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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 2000.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TICKETMASTER ONLINE-CITYSEARCH, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 95-4546874
(State or Other Jurisdiction of IRS Employer Identification Number)
Incorporation or Organization)
790 E. COLORADO BOULEVARD, SUITE 200
PASADENA, CALIFORNIA 91101
(626) 405-0050
(Address including zip code, telephone number, including area code, of
Registrant's principal executive offices)
CHARLES CONN
CHIEF EXECUTIVE OFFICER
790 E. COLORADO BOULEVARD, SUITE 200
PASADENA, CALIFORNIA 91101
(626) 405-0050
(Name, address, including zip code, and Telephone number, including area code,
of agent for service)
Copies to:
Kenneth M. Doran, Esq. S. Brian Farmer, Esq.
Gibson, Dunn & Crutcher LLP Hirschler, Fleischer, Weinberg, Cox & Allen
333 South Grand Avenue 701 East Byrd Street
Los Angeles, California 90071 P.O. Box 500
(213) 229-7000 Richmond, VA 23218
(804) 771-9504
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
- ------------------
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
---------------------
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================================== ================== ================= ================== =================
Proposed Maximum Proposed
Title of Shares Amount To Be Aggregate Price Maximum Amount of
To Be Registered Registered Per Share(1) Aggregate Registration Fee
Offering Price
- ------------------------------------------ ------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Class B Common Stock,
par value $.01 per share 458,005 $33.4375 $15,314,542 $4,044
========================================== ================== ================= ================== =================
</TABLE>
(1)The price of $33.4375 was the average of the high and low prices of the
Class B Common Stock on the Nasdaq National Market System on February 17,
2000, and is set forth solely for the purpose of computing the registration
fee pursuant to Rule 457(c).
-----------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED FEBRUARY , 2000
400,809 SHARES
TICKETMASTER ONLINE--CITYSEARCH, INC.
CLASS B COMMON STOCK
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This prospectus relates to the public offering of 400,809 shares of Class B
Common Stock, par value $.01 per share, of Ticketmaster Online-CitySearch, Inc.
which are held by certain of our current stockholders. Pursuant to an agreement
among us and the selling stockholders, the number of shares held by the selling
stockholders and offered hereby may be adjusted prior to the time of
effectiveness of the registration statement of which this prospectus forms a
part. For more detailed information, see "Summary -- Recent Developments." This
offering will not be underwritten.
The prices at which these stockholders may sell the shares will be determined by
the prevailing market price for the shares or in negotiated transactions. We
will not receive any of the proceeds from the sale of the shares.
Our Class B Common Stock is listed on the Nasdaq National Market under the
symbol "TMCS." On February 18, 2000, the last reported sale price of our Class B
Common Stock was $32 per share.
Investing in the Class B Common Stock involves risks. See "Risk Factors"
beginning on page 5.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful and complete. Any representation to the contrary is
a criminal offense.
----------------
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 our Class B Common Stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of the Class B Common Stock.
In this prospectus, references to "Ticketmaster Online-CitySearch," "we," "us"
and "our" refer to Ticketmaster Online-CitySearch, Inc. and its subsidiaries.
The date of this prospectus is February __, 2000
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TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
PROSPECTUS SUMMARY.....................................................................1
THE COMPANY............................................................................1
RECENT DEVELOPMENTS....................................................................2
THE OFFERING...........................................................................4
RISK FACTORS...........................................................................5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.....................................24
USE OF PROCEEDS.......................................................................24
SELLING STOCKHOLDER...................................................................24
PLAN OF DISTRIBUTION..................................................................25
LEGAL MATTERS.........................................................................26
EXPERTS...............................................................................27
WHERE YOU CAN FIND MORE INFORMATION...................................................27
INCORPORATION OF DOCUMENTS BY REFERENCE...............................................27
</TABLE>
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PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES TO THE FINANCIAL STATEMENTS AND OTHER INFORMATION
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
THE COMPANY
We have combined CitySearch and Ticketmaster Online to create a leading
provider of local city guides, local advertising and live event ticketing on the
Internet. CitySearch was incorporated in September 1995 and launched its first
local city guide in May 1996. Ticketmaster Online was formed in 1993 to
administer the online business of Ticketmaster Corporation and began selling
live event tickets and related merchandise online in November 1996. Prior to the
merger, Ticketmaster Online was operated as a wholly-owned subsidiary of
Ticketmaster Corporation, a leading provider of live event automated ticketing
services in the United States. We are integrating our local CitySearch city
guides with our Ticketmaster Online live events ticketing and merchandising
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 and related
merchandise on the Web for live events in 44 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 and through numerous direct links from banners and event
profiles. Subject to specific limitations, Ticketmaster Online is the exclusive
agent for Ticketmaster Corporation for the online sale of tickets to live events
presented by Ticketmaster Corporation's clients.
We intend to accelerate the expansion of different versions of the
CitySearch city guides into new local territories. We include selected
CitySearch editorial content on the Ticketmaster Online Web site, thereby
providing additional information to assist purchasing decisions. We believe that
by expanding our branded network of local city guides and increasing the sales
of tickets sold online, our Web sites will increasingly attract local, regional
and national advertisers and local consumers seeking to transact on our Web
sites. We have recently expanded our Internet offerings by purchasing
CityAuction, Inc., an online person-to-person auction company, two leading
online personals companies, Match.com, Inc. and Web Media Ventures LLC (d/b/a
One & Only Network), and the arts and entertainment portion of Sidewalk.com.
We have two classes of authorized Common Stock outstanding, Class A
Common Stock and Class B Common Stock. The rights of the holders of Class A
Common Stock and Class B Common Stock are substantially identical, except with
respect to voting, conversion and transfer. Except as otherwise required by
applicable law, each share of Class A Common Stock entitles its holder to 15
votes and each share of Class B Common Stock entitles its holder to one vote on
all matters submitted to a vote or for the consent of stockholders. Except as
otherwise required by applicable law, the Class A Common Stock and the Class B
Common Stock vote together as a single class on all matters submitted to a vote
or for the consent of stockholders. We have also authorized Class C Common Stock
which is nonvoting and of which no shares are issued and outstanding.
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We are currently a direct, majority-owned subsidiary of Ticketmaster
Corporation, an Illinois corporation, which is an indirect, wholly-owned
subsidiary of USA Networks, Inc., a Delaware corporation, which is referred to
in this prospectus as USAi. USAi beneficially owns 43,782,544 shares, or
approximately 51.5%, of our total outstanding Common Stock, representing
approximately 77.6% of the total voting power of the outstanding Common Stock.
Our principal executive offices are located at 790 E. Colorado
Boulevard, Suite 200, Pasadena, California 91101, and our telephone number at
that address is (626) 405-0050.
RECENT DEVELOPMENTS
ACQUISITION OF 2B TECHNOLOGY, INC.
On January 31, 2000, we acquired all of the outstanding shares of
capital stock of 2b Technology, Inc., a Virginia corporation. 2b Technology is a
fully-integrated visitor management and ticketing firm targeted at venues such
as higher volume museums, cultural institutions and historic sites. The initial
target purchase price for the 2b Technology shares is approximately $23 million
of our Class B Common Stock. At the closing, we issued 400,809 shares of Class B
Common Stock, representing a value of $16.85 million based upon the average of
the closing price of our Class B Common Stock on the Nasdaq National Market for
the five trading days ended January 27, 2000, which was $42.04, to the
shareholders of 2b Technology. The number of shares issued at closing is subject
to adjustment based on the closing price of our Class B Common Stock on the
Nasdaq National Market for the five trading days ended two days prior to the
effective date of the registration statement of which this prospectus forms a
part; provided that the per share price used to calculate the adjustment shall
not be greater than $47.30 nor less than $36.79, which are the maximum and
minimum share prices to be used in that adjustment. We are registering hereby
the maximum number of shares (458,005) which may be issued to the shareholders
of 2b Technology following such adjustment. The remainder of the purchase price
may range from $0 to $11 million, subject to, among other things, actual
revenues of 2b Technology for the 2000 and 2001 fiscal years. The acquisition
will be accounted for using the purchase method of accounting. It is expected
that the acquisition will result in goodwill in an amount approximating the
purchase price that will be amortized by the Company over a period of five
years.
INVESTMENT IN ACTIVEUSA.COM
On December 16, 1999, we completed the purchase of 6,031,128 shares of
preferred stock of ActiveUSA.com, Inc. (formerly known as RaceGate.com, Inc.), a
Delaware corporation, an online participatory sports registration and
information company. In connection with and immediately preceding our
investment, ActiveUSA.com, Inc., a Florida corporation engaged in the same
business as RaceGate.com, merged with and into a wholly owned subsidiary of
RaceGate.com and pursuant to the merger RaceGate.com's name was changed to
ActiveUSA.com. The total consideration we paid to ActiveUSA.com for the
preferred stock is valued at $15.5 million, consisting of shares of our Class B
Common Stock with a fixed value of $10 million, $2.5 million in cash, and $3.0
million in services we are to provide to ActiveUSA.com under a distribution
agreement.
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Upon the closing of our investment, we issued 243,620 shares of our
Class B Common Stock to ActiveUSA.com. These shares have been deposited into
escrow and registered pursuant to a registration statement on Form S-3 which was
declared effective by the SEC on February 11, 2000. Pursuant to our agreement
with ActiveUSA.com, the escrow agent will deliver $10 million of the net
proceeds from the sale of the shares to ActiveUSA.com and the remainder, if any,
of the net proceeds will be delivered to us. If the net proceeds from the sale
of the shares are less than $10 million, we will make up the difference to
ActiveUSA.com in cash. In the event the sale of the shares is expected to
generate net proceeds in excess of $10 million, ActiveUSA will elect to sell
only that number of shares which are expected to yield net proceeds of $10
million. At any time prior to the sale of the shares, we have the option to pay
ActiveUSA.com $10 million in cash and have the shares returned to us.
INVESTMENT BY TICKETMASTER CORPORATION
On December 1, 1999, Ticketmaster Corporation purchased 1,302,401
shares of our Class B Common Stock for an aggregate purchase price of
$40,000,000. The purchase price per share of approximately $30.71 represents the
average closing price of our Class B Common Stock over the five trading days
immediately preceding the investment.
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THE OFFERING
THE FOLLOWING SUMMARIZES THE SELLING STOCKHOLDERS' OFFERING OF OUR CLASS B
COMMON STOCK.
<TABLE>
<S> <C>
Class B Common Stock to be offered
by the selling stockholders......................... 400,809 shares
Common Stock to be outstanding after the offering:
CLASS A COMMON STOCK....................... 52,678,110 shares
CLASS B COMMON STOCK....................... 32,772,760 shares
Total Common Stock......................... 85,450,870 shares
Use of Proceeds..................................... We will not receive any
proceeds from the sale of
the shares. See "Use of
Proceeds."
Nasdaq National Market Symbol....................... TMCS
</TABLE>
The information concerning outstanding Common Stock above is as of
February 1, 2000. Each share of Class A Common Stock automatically converts into
one share of Class B Common Stock upon transfer.
Unless otherwise stated, all information contained in this prospectus
excludes:
(1) 1,819,894 shares of Class A Common Stock issuable upon the
exercise of options outstanding at February 1, 2000 at a
weighted average price of $5.05 per share under our 1996 Stock
Plan;
(2) 2,588,977 shares of Class B Common Stock issuable upon the
exercise of options outstanding at February 1, 2000 at a
weighted average price of $24.63 per share under our 1998
Stock Plan;
(3) 2,712,975 shares of Class B Common Stock issuable upon the
exercise of options outstanding at February 1, 2000 at a
weighted average price of $38.95 per share under our 1999
Stock Plan; and
(4) an aggregate of 2,603,356 shares of Class B Common Stock
available for future grant or issuance as of February 1, 2000
under our 1998 Stock Plan, our 1999 Stock Plan and our 1998
Employee Stock Purchase Plan.
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RISK FACTORS
An investment in our Class B Common Stock offering is very risky. You
should carefully consider the following risk factors in addition to the
remainder of this prospectus before purchasing the Class B Common Stock. This
prospectus contains forward-looking statements that involve risks and
uncertainties. Many factors, including those described below, may cause actual
results to differ materially from anticipated results.
WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES AND WE CANNOT ASSURE YOU
THAT WE WILL ACHIEVE OR MAINTAIN PROFITABILITY.
We incurred net losses of $17.2 million and $121.4 million for the
eleven months ended December 31, 1998 and the twelve months ended December 31,
1999, respectively. We expect to expend significant financial and management
resources on the roll-out of our service in new CitySearch owned and operated
and partner- led markets, site and content development on our CitySearch.com,
CityAuction.com, Match.com and Ticketmaster.com sites, integration of the
CitySearch, CityAuction, Match.com, One & Only Network 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.
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;
- the ability of Ticketmaster Corporation 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 Corporation 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;
- our ability to provide superior customer service;
- our ability to continue to develop and upgrade our technologies
and commercialize our services incorporating these technologies;
and
- and our ability to generate sufficient online traffic and sales
volume to achieve profitability.
As a result of the merger of Ticketmaster Online and CitySearch in
September 1998, we 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 of Ticketmaster
Online and CitySearch and is to be amortized through 2003. In addition, our
acquisitions of CityAuction, Match.com and One & Only resulted in an aggregate
of $107.1 million in goodwill which will be amortized through 2004. Our
acquisition of 2b Technology is expected to result in goodwill in an amount
approximating the purchase price that will be amortized through 2005.. To the
extent the amount of recorded goodwill is increased or we have future
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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. In addition, our acquisition of the
Sidewalk assets resulted in $333 million of amortizable allocated value to
the assets, which will be amortized over five years.
Furthermore, we completed our initial public offering in December 1998
and have a limited history as a company with public reporting obligations. We
are hiring additional management personnel and are expanding our operating
systems to address these reporting obligations. To the extent these expenditures
precede and are not subsequently followed by increased revenues, our business,
financial condition and results of operations could be materially and adversely
affected.
OUR ONLINE TICKETING SERVICE IS DEPENDENT UPON OUR RELATIONSHIP WITH
TICKETMASTER CORPORATION
In connection with the merger of CitySearch and Ticketmaster Online,
Ticketmaster Online, Ticketmaster Corporation and USAi entered into a license
agreement which designates, subject to certain limitations, Ticketmaster Online
as Ticketmaster Corporation's exclusive agent for online live event ticket sales
and as its non-exclusive agent for the online sale of merchandise.
For the foreseeable future, we anticipate that a majority of our
revenues will be derived from the online sale of tickets. We also expect that we
will continue to derive a substantial portion of our 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 Corporation. We do not have contractual relationships
with the entities for which our Ticketmaster Online service sells tickets as
Ticketmaster Corporation's agent and we are restricted under the license
agreement from having such relationships, whether with current Ticketmaster
Corporation clients or its potential clients. Accordingly, our future revenues
and business success are dependent on Ticketmaster Corporation's ability to
maintain and renew relationships with its existing clients and to establish
relationships with additional clients.
For the year ended December 31, 1999, Ticketmaster Corporation
processed ticket sales for over 3,750 clients. Approximately 20% of Ticketmaster
Corporation's client contracts are subject to renewal each year. We are
dependent upon Ticketmaster Corporation's ability to enter into and maintain
client contracts on terms that are favorable to Ticketmaster Corporation and our
Ticketmaster Online service. There can be no assurance that Ticketmaster
Corporation will be able to enter into or maintain client contracts on such
terms.
All of our online ticket sales are processed through Ticketmaster
Corporation's systems. Under the license agreement, Ticketmaster Corporation 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 license
agreement. The license agreement obligates Ticketmaster Corporation to process a
specified number of tickets sold online each year through December 31, 2001. As
a result, our future online ticketing revenues are dependent upon Ticketmaster
Corporation's ability to process online ticket sales in an accurate and timely
manner. While we believe that, due to our perpetual right to serve as
Ticketmaster Corporation's exclusive agent for online live event ticket sales,
Ticketmaster Corporation has a substantial interest in its relationship with us,
there can be no assurance that Ticketmaster Corporation will provide fulfillment
services to us in excess of the requirements of the license agreement and, in
particular, after December 31, 2001.
Our ability to generate ticket and merchandise sales on our
Ticketmaster Online Web sites is also dependent in part on Ticketmaster
Corporation's ability to maintain and enhance the Ticketmaster brand name. Any
failure on the part of Ticketmaster Corporation to maintain its existing base of
clients, to establish relationships with new clients upon terms favorable to our
Ticketmaster Online service, to obtain or retain for us the right to sell
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tickets and merchandise online for Ticketmaster Corporation's clients, to
process our online ticket sales in a timely and accurate manner or at levels
necessary to support our 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.
WE ARE CONTROLLED BY USAi.
We are currently a direct, majority-owned subsidiary of Ticketmaster
Corporation, which is an indirect wholly-owned subsidiary of USAi. As of
February 1, 2000, USAi owned approximately 51.5% of our total outstanding Common
Stock, representing approximately 77.6% of the total voting power of our total
outstanding Common Stock. As a result of its ownership of Class A Common Stock,
USAi generally 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. 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 directors.
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
Securities and Exchange Commission 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 Corporation, and
could materially and adversely affect our business, financial condition and
results of operations.
CONFLICTS OF INTEREST MAY ARISE BETWEEN OUR COMPANY AND USAi.
Conflicts of interest may arise between us, including our Ticketmaster
Online service, on the one hand, and USAi and its affiliates, including
Ticketmaster Corporation, on the other hand, in areas relating to past, ongoing
and future relationships and other matters. These also include:
- corporate opportunities;
- indemnity arrangements;
- tax and intellectual property matters;
- potential acquisitions or financing transactions;
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- sales or other dispositions by USAi of shares of 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 our license
agreement with Ticketmaster Corporation, including possible amendments to, 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
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 create potential conflicts of
interest when directors and officers are faced with decisions that could have
different implications for us and USAi. Several of the members of our board of
directors are also directors, officers or employees of USAi.
In addition, USAi is engaged in a diverse range of media and
entertainment- related businesses, including businesses engaged in electronic
and online commerce including Home Shopping Network and its USA Interactive
business. 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 Corporation. Our Amended and Restated
Certificate of Incorporation also includes provisions which provide that:
- USAi shall have no duty to refrain from engaging in the same or
similar activities or lines of our business, thereby competing
with us;
- USAi, its officers, directors and employees shall not be liable
to us or our stockholders for breach of any fiduciary duty by
reason of any activities of USAi in competition with us; and
- USAi shall have no duty to communicate or offer corporate
opportunities to us and shall not be liable for breach of any
fiduciary duty as a stockholder of us in connection with these
opportunities, provided that the relevant procedures set forth in
our Amended and Restated Certificate of Incorporation are
followed.
There can be no assurance that any conflicts that may arise between us
and USAi, any loss of a corporate opportunity to USAi that might otherwise be
available to us, or any engagement by USAi 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.
USAi MAY SELL A SIGNIFICANT PORTION OF OUR COMMON STOCK THAT IT OWNS WHICH COULD
ADVERSELY EFFECT THE PRICE OF OUR STOCK.
Subject to applicable federal securities laws, USAi may sell a
significant portion of the shares of Class A Common Stock beneficially owned by
it or distribute any or all of its shares of Class A Common Stock to its
stockholders. At February 1, 2000, USAi's holdings represented approximately
51.5% of the outstanding Common Stock, representing approximately 77.6% of the
voting power of our total outstanding Common Stock. Pursuant to our Amended and
Restated Certificate of Incorporation, each share of Class A Common Stock will
generally be converted automatically into one share of Class B Common Stock upon
any transfer by the initial registered holder. Any sales or distributions by
USAi of substantial amounts of Common Stock in the public market or to its
stockholders, or the perception that these sales or distributions could occur,
could adversely affect the prevailing market prices for our Class B Common
Stock. USAi is not subject to any obligation to retain any portion of its
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controlling interest in us. We have not granted to USAi any registration rights
with respect to the shares of our Common Stock owned by it.
OUR FUTURE OPERATIONS DEPEND ON THE SUCCESSFUL INTEGRATION OF OUR COMPONENT
COMPANIES.
Before the transactions that combined CitySearch and Ticketmaster
Online, these companies operated independently and Ticketmaster Online operated
as a wholly-owned subsidiary of Ticketmaster Corporation and USAi. CityAuction,
Match.com and One & Only Network also operated independently prior to their
acquisition by us. Our future success will depend to a significant extent on the
efficient, effective and timely integration of the operations of these
companies. 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, Match.com's and One & Only Network's
Internet personals technology, 2b Technology's museum and cultural institution
ticketing technology and Ticketmaster Online's live event-specific content and
transactional capabilities are integrated with each other. To the extent we
close additional acquisitions, we will need to integrate those companies as
well.
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, Match.com's
and One & Only Network'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 these entities. If we
do not effectively accomplish the integration of the companies' operations or
lose any key employees from these companies, our business, financial condition
and results of operations could be materially and adversely affected.
WE MAY HAVE FUTURE CAPITAL NEEDS AND MAY NOT BE ABLE TO OBTAIN ADDITIONAL
FINANCING ON ACCEPTABLE TERMS.
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 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.
OUR FUTURE REVENUES ARE DIFFICULT TO PREDICT AND WE EXPECT OUR OPERATING RESULTS
TO FLUCTUATE.
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 further develop our technology infrastructure, to integrate our local content
with the event-specific content and transactional capabilities of our
Ticketmaster Online service and to broaden our management personnel. To the
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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 Corporation's ability to maintain and increase the
number of clients for which it provides online ticketing
services;
- 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 offer our online ticketing services through our
city guides in our partner-led markets on terms acceptable to us;
- 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;
- 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, we derive a majority of our Ticketmaster Online revenues directly or
indirectly from the sale of tickets and related merchandise for live
entertainment, sporting and leisure events and this revenue is directly affected
by the popularity, frequency and location of these events. Factors affecting the
demand for and attendance of these events include general economic conditions,
consumer trends and work stoppages. Any occurrence or condition that results in
decreased attendance or demand for these
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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 are largely unpredictable and our quarterly results of
operations may be below the expectations of public market analysts or investors
in some future period.
WE COMPETE IN NEW AND EMERGING MARKETS AND OUR SERVICES MAY NOT GAIN WIDESPREAD
ACCEPTANCE IN THESE MARKETS.
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. For example, the success of our Ticketmaster Online service will
depend on the willingness of consumers to purchase tickets to live events and
related merchandise online and our 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 Match.com's and One & Only Network's service will depend on the
willingness of single adults to subscribe to online dating services. The success
of CitySearch's city guide service will depend, in part, on the willingness of
local businesses to pay for custom business Web sites developed by us 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.
The success of 2b Technology will depend on the willingness of museums and other
cultural institutions to license 2b Technology's ticketing software and the
willingness of consumers to purchase tickets to such institutions online or via
telephone. If the markets for our services fail to develop or develop more
slowly than anticipated or we are not successful in gaining widespread
acceptance in these markets, our business, financial condition and results of
operations could be materially and adversely affected.
OUR TURNOVER RATE OF BUSINESS CUSTOMERS FOR THE CITYSEARCH SERVICE IS HIGHER
THAN WE INITIALLY HAD ANTICIPATED AND, IF IT DOES NOT IMPROVE, OUR CITYSEARCH
SERVICE WILL SUFFER.
The turnover rate of business customers using our CitySearch service
has been higher than we had anticipated, and we cannot provide assurance that
turnover rates will decrease and will not in the future materially and adversely
affect our business, financial condition and results of operations.
Specifically, the turnover rate has been higher than we 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.
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We cannot provide 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,
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 tasks, our business, financial condition and results of operations
could be materially and adversely affected.
WE DEPEND ON THE 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. The rapid growth in the use of and
interest in the Web, the Internet and commercial online services is a recent
phenomenon. 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 to date. 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.
THE SUCCESS OF OUR CITYSEARCH SERVICE DEPENDS IN PART ON ESTABLISHING AND
MAINTAINING STRATEGIC RELATIONSHIPS WITH LOCAL MEDIA COMPANIES
An important element of our past business strategy with respect to the
CitySearch service was to enter into agreements with local media companies to
establish and support city guides. We have entered 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 these companies in exchange for certain up-front and
continuing license payments and royalty payments. These royalty payments are
based on the amount of revenues generated by these companies through the
partner-led city guides. While we do not currently anticipate that royalty
payments from these agreements will constitute an increasing portion of our
revenues in future periods, because of the long-term nature of our agreements
with existing partner-led markets our success will continue to depend in part
upon the ability of our partners 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. Some of our agreements also grant
exclusivity in certain territories. There can be no assurance that our partners
that are in the process of developing new city guides or any 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.
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Furthermore, we are unable to accurately forecast our revenues to be derived
from these agreements with the partners. The exclusivity provisions in some
of our agreements also place certain limitations on our ability to license
our intellectual property to other partners. 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. 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.
OUR TICKETMASTER ONLINE SERVICE ALSO RELIES ON STRATEGIC RELATIONSHIPS.
Our Ticketmaster Online service is to an extent dependent on its and
Ticketmaster Corporation's relationships with certain strategic partners
relating to the sharing of certain Ticketmaster Online Web site and user links.
We hope to derive significant benefits, including increased revenues and
consumer awareness, from these relationships. 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 the relationships will be
successful in 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.
A SHORTAGE OF TRAINED SALES PERSONNEL WOULD LIMIT OUR ABILITY TO SELL OUR
SERVICES.
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.
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WE DEPEND ON KEY PERSONNEL AND 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, John Pleasants, our President, and Dan Marriott, our
Executive Vice President, Corporate Strategy and Development. The loss of the
services of Messrs. Conn, Pleasants, Marriott or other members of our management
team could have a material adverse effect on our business, financial condition
and results of operations. In addition, the Ticketmaster Online service has been
managed historically by the management of Ticketmaster Corporation. Our success
will depend upon a successful completion of the transition of the Ticketmaster
Online 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.
WE MUST MAINTAIN AND PROMOTE OUR BRANDS TO BE SUCCESSFUL.
We believe that maintaining and promoting the CitySearch brand and, to
a lesser extent, the CityAuction and Match.com brands, are critical to our
efforts to attract consumers and business customers to our sites. We also
believe 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 our brands will depend largely on our
success, and, to a lesser extent, the success of 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 may 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 this confusion may inhibit our
ability to develop our brand and network.
In order to attract and retain consumers and business customers, and to
promote our brands in response to competitive pressures, we have found it
necessary to increase our budget for content and 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
our brands or if we incur excessive expenses in an attempt to improve our
content or promote and maintain our brands, our business, financial condition
and results of operations could be materially and adversely affected.
OUR FIXED PRICE CONTRACTS EXPOSE US TO COST OVERRUNS AND OTHER RISKS.
The services we offer 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.
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THE MARKETS IN WHICH WE SELL OUR SERVICES ARE INTENSELY COMPETITIVE AND OUR
BUSINESS WOULD BE ADVERSELY AFFECTED IF WE FAIL TO GROW OUR MARKET SHARE OR
OTHERWISE FAIL TO SUCCESSFULLY COMPETE IN THESE MARKETS.
The markets for local interactive content and services, the selling of
live event tickets and related merchandise and our other services are highly
competitive and diverse. CitySearch's primary competitors include Digital City,
Inc., a company wholly owned by America Online, Inc., Tribune Company, Cox
Interactive, Knight Ridder's Real Cities and InfoSpace. CitySearch also competes
with numerous search engines and other site aggregation companies, media,
telecommunications and cable companies, Internet service providers and niche
competitors which focus on a specific category or geography and compete with
specific content offerings provided by us. Furthermore, additional major media
and other companies with financial and other resources greater than ours may
introduce new Internet products addressing the local interactive content and
service market in the future.
Ticketmaster Corporation's and Ticketmaster Online's online services
compete with 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, including Tickets.com
and Ticketweb.com. 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 Corporation's and our
Ticketmaster Online service's competitors may serve as the primary ticketing
service in the region. We believe that our Ticketmaster Online service 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.
Furthermore, substantially all of the tickets sold through our Ticketmaster
Online Web site are also sold by Ticketmaster Corporation by telephone and
through independent retail outlets. These sales by Ticketmaster Corporation
could have a material adverse effect on our online sales, and as a result, on
our business, financial condition and results of operations.
The online dating services market is very competitive. Match.com's and
One & Only Network's primary competitors include FriendFinder, Inc. and
Matchmaker.com, Inc., both of whom charge subscribers fees for use of their
services. In addition, Match.com and One & Only Network face significant
competition from online dating services which are free to subscribers and which
are offered by most major portal sites, including Yahoo! Inc., Excite Inc. and
America Online, Inc., among others.
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
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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.
WE NEED TO SUCCESSFULLY INTRODUCE NEW SERVICES TO GROW OUR BUSINESS.
We expect to continue to introduce new and expanded services in order
to generate additional revenues, attract more businesses and consumers, and
respond to competition. 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
significant additional expenses and development and may strain our management,
financial and operational resources. If we do not generate revenues from
expanded services sufficient to offset their costs, our business would suffer.
WE HAVE RECENTLY EXPERIENCED AND ARE CURRENTLY EXPERIENCING RAPID GROWTH AND OUR
INABILITY TO MANAGE THIS GROWTH COULD HARM OUR BUSINESS.
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 our 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, Match.com (including
the One & Only Network) or Ticketmaster Online services will be able to sustain
the rate of expansion that each has experienced in the past.
OUR SERVICES ARE SUBSTANTIALLY DEPENDENT ON OUR ABILITY TO CONTINUE TO DEVELOP
COMPELLING CONTENT.
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. We need to develop this content in order to
attract consumers with demographic characteristics valuable to CitySearch's
business customers. Our success also depends on our ability to develop and
integrate compelling content with existing ticketing capabilities on our
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, or the Ticketmaster Online, CityAuction, Match.com or One & Only
Network services 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 our 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,
Match.com's and One &
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Only Network's users, our business, financial condition and results of
operations would be materially and adversely affected.
OUR PLANS TO EXPAND INTERNATIONALLY WILL REQUIRE US TO DEVELOP LOCALIZED
VERSIONS OF OUR SITES AND ADDRESS OTHER RISKS OF OPERATING INTERNATIONALLY.
A key 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 Corporation intends to continue to
expand its operations outside of the United States, which will require
additional resources from our Ticketmaster Online service 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. 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.
OUR BUSINESS RELIES ON THE PERFORMANCE OF OUR SYSTEMS AND THE PERFORMANCE AND
AVAILABILITY OF THIRD PARTY SYSTEMS.
The satisfactory performance, reliability and availability of our city
guides, online ticketing services, auction services, Internet personals 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, Match.com and One & Only Network services, and
Ticketmaster Online's online services to business customers and consumers. Our
services have experienced system interruptions in the past and we believe that
such interruptions will continue to occur from time to time in the future.
Any substantial increase in traffic on our services will also 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, our Ticketmaster Online operations are substantially
dependent upon services and infrastructure provided by Ticketmaster Corporation
that enable Ticketmaster Online to access information on ticket and merchandise
inventory, events and consumers maintained by Ticketmaster Corporation. In
addition, Ticketmaster Corporation 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
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the limitations of our license agreement. Any discontinuation or disruption
of these services by Ticketmaster Corporation 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 will require
us to continue 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 our Ticketmaster
Online service'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 we will be able to effectively upgrade and expand our Ticketmaster
Online 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.
SECURITY BREACHES OF OUR NETWORK SYSTEMS WOULD SIGNIFICANTLY ADVERSELY AFFECT
OUR BUSINESS.
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 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 security breaches or to alleviate problems caused by 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.
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OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO ADAPT TO THE RAPID TECHNOLOGICAL
CHANGES THAT CHARACTERIZE THE INTERNET AND THE ONLINE COMMERCE INDUSTRY.
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 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, 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.
INFORMATION DISPLAYED ON OR ACCESSED FROM OUR WEB SITES MAY SUBJECT US TO
LIABILITY.
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, Match.com,
One & Only Network 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.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE ARE UNABLE TO PROTECT OUR
INTELLECTUAL PROPERTY RIGHTS FROM THIRD PARTY CHALLENGES OR IF WE ARE SUBJECT TO
LITIGATION.
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
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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 Corporation pursuant to our license agreement with Ticketmaster
Corporation. 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
Corporation to maintain and assert its rights to the trademarks and defend
infringement claims, if any.
IF WE FAIL TO COMPLY WITH THE LAWS AND REGULATIONS THAT GOVERN OUR SERVICES, OUR
BUSINESS COULD BE ADVERSELY AFFECTED.
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.
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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.
Our Ticketmaster Online service 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 our Ticketmaster Online service 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.
WE MAY BE SUBJECT TO GOVERNMENTAL INVESTIGATIONS AND LITIGATIONS.
From time to time, federal, state and local authorities have conducted
investigations or inquiries with respect to Ticketmaster Corporation's
compliance with antitrust, unfair business practice and other laws. In 1994, the
Antitrust Division of the Department of Justice commenced an investigation,
which was concluded in 1995 with no enforcement action being taken against
Ticketmaster Corporation. Ticketmaster believes it has not taken any action
which is improper. 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.
During 1994, Ticketmaster Corporation 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 Corporation. These lawsuits alleged that
Ticketmaster Corporation'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 Corporation
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
Corporation's services did not bar them from seeking equitable relief against
Ticketmaster Corporation. 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 Corporation has stated that the Court's affirmance of the
decision prohibiting plaintiffs from obtaining monetary damages against
Ticketmaster Corporation 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
Corporation for in excess of 15 months and closed its investigation with no
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suggestion of any form of injunctive relief or modification of the manner in
which Ticketmaster Corporation does business.
In March 1995, MovieFone, Inc. and The Teleticketing Company, L.P.
filed a complaint against Ticketmaster Corporation 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, or the 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 Corporation, by its conduct, frustrated and prevented plaintiffs'
ability to do so. Plaintiffs further allege that Ticketmaster Corporation has
interfered with and caused Pacer Cats to breach its contract with plaintiffs.
The complaint asserts that Ticketmaster Corporation's actions violate Section 7
of the Clayton Act and Sections 1 and 2 of the Sherman Act, and that
Ticketmaster Corporation tortiously interfered with contractual and prospective
business relationships and seeks monetary and injunctive relief based on such
allegations. Ticketmaster Corporation 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 Corporation's motion to dismiss,
Ticketmaster Corporation 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 Corporation filed a motion to dismiss
the amended complaint in April 1997, which is scheduled to be heard on January
28, 2000. 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
Corporation, restricting or prohibiting their activity with respect to aspects
of the movie teleticketing business for a specified period of time. Neither
USAi, Ticketmaster Corporation, nor any entity owned or controlled by
Ticketmaster Corporation, were parties to the arbitration. In May 1998,
MovieFone filed a petition in New York state court to hold an entity affiliated
with Ticketmaster Corporation 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 Corporation 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 Corporation
affiliate had violated the injunction and awarded MovieFone approximately $1.38
million for losses it incurred as a result of such violations. The court held a
hearing on December 21, 1999, and extended the injunction for six months to June
30, 2000. Ticketmaster Corporation's appeal of the court's decision was denied
by an order entered January 11, 2000.
On July 22, 1999, a class action entitled ANTHONY MASON V. TICKETMASTER
LLC; TICKETMASTER CORPORATION, TICKETMASTER GROUP, INC.; TIME CONSUMER SERVICE,
INC. AND JOHN DOES 1-10 was filed in the United States District Court for the
Northern District of Illinois. The plaintiff alleges that Ticketmaster engages
in unlawful business practices in connection with offering "Entertainment
Weekly" and "Sports Illustrated" to consumers. The complaint, which alleges that
Ticketmaster's policies violate 39 U.S.C. 3009 (mailing of unordered
merchandise) and Section 2 of the Illinois Consumer Fraud and Deceptive Business
Practices Act, seeks restitution, damages, punitive damages and attorney's fees.
Ticketmaster believes that these allegations have no merit.
On December 17, 1999, a purported class action entitled ADRIANA GARZA
V. SOUTHWEST TICKETING, INC., TICKETMASTER L.L.C., TICKETMASTER GROUP AND MAY
DEPARTMENT STORES was filed against Ticketmaster, alleging that a consumer was
charged a surcharge for using a credit card to purchase ticket at a Ticketmaster
outlet in Hidalgo County, Texas. Ticketmaster offers a discount for cash
purchases in Hidalgo County, Texas. Ticketmaster offers a discount for cash
purchases in accordance with state law. Ticketmaster denies the allegations.
In addition, we and Ticketmaster Corporation are defendants in
litigation filed in the Central District of California commenced by ETM
Entertainment Network, Inc. alleging anti-trust violations and interference
with a contract. Ticketmaster Corporation denies the allegations.
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Ticketmaster Corporation also is a defendant in two actions in federal
court in Texas challenging the cash discounts offered by Ticketmaster
Corporation's outlets in Texas.
There can be no assurance that we, Ticketmaster Online or Ticketmaster
Corporation 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 Corporation 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.
ANY ACQUISITIONS THAT WE UNDERTAKE COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS.
As part of our business strategy, we intend to make acquisitions of or
significant investments in, complementary companies, products or technologies.
For example, we recently completed our acquisitions of CityAuction, Match.com,
One & Only Network, the Sidewalk assets and 2b Technology. In addition, we made
investments in foodline.com, an online restaurant reservation company,
FairMarket, Inc., an online auction company, and ActiveUSA.com, an online
participatory sports reservation and registration company. These acquisitions
and investments and any future acquisitions and investments are and will 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. Our
inability to overcome such risks could dilute our stockholder value and
materially adversely affect our operating results.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE DO NOT MAINTAIN THE VALUE OF OUR
DOMAIN NAMES.
We currently hold and license various Web domain names relating to our
brand, including the "citysearch.com", "cityauction.com", "match.com",
"ticketmaster.com", "sidewalk.com" and "museumtix.com" domain names. The
acquisition and maintenance of domain names generally is regulated by
governmental agencies and their designees. 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 we conduct business. Furthermore, the
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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.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT MAY AFFECT THE PRICE OF OUR
STOCK.
Our Restated Certificate of Incorporation and the Restated Bylaws and
Delaware General Corporation Law Section 203 contains provisions that may render
more difficult, or have the effect of discouraging, unsolicited takeover bids
from third parties or the removal of our incumbent management. 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, 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.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that relate to
future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "intend," "potential," or "continue" or the negative of such terms
or other comparable terminology. These statements are only predictions. Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including the risks outlined under "Risk Factors" and elsewhere in this
prospectus.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the shares of
our Class B Common Stock by the selling stockholders pursuant to this
prospectus.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
selling stockholders as of February 1, 2000:
<TABLE>
<CAPTION>
- -------------------------------- ----------------------------- ------------------------- ----------------------------
SHARES BENEFICIALLY OWNED NUMBER OF SHARES OFFERED SHARES BENEFICIALLY OWNED
SELLING STOCKHOLDER PRIOR TO OFFERING AFTER OFFERING
- -------------------------------- ----------------------------- ------------------------- ----------------------------
<S> <C> <C> <C>
Bryan T. Bostic (1) 284,575 284,575 --
- -------------------------------- ----------------------------- ------------------------- ----------------------------
Erik K. Martin (2) 94,190 94,190 --
- -------------------------------- ----------------------------- ------------------------- ----------------------------
</TABLE>
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<TABLE>
- -------------------------------- ----------------------------- ------------------------- ----------------------------
<S> <C> <C> <C>
Kenneth W. Bostic (3) 4,008 4,008 --
- -------------------------------- ----------------------------- ------------------------- ----------------------------
Live Oak Holdings, L.C. (4) 16,032 16,032 --
- -------------------------------- ----------------------------- ------------------------- ----------------------------
Clarke Holdings, L.C. (5) 2,004 2,004 --
- -------------------------------- ----------------------------- ------------------------- ----------------------------
</TABLE>
(1) Mr. Bryan Bostic currently serves as the Vice Chairman of 2b
Technology pursuant to an employment agreement with 2b Technology
and us. The 284,575 shares of our Class B Common Stock
beneficially owned by Mr. Bostic include 157,911 shares which are
subject to a lock-up arrangement and may not be sold by Mr.
Bostic until July 30, 2000.
(2) Mr. Martin currently serves as the President of 2b Technology
pursuant to an employment agreement with 2b Technology and us.
The 94,190 shares of our Class B Common Stock beneficially owned
by Mr. Martin include 52,266 shares which are subject to a
lock-up arrangement and may not be sold by Mr. Martin until July
30, 2000.
(3) Mr. Kenneth Bostic is currently an employee of 2b Technology. The
4,008 shares of our Class B Common Stock beneficially owned by
Mr. Bostic include 2,224 shares which are subject to a lock-up
arrangement and may not be sold by Mr. Bostic until July 30,
2000.
(4) Live Oak Holdings, L.C. is a Virginia limited liability company
of which Mr. Bryan Bostic is the manager. The 16,032 shares of
our Class B Common Stock beneficially owned by Live Oak Holdings
include 8,896 shares which are subject to a lock-up arrangement
and may not be sold by Live Oak Holdings until July 30, 2000.
(5) Clarke Holdings, L.C. is a Virginia limited liability company of
which Mr. Martin is the manager. The 2,004 shares of our Class B
Common Stock beneficially owned by Clarke Holdings include 1,112
shares which are subject to a lock-up arrangement and may not be
sold by Clarke Holdings until July 30, 2000.
The shares described above were originally issued by us in connection
with our acquisition of 2b Technology which is described more fully under
"Prospectus Summary--Recent Developments." The shares were issued pursuant to
exemptions from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). The shares are being registered by us pursuant
to the Agreement and Plan of Merger, dated January 30, 2000, by and among us, 2b
Technology, Inc., TMCS Merger Sub, Inc., a wholly-owned subsidiary of ours, and
the selling stockholders. Pursuant to the Agreement and Plan of Merger, an
aggregate of 222,409 of the shares issued by us to the selling stockholders at
closing may not be transferred until July 30, 2000.
PLAN OF DISTRIBUTION
The selling stockholders (and their respective donees, distributees,
pledgees and personal representatives) may, from time to time, offer for sale
and sell or distribute the shares of our Class B Common Stock offered hereby in
transactions executed on the Nasdaq National Market, in negotiated transactions,
private sales or through other means. The selling stockholders under some
circumstances might be deemed underwriters under the Securities Act. As a
precaution against such a possibility, the selling stockholders intend to
deliver prospectuses to purchasers in accordance with Section 5 of the
Securities Act. Sales may be effected at market prices prevailing at the time of
sale or at such other prices as may be negotiated by the selling stockholders.
The shares may be sold by one or more of the following: (a) a block trade in
which the broker-dealer so engaged will attempt to sell the shares as agent but
may position and resell a portion of the block as principal to facilitate the
transaction; (b) purchased by a
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broker-dealer as principal and resold by such broker-dealer for its account
pursuant to this prospectus; (c) an exchange distribution in accordance with
the rules of such exchange; and (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. In effecting sales,
broker-dealers engaged by the selling stockholder may arrange for other
broker-dealers to participate in the resales.
In connection with distributions of the shares or otherwise, the
selling stockholders may enter into hedging transactions with broker-dealers.
In connection with such transactions, broker-dealers may engage in short
sales of shares of our Class B Common Stock in the course of hedging the
positions they assume with the selling stockholders. The selling stockholders
may also sell shares of our Class B Common Stock short and deliver the shares
offered hereby to close out such short positions. In connection with the
foregoing transactions, the selling stockholders may be required to deliver
this prospectus. The selling stockholders or such other broker-dealers that
require the delivery to the broker-dealer of the shares registered hereunder,
which the broker-dealer may resell or otherwise transfer pursuant to this
prospectus. The selling stockholders may also loan or pledge the shares
registered hereunder to a broker-dealer and the broker-dealer may sell the
shares so loaned, or upon a default the broker-dealer may effect sales of the
pledged shares, in each case pursuant to this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholders in amounts
to be negotiated in connection with the sale. Such broker-dealers or agents and
any other participating broker-dealers may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act in connection with such sales
and any such commission, discount or concession may be deemed to be underwriting
discounts or commissions under the Securities Act. In addition, any securities
covered by this prospectus which qualify for sale pursuant to Rule 144 may be
sold under Rule 144 rather than pursuant to this prospectus. In order to comply
with the securities laws of certain states, if applicable, the shares will be
sold in such jurisdictions only through registered or licensed brokers or
dealers.
The selling stockholders will be responsible for 50% of any fees,
disbursements and expenses of any counsel for the selling stockholders. All
other expenses incurred in connection with the registration of the shares
offered hereby, including SEC registration fees, printer's and accounting fees ,
50% of any fees, disbursements and expenses of any counsel for the selling
stockholders, and the fees, disbursements and expenses of our counsel will be
borne by us. Commissions and discounts, if any, attributable to the sales of the
shares offered hereby will be borne by the selling stockholders. The selling
stockholders may agree to indemnify any broker-dealer or agent that participates
in transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act. We have agreed to
indemnify the selling shareholders against certain liabilities in connection
with the offering of the shares, including liabilities arising under the
Securities Act.
We have undertaken to keep a registration statement of which this
prospectus constitutes a part effective until the earliest to occur of (a) all
shares offered hereby being sold pursuant to the registration statement or (ii)
the twelve month anniversary of the date on which the registration statement of
which this prospectus constitutes a part was declared effective by the SEC.
After such period, if we choose not to maintain the effectiveness of the
registration statement of which this prospectus constitutes a part, the shares
offered hereby may not be sold, pledged, transferred or assigned, except in a
transaction which is exempt under the provisions of the Securities Act or
pursuant to an effective registration statement thereunder.
LEGAL MATTERS
The validity of our Class B Common Stock to be offered in this
prospectus will be passed upon for us by Gibson, Dunn & Crutcher LLP, Los
Angeles, California. Certain legal matters in connection with the offering will
be passed upon for the selling stockholders by Hirschler, Fleischer, Weinberg,
Cox & Allen, Richmond, Virginia.
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EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of CitySearch, Inc. for the period from September 20, 1995
(date of formation) to December 31, 1995 and for each of the two years ended
December 31, 1997 and the consolidated financial statements of Ticketmaster
Online-CitySearch, Inc. (Ticketmaster Online) (formerly Ticketmaster Multimedia
Holdings, Inc.) for each of the two years ended January 31, 1998 and the eleven
month period ended December 31, 1998 as set forth in their reports, which are
incorporated by reference in this prospectus and elsewhere in the registration
statement. The financial statements are incorporated by reference in reliance on
Ernst & Young's reports, given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may inspect
and copy these reports, proxy statements and other information at the public
reference facilities of the SEC at:
- Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549;
- 7 World Trade Center, Suite 1300, New York, New York 10048; and
- Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661.
You may also obtain copies of these materials from the public reference section
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. You should call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. The SEC also maintains an Internet web site that
contains reports, proxy and information statements and other information
regarding companies and other persons that file electronically with the SEC. The
SEC's Internet web site address is http:\\www.sec.gov. You may inspect reports
and other information that we file at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
We have filed a registration statement and related exhibits with the
SEC under the Securities Act. The registration statement, which includes this
prospectus, contains additional information about our company and the shares to
be sold by the selling stockholder. You may inspect the registration statement
and exhibits without charge at the office of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and you may obtain copies from the SEC at prescribed
rates.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information that we
file with it, which means that we can disclose important information to you by
referring to those documents. The information incorporated by reference is an
important part of this prospectus, and the information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the following documents that we have filed with the SEC:
- Annual Report on Form 10-K for the year ended December 31, 1998
- Quarterly Report on Form 10-Q for the quarter ended March 31,
1999
- Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
- Quarterly Report on Form 10-Q for the quarter ended September 30,
1999
- Current Report on Form 8-K filed on April 29, 1999
27
<PAGE>
- Current Report on Form 8-K filed on August 3, 1999
- Current Report on Form 8-K filed on September 29, 1999
- Current Report on Form 8-K filed January 28, 2000
- The description of our Class B Common Stock contained in our
Registration Statement on Form 8-A (File No. 000-25041) filed on
November 6, 1998, pursuant to Section 12(g) of the Exchange Act,
including any amendment or report filed for the purpose of
updating such description
We are also incorporating by reference additional documents that we may
file with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act between the date of the prospectus and the termination of the offering of
the shares offered hereby. You may request a copy of these filings at no cost,
by writing or telephoning us at the following address and phone number:
Ticketmaster Online-CitySearch, Inc.
Attn: Chief Financial Officer
790 E. Colorado Boulevard, Suite 200
Pasadena, California 91101
Telephone: (626) 405-0050
You should rely only on the information incorporated by reference or
provided in this prospectus and any supplement. We have not authorized anyone
else to provide you with different information.
28
<PAGE>
400,809 SHARES
TICKETMASTER ONLINE--CITYSEARCH, INC.
CLASS B COMMON STOCK
----------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
We will pay all expenses incident to the offering and sale to the
public of the shares being registered including any commissions and discounts of
underwriters, dealers or agents and any transfer taxes. Such expenses are set
forth in the following table except commissions, discounts and transfer taxes.
All of the amounts shown are estimates, except for the SEC registration fee:
<TABLE>
AMOUNT
TO BE
ITEM PAID
- ----------------------------------------------------------- -------------
<S> <C>
SEC Registration fee....................................... $4,044
Accounting fees and expenses............................... 5,000
Legal fees and expenses.................................... 15,000
Nasdaq listing fees ....................................... 4,580
Blue Sky fees and expenses................................. 1,000
Transfer agent and registrar fees.......................... 500
Miscellaneous.............................................. 5,000
-------------
Total...................................................... $35,124
=============
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
We are a Delaware corporation. Section 145 of the General Corporation
Law of the State of Delaware (the "Delaware Law") empowers a Delaware
corporation to indemnify any persons who are, or are threatened to be made,
parties to any threatened, pending or completed legal action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
action by or in the right of such corporation), by reason of the fact that such
person was an officer or director of such corporation, or is or was serving at
the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, provided that such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe his
conduct was illegal. A Delaware corporation may indemnify officers and directors
in an action by or in the right of the corporation under the same conditions,
except that no indemnification is permitted without judicial approval if the
officer or director is adjudged to be liable to the corporation in the
performance of his duty. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
Our Amended and Restated Certificate of Incorporation provides for the
indemnification of directors to the fullest extent permissible under Delaware
law.
The effect of these provisions is to eliminate our rights and the
rights of our stockholders (through stockholders' derivative suits on our
behalf) to recover monetary damages against a director for breach of fiduciary
duty of care as a director (including breaches resulting from negligent or
grossly negligent behavior), except in certain limited situations. These
provisions do not limit or eliminate our rights or any of our stockholder's
rights to seek non-monetary relief such as an injunction or rescission in the
event of a breach of a director's duty of care. These provisions will not alter
the liability of directors under federal securities laws.
II-1
<PAGE>
Our Bylaws provide for the indemnification of officers, directors
and third parties acting on behalf of us if such person acted in good faith
and in a manner reasonably believed to be in and not opposed to our best
interest, and, with respect to any criminal action or proceeding, the
indemnified party had no reason to believe his conduct was unlawful.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE NOTES
------- ------------- -----
<S> <C> <C>
2.1 Agreement and Plan of Reorganization, among CitySearch, Inc., MB Acquisition Corporation,
MetroBeat, Inc., Mark Davies and Joshua White, dated May 31, 1996. (A)*
2.2 Amended and Restated Agreement and Plan of Reorganization, among CitySearch, Inc.,
Tiberius, Inc., USA Networks, Inc., Ticketmaster Group, Inc., Ticketmaster Corporation and
Ticketmaster Multimedia Holdings, Inc., dated August 12, 1998. (A)
2.3 Agreement and Plan of Reorganization, dated January 8, 1999, by and among Ticketmaster
Online--CitySearch, Inc., Nero Acquisition Corp., Inc., CityAuction, Inc., Andrew Rebele
and Monica Lee as amended. (B)
2.4 Agreement and Plan of Reorganization, dated as of February 8,1999, by and among USA
Networks, Inc., Ticketmaster Online-CitySearch, Inc., Lycos, Inc., USA Interactive Inc.,
Lemma, Inc. and Tycho, Inc. (the "Merger Agreement"), including Form of Certificate of
Designations, Preferences and Rights of Series A Convertible Redeemable Preferred Stock of
USA/Lycos Interactive Networks, Inc. (Exhibit B to the Merger Agreement). (C)
2.5 Exchange Agreement by and among Cendant Corporation, Cendant Intermediate Holdings, Inc.
and Ticketmaster Online--CitySearch, Inc. dated as of May 14, 1999. (D)
2.6 Agreement and Plan of Reorganization dated June 10, 1999 among Ticketmaster
Online--CitySearch, Web Media Ventures LLC (dba One & Only Network) and William Bunker,
David Kennedy and Glenn Wiggins. (D)
2.7 Agreement and Plan of Merger by and among Sidewalk.com, Inc., Microsoft Corporation and
the Registrant, dated as of July 19, 1999. (E)
2.8 Agreement and Plan of Merger by and among the Registrant, TMCS Merger Sub, Inc., 2b
Technology, Inc., Bryan Bostic, Eric Martin, Live Oak Holdings, L.C., Clarke Holding, L.C.,
and Kenneth Bostic, dated as of January 30, 2000
4.1 Specimen Class B Common Stock Certificate. (F)
4.2 Form of Class B Common Stock Purchase Warrant of the Registrant to be delivered upon
closing of the Sidewalk acquisition (3,000,000 shares). (E)
4.3 Form of Class B Common Stock Purchase Warrant of the Registrant to be delivered upon
closing of the Sidewalk acquisition (1,500,000 shares). (E)
5.1 Opinion of Gibson, Dunn & Crutcher LLP as to the legality of
the securities being registered.
23.1 Consent of Independent Auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
</TABLE>
II-2
<PAGE>
- -------------------------
* Confidential treatment has been granted with respect to portions of this
exhibit.
(A) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-64855) filed with the Commission on September 30, 1998.
(B) Incorporated by reference to the Company's Report on Form 10-K filed with
the Commission on March 31, 1999.
(C) Incorporated by reference to exhibits filed in response to Item 7,
"Exhibits," of the Report on form 8-K filed by USA Networks, Inc. (File No.
000-20570) with the Commission on February 26, 1998.
(D) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-81761) filed with the Commission on June 29, 1999.
(E) Incorporated by reference to exhibits filed in response to Item 6,
"Exhibits," of the Report on Form 10-Q filed with the Commission on August
16, 1999.
(F) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-64855) filed with the Commission on November 6, 1998.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
A. UNDERTAKING PURSUANT TO RULE 415
The undersigned registrant 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 of 1933, 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; and
(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 this offering.
B. UNDERTAKING REGARDING FILINGS INCORPORATING SUBSEQUENT EXCHANGE
ACT DOCUMENTS BY REFERENCE
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities and Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) 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. UNDERTAKING IN RESPECT OF INCORPORATED ANNUAL AND QUARTERLY
REPORTS
The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report, to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X is not set forth in the prospectus,
to deliver, or cause to be delivered to each person to whom the prospectus is
sent or given, the latest quarterly report that is specifically incorporated
by reference in the prospectus to provide such interim financial information.
D. UNDERTAKING IN RESPECT OF INDEMNIFICATION
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
II-4
<PAGE>
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
E. UNDERTAKING PURSUANT TO RULE 430a
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or Rule 497(h) under the
Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-5
<PAGE>
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-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, California, on the 18th day of February,
2000.
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 and appoints Charles Conn, Brad Serwin and Thomas
McInerney, jointly and severally, his attorney-in-fact, each with the power of
substitution for him in any and all capacities, to sign any amendments to this
Registration Statement (including post-effective amendments), and to sign any
registration statement for the same Offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective amendments
thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated below on the 18th day of February 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ---------------------------------- -----------------
<S> <C> <C>
/S/ CHARLES CONN
- --------------------------------------- Chief Executive Officer (Principal February 18, 2000
Charles Conn Executive Officer) and Director
/S/ THOMAS MCINERNEY
- --------------------------------------- Chief Financial Officer, Executive Vice February 18, 2000
Thomas McInerney President, Finance and Treasurer
(Principal Financial and Accounting
Officer)
/S/ BARRY BAKER
- --------------------------------------- Director February 18, 2000
Barry Baker
/S/ TERRY BARNES
- --------------------------------------- Director February 18, 2000
Terry Barnes
/S/ BARRY DILLER
- --------------------------------------- Director February 18, 2000
Barry Diller
/S/ JOSEPH GLEBERMAN
- --------------------------------------- Director February 18, 2000
Joseph Gleberman
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C> <C>
/S/ WILLIAM GROSS
- --------------------------------------- Director February 18, 2000
William Gross
/S/ LAWRENCE JACOBSON
- --------------------------------------- Director February 18, 2000
Lawrence Jacobson
/S/ VICTOR A. KAUFMAN
- --------------------------------------- Director February 18, 2000
Victor A. Kaufman
/S/ ROBERT KAVNER
- --------------------------------------- Director February 18, 2000
Robert Kavner
/S/ DARA KHOSROWSHAHI
- --------------------------------------- Director February 18, 2000
Dara Khosrowshahi
/S/ WILLIAM D. SAVOY
- --------------------------------------- Director February 18, 2000
William D. Savoy
/S/ ALAN SPOON
- --------------------------------------- Director February 18, 2000
Alan Spoon
/S/ THOMAS UNTERMAN
- --------------------------------------- Director February 18, 2000
Thomas Unterman
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE NOTES
------- ------------- -----
<S> <C> <C>
2.1 Agreement and Plan of Reorganization, among CitySearch, Inc., MB Acquisition Corporation,
MetroBeat, Inc., Mark Davies and Joshua White, dated May 31, 1996. (A)*
2.2 Amended and Restated Agreement and Plan of Reorganization, among CitySearch, Inc.,
Tiberius, Inc., USA Networks, Inc., Ticketmaster Group, Inc., Ticketmaster Corporation and
Ticketmaster Multimedia Holdings, Inc., dated August 12, 1998. (A)
2.3 Agreement and Plan of Reorganization, dated January 8, 1999, by and among Ticketmaster
Online--CitySearch, Inc., Nero Acquisition Corp., Inc., CityAuction, Inc., Andrew Rebele
and Monica Lee as amended. (B)
2.4 Agreement and Plan of Reorganization, dated as of February 8,1999, by and among USA
Networks, Inc., Ticketmaster Online-CitySearch, Inc., Lycos, Inc., USA Interactive Inc.,
Lemma, Inc. and Tycho, Inc. (the "Merger Agreement"), including Form of Certificate of
Designations, Preferences and Rights of Series A Convertible Redeemable Preferred Stock of
USA/Lycos Interactive Networks, Inc. (Exhibit B to the Merger Agreement). (C)
2.5 Exchange Agreement by and among Cendant Corporation, Cendant Intermediate Holdings, Inc.
and Ticketmaster Online--CitySearch, Inc. dated as of May 14, 1999. (D)
2.6 Agreement and Plan of Reorganization dated June 10, 1999 among Ticketmaster
Online--CitySearch, Web Media Ventures LLC (dba One & Only Network) and William Bunker,
David Kennedy and Glenn Wiggins. (D)
2.7 Agreement and Plan of Merger by and among Sidewalk.com, Inc., Microsoft Corporation and
the Registrant, dated as of July 19, 1999. (E)
2.8 Agreement and Plan of Merger by and among the Registrant, TMCS Merger Sub, Inc., 2b Technology,
Inc., Bryan Bostic, Eric Martin, Live Oak Holdings, L.C., Clarke Holding, L.C., and
Kenneth Bostic, dated as of January 30, 2000
4.1 Specimen Class B Common Stock Certificate. (F)
4.2 Form of Class B Common Stock Purchase Warrant of the Registrant to be delivered upon
closing of the Sidewalk acquisition (3,000,000 shares). (E)
4.3 Form of Class B Common Stock Purchase Warrant of the Registrant to be delivered upon
closing of the Sidewalk acquisition (1,500,000 shares). (E)
5.1 Opinion of Gibson, Dunn & Crutcher LLP as to the legality of
the securities being registered.
23.1 Consent of Independent Auditors.
23.2 Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
</TABLE>
- -------------------------
* Confidential treatment has been granted with respect to portions of this
exhibit.
II-8
<PAGE>
(A) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-64855) filed with the Commission on September 30, 1998.
(B) Incorporated by reference to the Company's Report on Form 10-K filed with
the Commission on March 31, 1999.
(C) Incorporated by reference to exhibits filed in response to Item 7,
"Exhibits," of the Report on form 8-K filed by USA Networks, Inc. (File No.
000-20570) with the Commission on February 26, 1998.
(D) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-81761) filed with the Commission on June 29, 1999.
(E) Incorporated by reference to exhibits filed in response to Item 6,
"Exhibits," of the Report on Form 10-Q filed with the Commission on August
16, 1999.
(F) Incorporated by reference to exhibits filed in response to Item 16,
"Exhibits," of the Company's Registration Statement on Form S-1 (File No.
333-64855) filed with the Commission on November 6, 1998.
II-9
<PAGE>
Exhibit 2.8
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TICKETMASTER ONLINE-CITYSEARCH, INC.,
TMCS MERGER SUB, INC.
2B TECHNOLOGY, INC.
AND
THE SHAREHOLDERS THEREOF
JANUARY 30, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
PAGE
<S> <C> <C>
ARTICLE I. DEFINITIONS.....................................................................................1
1.1. Defined Terms...................................................................................1
1.2. Terms Defined Elsewhere.........................................................................5
ARTICLE II. THE MERGER......................................................................................7
2.1. The Merger......................................................................................7
2.2. Effective Time..................................................................................7
2.3. Closing of the Merger...........................................................................8
2.4. Effects of the Merger...........................................................................8
2.5. Articles of Incorporation and Bylaws............................................................8
2.6. Directors.......................................................................................8
2.7. Officers........................................................................................8
2.8. Conversion of Company Shares....................................................................8
2.9. No Dissenter's Rights..........................................................................10
2.10. Distribution of the Merger Consideration.......................................................10
2.11. Additional Consideration.......................................................................10
2.12. Revenue and EBITDA Adjustments.................................................................12
2.13. Form of Consideration..........................................................................13
2.14. Adjustment Events..............................................................................13
ARTICLE III. CLOSING DELIVERIES............................................................................13
3.1. Deliveries by the Company and the Shareholders at the Closing..................................13
3.2. Deliveries by Parent and Merger Sub at the Closing.............................................14
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.............................14
4.1. Organization of the Company....................................................................14
4.2. Subsidiaries...................................................................................15
4.3. Authorization..................................................................................15
4.4. Capitalization.................................................................................16
4.5. Assets; Personal Property......................................................................16
4.6. Absence of Certain Activities..................................................................17
4.7. Certain Actions................................................................................17
4.8. Material Contracts.............................................................................18
4.9. Compliance with Other Instruments..............................................................18
4.10. Financial Statements...........................................................................18
4.11. Liabilities....................................................................................19
4.12. Taxes..........................................................................................19
4.13. Environmental Matters..........................................................................21
4.14. Employee Benefits..............................................................................22
4.15. Compliance with Law............................................................................22
4.16. Permits........................................................................................23
</TABLE>
i
<PAGE>
<TABLE>
PAGE
<S> <C> <C>
4.17. Consents and Approvals.........................................................................23
4.18. Litigation.....................................................................................23
4.19. Labor Matters..................................................................................23
4.20. Intellectual Property..........................................................................24
4.21. Transactions with Certain Persons..............................................................32
4.22. Insurance......................................................................................32
4.23. Accounts Receivable............................................................................32
4.24. Customers......................................................................................33
4.25. Certain Business Practices.....................................................................33
4.26. No Brokers.....................................................................................33
4.27. Material Misstatements or Omissions............................................................33
4.28. Books and Records..............................................................................33
4.29. Bank Accounts..................................................................................34
4.30. Exemption from HSR Act.........................................................................34
4.31. Title to Company Shares........................................................................34
4.32. Representations Regarding Parent Shares........................................................34
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........................................36
5.1. Organization of Parent and Merger Sub..........................................................36
5.2. Authorization..................................................................................36
5.3. Compliance with Other Instruments..............................................................36
5.4. Consents and Approvals.........................................................................37
5.5. No Prior Activities............................................................................37
5.6. Litigation.....................................................................................37
5.7. Public Documents; Parent Financial Statements..................................................37
5.8. Valid Issuance of Stock........................................................................37
5.9. No Brokers.....................................................................................38
5.10. Knowledge of Parent............................................................................38
ARTICLE VI. COVENANTS OF ALL PARTIES.......................................................................38
6.1. Conduct of Business............................................................................38
6.2. Shareholder Acknowledgment, Waiver and Voting Agreement........................................39
6.3. Investigation by Parent........................................................................39
6.4. Further Assurances.............................................................................40
6.5. Transitional Matters...........................................................................40
6.6. Agreements with Executives.....................................................................41
6.7. Notification of Certain Matters................................................................41
6.8. Assumption of Responsibilities.................................................................41
6.9. Employee Matters...............................................................................42
6.10. Public Announcements...........................................................................42
6.11. Lock-up........................................................................................42
6.12. Tax-Free Reorganization Status.................................................................42
6.13. Registration Statement.........................................................................43
ARTICLE VII. CONDITIONS TO OBLIGATIONS.....................................................................44
7.1. Conditions to Each Party's Obligations.........................................................44
</TABLE>
ii
<PAGE>
<TABLE>
PAGE
<S> <C> <C>
7.2. Conditions to the Company's Obligations........................................................44
7.3. Conditions to the Obligations of Parent and Merger Sub to Effect the Merger....................44
ARTICLE VIII. TERMINATION..................................................................................45
8.1. Termination....................................................................................45
8.2. Effect of Termination..........................................................................46
ARTICLE IX. INDEMNIFICATION................................................................................46
9.1. Survival of Representations....................................................................46
9.2. Indemnification................................................................................47
9.3. Notice of Claims...............................................................................48
9.4. Third Person Claims............................................................................49
9.5. Limitation on Indemnity........................................................................50
9.6. Remedies.......................................................................................51
ARTICLE X. MISCELLANEOUS..................................................................................51
10.1. Binding Effect; Assignment.....................................................................51
10.2. Notices........................................................................................51
10.3. Choice of Law..................................................................................52
10.4. Entire Agreement; Amendments and Waivers.......................................................52
10.5. Counterparts...................................................................................52
10.6. Severability...................................................................................53
10.7. Headings.......................................................................................53
10.8. Schedules......................................................................................53
10.9. No Third Party Beneficiaries...................................................................53
10.10. Specific Performance...........................................................................53
10.11. No Strict Construction.........................................................................54
10.12. Expenses.......................................................................................54
10.13. Disclosure Schedules...........................................................................54
</TABLE>
iii
<PAGE>
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Employment Agreement
Exhibit B Earn-Out Amounts
Exhibit C Form of Employee Notice
</TABLE>
LIST OF SCHEDULES
<TABLE>
<S> <C>
Schedule I Schedule of Shareholders
Schedule 2.7 Officers of the Surviving Corporation
Schedule 4.2 Subsidiaries
Schedule 4.4 Capitalization
Schedule 4.5 Assets and Property
Schedule 4.6 Absence of Certain Activities
Schedule 4.7 Certain Actions
Schedule 4.8 Contracts
Schedule 4.11 Liabilities
Schedule 4.12 Taxes
Schedule 4.16 Permits
Schedule 4.17 Consents and Approvals
Schedule 4.18 Litigation
Schedule 4.19 Labor Matters
Schedule 4.20 Intellectual Property
Schedule 4.21 Transactions with Certain Persons
Schedule 4.22 Insurance
Schedule 4.23 Accounts Receivable
Schedule 4.24 Customers
Schedule 4.26 Brokers
Schedule 4.29 Bank Accounts
</TABLE>
iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of
January 30, 2000, is entered into by and among Ticketmaster Online-CitySearch,
Inc., a Delaware corporation ("PARENT"), TMCS Merger Sub, Inc., a Virginia
corporation and wholly-owned subsidiary of Parent ("MERGER SUB"), 2b Technology,
Inc., a Virginia corporation (the "COMPANY") and the shareholders of the Company
identified on SCHEDULE I (each a "SHAREHOLDER" and collectively, the
"SHAREHOLDERS").
RECITALS
WHEREAS, the Boards of Directors of the Company, Parent and Merger Sub
have each (i) determined that the Merger (as defined below) is advisable and
fair and in the best interests of their respective stockholders and (ii)
approved the Merger upon the terms and subject to the conditions set forth in
this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the respective covenants and
promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:
ARTICLE I.
DEFINITIONS
1.1. DEFINED TERMS. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
"1999 FINANCIAL STATEMENTS" means the Company's audited balance sheet
dated as of December 31, 1999 and the related statements of operations, changes
in shareholders' equity and cash flow for the year ended December 31, 1999.
"AFFILIATE" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"AVERAGE STOCK PRICE" means the average of the closing sales prices of
Parent Shares on the NASDAQ National Market for each of the five trading days
immediately preceding a specified date (for example, the Closing Date or the
Effective Registration Date), as reported in the Western Edition of THE WALL
STREET JOURNAL.
"BUSINESS" means the Company's business of providing reservations,
scheduling and admissions software solutions, third party event, exhibit and
venue ticketing and reservation services and online event, exhibit and venue
ticketing and reservation services.
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"BUSINESS DAY" means a day other than a Saturday, Sunday or other day
on which commercial banks in Los Angeles, California are authorized or required
by law to close.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"COMPANY ACCOUNTANTS" means Goodman & Company.
"CONSENTS" means any and all consents, approvals, authorizations or
waivers of any public, governmental or regulatory body or authority or from
parties to Material Contracts that are (a) required for the consummation of the
transactions contemplated by this Agreement or (b) necessary in order that the
Company can conduct the Business after the Closing Date substantially in the
same manner as the Business was conducted by the Company before the Closing
Date.
"COURT ORDER" means any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or governmental
agency, department or authority that is binding on any Person or its property
under applicable law.
"DECEMBER 1999 BALANCE SHEET" means the Company's internally prepared
balance sheet dated as of December 31, 1999.
"DEFAULT" means (a) any actual material breach or default, (b) the
occurrence of an event that solely with the passage of time or the giving of
notice or both will constitute a material breach or default or (c) the
occurrence of an event that with or without the passage of time or the giving of
notice or both gives or will give rise to a right of termination, renegotiation
or acceleration.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization, calculated consistent with financial statements prepared in
accordance with GAAP.
"EMPLOYMENT AGREEMENTS" means those certain Employment Agreements to
be entered into at the Closing by and between the Company and each of the
Executives substantially in the form attached hereto as EXHIBIT A.
"ENCUMBRANCE" means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
"EXECUTIVES" means Eric K. Martin and Bryan T. Bostic
"FINANCIAL STATEMENTS" means the Company's compiled balance sheets
dated as of December 31, 1997 and December 31, 1998 and the related statements
of income and retained earnings, schedule of sales and expenses and statement of
cash flows for each of the years ended December 31, 1997 and December 31, 1998,
all as compiled by the Company Accountants, and the notes and qualifications of
the Company's Accountants accompanying such statements.
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<PAGE>
"FISCAL YEAR" means a twelve month period commencing on January 1 of
each calendar year.
"GAAP" means generally accepted United States accounting principles
consistently applied over all relevant periods.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"KNOWLEDGE" of the Company means the actual knowledge of the
Executives after a reasonable investigation of the surrounding circumstances.
"LETTER OF INTENT" means that certain letter agreement, dated as of
January 14, 2000, between Parent and the Company.
"LIABILITIES" means any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any Person of any type, known or unknown, and whether accrued, absolute,
contingent, matured, unmatured or other.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means with
respect to the Business or the assets of the Company any material adverse effect
or change in the condition (financial or otherwise), business, results of
operations, assets, prospects, Liabilities or operations of the Business and/or
the assets of the Company or the ability of the Company or the Shareholders to
consummate the transactions contemplated hereby, or any event or condition which
would, with the passage of time, constitute a "Material Adverse Effect" or
"Material Adverse Change." "MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE
CHANGE" with respect to Parent or Merger Sub has a corresponding meaning.
"NOTICE" means written notice or other written communication
specifically directed to the Executives, Parent, the Company or one of their key
employees, as the case may be, and specifying the matter as to which notice is
sought to be given, except as so expressly superseded by the language herein.
"ORDINARY COURSE OF BUSINESS" or "ORDINARY COURSE" or any similar
phrase means the ordinary course of the Business, reasonably consistent with the
past practices of the Company, taking into account the rapid pace of change and
flux in the Company's Business.
"PARENT SHARES" means shares of the Class B Common Stock, par value
$.01 per share, of Parent.
"PERMITS" means all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other Person,
necessary for the past, present or anticipated conduct of, or relating to the
operation of the Business and material to its operation, including, without
limitation, any detective/security licenses, certificates of occupancy and
electricians/alarm installer licenses.
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<PAGE>
"PERMITTED ENCUMBRANCES" means (a) liens, taxes, assessments and other
governmental charges not yet due and payable, (b) statutory, mechanics',
laborers' and materialmen liens arising in the Ordinary Course of Business for
sums not yet due, (c) statutory and contractual landlord liens under leases
pursuant to which the Company is a lessee and not in Default, (d) with regard to
real property, any and all matters of record in the jurisdiction where the real
property is located including, without limitation, restrictions, reservations,
covenants, conditions, oil and gas leases, mineral severances and liens and (e)
with regard to real property, any easements, rights-of-way, building or use
restrictions, prescriptive rights, encroachments, protrusions, rights and party
walls, and liens for taxes, assessments, and other governmental charges not yet
due.
"PERSON" means any person or entity, whether an individual, trustee,
corporation, partnership, limited partnership, limited liability company, trust,
unincorporated organization, business association, firm, joint venture,
governmental agency or authority.
"REGULATIONS" means any laws, statutes, ordinances, regulations,
rules, notice requirements, court decisions, agency guidelines, principles of
law and orders of any foreign, federal, state or local government and any other
governmental department or agency with a material impact on the Company, the
Shareholders, Parent or Merger Sub, as the case may be, including, without
limitation, environmental laws, energy, public utility, health codes,
occupational safety and health regulations and laws respecting employment
practices, employee documentation, terms and conditions of employment and wages
and hours.
"REPRESENTATIVE" means, with respect to any Person, any officer,
director, principal, attorney, agent, employee or other representative of such
Person.
"REVENUES" means the revenues of the Company for a specified period,
determined in accordance with GAAP and in accordance with the provisions of
SECTION 2.11(c). "Revenues" includes but is not limited to revenues that the
Company has recognized from venues and events ticketed or software licensed by
the Company for the relevant fiscal year and all revenues recognized by Parent
or any of its Affiliates for the relevant fiscal year from venues and events
which were either (a) provided by the Company with ticketing services at any
time from January 1, 1999 through Closing or (b) under contract with the Company
for the Company to provide exclusive ticketing services to the client at the
time of Closing. In addition, "Revenues" shall include ticketing and exhibit
revenues recognized by Parent or any of its Affiliates from venues and events
ticketed for clients who were software licensees or Museum Ticketing Network
clients of the Company at the time of Closing or at anytime afterwards, if the
Company did not have a reasonably adequate opportunity to bid on the ticketing
or otherwise contract to provide venue or event ticketing services for such
clients and such services were within the scope of the services then provided by
the Company. Notwithstanding the foregoing, "Revenues" does not include revenues
associated with venues which are currently ticketed on an exclusive basis by
Parent or any of its Affiliates, other than the Company, or for which Parent or
its Affiliates had an exclusive contract to ticket in 1999 if the Company had no
superseding contract for such events or venues in effect at Closing, even in the
event that the Company assumes some or all of the ticketing responsibilities of
Parent or any of its Affiliates, other than the Company, with respect to such
venues subsequent to the Closing, as provided by SECTION 6.8.
4
<PAGE>
In the event the Company tickets the Detroit Institute of Arts, any
associated revenues will count as Company Revenues hereunder.
"SUBSIDIARY" means (a) any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain, (b) any partnership in which the Company is a
general partner or (c) any limited liability company, partnership or other
entity in which the Company possesses a 50% or greater interest in the total
capital or total income of such limited liability company, partnership or other
entity.
1.2. TERMS DEFINED ELSEWHERE. The following is a list of additional
terms used in this Agreement and a reference to the Section hereof in which such
term is defined:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
1999 EBITDA Section 2.12(a)
1999 Revenues Section 2.12 (a)
2b Content Section 4.20(a)
2b Marks Section 4.20(a)
AAA Section 9.3(b)
Act Section 6.13
Additional Merger Consideration Section 2.11(a)
Adjustment Event Section 2.14
Agreement Preamble
Arbitrator Section 9.3(b)
Auditor Section 2.11(c)
CERCLA Section 4.13
COTS Section 4.20(i)
Cap Section 9.5(b)
Claim Notice Section 9.3(a)
Closing Section 2.3
Closing Conversion Share Amount Section 2.8(a)
Closing Date Section 2.3
Common Stock Section 2.8(a)
Company Preamble
Company Shares Section 2.8(a)
Contaminant Section 4.20(o)
Content Section 4.20(a)
Copyrights Section 4.20(a)
Damages Section 9.2(a)
Designated Software Agreements Section 4.20(m)
Disabling Code Section 4.20(o)
Disposition Section 6.11
Dispute Notice Section 9.3(b)
Distribution Date Section 2.11(b)
Earn-Out Amounts Section 2.11(b)
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Earn-Out Dollar Amount Section 2.11(a)
Effective Period Section 6.13
Effective Registration Average Section 2.8(b)
Effective Registration Date Section 2.8(b)
Effective Time Section 2.2
Employee Pension Benefit Plan Section 4.14(a)
ERISA Section 4.14(a)
Exchange Act Section 5.7
Hazardous Materials Section 4.13
Indemnified Party Section 9.3(a)
Indemnitor Section 9.3(a)
Initial Merger Consideration Section 2.8(a)
Initial Shares Section 2.8(b)
Initial Stock Price Section 2.8(a)
Intellectual Property Rights Section 4.20(a)
IRS Installment Agreement Section 7.3(f)
Licensed Intellectual Property Section 4.20(l)
Licensed Software Section 4.20(i)
Licensed Software Agreements Section 4.20(l)
Licensed Technology Agreements Section 4.20(l)
Lock-up Period Section 6.11
Marks Section 4.20(a)
Material Contracts Section 4.8(a)
Material Systems Section 4.20(o)
Matrix Section 10.12
Maximum Additional Parent Shares Section 2.8(b)
Merger Section 2.1
Merger Articles Section 2.2
Merger Consideration Section 2.8(b)
Merger Sub Preamble
Multiemployer Plan Section 4.14(a)
Other IP Rights Section 4.20(a)
Other Licensed Technology Agreements Section 4.20(l)
Outside Date Section 8.1(b)
Owned Content Copyrights Section 4.20(a)
Owned Software Section 4.20(i)
Owned Trade Secrets Section 4.20(e)
Parent Preamble
Parent Financial Statements Section 5.7
Parent Indemnified Parties Section 9.2(a)
Patents Section 4.20(a)
Proceeding Section 4.18
Real Property Section 4.5(c)
Registration Statement Section 6.13
Restricted Parent Shares Section 2.8(c)
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Revenue Adjustment Amount Section 2.12(c)
SEC Section 6.13
SEC Documents Section 5.7
Second Revenue Adjustment Amount Section 2.12(c)
Settled Matters Section 4.12(b)
Shareholders Preamble
Shareholder Indemnified Parties Section 9.2(b)
Software Section 4.20(a)
Statement Section 2.11(a)
Surviving Corporation Section 2.1
Tax Return Section 4.12(a)
Taxes Section 4.12(a)
Third Party 2b Content Section 4.20(c)
Threshold Amount Section 9.5
Trade Secrets Section 4.20(a)
Transferable Parent Shares Section 2.8(c)
VSCA Section 2.1
</TABLE>
ARTICLE II.
THE MERGER
2.1 THE MERGER. At the Effective Time (as defined below) and upon the
terms and subject to the conditions of this Agreement and in accordance with the
Virginia Stock Corporation Act (the "VSCA"), Merger Sub shall be merged with and
into the Company in a transaction intended to qualify as a tax-free
reorganization under Section 368 of the Code (the "MERGER"). Following the
Merger, the Company shall continue as the surviving corporation (the "SURVIVING
CORPORATION") and the separate corporate existence of Merger Sub shall cease.
2.2 EFFECTIVE TIME. Subject to the terms and conditions set forth in
this Agreement, on the Closing Date (as defined below), Articles of Merger, in
proper form and mutually acceptable to the parties (the "MERGER ARTICLES"),
shall be duly executed and acknowledged by Merger Sub, the Company and Parent
and thereafter delivered to the State Corporation Commission of the Commonwealth
of Virginia for filing pursuant to the VSCA. The Merger shall become effective
at such time as a properly executed copy of the Merger Articles are duly filed
with the State Corporation Commission in accordance with the VSCA or such later
time as Parent and the Company may agree upon and as set forth in the Merger
Articles (the time the Merger becomes effective being referred to herein as the
"EFFECTIVE TIME").
7
<PAGE>
2.3. CLOSING OF THE MERGER. The closing of the transactions
contemplated hereby (the "CLOSING") will take place at the offices of Gibson,
Dunn & Crutcher LLP at 333 South Grand Avenue, Los Angeles, California 90071, on
the Business Day that the last of the conditions to Closing set forth in ARTICLE
VII have been satisfied or waived by the party or parties entitled to waive the
same or such other date as to which the parties may agree, but in any event not
later than the second Business Day after such conditions to Closing have been
satisfied or waived (the "CLOSING DATE"). The parties hereto shall use their
best efforts to ensure that the Closing Date be as close to the date hereof as
is reasonably possible.
2.4. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the VSCA. Without limiting the generality of the foregoing and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
2.5. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation of Merger Sub in effect at the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until amended in
accordance with applicable law. The bylaws of Merger Sub in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
2.6. DIRECTORS. The directors of Merger Sub at the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and bylaws of the Surviving
Corporation until such director's successor is duly elected or appointed and
qualified.
2.7. OFFICERS. The officers of Merger Sub at the Effective Time shall
be the initial officers of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and bylaws of the Surviving
Corporation until such officer's successor is duly elected or appointed and
qualified. In addition, each individual listed on SCHEDULE 2.7, shall hold the
office of the Surviving Corporation listed next to such individual's name on
SCHEDULE 2.7, as of the Closing Date until such officer's successor is duly
elected or appointed and qualified.
2.8. CONVERSION OF COMPANY SHARES.
(a) At the Effective Time, each and every share of the common
stock of the Company, $1.00 par value (the "COMMON STOCK"), issued and
outstanding immediately prior to the Effective Time (the "COMPANY SHARES")
(which shall constitute all of the issued and outstanding Common Stock, other
than Common Stock held in the treasury of the Company or owned by the Company
immediately prior to the Effective Time) shall, by virtue of the Merger and
without any action on the part of Merger Sub, the Company or the holder thereof,
be canceled and extinguished and be converted automatically into and become the
right to receive the number of fully paid and nonassessable Parent Shares equal
to the Closing Conversion Share Amount and the per share Additional Merger
Consideration as provided in SECTION 2.11. For the purposes of this SECTION 2.8:
8
<PAGE>
(i) "INITIAL MERGER CONSIDERATION" shall mean 400,809
Parent Shares (representing the number of Parent Shares equal to the quotient of
$16,850,000 divided by $42.04, the Average Stock Price on the date that is two
days prior to the date hereof (the "INITIAL STOCK PRICE")).
(ii) "CLOSING CONVERSION SHARE AMOUNT" shall mean the
Initial Merger Consideration divided by the aggregate number of Company Shares
immediately prior to the Effective Time.
(b) On the Closing Date, certificates representing the Parent
Shares shall be delivered to the Shareholders, pro rata according to their
respective percentage ownership of the Company immediately prior to the
Effective Time, as reflected on SCHEDULE I hereto, as Initial Merger
Consideration (the "INITIAL SHARES"). The Initial Shares are subject to
adjustment as follows:
(i) If the Average Stock Price on the date that is two
Business Days prior to the filing by Parent of a request for acceleration of the
effective date (the "EFFECTIVE REGISTRATION DATE") of the Registration Statement
(as defined below) to be filed by Parent pursuant to SECTION 6.13 (the
"EFFECTIVE REGISTRATION AVERAGE") is greater than the Initial Stock Price, then,
on the Effective Registration Date, the Shareholders shall tender their
certificates representing the Initial Shares to Parent for cancellation and
Parent shall issue new certificates representing Parent Shares equal to the
number of Initial Shares reduced by a number of Parent Shares equal to the
number determined by subtracting (x) $16,850,000 divided by the Effective
Registration Average from (y) the Initial Merger Consideration; PROVIDED,
HOWEVER, that in no event shall the Effective Registration Average used to
calculate the number of shares to be subtracted from the Initial Shares be more
than $47.30 (representing a stock price increase of 12.5% of the Initial Stock
Price). Each of the Shareholders covenants and agrees to tender their
certificates representing Parent Shares no later than one Business Day prior to
the Effective Registration Date. Until such time as the Shareholders have
tendered their certificates representing Parent Shares, Parent shall not be
obligated to cause the Registration Statement to be declared effective pursuant
to SECTION 6.13.
(ii) If the Effective Registration Average is less than the
Initial Stock Price, then, on the Effective Registration Date, Parent shall
tender to the Shareholders additional certificates representing the number of
Parent Shares equal to the number determined by subtracting (x) the Initial
Merger Consideration from (y) $16,850,000 divided by the Effective Registration
Average; PROVIDED, HOWEVER, that in no event shall the Effective Registration
Average used to calculate the number of additional Parent Shares (the "MAXIMUM
ADDITIONAL PARENT SHARES") to be tendered to the Shareholders be less than
$36.79 (representing a stock price decrease of 12.5% of the Initial Stock
Price).
The net number of Parent Shares distributed to the Shareholders
after the adjustments in this paragraph (b) are referred to herein as the
"MERGER CONSIDERATION."
(c) Of the total number of Parent Shares distributed to the
Shareholders as the Merger Consideration, (i) 44.51% shall become immediately
transferable, subject to applicable securities laws, upon the effectiveness of
the Registration Statement (the
9
<PAGE>
"TRANSFERABLE PARENT SHARES") and (ii) 55.49% shall be subject to the lock-up
provided in SECTION 6.11 (the "RESTRICTED PARENT SHARES").
(d) At the Effective Time, each of the 100 outstanding shares of
the common stock, without par value, of Merger Sub shall be converted into one
share of common stock, $1.00 par value, of the Surviving Corporation.
(e) At the Effective Time, each share of Common Stock held in the
treasury of the Company or owned by the Company or any direct or indirect
Subsidiary of the Company immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of Merger Sub, the
Company or the holder thereof, be canceled and extinguished and no payment shall
be made with respect thereto.
2.9. NO DISSENTER'S RIGHTS. Because all Shareholders have agreed to
vote in favor of the Merger pursuant to SECTION 6.2, such Shareholders shall not
be entitled to dissenter's rights.
2.10. DISTRIBUTION OF THE MERGER CONSIDERATION.
(a) On the Closing Date, certificates representing the Parent
Shares issuable to the Shareholders shall be delivered to the Shareholders.
Parent will issue separate stock certificates as requested by any Shareholder
and reflected on SCHEDULE I hereto, in order to reflect different tax holding
periods among such Parent Shares or for any other reasonable purpose.
(b) In the event that any certificate representing Company Shares
shall have been lost, stolen or destroyed, Parent shall issue in exchange
therefor, upon making of an affidavit of that fact by the holder thereof, such
Merger Consideration as may be required pursuant to this Agreement; PROVIDED,
HOWEVER, that Parent may, in its discretion, require the delivery of a suitable
bond or indemnity.
(c) All Merger Consideration paid upon the surrender of Company
Shares in accordance with the terms hereof shall be deemed to have been paid in
full satisfaction of all rights pertaining to such Company Shares, and there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the Company Shares which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, certificates
representing capital stock of the Company are presented to the Surviving
Corporation for any reason they shall be canceled as provided in this ARTICLE
II.
(d) Neither Parent nor the Surviving Corporation shall be liable
to any holder of Company Shares for Parent Shares delivered to a public official
pursuant to any applicable abandoned property escheat or similar law.
2.11. ADDITIONAL CONSIDERATION.
(a) Subject to SECTION 2.12, and as additional consideration and
in exchange for the Merger and the Company Shares, with respect to each of the
Fiscal Years ending on December 31, 2000 and December 31, 2001, Parent shall
distribute to the
10
<PAGE>
Shareholders on each Distribution Date (as defined below) the number of
Parent Shares equal to the Additional Merger Consideration. For the purposes
of this SECTION 2.11, "ADDITIONAL MERGER CONSIDERATION" shall mean the number
of Parent Shares equal to the number determined by dividing (i) the
applicable dollar amount set forth opposite the Revenues for such Fiscal Year
as reflected on EXHIBIT B hereto (the "EARN-OUT DOLLAR AMOUNT") (it being
understood that Revenue amounts between specified levels are subject to
interpolation on a straight line basis) minus the Revenue Adjustment Amount
or Second Revenue Adjustment Amount (both as defined below), as the case may
be, if any, provided in SECTION 2.12(c), by (ii) the Average Stock Price on
the date that is two trading days prior to the applicable Distribution Date
(the "DISTRIBUTION AVERAGE"); PROVIDED, HOWEVER, that in no event shall the
Distribution Average used to calculate the Additional Merger Consideration be
more than $50.45 (representing a stock price increase of 20% of the Initial
Stock Price) or less than $29.43 (representing a stock price decrease of 30%
of the Initial Stock Price).
(b) The amounts to be distributed to Shareholders pursuant to
SECTION 2.11(a) with respect to either of the foregoing Fiscal Years (each an
"EARN-OUT AMOUNT") shall be distributed to Shareholders pro rata according to
their respective percentage ownership of the Company immediately prior to the
Effective Time, as reflected on SCHEDULE I hereto, within ten (10) days after
the completion of the Statement (as defined below) with respect to such Fiscal
Year (the "DISTRIBUTION DATE") in Parent Shares transferable pursuant to a
registration statement which Parent shall cause to be filed and declared
effective by the SEC (as defined below) prior to each Distribution Date on the
same terms and conditions provided in SECTION 6.13; PROVIDED, that, in addition
to those terms and conditions provided in SECTION 6.13, Parent may postpone the
effectiveness of any registration statement filed pursuant to this SECTION 2.11
for up to 45 days if Parent's board of directors determines that the sale of
Parent Shares would reasonably be expected to have an adverse effect on any
proposal or plan by Parent or any of its Subsidiaries to engage in any
acquisition of assets or capital stock (other than in the Ordinary Course of
Business) or any merger, consolidation, tender offer or similar transaction;
PROVIDED, HOWEVER, that, in such event the Effective Period (as defined below)
for such registration statement shall be extended by the number of days during
the postponement period. Parent agrees to issue stock certificates reflecting
the Earn-Out Amounts in denominations reasonably requested by the Shareholders.
(c) As soon as practicable after the Closing, the Executives and
Parent will mutually establish "agreed upon procedures" reasonably consistent
with the preparation of the 1999 Financial Statements to be used in determining
Revenues for purposes of calculating the Earn-Out Amounts. Not later than ninety
(90) days after the end of each of the foregoing Fiscal Years, an independent
auditor (the "AUDITOR") to be mutually agreed upon by Parent and the Executives
will determine Revenues for purposes of the Earn-Out Amount for that Fiscal Year
in accordance with such agreed upon procedures and will prepare a statement of
Revenues relating thereto (the "STATEMENT"). The fees and disbursements of the
Auditor incurred in the preparation of the Statement shall be paid 50% by the
Shareholders and 50% by Parent; PROVIDED, HOWEVER, that if Ernst & Young LLP, or
such other firm as shall then be the regular independent auditors of Parent, is
to serve as the Auditor, Parent shall pay 100% of the fees and disbursements of
such Auditor.
11
<PAGE>
2.12. REVENUE AND EBITDA ADJUSTMENTS.
(a) The parties have contemplated that Revenues of the Company
for the 1999 Fiscal Year (the "1999 REVENUES") will be at least $3,500,000 and
that EBITDA for the 1999 Fiscal Year (the "1999 EBITDA") will be at least
$290,000.
(b) On or before March 31, 2000, the Company Accountant's shall
prepare and deliver to Parent and the Company, the 1999 Financial Statements and
the calculation of 1999 Revenues and 1999 EBITDA, including the underlying
working papers therefor, setting forth the Company's calculation of 1999
Revenues and 1999 EBITDA, together with a letter from the Company Accountants to
the effect that, based on agreed upon procedures, nothing has come to the
attention of such Company Accountants that causes them to believe that 1999
Revenues and 1999 EBITDA have not been determined in accordance with GAAP.
Parent and the Company each hereby agree that the results of the Company
Accountants shall be conclusive and binding on each of them, and the final
determination of 1999 Revenues and 1999 EBITDA as approved by such firm shall
prevail. The fees and disbursements of the Company Accountants incurred in the
preparation of the 1999 Financial Statements shall be paid 50% by the
Shareholders and 50% by Parent.
(c) As provided in SECTION 2.11(a), if the 1999 Revenues are less
than $3,150,000, the Earn-Out Dollar Amount for the 2000 Fiscal Year shall be
reduced by an amount (the "REVENUE ADJUSTMENT AMOUNT") equal to $11,850,000
multiplied by a fraction, the numerator of which is an amount equal to the
difference between $3,150,000 and the 1999 Revenues and the denominator of which
is $3,150,000. If the Earn-Out Dollar Amount for the 2000 Fiscal Year is less
than the Revenue Adjustment Amount, then the Earn-Out Amount for the 2000 Fiscal
Year shall be zero and the Earn-Out Dollar Amount for the 2001 Fiscal Year shall
be reduced by an amount (the "SECOND REVENUE ADJUSTMENT AMOUNT") equal to the
difference between the Earn-Out Dollar Amount for the 2000 Fiscal Year and the
Revenue Adjustment Amount. If the Earn-Out Dollar Amount for the 2001 Fiscal
Year is less than the Second Revenue Adjustment Amount, then the Earn-Out Amount
for the 2001 Fiscal Year shall be zero and, within five Business Days after the
Distribution Date for the 2001 Fiscal Year, the Shareholders, pro rata according
to their respective percentage ownership of the Company immediately prior to the
Effective Time, as reflected on SCHEDULE I hereto, shall pay to Parent an amount
equal to the difference between the Earn-Out Dollar Amount for the 2001 Fiscal
Year and the Second Revenue Adjustment Amount. Such payment to Parent may be
made, at the sole discretion of the Shareholders, in immediately available funds
or in Parent Shares. For purposes of this payment, the Parent Shares shall be
valued in the same manner as described in SECTION 9.5(d).
(d) If the actual 1999 EBITDA is less than $120,000, Parent and
the Shareholders shall discuss in good faith an appropriate reduction in the
Earn-Out Amount for the 2000 Fiscal Year or other appropriate changes in the
other terms of the transactions contemplated by this Agreement to be mutually
agreed upon in writing by Parent and the Shareholders. In the event the parties
are unable to agree on such reduction or other appropriate change, the parties
shall proceed to binding arbitration as provided in SECTION 9.3. Nothing in this
SECTION 2.12(d) will affect the issuance of Parent Shares as Merger
Consideration pursuant to SECTION 2.8. The parties acknowledge that the
adjustment formula for differences in Revenues from the estimate
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set forth in SECTION 2.12(c) is not necessarily appropriate for application
in the case of EBITDA differences.
2.13. FORM OF CONSIDERATION. With the written consent of the
Executives in their sole discretion, in lieu of delivering the Parent Shares
described in SECTION 2.8(a) above, Parent may elect to pay all or any portion of
such Initial Merger Consideration in cash. In the event that Parent elects to
pay any portion of the Initial Merger Consideration in cash rather than Parent
Shares, on the Closing Date, (i) Parent will pay to the Shareholders on a pro
rata basis in immediately available funds to an account designated by each
Shareholder prior to the Closing Date that portion of the Initial Merger
Consideration so converted to cash and (ii) the Company Shares shall be deemed
to have been converted into the right to receive cash by virtue of the Merger to
the extent of such cash payment, based on the $16,850,000 value of the Merger
Consideration.
2.14. ADJUSTMENT EVENTS. If, between the date of this Agreement and
the Effective Time, the outstanding Parent Shares shall have been changed into
or exchanged for a different number of shares or kind of shares of Parent or
another corporation or entity by reason of any reclassification, split-up, stock
dividend or stock combination or merger or any arrangement, amalgamation or
similar statutory procedure (an "ADJUSTMENT EVENT"), then the Closing Conversion
Share Amount and the Earn-Out Amounts shall be reasonably and equitably
adjusted. If the Adjustment Event occurs between the Effective Time and a
Distribution Date, the Earn-Out Amounts shall be reasonably and equitably
adjusted. If the record date for any such Adjustment Event shall be prior to the
Effective Time or a Distribution Date, as applicable, but the payment date
therefor shall be subsequent to the Effective Time or a Distribution Date, as
applicable, Parent shall take such action as shall be required so that on such
payment date the Shareholders shall be entitled to receive such number or kind
of shares as such holder would have received as a result of such event if the
record date therefor had been immediately after the Effective Time or a
Distribution Date, as applicable.
ARTICLE III.
CLOSING DELIVERIES
3.1. DELIVERIES BY THE COMPANY AND THE SHAREHOLDERS AT THE CLOSING. At
the Closing, the Company and the Shareholders, as the case may be, shall
deliver, or cause to be delivered:
(a) the Employment Agreements;
(b) Except as provided in SECTION 2.10(b), certificates
representing all of the Company Shares;
(c) certificate of good standing issued by the State Corporation
Commission of the Commonwealth of Virginia for the Company, dated not more than
five days prior to the Closing Date;
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(d) a certificate, dated as of the Closing Date and signed by the
Company's President or a Vice President, as to the fulfillment of the conditions
set forth in SECTION 7.3;
(e) a certificate executed by the Secretary of the Company, dated
as of the Closing Date, certifying resolutions adopted by the Company's board of
directors relating to the transactions contemplated by this Agreement and the
Employment Agreements;
(f) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder; and
(g) such other documents and items as Parent may reasonably
request, including, without limitation, evidence of the release of the liens
described on SCHEDULE 7.3(e) and evidence of payment of any amounts due pursuant
to the IRS Installment Agreement described in SECTION 7.3.
3.2. DELIVERIES BY PARENT AND MERGER SUB AT THE CLOSING. At the
Closing, Parent and Merger Sub shall deliver, or cause to be delivered:
(a) the Employment Agreements;
(b) certificates representing the Parent Shares to be distributed
pursuant to SECTION 2.8(a);
(c) a certificate, dated as of the Closing Date and signed by
Parent's authorized representative, as to the fulfillment of the conditions set
forth in SECTION 7.2; and
(d) such other documents and items as the Company or the
Shareholders may reasonably request, including, without limitation, evidence of
the payment by Parent of the outstanding loans to First Market Bank, FSB
described in SECTION 7.3.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDERS
As a material inducement to Parent and Merger Sub to enter into this
Agreement, the Company and each of the Shareholders, severally, but not jointly,
hereby represent and warrant to Parent and Merger Sub, which representations and
warranties are, as of the date hereof, and will be, as of the Closing Date,
true, correct and complete:
4.1. ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia with full corporate power and corporate authority to
conduct the Business as it is presently being conducted, to own or lease, as
applicable, its assets and properties, and to perform all its obligations under
its Contracts. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
its properties owned or leased or the nature of its activities make such
qualification necessary,
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except where the failure to be so qualified or in good standing would not
have a Material Adverse Effect on the assets of the Company or the Business.
Copies of the Articles of Incorporation and bylaws of the Company, and all
amendments thereto, heretofore delivered to Parent, are accurate and complete
as of the date hereof.
4.2. SUBSIDIARIES. Except as set forth on SCHEDULE 4.2, the Company
does not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, trust, joint venture, association, or other
entity.
4.3. AUTHORIZATION.
(a) The Company has all requisite power and authority, and has
taken all action necessary, to execute, deliver and perform this Agreement and
the Employment Agreements, to consummate the transactions contemplated hereby
and thereby and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement and the Employment Agreements by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby have been duly approved by the board of directors of the
Company. No other corporate proceedings on the part of the Company are necessary
to authorize this Agreement and the Employment Agreements and the transactions
contemplated hereby and thereby. This Agreement has been duly executed and
delivered by the Company and is, and, upon execution and delivery of the
Employment Agreements, this Agreement and the Employment Agreements will be, the
legal, valid and binding obligations of the Company, enforceable against it in
accordance with their respective terms except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting creditors' rights generally and except insofar as the availability of
equitable remedies may be limited by applicable law.
(b) Each of the Shareholders has all requisite power and
authority, and has taken all action necessary, to execute, deliver and perform
this Agreement and the Employment Agreements to which he is a party, to
consummate the transactions contemplated hereby and thereby and to perform his
obligations hereunder and thereunder. This Agreement has been duly executed and
delivered by each of the Shareholders and is, and, upon execution and delivery
of the Employment Agreements, this Agreement and the Employment Agreements to
which each Shareholder is party will be, the legal, valid and binding
obligations of each of the Shareholders, enforceable against him in accordance
with their respective terms except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights generally and except insofar as the availability of equitable
remedies may be limited by applicable law.
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4.4. CAPITALIZATION.
(a) The SCHEDULE OF SHAREHOLDERS attached hereto as SCHEDULE I
sets forth the name of each Person holding any equity securities of the Company
or securities convertible into or exchangeable for equity securities of the
Company. The authorized capital stock of the Company consists of 100 shares of
Common Stock, all of which are issued and outstanding. All shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
non-assessable. No claim has been made or threatened to the Company asserting
that any Person other than a Person listed on SCHEDULE I is the holder or
beneficial owner of, or has the right to acquire beneficial ownership of, any
stock of, or any other voting, equity or ownership interest in the Company.
(b) Except as set forth on SCHEDULE 4.4, there are no (i)
outstanding warrants, agreements, convertible or exchangeable securities or
other commitments pursuant to which the Company is or may become obligated to
issue, sell, transfer, purchase, return or redeem any securities of the Company,
(ii) securities of the Company reserved for issuance for any purpose, (iii)
agreements pursuant to which registration rights in the capital stock of the
Company have been granted, (iv) shareholders agreements, whether written or
verbal, among any current and former shareholders of the Company or (v)
statutory or contractual preemptive rights or rights of first refusal with
respect to the Company Shares.
(c) The Company has issued all shares of its capital stock
pursuant to valid exemptions from registration under applicable federal and
state securities laws. There are no agreements between the Company's
shareholders with respect to the voting or transfer of the Company's capital
stock or with respect to any other aspect of the Company's affairs.
4.5. TITLE TO PROPERTIES AND ASSETS.
(a) Except as set forth on SCHEDULE 4.5(A), (i) the Company has,
or will have, as of the Closing, good and valid title to or, in the case of
leased properties or properties held under license, good and valid leasehold or
license interest in, all of its properties and assets and (ii) the Company holds
title to each such property and asset which it purports to own, free and clear
of all liens, adverse claims, mortgages, pledges, encumbrances, security
interest or charge of any kind other than Permitted Encumbrances. The
representations in this SECTION 4.5 do not apply to the Intellectual Property
Rights as to which only the representations in SECTION 4.20 shall apply.
(b) Except as set forth on SCHEDULE 4.5(b), all of the tangible
assets of the Company, are, or will be as of the Closing, in all material
respects in reasonably serviceable operating condition and repair and are
adequate for the conduct of the Business of the Company in substantially the
same manner as has heretofore been conducted.
(c) SCHEDULE 4.5(c) sets forth a true and complete list of all
real property owned or leased by the Company (collectively, the "REAL
PROPERTY"). Except as set forth on SCHEDULE 4.5(c), the Company has good and
marketable fee simple title to or a valid leaseholder interest in the Real
Property, free and clear of all Encumbrances, except Permitted Encumbrances.
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4.6. ABSENCE OF CERTAIN ACTIVITIES. Except as set forth on SCHEDULE
4.6, since December 31, 1999, there has not been:
(a) to the Company's knowledge, any damage, destruction or loss
to tangible property, whether or not covered by insurance, materially and
adversely affecting the assets, properties, financial condition, operating
results, prospects or business of the Company (as presently conducted and as
presently proposed to be conducted);
(b) any waiver by the Company of a material right or of a
material debt owed to it;
(c) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except such a
satisfaction, discharge or payment made in the Ordinary Course of Business or
that is not material to the assets, properties, financial condition, operating
results or business of the Company;
(d) any material change or amendment to a Material Contract (as
defined below) or arrangement by which the Company or any of its assets or
properties is bound or subject, except for changes or amendments which are
expressly provided for or disclosed in this Agreement or in the Ordinary Course
of Business;
(e) any material change in any compensation arrangement or
agreement with any present or prospective employee, contractor or director not
approved by the Company's Board of Directors; or
(f) to the Company's knowledge, any other event or condition of
any character which will materially and adversely affect the assets, properties,
financial condition, operating results or business of the Company.
4.7. CERTAIN ACTIONS. Except as set forth on SCHEDULE 4.7, since
December 31, 1999, the Company has not:
(a) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock;
(b) incurred any indebtedness for money borrowed or incurred any
other liabilities individually in excess of $25,000 or in excess of $50,000 in
the aggregate;
(c) made any loans or advances to any person, other than ordinary
advances for travel and other reasonable business expenses;
(d) sold, exchanged or otherwise disposed of any material assets
or rights other than the sale of inventory and licensing of software in the
Ordinary Course of Business; or
(e) entered into any transactions with any of its officers,
directors or employees or any entity controlled by any of such individuals
(other than employment, stock
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option, confidentiality, non-competition and intellectual property rights
agreements entered into in the Ordinary Course of Business and disclosed on
SCHEDULE 4.8 hereto).
4.8. MATERIAL CONTRACTS.
(a) All agreements, contracts, leases, licenses, instruments,
commitments (oral or written), indebtedness, liabilities and other obligations
to which the Company is a party or by which it is bound that (i) are material to
the conduct and operations of its Business and properties, (ii) involve any of
the officers, consultants, directors, employees or Shareholders of the Company
or (iii) obligate the Company to develop any product or technology outside the
Ordinary Course of Business (the "MATERIAL CONTRACTS") are listed in SCHEDULE
4.8 and have been made available for inspection by Parent and its counsel. For
purposes of this SECTION 4.8, "material" shall mean any agreement, contract,
indebtedness, liability or other obligation either (x) having an aggregate
value, cost or amount in excess of $50,000 per year or (y) having an aggregate
value, cost or amount in excess of $25,000 per year and not terminable upon
thirty days' notice.
(b) Each Material Contract is in full force and effect, paid in
accordance with past practices, and has not been materially impaired by any acts
or omissions of the Company. Except as set forth on SCHEDULE 4.8, no Material
Contract requires the consent of any other contracting party to the transactions
contemplated by this Agreement. All of the Material Contracts are valid, binding
and enforceable in accordance with their terms except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws affecting enforcement of creditors' rights generally and except
insofar as the availability of equitable remedies may be limited by applicable
law. To the Company's knowledge, no party is in Default under such Material
Contracts and the Company has not received notice of any claim of Default. The
Company is not aware of any intent by any party to any Material Contract to
terminate or amend the terms thereof or to refuse to renew any such Material
Contract upon expiration of its term, other than Material Contracts to ticket
single or one-time events. The Company is not currently paying liquidated
damages in lieu of performance thereunder.
4.9. COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in Default
of any term of the Company's Articles of Incorporation or bylaws or in any
material respect of any term or provision of any mortgage, indenture, contract,
agreement or instrument to which the Company is a party or by which it may be
bound. The execution, delivery and performance of and compliance with this
Agreement and the consummation of the transactions contemplated hereby will not
result in any such Default, or be in conflict with the Company's Articles of
Incorporation or bylaws, or to the Company's knowledge, a violation of any
Regulations or Court Orders, or an event which results in the creation of any
lien, charge or encumbrance upon any of the Company's assets.
4.10. FINANCIAL STATEMENTS. Except as set forth on SCHEDULE 4.10, The
Company heretofore has delivered to Parent true and correct copies of the
Financial Statements and the December 1999 Balance Sheet. The Financial
Statements (a) are complete in all material respects, (b) are in accordance with
the books and records of the Company and (c) fairly and accurately present the
financial position of the Company as of the respective dates thereof and
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the results of operations for the periods then ended in accordance with the
accounting methods historically used by the Company. The Financial Statements
have been compiled by the Company Accountants, whose report thereon is
included with such financial statements. Specifically, but not by way of
limitation, the balance sheet of the Financial Statements discloses all of
the Company's material debts, Liabilities and obligations of any nature,
whether due or to become due (other than contingent Liabilities unknown to
the Company), as of the date thereof to the extent such debts, Liabilities
and obligations are disclosed based on accounting practices historically used
by the Company. The Company has good and marketable title to all assets set
forth on the December 1999 Balance Sheet, except for such assets as have been
spent, sold or transferred in the Ordinary Course of Business since the date
thereof, subject to Permitted Encumbrances and those liens set forth on
SCHEDULE 4.5.
4.11. LIABILITIES. Except as set forth on SCHEDULE 4.11 and on the
December 1999 Balance Sheet, the Company has no indebtedness for borrowed money
that the Company has, directly or indirectly, created, incurred, assumed or
guaranteed, or with respect to which Company has otherwise become directly or
indirectly liable, other than in the Ordinary Course of Business.
4.12. TAXES.
(a) DEFINITIONS. For purposes of this Agreement:
(i) the term "TAX" (including with correlative meaning,
the terms "TAXES" and "TAXABLE") means (A) all federal, state, local, foreign
and other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, customs, duties or other taxes, fees, assessments or charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts with respect thereto, (B) any liability for payment
of amounts described in clause (A) whether as a result of transferee liability,
of being a member of an affiliated, consolidated, combined or unitary group for
any period, or otherwise through operation of law, and (C) any liability for the
payment of amounts described in clauses (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other person; and
(ii) the term "TAX RETURN" means any return, declaration,
report, statement, information statement and other document required to be filed
with respect to Taxes.
(b) Except for the Fiscal Years which were the subject of the IRS
Installment Agreement (as defined below) and to the extent of the matters
settled by the IRS Installment Agreement (the "SETTLED MATTERS"), the Company
has accurately prepared and timely filed all Tax Returns it is required to have
filed with respect to its past five Fiscal Years. Such Tax Returns are accurate,
complete and correct in all material respects and do not contain a disclosure
statement under Section 6662 of the Code (or any predecessor provision or
comparable provision of state, local or foreign law).
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(c) The Company has paid all Taxes it is required to have paid,
other than amounts owing in connection with the IRS Installment Agreement.
(d) Except as set forth on SCHEDULE 4.12(d):
(i) no written claim has been made against the Company
by any taxing authority in any jurisdiction where the Company does not file Tax
Returns that it is or may be subject to Tax by that jurisdiction; and
(ii) except for the Settled Matters, no extensions or
waivers of statutes of limitations with respect to the Tax Returns have been
given by or requested from the Company, other than in connection with the IRS
Installment Agreement.
(e) SCHEDULE 4.12(e) sets forth:
(i) those taxable years for which the Company has
knowledge that examinations by taxing authorities are presently being conducted;
(ii) those years for which written notice of pending or
threatened examination or adjustment has been received; and
(iii) those years for which required income Tax Returns
have not yet been filed.
(f) Except to the extent indicated in SCHEDULE 4.12(f), all
deficiencies asserted or assessments made against the Company as a result of any
examinations by any taxing authority have been fully paid or otherwise resolved.
(g) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company, other than as disclosed
on SCHEDULE 4.5.
(h) The Company is not a party to or bound by any tax indemnity,
tax sharing or tax allocation agreement.
(i) The Company is not a party to or bound by any closing
agreement or offer in compromise with any taxing authority, other than the IRS
Installment Agreement.
(j) Except to the extent indicated in SCHEDULE 4.12(j):
(i) the Company has never been a member of an affiliated
group of corporations, within the meaning of Section 1504 of the Code (or any
predecessor provision or comparable provision of state, local or foreign law),
or a member of combined, consolidated or unitary group for state, local or
foreign Tax purposes;
(ii) the Company has no liability for Taxes of any person
(other than the Company and its subsidiaries) under Treasury Regulations Section
1.1502-6 (or any corresponding provision of state, local or foreign income Tax
law), as transferee or successor, by contract, or otherwise;
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(iii) the Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income Tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income Tax law) apply to any disposition of any asset owned by
it; and
(iv) the Company has not been a personal holding company
under Section 542 of the Code.
(k) The Company has not agreed to make, nor is it required to
make, any adjustment under Sections 481(a) or 263A of the Code or any comparable
provision of state or foreign tax laws by reason of a change in accounting
method or otherwise. The Company has not taken action that is not in accordance
with past practice that could defer a liability for Taxes of the Company from
any taxable period ending on or before the Closing Date to any taxable period
ending after such date.
(l) The Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in connection with this Agreement or any change of control of the
Company, in the payment of any "excess parachute payments" within the meaning of
Section 280G of the Code; PROVIDED that the Company makes no representation that
the transactions under this Agreement and the Employment Agreements viewed in
isolation would not result in the payment of any "excess parachute payment."
(m) SCHEDULE 4.12(m) sets forth all foreign jurisdictions in
which the Company is subject to tax, is engaged in business or has a permanent
establishment.
(n) The Company is not a party to any joint venture, partnership,
or other arrangement or contract which will be treated as a partnership for
federal income tax purposes.
(o) No material election with respect to Taxes of the Company
will be made by the Executives or the Company after the date of this Agreement
without the prior written consent of Parent.
(p) None of the income recognized, for federal, state, local or
foreign income tax purposes, by the Company during the period commencing on the
date hereof and ending on the Closing Date will be derived other than in the
ordinary course of business.
(q) The provisions for Taxes currently payable on the December
1999 Balance Sheet are at least equal, as of the date thereof, to all unpaid
Taxes of the Company, whether or not disputed.
4.13. ENVIRONMENTAL MATTERS. During the period that the Company has
owned or leased its properties and facilities, (a) to the Company's knowledge,
there have been no disposals, releases or threatened releases of Hazardous
Materials (as defined below) on, from or under such properties or facilities and
(b) neither the Company, nor, to the Company's knowledge, any third party, has
used, generated, manufactured or stored on, under or about such
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properties or facilities or transported to or from such properties or
facilities any Hazardous Materials. The Company has no knowledge of any
presence, disposals, releases or threatened releases of Hazardous Materials
on, from or under any of such properties or facilities, which may have
occurred prior to the Company having taken possession of any of such
properties or facilities. For purposes of this Agreement, the terms
"disposal," "release" and "threatened release" shall have the definitions
assigned thereto by the U.S. Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as
amended ("CERCLA"). For the purposes of this SECTION 4.13, "HAZARDOUS
MATERIALS" shall mean any hazardous or toxic substance, material or waste
which is regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous material," "toxic substance" or
"hazardous chemical" under (i) CERCLA; (ii) the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Section 11001 ET SEQ.; (iii) the U.S.
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, ET SEQ.; (iv)
the U.S. Toxic Substances Control Act, 15 U.S.C. Section 2601 ET SEQ.; (v)
the U.S. Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 ET
SEQ.; (vi) regulations promulgated under any of the above statutes or (vii)
any applicable state or local statute, ordinance, rule, or Regulation that
has a scope or purpose similar to those statutes identified above, but shall
not include normal cleaning, housekeeping or pest control products or
photocopying materials.
4.14. EMPLOYEE BENEFITS.
(a) For all purposes of this Agreement,
(i) "EMPLOYEE PENSION BENEFIT PLAN" means any employee
pension benefit plan, as defined in Section 3(2) of ERISA, that is subject to
Title IV of ERISA, other than a Multiemployer Plan.
(ii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(iii) "MULTIEMPLOYER PLAN" means a multiemployer plan, as
defined in Section 3(37) and 4001(a)(3) of ERISA.
(b) The Company does not currently sponsor and has not ever
sponsored, maintained, contributed to, or incurred an obligation to contribute
to, any Employee Pension Benefit Plan on behalf of or with respect to any
employee of the Company. The Company does not currently sponsor, maintain or
contribute to any Multiemployer Plan covering its employees.
4.15. COMPLIANCE WITH LAW. To the Company's knowledge, the Company and
the conduct of the Business are not in violation of any Regulations and Court
Orders relating to the Business or operations of the Company, except where such
violation would not have, either individually or in the aggregate, a Material
Adverse Effect. The Company has not received any notice to the effect that, or
otherwise been advised that, it is not in compliance with any such Regulations
or Court Orders, and the Company does not know of any existing circumstances
that would result in violations of any of the foregoing.
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4.16. PERMITS. SCHEDULE 4.16 sets forth a complete list of all Permits
used in the operation of the Business or otherwise held by the Company in
connection with the Business, all of which are as of the date hereof, and all of
which will be as of the Closing Date, in full force and effect. The Company has
all Permits required under any Regulation in the operation of the Business and
owns or possesses such Permits free and clear of all Encumbrances except
Permitted Encumbrances, and except such Permits the failure of which to obtain
would not have a Material Adverse Effect on the Assets or the Business. The
Company is not in Default and has not received any notice of any claim of
Default, with respect to any such Permit. Except as otherwise governed by law,
all such Permits are renewable by their terms or in the Ordinary Course of
Business without the need to comply with any special qualification procedures or
to pay any amounts other than routine filing fees and will not be adversely
affected by the completion of the transactions contemplated by this Agreement.
Except as set forth on SCHEDULE 4.16, no present or former shareholder,
director, officer or employee of the Company or any Affiliate thereof, or any
other Person, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permit which the Company owns, possesses or uses.
4.17. CONSENTS AND APPROVALS. Except as set forth on SCHEDULE 4.17 and
except for filings, permits, authorizations, consents and approvals as may be
required under, and other applicable requirements, of state securities laws, and
the filing and recordation of the Merger Articles as required by the VSCA, no
consent, approval or authorization of, declaration to, or filing or registration
with, any governmental or regulatory authority, or any other Person, is required
to be made or obtained by the Company or any of its Affiliates in connection
with the execution, delivery and performance by the Company of this Agreement
and the consummation of the transactions contemplated hereby.
4.18. LITIGATION. Except as set forth on SCHEDULE 4.18, there is no
action, suit, proceeding, Court Order, claim, arbitration or investigation
("PROCEEDING") pending (or, to the Company's knowledge, currently threatened)
against the Company, its activities, properties or assets or, to the Company's
knowledge, against any officer, director or employee of the Company in
connection with such officer's, director's or employee's relationship with, or
actions taken on behalf of, the Company, other than usual customer complaints in
the Ordinary Course of Business. To the Company's knowledge, there is no factual
or legal basis for any such Proceeding that might result, individually or in the
aggregate, in any Material Adverse Change in the Business, properties, assets,
condition (financial or otherwise) or operations of the Company. There is no
Proceeding by the Company currently pending or which the Company intends to
initiate.
4.19. LABOR MATTERS.
(a) The Company is not bound by or subject to (and none of
its assets or properties is bound by or subject to) any written or oral, express
or implied, contract, commitment or arrangement with any labor union, and no
labor union has requested or, to the knowledge of the Company, has sought to
represent any of the employees, representatives or agents of Company. There is
no strike or other labor dispute involving the Company pending, or to the
knowledge of the Company, threatened, which could have a Material Adverse Effect
on the assets, properties, financial condition, operating results or Business of
the Company, nor is the Company aware of any labor organization involving its
employees.
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(b) SCHEDULE 4.19(b) sets forth the names of each of the
key, exempt employees (I.E., those employees whose annual cash compensation
exceeds $50,000 and who are considered "exempt" from the payment of overtime) of
the Company, and also sets forth the base payment made to such key employee each
pay period as of the date hereof and projections for the current Fiscal Year of
other incentive compensation (including bonuses) for each person named therein.
SCHEDULE 4.19(b) also lists as of the date hereof the names of all other
employees of the Company (other than call center telephone operators), the
hourly pay rates of compensation and the job titles for all such employees. The
Company is not aware that any officer or key employee, or that any group of key
employees, intends to terminate his or her employment with the Company, nor does
the Company have a present intention to terminate the employment of any of the
foregoing. SCHEDULE 4.19 also sets forth all written employment agreements
between the Company and any employee of the Company. To the Company's knowledge,
no employee or director of the Company is a party to, or is otherwise bound by,
any nondisclosure, confidentiality, noncompetition, proprietary rights,
employment, consulting or similar agreement, between such employee or director
and any other Person that materially adversely affects or will affect the
performance of his or her duties as an employee or director of the Company.
4.20. INTELLECTUAL PROPERTY.
(a) CERTAIN DEFINITIONS. When used in this SECTION 4.20, the
following capitalized terms shall have the following meanings:
(i) "CONTENT" means content and information (including
editorial and advertising content and information) of whatever type and in
whatever medium, including without limitation, all text, graphics (including
JPEG and GIF files), images, artwork and audiovisual materials, in each case
whether in analog or digital format, displayed on a website, excluding
executable software programs. The following are examples of items that
constitute "Content" of a website.
(A) text displayed on a website in the form of
reviews, features, listings, event calendars,
promotional and descriptive text (such as
headlines and teasers), site taxonomy and
nomenclature;
(B) audio and video (both streaming and downloadable)
clips;
(C) animations;
(D) format and structure and overall design and
appearance of the user interface;
(E) archival and original materials, such as text
documents, uncompressed images (such as Photoshop
or Illustrator artwork), and uncompressed audio
and video clips; and
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(F) artwork for banners and other images designed to
promote content and functionality.
(ii) "INTELLECTUAL PROPERTY RIGHTS" means intellectual
property rights arising from or in respect of the following, whether protected,
created or arising under the laws of the United States or any other
jurisdiction:
(A) fictional business names, trade names, trademarks
and service marks (whether registered or
unregistered, including any applications for
registration of any of the foregoing), logos,
Internet domain names, trade dress rights and
general intangibles of a like nature, together
with the goodwill associated with any of the
foregoing (collectively, "MARKS");
(B) patents and applications therefor, including
continuation, divisional, continuation-in-part, or
reissue patent applications and patents issuing
thereon (collectively, "PATENTS");
(C) copyrights and registrations and applications
therefor (collectively, "COPYRIGHTS");
(D) proprietary and confidential information which
constitute trade secrets such as proprietary and
confidential know-how, inventions, discoveries,
concepts, ideas, methods, processes, designs,
formulae, technical data, drawings,
specifications, and data bases in each case
excluding any of the foregoing to the extent the
rights therein comprise or are protected by
Copyrights or Patents (collectively, "TRADE
SECRETS"); and
(E) moral rights, publicity rights and any other
intellectual, proprietary or similar intangible
rights of any kind or nature that do not comprise
or are not protected by Marks, Patents,
Copyrights, or Trade Secrets (collectively, "OTHER
IP RIGHTS").
(iii) "SOFTWARE" means any and all (w) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code, (x) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (y) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing, and (z)
all documentation, including user manuals and training software, relating to any
of the foregoing, in each case developed or licensed by the Company, or used in
or necessary for the conduct of its Business, specifically excluding those items
prepared for customers in the operation of the Company's Business for which the
customer contractually has vested title.
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(iv) "2b MARKS" means the marks 2b, MTN and Vista and
related design marks, together with the goodwill of the business symbolized
thereby, and all Intellectual Property Rights therein or thereto.
(v) "2b CONTENT" means Content used or acquired for use
in connection with the Business.
(b) MARKS. Except as may be set forth in SCHEDULE 4.20(b), the
Company makes the following representations and warranties with respect to the
2b Marks:
(i) None of the 2b Marks has been registered and the
Company has filed no application for registration of any 2b Mark other than the
application identified on SCHEDULE 4.20(b) that is currently pending before the
United States Patent and Trademark Office. The Company is the owner of all
right, title and interest in and to the 2b Marks, free and clear of any and all
Encumbrances, covenants, conditions or other adverse claims or interests of any
kind or nature other than Permitted Encumbrances and those liens disclosed on
SCHEDULE 4.5, and the Company has not received any notice challenging the
Company's ownership of such rights in the 2b Marks or suggesting that any other
Person has any claim of legal or beneficial ownership with respect thereto.
(ii) the Company has not received any notice or claim
(whether written or oral) challenging the validity or enforceability of the 2b
Marks;
(iii) the Company has not granted to any Person any right,
license or permission to use the 2b Marks;
(iv) to the knowledge of the Company, there is no
trademark or service mark or application therefor of any other Person that is
conflicting with the 2b Marks and the use of the 2b Marks in the manner used by
the Company as of the Closing Date does not create a likelihood of confusion
with any trade name, trademark or service mark of any other Person; and
(v) to the knowledge of the Company, there has been no
prior use of the 2b Marks by any third party which would confer upon such third
party superior rights in the 2b Marks vis-a-vis the uses of the 2b Marks by the
Company as of the Closing Date.
(c) 2b CONTENT. the Company has not registered (with the United
States Copyright Office or in the appropriate office in any foreign
jurisdiction) any Copyrights that relate to 2b Content, nor has the Company
filed any pending applications for registration of such Copyrights anywhere in
the world. Except as may be set forth on SCHEDULE 4.20(c):
(i) The Company has not received any written notice or
claim challenging or questioning the validity or enforceability of any Copyright
covering material 2b Content or indicating an intention on the part of any
Person to bring a claim that any such Copyright is invalid, is unenforceable or
has been misused and, to the knowledge of the Company, no such Copyright
otherwise has been challenged or threatened in any way;
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(ii) The Company has not taken any action with regard to
the licensing of any Copyright covering any 2b Content that is owned exclusively
by the Company (collectively, "OWNED CONTENT COPYRIGHTS") that , to the
knowledge of the Company, would result in the unenforceability of any of the
Owned Content Copyrights;
(iii) The Company has not granted to any Person any right,
license or permission to exercise any rights under any of the Owned Content
Copyrights, including without limitation any exclusive or non-exclusive right to
display, distribute, develop, prepare derivative works based on, or otherwise
commercially exploit any 2b Content, other than (A) non-exclusive linking and
framing arrangements with museums and other client venues and search engines and
other portal websites in the Ordinary Course of Business, (B) non-exclusive use
licenses granted to end users and (C) rights retained by developers of Content
that are customarily retained by independent contractors that develop Content
for third parties, in each case in the Ordinary Course of Business;
(iv) The Company has acquired all rights, licenses or
permissions necessary to display, publish, distribute and otherwise commercially
exploit in connection with the Business as of the Closing all 2b Content as to
which the Company is not the exclusive owner (collectively, "THIRD PARTY 2b
CONTENT"), and the Company has received no notice from any third party
questioning or challenging the Company's right so to exploit any Third Party 2b
Content; and
(v) The Company's rights with respect to Third Party 2b
Content shall be exercisable by Parent on and after the Closing to the same
extent as exercisable by the Company prior to the Closing.
(d) PATENTS.The Company does not own any Patents.
(e) TRADE SECRETS. The Company has taken reasonable precautions
as described in SCHEDULE 4.20(e) to protect the secrecy, confidentiality and
value of all other material Trade Secrets of the Company (collectively, "OWNED
TRADE SECRETS"). Except as may be set forth in SCHEDULE 4.20(e):
(i) the Company owns all of the Owned Trade Secrets and
none of the Owned Trade Secrets is subject to any Encumbrances or other adverse
claims or interests of any kind or nature other than Permitted Encumbrances and
those liens disclosed on SCHEDULE 4.5, and the Company have not received any
notice challenging its ownership of any of the Owned Trade Secrets;
(ii) with respect to each Owned Trade Secret other than
know-how that is generally not documented, the documentation relating thereto is
sufficient in detail and content to identify and explain it and to allow its
full and proper use without reliance on the special knowledge or memory of
others;
(iii) except under appropriate confidentiality obligations
that, to the Company's knowledge, have been fully observed and performed in all
material respects, there has been no disclosure by the Company of material
confidential information or other Owned Trade Secrets to any other Person; and
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(iv) to the knowledge of the Company, no other Person has
misappropriated any of the Owned Trade Secrets.
(f) OWNERSHIP. The Company is the owner of all right, title and
interest in and to the Owned Content Copyrights free and clear of any and all
Encumbrances, covenants, conditions or other adverse claims or interests of any
kind or nature other than Permitted Encumbrances and those liens disclosed on
SCHEDULE 4.5, and the Company has not received any notice challenging the
Company's ownership of the Owned Content Copyrights or suggesting that any other
Person has any claim of legal or beneficial ownership with respect thereto.
(g) INFRINGEMENT. Except as may be set forth in SCHEDULE 4.20(g),
the Company is not a party to any legal action or proceeding, nor is, or during
one-year period prior to date hereof has been, any legal action or proceeding
been threatened in writing, that involves or involved a claim of infringement,
misappropriation or other wrongful use or exploitation, either (i) by the
Company against any other Person or (ii) by any Person against the Company, of
any Intellectual Property Right used or exploited by the Company. To the
knowledge of the Company, no other Person has infringed, misappropriated,
violated or otherwise wrongfully exploited any Owned Content Copyright in any
material manner. Except as may be set forth in SCHEDULE 4.20(g), the use or
other exploitation by the Company of the 2b Marks, the 2b Content or any other
Content owned by the Company and displayed on www.2btech.com immediately prior
to the Closing, do not conflict with, infringe upon, violate, result in a
misappropriation of, or otherwise involve any material wrongful use or
exploitation of, any patent, copyright, trade secret or other Intellectual
Property Right or other right of any Person, nor is any of the foregoing subject
to any outstanding order, judgment, decree, stipulation or agreement materially
restricting the use thereof by the Company or, in the case of the 2b Marks and
the Owned Content Copyrights, restricting the sale, transfer, assignment or
licensing thereof by the Company to any Person. Except as may be set forth in
SCHEDULE 4.20(g), the Company has the exclusive right to bring actions against
any Person that is infringing the 2b Marks or any Owned Content Copyrights, and
to retain for itself any damages recovered in any such action.
(h) EMPLOYEE ASSIGNMENT AGREEMENTS. Except as set forth in
SCHEDULE 4.20(h), all current and former employees and consultants of the
Company whose duties or responsibilities relate to the development of Content or
Owned Software have entered into assignment and proprietary information
agreements with the Company in substantially the form provided to Parent. To the
Company's knowledge, no employee or consultant of the Company whose duties or
responsibilities relate to the development of Content or Owned Software is
obligated under any agreement (including licenses, covenants or commitments of
any nature) or subject to any Court Order or any other restriction that would
interfere with the use of his or her best efforts to carry out his or her duties
for the Company or to promote the interests of the Company. To the knowledge of
the Company, the carrying on of the Business by such employees and contractors
of the Company and the conduct of the Business as presently proposed, will not,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees or consultants or the Company is now obligated. Except as
set forth in SCHEDULE 4.20(h) and to the knowledge of the Company, it will not
be necessary to utilize any intellectual property of any employees of the
Company (or Persons the Company currently
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intends to hire) acquired prior to their employment by the Company in order
to continue to use, display and exploit any 2b Content or any Owned Software
(it being acknowledged that any such employees will in any event be required
to utilize programming and design experience, techniques and know-how that is
customarily used in developing similar Content or Software).
(i) SOFTWARE. SCHEDULE 4.20(i) sets forth an accurate description
of all of the Software, excluding licensed software that is contained in
standard desktop applications and is available in consumer retail stores other
than Software used in, or used in connection with the development of, any of the
Company's products (such licensed Software that is so contained in standard
desktop applications and so available is collectively referred to herein as
"COTS"). SCHEDULE 4.20(i) specifically identifies all Software that is owned
exclusively by the Company (the "OWNED SOFTWARE") and all Software that is used
by the Company in the conduct of the Business that is not exclusively owned by
the Company (excluding COTS) (the "LICENSED SOFTWARE"). Except as may be set
forth in SCHEDULE 4.20(i):
(i) the Company is the owner of all right, title and
interest in and to all Owned Software, including without limitation all
Copyrights, Trade Secrets and Other IP Rights relating thereto, free and clear
of any and all Encumbrances, covenants, conditions and restrictions or other
adverse claims or interests of any kind or nature other than Permitted
Encumbrances and those liens disclosed on SCHEDULE 4.5, and the Company has not
received any notice challenging the Company's ownership of all Owned Software
and all such Intellectual Property Rights relating thereto or suggesting that
any other person has any claim of legal or beneficial ownership with respect
thereto;
(ii) the Company has not assigned, licensed, transferred
or encumbered any of its rights in or to any Owned Software except for Permitted
Encumbrances and those liens disclosed on SCHEDULE 4.5, including without
limitation any Copyrights, Trade Secrets or Other IP Rights with respect
thereto, to any person, excluding any non-exclusive use licenses granted to
customers in the Ordinary Course of Business;
(iii) no source code of any Owned Software has been
licensed or, to the Company's knowledge, otherwise made available to any person,
and the Company has treated such source code, and the data associated therewith,
as confidential and proprietary business information, and has taken all
reasonable steps to protect the same as trade secrets of the Company;
(iv) any person identified in SCHEDULE 4.20(i) as having
received any such source code or data relating to Owned Software is legally
bound by an appropriate confidentiality and non-disclosure obligation with
respect thereto and the Company is not aware of any material breach of any such
agreement or any threatened disputes or disagreements with respect thereto;
(v) none of the Software products licensed by the
Company to third parties contains any Software that embodies Intellectual
Property Rights of any person other than the Company, except for such Software
obtained by the Company from other third parties that make such Software
generally available to all interested purchasers or end-users on
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standard commercial terms and that have expressly licensed the Company to
utilize such Software in the manner such Software has been utilized;
(vi) the Company has been granted all necessary the
rights or permission to use the Licensed Software that is material to the
conduct of the Business, as it is used in the conduct of their Business as
presently conducted, and has not exercised any rights in respect of any Licensed
Software, including without limitation any reproduction, distribution or
derivative work rights, outside the scope of any license or permission granted
by the person from which the right to use such Licensed Software was obtained;
and
(vii) no royalties, fees, honoraria or other payments are
payable by the Company to any person by reason of the ownership, use, sale,
licensing, distribution or other exploitation of any Software or any
Intellectual Property Rights of the Company (excluding any salaries or
consulting fees payable to employees or contractors of the Company in the
Ordinary Course of Business that are not based on revenues arising from such
exploitation).
(j) PERFORMANCE OF EXISTING SOFTWARE PRODUCTS. Except as may be
set forth in SCHEDULE 4.20(j), to the knowledge of the Company, all Owned
Software products that the Company has distributed to third parties function in
all material respects in the intended manner free of any significant bugs or
programming errors.
(k) SOFTWARE DOCUMENTATION. The Company has taken reasonable
actions to document the Software and its operation, such that the Software,
including the source code and documentation, may be modified and maintained in
an efficient manner by reasonably competent programmers.
(l) AGREEMENTS IN RESPECT OF LICENSED TECHNOLOGY. SCHEDULE
4.20(l) contains a complete and accurate specific list of all written agreements
pertaining to Licensed Software (excluding COTS) (collectively, "LICENSED
SOFTWARE AGREEMENTS") and a complete and accurate specific list of all written
agreements pertaining to any other technology (other than COTS) used or
practiced by the Company as to which a person other than the Company owns the
applicable Intellectual Property Rights other than technology incorporated in
commercial products generally available for sale or license to the public (I.E.,
Microsoft office products, computers, fax machines) (collectively, "OTHER
LICENSED TECHNOLOGY AGREEMENTS" and, together with Licensed Software Agreements,
the "LICENSED TECHNOLOGY AGREEMENTS"). SCHEDULE 4.20(l) sets forth a complete
and accurate list of all royalty obligations of the Company under any Licensed
Technology Agreements. Except as may be set forth in SCHEDULE 4.20(l):
(i) all Licensed Technology Agreements are in full force
and effect, and the Company is not in material breach thereof, nor has the
Company received any notice to the contrary;
(ii) all Licensed Technology Agreements will be
maintained by the Company in full force and effect through the Closing;
(iii) there are no outstanding disputes or disagreements
with respect to any Licensed Technology Agreement;
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(iv) the expiration dates of all Licensed Technology
Agreements are sufficiently distant from the date hereof such that no potential
impairment of the value of any of the Company's products could reasonably be
imputed by virtue of the non-renewal of the term of any Licensed Technology
Agreement;
(v) to the Company's knowledge, the rights licensed
under each Licensed Technology Agreement shall be exercisable by the Company on
and after the Closing to the same extent as prior to the Closing;
(vi) the Licensed Technology Agreements together
expressly confer on the Company valid and enforceable rights under or in respect
of all of the Intellectual Property Rights that are not owned exclusively by the
Company and that are used or practiced in the Company's business (collectively,
the "LICENSED INTELLECTUAL PROPERTY"); and
(vii) Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
conflict with or result in a breach of any of the terms, conditions or
provisions of, or constitute a default under, or result in the impairment of any
rights under, any Licensed Technology Agreement.
(m) AGREEMENTS INVOLVING DISTRIBUTION OR OTHER RIGHTS GRANTED TO
THIRD PARTIES IN RESPECT OF OWNED SOFTWARE. SCHEDULE 4.20(m) contains an
accurate specific list of all agreements and arrangements involving the grant by
the Company to any person of any right to distribute, prepare derivative works
based on, support or maintain or otherwise commercially exploit (through
distribution or licensing arrangements) any Owned Software, including without
limitation any value-added reseller agreements, joint development or marketing
agreements or strategic alliance agreements involving any Owned Software
(collectively, "DESIGNATED SOFTWARE AGREEMENTS"). Except as may be set forth in
SCHEDULE 4.20(m):
(i) all Designated Software Agreements are in full force
and effect, and to the Company's knowledge the Company is not in material breach
thereof, nor has the Company received any notice to the contrary;
(ii) all Designated Software Agreements will be
maintained by the Company in full force and effect through the Closing;
(iii) there are no outstanding disputes or disagreements
with respect to any Designated Software Agreement; and
(iv) to the Company's knowledge, neither the execution
and delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will conflict with or result in a breach of any of the
terms, conditions or provisions of, or constitute a default under any Designated
Software Agreement.
(n) SUFFICIENCY OF OWNED AND LICENSED INTELLECTUAL PROPERTY. To
the Company's knowledge, except as set forth in SCHEDULE 4.20(n), the 2b Marks,
Owned Content Copyrights, Trade Secrets and Licensed Intellectual Property,
including without limitation the foregoing to the extent they apply to any
Software, constitute all of the Intellectual Property
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Rights necessary for the conduct of the Company's Business as presently
conducted or contemplated to be conducted by the Company's existing business
plan and constitute all of the Intellectual Property Rights necessary to
operate such business after the Closing in substantially the same manner as
such business heretofore has been operated by the Company.
(o) DISABLING CODES AND CONTAMINANTS. To the Company's knowledge,
all of the Software is free of any disabling codes or instructions (a "DISABLING
CODE"), and any virus or other intentionally created, undocumented contaminant
(a "CONTAMINANT"), that may, or may be used to, access, modify, delete, damage
or disable the Material Systems or that may result in damage thereto, in each
case that would have a Material Adverse Effect on the Business. The Company has
taken reasonable steps and implemented reasonable procedures to ensure that the
Owned Software and Material Systems are free from Disabling Codes and
Contaminants. Except as may be set forth in SCHEDULE 4.20(o), the Company has in
place appropriate disaster recovery plans, procedures and facilities and has
taken all reasonable steps to safeguard its Material Systems and restrict
unauthorized access thereto. "MATERIAL SYSTEMS" means, with respect to any
person, all internal computer systems, communications systems, embedded control
systems and facilities infrastructure systems that are material to the business,
financial and accounting controls and operations of such person.
(p) Due to the evolving nature of intellectual property laws
relating to the Company, the parties particularly recognize that representations
in this SECTION 4.20 calling for a legal conclusion are meant as risk allocation
measures and their breach, in and of themselves, will not create a presumption
or evidence that the Company or the Shareholders engaged in actual fraud,
intentional misrepresentation or active concealment.
4.21. TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth SCHEDULE
4.21, no officer or director of any of the Company or any Affiliate of any such
person has had, either directly or indirectly, a material interest in: (a) any
person or entity which purchases from or sells, licenses or furnishes to the
Company any goods, property, technology, intellectual or other property rights
or (b) any contract or agreement to which the Company is a party or by which it
may be bound or affected.
4.22. INSURANCE. SCHEDULE 4.22 sets forth a complete and correct list
of all insurance policies of the Company of any kind currently in force and also
sets forth for each insurance policy the type of coverage, the insurer, the
expiration date and the amounts of coverage. All insurance coverage applicable
to the Company and the Business is in full force and effect, and, to the
Company's knowledge, insures the Company in reasonably sufficient amounts
against the risks disclosed in such policies. Except as set forth on SCHEDULE
4.22, the Company has no self-insurance or co-insurance programs.
4.23. ACCOUNTS RECEIVABLE. The accounts receivable set forth on the
December 1999 Balance Sheet represent BONA FIDE claims of the Company against
debtors for products sold or licensed or services performed or other charges
arising on or before the date hereof. Except for accounts receivable set forth
on SCHEDULE 4.23, to the Company's knowledge, such accounts receivable are
subject to no defenses, counterclaims or rights of setoff and are fully
collectible in the Ordinary Course of Business without material cost in
collection efforts therefor, subject to the expected write-off in the Ordinary
Course of Business. Ordinary Course of Business for this
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purpose means write-offs of no more than 15% of the accounts receivable on
the December 1999 Balance Sheet.
4.24. CUSTOMERS.
(a) SCHEDULE 4.24 sets forth a true and correct list of the ten
largest customers of the Company in terms of revenues during the Fiscal Year
ended December 31, 1999, showing the approximate total products sold or services
performed by the Company to or for each such customer during each such period.
(b) No customer of the Company listed on SCHEDULE 4.24 has
notified the Company in writing or otherwise of the Company's material default
in the performance of services for such customer.
4.25. CERTAIN BUSINESS PRACTICES. To the Company's knowledge, none of
the directors, officers, agents or employees of the Company has, in each case in
connection with the Business, (a) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses, including without limitation,
expenses related to political activity, (b) made any unlawful payment to foreign
or domestic government officials or employees or to foreign or domestic
political parties or campaigns, made any bribes or kickback payments or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (c)
made any other unlawful payment, in each case except where any such payment
would not have a Material Adverse Effect.
4.26. NO BROKERS. Except as set forth on SCHEDULE 4.26, none of the
Company or any of the Company's officers, directors, employees or Shareholders
has entered into nor will enter into any contract, agreement, arrangement or
understanding with any broker, finder or similar agent or any Person which will
result in the obligation of Parent, the Company or any of their respective
Affiliates to pay any finder's fee, brokerage fees or commission or similar
payment in connection with the transactions contemplated hereby.
4.27. MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties by the Company or the Shareholders in this Agreement, or, to the
Company's knowledge, any written document, exhibit, statement, certificate or
schedule heretofore furnished to Parent pursuant hereto, or in connection with
the transactions contemplated hereby, including, without limitation, the
Schedules hereto, contains any untrue statement of a material fact, or omits to
state any material fact necessary to make the statements or facts contained
therein not misleading.
4.28. BOOKS AND RECORDS. The Company has made and kept (and given
Parent access to) its true and correct books and records and accounts, which,
in reasonable detail, accurately and fairly reflect in all material respects
the fiscal activities of the Company in accordance with its historic
accounting practices. The minute books of the Company previously made
available to Parent accurately and adequately reflect in all material
respects all action previously taken by the shareholders, board of directors
and committees of the board of directors of the Company. The copies of the
stock book records of the Company previously made
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available to Parent are true, correct and complete, and accurately reflect
all transactions effected in the stock of the Company through and including
the date hereof.
4.29. BANK ACCOUNTS. SCHEDULE 4.29 contains a true, correct and
complete list of all bank accounts maintained by the Company, including each
account number and the name and address of each bank and the name of each person
who has signature power with respect to each such account.
4.30. EXEMPTION FROM HSR ACT. The Company and its "ultimate parent
entity" (as defined under the HSR Act) did not have (a) annual sales of
$10,000,000 or more in the most recently completed Fiscal Year or (b) total
assets, as shown on the most recent regularly prepared balance sheet, of
$10,000,000 or more.
4.31. TITLE TO COMPANY SHARES. Each Shareholder has legal and valid
title to the Company Shares held by such Shareholder, free and clear of any and
all liens, security interests, pledges, mortgages, charges, limitation, claims,
restrictions, rights of first refusal, rights of first offer, rights of first
negotiation or other encumbrance of any kind or nature whatsoever, other than
Encumbrances created by the Company.
4.32. REPRESENTATION REGARDING PARENT SHARES. Each of the
Shareholders, severally, but not jointly, hereby represent and warrant to Parent
and Merger Sub as follows:
(a) INVESTIGATION; ECONOMIC RISK. Each of the Shareholders
acknowledges that he has had an opportunity to discuss the business, affairs and
current prospects of Parent with its officers. Each of the Shareholders further
acknowledges having had access to information about Parent that it has
requested. Each of the Shareholders acknowledges that he is able to fend for
himself in the transactions contemplated by this Agreement and has the ability
to bear the economic risks of holding Parent Shares pursuant to this Agreement.
(b) PURCHASE FOR OWN ACCOUNT. The Parent Shares to be acquired by
each of the Shareholders hereunder will be acquired for such Shareholder's own
account, not as a nominee or agent, and not with a view to or in connection with
the sale or distribution of any part thereof, except for such transfers made
under an effective Registration Statement or such other transfer as may be in
compliance with applicable securities laws as provided in an opinion, acceptable
in form to Parent, delivered to Parent by counsel for the Shareholders prior to
any such transfer.
(c) RESTRICTED PARENT SHARES. Each of the Shareholders
understands that the Parent Shares being issued are not currently registered and
that the Restricted Parent Shares must be held pursuant to the provisions of
SECTION 6.11 below.
(d) RESTRICTIVE LEGENDS. It is understood by each of the
Shareholders that:
(i) each certificate representing the Restricted Parent
Shares and any other securities issued in respect of the Restricted Parent
Shares upon any stock split, stock dividend, recapitalization, merger or similar
event shall be stamped or otherwise imprinted with a legend substantially in the
following form:
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THAT CERTAIN AGREEMENT AND PLAN OF MERGER, DATED AS OF
JANUARY 30, 2000, BY AND BETWEEN TICKETMASTER ONLINE-CITYSEARCH, INC.,
TICKETMASTER MERGER SUB, 2B TECHNOLOGY, INC. AND THE SHAREHOLDERS THEREOF
(THE "MERGER AGREEMENT"), THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE NUMBER OF SHARES
REPRESENTED HEREBY IS SUBJECT TO ADJUSTMENT PURSUANT TO THE MERGER
AGREEMENT.
(ii) each certificate representing the
Transferable Parent Shares and any other securities issued in respect of the
Transferable Parent Shares upon any stock split, stock dividend,
recapitalization, merger or similar event shall be stamped or otherwise
imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE NUMBER OF SHARES
REPRESENTED HEREBY IS SUBJECT TO ADJUSTMENT PURSUANT TO THAT CERTAIN
AGREEMENT AND PLAN OF MERGER, DATED AS OF JANUARY 30, 2000, BY AND
BETWEEN TICKETMASTER ONLINE-CITYSEARCH, INC., TICKETMASTER MERGER SUB,
2B TECHNOLOGY, INC. AND THE SHAREHOLDERS THEREOF.
(e) REMOVAL OF RESTRICTIVE LEGEND. The legends set
forth above shall be removed by Parent within five Business Days from any
certificate evidencing (i) Restricted Parent Shares, (A) with respect to the
legend regarding the Act, upon the transfer of such Restricted Parent Shares in
accordance with the Registration Statement and (B) with respect to the lock-up,
upon the transfer of such Restricted Parent Shares subsequent to the expiration
of the Lock-up Period (as defined below) and (ii) Transferable Parent Shares
upon the transfer of such Transferable Parent Shares in accordance with the
Registration Statement.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Each of Parent and Merger Sub hereby represents and warrants
to each of the Company and the Shareholders as follows, which representations
and warranties are, as of the date hereof, and will be, as of the Closing Date,
true and correct:
5.1. ORGANIZATION OF PARENT AND MERGER SUB. Each of Parent and
Merger Sub is duly organized, validly existing and in good standing under the
laws of its state of organization with full power and authority to conduct its
business as it is presently being conducted, to own or lease, as applicable, its
assets, and to perform all its obligations under its contracts. Each of Parent
and Merger Sub is duly qualified to do business as a foreign entity and is in
good standing in each jurisdiction where the character of its properties owned
or leased or the nature of its activities make such qualification necessary,
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect on Parent or Merger Sub, as the case may be.
5.2. AUTHORIZATION. Each of Parent and Merger Sub has all
requisite power and authority, and has taken all action necessary, to execute
and deliver this Agreement and the Employment Agreements to which it is a party,
to consummate the transactions contemplated hereby and thereby and to perform
its obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Employment Agreements by each of Parent and Merger Sub and the
consummation by each of Parent and Merger Sub of the transactions contemplated
hereby and thereby have been duly approved by the boards of directors of each of
Parent and Merger Sub. No other proceeding on the part of each of Parent and
Merger Sub are necessary to authorize this Agreement and the Employment
Agreements and the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by each of Parent and Merger Sub and is,
and upon execution and delivery the Employment Agreements will be, a legal,
valid and binding obligation of each of Parent and Merger Sub, enforceable
against each of Parent and Merger Sub in accordance with their respective terms
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and except insofar as the availability of equitable remedies may be limited by
applicable law
5.3. COMPLIANCE WITH OTHER INSTRUMENTS. Each of Parent and
Merger Sub is not in any Default of any term of its charter or bylaws or in any
material respect of any term or provision of any mortgage, indenture, contract,
agreement or instrument to which Parent of Merger Sub is a party or by which it
may be bound. The execution, delivery and performance of and compliance with
this Agreement and the consummation of the transactions contemplated hereby will
not result in any such Default, or be in conflict with Parent's or Merger Sub's
charter or bylaws, or, to Parent's knowledge, a violation of any statutes, laws,
Regulations or Court Orders, or an event which results in the creation of any
lien, charge or encumbrance upon any of the assets of Parent or Merger Sub.
Parent has furnished to the Shareholders true and accurate copies of its
Certificate of Incorporation and Bylaws.
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5.4. CONSENTS AND APPROVALS. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements, of state securities laws, and the filing and
recordation of the Merger Articles as required by the VSCA no consent, approval
or authorization of, declaration to, or filing or registration with, any
governmental or regulatory authority, or any other Person, is required to be
made or obtained by each of Parent and Merger Sub in connection with the
execution, delivery and performance by each of Parent and Merger Sub of this
Agreement and the consummation of the transactions contemplated hereby.
5.5. NO PRIOR ACTIVITIES. Except for the obligations of Merger
Sub pursuant to or relating to this Agreement, Merger Sub has neither incurred
any obligation or liability nor engaged in any business or activity of any type
or kind whatsoever or entered into any agreement or arrangement with any person.
Merger Sub is a wholly-owned first-tier subsidiary of Parent.
5.6. LITIGATION. There is no Proceeding pending, or to the
knowledge of each of Parent and Merger Sub, threatened or anticipated against or
affecting Parent and Merger Sub or either of them which has or might be
reasonably expected to have a Material Adverse Effect on the ability of each of
Parent and Merger Sub to perform any of its obligations hereunder or on the
consummation of the transactions contemplated by this Agreement, or on the
condition (financial or otherwise), business, results of operations, assets,
prospects, liabilities or operations of Parent or Merger Sub.
5.7. PUBLIC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has
furnished or made available to the Company a true and complete copy of its
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and its
Report on Form 10-Q for the nine months ended September 30, 1999 (the "SEC
DOCUMENTS"), which Parent filed under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), with the SEC. As of their respective dates, the
SEC Documents complied in all materials respects with the requirements of the
Exchange Act and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they are made,
not misleading. There has been no change in the Parent's operations resulting in
a Material Adverse Effect of the Parent since September 30, 1999. The financial
statements of Parent, including the notes thereto, included in the SEC Documents
(the "PARENT FINANCIAL STATEMENTS") comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by applicable rules and regulations of the
SEC) and fairly present the consolidated financial position of Parent at the
dates thereof and of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments). There has been no change in Parent accounting policies except as
described in the notes to the Parent Financial Statements. Parent has no
material obligations other than (i) those set forth in the Parent Financial
Statements and (ii) those not required to be set forth in the Parent Financial
Statements under GAAP.
5.8. VALID ISSUANCE OF STOCK. The Parent Shares to be issued
hereunder, when issued and delivered in accordance with the terms of this
Agreement, will be duly and validly issued, fully paid and non assessable, free
and clear of all liens, claims, encumbrances and
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adverse interests of any kind, except for the adjustments provided in SECTION
2.8(b). All Parent Shares upon issuance will have the rights, privileges and
preferences set forth in Parent's Certificate of Incorporation and Bylaws for
such class of shares. The Parent Shares will be issued in compliance with
applicable federal and state securities laws.
5.9. NO BROKERS. Neither Parent, Merger Sub nor any of their
respective partners, Representatives or Affiliates has entered into nor will
enter into any contract, agreement, arrangement or understanding with any
broker, finder or similar agent or any Person which will result in the
obligation of the Company or the Shareholders to pay any finder's fee, brokerage
fees or commission or similar payment in connection with the transactions
contemplated hereby.
5.10. KNOWLEDGE OF PARENT. In the course of Parent's due
diligence review of the Company, nothing has come to the attention of Parent
that has given Parent actual knowledge of any circumstances that would cause the
Shareholders to be responsible for paying Damages to Parent pursuant to SECTION
9.2 of this Agreement. For the purposes of this SECTION 5.10, knowledge of
Parent shall mean only the knowledge of Bradley K. Serwin and Daniel C.
Marriott, officers of Parent.
ARTICLE VI.
COVENANTS OF ALL PARTIES
Each of the Company, the Shareholders, Parent and Merger Sub
covenants and agrees as follows:
6.1. CONDUCT OF BUSINESS. From the date hereof through the
Closing, the Company shall, and the Shareholders shall cause the Company to,
carry on its operations in the Ordinary Course of Business and will use its
reasonable best efforts not to take any action inconsistent with this Agreement.
Except as contemplated hereby or as may be incidental to or in furtherance of
the transactions contemplated hereby or as may have been set forth herein or in
the Schedules hereto, the Company shall, and the Shareholders shall cause the
Company to, use its best efforts to maintain the present character and quality
of the Business, including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers, customers and
employees. Without limiting the generality of the foregoing, unless consented to
by Parent in writing (which consent shall not be unreasonably withheld), the
Company, except as specifically contemplated by this Agreement, shall not:
(a) incur any indebtedness for borrowed or purchase
money or letters of credit, or assume, guarantee, endorse (other than
endorsements for deposit or collection in the Ordinary Course of Business), or
otherwise become responsible for obligations of any other Person except in the
Ordinary Course of Business;
(b) issue or redeem any securities;
(c) make or incur any obligation to make any
distribution to its Shareholders;
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(d) make any change to its Articles of Incorporation
or Bylaws;
(e) mortgage, pledge or otherwise encumber any of its
assets or sell, transfer or otherwise dispose of any of its assets except in the
Ordinary Course of Business;
(f) make any investment of a capital nature either by
purchase of stock or securities, contributions to capital, property transfer or
otherwise, or by the purchase of any property or assets of any other Person,
except in the Ordinary Course of Business;
(g) terminate any Material Contract or make any
material change in any Material Contract not in the Ordinary Course of Business;
(h) make any change in any method of accounting or
accounting practice;
(i) with respect to the Business, other than in the
Ordinary Course of Business, (i) enter into or renew any employment contract,
(ii) pay or agree to pay any compensation to or for any employee, shareholder,
officer or director of the Company other than in the Ordinary Course of Business
and in the amounts and manner as such compensation has been paid by the Company
in the past, (iii) pay or agree to pay any bonus, incentive compensation,
service award or other like benefit or (iv) enter into or renew any employee
welfare, pension, retirement, profit-sharing or similar payment or arrangement;
(j) enter into or renew any other Material Contract
with respect to the Business which is not in the Ordinary Course of Business;
(k) distribute or incur any obligation to make any
distribution by the Company to the Shareholders; or
(l) do any other act which would cause any
representation or warranty of the Company in this Agreement to be or become
untrue in any material respect or that is not in the Ordinary Course of Business
consistent with past practice.
6.2. SHAREHOLDER ACKNOWLEDGMENT, WAIVER AND VOTING
AGREEMENT.
(a) Each Shareholder, by signing this Agreement
acknowledges and agrees that, pursuant to the terms of the Merger set forth in
this Agreement, all Company Shares will be canceled and extinguished and
converted into and become the right to receive the Parent Shares as provided in
SECTION 2.8(a) and the Additional Merger Consideration as provided in SECTION
2.11 (or, as provided in SECTION 2.13, cash) upon consummation of the Merger.
(b) Each Shareholder, by signing this Agreement,
agrees to vote all of his Company Shares in favor of the adoption and approval
of this Agreement and the approval of the Merger at any and all shareholder
meetings held for such purpose and to execute any and all written consents
containing a resolution adopting and approving this Agreement.
6.3. INVESTIGATION BY PARENT. The Company shall allow Parent
during regular business hours to make such investigation of the business,
properties, books and records of the
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Company, and to conduct such examination of the condition of the assets of the
Company and the Business as Parent reasonably deems necessary or advisable to
familiarize itself with the assets, properties, books, records and other matters
and to verify the representations and warranties of the Company hereunder,
including, without limitation, discussions with the Company's officers,
employees, independent accountants, actuaries, customers, distributors and
suppliers and other agents; PROVIDED that Parent and its representatives shall
conduct such investigation in a manner so as to minimize the disruption of the
Company's business and operations and shall execute such confidentiality
agreements as reasonably requested by the Company.
6.4. FURTHER ASSURANCES. Upon the terms and subject to the
conditions contained herein, the parties agree (i) to use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement and the Employment Agreements, (ii)
to execute any documents, instruments or conveyances of any kind which may be
reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder and thereunder and (iii) to cooperate with each other in
connection with the foregoing.
6.5. TRANSITIONAL MATTERS.
(a) Parent hereby acknowledges and agrees that it will
use its best efforts to ensure that, subsequent to the Closing, (i) the
Company, as the Surviving Corporation, will be operated as a wholly-owned
Subsidiary of Parent and Parent will not take or omit to take any action that
would materially and adversely affect the Shareholders' ability to earn the
Earn-Out Amounts, (ii) the Company will continue to be located in its current
geographical area and retain is current identity and (iii) the Executives
will be given general authority and control to manage and supervise the
day-to-day operations of the Company's Business and the fulfillment of its
business goals within the scope of their respective Employment Agreements and
in accordance with the budgets and capital resources described in
SECTION 6.5(b).
(b) Parent and the Company acknowledge and agree that,
promptly following the Closing (with respect to the 2000 Fiscal Year) and
prior to the beginning of the 2001 Fiscal Year (with respect to the 2001
Fiscal Year), the parties will jointly prepare an operating plan for the
Company that will include minimum and maximum working capital resources and
an annual budget for any applicable Fiscal Years; PROVIDED, HOWEVER, that
Parent shall have the right to approve the final operating plan in its
discretion, which approval will not be unreasonably withheld. Parent will not
take any action or inaction, whether related to budgeting, access to working
capital or otherwise, which will unreasonably impair the Executives' ability
to earn the maximum Earn-Out Amount for each of the 2000 and 2001 Fiscal
Years.
(c) The Executives shall be entitled to serve as
directors of the Company, and Eric K. Martin and Bryan T. Bostic shall be
entitled to hold the offices of President and Vice-Chairman, respectively, at
all times following the Merger that they are employed by the Company.
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(d) Parent hereby acknowledges and agrees that it
will use commercially reasonable efforts to ensure that, subsequent to the
Closing, Bryan T. Bostic be removed as guarantor from all outstanding
obligations of the Company and, in the event that Parent cannot remove Mr.
Bostic from the guarantees, Parent will add itself as a joint and several
additional guarantor.
6.6. AGREEMENTS WITH EXECUTIVES. In connection with the
transactions contemplated hereby and pursuant to the terms and conditions
outlined in the Letter of Intent, Parent and the Company will enter into the
Employment Agreements with each of the Executives.
6.7. NOTIFICATION OF CERTAIN MATTERS.
(a) The Company shall give prompt notice to Parent of
(i) the occurrence, or failure to occur, of any event before the Closing which
occurrence or failure causes any representation or warranty of the Company
contained in this Agreement, the Employment Agreements or any exhibit or
schedule to be untrue or inaccurate in any material respect and (ii) any
material failure of the Company or any of its Affiliates to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement, the Employment Agreements or any exhibit or schedule;
PROVIDED, HOWEVER, that such disclosure shall not be deemed to cure any breach
of a representation, warranty, covenant or agreement or to satisfy any
condition. The Company shall promptly notify Parent of any event or state of
facts before the Closing that constitutes a Material Adverse Effect.
(b) Parent shall give prompt notice to the Company of
(i) the occurrence, or failure to occur, of any event before the Closing which
occurrence or failure causes any representation or warranty of Parent or Merger
Sub contained in this Agreement, the Employment Agreements or any exhibit or
schedule to be untrue or inaccurate in any material respect and (ii) any
material failure of Parent or Merger Sub or any of their respective Affiliates
or Representatives, as applicable, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, the Employment Agreements or any exhibit or schedule; PROVIDED,
HOWEVER, that such disclosure shall not be deemed to cure any breach of a
representation, warranty, covenant or agreement or to satisfy any condition. To
the extent permitted by applicable securities laws, Parent shall promptly notify
the Company of any event or state of facts before the Closing that constitutes a
Material Adverse Effect.
6.8. ASSUMPTION OF RESPONSIBILITIES. The Company hereby
acknowledges and agrees that, upon ninety (90) days written notice from Parent,
the Company will assume all or any portion of Parent's ticketing
responsibilities with respect to certain venues as determined in Parent's
reasonable discretion after consultation with the Executives. In connection with
such assumption by the Company, Parent will also notify the Executives of any
appropriate increases to the working capital of the Company or other budgetary
constraints imposed by the assumption of such responsibilities by the Company
and will reasonably negotiate and resolve any budgetary issues with the
Executives prior to the assumption of any ticketing responsibility by the
Company.
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6.9. EMPLOYEE MATTERS. Parent intends to hire, as employees of
the Surviving Corporation, all employees of the Company on an at-will basis at
the Closing at the same compensation levels such employees received in the
Fiscal Year prior to the Closing, all pursuant to a notice in the form attached
hereto as EXHIBIT C. The Company and the Shareholders shall each use their best
efforts to assist Parent in employing such employees of the Company. In
addition, promptly after the Closing, at Parent's sole discretion, the employees
to be hired by the Surviving Corporation will be granted options to purchase
Parent Shares in amounts commensurate with those options provided to similarly
situated employees of Parent, such amount to be determined for each employee
based on the mutual and reasonable agreement of Parent and the Executives. In
addition, in accordance with Parent's normal compensation and review process,
all former employees of the Company hired by the Surviving Corporation will
receive salary adjustments and Parent option awards commensurate with other
employees of Parent in the same general positions and geographic locations, no
later than six months following the Closing.
6.10. PUBLIC ANNOUNCEMENTS. On and after the date hereof and
through the Closing Date, the Company and Parent shall consult with each other
before issuing any press releases or otherwise making any public statements with
respect to this Agreement or the transactions contemplated hereby, and none of
the parties shall issue any such press release or make any public statement
prior to obtaining the other parties' written approval, which approval shall not
be unreasonably withheld, except that no such approval shall be necessary to the
extent disclosure may be required by law or any listing agreement of any party
hereto.
6.11. LOCK-UP. Each of the Shareholders agrees that he, she or
it will not offer to sell, contract to sell, or otherwise sell, dispose of,
loan, pledge or grant any rights with respect to (collectively, a "DISPOSITION")
any Restricted Parent Shares for a period commencing on the Closing Date and
continuing to a date 180 days after the Closing Date (the "LOCK-UP PERIOD");
PROVIDED, HOWEVER, that nothing in the preceding sentence shall prohibit the
Shareholders from exchanging the Restricted Parent Shares for interests in a
diversified exchange fund or with a brokerage firm or from using a protective
put, costless collar or similar risk-limiting device in a private transaction.
Each of the Shareholders also consents to the entry of stop transfer
instructions by Parent's transfer agent and registrar prohibiting the transfer
of Restricted Parent Shares by the Shareholders except in compliance with the
foregoing restrictions.
6.12. TAX-FREE REORGANIZATION STATUS. Except as provided in
SECTION 2.13, Parent covenants and agrees, for a period of three years from the
Effective Time, not to undertake any act or fail to take any action within its
control that would jeopardize, prevent or eliminate the tax-free status of the
Merger under Section 368(a) of the Code, including without limitation merging
the Surviving Corporation with or into another corporation other than Parent or
failing to continue the Company's historic enterprise; PROVIDED, HOWEVER, that
if Parent assumes in writing the risk of elimination of the tax free status of
the Merger prior to such time, this covenant will lapse. Parent shall make all
Tax filings consistent with the treatment of the Merger as a tax-free
reorganization under Code Section 368(a), unless the Parent has given prior
written notice to the Shareholders specifying the basis for treating the Merger
as a taxable transaction and the Shareholders have had adequate time thereafter
to consult with Parent and/or to obtain a tax opinion from a nationally
recognized or otherwise acceptable law or accounting firm reasonably acceptable
to Parent in order to confirm that there is substantial authority, within
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the meaning of Section 6662 of the Code, for treating and reporting the Merger
as a tax-free transaction.
6.13. REGISTRATION STATEMENT. Parent shall promptly prepare at
its sole expense, with the cooperation of the Shareholders with respect to
information relating to the Shareholders or their sale of Parent Shares, and
Parent at its sole expense shall file with the SEC as soon as practicable
following the Closing, a Registration Statement on Form S-3 or other appropriate
short-form registration statement (the "REGISTRATION STATEMENT") under the
Securities Act of 1933, as amended (the "ACT"), with respect to all of the
following : (i) the Transferable Parent Shares, (ii) the Restricted Parent
Shares and (iii) the Maximum Additional Parent Shares. Parent, with the
cooperation of the Shareholders with respect to information relating to the
Shareholders or their sale of such Parent Shares, shall cause the Registration
Statement to comply as to form in all material respects with the applicable
provisions of the Act and the rules and regulations thereunder. Parent shall use
all reasonable efforts, and the Shareholders will cooperate with Parent, to have
the Registration Statement declared effective by the U.S. Securities and
Exchange Commission ("SEC") as promptly as practicable, but in any event no
later than seventy-five (75) days after the Closing Date. Parent shall use its
reasonable efforts to obtain, prior to the effective date of the Registration
Statement, all necessary state securities law or "Blue Sky" permits or approvals
required to carry out the sale of such Parent Shares by the Shareholders and
will pay all expenses incident thereto. Parent agrees that the Registration
Statement and each amendment or supplement thereto at the time it is filed or
becomes effective, will not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading and indemnifies and holds harmless the Shareholders with
respect to any breach of the foregoing; PROVIDED, HOWEVER, that the foregoing
shall not apply to the extent that any such untrue statement of a material fact
or omission to state a material fact was made by Parent in reliance upon and in
conformity with written information concerning the Shareholders furnished to
Parent by the Shareholders specifically for use in the Registration Statement or
any amendment thereto, and the Shareholders and their counsel have been given
reasonable opportunity to review the Registration Statement or any amendment
thereto prior to filing. Parent shall advise the Shareholders, promptly after it
receives notice thereof, of the time when the Registration Statement has become
effective. Parent shall cause the Registration Statement to remain effective
until the earlier of (1) the date at which all of the Parent Shares described in
clauses (i) through (iii) of the first sentence of this paragraph have been sold
by the Shareholders or (2) twelve months following the Registration Date (the
"EFFECTIVE PERIOD"). The Shareholders agree that (A) the written information
provided by each of them for inclusion in the Registration Statement and each
amendment or supplement thereto at the time it is filed or becomes effective,
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (B) such Shareholders, upon notification from Parent, shall not
use the Registration Statement to effect sales of Parent Shares for any
reasonable time period during which Parent is amending the Registration
Statement to reflect material developments, as specified in the notice from
Parent. Parent at its expense shall provide the shareholders with such number of
copies of the Registration Statement and any amendments thereto as any
Shareholder may reasonably request from time to time.
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ARTICLE VII.
CONDITIONS TO OBLIGATIONS
7.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGER. The respective obligations of each party hereto to consummate the
transactions provided for hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions:
(a) No Proceeding by any governmental authority or
other Person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to damage the assets of the Company or the Business
materially if the transactions contemplated hereby are consummated. There shall
not be any Regulation or Court Order that makes the transactions contemplated
hereby and by the Employment Agreements illegal or otherwise prohibited.
(b) Any governmental or regulatory notices or
approvals required under any Regulations to carry out the transactions
contemplated by this Agreement shall have been obtained and the parties shall
have complied with all Regulations applicable to the transactions contemplated
by this Agreement.
7.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS TO EFFECT THE
MERGER. The obligations of the Company to consummate the transactions provided
for hereby are subject to the satisfaction, on or prior to the Closing Date, of
each of the following conditions, any of which may be waived by the Company:
(a) All representations and warranties of Parent and
Merger Sub contained in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing
Date, except as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms hereof, and each of Parent and Merger Sub shall have
performed and satisfied in all material respects all agreements and covenants
required hereby to be performed by it prior to or on the Closing Date.
(b) Each of Parent and Merger Sub shall have tendered
for delivery the documents and other items to be delivered by such parties
pursuant to ARTICLE III of this Agreement.
(c) The Company and Parent shall have executed and
delivered the Employment Agreements.
7.3. CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB TO
EFFECT THE MERGER. The respective obligations of Parent and Merger Sub to
consummate the transactions provided for hereby are subject to the satisfaction,
on or prior to the Closing Date, of each of the following conditions, any of
which may be waived by Parent or Merger Sub:
(a) all representations and warranties of the Company
and the Shareholders contained in this Agreement shall be true and correct in
all material respects at and
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as of the date of this Agreement and at and as of the Closing Date, except as
and to the extent that the facts and conditions upon which such representations
and warranties are based are expressly required or permitted to be changed by
the terms hereof, and the Company and each of the Shareholders shall have
performed and satisfied in all material respects all agreements and covenants
required hereby to be performed by each of them prior to or on the Closing Date.
(b) The Company shall have tendered for delivery the
documents and other items to be delivered by such parties pursuant to ARTICLE
III of this Agreement.
(c) All Permits and Consents by governmental agencies
that are required for the consummation of the transactions contemplated hereby,
or by third parties that are required in order to prevent a breach of, a default
under, or a termination, change in the terms or conditions or modification of,
any instrument, contract, lease, license or other agreement to which the Company
is a party and which is denoted with an asterisk (*) on SCHEDULES 4.8 shall have
been obtained on terms and conditions satisfactory to Parent. In addition,
Parent shall have received from the Company the Consents set forth on SCHEDULE
4.17 hereto. In the event the Company cannot obtain certain Consents prior to
the Closing and Parent elects to waive this condition to Closing, the Company
shall have the continuing obligation after the Closing to use its commercially
reasonable efforts to endeavor to obtain all necessary consents.
(d) The Executives shall have executed and delivered
the Employment Agreements.
(e) All liens against the Company or any of its
assets or properties shall have been released, including, without limitation,
those liens listed on SCHEDULE 7.3(e) hereto.
(f) Any amounts owed by the Company pursuant to the
IRS Installment Agreement, IRS stamped on September 20, 1994, between the
Company and the IRS (the "IRS INSTALLMENT AGREEMENT"), shall have been paid in
full.
ARTICLE VIII.
TERMINATION
8.1. TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time whether before
or after approval and adoption of this Agreement by the Shareholders:
(a) by mutual written consent of Parent, Merger Sub,
the Company and the Shareholders;
(b) by Parent and Merger Sub or the Company and the
Shareholders if (i) any court of competent jurisdiction in the United States or
other United States Governmental Entity shall have issued a final order, decree
or ruling or taken any other final action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action is or
shall have become nonappealable or (ii) subject to the following, the Merger has
not been consummated by February 15, 2000 (the "OUTSIDE DATE"); PROVIDED that in
the event that the
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Closing is delayed by reason of events contemplated by SECTION 7.1, the Outside
Date shall be extended to February 29, 2000; PROVIDED FURTHER that no party may
terminate this Agreement pursuant to this clause (ii) if such party's failure to
fulfill any of its obligations under this Agreement shall have been the reason
that the Effective Time shall not have occurred on or before said date;
(c) by the Company and the Shareholders if (i) there
shall have been a breach of any representation or warranty on the part of Parent
or Merger Sub set forth in this Agreement or if any representation or warranty
of Parent or Merger Sub shall have become untrue, in either case such that the
conditions set forth in SECTION 7.2(a) would be incapable of being satisfied by
the Outside Date (as extended by SECTION 8.1(b)(ii) or otherwise) or (ii) there
shall have been a breach by Parent or Merger Sub of any of their respective
covenants or agreements hereunder having a Material Adverse Effect on Parent or
Merger Sub or materially adversely affecting (or materially delaying) the
consummation of the Merger, and Parent or Merger Sub, as the case may be, has
not cured such breach or event within twenty (20) Business Days after notice by
the Company thereof; PROVIDED that the Company has not breached any of its
obligations hereunder; or
(d) by Parent and Merger Sub if (i) there shall have
been a breach of any representation or warranty on the part of the Company or
the Shareholders set forth in this Agreement or if any representation or
warranty of the Company or the Shareholders shall have become untrue in either
case such that the conditions set forth in SECTION 7.3(a) would be incapable of
being satisfied by the Outside Date (as extended by SECTION 8.1(b)(ii) or
otherwise) or (ii) there shall have been a breach by the Company or the
Shareholders of any of their respective covenants or agreements hereunder having
a Material Adverse Effect on the Company or materially adversely affecting (or
materially delaying) the consummation of the Merger, and the Company or the
Shareholders, as the case may be, have not cured such breach or event within
twenty (20) Business Days after notice by Parent or Merger Sub thereof; PROVIDED
that neither Parent nor Merger Sub has breached any of their respective
obligations hereunder.
8.2. EFFECT OF TERMINATION. In the event of the termination
and abandonment of this Agreement pursuant to SECTION 8.1, this Agreement shall
forthwith become void and have no effect without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders other
than the provisions of this SECTION 8.2, the arbitration provisions of SECTION
9.3(b) and SECTION 10.12 hereof. Nothing contained in this SECTION 8.2 shall
relieve any party from liability for any breach of this Agreement.
ARTICLE IX.
INDEMNIFICATION
9.1. SURVIVAL OF REPRESENTATIONS. All statements contained in
any schedule or in any certificate or other document delivered by or on behalf
of the parties pursuant to this Agreement or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
parties hereunder. The representations and warranties of the Company, the
Shareholders, Parent and Merger Sub contained herein shall survive the Effective
Time until the later to occur of (a) forty five days after the delivery of the
audited
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financial statements for the Fiscal Year ending December 31, 2001 and (b) June
30, 2002; PROVIDED, HOWEVER, that: (i) the representations and warranties in
SECTION 4.14 ("Employee Benefit Plans") shall survive until the fifth
anniversary of the Effective Time, (ii) the representations and warranties set
forth in SECTIONS 4.3 and 5.2 ("Authorization"), 4.4 ("Capitalization"), 4.13
("Compliance with Environmental Laws"), 4.15 ("Compliance with Law"), 4.26 and
5.9 ("No Brokers") and SECTION 5.8 ("Valid Issuance of Stock") shall survive in
perpetuity, (iii) the representations and warranties in SECTION 4.12 ("Taxes")
shall survive the Effective Time until sixty days following the expiration of
any applicable statute of limitations (including any extensions thereof) and
(iv) the representations and warranties in SECTION 5.10 shall survive the
Effective Time so long as the applicable representations and warranties of the
Shareholders to which they apply survive. In the case of actual fraud,
intentional misrepresentation or active concealment, the representations and
warranties of such breaching party shall survive until the expiration of the
applicable statute of limitations. Any claims under this Agreement with respect
to a breach of a representation and warranty must be asserted by written notice
within the applicable survival period contemplated by this SECTION 9.1, and if
such a notice is given, the survival period for such representation and warranty
shall continue until the claim is fully resolved. Subject to SECTION 5.10, the
right to indemnification or other remedy based on the representations,
warranties, covenants and agreements herein will not be affected by any
investigation conducted with respect to, or any knowledge acquired (or capable
of being acquired) at any time, whether before or after the execution and
delivery of this Agreement or the Closing, with respect to the accuracy or
inaccuracy of or compliance with, any such representation, warranty, covenant or
agreement. All representations and warranties of each party set forth in this
Agreement shall be deemed to have been made again by such party at and as of the
Closing Date. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or agreement, will not affect the right to indemnification or other
remedy based on such representations, warranties, covenants and agreements,
unless such right is also expressly waived.
9.2. INDEMNIFICATION.
(a) Subsequent to the Closing, subject to the
limitations described below in SECTION 9.5, the Shareholders shall severally,
but not jointly, indemnify Parent and its respective Affiliates (including,
after the Closing, the Company), and each of its respective officers, directors,
employees, shareholders, partners and agents ("PARENT INDEMNIFIED PARTIES")
against, and hold each of the Parent Indemnified Parties harmless from, any
damage, claim, loss, cost, liability or expense, including without limitation,
interest, penalties, reasonable attorneys' fees and expenses of investigation
(other than those expressly allocated pursuant to SECTION 9.3(b)(3)),
consequential damages, response action, removal action or remedial action
(collectively "DAMAGES") incurred by such Parent Indemnified Party that arise
out of or relate to, whether directly or indirectly: (i) any misrepresentation
or breach of any warranty on the part of the Company or the Shareholders
contained in this Agreement or in any agreement, certificate or other instrument
delivered by the Company or the Shareholders pursuant to this Agreement or (ii)
any breach or non-performance by the Company or the Shareholders of any of their
respective covenants or agreements contained in this Agreement or in any
agreement, certificate or other instrument delivered by the Company or the
Shareholders pursuant to this Agreement.
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(b) Parent shall indemnify each of the Shareholders
("SHAREHOLDER INDEMNIFIED PARTIES"), against, and hold each of the Shareholder
Indemnified Parties harmless from, any Damages incurred by such Shareholder
Indemnified Party that arise out of or relate to, whether directly or
indirectly: (i) any breach of any representation or warranty of Parent or Merger
Sub contained in this Agreement or in any agreement, certificate or other
instrument delivered by Parent or Merger Sub pursuant to this Agreement or (ii)
any breach or non-performance by Parent or Merger of its covenants or agreements
contained in this Agreement or in any agreement, certificate or other instrument
delivered by Parent or Merger Sub pursuant to this Agreement.
(c) The term "DAMAGES" as used in this SECTION 9.2 is
not limited to matters asserted by third parties against Shareholder Indemnified
Parties or Parent Indemnified Parties, but includes Damages incurred or
sustained by such persons in the absence of third-party claims, and payments by
the indemnitee shall not be a condition precedent to recovery.
9.3. NOTICE OF CLAIMS.
(a) Any Parent Indemnified Party or Shareholder
Indemnified Party (the "INDEMNIFIED PARTY") seeking indemnification hereunder
shall, within the relevant limitation period provided for in SECTION 9.1 above,
give to the party obligated to provide indemnification to such Indemnified Party
(the "INDEMNITOR") a notice (a "CLAIM NOTICE") describing in reasonable detail
the facts giving rise to any claims for indemnification hereunder and shall
include in such Claim Notice (if then known) the amount or the method of
computation of the amount of such claim, and a reference to the provision of
this Agreement or any agreement, certificate or instrument executed pursuant
hereto or in connection herewith upon which such claim is based; PROVIDED, that
a Claim Notice in respect of any action at law or suit in equity by or against a
third Person as to which indemnification will be sought shall be given promptly
after the action or suit is commenced; and PROVIDED FURTHER, that failure to
give such notice shall not relieve the Indemnitor of its obligations hereunder
except to the extent it shall have been prejudiced by such failure.
(b) Indemnitor shall have thirty days after the
giving of any Claim Notice pursuant hereto to (i) agree to the amount or method
of determination set forth in the Claim Notice and to pay such amount to such
Indemnified Party in immediately available funds or (ii) to provide such
Indemnified Party with notice that it disagrees with the amount or method of
determination set forth in the Claim Notice (the "DISPUTE NOTICE"). Within
fifteen days after the giving of the Dispute Notice, a representative of
Indemnitor and such Indemnified Party shall negotiate in a BONA FIDE attempt to
resolve the matter. In the event that the controversy is not resolved within
thirty days of the giving of the Dispute Notice, the parties shall proceed to
binding arbitration pursuant to the following procedures:
(1) Any party may send another party written
notice identifying the matter in dispute and invoking the procedures of this
SECTION 9.3. Within 14 days, each party involved in the dispute shall meet at
a mutually agreed location in Chicago, Illinois, or such other location as
mutually agreed by the parties, for the purpose of determining whether they
can resolve the dispute themselves by written agreement, and, if not, whether
they
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can agree upon a third-party arbitrator to whom to submit the matter in dispute
for final and binding arbitration.
(2) If such parties fail to resolve the dispute by
written agreement or agree on the arbitrator within said 14-day period, any
such party may make written application to the American Arbitration
Association ("AAA") for the appointment of a panel of three arbitrators
(collectively, the "ARBITRATOR") to resolve the dispute by arbitration. At
the request of AAA the parties involved in the dispute shall meet with AAA at
its offices within ten calendar days of such request to discuss the dispute
and the qualifications and experience which each party respectively believes
the Arbitrator should have; PROVIDED, HOWEVER, that the selection of the
Arbitrator shall be the exclusive decision of AAA and shall be made within 30
days of the written application to AAA.
(3) Within 120 days of the selection of the
Arbitrator, the parties involved in the dispute shall meet in Chicago, Illinois,
or such other location as mutually agreed by the parties, with such Arbitrator
at a place and time designated by such Arbitrator after consultation with such
parties and present their respective positions on the dispute. The arbitration
proceeding shall be held in accordance with the rules for commercial arbitration
of the AAA in effect on the date of the initial request by for appointment of
the Arbitrator, that gave rise to the dispute to be arbitrated (as such rules
are modified by the terms of this Agreement or may be further modified by mutual
agreement of the parties) Each party shall have no longer than five days to
present its position, the entire proceedings before the Arbitrator shall be no
more than ten consecutive days, and the decision of the Arbitrator shall be made
in writing no more than 30 days following the end of the proceeding and shall
set forth in writing the grounds or basis of the Arbitrator's decision. Such an
award shall be a final and binding determination of the dispute and shall be
fully enforceable as an arbitration decision in any court having jurisdiction
and venue over such parties. Each party shall pay its own attorneys' fees and
expenses in connection with such proceeding. The parties shall equally bear the
Arbitrator's fees and expenses.
9.4. THIRD PERSON CLAIMS. If a claim by a third Person is made
against an Indemnified Party, and if such party intends to seek indemnity with
respect thereto under this ARTICLE IX, such Indemnified Party shall promptly
notify the Indemnitor in writing of such claims, setting forth such claims in
reasonable detail. The Indemnitor shall be relieved of its indemnification
obligations hereunder to the extent that notice is not delivered promptly and
the Indemnitor is prejudiced thereby. The Indemnitor shall have twenty days
after receipt of such notice to undertake, conduct and control, through counsel
of its own choosing and at its own expense, the settlement or defense thereof,
and the Indemnified Party shall cooperate with it in connection therewith;
PROVIDED that the Indemnified Party may participate in such settlement or
defense through counsel chosen by such Indemnified Party and paid at its own
expense; and PROVIDED FURTHER that, if in the reasonable opinion of counsel for
the Indemnitor, there is a reasonable likelihood of a conflict of interest
between the Indemnitor and the Indemnified Party, the Indemnitor shall be
responsible for reasonable fees and expenses of one counsel to such Indemnified
Party in connection with such defense. So long as the Indemnitor is reasonably
contesting any such claim in good faith, the Indemnified Party shall not pay or
settle any such claim without the consent of the Indemnitor. If the Indemnitor
does not notify the Indemnified Party within ten days after receipt of the
Indemnified Party's notice of a claim of indemnity
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hereunder that it elects to undertake the defense thereof, the Indemnified Party
shall have the right to undertake, at Indemnitor's cost, risk and expense, the
defense, compromise or settlement of the claim but shall not thereby waive any
right to indemnity therefore pursuant to this Agreement. The Indemnitor shall
not, except with the consent of the Indemnified Party, enter into any settlement
that does not include as an unconditional term thereof the giving by the person
or persons asserting such claim to all Indemnified Parties (I.E., the
Shareholder Indemnified Party or the Parent Indemnified Party, as the case may
be) of an unconditional release from all liability with respect to such claim or
consent to entry of any judgment.
9.5. LIMITATION ON INDEMNITY.
(a) Notwithstanding the foregoing, an Indemnitor
shall not be obligated to indemnify an Indemnified Party under SECTIONS 9.2(a)
or (b) unless and until the aggregate of all Damages suffered by such
Indemnified Parties hereunder exceeds $350,000 (the "THRESHOLD AMOUNT"),
whereupon, provided the other requirements of this ARTICLE IX have been complied
with, the full amount of such Damages, and all subsequent Damages, shall become
due and payable. Notwithstanding the foregoing, (a) no Threshold Amount shall
apply to the Company's representations and warranties set forth in SECTIONS 4.3,
4.4, 4.12 and 4.26 hereof, (b) no Threshold Amount shall apply to Parent's
representations and warranties set forth in SECTION 5.9 hereof and (c) no
Threshold Amount shall apply to the obligations of any party hereto to the
extent a breach results from actual fraud, intentional misrepresentation or
active concealment. In addition, notwithstanding any of the foregoing, the
Threshold Amount solely for any breaches by Parent and/or Merger Sub of its or
their covenants and agreements hereunder (other than representations and
warranties contained in ARTICLE V) shall equal $100,000, except in the case of
willful breaches of these covenants and agreements, in which case there shall be
no Threshold Amount.
(b) The total indemnity obligations of the
Shareholders shall not exceed the sum of $10,850,000 and all Earn-Out Amounts
(the "CAP"). Each Shareholder's maximum individual indemnity obligations shall
be the product of the Cap multiplied by such Shareholder's percentage ownership
of the Company immediately prior to the Effective Time, as reflected on SCHEDULE
I hereto. Parent shall have the right to offset any Damages suffered by the
Parent Indemnified Parties not previously indemnified by the Shareholders
against any Earn-Out Amount to be paid to the Shareholders prior to payment by
Parent of such Earn-Out Amount. The Cap shall not limit indemnification with
respect to breaches by the Shareholders or the Company of the representations
and warranties set forth in 4.3 ("Authorization"), 4.4 ("Capitalization"), 4.12
("Taxes") and 4.26 ("No Brokers").
(c) Except as provided in SECTION 9.5(a), the
Threshold Amount and Cap shall apply to all Damages regardless of whether
asserted as a breach under the Agreement or under any other theory or cause of
action.
(d) The Shareholders, at their election, shall be
entitled to pay any indemnification obligations hereunder in cash or Parent
Shares or any combination thereof, and if in Parent Shares, such Parent Shares
shall be valued at the Average Stock Price on the date that is two Business Days
prior to the date the amount due is finally determined; PROVIDED, HOWEVER, that
in no event shall the Parent Shares be valued at more than $50.45 (representing
a stock price
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increase of 20% of the Initial Stock Price) or less than $29.43 (representing a
stock price decrease of 30% of the Initial Stock Price).
9.6. REMEDIES. The remedies in this ARTICLE IX shall be the
exclusive remedies of the parties with respect to any breach of the respective
representations, warranties, covenants and agreements pursuant to this Agreement
or otherwise arising out of this Agreement, regardless of the theory or cause of
action plead, except for the remedies of specific performance, injunction and
other equitable relief; PROVIDED, HOWEVER, that no party hereto shall be deemed
to have waived any rights, claims, causes of action or remedies if and to the
extent such rights, claims, causes of action or remedies may not be waived under
applicable law or actual fraud, intentional misrepresentation or active
concealment is proven on the part of a party by another party hereto.
ARTICLE X.
MISCELLANEOUS
10.1. BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, their successors
and permitted assigns, in accordance with the terms hereof. Neither this
Agreement nor any of the rights or obligations hereunder may be assigned by the
Company or the Shareholders without the prior written consent of Parent, or by
Parent or Merger Sub without the prior written consent of the Shareholders,
except that Parent may, without such consent, assign the rights hereunder
(either before or after the Closing Date), to an Affiliate of Parent; PROVIDED,
HOWEVER, that no such assignment shall release Parent of any of its obligations
under this Agreement. Subject to the foregoing, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, and no other Person shall have any right, benefit or
obligation hereunder.
10.2. NOTICES. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to the
other shall be in writing and delivered in person or by courier, telegraphed,
telexed or by facsimile transmission or mailed by registered or certified mail,
postage prepaid, return receipt requested (such mailed notice to be effective on
the date of such receipt is acknowledged), as follows:
If to Parent or Merger Sub:
Ticketmaster Online-CitySearch, Inc.
790 E. Colorado Blvd., Suite 200
Pasadena, CA 91101
Attn: Bradley K. Serwin
Telephone: (626) 660-2567
Fax: (626) 405-9929
With copies to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
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Attention: Kenneth M. Doran
Telephone: (213) 229-7000
Fax: (213) 229-7520
If to the Company or the Shareholders:
2b Technology, Inc.
11551 Nuckols Rd., Suite #J
Glen Allen, VA 23060
Attention: Eric K. Martin
Telephone: (804) 747-4849
Fax: (804) 747-5112
With a copy to:
Hirschler, Fleischer, Weinberg, Cox & Allen
Federal Reserve Bank Building
701 East Byrd Street
P.O. Box 500
Richmond, VA 23218
Attention: S. Brian Farmer
Telephone: (804) 771-9504
Fax: (804) 644-0957
Any party may, from time to time, designate any other address
to which any such notice to such party shall be sent. Any such notice shall be
deemed to have been delivered upon receipt.
10.3. CHOICE OF LAW. This Agreement shall be construed,
interpreted and the rights of the parties determined in accordance with the laws
of the State of Delaware, as applied to agreements among Delaware residents
entered into and wholly to be performed within the State of Delaware (without
reference to any choice of law rules that would require the application of the
laws of any other jurisdiction).
10.4. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This
Agreement, together with the Employment Agreements and all exhibits and
schedules hereto, constitutes the entire agreement among the parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties. No supplement, modification or other amendment or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
10.5. COUNTERPARTS. This Agreement may be executed by
facsimile and in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
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10.6. SEVERABILITY. If any provision of this Agreement is
deemed or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; PROVIDED, HOWEVER, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision that is legal,
valid and enforceable. Further, should any provision contained in this Agreement
ever be reformed or rewritten by any judicial body of competent jurisdiction,
such provision as so reformed or rewritten shall be binding upon all parties
hereto.
10.7. HEADINGS. The headings of the Articles and Sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
10.8. SCHEDULES. The Schedules and the Exhibits referenced in
this Agreement are a material part hereof and shall be treated as if fully
incorporated into the body of the Agreement.
10.9. NO THIRD PARTY BENEFICIARIES. Nothing expressed or
referred to in this Agreement will be construed to give any Person other than
the parties to this Agreement (and their successors and assigns) any legal or
equitable right, remedy, or claim under or with respect to this Agreement or any
provision of this Agreement.
10.10. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity without the necessity of demonstrating the inadequacy of
monetary damages.
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10.11. NO STRICT CONSTRUCTION. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
10.12. EXPENSES. Except as otherwise specifically provided in
this Agreement, (a) Parent will pay its own fees and expenses incident to this
Agreement and the transactions contemplated hereby, including legal and
accounting fees, investment banking fees, fees and points to any lender,
consulting fees and related disbursements in connection with any of the
foregoing ("TRANSACTION FEES"), (b) the aggregate Transaction Fees of the
Company and the Executives shall be paid 50% by the Company and 50% by the
Executives and (c) Parent will pay $150,000 to Matrix Capital Markets Group,
Inc. ("MATRIX") at the Closing; PROVIDED, HOWEVER, that the Executives shall be
responsible for, and shall pay, any amount in excess of $150,000 due to Matrix.
In the event this Agreement is terminated prior to the Effective Time other than
under SECTIONS 8.1(a), (b) or (d), Parent shall immediately pay the Company a
break-up fee of $100,000.
10.13. DISCLOSURE SCHEDULES. Any information disclosed on a
particular Schedule or Schedules shall also be deemed to have been disclosed for
purposes of any other Schedule, even if not actually disclosed on such other
Schedule, unless such disclosure is of a nature that does not reasonably inform
or notify the reader of its applicability to a Schedule in which it is required
to be disclosed.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be duly executed on their respective
behalf, by their respective officers thereunto duly authorized, all as of the
day and year first above written.
TICKETMASTER ONLINE-CITYSEARCH, INC., a
Delaware corporation
By: /s/ Bradley K. Serwin
----------------------------------------------
Name: Bradley K. Serwin
Title: General Counsel, Vice President and
Secretary
TMCS MERGER SUB, INC., a Virginia corporation
By: /s/ Bradley K. Serwin
----------------------------------------------
Name: Bradley K. Serwin
Title: General Counsel, Vice President and
Secretary
2B TECHNOLOGY, INC.,
a Virginia corporation
By: /s/ Eric K. Martin
----------------------------------------------
Name: Eric K. Martin
Title: President
SHAREHOLDERS:
/s/ Bryan T. Bostic
----------------------------------------------
Bryan T. Bostic
/s/ Eric K. Martin
----------------------------------------------
Eric K. Martin
/s/ Ken Bostic
----------------------------------------------
Ken Bostic
55
<PAGE>
LIVE OAK HOLDINGS, L.C.
By: /s/ Bryan T. Bostic
----------------------------------------------
Name: Bryan T. Bostic
----------------------------------------
Title:
----------------------------------------
CLARKE HOLDINGS, L.C.
By: /s/ Eric K. Martin
----------------------------------------------
Name: Eric K. Martin
----------------------------------------
Title:
----------------------------------------
56
<PAGE>
EXHIBIT 5.1
OPINION OF GIBSON, DUNN & CRUTCHER LLP
FEBRUARY 22, 2000
(213) 229-7000
Ticketmaster Online-CitySearch, Inc.
790 E. Colorado Blvd., Suite 200
Pasadena, CA 91101
Re: REGISTRATION STATEMENT OF FORM S-3
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-3 (the
"Registration Statement") of Ticketmaster Online-CitySearch, Inc., a Delaware
corporation (the "Company"), filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), in connection with the offering from time to time by the
stockholders identified therein of 400,809 shares of Common Stock, par value
$.01 per share, of the Company (the "Common Stock"). All capitalized terms which
are not defined herein shall have the meanings assigned to them in the
Registration Statement.
For the purpose of the opinion set forth below, we have examined and
are familiar with the proceedings taken and proposed to be taken by the Company
in connection with the authorization and issuance of the Common Stock, including
such corporate records of the Company and certificates of officers of the
Company and of public officials and such other documents as we have deemed
relevant and necessary as the basis for the opinion set forth below. In such
examination, we have assumed the genuineness of all signatures on, and the
authenticity of, all documents submitted to us as originals and the conformity
to original documents of all documents submitted to us as copies. With respect
to agreements and instruments executed by natural persons, we have assumed the
legal competency of such persons.
On the basis of the foregoing examination and in reliance thereon, and
subject to the assumptions stated and relying on the statements of fact
contained in the documents we have examined, we are of the opinion that the
Common Stock is validly issued, fully paid and non-assessable.
We render no opinion herein as to matters involving the laws of any
jurisdiction other than the laws of the United States of America and the General
Corporation Law of the State of Delaware. In rendering this opinion, we assume
no obligation to revise or supplement this opinion should current laws, or the
interpretations thereof, be changed.
We consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Registration Statement and the prospectus which
forms a part thereof. In giving these consents, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act or the Rules and Regulations of the Commission.
Very truly yours,
/s/ GIBSON, DUNN & CRUTCHER LLP
KMD
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 dated February 22, 2000) and related prospectus
of Ticketmaster Online-CitySearch, Inc. and to the incorporation by reference of
our report dated March 11, 1998 (except Note 10, as to which the date is
September 28, 1998) with respect to the consolidated financial statements of
CitySearch, Inc. for the period from September 20, 1995 (date of formation) to
December 31, 1995 and for each of the two years ended December 31, 1997.
included in its Annual Report (Form 10-K) for the transitional period ended
December 31, 1998, filed with the Securities and Exchange Commission.
We also consent to the incorporation by reference of our report dated January
29, 1999 with respect to the consolidated financial statements of Ticketmaster
Online-CitySearch, Inc. for each of the two years ended January 31, 1998 and the
eleven month period ended December 31, 1998 included in its Annual Report (Form
10-K) for the transitional period ended December 31, 1998, filed with the
Securities and Exchange Commission.
/s/ Ernst & Young LLP
Woodland Hills, California
February 17, 2000
