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SCHEDULE 14C
(RULE 14C-101)
Information Statement Pursuant to Section 14 (c) of
the Securities Exchange Act of 1934
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Check the appropriate box:
/ / Preliminary Information Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14c-5(d)(2))
/X/ Definitive Information Statement
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<C> <S>
TICKETMASTER ONLINE-CITYSEARCH, INC.
----------------------------------------------------------------
(Name of Registrant As Specified In Its Charter)
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Payment of Filing Fee (Check the appropriate box):
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/ / No fee required
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and
0-11
(1) Title of each class of securities to which transaction
applies:
Class A Common Stock, par value $.01 per share
Class B Common Stock, par value $.01 per share
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
42,480,143 shares of Class A Common Stock
53,302,401 shares of Class B Common Stock
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
$7.275 per share, based on the average of the bid and
asked prices of Class B Common Stock reported on The
Nasdaq Stock Market on December 21, 2000
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
None.
----------------------------------------------------------
(5) Total fee paid:
$139,364
----------------------------------------------------------
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
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TICKETMASTER ONLINE-CITYSEARCH, INC.
790 E. COLORADO BOULEVARD, SUITE 200
PASADENA, CALIFORNIA 91101
INFORMATION STATEMENT
January 11, 2001
To Our Stockholders:
As you may be aware, our Board of Directors, based upon the recommendation
of a Special Committee of independent directors, has approved a transaction that
will combine our business with the businesses of Ticketmaster Corporation. In
the proposed combination, USA Networks, Inc., the parent company of Ticketmaster
Corporation, will contribute the businesses of Ticketmaster Corporation to us in
exchange for 52,000,000 new shares of our Class B common stock. The Special
Committee received an opinion of Salomon Smith Barney that, as of the date of
its opinion, the consideration to be paid by us in the proposed combination is
fair to us from a financial point of view.
In connection with the proposed combination, we will also amend our
certificate of incorporation to change our name from Ticketmaster
Online-Citysearch, Inc. to Ticketmaster and to increase our authorized number of
shares of Class A common stock from 100,000,000 to 150,000,000. This increase in
our authorized number of shares of Class A common stock will leave essentially
unchanged the number of authorized shares of our Class A common stock we have
available for issuance before and after the combination. Our Class B common
stock will continue to trade on The Nasdaq National Market under the trading
symbol "TMCS."
This Information Statement more fully describes the terms and conditions of
the proposed combination and amendment to our certificate of incorporation. This
Information Statement also contains important information relating to the
businesses of Ticketmaster Corporation. You are urged to read this Information
Statement thoroughly.
Because Ticketmaster Corporation, which currently holds approximately 49% of
our outstanding shares of capital stock and 84% of our outstanding voting power,
signed a written stockholder's consent approving the proposed combination and
amendment to our certificate of incorporation, no action is required on your
part. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
SEE "SPECIAL CONSIDERATIONS" BEGINNING ON PAGE 15 OF THIS INFORMATION
STATEMENT FOR A DISCUSSION OF CERTAIN MATTERS THAT YOU SHOULD CONSIDER CAREFULLY
IN EVALUATING THE EFFECTS OF THE COMBINATION ON YOUR SHARES.
This Information Statement is being mailed on or about January 11, 2001, to
holders of record on November 20, 2000, of shares of our Class A and Class B
common stock.
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TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Selected Historical and Pro Forma Consolidated Financial
Data...................................................... 7
Comparative Per Share Data.................................. 12
Common Stock and Dividend Policy............................ 13
Cautionary Statement Concerning Forward-Looking
Statements................................................ 14
Special Considerations...................................... 15
The Combination............................................. 19
The Contribution Agreement.................................. 34
Material Agreements between the Parties or Their
Affiliates................................................ 38
Description of Ticketmaster................................. 40
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Ticketmaster Group........... 53
Unaudited Pro Forma Financial Statements of Ticketmaster
Online-Citysearch......................................... 60
Security Ownership of Certain Beneficial Owners and
Management................................................ 67
Where You Can Find More Information......................... 74
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EXHIBITS
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Exhibit A: Contribution Agreement.......................... A-1
Exhibit B: Fairness Opinion of Salomon Smith Barney........ B-1
Exhibit C: Financial Statements of Ticketmaster
Group, Inc................................................ C-1
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ii
<PAGE>
SUMMARY
QUESTIONS AND ANSWERS ABOUT THE PROPOSED COMBINATION
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Q. WHAT IS THE PROPOSED TRANSACTION?
A. We propose to combine our business with the
businesses conducted by Ticketmaster Corporation
and its subsidiaries, which we refer to in this
Information Statement as the Ticketmaster
businesses. We will effect this combination in
two steps:
- In the first step, Ticketmaster
Corporation will contribute to us all
of the equity interests of its
subsidiaries (except for shares of
our Class A and Class B common stock
that it holds), and its assets that
are freely assignable. The shares of
our common stock that are currently
held by Ticketmaster Corporation are
not being contributed to us or
canceled and will continue to be held
by Ticketmaster Corporation following
the combination. In exchange for the
contributions by Ticketmaster
Corporation, we will issue to
Ticketmaster Corporation a number of
shares of our Class B common stock
equal to the fair market value of the
equity interests and assets
contributed to us.
- In the second step, USA Networks, the
sole stockholder of Ticketmaster
Group, which is in turn the sole
stockholder of Ticketmaster
Corporation, will contribute to us
all of the outstanding capital stock
of Ticketmaster Group. In exchange
for the capital stock of Ticketmaster
Group, we will issue to USA Networks
52,000,000 new shares of our Class B
common stock. In addition, we will
issue to USA Networks a number of
shares of our Class A and Class B
common stock equal to the number of
such shares indirectly held by USA
Networks through Ticketmaster
Corporation prior to the combination.
Upon completion of the combination, Ticketmaster
Group and the former subsidiaries of Ticketmaster
Corporation that were contributed to us will be
our direct subsidiaries and Ticketmaster
Corporation will be our indirect subsidiary. A
diagram illustrating the changes in corporate
structure that will result from the combination
is included on page 3 of this Information
Statement. As a result of the combination, USA
Networks will own an additional 52,000,000 shares
of our Class B common stock. The other shares to
be issued to USA Networks in connection with the
combination will only replace shares that are
currently indirectly owned by USA Networks and
that we will indirectly own following the
combination. Accordingly, these shares will not
increase USA Networks' percentage ownership of
our capital stock. See "The
Combination--Description of the Combination" on
page 31 of this Information Statement for a more
detailed description of the transaction.
Q. WHY ARE YOU ACQUIRING THE TICKETMASTER
BUSINESSES?
A. We believe that the combination of our business
with the Ticketmaster businesses will create a
stronger company having greater financial
strength, operational efficiencies, earnings
power and growth potential than we currently
have. Among other effects, we expect the
combination to result in the following principal
advantages to us:
- our operating and financial results
will include those of the
Ticketmaster businesses;
- we will be better positioned to
pursue growth in the expanding and
changing domestic and international
ticketing and other access services
industries;
- we will benefit from a broader
product portfolio and consequent risk
reduction; and
- our balance sheet will be
strengthened and we expect to have
positive cash flow, which will enable
us to more
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1
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<S> <C> <C>
actively pursue our growth strategies
in the ticketing and other
businesses.
Q. WHAT PERCENTAGE OF YOUR STOCK AND VOTING POWER
WILL USA NETWORKS OWN AFTER THE PROPOSED
COMBINATION?
A. Immediately following the combination, USA
Networks will own 42,480,143 shares of our
Class A common stock and 53,302,401 shares of our
Class B common stock, representing in the
aggregate approximately 68% and 85% of our
outstanding capital stock and voting power,
respectively.
Q. HOW WILL I BE AFFECTED BY THE COMBINATION?
A. After the combination, you will have the same
number of our shares that you had immediately
prior to the combination. However, because we
plan to issue an aggregate of 52,000,000 new
shares of our Class B common stock in connection
with the combination, each outstanding share of
our common stock will represent a smaller
percentage of a significantly larger company
after the combination. Our public stockholders
currently own approximately 51% of our
outstanding shares and 16% of our voting power.
After the combination, they will own
approximately 32% of our outstanding shares and
15% of our outstanding voting power.
Q. IS MY VOTE NEEDED TO APPROVE THE COMBINATION?
A. No. Delaware law allows stockholders to act by
written consent instead of holding a meeting,
unless prohibited by the company's certificate of
incorporation. Our certificate of incorporation
does not prohibit stockholder action by written
consent. Ticketmaster Corporation, which owns
approximately 49% of our outstanding shares of
capital stock, representing approximately 84% of
our outstanding voting power, has given its
written consent approving the proposed
combination. Its consent satisfies the
stockholder approval requirements for the actions
under Delaware law, so no separate vote of our
stockholders is necessary. THE CONTRIBUTION
AGREEMENT HAS BEEN APPROVED AND ADOPTED AND NO
VOTE OF ANY OTHER STOCKHOLDER IS REQUIRED. See
"The Combination--Background--Stockholder Action"
on page 31 of this Information Statement.
Q. WHAT IS THE TAX IMPACT OF THE COMBINATION TO ME?
A. None. Your shares are not being sold or exchanged
in connection with the combination, so there is
no taxable transaction related to your shares.
See "The Combination--Description of the
Combination--Material Federal Income Tax
Consequences" on page 32 of this Information
Statement.
Q. AM I ENTITLED TO APPRAISAL RIGHTS IN CONNECTION
WITH THE COMBINATION?
A. No. Delaware law does not provide appraisal
rights in connection with the proposed
combination.
Q. WHEN DO YOU EXPECT TO COMPLETE THE COMBINATION?
A. We must satisfy a number of conditions before we
can complete the combination, but we expect to
complete the combination during the first quarter
of 2001.
Q. WHO CAN I CALL WITH QUESTIONS ABOUT THE
COMBINATION?
A. You should call Mary McAboy, our Vice President,
Corporate Communications, at (626) 660-2858, with
any questions about the combination.
</TABLE>
2
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The following diagrams show our ownership structure before and after the
combination:
[CHART]
------------------------
* Percentages reflect number of shares owned as a percentage of outstanding
shares. Because each Class A share represents 15 votes, whereas each
Class B share represents one vote, these percentages do not reflect
allocation of voting power. Prior to the combination, USA Networks
controlled 84% of our voting power. After the combination, USA Networks will
control 85% of our voting power.
** Certain of these subsidiaries are not 100% owned.
3
<PAGE>
THE COMPANIES
TICKETMASTER ONLINE-CITYSEARCH, INC.
790 East Colorado Boulevard, Suite 200
Pasadena, California 91101
(626) 405-0050
We are a leading local portal and electronic commerce company that provides
in-depth local content and services to help people get things done online. We
offer practical tools for living that make the Internet an important part of
people's everyday lives. Our principal operations are online city guides, online
ticketing and online personals. Our family of Websites includes citysearch.com,
ticketmaster.com, match.com, museumtix.com, ticketweb.com, cityauction.com and
livedaily.com, among others. In September 1998, our company was created by
combining Citysearch, Inc. and Ticketmaster Multimedia Holdings, Inc.
(ticketmaster.com), then a wholly-owned online subsidiary of Ticketmaster
Corporation, to create Ticketmaster Online-Citysearch, Inc., a leading provider
of local city guides, local advertising and live event ticketing on the
Internet. We are currently a direct, majority-owned subsidiary of Ticketmaster
Corporation, which is an indirect, wholly-owned subsidiary of USA Networks.
USA NETWORKS, INC.
152 West 57th Street
New York, New York 10019
(212) 314-7300
USA Networks (NASDAQ: USAI) is focused on the new convergence of
entertainment, information and direct selling. Formed in February 1998, USA
Networks is organized into three distinct but interrelated units which include
the following assets: USA Entertainment's USA Network, SCI FI Channel, TRIO,
NWI, Studios USA, USA Films and Interactive Entertainment; USA Electronic
Retailing's HSN, HSN International, HSN Interactive; and USA Information and
Services' Ticketmaster, Ticketmaster Online-Citysearch (NASDAQ: TMCS), Hotel
Reservations Network (NASDAQ: ROOM), Electronic Commerce Solutions,
Styleclick, Inc. (NASDAQ: IBUY) and Precision Response Corporation. USA
Networks' Web site is located at www.usanetworks.com.
USA Networks owns approximately 49% of our total outstanding common stock,
representing approximately 84% of the voting power of our outstanding common
stock. As a result of its ownership of a majority of our Class A common stock,
USA Networks 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 our Class B common stock is required by Delaware law. USA Networks is
the sole stockholder of Ticketmaster Group, Inc., which is in turn the sole
stockholder of Ticketmaster Corporation.
On December 7, 2000, USA Networks and Univision Communications Inc. (NYSE:
UVN) announced that Univision will acquire USA Broadcasting's 13 fully-owned
full-power television stations, as well as USA Networks' minority interests in
four additional full-power stations, for $1.1 billion in cash.
TICKETMASTER GROUP, INC. AND TICKETMASTER CORPORATION
3701 Wilshire Boulevard
Los Angeles, California 90010
(213) 639-6100
Ticketmaster Group is an Illinois corporation and a wholly-owned subsidiary
of USA Networks. Ticketmaster Group is a holding company and the sole
stockholder of Ticketmaster Corporation.
Ticketmaster Corporation is an Illinois corporation and a wholly-owned
subsidiary of Ticketmaster Group. Ticketmaster Corporation, through its wholly-
and majority-owned subsidiaries, which we refer to in this Information Statement
collectively as Ticketmaster, is the leading provider of automated ticketing
services in the United States with over 5,000 domestic and foreign clients,
including many of the foremost entertainment facilities, promoters and
professional sports franchises. Ticketmaster provides comprehensive ticket
inventory control and management, a broad distribution network and dedicated
marketing and support services. Ticket orders
4
<PAGE>
are received and fulfilled through operator-staffed call centers, independent
sales outlets remote to the facility box office and ticketmaster.com's web site.
Revenue is generated principally from convenience charges received by
Ticketmaster for tickets sold on its clients' behalf. Ticketmaster generally
serves as an exclusive agent for its clients and typically has no financial risk
for unsold tickets.
INTERESTS OF OFFICERS AND DIRECTORS IN THE COMBINATION
Our officers and directors may have interests in the proposed combination
that are different from, or in addition to, yours. We discuss these interests on
page 32 of this Information Statement.
THE PROPOSED COMBINATION
CONTRIBUTION AGREEMENT
We have entered into a contribution agreement with USA Networks dated as of
November 20, 2000. The contribution agreement is the legal document that governs
the proposed combination. The contribution agreement is attached as Exhibit A to
this Information Statement. We encourage you to read it carefully. We discuss
the terms and conditions of the contribution agreement in more detail under "The
Contribution Agreement" beginning on page 34 of this Information Statement.
FORMATION OF SPECIAL COMMITTEE
Because USA Networks has ultimate voting control of both Ticketmaster
Corporation and us, our Board of Directors formed a Special Committee consisting
of all of the disinterested directors of our Board of Directors to evaluate and
negotiate the proposed combination and to make a recommendation to our full
Board of Directors whether to proceed with the proposed combination. The Special
Committee independently selected and retained legal and financial advisors to
assist it in the combination. We discuss the Special Committee in greater detail
under the heading "The Combination--Background" beginning on page 19 of this
Information Statement.
OPINION OF FINANCIAL ADVISOR
Salomon Smith Barney, financial advisor to the Special Committee of our
Board of Directors, delivered to the Special Committee its written opinion,
dated as of November 20, 2000, that, as of such date, and based upon and subject
to the assumptions, limitations and qualifications set forth in the opinion, the
consideration to be paid by us in the combination is fair to us from a financial
point of view. The full text of Salomon Smith Barney's written opinion is
attached as Exhibit B to this Information Statement. We encourage you to read it
carefully. Salomon Smith Barney's opinion is directed to the Special Committee
of our Board of Directors and it does not address the prices at which our
Class B common stock may trade prior to or after the proposed combination. See
"The Combination--Background--Opinion of Financial Advisor" beginning on
page 23 of this Information Statement.
ACCOUNTING TREATMENT
The combination will be treated similarly to accounting for a
pooling-of-interests business combination, due to the common ownership of
Ticketmaster and us.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The combination will not be a taxable transaction to our stockholders as the
outstanding shares of our common stock are not being sold or exchanged in the
combination.
THE PROPOSED AMENDMENT TO OUR CERTIFICATE OF INCORPORATION
PROPOSAL TO INCREASE OUR AUTHORIZED SHARES OF CLASS A COMMON STOCK
In connection with the proposed combination, our Board of Directors has
adopted, and Ticketmaster Corporation has signed a written stockholder's consent
approving, an amendment to our certificate of incorporation to increase our
number of authorized shares of Class A common stock from 100,000,000 shares to
150,000,000. This increase in our authorized shares of Class A common stock will
leave
5
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essentially unchanged the number of shares of our Class A common stock that we
have available for issuance before and after the proposed combination. See "The
Combination--Amendments to Certificate of Incorporation" on page 33 of this
Information Statement.
PROPOSAL TO CHANGE NAME
The proposed amendment to our certificate of incorporation will also change
our name from Ticketmaster Online-Citysearch, Inc. to Ticketmaster, which we
believe will better describe our business after completion of the combination.
The name change will become effective immediately prior to completion of the
combination. Following the combination, our Class B common stock will continue
to be traded on The Nasdaq National Market under the symbol "TMCS."
6
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
HISTORICAL CONSOLIDATED FINANCIAL DATA
TICKETMASTER ONLINE-CITYSEARCH, INC.
In the tables below, we provide you with our selected historical financial
data. We prepared the following selected financial data as of September 30, 2000
and for the nine months ended September 30, 1999 and 2000 using our unaudited
financial statements. We prepared the selected financial data as of and for the
eleven months ended December 31, 1998 and the year ended December 31, 1999 using
our audited financial statements. We prepared the selected financial data as of
January 31, 1997 and 1998 and for the years ended January 31, 1996, 1997 and
1998 using the audited financial statements of Ticketmaster Multimedia
Holdings, Inc. (ticketmaster.com), which was formerly a wholly-owned subsidiary
of Ticketmaster Corporation prior to its merger with Citysearch, Inc. in 1998,
as our Predecessor Company. The balance sheet data as of January 31, 1996 are
derived from the unaudited financial statements of ticketmaster.com. The
following financial data are qualified in their entirety by, and should be read
in conjunction with, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements and the notes
thereto, which are included in the reports described under the heading "Where
You Can Find More Information" on page 74 and incorporated by reference into
this Information Statement.
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
ELEVEN MONTHS NINE MONTHS ENDED
YEAR ENDED JANUARY 31, ENDED YEAR ENDED SEPTEMBER 30,
------------------------------ DECEMBER 31, DECEMBER 31, --------------------
1996 1997 1998 1998(1) 1999 1999 2000
-------- -------- -------- -------------- ------------- -------- ---------
(PREDECESSOR COMPANY)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues
Ticketing operations................ $ -- $ 199 $ 5,972 $ 15,743 $ 64,787 $ 43,812 $ 102,745
City guide and related.............. -- -- -- 5,376 33,915 21,089 49,174
Sponsorship and advertising......... 14 997 3,933 6,754 6,601 4,009 13,064
------- ------- ------- -------- --------- -------- ---------
Total revenues.................... 14 1,196 9,905 27,873 105,303 68,910 164,983
Costs and expenses:
Ticketing operations................ -- 635 3,522 9,842 47,870 32,612 77,568
City guide and related.............. -- -- -- 4,021 30,288 19,052 39,015
Sales and marketing................. -- 290 490 6,834 47,263 29,569 57,007
Research and development............ -- -- -- 1,728 7,455 5,589 4,641
General and administrative.......... 548 1,260 1,719 3,495 15,242 9,994 19,808
Amortization of goodwill............ -- -- -- 16,275 77,744 44,294 107,265
Merger and other transaction
costs............................. -- -- -- -- 4,236 3,285 --
------- ------- ------- -------- --------- -------- ---------
Total costs and expenses.......... 548 2,185 5,731 42,195 230,098 144,395 305,304
------- ------- ------- -------- --------- -------- ---------
Income (loss) from operations......... (534) (989) 4,174 (14,322) (124,795) (75,485) (140,321)
Interest income....................... -- -- -- 54 4,163 3,223 2,346
Equity loss in unconsolidated
affiliates.......................... -- -- -- -- (272) -- (3,774)
Other expense......................... -- -- -- -- -- -- (289)
------- ------- ------- -------- --------- -------- ---------
Income (loss) before provision for
income taxes........................ (534) (989) 4,174 (14,268) (120,904) (72,262) (142,038)
Income tax provision (benefit)........ (204) (374) 1,827 2,951 464 182 1,033
------- ------- ------- -------- --------- -------- ---------
Net income (loss)..................... $ (330) $ (615) $ 2,347 $(17,219) $(121,368) $(72,444) $(143,071)
======= ======= ======= ======== ========= ======== =========
Basic and diluted net income (loss)
per share(2)........................ $ (0.01) $ (0.02) $ 0.06 $ (0.38) $ (1.59) $ (0.99) $ (1.65)
======= ======= ======= ======== ========= ======== =========
Shares used to compute basic and
diluted net income (loss) per
share(2)............................ 37,238 37,238 37,238 45,201 76,097 73,537 86,909
======= ======= ======= ======== ========= ======== =========
</TABLE>
7
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<CAPTION>
JANUARY 31, DECEMBER 31,
------------------------------ ------------------------ SEPTEMBER 30,
1996 1997 1998 1998 1999 2000
-------- -------- -------- ----------- ---------- --------------
(PREDECESSOR COMPANY)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and
marketable securities......... $ -- $ 3 $ -- $106,910 $ 87,754 $ 47,880
Working capital................. 223 218 (100) 99,571 77,553 36,243
Total assets(3)................. 354 554 688 416,725 804,669 724,757
Long-term debt, net of current
portion....................... -- -- 8 1,519 1,503 1,146
Stockholders' equity............ 354 489 289 403,588 782,593 696,353
</TABLE>
<TABLE>
<CAPTION>
ELEVEN MONTHS NINE MONTHS
YEAR ENDED JANUARY 31, ENDED YEAR ENDED ENDED
------------------------------ DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998 1998(1) 1999 2000
-------- -------- -------- ------------- ------------- --------------
(PREDECESSOR COMPANY)
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL INFORMATION:
Net cash provided by (used in):
Operating activities.......... $(538) $(566) $ 2,938 $ (438) $(34,777) $(20,854)
Investing activities.......... (146) (189) (250) (1,146) (52,368) (13,832)
Financing activities.......... 684 748 (2,691) (50,617) 41,671 3,616
EBITDA(4)....................... (519) (938) 4,442 2,907 (42,538) (24,941)
</TABLE>
------------------------
(1) Includes the operating results of Citysearch from September 29, 1998 to
December 31, 1998 as a result of the merger of ticketmaster.com and
Citysearch. The eleven month period reflects our change in year end to
December 31 from January 31. Comparable amounts for the prior period are not
presented because as a result of the merger and our continuing growth such
presentation would not be considered meaningful.
(2) Basic and diluted net income (loss) per equivalent share is based on the
number of shares of Citysearch common stock exchanged in the merger for the
twelve months ended January 31, 1996, 1997 and 1998. Basic and diluted net
income (loss) per share is based on the weighted average number of
outstanding shares of our Class A and Class B common stock for the eleven
months ended December 31, 1998, the year ended December 31, 1999 and the
nine months ended September 30, 1999 and 2000.
(3) Total assets at December 31, 1998 and 1999 and September 30, 2000 reflect
goodwill and other intangible assets, net of accumulated amortization, of
$299.6 million, $662.9 million and $613.6 million, respectively. This
goodwill resulted from the ticketmaster.com portion of the goodwill
associated with the acquisition of Ticketmaster Group by USA Networks in
June 1998, the merger of ticketmaster.com and Citysearch and several
acquisitions made by Ticketmaster Online-Citysearch in 1999 and 2000.
(4) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization, advertising contributed by USA Networks (for which no
consideration was paid by us), equity in loss of unconsolidated affiliates
and other income/expense. EBITDA is presented because we believe it is a
widely accepted valuation methodology for companies in our industry. EBITDA
should not be considered in isolation or as a substitute of financial
performance or liquidity prepared in accordance with generally accepted
accounting principles. EBITDA may not be comparable to calculations of
similarly titled measures presented by other companies.
8
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TICKETMASTER GROUP, INC.
In the tables below, we provide you with selected historical financial data
of Ticketmaster Group and its subsidiaries, including Ticketmaster Corporation
and our company. The selected historical financial data presented below as of
September 30, 2000 and for the nine months ended September 30, 1999 and 2000
were prepared using Ticketmaster Group's unaudited financial statements. The
selected historical financial data as of and for the eleven months ended
December 31, 1998 and the year ended December 31, 1999 were prepared using
Ticketmaster Group's audited financial statements. The selected historical
financial data as of and for the years ended January 31, 1996, 1997 and 1998
were prepared using the audited financial statements of the Predecessor Company
of Ticketmaster Group. The following financial data is qualified in its entirety
by, and should be read in conjunction with, "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Ticketmaster Group"
and the consolidated financial statements of Ticketmaster Group and the notes
thereto, which are included elsewhere in this Information Statement.
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
NINE MONTHS
ELEVEN MONTHS ENDED
YEAR ENDED JANUARY 31, ENDED YEAR ENDED SEPTEMBER 30,
------------------------------ DECEMBER 31, DECEMBER 31, -------------------
1996 1997 1998 1998(1) 1999 1999 2000
-------- -------- -------- -------------- ------------- -------- --------
(PREDECESSOR COMPANY)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues:
Ticketing operations.............. $161,250 $230,961 $340,980 $ 348,103 $442,743 $324,616 $395,909
City guide and classifieds........ -- -- -- 5,568 36,329 22,359 58,776
Other............................. -- -- -- -- 19,458 14,072 7,639
-------- -------- -------- --------- -------- -------- --------
Total revenues.................. 161,250 230,961 340,980 353,671 498,530 361,047 462,324
-------- -------- -------- --------- -------- -------- --------
Operating costs and other expenses:
Ticketing operations.............. 111,099 153,292 209,726 217,839 269,315 196,324 253,436
City guide and classifieds........ -- -- -- 5,268 35,642 23,159 40,505
Other............................. -- -- -- -- 17,841 12,013 11,614
Sales and marketing............... 6,010 6,706 7,249 17,116 56,499 36,946 63,355
General and administrative........ 33,564 48,361 71,424 64,840 78,521 59,750 71,306
Depreciation and amortization..... 9,388 12,993 24,473 52,450 127,921 82,314 150,600
Merger and other transaction
costs........................... -- -- -- -- 4,236 3,285 --
-------- -------- -------- --------- -------- -------- --------
Total operating costs and other
expenses...................... 160,061 221,352 312,872 357,513 589,975 413,791 590,816
-------- -------- -------- --------- -------- -------- --------
Income (loss) from operations....... 1,189 9,609 28,108 (3,842) (91,445) (52,744) (128,492)
Other (income) expenses:
Interest income................... (798) (1,256) (1,859) (2,555) (5,645) (4,511) (3,081)
Interest expense.................. 13,580 12,764 11,419 11,455 8,108 6,579 6,168
Gain on sale of unconsolidated
affiliate....................... -- (3,195) -- -- -- -- --
Gain on sale of subsidiary
stock........................... -- -- -- (108,967) -- -- --
Equity in net (income) loss of
unconsolidated affiliates....... (1,521) (4,054) (1,417) (477) (1,225) (1,067) 2,636
-------- -------- -------- --------- -------- -------- --------
Total other (income) expenses....... 11,261 4,259 8,143 (100,544) 1,238 1,001 5,723
-------- -------- -------- --------- -------- -------- --------
Income (loss) before income taxes
and minority interest............. (10,072) 5,350 19,965 96,702 (92,683) (53,745) (134,215)
Minority interest in loss........... 273 300 (65) (4,829) (56,139) (31,458) (70,906)
Income tax provision (benefit)...... (2,250) 3,258 11,883 58,196 23,975 17,882 11,734
-------- -------- -------- --------- -------- -------- --------
Net income (loss)................... $ (8,095) $ 1,792 $ 8,147 $ 43,335 $(60,519) $(40,169) $(75,043)
======== ======== ======== ========= ======== ======== ========
Basic earnings (loss) per share..... $ (0.53) $ 0.10 $ 0.32
======== ======== ========
Weighted average share outstanding
for basic earnings (loss) per
share............................. 15,310 17,222 25,846
======== ======== ========
Diluted earnings (loss) per share... $ (0.53) $ 0.10 $ 0.31
======== ======== ========
Weighted average share outstanding
for diluted earnings (loss) per
share............................. 15,310 17,222 26,285
======== ======== ========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
JANUARY 31,
------------------------------- DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998 1998(1) 1999 2000
--------- -------- -------- ------------- ------------- --------------
(PREDECESSOR COMPANY)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash, cash equivalents and
marketable securities...... $ 34,004 $ 60,880 $ 76,323 $ 197,137 $ 180,986 $ 131,016
Working capital.............. 3,974 15,991 9,432 94,339 39,486 29,191
Total assets(2).............. 105,397 229,234 330,878 1,266,536 1,673,536 1,608,577
Clients payable, net(3)...... 22,674 23,828 50,175 52,334 76,359 65,034
Long-term debt, net of
current portion(4)......... 159,864 127,514 158,561 169,880 123,687 177,578
Shareholders' equity
(deficiency)............... (107,793) 21,345 48,908 765,535 751,498 667,947
</TABLE>
<TABLE>
<CAPTION>
ELEVEN MONTHS NINE MONTHS
YEAR ENDED JANUARY 31, ENDED YEAR ENDED ENDED
------------------------------- DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1996 1997 1998 1998(1) 1999 2000
--------- -------- -------- ------------- ------------- --------------
(PREDECESSOR COMPANY)
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL INFORMATION:
Net cash provided by (used
in):
Operating activities....... $ (3,068) $ 15,585 $ 34,198 $ 31,127 $ 25,165 $ 483
Investing activities....... (9,452) (43,752) (52,678) (45,229) (80,208) (77,408)
Financing activities....... 7,772 55,096 35,920 134,367 1,203 48,388
EBITDA(5).................... 10,577 22,602 52,581 48,608 36,683 23,715
</TABLE>
--------------------------
(1) Includes the operating results of Citysearch from September 29, 1998 to
December 31, 1998 as a result of the merger of ticketmaster.com and
Citysearch. The eleven-month period reflects our change in year end to
December 31 from January 31. Comparable amounts for the prior period are not
presented because as a result of the merger and our continuing growth such
presentation would not be considered meaningful.
(2) Total assets at December 31, 1998 and 1999 and September 30, 2000 reflect
goodwill and other intangible assets, net of accumulated amortization, of
$933.1 million, $1,278.5 million and $1,231.8 million, respectively. This
goodwill resulted from the acquisition of Ticketmaster Group by USA Networks
in June 1998, the merger of ticketmaster.com and Citysearch in
September 1998 and several acquisitions made by Ticketmaster Group in 1999
and 2000.
(3) Clients payable, net is defined as accounts payable, clients offset by
accounts receivable, ticket sales. Accounts payable, clients represents
contractual amounts due to clients for tickets sold by Ticketmaster Group on
behalf of the organizations that sponsor events. Accounts receivable, ticket
sales are principally from ticketing outlets and credit card processors and
represent the face value of the tickets sold plus convenience charges,
generally net of outlet commissions.
(4) Long-term debt includes amounts due to USA Networks and affiliates.
(5) EBITDA is defined as earnings before interest, taxes, depreciation,
amortization, minority interest, advertising contributed by USA Networks
(for which no consideration was paid by Ticketmaster Group), equity in net
income (loss) of unconsolidated affiliates and other income/expense. EBITDA
is presented because we believe it is a widely accepted valuation
methodology for companies in our industry. EBITDA should not be considered
in isolation or as a substitute of financial performance or liquidity
prepared in accordance with generally accepted accounting principles. EBITDA
may not be comparable to calculations of similarly titled measures presented
by other companies.
10
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
In the tables below, we have presented the unaudited pro forma results to
give effect to the combination. The unaudited pro forma results are indicative
of the accounting for the combination on a historical basis in a manner similar
to that in pooling-of-interests accounting. The unaudited pro forma condensed
consolidated financial statements reflect certain assumptions regarding the
proposed transaction and are based on the historical financial statements of our
company. The unaudited pro forma condensed consolidated financial statements,
including the notes accompanying them, are qualified in their entirety by
reference to, and should be read in conjunction with, our audited consolidated
financial statements and the notes thereto, which are incorporated by reference
into this Information Statement, and the audited consolidated financial
statements of Ticketmaster Group, including the notes thereto, which are
included elsewhere in this Information Statement.
The unaudited pro forma financial data reflect the adjustments that will
result from the combination as if it had occurred as of the beginning of the
periods presented. For a further discussion of the unaudited pro forma
adjustments, see "Unaudited Pro Forma Condensed Consolidated Financial
Statements." The unaudited pro forma condensed consolidated statements of
operations are presented for illustrative purposes only. These statements are
not necessarily indicative of the results of operations or financial position
that actually would have been reported had these transactions occurred on the
dates indicated above, nor are they necessarily indicative of future financial
results of operations.
<TABLE>
<CAPTION>
ELEVEN MONTHS NINE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
JANUARY 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1998 1999 2000
------------ -------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Ticketing operations................................. $340,980 $348,103 $ 442,743 $ 395,909
City guide and classifieds........................... -- 5,568 36,329 58,776
Other................................................ -- -- 19,458 7,639
-------- -------- --------- ---------
Total revenues..................................... 340,980 353,671 498,530 462,324
-------- -------- --------- ---------
Operating costs and other expenses:
Ticketing operations................................. 209,726 217,839 269,315 253,436
City guide and classifieds........................... -- 5,268 35,642 40,505
Other................................................ -- -- 17,841 11,614
Sales and marketing.................................... 7,249 17,116 56,499 63,355
General and administrative............................. 71,424 64,840 78,521 71,306
Depreciation and amortization.......................... 24,473 52,450 127,921 150,600
Merger and other transaction costs..................... -- -- 4,236 --
-------- -------- --------- ---------
Total operating costs and other expenses........... 312,872 357,513 589,975 590,816
-------- -------- --------- ---------
Income (loss) from operations.......................... 28,108 (3,842) (91,445) (128,492)
Other (income) expenses:
Interest income...................................... (1,859) (2,555) (5,645) (3,081)
Interest expense..................................... 11,419 11,455 8,108 6,168
Equity in net (income) loss of unconsolidated
affiliates......................................... (1,417) (477) (1,225) 2,636
-------- -------- --------- ---------
Total other (income) expenses...................... 8,143 8,423 1,238 5,723
-------- -------- --------- ---------
Income (loss) before income taxes and minority
interest............................................. 19,965 (12,265) (92,683) (134,215)
Minority interest in loss.............................. (65) (10) (1,374) (786)
Income tax provision................................... 11,883 13,295 23,975 11,734
-------- -------- --------- ---------
Net income (loss)...................................... $ 8,147 $(25,550) $(115,284) $(145,163)
======== ======== ========= =========
Basic and diluted net income (loss) per share.......... $ 0.09 $ (0.26) $ (0.90) $ (1.05)
======== ======== ========= =========
Shares used to compute basic and diluted net income
(loss) per share..................................... 89,238 97,201 128,097 138,909
======== ======== ========= =========
</TABLE>
11
<PAGE>
COMPARATIVE PER SHARE DATA
We have summarized below the per share information for our company and
Ticketmaster Group on an historical and pro forma consolidated basis. Historical
per share information for Ticketmaster Group is not presented after the year
ended January 31, 1998 because the information would not be meaningful. This
information should be read in conjunction with our historical consolidated
financial statements and related notes, which are included in the reports
described under the heading "Where You Can Find More Information" on page 74 and
incorporated by reference into this Information Statement, and Ticketmaster
Group's historical consolidated financial statements and related notes, which
are included elsewhere in this Information Statement. The pro forma information
below may not be indicative of what actual results will be in the future or what
the results would have been for the periods presented.
<TABLE>
<CAPTION>
ELEVEN MONTHS NINE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED
JANUARY 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1998 1999 2000
------------ ------------- ------------- --------------
<S> <C> <C> <C> <C>
HISTORICAL TICKETMASTER ONLINE-CITYSEARCH
Net income (loss) per common share--basic and
diluted(1)................................. $0.06 $(0.38) $(1.59) $(1.65)
Book value per share(2)...................... 0.01 5.65 9.21 7.86
HISTORICAL TICKETMASTER GROUP
Net income (loss) per common
share--basic(1)............................ $0.32
Net income (loss) per common
share--diluted(1).......................... 0.31
Book value per share(2)...................... 1.88
PRO FORMA CONSOLIDATED TICKETMASTER ONLINE-
CITYSEARCH
Net income (loss) per common share--basic and
diluted(3)................................. $0.09 $(0.26) $(0.90) $(1.05)
Book value per share(2)...................... 8.83 10.41 9.85
</TABLE>
------------------------
(1) Basic and diluted net income (loss) per share is computed using the weighted
average number of common shares outstanding during the period. For the year
ended January 31, 1998, the historical net income per share and book value
per share for Ticketmaster Online-Citysearch is based on the number of
shares of Citysearch common stock exchanged in the merger.
(2) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock outstanding at the end of
each period presented. The pro forma consolidated book value per share is
computed by dividing pro forma stockholders' equity by the pro forma number
of shares of our common stock outstanding as of December 31, 1998 and 1999
and September 30, 2000, assuming the combination had occurred as of that
date. The pro forma consolidated book value per share as of January 31, 1998
is not presented as the information would not be meaningful.
(3) The pro forma consolidated Ticketmaster Online-Citysearch per common share
reflects the net loss per share of Ticketmaster Online-Citysearch and
Ticketmaster Group on a pro forma consolidated basis giving effect to the
issuance of 52,000,000 shares of Ticketmaster Online-Citysearch Class B
Common Stock in the combination.
12
<PAGE>
COMMON STOCK AND DIVIDEND POLICY
We have two classes of common stock outstanding, Class A and Class B. 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.
Our Class B common stock is traded on The Nasdaq National Market under the
symbol "TMCS." The following information sets forth, for the periods indicated,
the high and low sale prices for our Class B common stock as reported by The
Nasdaq National Market. These prices reflect inter-dealer quotations without
retail markup, markdown or commissions and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ -------- --------
<S> <C> <C>
Fiscal 2000
Fourth Quarter........................................... $ 17.38 $ 6.75
Third Quarter............................................ 24.68 14.25
Second Quarter........................................... 25.68 13.87
First Quarter............................................ 44.87 24.25
Fiscal 1999
Fourth Quarter........................................... $ 44.12 $18.87
Third Quarter............................................ 40.06 22.68
Second Quarter........................................... 41.50 22.00
First Quarter............................................ 71.12 33.00
Fiscal 1998
Fourth Quarter (commencing December 3, 1998)............. $ 80.50 $32.69
</TABLE>
On November 20, 2000, the last trading day prior to the public announcement
of the combination, the last reported sale price for our Class B common stock on
The Nasdaq National Market was $12.56. As of December 13, 2000 there were
229 record holders of our Class A common stock and 378 record holders of our
Class B common stock. We estimate that there are more than 800 beneficial owners
of our Class B common stock.
We have never paid dividends on our common stock. We currently anticipate
that we will retain all of our future earnings for use in the expansion and
operation of our business and do not anticipate paying any cash dividends on our
common stock in the foreseeable future.
No holders of our outstanding shares of common stock have preemptive rights
with respect to the issuance of shares of our Class A and Class B common stock
in connection with the combination.
13
<PAGE>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Information Statement contains forward-looking statements, including
(without limitation) statements concerning our possible or assumed future
results of operations and statements preceded by, followed by or that include
the words "believes," "could," "expects," "anticipates," or similar expressions.
For those statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. You should understand that the following important factors, in
addition to those discussed under "Special Considerations" and elsewhere in this
document and in the documents incorporated into this document by reference,
could affect our future results and could cause those results to differ
materially from those expressed in such forward-looking statements: materially
adverse changes in economic conditions in the markets served by us and, after
the combination, by our combined company; a significant delay in the expected
closing of the combination; competition from others in the Internet portal,
online services and event ticketing services markets and other industry
segments; the ability to enter, the timing of entry and the profitability of
entering new markets; and other risks and uncertainties as may be detailed from
time to time in our public announcements and filings with the Securities and
Exchange Commission or as may be set forth under "Special Considerations" on
page 15.
14
<PAGE>
SPECIAL CONSIDERATIONS
As a result of the combination, our business will be subject to the
following new or increased risks related to the Ticketmaster businesses or the
structure of the combination. In addition to the risks described below, our
business will continue to be subject to the risks described in the documents
that we have filed with the Securities and Exchange Commission that are
incorporated by reference into this Information Statement. If any of the risks
described below or in the documents incorporated into this Information Statement
by reference actually occur, our business, financial condition, results of
operations or cash flows could be materially adversely affected.
WE MAY NOT REALIZE THE SYNERGIES AND OTHER INTENDED BENEFITS OF THE COMBINATION.
Among the factors considered by the Special Committee and our Board of
Directors in connection with its approval of the contribution agreement were the
opportunities for revenue growth that could result from the combination.
However, general economic conditions and other factors beyond our combined
company's control may limit our ability to realize these opportunities.
Accordingly, we cannot assure you as to whether or in what time frame any
revenue growth will be realized.
WE MAY HAVE DIFFICULTY OVERCOMING PROBLEMS ASSOCIATED WITH RAPID EXPANSION AND
GROWTH.
As our combined company's business develops and expands, it will need to
implement enhanced operational and financial systems and will likely require
additional management, operational and financial resources. We cannot assure you
that our combined company will successfully implement and maintain such
operational and financial systems or successfully obtain, integrate and use the
management, operational and financial resources necessary to manage a developing
and expanding business in an evolving and increasingly competitive industry.
Failure to implement such systems successfully or use such resources effectively
could have a material adverse effect on our combined company's business,
financial condition or results of operations.
OUR TICKETING BUSINESS IS DEPENDENT ON ENTERTAINMENT, SPORTING AND LEISURE
EVENTS AND FACTORS AFFECTING SUCH EVENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS.
Pursuant to contracts with arenas, stadiums, theaters and other facilities,
sports teams, promoters and others, Ticketmaster Corporation, in its capacity as
agent, sells tickets relating to entertainment, sporting and leisure events and,
accordingly, Ticketmaster Corporation's ticketing business and our
ticketmaster.com business are directly affected by the popularity, frequency and
location of such events. Factors affecting such events, including general
economic conditions, consumer trends and work stoppages (such as the 1994 strike
by the Major League Baseball Players Association against Major League Baseball),
could have a material adverse effect on the Ticketmaster Corporation and
ticketmaster.com business and, following the combination, the businesses of our
combined company.
QUARTERLY FLUCTUATIONS IN REVENUES COULD ADVERSELY AFFECT THE MARKET PRICE OF
OUR CLASS B COMMON STOCK.
Ticketmaster Corporation and our ticketmaster.com business have historically
experienced quarterly fluctuations in ticket operation revenues, which vary
depending upon the dates when tickets for events are released for sale by
Ticketmaster Corporation's clients. The scheduling of popular events has
generally been more concentrated during the warm weather months. This factor,
together with the general practice of commencing ticket sales several months
prior to the event date, tends to result in higher revenues in the first six
months of operations during each fiscal year. This seasonality could cause our
quarterly earnings, and following the combination, quarterly earnings of our
combined company, to fall temporarily below market expectations, which could in
turn adversely affect the market price of our Class B common stock.
15
<PAGE>
OUR PLANS TO EXPAND INTERNATIONALLY WILL REQUIRE US TO ADDRESS RISKS OF
OPERATING INTERNATIONALLY.
Ticketmaster Corporation presently conducts business directly in the United
Kingdom, Canada, Mexico and South America, and through joint ventures in Ireland
and Australia. In fiscal 1999, revenues from international operations accounted
for 13% of Ticketmaster Corporation's total revenues. Ticketmaster Corporation
intends to continue to expand its operations outside of the United States and to
enter additional markets, which will require additional resources.
If the revenues generated by our international operations are insufficient
to offset the expense of establishing and maintaining these operations, our
business, financial condition and results of operations could be materially and
adversely affected. We cannot assure you that we or our partners 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 that are not necessarily present in domestic operations,
such as:
- laws limiting the right and ability of foreign subsidiaries to pay
dividends and remit earnings to affiliated companies unless specified
conditions are met;
- unexpected changes in regulatory requirements, tariffs and other trade
barriers;
- difficulties in staffing and managing foreign operations;
- political instability;
- increased exposure to gains and losses on currency rate fluctuations; and
- potentially adverse tax consequences.
We cannot assure you 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.
FOLLOWING THE COMBINATION, OUR TICKETING BUSINESS WILL BE DEPENDENT UPON OUR
RELATIONSHIP WITH CLIENTS.
Following the combination, we anticipate that for the foreseeable future,
the majority of our combined company's revenues will be derived from the online
and offline 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 fees paid by consumers in connection with online and offline
purchases of tickets to live events presented or promoted by clients of
Ticketmaster Corporation. Accordingly, our future revenues and business success
will be dependent on the combined company'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. Following the combination, our combined
company will be dependent upon its ability to enter into and maintain client
contracts on favorable terms. We cannot assure you that our combined company
will be able to enter into or maintain client contracts on such terms.
Our combined company's ability to generate ticket and merchandise sales on
our ticketmaster.com Web site will also be dependent in part on our combined
company's ability to maintain and enhance the Ticketmaster brand name. Any
failure on the part of our combined company to maintain its existing base of
clients, to establish relationships with new clients upon favorable terms, to
obtain or retain the right to sell tickets and merchandise online, to process
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.
16
<PAGE>
WE DEPEND ON KEY PERSONNEL AND NEED TO HIRE ADDITIONAL QUALIFIED PERSONNEL.
Following the proposed combination, we expect that the success of our
combined company will depend to a significant degree upon the continued
contributions of its executive management team. The loss of the services of
members of our executive management team could have a material adverse effect on
our business, financial condition and results of operations. After completion of
the combination, we will need to integrate new members of our management team
into our existing management team. The failure to manage this integration
smoothly could disrupt our business and harm our results of operations.
Our success also depends upon our ability to attract and retain additional
highly qualified management, technical and sales and marketing personnel, for
which competition is intense. 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.
THE MARKETS IN WHICH TICKETMASTER CORPORATION SELLS ITS SERVICES ARE INTENSELY
COMPETITIVE AND THE COMBINED COMPANY'S BUSINESS WOULD BE ADVERSELY AFFECTED IF
WE FAILED TO COMPETE SUCCESSFULLY IN THESE MARKETS.
Ticketmaster Corporation competes with event facilities and promoters that
handle or may handle their own ticket sales and distribution through online and
other distribution channels, live event automated ticketing companies with
Websites that may or may not currently offer online transactional capabilities
and certain Web-based live event ticketing companies that conduct business
online and offline. We cannot assure you that one or more of Ticketmaster's
existing or potential competitors will not enter or expand into other regions or
nationally, which could have a material adverse effect on our business,
financial condition and results of operations.
WE MAY BE SUBJECT TO GOVERNMENTAL INVESTIGATIONS AND LITIGATION.
TICKETMASTER CORPORATION
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. Ticketmaster
Corporation is also a party to various legal proceedings involving commercial
disputes and intellectual property issues arising in the ordinary course of
business, as well as to several specific legal proceedings that are described
under the heading "Description of Ticketmaster--Legal Proceedings." 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.
CLASS ACTION LITIGATION RELATING TO THE PROPOSED COMBINATION
On or about November 21, 2000, four of our shareholders filed separate,
virtually identical class action lawsuits against us, USA Networks and 15 of our
current and former directors. The lawsuits, all of which were filed in the Court
of Chancery of the State of Delaware, are entitled SACHS V. CONN, ET AL., Case
No. 18517 NC; BEER V. TICKETMASTER ONLINE CITYSEARCH, INC., ET AL., Case
No. 18520 NC; HARBOR FINANCE PARTNERS V. TICKETMASTER ONLINE CITYSEARCH,
ET AL., Case No. 18518 NC; and OSHER V. CONN, ET AL., Case No. 18516 NC.
In each of the four lawsuits, the plaintiff purports to bring the suit on
behalf of our minority shareholders (i.e. all of our shareholders other than the
defendants). The plaintiffs allege that, as a result of the proposed
combination, USA Networks, which holds a majority of our shares, will reap the
benefits of increasing its holdings of our capital stock to the detriment of our
minority public
17
<PAGE>
shareholders who will suffer an unwarranted dilution of their shares of our
capital stock. The plaintiffs further allege that, by effecting the proposed
combination, the individual defendants, who are allegedly controlled by USA
Networks and/or beholden to USA Networks for their positions and thus have
conflicts of interest, have breached their fiduciary duties to our other
shareholders.
As their prayer for relief in the lawsuits, the plaintiffs seek to have the
Court enjoin the defendants from consummating the proposed combination, or in
the alternative, to have the Court rescind the proposed combination. In
addition, the plaintiffs seek monetary damages, attorneys' fees and other costs
of pursuing the lawsuits. None of the defendants has yet filed a response to any
of the four class action lawsuits. However, we believe that all four of the
lawsuits are without merit, and we expect all defendants to vigorously defend
the lawsuits.
DERIVATIVE LITIGATION RELATING TO THE PROPOSED COMBINATION
On or about December 1, 2000, one of our shareholders filed a derivative
lawsuit on our behalf against USA Networks and our 15 directors. The lawsuit is
entitled WALDMAN V. CONN, ET AL. AND TICKETMASTER ONLINE-CITYSEARCH, INC., Court
of Chancery for the State of Delaware, Case No. 18526.
In the derivative lawsuit, the plaintiff alleges that the proposed
combination is the product of unfair self-dealing, and that the consideration we
will pay to USA Networks is unfair and excessive. The plaintiff further alleges
that, by effecting the proposed combination, the individual defendants, who are
controlled by USA Networks, breached their fiduciary duty to our shareholders by
putting the interests of themselves and of USA Networks in front of the interest
of our shareholders.
As the prayer for relief in the derivative lawsuit, the plaintiff seeks to
have the Court enjoin the defendants from proceeding with the transaction. In
addition, the plaintiff seeks monetary damages for us, as well as attorneys'
fees and the costs for pursuing the action. None of the defendants has yet filed
a response to the derivative suit. However, we believe that the lawsuit is
without merit, and we expect all defendants to vigorously defend against the
lawsuit.
18
<PAGE>
THE COMBINATION
THE FOLLOWING DESCRIPTION OF THE MATERIAL TERMS OF THE COMBINATION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE CONTRIBUTION
AGREEMENT. A COPY OF THE CONTRIBUTION AGREEMENT IS ATTACHED AS EXHIBIT A TO THIS
INFORMATION STATEMENT AND INCORPORATED HEREIN BY REFERENCE.
BACKGROUND
BACKGROUND OF THE COMBINATION
At various times over the past two years, our senior management has
discussed with management of USA Networks the possibility of combining our
business and operations with the Ticketmaster businesses.
On October 22, 2000, USA Networks advised us that it was filing an amendment
to its Schedule 13D on October 23, 2000 regarding its beneficial ownership of
our common stock, stating that it was considering possible transactions in order
to obtain the benefits of joint operation of our ticketing and reservations
businesses and those of Ticketmaster Corporation. USA Networks further disclosed
that these potential transactions included a merger or other transaction that
could involve our issuing additional shares to USA Networks. USA Networks also
stated its intent to ask our Board of Directors to appoint a committee of
independent directors to consider such transactions.
On October 23, 2000, our Board of Directors held a telephonic board meeting
to consider the potential for a combination transaction with Ticketmaster
Corporation. Barry Diller, a director and Chairman of USA Networks, and John
Pleasants, our Chief Executive Officer, briefly discussed the business rationale
for a transaction and the proposed strategy for the combined company. At this
meeting and pursuant to a subsequent written consent, our Board of Directors
appointed a Special Committee of all of the disinterested directors of our Board
of Directors, comprised of Joseph Gleberman, Bill Gross, Allen Grubman, Bryan
Lourd, Alan Spoon and Thomas Unterman, to consider the proposed transaction and
make a recommendation to the full board. Immediately following the conclusion of
the meeting of the Board of Directors, the Special Committee held a telephonic
meeting at which the members of the Special Committee discussed the organization
of the Special Committee, as well as the retention of possible legal and
financial advisors. Mr. Spoon was appointed chairman of the Special Committee.
On October 25, 2000, the Special Committee held a telephonic meeting to
discuss its process for considering the potential transaction. At this meeting,
the Special Committee engaged Munger, Tolles & Olson LLP and Potter, Anderson &
Corroon, LLP as its legal counsel and authorized a subcommittee of the Special
Committee to consider possible financial advisors to the Special Committee.
Following interviews of potential financial advisors by this subcommittee, the
Special Committee engaged Salomon Smith Barney on October 27, 2000 as financial
advisor to assist the Special Committee in its evaluation of the financial terms
of the combination.
Beginning on October 28, 2000 and continuing through November 20, 2000,
Mr. Spoon participated in a number of communications with representatives of USA
Networks, in which the procedures for conducting due diligence, the principles
guiding the Special Committee in its deliberations and the process and progress
of the negotiations were discussed.
Beginning on October 30, 2000, and continuing through November 20, 2000, the
Special Committee's legal and financial advisors, assisted by members of our
senior management, performed a due diligence investigation of Ticketmaster.
Salomon Smith Barney promptly commenced a review and analysis of our business
and the Ticketmaster businesses and their respective valuations.
On November 2, 2000, the Special Committee met and discussed initial due
diligence efforts and findings and preliminary conversations that had occurred
between the Special Committee's financial
19
<PAGE>
advisor and Allen & Co., the financial advisor to USA Networks. The Special
Committee also received a presentation from outside counsel regarding the
responsibilities of the Special Committee and discussed principles that would
guide its judgment regarding the fairness and acceptability of any offer that
might be received from USA Networks, and it discussed whether the sale to USA
Networks of our shares that are held by the public might be an alternative to
the purchase of Ticketmaster from USA Networks. The Special Committee directed
its financial advisor to explore such an alternative with USA Networks'
financial advisor. The Special Committee also discussed the need to consider the
alternative of not proceeding with a transaction.
On November 3, 2000, outside legal counsel for USA Networks delivered an
initial draft of the contribution agreement to us. From November 3, 2000 to
November 20, 2000, we and our legal advisors, the Special Committee and its
legal advisors, and USA Networks and its legal advisors negotiated the terms of
the definitive contribution agreement and explored structural issues.
From November 3, 2000 to November 20, 2000, the Special Committee's
financial advisor and USA Networks' financial advisor held a series of
discussions that included discussion of structural issues, identification of the
exact nature of the assets and entities to be contributed to us, and exploration
of the expectations of the Special Committee and USA Networks as to the type and
amount of consideration to be exchanged in the transaction. In exploring
alternatives, the Special Committee's financial advisor suggested that the
Special Committee would be interested in receiving a proposal for an alternative
transaction in which USA Networks would buy the minority public shares. USA
Networks' financial advisor indicated that USA Networks was not interested in
exploring such a transaction.
On November 8, 2000 the Special Committee, its legal counsel and its
financial advisor met in person in Los Angeles and New York City, with a
videoconference connecting the two cities and some members participating
telephonically, to consider the preliminary terms of the proposed combination.
The Special Committee discussed with its financial advisor a preliminary
analysis provided by its financial advisor regarding our prospects and
valuations and those of Ticketmaster, other recent corporate transactions
involving combinations of online and offline businesses and the overall
financial environment. The Special Committee also discussed potential
transaction structures, including the possibility of not proceeding with a
combination of the two companies.
On November 9, 2000, the Executive Committee of the Board of Directors of
USA Networks met to consider the proposed transaction. Prior to the meeting, the
Executive Committee members received materials outlining and analyzing the
proposed combination. At the meeting, management and USA Networks' legal and
financial advisors presented the background of the proposed combination,
outlined the terms and conditions of the proposed combination, presented a
strategic and financial analysis and responded to questions from the directors.
The Executive Committee approved the contribution agreement subject to
finalization by USA Networks' management and its legal advisors of the necessary
documentation and subject to agreement between the parties on the consideration
to be received by USA Networks in exchange for the Ticketmaster businesses.
On November 10, 2000, the Special Committee met telephonically to receive an
update on the progress of due diligence and a report from its financial advisor
on conversations with USA Networks' financial advisor. The Special Committee
also received an update from its counsel on legal issues raised by the draft
contribution agreement.
On November 15, 2000, the Special Committee met telephonically with its
legal counsel and financial advisor to review and discuss an updated financial
analysis by the financial advisor and to receive an update on due diligence.
On November 17, 2000, financial advisors to the Special Committee and USA
Networks negotiated the terms of an offer that might be made by USA Networks.
Mr. Spoon was kept advised of these
20
<PAGE>
discussions and of parallel discussions that were occurring between legal
counsel for the Special Committee and USA Networks regarding the contribution
agreement. On November 18, Mr. Spoon spoke by telephone with a USA Networks
representative to discuss key elements of a transaction, including possible
consideration to be paid, the make-up of the balance sheet of the combined
company, and the use of our low-voting Class B stock rather than high-voting
Class A stock. Mr. Spoon, together with the Special Committee's legal counsel,
contacted each of Messrs. Grubman, Gleberman and Unterman to apprise them of the
status of discussions and seek their input, and legal counsel, at Mr. Spoon's
direction, had similar conversations with Messrs. Lourd and Gross.
On November 20, 2000, the Special Committee met to consider a proposal from
USA Networks made that day that we purchase the Ticketmaster businesses in
exchange for 52,000,000 new shares of our Class B Common Stock. At this meeting,
the Special Committee received a presentation from Salomon Smith Barney on the
transaction, which included Salomon Smith Barney's opinion that the
consideration to be paid by us in the combination was fair to us, from a
financial point of view, and Munger, Tolles & Olson discussed the material terms
of the transaction and provided background on the negotiation of each material
term. During these discussions, Special Committee members asked questions to
which Salomon Smith Barney and Munger, Tolles & Olson responded. After
discussion, the Special Committee voted unanimously that the transaction was in
our best interests and in the best interests of our stockholders (other than USA
Networks and its affiliates) and should be recommended for approval by our Board
of Directors.
On November 20, 2000, after the meeting of the Special Committee, our Board
of Directors held a special meeting at which the members of the Special
Committee reported to the full board that the Special Committee recommended
approval of the proposed combination. The Special Committee's legal counsel also
reviewed the terms of the contribution agreement with the Board. After
discussion, our Board of Directors, with the interested directors abstaining
from the vote, unanimously determined that the contribution agreement and the
combination with Ticketmaster were advisable and in the best interests of our
stockholders and approved the contribution agreement. Our Board of Directors
authorized our officers, together with our outside counsel, to negotiate any
final changes to the definitive transaction agreement consistent with the terms
of the transaction approved by the board.
Following the completion of final changes to the contribution agreement, our
representatives and representatives of USA Networks executed the contribution
agreement on November 20, 2000. On the morning of November 21, 2000, we issued a
joint press release with USA Networks announcing the combination.
REASONS FOR THE COMBINATION
The Special Committee has determined that the terms of the combination are
fair to, and in the best interests of, us and our stockholders (other than USA
Networks and its affiliates). In approving the contribution agreement and the
transactions contemplated thereby, the Special Committee considered a number of
factors. The principal factors considered include but are not limited to the
following:
- The Special Committee evaluated the business opportunity afforded by the
combination and concluded that our combination with the Ticketmaster
businesses offered a realistic possibility of increasing our stockholder
value. The Special Committee's conclusion that the combination offers a
realistic possibility of increasing stockholder value was based upon the
following assessments: (1) the acquisition of the Ticketmaster businesses
should provide us with the cash flow to enable us to more fully exploit
the opportunities available to us in expanding our businesses, broadening
our product portfolio, and reducing our exposure to risk; (2) a combined
company should be able to achieve greater coordination of efforts to
increase the percentage of
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<PAGE>
tickets sold online; and (3) the combined management of the companies
should be in a stronger position to grow our businesses, resulting in
better service to our clients and their customers.
- The Special Committee determined that the number of our shares of common
stock to be issued in the combination fairly reflects the value of the
Ticketmaster businesses. The Special Committee's determination was based
upon (1) the market value of our common stock; (2) its evaluation of the
current and forecasted revenues and earnings of the businesses to be
acquired; and (3) its estimate of the value of the businesses to be
acquired, based upon revenues, earnings, projected growth and market
potential.
- The Special Committee received an opinion from Salomon Smith Barney that,
as of the date of its opinion, and based upon and subject to the
assumptions, limitations and qualifications set forth in its opinion, the
consideration to be paid by us in the combination is fair to us, from a
financial point of view, based on Salomon Smith Barney's analysis
described below under "Opinion of Financial Advisor."
- The terms of the contribution agreement were determined through
arms-length negotiations between the Special Committee and its legal and
financial advisors, on the one hand, and representatives of USA Networks
and its legal and financial advisors, on the other.
- The terms and conditions of the contribution agreement contain certain
provisions that are favorable to us, including but not limited to the
following provisions: (1) that at closing, the current assets of the
Ticketmaster businesses will equal their current liabilities; (2) that at
closing, we will have in place a $25 million line of credit from a third
party or from USA Networks; (3) that USA Networks will indemnify us for
tax liabilities of the Ticketmaster businesses with respect to tax periods
ending on or prior to the closing date; and (4) that USA Networks will
indemnify us for breach of certain representations and warranties,
including the accuracy of the financial statements of the contributed
entities.
After considering each of the principal factors described above, the Special
Committee determined that the combination was advisable and in our best
interests and those of our stockholders (other than USA Networks and its
affiliates) and that it should recommend to our Board of Directors that we
effectuate the combination at the earliest possible date. The Special
Committee's analysis was based upon the factors described above, utilizing the
information available to it at the time of its recommendation, and the final
consideration was determined through arms-length negotiations between the
Special Committee and USA Networks. The Special Committee did not rely on any
single factor described above, assign relative weights to the factors considered
by it, or develop any conclusion as to how any factor, taken alone, supported
its determination, because, in view of the wide variety of factors considered in
connection with its evaluation of the combination, the Special Committee did not
find it practicable or productive to assign relative weights to or otherwise
quantify each of the facts considered in reaching its determination regarding
the fairness of the combination.
After considering the Special Committee's unanimous recommendation that our
Board of Directors approve the contribution agreement and the combination,
together with the facts that (1) the Special Committee consisted of directors
who are not officers or directors of USA Networks, Ticketmaster Corporation,
Ticketmaster Group or us and (2) the Special Committee retained and was advised
by independent legal and financial advisors, our Board of Directors determined
that the combination was advisable and in our best interests and those of our
stockholders (other than USA Networks and its affiliates) and that we should
proceed with the combination at the earliest possible date.
22
<PAGE>
OPINION OF FINANCIAL ADVISOR
Salomon Smith Barney was retained to act as financial advisor to the Special
Committee of our Board of Directors in connection with the combination. Pursuant
to Salomon Smith Barney's engagement letter with us dated November 6, 2000,
Salomon Smith Barney rendered an oral opinion to the Special Committee of our
Board of Directors on November 20, 2000 and subsequently confirmed in writing,
that, as of that date and based upon and subject to the assumptions, limitations
and qualifications set forth in the opinion, its work described below and other
factors it deemed relevant, the consideration to be paid by us in the
combination was fair to us, from a financial point of view.
The full text of Salomon Smith Barney's written opinion dated November 20,
2000, which sets forth the assumptions made, general procedures followed,
matters considered and limits on the review undertaken, is included as
Exhibit B to this Information Statement. The summary of Salomon Smith Barney's
opinion set forth below is qualified in its entirety by reference to the full
text of the opinion. STOCKHOLDERS ARE URGED TO READ SALOMON SMITH BARNEY'S
OPINION CAREFULLY AND IN ITS ENTIRETY.
In arriving at its opinion, Salomon Smith Barney reviewed a draft of the
contribution agreement dated November 20, 2000, and held discussions with
certain of our senior officers, directors and other representatives and advisors
and certain senior officers and other representatives and advisors of USA
Networks and Ticketmaster concerning our and Ticketmaster's businesses,
operations and prospects. Salomon Smith Barney examined publicly available
business and financial information relating to us and Ticketmaster, as well as
financial forecasts and other information and data for each of us that were
provided to or otherwise discussed with Salomon Smith Barney by our management
and the managements of USA Networks and Ticketmaster, including information
regarding certain strategic implications and operational benefits anticipated to
result from the combination. Salomon Smith Barney reviewed the financial terms
of the combination as set forth in the draft contribution agreement in relation
to, among other things:
- current and historical market prices and trading volumes of our Class B
common stock;
- our and Ticketmaster's historical and projected earnings and other
operating data; and
- our and Ticketmaster's capitalization and financial condition.
Salomon Smith Barney also considered, to the extent publicly available, the
financial terms of other similar transactions recently effected that Salomon
Smith Barney considered relevant in evaluating the combination, and analyzed
certain financial, stock market and other publicly available information
relating to the businesses of other companies whose operations Salomon Smith
Barney considered relevant in evaluating those of Ticketmaster. Salomon Smith
Barney also evaluated the pro forma financial impact of the combination on us.
In addition, Salomon Smith Barney conducted such other analyses and examinations
and considered such other information and financial, economic and market
criteria as it deemed appropriate in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney and further relied upon the
assurances of our management and the managements of USA Networks and
Ticketmaster that they are not aware of any facts that would make any of such
information inaccurate or misleading. With respect to financial forecasts and
other information and data provided to or otherwise reviewed by or discussed
with it, Salomon Smith Barney was advised by our management and Ticketmaster's
management that such forecasts and other information and data had been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of our management and Ticketmaster's management as to our and
Ticketmaster's respective future financial performances and the strategic
implications and operational benefits anticipated to result from the proposed
combination. Salomon Smith Barney expressed no view with respect to such
forecasts and
23
<PAGE>
other information and data or the assumptions on which they were based. Salomon
Smith Barney assumed, with the consent of the Special Committee of our Board of
Directors, that the combination will qualify as a tax-free exchange for federal
income tax purposes. Salomon Smith Barney did not make and was not provided with
an independent evaluation or appraisal of the assets or liabilities (contingent
or otherwise) of Ticketmaster, nor did Salomon Smith Barney make any physical
inspection of Ticketmaster's properties or assets. Salomon Smith Barney assumed,
and had been advised by the Special Committee, that the final terms of the
contribution agreement would not vary materially from those set forth in the
draft reviewed by Salomon Smith Barney. Salomon Smith Barney further assumed
that the combination will be consummated in accordance with the terms of the
contribution agreement, without waiver of any of the conditions precedent to the
combination contained in the contribution agreement.
Salomon Smith Barney did not express any opinion as to what the value of the
shares of Class A and Class B common stock actually will be when issued in the
combination or the price at which the Class A and Class B common stock will
trade or otherwise be transferable subsequent to the combination. Salomon Smith
Barney was not requested to consider, and its opinion did not address, the
relative merits of the combination as compared to any alternative business
strategies that might exist for us or the effect of any other transaction in
which we might engage. Salomon Smith Barney's opinion necessarily was based on
information available to it, and financial, stock market and other conditions
and circumstances existing and disclosed to Salomon Smith Barney as of the date
of the opinion.
SALOMON SMITH BARNEY'S ADVISORY SERVICES AND OPINION WERE PROVIDED FOR THE
INFORMATION OF THE SPECIAL COMMITTEE OF OUR BOARD OF DIRECTORS IN ITS EVALUATION
OF THE COMBINATION AND DID NOT CONSTITUTE A RECOMMENDATION OF THE COMBINATION TO
US.
In connection with rendering its opinion, Salomon Smith Barney made a
presentation to the Special Committee on November 20, 2000, with respect to the
material analyses performed by Salomon Smith Barney in evaluating the fairness
of the consideration to be paid by us. The following is a summary of that
presentation. The summary includes information presented in tabular format. IN
ORDER TO UNDERSTAND FULLY THE FINANCIAL ANALYSES USED BY SALOMON SMITH BARNEY,
THESE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES
ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. The
following quantitative information, to the extent it is based on market data,
is, except as otherwise indicated, based on market data as it existed at or
prior to November 17, 2000, and is not necessarily indicative of current or
future market conditions.
OVERVIEW AND VALUATION OF TICKETMASTER
Salomon Smith Barney included in its presentation to the Special Committee a
brief financial overview of Ticketmaster, including historical and projected
financial information. Salomon Smith Barney also performed, and summarized,
analyses of Ticketmaster's value using three methodologies: a comparable public
companies analysis; a comparable transaction analysis; and a discounted cash
flow analysis.
COMPARABLE COMPANIES ANALYSIS OF TICKETMASTER. Salomon Smith Barney
compared financial, operating and stock market information, as well as
forecasted financial information, for selected publicly traded companies that
Salomon Smith Barney deemed appropriate for comparison with
24
<PAGE>
financial, operating and forecasted financial information for Ticketmaster. The
selected comparable companies considered by Salomon Smith Barney were:
<TABLE>
<CAPTION>
TICKETING AND RESERVATIONS: TRANSACTION PROCESSING:
--------------------------- -----------------------
<S> <C>
- Cheap Tickets, Inc. - Concord EFS, Inc.
- Galileo International, Inc. - Deluxe Corporation
- Hotel Reservations Network, Inc. - Equifax Inc.
- Navigant International, Inc. - First Data Corporation
- Pegasus Solutions, Inc. - Fiserv, Inc.
- Sabre Holdings Corporation - National Processing, Inc.
- National Data Corporation
- Nova Corporation
- Total System Services, Inc.
</TABLE>
Salomon Smith Barney considered these companies appropriate for comparison
but noted that none of these companies has the same management, make-up, size
and combination of businesses as Ticketmaster. The forecasted financial
information used by Salomon Smith Barney for the selected comparable companies
in the course of these analyses was based on publicly available Wall Street
estimates.
For each of the selected comparable companies, Salomon Smith Barney derived
and compared, among other things, the ratio of each company's firm value as of
November 17, 2000 to:
- its estimated revenue for 2000;
- its estimated revenue for 2001;
- its estimated earnings before interest expense, taxes, depreciation and
amortization, which we sometimes refer to as EBITDA, for 2000; and
- its estimated EBITDA for 2001.
Firm value was calculated as the sum of the value of:
- all common shares assuming the exercise of all in-the-money options,
warrants and convertible securities, less the proceeds from such exercise;
plus
- indebtedness; plus
- minority interests; plus
- preferred stock; plus
- out-of-the-money convertible securities; minus
- investments in unconsolidated affiliates and cash.
25
<PAGE>
The following tables set forth the results of these analyses:
<TABLE>
<CAPTION>
COMPARABLE COMPANIES AT
NOVEMBER 17, 2000 CLOSING PRICE
----------------------------------
RANGE MEDIAN MEAN
------------ -------- --------
<S> <C> <C> <C>
TICKETING AND RESERVATIONS COMPARABLES
RATIO OF FIRM VALUE TO:
(a) Estimated revenue for 2000................. 0.2x - 5.3x 1.5x 1.9x
(b) Estimated revenue for 2001................. 0.2x - 4.0x 1.3x 1.5x
RATIO OF FIRM VALUE TO:
(a) Estimated EBITDA for 2000.................. 4.3x - 33.6x 7.4x 11.0x
(b) Estimated EBITDA for 2001.................. 4.2x - 26.6x 4.8x 8.6x
</TABLE>
<TABLE>
<CAPTION>
COMPARABLE COMPANIES AT
NOVEMBER 17, 2000 CLOSING PRICE
----------------------------------
RANGE MEDIAN MEAN
------------ -------- --------
<S> <C> <C> <C>
TRANSACTION PROCESSING COMPARABLES
RATIO OF FIRM VALUE TO:
(a) Estimated revenue for 2000................. 0.9x - 7.3x 3.0x 3.2x
(b) Estimated revenue for 2001................. 0.8x - 5.7x 3.0x 3.0x
RATIO OF FIRM VALUE TO:
(a) Estimated EBITDA for 2000.................. 3.9x - 26.3x 10.3x 11.7x
(b) Estimated EBITDA for 2001.................. 5.2x - 19.7x 9.8x 10.8x
</TABLE>
Salomon Smith Barney focused on the calculated ratios of firm value to
estimated EBITDA and, based on this information and qualitative judgment,
derived a narrower reference range for the implied firm value of Ticketmaster of
$558 million to $790 million. Salomon Smith Barney noted that the 52,000,000
shares of our Class B common stock to be issued in the combination had a value,
based on our closing price on November 20, 2000, of $653.3 million, which
implied a firm value for Ticketmaster of $666.8 million, which was within this
implied reference range.
PRECEDENT TRANSACTION ANALYSIS. Salomon Smith Barney reviewed publicly
available information for four proposed or completed acquisition transactions,
all announced since March 10, 1998, that involved publicly traded companies and
that it deemed appropriate in analyzing the combination. The precedent
transactions considered by Salomon Smith Barney were the following (in each
case, the acquiror's name is listed first and the acquired company's name is
listed second):
- USA Networks / Ticketmaster Group, Inc.
- USA Networks / Precision Response Corporation
- iTurf Inc. / dELiA's, Inc.
- Primedia Inc. / About, Inc.
Salomon Smith Barney did not view any of these four transactions as directly
comparable to the combination. Accordingly, Salomon Smith Barney also reviewed
the USA Networks / Ticketmaster Group transaction using pro forma information
that excluded the value of the online assets in order to establish a precedent
transaction that Salomon Smith Barney deemed reasonably comparable to the
combination.
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<PAGE>
For each precedent transaction, Salomon Smith Barney derived the ratio of
the firm value of the acquired company based on the consideration paid or
proposed to be paid in the transaction to:
- the revenue of the acquired company for the last twelve-month period prior
to the announcement of the transaction for which financial results were
available;
- the EBITDA of the acquired company for the last twelve-month period prior
to the announcement of the transaction for which financial results were
available; and
- the earnings of the acquired company before interest expense and taxes,
which we sometimes refer to as EBIT, for the last the twelve-month period
prior to the announcement of the transaction for which financial results
were available.
With respect to the financial information for the companies involved in the
precedent transactions, Salomon Smith Barney relied on information in publicly
available documents, where available. The following table sets forth the results
of these analyses.
<TABLE>
<CAPTION>
RANGE MEDIAN MEAN
------------ -------- --------
<S> <C> <C> <C> <C>
RATIO OF FIRM VALUE TO:
(a) Revenue for last twelve-month period prior to
announcement................................. 0.7 - 10.0x 2.4x 3.6x
(b) EBITDA for last twelve-month period prior to
announcement................................. 10.2 - 24.3x 15.6x 16.7x
(c) EBIT for last twelve-month period prior to
announcement................................. 19.6 - 49.2x 28.9x 32.6x
</TABLE>
Using principally the ratios derived for the pro forma USA Networks /
Ticketmaster Group transaction, Salomon Smith Barney derived a reference range
for the implied firm value of Ticketmaster of $630 million to $764 million.
Salomon Smith Barney noted that the 52,000,000 shares of our Class B common
stock to be issued in the combination had a value, based on our closing price on
November 20, 2000, of $653.3 million, which implied a firm value for
Ticketmaster of $666.8 million, which was within this implied reference range.
DISCOUNTED CASH FLOW ANALYSIS. Salomon Smith Barney also performed a
discounted cash flow analysis of Ticketmaster using Ticketmaster management
projections for the years 2001 through 2003. Salomon Smith Barney calculated the
estimated present value of Ticketmaster's unlevered free cash flows for the
years 2001 through 2003. Salomon Smith Barney added to that the estimated
present value of the estimated terminal value of Ticketmaster at the end of the
year 2003. For purposes of this analysis, Salomon Smith Barney used discount
rates ranging from 10.0% to 12.0%, based upon an analysis of the weighted
average cost of capital of comparable companies, and terminal values based on
multiples of projected 2003 EBITDA ranging from 7.0x to 9.0x, which range was
based on the comparable companies analysis described above. From this analysis,
Salomon Smith Barney derived a reference range of implied firm value of
Ticketmaster of $587 million to $769 million. Salomon Smith Barney noted that
the 52,000,000 shares of our Class B common stock to be issued in the
combination had a value, based on our closing price on November 20, 2000, of
$653.3 million, which implied a firm value for Ticketmaster of $668.8 million,
which was within this implied reference range.
OVERVIEW AND VALUATION OF OUR COMPANY
Salomon Smith Barney included in its presentation to the Special Committee
an overview of us, including historical trading price and volume information and
historical and projected financial information. Salomon Smith Barney also
performed, and summarized, an analysis of the value of our stock on a
sum-of-the-parts basis utilizing a comparable public companies analysis of our
business segments.
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<PAGE>
COMPARABLE COMPANIES ANALYSIS OF OUR COMPANY. Salomon Smith Barney compared
financial, operating and stock market information, and forecasted financial
information for selected publicly traded companies that operate in our industry
sectors with the same information for us. The selected comparable companies
considered by Salomon Smith Barney were:
<TABLE>
<CAPTION>
TICKETMASTER.COM BUSINESS CITYSEARCH/MATCH.COM BUSINESS ONLINE CAREER SITE BUSINESS
------------------------- ----------------------------- ---------------------------
<S> <C> <C>
- Amazon.com, Inc. - CNET Networks, Inc. - TMP Worldwide Inc.
- eBay Inc. - The Walt Disney Company - HotJobs.com, Ltd.
- Expedia, Inc. Internet Group - HeadHunter.NET, Inc.
- Priceline.com Incorporated - GoTo.com, Inc.
- Hotel Reservations - SportsLine.com, Inc.
Network, Inc.
- Tickets.com, Inc.
- Travelocity.com Inc.
</TABLE>
Salomon Smith Barney considered these companies appropriate for comparison
but noted that none of these companies has the same management, make-up, size
and combination of businesses as us. The forecasted financial information used
by Salomon Smith Barney for the selected comparable companies in the course of
these analyses was based on publicly available Wall Street estimates.
For each of the selected comparable companies Salomon Smith Barney derived
and compared, among other things:
- the ratio of each company's firm value as of November 17, 2000, to
(a) its estimated revenue for 2000 and (b) its estimated revenue for 2001;
and
- the ratio of each company's equity value as of November 17, 2000, to
(a) its estimated revenue for 2000 and (b) its estimated revenue for 2001.
The following tables set forth the results of these analyses:
<TABLE>
<CAPTION>
COMPARABLE COMPANIES AT
NOVEMBER 17, 2000 CLOSING PRICE
----------------------------------
RANGE MEDIAN MEAN
------------ -------- --------
<S> <C> <C> <C>
TICKETMASTER.COM COMPARABLES
RATIO OF FIRM VALUE TO:
(a) Estimated revenue for 2000................. 0.5x - 26.8x 3.8x 7.1x
(b) Estimated revenue for 2001................. 0.6x - 18.3x 2.4x 4.9x
RATIO OF EQUITY VALUE TO:
(a) Estimated revenue for 2000................. 0.4x - 28.5x 3.6x 6.5x
(b) Estimated revenue for 2001................. 0.3x - 19.5x 2.4x 4.5x
</TABLE>
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<TABLE>
<CAPTION>
COMPARABLE COMPANIES AT
NOVEMBER 17, 2000 CLOSING PRICE
----------------------------------
RANGE MEDIAN MEAN
------------ -------- --------
<S> <C> <C> <C>
CITYSEARCH/MATCH.COM COMPARABLES
RATIO OF FIRM VALUE TO:
(a) Estimated revenue for 2000................. 1.7x - 7.4x 4.3x 4.4x
(b) Estimated revenue for 2001................. 1.5x - 4.3x 2.7x 2.8x
RATIO OF EQUITY VALUE TO:
(a) Estimated revenue for 2000................. 2.4x - 8.2x 4.6x 4.9x
(b) Estimated revenue for 2001................. 2.0x - 4.8x 2.8x 3.1x
</TABLE>
<TABLE>
<CAPTION>
COMPARABLE COMPANIES AT
NOVEMBER 17, 2000 CLOSING PRICE
----------------------------------
RANGE MEDIAN MEAN
------------ -------- --------
<S> <C> <C> <C>
ONLINE CAREER SITE COMPARABLES
RATIO OF FIRM VALUE TO:
(a) Estimated revenue for 2000................. 4.1x - 5.5x 4.6x 4.7x
(b) Estimated revenue for 2001................. 2.0x - 3.8x 3.1x 3.0x
RATIO OF EQUITY VALUE TO:
(a) Estimated revenue for 2000................. 4.3x - 6.7x 5.1x 5.3x
(b) Estimated revenue for 2001................. 2.1x - 4.2x 3.7x 3.3x
</TABLE>
Salomon Smith Barney considered the online career site comparables in its
analysis of each of the ticketing and Citysearch/Match.com businesses. Salomon
Smith Barney focused on the calculated ratios of firm value to estimated revenue
and, for the ticketmaster.com business, also considered the ratio of firm value
to estimated EBITDA for the ticketing and reservations comparables described in
the table under "Overview and Valuation of Ticketmaster--Comparable Companies
Analysis of Ticketmaster" in this Information Statement and, based on this
information and qualitative judgment, derived a narrower reference range for the
implied firm value of each of our business segments. Salomon Smith Barney added
up the sum of these parts and subtracted an amount attributable to general
corporate expense to derive a reference range of our implied firm value ranging
from $944 million to $1,295 million. From this, Salomon Smith Barney derived a
reference range of the implied equity value per share of our common stock
ranging from $11.29 to $15.17. Salomon Smith Barney noted that the closing price
of our Class B common stock on November 20, 2000 of $12.56 and the price of our
Class B common stock over the 30 days ending on November 17, 2000 of
approximately $14.00 per share were within this range.
The preceding discussion is a summary of the material financial analyses
furnished by Salomon Smith Barney to the Special Committee of our Board of
Directors, but it does not purport to be a complete description of the analyses
performed by Salomon Smith Barney or of its presentations to the Special
Committee. The preparation of financial analyses and fairness opinions is a
complex process involving subjective judgments and is not necessarily
susceptible to partial analysis or summary description. Salomon Smith Barney
made no attempt to assign specific weights to particular analyses or factors
considered, but rather made qualitative judgments as to the significance and
relevance of all the analyses and factors considered and determined to give its
fairness opinion as described above. Accordingly, Salomon Smith Barney believes
that its analyses, and the summary set forth above, must be considered as a
whole and that selecting portions of the analyses and of the factors considered
by Salomon Smith Barney without considering all of the analyses and factors
could create a misleading or incomplete view of the processes underlying the
analyses conducted by Salomon Smith Barney and its opinion. With regard to the
comparable companies and precedent transactions analyses summarized above,
Salomon Smith Barney selected comparable public companies and transactions on
the basis of
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various factors, including the size and similarity of the relevant companies as
compared to us and Ticketmaster; however, no company or transaction used as a
comparison in these analyses is identical to us or Ticketmaster or the
combination, respectively. As a result, these analyses are not purely
mathematical, but also take into account differences in financial and operating
characteristics of the subject companies and other factors that could affect the
transaction or public trading value of the subject companies to which we and
Ticketmaster are being compared or the transaction to which the combination is
being compared.
In its analyses, Salomon Smith Barney made numerous assumptions and
considered a number of factors with respect to us, Ticketmaster, industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond our control or the control of
Ticketmaster. Any estimates contained in Salomon Smith Barney's analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by these analyses. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the prices at which companies actually may
be sold. Because these estimates are inherently subject to uncertainty, none of
us, Ticketmaster, the Special Committee, our Board of Directors, Salomon Smith
Barney or any other person assumes responsibility if future results or actual
values differ materially from the estimates.
Salomon Smith Barney's analyses were prepared solely as part of Salomon
Smith Barney's analysis of the fairness of the consideration to be paid by us in
the combination and were provided to the Special Committee of our Board of
Directors in that connection. The amount of the consideration paid was
determined through negotiations between USA Networks and the Special Committee.
Salomon Smith Barney provided advice to the Special Committee during the course
of those negotiations, but Salomon Smith Barney did not determine the amount or
recommend any specific purchase price to the Special Committee. The opinion of
Salomon Smith Barney was only one of the factors taken into consideration by the
Special Committee in making its determination to recommend that the Board of
Directors approve the contribution agreement and the combination. See "Reasons
For The Combination."
Salomon Smith Barney is an internationally recognized investment banking
firm engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. The Special Committee of
our Board of Directors selected Salomon Smith Barney to act as its financial
advisor on the basis of Salomon Smith Barney's international reputation and
Salomon Smith Barney's familiarity with our company. In the ordinary course of
its business, Salomon Smith Barney and its affiliates may actively trade or hold
our securities and the securities of USA Networks for its own account and for
the account of customers and, accordingly, may at any time hold a long or short
position in those securities. Salomon Smith Barney and its affiliates, including
Citigroup Inc. and its affiliates, may maintain other relationships with us, USA
Networks and Ticketmaster and their respective affiliates.
Pursuant to Salomon Smith Barney's engagement letter, we agreed to pay
Salomon Smith Barney for its services rendered in connection with the
combination, a fee of $1 million that became payable following delivery by
Salomon Smith Barney of its opinion to the Special Committee. We also agreed to
reimburse Salomon Smith Barney for its reasonable travel and other out-of-pocket
expenses incurred in connection with its engagement, including the reasonable
fees and disbursements of its counsel, and to indemnify Salomon Smith Barney
against specific liabilities and expenses relating to or arising out of its
engagement, including liabilities under the federal securities laws.
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STOCKHOLDER ACTION
Section 228 of the Delaware General Corporation Law permits stockholders to
approve any action that would be taken at any annual or special meeting without
a meeting, without prior notice and without a vote, by written consent of the
holders of the minimum number of votes that would be necessary to authorize the
action at a meeting if all stockholders entitled to vote were present and voted.
With regard to the combination, Ticketmaster Corporation holds approximately 84%
of our outstanding voting power and therefore is able to and has approved the
combination without the consent of any other stockholder.
DESCRIPTION OF THE COMBINATION
Pursuant to the contribution agreement, we will acquire the Ticketmaster
businesses from USA Networks in exchange for 52,000,000 new shares of our
Class B common stock to be issued to USA Networks.
The contribution agreement provides that the combination will be effected in
the two steps described below, both of which will occur at the closing of the
combination.
- In the first step, Ticketmaster Corporation will contribute to us all of
the equity interests of its subsidiaries (except for shares of our common
stock that it holds), and its assets that are freely assignable. The
shares of our common stock that are currently held by Ticketmaster
Corporation are not being contributed to us or canceled and will continue
to be held by Ticketmaster Corporation following the combination. In
exchange for the contributions by Ticketmaster Corporation, we will issue
to Ticketmaster Corporation a number of shares of our Class B common stock
equal to the fair market value of the equity interests and assets
contributed to us.
- In the second step, USA Networks, the sole stockholder of Ticketmaster
Group, which is in turn the sole stockholder of Ticketmaster Corporation,
will contribute to us all of the outstanding capital stock of Ticketmaster
Group. In exchange for the capital stock of Ticketmaster Group, we will
issue to USA Networks 52,000,000 new shares of our Class B common stock.
In addition, we will issue to USA Networks a number of shares of our
Class A and Class B common stock equal to the number of such shares
indirectly held by USA Networks through Ticketmaster Corporation prior to
the combination.
Upon completion of the combination, Ticketmaster Group and the former
subsidiaries of Ticketmaster Corporation whose equity interests were contributed
to us will be our direct subsidiaries and Ticketmaster Corporation will be our
indirect subsidiary.
As a result of the combination, USA Networks will own an additional
52,000,000 shares of our Class B common stock. The other shares to be issued to
USA Networks in connection with the combination will only replace shares that
were indirectly owned by USA Networks prior to the combination and that we will
indirectly own as a result of the combination. Accordingly, these shares will
not increase USA Networks' percentage ownership of our capital stock. After the
combination, USA Networks will own 42,480,143 shares of our Class A common stock
and 53,302,401 shares of our Class B common stock, representing an aggregate of
approximately 68% of our outstanding capital stock and 85% of our outstanding
voting power. The other holders of our common stock will, immediately following
the combination, own approximately 32% of our outstanding capital stock and 15%
of our outstanding voting power.
In connection with the combination, we will also amend our certificate of
incorporation to increase our number of authorized shares of Class A common
stock from 100,000,000 to 150,000,000. This increase will leave essentially
unchanged the number of authorized shares of our Class A common stock available
for issuance before and after the combination. The amendment to our certificate
of incorporation will also change our name from Ticketmaster
Online-Citysearch, Inc. to Ticketmaster.
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<PAGE>
TIMING
The closing of the combination is anticipated to occur as promptly as
practicable following the satisfaction or waiver of all of the conditions to the
combination set forth in the contribution agreement. We expect that the closing
will occur during the first quarter of 2001, or on such other date as we and USA
Networks may agree, provided that all conditions to closing in the contribution
agreement have been satisfied or waived. Our obligations and those of USA
Networks to complete the combination are subject to the fulfillment or waiver of
certain conditions discussed elsewhere in this Information Statement under the
section entitled "The Contribution Agreement--Conditions to Completing the
Combination."
OUR MANAGEMENT AFTER THE COMBINATION
After the combination, we expect that our company will be run by a
combination of executives from both companies, including Terry Barnes, who is
currently Chief Executive Officer of Ticketmaster Corporation, as our new
Co-Chairman, along with Barry Diller who is currently Chairman of USA Networks;
and John Pleasants, currently our Chief Executive Officer and President,
continuing as our Chief Executive Officer.
ACCOUNTING TREATMENT
The combination will be treated similarly to accounting for a
pooling-of-interests business combination, due to the common ownership of
Ticketmaster and us.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The combination will not be a taxable transaction to our stockholders as the
outstanding shares of our common stock are not being sold or exchanged in
connection with the combination. We do not expect the combination to have
material adverse tax consequences to us.
DISSENTERS' RIGHTS OF APPRAISAL
No appraisal rights are or will be available under the Delaware General
Corporation Law in connection with the combination as presently contemplated.
REGULATORY APPROVALS
Other than complying with our disclosure and filing obligations with the
Securities and Exchange Commission, we are not aware of any state or federal
regulatory agency that has the power to prevent this combination from closing or
that would otherwise have the power to approve this transaction in advance of
closing.
INTERESTS OF CERTAIN PERSONS IN THE COMBINATION
Certain of our officers and directors have interests in the combination that
differ from those of our stockholders generally. Other than the disinterested
directors comprising the Special Committee, each of our directors is either an
officer or director of USA Networks or one of our officers that is expected to
have a role in the continuing management of the combined company. As a result,
each of our directors, other than those comprising the Special Committee,
abstained on the vote approving the combination.
The Special Committee (comprised of all of the disinterested members of our
Board of Directors) was formed to represent the interests of the our
stockholders other than USA. The Special Committee negotiated the terms of the
contribution agreement with USA Networks on an arms-length basis. The Special
Committee also received a fairness opinion from its financial advisor, Salomon
Smith Barney,
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that, as of the date of such opinion and based upon and subject to the
assumptions, limitations and qualifications set forth therein, the consideration
to be paid by us in the combination, is fair to us from a financial point of
view.
See the description of the expected management changes resulting from the
combination under the heading "Our Management After the Combination" for
additional information regarding interests of certain of our officers and
directors in the combination. In addition, in connection with or following the
completion of the combination, we may enter into employment agreements with
certain of the combined company's management, and/or grant options to purchase
shares of Ticketmaster Online-Citysearch common stock to such individuals. No
employment agreements have been entered into and no options have been granted to
any of such individuals prior to the printing of this Information Statement.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Our certificate of incorporation currently authorizes 100,000,000 shares of
Class A common stock, 250,000,000 shares of Class B common stock, 2,883,506
shares of Class C common stock and 2,000,000 shares of preferred stock. As of
November 30, 2000, there were 47,923,463 shares, 40,775,416 shares and no shares
of our Class A, Class B and Class C common stock, respectively, issued and
outstanding. None of our preferred stock is issued and outstanding.
Immediately prior to the closing of the combination, we will amend to our
certificate of incorporation to increase the authorized shares of our Class A
common stock to 150,000,000 and to change our name from Ticketmaster
Online-Citysearch, Inc. to Ticketmaster.
This amendment to our certificate of incorporation was approved by
Ticketmaster Corporation pursuant to a written stockholder consent. We are
amending our certificate of incorporation in order for us to have available
essentially the same number of unissued shares of our Class A common stock
following the combination as we have available currently. We are changing our
name to Ticketmaster because we believe this name will better reflect the
business of the combined companies.
The amendment to our certificate of incorporation will be effected by the
filing of a certificate of amendment to our amended and restated certificate of
incorporation with the Secretary of State of the State of Delaware immediately
prior to the closing of the combination.
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THE CONTRIBUTION AGREEMENT
THIS IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE CONTRIBUTION AGREEMENT.
BECAUSE IT IS A SUMMARY, IT DOES NOT INCLUDE ALL OF THE INFORMATION THAT MAY BE
IMPORTANT TO YOU. WE ENCOURAGE YOU TO READ CAREFULLY THE ENTIRE COPY OF THE
CONTRIBUTION AGREEMENT THAT IS ATTACHED TO THIS INFORMATION STATEMENT AS
EXHIBIT A.
THE CONTRIBUTIONS
We describe the contribution by USA Networks of the Ticketmaster businesses
to us under "The Combination--Description of the Combination--General."
CLOSING; EFFECTIVE TIME
The contribution agreement provides that the closing of the combination will
take place on or about the third business day after all of the closing
conditions have been satisfied or waived, unless the parties to the contribution
agreement agree upon an earlier time. The closing of the combination is expected
to take place during the first quarter of 2001.
REPRESENTATIONS AND WARRANTIES
The contribution agreement contains customary representations and warranties
by us relating to, among other things:
- organization, standing, authority and similar corporate matters;
- capitalization;
- authorization, execution, delivery and enforceability of the contribution
agreement and approval of our Board of Directors, upon recommendation of
the Special Committee, of the combination and the contribution agreement;
- absence of conflicting agreements and receipt of all consents necessary
for the completion of the combination;
- brokers' or finders' fees and expenses;
- proper filing and accuracy of all required Securities and Exchange
Commission reports; and
- receipt by our Board of Directors of an opinion from Salomon Smith Barney
that the consideration proposed to be paid by us in connection with the
combination is fair from a financial point of view to us.
The contribution agreement also contains customary representations and
warranties of USA Networks with respect to itself and the entities being
contributed to us pursuant to the contribution agreement relating to, among
other things:
- organization, standing, authority and similar corporate matters;
- capitalization;
- authorization, execution, delivery and enforceability of the contribution
agreement;
- absence of breaches and conflicting agreements and receipt of all consents
necessary for the completion of the combination;
- brokers' or finders' fees and expenses;
- proper filing and accuracy of all required Securities and Exchange
Commission reports;
- receipt of government approvals for consummation of the combination;
- absence of liabilities or obligations, other than liabilities disclosed in
the schedules to the contribution agreement;
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- absence of transactions with related parties, other than those
transactions disclosed in the schedules to the contribution agreement;
- completeness of the assets being contributed to us for purposes of
conducting the Ticketmaster businesses;
- absence of pending or threatened material litigation;
- compliance with applicable laws and possession or required licenses,
permits and authorizations necessary for conduct of the businesses of the
contributed entities; and
- validity and enforceability of all contracts to which any of the entities
being contributed to us pursuant to the contribution agreement are
parties.
Many of the representations and warranties in the contribution agreement are
subject to various qualifications and limitations, such as qualifications as to
materiality. You are urged to read the contribution agreement sections titled
"Representations and Warranties of Parent" and "Representations and Warranties
of TMCS" in Exhibit A of this Information Statement.
COVENANTS
We and USA Networks, on behalf of itself and Ticketmaster, have each
undertaken covenants in the contribution agreement, including:
- USA Networks' agreement to indemnify us for tax liabilities of
Ticketmaster with respect to tax periods ending on or prior to the closing
date, and our agreement to indemnify USA Networks for all other tax
liabilities relating to us or any of our subsidiaries, including the
Ticketmaster businesses after the closing date;
- agreements of both USA Networks and us with respect to the filing of tax
returns relating to Ticketmaster and the allocation of tax refunds
relating to Ticketmaster;
- agreements of USA Networks and us regarding the handling of tax audits
relating to any tax returns covering Ticketmaster;
- agreements of USA Networks and us regarding the termination of tax-sharing
agreements and the application of tax deductions, losses or credits;
- USA Networks' agreement to cause the Ticketmaster businesses to be
conducted in the ordinary course of business prior to the closing date;
- the agreement of USA Networks and us to take all actions and do all things
reasonably necessary under applicable law to complete the combination,
including making all required governmental filings and obtaining all
necessary governmental approvals;
- USA Networks' agreement to prevent Ticketmaster from taking certain
actions without our prior approval, including issuing shares of capital
stock, settling any material claims or proceedings, taking any action that
would jeopardize the combination qualifying as a tax-free exchange, taking
any action that would make any of the representations and warranties in
the contribution agreement untrue, entering into any agreement that would
restrict our business operations after the closing of the combination and
dissolving, liquidating or otherwise reorganizing prior to the closing;
- both USA Networks' and our agreement to provide each other and our
affiliates access to our and their respective employees, properties, books
and records for purposes of conducting due diligence investigations;
- our agreement to reserve and keep available out of our authorized but
unissued shares of capital stock the number of shares of our capital stock
to be issued in connection with the combination and to list those shares
on The Nasdaq National Market;
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- USA Networks' and our agreement to determine appropriate benefit and
compensation arrangements for all Ticketmaster employees following the
closing;
- USA Networks' agreement to vote all shares of our capital stock owned by
it in favor of the approval of the issuance of the shares of our stock
pursuant to the contribution agreement, the amendment to our certificate
of incorporation and any other matters related to the closing of the
combination;
- our agreement with respect to USA Networks' ability to sweep cash and
manage the indebtedness, cash flows and capital expenditures of
Ticketmaster prior to the closing;
- agreements of USA Networks with respect to the conversion of TMC Realty
Co. into a limited liability company to be transferred to us at the
closing of the combination; and
- our agreement that, as of the closing of the combination, Ticketmaster's
current assets will equal its current liabilities, and USA Networks'
agreement, if required, to pay us cash or assume liabilities of
Ticketmaster equal to the amount of any excess, at the closing, of such
current liabilities over current assets, and our agreement, if required,
to cause Ticketmaster to assume liabilities of USA Networks and/or its
subsidiaries (not including Ticketmaster) equal to the amount of any
excess, at the closing, of such current assets over current liabilities.
- our agreement to use our best efforts to enter into a credit facility as
required under the contribution agreement.
CONDITIONS TO COMPLETING THE COMBINATION
The obligations of USA Networks to complete the combination are subject to
fulfillment or waiver of certain conditions, including the receipt by USA
Networks of a legal opinion to the effect that the combination will constitute
an exchange under Section 351(a) or (b) of the Internal Revenue Code, and that
there will be no recognition of gain or loss by USA Networks or Ticketmaster
Corporation in connection with their contributions to us and their receipt of
shares of our common stock in exchange for such contributions.
Our obligations to complete the combination are subject to fulfillment or
waiver of certain conditions, including the availability to us of a credit
facility with available credit of $25 million or a $25 million line of credit
from USA Networks. In addition, the obligations of both USA Networks and us to
complete the combination are subject to the release of certain liens and
security interests against the contributed entities and their assets and the
satisfaction of certain customary closing conditions, including:
- the performance in all material respects by each of us of our respective
covenants and agreements contained in the contribution agreement;
- the truthfulness and accuracy of our respective representations and
warranties contained in the contribution agreement;
- the absence of any order, injunction or decree from any governmental
authority that restrains or prohibits the consummation of the combination;
and
- the receipt of all regulatory approvals required in connection with the
combination.
CREDIT ARRANGEMENTS
The contribution agreement provides that, prior to the consummation of the
combination, we will have entered into a credit facility that provides us with
$25 million in available credit or, if such a credit facility is not available,
USA Networks will have provided us with a $25 million line of credit at its rate
of borrowing, payable on the three month anniversary of the closing under the
contribution agreement.
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OPTION WITH RESPECT TO TMC REALTY
The contribution agreement provides that, following completion of the
combination, USA Networks will have an option to acquire from us all of our
interest in TMC Realty Co., a California corporation and wholly-owned subsidiary
of Ticketmaster Corporation that is in the process of having its form of
organization changed to a California limited liability company. The primary
asset of TMC Realty is an office building located in Hollywood, California that
is used as the Los Angeles offices of USA Networks and certain of its
affiliates. USA Networks' option is exercisable beginning on the day following
the day we complete the combination and expires on the 16th day following the
day we complete the combination. In the event that USA Networks exercises this
option, USA Networks will purchase TMC Realty in exchange for (1) the assumption
by USA Networks of all of the liabilities of TMC Realty existing immediately
prior to the completion of the combination and (2) promotional services to be
provided to us equal in value to the excess of $28.8 million over the value of
the liabilities assumed.
If USA Networks does not exercise its option to acquire TMC Realty, we will
have an option to sell to USA Networks, and require USA Networks to purchase,
TMC Realty on the same terms described above. Our option would be exercisable
beginning on the 30th day following the day we complete the combination and
would expire on the 45th day following the day we complete the combination.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION BY USA NETWORKS
Except for representations of USA Networks regarding its ownership of the
Ticketmaster Group and Ticketmaster, transactions with its affiliates, the
completeness of the contributed assets for purposes of conducting the
Ticketmaster businesses as previously conducted, and the accuracy of reports
filed by USA Networks with the Securities and Exchange Commission and the
compliance of such reports with applicable laws and regulations, all of which
will survive until the six-month anniversary of the closing date, the
representations and warranties in the contribution agreement will not survive
the closing of the combination or the termination of the contribution agreement.
Besides the agreements of USA Networks and us related to tax indemnification
discussed above under the heading "Covenants," USA Networks has also agreed to
indemnify us with respect to breaches of the representations and warranties
contained in the contribution agreement that survive the closing of the
combination as described in the preceding paragraph, but only for those breaches
that occur before the six-month anniversary of the closing date. USA Networks'
obligation to indemnify us applies only to damages suffered by us in excess of
$10 million in the aggregate and USA Networks' total indemnity obligation is
capped at a maximum of $100 million. Indemnification is our exclusive remedy,
except for the remedies of specific performance, injunction and other equitable
relief, with respect to any breach by USA Networks of the representations and
warranties covered by the indemnification provisions of the contribution
agreement.
TERMINATION OF THE CONTRIBUTION AGREEMENT
The contribution agreement may be terminated at any time prior to closing
(i) by mutual consent of USA Networks and us or (ii) by either USA Networks or
us, upon recommendation of the Special Committee of our Board of Directors, if
(a) the combination has not been consummated by May 15, 2001, provided the
failure to so consummate is not due to the failure of the party seeking to
terminate the contribution agreement to fulfill a condition to the closing of
the combination or (b) any governmental authority has issued an order that
permanently restrains or prohibits the consummation of the combination.
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MATERIAL AGREEMENTS BETWEEN THE PARTIES OR THEIR AFFILIATES
OUR LICENSE AGREEMENT WITH TICKETMASTER CORPORATION AND USA NETWORKS
Under our license agreement with Ticketmaster Corporation and USA Networks,
Ticketmaster Corporation collects revenues generated by our sales of tickets
processed by ticketmaster.com, subtracts and pays our shared expenses related to
such sales, retains a royalty and remits the balance of the sale proceeds to us.
In addition, we, Ticketmaster Corporation and USA Networks each made certain
representations and covenants to one another in the agreement. Our revenues
under this license agreement were approximately $63.9 million in 1999.
USA NETWORKS' ACQUISITION OF SHARES OF OUR CLASS B COMMON STOCK
In December 1999, Ticketmaster Corporation, then a USA Networks wholly-owned
subsidiary, acquired 1,302,401 shares of our Class B common stock at the
then-market price of such shares, for an aggregate purchase price of
$40 million.
USA NETWORKS' ACQUISITION OF TICKETMASTER GROUP
In July 1997, USA Networks acquired a controlling interest in Ticketmaster
Group. The acquisition cost was approximately $210 million. In June 1998, USA
Networks completed its acquisition of Ticketmaster Group in a tax-free merger,
pursuant to which each outstanding share of Ticketmaster Group common stock not
owned by USA Networks was exchanged for 1.126 shares of USA Networks common
stock, resulting in Ticketmaster Group becoming a wholly-owned subsidiary of USA
Networks. In connection with the tax-free merger, all outstanding options to
purchase common stock of Ticketmaster Group were converted into options to
acquire USA Networks common stock at the exchange ratio. Total consideration for
the tax-free merger was approximately $468 million.
MERGER OF TICKETMASTER.COM AND CITYSEARCH, INC.
On September 28, 1998, ticketmaster.com, Ticketmaster's online ticketing
business, was merged into a subsidiary of Citysearch, Inc., a publisher of local
city guides on the Internet, to create Ticketmaster Online-Citysearch, Inc.
Prior to the merger, USA Networks owned approximately 11.8% of Citysearch, which
it transferred to Ticketmaster Corporation. In connection with the merger, USA
Networks purchased 1,997,502 of our shares of Class B common stock pursuant to a
tender offer, which was completed on November 3, 1998, representing an
additional 3.1% interest in Citysearch, for total consideration of
$17.3 million. USA Networks subsequently transferred these shares to
Ticketmaster Corporation.
LOAN FROM USA NETWORKS TO CITYSEARCH
In August 1998, Citysearch received a $50 million loan from USA Networks in
exchange for a convertible promissory note. The note, in the principal amount of
$50 million, bore interest at 7% per year. Citysearch paid total interest of
$1.2 million covering the period from August 13, 1998 through December 1998. On
December 10, 1998, we retired the note from a portion of the proceeds of our
initial public offering.
PROMOTIONAL ARRANGEMENTS BETWEEN US AND USA NETWORKS
We have arrangements with USA Networks relating to promotions. Pursuant to
such arrangements, during the third quarter of 2000, the USA Network ran
Citysearch television promotional advertisements on its programs such as the US
Open, La Femme Nikita and the USA and Sci-Fi Weekend Movies as well as Star Trek
Voyager. Although USA Networks contributed these promotional services to us, we
recorded a non cash-charge of approximately $1.5 million based on value
received.
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USA NETWORKS' NOMINATION OF OUR DIRECTORS
As the holder of a majority of our outstanding voting power, USA Networks
has nominated each of our directors since the ticketmaster.com/Citysearch merger
in August 1998. We expect that USA Networks will continue to do so after
consummation of the combination.
LINE OF CREDIT FROM USA NETWORKS
In connection with the contribution agreement, we have agreed to use our
best efforts to have available by closing a credit facility in the amount of
$25 million. If such a facility is not available, USA Networks will provide us
with a $25 million line of credit at its rate of borrowing, payable on the three
month anniversary of the closing under the contribution agreement.
USA NETWORKS' OPTION TO ACQUIRE TMC REALTY
Pursuant to the contribution agreement, USA Networks has an option,
exercisable commencing on the day following the closing of the combination and
continuing until the 16th day following the closing, to purchase TMC Realty,
which is currently a subsidiary of Ticketmaster Corporation. If USA Networks
does not exercise this option, we will have a put option, exercisable commencing
on the 30th day following the closing date and ending after the 45th day
following the closing, to sell TMC Realty to USA Networks. The option is
exercisable by either USA Networks or us in exchange for the assumption by USA
Networks of all of the liabilities of TMC Realty and the provision to us by USA
of promotional services having a value equal to $28.8 million, less the amount
of liabilities so assumed by USA Networks.
OTHER ARRANGEMENTS BETWEEN USA NETWORKS AND TICKETMASTER CORPORATION
As a wholly-owned subsidiary of USA Networks, Ticketmaster Corporation,
either alone or with other subsidiaries of USA Networks, is party to a number of
arrangements with USA Networks and its other subsidiaries. These arrangements
include the following:
- in connection with certain of the ticketing arrangements entered into by
Ticketmaster Corporation, USA Networks has provided certain financial
accommodations to third parties to facilitate those arrangements;
- USA Networks has leased certain real property from Ticketmaster
Corporation at fair market rates; and
- Ticketmaster Corporation is, along with other subsidiaries of USA
Networks, a guarantor under credit facilities benefiting USA Networks.
Ticketmaster Corporation's guarantees under these credit facilities will
be released upon the closing of the combination.
In addition, Ticketmaster Corporation has been provided with corporate and, from
time to time, other services, from USA Networks or one or more of its
subsidiaries, none of which is material to Ticketmaster Corporation.
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DESCRIPTION OF TICKETMASTER
Unless the context otherwise requires, references to "Ticketmaster" include
Ticketmaster Group, Inc., its predecessors, its wholly-owned subsidiaries, its
majority-owned or controlled subsidiaries and ventures and its licensees.
GENERAL
Ticketmaster is the leading provider of automated ticketing services in the
world with over 5,000 domestic and foreign clients, including many of the
foremost entertainment facilities, promoters and professional sports franchises.
Ticketmaster has established its market position by providing these clients with
comprehensive ticket inventory control and management, a broad distribution
network and dedicated marketing and support services. Ticket orders are received
and fulfilled through operator-staffed call centers, independent sales outlets
remote to the facility box office and through the ticketmaster.com Web site.
Revenue is generated principally from convenience charges received by
Ticketmaster for tickets sold on its clients' behalf. Ticketmaster generally
serves as an exclusive agent for its clients and typically has no financial risk
for unsold tickets. Ticketmaster sold 74.9 million tickets in fiscal 1999,
generating revenues of $442.7 million.
Based upon recent trends in the entertainment, sporting and leisure
industries, Ticketmaster believes that its principal business, live
entertainment ticketing, will continue to experience increased revenues under
existing venue contracts. Ticketmaster believes that significant opportunities
exist through continued penetration of this principal market. Additionally,
Ticketmaster believes that further ticketing opportunities will arise from the
increase in the number of concerts and theatrical and family shows, the
construction of new and larger facilities, the increase in the number of
professional sports teams and the development of new sports leagues.
Furthermore, Ticketmaster plans to continue to broaden its client base to
include such venues as museums, amusement parks and state and county fairs.
Ticketmaster has continued to expand its operations into territories outside
of the U.S., and has experienced growth in these markets as ticket sales have
increased from 10.0 million to 12.5 million from fiscal 1998 to fiscal 1999,
while revenues from ticket sales have increased from $29.4 million to
$41.4 million for the same periods, respectively. Accordingly, ticket sales and
revenues from international markets represented approximately 17% and 9% of
total ticket sales and revenues in fiscal 1999, up from approximately 15% and 8%
in fiscal 1998, respectively.
Ticketmaster believes that there are additional significant opportunities
that exist in international markets to attract existing and new venues in a
historically under-penetrated market for automated ticketing services for live
entertainment events. In addition, the continued enthusiasm for music, theatre,
family and arts touring shows, as well as for soccer, rugby and cricket, coupled
with the growing popularity of major American sports such as football, baseball
and basketball should lead to increased use of these international venues and
provide additional revenue opportunities. To be in a position to capitalize on
these trends, Ticketmaster continues to seek to expand its existing operations
in Canada, the United Kingdom, Ireland, Australia, and Mexico, has entered into
a license agreement for South and Central America and is exploring further
opportunities in Europe and Asia.
Ticketmaster also has expanded its ticket distribution capabilities through
the continued development and expansion of the ticketmaster.com Web site, which
is designed to promote ticket sales for live events, disseminate event
information and offer transactional and merchandising services. Ticketmaster has
experienced significant growth in ticket sales through ticketmaster.com in
recent years and this trend is expected to continue during the next several
fiscal years. For the year ended December 31, 1999, online ticket sales
accounted for approximately 13.4% of Ticketmaster's ticketing business, with
ticket sales of approximately 10 million having a gross dollar value of over
$445.6 million.
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Ticketmaster is continuing to utilize its widely recognized brand name and
extensive distribution capabilities to develop new opportunities in related
areas, such as entertainment information and publishing, merchandising,
advertising, promotional services and direct marketing. Specific examples of its
efforts include offering integrated brand management and marketing services to
strategic partners, such as American Express, Cendant Membership Services, Inc.
and Time, Inc. through sponsorship and advertising opportunities during live
events, during telephone ticketing services, on its ticket stock and envelopes,
on event promotional material and in additional media outlets that Ticketmaster
is developing.
Ticketmaster believes that its proprietary operating system and software,
which is referred to as the Ticketmaster System, and its extensive distribution
capabilities provide a competitive advantage that enhances Ticketmaster's
ability to attract new clients and maintain its existing client base. The
Ticketmaster System, which includes both hardware and software, is typically
installed in a client's facility box office and provides a single centralized
inventory control management system capable of tracking total ticket inventory
for all events, whether sales are made on a season, subscription, group or
individual ticket basis. The Ticketmaster System is capable of processing over
100,000 tickets per hour in certain regions, and each of its 26 regional
computer systems can support 32,000 users, of which as many as 8,100 can
theoretically be actively using the system at any one time.
In addition, Ticketmaster has developed or acquired a number of product
systems which it now makes available to its clients as a complement to the
Ticketmaster System. Specifically, Ticketmaster offers clients a new array of
products and services, including its Architect Ticketing System ("ARCHTICS"),
which provides database and customer management features; Facility Access
Network by Ticketmaster ("FanTM"), which provides access control through various
wireless scanning devices; Ultimate Fan, which is a venue based data collection
system designed to help build customer loyalty; and Personal Computerized
Interface ("PCI"), which is a personal computer front-end system for the
Ticketmaster host system. These systems are widely used by clients. Ticketmaster
also has acquired alternative systems, and utilizes its Synchro Venue master
client server relational database system targeted for clients abroad, the
Microflex ticketing system and Pacer Cats, its inventory management system.
Ticketmaster believes that its continued commitment to expanding its systems and
capabilities, in response to its clients needs, is a critical component to its
growth.
Ticketmaster has a comprehensive domestic distribution system that includes
approximately 3,000 remote sales outlets covering many of the major metropolitan
areas in the United States and seven domestic call centers with approximately
2,000 operator positions. The foreign distribution system includes approximately
460 remote sales outlets in five countries and 10 call centers with
approximately 600 operator positions. Ticketmaster provides the public with
convenient access to tickets and information regarding live entertainment
events. Ticket purchasers are assessed a convenience charge for each ticket sold
offsite by Ticketmaster on behalf of its clients. These charges are negotiated
and included in Ticketmaster's contracts with its clients. The versatility of
the Ticketmaster System allows it to be customized to satisfy a full range of
client requirements.
CLIENT RELATIONSHIPS
Ticketmaster's clients include many of the most well known arenas, stadiums,
theaters, sports teams and promoters in the United States and abroad.
Ticketmaster currently provides service to clients ranging in size from large
stadiums with more than 60,000 seats to smaller theaters with seating in the
hundreds, and from multi-event promoters to one-time single event promoters.
Ticketmaster's clients also include professional sports leagues and
franchises in the United States, including, the National Basketball Association
and most of its member teams, National Hockey League teams, Major League
Baseball teams, National Football League teams, Major League Soccer teams,
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Women's National Basketball Association teams, PGA Tour, Inc. and numerous
participating PGA Tour events.
Representative of Ticketmaster's clients are the following:
<TABLE>
<S> <C>
Adelphia Coliseum, NASHVILLE, TN
Air Canada Centre, TORONTO, CANADA
Alamodome, SAN ANTONIO, TX
America West Arena, PHOENIX, AZ
American Airlines Arena, MIAMI, FL
Arco Arena, SACRAMENTO, CA
Arie Crown Theater, CHICAGO, IL
Arrowhead Pond, ANAHEIM, CA
Berklee Performance Center, BOSTON, MA
Bi-Lo Center, GREENVILLE, SC
Blossom Music Center, CUYAHOGA FALLS, OH
Bradley Center, MILWAUKEE, WI
Cajundome, LAFAYETTE, LA
Charlotte Coliseum, CHARLOTTE, NC
Chicago Theater, CHICAGO, IL
Colonial Stadium, MELBOURNE, AUSTRALIA
Compaq Center, HOUSTON, TX
Conseco Fieldhouse, INDIANAPOLIS, IN
Continental Arena, EAST RUTHERFORD, NJ
Deer Creek Music Center, NOBLESVILLE, IN
Delta Center, SALT LAKE CITY, UT
Fargodome, FARGO, ND
Feld Entertainment, Inc.
First Union Arena at Casey Plaza, WILKES-BARRE, PA
First Union Spectrum, PHILADELPHIA, PA
FleetCenter, BOSTON, MA
Ford Center for the Performing Arts, CHICAGO, IL
Ford Center for the Performing Arts, NEW YORK, NY
Freedom Hall, LOUISVILLE, KY
Gaylord Entertainment Center, NASHVILLE, TN
General Motors Place, VANCOUVER, CANADA
Georgia Dome, ATLANTA, GA
Grand Center, GRAND RAPIDS, MI
Great Western Forum, INGLEWOOD, CA
Greek Theatre, LOS ANGELES, CA
Gund Arena, CLEVELAND, OH
House of Blues Concerts
Ice Palace Arena, TAMPA, FL
Irvine Meadows Verizon Wireless Amphitheatre,
IRVINE, CA
Joe Louis Arena, DETROIT, MI
John G. Shedd Aquarium and Oceanarium, CHICAGO, IL
Jones Beach Theatre, LAWRENCE, NY
Los Angeles Memorial Coliseum, LOS ANGELES, CA
Louisiana Superdome, NEW ORLEANS, LA
Madison Square Garden, NEW YORK, NY
Mars Music Amphitheatre, WEST PALM BEACH, FL
Nassau Coliseum, UNIONDALE, NY
New World Music Theatre, TINLEY PARK, IL
Odyssey Arena, BELFAST, IRELAND
Orlando Centroplex, ORLANDO, FL
Palace of Auburn Hills, AUBURN HILLS, MI
Pepsi Arena, ALBANY, NY
Philips Arena, ATLANTA, GA
Pine Knob Music Theatre, CLARKSTON, MI
PNC Bank Arts Center, HOLMDEL, NJ
Point Theatre, DUBLIN, IRELAND
Pontiac Stadium, DETROIT, MI
Post-Gazette Pavilion at Star Lake, BURGETTSTOWN, PA
Pro Player Stadium, MIAMI, FL
Pyramid Arena and Exhibition Hall, MEMPHIS, TN
Radio City Music Hall, NEW YORK, NY
RCA Dome, INDIANAPOLIS, IN
Reliant Astrodome, HOUSTON, TX
Reunion Arena, DALLAS, TX
Rose Garden, PORTLAND, OR
Rosemont Horizon, ROSEMONT, IL
Rupp Arena, LEXINGTON, KY
San Jose Arena, SAN JOSE, CA
Seattle Center, SEATTLE, WA
SFX Entertainment, Inc.
Staples Center, LOS ANGELES, CA
Star Lake Amphitheatre, PITTSBURGH, PA
Skydome, TORONTO, CANADA
Tacoma Dome, TACOMA, WA
Target Center, MINNEAPOLIS, MN
Tennessee Performing Arts Center, NASHVILLE, TN
Texas Stadium, IRVING, TX
The Melbourne Cricket Grounds (MCG), MELBOURNE,
AUSTRALIA
The Nederlander Organization
The Pepsi Center, DENVER, CO
The Walt Disney Company
TD Waterhouse Centre, ORLANDO, FL
Turner Field, ATLANTA, GA
United Center, CHICAGO, IL
USF Sun Dome, TAMPA, FL
Wembley Arena, LONDON, ENGLAND
Worcester Centrum Centre, WORCESTER, MA
</TABLE>
Ticketmaster generally enters into written agreements with its clients
pursuant to which it agrees to provide the Ticketmaster System and related
systems purchased by the client, and to serve as the client's exclusive ticket
sales agent for all sales of individual tickets sold to the general public
outside of the facility's box office, including any tickets sold at remote sales
outlets, over the phone or via the
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Internet, for a specified period, typically three to five years. Pursuant to an
agreement with a facility, Ticketmaster generally is granted the right to sell
tickets for all events presented at that facility, and as part of such
arrangement Ticketmaster installs the Ticketmaster System in the facility's box
office. An agreement with a promoter generally grants Ticketmaster the right to
sell tickets for all events presented by that promoter at any facility, unless
the facility is covered by an exclusive agreement with Ticketmaster or another
automated ticketing service company. The terms of the agreements with clients
are negotiated on a contract-by-contract basis. In the case of contracts subject
to public bid (e.g., by facilities owned or managed by municipalities or
governmental agencies), the terms are defined, to a material degree, by the
specifications and conditions set forth in the formal requests for bid.
Clients are routinely required by contract to include the Ticketmaster name
in print, radio and television advertisements for entertainment events sponsored
by such clients. The Ticketmaster name and logo are also prominently displayed
on printed tickets and ticket envelopes.
Ticketmaster generally does not buy tickets from its clients for resale to
the public and typically has no financial risk for unsold tickets. In the U.K.,
Ticketmaster may from time to time buy tickets from its clients for resale to
the public in an amount typically not exceeding L600,000 in the aggregate. All
ticket prices are determined by Ticketmaster's clients. Ticketmaster's clients
also generally determine the scheduling of when tickets go on sale to the public
and what tickets will be available for sale through Ticketmaster. Facilities and
promoters, for example, often handle group sales and season tickets in-house.
Ticketmaster only sells a portion of its clients' tickets, the amount of which
varies from client to client and varies as to any single client from year to
year.
Ticketmaster believes that its clients' use of the Ticketmaster System
provides numerous benefits, including (1) broader and expedited distribution of
tickets, (2) centralized control of total ticket inventory as well as accounting
information and market research data, (3) centralized accountability for ticket
proceeds, (4) manageable and predictable transaction costs, (5) wide
dissemination of information about upcoming events through Ticketmaster's call
centers, ticketmaster.com and other media platforms, (6) the ability quickly and
easily to add additional performances if warranted by demand and (7) marketing
and promotional support.
The Ticketmaster System and related systems such as ARCHTICS, FanTM, PCI and
Ultimate Fan also provide the Company's clients with flexibility in processing
season, subscription and group ticketing, database management, access control
and fan loyalty programs. For example, a sports team may want to give priority
to season tickets, mini-ticket plans and group sales, permitting those ticket
purchasers to have first choice of tickets before their sale to the general
public. In addition, clients have the ability to structure single or multiple
events, including seasonal events, in almost any number and type of pricing and
discount plans. Clients also highly value the ability to integrate their on-site
servers with the Ticketmaster host system and to enhance control of access,
while offering Print My Own Tickets at home and various fan loyalty programs.
Pursuant to its contracts with clients, Ticketmaster is granted the right to
collect from ticket purchasers a per ticket convenience charge on all tickets
sold at remote sales outlets, by telephone, through ticketmaster.com and other
media. There is an additional per order handling charge on all tickets sold by
Ticketmaster at other than remote sales outlets. Generally, the amount of the
convenience charge is determined during the contract negotiation process, and
typically varies based upon numerous factors, including the services to be
rendered to the client, the amount and cost of equipment to be installed at the
client's box office and the amount of advertising and/or promotional allowances
to be provided, as well as the type of event and whether the ticket is purchased
at a remote sales outlet, by telephone, through ticketmaster.com or otherwise.
Any deviations from those amounts for any event are negotiated and agreed upon
by Ticketmaster and its client prior to the commencement of ticket sales. During
fiscal 1999, the convenience charges generally ranged from $1.50 to $7.50 per
ticket. Convenience charges from ticket sales at outlets, through call centers
and via ticketmaster.com (inclusive of per order handling charges added for
sales through call centers and via
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ticketmaster.com) when added together averaged $5.25 per ticket in fiscal 1999.
Generally, the agreement between Ticketmaster and a client will also establish
the amounts and frequency of any increases in the convenience charge and
handling fees during the term of the agreement.
The agreements with certain of Ticketmaster's clients may provide for a
client to participate in the convenience and/or handling fees paid by ticket
purchasers for tickets bought through Ticketmaster for that client's events. The
amount of such participation, if any, is determined by negotiation with clients.
Some agreements also may provide for Ticketmaster to make participation advances
to the client, generally recoupable by Ticketmaster out of the client's future
right to participations. In isolated instances, Ticketmaster may make an
upfront, non-recoupable payment to a client for the right to sell tickets for
that client. The agreements also specify the additional systems, if any, that
may be used and purchased by clients.
If an event is canceled, Ticketmaster's current policy is to refund the per
ticket convenience charges (but not the handling fee that is payable with
respect to transactions by telephone and online orders). Refunds of the ticket
price for a canceled event are funded by the client. To the extent that funds
then being held by Ticketmaster on behalf of the client are insufficient to
cover all refunds, the client is obligated to provide Ticketmaster with
additional amounts within a specified period of time (typically 24 to 72 hours)
after a request by Ticketmaster. Clients have historically fulfilled these
obligations.
DISTRIBUTION SYSTEM
Ticketmaster's distribution system is principally comprised of remote sales
outlets, call centers and the ticketmaster.com Web site. During fiscal 1999,
ticket sales at the remote sales outlets, at call centers and on
ticketmaster.com accounted for approximately 44.7%, 41.9% and 13.4%,
respectively, of Ticketmaster's ticket sales.
REMOTE SALES OUTLETS
Ticketmaster has approximately 3,460 remote sales outlets worldwide with
3,000 in the U.S. and approximately 460 in foreign territories, up from
approximately 2,965 worldwide at the end of fiscal 1999. Ticketmaster has
emphasized the establishment of retail outlets in high visibility chain stores
with existing name recognition, significant customer traffic and customer
profiles consistent with the type of events sold through the Ticketmaster
System. The majority of remote sales outlets are located in major department,
grocery, and music stores. Among the retailers that serve as remote sales
outlets are Carson Pirie Scott, Dayton-Hudson's Marshall Field's, Foley's and
Robinsons-May department stores, Rite-Aid drug stores, Dominick's, Fiesta and
Kroger grocery stores and Coconuts, The Wiz, Wherehouse, Disc Jockey and Tower
Records music stores. The specific stores within each chain that will serve as
remote sales outlets are negotiated by Ticketmaster with each chain.
Ticketmaster is responsible for installation and maintenance of the hardware
and software necessary to operate the Ticketmaster System at the remote sales
outlets. Ticketmaster also trains the remote sales outlet's employees in the use
of the Ticketmaster System and related systems, provides support and oversight
in connection with the sale of tickets and furnishes the remote sales outlets
with promotional materials related to the Ticketmaster System and events for
which tickets are available. The remote sales outlets are responsible for the
staffing of the stores and their daily operation. The remote sales outlets
generally are paid a commission of approximately 20% to 25% of the convenience
charge, typically subject to a maximum amount per ticket. Since February 1997,
Ticketmaster has accepted credit cards in addition to cash at the outlets.
Ticket purchasers are delivered their tickets at the point of sale. The remote
sales outlets generally deliver sales proceeds and convenience charges to
Ticketmaster on a schedule ranging from daily to weekly depending on the
financial condition of the particular remote sales outlets and other factors.
Ticketmaster has not suffered any material loss with respect to funds collected
by its remote sales outlets for remittance to Ticketmaster.
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CALL CENTERS
Ticketmaster currently operates 17 call centers worldwide. Ticket purchasers
seeking a greater degree of convenience than is afforded at facility box offices
or remote sales outlets can purchase tickets by telephone seven days a week, up
to 14 hours per day, using a major credit card. Sales agents, staffing up to
approximately 2,000 telephone positions domestically and approximately 600 in
foreign markets, take the caller's credit card order and mail the tickets
directly to the ticket purchasers. Tickets that are purchased by telephone can
also be picked up at the appropriate facility's "will call" ticket window.
Ticketmaster typically assesses a per order handling fee in addition to the per
ticket convenience charge. Ticketmaster generally receives the ticket sales
proceeds and convenience and handling fees from telephone credit card
transactions within two business days after submission to the credit card
company. The call centers also respond to large numbers of informational calls
related to events, including requests for facility characteristics, directions,
telephone numbers, disability access and seating and local hotels and
restaurants. Concurrently with the sale of tickets to entertainment events,
Ticketmaster's call centers may offer other products for sale related to the
events for which tickets are being sold and may offer other unrelated products.
Ticketmaster generally fulfills these sales by ordering the products from a
third party. Ticketmaster operates domestic call centers in Los Angeles and San
Diego, California, Orlando, Florida, Pharr and McAllen, Texas, Seattle,
Washington and Virginia Beach, Virginia. Ticketmaster also operates call centers
in London, England, in Calgary, Edmonton, Toronto, Vancouver, Winnipeg and
Montreal, Canada, in Melbourne, Australia, and through its licensee in Mexico
City and Monterrey, Mexico.
An important feature of Ticketmaster's domestic telephone system is the
ability to channel all or a portion of incoming calls from any city to a
selected call center. Accordingly, the number of telephone positions available
to receive telephone orders in a given region is capable of being increased in
advance of the commencement of sales activity for a major event. Similarly, the
ability to network call centers affords Ticketmaster backup capabilities in the
event that a call center experiences operating difficulties.
In addition, Ticketmaster has effectively handled a number of ticket orders
through its interactive voice response system, which processes ticket orders on
the phone without operator assistance. In November 2000, approximately 3% of all
of Ticketmaster's ticket sales were processed through the interactive voice
response system.
ONLINE SERVICES
Ticketmaster expanded its Internet distribution network through the license
agreement entered into with Ticketmaster Online-Citysearch. The addition of
online services permits consumers to purchase tickets and access information on
their personal computers via the Internet. Ticketmaster's ticketing transactions
are processed through ticketmaster.com. Ticketmaster expects online sales to
continue to expand as more consumers engage in transactions over the Internet.
Additionally, this medium provides Ticketmaster with a cost efficient way to
disseminate information and cross-promote, which may help reduce costs for these
services across Ticketmaster's other distribution channels. Since 1998,
Ticketmaster's online ticketing operations have been conducted exclusively by
Ticketmaster Online-Citysearch.
THE TICKETMASTER SYSTEM
Ticketmaster specifically developed its proprietary operating system and
application software, and its computer and telephone systems, for the live event
ticketing industry. The Ticketmaster System provides clients with the means to
maintain and control their ticket inventory efficiently. Users of the
Ticketmaster System can effect a range of functions from the most basic to the
most complex, including individual advanced ticket sales, season and
subscription ticketing, day of show walk-up ticket sales and group ticket sales.
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The Ticketmaster System software is maintained in-house, eliminating any
reliance upon outside software companies. Consequently, Ticketmaster is able to
adapt to its clients' needs, changing market conditions and advances in hardware
and other technologies. The Ticketmaster System communicates directly with bank
processing centers for instantaneous online credit card authorization and
electronic deposit of credit card receipts. All of the Ticketmaster System's
online terminals at the call centers and at selected facility box offices have
access to the authorization network.
Significant measures are taken to prevent system failure in each computer
center. Each system has a live back-up standing ready in the event of a primary
system failure. The rooms housing the computer-related equipment are protected
by computer-safe fire protection systems. Dual custom air conditioning units
provide constant climate control. To guard against power outages, Ticketmaster
employs uninterruptible power supplies. High capacity back-up generators
eliminate the dependency on public electric sources. Moreover, all data are
continually recorded on a back-up hard copy and Ticketmaster maintains an online
disaster recovery site in one of its principal offices. Historically, the
Ticketmaster System has experienced minimal downtime.
Ticketmaster's proprietary software and system are the product of over
20 years of innovation and continual enhancement by a team of in-house software
and system professionals currently numbering over 80. Ticketmaster's research
and development staff has produced significant enhancements to the Ticketmaster
System, including proprietary ticket printers and data telecommunications
multiplexors, and regularly upgrades its software. In order to further expand
its product line and offer specialized products to its clients, Ticketmaster has
acquired a number of system and software development companies. For example, in
January 1998, Ticketmaster acquired the software capabilities of Distributed
System Architects, Inc., which provides Archtics software and services for
professional sports teams. Similarly, other acquisitions have facilitated
Ticketmaster's expansion of its development team and the integration of related
products and services, including Microflex, FanTM, PCI, Ultimate Fan, Synchro
and Pacer Cats.
In April 2000, Ticketmaster further expanded its product line and
development team by acquiring the Microflex Ticketing System used by Admission
Network USA Inc. in North America and by Cirque du Soleil, among other clients.
In November 2000, Ticketmaster also began to implement its "Print My Own
Tickets" program. This technology allows Ticketmaster to deliver tickets
instantly to customers by allowing them to print their own safe and secure
bar-coded tickets on their home or office printers using Ticketmaster FanTM
access control technology.
INDUSTRY OVERVIEW
Ticketmaster believes that although a material percentage of all tickets for
live entertainment events sold in the U.S. during fiscal 1999 were sold through
retail outlet networks, call centers and online services operated by automated
ticketing service companies, the domestic market represents a growth opportunity
as consumers rely more on the Internet and seek the convenience offered by
ticket locations away from the facility box office.
The use of automated ticketing is generally in an earlier stage of
development outside of the U.S., although the actual level of use varies greatly
from country to country. While Ticketmaster believes that there is substantial
potential for international growth, the timing and rate of penetration within
each international market will vary.
The supply of tickets, both domestically and internationally, has increased
in recent years by virtue of among other factors, increases in the number of
concerts and family shows and increases in the number of facilities (e.g.,
construction of amphitheaters), facility size and seating capacity, event
expansion into new market areas (e.g., the increase in the number of
professional sports teams and the development of new sports leagues) and
increases in the number of performances of an event (e.g., the adoption of
lengthened regular season play and expanded post-season play by sports leagues
and associations). Ticket supply also has been enhanced by the desire of and
necessity for facilities to
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continually present as many revenue-producing events as possible in order to
meet their financial and other obligations. In recent years, the public's
increased demand for tickets to certain live entertainment events has been
evidenced by its willingness to pay higher ticket prices to attend these events
and the spread of public interest in certain types of events beyond customary
boundaries (e.g., increased worldwide interest in football, baseball and
basketball). In addition to live entertainment events held at arenas,
amphitheaters, stadiums and performing arts venues, automated ticketing for live
events has expanded into servicing ticket issuing facilities that do not
generally have seats (e.g., museums, amusement parks and state and county
fairs).
The success of automated ticket service companies depends on their ability
to develop and maintain relationships with facilities, sports teams and
promoters by providing high quality service as well as the availability of, and
public demand for, tickets for all types of events, including sports, family
entertainment, concerts, fine arts and cultural attractions.
COMPANY HISTORY
Ticketmaster Group, Inc. and its principal operating subsidiaries,
Ticketmaster Corporation, which was organized in 1976, and Ticketmaster LLC, the
entity into which certain subsidiaries of Ticketmaster were merged as of
December 31, 1998, were organized for the primary purpose of developing stand-
alone automated ticketing systems for sale to individual facilities.
During the 1990s, Ticketmaster continued to expand both through acquisitions
and strategic alliances with joint venture partners, including, in 1991, the
acquisition of certain assets (principally client contracts) of Ticketron, which
previously had been one of Ticketmaster's major competitors; in 1997, when it
acquired its licensee, Ticketmaster Canada; in 1997, when it acquired its 50%
interest in Ticketmaster Ireland; and in 2000, when it acquired Reseau
Admission Inc. in Canada, and certain contracts formerly serviced by ETM
Entertainment Network, Inc. and Dillard Ticketing System, Inc. (collectively,
"ETM") when ETM ceased operations in June 2000. During the past five years,
Ticketmaster reacquired the rights to use its name and the Ticketmaster System
that had previously been granted to joint ventures and to licensees such that,
as of December 18, 2000, in the United States Ticketmaster had only two
remaining licensees: the University of Texas and in the Washington,
D.C./Baltimore area.
JOINT VENTURES AND LICENSEES
As summarized above, in addition to the ticketing operations performed
directly by Ticketmaster, the Ticketmaster System is operated in certain
territories through joint ventures and licensees. Included among Ticketmaster's
current joint ventures and strategic alliances are the following:
AUSTRALIAN JOINT VENTURES
On December 1, 1995, Ticketmaster and the Victorian Arts Centre Trust
("VACT") formed joint ventures (the "Australian Joint Ventures") for the purpose
of conducting Ticketmaster's live entertainment ticketing business in Australia
and, possibly, in New Zealand. Pursuant to an agreement dated as of
September 17, 1999, the interest of VACT in the venture was acquired by Seven
Pty Limited. As a result, Ticketmaster has a 50% interest in, and serves as the
manager of, Ticketmaster 7 Pty Limited ("Ticketmaster Australia"). Some of
Ticketmaster Australia's clients include the Victorian Arts Centre, the
Australian Football League, the Melbourne Cricket Grounds and the Australian
Chamber Orchestra.
IRELAND JOINT VENTURE
On July 31, 1997, Ticketmaster acquired 50% of the capital stock of the
Ticket Shop Limited and, through this company, conducts its live entertainment
ticketing business in Ireland. Ticketmaster serves as the managing partner of
the joint venture.
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LATIN AMERICAN LICENSE ARRANGEMENT
Ticketmaster and Corporacion Interamericana de Entretenimiento, S.A. de C.V.
("CIE") entered into a license arrangement (the "Latin American License") for
the purpose of marketing and operating the Ticketmaster System throughout
Central and South America. Accordingly, Ticketmaster is licensor to CIE's
operating ventures, which are currently operating in Brazil, Argentina, and
Chile. CIE is currently the owner of a 50.01% equity interest in Ticketmaster's
Mexico licensee with Ticketmaster owning the remaining 49.99% equity interest in
this licensee.
DOMESTIC LICENSEES
Ticketmaster has selectively licensed its name and technology to third
parties for use in the Washington, D.C./Baltimore area and to the University of
Texas. Ticketmaster derives revenues from its licensees in the form of license
fees and/or ongoing per ticket royalties. Less than 1% of Ticketmaster's total
revenues during fiscal 1999 were derived from these license arrangements. On
December 18, 2000, Ticketmaster acquired its Oregon licensee.
COMPETITION
Ticketmaster faces competition from other national and regional ticketing
service companies, as well as from its clients who may elect to fulfill
ticketing distribution and management functions through their own systems. Not
all facilities, promoters and other potential clients use the services of an
automated ticketing company, choosing instead to distribute their tickets
through their own internal box offices or other distribution channels.
Accordingly, Ticketmaster competes with the facilities, promoters and other
potential clients for the right to distribute their tickets at retail outlets,
by telephone and on the Internet. Among those who perform their own ticketing
are The Shubert Organization (Telecharge), the New York Mets and other sports
teams and venues.
For those facilities and promoters that decide to use the services of an
automated ticketing company, Ticketmaster competes with many international,
national and regional ticketing systems, such as Telecharge Systems, which is a
division of The Shubert Organization, Inc. and Tickets.com, which merged with
Advantix, Inc. in May 1999. Advantix, Inc. had previously acquired Protix, Inc.
in September 1998. Several of Ticketmaster's competitors have operations in
multiple locations throughout the U.S., while others compete principally in one
specific geographic location. One or more of these regional ticketing systems
could expand into other regions or nationally. Other companies compete with
Ticketmaster by selling stand-alone automated ticketing systems to enable the
facilities to do their own ticketing, including companies that sell systems
under the names Paciolan Systems, Inc. in the United States, Bocs in the United
Kingdom, and Softix in Australia, New Zealand and Pacific Rim countries.
Ticketmaster has experienced substantial competition for potential client
accounts and renewals of contracts, such as the 2002 Winter Olympics in Salt
Lake City, the Thomas & Mack Center, Major League Baseball and various Major
League Baseball teams. Accordingly, there can be no assurance that prospective
or renewal clients will enter into contracts with Ticketmaster rather than
Ticketmaster's competitors. Ticketmaster competes on the basis of products and
service provided, capability of the ticketing system, distribution network,
reliability and price.
As an alternative to purchasing tickets through Ticketmaster, ticket
purchasers generally may purchase tickets from the facility's box office at
which an event will be held or by season, subscription or group sales directly
from the venue or promoter of the event. Although processed through the
Ticketmaster System, Ticketmaster derives no convenience charge revenue from the
ticket purchasers with respect to those ticket purchases.
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TRADEMARKS AND PATENTS
Ticketmaster owns a number of registered trademarks in various countries
relating to, among other things, the name Ticketmaster and its related logo.
Ticketmaster believes that such trademarks are widely recognized throughout
North America and other parts of the world and have considerable value.
Ticketmaster is not aware of any actions against its trademarks used in the
ticketing business domestically and has not received any notice or claim of
infringement in respect of such trademarks.
Ticketmaster also acquired the rights to the name Ticketron in connection
with Ticketmaster's purchase of certain assets of Ticketron.
Ticketmaster presently has no patents pertaining to the Ticketmaster System.
Although Ticketmaster may in the future file for patent protection on products
developed or to be developed by it, there can be no assurance that any patents
will be issued or, if issued, that such patents will provide Ticketmaster with
meaningful protection. Furthermore, the technology used by Ticketmaster in many
of its products is likely to be within the state-of-the-art and may not be more
advanced than the technology used by or available to certain of its present or
potential competitors. Ticketmaster may be unable to prevent its competitors and
others from incorporating features of Ticketmaster's products into their own
products.
REGULATION
Ticketmaster is regulated by certain state and local regulations, including,
but not limited to, a law in Georgia that establishes maximum convenience
charges on tickets for certain sporting events. Other bills that could affect
the way Ticketmaster does business, including bills that would regulate the
amount of convenience charges and handling charges, are introduced from time to
time in federal, state and local legislative bodies. Ticketmaster is unable to
predict whether any such bills will be adopted and, if so, the impact thereof on
its business.
In addition, increasing concern over consumer privacy has led to the
introduction from time to time of proposed legislation that could impact the
direct marketing and market research industries. Ticketmaster does not know when
or whether any such proposed legislation may pass or whether any such
legislation would relate to the types of services currently provided by
Ticketmaster or which Ticketmaster intends to develop. Accordingly, Ticketmaster
cannot predict the effect, if any, that any such future regulation may have on
its business.
Because Ticketmaster's current business consists primarily of responding to
inbound telephone calls, it is not highly regulated. However, in the event that
Ticketmaster decides to expand its outbound telemarketing services to improve
off-peak call center utilization, such rules and regulations would apply to a
larger percentage of Ticketmaster's business. Accordingly, Ticketmaster must
comply with the Federal Communications Commission's rules under the Federal
Telephone Consumer Protection Act of 1991 and the Federal Trade Commission's
regulations under the Federal Telemarketing and Consumer Fraud and Abuse
Prevention Act of 1994, both of which govern telephone solicitation.
Ticketmaster believes that it currently is, and will continue to be, in
compliance with such statutes. Furthermore, there may be additional federal or
state legislation or changes in regulation implementation that would limit the
activities of Ticketmaster or its clients in the future or significantly
increase the cost of compliance.
EMPLOYEES
As of December 31, 1999, Ticketmaster (including Ticketmaster
Online-Citysearch) employed approximately 2,350 domestic and 388 foreign
employees and approximately 2,138 domestic and 325 foreign telephone sales
agents.
The telephone sales agents in Toronto and Montreal, Canada and the telephone
sales agents employed by the Australian Joint Venture are the only employees of
Ticketmaster covered by collective bargaining agreements. The collective
bargaining agreement covering the telephone sales agents in
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Toronto, Canada is scheduled to expire on March 31, 2003. The Media
Entertainment and Arts Alliance Award applicable to certain call center agents
in Melbourne, Australia is effective as of December 31, 1995 and there is no
stated expiration date. The collective bargaining agreement covering the
telephone sales agents in Montreal expired on October 31, 2000; however,
Ticketmaster is continuing to operate under the terms of the preexisting
agreement until a new agreement is finalized. Ticketmaster believes that its
relations with its employees are good.
PROPERTIES
Ticketmaster owns an office building in West Hollywood, California, which it
leases to USA Networks, Inc., and an operating office in Vancouver, Canada, and
it leases office space in various cities throughout the United States, the
United Kingdom, Ireland, Australia and Canada. As of December 31, 1999,
Ticketmaster had approximately 613,700 square feet of space under lease, with
scheduled expirations ranging from January 2000 to May 2009.
Ticketmaster's corporate offices are housed in leased space at 3701 Wilshire
Boulevard, Los Angeles, California.
LEGAL PROCEEDINGS
ANTITRUST LITIGATION
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 lacked standing to pursue their claims for damages under the
antitrust laws, but holding that the plaintiffs' status as indirect purchasers
of Ticketmaster Corporation's services did not bar them from seeking equitable
relief against Ticketmaster Corporation. On July 9, 1998, the plaintiffs filed a
petition for writ of certiorari to the United States Supreme Court seeking
review of the decision dismissing their damage claims. Plaintiff's petition for
writ of certiorari in the United States Supreme Court was denied on January 19,
1999. In November 2000, counsel for the purported class of plaintiffs and
Ticketmaster Corporation reached an agreement in principle pursuant to which
this litigation would be settled. The District Court approved the settlement
agreement and will enter an order concluding the litigation upon receipt of an
executed copy of the settlement agreement.
TICKETS.COM LITIGATION
On July 23, 1999, we and Ticketmaster Corporation (collectively,
"Ticketmaster"), filed a Complaint seeking damages and injunctive relief against
Tickets.com, Inc. ("Tickets.com"), entitled TICKETMASTER CORPORATION AND
TICKETMASTER ONLINE-CITYSEARCH, INC. V. TICKETS.COM, INC., Case No. 99-07654
HLH, in the United States District Court for the Central District of California.
Ticketmaster claims that Tickets.com violates Ticketmaster's legal and
contractual rights by, among other things, (i) providing deep-links to
Ticketmaster's internal web pages without Ticketmaster's consent,
(ii) systematically, deceptively and intentionally accessing Ticketmaster's
computers and computer systems and copying verbatim Ticketmaster event pages
daily and extracting and reprinting Ticketmaster's Uniform Resource Locators
("URLs") and event data and information in complete form on Tickets.com's web
site and (iii) providing false and misleading information about Ticketmaster,
the availability of tickets on the Ticketmaster Web Site, and the relationship
between Ticketmaster and
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Tickets.com. On January 7, 2000, Ticketmaster filed a first amended complaint.
Tickets.com filed a motion to dismiss Ticketmaster's first amended complaint on
or about February 23, 2000, claiming that Tickets.com did not violate the
Copyright Act or Lanham Act and that Ticketmaster's state law claims were
preempted and/or did not state a valid claim for relief. The Court denied
Tickets.com's motion as to Ticketmaster's claims for copyright infringement,
violations of the Lanham Act, state law unfair competition and interference with
prospective economic advantage. The Court granted Tickets.com's motion, but gave
Ticketmaster leave to amend, as to Ticketmaster's claims for breach of contract,
trespass, unjust enrichment and misappropriation. Ticketmaster filed a second
amended complaint on April 21, 2000.
On March 3, 2000, Ticketmaster filed a motion for preliminary injunction,
requesting the Court to enjoin Tickets.com from, among other things,
deep-linking and "spidering" to Ticketmaster's internal web pages, accessing
Ticketmaster's computers and computer systems and copying Ticketmaster's event
pages, and providing misleading and false information about Ticketmaster, the
availability of tickets on the Ticketmaster Web Site and the relationship
between Ticketmaster and Tickets.com. On July 31, 2000, the Court held a
hearing. The court took the matter under submission, and on August 11, 2000
issued a ruling denying Ticketmaster's and our motion for preliminary
injunction. On September 8, 2000, Ticketmaster filed a notice of appeal of the
Court's order denying Ticketmaster's motion for preliminary injunction. In
support of its appeal, Ticketmaster claims that the Court committed legal error
by holding that Ticketmaster is not likely to succeed on its trespass, breach of
contract and copyright claims, and that Ticketmaster is not irreparably harmed
by Tickets.com's conduct.
On May 30, 2000, Tickets.com filed its Answer to Ticketmaster's second
amended complaint and counterclaims against Ticketmaster Corporation and
Ticketmaster Online-Citysearch, Inc. Tickets.com asserted claims for relief
against Ticketmaster for violations of the Sherman Act, sections 1 and 2,
violations of California's Cartwright Act, violations of California's Business
and Professions Code section 17200, violations of common law restraint of trade
and unfair competition and business practices, interference with contract and
declaratory relief. Tickets.com claimed that Ticketmaster Corporation's
exclusive agreements with Ticketmaster Online-Citysearch, Inc., venues,
promoters and other third parties injure competition, violate antitrust laws,
constitute unfair competition and interfere with Tickets.com's prospective
economic advantages. On July 19, 2000, Ticketmaster filed a motion to dismiss
any claim based in whole or in part on Ticketmaster's alleged litigation conduct
as well as Tickets.com's ninth claim for relief under California's antitrust
laws (the Cartwright Act). On September 25, 2000, the court entered an order
denying Ticketmaster's motion on the ground that Tickets.com has the right to
pursue some discovery on the issues raised in the motion before the issue can
properly be resolved.
On November 30, 2000, counsel for Ticketmaster and counsel for Tickets.com
met pursuant to the required Local Rule 6.2 Early Meeting of Counsel obligation.
The parties exchanged information concerning witnesses and documents supporting
each side's respective positions, and also exchanged proposals concerning the
schedule for the case. Tickets.com has proposed a schedule that would result in
a trial date in November 2001. Ticketmaster has proposed a schedule pursuant to
which discovery would conclude in November 2001 and after motions and other
pretrial matters a trial date would be set in October 2002. The court has not
yet issued an order setting a pretrial discovery schedule and a trial date.
Ticketmaster intends to vigorously defend this litigation.
TICKETMASTER CASH DISCOUNT LITIGATION
In the case ADRIANA GARZA ET AL. V. SOUTHWEST TICKETING, INC., D/B/A
TICKETRON, TICKETMASTER AND RAINBOW TICKETMASTER, TICKETMASTER TEXAS MANAGEMENT,
TICKETMASTER LLC, TICKETMASTER GROUP, INC., TICKETMASTER
ONLINE-CITYSEARCH, INC. AND THE MAY DEPARTMENT STORES COMPANY, the plaintiff
filed an amended class action petition in state court on June 20, 2000, which
claims that Ticketmaster's practice of offering cash discounts against the
amount of its service charges at outlets violated various state laws, and
asserting an additional claim that the cash discount program in question
violates a provision
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in a Merchant Services Bankcard Agreement between Ticketmaster and Chase
Merchant Services L.L.C. and First Financial Bank. Plaintiff claims all
consumers using VISA and MasterCard to purchase tickets from Ticketmaster are
third-party beneficiaries of this contract. Plaintiff also filed on July 14,
2000 an amended class certification motion. In addition to the nine-state class
sought by Plaintiff's original class certification request, the amended motion
seeks the certification of a nationwide class of VISA and MasterCard customers
since approximately April 1998 to prosecute the alleged third-party beneficiary
claim. Ticketmaster filed a summary judgment motion on May 1, 2000 and Plaintiff
filed a second amended motion for partial summary judgment on May 24, 2000.
Currently, no hearing is set on any of these motions. On July 20, 2000,
Ticketmaster removed the case to federal court in McAllen, Texas on the grounds
that the newly added third-party beneficiary claim raises a federal question
under the Truth-in-Lending Act. On August 1, 2000, Plaintiff filed a motion to
remand the case to state court. Hearing on the motion to remand has been
continued in the United States District Court. Ticketmaster denies the
allegations.
CLASS ACTION LITIGATION RELATED TO MAGAZINE SALES
On or about December 18, 2000, Ticketmaster Corporation and Time, Inc. were
named as defendants in a purported class action lawsuit filed in the Florida
Circuit Court of the Thirteenth Judicial Circuit in Hillsborough County. The
lawsuit is entitled VICTORIA MCLEAN V. TICKETMASTER CORPORATION AND TIME, INC.,
Case No. G0009564. Ticketmaster has not yet been served in the lawsuit. The
lawsuit alleges that the offering for sale by Ticketmaster Corporation of
subscriptions to Entertainment Weekly magazine, a publication of Time, Inc., as
an agent of Time, Inc., involves a pattern of criminal activity, conspiracy and
unfair and deceptive trade practices by allegedly disclosing credit card account
information to third parties without express written consent and unauthorized
posting to credit card accounts. As the prayer for relief in the lawsuit, the
plaintiff seeks to have the Court enjoin the business practices of which the
plaintiff has complained. In addition, the plaintiff seeks treble monetary
damages, as well as attorneys' fees and the costs for pursuing the action.
Ticketmaster has not yet filed a response to the lawsuit. However, Ticketmaster
believes the lawsuit is without merit and expects to vigorously defend against
the lawsuit.
From time to time, federal, state and local authorities commence
investigations or inquiries with respect to Ticketmaster's compliance with
applicable antitrust, consumer protection, deceptive advertising, unfair
business practice and other laws. Ticketmaster has historically cooperated in
and satisfactorily resolved each such investigation or inquiry.
Ticketmaster believes that it has conducted its business in compliance with
all applicable laws, including federal and state antitrust laws. In the opinion
of Ticketmaster's management, none of Ticketmaster's legal proceedings will have
a material adverse effect on Ticketmaster's financial position or results of
operation. Ticketmaster has incurred significant legal expenses in connection
with these and other investigations and lawsuits and may incur additional
significant legal expenses in the future should investigations or lawsuits be
instituted.
Ticketmaster or its affiliates could become the subject of future
governmental investigations or inquiries or be named as a defendant in claims
alleging violations of federal or state antitrust laws or any other laws. Any
adverse outcome in such litigation, investigation or proceeding against
Ticketmaster or its affiliates could limit or prevent Ticketmaster from engaging
in the ticketing business or subject Ticketmaster to potential damage
assessments, all of which could have a material adverse effect on Ticketmaster's
business, financial condition or results of operations. Regardless of its merit,
source or outcome, any such litigation, investigation or proceeding would at a
minimum be costly and could divert the efforts of our management and other
personnel from productive tasks, which could have a material adverse effect on
Ticketmaster's business, financial condition or results of operations.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF TICKETMASTER GROUP
GENERAL
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF TICKETMASTER GROUP SHOULD BE READ IN CONJUNCTION WITH THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF TICKETMASTER GROUP AND THE RELATED NOTES
THERETO INCLUDED ELSEWHERE IN THIS INFORMATION STATEMENT. THIS DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES.
TICKETMASTER GROUP'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING,
BUT NOT LIMITED TO, THOSE SET FORTH BELOW AND ELSEWHERE IN THIS INFORMATION
STATEMENT. THE FORWARD-LOOKING STATEMENTS ARE BASED ON TICKETMASTER GROUP'S
EXPECTATIONS AS OF THE DATE OF THIS INFORMATION STATEMENT AND TICKETMASTER GROUP
UNDERTAKES NO OBLIGATION TO UPDATE THESE STATEMENTS. THE FORWARD-LOOKING
STATEMENTS HEREIN DO NOT INCLUDE THE POTENTIAL IMPACT OF ANY MERGERS,
ACQUISITIONS OR OTHER BUSINESS COMBINATIONS THAT MAY BE COMPLETED AFTER
SEPTEMBER 30, 2000.
In July 1997, USA Networks acquired a controlling interest in Ticketmaster
Group and in June 1998 completed the Ticketmaster tax-free merger. The cost in
excess of net assets acquired of $662.9 million was allocated to goodwill and
other intangibles during the year ended December 31, 1998. In connection with
this transaction, approximately $154.8 million of the cost in excess of net
assets acquired was allocated to ticketmaster.com and is being amortized using
the straight-line method over ten years. The remainder is being amortized on a
straight-line basis over 40 years. Upon completion of the Ticketmaster
transaction, Ticketmaster changed its year end to December 31.
In September 1998, Ticketmaster acquired a majority interest in
Citysearch, Inc., a publisher of local city guides on the Web, when it merged
its online business with Citysearch, Inc. to create Ticketmaster
Online-Citysearch, Inc. For accounting purposes, this transaction was treated as
a reverse acquisition of Citysearch, Inc. by ticketmaster.com, a wholly-owned
subsidiary of Ticketmaster. In connection with the Citysearch merger,
Ticketmaster recorded a gain of $67.9 million. In December 1998, Ticketmaster
Online-Citysearch, Inc. completed an initial public offering that generated net
proceeds to Ticketmaster Online-Citysearch of $105.0 million and a gain to
Ticketmaster of $41.1 million. Comparisons of the results of operations between
periods presented have been significantly affected by these activities.
REVENUES
Ticketing operations revenues primarily consist of convenience and handling
charges generated through ticket sales. The sale of tickets for an event often
commences several months prior to the date of the event. We recognize ticketing
operations revenue when the ticket is sold. Fluctuations in ticket operations
revenues occur largely as a result of changes in the number of tickets sold and
change in the average revenue per ticket. The number of tickets sold can vary as
a result of (i) additions or deletions to the list of client facilities serviced
by us; (ii) fluctuations in the scheduling of events, particularly for popular
performers; (iii) overall consumer demand for live entertainment events; and
(iv) the percentage of tickets for events which are sold directly by clients and
not through our distribution system. The average revenue per ticket will vary as
a result of the amount of convenience charges earned on each ticket. The amount
of the convenience charge typically varies based upon numerous factors,
including the type of event, whether the ticket is purchased at a retail sales
outlet, through call centers or via the Internet, as well as the services to be
rendered to the client.
City guide and classifieds revenues consist of revenues derived primarily
from Internet-based city guides in the forms of revenue from custom-built
Websites and other consulting services, online personals subscriptions and
advertising revenue. In city guide owned and operated markets, revenues are
derived primarily from the sale to local businesses of Websites which we create,
host and maintain,
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as well as a place in Citysearch's directory listings so that the businesses
receive exposure to our users. Business Web site customers typically enter into
one-year agreements that automatically convert to month-to-month contracts upon
expiration. In partner-led markets, we derive licensing and royalty revenues
from the licensing of our technology and business systems, from consulting
services and from providing back office and hosting services. Subscription fees
are primarily derived from our online matchmaking and dating services.
OPERATING COSTS
Ticketmaster records ticketing operations costs specifically associated with
the distribution of tickets sold through its system. The largest components of
these costs are payroll, telecommunication charges, data communication costs and
commissions paid on tickets distributed through outlets away from the box
office, along with the clients' share of convenience and handling charges, and
other expenses with lesser components including ticket stock and postage. City
guide and classifieds costs are associated with the design, development,
testing, layout, photography, customer service and editorial resources used in
production and maintenance of business Websites and editorial content, network
infrastructure maintenance and the costs of consulting services.
TICKETMASTER RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999. Revenues from ticketing operations increased by
$71.3 million, or 22%, to $395.9 million for the nine months ended
September 30, 2000 from $324.6 million in the nine months ended September 30,
1999. This increase is primarily due to an increase of 14% in the number of
tickets sold (from 56.5 million to 64.3 million tickets), and an 11% increase in
average per ticket convenience and handling charge revenue (from $5.12 to
$5.67). The increase in the number of tickets sold was primarily the result of
an overall increase in tickets sold within existing markets, growth in new
markets such as Northern California, Arizona and Alabama, and the acquisitions
of Reseau Admission Inc., Concept Electronique Microflex Inc. and Admission
Network USA Inc. (collectively, "Admission Canada") in April 2000 and TicketWeb
in May 2000.
City guide and classifieds revenues increased $36.4 million, or 163%, to
$58.8 million in the nine months ended September 30, 2000 from $22.4 million in
the nine months ended September 30, 1999. This increase is primarily
attributable to the acquisitions of the personals companies, Match.com in June
1999 and Web Media Ventures, LLC in September 1999, an increase in advertising
revenues attributable to the growing success in leveraging the expanded
footprint of local cities to appeal to national advertisers, and the expansion
of the city guide network of owned and operated markets.
Other revenues decreased $6.5 million, or 46%, to $7.6 million in the nine
months ended September 30, 2000 from $14.1 million in the nine months ended
September 30, 1999, primarily due to the discontinuance of our teleservicing
business in June 2000. The related other operating expenses decreased
$0.4 million, or 3%, to $11.6 million in the nine months ended September 30,
2000 from $12.0 million in the nine months ended September 30, 1999.
Ticketing operations expenses increased by $57.1 million, or 29%, to
$253.4 million in the nine months ended September 30, 2000 from $196.3 million
in the nine months ended September 30, 1999, primarily due to the increase in
ticketing operations revenues, as these costs are primarily variable in nature.
Ticketing operations costs increased as a percentage of ticketing operations
revenues to 64% from 60% in the nine months ended September 30, 2000 and 1999,
respectively, primarily due to higher client commissions and credit card charges
as a result of higher revenue per ticket, increased costs associated with
servicing new territories, the costs incurred to consolidate the domestic call
centers and the acquisitions of 2b Technology in January 2000, Admission Canada
in April 2000 and TicketWeb in May 2000.
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City guide and classifieds expenses increased by $17.3 million, or 75%, to
$40.5 million for the nine months ended September 30, 2000 from $23.2 million
for the nine months ended September 30, 1999. This increase is attributable to
the growth in the City guide and classifieds operations throughout 1999,
including eight additional owned and operated markets in the periods following
the nine months ended September 30, 1999 and the inclusion of costs associated
with the acquired personals companies, Match.com in June 1999 and Web Media
Ventures, LLC in September 1999. City guide and classifieds expenses have both
fixed and variable components and may continue to increase in future periods to
the extent City guide and classifieds revenues increase during such periods.
Sales and marketing expenses increased $26.5 million, or 71%, to
$63.4 million from $36.9 million for the nine months ended September 30, 2000
and 1999, respectively. This increase is primarily attributable to the growth of
the City guide and classifieds operations throughout 1999 following the period
ended September 30, 1999 from 25 markets to 33 markets, advertising contributed
by USA Networks for which no consideration was paid by Ticketmaster and, to a
lesser extent, the addition of sales and marketing expenses associated with the
personals operations. Ticketmaster began recognizing sales and marketing costs
from the Match.com and Web Media Ventures, LLC portions of personals operations
in the second and third quarters of 1999, respectively.
General and administrative costs increased by $11.5 million, or 19%, to
$71.3 million in the nine months ended September 30, 2000 from $59.8 million in
the nine months ended September 30, 1999. As a percentage of total revenues,
these costs decreased from 17% to 15% in the nine months ended September 30,
1999 and 2000, respectively. We expect that general and administrative expenses
will increase in absolute dollars in future periods.
Depreciation and amortization increased by $68.3 million, or 83%, to
$150.6 million in the nine months ended September 30, 2000 from $82.3 million in
the nine months ended September 20, 1999. This increase is primarily attributed
to the acquisitions of Match.com in June 1999, Web Media Ventures, LLC and the
Sidewalk assets in September 1999, 2b Technology in January 2000, Admission
Canada in April 2000, TicketWeb in May 2000 and Essential Data Customer Systems
("EDCS") in July 2000.
Merger costs of $3.3 million in the nine months ended September 30, 1999 are
primarily a result of advisory fees, regulatory filing fees and legal and
accounting costs related to the terminated merger between Ticketmaster, certain
assets owned by USA Networks and Lycos, Inc.
Interest expense decreased by $0.4 million, or 6%, to $6.2 million in the
nine months ended September 30, 2000 from $6.6 million in the nine months ended
September 30, 1999, primarily due to lower borrowing levels. Interest income
decreased by $1.4 million, or 32%, to $3.1 million in the nine months ended
September 30, 2000 from $4.5 million in the nine months ended September 30,
1999, primarily due to lower cash balances invested during the periods.
Minority interest in loss increased to $70.9 million from $31.5 million for
the nine months ended September 30, 2000 and 1999, respectively, primarily due
to the increase in Ticketmaster Online-Citysearch net losses of which our
ownership of Ticketmaster Online-Citysearch was 49.4% and 53.9%, respectively,
for the nine months ended September 30, 2000 and 1999.
The effective tax rate is higher than the statutory rate primarily due to
non-deductible amortization resulting from acquisitions and generating losses
not benefited.
Equity in loss of unconsolidated affiliates of $2.6 million for the nine
months ended September 30, 2000 represents $3.7 million in net losses of
foodline.com, Inc. and ActiveUSA.com, Inc., two companies in which we made
minority equity investments in late 1999. These losses were offset by
$1.1 million in net equity income from our minority investments in
Ticketmaster-Mexico and Ticketmaster-Ireland. Equity in net income of
unconsolidated affiliates for the nine months ended
55
<PAGE>
September 30, 1999 of $1.1 million represents income from our minority
investments in Ticketmaster-Mexico and Ticketmaster-Ireland.
YEAR ENDED DECEMBER 31, 1999 (FISCAL 1999) COMPARED TO THE ELEVEN MONTHS
ENDED DECEMBER 31, 1998 (FISCAL 1998). Revenues from ticketing operations
increased by $94.6 million, or 27%, to $442.7 million in fiscal 1999 from
$348.1 million in fiscal 1998. This increase is primarily due to an increase of
9% in the number of tickets sold (from 68.6 million to 74.9 million tickets),
and a 13% increase in average per ticket convenience and handling charge revenue
(from $4.66 to $5.25).
City guide and classifieds revenues increased $30.7 million, or 552%, to
$36.3 million in fiscal 1999 from $5.6 million in fiscal 1998. This increase is
primarily attributable to the inclusion of the Citysearch operations for a full
twelve months in fiscal 1999 compared to three months of Citysearch operations
in fiscal 1998. In addition, fiscal 1999 revenues include revenues attributable
to the integrated personals operations compared with no personals revenues in
fiscal 1998.
Other revenues of $19.5 million for the year ended December 31, 1999
primarily represents our teleservicing business that was discontinued in June
2000.
Ticketing operations expenses increased by $51.5 million, or 24%, to
$269.3 million in fiscal 1999 from $217.8 million in fiscal 1998, primarily due
to the increase in ticketing operations revenues, as these costs are primarily
variable in nature. Ticketing operations costs decreased as a percentage of
ticketing operations revenues to 61% in fiscal 1999 from 63% in fiscal 1998.
City guide and classifieds expenses were $35.6 million and $5.3 million for
the year ended December 31, 1999 and for the eleven months ended December 31,
1998, respectively. This increase represents a full twelve months of the
Citysearch operations including the expansion into 25 new markets in fiscal
1999. Further, there are additional costs associated with the integrated
personals businesses in fiscal 1999 with none in fiscal 1998, representing costs
of affiliate referral commissions, customer service and network infrastructure
maintenance. City guide and classifieds expenses have both fixed and variable
components and may continue to increase in future periods to the extent City
guide and classifieds revenues increase during such periods.
Sales and marketing expenses were $56.5 million and $17.1 million for fiscal
1999 and fiscal 1998, respectively. The increase primarily represents a full
twelve months of the Citysearch operations including the expansion into 25 new
markets in fiscal 1999 as compared to the three months subsequent to the
Citysearch merger in September 1998 during fiscal 1998, when only seven markets
existed.
General and administrative costs increased by $13.7 million, or 21%, to
$78.5 million in fiscal 1999 from $64.8 million in fiscal 1998. As a percentage
of total revenues, these costs decreased from 18% in fiscal 1998 to 16% in
fiscal 1999.
Depreciation and amortization increased by $75.4 million, or 144%, to
$127.9 million in fiscal 1999 from $52.5 million in fiscal 1998. This increase
is primarily attributed to a full year's amortization of the allocated goodwill
in connection with the acquisition of Ticketmaster by USA Networks and
additional goodwill created from the Citysearch merger.
Merger and other transaction costs of $4.2 million in fiscal 1999 represent
costs incurred in connection with the terminated merger between USA Networks and
Lycos, Inc., as well as certain expenses related to the operation of the
Sidewalk city guides before the integration of these properties into the
Citysearch network.
Interest expense decreased by $3.4 million, or 29%, to $8.1 million in
fiscal 1999 from $11.5 million in fiscal 1998, primarily due to lower borrowing
levels. Interest income increased by $3.0 million, or 121%, to $5.6 million in
fiscal 1999 from $2.6 million in fiscal 1998, primarily due to higher cash
balances invested during the 1999 fiscal year.
56
<PAGE>
Minority interest in loss increased to $56.1 million in fiscal 1999 from
$4.8 million in fiscal 1998, primarily due to our inclusion of a full year
results of the Citysearch merger in 1999 and only three months in 1998.
Income tax expense measured as a percentage of pre-tax income (loss) was 60%
in fiscal 1998 and 26% in fiscal 1999. The effective tax rate in fiscal 1998 is
higher than the statutory rate primarily due to non-deductible amortization
resulting from acquisitions. The effective tax rate in fiscal 1999 is higher
than the statutory rate primarily due to non-deductible amortization from
acquisitions and generating losses not benefited.
ELEVEN MONTHS ENDED DECEMBER 31, 1998 (FISCAL 1998) COMPARED TO THE YEAR
ENDED JANUARY 31, 1998 (FISCAL 1997). Revenues from ticketing operations
increased by $7.1 million, or 2%, to $348.1 million in fiscal 1998 from
$341.0 million in fiscal 1997. This increase is primarily due to an increase of
11% in the number of tickets sold (from 61.9 million to 68.6 million tickets),
and a 4% increase in average per ticket convenience and handling charge revenue
(from $4.50 to $4.66). The increase in the number of tickets sold is largely due
to the effect of consolidating a full year of operations rather than partial
years for acquisitions in fiscal 1997 acquisitions (Ticketmaster-Canada,
Ticketmaster-Northwest and Ticketmaster-Southeast). The increase is partially
offset by the discontinuance of LIVE! Magazine during 1998.
In September 1998, Ticketmaster acquired a majority interest in
Citysearch, Inc., when it merged its online business with Citysearch, Inc. to
create Ticketmaster Online-Citysearch, Inc. For accounting purposes this
transaction was treated as a reverse acquisition of Citysearch, Inc. by
Ticketmaster. As a result of the merger, Ticketmaster recorded revenues of
$5.6 million related to the Citysearch business for the three months ended
December 31, 1998.
Ticketing operations expenses increased by $8.1 million, or 4%, to
$217.8 million in fiscal 1998 from $209.7 million in fiscal 1997, primarily due
to the increase in ticketing operations revenues, as these costs are primarily
variable in nature. Ticketing operations costs increased as a percentage of
ticketing operations revenues to 63% in fiscal 1998 from 62% in fiscal 1997.
City guide and classifieds expenses were $5.3 million for fiscal 1998, which
represents the Citysearch operations for the three months subsequent to the
Citysearch merger in September 1998.
Sales and marketing expenses were $17.1 million and $7.2 million for fiscal
1998 and fiscal 1997, respectively. The increase is primarily due to sales and
marketing costs of Citysearch for the three months subsequent to the Citysearch
merger in September 1998 and increased salary related costs and operating
support costs associated with the growth in sales and marketing activities.
General and administrative costs decreased by $6.6 million, or 9%, to
$64.8 million in fiscal 1998 from $71.4 million in fiscal 1997. As a percentage
of total revenues, these costs have remained relatively consistent from 21% in
fiscal 1997 to 18% in fiscal 1998.
Depreciation and amortization increased by $28.0 million, or 114%, to
$52.5 million in fiscal 1998 from $24.5 million in fiscal 1997. This increase is
primarily attributed to the amortization of goodwill in connection with the
acquisition of Ticketmaster by USA Networks in 1998 and the amortization of the
additional goodwill created from the Citysearch merger in 1998.
Interest expense increased slightly from $11.4 million in fiscal 1997 to
$11.5 million in fiscal 1998. Interest income increased by $0.7 million, or 37%,
to $2.6 million in fiscal 1998 from $1.9 million in fiscal 1997, primarily due
to higher cash balances invested during the 1998 fiscal year.
Minority interest in loss increased to $4.8 million for fiscal 1998 from
$0.1 million in fiscal 1997, primarily due to the Citysearch merger in 1998.
57
<PAGE>
In fiscal 1998, Ticketmaster recognized gains totaling $109.0 million from
the Citysearch merger and the sale of Citysearch stock in connection with its
initial public offering.
Income tax expense measured as a percentage of pre-tax income was 59% in
fiscal 1997 and 60% in fiscal 1998. The effective tax rate is higher than the
statutory rate primarily due to non-deductible amortization resulting from
acquisitions.
TICKETMASTER LIQUIDITY AND CAPITAL RESOURCES
We had cash, cash equivalents and marketable securities available for sale
of $131.0 million, $181.0 million, and $197.1 million at September 30, 2000,
December 31, 1999, and December 31, 1998, respectively. Our primary sources of
liquidity have been cash provided from operations and advances or equity
investments from USA Networks.
Net cash provided by operating activities was $0.5 million for the nine
months ended September 30, 2000 and $26.9 million for the nine months ended
September 30, 1999. The decrease of $26.4 million is largely due to the increase
in Ticketmaster Online-Citysearch losses during the nine months ended
September 30, 2000. Net cash provided by operating activities was
$25.2 million, $31.1 million, and $34.2 million for fiscal year 1999, 1998 and
1997, respectively.
Net cash used in investing activities was $77.4 million for the nine months
ended September 30, 2000. This cash was used primarily for acquisitions
requiring $39.8 million and capital expenditures of $24.4 million. Net cash used
in investing activities was $28.3 million for the nine months ended
September 30, 1999, used primarily for capital expenditures of $22.4 million.
Net cash used in investing activities was $80.2 million, $45.2 million, and
$52.7 million for fiscal year 1999, 1998 and 1997, respectively. Net cash used
in investing activities for fiscal 1999 consisted primarily of capital
expenditures of $37.1 million, the purchase of marketable securities for
$27.0 million, and investments in affiliates totaling $16.3 million. Net cash
used in investing activities for fiscal 1998 consisted primarily of
$21.2 million for the payment of merger costs related to the acquisition of
Ticketmaster by USA Networks and $17.8 million of capital expenditures. Net cash
used in investing activities for 1997 consisted primarily of acquisitions
requiring $35.7 million and capital expenditures of $16.7 million.
Net cash provided by financing activities was $48.4 million for the nine
months ended September 30, 2000. Net cash used in financing activities was
$31.4 million for the nine months ended September 30, 1999. The amounts in both
periods consist primarily of intercompany advances between us and USA Networks.
Net cash provided by financing activities was $1.2 million, $134.4 million, and
$35.9 million for fiscal year 1999, 1998 and 1997, respectively. Net cash
provided by financing activities for fiscal 1999 consisted primarily of a
$40.0 million additional investment by USA Networks in exchange for 1.3 million
shares of Ticketmaster Online-Citysearch Class B common stock, offset by
repayments of advances from USA Networks. Net cash provided by financing
activities for fiscal 1998 was due primarily to proceeds of $105.0 million from
the sale of Ticketmaster Online-Citysearch stock in connection with Ticketmaster
Online-Citysearch's initial public offering and $57.9 million in cash acquired
in connection with the Citysearch merger. Net cash provided by financing
activities for fiscal 1997 was due primarily to net proceeds from the issuance
of long-term debt.
The contribution agreement provides that, prior to the consummation of the
combination, we will have entered into a credit facility that provides us with
$25 million in available credit, or if such a credit facility is not available,
USA Networks will have provided us with a $25 million line of credit at its rate
of borrowing, payable on the three month anniversary of the closing of the
contribution agreement.
We currently have no material commitments other than those under existing
capital and operating lease agreements. We will continue to evaluate possible
acquisitions of, or investments in, businesses, products and technologies that
are complementary to ours, which may require the use of cash. Our
58
<PAGE>
management believes that existing cash and cash equivalents, marketable
securities and the $25 million credit facility described above will be
sufficient to meet our working capital and capital expenditures requirements for
at least the next twelve months.
INTEREST RATE RISK
Our exposure to market rate risk for changes in interest rates relates
primarily to our investment portfolio. We have not used derivative financial
instruments in our investment portfolio. We invest our excess cash in debt
instruments of the U.S. Government and its agencies and in high-quality
corporate issuers and, by policy, limit the amount of credit exposure to any one
issuer. We protect and preserve our invested funds by limiting default, market
and reinvestment risk.
Investments in both fixed rate and floating rate interest earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market value adversely impacted due to a rise in interest rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors, our future investment income may fall
short of expectations due to changes in interest rates or we may suffer losses
in principal if forced to sell securities which have declined in market value
due to changes in interest rates.
SEASONALITY
Ticketmaster's ticket sales are occasionally impacted by fluctuations in the
availability of events for sale to the public, which vary depending upon
scheduling by the client. The second quarter of the year generally experiences
the most events.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
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<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS OF TICKETMASTER ONLINE-CITYSEARCH
The following unaudited pro forma condensed consolidated financial
statements have been prepared to give effect to the combination. In the
combination, USA Networks will receive 52,000,000 new shares of our Class B
common stock in exchange for contributing the Ticketmaster businesses to us. The
assets and liabilities so transferred between entities under common control
before and after the combination will be accounted for at historical cost in a
manner similar to that in pooling-of-interests accounting.
The unaudited pro forma condensed consolidated financial statements reflect
certain assumptions regarding the proposed transaction and are based on the
historical financial statements of our company. The consolidated financial
statements of Ticketmaster Group include the financial statements of our
company, the effect of which has been adjusted in the column titled Elimination
of Ticketmaster Online-Citysearch. The unaudited pro forma condensed
consolidated financial statements, including the notes accompanying them, are
qualified in their entirety by reference to, and should be read in conjunction
with, our audited consolidated financial statements and the notes thereto, which
are incorporated into this Information Statement by reference, and the audited
consolidated financial statements of Ticketmaster Group, including the notes
thereto, which are included elsewhere in this Information Statement.
The unaudited pro forma condensed consolidated balance sheet as
September 30, 2000 gives effect to the combination as if the combination had
occurred on that date. The unaudited pro forma consolidated condensed statement
of operations for the nine months ended September 30, 2000, the year ended
December 31, 1999, the eleven months ended December 31, 1998 and the year ended
January 31, 1998 give effect to the combination as if the combination had
occurred at the beginning of the periods presented.
The unaudited pro forma condensed consolidated statements of operations are
presented for illustrative purposes only. The unaudited pro forma statements of
operations are indicative of the accounting for the combination at historical
cost in a manner similar to that in pooling-of-interests accounting. These
statements are not necessarily indicative of the results of operations or
financial position that actually would have been reported had these transactions
occurred on the dates indicated above, nor are they necessarily indicative of
future financial results of operations.
60
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
OF TICKETMASTER ONLINE-CITYSEARCH
AS OF SEPTEMBER 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL ELIMINATION OF PRO FORMA
TICKETMASTER HISTORICAL TICKETMASTER TICKETMASTER
ONLINE- TICKETMASTER ONLINE- PRO FORMA ONLINE-
CITYSEARCH GROUP, INC. CITYSEARCH(1) ADJUSTMENTS CITYSEARCH
------------ ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............. $ 30,297 $ 113,114 $ (30,297) $ 7,559 (3) $ 120,673
Marketable securities.................. 17,583 17,902 (17,583) -- 17,902
Accounts receivable, net............... 8,896 -- (8,896) -- --
Accounts receivable, ticket sales...... -- 37,408 -- -- 37,408
Accounts receivable, trade............. -- 27,742 -- -- 27,742
Due from licensees..................... 1,500 -- (1,500) -- --
Contract advances...................... -- 12,552 -- -- 12,552
Prepaid expenses and other current
assets............................... 5,225 14,718 (5,225) -- 14,718
--------- ---------- --------- --------- ----------
Total current assets................. 63,501 223,436 (63,501) 7,559 230,995
Investments.............................. 20,028 -- (20,028) -- --
Property, equipment and leasehold
improvements, net...................... 23,788 76,685 (23,788) -- 76,685
Goodwill and other intangibles, net...... 613,607 1,231,782 (613,607) -- 1,231,782
Other assets............................. 3,833 66,070 (3,833) -- 66,070
Deferred income taxes.................... -- 10,604 -- -- 10,604
--------- ---------- --------- --------- ----------
Total assets......................... $ 724,757 $1,608,577 $(724,757) $ 7,559 $1,616,136
========= ========== ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt...... $ 481 $ 5,236 $ (481) $ -- $ 5,236
Accounts payable....................... 2,822 -- (2,822) -- --
Accounts payable, trade................ -- 9,514 -- -- 9,514
Accounts payable, clients.............. -- 102,442 -- -- 102,442
Accrued expenses....................... 14,279 61,981 (14,279) -- 61,981
Related party payable.................. 840 -- (840) -- --
Deferred revenue and other............. 8,836 15,072 (8,836) -- 15,072
--------- ---------- --------- --------- ----------
Total current liabilities............ 27,258 194,245 (27,258) -- 194,245
Long-term debt, net of current portion... 96 12,854 (96) -- 12,854
Due to USAi and affiliates............... -- 164,724 -- (161,454)(4) 3,270
Deferred income taxes.................... -- 45,030 -- (44,901)(5) 129
Other long term liabilities.............. 1,050 14,590 (1,050) -- 14,590
Minority interest........................ -- 509,187 (503,062) -- 6,125
Stockholders' equity:
Preferred stock, $0.01 par value....... -- -- -- -- --
Class A Common Stock, $0.01 par
value................................ 480 -- -- -- 480
Class B Common Stock, $0.01 par
value................................ 406 -- -- 520 (6) 926
Class C Common Stock, $0.01 par
value................................ -- -- -- -- --
Additional paid-in capital............. 976,072 763,465 (344,192) 277,460 (7) 1,672,805
Accumulated other comprehensive loss... (124) (3,291) 124 -- (3,291)
Accumulated deficit.................... (280,481) (92,227) 150,777 (64,066)(5) (285,997)
--------- ---------- --------- --------- ----------
Total stockholders' equity........... 696,353 667,947 (193,291) 213,914 1,384,923
--------- ---------- --------- --------- ----------
Total liabilities and stockholders'
equity............................. $ 724,757 $1,608,577 $(724,757) $ 7,559 $1,616,136
========= ========== ========= ========= ==========
</TABLE>
61
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
OF TICKETMASTER ONLINE-CITYSEARCH
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ELIMINATION OF PRO FORMA
TICKETMASTER HISTORICAL TICKETMASTER TICKETMASTER
ONLINE- TICKETMASTER ONLINE- PRO FORMA ONLINE-
CITYSEARCH GROUP, INC. CITYSEARCH(1) ADJUSTMENTS CITYSEARCH
------------ ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations............ $ 102,745 $ 395,909 $(102,745) $ -- $ 395,909
City guide and classifieds...... 49,174 58,776 (49,174) -- 58,776
Sponsorship and advertising..... 13,064 -- (13,064) -- --
Other........................... -- 7,639 -- -- 7,639
--------- --------- --------- ------- ---------
Total revenues................ 164,983 462,324 (164,983) -- 462,324
--------- --------- --------- ------- ---------
Operating costs and other
expenses:
Ticketing operations............ 77,568 253,436 (77,568) -- 253,436
City guide and classifieds...... 39,015 40,505 (39,015) -- 40,505
Other........................... -- 11,614 -- -- 11,614
Sales and marketing............. 57,007 63,355 (57,007) -- 63,355
Research and development........ 4,641 -- (4,641) -- --
General and administrative...... 19,808 71,306 (19,808) -- 71,306
Depreciation and amortization... 107,265 150,600 (107,265) -- 150,600
--------- --------- --------- ------- ---------
Total operating costs and
other expenses.............. 305,304 590,816 (305,304) -- 590,816
--------- --------- --------- ------- ---------
Loss from operations.............. (140,321) (128,492) 140,321 -- (128,492)
Other (income) expenses:
Interest income................. (2,346) (3,081) 2,346 -- (3,081)
Interest expense................ -- 6,168 -- -- 6,168
Other expenses.................. 289 -- (289) -- --
Equity in net loss of
unconsolidated affiliates..... 3,774 2,636 (3,774) -- 2,636
--------- --------- --------- ------- ---------
Total other (income)
expenses.................... 1,717 5,723 (1,717) -- 5,723
--------- --------- --------- ------- ---------
Loss before income taxes and
minority interest............... (142,038) (134,215) 142,038 -- (134,215)
Minority interest in loss......... -- (70,906) 70,120 -- (786)
Income tax provision.............. 1,033 11,734 (1,033) -- 11,734
--------- --------- --------- ------- ---------
Net loss.......................... $(143,071) $ (75,043) $ 72,951 $ -- $(145,163)
========= ========= ========= ======= =========
Basic and diluted loss per
share(3)........................ $ (1.05)
=========
Weighted average shares
outstanding for basic and
diluted loss per share(3)....... 138,909
=========
</TABLE>
62
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
OF TICKETMASTER ONLINE-CITYSEARCH
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ELIMINATION OF PRO FORMA
TICKETMASTER HISTORICAL TICKETMASTER TICKETMASTER
ONLINE- TICKETMASTER ONLINE- PRO FORMA ONLINE-
CITYSEARCH GROUP, INC. CITYSEARCH(1) ADJUSTMENTS CITYSEARCH
------------ ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations............ $ 64,787 $442,743 $ (64,787) $ -- $ 442,743
City guide and classifieds...... 33,915 36,329 (33,915) -- 36,329
Sponsorship and advertising..... 6,601 -- (6,601) -- --
Other........................... -- 19,458 -- -- 19,458
--------- -------- --------- ------- ---------
Total revenues................ 105,303 498,530 (105,303) -- 498,530
--------- -------- --------- ------- ---------
Operating costs and other
expenses:
Ticketing operations............ 47,870 269,315 (47,870) -- 269,315
City guide and classifieds...... 30,288 35,642 (30,288) -- 35,642
Other........................... -- 17,841 -- -- 17,841
Sales and marketing............. 47,263 56,499 (47,263) -- 56,499
Research and development........ 7,455 -- (7,455) -- --
General and administrative...... 15,242 78,521 (15,242) -- 78,521
Depreciation and amortization... 77,744 127,921 (77,744) -- 127,921
Merger and other transaction
costs......................... 4,236 4,236 (4,236) -- 4,236
--------- -------- --------- ------- ---------
Total operating costs and
other expenses.............. 230,098 589,975 (230,098) -- 589,975
--------- -------- --------- ------- ---------
Loss from operations.............. (124,795) (91,445) 124,795 -- (91,445)
Other (income) expenses:
Interest income................. (4,428) (5,645) 4,428 -- (5,645)
Interest expense................ 265 8,108 (265) -- 8,108
Equity in net (income) loss of
unconsolidated affiliates..... 272 (1,225) (272) -- (1,225)
--------- -------- --------- ------- ---------
Total other (income)
expenses.................... (3,891) 1,238 3,891 -- 1,238
--------- -------- --------- ------- ---------
Loss before income taxes and
minority interest............... (120,904) (92,683) 120,904 -- (92,683)
Minority interest in loss......... -- (56,139) 54,765 -- (1,374)
Income tax provision.............. 464 23,975 (464) -- 23,975
--------- -------- --------- ------- ---------
Net loss.......................... $(121,368) $(60,519) $ 66,603 $ -- $(115,284)
========= ======== ========= ======= =========
Basic and diluted loss per
share(3)........................ $ (0.90)
=========
Weighted average shares
outstanding for basic and
diluted loss per share(3)....... 128,097
=========
</TABLE>
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<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
OF TICKETMASTER ONLINE-CITYSEARCH
FOR THE ELEVEN MONTHS ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ELIMINATION OF PRO FORMA
TICKETMASTER HISTORICAL TICKETMASTER TICKETMASTER
ONLINE- TICKETMASTER ONLINE- PRO FORMA ONLINE-
CITYSEARCH GROUP, INC. CITYSEARCH(1) ADJUSTMENTS CITYSEARCH
------------ ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations........... $ 15,743 $ 348,103 $(15,743) $ -- $348,103
City guide and classifieds..... 5,376 5,568 (5,376) -- 5,568
Sponsorship and advertising.... 6,754 -- (6,754) -- --
Other.......................... -- -- -- --
-------- --------- -------- --------- --------
Total revenues............... 27,873 353,671 (27,873) -- 353,671
-------- --------- -------- --------- --------
Operating costs and other
expenses:
Ticketing operations........... 9,842 217,839 (9,842) -- 217,839
City guide and classifieds..... 4,021 5,268 (4,021) -- 5,268
Other.......................... -- -- --
Sales and marketing............ 6,834 17,116 (6,834) -- 17,116
Research and development....... 1,728 -- (1,728) -- --
General and administrative..... 3,495 64,840 (3,495) -- 64,840
Depreciation and
amortization................. 16,275 52,450 (16,275) -- 52,450
-------- --------- -------- --------- --------
Total operating costs and
other expenses............. 42,195 357,513 (42,195) -- 357,513
-------- --------- -------- --------- --------
Income (loss) from operations.... (14,322) (3,842) 14,322 -- (3,842)
Other (income) expenses:
Interest income................ (867) (2,555) 867 -- (2,555)
Interest expense............... 813 11,455 (813) -- 11,455
Gain on sale of subsidiary
stock........................ -- (108,967) -- 108,967 (5) --
Equity in net (income) loss of
unconsolidated affiliates.... -- (477) -- -- (477)
-------- --------- -------- --------- --------
Total other (income)
expenses................... (54) (100,544) 54 108,967 8,423
-------- --------- -------- --------- --------
Income before income taxes and
minority interest.............. (14,268) 96,702 14,268 (108,967) (12,265)
Minority interest in loss........ -- (4,829) 4,819 -- (10)
Income tax provision............. 2,951 58,196 (2,951) (44,901)(5) 13,295
-------- --------- -------- --------- --------
Net income (loss)................ $(17,219) $ 43,335 $ 12,400 $ (64,066) $(25,550)
======== ========= ======== ========= ========
Basic and diluted loss per
share(3)....................... $ (0.26)
========
Weighted average shares
outstanding for basic and
diluted loss per share(3)...... 97,201
========
</TABLE>
64
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
OF TICKETMASTER ONLINE-CITYSEARCH
FOR THE YEAR ENDED JANUARY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ELIMINATION OF PRO FORMA
TICKETMASTER HISTORICAL TICKETMASTER TICKETMASTER
ONLINE- TICKETMASTER ONLINE- PRO FORMA ONLINE-
CITYSEARCH GROUP, INC. CITYSEARCH(1) ADJUSTMENTS CITYSEARCH
------------ ------------ -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations............ $5,972 $340,980 $(5,972) $ -- $340,980
City guide and classifieds...... -- -- -- --
Sponsorship and advertising..... 3,933 -- (3,933) -- --
Other........................... -- -- -- --
------ -------- ------- --------- --------
Total revenues................ 9,905 340,980 (9,905) -- 340,980
------ -------- ------- --------- --------
Operating costs and other
expenses:
Ticketing operations............ 3,522 209,726 (3,522) -- 209,726
City guide and classifieds...... -- -- -- -- --
Other........................... -- -- -- -- --
Sales and marketing............. 490 7,249 (490) -- 7,249
General and administrative...... 1,719 71,424 (1,719) -- 71,424
Depreciation and amortization... -- 24,473 -- -- 24,473
------ -------- ------- --------- --------
Total operating costs and
other expenses.............. 5,731 312,872 (5,731) -- 312,872
------ -------- ------- --------- --------
Income from operations............ 4,174 28,108 (4,174) -- 28,108
Other (income) expenses:
Interest income................. -- (1,859) -- -- (1,859)
Interest expense................ -- 11,419 -- -- 11,419
Equity in net income of
unconsolidated affiliates..... -- (1,417) -- -- (1,417)
------ -------- ------- --------- --------
Total other (income)
expenses.................... -- 8,143 -- -- 8,143
------ -------- ------- --------- --------
Income before income taxes and
minority interest............... 4,174 19,965 (4,174) -- 19,965
Minority interest in loss......... -- (65) -- -- (65)
Income tax provision.............. 1,827 11,883 (1,827) -- 11,883
------ -------- ------- --------- --------
Net income........................ $2,347 $ 8,147 $(2,347) $ -- $ 8,147
====== ======== ======= ========= ========
Basic and diluted earnings per
share(3)........................ $ 0.09
========
Weighted average shares
outstanding for basic and
diluted earnings per share(3)... 89,238
========
</TABLE>
65
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(1) Represents the elimination of the net assets and results of operations and
minority interest of Ticketmaster Online-Citysearch included in the
consolidated historical Ticketmaster Group financial statements.
(2) The calculation of basic and diluted pro forma earnings (loss) per share
adjusts the Ticketmaster Online-Citysearch historical weighted average
shares outstanding to reflect the 52,000,000 shares issued to USA Networks
in the combination as if issued at the beginning of the period.
(3) Represents the working capital adjustment whereby USA Networks will
contribute an amount such that current assets of the contributed balance
sheet, as defined, equal current liabilities.
(4) Represents the elimination of all intercompany amounts owed by Ticketmaster
Group to USA Networks and affiliates, other than intercompany amounts owed
by TMC Realty to USA Networks.
(5) Represents reversal of gains totaling $109.0 million from the Citysearch
merger and the sale of Ticketmaster Online-Citysearch stock in connection
with its initial public offering and related income tax expense of
$44.9 million.
(6) Represents the issuance of 52,000,000 shares of Class B Common Stock to USA
Networks for the contribution of the businesses of Ticketmaster Group.
(7) Represents the contribution of capital resulting from adjustment notes
(3) and (4) and the reversal of the $109 million gain per note (5) and a
reclassification from additional paid in capital to common stock resulting
from adjustment note (6).
66
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
TICKETMASTER ONLINE-CITYSEARCH CLASS B COMMON STOCK
The following table sets forth, as of October 31, 2000, certain information
regarding the beneficial ownership of our Class B common stock by: (1) each
person or entity who is known by us to own beneficially 5% or more of our
outstanding Class B common stock; (2) each of our directors; (3) our Chief
Executive Officer and each of the four other most highly compensated executive
officers whose total annual salary and bonus exceeded $100,000 during the last
fiscal year (collectively, the "Named Officers"); and (4) all of our directors
and executive officers as a group. On December 12, 2000, we were notified of the
filing with the Securities and Exchange Commission of a Form 13G by Capital
Research and Management Company and SMALLCAP World Fund, Inc. in connection with
their beneficial ownership of an aggregate of 6,709,100 shares of our Class B
common stock. The table below, which reflects beneficial ownership of our
Class B common stock as of October 31, 2000, does not reflect this information.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) PERCENTAGE OF CLASS(2) VOTING POWER
--------------------------------------- --------------------- ---------------------- -------------------
<S> <C> <C> <C>
USA Networks, Inc. ..................... 43,782,544 52.6% 82.8
152 West 57th Street, 42nd Floor
New York, NY 10019
Microsoft Corporation(3) ............... 11,500,000 25.4 1.5
One Microsoft Way
Redmond, WA 98052
Terry Barnes............................ 2,500 * **
Charles Conn(4)......................... 1,243,317 3.0 2.2
Barry Diller(5)......................... 43,782,544 52.6 82.8
Julius Genachowski...................... 700 * **
Joseph Gleberman(6)..................... 2,332,147 5.7 **
William Gross(7)........................ 1,276,728 3.0 2.5
Allen Grubman........................... -- -- --
Lawrence Jacobson(8).................... -- -- --
Victor A. Kaufman....................... -- -- --
Bryan Lourd............................. -- -- --
Jon Miller.............................. 800 * **
John Pleasants(9)....................... 55,703 * **
William D. Savoy(10).................... 14,166 * **
Alan Spoon(11).......................... 4,166 * **
Thomas Unterman(12)..................... 11,219 * **
Traci Fleming(13)....................... 33,475 * **
Daniel Marriott(14)..................... 75,291 * **
Steven Trepp(15)........................ 97,671 * **
All executive officers and directors as
a group (21 persons)(16).............. 60,686,086 55.0% 88.0
</TABLE>
------------------------
* Less than 1% of the outstanding Class B common stock.
** Less than 1% of the total voting power of the outstanding Class B common
stock.
(1) The address of Messrs. Diller, Genachowski, Kaufman and Miller is: c/o USA
Networks, Inc., 152 West 57th Street, 42nd Floor, New York, NY 10019.
Except as otherwise indicated, the address of each of the other named
individuals is: c/o Ticketmaster Online-Citysearch, Inc., 790 E. Colorado
Boulevard, Suite 200, Pasadena, CA 91101.
(2) Pursuant to the Company's Restated Certificate of Incorporation, shares of
Class A common stock are convertible at any time into an equal number of
shares of Class B common stock. The percentage of shares beneficially owned
assumes the conversion of all shares of Class A common stock beneficially
owned by the listed person, but does not assume the conversion of Class A
common stock owned by any other person. Beneficial ownership is determined
in accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities.
Except as indicated by footnote, and subject to community
67
<PAGE>
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. Amounts shown in the above table and
the following notes include shares issuable upon exercise of stock options
to purchase shares of Class A common stock and Class B common stock which
are exercisable within 60 days of October 31, 2000.
(3) Includes warrants to purchase 4,500,000 shares of Class B common stock
which are exercisable by Microsoft Corporation.
(4) Includes 787,762 shares of Class A common stock, and options to purchase
325,000 shares of Class A common stock and 130,555 shares of Class B common
stock exercisable by Mr. Conn within 60 days of October 31, 2000.
(5) Includes 42,480,143 shares of Class A common stock and 1,302,401 shares of
Class B common stock which are beneficially owned by USA Networks, Inc.
Mr. Diller disclaims beneficial ownership of such shares.
(6) Includes 2,327,981 shares of Class B common stock which are held by
entities affiliated with The Goldman Sachs Group, Inc. Mr. Gleberman is a
managing director of Goldman, Sachs & Co., a direct and indirect
wholly-owned subsidiary of The Goldman Sachs Group, Inc. Mr. Gleberman
disclaims beneficial ownership of the shares owned by The Goldman Sachs
Group, Inc., except to the extent of his pecuniary interest therein.
Includes options to purchase 4,166 shares of Class B common stock
exercisable by Mr. Gleberman within 60 days of October 31, 2000.
(7) Includes 472,562 shares of Class A common stock held by bill gross'
idealab! Mr. Gross disclaims beneficial ownership of the shares held by
bill gross' idealab! Includes options to purchase 4,166 shares of Class B
common stock exercisable by Mr. Gross within 60 days of October 31, 2000.
(8) Mr. Jacobson resigned effective January 5, 2001.
(9) Includes no shares of Class A common stock. Includes options to purchase
23,870 shares of Class A common stock and 20,833 shares of Class B common
stock exercisable by Mr. Pleasants within 60 days of October 31, 2000.
(10) Includes no shares of Class A common stock. Includes options to purchase
4,166 shares of Class B common stock which are exercisable by Mr. Savoy
within 60 days of October 31, 2000.
(11) Includes no shares of Class A common stock. Includes options to purchase
4,166 shares of Class B common stock which are exercisable by Mr. Spoon
within 60 days of October 31, 2000.
(12) Includes 2,053 shares of Class A common stock which are held by The Thomas
and Janet Unterman Living Trust dated 12/30/94. Includes options to
purchase 4,166 shares of Class B common stock which are exercisable by
Mr. Unterman within 60 days of October 31, 2000.
(13) Includes no shares of Class A common stock. Includes options to purchase
8,790 shares of Class A common stock and 24,685 shares of Class B common
stock which are exercisable by Ms. Fleming within 60 days of October 31,
2000.
(14) Includes no shares of Class A common stock. Includes options to purchase
16,709 shares of Class A common stock and 10,417 shares of Class B common
stock exercisable by Mr. Marriott within 60 days of October 31, 2000. Does
not include 3,829 shares of Class B common stock owned by Mr. Marriott's
spouse and options to purchase 730 shares of Class A common stock and
9,706 shares of Class B common stock held and exercisable by
Mr. Marriott's spouse within 60 days of October 31, 2000.
(15) Includes no shares of Class A common stock. Includes options to purchase
34,376 shares of Class A common stock and 63,295 shares of Class B common
stock which are exercisable by Mr. Trepp within 60 days of October 31,
2000.
(16) See notes (2) and (4) through (15).
68
<PAGE>
TICKETMASTER ONLINE-CITYSEARCH CLASS A COMMON STOCK
The following table sets forth, as of October 31, 2000, certain information
relating to the beneficial ownership of our Class A common stock by (1) each
person or entity who is known by us to beneficially own 5% or more of our
outstanding Class A common stock; (2) each of our directors; (3) each of our
Named Officers; and (4) all of our directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) CLASS(2)
--------------------------------------- --------------------- -------------
<S> <C> <C>
USA Networks, Inc. ......................................... 42,480,143 87.9%
152 West 57th Street, 42nd Floor
New York, NY 10019........................................
Terry Barnes................................................ -- --
Charles Conn(3)............................................. 1,112,762 1.6
Barry Diller(4)............................................. 42,480,143 87.9
Julius Genachowski.......................................... -- --
Joseph Gleberman............................................ -- --
William Gross(5)............................................ 1,272,562 2.6
Allen Grubman............................................... -- --
Lawrence Jacobson(6)........................................ -- --
Victor A. Kaufman........................................... -- --
Bryan Lourd................................................. -- --
Jon Miller.................................................. -- --
John Pleasants(7)........................................... 23,870 *
William D. Savoy............................................ -- --
Alan Spoon.................................................. -- --
Thomas Unterman(8).......................................... 2,053 *
Traci Fleming(9)............................................ 8,790 *
Daniel Marriott(10)......................................... 16,709 *
Steven Trepp(11)............................................ 34,376 *
All executive officers, directors and director nominees as a
group (21 persons)(12).................................... 44,969,602 93.0
</TABLE>
------------------------
* Less than 1% of the outstanding Class A common stock.
(1) The address of Messrs. Diller, Genachowski, Kaufman and Miller is: c/o USA
Networks, Inc., 152 West 57th Street, 42nd Floor, New York, NY 10019.
Except as otherwise indicated, the address of each of the other named
individuals is: c/o Ticketmaster Online-Citysearch, Inc., 790 E. Colorado
Boulevard, Suite 200, Pasadena, CA 91101.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Class A common stock shown as beneficially owned
by them. Percentage of class is based on 48,349,437 shares of Class A
common stock outstanding as of October 31, 2000, including options to
purchase Class A common stock exercisable within 60 days of October 31,
2000. Amounts shown in the above table and the following notes include
shares issuable upon exercise of stock options to purchase shares of
Class A common stock which are exercisable within 60 days of October 31,
2000. Shares of Class A common stock be converted at any time into an equal
number of shares of Class B common stock.
69
<PAGE>
(3) Includes 325,000 shares issuable upon exercise of stock options to purchase
shares of Class A common stock which are exercisable by Mr. Conn within
60 days of October 31, 2000.
(4) Includes 42,480,143 shares of Class A common stock beneficially owned by
USA Networks, Inc., as to which Mr. Diller disclaims beneficial ownership.
(5) Includes 472,562 shares of Class A common stock held by bill gross'
idealab! Mr. Gross disclaims beneficial ownership of the shares held by
bill gross' idealab!
(6) Mr. Jacobson resigned effective January 5, 2001.
(7) Includes 23,870 shares issuable upon exercise of stock options to purchase
shares of Class A common stock which are exercisable by Mr. Pleasants
within 60 days of October 31, 2000.
(8) Includes 2,053 shares of Class A common stock held by The Thomas and Janet
Unterman Living Trust dated 12/30/94.
(9) Includes 8,790 shares issuable upon exercise of stock options to purchase
shares of Class A common stock which are exercisable by Ms. Fleming within
60 days of October 31, 2000.
(10) Includes 16,709 shares issuable upon exercise of stock options to purchase
shares of Class A common stock which are exercisable by Mr. Marriott
within 60 days of October 31, 2000. Does not includes options to purchase
730 shares of Class A common stock held and exercisable by Mr. Marriott's
spouse within 60 days of October 31, 2000.
(11) Includes 34,376 shares issuable upon exercise of stock options to purchase
shares of Class A common stock which are exercisable by Mr. Trepp within
60 days of October 31, 2000.
(12) See notes (3) through (11).
70
<PAGE>
USA NETWORKS COMMON STOCK
The following table sets forth, as of October 31, 2000, information relating
to the beneficial ownership of the common stock of USA Networks by (1) each of
our directors; (2) each of our Named Officers; and (3) all of our executive
officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER OF SHARES PERCENT OF CLASS(2) VOTING POWER(3)
--------------------------------------- ---------------- ------------------- -------------------
<S> <C> <C> <C>
Terry Barnes(4).............................. 225,001 * **
Charles Conn................................. -- -- --
Barry Diller(5).............................. 153,448,380 37.1% 73.5%
Julius Genachowski(6)........................ 76,936 * **
Joseph Gleberman............................. -- -- --
William Gross................................ -- -- --
Allen Grubman................................ -- -- --
Lawrence Jacobson(7)......................... 50,000 * **
Victor A. Kaufman(8)......................... 1,345,338 * **
Bryan Lourd.................................. -- -- --
Jon Miller(9)................................ 384,200 * **
John Pleasants............................... -- -- --
William D. Savoy(10)......................... 186,823 * **
Alan Spoon................................... -- -- --
Thomas Unterman.............................. -- -- --
Traci Fleming................................ -- -- --
Daniel Marriott.............................. -- -- --
Steven Trepp................................. -- -- --
All executive officers and directors as a
group (21 persons)......................... 155,746,678 37.5 73.6
</TABLE>
------------------------
* Less than 1% of the outstanding USA Networks common stock.
** Less than 1% of the total voting power of the USA Networks common stock and
the Class B common stock of USA Networks, par value $.01 per share.
(1) The address of Messrs. Diller, Genachowski, Kaufman and Miller is: c/o USA
Networks, Inc., 152 West 57th Street, 42nd Floor, New York, NY 10019.
Except as otherwise indicated, the address of each of the other named
individuals is: c/o Ticketmaster Online-Citysearch, Inc., 790 E. Colorado
Boulevard, Suite 200, Pasadena, CA 91101.
(2) The percentage of beneficial ownership listed assumes the conversion of any
shares of USA Networks Class B common stock beneficially owned by such
listed person, but does not assume the conversion of USA Networks Class B
common stock owned by any other person. Beneficial ownership has been
determined in accordance with the rules of the Securities and Exchange
Commission. Shares of USA Networks Class B common stock are convertible at
any time into an equal number of shares of USA Networks common stock.
(3) The percentage of votes for all classes is based on one vote for each share
of USA Networks common stock and ten votes for each share of USA Networks
Class B common stock, assuming no conversion of USA Networks Class B common
stock.
(4) Consists of options to acquire 190,001 shares of USA Networks common stock,
which are exercisable by Mr. Barnes within 60 days of October 31, 2000, and
restricted stock grants to acquire 65,000 shares of USA Networks common
stock.
71
<PAGE>
(5) Liberty Media Corporation ("Liberty"), a subsidiary of AT&T Corp.,
Universal Studios, Inc. ("Universal"), The Seagram Company Ltd.
("Seagram"), USA Networks and Mr. Diller are parties to a stockholders
agreement pursuant to which Liberty and Mr. Diller have formed BDTV INC.,
BDTV II INC., BDTV III INC. and BDTV IV INC., or together the "BDTV
Entities," which entities, as of January 31, 2000, held 8,000,000,
31,236,444, 8,010,364 and 1,600,000 shares of USA Networks Class B common
stock, respectively, and an aggregate of 44 shares of USA Networks common
stock collectively. Includes 13,430,000 shares of USA Networks Class B
common stock, and 18,181,308 shares of USA Networks common stock as to
which Mr. Diller has general voting power and which are otherwise
beneficially owned by Seagram. Includes 756,644 shares of USA Networks
Class B common stock, and 24,838,738 shares of USA Networks common stock as
to which Mr. Diller has general voting power and which are otherwise
beneficially owned by Liberty. Also consists of 2,209,908 shares of USA
Networks common stock owned by Mr. Diller, vested options to purchase
45,123,388 shares of USA Networks common stock, and 61,542 shares of USA
Networks common stock held by a private foundation as to which Mr. Diller
disclaims beneficial ownership. Pursuant to the stockholders agreement,
Mr. Diller generally has the right to vote all of the shares of USA
Networks stock held by the BDTV Entities, Seagram and Liberty. These
figures do not include any unissued shares of USA Networks common stock or
USA Networks Class B common stock issuable upon exchange of the shares of
Home Shopping Network, Inc. held by Liberty HSN, Inc. and the shares of
USANi LLC beneficially owned by Liberty or Seagram.
(6) Consists of 936 shares of USA Networks common stock and options to acquire
46,000 shares of USA Networks common stock, which are exercisable by
Mr. Genachowski within 60 days of October 31, 2000, and restricted stock
grants to acquire 30,000 shares of USA Networks common stock.
(7) Consists of restricted stock grants to acquire 50,000 shares of USA
Networks common stock. Mr. Jacobson resigned effective January 5, 2001.
(8) Consists of 34,338 shares of USA Networks common stock and options to
purchase 1,281,000 shares of USA Networks common stock which are
exercisable by Mr. Kaufman within 60 days of October 31, 2000, and
restricted stock grants to acquire 30,000 shares of USA Networks common
stock.
(9) Consists of options to acquire 304,200 shares of USA Networks common stock,
which are exercisable by Mr. Miller within 60 days of October 31, 2000, and
restricted stock grants to acquire 80,000 shares of USA Networks common
stock.
(10) Consists of 58,000 shares of USA Networks common stock and options to
purchase 128,823 shares of USA Networks common stock, which are
exercisable by Mr. Savoy within 60 days of October 31, 2000.
72
<PAGE>
USA NETWORKS CLASS B COMMON STOCK
The following table sets forth, as of October 31, 2000, information relating
to the beneficial ownership of USA Networks Class B common stock by (1) each of
our directors; (2) each of our Named Officers; and (3) all of our executive
officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER(1) PERCENTAGE OF CLASS BENEFICIALLY OWNED(2)
--------------------------------------- ------------------- ---------------------
<S> <C> <C>
Barry Diller(3) .......................................... 100% 63,033,452
c/o USA Networks, Inc.
152 West 57th Street, 42nd Floor
New York, NY 10019......................................
Terry Barnes.............................................. -- --
Charles Conn.............................................. -- --
Julius Genachowski........................................
Joseph Gleberman.......................................... -- --
William Gross............................................. -- --
Allen Grubman............................................. -- --
Lawrence Jacobson(4)...................................... -- --
Victor A. Kaufman......................................... -- --
Bryan Lourd............................................... -- --
Jon Miller................................................ -- --
John Pleasants............................................ -- --
William D. Savoy.......................................... -- --
Alan Spoon................................................ -- --
Thomas Unterman........................................... -- --
Traci Fleming............................................. -- --
Daniel Marriott........................................... -- --
Steven Trepp.............................................. -- --
All executive officers, directors and director nominees as
a group (21 persons).................................... 100% 63,033,452
</TABLE>
------------------------
(1) The address of Messrs. Diller, Genachowski, Kaufman and Miller is: c/o USA
Networks, Inc., 152 West 57th Street, 42nd Floor, New York, NY 10019. Except
as otherwise indicated, the address of each of the other named individuals
is: c/o Ticketmaster Online-Citysearch, Inc., 790 E. Colorado Boulevard,
Suite 200, Pasadena, CA 91101.
(2) All or any portion of shares of USA Networks Class B common stock may be
converted at any time into an equal number of shares of USA Networks common
stock.
(3) Liberty, Universal, Seagram, the parent of Universal, USA Networks and
Mr. Diller are parties to the stockholders agreement, under which Liberty
and Mr. Diller have formed the BDTV Entities which entities hold 8,000,000,
31,236,444, 8,010,364 and 1,600,000 shares of Class B common stock,
respectively. Mr. Diller generally has the right to vote all of the shares
of Class B common stock held by the BDTV Entities and the shares of Class B
common stock held by Universal and Liberty. Mr. Diller owns all of the
voting stock of the BDTV Entities and Liberty owns all of the non-voting
stock, which non-voting stock represents in excess of 99% of the equity of
the BDTV Entities. These figures do not include any unissued shares of USA
Networks common stock or USA Networks Class B common stock issuable upon
conversion of Liberty's Home Shopping Network, Inc. shares and USANi LLC
shares beneficially owned by Liberty or Seagram.
(4) Mr. Jacobson resigned effective January 5, 2001.
73
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The Securities and Exchange Commission 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 Information Statement,
and the information that we file later with the Securities and Exchange
Commission will automatically update and supersede this information. We
incorporate by reference the following documents that we have filed with the
Securities and Exchange Commission:
- Annual Report on Form 10-K for the year ended December 31, 1999;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2000;
- Quarterly Report on Form 10-Q for the quarter ended September 30, 2000;
- Current Report on Form 8-K filed January 28, 2000;
- Current Report on Form 8-K filed April 20, 2000;
- Current Report on Form 8-K filed June 5, 2000;
- Current Report on Form 8-K filed August 2, 2000;
- Current Report on Form 8-K filed October 26, 2000;
- Current Report on Form 8-K filed November 21, 2000; and
- 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 Securities and Exchange Commission pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act between the date of this Information Statement and
the date we complete the proposed combination. 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
74
<PAGE>
EXHIBIT A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
CONTRIBUTION AGREEMENT
BETWEEN
USA NETWORKS, INC.
AND
TICKETMASTER ONLINE-CITYSEARCH, INC.
DATED AS OF NOVEMBER 20, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I. THE CONTRIBUTIONS
1.1 The Contributions........................................... A-4
1.2 Closing..................................................... A-5
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF PARENT
2.1 Organization and Good Standing.............................. A-5
2.2 Capitalization.............................................. A-5
2.3 Due Authorization; Execution and Delivery................... A-6
2.4 Absence of Breach; No Conflict.............................. A-6
2.5 Brokers..................................................... A-6
2.6 Commission Documents; Financial Information................. A-6
2.7 Approvals................................................... A-7
2.8 Benefit Arrangements........................................ A-7
2.9 Transactions with Affiliates; Completeness of Assets........ A-8
2.10 Absence of Changes; Conduct of Business..................... A-9
2.11 Claims and Legal Actions.................................... A-9
2.12 Compliance with Laws........................................ A-10
Intellectual Property; Proprietary Rights; Employee
2.13 Restrictions................................................ A-10
2.14 Certain Contracts........................................... A-11
2.15 Labor Matters............................................... A-11
2.16 Environmental Liability..................................... A-11
2.17 Properties.................................................. A-12
2.18 Information Statement....................................... A-12
2.19 No Undisclosed Liabilities.................................. A-12
2.20 Insurance................................................... A-12
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF TMCS
3.1 Organization, Standing, and Authority....................... A-12
3.2 Capitalization.............................................. A-13
3.3 Due Authorization and Binding Obligation.................... A-13
3.4 Absence of Conflicting Agreements; Consents................. A-13
3.5 Brokers..................................................... A-14
3.6 Commission Documents; Financial Information................. A-14
3.7 Opinion of Financial Advisor................................ A-14
3.8 Information Statement....................................... A-14
ARTICLE IV. TAX MATTERS
4.1 Tax Representations......................................... A-14
4.2 Tax Indemnification by TMCS................................. A-15
4.3 Tax Indemnification by Parent............................... A-15
4.4 Allocation of Certain Taxes................................. A-15
4.5 Filing Responsibility....................................... A-15
4.6 Refunds..................................................... A-15
4.7 Cooperation and Exchange of Information..................... A-15
4.8 Carrybacks; Tax Sharing Agreements.......................... A-17
4.9 Survival.................................................... A-17
4.10 Payments.................................................... A-17
4.11 Timing Differences.......................................... A-17
4.12 Definitions................................................. A-17
</TABLE>
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<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE V. ADDITIONAL COVENANTS
5.1 Information Statement....................................... A-18
5.2 Regulatory Matters.......................................... A-18
5.3 Conduct of Business Prior to the Effective Time............. A-18
5.4 Forbearances................................................ A-18
5.5 Information and Access...................................... A-19
5.6 Reservation and Listing of TMCS Common Stock................ A-20
5.7 Further Action.............................................. A-20
5.8 Employees................................................... A-20
5.9 Representations and Warranties.............................. A-20
5.10 Voting of Parent TMCS Shares................................ A-21
5.11 Cash........................................................ A-21
5.12 Audited Financial Statements................................ A-21
5.13 TMC Realty.................................................. A-21
5.14 Bank Accounts............................................... A-21
5.15 Consultation and Approved Transactions...................... A-21
5.16 Relationship with PRC....................................... A-22
5.17 Notice of Certain Matters................................... A-22
5.18 Credit Facility............................................. A-22
ARTICLE VI. CONDITIONS
Conditions to Each Party's Obligation to Effect the
6.1 Contribution................................................ A-22
6.2 Conditions to Parent's Obligations.......................... A-22
6.3 Conditions to TMCS' Obligations............................. A-23
ARTICLE VII. SURVIVAL AND INDEMNIFICATION
7.1 Survival.................................................... A-23
7.2 Indemnification............................................. A-24
7.3 Third Party Claims.......................................... A-24
7.4 Limitation on Indemnification............................... A-24
7.5 Remedies.................................................... A-25
ARTICLE VIII. TERMINATION
8.1 Termination by Mutual Written Consent....................... A-25
8.2 Termination by Parent or TMCS............................... A-25
8.3 Termination by Parent....................................... A-25
8.4 Termination by TMCS......................................... A-25
8.5 Effect of Termination....................................... A-26
8.6 Expenses.................................................... A-26
ARTICLE IX. GENERAL
9.1 Definitions................................................. A-26
9.2 Efforts to Proceed Promptly................................. A-28
9.3 Standards; Disclosure Schedules............................. A-29
9.4 Notices..................................................... A-29
9.5 Specific Enforcement........................................ A-30
9.6 Severability................................................ A-30
9.7 Entire Agreement............................................ A-30
9.8 Amendment; Waiver........................................... A-31
9.9 Headings; References........................................ A-31
9.10 Counterparts................................................ A-31
9.11 Governing Law............................................... A-31
9.12 Public Announcement......................................... A-31
9.13 Third Party Beneficiaries................................... A-31
</TABLE>
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CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT (this "AGREEMENT"), dated as of November 20, 2000,
between USA NETWORKS, INC., a Delaware corporation ("PARENT"), and TICKETMASTER
ONLINE-CITYSEARCH, INC., a Delaware corporation ("TMCS") (Parent and TMCS, each,
a "PARTY" and collectively, the "PARTIES"). Capitalized terms used herein
without definition have the meanings ascribed to such terms in Article IX
hereof.
R E C I T A L S
WHEREAS, the Parties desire to combine the business and operations of
Ticketmaster Group, Inc., an Illinois corporation and wholly owned subsidiary of
Parent ("TM GROUP," and together with its Subsidiaries, the "CONTRIBUTED
BUSINESSES"), with the business and operations of TMCS in order to capture the
benefits of jointly operating the businesses of TM Group and TMCS;
WHEREAS, Ticketmaster Corporation, an Illinois corporation and wholly owned
subsidiary of TM Group ("TM"), owns 42,480,143 shares of TMCS Class A Common
Stock and 1,302,401 shares of TMCS Class B Common Stock;
WHEREAS, Parent and TMCS have each approved the terms and conditions of the
Contributions, pursuant to the terms and subject to the conditions of this
Agreement and the General Corporation Law of the State of Delaware (the "DGCL"),
and each deems the Contributions advisable and in the best interests of each
corporation;
WHEREAS, a special committee of the Board of Directors of TMCS (the "SPECIAL
COMMITTEE") has determined that the Contributions and the consideration given in
exchange therefor are fair to, and in the best interests of, TMCS, and has
recommended to the Board of Directors of TMCS that it approve the terms and
conditions of the Contributions, including this Agreement;
WHEREAS, the disinterested directors of TMCS have approved the terms and
conditions of the Contributions in accordance with Section 144 of the DGCL; and
WHEREAS, the Contributions are intended to qualify as an exchange described
in Section 351 of the Code.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and intending to
be legally bound hereby, the Parties agree as follows:
ARTICLE I
THE CONTRIBUTIONS
1.1. THE CONTRIBUTIONS. Upon the terms and subject to the conditions set
forth herein, at the Closing, Parent shall cause to be contributed, transferred,
assigned and conveyed (collectively, "CONTRIBUTE") to TMCS the Contributed
Businesses as follows: (a) Parent shall cause TM to Contribute to TMCS all of
TM's interest in the stock or other equity interests of the entities described
in SCHEDULE 1.1(A) hereto (collectively, the "TM CONTRIBUTED SUBS"), in exchange
for the issuance to TM of a number of shares of TMCS Class B Common Stock equal
to the TM Share Number (the "TM CONTRIBUTION"), and (b) immediately following
the TM Contribution, Parent shall Contribute to TMCS 100% of the outstanding
capital stock of TM Group in exchange for the issuance to Parent of
(i) 42,480,143 shares of TMCS Class A Common Stock and (ii) a number of shares
of TMCS Class B Common Stock equal to the Total Share Number (the "PARENT
CONTRIBUTION," and together with the TM Contribution, the "CONTRIBUTIONS").
Notwithstanding the foregoing, if the parties determine that it is appropriate
to Contribute certain other assets of TM specified on SCHEDULE 1.1(B) hereto as
part of the
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TM Contribution contemplated by (a) above, the TM Contribution shall include the
contribution by TM to TMCS of such assets.
1.2. CLOSING. Subject to the conditions set forth below, the closing of
the Contributions (the "CLOSING") shall take place at the offices of Wachtell,
Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019 on the date
three (3) business days following the satisfaction or waiver of all of the
conditions to the Parties' respective obligations to consummate the transactions
contemplated hereby (other than those requiring the delivery of documents or the
taking of other action at the Closing) or such earlier date or time as may be
agreed upon by the Parties. The date on which the Closing is consummated is
hereinafter called the "CLOSING DATE."
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as disclosed in the Parent disclosure schedule delivered to TMCS
concurrently herewith (the "PARENT DISCLOSURE SCHEDULE"), Parent represents and
warrants to TMCS as follows:
2.1. ORGANIZATION AND GOOD STANDING. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Each of the entities comprising the Contributed Businesses (a) is duly
organized and validly existing under the laws of its jurisdiction of
organization, (b) is duly qualified to do business and in good standing in all
jurisdictions (whether federal, state, local or foreign) where its ownership or
leasing of property or the conduct of its business requires it to be so
qualified and in which the failure to be so qualified would have a Parent
Material Adverse Effect and (c) has or will have all requisite corporate or
other power and authority to own or lease its properties and assets and to carry
on its business as now conducted.
2.2. CAPITALIZATION. (a) The authorized capitalization, number of
outstanding shares (and similar information for non-stock forms of ownership)
and shareholders (or other persons and entities with ownership interests) of
each of the entities comprising the Contributed Businesses as of the date hereof
is set forth on Section 2.2 of the Parent Disclosure Schedule. As soon as
practicable following the date hereof, Parent shall make available to TMCS a
list of the option holdings, as of October 31, 2000, of each employee of the
Contributed Businesses as reflected in the database of the administrator of
Parent's stock option plans. Each of the employees of the Contributed Businesses
shall continue to hold after the Closing all of the Parent options (whether or
not vested) such employee holds immediately prior to the Closing, in each case,
in accordance with such employee's underlying award agreement. Except as set
forth on Section 2.2 of the Parent Disclosure Schedule, as of the date hereof,
there are no outstanding options, warrants, rights, puts, calls, commitments, or
other contracts, arrangements or understandings issued by or binding upon the
Contributed Businesses requiring or providing for, and there are no outstanding
debt or equity securities of the Contributed Businesses which upon the
conversion, exchange or exercise thereof would require or provide for, the
purchase or issuance by any of the Contributed Businesses of any new or
additional shares or ownership interests in the Contributed Businesses (or any
other securities of the Contributed Businesses) which, with or without notice,
lapse of time and/or payment of monies, are or would be convertible into or
exercisable or exchangeable for shares or ownership interests in the Contributed
Businesses. There are no preemptive or other similar rights available with
respect to the Contributed Businesses or other securities of the Contributed
Businesses.
(b) Parent owns, directly or indirectly, all of the issued and outstanding
shares of capital stock or other equity ownership interests of each of the
Contributed Businesses, free and clear of any liens, pledges, charges,
encumbrances and security interests whatsoever ("Liens"), and all of such shares
or equity ownership interests are duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof except as set forth on Section 2.2
of the Parent Disclosure Schedule.
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2.3. DUE AUTHORIZATION; EXECUTION AND DELIVERY. The execution, delivery
and performance of this Agreement and each of the agreements contemplated hereby
and thereby and the consummation of the Contributions have been duly authorized
by all necessary corporate or other action on the part of Parent and each of the
Contributed Businesses (including such authorization as may be required so that
no state anti-takeover statute or similar statute or regulation including,
without limitation, Section 203 of the DGCL, is or becomes operative with
respect to this Agreement or the transactions contemplated hereby), and no other
corporate proceedings on the part of Parent or any of the Contributed Businesses
are necessary to authorize this Agreement and to consummate the transactions
contemplated hereby and thereby. This Agreement has been duly executed and
delivered by Parent and constitutes the legal, valid and binding obligation of
Parent, enforceable against Parent in accordance with its terms, except to the
extent limited by bankruptcy, insolvency, reorganization, moratorium or other
laws relating to or affecting creditors' rights generally and by general equity
principles, regardless of whether such enforceability is considered in a
proceeding in equity or at law.
2.4. ABSENCE OF BREACH; NO CONFLICT. Except as set forth on Section 2.4 of
the Parent Disclosure Schedule, neither the execution and delivery of this
Agreement by Parent nor the consummation by Parent of the transactions
contemplated hereby nor compliance by Parent with any of the terms or provisions
hereof, will (a) violate any provision of the certificate of incorporation,
by-laws, operating agreements or partnership agreements, as appropriate, of
Parent or the Contributed Businesses or (b) assuming that the consents and
approvals referred to in Section 2.7 are duly obtained, (i) violate any statute,
code, ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to any of the Contributed Businesses or any of the properties or
assets of the Contributed Businesses or (ii) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any Lien upon any of the respective properties or
assets of the Contributed Businesses under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which any of the
Contributed Businesses is a Party, or by which any of them or any of their
respective properties or assets may be bound or affected, except, in the case of
clause (b), for such violations, conflicts, breaches or defaults which, either
individually or in the aggregate, will not have a Parent Material Adverse
Effect.
2.5. BROKERS. Other than Allen & Company, Incorporated, the fees of which
shall be the responsibility of Parent, no broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Contributions based upon arrangements made by or on behalf of Parent or
any of the Contributed Businesses.
2.6. COMMISSION DOCUMENTS; FINANCIAL INFORMATION. (a) The Parent
Form 10-K in respect of the fiscal years ended December 31, 1999 and 1998 (the
"PARENT FORMS 10-K") and each report, schedule, proxy, information statement or
registration statement (including all exhibits and schedules thereto and
documents incorporated by reference therein) filed by Parent or any of its
predecessors with the Securities and Exchange Commission (the "COMMISSION")
following December 31, 1999 and on or before the date hereof are collectively
referred to as the "PARENT COMMISSION DOCUMENTS." As of their respective filing
dates, with respect to the Contributed Businesses, (i) the Parent Commission
Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission thereunder
applicable to such Parent Commission Documents, and (ii) none of the Parent
Commission Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, except that information as of a later date (but
before the date hereof) shall be deemed to modify information as of an earlier
date. The segment information for "Ticketing Operations" included in the Parent
Commission Documents (x) comply as of their respective dates in all material
respects with applicable
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<PAGE>
accounting requirements and the published rules and regulations of the
Commission with respect thereto (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by Form 10-Q
promulgated by the Commission), and (y) present fairly as of their respective
dates, in all material respects, the results of operations of the Contributed
Businesses (without giving effect to pro forma adjustments reflected on the
Balance Sheet, as defined below) for each of the respective periods and each has
been prepared in conformity with GAAP consistently applied during the periods
involved except, in each case, as indicated in the notes thereto.
(b) Parent has previously made available to TMCS copies of (i) the draft
audited balance sheet of TM Group as of December 31, 1999 and 1998, and the
related draft audited statement of operations for the years ended December 31,
1999 and 1998; and the unaudited historical financial statements referred to in
this Section 2.6 (including the related notes, where applicable), which fairly
present in all material respects the results of the consolidated operations and
changes in stockholders' equity and consolidated financial positions of the
applicable entity or entities or, as the case may be, its or their predecessors,
for the respective fiscal periods or as of the respective dates therein set
forth, subject to normal adjustments in the case of unaudited statements,
(ii) the unaudited pro forma balance sheet of the Contributed Businesses as of
September 30, 2000 and (iii) the unaudited pro forma income statement of the
Contributed Businesses for the nine months ended September 30, 2000 (the "INCOME
STATEMENT"). The books and records of Parent and each of the Contributed
Businesses have been, and are being, maintained in all material respects in
accordance with GAAP or, with respect to businesses organized or operated
outside the United States, such other generally accepted accounting standards as
may be applicable outside the United States, in each case consistently applied,
and any other applicable legal and accounting requirements and reflect only
actual transactions, except as would not have a Parent Material Adverse Effect.
The unaudited pro forma balance sheet of Contributed Businesses as of
September 30, 2000, which is attached as Section 2.6(b) of the Parent Disclosure
Schedule, is referred to herein as the "BALANCE SHEET," and September 30, 2000
is referred to herein as the "BALANCE SHEET DATE." The Balance Sheet and Income
Statement are based on the historical financial statements of the Contributed
Businesses as adjusted to reflect their investment in TMCS and TMC Realty Co., a
California corporation ("TMC REALTY"), based on the equity method of accounting
(the "PRO FORMA ADJUSTMENTS"). The pro forma statements should be read in
conjunction with the audited and unaudited financial statements, including the
related notes where applicable, of Parent. The Balance Sheet and Income
Statement present fairly in all material respects the financial position of the
Contributed Businesses at September 30, 2000 and the results of their operations
for the nine months ended September 30, 2000, in each case, after giving effect
to the pro forma adjustments.
2.7. APPROVALS. Except (a) as set forth on Section 2.7 of the Parent
Disclosure Schedule, and (b) for any filings, notices, applications and other
information as may be required to be made or supplied pursuant to the HSR Act or
the Exchange Act and approval of such filings, notices or applications, no
notices, reports or other filings are required to be made by Parent or
Contributed Businesses with, nor are any consents, registrations, applications,
approvals, permits, licenses or authorizations required to be obtained by Parent
or any of the Contributed Businesses from, any public or governmental authority
or other third party in connection with the execution and delivery of this
Agreement, and the consummation of the Contributions (other than consents that
would not, if not given, have a Parent Material Adverse Effect). As promptly as
practicable following the date hereof, Section 2.7 of the Parent Disclosure
Schedule shall be amended to disclose any filings, notices or applications
required to be made pursuant to state or foreign agencies in connection with the
execution and delivery of this Agreement and the consummation of the
Contributions.
2.8. BENEFIT ARRANGEMENTS. (a) Section 2.8(a) of the Parent Disclosure
Schedule contains a true and complete list of all material employee benefit
plans or arrangements that cover any United States employee of the Contributed
Businesses (the "CONTRIBUTED EMPLOYEES"), including employment, severance, or
other similar contracts, arrangements or policies and each material plan or
arrangement providing for insurance coverage (including any self-insured
arrangements), workers' compensation,
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disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock appreciation rights, stock purchases, or other forms of incentive
compensation or post-retirement insurance, compensation, or benefits
(collectively, "BENEFIT ARRANGEMENTS"). Such list also denotes all Benefit
Arrangements maintained by the Contributed Businesses that do not provide
benefits for other employees of Parent (the "CONTRIBUTED BENEFIT ARRANGEMENTS").
With respect to each Benefit Arrangement, Parent has provided or made available,
or prior to the Closing Date will provide or make available, to TMCS true and
complete copies of: (i) all Benefit Arrangement plan documents; and (ii) the
most recent summary plan descriptions.
(b) No Benefit Arrangement is an "employee pension benefit plan" (as defined
in Section 3(2) of ERISA) that is subject to Title IV of ERISA or Section 412 of
the Code, and no event has occurred that would be reasonably expected to result
in any liability of the Contributed Businesses under Title IV of ERISA in
connection with any employee benefit plan maintained by Parent or any entity
that would be treated as a single employer with Parent under Section 414 of the
Code or Section 4001(b)(A) or 4001(a)(14) of ERISA. No Benefit Arrangement
provides post-retirement welfare benefits, except as required by law or which
would not have a Parent Material Adverse Effect.
(c) Except as set forth on Section 2.8(c) of the Parent Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
Contributions (including any terminations of employment in connection therewith)
will, (i) increase any benefits otherwise payable to Contributed Employees under
any Benefit Arrangement, (ii) result in the acceleration of the time of payment
or vesting of any such payment, or (iii) obligate TMCS or the Contributed
Businesses to make any payment to any Contributed Employee that will not be
deductible as a result of the application of Section 280G of the Code.
(d) Except as set forth on Section 2.8(d) of the Parent Disclosure Schedule,
no controversies, disputes, or proceedings are pending, or to Parent's
knowledge, threatened, between any of the Contributed Businesses or Benefit
Arrangements and any Contributed Employee or any governmental agency (other than
routine claims for benefits), which would be reasonably expected to have a
Parent Material Adverse Effect.
(e) Except where any such failure would not be reasonably expected to have a
Parent Material Adverse Effect, all Contributed Benefit Arrangements (i) comply
in all respects with applicable law, including but not limited to ERISA and the
Code, (ii) have been administered in all respects in accordance with their
terms, and (iii) have had made to them all required contributions. All
Contributed Benefit Arrangements that are intended to be qualified under
Section 401(a) of the Code have received a favorable determination letter from
the Internal Revenue Service that has not been revoked.
(f) Except where the failure to do so would not have a Parent Material
Adverse Effect, all benefit plans or arrangements that cover non-United States
employees of the Contributed Businesses subject to or governed by the law of a
jurisdiction outside of the United States ("FOREIGN BENEFIT ARRANGEMENTS")
comply with applicable local law and are funded and/or book reserved (or
otherwise appropriately reflected on the Balance Sheet) with respect to the
non-United States employees of the Contributed Businesses in a manner sufficient
to provide for accrued benefits according to reasonable actuarial or other
applicable assumptions and valuations most recently used to determine employer
contributions to or the funded status or book reserve of such Foreign Benefit
Arrangements.
2.9. TRANSACTIONS WITH AFFILIATES; COMPLETENESS OF ASSETS. Except as set
forth on Section 2.9 of the Parent Disclosure Schedule, there are no material
agreements between the Contributed Businesses, on the one hand, and Parent or
any of its Subsidiaries (other than the entities comprising the Contributed
Businesses), on the other hand, that would be required to be disclosed pursuant
to Item 404 of Regulation S-K. Except as set forth on Section 2.9 of the Parent
Disclosures Schedule, with respect to the Contributed Businesses, neither Parent
nor any of its Subsidiaries (other than the Contributed
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Businesses) owns any asset, property or right, tangible or intangible, that is
primarily used or held for use in the business or operations of the Contributed
Businesses, other than such assets, properties and rights that will be included
in the Contributed Businesses and provided that the Contributed Businesses do
not include certain incidental businesses that are primarily related to the
other businesses of Parent and its Subsidiaries (other than the Contributed
Businesses). Except as set forth on Schedule 2.9 of the Parent Disclosure
Schedule, the Contributed Businesses include all of the assets used or held for
use by Parent and its Subsidiaries in connection with Parent's conduct of the
business and operations of the Contributed Businesses, and the Contributed
Businesses do not include any other assets.
2.10. ABSENCE OF CHANGES; CONDUCT OF BUSINESS. Except as disclosed in the
Parent Commission Documents, since the Balance Sheet Date, Parent and the
Contributed Businesses have, in all material respects, conducted their business
operations relating to the Contributed Businesses in the ordinary course, and
there has not occurred any event or condition having or that is reasonably
likely to have a Parent Material Adverse Effect. Without limiting the generality
of the foregoing, other than as is disclosed in the Parent Commission Documents
or on Section 2.10 of the Parent Disclosure Schedule, since the Balance Sheet
Date there has not occurred:
(a) any change or agreement to change the character or nature of the
Contributed Businesses in any material respects;
(b) other than in the ordinary course, any purchase, sale, transfer,
assignment, conveyance or pledge of the assets or properties contained in the
Contributed Businesses;
(c) any waiver or modification by Parent or any of its Subsidiaries of any
right or rights of substantial value, or any material payment, direct or
indirect, in satisfaction of any liability with respect to the Contributed
Businesses;
(d) any change in the accounting principles, methods, practices or
procedures followed by Parent or any of its Subsidiaries in connection with the
Contributed Businesses or any change in the depreciation or amortization
policies or rates theretofore adopted by Parent or any of its Subsidiaries in
connection with the Contributed Businesses;
(e) any grant or award of any options, warrants, conversion rights or other
rights to acquire any shares of capital stock of any of the entities comprising
the Contributed Businesses;
(f) except for (i) such actions as are in the ordinary course of business,
(ii) actions required by applicable law, or (iii) liabilities that would not be
the responsibility of the Contributed Businesses following the Closing, (A) any
increase in the wages, salaries, compensation, pension, or other fringe benefits
or perquisites payable to any executive officer, employee or director of the
Contributed Businesses from the amount thereof in effect as of December 31,
1999, (B) the grant of any severance or termination pay, the entering into of
any contract to make or grant any severance or termination pay or to pay any
bonuses (other than customary year-end bonuses for fiscal year 2000, which
bonuses shall be paid by Parent), or (C) any strike, work stoppage, slowdown, or
other labor disturbance, which would have, either individually or in the
aggregate, a Parent Material Adverse Effect;
(g) to Parent's knowledge, any material breach, written notice of default or
written notice that a third party will not renew, a material venue contract; or
(h) any agreement with respect to any of the foregoing.
2.11. CLAIMS AND LEGAL ACTIONS. Except as disclosed in the Parent
Commission Documents or in Section 2.11 of the Parent Disclosure Schedule, there
are no judicial, administrative, arbitral or other actions, suits, claims,
inquiries, investigations or proceedings in respect of the Contributed
Businesses or challenging the validity or propriety of the transactions
contemplated by this Agreement (whether of a public or private nature) pending
or, to the knowledge of Parent, threatened against Parent or any of its
Subsidiaries, which, individually or in the aggregate, would have a Parent
Material Adverse Effect. Except as set forth on Section 2.11 of the Parent
Disclosure Schedule, there is no injunction, order, judgment, decree or
regulatory restriction imposed upon any of the Contributed Businesses or any of
their assets that has had, or will have, either individually or in the
aggregate, a Parent Material Adverse Effect.
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2.12. COMPLIANCE WITH LAWS. Parent and each of its Subsidiaries hold all
material licenses, franchises, permits and authorizations necessary for the
lawful conduct of the Contributed Businesses under and pursuant to each, and
have complied in all respects with and are not in default in any respect under
any, applicable law, statute, order, rule, regulation, policy and/or guideline
of any governmental authority relating to the Contributed Businesses, except
where the failure to hold such license, franchise, permit or authorization or
such noncompliance or default will not, either individually or in the aggregate,
have a Parent Material Adverse Effect.
2.13. INTELLECTUAL PROPERTY; PROPRIETARY RIGHTS; EMPLOYEE
RESTRICTIONS. (a) Except as set forth on Section 2.13 of the Parent Disclosure
Schedule and except for registered copyrights, copyright registrations and
copyright applications, trademark registrations and applications for
registration, patents and patent applications, trademarks, service marks, trade
names or Internet domain names (collectively, "INTELLECTUAL PROPERTY RIGHTS")
owned by TMCS, Parent or its Subsidiaries owns or has the right to use all
material Intellectual Property Rights used by Parent or its Subsidiaries
principally in connection with the Contributed Businesses (the "CONTRIBUTED
IP"), except for the absence of Intellectual Property Rights which would not,
individually or in the aggregate, have a Parent Material Adverse Effect. Except
as disclosed in the Parent Commission Documents, the Contributed IP is
sufficient to carry on the Contributed Businesses as presently conducted. The
Contributed Businesses have, or will have prior to the Closing Date, all of the
ownership interests, and all of the license rights (on terms no less favorable
to TMCS than those applicable to Parent or its Subsidiaries), of Parent and its
Subsidiaries in and to the Contributed IP (PROVIDED, HOWEVER, that the
Contributed Businesses shall have no right to use the "USA Networks" name, or
names derivative thereof, which right is expressly retained by Parent). The
present business activities or products of the Contributed Businesses do not
infringe upon any Intellectual Property Rights of others, except as would not
have a Parent Material Adverse Effect. Except as set forth on Section 2.13 of
the Parent Disclosure Schedule, as of the date hereof, (i) Parent has not
received any written notice or other claim, or to the knowledge of Parent, oral
notice or claim, from any person asserting that any of Parent's present
activities in connection with the Contributed Businesses infringe or may
infringe upon any Intellectual Property Rights of such person, and (ii) there is
not pending against Parent or any of its Subsidiaries, or to the knowledge of
Parent, threatened, any claim relating to the foregoing except as would not
reasonably be expected to have a Parent Material Adverse Effect.
(b) (i) Parent or its Subsidiaries have, and the Contributed Businesses will
have prior to the Closing Date, the right to use all trade secrets, client
lists, hardware designs, programming processes, software and other information
required for its services or its business as presently conducted by the
Contributed Businesses; (ii) Parent or its Subsidiaries have taken all
reasonable measures to protect and preserve the security and confidentiality of
its trade secrets and other confidential information; and (iii) as of the date
hereof, to the knowledge of Parent, all trade secrets and other confidential
information of Parent or its Subsidiaries related to the Contributed Businesses
are not part of the public domain or knowledge, nor, to the knowledge of Parent,
have they been misappropriated by any person.
(c) To the knowledge of Parent, no organization-sponsored research and
development conducted by Parent or any of its Subsidiaries owns or has any claim
of right to or ownership of or other encumbrance upon the Contributed IP. Except
as set forth in Section 2.13 of the Parent Disclosure Schedule, Parent is not
aware of any infringement by others of any of the Contributed IP, or any
unlawful use of any of Parent's confidential information or trade secrets
relating to the Contributed Businesses. To Parent's knowledge, Parent is not
making unlawful use of any confidential information or trade secrets of any past
or present employees, consultants or third party contractors of the Contributed
Businesses.
(d) Except as set forth in Section 2.13 of the Parent Disclosure Schedule,
Parent has not granted any exclusive licenses to any Contributed IP or granted
any non-exclusive licenses to Contributed IP, in
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each case, other than (i) to one or more of the Contributed Businesses, or
(ii) in the ordinary course of business.
(e) Except as disclosed on Section 2.13 of the Parent Disclosure Schedule,
(i) no source code of any software included in the Contributed IP has been
licensed or otherwise made available to any person except pursuant to source
code license agreements made available to TMCS, (ii) no royalties, fees,
honoraria or other payments are payable by Parent or its Subsidiaries to any
person by reason of the ownership, use, sale, licensing, distribution or other
exploitation of any software included in the Contributed IP other than in the
ordinary course of business, and (iii) none of the software products included in
the Contributed IP that Parent and its Subsidiaries has distributed to third
parties, or that have been designed for commercial distribution, contain any
software licensed by any other third party that has made such software (or other
software from which such software is derived) available subject to the condition
that a fee shall not be charged in connection with re-distributing or otherwise
exploiting such software.
2.14. CERTAIN CONTRACTS. (a) Parent has previously made, or will make,
available to TMCS true and correct copies or summaries of all material
agreements to which Parent or any of its Subsidiaries is a party and that relate
to the Contributed Businesses. Each contract, arrangement, commitment or
understanding of the type described in this Section 2.14(a), whether or not set
forth in the Parent Disclosure Schedule, is referred to herein as a "PARENT
CONTRACT," and neither Parent nor any of its Subsidiaries knows of, or has
received written notice of, nor does Parent have knowledge of any oral notice
of, any violation of the above by any of the other parties thereto which, either
individually or in the aggregate, will have a Parent Material Adverse Effect.
(b) (i) Each Parent Contract is valid and binding on Parent or any of its
Subsidiaries, as applicable, and in full force and effect, (ii) Parent and each
of its Subsidiaries have in all material respects performed the obligations
required to be performed by them to date under each Parent Contract, except
where such noncompliance, either individually or in the aggregate, will not have
a Parent Material Adverse Effect, and (iii) no event or condition exists which
constitutes or, after notice or lapse of time or both, will constitute, a
material default on the part of Parent or any of its Subsidiaries under any such
Parent Contract, except where such default, either individually or in the
aggregate, will not have a Parent Material Adverse Effect.
2.15. LABOR MATTERS. Except as disclosed in the Parent Commission
Documents publicly filed prior to the date hereof or as set forth on
Section 2.15 of the Parent Disclosure Schedule, (i) none of the Contributed
Businesses is a party to, or is otherwise bound by, any collective bargaining
agreement, contract or other agreement or understanding with a labor union or
labor organization, (ii) as of the date hereof, none of the Contributed
Businesses are the subject of any material proceeding asserting that any of the
Contributed Businesses has committed an unfair labor practice or is seeking to
compel it to bargain with any labor union or labor organization, and (iii) as of
the date hereof, there is not pending or, to the knowledge of Parent,
threatened, any material labor strike, dispute, walkout, work stoppage,
slow-down or lockout involving any of the Contributed Businesses.
2.16. ENVIRONMENTAL LIABILITY. There are no legal, administrative,
arbitral or other proceedings, claims, actions, causes of action, private
environmental investigations or remediation activities or governmental
investigations of any nature seeking to impose, or that could reasonably result
in the imposition, on any of the Contributed Businesses of any liability or
obligation arising under common law or under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, pending or, to Parent's knowledge, threatened against any of
the Contributed Businesses, which liability or obligation will, either
individually or in the aggregate, have a Parent Material Adverse Effect. To the
knowledge of Parent, there is no reasonable basis for any such proceeding,
claim, action or governmental investigation that would impose any liability or
obligation
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that will, individually or in the aggregate, have a Parent Material Adverse
Effect. With respect to the Contributed Businesses, Parent is not subject to any
agreement, order, judgment, decree, letter or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any liability
or obligation with respect to the foregoing that will have, either individually
or in the aggregate, a Parent Material Adverse Effect.
2.17. PROPERTIES. (a) None of the Contributed Businesses has received
written notice of a default under any of their respective leases for real
property, and no event or condition exists which constitutes or, after notice or
lapse of time or both, would constitute, a default on the part of any such
entity under any of such leases, except where the existence of such defaults,
individually or in the aggregate, would not reasonably be likely to have a
Parent Material Adverse Effect.
(b) Except as set forth on Section 2.17 of the Parent Disclosure Schedule,
with respect to each item of real property owned by the Contributed Businesses,
except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Parent Material Adverse Effect: (i) such entity has
good and clear record and marketable title to such property, insurable by a
recognized national title insurance company at standard rates, free and clear of
any lien, encumbrance, security interest, easement, covenant or other
restriction, except for recorded easements, covenants and other restrictions
which do not materially impair the current uses or occupancy of such property
and mechanics' or materialmens' liens; and (ii) the improvements constructed on
such property are in good condition, and all mechanical and utility systems
servicing such improvements are in good condition, subject to ordinary wear and
tear, and free in each case of material defects.
2.18. INFORMATION STATEMENT. None of the information supplied or to be
supplied by Parent or any of its Subsidiaries for inclusion or incorporation by
reference in the Information Statement will at the time it is mailed to
stockholders of TMCS or at the Closing contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances in which they are made, not misleading; PROVIDED, HOWEVER, that no
representation is made with respect to information included in the Information
Statement that was provided in writing by TMCS or its Subsidiaries.
2.19. NO UNDISCLOSED LIABILITIES. Except for those liabilities that are
fully reflected or reserved against on the Balance Sheet and for liabilities
incurred in the ordinary course of business consistent with past practice, since
the Balance Sheet Date, neither Parent nor any of its Subsidiaries has incurred
any liability of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether due or to become due) that, either individually or in the
aggregate, has had or will have a Parent Material Adverse Effect.
2.20. INSURANCE. All insurance policies covering the Contributed
Businesses are in full force and effect and enforceable in accordance with their
terms. None of Parent or any of the Contributed Businesses is in material
default under the provisions of any such policy. As of the date hereof, neither
Parent nor any of the Contributed Businesses has been refused, or denied renewal
of, any insurance coverage with respect to the Contributed Businesses.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TMCS
Except as disclosed in the TMCS disclosure schedule delivered to Parent
concurrently herewith (the "TMCS DISCLOSURE SCHEDULE"), TMCS represents and
warrants to Parent as follows:
3.1. ORGANIZATION, STANDING, AND AUTHORITY. TMCS is a corporation duly
organized, validly existing and in good standing under the laws of Delaware.
TMCS has all requisite corporate power and authority to execute and deliver this
Agreement and the documents contemplated hereby, and to
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perform and comply with all of the terms, covenants and conditions to be
performed and complied with by it hereunder and thereunder.
3.2. CAPITALIZATION. The authorized capitalization of TMCS as of the date
hereof consists of: 100,000,000 shares of Class A Common Stock, $.01 par value
per share ("TMCS CLASS A COMMON STOCK"), 250,000,000 shares of TMCS Class B
Common Stock, $.01 par value per share ("TMCS CLASS B COMMON STOCK") and
2,883,506 shares of TMCS Class C Common Stock, $.01 par value per share ("TMCS
CLASS C COMMON STOCK" and together with TMCS Class A Common Stock and TMCS
Class B Common Stock, "TMCS STOCK"), and 2,000,000 shares of preferred stock,
$.01 par value per share, of TMCS ("TMCS PREFERRED STOCK"), of which, as of
November 17, 2000, there were 47,931,654 shares of TMCS Class A Common Stock
outstanding, 40,754,498 shares of TMCS Class B Common Stock outstanding, no
shares of TMCS Class C Common Stock outstanding and no shares of TMCS Preferred
Stock outstanding. Such shares outstanding on the date hereof are duly
authorized, validly issued and fully paid and nonassessable. Except as set forth
on Section 3.2 of the TMCS Disclosure Schedule or contemplated by this
Agreement, as of November 17, 2000, there are no outstanding options, warrants,
rights, puts, calls, commitments, or other contracts, arrangements, or
understandings issued by or binding upon TMCS requiring or providing for, and
there are no outstanding debt or equity securities of TMCS which upon the
conversion, exchange or exercise thereof would require or provide for the
issuance by TMCS of any new or additional shares of TMCS Stock (or any other
securities of TMCS) which, with or without notice, lapse of time and/or payment
of monies, are or would be convertible into or exercisable or exchangeable for
shares of TMCS Stock. There are no preemptive or other similar rights available
to the existing holders of TMCS Stock. Upon issuance of shares of TMCS Class A
Common Stock and TMCS Class B Common Stock pursuant to this Agreement, such
shares of TMCS Class A Common Stock and TMCS Class B Common Stock will be duly
authorized, validly issued, fully paid, nonassessable and free of preemptive or
similar rights.
3.3. DUE AUTHORIZATION AND BINDING OBLIGATION. (a) Subject to the next
sentence below, the execution, delivery and performance of this Agreement, and
each of the agreements contemplated hereby and thereby, and the consummation of
the Contributions by TMCS (with respect to such agreements to which it is a
party) have been duly authorized by all necessary corporate action on the part
of TMCS. Except for obtaining the requisite vote of (i) the holders of TMCS
Class A Common Stock, voting as a class, to approve the Certificate Amendment,
and (ii) the holders of TMCS Class A Common Stock and TMCS Class B Common Stock,
voting together as a single class, to approve the Certificate Amendment and the
issuance of shares of TMCS Stock in connection with the Contributions, no other
corporate proceedings on the part of TMCS are necessary to authorize this
Agreement and to consummate the transactions contemplated hereby and thereby.
This Agreement has been duly executed and delivered by TMCS and constitutes the
legal, valid and binding obligation of TMCS, enforceable against TMCS in
accordance with its terms, except to the extent limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
creditors' rights generally and by general equity principles regardless of
whether such enforceability is considered in a proceeding in equity or at law.
(b) The Board of Directors of TMCS, based on the recommendation of the
Special Committee (which recommendation was a condition to the approval of the
TMCS Board of Directors set forth in clause (i) of this sentence) has, prior to
the execution of this Agreement, (i) approved this Agreement, the Contributions
and the related transactions (including for purposes of Section 144 of the
DGCL), (ii) determined that the Contributions, the consideration given in
exchange therefor and the related transactions are fair to and in the best
interests of TMCS and its public shareholders, and (iii) recommended approval of
this Agreement, the Contributions and the related transactions. This Agreement,
the Contributions and the related transactions have been approved by the vote of
at least a majority of the disinterested directors (for purposes of Section 144
of the DGCL).
3.4. ABSENCE OF CONFLICTING AGREEMENTS; CONSENTS. Subject to any filings,
notices, applications and other information as may be required to be made or
supplied pursuant to the HSR Act or the
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Exchange Act, and except as contemplated by Section 3.3, the execution, delivery
and performance of this Agreement, and the documents contemplated hereby and
thereby, by TMCS (with or without the giving of notice, the lapse of time, or
both): (a) do not require any notices, reports or other filings to be made by
TMCS with any public or governmental authority, (b) do not require the consent
of any third party (including any governmental or regulatory authority),
(c) will not conflict with any provision of the certificate of incorporation or
by-laws of TMCS, each as amended, and (d) will not violate or result in a breach
of, or contravene any law, judgment, order, ordinance, injunction, decree, rule,
regulation or ruling of any court or governmental instrumentality applicable to
TMCS except, in the case of clauses (a), (b) and (d), for violations, breaches,
contraventions or conflicts, which would not have a TMCS Material Adverse
Effect.
3.5. BROKERS. Other than Salomon Smith Barney, the fees of which shall be
the responsibility of TMCS, no broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
Contributions based upon arrangements made by or on behalf of TMCS or the
Special Committee.
3.6. COMMISSION DOCUMENTS; FINANCIAL INFORMATION. The TMCS Form 10-K in
respect of the fiscal years ended December 31, 1999 and 1998 (the "TMCS FORMS
10-K") and each report, schedule, proxy, information statement or registration
statement (including all exhibits and schedules thereto and documents
incorporated by reference therein) filed by TMCS or any of its predecessors with
the Commission following December 31, 1999 and on or before the date hereof are
collectively referred to as the "TMCS COMMISSION DOCUMENTS." As of their
respective filing dates, (a) the TMCS Commission Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder applicable to such TMCS Commission
Documents, and (b) none of the TMCS Commission Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that
information as of a later date (but before the date hereof) shall be deemed to
modify information as of an earlier date.
3.7. OPINION OF FINANCIAL ADVISOR. The Special Committee and the Board of
Directors of TMCS have received the written opinion, dated as of the date
hereof, of Salomon Smith Barney to the effect that the issuance of TMCS Stock
pursuant to this Agreement in exchange for the Contributed Businesses is fair
from a financial point of view to TMCS.
3.8. INFORMATION STATEMENT. None of the information supplied or to be
supplied by TMCS or any of its Subsidiaries for inclusion or incorporation by
reference in the Information Statement will at the time it is mailed to
stockholders of TMCS or at the Closing contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances in which they are made, not misleading; PROVIDED, HOWEVER, that no
representation is made with respect to information included in the Information
Statement that was provided in writing by Parent or its Subsidiaries. The
Information Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated by the
Commission thereunder.
ARTICLE IV
TAX MATTERS
4.1. TAX REPRESENTATIONS. Parent represents and warrants to TMCS that all
material Returns required to be filed for taxable periods ending on or prior to
the Closing Date by the Contributed Businesses have been or will be filed in
accordance with all applicable laws, and all Taxes due from the Contributed
Businesses with respect to such periods have been or will be paid, except where
the failure to so file or so pay would not, in the aggregate, have a Parent
Material Adverse Effect.
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4.2. TAX INDEMNIFICATION BY TMCS. TMCS shall be liable for, and shall hold
Parent and its Subsidiaries harmless from and against, any and all Taxes with
respect to TMCS, any of its Subsidiaries or any of the Contributed Businesses
for any taxable period, other than Taxes for which Parent is liable pursuant to
Section 4.3.
4.3. TAX INDEMNIFICATION BY PARENT. Parent shall be liable for, and shall
hold TMCS and its Subsidiaries harmless from and against: (i) any Taxes with
respect to the Contributed Businesses for any period (or portion thereof) ending
on or prior to the Closing Date, and (ii) any several liability under Treasury
Regulation Section 1.1502-6 (or under any comparable or similar provision under
state, local or foreign laws or regulations) with respect to any Consolidated
Return Income Taxes. In the case of a taxable period beginning before and ending
after the Closing Date, the amount of (a) personal, real and intangible property
taxes ("PROPERTY TAXES") attributable to any period (or portion thereof) ending
on or prior to the Closing Date (a "PRE-CLOSING PERIOD") shall be equal to the
amount of such Property Taxes for the entire taxable period multiplied by a
fraction, the numerator of which is the number of days during the taxable period
that are in the Pre-Closing Period and the denominator of which is the number of
days in the entire taxable period, and (b) Taxes (other than Property Taxes) for
the Pre-Closing Period shall be computed as if such taxable period ended on the
Closing Date.
4.4. ALLOCATION OF CERTAIN TAXES. The Parties agree that if any entity
transferred to TMCS is permitted but not required under applicable foreign,
state or local Income Tax laws, respectively, to treat the Closing Date as the
last day of a taxable period, such day shall be treated as the last day of a
taxable period for purposes of such relevant Tax law.
4.5. FILING RESPONSIBILITY. (a) Any Return with respect to the Contributed
Businesses shall be prepared and filed by the person required under the law to
file such Return.
(b) With respect to any Income Tax Return required to be filed by TMCS or
any of its Subsidiaries that could reasonably be expected to include or affect
the Taxes for which Parent is liable under Section 4.3, TMCS shall deliver to
Parent for its review, comment and approval (which approval shall not be
unreasonably withheld) a copy of its proposed Return no later than thirty
(30) days prior to the due date (including extensions). With respect to any
Income Tax Return required to be filed by Parent or any of its Subsidiaries that
could reasonably be expected to include or affect the Taxes for which TMCS is
liable under Section 4.2, Parent shall deliver to TMCS for its review, comment
and approval (which approval shall not be unreasonably withheld) a copy of its
proposed Return no later than thirty (30) days prior to the due date (including
extensions).
4.6. REFUNDS. (a) Parent shall be entitled to any refunds, and the benefit
of any credits, of or with respect to any Taxes with respect to the Contributed
Businesses for any period (or portion thereof) ending on or prior to the Closing
Date (calculated based on a closing of the books of the Contributed Businesses
as of the Closing Date). TMCS shall be entitled to any other refunds and credits
of Taxes with respect to any of the Contributed Businesses for any taxable
period.
(b) TMCS shall promptly forward to Parent any refunds or credits received by
TMCS or any of its Subsidiaries to which Parent is entitled under
Section 4.6(a). Parent shall promptly forward to TMCS any refunds or credits
received by Parent (or any of its Subsidiaries) to which TMCS is entitled under
Section 4.6(a).
4.7. COOPERATION AND EXCHANGE OF INFORMATION. (a) The Parties shall
cooperate with one another with respect to matters related to Taxes. As soon as
practicable, but in any event within thirty (30) days after request by Parent,
from and after the Closing Date, TMCS shall provide Parent with such cooperation
and shall deliver to Parent such information and data concerning the operations
of the Contributed Businesses and make available such knowledgeable employees of
the Contributed Businesses as Parent may reasonably request, in order to enable
Parent to complete and file all Returns which it or any of its Subsidiaries may
be required to file with respect to the operations and business of the
Contributed Businesses or to respond to any audit or examination by any Taxing
Authority ("TAX AUDIT") with respect to such operations. Such cooperation and
information by or from TMCS shall
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include provision of powers of attorney for the purpose of signing Returns and
defending audits and promptly forwarding copies of appropriate notices and forms
or other communications received from or sent to any Taxing Authority that
relate to the Contributed Businesses, and providing copies of all relevant
Returns, together with accompanying schedules and related workpapers, documents
relating to rulings or other determinations by any Taxing Authority and records
concerning the ownership and tax basis of property, which TMCS or its
Subsidiaries may possess. As soon as practicable, but in any event within thirty
(30) days after request by TMCS, from and after the Closing Date, Parent shall
provide TMCS with such cooperation and shall deliver to TMCS such information
and data concerning the pre-Closing operations of the Contributed Businesses and
make available such knowledgeable employees of Parent as TMCS may reasonably
request, in order to enable TMCS to complete and file all Returns which it or
any of its Subsidiaries may be required to file with respect to the operations
and business of the Contributed Businesses or to respond to any Tax Audit with
respect to such operations. Such cooperation and information by or from Parent
shall include provision of powers of attorneys for the purpose of defending
audits and promptly forwarding copies of appropriate notices and forms or other
communications received from or sent to any Taxing Authority that relate to the
Contributed Businesses, and providing copies of all relevant Returns, together
with accompanying schedules and related workpapers, documents relating to
rulings or other determinations by any Taxing Authority and records concerning
the ownership and Tax basis of property that Parent may possess. The Parties
shall make their and their Subsidiaries' employees and facilities available on a
mutually convenient basis to provide explanation of any documents or information
provided hereunder.
(b) For a period of seven (7) years after the Closing Date or such longer
period as may be required by law, TMCS shall, and shall cause its Subsidiaries
to, retain all, and neither destroy nor dispose of any, Returns, books and
records (including computer files) of, or with respect to the activities of, the
Contributed Businesses for all taxable periods ending on or prior to the Closing
Date. Thereafter, TMCS shall not, and shall cause its Subsidiaries not to,
destroy or dispose of any such Returns, books or records unless it first offers
in writing to deliver such Returns, books and records to Parent (at the expense
of Parent) and Parent fails to accept such offer within sixty (60) days of its
being made.
(c) The Parties shall cooperate in the preparation of all Returns relating
in whole or in part to taxable periods ending on or before or including the
Closing Date that are required to be filed after such date. Such cooperation
shall include, but not be limited to, furnishing relevant portions of prior
years' Returns or Return preparation packages illustrating previous reporting
practices or containing historical information relevant to the preparation of
such Returns, and furnishing such other information within such Party's
possession reasonably requested by the person filing such Returns as is relevant
to their preparation. In the case of any federal, state, local or foreign joint,
consolidated, combined, unitary or group relief system Returns, such cooperation
shall also relate to any other taxable periods in which one Party could
reasonably require the assistance of another Party in obtaining any necessary
information.
(d) Parent shall have the right, at its own expense, to control any Tax
Audit, initiate any claim for refund, contest, resolve and defend against any
assessment, notice of deficiency, or other adjustment or proposed adjustment to
the extent relating to any Income Taxes of the Contributed Businesses for any
taxable period ending on or before the Closing Date. TMCS shall have the right,
at its own expense, to control any other Tax Audit, initiate any other claim for
refund, and contest, resolve and defend against any other assessment, notice of
deficiency, or other adjustment or proposed adjustment relating to all other
Taxes with respect to the Contributed Businesses. Parent shall not settle any
Tax Audit if such settlement would reasonably be expected to materially and
adversely affect the Tax liability of TMCS without the prior written consent of
TMCS, which consent shall not be unreasonably withheld. TMCS shall not settle
any Tax Audit if such settlement would reasonably be expected to materially and
adversely affect the Tax liability of Parent without the prior written consent
of Parent, which consent shall not be unreasonably withheld. The Parties shall
cooperate with one another in a manner comparable to that described for such
Party in paragraph (a) of this Section to effect the purposes of this Section.
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4.8. CARRYBACKS; TAX SHARING AGREEMENTS. To the extent permitted by
applicable law, the Contributed Businesses shall not carry back any deductions,
losses or credits to a taxable period (or portion thereof) ending on or prior to
the Closing Date with respect to any consolidated, combined, unitary or group
relief system Taxes without the prior written consent of Parent. Any Tax sharing
agreement between Parent or its Subsidiaries, other than TMCS or the Contributed
Businesses, on the one hand, and any of the Contributed Businesses, on the other
hand, shall be terminated as of the Closing Date and shall thereafter have no
further effect for any taxable year.
4.9. SURVIVAL. Notwithstanding any other provision of this Agreement, the
provisions of this Article IV, other than Section 4.1, shall survive the Closing
until the expiration of all applicable statutes of limitations.
4.10. PAYMENTS. To the extent not paid prior to the Closing Date, in the
case of Taxes of the Contributed Businesses for which Parent is liable pursuant
to Section 4.3 other than Consolidated Return Income Taxes, Parent shall pay
TMCS as a contribution to capital the amount of such Taxes on or prior to the
date such Taxes are due to the relevant Taxing Authority. TMCS shall pay such
amounts over, or shall cause such amounts to be paid over, to the Taxing
Authority.
4.11. TIMING DIFFERENCES. (a) In the event of any adjustment, including a
final determination, of a Tax item attributable to the Contributed Businesses
that results in a Tax benefit or Tax detriment for the account of one Party (the
"ADJUSTED PARTY") and a corresponding Tax detriment or Tax benefit (the
"CORRESPONDING ITEM") for the account of another Party (the "CORRESPONDING
PARTY"), then, no later than five business days after the Corresponding Item is
actually realized (i) if the Corresponding Item is a Tax benefit, the
Corresponding Party shall pay the Adjusted Party and (ii) if the Corresponding
Item is a Tax detriment, the Adjusted Party shall pay the Corresponding Party,
in each case, the lesser of the Tax benefit and the Tax detriment.
(b) Section 4.11(a) shall not apply to any change in a Tax item arising as a
result of a claim for refund initiated by the taxpayer.
4.12. DEFINITIONS. For purposes of this Article IV, the following terms
shall have the meanings ascribed to them below:
(a) "CONSOLIDATED RETURN INCOME TAXES" shall mean any Income Taxes that are
filed on a consolidated, combined, unitary or group relief system basis that
include any of the Contributed Businesses, on the one hand, and Parent or any of
its Subsidiaries, on the other hand.
(b) "INCOME TAXES" means all Taxes based upon or measured by income.
(c) "RETURNS" means returns, reports and forms required to be filed with any
domestic or foreign Taxing Authority.
(d) "SEPARATE RETURN INCOME TAXES" means Income Taxes other than
Consolidated Return Income Taxes.
(e) "TAX" or "TAXES" means (i) all taxes (whether federal, state, local or
foreign) based upon or measured by income and any other tax whatsoever,
including gross receipts, profits, sales, use, occupation, value added, ad
valorem, transfer, franchise, withholding, payroll, employment, excise, or
property taxes, together with any interest or penalties imposed with respect
thereto and (ii) any obligations under any agreements or arrangements with
respect to any Taxes described in clause (i) above.
(f) "TAXING AUTHORITY" means any government authority having jurisdiction
over the assessment, determination, collection, or other imposition of Tax.
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ARTICLE V
ADDITIONAL COVENANTS
5.1. INFORMATION STATEMENT. (a) As promptly as practicable after the date
of this Agreement, Parent and TMCS shall prepare, and TMCS shall file with the
Commission, a preliminary information statement in form and substance reasonable
satisfactory to each of Parent and TMCS relating to (i) the approval and
adoption of an amendment to the certificate of incorporation of TMCS (the
"CERTIFICATE AMENDMENT") in a form reasonably acceptable to the Parties to
(a) subject to applicable law, change the name of TMCS to "Ticketmaster" and
(b) increase the number of authorized shares of TMCS Class A Common Stock to
150,000,000 shares of TMCS Class A Common Stock, and (ii) the authorization of
the issuance of TMCS Stock in accordance with this Agreement under the Bylaws of
the NASD. TMCS agrees to use its reasonable best efforts, after consultation
with Parent, to respond promptly to any comments of the Commission and to cause
the information statement in definitive form (the "INFORMATION STATEMENT") to be
mailed to its stockholders at the earliest practicable time. TMCS shall notify
Parent promptly of the receipt of any comments from the Commission or its staff
and of any request by the Commission or its staff for any amendments or
supplements to the preliminary information statement or the Information
Statement, and Parent and TMCS shall cooperate in filing with the Commission or
its staff and, if required, TMCS shall mail to stockholders of TMCS, such
amendment or supplement. The Information Statement shall comply in all material
respects with all applicable requirements of law.
5.2. REGULATORY MATTERS. Following the date hereof, Parent and TMCS shall
file promptly any forms required under applicable law and take any other action
reasonably necessary in connection with (a) obtaining the expiration or
termination of the waiting periods under the HSR Act, if applicable to the
Contributions, and (b) obtaining any approvals of any other governmental
authorities that may be required with respect to the Contributed Businesses.
5.3. CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME. During the time from
the date of this Agreement to the Closing, except as expressly contemplated or
permitted by this Agreement, or as disclosed in the Parent Disclosure Schedule,
Parent and its Subsidiaries shall (a) conduct the Contributed Businesses in the
ordinary course, (b) use their reasonable best efforts to maintain and preserve
intact the business organization, employees and advantageous business
relationships of the Contributed Businesses and retain the services of the
officers and key employees of the Contributed Businesses, and (c) take no action
which would adversely affect or delay the ability of the Contributed Businesses
to obtain any necessary approvals of any regulatory or other governmental
authority required for the Contributions or to perform its covenants and
agreements under this Agreement or to consummate the Contributions or otherwise
delay or prohibit consummation of the Contributions.
5.4. FORBEARANCES. During the period from the date of this Agreement to
the Closing, except as set forth on Section 5.4 of the Parent Disclosure
Schedule or as disclosed in the Parent Commission Documents filed prior to the
date hereof and, except as expressly contemplated by this Agreement, including,
without limitation, Section 5.8 hereof, Parent shall not permit any of its
Subsidiaries to, without the prior written consent of TMCS:
(a) other than in the ordinary course of business and in amounts that are
not material, incur any indebtedness on behalf of the Contributed Businesses,
for borrowed money (other than short-term indebtedness incurred to refinance
short-term indebtedness and indebtedness of the Contributed Businesses, on the
one hand, to any of its Subsidiaries, on the other hand), or permit any of the
Contributed Businesses to (i) assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any other individual,
corporation or other entity, or (ii) make any loan or advance;
(b) (i) make, declare or pay any dividend, or make any other distribution
on, or directly or indirectly redeem, purchase or otherwise acquire or encumber,
any shares of the capital stock or any
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other equity interests in or any securities or obligations convertible (whether
currently convertible or convertible only after the passage of time or the
occurrence of certain events) into or exchangeable for any shares of the capital
stock of or other equity interests in any of the Contributed Businesses,
PROVIDED, HOWEVER, that Parent shall be permitted to sweep or otherwise cause to
be distributed cash from the Contributed Businesses in the manner contemplated
by Section 5.11;
(ii) grant any right to acquire, or any stock appreciation rights with
respect to, any shares of the stock of or other equity interests in any
entity included in the Contributed Businesses; or
(iii) issue any additional shares of capital stock of or other equity
interests in the Contributed Businesses.
(c) other than (i) in the ordinary course of business consistent with past
practice, (ii) as required by applicable law, (iii) pursuant to existing Benefit
Arrangements or pursuant to pre-existing contractual commitments, or
(iv) pursuant to corporate severance policies in existence on the date hereof,
increase in any manner the compensation or fringe benefits of any of the
employees of the Contributed Businesses or pay any pension, severance or
retirement allowance not required by any existing plan or agreement to any such
employees or become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or agreement or employment
agreement with or for the benefit of such employees, or accelerate the vesting
of, or the lapsing of restrictions with respect to, any stock options or other
stock-based compensation of such employees;
(d) except in the ordinary course of business, settle any material claim,
action or proceeding of the Contributed Businesses involving money damages,
PROVIDED that such money damages are paid prior to the Closing;
(e) knowingly take any action that would prevent or impede the Contributions
from qualifying as an exchange qualifying under Section 351 of the Code;
(f) take any action that is intended or reasonably expected to result in any
of its representations and warranties set forth in this Agreement being or
becoming untrue in any material respect at any time prior to the Closing, or in
any of the conditions to the Contributions set forth in Article VI hereof not
being satisfied or in a violation of any other provision of this Agreement,
except, in every case, as may be required by applicable law;
(g) enter into any "non-compete" or similar agreement that would materially
restrict the businesses of TMCS following consummation of the Contributions;
(h) adopt a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization of any of
the Contributed Businesses (other than as contemplated by the Contributions);
(i) implement or adopt any change in its accounting principles, practices or
methods as they relate to the Contributed Businesses, other than as may be
required by GAAP or regulatory guidelines; or
(j) agree to take, make any commitment to take, or adopt any resolutions of
its board of directors in support of, any of the actions prohibited by this
Section 5.4.
5.5. INFORMATION AND ACCESS. (a) From the date hereof and continuing until
the Closing, each of Parent, as to itself and its Subsidiaries, and TMCS, as to
itself and its Subsidiaries, agrees that it shall afford and, with respect to
clause (ii) below, shall cause its independent auditors to afford, (i) to the
officers, independent auditors, counsel and other representatives of the other
reasonable access to its properties, books, records (including Returns filed and
those in preparation) and personnel in order that the other may have a full
opportunity to make such investigation as it reasonably desires to make of the
other consistent with their rights under this Agreement, and (ii) to the
independent auditors of the other, reasonable access to the audit work papers
and other records of its independent auditors. No
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investigation pursuant to this Section 5.5 shall affect or otherwise obviate or
diminish any representations and warranties of any Party or conditions to the
obligations of any Party. Except as required by law or stock exchange or NASD
regulation, any information furnished pursuant to this Section 5.5 (including
any information furnished to the other prior to the date hereof) shall be held
in confidence to the extent required by, and in accordance with, the provisions
of the Confidentiality Agreements.
(b) From and after the Closing, each of Parent, as to itself and its
Subsidiaries, on the one hand, and each of TMCS and its Subsidiaries, on the
other hand, agrees that it shall afford to the officers, independent auditors,
counsel and other representatives of the other reasonable access to its books,
records and personnel for reasonable business purposes, one of which is so that
the Party requesting access can prepare filings with respect to any periods
prior to Closing, or respond to, negotiate, settle or litigate any claims
related to the Contributed Businesses for which the requesting Party has any
liability hereunder.
5.6. RESERVATION AND LISTING OF TMCS COMMON STOCK. TMCS hereby covenants
to Parent that it shall reserve and keep available out of its authorized but
unissued shares of TMCS Class B Common Stock, such number of its duly authorized
shares of TMCS Class B Common Stock as shall be sufficient to issue upon the
exchange of all shares of TMCS Class A Common Stock held by Parent and its
Subsidiaries. All shares of TMCS Class B Common Stock to be issued pursuant to
this Agreement, including upon exchange of shares of TMCS Class A Common Stock
for TMCS Class B Common Stock shall, upon issuance, be duly qualified for
quotation for trading on The Nasdaq Stock Market.
5.7. FURTHER ACTION. (a) Each of the Parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable law,
and execute and deliver such documents and other papers, as may be required to
carry out the provisions of this Agreement and consummate and make effective the
Contributions contemplated hereby. Without limiting the generality of the
foregoing, the Parties will work together in good faith and agree to use their
reasonable best efforts to restructure one or more portions of the Contributions
in a reasonably agreeable fashion to the extent necessary to enable the Parties
to preserve and obtain the expected benefits of the Contributions contemplated
hereby.
(b) In the event that at any time or from time to time following the Closing
Parent (or its Subsidiaries) shall receive or otherwise possess any asset that
comprises part of the Contributed Businesses, or TMCS (or its Subsidiaries)
shall receive or otherwise possess any asset that comprises the businesses of
Parent other than the Contributed Businesses, such Party shall promptly use all
reasonable efforts to transfer, or cause to be transferred, such asset to the
Party so entitled thereto. Prior to any such transfer, the Party (or its
Subsidiaries) possessing such asset shall hold such asset (and all earnings
generated by such asset from and after the Closing) in trust for such other
Party.
5.8. EMPLOYEES. The Parties shall cooperate reasonably and in good faith
in order to determine appropriate employee benefits and compensation
arrangements (the "TMCS BENEFIT PLANS") for all Contributed Employees and all
non-United States employees of the Contributed Businesses following the Closing.
The Contributed Employees shall be given service credit under each TMCS Benefit
Plan in which they are eligible to participate for all service with the
Contributed Businesses and Parent (to the extent such credit was given under the
applicable Benefit Arrangements) for purposes of eligibility, vesting and
benefit accrual (other than benefit accrual under defined benefit plans) Parent
and TMCS agree to cooperate reasonably and in good faith to lower any costs that
may be borne by Parent or TMCS as a result of the contemplated Contributions and
to cooperate reasonably and in good faith on other transition matters relating
to the employees of the Contributed Businesses and their benefits.
5.9. REPRESENTATIONS AND WARRANTIES. From the date hereof until the
Closing Date, neither Parent nor TMCS shall take or omit to take any action that
is intended or expected to result in any of the representations and warranties
made by it in this Agreement being or becoming untrue in any material respect,
or in any of the conditions to this Agreement set forth in Article VI not being
satisfied or in violation of any provision of this Agreement.
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5.10. VOTING OF PARENT TMCS SHARES. Parent agrees that it shall, pursuant
to an action by written consent, provide a written consent with respect to all
shares of TMCS owned by it in favor of approval of (a) the issuance of TMCS
Stock in exchange for the Contributed Businesses, (b) the Certificate Amendment
and (c) any related matters to be acted upon by the TMCS stockholders in
connection with the consummation of the Contributions.
5.11. CASH. Until the Closing Date, Parent and its Subsidiaries shall be
entitled to sweep all cash and shall manage the indebtedness, accounts and notes
receivable, capital expenditures and the cash flows related to the Contributed
Businesses in the ordinary course of business and consistent with past practice.
Without limiting the foregoing, neither Parent nor any of its Subsidiaries shall
accelerate the collection of its accounts and notes receivable with respect to
the Contributed Businesses, increase the amount of time to pay any of its
indebtedness or dispose of any material amount of the assets of the Contributed
Businesses. Notwithstanding anything to the contrary in this Agreement, at the
Closing, the current assets of the Contributed Businesses shall equal the
current liabilities of the Contributed Businesses, in each case, determined in
accordance with GAAP; PROVIDED, HOWEVER, that (i) any current assets relating to
an Approved Transaction consummated prior to the Closing shall not be included
as a current asset and any liabilities relating to an Approved Transaction shall
not be included as a current liability for purposes of this Section 5.11,
(ii) the purchase price (excluding any assumed liabilities) relating to any
Approved Transaction that is consummated prior to the Closing shall be included
as a current asset for purposes of this Section 5.11, and (iii) any current
assets or current liabilities of TMC Realty shall be excluded for purposes of
this Section 5.11. If the current liabilities exceed the current assets,
excluding cash, Parent agrees that either (i) the Contributed Businesses shall
include an amount of cash equal to such excess, or (ii) Parent shall assume
liabilities of the Contributed Businesses equal in value to such excess. If the
current assets, excluding cash, exceed the current liabilities, the Parties
agree that the Contributed Businesses will assume liabilities of Parent or its
Subsidiaries (other than the Contributed Businesses) equal in value to such
excess.
5.12. AUDITED FINANCIAL STATEMENTS. Parent agrees that it shall, no later
than five (5) days prior to the filing of the Information Statement with the
Commission, deliver to TMCS audited financial statements of the Contributed
Businesses as of and for the three years ended December 31, 1999.
5.13. TMC REALTY. As soon as practicable following the date hereof, Parent
shall cause TMC Realty to be converted into a limited liability company (as
converted, "TMC REALTY LLC"), which converted entity shall be transferred to
TMCS as part of the TM Contribution. Commencing on the day following the Closing
Date and continuing until the 16th day following the Closing Date, Parent shall
have the option (the "OPTION") to acquire, or cause a designated Subsidiary of
Parent to acquire, TMC Realty LLC from TMCS in exchange for (i) the assumption
of all of the liabilities (including all third party indebtedness and net
intercompany indebtedness to Parent) of TMC Realty LLC existing immediately
prior to the Closing, and (ii) promotional services equal in value to the excess
of $28,800,000 over the liabilities assumed pursuant to clause (i)
(collectively, the "TMC REALTY CONSIDERATION"). Commencing on the 30th day
following the Closing Date and continuing until the 45th day following the
Closing Date, in the event that Parent does not exercise the Option, TMCS shall
have the right to sell TMC Realty LLC to Parent (or a designated Subsidiary of
Parent) in exchange for the TMC Realty Consideration.
5.14. BANK ACCOUNTS. At or prior to the Closing, none of the bank accounts
of the Contributed Businesses shall have as authorized signatories thereto any
employees of Parent or its Subsidiaries (other than those of the Contributed
Businesses).
5.15. CONSULTATION AND APPROVED TRANSACTIONS. Following the date hereof,
senior management of TM and TMCS shall consult with each other prior to entering
into any material contracts relating to their respective businesses, including,
without limitation, settlement agreements with respect to outstanding litigation
and employment arrangements. In addition, following the date hereof, none of
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the Contributed Businesses shall enter into any agreement to acquire any stock
or assets of a third party without the prior approval of the TMCS Board of
Directors (any such approved acquisition, an "APPROVED TRANSACTION").
5.16. RELATIONSHIP WITH PRC. As soon as reasonably practicable following
the date hereof, Parent shall cause the working arrangements between PRC, Inc.
and the Contributed Businesses to be terminated.
5.17. NOTICE OF CERTAIN MATTERS. Parent shall give prompt notice to TMCS
of occurrence of any of the following events occurring after the date of this
Agreement and before the Closing Date: (a) the institution of any governmental
proceeding, lawsuit or other claim related to the Contributions or the
Contributed Businesses which, individually or in the aggregate, would reasonably
be expected to have a Parent Material Adverse Effect, (b) a written notice of
any default under any material contract to which any of the Contributed
Businesses is a party, or (c) any other event which individually or in the
aggregate would have a Parent Material Adverse Effect. Each of Parent and TMCS
shall give prompt notice to the other Party of any notice or other communication
from any third party alleging that the consent of such third party is or may be
required in connection with the Contributions.
5.18. CREDIT FACILITY. TMCS shall use its best efforts to enter into one
or more credit facilities that fulfills the condition set forth in
Section 6.3(c) hereof.
ARTICLE VI
CONDITIONS
6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE CONTRIBUTION. The
respective obligations of the Parties to effect the Contributions shall be
subject to the satisfaction, or waiver, at or prior to the Closing of the
following conditions:
(a) NO INJUNCTION; ILLEGALITY. No order, injunction or decree issued by
any court or agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Contributions shall be in effect.
No statute, rule, regulation, order, injunction or decree shall have been
enacted, entered, promulgated or enforced by any governmental authority which
prohibits, materially restricts or makes illegal consummation of the
Contributions.
(b) APPROVALS. All regulatory approvals required to consummate the
transactions contemplated hereby shall have been obtained and shall remain in
full force and effect and all statutory waiting periods in respect thereof shall
have expired.
(c) INFORMATION STATEMENT. Twenty (20) calendar days shall have elapsed
from the mailing of the Information Statement to TMCS' stockholders.
(d) RELEASE FROM LIENS AND GUARANTEES. (i) The Credit Agreement shall have
been amended to release the Contributed Businesses as guarantors thereunder as
well as the related Liens against the Contributed Businesses, and (ii) the Liens
of Wells Fargo Bank against the Contributed Businesses shall have been released.
For purposes of this Section 6.1(d), Contributed Businesses shall exclude TMC
Realty.
6.2. CONDITIONS TO PARENT'S OBLIGATIONS. The obligations of Parent
hereunder to consummate the Contributions are subject to the satisfaction, at or
before the Closing, of each of the following conditions. These conditions are
for the benefit of Parent and may be waived (in whole or in part) by Parent at
any time in its sole discretion.
(a) ACCURACY OF TMCS' REPRESENTATIONS AND WARRANTIES. The representations
and warranties of TMCS set forth in this Agreement shall be true and correct in
all material respects as of the date hereof and at and as of the Closing Date
(except for representations and warranties (i) made as of a specified date,
which shall be true and correct as of such date, and (ii) that are qualified as
to
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materiality or material adverse effect which shall be true and correct in all
respects) with the same force and effect as though made at and as of such time.
Parent shall have received a certificate signed on behalf of TMCS by an
appropriate executive officer to such effect.
(b) PERFORMANCE BY TMCS OF COVENANTS. TMCS shall have performed in all
material respects all covenants, agreements and obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of TMCS by an appropriate
executive officer to such effect.
(c) FEDERAL TAX OPINION. Parent shall have received an opinion of
Wachtell, Lipton, Rosen & Katz, dated the Closing Date, substantially to the
effect that (i) the Contributions, taken together, will constitute an exchange
described in Section 351(a) or 351(b) of the Code, and (ii) no gain or loss will
be recognized by TM upon the receipt of shares of TMCS Stock in exchange for the
stock or other equity interest in the TM Contributed Subs pursuant to the TM
Contribution or by Parent upon the receipt of shares of TMCS Stock in exchange
for the stock of TM Group pursuant to the Parent Contribution (except for gain,
if any, that may be recognized by TM under Section 357(c) of the Code).
6.3. CONDITIONS TO TMCS' OBLIGATIONS. The obligations of TMCS hereunder to
consummate the Contributions are subject to the satisfaction, at or before the
Closing, of each of the following conditions. These conditions are for the
benefit of TMCS and may be waived (in whole or in part) by TMCS based on the
recommendation of the Special Committee at any time in its sole discretion.
(a) ACCURACY OF PARENT'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Parent set forth in this Agreement shall be
true and correct in all material respects as of the date hereof and at and as of
the Closing Date (except for representations and warranties (i) made as of a
specified date, which shall be true and correct as of such date, and (ii) that
are qualified as to materiality or material adverse effect which shall be true
and correct in all respects) with the same force and effect as though made at
and as of such time. TMCS shall have received a certificate signed on behalf of
Parent by an appropriate executive officer to such effect.
(b) PERFORMANCE BY PARENT OF COVENANTS. Parent shall have performed in all
material respects all covenants, agreements and obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and TMCS
shall have received a certificate signed on behalf of Parent by an appropriate
executive officer to such effect.
(c) AVAILABLE CREDIT. TMCS shall have available to it one or more credit
facilities providing for a minimum aggregate available credit thereunder of
$25,000,000, or if such credit facilities are not available, Parent shall have
provided to TMCS a line of credit with an aggregate available amount of
$25,000,000 on the following terms: (i) at Parent's rate of borrowing,
(ii) payable upon demand following the three month anniversary of the Closing,
and (iii) including other customary terms and conditions.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
7.1. SURVIVAL. All representations and warranties of the Parties contained
in this Agreement or in any schedule hereto, or any certificate, document or
other instrument delivered in connection herewith shall not survive the Closing,
except for the representations and warranties set forth in Sections 2.2(b), 2.6
and 2.9, which shall survive until the six-month anniversary of the Closing. All
covenants and agreements which by their terms contemplate performance after the
Closing Date shall survive the Closing. The right to indemnification pursuant to
this Article VII shall expire upon the expiration of the applicable survival
period, if any (except to the extent written notice asserting a claim thereunder
and describing such claim in reasonable detail (the "NOTICE") shall have been
given to Parent by the TMCS Indemnified Party prior to such expiration), as set
forth in this Section 7.1.
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7.2. INDEMNIFICATION. (a) From and after the Closing Date, subject to the
limitation described below in Section 7.4, Parent shall indemnify TMCS, TMCS'
affiliates (including, after the Closing, the Contributed Businesses), and each
of their respective directors, officers, employees and agents (collectively, the
"TMCS INDEMNIFIED PARTIES") from and against, and hold each of the TMCS
Indemnified Parties harmless from, any damage, claim, loss, cost, liability or
expense, including, without limitation, interest, penalties, reasonable
attorneys' fees and expenses of enforcing the obligations hereunder, net of tax
benefits and any recovery from any third party including, without limitation,
insurance proceeds or other recovery actually received (collectively,
"DAMAGES"), suffered, directly or indirectly (other than through any equity
interest in TMCS), by any TMCS Indemnified Party by reason of, or arising out
of, any breach of Section 2.2(b), 2.6 or 2.9 of this Agreement.
(b) Except with respect to third party claims being defended in good faith
or claims for indemnification with respect to which there exists a good faith
dispute, Parent shall satisfy its obligations hereunder within thirty (30) days
of receipt of the Notice. Any obligations of Parent under this Article VII shall
be paid to TMCS, at the option of Parent, in (i) immediately available funds, or
(ii) a number of shares of TMCS Stock valued at the TMCS Class B closing stock
price as of 4:00 p.m., Eastern Standard time, on the date of the applicable
Notice.
7.3. THIRD PARTY CLAIMS. If a claim by a third party is made against a
TMCS Indemnified Party, and if such party intends to seek indemnity with respect
thereto under this Article VII, such TMCS Indemnified Party shall promptly
notify Parent in writing of such claims, setting forth such claims in reasonable
detail. Parent shall be relieved of its indemnification obligations hereunder to
the extent that notice is not delivered promptly and Parent is prejudiced
thereby. Parent shall have twenty (20) 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 TMCS Indemnified Party
shall cooperate with it in connection therewith; PROVIDED, HOWEVER, that the
TMCS Indemnified Party may participate in such settlement or defense through
counsel chosen by the TMCS Indemnified Party; PROVIDED that the fees and
expenses of such counsel shall be borne by such TMCS Indemnified Party unless
Parent shall have reasonably determined that representation by the same counsel
would be inappropriate under the applicable standards of appropriate conduct due
to actual or potential differing interests between them, and in that event, the
fees and expenses of such counsel shall be paid by Parent. If Parent assumes
such defense and the TMCS Indemnified Party chooses to employ separate counsel,
the TMCS Indemnified Party agrees that Parent shall control such defense and
shall cooperate with Parent in such defense and make available to Parent all
pertinent records, materials and information in its possession or under its
control relating thereto as is reasonably requested by Parent. So long as Parent
is reasonably contesting any such claim in good faith, the TMCS Indemnified
Party shall not pay or settle any such claim without the consent of Parent. If
Parent does not notify the TMCS Indemnified Party within twenty (20) days after
receipt of the Notice that it elects to undertake the defense thereof, the TMCS
Indemnified Party shall have the right to contest, settle or compromise the
claim, but shall not thereby waive any right to indemnity therefore pursuant to
this Agreement. Parent shall not, except with the consent of the TMCS
Indemnified Party, enter into any settlement that does not include as an
unconditional term thereof the giving by the party or parties asserting such
claim to all TMCS Indemnified Parties of an unconditional release from all
liability with respect to such claim or consent to entry of any judgment.
Notwithstanding the foregoing, the TMCS Indemnified Party shall have the right
to pay or settle any such claim, PROVIDED that in such event it shall waive any
right to indemnity therefor by Parent.
7.4. LIMITATION ON INDEMNIFICATION. (a) Notwithstanding the foregoing,
Parent shall not be obligated to indemnify any TMCS Indemnified Party under this
Article VII unless and until the aggregate of all Damages suffered by all TMCS
Indemnified Parties hereunder exceeds $10,000,000 (the "THRESHOLD AMOUNT"),
whereupon, provided that the other requirements of this Article VII have
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been complied with, any and all Damages in excess of the Threshold Amount shall
become due and payable.
(b) The total indemnity obligations of Parent under this Article VII shall
not exceed the sum of $100,000,000 (the "CAP").
7.5. REMEDIES. The remedies in this Article VII shall be the exclusive
remedies of TMCS with respect to any breach by Parent of its representations or
warranties pursuant to this Agreement or otherwise arising out of this
Agreement, regardless of the theory or the cause of action plead, except for the
remedies of specific performance, injunction and other equitable relief;
PROVIDED that the provisions of this Article VII shall not affect the
obligations of Parent with respect to breaches of any covenants or agreements
contained in this Agreement or the rights of the parties set forth in
Article IV of this Agreement.
ARTICLE VIII
TERMINATION
8.1. TERMINATION BY MUTUAL WRITTEN CONSENT. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason, at any time prior to the Closing Date, by the mutual written consent of
Parent and TMCS based on the recommendation of the Special Committee.
8.2. TERMINATION BY PARENT OR TMCS. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by the unilateral action
of either Parent or TMCS on the recommendation of the Special Committee if and
to the extent that (a) the Closing shall not have occurred at or prior to
5:00 p.m., Eastern Standard time, on May 15, 2001; PROVIDED, HOWEVER, that the
right to terminate this Agreement under this Section 8.2 shall not be available
to any Party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Closing Date to occur on
or before such date; or (b) any court or governmental authority of competent
jurisdiction shall have issued an order, decree, writ or ruling or taken any
other action, or there shall be in effect any statute, rule or regulation,
permanently restraining, enjoining or otherwise prohibiting the Contributions.
8.3. TERMINATION BY PARENT. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by action of Parent, if
(a) TMCS shall have failed to comply in any material respect with any of the
covenants or agreements contained in this Agreement to be complied with or
performed by TMCS at or prior to such date of termination, and TMCS shall not,
within a reasonable period of time after notice of such failure, have cured or
commenced prompt and diligent measures which would promptly cure such failure,
or (b) there shall have been a misrepresentation or breach by TMCS with respect
to any representation or warranty made by it in this Agreement which would
entitle Parent not to consummate the transactions contemplated hereby under
Article VI and such misrepresentation or breach cannot be cured prior to the
Closing Date.
8.4. TERMINATION BY TMCS. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by action of TMCS on the
recommendation of the Special Committee, if (a) Parent shall have failed to
comply in any material respect with any of the covenants or agreements contained
in this Agreement to be complied with or performed by Parent at or prior to such
date of termination, and Parent shall not, within a reasonable period of time
after notice of such failure, have cured or commenced prompt and diligent
measures which would promptly cure such failure, or (b) there shall have been a
misrepresentation or breach by Parent with respect to any representation or
warranty made by it in this Agreement which would entitle TMCS not to consummate
the transactions contemplated hereby under Article VI and such misrepresentation
or breach cannot be cured prior to the Closing Date.
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8.5. EFFECT OF TERMINATION. In the event of termination of this Agreement
by either Parent or TMCS as provided in this Article VIII, this Agreement shall
forthwith become void and have no effect, and none of Parent, TMCS, any of their
respective Subsidiaries or any of the officers or directors of any of them shall
have any liability of any nature whatsoever hereunder, or in connection with the
transactions contemplated hereby, except that (a) Sections 5.5, 8.5, 8.6, 9.1
and 9.4 shall survive any termination of this Agreement, and
(b) notwithstanding anything to the contrary contained in this Agreement, no
Party shall be relieved or released from any liabilities or damages arising out
of its willful breach of any provision of this Agreement.
8.6. EXPENSES. Except as provided in Sections 2.5 and 3.5 hereof, each
Party shall be responsible for the payment of any expenses incurred by such
Party (or any of its Subsidiaries) in connection with this Agreement and the
transactions contemplated hereby.
ARTICLE IX
GENERAL
9.1. DEFINITIONS. The capitalized terms used herein shall have the
respective meanings assigned to such terms set forth below (such definitions to
be equally applicable to both the singular and plural forms of the terms
defined):
(a) "AGREEMENT" shall have the meaning set forth in the Preamble;
(b) "APPROVED TRANSACTION" shall have the meaning set forth in
Section 5.15;
(c) "BALANCE SHEET" shall have the meaning set forth in Section 2.6(b);
(d) "BALANCE SHEET DATE" shall have the meaning set forth in
Section 2.6(b);
(e) "BENEFIT ARRANGEMENTS" shall have the meaning set forth in
Section 2.8(a);
(f) "CAP" shall have the meaning set forth in Section 7.4(b);
(g) "CERTIFICATE AMENDMENT" shall have the meaning set forth in
Section 5.1;
(h) "CLOSING" shall have the meaning set forth in Section 1.2;
(i) "CLOSING DATE" shall have the meaning set forth in Section 1.2;
(j) "CODE" shall mean the Internal Revenue Code of 1986, as amended;
(k) "COMMISSION" shall have the meaning set forth in Section 2.6(a);
(l) "CONFIDENTIALITY AGREEMENTS" shall have the meaning set forth in
Section 9.7;
(m) "CONSOLIDATED RETURN INCOME TAXES" shall have the meaning set forth in
Section 4.11(a);
(n) "CONTRIBUTE" shall have the meaning set forth in Section 1.1;
(o) "CONTRIBUTED BENEFIT ARRANGEMENTS" shall have the meaning set forth in
Section 2.8(a);
(p) "CONTRIBUTED BUSINESSES" shall have the meaning set forth in the
Recitals;
(q) "CONTRIBUTED EMPLOYEES" shall have the meaning set forth in
Section 2.8(a);
(r) "CONTRIBUTED IP" shall have the meaning set forth in Section 2.13(a);
(s) "CONTRIBUTIONS" shall have the meaning set forth in Section 1.1;
(t) "CREDIT AGREEMENT" shall mean that Credit Agreement, dated
February 12, 1998, among Parent, USANi LLC, as Borrower, Various Lenders, The
Chase Manhattan Bank as Administrative Agent, Syndication Agent and Collateral
Agent, and Bank of America National Trust & Savings Association and The Bank of
New York as Co-Documentation Agents, as amended;
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(u) "DAMAGES" shall have the meaning set forth in Section 7.2;
(v) "DGCL" shall have the meaning set forth in the Recitals.
(w) "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended;
(x) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 and the
regulations promulgated thereunder, each as amended;
(y) "FOREIGN BENEFIT ARRANGEMENTS" shall have the meaning set forth in
Section 2.8(f);
(z) "GAAP" shall mean United States generally accepted accounting
principles;
(aa) "HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, and the regulations promulgated thereunder, each as amended;
(bb) "INCOME STATEMENT" shall have the meaning set forth in Section 2.6(b);
(cc) "INCOME TAXES" shall have the meaning set forth in Section 4.11(b);
(dd) "INFORMATION STATEMENT" shall have the meaning set forth in
Section 5.1;
(ee) "INTELLECTUAL PROPERTY RIGHTS" shall have the meaning set forth in
Section 2.13(a);
(ff) "KNOW" or "KNOWLEDGE" shall mean, (i) with respect to Parent, the
knowledge of the senior management of Parent, TM Group or TM, and (ii) with
respect to TMCS, the knowledge of the senior management of TMCS;
(gg) "LIENS" shall have the meaning set forth in Section 2.2;
(hh) "NASD" shall mean the National Association of Securities
Dealers, Inc.;
(ii) "NOTICE" shall have the meaning set forth in Section 7.2(b);
(jj) "OPTION" shall have the meaning set forth in Section 5.13;
(kk) "PARENT" shall have the meaning set forth in the Preamble;
(ll) "PARENT COMMISSION DOCUMENTS" shall have the meaning set forth in
Section 2.6(a);
(mm) "PARENT CONTRACT" shall have the meaning set forth in Section 2.14(a);
(nn) "PARENT CONTRIBUTION" shall have the meaning set forth in Section 1.1;
(oo) "PARENT DISCLOSURE SCHEDULE" shall have the meaning set forth in
Article II;
(pp) "PARENT FORMS 10-K" shall have the meaning set forth in
Section 2.6(a);
(qq) "PARENT MATERIAL ADVERSE EFFECT" shall mean a material adverse effect
on (i) the business, operations, results of operations, or financial condition
of the Contributed Businesses considered as a whole or (ii) the ability of
Parent to timely consummate the Contribution;
(rr) "PARTIES" shall have the meaning set forth in the Preamble;
(ss) "PARTY" shall have the meaning set forth in the Preamble;
(tt) "PRO FORMA ADJUSTMENTS" shall have the meaning set forth in
Section 2.6(b);
(vv) "SEPARATE RETURN INCOME TAXES" shall have the meaning set forth in
Section 4.11(d);
(ww) "SPECIAL COMMITTEE" shall have the meaning set forth in the Recitals.
(xx) "SUBSIDIARY", and collectively, "SUBSIDIARIES," shall mean each
corporation or other entity of which a majority of the voting power of the
voting equity securities or equity interest is owned, directly
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or indirectly, by the Party in question; PROVIDED, HOWEVER, that for purposes of
this Agreement, the Subsidiaries of Parent or TM shall not include TMCS and its
Subsidiaries;
(yy) "TAX AUDIT" shall have the meaning set forth in Section 4.7(a);
(zz) "TAX" or "TAXES" shall have the meaning set forth in Section 4.11(e);
(aaa) "TAXING AUTHORITY" shall have the meaning set forth in
Section 4.11(g);
(bbb) "THRESHOLD AMOUNT" shall have the meaning set forth in Section 7.4(a);
(ccc) "TM" shall have the meaning set forth in the Recitals;
(ddd) "TM CONTRIBUTED SUBS" shall have the meaning set forth in Section 1.1;
(eee) "TM CONTRIBUTION" shall have the meaning set forth in Section 1.1;
(fff) "TM GROUP" shall have the meaning set forth in the Recitals;
(ggg) "TM SHARE NUMBER" shall equal a number of shares of TMCS Class B Common
Stock that represents the fair market value of the TM Contributed Subs and other
assets, if any, of TM being contributed to TMCS in the TM Contribution, as
mutually agreed to by the Parties;
(hhh) "TMC REALTY" shall have the meaning set forth in Section 2.6(b);
(iii) "TMC REALTY CONSIDERATION" shall have the meaning set forth in
Section 5.13;
(jjj) "TMC REALTY LLC" shall have the meaning set forth in Section 5.13;
(kkk) "TMCS" shall have the meaning set forth in the Preamble;
(lll) "TMCS BENEFIT PLANS" shall have the meaning set forth in Section 5.8;
(mmm) "TMCS CLASS A COMMON STOCK" shall have the meaning set forth in
Section 3.2;
(nnn) "TMCS CLASS B COMMON STOCK" shall have the meaning set forth in
Section 3.2;
(ooo) "TMCS CLASS C COMMON STOCK" shall have the meaning set forth in
Section 3.2;
(ppp) "TMCS COMMISSION DOCUMENTS" shall have the meaning set forth in
Section 3.6;
(qqq) "TMCS DISCLOSURE SCHEDULE" shall have the meaning set forth in
Article III;
(rrr) "TMCS FORMS 10-K" shall have the meaning set forth in Section 3.6;
(sss) "TMCS INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 7.2(a);
(ttt) "TMCS MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on
(i) the business, operations, results of operations, or financial condition of
TMCS and its Subsidiaries, taken as a whole, or (ii) the ability of TMCS to
timely consummate the Transactions;
(uuu) "TMCS PREFERRED STOCK" shall have the meaning set forth in
Section 3.2;
(vvv) "TMCS STOCK" shall have the meaning set forth in Section 3.2; and
(www) "TOTAL SHARE NUMBER" shall mean the sum of 52,000,000 and 1,302,401.
9.2. EFFORTS TO PROCEED PROMPTLY. Each of the Parties agrees to use its
respective reasonable best efforts to take all such action (including, without
limitation, executing such other agreements and instruments, and making such
filings, including filings required under the HSR Act, if any) as may be
necessary or appropriate in order to effectuate the Contributions as promptly as
practicable. Each Party to this Agreement agrees to execute, acknowledge,
deliver, file and record such further certificates, amendments, instruments,
agreements and documents and to do all such other acts and things, as may be
required by law or as, in the opinion of the Parties, may be necessary or
advisable to carry out the
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intent and purposes of this Agreement. Each Party agrees that it will act
diligently and in good faith to carry out its respective obligations under this
Agreement.
9.3. STANDARDS; DISCLOSURE SCHEDULES. Prior to the execution and delivery
of this Agreement, Parent delivered the Parent Disclosure Schedule to TMCS, and
TMCS delivered the TMCS Disclosure Schedule to Parent. Each disclosure schedule
sets forth, among other things, items, the disclosure of which is necessary or
appropriate either in response to an express disclosure requirement contained in
a provision hereof or as an exception to one or more of such Party's
representations or warranties contained in Article II, Article III or
Section 4.1, or to one or more of such Party's covenants contained in
Article V; PROVIDED, HOWEVER, that notwithstanding anything in this Agreement to
the contrary, (a) no such item is required to be set forth in a disclosure
schedule as an exception to a representation or warranty if its absence would
not result in the related representation or warranty being deemed untrue or
incorrect under the standard set forth in Section 6.2(a) or 6.3(a), and (b) the
mere inclusion of an item in a disclosure schedule as an exception to a
representation or warranty shall not be deemed an admission by a Party that such
item represents a material exception or a material fact, event or circumstance
or that such item has had or would have had a Material Adverse Effect with
respect to Parent or TMCS, as the case may be; PROVIDED, FURTHER, that no
disclosure schedule or other information, or modification thereof, that is
provided following the execution and delivery of this Agreement by the Parties
hereto shall be deemed to modify any representation, warranty or covenant set
forth herein.
9.4. NOTICES. Any notices, requests, demands or other communications to be
given by a Party hereunder shall be in writing and shall be deemed to have been
duly given when delivered personally or by facsimile transmission, in either
case with receipt acknowledged, or three (3) days after being sent by registered
or certified mail, return receipt requested, postage prepaid, addressed (until
another address is supplied by notice duly given hereunder) as follows:
If given to Parent:
USA Networks, Inc.
152 West 57th Street
New York, NY 10019
Attention: General Counsel
Facsimile: (212) 314-7329
and
Ticketmaster Group, Inc.
3701 Wilshire Boulevard
Los Angeles, CA 90010
Attention: General Counsel
Facsimile: (213) 382-2416
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Attention: Pamela S. Seymon, Esq.
Facsimile: (212) 403-2000
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If given to TMCS:
Ticketmaster Online-Citysearch, Inc.
790 East Colorado Boulevard
Suite 200
Pasadena, CA 91101
Attention: General Counsel
Facsimile: (626) 405-9929
with copies to:
Munger, Tolles & Olson LLP
355 South Grand Avenue
35th Floor
Los Angeles, CA 90071
Attention: Robert Denham, Esq.
Facsimile: (213) 687-3702
and
Gibson, Dunn & Crutcher LLP
333 S. Grand Avenue
Los Angeles, CA 90071
Attention: Kenneth M. Doran, Esq.
Facsimile: (213) 229-7520
9.5. SPECIFIC ENFORCEMENT. Each of the Parties hereto recognizes and
agrees that, in the event that any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are breached,
immediate irreparable injury would be suffered by the non-breaching Party for
which there is no adequate remedy at law. It is accordingly agreed that in the
event of a failure by a Party to perform its obligations under this Agreement,
the non-breaching Party shall be entitled to specific performance through
injunctive relief to prevent breaches of the provisions of this Agreement and to
enforce specifically the provisions of this Agreement in any action instituted
in any court having subject matter jurisdiction, in addition to any other remedy
to which such Party may be entitled, at law or in equity.
9.6. SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable. The exercise of any rights or obligations
hereunder shall be subject to such reasonable delay as may be required to
prevent a Party from incurring any liability under the federal securities laws,
and the Parties agree to cooperate in good faith in respect thereof.
9.7. ENTIRE AGREEMENT. This Agreement, the schedules and exhibits hereto,
any documents delivered hereunder and the Confidentiality Agreements, each dated
October 31, 2000, between Parent and TMCS (the "CONFIDENTIALITY AGREEMENTS"),
constitute the entire agreement between the Parties and supersede any prior
agreement or understanding between the Parties with respect to the subject
matter hereof.
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9.8. AMENDMENT; WAIVER. Except as provided otherwise herein, this
Agreement may not be amended nor may any rights hereunder be waived except by an
instrument in writing signed by each of Parent and TMCS. Any amendment or waiver
of rights hereunder on behalf of TMCS shall be taken only by the Special
Committee.
9.9. HEADINGS; REFERENCES. Article headings are inserted for convenience
and reference purposes only, and are not and shall not be deemed to be a part of
this Agreement or affect any meaning or interpretation hereof. References herein
to "the date hereof," "the date of this Agreement," and similar references are
to November 20, 2000.
9.10. COUNTERPARTS. This Agreement may be executed in one or more
counterpart copies and by facsimile, each of which shall be considered an
original, but together shall constitute one agreement.
9.11. GOVERNING LAW. This Agreement and all matters collateral hereto
shall be governed by and construed in accordance with the laws of the State of
Delaware, without giving effect to the conflicts of law principles thereof.
9.12. PUBLIC ANNOUNCEMENT. So long as this Agreement is in effect, each of
Parent and TMCS agree to consult with each other before issuing any press
release or otherwise making any public statement with respect to the
Contributions, and neither Parent nor TMCS will issue any press release or make
any such public statement with respect to the Contributions without the consent
of the other Party, except as may be required by law (including, without
limitation, disclosure required in public filings required to be made by Parent
or TMCS) or the requirements of the NASD or any securities exchange.
9.13. THIRD PARTY BENEFICIARIES. Nothing contained in this Agreement is
intended to or shall confer upon any person other than the Parties any rights or
remedies hereunder.
* * *
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
<TABLE>
<S> <C> <C>
USA NETWORKS, INC.
By: /s/ JULIUS GENACHOWSKI
-----------------------------------------
Julius Genachowski
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
</TABLE>
<TABLE>
<S> <C> <C>
TICKETMASTER ONLINE-CITYSEARCH, INC.
By: /s/ JOHN PLEASANTS
-----------------------------------------
John Pleasants
CHIEF EXECUTIVE OFFICER
</TABLE>
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[LOGO]
EXHIBIT B
November 20, 2000
Special Committee of the Board of Directors
Ticketmaster Online-CitySearch, Inc.
790 East Colorado Boulevard
Suite 200
Pasadena, CA 91101
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to Ticketmaster Online-CitySearch, Inc. (the "Company") of the
consideration to be paid by the Company in connection with the proposed
acquisition (the "Proposed Acquisition") of the business and operations of
Ticketmaster Group, Inc. ("TM Group") and its subsidiaries (collectively, the
"Subject Business") contemplated by the Contribution Agreement (the "Agreement")
to be entered into between USA Networks, Inc. ("Parent") and the Company.
As more specifically set forth in the Agreement, and subject to the terms
and conditions thereof, in the Proposed Acquisition, the Company will acquire
from Ticketmaster Corporation ("TM") all of TM's interest in the stock or other
equity interests of the TM Contributed Subs (as defined in the Agreement) in
exchange for the issuance to TM of a number of shares of Class B Common Stock,
$.01 par value per share, of the Company ("TMCS Class B Common Stock") equal to
the TM Share Number (as defined in the Agreement). In addition, immediately
thereafter, Parent will contribute to the Company 100% of the outstanding
capital stock of TM Group in exchange for the issuance to Parent of 42,480,143
shares of Class A Common Stock, $.01 par value per share, of the Company ("TMCS
Class A Common Stock" and collectively with the TMCS Class B Common Stock,
"Company Common Stock") and a number of shares of TMCS Class B Common Stock
equal to the Total Share Number (as defined in the Agreement). At the conclusion
of the two steps of the Proposed Acquisition, (i) the Company will have acquired
the Subject Business in exchange for 52,000,000 shares of TMCS Class B Common
Stock, plus a number of shares of TMCS Class A Common Stock and TMCS Class B
Common Stock (42,480,143 and 1,302,401, respectively) equal to the number of
shares of TMCS Class A Common Stock and TMCS Class B Common Stock held by TM
currently which would be acquired by the Company through the acquisition of TM
and (ii) the shares of TMCS Class B Common Stock issued to TM in the first step
(along with the shares of TMCS Class A Common Stock and TMCS Class B Common
Stock currently held by TM) will be held by TM as an indirect wholly-owned
subsidiary of TMCS.
In arriving at our opinion, we reviewed a draft of the Agreement, dated
November 20, 2000, and held discussions with certain senior officers, directors
and other representatives and advisors of the Company and certain senior
officers and other representatives and advisors of Parent and the Subject
Business concerning the businesses, operations and prospects of the Company and
the Subject Business. We examined certain publicly available business and
financial information relating to the Company and the Subject Business as well
as certain financial forecasts and other information and data for the Company
and the Subject Business which were provided to or otherwise discussed with us
by the managements of the Company, Parent and the Subject Business, including
information relating to certain strategic implications and operational benefits
anticipated to result from the Proposed Acquisition. We reviewed the financial
terms of the Proposed Acquisition as set forth in the Agreement in relation to,
among other things: current and historical market prices and trading volumes of
TMCS Class B Common Stock; the historical and projected earnings and other
operating data of the Company and the Subject Business; and the capitalization
and financial condition of the Company and the Subject Business. We considered,
to the extent publicly available, the financial terms of certain other similar
transactions recently effected that we considered relevant in evaluating the
Proposed Acquisition and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations we considered relevant in evaluating those of the
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[LOGO]
Subject Business. We also evaluated the pro forma financial impact of the
Proposed Acquisition on the Company. In addition to the foregoing, we conducted
such other analyses and examinations and considered such other information and
financial, economic and market criteria as we deemed appropriate in arriving at
our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us and have further relied upon the assurances of management
of the Company, Parent and the Subject Business that they are not aware of any
facts that would make any of such information inaccurate or misleading. With
respect to financial forecasts and other information and data provided to or
otherwise reviewed by or discussed with us, we have been advised by the
managements of the Company and the Subject Business that such forecasts and
other information and data were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the respective managements of the
Company and the Subject Business as to the future financial performance of the
Company and the Subject Business and the strategic implications and operational
benefits anticipated to result from the Proposed Acquisition. We express no view
with respect to such forecasts and other information and data or the assumptions
on which they were based. We have assumed, with your consent, that the Proposed
Acquisition will qualify as a tax-free exchange for federal income tax purposes.
We have not made or been provided with an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of the Subject Business nor
have we made any physical inspection of the properties or assets of the Subject
Business. Representatives of the Company have advised us, and we have assumed,
that the final terms of the Agreement will not vary materially from those set
forth in the draft reviewed by us. We have further assumed that the Proposed
Acquisition will be consummated in accordance with the terms of the Agreement,
without waiver of any of the conditions precedent to the Proposed Acquisition
contained in the Agreement.
We are not expressing any opinion as to what the value of the Company Common
Stock actually will be when issued in the Proposed Acquisition or the price at
which the Company Common Stock will trade or otherwise be transferable
subsequent to the Proposed Acquisition. We were not requested to consider, and
our opinion does not address, the relative merits of the Proposed Acquisition as
compared to any alternative business strategies that might exist for the Company
or the effect of any other transaction in which the Company might engage. Our
opinion necessarily is based upon information available to us and financial,
stock market and other conditions and circumstances existing and disclosed to us
as of the date hereof.
Salomon Smith Barney Inc. is acting as financial advisor to the Special
Committee of the Board of Directors of the Company in connection with the
Proposed Acquisition. We will receive a fee for our services, which fee is
payable upon the delivery of this opinion. In the ordinary course of our
business, we and our affiliates may actively trade or hold the securities of the
Company and Parent for our own account or for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Salomon Smith Barney Inc. and its affiliates (including Citigroup Inc. and its
affiliates) may maintain relationships with the Company, Parent and the Subject
Business and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Special Committee of the Board of Directors of the Company in
its evaluation of the Proposed Acquisition and our opinion is not intended to be
and does not constitute a recommendation of the Proposed Acquisition to the
Company.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the consideration to be paid by
the Company in the Proposed Acquisition is fair, from a financial point of view,
to the Company.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
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EXHIBIT C
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Ticketmaster Group, Inc.
We have audited the accompanying consolidated balance sheets of Ticketmaster
Group, Inc. and subsidiaries at December 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year ended December 31, 1999 and the eleven months ended December 31, 1998
and the consolidated statements of operations, shareholders' equity, and cash
flows of the Predecessor Company for the year ended January 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ticketmaster
Group, Inc. and subsidiaries at December 31, 1999 and 1998, and the results of
their operations and their cash flows for the year ended December 31, 1999 and
the eleven months ended December 31, 1998 and the results of the operations and
cash flows of the Predecessor Company for the year ended January 31, 1998, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Los Angeles, California
November 21, 2000
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TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1999 2000
------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 197,137 $ 143,174 $ 113,114
Marketable securities................................. -- 37,812 17,902
Accounts receivable, ticket sales..................... 18,483 22,227 37,408
Accounts receivable, trade............................ 20,290 22,747 27,742
Contract advances..................................... 6,064 7,929 12,552
Prepaid expenses and other current assets............. 9,573 11,580 14,718
---------- ---------- ----------
Total current assets................................ 251,547 245,469 223,436
Property, equipment and leasehold improvements, net..... 54,110 76,498 76,685
Goodwill and other intangibles, net..................... 933,107 1,278,460 1,231,782
Other assets............................................ 22,586 60,256 66,070
Deferred income taxes................................... 5,186 12,853 10,604
---------- ---------- ----------
Total assets........................................ $1,266,536 $1,673,536 $1,608,577
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt..................... $ 8,315 $ 2,423 $ 5,236
Accounts payable, trade............................... 13,990 14,911 9,514
Accounts payable, clients............................. 70,817 98,586 102,442
Accrued expenses...................................... 49,280 73,721 61,981
Deferred revenue and other............................ 14,806 16,342 15,072
---------- ---------- ----------
Total current liabilities........................... 157,208 205,983 194,245
Long-term debt, net of current portion.................. 9,803 17,794 12,854
Due to USAi and affiliates.............................. 160,077 105,893 164,724
Deferred income taxes................................... 47,274 46,854 45,030
Other long term liabilities............................. 12,661 20,946 14,590
Minority interest....................................... 113,978 524,568 509,187
Shareholders' equity:
Common stock, $0.01 par value; authorized 100,000,000
shares, issued and outstanding 1,000 shares at
December 31, 1999 and 1998.......................... -- -- --
Additional paid-in capital............................ 721,651 761,858 763,465
Accumulated other comprehensive income (loss)......... 549 6,824 (3,291)
Accumulated retained earnings (deficit)............... 43,335 (17,184) (92,227)
---------- ---------- ----------
Total shareholders' equity.......................... 765,535 751,498 667,947
---------- ---------- ----------
Total liabilities and shareholders' equity.......... $1,266,536 $1,673,536 $1,608,577
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
ELEVEN MONTHS NINE MONTHS NINE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED ENDED
JANUARY 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999 1999 2000
------------ ------------- ------------- -------------- --------------
(PREDECESSOR (UNAUDITED) (UNAUDITED)
COMPANY)
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations............. $ 340,980 $ 348,103 $442,743 $324,616 $ 395,909
City guide and classifieds....... -- 5,568 36,329 22,359 58,776
Other............................ -- -- 19,458 14,072 7,639
----------- --------- -------- -------- ---------
Total revenues................. 340,980 353,671 498,530 361,047 462,324
----------- --------- -------- -------- ---------
Operating costs and other expenses:
Ticketing operations............. 209,726 217,839 269,315 196,324 253,436
City guide and classifieds....... -- 5,268 35,642 23,159 40,505
Other............................ -- -- 17,841 12,013 11,614
Sales and marketing.............. 7,249 17,116 56,499 36,946 63,355
General and administrative....... 71,424 64,840 78,521 59,750 71,306
Depreciation and amortization.... 24,473 52,450 127,921 82,314 150,600
Merger and other transaction
costs.......................... -- -- 4,236 3,285 --
----------- --------- -------- -------- ---------
Total operating costs and other
expenses..................... 312,872 357,513 589,975 413,791 590,816
----------- --------- -------- -------- ---------
Income (loss) from operations...... 28,108 (3,842) (91,445) (52,744) (128,492)
Other (income) expenses:
Interest income.................. (1,859) (2,555) (5,645) (4,511) (3,081)
Interest expense................. 11,419 11,455 8,108 6,579 6,168
Gain on sale of subsidiary
stock.......................... -- (108,967) -- -- --
Equity in net (income) loss of
unconsolidated affiliates...... (1,417) (477) (1,225) (1,067) 2,636
----------- --------- -------- -------- ---------
Total other (income)
expenses..................... 8,143 (100,544) 1,238 1,001 5,723
----------- --------- -------- -------- ---------
Income (loss) before income taxes
and minority interest............ 19,965 96,702 (92,683) (53,745) (134,215)
Minority interest in loss.......... (65) (4,829) (56,139) (31,458) (70,906)
Income tax provision............... 11,883 58,196 23,975 17,882 11,734
----------- --------- -------- -------- ---------
Net income (loss).................. $ 8,147 $ 43,335 $(60,519) $(40,169) $ (75,043)
=========== ========= ======== ======== =========
Basic earnings per share........... $ 0.32
===========
Weighted average shares outstanding
for basic earnings per share..... 25,846,344
===========
Diluted earnings per share......... $ 0.31
===========
Weighted average shares outstanding
for diluted earnings per share... 26,284,555
===========
</TABLE>
See accompanying notes to consolidated financial statements.
C-3
<PAGE>
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
(NUMBER OF SHARES) ACCUMULATED
------------------------- ADDITIONAL OTHER
COMMON EXCHANGEABLE COMMON EXCHANGEABLE PAID-IN COMPREHENSIVE
TOTAL STOCK CLASS B STOCK CLASS B CAPITAL INCOME (LOSS)
-------- ---------- ------------ -------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1997.... $ 21,345 24,739,715 -- $ -- $ -- $127,466 $ (53)
Comprehensive income:
Net income................... 8,147 -- -- -- -- -- --
Foreign currency translation
adjustment................. (1,997) -- -- -- -- -- (1,997)
-------- ---------- ---------- ------ -------- -------- --------
Comprehensive income....... 6,150 -- -- -- -- -- (1,997)
-------- ---------- ---------- ------ -------- -------- --------
Issuance of Exchangeable
Class B common stock issued
for Canadian acquisition..... 16,175 -- 1,115,531 -- 16,175 -- --
Class B conversion............. -- 1,015,596 (1,015,596) -- (14,726) 14,726 --
Exercise of options............ 4,378 301,904 -- -- -- 4,378 --
Tax benefit on stock option
gain......................... 860 -- -- -- -- 860 --
-------- ---------- ---------- ------ -------- -------- --------
Balance at January 31, 1998.... $ 48,908 26,057,215 99,935 $ -- $ 1,449 $147,430 $ (2,050)
======== ========== ========== ====== ======== ======== ========
Recapitalization of
Ticketmaster Group, Inc. in
connection with the
Ticketmaster Transaction..... $ 56,113 1,000 -- $ -- $ -- $ 56,113 $ --
Comprehensive income:
Net income................... 43,335 -- -- -- -- -- --
Foreign currency translation
adjustment................. 549 -- -- -- -- -- 549
-------- ---------- ---------- ------ -------- -------- --------
Comprehensive income....... 43,884 -- -- -- -- -- 549
-------- ---------- ---------- ------ -------- -------- --------
Allocation of goodwill in
connection with the
Ticketmaster Transaction..... 622,726 -- -- -- -- 622,726 --
Capital contribution from USAi
in connection with the
Citysearch merger............ 42,812 -- -- -- -- 42,812 --
-------- ---------- ---------- ------ -------- -------- --------
Balance at December 31, 1998... 765,535 1,000 -- -- -- 721,651 549
-------- ---------- ---------- ------ -------- -------- --------
Comprehensive loss:
Net loss..................... (60,519) -- -- -- -- -- --
Foreign currency translation
adjustment................. (122) -- -- -- -- -- (122)
Unrealized gain.............. 6,397 -- -- -- -- -- 6,397
-------- ---------- ---------- ------ -------- -------- --------
Comprehensive loss........... (54,244) -- -- -- -- -- 6,275
-------- ---------- ---------- ------ -------- -------- --------
Capital contribution from
USAi......................... 40,000 -- -- -- -- 40,000 --
Additional capital contributed
by USAi through
advertising.................. 207 -- -- -- -- 207 --
-------- ---------- ---------- ------ -------- -------- --------
Balance at December 31, 1999... 751,498 1,000 -- -- -- 761,858 6,824
-------- ---------- ---------- ------ -------- -------- --------
Comprehensive loss (unaudited):
Net loss..................... (75,043) -- -- -- -- -- --
Foreign currency translation
adjustment................. (3,532) -- -- -- -- -- (3,532)
Unrealized loss.............. (6,583) -- -- -- -- -- (6,583)
-------- ---------- ---------- ------ -------- -------- --------
Comprehensive loss
(unaudited)................ (85,158) -- -- -- -- -- (10,115)
-------- ---------- ---------- ------ -------- -------- --------
Additional capital contributed
by USAi through advertising
(unaudited).................. 1,607 -- -- -- -- 1,607 --
-------- ---------- ---------- ------ -------- -------- --------
Balance at September 30,
2000......................... $667,947 1,000 -- $ -- $ -- $763,465 $ (3,291)
======== ========== ========== ====== ======== ======== ========
<CAPTION>
ACCUMULATED
RETAINED
EARNINGS
(DEFICIT)
------------
<S> <C>
Balance at January 31, 1997.... $(106,068)
Comprehensive income:
Net income................... 8,147
Foreign currency translation
adjustment................. --
---------
Comprehensive income....... 8,147
---------
Issuance of Exchangeable
Class B common stock issued
for Canadian acquisition..... --
Class B conversion............. --
Exercise of options............ --
Tax benefit on stock option
gain......................... --
---------
Balance at January 31, 1998.... $ (97,921)
=========
Recapitalization of
Ticketmaster Group, Inc. in
connection with the
Ticketmaster Transaction..... $ --
Comprehensive income:
Net income................... 43,335
Foreign currency translation
adjustment................. --
---------
Comprehensive income....... 43,335
---------
Allocation of goodwill in
connection with the
Ticketmaster Transaction..... --
Capital contribution from USAi
in connection with the
Citysearch merger............ --
---------
Balance at December 31, 1998... 43,335
---------
Comprehensive loss:
Net loss..................... (60,519)
Foreign currency translation
adjustment................. --
Unrealized gain.............. --
---------
Comprehensive loss........... (60,519)
---------
Capital contribution from
USAi......................... --
Additional capital contributed
by USAi through
advertising.................. --
---------
Balance at December 31, 1999... (17,184)
---------
Comprehensive loss (unaudited):
Net loss..................... (75,043)
Foreign currency translation
adjustment................. --
Unrealized loss.............. --
---------
Comprehensive loss
(unaudited)................ (75,043)
---------
Additional capital contributed
by USAi through advertising
(unaudited).................. --
---------
Balance at September 30,
2000......................... $ (92,227)
=========
</TABLE>
See accompanying notes to consolidated financial statements.
C-4
<PAGE>
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS NINE MONTHS NINE MONTHS
YEAR ENDED ENDED YEAR ENDED ENDED ENDED
JANUARY 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1999 1999 2000
------------ -------------- ------------- -------------- --------------
(PREDECESSOR (UNAUDITED) (UNAUDITED)
COMPANY)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)............................. $ 8,147 $ 43,335 $(60,519) $(40,169) $ (75,043)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 24,473 52,450 127,921 82,314 150,600
Loss attributable to minority interests..... (65) (4,829) (56,139) (31,458) (70,906)
Equity in net (income) loss of
unconsolidated affiliates................. (1,417) (477) (1,225) (1,067) 2,636
Deferred marketing.......................... -- -- 365 -- 937
Gain on sale of subsidiary stock............ -- (108,967) -- -- --
Provision for deferred income taxes......... 628 46,340 (8,087) 904 425
Advertising contribution by USAi............ -- -- 207 -- 1,607
Stock compensation.......................... -- -- -- -- 1,030
Changes in operating assets and liabilities:
Accounts receivable, ticket sales............. (7,863) 6,224 (2,691) (3,770) (15,171)
Accounts receivable, trade.................... (361) (4,462) (1,097) 3,534 (3,771)
Prepaid expenses and other current assets..... (1,991) (16,890) (9,997) (11,630) (1,824)
Accounts payable, trade....................... (1,715) 246 2,139 12,411 (6,114)
Accounts payable, clients..................... 14,242 (3,665) 13,638 (1,171) 3,283
Accrued expenses.............................. 1,068 15,981 27,929 15,472 20,229
Deferred revenue and other.................... (218) 3,871 (1,843) (488) (3,249)
Other, net.................................... (730) 1,970 (5,436) 2,025 (4,186)
----------- --------- -------- -------- ---------
Net cash provided by operating
activities.............................. 34,198 31,127 25,165 26,907 483
----------- --------- -------- -------- ---------
Investing activities:
Capital expenditures.......................... (16,727) (17,809) (37,111) (22,402) (24,374)
Payments for investments in affiliates........ (2,156) (1,134) (16,274) (5,285) (10,554)
Cash distributions from and sale of
affiliates.................................. 1,947 -- -- -- 2,167
Payment of merger costs related to the
Ticketmaster Transaction.................... -- (21,197) (5,426) (2,988) (13,814)
Acquisitions, net of cash acquired............ (35,742) (5,089) 5,613 2,401 (39,755)
Proceeds from sale of marketable securities... -- -- -- -- 17,762
Purchase of marketable securities............. -- -- (27,010) -- (8,840)
----------- --------- -------- -------- ---------
Net cash used in investing activities..... (52,678) (45,229) (80,208) (28,274) (77,408)
----------- --------- -------- -------- ---------
Financing activities:
Advances from (to) USAi....................... -- (34,565) (45,259) (33,803) 45,575
Proceeds from long-term debt.................. 55,102 -- -- -- --
Reduction of long-term debt................... (24,628) (2,052) (4,919) (4,176) (2,020)
Exercise of stock options..................... 5,238 6,301 -- -- --
Cash acquired in Citysearch merger............ -- 57,877 -- -- --
Net proceeds from sale of subsidiary stock.... -- 104,989 -- -- --
Capital contribution from USAi................ -- -- 40,000 -- --
Proceeds from minority shareholders, net...... 208 1,817 11,381 6,540 4,833
----------- --------- -------- -------- ---------
Net cash provided by (used in) financing
activities.............................. 35,920 134,367 1,203 (31,439) 48,388
----------- --------- -------- -------- ---------
Effect of exchange rate on cash and cash
equivalents................................... (1,997) 549 (123) 265 (1,523)
----------- --------- -------- -------- ---------
Net increase (decrease) in cash and cash
equivalents............................. 15,443 120,814 (53,963) (32,541) (30,060)
Cash and cash equivalents, beginning of
period........................................ 60,880 76,323 197,137 197,137 143,174
----------- --------- -------- -------- ---------
Cash and cash equivalents, end of period........ $ 76,323 $ 197,137 $143,174 $164,596 $ 113,114
=========== ========= ======== ======== =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest.................................... $ 10,487 $ 11,455 $ 7,300 $ 5,972 $ 5,569
=========== ========= ======== ======== =========
Income taxes................................ $ 10,592 $ 5,894 $ 6,873 $ 3,473 $ 5,978
=========== ========= ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
C-5
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Ticketmaster Group, Inc. ("Ticketmaster" or the "Company") provides
automated ticketing services to its client venues, promoters and sport
franchises, which provide patrons with the alternatives of purchasing tickets
through operator-staffed call centers, the Internet and independent sales
outlets. Through its controlling interest in Ticketmaster
Online-Citysearch, Inc. ("TMCS") (see Note 5), the Company produces and delivers
comprehensive local city guides on the Internet, providing up-to-date
information regarding arts and entertainment events, community events and
activities, recreation, shopping, business and professional services and
news/sports/weather to consumers in metropolitan areas. TMCS also operates an
online personals service providing singles with a way to meet others online.
Ticketmaster Group, Inc. is a wholly-owned subsidiary of USA Networks, Inc.
("USAi").
In July 1997, USAi acquired a controlling interest in Ticketmaster (the
"Ticketmaster Acquisition"). The acquisition cost was approximately
$210 million, including expenses. In June 1998, USAi completed its acquisition
of Ticketmaster in a tax-free merger, pursuant to which each outstanding share
of Ticketmaster common stock not owned by USAi was exchanged for 1.126 shares of
USAi common stock, resulting in Ticketmaster becoming a wholly-owned subsidiary
of USAi. Each outstanding share of Ticketmaster common stock was subsequently
cancelled and retired to USAi, and 1,000 shares of newly authorized common
stock, $0.01 par value, were issued. In connection with the tax-free merger, all
outstanding Ticketmaster options to purchase common stock were converted into
options to acquire USAi common stock at the exchange ratio. Total consideration
for the tax-free merger was approximately $468 million. The Ticketmaster
Acquisition and the tax-free merger are referred to as the "Ticketmaster
Transaction." The Ticketmaster Transaction has been accounted for using the
purchase method of accounting. The determination of the aggregate cost in excess
of net assets acquired is set forth below (in thousands):
<TABLE>
<S> <C>
Purchase price, including equity and transaction costs...... $631,567
Value of stock options assumed.............................. 45,980
--------
Total acquisition costs..................................... 677,547
Net identifiable assets acquired............................ (14,624)
--------
Cost in excess of net assets acquired....................... $662,923
========
</TABLE>
The cost in excess of net assets acquired in the Ticketmaster Transaction of
$673.6 million was allocated to goodwill and other intangibles during the year
ended December 31, 1998. In connection with the Ticketmaster Transaction,
approximately $154.8 million of the cost in excess of net assets acquired was
allocated to Ticketmaster Multimedia Holdings, Inc., ("ticketmaster.com") and is
being amortized using the straight-line method over ten years. The remainder of
the cost in excess of net assets acquired from the Ticketmaster Transaction is
being amortized using the straight-line method over 40 years. Upon completion of
the Ticketmaster Transaction, Ticketmaster changed its year end to December 31.
The accompanying consolidated financial statements and related notes reflect
the consolidated historical financial position and results of operations of
Ticketmaster Group, Inc. at December 31, 1998 and 1999 and for the eleven months
ended December 31, 1998 and for the year ended December 31, 1999. In connection
with the Ticketmaster Transaction and the recapitalization of Ticketmaster
Group, Inc., the accompanying consolidated financial statements also present the
consolidated results of
C-6
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
operations of Ticketmaster Group, Inc. for the year ended January 31, 1998 as
the Predecessor Company. The recapitalization gives effect to the Ticketmaster
Transaction, the exchange of the Exchangeable Class B common stock in connection
with the Canadian acquisition (see Note 8), and the exercise of stock options by
Ticketmaster employees up to the date of acquisition. Earnings per share
information has not been presented after the year ended January 31, 1998 since
it would not be meaningful.
The consolidated financial statements include the accounts of Ticketmaster
Group, Inc., its wholly owned subsidiaries and majority owned companies and
joint ventures. Investments in companies and joint ventures with ownership
interests ranging from 20% to 50% and in which Ticketmaster exercises
significant influence over operating and financial policies are accounted for
using the equity method. All significant intercompany balances and transactions
have been eliminated.
INTERIM FINANCIAL INFORMATION
The interim condensed consolidated balance sheet of the Company at
September 30, 2000 and the results of operations of the Company for the nine
months ended September 30, 2000 and 1999 are unaudited and should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended December 31, 1999. In the opinion of the Company, all
adjustments necessary for a fair presentation of such condensed consolidated
financial statements have been included. Such adjustments consist of normal
recurring items. Interim results are not necessarily indicative of results for a
full year. The interim condensed consolidated financial statements are presented
as permitted by the Securities and Exchange Commission and do not contain
certain information included in the Company's audited consolidated financial
statements and notes thereto.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Revenue from ticketing operations is recognized as tickets are sold. The
Company only recognizes revenue from amounts payable to Ticketmaster, and
excludes ticket proceeds collected on behalf of its clients. The Company also
licenses software under noncancellable license agreements and provides services
including maintenance, training, installation, consulting and support services.
License fee revenues are generally recognized when a noncancellable license
agreement has been signed, the product has been shipped, there are no
uncertainties surrounding product acceptance, the fees are fixed and
determinable and collection is considered probable. Revenues from maintenance
agreements for maintaining, supporting and providing periodic upgrades are
recognized ratably over the maintenance period, which in most instances is one
year. Revenues for training and consulting services are recognized as services
are performed. Revenue and profits under contracts requiring significant
customization are recognized using the percentage-of-completion method of
contract accounting based on the ratio of incurred costs to total estimated
costs. Revenue from advertising and sponsorship agreements is recognized when
the service is provided or over the contract period.
City guide and classifieds revenues include revenue from the sale of
subscriptions for custom-built business Websites (designed and developed by
TMCS) in its owned and operated markets, the performance of consultation and
design services, licensing and royalty revenues from the sale of
C-7
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
licenses for the use of TMCS's business and technology systems in its
partner-led markets and the sale of classified advertising for the online
personals divisions.
TMCS recognizes subscription revenues from infosites and online personals
classifieds over the period the services are provided after the site has been
built and upon confirmation of payment, respectively. Royalty revenues are
recognized when earned based on the revenues generated by the license or based
on the minimum royalty provisions in the contract. Revenues from consultation
and design services are recognized as the services are provided.
Revenues from the sale of licenses for use of TMCS's business and technology
systems to its partner-led markets are generally recognized over the term of the
license agreement or the period over which the relevant services are delivered.
TMCS's license agreements have terms ranging from three to nine years.
CASH AND CASH EQUIVALENTS
The Company classifies all highly liquid debt instruments purchased with an
original maturity of three months or less as cash equivalents.
MARKETABLE SECURITIES
The Company's marketable securities are classified as available-for-sale as
of the balance sheet dates and are reported at fair value, with unrealized gains
and losses, net of tax, recorded as a component of other comprehensive income
(loss) included in shareholders' equity. Realized gains or losses and other than
temporary declines in value, if any, on available-for-sale securities will be
reported in other income or expense as incurred.
ACCOUNTS RECEIVABLE
Accounts receivable, ticket sales are principally from ticketing outlets and
credit card processors and represent the face value of the tickets sold plus
convenience charges, generally net of outlet commissions. The Company performs
credit evaluations of new ticket outlets, which are reviewed and updated
periodically, requiring collateral as circumstances warrant.
Accounts receivable, trade consists primarily of amounts due from licensees
in connection with software sales, subscription services for both infosites and
personals and other services including advertising, maintenance and
installation.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are computed using the straight-line method over
their estimated useful lives. Assets acquired under capitalizable lease
arrangements are recorded at the present value of the minimum lease payments.
Amortization of assets capitalized under capital leases is computed using the
straight-line method over the life of the asset and is included in depreciation
expense. Development costs for internal use software incurred in the application
development stage are capitalized. Software development costs incurred in the
preliminary project and post implementation stages of a project are expensed as
C-8
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
incurred. Capitalized software is depreciated over the estimated useful life of
the assets, which ranges from one to three years.
<TABLE>
<CAPTION>
DEPRECIATION/
ASSET CATEGORY AMORTIZATION PERIOD
-------------- -------------------
<S> <C>
Buildings.................................................. 40 Years
Computer software and equipment............................ 3 Years
Telephone equipment and furnishings........................ 5 to 7 Years
Transportation equipment................................... 5 Years
Leasehold improvements..................................... 3 to 10 Years
</TABLE>
RESEARCH AND DEVELOPMENT
Research and development expenditures are charged to operations as incurred.
Based on the city guide product development process, technological feasibility
is established upon completion of a working model. Costs incurred between
completion of the working model and the point at which the product is ready for
general release have been insignificant and are expensed as incurred.
ACCOUNTS PAYABLE, CLIENTS
Accounts payable, clients represents contractual amounts due to clients for
tickets sold by the Company on behalf of the organizations that sponsor events.
DEFERRED REVENUE AND OTHER
Deferred revenue consists of subscription revenue related to publications,
licensing revenue from city guide partner-led markets, maintenance revenue
related to concession control systems, sponsorship revenue related to ticketing
operations and prepayments of subscription services, for both infosites and
personals. Deferred publications revenue, which was discontinued in 1998, was
recognized pro rata on a monthly basis, over the life of the subscriptions.
Costs in connection with the procurement of the subscriptions were charged to
expense pro rata on a monthly basis, over the life of the subscription. Deferred
maintenance revenue is recognized over the term of the agreements (generally one
year) on a straight-line basis. Deferred sponsorship revenue and the related
costs are recognized over the term of the agreements on a straight-line basis or
are earned ratably based upon delivery.
INCOME TAXES
The Company accounts for income taxes under the liability method, and
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the years in which those temporary differences are expected to be
recovered or settled.
FINANCIAL INSTRUMENTS
The estimated fair values of cash, accounts receivable, accounts payable and
accrued expenses approximate their carrying value because of the short-term
maturity of these instruments. Marketable
C-9
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities are reported at fair value and the carrying value of long-term debt
approximates fair value as of the balance sheet date.
ADVERTISING COSTS
Advertising costs are expensed as incurred. For the year ended December 31,
1999, the eleven months ended December 31, 1998 and the year ended January 31,
1998, advertising costs amounted to $18.8 million, $4.7 million and
$3.2 million, respectively.
During 1999 and 1998 TMCS maintained certain barter arrangements whereby it
has assisted in the design and hosting of a Web site in exchange for broadcast
advertising. The fair value of services provided and the services received in
the barter arrangement is not readily determinable and therefore is not used to
measure value of the broadcast advertising received. These barter transactions
were valued at $1.1 million and $0.3 million for the year ended December 31,
1999 and for the eleven months ended December 31, 1998, respectively, based on
the estimated cost of the specific services provided. Such amounts are included
in the city guide and classifieds revenue as well as recognized in sales and
marketing expense in the accompanying consolidated statements of operations.
Reciprocal noncash barter advertising on the Internet is not valued in the
consolidated financial statements because of the immateriality of the associated
costs and the indeterminable fair value.
FOREIGN CURRENCY TRANSLATION
The Company determined that the functional currency of each foreign
operation is the local currency. The effects of exchange rate changes related to
assets and liabilities located outside the United States are included as a
component of equity. Foreign currency translation gains and losses are included
in interest expense on the combined statements of operations; such gains and
losses have not been significant.
CONCENTRATION OF CREDIT RISK
The Company places its temporary cash investments principally in commercial
paper with large domestic and international companies and limits the amount of
credit exposure in any one company.
Concentration of credit risk with respect to trade receivables is limited
based on the transaction size, the use of credit card and bank drafts as methods
of payment, the large volume of transactions and geographic dispersion of the
Company's customers. The Company generally does not require collateral; however,
credit losses have generally been within management's expectations and have not
been significant.
ESTIMATES USED IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and the accompanying notes. Actual results could differ from those
estimates, although management does not believe that any differences would
materially affect the Company's consolidated financial position or results of
operations.
C-10
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Significant estimates underlying the accompanying consolidated financial
statements include the allowance for doubtful accounts and estimates for
deferral of revenues and accruals of expenses.
STOCK-BASED COMPENSATION
Substantially all of the individuals granted options by the Company in
accordance with the Ticketmaster Stock Plan (see Note 10) are employees of the
Company and, accordingly, the disclosures required by Statement of Financial
Accounting Standard No. 123, "Accounting for Stock Based Compensation" ("SFAS
No. 123") have been included herein. As permitted by SFAS No. 123, the Company
continues to measure compensation cost in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25")
but provides pro forma disclosures as if the fair value method (as defined in
SFAS No. 123) had been applied.
LONG-LIVED ASSETS INCLUDING INTANGIBLES
The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of long-lived assets, including goodwill
and other intangibles and property, equipment and leasehold improvements, is to
review the carrying value of the assets if the facts and circumstances suggest
that they may be impaired. If this review indicates that the carrying value will
not be recoverable, as determined based on the projected undiscounted future
cash flows, the carrying value is reduced to its estimated fair value.
3. MARKETABLE SECURITIES
At December 31, 1999, available-for-sale marketable securities were as
follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Government and agencies......... $13,975 $ -- $ 63 $13,912
Corporate debt securities............ 12,535 -- 148 12,387
Warrant.............................. 500 11,013 -- 11,513
------- ------- ---- -------
$27,010 $11,013 $211 $37,812
======= ======= ==== =======
</TABLE>
The warrant expired unexercised in November 2000 and the Company charged the
value of the warrant to expense at that time.
The contractual maturities of debt securities classified as
available-for-sale as of December 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
-------- ----------
<S> <C> <C>
Due in one year or less.................................. $21,514 $21,362
Due after one year through two years..................... 4,996 4,937
------- -------
Total.................................................... $26,510 $26,299
======= =======
</TABLE>
C-11
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
4. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consisted of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Land................................................ $ 3,591 $ 3,700
Buildings........................................... 13,978 13,978
Computer software and equipment..................... 49,373 75,014
Telephone equipment and furnishings................. 19,352 25,015
Transportation equipment............................ 2,061 2,474
Leasehold improvements.............................. 5,266 11,635
-------- --------
93,621 131,816
Less accumulated depreciation....................... (39,511) (55,318)
-------- --------
$ 54,110 $ 76,498
======== ========
</TABLE>
5. ACQUISITIONS
On September 28, 1998, the online ticketing operations of Ticketmaster
("ticketmaster.com") were merged into a subsidiary of Citysearch, Inc.
("Citysearch"), a publisher of local city guides on the Internet (the
"Citysearch Merger"), to create Ticketmaster Online-Citysearch, Inc. This
transaction was treated as a reverse acquisition of Citysearch, pursuant to
which ticketmaster.com was treated as the acquiring entity for accounting
purposes, and the portion of the assets acquired and liabilities assumed of
Citysearch were recorded at their respective fair values under the purchase
method of accounting. The accompanying consolidated statements of operations
include the results of operations since the effective date of the merger. Prior
to the Citysearch Merger, USAi owned approximately 11.8% of Citysearch, which
was transferred to the Company at its historical cost basis of $23.0 million. In
connection with the Citysearch Merger, the Company recorded a gain of
$67.9 million by exchanging a 35.2% interest in ticketmaster.com with a basis of
$52.9 million for a 50.7% interest in Citysearch, which had a fair value of
$120.8 million.
In connection with the Citysearch Merger, USAi purchased 1,997,502 TMCS
shares pursuant to a tender offer, which was completed on November 3, 1998,
representing an additional 3.1% interest in Citysearch, for total consideration
of $17.3 million. USAi transferred these shares to the Company at its historical
cost basis.
The acquisition cost of $163.6 million, including expenses, was allocated to
the assets and liabilities of Citysearch based on their respective values at the
acquisition date. The fair market values of the assets acquired and liabilities
assumed are summarized below, along with the excess of the purchase price over
the fair value of net assets, which has been assigned to goodwill (amortized
over five years):
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Current assets.............................................. $59,992
Non-current assets.......................................... 5,217
Goodwill and other intangibles.............................. 161,129
Current liabilities......................................... 9,052
Non-current liabilities..................................... 52,320
</TABLE>
C-12
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
5. ACQUISITIONS (CONTINUED)
On December 8, 1998, TMCS completed an initial public offering of 8,050,000
shares of its common stock (the "Citysearch IPO"), which generated net proceeds
to TMCS of $105.0 million. In connection with the Citysearch IPO, the Company
recognized a gain of $41.1 million.
On March 29, 1999, TMCS completed the acquisition of CityAuction, Inc.
("CityAuction"), a person-to-person online auction community. In connection with
the acquisition, TMCS issued an aggregate of 793,726 shares of its Class B
Common Stock for all the outstanding capital stock of CityAuction representing
an aggregate purchase price of $27.2 million. The acquisition was accounted for
using the purchase method of accounting which resulted in approximately
$28 million in goodwill which is amortized over five years. The results of
operations of CityAuction are included in the statement of operations of the
Company from the date of acquisition.
On June 14, 1999, TMCS completed the acquisition of Match.com, Inc.
("Match.com"), an Internet personals company. In connection with the
transaction, TMCS issued 1,924,777 shares of Class B Common Stock to the former
owners of Match.com representing a total purchase price of approximately
$43.3 million. The transaction was accounted for using the purchase method of
accounting which resulted in approximately $42.8 million of goodwill which is
being amortized over five years. The results of operations of Match.com are
included in the statement of operations of the Company from the date of
acquisition.
On September 13, 1999, TMCS purchased all the outstanding limited liability
company units ("Units") of Web Media Ventures, L.L.C. ("Web Media"), an Internet
personals company. In connection with the acquisition, TMCS issued
1,204,215 million shares of Class B Common Stock in exchange for all of the Web
Media Units and became obligated to issue $2.2 million of Class B Common Stock
payable at the end of each quarter following the closing of the transaction and
an additional number of shares of Class B Common Stock no later than 270 days
after the closing of the transaction. The total purchase price recorded at
September 13, 1999 was $36.6 million, representing the consideration value
attributed to the initial issuance of 1,204,215 million shares of Class B Common
Stock and the two quarterly installments. The acquisition has resulted in
$36.4 million of goodwill being recorded initially with adjustments to be made
at the issuance of additional shares if the revenue targets are achieved. The
total amount of goodwill recorded approximates the purchase price which is being
amortized by the Company over a period of five years. The results of operations
of Web Media are included in the statement of operations of the Company from the
date of acquisition.
On September 17, 1999, TMCS acquired certain assets associated with the
entertainment city guide (A&E) portion of the Sidewalk.com Web site ("Sidewalk")
from Microsoft Corporation ("Microsoft"). TMCS also entered into a four-year
distribution agreement with Microsoft pursuant to which the Company became the
exclusive provider of local city guide content on the Microsoft Network ("MSN")
and the Company's internet personals Websites became the premier provider of
personals content to MSN. In addition, the Company and Microsoft entered into
additional cross-promotional arrangements. In connection with these
transactions, the Company issued to Microsoft 7.0 million shares of its Class B
Common Stock and two warrants to purchase an aggregate of 4.5 million shares of
its Class B Common Stock. At December 31, 1999, the exercise price of the first
warrant (3.0 million shares) was determined to be $21.57. The second warrant
(1.5 million shares) has a fixed exercise price of $60 per share of Class B
Common Stock. Both warrants expire on September 17, 2004, five years from the
date of issuance. TMCS granted Microsoft certain registration rights in
connection with the transaction. The
C-13
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
5. ACQUISITIONS (CONTINUED)
impact of TMCS's ownership of the Sidewalk assets is included in the statement
of operations of the Company from the date the transaction closed. The fair
value of the consideration provided in exchange for the Sidewalk assets and
distribution agreement amounted to $338.5 million; and $333.5 million has been
recorded in goodwill and other intangibles in the accompanying consolidated
balance sheet and $5.0 million has been allocated to the distribution agreement
and recorded as deferred marketing in the accompanying consolidated balance
sheet. The Sidewalk intangible of $333.5 million is being amortized over five
years. The distribution agreement of $5.0 million is being amortized over four
years with the amortization expense included in sales and marketing expense.
PRO FORMA FINANCIAL RESULTS
The following unaudited pro forma information presents a summary of
consolidated results of the Company and its acquisitions of TMCS, CityAuction,
Match.com, and Web Media for the year ended December 31, 1999 and the eleven
months ended December 31, 1998 assuming the acquisitions had been made at the
beginning of the periods presented with pro forma adjustments to give effect to
amortization of goodwill. The pro forma financial information is not necessarily
indicative of the results of operations as they would have been had the
transactions been effective at the beginning of the periods presented.
<TABLE>
<CAPTION>
ELEVEN MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Revenue............................................ $410,628 $506,683
Net loss........................................... (4,996) (70,479)
</TABLE>
6. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Goodwill............................................ $947,664 $1,380,937
Purchased service agreements........................ 64,354 53,096
Accumulated amortization............................ (78,911) (155,573)
-------- ----------
$933,107 $1,278,460
======== ==========
</TABLE>
Goodwill is being amortized using the straight-line method over terms
ranging from five to forty years, with a period of five to ten years for
Internet related businesses. The ticketing license agreements are being
amortized generally in accordance with the contract terms, primarily on a
straight-line basis, including any annual minimum guarantees specified by the
contract. The lives of the contracts generally range from three to seven years.
C-14
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Due to USAi, interest rate at one-month London
Inter-Bank Offering Rate ("LIBOR") plus 0.75%
(6.48% and 6.00% at December 31, 1999 and 1998,
respectively), no specific repayment terms........ $160,077 $105,893
Promissory note secured by a building; bearing
interest at a rate of 9.20% per annum; principal
and interest payable monthly, based on a 25-year
term, with the balance due on April 25, 2007...... 8,833 8,730
Note payable to bank on term loan collateralized by
substantially all of a subsidiary's assets,
interest at prime (8.50% and 7.75% at
December 31, 1999 and 1998, respectively) plus
0.25% or at the LIBOR plus 225 basis points per
annum during 1998 or plus 0.75% per annum during
1999; principal and interest payable monthly (to
the extent the subsidiary's cash flows exceed
certain amounts) with the balance due on
January 31, 2001.................................. 6,857 5,571
Note payable to minority shareholder; bearing
interest at the rate of 6.00% per annum; interest
payable quarterly in arrears; balance due on the
date of termination of agreement or such earlier
time as the subsidiaries' shareholders may
unanimously agree................................. -- 4,473
Other............................................... 2,428 1,443
-------- --------
178,195 126,110
Less current portion................................ 8,315 2,423
-------- --------
$169,880 $123,687
======== ========
</TABLE>
Annual principal payments due subsequent to December 31, 1999 are as follows
(in thousands):
<TABLE>
<S> <C>
Year ending December 31:
2000...................................................... $ 2,423
2001...................................................... 4,744
2002...................................................... 244
2003...................................................... 172
2004...................................................... 178
Thereafter................................................ 118,349
--------
$126,110
========
</TABLE>
C-15
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
8. SHAREHOLDERS' EQUITY
On May 13, 1997 (with effect from March 1, 1997), Ticketmaster acquired all
of the issued and outstanding shares of capital stock of its Canadian licensees
for a purchase price of Canadian $44.7 million (approximately US
$32.4 million), consisting of approximately Canadian $22.3 million in cash and
1,115,531 non-voting, non-participating Class B Shares of Ticketmaster's
Canadian subsidiary. During 1998, based upon the occurrence of certain specified
events, the Canadian purchase price was increased by approximately 12.3%
resulting in the issuance of an additional 137,411 Class B Shares of the
Canadian subsidiary. During the year ended January 31, 1998, the eleven months
ended December 31, 1998 and the year ended December 31, 1999, the Class B Shares
were exchanged for shares of the Company's Common Stock on a one-for-one basis.
On December 2, 1999, Ticketmaster invested an additional $40 million in TMCS
through the acquisition of 1.3 million shares of TMCS Class B Common Stock. Also
during 1999, the Company received an additional $207,000 equity investment from
USAi in the form of advertising on its television properties, Sci-Fi Channel and
USA Network, for no additional shares.
9. INCOME TAXES
The provision for income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED
JANUARY 31, DECEMBER 31, DECEMBER 31,
1998 1998 1999
------------ ------------- -------------
(PREDECESSOR
COMPANY)
<S> <C> <C> <C>
Current:
Federal............................... $ 7,475 $ 8,851 $24,049
State................................. 1,925 1,952 5,915
Foreign............................... 1,855 1,053 2,098
------- ------- -------
11,255 11,856 32,062
------- ------- -------
Deferred:
Federal............................... 550 34,387 (6,059)
State................................. 78 11,953 (2,028)
------- ------- -------
628 46,340 (8,087)
------- ------- -------
$11,883 $58,196 $23,975
======= ======= =======
</TABLE>
C-16
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
9. INCOME TAXES (CONTINUED)
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective income tax rate:
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED
JANUARY 31, DECEMBER 31, DECEMBER 31,
1998 1998 1999
------------ ------------- -------------
(PREDECESSOR
COMPANY)
<S> <C> <C> <C>
Statutory federal income tax expenses... 35% 35% (35)%
State income taxes, net of Federal
benefit............................... 8 9 3
Effect of foreign operations............ 4 1 2
Change in valuation allowance........... -- 2 22
Non-deductible amortization of goodwill
and other intangibles................. 11 11 33
Other................................... 1 2 1
------- ------- -------
59% 60% 26 %
======= ======= =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward................... $ 31,482 $ 49,848
Goodwill and other intangible assets, principally
due to amortization............................. 3,540 2,402
Deferred revenue.................................. 1,022 3,671
Other............................................. 842 8,800
-------- --------
Total deferred tax assets........................... 36,886 64,721
Valuation allowance................................. (31,700) (51,868)
-------- --------
Net deferred tax assets............................. 5,186 12,853
Deferred tax liabilities:
Gain from sale of subsidiary stock................ 44,901 44,901
Other............................................. 2,373 1,953
-------- --------
Total deferred tax liabilities...................... 47,274 46,854
-------- --------
Net deferred tax liabilities........................ $(42,088) $(34,001)
======== ========
</TABLE>
The valuation allowance increased by approximately $20.0 million and
$1.7 million during the year ended December 31, 1999 and the eleven months ended
December 31, 1998, respectively. The valuation allowance recorded in connection
with the Citysearch Merger was approximately $30.0 million. If the related
deferred tax assets become realizable in the future, the reversal of the
valuation allowance will be recorded as a reduction of goodwill. Also,
approximately $3.5 million of the valuation allowance relates to stock option
deductions, which if realized, will be charged to paid-in capital. The Company
had net operating loss carryforwards for federal and state income tax purposes
at December 31, 1999 of approximately $129.0 million and $103.0 million,
respectively. The federal
C-17
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
9. INCOME TAXES (CONTINUED)
carryforwards expire principally in the period from 2010 to 2019, and the state
carryforwards expire principally in 2004. Utilization of the net operating loss
carryforwards is subject to limitations as a result of ownership changes as
defined in the Internal Revenue Code.
The Company has federal income tax returns under audit by the Internal
Revenue Service. The Company has received proposed adjustments related to the
audits. Management believes that the resolution of the proposed adjustments will
not have a material adverse effect on its financial position or results of
operations.
10. STOCK OPTIONS
In connection with the Ticketmaster Transaction, the options granted by the
Company under the Ticketmaster Stock Plan were converted to options in USAi
stock.
USAi has various stock option plans (the "Plans") under which options to
purchase USAi Common Stock (at not less than fair market value on the date of
the grant) may be granted to employees of the Company. The options under the
Plans vest ratably, generally over a range of three to five years from the date
of grant and generally expire not more than ten years from the date of grant.
Three of the Plans have options available for future grants.
TMCS has three stock option plans (the "Option Plans") under which options
to purchase TMCS common stock may be granted to employees of TMCS, directors,
consultants and certain employees of the Company. The options under the Option
Plans vest ratably, generally over a range of four years from the date of grant
and generally expire not more than ten years from the date of grant. All of the
Option Plans have options available for future grants.
C-18
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
10. STOCK OPTIONS (CONTINUED)
A summary of changes in USAi options under the stock option plans with
respect to employees of the Company is as follows:
<TABLE>
<CAPTION>
WEIGHTED NUMBER OF WEIGHTED
NUMBER OF AVERAGE SHARES AVERAGE
SHARES EXERCISE PRICE EXERCISABLE REMAINING LIFE
-------------- -------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS) (YEARS)
<S> <C> <C> <C> <C>
Options outstanding at
January 31, 1997....... 6,884 $6.43 558 9.48
Granted................ 327 6.96
Exercised.............. (680) 6.44
Canceled............... (242) 6.44
------
Options outstanding at
January 31, 1998....... 6,289 6.45 6,244 8.50
Granted................ 1,445 12.23
Exercised.............. (1,762) 6.47
Canceled............... (23) 9.00
------
Options outstanding at
December 31, 1998...... 5,949 7.86 4,434 8.13
Granted................ 1,032 26.97
Exercised.............. (1,957) 6.61
Canceled............... (160) 11.75
------
Options outstanding at
December 31, 1999...... 4,864 12.27 2,847 7.06
------
</TABLE>
The stock options outstanding on July 17, 1997 became fully vested as a
result of the change of the controlling ownership of Ticketmaster Group, Inc.
The following table summarizes certain information related to options for
TMCS common stock:
<TABLE>
<CAPTION>
WEIGHTED NUMBER OF WEIGHTED
NUMBER OF AVERAGE SHARES AVERAGE
SHARES EXERCISE PRICE EXERCISABLE REMAINING LIFE
-------------- -------------- -------------- --------------
(IN THOUSANDS) (IN THOUSANDS) (YEARS)
<S> <C> <C> <C> <C>
Options outstanding at
September 28, 1998
(date of merger)....... 3,905 $3.67 1,987 8.93
Granted................ 938 16.35
Exercised.............. (821) 9.19
Canceled............... (124) 4.23
------
Outstanding at
December 31, 1998...... 3,898 7.28 1,437 9.18
Granted................ 5,550 31.97
Exercised.............. (955) 4.44
Canceled............... (1,008) 15.03
------
Outstanding at
December 31, 1999...... 7,485 24.55 1,650 9.28
======
</TABLE>
C-19
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
10. STOCK OPTIONS (CONTINUED)
USAi has not issued options to any of the Company's employees with an
exercise price below fair market value. Accordingly, in accordance with APB
No. 25, no compensation has been charged to the Company by USAi.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123. The information is determined as if the Company has
accounted for its employee stock options under the fair value method. The fair
value for these options was estimated at the date of grant using a Black-Scholes
options pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED
JANUARY 31, DECEMBER 31, DECEMBER 31,
1998 1998 1999
------------ ------------- -------------
(PREDECESSOR
COMPANY)
<S> <C> <C> <C>
Dividend yield.......................... 0% 0% 0%
Annualized volatility................... 43.0% 56.0% 60.0%
Risk free interest...................... 6.0% 6.0% 6.5%
Expected term (years)................... 4 5 5
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Employees of
the Company also participate in certain stock option plans offered by TMCS. The
Company's pro forma information, which includes the effect of TMCS's stock
option plans, follows (in thousands):
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED YEAR ENDED
JANUARY 31, DECEMBER 31, DECEMBER 31,
1998 1998 1999
------------ ------------- -------------
(PREDECESSOR
COMPANY)
<S> <C> <C> <C>
Net income (loss) as reported........... $8,147 $43,335 $(60,519)
Pro forma net income (loss)............. $7,773 $42,366 $(74,038)
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over the
vesting period and additional options may be granted in future years.
11. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan covering all eligible employees, which
contains an employer-matching feature of 25% up to a maximum of 6% of the
employee's compensation. The Company's
C-20
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
contribution for the plan years ended December 31, 1999, 1998 and the year ended
January 31, 1998 was approximately $476,000, $481,000, and $455,000,
respectively. Effective December 31, 1999, the Company merged its 401(k) plan
into the USA Networks, Inc. Retirement Savings Plan--Commerce (the "New Plan").
All assets from the 401(k) plan have been transferred to the New Plan.
TMCS has a defined contribution plan for certain qualified employees as
defined in the plan. Participants may contribute from 1% to 20% of pretax
compensation subject to certain limitations. The plan provides for certain
discretionary contributions by TMCS as defined in the plan. No contributions
were made for the year ended December 31, 1999.
12. COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under various operating leases
that expire at various dates through 2009. Renewal options exist for a
substantial portion of the leases. Additional rental payments may be required
for the Company's pro rata share of certain operating expenses associated with
office space leases. Future minimum lease payments for operating leases are as
follows as of December 31, 1999 (in thousands):
<TABLE>
<S> <C>
Years ending December 31:
2000...................................................... $12,660
2001...................................................... 11,445
2002...................................................... 8,333
2003...................................................... 6,333
2004...................................................... 5,000
Thereafter................................................ 13,396
-------
$57,167
=======
</TABLE>
Rental expense charged to operations for operating leases was approximately
$10.9 million, $7.9 million and $6.9 million for the year ended December 31,
1999, the eleven months ended December 31, 1998 and the year ended January 31,
1998, respectively.
13. RELATED PARTY TRANSACTIONS
Amounts due to USAi consist of advances to the Company arising primarily
from the paydown by USANi LLC of the Company's revolving loan and other costs
paid on the Company's behalf by USAi, primarily for insurance and professional
fees. In connection with the Ticketmaster Transaction on June 24, 1998, all
amounts borrowed under the revolving loan by Ticketmaster Group, Inc. were paid
by USANi LLC, a subsidiary of USAi. Pursuant to an agreement between USAi and
USANi LLC, USANi LLC charges the Company interest at USANi LLC's borrowing rate,
which was 6.48% and 6.00% at December 31, 1999 and 1998, respectively.
During the eleven months ended December 31, 1998, the Company earned revenue
of $14.2 million from contracts with certain venues owned by Universal, Inc., an
affiliate of USAi.
In August 1998, Citysearch received a $50.0 million loan from USAi in
exchange for a convertible promissory note ("Convertible Note"). The Convertible
Note, in the principal amount of $50.0 million,
C-21
<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
13. RELATED PARTY TRANSACTIONS (CONTINUED)
bore interest at a rate per annum of 7.00%. Citysearch paid total interest of
$1.2 million covering the period of August 13 through December 1998. On
December 10, 1998, TMCS retired the note from a portion of the proceeds of its
initial public offering. For the period from the date of the Citysearch Merger
to December 31, 1998, interest expense of $710,000 on the Convertible Note are
included in the statements of operations.
14. LITIGATION
On July 23, 1999, Ticketmaster Corporation and Ticketmaster
Online-Citysearch, Inc. (the "TM plaintiffs") filed a complaint for damages and
injunctive relief against Tickets.com, Inc. ("Tickets.com") in the United States
District Court, Central District of California, entitled Ticketmaster
Corporation and Ticketmaster Online-Citysearch, Inc. v. Tickets.Com, Inc. The
complaint claimed that Tickets.com violates the TM plaintiffs' legal and
contractual rights by, among other things, (i) trespassing on their Websites,
(ii) providing deep-links to their internal web pages without their consent,
(iii) systematically, deceptively and intentionally accessing their computers
and computer systems and copying verbatim their event pages daily and extracting
and reprinting their Uniform Resource Locators ("URLs") and event data and
information in complete form on Tickets.com's web site and (iv) providing false
and misleading information about them, the availability of tickets on their
Websites, and the relationship between them and Tickets.com. The district court
denied Ticketmaster's motion for preliminary injunction and Ticketmaster filed
an appeal to the Ninth Circuit Court of Appeals. Various complaints and
cross-complaints were filed. On May 30, 2000, Tickets.com filed counter-claims
asserting that Ticketmaster Corporation's exclusive agreements with venues,
promoters and other third parties injure competition, violate antitrust laws,
constitute unfair competition and interfere with Tickets.com's prospective
economic advantages. On July 19, 2000, TM plaintiffs filed a motion to dismiss
any claim based in whole or in part on TM plaintiffs' alleged litigation conduct
as well as Tickets.com's ninth claim for relief under California's antitrust
laws (the Cartwright Act). On September 25, 2000 that motion was denied. On
October 24, 2000, TM plaintiffs filed their answer to Tickets.com's claims. TM
plaintiffs intend to vigorously defend this litigation.
The Company is involved in various other investigations, lawsuits and claims
arising in the normal conduct of its business, including but not limited to,
allegations of antitrust violations. The Company has also responded to inquiries
from various government and state authorities. In the opinion of the Company's
management, based on current information and on advice from legal counsel, none
of the Company's legal proceedings will have a material adverse effect on the
Company's financial position, results of operations, or cash flows.
15. GUARANTEE OF NOTES
USAi and USANi LLC issued $500.0 million 6 3/4% Senior Notes due 2005 (the
"Notes"). Ticketmaster Corporation, together with certain other USAi entities,
has jointly and severally guaranteed payment of the Notes.
16. INDUSTRY SEGMENTS
The Company operates principally within the United States. For the year
ended December 31, 1999 and the eleven months ended December 31, 1998, the
Company operated principally in two
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<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
16. INDUSTRY SEGMENTS (CONTINUED)
industry segments: ticketing operations and city guide and related services.
During the year ended January 31, 1998, the Company operated in one industry
segment: ticketing operations. Industry segment information is presented below
for the year ended December 31, 1999 and the eleven months ended December 31,
1998. Industry segment information related to EBITDA represents the Company's
earnings before interest, taxes, depreciation, amortization, minority interest,
advertising contributed by USA Networks (for which no consideration was paid by
Ticketmaster), equity in net income (loss) of unconsolidated affiliates and
other income and expenses.
<TABLE>
<CAPTION>
ELEVEN MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1999 2000
------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Revenues
Ticketing operations................................. $ 348,103 $ 442,743 $ 395,909
City guide and classifieds........................... 5,568 36,329 58,776
Corporate and other.................................. -- 19,458 7,639
---------- ---------- ----------
$ 353,671 $ 498,530 $ 462,324
========== ========== ==========
EBITDA
Ticketing operations................................. $ 63,936 $ 105,770 $ 81,437
City guide and classifieds........................... (6,330) (52,361) (37,995)
Corporate and other.................................. (8,998) (16,726) (19,727)
---------- ---------- ----------
$ 48,608 $ 36,683 $ 23,715
========== ========== ==========
Assets
Ticketing operations................................. $ 998,775 $1,020,612 $1,092,557
City guide and classifieds........................... 265,506 650,248 513,462
Corporate and other.................................. 2,255 2,676 2,558
---------- ---------- ----------
$1,266,536 $1,673,536 $1,608,577
========== ========== ==========
Depreciation and amortization
Ticketing operations................................. $ 43,189 $ 61,188 $ 53,288
City guide and classifieds........................... 8,877 65,570 96,307
Corporate and other.................................. 384 1,163 1,005
---------- ---------- ----------
$ 52,450 $ 127,921 $ 150,600
========== ========== ==========
Capital expenditures
Ticketing operations................................. $ 16,534 $ 24,190 $ 14,729
City guide and classifieds........................... 651 11,351 8,686
Corporate and other.................................. 624 1,570 959
---------- ---------- ----------
$ 17,809 $ 37,111 $ 24,374
========== ========== ==========
</TABLE>
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<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
16. INDUSTRY SEGMENTS (CONTINUED)
Reconciliation of EBITDA to consolidated income (loss) before income taxes and
minority interest:
<TABLE>
<CAPTION>
ELEVEN MONTHS NINE MONTHS
ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1998 1999 2000
------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Segment EBITDA......................................... $ 48,608 $ 36,683 $ 23,715
Depreciation and amortization.......................... (52,450) (127,921) (150,600)
Advertising contributed by USAi........................ -- (207) (1,607)
Equity in net income (loss) of unconsolidated
affiliates........................................... 477 1,225 (2,636)
Other income (expenses), net........................... 100,067 (2,463) (3,087)
---------- ---------- ----------
Income (loss) before taxes and minority interest....... $ 96,702 $ (92,683) $ (134,215)
========== ========== ==========
</TABLE>
17. SUBSEQUENT EVENTS (UNAUDITED)
On January 31, 2000, TMCS completed the acquisition of 2b Technology, Inc.
("2b Technology"), a ticketing and software licensing company. In connection
with the acquisition, TMCS issued 458,005 shares of Class B Common Stock to the
former owners of 2b Technology representing a purchase price of approximately
$17.1 million. The purchase price will be increased for additional shares to be
issued upon achievement of revenue targets based on the stock price at that
time. The acquisition is being accounted for using the purchase method of
accounting. The acquisition resulted in $17.3 million of goodwill being recorded
with adjustments to be made upon the issuance of additional shares if the
revenue targets are achieved. The total amount of goodwill is being amortized
over five years. The results of operations of 2b Technology are included in the
accompanying statement of operations from the date of acquisition.
On April 19, 2000, the Company completed the acquisition of Reseau
Admission Inc., Concept Electronique Microflex Inc. and Admission Network
USA Inc. (collectively known as "Admission Canada") for $30 million in cash.
Admission Canada is a ticketing company operating primarily in the Canadian
provinces. The acquisition is being accounted for using the purchase method of
accounting and resulted in $7.2 million of goodwill being recorded which is to
be amortized over 10 years.
On May 26, 2000, TMCS completed the acquisition of TicketWeb, Inc.
("TicketWeb"), a web-based live event ticketing company. In connection with the
acquisition, TMCS issued 1,840,238 shares of Class B Common Stock to the former
owners of TicketWeb representing a purchase price of approximately
$35.3 million. The acquisition is being accounted for using the purchase method
of accounting. The acquisition resulted in $31.9 million of goodwill being
recorded. The total amount of goodwill is being amortized over five years. The
results of operations of TicketWeb are included in the accompanying statements
of operation from the date of acquisition.
On July 13, 2000, the Company acquired Essential Data Customer Systems
("EDCS") for $7.9 million in cash. EDCS's fan loyalty system is an
incentive-based program that brings "frequent flier" type benefits to sports
fans. The acquisition is being accounted for using the purchase method of
accounting and resulted in $7.2 million of goodwill being recorded which is to
be amortized over 10 years.
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<PAGE>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1999 AND 2000 IS UNAUDITED)
17. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
On August 11, 2000, the Company settled its pending Moviefone action with
AOL for $12.5 million in cash. In connection with the settlement terms, TMCS
received certain advertising on AOL's proprietary Internet service and Moviefone
agreed to use a portion of the cash settlement to buy advertising on certain
properties of USA Networks.
On November 21, 2000, USAi and TMCS issued a joint press release announcing
that USAi and TMCS had entered into a definitive Contribution Agreement, dated
as of November 20, 2000, pursuant to which USAi would contribute the business
and operations of Ticketmaster Corporation to TMCS in exchange for the issuance
by TMCS to USAi of 52 million shares of TMCS Class B Common Stock in addition to
the shares of TMCS stock that USAi currently beneficially owns.
On December 18, 2000, the Company acquired its Oregon ticketing licensee,
Tom Lasley, Inc., for $10.9 million in cash. The acquisition is being accounted
for using the purchase method of accounting and resulted in $10.7 million of
goodwill being recorded which is to be amortized over 20 years.
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