule: (i) On the date of this Agreement, 745,975 shares will be released from the Purchase Option. (ii) On the first day of each month commencing with October 1, 1998, an additional one forty-eighth (1/48th) of the shares of Stock (43,875) will be released from the Purchase Option. Notwithstanding the foregoing, in the event of an Acquisition Event (as defined below), 1/8th of the shares of the Stock (263,250 shares) shall be released from the Purchase Option, along with any additional compensation or acceleration granted to other Company stockholders and optionholders in their capacity as such as a result of the Acquisition Event. For purposes of this Section 3.1, an Acquisition Event shall mean the sale of all or substantially all of the assets of the Company (or any successor), a merger or consolidation of the Company (or any successor) with or into any other corporation or corporations, or the merger of any other corporation or corporations into the Company (or any successor), or any other corporate reorganization, in which sale of assets, consolidation, reorganization or merger the stockholders of the Company (or any successor) receive distributions in cash or securities of another corporation or corporations as a result of such sale of assets, consolidation, reorganization or merger, unless the shareholders of the Company (or any successor) hold as a result of their stock holdings in the Company (or any successor) more than fifty percent (50%) of the voting equity securities of the successor or surviving corporation immediately following such merger, sale of assets, reorganization or consolidation. Neither the transaction contemplated by that Agreement and Plan of Reorganization dated January 8, 1999, by and among Purchaser, the Company, Ticketmaster Online - CitySearch, Inc., Nero Acquisition Corporation and Monica Lee (the "Merger") nor the transaction contemplated by that agreement dated February 9, 1999 by and among USA Networks, Inc., Lycos, Inc. and Ticketmaster Online - City Search, Inc. relating to the combination of Ticketmaster Online - CitySearch, Inc. Company, Lycos and certain businesses of USAI shall be an Acquisition Event; provided, however, that notwithstanding the foregoing, upon the effective time of the Merger, 50% of the shares of Stock shall be released from the Purchase Option and the remaining 50% of the shares of Stock shall be released from the Purchase Option at the rate of one twenty-fourth (1/24th) of the shares of Stock (43,875) on each monthly anniversary of February 15, 1999 subject to his continuing his employment or consulting relationship with the Company as set forth above." 2. Amendment to Section 4. Section 4 of the Agreement is amended and ---------------------- restated in its entirety to read as follows: "4. [This Section is intentionally left blank.]" 3. Amendment to Section 8. Section 8 of the Agreement is amended and ---------------------- restated in its entirety to read as follows: "1. Lock-up Agreement. In the event Ticketmaster Online - CitySearch, Inc. ----------------- sells any of its securities in an underwritten public offering pursuant to a registration filed pursuant to the Act, Purchaser agrees (but only if each executive officer and director of Ticketmaster Online - CitySearch, Inc. also agrees), upon request from Ticketmaster Online - CitySearch, Inc. or the managing underwriter of such public offering, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of, any of the Stock, without the prior written consent of Ticketmaster Online - CitySearch, Inc. or such underwriter, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as Ticketmaster Online - CitySearch, Inc. or the underwriter may specify. Purchaser further agrees that Ticketmaster Online - CitySearch, Inc. may place stop-transfer notations with the transfer agent of the Stock to enforce this provision." IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to the Agreement as of the day and year first above written. CITY AUCTION, INC. a California corporation By: /s/ Andrew Rebele Title: President PURCHASER Andrew Rebele By: /s/ Andrew Rebele EX-10.4 6 RESTRICTED STOCK PURCHASE AGREEMENT EXHIBIT 10.4 RESTRICTED STOCK PURCHASE AGREEMENT ----------------------------------- THIS AGREEMENT is made as of the ____ day of September 1998, by and between CityAuction, Inc., a California corporation (the "Company"), and Stephen Walther (the "Purchaser"). In consideration of the mutual covenants and representations herein set forth, the Company and Purchaser agree as follows: 1. Purchase and Sale of Stock. Subject to the terms and conditions -------------------------- of this Agreement, the Company hereby agrees to sell to Purchaser and Purchaser agrees to purchase from the Company at the Closing an aggregate of 60,000 shares of the Company's Common Stock (the "Stock") at a price of $.001 per share, for an aggregate purchase price of $60. 2. Closing. The purchase and sale of the Stock shall occur at a ------- Closing to be held on the date hereof (the "Closing Date"). The Closing will take place at the principal office of the Company or at such other place as shall be designated by the Company. At the Closing, the Company will issue the Stock registered in the name of Purchaser. 3. Purchase Option. --------------- 3.1 Grant of Purchase Option. Beginning on the Closing Date, the ------------------------ Stock shall be subject to the right and option of the Company to repurchase the Stock (the "Purchase Option") as set forth in this Section 3. In the event Purchaser's employment or consulting relationship with the Company (including a parent or subsidiary of the Company) shall cease for any reason, or no reason, with or without cause, including death, disability or involuntary termination ("Termination"), the Company shall have the right, as provided in Section 3.2 hereof, to purchase from Purchaser or its personal representative, as the case may be, at the purchase price of $.01 per share (the "Option Price"), all of the Stock that has not been released from the Purchase Option in accordance with the following schedule: (i) 1/4 (25%) of the shares of the Stock (15,000 shares) shall be released from the Purchase Option on April 1, 1999; (ii) On the first day of each month commencing with May 1, 1999, an additional one forty-eighth (1/48th) of the shares of Stock (1,250 shares) will be released from the Purchase Option. -1- 3.2 Exercise of Purchase Option. Within ninety (90) days following --------------------------- Termination, the Company shall notify Purchaser by written notice delivered or mailed as provided in Section 9.3 as to whether it wishes to purchase the Stock pursuant to exercise of the Purchase Option. If the Company (or its assignees) elects to purchase the Stock hereunder, it shall specify a date (which shall not be later than thirty (30) days from the date of the above described notice) and a place for the closing of the transaction. At such closing, the Company (or its assignees) shall tender payment for the Stock and the certificates representing the Stock so purchased shall be cancelled. Purchaser hereby authorizes and directs the Secretary or Transfer Agent of the Company to transfer the Stock as to which the Purchase Option has been exercised from Purchaser to the Company (or its assignees). The Option Price may be payable, at the option of the Company, in cancellation of all or a portion of any outstanding indebtedness of Purchaser to the Company, or by check, or both. 3.3 No Limit on Rights. Nothing in this Agreement shall affect in any ------------------ manner whatsoever the right or power of the Company, or a parent or subsidiary of the Company, to terminate Purchaser's employment or consulting relationship, for any reason, with or without cause, subject to Section 3.4 below. 3.4 Escrow of Stock. Purchaser agrees at the Closing hereunder, to --------------- deliver to and deposit with the Escrow Agent named in the Escrow Agreement of even date and delivered herewith, the certificate or certificates evidencing the Stock and the duly executed Assignments. Such documents are to be held by the Escrow Agent until delivered pursuant to the terms of such Escrow Agreement. Shares of the Stock which are subject to the Purchase Option shall not be transferable by the Purchaser. 4. Restriction on Transfer; Rights of First Refusal. ------------------------------------------------ 4.1 Rights of First Refusal. Before any shares of Stock registered in ----------------------- the name of Purchaser may be sold or transferred (including transfer by operation of law other than as excepted pursuant to Section 4.2 hereof), Purchaser must first obtain the written consent of the Company. If such written consent is not given, then the Company or, if the Company desires, the other shareholders of the Company, shall have a right of first refusal to purchase such shares for the same price and on the same terms and conditions offered to such prospective purchaser, in accordance with the procedures set forth below (the "Rights of First Refusal"). If the proposed price per share is to be other than in cash, then an equivalent cash value shall be determined in good faith by the Board of Directors of the Company. If a transfer other than a voluntary sale is proposed to be made, then the price per share for purposes of the Rights of First Refusal shall be determined by the mutual agreement of Purchaser and the Company or, if no agreement can be reached, the price shall be the fair market value of such shares, as determined in good faith by the Company's Board of Directors. Prior to any sale or transfer of any shares of the Stock, Purchaser, or the legal representative of Purchaser, shall promptly deliver to the Secretary of the Company a written notice of the price and other terms and conditions of the offer by the prospective purchaser, the identity of the prospective purchaser, and, in the case of a sale, Purchaser's bona fide intention to sell or dispose of such shares together with a copy of a written agreement between Purchaser and the prospective purchaser conditioned only upon the satisfaction of the procedures set forth in these Rights of First Refusal. If the Company does not give its written consent to such transfer, then the Company (or its assignees) shall, for thirty (30) days after such notice from Purchaser, have the right under this Section 4 to purchase some or all such shares, as set forth herein. After the expiration of the Rights of First Refusal, or upon the written consent of the Company to the proposed transfer, Purchaser may sell or transfer the shares specified in the notice to the Company, on the terms and conditions specified in such notice; provided, however, that the sale must be consummated within three (3) months after the date of the notice and that all shares sold or transferred shall remain subject to the provisions and restrictions of this Agreement and shall carry a legend to that effect. If the Rights of First Refusal under this Section 4 are not exercised but Purchaser fails to consummate such sale on the same terms and conditions as set forth in the notice to the Company within three (3) months after the date of the notice, then such Rights of First Refusal shall be reinstated. 4.2 Termination; Exceptions. The provisions of this Section 4 shall ----------------------- terminate on the closing date of an underwritten public offering of Common Stock of the Company. The provisions of Section 4.1 shall not apply to a transfer of any shares of Stock by Purchaser to the assignees or successors of Purchaser; provided, in each such case a transferee shall receive and hold such shares subject to the provisions and restrictions on transfer of this Agreement and there shall be no further transfer of such shares except in accordance herewith. 4.3 Effect of Transfers Not in Compliance. The Company shall not be ------------------------------------- required to transfer on its books any shares of Stock of the Company which shall have been sold or transferred in violation of any of the provisions set forth in this Agreement or the Security Agreement, or to treat as owner of such shares, or to accord the right to vote as such owner or to pay dividends to, any transferee to whom such shares shall have been so transferred. -3- 5. Stock Splits, etc. If, from time to time during the term of the ----------------- Purchase Option or Rights of First Refusal as provided in Sections 3 and 4 hereof, there is any stock dividend, stock split or other change in the character or amount of any of the outstanding securities of the Company or if there is any consolidation, merger or sale of all, or substantially all, of the assets of the Company, then in such event any and all new, substituted or additional securities to which Purchaser is entitled by reason of its ownership of Stock shall be immediately subject to the Purchase Option and Rights of First Refusal and be included in the term "Stock" for all purposes of this Agreement with the same force and effect as the shares of Stock presently subject to this Agreement. 6. Legends. All certificates representing any shares of Stock of the ------- Company subject to the provisions of this Agreement shall have endorsed thereon substantially the following legends: (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS UPON AND OBLIGATIONS WITH RESPECT TO TRANSFER AND RIGHTS OF REPURCHASE AND RIGHTS OF FIRST REFUSAL AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL REGISTERED HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY." (b) "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED." (c) Any legend required under applicable state securities laws. 7. Investment Intent; Covenant. In purchasing the Stock, Purchaser --------------------------- represents to the Company as follows: (a) Purchaser has had an opportunity to discuss the business prospects and business plan of the Company with the officers and directors of the Company. Purchaser has a preexisting personal or business relationship with the Company or one of its officers, directors or controlling persons and/or by reason of its business or financial experience it has the capacity to protect its own interests in connection with the transactions contemplated by this Agreement. Purchaser further acknowledges that the Stock is highly speculative and involves a high degree of risk, -4- and represents and warrants that it is able, without impairing its financial condition, to hold the Stock for an indefinite period of time and suffer a complete loss of its investment therein. (b) Purchaser is acquiring the Stock for investment and not with a view to or for sale in connection with any distribution of said Stock or with any present intention of distributing or selling said Stock and it does not presently have reason to anticipate any change in circumstances or any particular occasion or event which would cause it to sell said Stock. Purchaser understands that the Stock has not been registered under the Securities Act of 1933, as amended, (the "Act") and may not be sold or otherwise disposed of except pursuant to an effective Registration Statement filed under the Act or pursuant to an exemption from the registration requirements of such Act. Purchaser acknowledges that the Company is under no obligation to register the Stock under the Act on its behalf. Purchaser represents and warrants that it understands that the Stock constitutes restricted securities within the meaning of Rule 144 promulgated under the Act; that the exemption from registration under Rule 144 will not be available in any event for at least one year from the date of purchase and payment for the Stock, and even then will not be available unless the terms and conditions of Rule 144 are complied with and will be subject to the limitations on amount set forth therein. (c) Without limiting the representations and warranties set forth above, Purchaser agrees it will not make any transfer of all or any part of the Stock unless (i) there is a Registration Statement under the Act in effect with respect to such transfer and such transfer is made in accordance therewith, or (ii) Purchaser has furnished the Company an opinion of counsel satisfactory to the Company and its counsel to the effect that such transfer will not require registration under the Act. Purchaser agrees that, prior to the closing of the Company's initial public offering registered under the Act, it will not transfer any of such securities in a public offering without the Company's prior consent, even if it is otherwise permitted to transfer them pursuant to Rule 144(k) under the Act. 8. Lock-up Agreement. In the event the Company sells any of its ----------------- securities in an underwritten initial public offering pursuant to a registration filed pursuant to the Act, Purchaser agrees (but only if each officer and director of the Company also agrees), upon request from the Company or the managing underwriter of such initial or other public offering, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of, any of the Stock, without the prior written consent of the Company or such underwriter, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as the Company or the underwriter may specify. Purchaser further agrees that the Company may place stop-transfer notations with the transfer agent of the Stock to enforce this provision. -5- 9. Miscellaneous. ------------- 9.1 Further Assurances. The parties agree to execute such further ------------------ instruments and to take such further action as may reasonably be necessary to carry out the intent of this Agreement. 9.2 Entire Agreement. This Agreement, including any exhibits, is the ---------------- entire agreement of the parties with respect to the subject matter hereof and supersedes all prior oral and written understandings of the parties. 9.3 Notices. Any notice required or permitted hereunder shall be ------- given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to Purchaser at its address shown on the Company's employment records and to the Company at the address of its principal corporate offices (attention: President) or at such other address as such party may designate by ten (10) days' advance written notice to the other party hereto. 9.4 Assignment of Rights; Binding Upon Successors. The Company may --------------------------------------------- assign its rights and delegate its duties under Sections 3 and/or 4 hereof. This Agreement shall inure to the benefit of the successors and assigns of the Company and, subject to the restrictions on transfer herein set forth, be binding upon Purchaser, its heirs, executors, administrators, successors and assigns. 9.5 Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of California as applied to contracts between California residents to be wholly performed within the State of California. -6- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CITY AUCTION, INC. a California corporation By: /s/ Andrew Rebele Title: President PURCHASER Stephen Walther By: /s/ Stephen Walther --------------------------------- Title:______________________________ Address: -7- ASSIGNMENT SEPARATE FROM CERTIFICATE ------------------------------------ FOR VALUE RECEIVED, I, ____________________________________, hereby sell, assign and transfer unto, _________________________________ (__________) shares of the Common Stock of CITY AUCTION, INC. standing in my name on the books of said corporation represented by Certificate No. ______ herewith and do hereby irrevocably constitute and appoint ______________________________ to transfer said stock on the books of the within-named corporation with full power of substitution in the premises. Dated: ____________________ Signature: By: /s/ Stephen Walther -------------------------------- This Assignment Separate from Certificate was executed in conjunction with the terms of a Restricted Stock Purchase Agreement between the above assignor and CITYAUCTION, INC. dated September ____, 1998. INSTRUCTION: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE LINE. - ----------- ESCROW AGREEMENT ---------------- September ____, 1998 General Counsel Associates LLP 1891 Landings Drive Mountain View, CA 94043 Dear Sir or Madam: As Escrow Agent for both CITY AUCTION, INC., a California corporation ("Company"), and the undersigned purchaser of stock of the Company ("Purchaser"), you are hereby authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Purchase Agreement ("Agreement"), dated of even date herewith, in accordance with the following instructions: 1. In the event the Company and/or any assignee of the Company (referred to collectively for convenience herein as the "Company") exercises the Purchase Option set forth in the Agreement, the Company shall give to Purchaser and you a written notice specifying the number of shares of stock to be purchased, the purchase price, and the time for a closing hereunder at the principal office of the Company. Purchaser and the Company hereby irrevocably authorize and direct you to close the transaction contemplated by such notice in accordance with the terms of said notice. 2. At the closing, you are directed (i) to date the stock assignments necessary for the transfer in question, (ii) to fill in the number of shares being transferred, and (iii) to deliver same, together with the certificate evidencing the shares of stock to be transferred, to the Company against the simultaneous delivery to you of the purchase price (by check or by cancellation of any debt owed by Purchaser to the Company) for the number of shares of stock being purchased pursuant to the exercise of the Purchase Option. 3. Purchaser irrevocably authorizes the Company to deposit with you any certificates evidencing shares of stock to be held by you hereunder and any additions and substitutions to said shares as defined in the Agreement. Purchaser does hereby irrevocably constitute and appoint you as its attorney-in- fact and agent for the term of this escrow to execute with respect to such securities all documents necessary or appropriate to make such securities negotiable and to complete any transaction herein contemplated, including but not limited to the filing with the Department of Corporations of the State of California of an Application for Consent to Transfer Securities Subject to Legend or Escrow Condition Pursuant to Section 25151 of the California Corporate -9- Securities Law of 1968, if required. Subject to the provisions of this paragraph 3, Purchaser shall exercise all rights and privileges of a stockholder of the Company while the stock is held by you. 4. Upon written request of Purchaser after each successive one-year period from the date of the Agreement, unless the Purchase Option has been exercised, you will deliver to Purchaser a certificate or certificates representing so many shares of stock as are not then subject to the Purchase Option. Ninety days after cessation of Purchaser's service to the Company, you will deliver to Purchaser a certificate or certificates representing the aggregate number of shares sold and issued pursuant to the Agreement and not purchased by the Company or its assignees pursuant to exercise of the Purchase Option. 5. If at the time of termination of this escrow you should have in your possession any documents, securities, or other property belonging to Purchaser, you shall deliver all of same to Purchaser and shall be discharged of all further obligations hereunder. 6. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed by all of the parties hereto. 7. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith and in the exercise of your own good judgment, and any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive evidence of such good faith. 8. You are hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and are hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case you obey or comply with any such order, judgment or decree, you shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. -10- 9. You shall not be liable in any respect on account of the identity, authorities or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder. 10. You shall be entitled to employ such legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation therefor. 11. Your responsibilities and rights as Escrow Agent hereunder shall pass to any successor of the Company. 12. If you reasonably require other or further instruments in connection with this Escrow Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 13. It is understood and agreed that should any dispute arise with respect to the delivery and/or ownership or right of possession of the securities held by you hereunder, you are authorized to retain in your possession without liability to anyone all or any part of said securities until such disputes shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree or judgment of a court of competent jurisdiction, but you shall be under no duty whatsoever to institute or defend any such proceedings. 14. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States Post Office, by registered or certified mail with postage and fees prepaid, addressed to Purchaser at its address shown on the Company's employment records and to you and the Company at the address of its principal corporate offices (attention Secretary and attention: President, respectively) or at such other address as such party may designate by ten (10) days' advance written notice to the other parties hereto. 15. By signing this Escrow Agreement, you become a party hereto only for the purpose of said Escrow Agreement; you do not become a party to the Agreement. -11- 16. This instrument shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and permitted assigns. Very truly yours, COMPANY CITY AUCTION, INC. a California corporation By: /s/ Andrew Rebele ----------------------------- Title: President PURCHASER By: /s/ Stephen Walther ----------------------------- Name: Stephen Walther ESCROW AGENT GENERAL COUNSEL ASSOCIATES LLP By: /s/ John Montgomery ----------------------------- Title: Partner -12- ELECTION UNDER SECTION 83(b) OF THE INTERNAL REVENUE CODE OF 1986 ----------------------------------------------------------------- The undersigned Taxpayer hereby elects, pursuant to the provisions of the federal income tax law noted above, to include in gross income for the Taxpayer's current taxable year, as compensation for services, the excess, if any, of the fair market value of the property described below at the time of transfer over the amount paid for such property. 1. Taxpayer's Name: Stephen Walther --------------- Taxpayer's Address:______________________________________________________ ____________________________________________________________ ____________________________________________________________ Federal Tax I.D.#: _______________________________________________________ 2. The property with respect to which the election is made is described as follows: 60,000 shares of Common Stock of CITY AUCTION, INC., California ------ corporation (the "Company"), which is Taxpayer's employer or the corporation for whom the Taxpayer has performed services. 3. The date on which the shares were transferred was September ____, 1998, and this election is made for calendar year 1998. 4. The shares are subject to the following restrictions: The Company may repurchase all or a portion of the shares at the Taxpayer's original purchase price under certain conditions at the time of Taxpayer's termination of employment or services. 5. The fair market value of the shares (without regard to restrictions other than restrictions which by their terms will never lapse) was $.001 per share at the time of transfer. 6. The amount paid for such shares was $.001 per share. 7. The Taxpayer has submitted a copy of this statement to the Company as the Taxpayer's employer or the corporation for whom the Taxpayer has performed services. THIS ELECTION MUST BE FILED WITH THE INTERNAL REVENUE SERVICE ("IRS") (AT THE OFFICE WHERE THE TAXPAYER FILES ANNUAL INCOME TAX RETURNS) WITHIN 30 DAYS AFTER -------------- THE DATE OF TRANSFER OF THE PROPERTY, AND MUST ALSO BE FILED WITH THE TAXPAYER'S INCOME TAX RETURNS FOR THE CALENDAR YEAR ABOVE STATED. THE ELECTION CANNOT BE REVOKED WITHOUT THE CONSENT OF THE IRS. Dated: September ____, 1998 TAXPAYER: By:____________________________________ Name: Stephen Walther Amendment No. 1 to Restricted Stock Purchase Agreement This Amendment No. 1 to Restricted Stock Purchase Agreement dated September ___, 1998 by and between CityAuction, Inc., a California corporation (the "Company"), and Stephen Walther (the "Purchaser") (the "Agreement") is made as of March 29, 1999. In consideration of the mutual covenants and representations herein set forth, the Company and Purchaser agree as follows: 2. Amendment to Section 4. Section 4 of the Agreement is amended and ---------------------- restated in its entirety to read as follows: "4. [This Section is intentionally left blank.]" 3. Amendment to Section 8. Section 8 of the Agreement is amended and ---------------------- restated in its entirety to read as follows: "1. Lock-up Agreement. In the event Ticketmaster Online - CitySearch, Inc. ----------------- sells any of its securities in an underwritten public offering pursuant to a registration filed pursuant to the Act, Purchaser agrees (but only if each officer and director of Ticketmaster Online -- CitySearch, Inc. also agrees), upon request from Ticketmaster Online -- CitySearch, Inc. or the managing underwriter of such public offering, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of, any of the Stock, without the prior written consent of Ticketmaster Online -- CitySearch, Inc. or such underwriter, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the first date any of the Common Stock sold in Ticketmaster Online-CitySearch's initial public offering was released by the Ticketmaster Online-CitySearch for sale to the public. Purchaser further agrees that Ticketmaster Online -- CitySearch, Inc. may place stop-transfer notations with the transfer agent of the Stock to enforce this provision." IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 to the Agreement as of the day and year first above written. CITY AUCTION, INC. a California corporation By: /s/ Andrew Rebele --------------------------- Title: President ----------------------- PURCHASER Stephen Walther By: /s/ Stephen Walther Title: CTO EX-23.2 7 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.2 Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8/S-3 dated May 5, 1999) and related Prospectus of Ticketmaster Online- CitySearch, Inc. for the registration of 678,203 shares of its common stock of our report dated January 29, 1999, with respect to the consolidated financial statements and schedule of Ticketmaster Online-CitySearch, Inc. included in its Annual Report (Form 10-K) for the year ended December 31, 1998, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Los Angeles, California May 3, 1999 -----END PRIVACY-ENHANCED MESSAGE-----