<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 19, 1999
REGISTRATION NO. 333-79709
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TICKETS.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 7999 06-1424841
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
</TABLE>
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555 ANTON BOULEVARD, 12TH FLOOR
COSTA MESA, CALIFORNIA 92626
(714) 327-5400
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
W. THOMAS GIMPLE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
555 ANTON BOULEVARD, 12TH FLOOR
COSTA MESA, CALIFORNIA 92626
(714) 327-5400
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
BRUCE R. HALLETT, ESQ. JULIA L. DAVIDSON, ESQ.
ALLEN Z. SUSSMAN, ESQ. JULIE M. ROBINSON, ESQ.
BROBECK, PHLEGER & HARRISON LLP COOLEY GODWARD LLP
38 TECHNOLOGY DRIVE 5 PALO ALTO SQUARE
IRVINE, CALIFORNIA 92618 3000 EL CAMINO REAL
(949) 790-6300 PALO ALTO, CALIFORNIA 94306
(650) 843-5000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued October 19, 1999
6,700,000 Shares
[Ticket.com Logo]
COMMON STOCK
------------------------------
TICKETS.COM, INC. IS OFFERING 6,255,556 SHARES OF ITS COMMON STOCK AND THE
SELLING STOCKHOLDER IS OFFERING 444,444 SHARES. THIS IS OUR INITIAL PUBLIC
OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS FOR OUR SHARES. WE ANTICIPATE
THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE BETWEEN $7.00 AND $9.00 PER
SHARE.
------------------------------
WE HAVE BEEN APPROVED FOR QUOTATION UPON NOTICE OF ISSUANCE ON THE NASDAQ
NATIONAL MARKET UNDER THE SYMBOL "TIXX."
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS, INCLUDING THE RISK THAT WE HAVE
LIMITED EXPERIENCE IN OFFERING E-COMMERCE SERVICES AND OUR REVENUES GENERATED TO
DATE FROM INTERNET SALES HAVE NOT BEEN SIGNIFICANT. SEE "RISK FACTORS" BEGINNING
ON PAGE 6.
------------------------------
PRICE $ A SHARE
------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY STOCKHOLDER
-------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share............................. $ $ $ $
Total................................. $ $ $ $
</TABLE>
Tickets.com, Inc. has granted the underwriters a 30-day option to purchase up to
an additional 938,333 shares to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 1999.
------------------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
SG COWEN
DISCOVER BROKERAGE DIRECT
E*OFFERING
WIT CAPITAL CORPORATION
October 19, 1999
<PAGE> 3
INSIDE FRONT COVER
[GRAPHICS]
Graphics showing the Tickets.com home page, web site, and examples of event
calendars, email event notifications and a venue seating chart.
Tickets.com(SM), Advantix(R), ArtSoft(R), Databox(R), SportSoft(R),
Ticketmaker Professional(TM), Prologue(R), Pass(R), Access Control System
2100(TM) and 1.800.Tickets(SM) are trademarks or service marks of Tickets.com.
Each trademark, trade name or service mark of any other company appearing in
this prospectus belongs to its holder.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 6
Special Note Regarding Forward-Looking
Statements.......................... 19
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Unaudited Pro Forma Condensed
Combined Financial Information...... 23
Selected Consolidated Financial
Data................................ 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.............................. 47
Management............................ 71
Related Party Transactions............ 84
Principal and Selling Stockholders.... 87
Description of Capital Stock.......... 89
Shares Eligible for Future Sale....... 92
Underwriters.......................... 94
Legal Matters......................... 96
Experts............................... 96
Additional Information................ 97
Index to Financial Statements......... F-1
</TABLE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 1999 all dealers that buy, sell or trade shares,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
i
<PAGE> 5
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our consolidated financial statements and related notes appearing
elsewhere in this prospectus. All information in this prospectus relating to the
number of shares of our common stock, options or warrants gives effect to a
1-for-2.25 reverse split of our common stock to be effected before the closing
of this offering. The conversion of all shares of our convertible preferred
stock outstanding as of October 15, 1999 is based on an assumed offering price
of $8.00 per share. The actual number of shares issued upon conversion of the
preferred stock may be adjusted based upon the initial public offering price.
Tickets.com is a leading source of entertainment tickets, event
information, and related products and services based upon our pro forma
consolidated 1998 revenues. Consumers can buy tickets from us for our clients'
events through retail stores, telephone sales centers, interactive voice
response systems and on the Internet. By combining our powerful brand, extensive
event database and relationships with entertainment organizations, we create a
convenient one-stop solution for consumers in search of event information and
tickets. We provide automated ticketing solutions to over 4,000 entertainment
organizations and venues such as stadiums, performing arts centers, museums and
professional sports franchises. In 1998, we sold approximately 5.3 million
tickets for which we received service fees from ticket buyers. Through our
www.tickets.com web site, we enable consumers to obtain information on more than
40,000 entertainment organizations and, as of October 1, 1999, more than 50,000
sporting and entertainment events and performances. Consumers may also use our
web site to purchase tickets from multiple sources and shop for related
products. Our clients include The John F. Kennedy Center for the Performing
Arts, The Marine Midland Arena, the Texas Rangers, The Lincoln Center for the
Performing Arts, The National Air & Space Museum and the San Francisco Giants.
MARKET OPPORTUNITY
The entertainment and sports industries and, consequently, the event
ticketing market, are large and growing. We estimate that the market for event
ticketing in the United States, based on the face value of tickets sold for live
entertainment and sporting events and attractions, totaled $14.5 billion in
1998, and we expect it to grow to $18.0 billion in 2001. We generate revenues
from ticket sales primarily from service fees paid by ticket purchasers. For the
six months ended June 30, 1999, the weighted average service fee for tickets
sold through us was equal to 13.6% of the face value of tickets sold. As the
entertainment and sports industries have grown, so has the need for more
convenient methods for the sale and distribution of tickets. The process of
selling and distributing tickets is inherently complex. Entertainment
organizations often simultaneously sell tickets to a number of different events
through a variety of distribution channels, to groups of consumers with varying
ticketing needs and often at a rapid pace. An integrated technology solution is
required to effectively and efficiently meet these needs.
The Internet has emerged as a powerful medium for selling tickets and
related products, aggregating and disseminating event information and promoting
events. According to Forrester Research, Inc., a market research firm, online
event ticketing sales are expected to grow from an estimated $300 million in
1999 to an estimated $3.9 billion in 2004. The Internet creates advantages and
convenience for consumers and entertainment organizations. We believe consumers
seek an integrated solution where they can find information about a wide range
of events and conveniently buy tickets to those events. Moreover, entertainment
organizations are increasingly interested in using advanced software solutions
and the Internet to efficiently sell tickets, market their events and deliver
event information, generate increased revenues and build stronger customer
relationships. During the first and second quarters of 1999, our Internet-based
revenues comprised 4.2% and 8.0% of our total revenues. Although historically
our Internet-based revenues have not been significant, we believe substantial
opportunities exist for a provider of extensive event information and ticketing
solutions that can satisfy both the convenience requirements of consumers and
the revenue maximization needs of entertainment organizations.
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<PAGE> 6
In order to take advantage of these opportunities, we have entered into
strategic relationships with various media, entertainment, technology,
e-commerce and marketing companies. In August 1999, we entered into a letter of
intent with Excite, Inc., under which Excite will integrate our event
information and ticket purchasing capabilities throughout the Excite Internet
portal and @Home broadband service. At the same time, we entered into a content
and distribution agreement with Cox Interactive Media, Inc., under which we will
create a ticketing web page for web sites operated by Cox Interactive and its
affiliates and will provide information that will be posted on these web sites.
As part of these strategic relationships, Excite and Cox Interactive each made
an equity investment in Tickets.com.
STRATEGY
Our goal is to use our brand, advanced ticketing technology and existing
base of clients who use our ticketing systems to become the leading source for
event ticketing and information on the Internet. To accomplish our goal, we
intend to:
- Maximize Ticket Inventory Available for Sale. We intend to continue to
transition our current client base to the Internet, use our technology to
interface with other ticketing service and system providers, increase our
allocation of tickets from entertainment organizations and grow our
client base through increased sales efforts and through acquisitions.
- Offer Additional Services to Help Entertainment Organizations Maximize
Revenues and Profits. We plan to offer a number of value-added services
in conjunction with our web site and ticketing systems in order to sell
more tickets, create new revenue sources and create operating
efficiencies for entertainment organizations.
- Pursue an Aggressive Global Branding Strategy. We intend to undertake an
aggressive marketing and promotional campaign to establish Tickets.com
and 1-800-TICKETS as leading entertainment information and ticketing
brands.
- Aggregate Content and Build an Online Entertainment Community. We intend
to create an Internet community where entertainment consumers, event
promoters, online advertisers and ticket sellers can gather to exchange
information and conduct commerce.
- Develop and Maintain Strategic Relationships. We intend to develop
additional advertising and strategic relationships with media,
entertainment, technology and marketing companies.
- Penetrate International Markets. We intend to continue developing our
existing licensee relationships and create new alliances with
international ticketing companies and entertainment organizations.
There are a number of factors that may affect our ability to implement our
strategy, including our limited experience in selling tickets and servicing
clients over the Internet, the significant competition we face in the ticketing
industry and the relatively small percentage of our clients that currently use
the Internet to sell their tickets.
CORPORATE INFORMATION
Tickets.com, Inc. was incorporated in Delaware in January 1995 as The
Entertainment Express, Inc. However, we did not commence business operations
until May 1996 when we acquired Hill Arts and Entertainment Systems, Inc. In
December 1996 we changed our name to Advantix, Inc., and in May 1999 we changed
our name to Tickets.com, Inc. Our executive offices are located at 555 Anton
Boulevard, 12th Floor, Costa Mesa, California 92626, and our telephone number is
(714) 327-5400. Our World Wide Web site is located at http://www.tickets.com.
Information contained in our web site shall not be deemed to be part of this
prospectus. Events or transactions occurring prior to May 25, 1999 occurred or
were undertaken by us under our former names, "Advantix, Inc." and "The
Entertainment Express, Inc." unless otherwise indicated.
In this prospectus, the terms "Tickets.com," "we," "us" and "our" refer to
Tickets.com, Inc. and its consolidated subsidiaries.
2
<PAGE> 7
THE OFFERING
Common stock offered............... 6,700,000 shares including 444,444 shares
owned by a selling stockholder(a)
Common stock to be outstanding
after this offering.............. 60,904,649 shares(a)(b)
Use of proceeds.................... To repay indebtedness and for working
capital and general corporate purposes,
including capital expenditures and
potential acquisitions. See "Use of
Proceeds."
- ---------------
(a) Unless otherwise specifically stated, the information throughout this
prospectus does not take into account the possible issuance of up to 938,333
additional shares to the underwriters pursuant to their right to purchase
additional shares to cover over-allotments.
(b) Based on shares outstanding as of October 15, 1999. Gives effect to the
automatic conversion of all debt instruments and equity securities that
convert into shares of common stock immediately prior to the closing of this
offering or expire upon the closing of this offering, based on an assumed
initial public offering price of $8.00 per share. The actual number of
shares of common stock issued upon the conversion of Series E preferred
stock may be adjusted based upon the initial public offering price. Excludes
(1) 9,236,529 shares of common stock issuable upon exercise of stock options
outstanding as of October 15, 1999, with a weighted average exercise price
of approximately $4.83 per share; and (2) 1,104,565 shares of common stock
issuable upon the exercise of warrants outstanding at October 15, 1999 with
a weighted average exercise price of approximately $1.99.
3
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated financial data for the period from May
31, 1996, the date that we commenced our business operations, to December 31,
1996 and for the years ended December 31, 1997 and 1998 have been derived from
our audited consolidated financial statements included elsewhere in this
prospectus. The summary consolidated financial data for the six months ended
June 30, 1999 have been derived from the unaudited consolidated financial
statements included elsewhere in this prospectus. Our unaudited consolidated
financial statements have been prepared on substantially the same basis as the
audited consolidated financial statements and, in the opinion of our management,
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the results of operations for such period. Please be
advised that historical results are not necessarily indicative of the results to
be expected in the future, and results of interim periods are not necessarily
indicative of results for the entire year. You should read "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and the related notes for a further explanation of the
financial data summarized here. The unaudited pro forma combined statement of
operations data for the year ended December 31, 1998 and the six months ended
June 30, 1999 are derived from the unaudited pro forma condensed combined
financial information contained elsewhere in this prospectus.
The pro forma combined statement of operations data for the year ended
December 31, 1998 and the six months ended June 30, 1999 show our pro forma
results of operations as if the acquisitions of ProTix, Inc., California
Tickets.com, Inc. and TicketsLive Corporation had occurred on January 1, 1998.
See "Selected Unaudited Pro Forma Condensed Combined Financial Information."
Under the rules and regulations of the Securities and Exchange Commission,
Bay Area Seating Service, Inc. is deemed to be a predecessor of Tickets.com.
Please see "Selected Consolidated Financial Data."
<TABLE>
<CAPTION>
PRO FORMA COMBINED
---------------------------
MAY 31, 1996 YEAR ENDED SIX MONTHS SIX MONTHS
(INCEPTION) TO DECEMBER 31, ENDED YEAR ENDED ENDED
DECEMBER 31, ------------------ JUNE 30, DECEMBER 31, JUNE 30,
1996 1997 1998 1999 1998 1999
-------------- ------- -------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Ticketing services............. $ 119 $ 9,686 $ 26,558 $ 13,046 $ 29,858 $ 13,063
Software services and other.... 1,123 1,961 2,982 6,232 17,822 9,179
------- ------- -------- -------- -------- --------
Total revenues.......... 1,242 11,647 29,540 19,278 47,680 22,242
Total cost of services........... 1,430 8,413 18,706 12,542 29,253 14,610
------- ------- -------- -------- -------- --------
Gross profit (loss).............. (188) 3,234 10,834 6,736 18,427 7,632
Operating expenses(a)............ 2,915 8,223 43,668 28,604 73,324 30,527
------- ------- -------- -------- -------- --------
Loss from operations............. (3,103) (4,989) (32,834) (21,868) (54,897) (22,895)
Other expenses(b)................ 146 1,110 2,027 1,465 2,503 1,453
------- ------- -------- -------- -------- --------
Net loss......................... $(3,249) $(6,099) $(34,861) $(23,333) $(57,400) $(24,348)
======= ======= ======== ======== ======== ========
Basic and diluted net loss per
share.......................... $ (.65) $ (1.17) $ (6.08) $ (2.64) $ (4.25) $ (1.74)
Weighted average common shares
outstanding(c)................. 5,000 5,199 5,734 8,841 13,510 14,012
Pro forma as adjusted basic and
diluted net loss per
share(d)....................... $ (.67) $ (.44) $ (1.10) $ (.46)
</TABLE>
4
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<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(E)
------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $20,138 $102,674
Working capital (deficit)................................... (608) 91,298
Total assets................................................ 123,347 213,967
Long-term debt(f)........................................... 21,587 1,226
Redeemable common stock and warrants........................ 9,596 --
Total stockholders' equity.................................. 60,859 205,782
</TABLE>
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(a) Includes nonrecurring noncash charges of $17.0 million for impairment of
long-lived assets and $1.6 million for purchased in-process research and
development for the year ended December 31, 1998 and $5.3 million for
purchased in-process research and development for the six months ended June
30, 1999.
(b) Other expenses include principally interest expense, net of interest income
and, to a lesser degree, minority interest and provision for income taxes.
(c) Reflects shares of common stock outstanding during the periods presented.
Pro forma data include common stock issuable with respect to the
acquisitions. Excludes shares of common stock issuable upon conversion of
outstanding shares of preferred stock, a convertible promissory note, and
shares issued upon exercise of outstanding stock options and warrants.
(d) Pro forma basic and diluted net loss per share, includes the effects of the
Series A, A1, B, C, D and E convertible preferred stock, warrants that
expire upon the closing of this offering, convertible debt and the
redeemable common stock outstanding as of the respective periods for actuals
and as of October 15, 1999 for pro forma combined, as if all shares were
converted as of January 1, 1998.
(e) For a description of the assumptions reflected in the pro forma as adjusted
presentation, see "Capitalization."
(f) Amounts classified as long-term debt consist of long-term debt and capital
lease obligations, net of current portion.
5
<PAGE> 10
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones faced by
our company. Additional risks not presently known to us or that we currently
deem immaterial may also impair our business operations.
Our business, financial condition or results of operations could be
materially adversely affected by any of these risks. The trading price of our
common stock could decline due to any of these risks, and you may lose all or
part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including the risks faced by us described below and elsewhere in this
prospectus.
BECAUSE WE HAVE A LIMITED OPERATING HISTORY AS A CONSOLIDATED BUSINESS, WE HAVE
AN UNPROVEN BUSINESS MODEL THAT REQUIRES A SUBSTANTIAL MOVE INTO E-COMMERCE
Since 1996, we have completed eight acquisitions of companies with diverse
backgrounds in the ticketing industry. We have a limited history operating as a
consolidated business, and, accordingly, an unproven business model that is
substantially dependent on the growth of revenues from increased ticket sales
and related products and services on the Internet. To date, our revenues
generated from Internet sales have not been significant. During the first and
second quarters of 1999 our Internet-based revenues comprised 4.2% and 8.0% of
our total revenues. We cannot be certain that we will be successful in
increasing our Internet sales in future periods. If we are not, our revenues
will not grow in accordance with our business model and may fall short of
expectations of market analysts and investors, which could negatively affect the
price of our common stock.
Implementation of our business model involves a number of other significant
challenges and risks, including the following:
WE HAVE LIMITED EXPERIENCE IN OFFERING E-COMMERCE SERVICES TO CONSUMERS AND
MAY NOT BE ABLE TO GENERATE SUBSTANTIAL REVENUES FROM INTERNET SALES
We began online ticket sales in the third quarter of 1997. Historically, we
have sold tickets primarily through retail stores and telephone sales centers.
In order to generate substantial revenues from online ticket sales, we must
significantly increase the number of clients who use our online ticketing
services. We cannot be certain that a substantial number of our clients will be
able or choose to use our Internet ticketing services. The majority of our
clients license our software for internal use and do not use any of our other
ticketing services. These clients generally use software systems that do not
enable ticket sales over the Internet without a specific software upgrade. We
have only recently begun to offer this software upgrade, and as a result, most
of these clients have not yet acquired the necessary software upgrade.
Accordingly, to date, only a small portion of our clients are able to use our
Internet ticketing services.
IF WE ARE UNABLE TO CONTINUALLY DEVELOP NEW SERVICES TO ADAPT TO THE
EVOLVING INTERNET MARKET, OUR REPUTATION AND OUR BRAND MAY BE HARMED
In order to implement our business model, we must actively develop and
launch new services and products to attract consumers to our web site. Expansion
of our services may require significant additional expenditures and strain our
management, financial and operational resources. New services that are not
favorably received by consumers could damage our reputation and our brand.
AS MORE OF OUR CLIENTS USE OUR ONLINE SERVICES, WE MAY ENCOUNTER
TECHNOLOGICAL DIFFICULTIES THAT COULD IMPAIR OUR ABILITY TO INCREASE ONLINE
REVENUES
In order for most of our clients to use our online ticketing capabilities,
we must develop and install additional software to make their systems compatible
with ours. This process can be a difficult one and we may encounter
technological difficulties that may inhibit us from servicing our clients
on-line, which may cause one
6
<PAGE> 11
or more of our clients to terminate or fail to renew its contract with us.
Because we have a broad portfolio of ticketing software products, we must either
create separate Internet interfaces for each of these products or consolidate
our ticketing software products. We may experience difficulties in consolidating
our portfolio of ticketing software products into a few comprehensive software
systems and in developing links from our clients' various software and hardware
systems to our ticketing systems and databases. Due to these potential
technological difficulties, some clients may be averse to change and may require
a lengthy sales cycle before they will upgrade to Internet ticketing on our
system.
TICKETMASTER CORPORATION AND TICKETMASTER ONLINE-CITYSEARCH HAVE FILED A LAWSUIT
AGAINST US WHICH COULD IMPAIR OUR ABILITY TO IMPLEMENT OUR BUSINESS MODEL AND
RESULT IN SUBSTANTIAL PAYMENTS TO THEM
On July 23, 1999, Ticketmaster Corporation and Ticketmaster
Online-CitySearch filed a lawsuit against us seeking damages and a court order
to prohibit us from, among other things, linking Internet consumers to internal
pages within Ticketmaster's web site and using the Ticketmaster name on our web
site. In addition, the suit alleges that we have engaged in other wrongful acts,
such as providing false and misleading information on our web site regarding the
availability of tickets and related information on the Ticketmaster web site and
taking copyrighted information from the Ticketmaster web site for use on our own
web site. The suit seeks an injunction to prohibit us from further engaging in
any alleged unlawful activity, treble damages, attorneys' fees and other
unspecified damages. On September 15, 1999, we filed a motion to dismiss the
lawsuit. A hearing for the motion to dismiss has been scheduled for January
2000. If Ticketmaster Corporation and Ticketmaster Online-CitySearch
successfully assert their claims against us, our web site could be severely
impacted. Any injunction could eliminate our ability to directly refer consumers
to tickets to events sold by Ticketmaster on Ticketmaster's web site. The
Ticketmaster suit could result in limitations on how we implement our e-commerce
strategy, delays and costs associated with redesigning our web site and
substantial payments to Ticketmaster Corporation and Ticketmaster
Online-CitySearch. In addition, the litigation could result in significant
expenses and diversion of our management's time and other resources.
INFRINGEMENT OR OTHER CLAIMS COULD ADVERSELY AFFECT OUR ABILITY TO MARKET OUR
PRODUCTS, LIMIT OUR RIGHTS TO CERTAIN TECHNOLOGY AND HARM OUR RESULTS OF
OPERATIONS
Although we believe we have valid proprietary rights to all of our
intellectual property, we could be subject to claims of alleged trademark,
patent or other infringement as a result of our actions or the actions of our
licensees. For example, we have been, and may in the future be, sued because we
link consumers directly to an internal page within other ticketing service
providers' web sites and have included the trademarks of these ticketing service
providers on our web site. Any litigation over intellectual property rights or
business practices could result in:
- payment by us of substantial damages;
- injunctive or other equitable relief that could block our ability to
market or license our products; and
- the loss of rights to technologies necessary to operate portions of our
business.
Any litigation, regardless of the outcome, could result in substantial
costs and diversion of managerial and other resources.
IF WE CANNOT EFFECTIVELY INTEGRATE OUR NUMEROUS RECENT AND POTENTIAL FUTURE
ACQUISITIONS, WE MAY EXPERIENCE INCREASED COSTS, OPERATING INEFFICIENCIES,
SYSTEM DISRUPTIONS AND THE LOSS OF CUSTOMERS
In addition to our recent acquisitions, we plan to continue to acquire
businesses as opportunities arise in the future, and our ability to grow our
business will depend in part on our ability to complete future acquisitions. The
integration of acquired companies into a cohesive business requires the
combination of different business models, financial, accounting and other
internal systems, varied technologies and personnel who have dissimilar
expertise and backgrounds. It also requires the management of companies or
operating units that are geographically dispersed throughout the United States
and internationally. We cannot be certain that we will be able to successfully
integrate the operations, personnel or systems of these acquired companies
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in a timely fashion, or at all. If we fail to integrate operations and personnel
effectively, we will experience duplication of costs and operating
inefficiencies. If we are unable to integrate technologies successfully, we may
experience system disruptions or failures that could result in the
dissatisfaction or loss of customers. We also cannot be certain that we will
achieve value from our acquisitions commensurate with the consideration paid. If
we are unable to generate sufficient revenue from any acquired companies, we
will experience an unanticipated shortfall in revenue and may fail to meet the
expectations of investors. If this occurs, the market price of our common stock
would likely decline.
The process of integrating our recent acquisitions has placed and will
continue to place a significant burden on our management team. Integration is
complex, and presents numerous risks and uncertainties in addition to those set
forth above, including the following:
THE PROCESS OF INTEGRATING TECHNOLOGIES COULD DISRUPT OUR TICKETING SYSTEMS
AND DAMAGE OUR RELATIONSHIPS WITH OUR CLIENTS
The process of integrating the various technologies of acquired companies
into one interactive system has caused, and may in the future cause, system
downtime and other system disruptions. We expect to integrate and consolidate
all of our ticketing software systems over the next several years. We may
experience system failures in the future as a result of this integration, which
could impair our relationships with our clients. For example, in connection with
the conversion of the information and telecommunications systems of Bay Area
Seating Service to our system, our Concord, California telephone sales center
experienced a number of system failures during the first half of 1998. Each of
these system failures resulted in the temporary interruption of ticketing
functions for entertainment organizations serviced by that telephone sales
center. Any system failures could cause one or more of our clients to terminate
its contract or fail to renew its contract with us.
IF WE FAIL TO RETAIN CLIENTS OF ACQUIRED COMPANIES, WE MAY EXPERIENCE A
LOSS OF REVENUE
In order to achieve our intended growth and market presence, we must
satisfy our current clients' needs, as well as the needs of clients of acquired
companies. If we fail to do so, we may lose significant clients and the revenue
we generate from those clients. From March 1998 to July 1998 while we were in
the process of converting all of the clients that we obtained through our
acquisition of Bay Area Seating Service to our ticketing system, two of these
Bay Area Seating Service clients, who were two of our largest clients,
terminated their contracts with us after entering into new agreements with
another ticketing services provider, and one other Bay Area Seating Service
client elected not to renew its contract. In the aggregate, the termination of
such contracts is expected to reduce annualized revenues by approximately $5.8
million commencing in January 1999 based upon the average revenues we recognized
from these three clients during the past three fiscal years. As of December 31,
1998, we ceased providing services to these clients. Additionally, in November
1998 our largest client, which we also obtained through our acquisition of Bay
Area Seating Service, notified us of its intent not to renew its contract with
us at the end of its term on December 31, 1999. We believe that the non-renewal
was the result of the acquisition of this client by an entertainment
organization that entered into a master agreement with one of our competitors.
The loss of this client is expected to reduce annualized revenues by
approximately $3.5 million commencing in fiscal 2000 based upon the average
revenues we recognized from this client during the past three fiscal years.
Additional clients may terminate their contracts with us and we cannot be
certain that we will be able to sign new contracts to replace lost revenues.
WE MAY LOSE KEY PERSONNEL OF ACQUIRED COMPANIES, WHICH COULD ADVERSELY
AFFECT OUR RELATIONSHIPS WITH MAJOR CLIENTS OR STRATEGIC PARTNERS AND IMPAIR
THE EFFECTIVENESS OF OUR OPERATIONS
Key personnel of acquired companies may choose not to continue their
employment with us after an acquisition for reasons including compensation,
location, and the perception of career opportunities with us, our competitors,
or in other industries. If we lose key personnel of any acquired companies, our
relationships with major clients or strategic partners who had close
relationships with these personnel may be impaired. In addition, if we are
unable to replace any key personnel that we may lose, we may suffer a disruption
of operations and a decline in revenue.
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ACQUISITIONS WILL CREATE CHARGES TO EARNINGS THAT COULD ADVERSELY AFFECT OUR
OPERATING RESULTS AND, ACCORDINGLY, THE MARKET PRICE OF OUR COMMON STOCK
As a result of past acquisitions, we have recorded a significant amount of
goodwill that will adversely affect our operating results for the foreseeable
future. As of June 30, 1999, we had goodwill and other intangible assets of
$80.0 million, which must be amortized in the future and will result in a
reduction of our earnings. If the amount of recorded goodwill or other
intangible assets is increased or we have future losses and are unable to
demonstrate our ability to recover the amount of goodwill, the amount of
amortization could be increased or the period of amortization could be
shortened. This would increase annual amortization charges or result in a
write-off of goodwill in a one-time noncash charge, which could be significant
based on our acquisitions to date. Any future acquisitions could also result in
amortization expense related to goodwill and other intangible assets. If any of
these events should occur, our results of operations would be adversely
affected. In that event, we may fail to meet the expectations of market analysts
and investors, which could adversely affect the market price of our common
stock. In addition, we incurred charges to earnings of $5.3 million in the
second quarter of 1999 for the recognition of purchased in-process research and
development in connection with the acquisitions of California Tickets.com and
TicketsLive.
BECAUSE OF OUR LIMITED OPERATING HISTORY AND LIMITED INTERNET EXPERIENCE, OUR
REVENUES ARE UNPREDICTABLE, WHICH MAY CAUSE SIGNIFICANT FLUCTUATIONS IN OUR
OPERATING RESULTS
Our limited operating history makes it difficult for us to predict future
results of operations and difficult for you to evaluate us or our prospects. We
believe that period-to-period comparisons of our operating results are not
meaningful and that the results for any period should not be relied upon as an
indication of future performance. Our operating results may fall below the
expectations of market analysts or investors in some future quarter. If this
occurs, the price of our common stock would likely decrease. The emerging nature
of the markets in which we compete makes forecasting more difficult and
potentially unreliable. Our current and future expense levels are based
predominantly on our operating plans and estimates of future revenues, and are
to a large extent fixed. We may be unable to adjust spending in a timely manner
to compensate for any unexpected shortfall in revenues. Accordingly, if our
revenues in any particular quarter are lower than anticipated, our operating
results would likely fall short of market expectations.
THE SEASONALITY OF THE LIVE ENTERTAINMENT INDUSTRY COULD CAUSE OUR QUARTERLY
OPERATING RESULTS TO FALL BELOW THE EXPECTATIONS OF MARKET ANALYSTS AND
INVESTORS, WHICH COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
Many popular live entertainment events are held during the warm weather
months. In addition, ticket sales for such events generally commence several
months prior to the event date. Because of these factors, our business generally
has lower revenues in the first and fourth fiscal quarters. These seasonality
issues could cause our quarterly operating results to fall below market
expectations, and adversely affect the market price of our common stock. Other
related seasonality issues that could cause our quarterly operating results to
fluctuate in the future include:
- the dates event tickets are released for sale by our clients;
- the decisions of one or more clients to cancel or postpone events;
- the timing of large, nonrecurring events; and
- the concentration of events in any given quarter.
WE EXPECT TO CONTINUE TO INCUR SIGNIFICANT NET OPERATING LOSSES THAT COULD
ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK
We incurred net operating losses of approximately $34.9 million for the
year ended December 31, 1998, and $23.3 million for the six months ended June
30, 1999. At June 30, 1999, we had an accumulated deficit of approximately $72.5
million. We expect to continue to incur significant losses on a quarterly and
annual basis, and we cannot be certain that we will achieve or sustain
profitability. To the extent our expenses grow faster
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than our revenues, our operating results will be adversely affected and
anticipated net losses in a given quarter may be greater than expected. If this
occurs, the market price of our common stock is likely to decline. In addition,
we expect increased operating expenses as a result of recent acquisitions and
future acquisitions, if any.
BECAUSE WE EXPECT TO CONTINUE TO EXPERIENCE NEGATIVE CASH FLOW, WE MAY NEED
ADDITIONAL FINANCING IN THE FUTURE, WHICH MAY NOT BE AVAILABLE OR MAY REQUIRE US
TO ISSUE ADDITIONAL EQUITY SECURITIES THAT COULD LEAD TO SUBSTANTIAL DILUTION TO
OUR STOCKHOLDERS
We have experienced negative cash flow from operations since our inception.
We expect to continue to experience significant negative cash flow from
consolidated operations for the foreseeable future. We believe that our existing
capital resources, including the proceeds from this offering, will be sufficient
to meet our presently anticipated cash requirements through the next two years.
However, we may have to raise additional financing prior to such time if we
experience unanticipated revenue shortfalls or encounter unanticipated
acquisition or other business opportunities. We cannot be certain that
additional financing will be available on acceptable terms if and when we need
it. If financing is not available when required or is not available on
acceptable terms, we may be unable to develop new services or enhance our
present services, take advantage of business opportunities or respond to
competitive pressures. If additional funds are raised through the issuance of
equity securities, our stockholders may experience significant dilution. If we
cannot obtain additional financing on satisfactory terms when we need it, our
results of operations could be materially and adversely affected.
WE MAY BE REQUIRED TO PURCHASE TICKETS THAT ARE ALLOCATED FOR OUR ONLINE
AUCTIONS THAT WE MAY NOT BE ABLE TO SELL
We have recently entered into arrangements with several performers to
provide online ticket auctions for their live concerts, and we plan to increase
this type of online auction activity in the future. Under those types of
arrangements, concert tickets are allocated by performers for auction on our web
site and all amounts collected above the minimum bid are donated to a charity of
the performer's choice. To date, we have generally agreed in advance with the
performers to purchase at face value any unsold tickets that were allocated for
auction on our web site. If we are unable to sell tickets that we have agreed to
purchase, or must sell them at less than face value, we will incur losses on the
tickets purchased.
OUR PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY MAY BE INADEQUATELY
PROTECTED, WHICH COULD HARM OUR COMPETITIVE POSITION
We regard our proprietary technology and other intellectual property as
critical to our success. We rely on trademark, trade secret and copyright law to
protect our technology and our brand. We also rely on confidentiality and/or
license and other agreements with employees, customers, and others to protect
our proprietary rights. We have no patents. Despite our efforts to control
access to our proprietary information, it may be possible for a third party to
copy or otherwise obtain and use our products, technologies or other
intellectual property without authorization. In addition, effective copyright,
trademark, trade secret and patent protection may be unavailable or limited in
foreign countries that do not offer protection comparable to that provided by
United States laws. Internet technologies are evolving rapidly, and third
parties may also develop similar or superior technologies independently. Any
unauthorized use of our proprietary information could result in costly and
time-consuming litigation to enforce our proprietary rights. In addition, any
third party development of similar or superior technologies could impede our
ability to compete effectively in the ticketing industry.
INEFFECTIVE PROTECTION OF OUR TRADEMARKS AND SERVICE MARKS COULD REDUCE THE
VALUE OF OUR BRANDS
We are depending on the broad recognition of our "Tickets.com" and
"1-800-TICKETS" brands for our business to grow. We cannot be certain that the
steps we have taken and will take to protect our brands will be adequate, and
such steps may require considerable expenditures. Nor can we be certain that
third parties will not infringe or misappropriate the copyrights, trademarks,
trade dress and similar proprietary rights that
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currently protect our brands. Ineffective protection of these rights could
reduce the value of our brands. We have applied to register the tradename
"Tickets.com" and the stylized trademark "1.800.TICKETS" and we have registered
the service mark "Advantix" and other trademarks in the United States. We have
also applied to register the tradenames "Tickets.com" in various foreign
countries. Effective trademark, service mark, copyright and trade secret
protection will not be available or sought in every country in which our
products and services are available online or by telephone. We may not be able
to obtain effective trademark or service mark registration until the prolonged
use of our marks has generated secondary meaning for purposes of trademark and
service mark law. In addition, there are other parties who have corporate names
or brand names very similar to ours, and whose names may also include the term
"tickets," and who may, as a result, bring claims against us for trademark
infringement or challenge our rights to register the tradename "Tickets.com,"
the stylized trademark "1.800.TICKETS," or both.
OUR LICENSEES COULD DIMINISH THE QUALITY OF OUR BRANDS AND ADVERSELY AFFECT
OUR REPUTATION
We have licensed in the past, and expect to license in the future,
proprietary rights such as trademarks or copyrighted material to third parties.
While we attempt to ensure that the quality of our brands is maintained by these
licensees, we cannot be certain that these licensees will not take actions that
might materially and adversely affect the value of our proprietary rights or
reputation.
IF WE ARE NOT ABLE TO PRESERVE OUR DOMAIN NAMES WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY ON THE INTERNET
We currently hold the Internet domain names "tickets.com," "protix.com,"
"bass-tix.com," "basstickets.com," "fantastix.com" and others. We may be unable
to prevent third parties from acquiring domain names that are similar to,
infringe upon or otherwise decrease the value of our trademarks and other
proprietary rights. Any such inability could impair our ability to compete
effectively on the Internet. The acquisition and maintenance of domain names
generally is regulated by governmental agencies and their designees. The
regulation of domain names in the United States and in foreign countries is
subject to change. Governing bodies may establish additional top-level domains,
appoint additional domain name registrars or modify the requirements for holding
domain names. As a result, there can be no assurance that we will be able to
acquire or maintain relevant domain names in all countries in which we conduct
or intend to conduct business. In addition, the relationship between regulations
governing domain names and laws protecting trademarks and similar proprietary
rights is unclear.
ONLINE SECURITY BREACHES COULD RESULT IN A LOSS OF CONSUMER CONFIDENCE IN
E-COMMERCE, WHICH COULD IMPAIR OUR ABILITY TO IMPLEMENT OUR BUSINESS MODEL
The secure transmission of confidential information over the Internet is
essential in maintaining consumer and supplier confidence in our services. Any
publicized security problems affecting us or other e-commerce companies could
inhibit the growth of e-commerce and, accordingly, the growth of our Internet
sales revenue as contemplated in our business model. We rely on licensed
encryption and authentication technology to effect secure transmission of
confidential information, including credit card numbers. We cannot be certain
that our security measures will prevent security breaches, including break-ins,
viruses or disruptions by consumers or others. A party that is able to
circumvent our security systems could steal proprietary information, damage our
database or communications lines or otherwise cause interruptions in our
operations. Security breaches also could damage our reputation and expose us to
a risk of loss or litigation and possible liability. Our insurance policies
carry coverage limits that may not be adequate to reimburse us for losses caused
by security breaches.
SYSTEM FAILURES COULD DAMAGE OUR REPUTATION AND RESULT IN THE LOSS OF CUSTOMERS
AND CLIENTS
Our business is almost entirely dependent on our telephone sales centers,
computer systems and telecommunications systems. Heavy stress placed on our
systems during peak periods could cause our systems to operate at unacceptably
low speeds or fail altogether. Any significant degradation or failure of our
systems or any other systems in the ticketing process, including telephone or
telecommunications services, even for a short time, could cause consumers to
suffer delays in ticket purchases. The resulting inconvenience to consumers
could damage our reputation with the public, cause consumers to purchase tickets
from other sources and deter repeat
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customers. Delays in services could also cause substantial losses for clients,
which could result in claims against us. These delays could also result in the
termination or non-renewal of our existing service agreements. We have
experienced system failures and degradation in the past, including a number of
failures during the first half of 1998. We could also experience system failures
and degradations in the future.
In the future, increased volume due to growth, if any, may require us to
expend substantial funds to expand and further upgrade our technology,
transaction processing systems and network infrastructure. Any inability to add
additional software and hardware on a timely basis to accommodate increased
traffic on our web site may cause unanticipated system disruptions and result in
slower response times. In addition, substantially all of our server equipment is
currently located in California in areas that are susceptible to earthquakes. We
do not presently have fully redundant systems, a formal disaster recovery plan
or alternative providers of hosting services, nor do we carry sufficient
business interruption insurance to compensate us for all of the possible losses
that we may incur. In addition, our clients' in-house systems also may be
subject to failures and degradations that could interrupt ticket sales both
through clients' systems and on our web site. Unanticipated problems may cause a
significant system outage or data loss, and result in the loss of customers and
clients.
WE MAY NOT BE ABLE TO MAINTAIN OR IMPROVE OUR COMPETITIVE POSITION BECAUSE OF
THE INTENSE COMPETITION IN THE TICKETING INDUSTRY
Intense competition in the ticketing industry presents significant
challenges to management, marketing and technical personnel. We believe
competition will become more challenging as the market for tickets expands and
technology advances. We have specifically identified two major competitors, but
foresee the possibility of additional and increased competition in the future.
WE FACE INTENSE COMPETITION FROM TWO PRINCIPAL COMPETITORS AND A VARIETY OF
SMALLER COMPETITORS ALREADY IN THE TICKETING INDUSTRY WHO MAY HAVE GREATER
BRAND RECOGNITION, LONGER OPERATING HISTORIES AND GREATER RESOURCES THAN WE
DO
The market for sports and entertainment tickets and related merchandise is
highly competitive and diverse. Our primary competitors on a national level are
Ticketmaster Corporation and Ticketmaster Online-CitySearch, Inc., which have
operations in multiple locations throughout the United States. Ticketmaster
Online-CitySearch has an exclusive license to do all of the online ticketing for
Ticketmaster Corporation. Ticketmaster has a widely recognized brand name in the
live event ticketing business, a longer operating history in the ticketing
industry generally and in Internet ticketing specifically, more extensive
ticketing inventory and greater financial and other resources than we do. We
commenced our operations in May 1996 and did not begin to sell tickets on the
Internet until October 1997. Because of our limited operating history, we have
not yet gained the same level of brand recognition or accumulated as broad a
ticketing inventory as Ticketmaster and Ticketmaster Online-City Search. In
addition, because we have developed through the acquisition of smaller, regional
ticketing service companies and software developers, we are still in the early
stages of developing a strong national presence.
Our competitors also include:
- a number of smaller, regional ticketing services;
- entertainment organizations that handle their own ticket sales and
distribution through online and other distribution channels;
- international, national and local ticketing services, which may or may
not currently offer online transactional capabilities; and
- Internet-based live event ticketing companies. Many of these competitors
have greater brand recognition, longer operating histories and a greater
number of well-established client relationships than we do in the
geographic regions in which they operate. Because of our relatively short
operating history and presence in a limited number of geographic regions
prior to our move into e-commerce, we have not yet established a
significant competitive position in a number of geographic areas.
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IN ORDER TO MAINTAIN OUR COMPETITIVE POSITION IN THE TICKETING INDUSTRY, WE
MUST BE ABLE TO ATTRACT NEW CLIENTS AND TICKET INVENTORY, AND WE CANNOT BE
CERTAIN THAT WE WILL BE ABLE TO DO SO
If we cannot attract new clients and ticket inventory, or if we lose
clients to other ticketing services or otherwise, we may not be able to maintain
our competitive position in the ticketing industry. In recent years, the live
entertainment industry has been moving toward consolidation. As a result,
contracts for ticketing services are often negotiated on a multi-venue basis,
and large ticket inventories are concentrated in the hands of a few
entertainment conglomerates. Because ticketing services contracts are often
multi-year contracts and there are fewer potential new clients, competition for
their business is especially intense. Historically, we have grown our business
primarily through acquisitions. Industry consolidation has reduced the number of
viable acquisition candidates and, accordingly, limited future acquisition
opportunities. In order to increase our client base and ticket inventory, we may
need to attract clients who currently have relationships with other ticketing
services. At the same time, other ticketing services will likely attempt to
attract our current clients to their ticketing services. In addition, our
clients may terminate their contracts for a variety of reasons, or may not renew
their contracts at the end of their terms.
WE MAY ALSO FACE COMPETITION FROM COMPANIES WITH AN ESTABLISHED INTERNET
PRESENCE WHO DECIDE TO OFFER PRODUCTS AND SERVICES SIMILAR TO OURS
Because barriers to entry in e-commerce are relatively low, we may face
competition from companies in other areas of e-commerce who may seek to exploit
their market presence by offering live entertainment event information and
related ancillary products and services that are competitive with ours. These
potential competitors may have a number of advantages over us, including:
- strong brand recognition;
- an established presence on the Internet and an established base of users;
- greater financial and marketing resources; and
- complementary lines of business and existing business relationships.
In addition, some Internet portals direct Internet traffic to particular
web sites and may also channel users to services that compete with ours. Some or
all of the products and services offered by competitors may achieve greater
market acceptance than ours. We cannot be certain that we will be able to
successfully compete against these potential competitors.
OUR RELIANCE ON THIRD PARTY SOFTWARE AND HARDWARE MAKES US VULNERABLE TO CHANGES
IN OUR SUPPLIERS' PRODUCTS AND SERVICES, WHICH COULD ADVERSELY AFFECT OUR
ABILITY TO SERVICE OUR CLIENTS IN A TIMELY MANNER
Our ticketing software programs incorporate software products and use
computer hardware and equipment developed by other entities. Our reliance on
third party software and hardware makes us vulnerable to changes in our
suppliers products and services and any such changes may impair our ability to
provide adequate ticketing services to our clients in a timely manner. For
example, we cannot be certain that all of our suppliers will remain in business
or will continue to support the product lines that we use. Nor can we be certain
that their product lines will remain viable or will otherwise continue to be
available to us. Our current suppliers could significantly alter their pricing
in a manner adverse to us. If any of these entities ceases to do business,
abandons or fails to enhance a particular product line, or significantly raises
its prices, we may need to seek other suppliers. We cannot be certain that other
suppliers will be able to provide us with necessary products at favorable
prices, or at all.
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WE DEPEND ON RETAIL STORES, ADVERTISING AGREEMENTS AND STRATEGIC RELATIONSHIPS
TO REACH CONSUMERS, AND IF WE CANNOT MAINTAIN THESE RELATIONSHIPS AND ESTABLISH
NEW RELATIONSHIPS, OUR TICKET SALES WOULD BE ADVERSELY AFFECTED
A significant portion of our ticket sales is generated through arrangements
with retail stores. Our contracts with these retail stores are generally for a
one-year term, and subject to periodic negotiations regarding sales commissions,
customer service and other matters. These stores cater to consumers who are
likely to purchase tickets for sporting and entertainment events, and are
attractive to other ticketing services. In addition, our relationships with
other companies such as Excite, Cox Interactive, International Merchandising
Corporation, GeoCities, MP3.com, Sitematic Corporation, RealNames Corporation
and others can provide us with access to consumers. If we cannot maintain good
retail, strategic and advertising relationships and continue to establish new
relationships our ability to reach consumers and generate sufficient ticket
sales could be materially and adversely affected.
IF WE CANNOT ATTRACT AND RETAIN QUALIFIED PERSONNEL IN A COST EFFECTIVE AND
TIMELY MANNER, WE MAY NOT BE ABLE TO EXECUTE OUR GROWTH STRATEGY
The significant growth of our business over the past two years due to our
acquisition of eight companies has placed substantial demands on our management
and other personnel. Our future growth, if any, will depend in part on our
ability to attract, motivate and retain skilled technical, sales, management and
marketing personnel. Competition for these personnel is intense, and we expect
it to increase as e-commerce expands. We cannot be certain that we will be able
to retain our existing personnel or attract additional qualified personnel in
the future. In addition, a significant portion of our workforce is comprised of
telephone sales representatives. We compete with telemarketing firms, among
others, for telephone sales personnel and sometimes must pay premium hourly
wages to attract and retain them. In addition, their high turnover rate
increases our recruiting and training costs. We cannot be certain that we will
be able to continue to hire and retain qualified personnel to support our
planned growth in a cost effective or timely manner. If we cannot, our ability
to execute our growth strategy could be impaired.
THE LOSS OF PERSONNEL COULD REQUIRE US TO PROVIDE COSTLY SEVERANCE PACKAGES,
WHICH COULD ADVERSELY AFFECT OUR OPERATING RESULTS
Although we have employment agreements with several of our executive
officers, including our President and Chief Executive Officer, our executive
officers and key employees may terminate their employment at any time for any
reason. In some circumstances, termination of their employment could result in
substantial payments by us for severance benefits under these employment
agreements.
AN ACTIVE PUBLIC MARKET FOR OUR SECURITIES MAY NOT DEVELOP OR BE SUSTAINED, AND
THE MARKET PRICE OF OUR COMMON STOCK MAY FALL BELOW THE INITIAL PUBLIC OFFERING
PRICE
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after this offering, and the market price might fall below the initial
public offering price. The initial public offering price may bear no
relationship to, and may be higher than, the price at which the common stock
will trade upon completion of this offering. The initial public offering price
was determined based on negotiations between us and the representatives of the
underwriters, based on factors that may not be indicative of future market
performance.
OUR STOCK PRICE IS LIKELY TO BE VERY VOLATILE, WHICH MAY MAKE US A TARGET OF
SECURITIES CLASS ACTION LITIGATION
The market price of our common stock after this offering is likely to be
highly volatile and could be subject to wide fluctuations. In the past,
securities class action litigation often has been brought against companies
following periods of volatility in the market price of their securities. In the
future we may be the target of similar litigation. Securities litigation could
result in substantial costs and divert our management's attention and resources.
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The market prices for stocks of Internet-related and technology companies,
particularly following an initial public offering, may increase to levels that
bear no relationship to the operating performance of such companies. Such market
prices may not be sustainable and are subject to wide variations. If our common
stock trades to such levels following this offering, it likely will thereafter
experience a significant decline. Other factors, some of which are beyond our
control, that could cause the market price of our common stock to fluctuate
include:
- operating results that vary from the expectations of securities analysts
and investors;
- changes in securities analysts' and investors' expectations as to our
future financial performance;
- changes in market valuations of other Internet or online services
companies;
- announcements by us or our competitors of technological innovations, new
services, significant contracts, acquisitions, strategic partnerships,
joint ventures or capital commitments;
- loss of a major venue or client;
- announcements by third parties of significant claims or proceedings
against us or developments in those proceedings; and
- future sales of our common stock.
WE MAY FACE LIABILITY FOR ONLINE CONTENT THAT MAY NOT BE COVERED BY OUR
INSURANCE
Because we are disseminating information, we may face liability for the
nature and content of the materials on our web site or on sites to which we have
links. These liability claims could include, among others, claims for
defamation, negligence, indecency, fraud from secondary sales, and copyright,
patent and trademark infringement. These claims have been brought, and sometimes
successfully pressed, against online services. Although we intend to maintain
general liability insurance coverage, it may not cover claims of these types. It
also may not be adequate to indemnify us for any liability that may be imposed.
Any imposition of liability, particularly liability that is not covered by
insurance or is in excess of insurance coverage, could have a material adverse
effect on our reputation and our ability to effectively operate our web site.
YEAR 2000 RISKS MAY HARM OUR SOFTWARE PRODUCTS AND TICKETING SERVICES, OUR
INTERNAL SYSTEMS AND THE SYSTEMS OF OUR MATERIAL VENDORS AND OTHER THIRD PARTIES
WITH WHOM WE CONDUCT BUSINESS
The risks posed by year 2000 issues could adversely affect our business in
a number of significant ways.
OUR SOFTWARE PRODUCTS AND TICKETING SERVICES COULD BE AFFECTED BY THE YEAR
2000 PROBLEM, WHICH COULD CAUSE DISRUPTIONS IN SERVICE FOR OUR CLIENTS AND
DAMAGE TO OUR REPUTATION
While we believe the most recent versions of our products and services are
substantially year 2000 ready, we cannot be certain that they will not be
affected by the year 2000 problem. Any year 2000 problem could disrupt ticketing
services and functions for our clients and damage our reputation. Our
proprietary ticketing software systems operate in conjunction with software,
hardware, databases, operating systems, networks and other applications
developed by third parties. Although our vendors have indicated that their
systems are year 2000 ready, we believe that it is not possible to determine
with certainty that their systems are indeed year 2000 ready because we have
little or no control over the internal design, production and testing of their
systems.
IF OUR INTERNAL SYSTEMS ARE AFFECTED BY THE YEAR 2000 PROBLEM, WE MAY
EXPERIENCE DISRUPTIONS IN OUR OPERATIONS, FINANCIAL SYSTEMS, NETWORKS AND
TELECOMMUNICATIONS SYSTEMS
The year 2000 problem could affect the systems, transaction processing,
computer applications, and devices used by us to operate and monitor all major
aspects of our business, including financial systems such as general ledger,
accounts payable and payroll, client and consumer services, infrastructure,
networks and telecommunications systems. We cannot be certain that the year 2000
problem will not disrupt our internal systems.
15
<PAGE> 20
OUR VENDORS OR THE INTERNET COULD FACE SERIOUS DISRUPTIONS ARISING FROM THE
YEAR 2000 PROBLEM THAT COULD DISRUPT TRAFFIC TO OUR WEB SITE AND OUR TICKET
PROCESSING CAPABILITIES
Notwithstanding our year 2000 readiness efforts, the failure of a critical
system of a material vendor or the Internet to be year 2000 ready could harm the
operation of our service or prevent certain products and services from being
offered through our web site or have other unforeseen, adverse consequences to
our operations. Internet communications systems are composed of a vast array of
interconnected systems and technologies. A year 2000 problem with any or a
number of these systems or technologies could cause disruptions in other systems
and technologies, and affect access to the Internet. We believe it is unlikely
that all of these systems and technologies will be fully year 2000 compliant.
Year 2000 problems with the Internet could interfere with consumers' ability to
visit our web site and our ability to process ticket orders.
WE MAY BECOME SUBJECT TO STATE REGULATION OF TICKET SALES AND AUCTIONS, WHICH
COULD IMPOSE RESTRICTIONS ON THE MANNER AND PRICING OF OUR TICKET SALES AND THE
CONDUCT OF OUR AUCTIONS
Many states and municipalities have adopted statutes regulating ticketing
transactions within their jurisdictions. We cannot be certain whether any of
these laws and regulations may be determined to be applicable to our business or
whether new laws and regulations potentially adverse to our business will be
adopted. If we become subject to additional laws and regulations, the manner and
pricing of our ticket sales and the conduct of our auctions may be restricted,
which could have an adverse effect on our revenues. Some states and
municipalities require that ticket sellers obtain a resellers license. One or
more states or municipalities could take the position that a telephonic or
electronic ticket sale to one of their residents is a sufficient basis for
application of that jurisdiction's reseller statute. Because we believe these
statutes to be inapplicable to our activities, we may not be in compliance with
these statutes. Governmental agencies or authorities could also argue that other
state or local licensing or "ticket scalping" statutes apply to our activities.
These statutes, among other things, limit the amount of service charges and
other fees that may be charged in connection with ticket sales. Other state and
local regulations establish maximum convenience and handling charges on tickets
for certain sporting and other events. In addition, many states, including
California, have laws and regulations governing the conduct of auctions.
WE MAY BECOME SUBJECT TO MORE RESTRICTIVE E-COMMERCE REGULATION THAT COULD
ADVERSELY AFFECT OUR ABILITY TO INCREASE INTERNET SALES
We are subject to regulations applicable to businesses generally and laws
or regulations directly applicable to e-commerce. Currently we believe that
there are few laws and regulations directly applicable to the Internet and
online ticketing services. It is likely, however, that a number of laws and
regulations may be adopted with respect to the Internet or commercial online
services that could affect our online ticketing services. Any new legislation or
regulation, or the application of existing laws and regulations to the Internet
and commercial online services could restrict our ability to grow our business
according to our plan.
Laws regulating e-commerce might cover matters such as, among other things,
user privacy and the use of our consumer database for email marketing purposes,
limitations on ticket service charges, the content of our website, taxation by
states where we sell tickets, copyright protection for us and competing
ticketing services, distribution, direct linking, antitrust and consumer
protection laws.
In addition, the applicability of a variety of existing laws in various
jurisdictions to the Internet and commercial online services may take years to
resolve. These issues may include, among others, property ownership, sales and
other taxes, libel and personal privacy. For example, tax authorities in a
number of states are currently reviewing the appropriate tax treatment of
companies engaged in e-commerce. New state tax regulations may subject us to
additional state sales and income taxes.
OUR ACQUISITION OF STOCK OF LASERGATE SYSTEMS, INC. COULD SUBJECT US TO COSTS,
LOSSES AND LIABILITIES THAT COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS
On June 21, 1999, we entered into a definitive agreement and plan of merger
with Lasergate Systems, Inc. Under this merger agreement, Lasergate agreed to
merge with one of our wholly owned subsidiaries, subject to receipt of approval
by the shareholders of Lasergate and satisfaction of other closing conditions.
16
<PAGE> 21
After completion of the merger, we will own 100% of the outstanding stock of
Lasergate. In addition, if the merger is completed, we will incur goodwill and
other accounting charges related to this transaction. In addition, we will
consolidate the operating losses of Lasergate with our own results of operations
from the date of the acquisition. Our acquisition of Lasergate could result in
costs, losses and liabilities that would adversely affect our operating results.
UNTIL COMPLETION OF THE MERGER, WE COULD BE SUBJECT TO LIABILITIES AS A
MAJORITY SHAREHOLDER OF LASERGATE
Until the merger is completed, we may be considered a majority shareholder
of Lasergate because we own all of the outstanding preferred stock of Lasergate,
which is convertible into a majority of the common stock of Lasergate. Lasergate
currently does not have sufficient common stock authorized for the conversion of
all the outstanding preferred. As a majority shareholder, we are required to act
in good faith and with due care in the exercise of our rights and duties as a
majority shareholder of Lasergate. In addition, as the majority shareholder, we
have an obligation of fair dealing in relationships with the minority
shareholders. We will be exposed to potential liabilities to the other
shareholders of Lasergate for reasons including the failure to act in accordance
with established standards of conduct for majority shareholders of Florida
corporations.
LASERGATE IS A DEFENDANT IN A SECURITIES CLASS ACTION SUIT, AND ANY
LIABILITIES IN EXCESS OF LASERGATE'S INSURANCE WOULD BECOME LIABILITIES OF
OUR BUSINESS
Lasergate is one of several defendants in a consolidated class action filed
in the United States District Court for the Eastern District of New York. If
Lasergate loses this action, there could be significant damages awarded to the
plaintiffs. Although Lasergate maintains a liability insurance policy, we cannot
be certain that damages which may be awarded will be covered by Lasergate's
insurance. The complaint in this action alleges that Lasergate failed to
disclose, in a 1994 registration statement filed with the Securities and
Exchange Commission, that prior to the date of the offering of Lasergate
securities, Sterling Foster & Co., Inc., the underwriter of the offering, had
secretly agreed to release several shareholders from "lock-up" agreements for
the purpose of selling their shares to Sterling Foster at reduced prices. The
plaintiffs' claims allege that Lasergate violated Sections 11 and 12(2) of the
Securities Act of 1933, Sections 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated thereunder and Section 349 of the New York General
Business Law, as well as made negligent misrepresentations. Lasergate believes
that it has defenses to the claims in this action and intends to vigorously
defend itself. On August 5, 1999 Lasergate filed a motion with the court to
dismiss the complaint against it.
Upon the completion of the proposed merger of Lasergate, damages awarded
against Lasergate that are not covered by or are in excess of the policy limits
of Lasergate's insurance would be an expense of our consolidated business and
could have a material adverse effect on our results of operations.
WE MAY HAVE A CONTINGENT LIABILITY ARISING OUT OF A POSSIBLE VIOLATION OF
SECTION 5 OF THE SECURITIES ACT OF 1933 IN CONNECTION WITH A CAPITAL COMMITMENT
FROM AND THE ISSUANCE OF WARRANTS TO SOME OF OUR STOCKHOLDERS
It is possible that we have a contingent liability arising out of a capital
commitment from and issuance of warrants to some of our stockholders that may
violate Section 5 of the Securities Act of 1933. If realized, this contingent
liability could require us to pay these stockholders up to an aggregate of $13.1
million, plus interest.
In May 1999, we entered into a letter agreement with General Atlantic
Partners, LLC. Under that letter agreement, General Atlantic agreed, subject to
conditions specified in the letter agreement, that, in the event we reasonably
require capital to enable us to satisfy and discharge our liabilities as they
become due, it will, through its affiliates, purchase shares of preferred stock
from us. In June 1999, we offered some of our stockholders who are parties to
our Stockholders Agreement the opportunity to participate in the General
Atlantic commitment. If we were to exercise our right under the letter
agreement, General Atlantic and the stockholders who chose to participate in the
commitment would be required to purchase an aggregate of 5,333,334 shares of
convertible preferred stock from us for an aggregate purchase price of $12.0
million, or $2.25 per share. If we were to issue preferred stock to General
Atlantic and the participating stockholders
17
<PAGE> 22
under the letter agreement, this issuance may violate Section 5 of the
Securities Act of 1933. If the issuance of the preferred stock constitutes a
violation of Section 5, the purchasers of the preferred stock could have the
right, under the Securities Act of 1933, to recover from us the consideration
paid for these shares. These refunds could total up to $12.0 million, plus
interest. The letter agreement and our ability to require General Atlantic and
the other participating stockholders to purchase the preferred stock from us
will expire on the earlier to occur of (1) the closing of this offering or (2)
March 31, 2000.
In order to induce General Atlantic and the other participating
stockholders to make this capital commitment, we issued warrants to purchase an
aggregate of 222,222 shares of our common stock at an exercise price of $5.06
per share to these stockholders. Because we may have violated Section 5 of the
Securities Act of 1933 when we issued these warrants, any holder who exercises
its warrants may have the right, under the Securities Act of 1933, to recover
from us the consideration paid for the shares of common stock received upon
exercise of the warrants. These refunds could total up to $1.1 million, plus
interest.
If we were required to refund the purchase price for the warrants or any
preferred stock that could be issued under the letter agreement, our operating
results and liquidity during the period in which such a refund would be paid
could be adversely affected. Although we cannot assure you as to the ultimate
disposition of these matters, it is the opinion of management, based upon
information available at this time, that the expected outcome of these matters
will not have a material adverse effect on our results of operations or
financial condition.
OUR MANAGEMENT WILL CONTROL 42.1% OF TICKETS.COM AFTER THIS OFFERING; THEIR
INTERESTS MAY BE DIFFERENT FROM AND CONFLICT WITH YOURS
After this offering, our executive officers, directors and their respective
affiliates will beneficially own approximately 42.1% of our outstanding common
stock. As a result, these stockholders will be able to exercise substantial
influence over matters requiring stockholder approval, including the election of
directors and mergers, consolidations and sales of all or substantially all of
our assets. These stockholders may have interests that differ from yours and
they may approve actions that you disapprove or disapprove actions that you
voted to approve. In addition, this concentration of ownership may also have the
effect of preventing or discouraging tender offers for our common stock, which
in turn could reduce the market price of our common stock.
OUR MANAGEMENT HAS BROAD DISCRETION OVER USE OF THE PROCEEDS FROM THIS OFFERING
AND MAY USE THE PROCEEDS IN WAYS WITH WHICH YOU DO NOT AGREE
The net proceeds of this offering are estimated to be approximately $44.9
million at an assumed initial public offering price of $8.00 per share and after
deducting the estimated underwriting discount and estimated offering expenses.
Our management will retain broad discretion as to the allocation of some of the
proceeds of this offering and may apply the proceeds in ways with which you do
not agree. The failure of management to apply these funds effectively could
materially harm our results of operations.
WE FACE RISKS FROM INTERNATIONAL OPERATIONS THAT COULD ADVERSELY AFFECT OUR CASH
FLOW AND LICENSING REVENUES
We have only recently commenced operations in a number of international
markets and a key component of our strategy is to expand our business
internationally. Our plans to expand internationally are subject to inherent
risks, including:
ADVERSE FLUCTUATIONS IN CURRENCY EXCHANGE RATES COULD EXPOSE US TO LOSSES
BECAUSE SOME OF OUR CONTRACTS AND LIABILITIES ARE PAYABLE IN FOREIGN
CURRENCIES
Payments due to our acquisition of dataCulture Ltd. are payable in pounds
sterling over 12 equal quarterly installments. In addition, we are also exposed
to foreign currency exchange rate risks inherent in our assets and liabilities
denominated in currencies other than the United States dollar. If the United
States dollar becomes weaker against foreign currencies these payments will be
greater in dollar terms and our cash flow would be adversely affected.
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<PAGE> 23
IF WE CANNOT ADEQUATELY ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS
INTERNATIONALLY, WE MAY LOSE LICENSING REVENUES
Many of our foreign business relationships involve the licensing of our
software products. If we are unable to enforce our intellectual property rights
because they are not recognized under foreign laws, our customers could
duplicate or modify our software products without our consent and deprive us of
licensing revenues.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of their common stock after this offering,
or the perception that these sales could occur. These sales also might make it
difficult for us to sell securities in the future at a time and at a price that
we deem appropriate. You should read "Shares Eligible For Future Sale" on page
92 for a more detailed discussion of when and how many additional shares of our
stock may be sold after this offering.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION UPON COMPLETION OF THIS
OFFERING
The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of common stock, assuming an
initial public offering price of $8.00 per share. Purchasers of common stock in
this offering will suffer immediate and substantial dilution. The dilution will
be $5.94 per share in the net tangible book value of the common stock from the
initial public offering price. If outstanding options and warrants to purchase
shares of common stock are exercised, there will be further dilution.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus. In
some cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "could," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential" or "continue" or the negative of such terms
or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus.
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<PAGE> 24
USE OF PROCEEDS
The net proceeds to be received by Tickets.com from the sale of the shares
of common stock in this offering are estimated to be approximately $44.9 million
or approximately $51.9 million, if the underwriters' over-allotment option is
exercised in full, assuming an initial public offering price of $8.00 per share
and after deducting estimated offering expenses of $1.3 million and the
underwriting discount payable by Tickets.com. We will not receive any of the
proceeds from the sale of common stock by the selling stockholder.
We intend to use at least $19.1 million of the net proceeds of this
offering to repay outstanding current and long-term senior and subordinated
debt, including $15.8 million of long-term senior and subordinated debt. This
debt must be paid between October 1999 and October 2004 or upon the closing of
our initial public offering, if earlier, and bears interest at rates ranging
from 9.25% to 12.0%. We have not yet determined our actual expected use of the
remainder of these proceeds, but we currently anticipate that we will use
between $13.0 and $16.0 million over the next twelve months for sales and
marketing expenses associated with our advertising campaigns, brand name
promotions and other marketing efforts. Additionally, we estimate using between
$5.0 and $7.0 million over the next twelve months for technology development
expenses for product development, the development of our technology
infrastructure, web site content and online capabilities. Also, we expect to use
between $4.0 and $6.0 million over the next twelve months for general and
administrative expenses, principally for general corporate purposes and working
capital to fund anticipated net operating losses. We also currently estimate
that we will incur approximately $3.0 million of capital expenditures over the
next twelve months. Our actual expenditures may vary substantially from these
estimates. The amounts and timing of our actual expenditures will depend on
numerous factors, including the status of our technology development efforts,
sales and marketing activities, the amount of cash generated or used by our
operations and competition. We may find it necessary or advisable to use
portions of the proceeds for other purposes, and our management will have broad
discretion in the allocation of the net proceeds of this offering.
A portion of the net proceeds may also be used to acquire or invest in
complementary businesses, technologies, product lines or products. On June 21,
1999 we entered into a definitive agreement and plan of merger with Lasergate.
Under the terms of the merger we will acquire all of the outstanding common
shares of Lasergate for approximately $1.5 million. Completion of the merger is
subject to approval of the shareholders of Lasergate and other conditions of
closing. The Lasergate transaction is described in more detail in "Risk
Factors -- Our Acquisition of Stock of Lasergate Systems, Inc. Could Subject Us
to Costs, Losses and Liabilities That Could Adversely Affect Our Results of
Operations." Also, if our underwriters decide not to allow the selling
stockholder to register and sell up to 444,444 of her shares of common stock in
this offering, the selling stockholder may exercise her right to cause us to
purchase up to 444,444 shares from the selling stockholder at the initial public
offering price. A portion of the proceeds would be used to effect this purchase.
In addition we have proposed to pay $3.0 million to a major ticketing services
client as an exclusivity fee in connection with a new long-term ticketing
services agreement. Of that amount, $1.0 million will be paid prior to this
offering and the remaining $2.0 million will be paid out of the proceeds of this
offering. Pending such uses, the net proceeds of this offering will be invested
in short term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. We may incur indebtedness in the future which may prohibit
or effectively restrict the payment of dividends, although we have no current
plans to do so.
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<PAGE> 25
CAPITALIZATION
The following table sets forth the capitalization of Tickets.com as of June
30, 1999:
- on an actual basis;
- on a pro forma basis to reflect:
- the issuance of the 3,333,332 shares of Series E convertible
preferred stock which occurred in August 1999;
- the issuance of the additional 6,111,114 shares of Series E
convertible preferred stock which occurred in October 1999; and
- on a pro forma basis as adjusted to reflect:
- the automatic conversion of all outstanding shares of convertible
preferred stock into .4444 shares of common stock upon the
consummation of this offering based on an assumed initial public
offering price of $8.00 per share; Series E convertible preferred
shares are convertible at a ratio of 1 share of preferred for 1.125
shares of common based on an assumed initial public offering price of
$8.00 per share;
- the conversion of $3.0 million convertible debt into shares of our
common stock;
- the exercise of redeemable warrants with an exercise price of $.0225
per share to purchase our common stock, which will otherwise expire
upon the close of the offering;
- the exercise of warrants with an exercise price of $4.50 per share to
purchase common stock, which will otherwise expire upon the close of
the offering;
- the receipt of the estimated net proceeds of $44.9 million from the
sale of the 6,255,556 shares of common stock offered hereby, after
deducting the estimated offering expenses and underwriting discount;
and
- the use of a portion of the proceeds from this offering to retire
approximately $15.8 million of long-term senior and subordinated debt
in accordance with contractual obligations.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes and the pro forma consolidated financial
statements and related notes, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term debt and capital lease obligations, net of current
portion................................................... $ 21,587 $ 21,042 $ 1,226
Redeemable common stock and warrants........................ 9,596 10,140 --
Stockholders' equity:
Series A, A1, B, C, D and E convertible preferred stock,
$.0001 par value; 90,000,000 shares authorized;
51,331,143, 60,775,589 and 0 shares actual, pro forma
and pro forma as adjusted, respectively................ 5 6 --
Common stock, $.000225 par value; 130,000,000 shares
authorized; 14,898,450, 14,898,450 and 60,904,649
shares actual, pro forma and pro forma as adjusted,
respectively........................................... 3 3 14
Additional paid-in capital.................................. 133,748 218,747 278,665
Cumulative other comprehensive income....................... (14) (14) (14)
Deferred compensation....................................... (398) (398) (398)
Accumulated deficit......................................... (72,485) (72,485) (72,485)
-------- -------- --------
Total stockholders' equity................................ 60,859 145,859 205,782
-------- -------- --------
Total capitalization.............................. $ 92,042 $177,041 $207,008
======== ======== ========
</TABLE>
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<PAGE> 26
DILUTION
Our pro forma net tangible book value as of June 30, 1999, which includes
actual proceeds received of $85.0 million from the issuance of 9,444,446 shares
of Series E Convertible Preferred Stock subsequent to June 30, 1999, was
approximately $65.8 million, or $1.08 per share of common stock. Pro forma net
tangible book value per share represents our total tangible assets less total
liabilities, divided by the pro forma number of shares of common stock, after
giving effect to the conversion of all outstanding shares of our convertible
debt instruments and equity securities outstanding as of October 15, 1999, which
immediately convert or expire upon close of this offering into shares of common
stock. Without taking into account any other changes in pro forma net tangible
book value other than to give effect to our sale of 6,255,556 shares of common
stock offered hereby and the receipt and application of the net proceeds
therefrom, the pro forma net tangible book value as of June 30, 1999 would have
been $125.7 million, or $2.06 per share of common stock. This represents an
immediate increase in pro forma net tangible book value of $.98 per share to
existing stockholders and an immediate dilution of $5.94 per share to investors
purchasing common stock in this offering. The following table illustrates this
per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $8.00
Pro forma net tangible book value per share as of June 30,
1999................................................... $1.08
Increase per share attributable to new investors.......... .98
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.06
-----
Dilution per share to new investors......................... $5.94
=====
</TABLE>
The following table summarizes as of June 30, 1999 on the pro forma basis
described above the number of shares of common stock purchased from us, the
total consideration paid and the average price per share paid by existing
stockholders and by new investors, assuming an initial public offering price of
$8.00 per share, before deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED(A) TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 54,649,093 89.7% $218,750,475 81.4% $4.00
New investors........................ 6,255,556 10.3 50,044,000 18.6 8.00
---------- ----- ------------ -----
Total...................... 60,904,649 100.0% $268,794,475 100.0%
========== ===== ============ =====
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options or options to purchase 9,236,529
shares of common stock at a weighted average exercise price of $4.83 per share
and warrants to purchase 1,104,565 shares of common stock outstanding at a
weighted average exercise price of approximately $1.99 per share which were
outstanding as of October 15, 1999. To the extent that these options and
warrants are exercised, new investors could experience further dilution. See
"Management -- Benefit Plans" for a description of our 1999 Stock Incentive
Plan.
- ---------------
(a) The sale by us of additional shares of common stock upon exercise in full of
the underwriters' over-allotment option will reduce the percentage of common
stock held by existing stockholders to 88.4% of the total number of shares
of common stock to be outstanding upon consummation of this offering and
will increase the number of shares of common stock held by new investors to
7,193,889 shares or 11.6% of the total number of shares of common stock to
be outstanding upon consummation of this offering.
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<PAGE> 27
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma condensed combined financial
information and related notes contain forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
discussed herein. We undertake no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
The selected unaudited pro forma condensed combined financial information
is based upon, and should be read in conjunction with, the historical financial
statements of Tickets.com, ProTix, California Tickets.com and TicketsLive, and
the related notes to such financial statements. The selected unaudited pro forma
condensed combined financial information is based upon tentative allocations of
purchase price for the acquisitions and may not be indicative of the results
that would have been reported had such events actually occurred on the dates
specified, nor is it indicative of our future results. Purchase accounting is
based upon preliminary asset valuations, which are subject to change.
The selected unaudited pro forma condensed combined statement of operations
information for the year ended December 31, 1998 and the six months ended June
30, 1999 is presented as if Tickets.com had completed the acquisitions of
ProTix, California Tickets.com and TicketsLive as of January 1, 1998.
Since our historical unaudited consolidated balance sheets as of June 30,
1999 reflect the acquisitions of ProTix, California Tickets.com and TicketsLive,
no pro forma balance sheet adjustments are necessary as of June 30, 1999.
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<PAGE> 28
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
CALIFORNIA
TICKETS.COM, PROTIX, TICKETS.COM TICKETSLIVE PRO FORMA PRO FORMA
INC. INC.(B) INC.(C) CORPORATION(D) ADJUSTMENTS COMBINED
------------ ----------- ------------ -------------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing services(a)...... $ 26,558 $ 3,234 $ -- $ 66 $ -- $ 29,858
Software services and
other.................... 2,982 2,696 1,092 11,052 -- 17,822
-------- ------- ------- ------- -------- --------
Total revenues...... 29,540 5,930 1,092 11,118 -- 47,680
-------- ------- ------- ------- -------- --------
Cost of services:
Ticketing services......... 17,155 2,060 -- 33 -- 19,248
Software services and
other.................... 1,551 1,067 1,683 5,704 -- 10,005
-------- ------- ------- ------- -------- --------
Total cost of
services.......... 18,706 3,127 1,683 5,737 -- 29,253
-------- ------- ------- ------- -------- --------
Gross profit (loss).......... 10,834 2,803 (591) 5,381 -- 18,427
Operating expenses(e)........ 43,668 3,616 4,577 8,671 12,792(f) 73,324
-------- ------- ------- ------- -------- --------
Loss from operations......... (32,834) (813) (5,168) (3,290) (12,792) (54,897)
Other (income) expense,
net........................ 2,027 493 (83) (26) 92(g) 2,503
-------- ------- ------- ------- -------- --------
Net loss..................... $(34,861) $(1,306) $(5,085) $(3,264) $(12,884) $(57,400)
======== ======= ======= ======= ======== ========
Basic and diluted net loss
per share.................. $ (4.25)
Weighted average common
shares outstanding(h)...... 13,510
Pro forma as adjusted, basic
and diluted net loss per
share(i)................... $ (1.10)
</TABLE>
- ---------------
(a) Included in 1998 ticketing services revenues is $9.2 million related to four
clients; three clients for whom we no longer provide ticketing services and
one client that notified us of its intent not to renew its contract with us
at the end of its term on December 31, 1999. We believe that this
non-renewal was the result of the acquisition of this client by an
entertainment organization that entered into a long-term master ticketing
services agreement with one of our competitors. No pro forma adjustments
have been made with respect to this expected reduction in revenues.
(b) The results of operations for ProTix were included in our consolidated
results of operations as of October 1, 1998. This presentation shows the pro
forma effects of the operations of ProTix as if the acquisition occurred on
January 1, 1998.
(c) The results of operations of California Tickets.com were included in our
consolidated results as of April 1, 1999. This presentation shows the pro
forma effects of the operations of California Tickets.com as if the
acquisition occurred on January 1, 1998.
(d) The results of operations of TicketsLive were included in our consolidated
results as of April 1, 1999. This presentation shows the pro forma effects
of the operations of TicketsLive as if the acquisition occurred on January
1, 1998.
(e) Operating expenses for the year ended December 31, 1998 includes
non-recurring, noncash charges of $17.0 million for impairment of long-lived
assets and $1.6 million for purchased in-process research and development.
(f) This amount represents the amortization of intangibles that would have been
recorded for the year ended December 31, 1998 if the acquisitions of ProTix,
California Tickets.com and TicketsLive occurred on January 1, 1998. This
amount also includes in-process research and development charges that would
have been recorded if the acquisitions of California Tickets.com and
TicketsLive occurred on January 1, 1998.
The estimated fair value of assets acquired and the liabilities assumed as
of the dates of the acquisitions are summarized as follows:
<TABLE>
<CAPTION>
CALIFORNIA
TICKETS.COM TICKETSLIVE
----------- -----------
<S> <C> <C>
Fair value of identified assets acquired.................... $ 5,925 $ 4,035
Liabilities assumed......................................... (7,212) (4,867)
Goodwill at acquisition date................................ 39,662 25,482
Purchased research and development.......................... 3,540 1,800
Less: costs of acquisition.................................. (450) (450)
------- -------
Total consideration................................. $41,465 $26,000
======= =======
</TABLE>
24
<PAGE> 29
The estimated useful lives of intangibles recognized in conjunction with the
acquisition are as follows:
<TABLE>
<CAPTION>
CALIFORNIA
TICKETS.COM TICKETSLIVE
----------- -----------
<S> <C> <C>
Existing product technology................................. 5 years 5 years
Customer relationships...................................... N/A 15 years
Tradename................................................... N/A 7 years
Domain names................................................ 10 years N/A
Assembled workforce......................................... 10 years 5 years
Goodwill.................................................... 10 years 15 years
</TABLE>
(g) This amount represents additional interest expense that would have been
recorded in connection with the $1.3 million of promissory notes issued to
the former shareholders of ProTix if the acquisition of ProTix occurred on
January 1, 1998.
(h) The combined weighted average number of shares calculation reflects the
shares of common stock outstanding during the periods presented. Pro forma
data includes common stock issuable with respect to the acquisitions as if
the stock was issued on January 1, 1998. Excludes shares of common stock
issuable upon conversion of outstanding shares of preferred stock, a
convertible promissory note, and upon exercise of outstanding stock options
and warrants.
(i) Pro forma basic and diluted net loss per share, includes the effects of the
Series A, A1, B, C, D, and E convertible preferred stock, warrants which
expire upon the closing of this offering, convertible debt and the
redeemable common stock, as of October 15, 1999, as if all shares were
converted as of January 1, 1998.
25
<PAGE> 30
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
CALIFORNIA
TICKETS.COM, TICKETS.COM TICKETSLIVE PRO FORMA PRO FORMA
INC. INC.(A) CORPORATION(B) ADJUSTMENTS COMBINED
------------ ------------ -------------- ----------- ---------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing services............... $ 13,046 $ -- $ 17 $ -- $ 13,063
Software services and other...... 6,232 354 2,593 -- 9,179
-------- ------- ------- ------- --------
Total revenues........... 19,278 354 2,610 -- 22,242
-------- ------- ------- ------- --------
Cost of services:
Ticketing services............... 8,971 -- -- -- 8,971
Software services and other...... 3,571 743 1,325 -- 5,639
-------- ------- ------- ------- --------
Total cost of services... 12,542 743 1,325 -- 14,610
-------- ------- ------- ------- --------
Gross profit (loss)................ 6,736 (389) 1,285 -- 7,632
Operating expenses................. 28,604 2,415 3,120 (3,612)(c) 30,527
-------- ------- ------- ------- --------
Loss from operations............... (21,868) (2,804) (1,835) (3,612) (22,895)
Other (income) expense, net........ 1,465 (4) (8) -- 1,453
-------- ------- ------- ------- --------
Net loss........................... $(23,333) $(2,800) $(1,827) $(3,612) $(24,348)
======== ======= ======= ======= ========
Basic and diluted net loss per
share............................ $ (1.74)
Weighted average common shares
outstanding(d)................... 14,012
Pro forma as adjusted, basic and
diluted net loss per share(e).... $ (.46)
</TABLE>
- ---------------
(a) The results of operations of California Tickets.com were included in our
consolidated results as of April 1, 1999. This presentation shows the pro
forma effects of the operations of California Tickets.com as if the
acquisition occurred on January 1, 1998.
(b) The results of operations of TicketsLive were included in our consolidated
results as of April 1, 1999. This presentation shows the pro forma effects
of the operations of TicketsLive as if the acquisition occurred on January
1, 1998.
(c) This amount represents the amortization of intangibles that would have been
recorded for the six months ended June 30, 1999 if the acquisitions of
California Tickets.com and TicketsLive occurred on January 1, 1998 and the
reduction of the in process research and development recorded in connection
with the acquisitions of California Tickets.com and TicketsLive that would
have been recorded in 1998 if the acquisitions took place on January 1,
1998.
(d) The combined weighted average number of shares calculation reflects the
shares of common stock outstanding during the periods presented. Pro forma
data includes common stock issuable with respect to the acquisitions as if
the stock was issued on January 1, 1998. Excludes shares of common stock
issuable upon conversion of outstanding shares of preferred stock, a
convertible promissory note, and upon exercise of outstanding stock options
and warrants.
(e) Pro forma basic and diluted net loss per share, includes the effects of the
Series A, A1, B, C, D, and E convertible preferred stock, warrants which
expire upon the closing of this offering, convertible debt and the
redeemable common stock, as of October 15, 1999, as if all shares were
converted as of January 1, 1998.
26
<PAGE> 31
SELECTED CONSOLIDATED FINANCIAL DATA
TICKETS.COM, INC.
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes as well
as "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data presented below for the period from May 31, 1996 (Inception) to
December 31, 1996 and the years ended December 31, 1997 and 1998 and the
consolidated balance sheet data as of December 31, 1996, 1997 and 1998 are
derived from our audited consolidated financial statements, which have been
audited by Arthur Andersen LLP, our independent public accountants, and are
included elsewhere in this prospectus. The consolidated statement of operations
data for the six months ended June 30, 1998 and 1999 and the consolidated
balance sheet data as of June 30, 1999 are derived from our unaudited financial
statements included elsewhere in this prospectus. Our unaudited financial
statements have been prepared on substantially the same basis as the audited
consolidated financial statements and, in the opinion of our management, include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial condition as of and results of operations for
such periods. The selected consolidated financial data for Tickets.com, Inc. and
its subsidiaries includes the historical financial data for Bay Area Seating
Service, Inc., ProTix, California Tickets.com and TicketsLive from the dates of
the acquisitions. Please be advised that historical results are not necessarily
indicative of the results to be expected in the future, and results of interim
periods are not necessarily indicative of results for the entire year.
BAY AREA SEATING SERVICE, INC. (PREDECESSOR TO TICKETS.COM, INC.)
The selected financial data for Bay Area Seating Service, which we acquired
on September 26, 1997, are also included. Under the rules and regulations of the
Securities and Exchange Commission, Bay Area Seating Service is deemed to be a
predecessor of Tickets.com. The statement of operations data presented below for
the years ended March 31, 1993, 1994, 1995, 1996 and 1997 and the selected
balance sheet data as of March 31, 1993, 1994, 1995, 1996 and 1997 are derived
from Bay Area Seating Service's audited financial statements, which were audited
by Burr, Pilger & Mayer, Inc., Bay Area Seating Service's independent public
accountants. The consolidated statements of operations data for the years ended
March 31, 1996 and 1997 and the selected balance sheet data as of March 31, 1996
and 1997 are included elsewhere in this prospectus. The statement of operations
data for the period from April 1, 1997 to September 26, 1997, the date we
acquired Bay Area Seating Service, are derived from the audited financial
statements for that period and were audited by Arthur Andersen LLP, our
independent public accountants.
27
<PAGE> 32
TICKETS.COM, INC. AND SUBSIDIARIES(A)
<TABLE>
<CAPTION>
MAY 31, 1996
(INCEPTION) YEAR ENDED SIX MONTHS ENDED
TO DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------ ------------------
1996 1997 1998 1998 1999
------------ ------- -------- ------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Ticketing services..................... $ 119 $ 9,686 $ 26,558 $12,729 $ 13,046
Software services and other............ 1,123 1,961 2,982 1,144 6,232
------- ------- -------- ------- --------
Total revenues................. 1,242 11,647 29,540 13,873 19,278
------- ------- -------- ------- --------
Cost of services:
Ticketing services..................... 816 7,702 17,155 8,048 8,971
Software services and other............ 614 711 1,551 407 3,571
------- ------- -------- ------- --------
Total cost of services......... 1,430 8,413 18,706 8,455 12,542
------- ------- -------- ------- --------
Gross profit (loss)............ (188) 3,234 10,834 5,418 6,736
------- ------- -------- ------- --------
Operating expenses:
Sales and marketing.................... 154 2,096 7,339 2,957 9,068
Technology development................. 690 2,233 6,417 2,289 4,793
General and administrative............. 2,071 3,182 9,204 4,005 6,827
Amortization of intangibles............ -- 712 2,082 903 2,576
Impairment of long-lived assets........ -- -- 17,026 -- --
Purchased in-process research and
development......................... -- -- 1,600 -- 5,340
------- ------- -------- ------- --------
Total operating expenses....... 2,915 8,223 43,668 10,154 28,604
------- ------- -------- ------- --------
Loss from operations..................... (3,103) (4,989) (32,834) (4,736) (21,868)
Other expenses(b)........................ 146 1,110 2,027 1,135 1,465
------- ------- -------- ------- --------
Net loss................................. $(3,249) $(6,099) $(34,861) $(5,871) $(23,333)
======= ======= ======== ======= ========
Basic and diluted net loss per share..... $ (.65) $ (1.17) $ (6.08) $ (1.05) $ (2.64)
Weighted average common shares
outstanding............................ 5,000 5,199 5,734 5,574 8,841
Pro forma as adjusted, basic and diluted
net loss per share(c).................. $ (.67) $ (.44)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------- JUNE 30,
1996 1997 1998 1999
------- -------- -------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets................................ $ 6,090 $ 47,922 $ 38,512 $123,347
Working capital (deficit)................... (2,163) (1,538) (8,180) (608)
Total long-term debt(d)..................... 4,968 23,493 20,232 21,587
Redeemable common stock and warrants........ 2,500 3,599 4,506 9,596
Total stockholders' equity (deficit)........ (4,396) 2,186 (11,929) 60,859
</TABLE>
- ---------------
(a) Includes historical financial data for Bay Area Seating Service, ProTix,
California Tickets.com and TicketsLive from the dates of acquisition.
(b) Other expenses include principally interest expense, net of interest income,
and to a lesser degree minority interest and provision for income taxes.
(c) Pro forma basic and diluted net loss per share, includes the effects of the
Series A, A1, B, C, D, and E convertible preferred stock, warrants which
expire upon the closing of this offering, convertible debt and the
redeemable common stock, outstanding as of the respective periods, as if all
shares were converted as of January 1, 1998.
(d) Amounts classified as long-term debt consist of long-term debt and capital
lease obligations, net of current portion.
28
<PAGE> 33
BAY AREA SEATING SERVICE, INC. (PREDECESSOR)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, APRIL 1, 1997 TO
----------------------------------------------- SEPTEMBER 26,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- ------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Ticketing services........... $17,547 $19,696 $20,704 $18,752 $20,561 $10,858
Software services and
other..................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total revenues....... 17,547 19,696 20,704 18,752 20,561 10,858
------- ------- ------- ------- ------- -------
Cost of services:
Ticketing services........... 6,676 7,648 8,776 7,381 7,866 4,203
Software services and
other..................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total cost of
services........... 6,676 7,648 8,776 7,381 7,866 4,203
------- ------- ------- ------- ------- -------
Gross profit................... 10,871 12,048 11,928 11,371 12,695 6,655
General and administrative
expenses..................... 10,939 11,171 11,704 11,322 12,212 6,301
------- ------- ------- ------- ------- -------
Income from operations......... (68) 877 224 49 483 354
Other income, net(a)........... (494) 114 270 402 356 261
Provision for income taxes..... 236 257 (338) (162) (278) (211)
------- ------- ------- ------- ------- -------
Net income before change in
accounting principle......... 190 506 156 289 561 404
Change in accounting
principle(b)................. (110) -- -- -- -- --
------- ------- ------- ------- ------- -------
Net income..................... $ 300 $ 506 $ 156 $ 289 $ 561 $ 404
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------------------------------------
1993 1994 1995 1996 1997
------ ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets.................................. $9,605 $11,445 $11,099 $12,818 $14,443
Working capital............................... 813 1,040 1,080 1,591 749
Total long-term debt(c)....................... 138 187 22 6 1
Retained earnings............................. 1,213 1,556 1,608 1,897 2,407
Total shareholders' equity.................... 2,432 2,552 2,557 2,846 3,355
</TABLE>
- ---------------
(a) Other income, net includes principally interest income net of interest
expense and other miscellaneous income and expenses.
(b) Cumulative effect to April 1, 1992 of application of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
(c) Amounts classified as long-term debt consist of long-term debt and capital
lease obligations, net of current portion.
29
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations should be read in conjunction with our consolidated financial
statements as of December 31, 1998 and the related notes. The following
discussion contains forward-looking statements that involve risks and
uncertainties. The statements are based on current expectations and actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to the differences are discussed in "Risk Factors" and
elsewhere in this prospectus. In addition, past financial performance is not
necessarily a reliable indicator of future performance and potential investors
should not use historical financial performance to anticipate results or future
period trends. Tickets.com undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements that may be made to
reflect any future events or circumstances.
OVERVIEW
Tickets.com is a leading source of entertainment tickets, event
information, and related products and services based upon our pro forma
consolidated 1998 revenues. We sell tickets and provide these services through
retail stores, telephone sales centers, interactive voice response systems, and
the Internet. We provide automated ticketing solutions to over 4,000
entertainment organizations and venues such as stadiums, performing arts
centers, museums and professional sports franchises. In 1998, we sold
approximately 5.3 million tickets for which we received service fees from ticket
buyers.
SOURCES OF REVENUE
Ticketing Services
We primarily generate revenue from ticketing services from per ticket
service fees charged directly to consumers who purchase tickets through our
retail stores, telephone sales centers, interactive voice response systems and
the Internet. In addition, we charge a per order handling fee to consumers for
all tickets we sell, other than through retail stores. The amount of the service
fees we charge varies from client to client, depending upon a number of factors,
including the nature of the services to be rendered to the client, the amount
and cost of equipment to be installed in the client's box office, the amount of
advertising and promotional allowances provided, the type of event and the
distribution channels used. The service fee for each client is determined by us
and our clients through arms-length negotiations during the contract process.
During 1998, our service fees generally ranged from $1.50 to $7.00 per ticket.
We generally do not purchase tickets from our clients for resale to the public.
However, we have recently entered into arrangements with several performers to
provide online ticket auctions for their live concerts, and we plan to increase
this type of online auction activity in the future. To date, under these types
of arrangements, we generally have agreed to purchase at face value any unsold
tickets that were allocated for auction on our web site. If we are unable to
sell tickets that we have agreed to purchase, or sell them at less than face
value, we will incur losses on the tickets purchased.
Our ticketing services clients determine all face values for tickets sold
through our services. These clients also generally determine when tickets for
their events will be sold to the public and the number and type of tickets that
will be available for sale through us. We usually sell only a portion of our
clients' total tickets. The number of tickets that our clients sell in-house
varies from client to client and varies as to any single client from year to
year. Tickets allocated by our clients to us are sold to the public directly
through our distribution network.
If an event is cancelled, we will refund the per ticket convenience fee
directly to consumers. However, our ticketing service clients are responsible
for funding all refunds of ticket prices for a cancelled event. To the extent
that the funds we are holding on behalf of a client are insufficient to cover
all refunds, the client is contractually required to provide us with additional
funds within a specified period of time, typically 24 to 72 hours, of
cancellation. Historically, our clients have fulfilled these obligations.
30
<PAGE> 35
Software Services and Other
We generate a portion of our revenue from license and support fees charged
to licensees of our software products. We recognize these revenues in accordance
with contracts we enter into with our licensees when they license our software
and purchase maintenance and other support services. Our support and maintenance
contracts have terms ranging from one to five years with automatic one-year
renewals. Our licensees generally pay a one-time license fee for the right to
use our software and annual fees for support and maintenance.
COST STRUCTURE
Cost of Services. Cost of services associated with ticketing services
primarily includes expenses related to the distribution and delivery of tickets.
These expenses primarily include telephone sales center and distribution
payroll, telecommunications and data communications, commissions paid on tickets
distributed through outlets and our clients' share of service fees. Cost of
services associated with software services and other include primarily costs
related to the installation of the software mainly consisting of payroll and
travel related costs.
Operating Expenses. Our operating expenses are comprised of three primary
categories: sales and marketing, technology development and general and
administrative expenses. Sales and marketing expenses are expensed as incurred
and consist principally of personnel expenses, consulting fees, advertising,
trade shows and conventions, and promotional expenditures. Technology
development expenditures are expensed as incurred and consist primarily of
personnel and related compensation costs, contract labor to support software
development, and configuration and implementation of our ticketing systems,
telecommunications, web site and connectivity and support system infrastructure.
General and administrative expenses consist of personnel expenses for
management, accounting and administrative personnel, recruiting, professional
services, facilities and other administrative expenses. We amortize our
intangible assets on a straight-line basis over various estimated useful lives
primarily ranging from three to 25 years. Covenants not to compete are amortized
on a straight-line basis over the corresponding contract period of three years.
Our corresponding intangibles consist primarily of the portion of the purchase
price of businesses acquired allocated to existing technology, client
relationships, tradenames, assembled workforce, goodwill and covenants not to
compete. Goodwill represents the excess of cost over the fair value of
identified net assets acquired in business combinations accounted for under the
purchase method.
SEASONALITY
Our operations and revenues from ticketing services are largely seasonal in
nature, with generally higher revenue generated in the second and third quarters
of the year. Several of our largest clients are outdoor venues or promoters of
musical concerts, which schedule a significant number of events during the
summer months and do not generate substantial activities in the late fall,
winter and early spring. Therefore, the seasonality of our business causes a
significant variation in our quarterly operating results. We expect that this
seasonality will probably continue to cause significant variations in our future
quarterly operating results.
RECENT DEVELOPMENTS
In September 1999 and October 1999, we entered into various agreements with
entertainment organizations and entertainers to provide us with tickets for sale
on our web site. In connection with these agreements, we issued warrants to
purchase 332,778 shares of common stock at an exercise price of $2.25 per share.
The warrants are fully vested and are first exercisable one year after the date
of issuance.
In October 1999, we issued options to purchase 167,333 shares of common
stock at an exercise price of $2.25 per share to various consultants in the live
entertainment industry. The options were issued in connection with their
services to promote our web site and assist in providing access to additional
tickets for sale on our web site. The options were fully vested and exercisable
at the date of issuance.
31
<PAGE> 36
In connection with these options and warrants, we expect to record noncash
compensation expense of approximately $1.4 million in the third quarter of 1999
and of approximately $2.5 million in the fourth quarter of 1999.
RESULTS OF OPERATIONS
GENERAL
Our historical operations consist primarily of (1) the provision of
outsourced ticketing and related services to clients such as performing arts
centers, amphitheaters, professional sports franchises, and concert promoters
and (2) the licensing, maintenance and support of our proprietary ticketing
software. The following discussion should also be read in connection with the
audited financial statements, the unaudited interim financial statements and the
selected unaudited pro forma condensed combined financial statements and the
related notes included elsewhere in this prospectus.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
REVENUES
Ticketing Services. Revenues from ticketing services increased 2.5% to
$13.0 million for the six months ended June 30, 1999 from $12.7 million for the
six months ended June 30, 1998. The increase in revenues was primarily due to an
increase in total tickets sold of 10.5% to 2,669,000 for the six months ended
June 30, 1999 from 2,415,000 for the six months ended June 30, 1998. Our
acquisition of ProTix contributed 777,000 tickets and $3.0 million of total
ticketing services revenues for the six months ended June 30, 1999. Excluding
acquisitions, tickets sold decreased by 522,000 and ticketing services revenues
decreased by $2.7 million, primarily because of contract terminations by our
clients. From March 1998 to July 1998, two of our largest clients, which we
obtained through our acquisition of Bay Area Seating Service in September 1997,
terminated their contracts with us after entering into agreements with an
alternative ticketing services provider. Additionally one other Bay Area Seating
Service client elected not to renew its contract. In the aggregate, the
termination of such contracts is expected to reduce annualized revenues by
approximately $5.8 million commencing in January 1999 based upon the average
revenues we recognized from these three clients during the past three fiscal
years. As of December 31, 1998, we have ceased providing services to these
clients. Additionally, in November 1998, our largest client notified us of its
intent not to renew its contract with us at the end of its term on December 31,
1999. We believe that the non-renewal was the result of the acquisition of this
client by an entertainment organization that entered into a master agreement
with one of our competitors. The loss of this client is expected to reduce
annualized revenues by approximately $3.5 million commencing in fiscal 2000
based upon the average revenues we recognized from this client during the past
three fiscal years.
Software Services and Other. Revenues from software services and other
increased 444.5% to $6.2 million for the six months ended June 30, 1999 from
$1.1 million for the six months ended June 30, 1998. Acquisitions contributed
all of the increase. As a result of our acquisitions and the loss of revenue
from the three terminated ticketing services client contracts in the last half
of 1998, the six months ended June 30, 1999 included a higher proportion of
software services and other revenues to total revenues, as compared to the six
months ended June 30, 1998.
COST OF SERVICES
Ticketing Services. Cost of services for ticketing services increased 11.5%
to $9.0 million for the six months ended June 30, 1999 from $8.0 million for the
six months ended June 30, 1998. The increase was attributable to the acquisition
of ProTix, which accounted for $1.8 million of the total costs of services for
ticketing for the six months ended June 30, 1999. This increase was partially
offset by net decreases of approximately $900,000 associated with decreased
ticket sales, mainly related to a decrease in our clients' share of service
charges. As a percentage of revenues, total cost of ticketing services increased
to 68.8% from 63.2%. The increase was primarily attributable to the significant
decrease in ticket sales. We decreased personnel and related costs as a result
of the loss of ticket volume; however the timing of the reduction lagged
32
<PAGE> 37
behind the loss of ticketing revenues. We expect the costs of ticketing as a
percentage of revenues to decrease in the future as ticketing services costs,
mainly payroll, are reduced. Additionally, as ticketing volume increases on the
www.tickets.com web site, costs of ticketing services are expected to decrease
as a percentage of total ticketing services revenue. Services provided via the
Internet are less costly than traditional methods of providing ticketing
services.
Software Services and Other. Cost of services for software services and
other increased 777.8% to $3.6 million for the six months ended June 30, 1999
from $400,000 for the six months ended June 30, 1998. As a percentage of
revenues, costs of software services and other increased to 57.3% from 35.6%.
The increase was primarily due to our acquisitions of ProTix and TicketsLive,
which perform custom programming services on behalf of their clients that have
entered into contracts for these services. These services often entail higher
costs relative to the related revenue than do the rest of our software services.
Sales and Marketing. Sales and marketing expenses increased 206.7% to $9.1
million for the six months ended June 30, 1999 from $3.0 million for the six
months ending June 30, 1998. Acquisitions accounted for $1.8 million of the
increase. As a percentage of revenues, sales and marketing expenses increased to
47.0% from 21.3%. In an effort to continue the development of the sales and
marketing infrastructure to support our growth plans and to increase consumer
awareness, we have begun to increase our sales and marketing expenses
significantly. Excluding acquisitions, we have increased personnel related
expenses by $1.5 million and advertising, public relations and trade show
expenses by $2.8 million. We expect sales and marketing expenses to continue to
increase as we continue our aggressive advertising campaign to increase consumer
awareness and build the brand equity of our web site.
Technology Development. Technology development expenses increased 109.4% to
$4.8 million for the six months ended June 30, 1999 from $2.3 million for the
six months ended June 30, 1998. Of this increase, $1.2 million was related to
our acquisitions. As a percentage of revenues, technology development expenses
increased to 24.9% from 16.5%. We invested approximately $1.2 million to
develop, enhance and expand our web site reflecting increased personnel costs of
$400,000 and professional services of $800,000. We will continue to increase
technology development expenses to enhance system functionality, broaden
reporting capabilities and service delivery methods. Moreover, we have developed
an aggressive schedule to complete the Internet connections for our software
licensees to enable them to sell tickets on our web site. We expect technology
development expenses to increase in future periods as we further expand our
technical staff, develop new technologies, continue to enhance our web site and
augment existing technologies.
General and Administrative. General and administrative expenses increased
70.5% to $6.8 million for the six months ended June 30, 1999 from $4.0 million
for the six months ended June 30, 1998. Our acquisitions accounted for $2.2
million of the increase. As a percentage of revenues, general and administrative
expenses increased to 35.4% from 28.9%. The increase was primarily due to
increased payroll and related expenses of $435,000 as we continue to invest in
our managerial and administrative infrastructure commensurate with and to
facilitate our growth, and professional services, mainly legal and accounting
fees of $475,000. These increases were offset partially by a $180,000 decrease
in travel related costs. We expect general and administrative expenses to
increase in future periods as we continue to expand our staff and as we incur
additional costs related to the growth of our business and reporting as a public
company.
Amortization of Intangibles. Amortization expense increased 185.3% to $2.6
million for the six months ended June 30, 1999 from $900,000 for the six months
ended June 30, 1998. The increase was primarily due to our recent acquisitions,
which increased our amortization expense by $2.3 million for the six months
ended June 30, 1999. Of this amount, the acquisition of ProTix contributed six
months of expense totaling $476,000. We recorded three months of amortization in
connection with the acquisitions of California Tickets.com, including
TicketStop, and TicketsLive totaling $1.8 million. The increase from our
acquisitions was partially offset by the decrease in amortization expense due to
the write off of the goodwill and intangibles related to the acquisition of Bay
Area Seating Service. The net decrease in amortization related to Bay Area
Seating Service totaled $660,000.
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<PAGE> 38
Purchased In-Process Research and Development. The purchased in-process
research and development charges recorded during the six months ended June 30,
1999 were two amounts recorded in conjunction with the acquisitions of
California Tickets.com and TicketsLive. Each of the amounts, $3.5 million for
California Tickets.com and $1.8 million for TicketsLive, represented the
estimated fair value related to incomplete projects reflecting the risk-adjusted
cash flows and the state of completion. At the date of acquisition the projects
associated with the in-process research and development efforts had not yet
reached technological feasibility and had no alternative future uses.
Accordingly, these costs were expensed. TicketsLive was conducting development
activities associated with the completion of the next generation of Select,
TicketsLive's automated ticketing system. The projects under development were to
increase speed, expand functionality, flexibility and reporting. California
Tickets.com was in the process of completing customization and development of
its web site and transaction processing systems. Since we already had these
systems in place, the projects, which were in varying stages of completion, were
of no continuing value to us.
In making our purchase price allocation, we considered present value
calculations of income, an analysis of project accomplishments and completion
costs, an assessment of overall contributions, as well as project risks. The
values assigned to in-process research and development were determined by
estimating the costs to develop the purchased technology into commercially
viable products, estimating the resulting net cash flows from each project,
excluding the cash flows related to the portion of each project that was
incomplete at the acquisition date, and discounting the resulting net cash flows
to their present value. Each of the project forecasts was based upon future
discounted cash flows, taking into account the state of development of each
in-process project, the costs to complete that project, the expected income
stream, the lifecycle of the product ultimately developed, and the associated
risks.
Aggregate revenue attributable to the in-process research and development
projects was estimated to peak, as a percentage of total revenue, in 2001 for
California Tickets.com and 2002 for TicketsLive, and decline thereafter through
the end of the life of the in-process research and development in 2003 for
California Tickets.com and 2005 for TicketsLive as new product technologies were
expected to be introduced. For California Tickets.com the costs to complete the
in-process research and development efforts were expected to be as follows:
$50,000 for ticketing transaction systems and $83,000 for web site development.
For TicketsLive, the cost to complete the in-process research and development
efforts are expected to be $596,000. For California Tickets.com, the
risk-adjusted discount rate used for ticketing transactions systems projects and
web site development was 35% to discount projected cash flows. For each of the
projects for TicketsLive, a risk-adjusted discount rate of 25% was used to
discount projected cash flows.
Total Other (Income) Expense. Total other (income) expense consists
principally of interest income and interest expense. Interest income is
generated primarily from cash and cash equivalents held in interest bearing
accounts. Interest income increased 26.0% to $379,000 for the six months ended
June 30, 1999 from $301,000 for the six months ended June 30, 1998. The increase
is mainly due to higher cash balances that resulted from our financing
activities. Interest expense increased by 17.3% to $1.7 million for the six
months ended June 30, 1999 from $1.4 million for the six months ended June 30,
1998. The increase was due to:
- a noncash write-off of a portion of unamortized discount in connection
with the $2.0 million pay down of our senior indebtedness discussed in
"Liquidity and Capital Resources;"
- increased interest related to the additional $1.3 million of debt
incurred in connection with the 1998 acquisition of ProTix; and
- increased borrowings for leases of capital equipment.
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<PAGE> 39
Net Loss. For the six months ended June 30, 1999, our net loss was $23.3
million or $2.64 per share. For the six months ended June 30, 1998, our net loss
was $5.9 million or $1.05 per share. The increase in the net loss was primarily
due to:
- Decreases in ticketing services revenues of $2.7 million, net of
acquisition revenues;
- The write off of purchased in-process research and development of $5.3
million;
- Increased operating expenses, most significantly:
- Personnel and office related expenses of $2.4 million;
- Advertising, public relations and trade shows of $2.5 million; and
- Professional services of $1.9 million.
- Losses from acquisitions of $2.9 million.
The convertible preferred stock and other potentially dilutive securities
(including stock options) were antidilutive and therefore excluded from the
calculation of diluted loss per share.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES
Ticketing Services Revenues. Revenues from ticketing services increased
174.2% to $26.6 million in 1998 from $9.7 million in 1997. The increase was
primarily due to a $17.3 million increase in ticketing revenues as a result of
an additional nine months of revenue in 1998 from Bay Area Seating Service
operations and three months of ProTix operations resulting from the timing of
the acquisition. Specifically, the number of service chargeable tickets sold in
1998 increased 194.4% to 5.3 million in 1998 from 1.8 million in 1997 due to
acquisitions. An additional nine months of Bay Area Seating Service ticket sales
accounted for 3.3 million of the increase, and ProTix contributed an additional
200,000 of the increase. Excluding acquisitions, tickets sold decreased by
56,000 which resulted in a decrease in ticketing services revenues of $200,000
during the period. Additionally, net of acquisitions, the decrease in the
average per ticket service fee resulted in a $240,000 decrease in ticketing
services revenues.
From March 1998 to July 1998, three of our largest ticketing services
clients terminated their contracts. As a result, we expect annualized revenues
to be reduced by approximately $5.8 million and annualized ticket sales volume
to be reduced by approximately 1.5 million tickets commencing January 1999. In
November 1998, our largest client notified us of its intent not to renew its
contract with us at the end of its term on December 31, 1999. We expect our
annualized revenues will be reduced by an additional amount of approximately
$3.5 million commencing in fiscal 2000 due to the loss of this client and
annualized ticket sales volume to be reduced by approximately 700,000 tickets.
Software Services and Other. Revenues from software services and other
increased 52.1% to $3.0 million in 1998 from $2.0 million in 1997. ProTix
contributed $500,000 of the increase. The remaining amount of the increase was
primarily due to an increase in the number of licensees of our software systems
and the related support fees derived therefrom.
COST OF SERVICES
Ticketing Services. Cost of services for ticketing increased $9.5 million
or 122.7% to $17.2 million in 1998 from $7.7 million in 1997. An additional nine
months of Bay Area Seating Service operations accounted for virtually all of the
increase. As a percentage of revenues, cost of ticketing services decreased to
64.6% in 1998 from 79.5% in 1997. The decrease, as a percentage of revenues, was
primarily attributable to the increase in ticket sales as a result of nine
additional months of Bay Area Seating Service operations. Costs of services do
not vary directly with tickets sold after a certain level of infrastructure has
been established. The increased ticket sales enabled us to take advantage of
economies of scale.
Software Services and Other. Cost of services for software services and
other increased 118.0% to $1.6 million in 1998 from $700,000 in 1997. The
increase of $900,000 was primarily due to cost of services of $600,000
recognized in connection with the acquisition of ProTix in October 1998 and to a
lesser degree, costs
35
<PAGE> 40
involved with support services provided to new software support clients in 1998.
As a percentage of revenues, costs of software services and other increased to
52.0% from 36.3%.
Sales and Marketing. Sales and marketing expenses increased 250.1% to $7.3
million in 1998 from $2.1 million in 1997. As a percentage of revenues, sales
and marketing increased to 24.8% from 18.0%. The higher sales and marketing
expenses in 1998 were partially due to $2.9 million incurred as a result of an
additional nine months of Bay Area Seating Service operations and three months
of ProTix operations. Excluding acquisitions, sales and marketing expenses
increased $2.3 million. In 1998, we began to increase sales and marketing
expenditures significantly in an effort to continue the development of the sales
and marketing infrastructure to support our growth plans and to increase
consumer awareness. The increase primarily represents increased payroll and
consulting expenses of $1.5 million, advertising expenses of $200,000, and trade
show expenses and travel related expenses of $230,000.
Technology Development. Technology development expenses increased 187.4% to
$6.4 million in 1998 from $2.2 million in 1997. The increase was partially due
to the additional nine months of operations of Bay Area Seating Service in 1998
and three months of ProTix operations, which contributed $1.6 million of the
increase. Also, in 1998 we increased technology development expenses to enhance
system functionality, broaden our reporting capabilities and service delivery
methods to clients and stabilize our systems. As a percentage of revenue,
technology development expenses increased to 21.7% from 19.2%.
General and Administrative. General and administrative expenses increased
189.3% to $9.2 million in 1998 from $3.2 million in 1997. The increase in
general and administrative expenses was primarily due to $3.0 million of general
and administrative expenses as a result of an additional nine months of
operations of Bay Area Seating Service and three months of operations for
ProTix. In addition, from January 1998 to June 1998, we converted Bay Area
Seating Service from a competitor's ticketing system to one of ours. The
nonrecurring costs of the conversion we recorded totaled $600,000. We also
incurred $700,000 in legal fees associated with acquisition and litigation
activities. Additionally, we invested approximately $1.5 million in an effort to
continue to develop our managerial and administrative infrastructure,
commensurate with and to facilitate our growth. As a percentage of revenues,
general and administrative expenses increased to 31.2% from 27.3%.
Amortization of Intangibles. Amortization of intangibles increased 192.2%
to $2.1 million in 1998 from $700,000 in 1997. The increase in amortization is
directly related to the increase in goodwill and intangibles recorded due to our
acquisitions of Fantastix in August 1997, Bay Area Seating Service in September
1997 and ProTix in October 1998.
During the fourth quarter of 1998, we recorded a noncash impairment charge
of $17.0 million. During 1998, Bay Area Seating Service was given notice of
termination by four of its clients, its largest client giving notice during the
fourth quarter of 1998. All of these clients were clients of Bay Area Seating
Service at the time we acquired Bay Area Seating Service. During 1998, estimated
revenues attributable to these four clients totalled approximately $9.2 million
or 31.1% of our total 1998 revenues. The loss of these clients prompted an
assessment of the carrying value of the long-lived assets associated with the
acquisition of Bay Area Seating Service. Based upon this assessment, we
determined that some of the intangible assets resulting from the Bay Area
Seating Service acquisition, principally goodwill and noncompete agreements, met
the test for impairment. Accordingly, we have reduced the carrying value of the
related long-lived assets to their estimated fair value.
The impairment charge had no impact on our 1998 cash flows or our ability
to generate cash flows in the future. As a result of the charge, amortization
expense related to these assets will decrease in future periods. Additionally,
in conjunction with the review for impairment, the remaining estimated lives of
some long-lived assets were shortened, which resulted in the acceleration of
amortization expense for some intangible assets.
Purchased In-Process Research and Development. The 1998 charge for
purchased in-process research and development was recorded in conjunction with
the acquisition of ProTix. The allocation of the $1.6 million represents the
estimated fair value related to incomplete projects and reflected the
risk-adjusted cash flows and the stage of completion. At the date of the
acquisition, the projects associated with the in-process research
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<PAGE> 41
and development efforts had not yet reached technological feasibility and had no
alternative future uses. Accordingly, these costs were expensed. At the
acquisition date, ProTix was conducting development activities associated with
the completion of next generations of ProTix' Automated Ticketing Solutions and
Regional Ticketing Services. The projects under development, at the valuation
date, were expected to address requirements in the areas of greater scalability,
significant new functionality, and greater speed.
In making our purchase price allocation, we considered present value
calculations of income, an analysis of project accomplishments and completion
costs, an assessment of overall contributions, as well as project risks. The
values assigned to in-process research and development were determined by
estimating the costs to develop the purchased technology into commercially
viable products, estimating the resulting net cash flows from each project,
excluding the cash flows related to the portion of each project that was
incomplete at the acquisition date, and discounting the resulting net cash flows
to their present value. Each of the project forecasts was based upon future
discounted cash flows, taking into account the state of development of each
in-process project, the costs to complete that project, the expected income
stream, the lifecycle of the product ultimately developed, and the associated
risks.
Aggregate revenue attributable to the in-process research and development
projects was estimated to peak, as a percentage of total revenue, in 2001, and
decline thereafter through the end of the life of the in-process research and
development as new product technologies are expected to be introduced by ProTix.
The costs to complete the in-process research and development efforts are
expected to be as follows: $402,000 for automated ticketing solutions and
$108,000 for regional ticketing services. For both of the project categories, a
risk-adjusted discount rate of 20% was used to discount projected cash flows.
Total Other (Income) Expense. Other (income) expense consists primarily of
interest income and expense. Interest income increased 324.9% to $900,000 in
1998 from $200,000 in 1997. The increase in interest income in 1998 is due to
higher cash balances that resulted from our financing activities and the
increase in our ticketing services revenues during 1998. Interest expense
increased 124.5% to $3.0 million in 1998 from $1.3 million in 1997. The increase
in interest expense is due to the impact of carrying the long-term debt raised
in 1997 for the full 1998 year.
NET LOSS
For the year ended December 31, 1998, our net loss was $34.9 million or
$6.08 basic and diluted net loss per share. For the year ended December 31,
1997, our net loss was $6.1 million or basic and diluted $1.17 net loss per
share. The increase in the net loss was due to:
- The write off of the goodwill and intangibles related to the acquisition
of Bay Area Seating Service;
- Increased operating expenses; and
- Increased interest expense.
The convertible preferred stock and other potentially dilutive securities
(including stock options) were antidilutive and therefore excluded from the
calculation of diluted loss per share.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE PERIOD FROM MAY 31, 1996
(INCEPTION)
TO DECEMBER 31, 1996
Revenues. Revenues from ticketing services increased to $9.7 million for
the year ended December 31, 1997 from $100,000 for the period from May 31, 1996
(Inception) to December 31, 1996. The increase was due to an additional five
months of operations as well as the acquisitions of Fantastix, in August 1997
and Bay Area Seating Service in September 1997.
Software Services and Other. Revenues from software services and other
increased 74.6% to $2.0 million for the year ended December 31, 1997 from $1.1
million for the period from May 31, 1996 (Inception) to December 31, 1996. The
increase was primarily due to comparing a full year of 1997 to the period from
May 31, 1996 (Inception) to December 31, 1996.
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<PAGE> 42
COST OF SERVICES
Ticketing Services. Cost of services for ticketing services increased to
$7.7 million for the year ended December 31, 1997 from $800,000 for the period
from May 31, 1996 (Inception) to December 31, 1996. The increase was due
primarily to the acquisitions of the Advantix division of Playhouse Square
Foundation in 1996, and Fantastix and Bay Area Seating Service during 1997. The
higher expenses in 1997 are also the result of comparing the full year of 1997
to the period from May 31, 1996 (Inception) to December 31, 1996. As a
percentage of revenues, cost of ticketing services decreased to 79.5% from
684.8%.
Software Services and Other. Cost of services for software services and
other increased 15.9% to $700,000 for the fiscal year ended December 31, 1997
from $600,000 for the period from May 31, 1996 (Inception) to December 31, 1996.
The increase was primarily due to comparing the full year of 1997 to the period
from May 31, 1996 (Inception) to December 31, 1996. As a percentage of revenues,
costs of software services and other decreased to 36% from 54%.
Sales and Marketing. Sales and marketing expenses increased to $2.1 million
for the year ended December 31, 1997 from $200,000 for the period from May 31,
1996 (Inception) to December 31, 1996. As a percentage of revenues, sales and
marketing expenses increased to 18.0% from 12.4%. The higher sales and marketing
expenses in 1997 was primarily the result of comparing the full year of 1997 to
the period from May 31, 1996 (Inception) to December 31, 1996, and to a lesser
degree, to the acquisitions of the Advantix division of Playhouse Square
Foundation during 1996, and Fantastix and Bay Area Seating Service during 1997.
Additionally, we began building our sales and marketing infrastructure in 1997
to support our growth plans.
Technology Development. Technology development expenses increased 223.6% to
$2.2 million for the year ended December 31, 1997 from $700,000 for the period
from May 31, 1996 (Inception) to December 31, 1996. This increase was primarily
due to comparing the full year of 1997 operations to the period from May 31,
1996 (Inception) to December 31, 1996. Also, in 1997 we began increasing our
technology development department and expenditures to stabilize our systems,
enhance our system functionality and broaden our reporting capabilities and
service delivery methods to our clients. As a percentage of revenues, technology
development expenses decreased to 19.2% from 55.5%.
General and Administrative. General and administrative expenses increased
53.7% to $3.2 million for the year ended December 31, 1997 from $2.1 million for
the period from May 31, 1996 (Inception) to December 31, 1996. The increase in
general and administrative expenses was primarily the result of costs associated
with the expansion of our administrative infrastructure to support increases in
our total revenues and to a lesser degree to comparing the full year of 1997 to
the period from May 31, 1996 (Inception) to December 31, 1996. As a percentage
of revenues, general and administrative expenses decreased to 27.3% from 166.7%.
Amortization of Intangibles. Amortization of intangibles increased to
$700,000 for the year ended December 31, 1997 from zero for the period from May
31, 1996 (Inception) to December 31, 1996. The increase was due to the
amortization of intangibles recorded in connection with the acquisitions of the
Advantix division of Playhouse Square Foundation during 1996 and Fantastix and
BASS during 1997.
Total Other (Income) Expense. Total other (income) expense consisted solely
of interest income and interest expense. Interest income increased to $200,000
for the year ended December 31, 1997 from zero for the period from May 31, 1996
(Inception) to December 31, 1996. The increase in interest income in 1997 was
primarily due to higher cash balances that resulted from our financing
activities and the increase in revenues during 1997. Interest expense increased
to $1.3 million for the year ended December 31, 1997 from $100,000 for the
period from May 31, 1996 (Inception) to December 31, 1996. The increase in
interest expense was primarily due to the increase in long-term debt during
1997, which was incurred to affect acquisitions as well as to fund working
capital needs, and to a lesser degree to comparing the full year of 1997 to the
period from May 31, 1996 (Inception) to December 31, 1996.
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<PAGE> 43
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, data regarding
our revenues, cost of services and gross profit. Such data have been derived
from our unaudited consolidated financial statements, which we believe have been
prepared on substantially the same basis as our audited consolidated financial
statements. The operating results in any quarter are not necessarily indicative
of the results that may be expected for any future period. The ratios set forth
in the table below represent amounts as a percentage of total revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 30, 1998 1998 1999 1999
------------ ------------ ------------ ------------ ------------ -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing services........ $5,591 92% $7,138 91% $7,438 90% $6,391 86% $5,070 77% $ 7,976 63%
Software services and
other................... 462 8 683 9 814 10 1,023 14 1,508 23 4,724 37
------ --- ------ --- ------ --- ------ --- ------ --- ------- ---
Total revenues.............. 6,053 100 7,821 100 8,252 100 7,414 100 6,578 100 12,700 100
------ --- ------ --- ------ --- ------ --- ------ --- ------- ---
Cost of services:
Ticketing services........ 3,150 52 4,899 63 4,628 56 4,478 60 3,725 57 5,246 41
Software services and
other................... 183 3 224 3 269 3 875 12 750 11 2,821 22
------ --- ------ --- ------ --- ------ --- ------ --- ------- ---
Total cost of services...... 3,333 55 5,123 65 4,897 59 5,353 72 4,475 68 8,067 63
------ --- ------ --- ------ --- ------ --- ------ --- ------- ---
Gross profit............ $2,720 45% $2,698 35% $3,355 41% $2,061 28% $2,103 32% $ 4,633 37%
====== === ====== === ====== === ====== === ====== === ======= ===
</TABLE>
Our operating results have varied on a quarterly basis during our short
operating history. We expect to experience significant fluctuations in our
future operating results due to a variety of factors, many of which are outside
of our control. Factors that may affect our operating results include, among
others:
- our ability to maintain and increase our client base and the revenues our
clients provide;
- our ability to increase the volume of ticket sales through our web site;
- changes in our revenue mix;
- delays in implementation of our services by clients;
- the announcement or introduction of new or enhanced sites and services by
us or our competitors;
- consumer acceptance of the Internet for services such as ours;
- the amount of expenditures for online advertising by businesses;
- the popularity, frequency and location of events for which we sell
tickets;
- work stoppages, such as a player strike in a professional sports league;
- the amount and timing of operating and capital costs related to expansion
and system upgrades;
- technical difficulties, system downtime or Internet brownouts; and
- general economic conditions.
Unfavorable changes in any of the above factors could materially and
adversely affect our revenues, gross margins, results of operations in future
periods and the market price of our common stock.
In addition, any occurrence or condition that results in decreased
attendance or demand for entertainment, sporting and leisure events would likely
have a material adverse effect on our business, financial condition and results
of operations. As a result, you should not rely upon period-to-period
comparisons of our results of operations as an indication of future performance.
In addition, the results of any quarterly period are not indicative of results
to be expected for a full fiscal year. Many of the factors outlined above are
largely unpredictable and may cause significant fluctuations in our operating
results. These fluctuations may cause our annual or quarterly results to be
below market expectations which could materially and adversely affect the market
price of our stock.
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<PAGE> 44
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our activities through a series of
private placements of convertible preferred stock, and through debt and credit
facilities. As of June 30, 1999, we had raised a total of $84.4 million in
long-term capital from equity and debt instruments.
From December 31, 1998 to June 30, 1999, cash and cash equivalents
increased by $8.2 million. The increase resulted mainly from $29.9 million in
proceeds from the issuance of 13,333,335 shares of Series D convertible
preferred stock, net of issuance costs. The increase in cash was primarily
offset by net cash used in operating activities of $14.4 million, purchases of
property and equipment of $940,000 and principal payments on long term debt of
$3.2 million. Cash used in operating activities was primarily for funding of
losses before depreciation, amortization and in-process research and development
of $13.7 million and the final contingent consideration payment to former
shareholders of Bay Area Seating Service totaling $2.8 million. These decreases
were partially offset by net increases in accounts payable and other liabilities
and a decrease in accounts receivable.
In 1998, cash and cash equivalents increased by $7.6 million. This increase
resulted from $20.0 million in proceeds from the issuance of 11,597,114 shares
of Series C convertible preferred stock, net of issuance costs. In addition,
cash and cash equivalents increased from the liquidation of $6.8 million of
marketable securities available for sale, the reduction of restricted cash and
investments by $1.5 million and from the issuance of long-term debt totaling
$700,000. These sources of the increase in cash were partially offset by cash
used in the acquisition of ProTix of $3.7 million net of cash acquired, cash
used in operating activities of $10.0 million, expenditures for property and
equipment of $3.9 million, debt service payments of principal of $1.1 million
and the reduction to zero of the December 31, 1997 bank overdraft of $2.7
million.
In April 1998, we entered into an amended and restated credit agreement
with The Provident Bank which, among other things, amended financial covenants
and provided for a waiver of default under various provisions of the credit
agreement. Additionally, the amended and restated credit agreement provided for
deferral of payments under the notes to Playhouse Square Foundation and the
former shareholders of Bay Area Seating Service until September 30, 1998.
As of September 30, 1998 and December 31, 1998, we were not in compliance
with some of our financial and non-financial covenants that we were required to
satisfy under our amended and restated credit agreement with The Provident Bank.
As a result, we were not permitted to make the October 1, 1998 and January 1,
1999 interest and principal payments totaling $1.1 million due to Playhouse
Square Foundation and the former shareholders of Bay Area Seating Service under
their respective promissory notes which are subordinated to the amended and
restated credit agreement. On March 17, 1999, we entered into a first amendment
to the amended and restated credit agreement, which among other things, amended
financial covenants and provided for a waiver of all instances of default under
the provisions of the amended and restated credit agreement. This amendment also
required us to pay down $2.0 million of our indebtedness with this financial
institution in March 1999. Additionally, this amendment permitted the payment of
the aforementioned past due interest and principal payments to Playhouse Square
Foundation and the former shareholders of Bay Area Seating Service, which were
made in March 1999. As of June 30, 1999 we were in compliance with all of the
financial covenants in accordance with the first amendment to amended and
restated credit agreement.
In connection with the acquisition of ProTix in September 1998, we issued
an aggregate of $1.3 million of promissory notes to the former shareholders of
ProTix. The notes bear interest at prime plus one percent payable semiannually
and the principal balance is due and payable on the earlier of an initial public
offering or the first anniversary of the closing of the acquisition.
Through June 30, 1999, we have issued 51,331,143 shares of various series
of convertible preferred stock, convertible into an aggregate of 22,813,842
shares of common stock at an assumed offering price of $8.00 per share, for
purposes of raising capital or for the acquisition of several companies since
May 1996 at prices ranging from $.49 to $2.25 per share. As of June 30, 1999 we
had outstanding Series A, A1, B, C and D convertible preferred stock. Each
series of our convertible preferred stock has liquidation preferences and does
40
<PAGE> 45
not accrue dividends. Our preferred stock also carries voting rights equivalent
to, or in the following cases, superior to, common stock:
- any alteration in the rights, preferences and privileges of that series
of preferred stock;
- any increase or decrease in the number of authorized shares of that
series of preferred stock;
- the issuance of any security having rights superior to that series of
preferred stock;
- the redemption, purchase or acquisition of any shares of preferred stock;
- any amendments to our Certificate of Incorporation or Bylaws; and
- the declaration of dividends upon the common stock or preferred stock.
At the option of the holder, each share of the convertible preferred stock
can be converted to one share of common stock. The conversion is automatic upon
completion of the initial public offering. The conversion rate is subject to
adjustment in some circumstances in accordance with antidilution provisions.
In August 1999, we issued and sold 3,333,332 shares of our Series E
preferred stock to Excite and Cox Interactive for an aggregate purchase price of
$30.0 million or $9.00 per share, pursuant to a stock purchase agreement. In
October 1999, Excite purchased an additional 4,444,448 shares and Cox
Interactive purchased an additional 1,666,666 shares of our Series E preferred
stock for an aggregate purchase price of $55.0 million, or $9.00 per share. Each
share of our Series E preferred stock is convertible into a .4444 share of
common stock, provided that the initial public offering price is $20.25 per
share or greater. If the initial public offering price is less than $20.25 per
share, then each share of Series E preferred stock will convert into a greater
number of shares of our common stock. Assuming an initial public offering price
of $8.00 per share, each share of Series E preferred stock will convert into
1.125 shares of our common stock. The actual number of shares of common stock
may be adjusted based upon the actual initial public offering price. In
connection with this investment in Tickets.com, Excite entered into a letter of
intent with Tickets.com, and Cox Interactive entered into a content and
distribution agreement with Tickets.com. Under these agreements, Tickets.com
will integrate its event information and ticket purchasing capabilities on web
sites of Excite and Cox Interactive and their affiliates. Under the letter of
intent, Tickets.com paid Excite distribution fees of $25.0 million in October
1999 and must pay other additional fees to Excite over a period of three years.
The content and distribution agreement provides that Tickets.com will purchase a
minimum of $13.5 million in advertising from Cox Interactive over a period of
three years.
Acquisition of Lasergate
On June 21, 1999, Lasergate Systems, Inc. and Tickets.com entered into a
definitive agreement and plan of merger. Under the merger agreement, Lasergate
agreed to the merger of Lasergate with one of our wholly owned subsidiaries,
subject to receipt of approval by the shareholders of Lasergate and satisfaction
of other closing conditions. After completion of the merger, we will own 100% of
the outstanding stock of Lasergate.
For a complete description of the transaction see "Acquisition History" in
the Business section elsewhere in this prospectus.
Between June 23, 1999 and October 15, 1999, we made advances aggregating
$1.8 million to Lasergate pursuant to various promissory notes. The promissory
notes are payable upon demand and bear interest at 10% per year.
Acquisition of dataCulture
On August 23, 1999 we purchased all of the outstanding capital stock of
dataCulture, Ltd., a private limited company incorporated under the laws of
England. The total purchase price was 4 million pounds sterling, or the
equivalent of approximately $6.4 million as of August 23, 1999. The purchase
price is payable 3.0 million pounds sterling at the closing of the acquisition
and 1.0 million pounds sterling payable in 12 equal quarterly installments
commencing December 31, 1999.
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We believe that cash on hand as of June 30, 1999, the $30.0 million
received in connection with the sale of Series E convertible preferred stock
which occurred in August 1999, the $55.0 million we received for the sale of
additional shares of Series E convertible preferred stock, which occurred in
October 1999, and the anticipated net proceeds from this offering will be
sufficient to fund operations and meet debt and other obligations through at
least the next 24 months. However, we may need to raise additional funds in
order to support more rapid expansion, develop new or enhanced services or
technologies, respond to competitive pressures, acquire complementary businesses
or respond to unanticipated requirements. If additional funds are raised through
the issuance of equity securities, the percentage ownership of our stockholders
will be reduced and stockholders may experience additional dilution in net book
value per share, or such equity securities may have rights, preferences or
privileges senior to those of the holders of our common stock. There can be no
assurance that we will be able to obtain additional financing when needed on
favorable terms, if at all. If adequate funds are not available on acceptable
terms, we may be unable to take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements, any of which could have a
material adverse effect on our business, financial condition and results of
operations.
TAX MATTERS
Net Operating Loss Carryforwards
From inception to December 31, 1998, we have incurred net tax operating
losses of approximately $22.0 million. We have provided a full valuation
allowance on the deferred tax asset of $9.5 million because of the uncertainty
of its realization. We account for deferred income taxes under Statement of
Financial Accounting Standards (SFAS) No. 109, which involves the evaluation of
a number of factors concerning the realizability of deferred income taxes. In
concluding that a full valuation allowance was required, we primarily considered
such factors as our history of losses from operations, expected future losses,
and limitations on the amount of net operating losses that we may utilize in any
one year. For further information about our net operating loss carryforwards,
see the notes to the consolidated financial statements included elsewhere in
this prospectus.
Under the Tax Reform Act of 1986, the benefits from net operating losses
carried forward may be impaired or limited in some circumstances. Events which
may cause limitations in the amount of net operating losses that we may utilize
in any one year include, but are not limited to, a cumulative ownership change
of more than 50.0% over a three-year period. At December 31, 1998, only net
operating losses attributable to periods prior to September 1997 were subject to
such limitations, in the amount of approximately $900,000 per year. The impact
of any additional limitations that may be imposed for future issuances of equity
securities, including issuances with respect to acquisitions, has not been
determined.
Non-Qualified Stock Options
As of October 15, 1999, we had outstanding non-qualified stock options to
purchase 4,508,320 shares issued to various employees, consultants and directors
under our 1996, 1998 and 1999, stock options plans. Each option entitles its
holder to purchase a share of common stock at a weighted average exercise price
of approximately $5.84. On exercise of an option, we will be entitled to an
income tax deduction equal to the difference between the exercise price of the
option and the then fair market value of the common stock. As the exercise of
the options is at the sole discretion of the holder of the options, the timing
of the corresponding income tax deduction is outside of our control.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks related to fluctuations in interest rates on
our fixed and variable rate debt. Currently, we do not utilize interest rate
swaps, forward or option contracts on foreign currencies or commodities, or
other types of derivative financial instruments. The purpose of the following
discussion is to provide a framework to understand our sensitivity to
hypothetical changes in interest rates as of December 31, 1998. You should be
aware that many of the statements contained in this section are forward looking
and should be read in conjunction with our disclosures under the heading
"Forward-Looking Statements."
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For fixed rate debt, changes in interest rates generally affect the fair
market value of the debt instrument, but not our earnings or cash flows.
Conversely, for variable rate debt, changes in interest rates generally do not
impact fair market value of the debt instrument, but do affect our future
earnings and cash flows. We do not have an obligation to prepay fixed rate debt
prior to maturity, other than in the event of the completion of an initial
public offering, and as a result interest rate risk and changes in fair market
value should not have a significant impact on the fixed rate debt unless we
would be required to refinance that debt. The carrying value of our variable
rate debt approximates fair value due to the frequency of repricing of this
debt.
We do not believe that the future market risks related to the above
securities will have a material adverse impact on our financial position,
results of operations or liquidity.
YEAR 2000 READINESS
Tickets.com's State of Readiness
Tickets.com considers its products and services year 2000 ready if neither
performance or functionality of its products and services are affected by
processing date data from, into and between the years 1999 and 2000. Such
products and services may be offered through Tickets.com's web site, telephone
sales centers, retail stores, and proprietary software. There are four factors
that more specifically define readiness:
(1) No value for any current date will cause an interruption in products or
services.
(2) Date-based functionality must behave consistently prior to, during and
after the year 2000.
(3) In all interfaces and in data storage, the century of a date must be
stored accurately.
(4) The year 2000 shall be recognized as a leap year.
Our internal systems include both information technology systems and
non-information technology systems or microembedded chips. We have initiated an
assessment of our systems and determined the following areas to be at risk.
Products and Services
We have evaluated the most recent versions of our products and services and
believe that each is substantially year 2000 ready provided that all other
products including hardware, software, firmware, and networks used with our
products and services properly exchange accurate date data. If there is an
undetected error in our software we could experience a loss of or delay in
revenues and loss of market share, a loss of customers, injury to our reputation
and legal actions by customers against us. Our proprietary ticketing software
systems operate in conjunction with hardware, databases, operating systems and
other applications developed by third parties.
We have performed extensive testing of our products used in conjunction
with other products, including roll forward tests that make the product pass
through the year 2000 date change. Our most significant costs incurred in
conjunction with this project were in the areas of testing and quality
assurance. We have developed and carried out specific test plans for year 2000
readiness for each software product line we offer and support, including
rollforward tests on various combinations of hardware and operating systems. A
rollforward test is a test where the date and time for a specific machine and
operating system are set to December 31, 1999 and then allowed to roll over to
the year 2000. Once this roll over takes place, a number of pre-defined tests
are performed to determine potential problem areas. We have allocated internal
resources to design, perform and carry out the year 2000 readiness plans. To
date, just over 1,700 hours have been spent by internal resources on this
project. Based on the average payroll expenses including employee benefits and
taxes, that time resulted in costs of approximately $50,000. The majority of the
hours spent on this project were performed as part of the normal upgrades,
maintenance and support time included in our clients and venues contracts. The
normal support and maintenance time was enhanced to include these year 2000
tests. Since the majority of the time spent on year 2000 would have been spent
on upgrades, maintenance and support, whether or not there were year 2000
issues, the allocation of resources did not delay other projects that we would
have otherwise
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completed. Moreover, since the resources used to design and perform these tests
were internal, there were no significant costs incurred outside the normal
course of our business to complete the upgrades and testing.
Year 2000 Readiness of Material Vendors
We have sought assurances from our vendors that their technology is year
2000 ready. In response, many of our vendors have referred us to their web
sites, which contain web pages discussing their state of year 2000 readiness. We
have reviewed the web site of each of our material vendors. Although our
vendors' web sites indicate that their systems are year 2000 ready, we believe
that it is not possible to determine with certainty that such systems are indeed
year 2000 ready because we have little or no control over the internal design,
production and testing of their systems.
We have three principal types of material vendors: database vendors,
hardware vendors and telecommunications vendors. The following discusses the
risks, costs and contingency plans if these different types of vendors are not
year 2000 ready.
Databases. Our database vendors' products are essential to our ticketing
services functions. In addition to reviewing web sites of each of our database
vendors, we have done extensive testing to verify that the database products we
use are year 2000 ready, including roll forward testing. We believe that these
products will perform as designed after December 31, 1999 and we have not yet
developed any contingency plan for the failure of these products to be year 2000
ready. If however, as a worst case scenario, these products, do not accurately
process date data after December 31, 1999, we would be required to manually
override the database and write engineering routines to take the place of
database routines. This process would require from 8 to 10 weeks and could
require us to retain consultants who could charge $100 per hour or more for
their services.
Hardware. Most of our products are designed to run on more than one
hardware platform. The web site of each of our material hardware vendors
indicates either that its products that we use are year 2000 ready, or that it
has provided us with the information necessary to upgrade its products to year
2000 readiness. If, however, as a worst case scenario, our primary hardware
fails to function after December 31, 1999, we would be required to replace it.
We estimate that this would cost from $400,000 to $600,000 for each of our four
telephone sales centers. We currently have no contingency plans with respect to
a major hardware failure due to year 2000 problems.
Telecommunications. Our business is highly dependent on the efficient
functioning of our telecommunications systems. Our primary telecommunications
and data communications vendor, AT&T, and each of our regional
telecommunications providers have indicated year 2000 readiness. Internet
communications also rely heavily on routers for the transfer of data. Because
most of the routers used in Internet communications are supplied by a single
manufacturer, a failure of that supplier's routers to be year 2000 ready would
most likely shut down the Internet in its entirety and cause an abrupt halt to
all e-commerce. Should that occur, we would no longer be able to function as an
e-commerce business. Absent a catastrophic event such as this, our most
reasonably likely worst case scenario would be the failure of one or more
routers. We use approximately 350 of these routers in our business. Most of
these routers could be replaced at a cost of approximately $2,500 to $3,000
each. Three of these routers would cost approximately $20,000 each to replace.
Internal Infrastructure
The year 2000 problem could affect the systems, transaction processing,
computer applications, and devices used by us to operate and monitor all major
aspects of our business, including financial systems, such as general ledger,
accounts payable and payroll, client and consumer services, infrastructure,
networks and telecommunications systems. We believe that we have identified
substantially all of the major systems, software applications and related
equipment used in connection with our internal operations that must be modified
or upgraded in order to minimize the possibility of a material disruption to our
business. We are currently in the process of modifying and upgrading all
affected systems and expect to complete this process by the end of the third
quarter of 1999, including the testing of those affected systems. Because most
of the software applications used by us are recent versions of vendor supported,
commercially available products, we have not incurred, and do not expect in the
future to incur, significant costs to upgrade these applications as
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year 2000 ready versions are released by the respective vendors. We may not be
able to complete our upgrades in a timely manner or at reasonable costs.
External
Notwithstanding our year 2000 readiness efforts, the failure of a critical
system, material vendor, or the Internet to be year 2000 ready, could harm the
operation of our service or prevent our products and services that rely on
accurate date data from being offered through our web site or have other
unforeseen, adverse consequences to our operations. Additionally, we are subject
to year 2000-related failures or disruptions that generally affect industry and
commerce such as utilities or transportation. If the transportation industry is
adversely affected it may impact our ability to complete timely delivery of our
products. A substantial interruption in utilities may inhibit the ability of our
clients to schedule events. Moreover, our Internet operations, telephone sales
centers, and internal network are dependent upon the ability of our
telecommunications vendors to maintain service without interruption. Although we
do not expect the communications services provided to be a problem, a
substantial interruption of these services could have a material adverse effect
on our results of operations. Our most reasonable worst case scenario would be a
regional blackout of one or more regional providers.
Contingency Plans
With respect to regional telecommunications failures, we currently have a
disaster recovery plan that enables our ticketing services clients to dial into
our system through a different communications services company. This dial around
feature currently has sufficient capacity to handle 30% of our clients. As our
ticketing services clients grow the percentage will decrease, but our intention
is that it will never fall below 10%.
We have all of the source code for our products and personnel versed in its
use. A special task force of software developers for each product area will be
on call between December 15, 1999 and January 15, 2000 to respond to any year
2000 problems that are discovered with respect to our software products.
Technical support personnel and quality assurance personnel are also scheduled
on stand-by so that we can mobilize a coordinated effort of supporting our
customers and testing any changes required to our software systems.
Other than as discussed above, we have not put into effect any contingency
plans to remediate any year 2000 problems that may arise either through our
software or software controlled by our vendors and affect our products or
internal systems in the future. If these problems arise, we will need to make
necessary expenditures to assess and remedy such problems. The nature, timing
and extent of these expenditures cannot be estimated. These expenditures, if
required, may negatively affect our ability to sell our products and service our
clients.
INFLATION AND FOREIGN CURRENCY RISK
Inflation has not had a significant impact on our operations during the
periods covered by the accompanying consolidated financial statements.
Additionally, we are not presently subject to significant foreign exchange risk
as international operations currently constitute a minor part of our operations.
However, some of the recent companies we have acquired, including dataCulture,
have operations internationally that could subject us to inflation and foreign
currency risks in the future. If we are affected by inflation or foreign
currency fluctuations in the countries where we will have operations, our
business, financial condition and results of operations could be adversely
affected.
EFFECT OF RECENT ACCOUNTING CHANGES
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which is effective
for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal use and defines specific criteria that determine when such costs are
required to be expensed, and when such costs may be capitalized.
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We expense software development costs as incurred. We believe that the adoption
of SOP 98-1 will not have a material effect on our consolidated financial
statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities," which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs and require such costs to be expensed as
incurred. We believe that the adoption of SOP 98-5 will not have a material
effect on our consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments. The
statement requires that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value, and that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. We do not have any derivative
instruments as of December 31, 1998. We believe that the adoption of SFAS No.
133 will not have a material effect on our consolidated financial statements.
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BUSINESS
OVERVIEW
Tickets.com is a leading source for entertainment tickets, event
information and related products and services based upon our pro forma
consolidated 1998 revenues. Consumers can buy tickets from us for our clients'
events through retail stores, telephone sales centers, interactive voice
response systems and on the Internet. By combining our powerful brand, extensive
event database, and relationships with entertainment organizations, we create a
convenient one-stop solution for consumers in search of event information and
tickets. We provide automated ticketing solutions to over 4,000 entertainment
organizations and venues such as stadiums, performing arts centers, museums and
professional sports franchises. In 1998 we sold approximately 5.3 million
tickets for which we received service fees from ticket buyers. Through our
www.tickets.com web site, we enable consumers to obtain information on more than
40,000 entertainment organizations and, as of October 1, 1999, more than 50,000
sporting and entertainment events and performances. Consumers may also use our
web site to purchase tickets from multiple sources and shop for related
products. Although we have derived only 4.2% and 8.0% of our revenues from
Internet sales in the first and second quarters of 1999, our goal is to use our
brand and state-of-the-art ticketing solutions to create the preeminent location
for entertainment information and tickets on the Internet. Our clients include
The John F. Kennedy Center for the Performing Arts, The Marine Midland Arena,
the Texas Rangers, The Lincoln Center for the Performing Arts, The National Air
& Space Museum and the San Francisco Giants.
INDUSTRY BACKGROUND
The Growth of the Internet
The Internet has rapidly become a major medium for communication,
dissemination of information and commerce. International Data Corporation, a
market research firm, estimates that the number of Internet users worldwide
exceeded 159.0 million at the end of 1998 and anticipates this number will grow
to over 510.0 million by the end of 2003. Several factors are responsible for
this rapid growth, including:
- a large and growing base of personal computers in the home and workplace;
- advances in the speed, functionality and ease of use of personal
computers and modems;
- improvements in network infrastructure resulting in more convenient,
secure and rapid Internet access;
- increases in the variety and quality of content and e-commerce available
on the Internet; and
- increases in the overall public awareness of the Internet.
As a result of the increasing popularity of the Internet with consumers and
businesses alike, online commerce, commonly known as e-commerce, is undergoing
significant growth. International Data Corporation estimates that worldwide
e-commerce will increase from approximately $50.0 billion in 1998 to
approximately $1.3 trillion by 2003. E-commerce presents several advantages over
traditional commerce by bringing together traditionally fragmented, inefficient
suppliers and distribution channels, facilitating more efficient pricing models
by better matching buyers and sellers and empowering consumers by providing them
with better information, resulting in more informed purchasing decisions.
The Internet has also become an attractive tool for advertising and direct
marketing. The interactivity of the Internet allows advertisers and merchants to
gather and store information about online consumers and develop marketing
campaigns and commerce offerings customized for a highly targeted audience. This
often enables e-commerce merchants to create greater demand for their goods and
services.
Overview of the Ticketing Industry
The entertainment and sports industries and consequently, the event
ticketing market, are large and growing. We estimate that the market for event
ticketing in the United States, based on the face value of tickets sold for live
entertainment and sporting events and attractions, totaled approximately $14.5
billion in 1998, and is expected to grow to $18.0 billion in 2001. This growth
is evidenced by increases in the number
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and types of entertainment and sporting events, the number and size of venues
and the length of event seasons, as well as the expansion of events into new
domestic and international markets.
As the entertainment and sports industries have grown, so has the demand
for more convenient methods for the sale and distribution of tickets.
Historically, consumers were often required to spend hours in long lines at the
box office in order to purchase tickets to popular events. This process was
inconvenient for consumers, created logistical problems for entertainment
organizations and made ticket distribution more costly. Over the past 20 years,
consumers increasingly have purchased tickets over the telephone or at remote
retail stores because of advances in telephone sales center and computing
technologies. More recently, advances in telecommunications and emerging
e-commerce technologies have enabled consumers to purchase tickets through the
Internet and through telephone-based interactive voice response systems, which
allow consumers to purchase tickets without human assistance by using a touch
tone telephone. Consumers are increasingly embracing these new technologies and
purchasing event tickets through these more convenient means.
Current Approaches to Ticketing
The process of selling and distributing tickets to an event is inherently
complex. Entertainment organizations often simultaneously sell tickets to a
number of different events, such as hockey games, basketball games, and rock
concerts, each of which requires a different seating configuration for the same
venue. In addition, tickets for any particular event may be sold concurrently
through a variety of distribution channels, including the Internet, interactive
voice response systems, telephone sales centers, retail stores and the box
office. All of these sales channels compete simultaneously for the same
inventory of seats. Furthermore, ticketing systems must be able to track a
variety of different types of ticket sales for the same event, including
individual advance ticket sales, season and subscription ticketing, day of event
walk-up ticket sales, various discount tickets and group ticket sales, each of
which has its own unique requirements. Finally, the high demand for admission to
popular live events creates a number of operational and logistical complexities
related to the sale and distribution of numerous tickets in a very short period
of time.
Entertainment organizations generally have used one of three alternatives
to meet their ticketing needs:
- Outsourcing Service Providers. Entertainment organizations that produce
high-demand marquee events, such as large concert promoters, often
require the broad sales and distribution capabilities that outsourcing
solutions can provide. Outsourcing service providers sell and distribute
tickets on behalf of entertainment organizations and often give the
entertainment organizations access to their software and hardware systems
at no charge in return for the exclusive right to sell that
organization's tickets. Outsourcing service providers typically charge
the consumer a convenience fee based upon the type and location of the
event. Using large telephone sales centers, retail store networks, and
more recently, e-commerce solutions, these outsourcing service providers
enable entertainment organizations to sell a large volume of tickets in a
short period of time and over a wide geographic area.
- In-House System Providers. Many entertainment organizations, such as
performing arts centers, elect to manage their ticket sales through
integrated ticketing software systems licensed from providers of
automated ticketing systems. In-house systems allow entertainment
organizations to better control the level of service offered to, and
gather relevant information about, consumers. These entertainment
organizations can use consumer information to develop marketing programs
to target audiences for events and address their often complex season and
subscription ticketing needs. Under license arrangements, entertainment
organizations generally undertake the costs of establishing and
maintaining their own sales and distribution channels, including
computer, networking and telecommunications systems.
- Manual Ticketing. Other typically small entertainment organizations, such
as local theater and dance companies and other organizations generally
rely on manual ticketing through a single box office. These providers
often have limited administrative, marketing and financial resources and
rely on box office personnel to manually record transactions and keep
track of available ticket inventories.
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Limitations of Current Ticketing Alternatives
Consumer Perspective. Currently, there are few sources where consumers can
find extensive event information and ticket selection. As a result, the consumer
must search through a variety of sources, including newspapers, entertainment
guides and the Internet, in order to gather information about upcoming events.
Even on the Internet, consumers often must conduct several time-consuming
searches before obtaining the information they are seeking. Then consumers
frequently must turn to a different source, such as a telephone sales center or
separate web site, in order to determine ticket availability for an event and
purchase tickets. Most outsourcing service providers limit the information and
tickets they provide to those entertainment organizations that use their
ticketing services. Also, because most outsourcing service providers use closed,
proprietary systems, consumers are not able to use them to access the
information or buy tickets from the thousands of organizations that use in-house
ticketing solutions. Many entertainment organizations that use in-house systems
or that process their tickets manually have no Internet presence, limited
marketing resources and, consequently, have limited brand awareness. As a
result, consumers often find little or no information about events available
from these entertainment organizations. In addition, many of these organizations
currently sell tickets through their box offices, which typically results in an
inconvenient buying experience for consumers.
Entertainment Organization Perspective. Outsourcing services, in-house
systems and manual ticketing also serve as incomplete solutions for many
entertainment organizations. Although outsourcing service providers may provide
broad distribution capabilities, they generally are limited to order-taking and
often cannot supply the information or services necessary for entertainment
organizations to develop effective marketing and promotional campaigns. This
lack of proactive marketing can result in ineffective marketing campaigns,
inefficient ticket pricing structures and, ultimately, unsold tickets. In-house
ticketing systems allow entertainment organizations to collect pertinent
marketing information but often have limited distribution capabilities. In
addition, entertainment organizations that use in-house systems often lack the
financial, marketing and technical resources required to generate significant
interest in their events or traffic to their web sites, if they have them. As a
result, consumers who might be interested in their events are unaware of them,
and tickets go unsold. Manual ticket processing operations have very limited
distribution infrastructures, and require substantial personnel and time
commitments to gather and organize patron information. Accordingly, these
ticketing alternatives do not consistently address all of the varied and complex
needs of entertainment organizations.
Internet Ticketing Information and E-Commerce Opportunity
The Internet has emerged as a powerful medium for aggregating and
disseminating event information, selling tickets and related products, and
marketing and promoting events. According to Forrester Research, a market
research firm, online ticketing sales to marquee events, regular performances
and sporting events are expected to grow from $115.0 million in 1998 to an
estimated $2.6 billion in 2003. The Internet creates advantages and conveniences
for consumers and entertainment organizations alike. We believe consumers want a
single web site where they can find information about a wide range of events and
conveniently buy tickets to those events. Entertainment organizations are
increasingly interested in using modern software tools and the Internet to
efficiently sell tickets, market their events, deliver event information and
promotional material to consumers, and generate increased revenues. We believe
significant opportunities exist for providers of extensive event information and
ticketing solutions that can satisfy both the convenience requirements of
consumers as well as the revenue maximization objectives of entertainment
organizations.
THE TICKETS.COM SOLUTION
We have developed an integrated ticketing solution that combines the
information sharing and interactivity of the Internet with our flexible
ticketing systems and an extensive sales and distribution network. Through our
www.tickets.com web site, we enable consumers to obtain information about a wide
range of sports and entertainment events, purchase tickets from multiple sources
and shop for related products. We provide a wide variety of entertainment
organizations with a broad range of flexible outsourcing services and in-house
ticketing software to sell and distribute tickets, promote their events, collect
and analyze important
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patron demographic information and conduct related commerce. We believe that the
Tickets.com solution offers advantages over existing approaches to ticketing and
provides substantial benefits to both consumers and entertainment organizations
alike.
Benefits to Consumers
Extensive Event Information. We provide consumers with a broad database of
events and venues, including addresses, phone numbers, maps and directions,
event schedules, ticket availability and seating charts. Currently, our database
contains information on more than 40,000 entertainment organizations and, as of
October 1, 1999, more than 50,000 sporting and entertainment events and
performances, including local and national sporting events, concerts, theater
and dance performances and museum exhibits. Our database includes events for
entertainment organizations that use our ticketing systems and services as well
as entertainment organizations that use other ticketing systems or services.
Consumers can conduct searches for events on our web site based on criteria such
as event name, venue name, event type or geographic location.
Convenient Access to Multiple Ticket Sources. After choosing a particular
event for a ticket purchase, consumers are either linked directly to a web page
that enables them to purchase a ticket or are provided with contact information
for those ticket sellers who do not sell tickets on the Internet. Typically,
ticketing services only offer consumers access to tickets sold through their own
systems. However, we allow consumers to locate tickets to events through a
variety of means, including:
- sales of tickets for entertainment organizations who use our outsourcing
solutions;
- direct links into web pages of entertainment organizations that use our
ticketing systems;
- links and referrals to other online and offline ticket sellers; and
- access to our ticket auction site.
We receive monthly referral fees from offline ticket brokers listed on our
web site. However, we do not charge other online ticket sellers a fee for the
links to their web sites. Because we do not have any agreements with these
online ticket sellers relating to our links to their web sites, it is possible
that one or more of these sellers could prevent us from linking consumers to
their web sites. For example, Ticketmaster and Ticketmaster Online-CitySearch
have sued us to, among other things, prevent us from linking consumers from our
web site to the Ticketmaster web site. For a detailed discussion of this
lawsuit, please see "Risk Factors -- Ticketmaster Corporation and Ticketmaster
Online-CitySearch Have Filed a Lawsuit Against Us Which Could Impair Our Ability
to Implement Our Business Model and Result in Substantial Payments to Them."
By providing links to a variety of ticket sources, we offer consumers the
ability to purchase tickets to a broad range of sporting and entertainment
events simply by visiting our web site. In addition to our Internet services, we
offer tickets through interactive voice response systems, telephone sales
centers, retail stores and the box office, all with a view toward superior
customer service.
Wide Variety of Related Products and Services Available. Our web site
offers consumers a variety of products and services related to their
entertainment and ticketing needs, including:
- auction capabilities, which bring together ticket buyers and sellers, and
allow sellers to receive market value for their tickets;
- personalized entertainment calendars and event notification through our
"My Tickets" service;
- one-time personal registration, which allows consumers to enter their
personal profiles and entertainment preferences once, eliminating the
need to re-enter information on subsequent transactions;
- airline, hotel and rental car reservation services;
- event packages, which include event tickets, transportation and travel
arrangements; and
- links to related merchandise sales.
By integrating our extensive database, access to multiple ticket sources
and our related products and services on one web site, we offer a one-stop
shopping and information solution for consumers.
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Benefits to Entertainment Organizations
Flexible, End-to-End Technology Solutions. Unlike other ticketing services,
our solutions offer the benefits of both outsourcing service providers and
in-house systems. The flexible, open structure of our ticketing system contrasts
with the closed, proprietary systems of other ticketing services that generally
require the use of their full services as a condition to participating in their
distribution network. As an outsourcing service, we offer a wide range of
ticketing services, including ticketing inventory and control, patron data
management, and ticket sales and distribution through our national online and
traditional sales and distribution network and sophisticated information
systems. As a ticketing software provider, we offer a variety of specially
tailored, in-house solutions, from general admission systems for amusement parks
to highly sophisticated, multi-module ticketing systems for the world's leading
performing arts centers and arenas. All of our ticketing software products are
scalable in that they may be adapted for both low and high volume transactions
and for users with simple to complex ticketing needs. By using the Internet,
advanced data communications technology and standardized open interfaces that
connect our sales and distribution network to our in-house ticketing software
solutions, we can also offer entertainment organizations real-time Internet
ticketing capabilities through our web site or through their own web site. We
believe that our diverse and flexible product and service offerings provide
superior solutions to respond to the ticketing needs of virtually any
entertainment organization.
Targeted Marketing and Event Promotion Capabilities that Provide
Incremental Revenue and Cost Savings Opportunities. Our ticketing system and web
site offer entertainment organizations effective targeted marketing and event
promotion capabilities. Our core ticketing system enables entertainment
organizations to build, maintain and access a consumer database and to organize
and analyze information about ticket buyers. Entertainment organizations can use
this information to earn higher fees from their advertisers and corporate
sponsors, sell more tickets, create more efficient ticket pricing strategies and
lower their marketing expenditures by targeting specific consumers or groups of
consumers. We also offer entertainment organizations promotional services on our
web site, including special venue or event listings, venue seating charts,
banner advertising and customized web pages promoting specific events. In the
future, we also plan to offer entertainment organizations promotional services
such as targeted e-mail event notification and key word and category search
sponsorships, such as the Performing Arts section sponsored by Phantom of the
Opera. We believe that these programs are effective tools for entertainment
organizations to build long-term consumer loyalty, and, over time, significantly
lower the costs associated with promoting and marketing events.
Ability to Take Advantage of our Strong Brand Name to Increase Ticket
Sales. We believe our brand name, "tickets.com," is a powerful tool for
connecting the ticket buying public to entertainment organizations. Tickets.com
is a simple and logical place for consumers to look for tickets online, because
it concisely tells what we sell and where to find it. We believe that our brand
name may be compelling to many smaller entertainment organizations that lack the
marketing resources to generate consumer interest in their events. Many sports
and entertainment tickets go unsold because of the limited marketing resources
of some entertainment organizations. The additional exposure to targeted
consumers that our web site can offer gives entertainment organizations an
effective vehicle for event promotion and may result in additional ticket sales
and new revenue opportunities.
THE TICKETS.COM GROWTH STRATEGY
Our goal is to use our brand, our advanced ticketing technology and our
existing client base to become the leading source for event ticketing and
information on the Internet. To accomplish our goal, we intend to:
Maximize Ticket Inventory Available for Sale
We intend to increase our revenues by maximizing the number of tickets
available for sale through our web site and our other sales and distribution
channels. We plan to achieve this objective by:
- Providing Internet sales capabilities to more than 3,000 entertainment
organizations and venues who use our in-house ticketing solutions. Over
the next several years, we plan to develop and roll-out our Internet
ticket sales capabilities to the majority of our software licensees by
providing them with
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product upgrades. Once they have upgraded, our licensees will be able to
sell tickets through our web site and gain exposure to a greater number
of entertainment consumers;
- Creating interfaces with other ticketing services and systems providers
for online distribution. We will continue to highlight the benefits of
our open Internet transaction system to secure additional online
distribution agreements with other ticketing companies and systems
providers in the United States and abroad;
- Obtaining allocations of tickets from entertainment organizations such as
promoters, artists, zoos, ski resorts, amusement parks, museums,
theatres, tour operators, cruise lines and race tracks;
- Increasing our sales efforts to obtain new ticketing services clients and
software licensees; and
- Continuing to consolidate ticketing system and service providers both in
the United States and abroad.
Offer Additional Services to Help Entertainment Organizations Maximize
Revenues and Profits
We plan to offer a number of value-added services in conjunction with our
web site and ticketing systems in order to sell more tickets, create new revenue
sources and create operating efficiencies for entertainment organizations. In
order to achieve this goal, we intend to:
- Improve yield management and implement dynamic pricing. We are developing
technology and web site functionalities that we expect will enable us to
introduce efficient pricing strategies to entertainment ticketing.
Planned functionalities include business-to-consumer ticket auctions and
dynamic, demand-driven pricing. Furthermore, we plan to create authorized
markets to allow season and subscription ticket holders to sell tickets
they do not intend to use, while enabling entertainment organizations to
share in some of the revenue associated with the resale of these tickets.
We believe these services will increase ticket sales and enable
entertainment organizations to collect information about purchasers of
these tickets.
- Expand marketing initiatives to generate higher market demand. We intend
to enhance event, marketing and ticket sales on behalf of entertainment
organizations. We are in the process of enhancing and broadening our
integrated patron data management services to create direct marketing
programs, such as e-mail event notification and customer loyalty
programs. We expect that targeted and more efficient marketing will
result in additional ticket sales, higher revenues and lower operating
costs for entertainment organizations.
Pursue an Aggressive Global Branding Strategy.
We intend to position Tickets.com as the preferred Internet destination for
event and ticketing information and transactions. The cornerstone of this
strategy is to use our brand, which communicates to consumers what product we
sell and where it can be purchased. To execute this strategy, we will combine
online advertising with radio, print and other traditional advertising with a
variety of other promotions, as well as require entertainment organizations to
display our brand in their advertising and promotional material. We will
reinforce these efforts with frequent public relations initiatives targeted to
further communicate to consumers and entertainment organizations the latest news
regarding Tickets.com.
Aggregate Content and Build an Online Entertainment Community
We intend to create an Internet community where entertainment consumers,
event promoters and producers, advertisers and sponsors, and ticket sellers can
gather to conduct commerce and exchange information. We believe we can achieve
this objective by adding to and enhancing the service offerings on our web site.
We will continue to enhance our recently launched consumer-to-consumer ticket
auction capability, and plan to introduce additional service offerings including
online chat rooms and posting boards for consumer reviews of shows and concerts.
We also plan to introduce multimedia functionality by offering audio and video
capabilities, cross-references to video and audio libraries, seating charts and
seat views. In addition, we plan to provide original, compelling content on
areas of consumer interest such as the performing arts, sports and
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popular music. We currently integrate content from Billboard, ESPN and Pollstar,
a leading authority on concert tour dates.
Develop and Maintain Advertising Agreements and Strategic Relationships
We intend to develop advertising and other strategic relationships with
media, entertainment, technology and marketing companies. Our objective is to
form alliances that will increase the quantity and quality of our online
content, increase our online distribution and branding capabilities and increase
our available ticket inventory. For example, we have recently formed strategic
relationships with Excite and Cox Interactive in order to expand our online
distribution capabilities, increase the content available through our web site
and enhance the functionality of our web site. We have also established
advertising and other relationships with International Merchandising
Corporation, a wholly owned subsidiary of International Management Group,
GeoCities, MP3.com, Sitematic Corporation and RealNames Corporation. We intend
to maximize the value of these relationships to broaden the services we offer to
our clients by creating additional distribution channels, specialized corporate
sponsorship programs, and marketing and promotional campaigns.
Penetrate International Markets
We believe that significant opportunities for international expansion exist
because the availability of automated ticketing services and the adoption of
Internet ticketing in these markets often lags behind the United States. We
intend to highlight our existing licensee relationships in various overseas
markets in Europe and Latin America to increase our presence in these markets.
We expect to increase our business opportunities in international markets by
creating alliances with local ticketing companies and entertainment
organizations. We believe that joint ventures and strategic alliances with these
organizations will enable us to combine our expertise in ticketing with our
partners' expertise in their local markets.
THE TICKETS.COM WEB SITE
The Tickets.com web site offers extensive event, venue and ticketing
information, ticket purchasing options and other related services.
Extensive Event Search and Information
Our web site provides information to consumers about a wide variety of
sporting and entertainment events. Consumers can access our database comprised
of information on more than 40,000 entertainment organizations and, as of
October 1, 1999, more than 50,000 sporting and entertainment events and
performances. Consumers can search our web site by event, performer, venue name
or location. They can also view event schedules, league standings, tour dates,
show times, box office information, news stories and seating charts. After
selecting an event, the consumer is presented with more detailed event and venue
information, and a selection of one or more ticket sources for that event.
Ticket Purchasing Options
After receiving search results from our web site, consumers are presented
with several ways to locate tickets through a variety of sources, including
venue box offices, the primary ticketing service company, ticket resellers or
through our auction site. When purchasing tickets from entertainment
organizations that use our Internet ticketing systems, the consumer can purchase
tickets directly on a real-time basis for the best-available seat. When
purchasing tickets to events of entertainment organizations that use another
Internet ticketing system, the consumer can be linked directly either to the
organization's web site or to the web site of that organization's ticketing
service. For tickets that are available on our auction site, the ticket buyer is
given a direct link to the auction page containing tickets to that event.
Finally, we also provide contact information for ticket sources that do not sell
tickets online.
Our ticket auction, introduced in February 1999, enables consumers to bid
on tickets to sporting and entertainment events across the country. Our auction
has been engineered to meet the particular requirements of ticketing, which is
time sensitive and geographically fixed. Once at the auction, consumers may bid
on
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tickets via our auto-bidder, which automatically ensures that they are the top
bidder as long as their maximum bid is not exceeded.
In consumer auctions, ticket sellers pay us a per-ticket auction posting
fee and a per-transaction success fee upon the closing of each auction. Sellers
can customize their own auctions, specifying the length of time the auction
remains open, the location of the auction on the web site, and the minimum
opening bid. All bids are displayed in real time as potential buyers bid. At the
closing of an auction, if the highest bid exceeds the minimum acceptable bid,
the success fee is automatically billed to the seller's credit card. The buyer
and seller then make their own arrangements for payment and ticket delivery. We
are taking measures to lower the risk of fraudulent activities related to the
posting and purchase of tickets on our consumer-to-consumer auction site. For
example, we require all auction members to register with a valid credit card and
to enter their name, address, e-mail address and telephone numbers. We have also
instituted other measures such as a rating system for sellers and buyers of
tickets, as well as a requirement that all postings include section, row and
seat information.
We have recently entered into arrangements with several performers to
provide online ticket auctions of tickets for live concerts with the proceeds in
excess of the minimum bid price to be donated to various charitable
organizations. The tickets are donated by the performers for sale through our
Internet auctions. The minimum opening bid is set at the face value of the
tickets plus the service fees that we charge to consumers. All amounts collected
above the minimum bid are donated to the charity. In addition the buyer pays a
delivery charge for delivery of the tickets. As part of our arrangement with the
performers we agree to purchase any unsold tickets for face value. We also
intend to offer demand-driven pricing capabilities to allow event promoters,
artists and venues to capture the market value of premium tickets while also
allowing them to increase attendance through dynamic pricing of low demand
seats.
Related Services
Our web site offers consumers a variety of services related to their
ticketing and entertainment needs, including:
- My Tickets. At the "My Tickets" section of our web site, consumers can
specify areas of particular interest to them, such as rock performers or
sports teams. Once registered, consumers are able to create an event
calendar organized by city, date and event type. In addition, they will
receive e-mail notifications of events of interest in their local area,
and have the opportunity to purchase tickets to those events.
- Event Packages. We offer consumers a variety of custom event travel
packages, which generally include event tickets, travel arrangements and
hotel accommodations. We offer packages to such high-demand sports events
as the Super Bowl and the Daytona 500, as well as activity-oriented
packages such as ski and golf vacations. We serve as the selling agent
for packages by referring customers to our travel and entertainment
partners, and we receive a commission on the sale of each package.
- Travel Services. We have entered into a private-label strategic alliance
with an established travel planning and reservation agency that provides
travel services through our web site and our 1-800-TICKETS phone number.
Visitors to our web site can make airline, hotel and car rental
reservations through our online booking engine. Consumers can also call
our 1-800-TICKETS number and be transferred to a travel representative.
- Venue and Event Promotional Services. We offer entertainment
organizations the ability to promote their events through a variety of
value-added listing and promotional services on our site. We have entered
into an agreement with Sitematic Corporation, a leading provider of
customized web sites, to provide these services to entertainment
organizations. As these services are further developed, we will offer
entertainment organizations the ability to maintain general or
event-specific web pages within our web site. These services are intended
to provide entertainment organizations with a richer presence on our
site, resulting in a greater degree of event promotion. In the future, we
intend to offer entertainment organizations additional promotional
services such as highlighted event listings, strategically placed
advertisements and banners, and dynamically created web pages that are
displayed in
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response to various keyword searches. Recently we began allowing
entertainment organizations and venues to offer tickets via our online
auction service. We receive service fees and handling charges for tickets
sold through these auctions.
Future Web Site Services
- Merchandise Sales. We believe that ticket sales and event information
create complementary opportunities for related merchandise sales. We
currently offer consumers the ability to purchase compact discs through a
link to CDNOW, Inc., an online seller of music compact discs. We intend
to offer merchandise for sale on our web site, as well as integrating
merchandise offerings with relevant content on our site. We have an
agreement with a distributor for the on-line sale of sports team apparel
and related merchandise which is terminable on 30 days' notice. Future
merchandise offerings on our site are expected to include additional
compact discs, apparel and other merchandise related to tickets or event
promotions available on our site.
- Fan Club Affiliate Programs. As a part of our strategy to develop an
online event and entertainment community, we intend to provide visitors
to our site access to various online sports and entertainment related fan
clubs. We are currently working with GeoCities, a leading online
community-oriented web site, to market services to the many fan clubs
that reside in their various online communities. We intend to offer
affiliated fan clubs the opportunity to be integrated into our event
database to promote their clubs to targeted visitors at our web site.
THE TICKETS.COM SALES AND DISTRIBUTION NETWORK
Our sales and distribution network is comprised of various channels through
which information is accessed and tickets are sold. This network consists of
various distribution channels including numerous retail store locations, three
national telephone sales centers, individual venue box offices, interactive
voice response technology and our web site.
- Retail Stores. We currently sell tickets through a number of retail
stores in those locations where we offer full outsourcing ticketing
services to entertainment organizations. These retail stores are
typically high-visibility retail chain stores that have a strong brand
name and substantial consumer traffic, and that cater to consumers who
are likely to attend entertainment and sporting events. The majority of
the retail stores are in music and video stores, such as The Wherehouse
and Tower Records, and grocery stores, such as Tops Friendly Markets,
Finast Supermarkets and Raley's. We are generally responsible for
installing and maintaining the necessary hardware and software at the
retail stores and for training employees of the retail stores in the
operation of the system. The retail stores are responsible for providing
personnel for ticket sales and daily operations, as well as advertising
and promotions to augment ticket sales.
- National Telephone Sales Centers. Consumers can purchase tickets through
our three national call centers located in Concord, California;
Cleveland, Ohio; and Fairfax, Virginia. Operators at our telephone sales
centers take ticket orders and mail the tickets directly to the ticket
purchasers or, at the purchaser's request, arrange for the tickets to be
held at the will call window. In addition, our operators respond to
questions regarding facility characteristics, directions to the facility,
parking, hotel accommodations and nearby restaurants.
- Venue Box Office and Back Office Operations. Our clients use our in-house
ticketing software and outsourcing services to access, sell and print
tickets from their box offices, as well as for various financial and
marketing functions related to ticket sales and payment collection. Many
of our clients also use our systems to manage and sell various forms of
ticketing programs, including season tickets, subscription packages and
single tickets.
- Interactive Voice Response. Our ticketing capabilities also include an
advanced interactive voice response system, which enables consumers to
access information and purchase tickets by using a touch tone telephone
without human assistance. Ticket and event information is prerecorded and
stored on specialized computer systems, and is accessed by consumers
through the use of touch tone prompts. The first time a consumer
purchases tickets through our interactive voice response system, that
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consumer's unique profile is stored on the system and can be easily
accessed to quickly process any subsequent purchases by that consumer.
The interactive voice response system can also be scaled to handle a
significant volume of transactions without degradation of processing
speed or data integrity.
- Internet. We currently sell tickets through our web site at
www.tickets.com, as well as through the various web sites of several of
our clients, including the Buffalo Sabres, San Francisco Giants, Oakland
Athletics and The Playhouse Square Foundation. The majority of
transactions conducted through our www.tickets.com site use our highly
specialized system-to-system interface, the Transaction Application
Gateway, that connects various ticketing systems to our sales and
distribution network, creating consistency in information display and the
ticket-purchasing process. Entertainment organizations can sell tickets
through our web site or directly from their own web sites using our
Transaction Application Gateway product. The details of this interaction
with the various ticket engines is transparent to the consumer.
TICKETS.COM TECHNOLOGIES
Our ticketing technologies include our proprietary Transaction Application
Gateway and a family of ticketing software products designed to meet the needs
of a wide variety of entertainment organizations.
Transaction Application Gateway
Our system to system interface product, Transaction Application Gateway, is
a specialized software system that connects a variety of clients' ticketing
systems to our system and our database through standard interfaces. We have
developed our Transaction Application Gateway to achieve the standardization and
scalability needed to simultaneously sell tickets for multiple entertainment
organizations, independent of the ticketing system used by those organizations.
Our Transaction Application Gateway is capable of facilitating interaction
between various ticketing systems on one end, and various sales and distribution
points on the other end. We maximize the flexibility of our Transaction
Application Gateway to provide real-time Internet sales for our in-house and
outsourcing clients, with minimal modification of their existing systems.
Currently, our Prologue, Advantix SQL and PASS products interface with our
Transaction Application Gateway, and we are developing interfaces for our other
software products, as well as third party software products. We intend to
enhance our Transaction Application Gateway to create a distributed network
capable of selling and printing tickets at any connected location, for any
entertainment organization that uses our Transaction Application Gateway as a
transactional middleware.
Our system-to-system interface is designed to store and maintain current
event and ticket availability information from a variety of individual ticketing
servers. Transaction records are centrally stored on our Transaction Application
Gateway and are written to the specific ticketing engine's database to update
inventory availability. In addition, our system-to-system interface can store
and transmit to the corresponding ticketing server consumer information that can
later be used for analysis and development of targeted marketing efforts by
entertainment organizations. The open nature of the architecture of our
Transaction Application Gateway also makes it possible to develop interfaces
with a variety of sales and distribution channels, such as web sites, kiosks,
interactive voice response applications and WebTV.
Ticketing Software
We currently offer a broad portfolio of specialized ticketing software
products designed to meet the needs of a variety of entertainment organizations,
from the general admission needs of fairs and parks to the highly sophisticated,
high-capacity needs of large arenas, stadiums and performing arts centers. Some
entertainment organizations rely on our ticketing software as their in-house
systems and purchase and maintain their own computer and communications
equipment. Other entertainment organizations use our ticketing engine on an
outsourcing basis and rely on us to store all necessary data on our computer
equipment and provide them with access to that information through terminals at
their box offices.
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The functionality of our ticketing software family of products can
generally be divided into four components:
- a presentation layer that determines the manner in which information
about events and tickets are communicated to system users;
- a middleware layer that communicates information between the presentation
component and the data storage component, processes transactions and
prints tickets;
- a data storage component that stores and maintains a large amount of data
related to events, tickets, venues and transactions; and
- a reporting component that produces records related to the sale of
tickets such as payment methods and ticket sales patterns.
Depending on the needs of individual entertainment organizations and
industry sectors, each of these components can vary greatly in sophistication,
capability, scalability and transaction processing speed. Our current product
offerings include Advantix SQL, Prologue, PASS, Artsoft/Sportsoft, TicketMaker
Professional, Access Control System 2100 and Databox which we obtained through
acquisitions of other ticketing companies. Over the next several years we intend
to consolidate our broad portfolio of ticketing software products into a few
software systems and to develop links from our clients' various software and
hardware systems to our ticketing systems and databases.
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The following table describes our ticketing software family of products as
of October 15, 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
APPROX.
NUMBER
OF
TARGET MARKET AND ENT.
PRODUCT NAME FUNCTIONALITY HIGHLIGHTS ORGS. REPRESENTATIVE CLIENTS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVANTIX SQL - Large performing arts centers, professional 912 - The John F. Kennedy - Golden State Warriors
sports
franchises, blockbuster events Center for the - Buffalo Sabres
- Very large scale, high-speed system capacity Performing Arts - San Francisco Giants
- Real-time information capture in a database; - ARTE
tracks
transaction history and facilitates - Marine Midland Arena
sophisticated marketing programs
- -----------------------------------------------------------------------------------------------------------------------------
PROLOGUE - Large venues, including raceways, universities 338 - International Speedway - Benedum Center
and
professional sports organizations Corp. - Dallas Stars Hockey
- High volume transaction processing - Texas Rangers Club
capabilities
- Includes a suite of customizable "plug-in" - Ticket King - University of N.C.
enhancements, including student debit card - Wolf Trap Filene at Chapel Hill
authori-
zation, automated turnstiles and Center
membership/loyalty
program integration
- -----------------------------------------------------------------------------------------------------------------------------
PASS SUITE - Performing arts, museums, universities, minor 1,785 - Lincoln Center for the - Tower of London
of
PRODUCTS league sports, and attractions Performing Arts - AMP Tower-Australia
- Modular in design, sharing a common platform - Carrier Dome - Montage Ski Resort
and
providing scalable ticketing solutions for small - Pennsylvania State - Royal Albert Hall
to medium-sized venues University - National Gallery
- A multi-user system featuring complete box - New York Philharmonic London, England
office
ticketing and tour scheduling, as well as - Kravis Center - Glyndebourne Opera
single,
group and season ticket sales - St. Louis Arch
- -----------------------------------------------------------------------------------------------------------------------------
ARTSOFT/ - Mid-sized venues, performing arts and serial/ 158 - St. Louis Symphony - Cheyenne Frontier Days
SPORTSOFT seasonal sporting and entertainment events - North Shore Music - Cerritos Center for
the
- Runs on Novell or NT network Theatre Performing Arts
- Full ticketing functionality including single, - Boston Ballet - Crystal Cathedral
group
and season ticket sales, and consumer marketing
capabilities
- -----------------------------------------------------------------------------------------------------------------------------
TICKETMAKER - Small to mid-sized venues migrating from 539 - San Antonio Missions - Cleveland Institute of
manual
PROFESSIONAL ticketing systems, minor league sports, casinos, - Midway Slots & Music
small performing arts centers and attractions Simulcast - Kentucky Speedway
- Affordable PC-based ticketing solution for - California State - President's Casino
organizations that seek a flexible, easy-to-use University - Irving Arts Center
alternative to manual ticketing
- Modular in design, and offering configurations
which
support ticketing capability for general
admission,
reserved seating, series/subscriptions and timed
entry
events
- -----------------------------------------------------------------------------------------------------------------------------
ACCESS - Amusement parks, tourist attractions, museums, 31 - IGFA World Fishing - Santa Anita Race Track
CONTROL fairs and festivals Center - Supersplash Adventure
SYSTEM 2100 - Provides integrated access control (bar-code, - California Exposition - Rock & Roll Hall of
&
magnetic strip, turnstile readers) for Access State Fair Fame
Control System 2100, the Advantix SQL and - Baltimore Zoo
Prologue Systems
- -----------------------------------------------------------------------------------------------------------------------------
DATABOX - Performing arts and museums in the United 249 - Bradford Theatres - The Lyric Theatre,
Kingdom
- PC-based product that offers easy-to-use, - Wigmore Hall London Hammersmith
intuitive
graphical user interface - Cheltenham Racecourse - BBC Nat'l Orchestra of
- A multi-user system featuring complete box - Derngate Theatre- Wales
office
and patron database management Northhampton - University Concert
Hall
- Sunderland Empire Ireland
Theatre
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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OUTSOURCING SERVICES
We use Advantix SQL and Prologue to provide flexible outsourcing services
that enable entertainment organizations to benefit from our industry knowledge,
telecommunications infrastructure and technology development to manage their
ticketing needs in an efficient and economic manner. We generally serve as the
exclusive automated ticketing service for our outsourcing clients pursuant to
contracts that generally have terms ranging from one to five years with
automatic one-year renewals. These contracts usually contain termination
provisions generally allowing our clients to terminate the contract upon notice
of a breach after a 30- to 60-day period to cure. Our ticketing service clients
determine all face values for tickets sold through our services. These clients
also generally determine when tickets for their events will be sold to the
public and the number and type of tickets that will be available for sale
through us. We usually sell only a portion of our clients' total tickets. Our
clients' personnel will often handle group sales and season ticket sales through
their own box offices. The number of tickets that our clients sell in-house
varies from client to client and varies as to any single client from year to
year. Tickets allocated by our clients to us are sold to the public directly
through our distribution network.
Our services include integrated patron data management, ticket processing
and customer service and support.
Integrated Patron Data Management Capabilities
The Advantix SQL and Prologue software used in our outsourcing services can
capture and store information regarding the purchasing habits, preferences and
demographics of ticket buyers on a real-time basis. When a consumer purchases a
ticket to an event, an electronic file is built on that consumer, including the
consumer's name, address, telephone number and any other demographic information
specified by the entertainment organization. Thereafter, when that consumer
purchases tickets, the system retrieves that consumer's relevant information and
tracks historical ticket purchases, enabling the entertainment organization to
obtain valuable information about its repeat customers.
Ticket Processing Capabilities
Our ticketing systems are designed to track and manage the complex
ticketing needs of a variety of entertainment organizations. The systems used by
our outsourcing services are accessible on a real-time basis by any authorized
user. The ticket processing capabilities of our outsourcing systems include the
following functions:
- Creation of Master Seating Charts. During the first step of the ticketing
inventory and control process, we create a master seating chart for each
seating configuration that a particular entertainment organization may
use. For example, an arena may use one seating configuration for hockey
games, another for basketball games and another for rock concerts. Each
master seating chart can then be used as a template in the event creation
process.
- Creation of Ticket Prices. Next, a set of ticket price zones in the
configuration can be created. Different configurations of prices for
season sales, group sales and single ticket sales can be added to the
ticket price grids. The ticket price grids also contain pertinent service
charges and handling fees. We can create multiple price points for each
event. We eventually plan to use this capability to create various
dynamic pricing programs that will allow us to price individual seats at
an event and enable entertainment organizations to change prices for
tickets to accurately reflect market demand for that seat.
- Customization of Seating Charts for an Event. A sequence of customized
events can be created which use the already established master seating
chart and prices. The individual chart for an event includes the date and
time of the event and contains rules for seating availability and for the
determination of the seats to be sold on a best-available seat basis. An
authorized operator can change information regarding events online at any
time in the system.
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- Real-Time Tracking of Ticket Inventory. Tickets are often sold
simultaneously through multiple distribution channels, including the
Internet, interactive voice response systems, telephone sales centers,
retail stores and the box office. We centralize control of ticket sales
through the various distribution channels and monitor, on a real-time
basis, the progress of the sale of tickets for a particular event. This
capability allows facilities and promoters to determine whether to add
additional performances for the event in order to satisfy demand. We are
also capable of executing rapid searches to find the best available seats
for a particular performance.
- Ticket Sales, Printing and Delivery. Orders for tickets are generated
through our various sales and distribution points. Once tickets have been
selected for a consumer, the system automatically puts these tickets on
hold until a transaction is completed. Our software products generally
provide for automatic credit card approval, as well as real-time capture
of information in a customizable database structure. Upon receiving
approval of the credit card or receipt of cash payment at retail stores,
the transaction is completed and a unique transaction number is provided
by the system. For most transactions completed through the Internet,
interactive voice response systems or our telephone sales centers,
tickets are printed and sent to customers via the mail or express
delivery, depending on customer preferences. For transactions completed
at retail stores, tickets are printed and given to customers at the time
of the transaction.
- Reports. Standard reports relating to ticket sales and proceeds collected
for particular events are available to clients online and are updated at
the time each transaction occurs. A system of checks and balances
continually verifies the accuracy of the report data. These reports allow
clients to monitor, on a real-time basis, the progress of ticket sales to
any particular event or a specific performance of that event. Customized
reports can be designed and tailored to clients' specific requests. These
reports are often used by our clients as management tools in their
accounting, finance and marketing departments.
- Closing of an Event. For each event, our outsourcing systems track ticket
sales and capture pertinent information relating to each ticket sale,
including the channel through which the ticket was sold, the price of the
ticket, the amount of any service or handling fees, the type of ticket
sold and the seat location. When all available tickets for an event have
been sold or when the event is concluded, a system operator takes the
event off sale in order to prevent the sale of additional tickets for
that event. We then prepare detailed settlement reports for the client
that verify funds due to that client.
CLIENT SERVICE AND SOFTWARE SUPPORT
We are committed to offering entertainment organizations high quality
service and support. We currently maintain regional offices, each of which is
staffed with account representatives and technical support personnel. Each
ticketing services client is assigned an account representative in the nearest
regional office, and that account representative manages the client's account,
acts as the day-to-day interface with the client and coordinates our services
for the client's various events. As our client base grows, we intend to open
additional regional offices to strengthen our relationships with our clients.
In addition to providing outsourcing services to entertainment
organizations, we typically license our software, sell hardware and provide
maintenance and support services to individual software licensees. Our license
agreements generally have perpetual terms. Our support and maintenance contracts
have terms ranging from one to five years with automatic one-year renewals, and
contain termination provisions generally allowing our clients to terminate the
contract upon notice of a breach after a 30- to 60-day period to cure. Our
software licenses generally are limited in time, geographic scope and functional
scope. Through our e-commerce network, we can provide our licensees a broad
distribution network that includes our www.tickets.com web site.
We also provide support to our software licensees under software support
agreements. Our technical team of over 30 employees based out of our
Connecticut, Wisconsin, Washington, New York and St. Albans, England facilities
provides full-time product support for our licensees.
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SALES AND MARKETING
Our sales strategy is primarily focused on increasing the inventory of
tickets available through our various sales and distribution channels, as well
as increasing our advertising and sponsorship revenues. Our sales force is
currently divided along the following product lines and service functions: our
in-house solutions; outsourcing services; online sales of tickets allocated to
us by entertainment organizations; and advertising and sponsorships.
We market and sell our in-house solutions through a direct sales force
organized by region and product line. We maintain direct sales personnel in 13
states across the United States and internationally in the United Kingdom, the
Netherlands, Germany, Australia and Canada. The sales force generates leads
through inbound inquiries into our sales offices and web site, contacts made at
industry conferences and trade shows, and our ongoing promotional programs. In
some cases, entertainment organizations issue a request for a proposal that
defines the organization's specific system needs, including operating platform
and network requirements. In other cases, our sales team determines the scope of
the organization's specific needs. In either case, the national sales manager
determines the product line which best meets the needs of the entertainment
organization and assigns the relevant product team to lead the process. We
complement our sales force with our software support group that is also
responsible for the installation and technical support of each system. This
support group is also responsible for generating leads for system upgrades and
other revenue generating opportunities.
Our outsourcing ticketing services sales team is segmented by geographical
regions. Leads for outsourcing services are generally generated through requests
for proposals, trade shows, and industry contacts. The sales process includes a
full demonstration of our system capabilities and service offerings as well as
visits to our data centers by representatives of the entertainment
organizations. The entire sales process is a coordinated effort between sales
representatives and members of our operations and technology groups.
Along with our system and outsourcing services, we also sell our online
distribution capabilities to organizers of special or one-time events, as well
as organizers of general admission events. Leads for such opportunities are
generally generated by our sales force or through our promotional and public
relations efforts. In such cases, we work with event organizers to promote our
brand and our web site as an online sales and distribution channel for
information and tickets for the event.
In addition to the services we offer entertainment organizations, we market
our web site and other advertising vehicles to corporate advertisers and
sponsors who are interested in reaching the entertainment consumer. Currently,
all advertising and sponsorship sales for our web site and other vehicles are
done internally by our own staff. In the future, however, we may complement our
internal efforts with online and offline service providers that can assist us in
maximizing our advertising and sponsorship revenue potential.
PROMOTING BRAND AWARENESS
We are undertaking an aggressive marketing and promotional campaign to
establish Tickets.com as a leading online entertainment information and
ticketing brand. This campaign is aimed at entertainment consumers and designed
to promote our one-stop solution for consumers in search of event tickets and
information. A key element of our branding and advertising strategy is to direct
consumers to places where event tickets can be purchased, whether or not we
actually sell tickets to the event. We believe we can achieve significant brand
recognition of our unique and easy-to-remember brand through advertising, public
relations, word of mouth, our unique Internet address, www.tickets.com, and our
1-800-TICKETS telephone number. We supplement our paid advertising and promotion
with targeted media coverage. Because of the high-profile nature of the
entertainment and ticketing industries, we have enjoyed significant attention
from consumers, entertainment organizations and various online and offline media
groups.
STRATEGIC ALLIANCES AND ADVERTISING RELATIONSHIPS
We have entered into a number of strategic alliances and advertising
agreements with technology, marketing and online companies in an effort to
maximize our inventory of available tickets, develop our brand in the
marketplace, and to broaden our revenue sources. We intend to continue
developing these alliances with
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the goal of increasing our presence within the entertainment and sports
industries, as well as increasing our offerings to consumers.
Excite
In August 1999, we entered into a letter of intent with Excite, Inc., a
leading online content provider and a wholly owned subsidiary of At Home
Corporation. At the same time, Excite acquired a minority equity interest in
Tickets.com. Under the terms of the letter of intent, we will create an event
information and ticketing service for Excite's web site and other web sites that
Excite has the right to program. In addition, we will design and create
ticketing web pages for Excite's network that will contain the ticketing
service, as well as feature or display links to various Excite community
products such as message boards, chat clubs and home pages. These web pages will
display both the Tickets.com and Excite brands. Under the terms of the letter of
intent, Excite will feature previews for the ticketing service and co-branded
web pages throughout the Excite network and will be responsible for selling
advertising on these web pages. In addition, we will link to content and tools,
such as calendars, message boards and clubs, on the Excite web site. Excite will
pay us fees based upon revenues it generates from advertising on the co-branded
web pages and we will pay Excite commissions for ticket sales over the Internet
and revenues that we receive from Excite users from ticket auctions, sales of
travel and event packages and merchandise sales. We will also pay Excite a fee
for a variety of services, such as e-mail delivery to users, e-mail response
tracking and database management and maintenance for registered users, and for
distribution on the Excite network. The letter of intent, as amended on
September 20, 1999, provides that Excite and Tickets.com will use good faith
efforts to negotiate and execute, by October 29, 1999, a more definitive
agreement that will have a term of three years. If a definitive agreement is not
executed by October 29, 1999, the letter of intent shall continue to be binding.
The letter of intent has a term of three years or until a definitive agreement
is executed.
Cox Interactive
In August 1999, we entered into a content and distribution agreement with
Cox Interactive Media, Inc., a wholly owned subsidiary of Cox Enterprises, Inc.
At the same time, Cox Interactive acquired a minority equity interest in
Tickets.com. Under the terms of the agreement, we will create a ticketing web
page for web sites operated by Cox Enterprises or entities affiliated with Cox
Enterprises, including Cox Interactive and MP3Radio.com. These web pages will
display both the Tickets.com and Cox brands. We will also provide Cox
Interactive with event and venue information for display in the event guide
sections of Cox Interactive's web sites as well as other areas of the Cox
Enterprise network. We will also assist Cox Interactive with the integration of
our ticketing functionality and content into Cox Interactive's local event
listings and calendars. In return, Cox Interactive will create a link to a
ticket buying tool on each home page for a city site. Cox Interactive will also
feature the event listing and calendars on the entertainment page of each city
site. Cox Interactive has also agreed to provide us with a minimum of 125
million advertising impressions, including placement of our content on its web
site, links to the co-branded web pages or the www.tickets.com web site and
promotions of the co-branded web pages and our web site. In addition, Cox
Interactive will be responsible for selling advertising on the co-branded web
pages. We will link to content and tools, such as calendars, message boards and
classifieds, on the Cox Interactive web site. Cox Interactive will pay us a fee
based upon revenues it generates from advertising on the co-branded web pages
and we will pay Cox Interactive commissions for ticket sales over the Internet
and revenues that we receive from Cox users from ticket auctions, sales of
travel and event packages and merchandise sales. We have also agreed to purchase
a specified minimum amount of advertising on Cox Interactive and other Cox
Enterprise web sites, radio stations, newspapers and cable. The content and
distribution agreement has a term of five years, but may be terminated by either
Cox Interactive or us if the other party breaches the agreement and the breach
remains uncured for a period of 90 days.
International Merchandising Corporation
In November 1998, we entered into a consulting agreement with International
Merchandising Corporation, a wholly owned subsidiary of International Management
Group, a leading global sports marketing and event promotion company. Under this
agreement, International Merchandising will assist us in developing and
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preparing a comprehensive sales and marketing plan to identify expansion
strategies for our business. International Merchandising in its sole discretion
determines the methods and means of performing its services. International
Merchandising has also agreed to provide us with the opportunity to discuss
serving as the ticketing service for various International Merchandising owned
or controlled events, subject to International Merchandising's existing and
possible future obligations to other third parties for ticketing services. Under
this agreement, we pay International Merchandising a monthly fee plus
commissions on ticket sales referred to us by International Merchandising. We
will assist International Merchandising in developing its sponsorship consulting
businesses by referring to International Merchandising any venue and event
clients who are interested in selling sponsorship rights. We will also recommend
International Merchandising's services to those clients, and use reasonable
efforts to arrange meetings with those clients. International Merchandising will
pay us a referral fee for sponsorships directly effected through our efforts.
The agreement was amended in May 1999 to extend the term to October 31, 1999.
The amendment continues the terms of the original agreement and further provides
that International Merchandising may assist us in securing third party sponsors
and advertisers, in exchange for which we will pay International Merchandising a
commission to be negotiated based on a percentage of gross revenues received by
us. We will also pay International Merchandising a percentage of gross profits
from all sales of merchandise where the source of the merchandise was referred
by International Merchandising, as well as a percentage of auction revenues from
auction tickets provided to us by International Merchandising or items relating
to events referred to us by International Merchandising. The agreement is
terminable by either party upon 10 days notice following a default by the other
party.
GeoCities
In March 1999, we entered into an agreement with GeoCities, a leading
online, community-oriented web site, under GeoCities' "Pages That Pay" program.
Under the terms of the agreement, GeoCities will provide us with targeted
exposure to various members of GeoCities' numerous online communities and a
minimum of 36 million advertising banners over the course of the 12-month term
of the agreement. In addition, GeoCities has agreed to create an "Entertainment
and Sports Ticket Booth" dedicated to highlighting our products and services and
will send targeted e-mails promoting our products and services to members and
affiliates within GeoCities. Under the terms of the agreement, we will pay
GeoCities fees for participation in the program and will pay commissions to
affiliates based on links from affiliates' web pages to our web site. This
agreement may terminate immediately if either party ceases to do business,
materially breaches a material provision of the agreement or becomes insolvent
or bankrupt. We may also terminate the agreement on 60 days notice any time
after the effective date of the agreement if GeoCities fails to implement the
program.
MP3.com
In February 1999, we entered into a sponsorship agreement with MP3.com,
Inc., a leading music-oriented destination site on the Internet. Under the terms
of the agreement, we will serve as MP3.com's exclusive source for sports,
entertainment and travel tickets, and MP3.com will include a "Tickets Portal" on
the Music, Pop, Rock and Alternative genre pages of its web site. We supply the
content of the Tickets Portal, subject to reasonable technical and content
specifications of MP3.com. As a part of the agreement, MP3.com is required to
provide us with a minimum of three million advertising impressions per month on
these targeted pages, in exchange for monthly fee payments by us during the
first five months of the agreement. The agreement terminates in February 2000,
and we may renew it 30 days prior to termination, subject to prescribed maximum
fee increases.
Sitematic
In April 1999, we entered into an agreement with Sitematic Corporation, a
provider of services that permits end-users to create customized Internet web
sites. Under the terms of this agreement, we provide a venue list to Sitematic,
and Sitematic will market its web site development services to our clients
through a direct telemarketing campaign. Sitematic will develop and support
customized web pages for entertainment organizations. The agreement provides
that we will not engage any company other than Sitematic for the
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creation of venue web sites for our clients and potential clients. Sitematic
will pay us sales commissions on revenues received from our clients. We pay
Sitematic a development fee for each new product created for our clients. The
agreement has a one-year term and will be automatically renewed for successive
one year terms unless notice of non-renewal is given by either party 30 days
prior to expiration. The agreement may be terminated by either party on 60 days
notice, subject to payment by us of declining cancellation fees during the first
year of the agreement.
RealNames
In July 1999, we entered into an agreement with RealNames Corporation, the
provider of the RealNames subscriber-based Internet addressing system. Under the
terms of the agreement, we have been granted an exclusive license to use the
terms "ticket", "tickets" and "tickets.com", in the RealNames service for the
term of the agreement. RealNames may withdraw any name granted to Tickets.com at
any time, but may not reallocate a withdrawn name to any other company during
the term of the agreement. As a result of the agreement, Internet users
conducting searches on search engines that use the RealNames service will be
provided a direct link to our home page or such other location as we may
reasonably specify. RealNames currently has agreements in place with some of the
Internet's leading search engines, such as Microsoft's MSN Search and
AutoSearch, INKTOMI, Infoseek and AltaVista. The agreement provides for payments
of quarterly fees by Tickets.com to RealNames, and a per-referral fee for each
referral in excess of prescribed minimums. The agreement terminates on June 30,
2001, and will be automatically renewed for successive one-year terms, unless
either party notifies the other of its intention not to renew within 30 days of
the termination date. In addition, if RealNames removes one of our RealName
terms, we have the right to terminate the agreement or if RealNames becomes
subject to liability because of the use of one of our RealName terms, it may
terminate the agreement.
RESEARCH AND DEVELOPMENT
We conduct research and development for our licensed products in several
offices around the United States. As of October 1, 1999 we employed 62 software
engineers who were responsible for the continued development and maintenance of
our products and systems, as well as the ongoing development and functionality
of our web site. We also employed 21 quality assurance personnel, and 202
persons dedicated to the continued installation, training and support of our
various products. We also make use of Internet consulting services provided by
Proxicom, Inc. to augment our web site development. Our current development work
is primarily devoted to the integration of our licensed products with our
system-to-system interface, the Transaction Application Gateway, in an effort to
enable our licensees to connect their ticket inventories to our web site. Our
development efforts are also focused on consolidating our broad portfolio of
ticketing software products into a few comprehensive software systems and in
developing links from our clients' various software and hardware systems to our
ticketing systems and databases. We expended approximately $690,000 in 1996,
$2.2 million in 1997 and $6.4 million in 1998 for research and development.
ACQUISITION HISTORY
We were originally organized as The Entertainment Express, Inc. under the
laws of the State of Delaware on January 25, 1995. Our operations commenced in
May 1996 with the acquisition of the assets of Hill Arts and Entertainment
Systems, Inc., which included a proprietary ticketing software system used by a
wide variety of entertainment organizations. In December 1996, we acquired the
telephone sales center and ticketing operations of the Advantix division of
Playhouse Square Foundation, an Ohio-based performing arts center and ticketing
services provider, at which time we changed our name to Advantix, Inc. We have
grown through acquisitions of regional ticketing services providers and of
in-house systems providers. A significant component of our future growth
prospects will depend on our ability to complete future acquisitions, and our
operating results will be largely dependent on our ability to integrate the
operations and administrative functions of acquired companies. There can be no
assurance that we will be able to identify suitable acquisition candidates or
that if we do, that we will be successful in negotiating an acquisition
agreement on
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mutually beneficial terms. If we are unsuccessful in completing future
acquisitions, our growth prospects may be materially and adversely affected.
1997 ACQUISITIONS
Fantastix Ticket Company, LLC. In August 1997, we acquired the assets of
Fantastix Ticket Company, LLC, a Buffalo, New York-based ticketing services
provider. The purchase price was $852,000. Prior to the acquisition, Fantastix
was a licensee of our software. By acquiring Fantastix, we acquired ticketing
services contracts with several prominent entertainment organizations in western
New York, including Marine Midland Arena and the Buffalo Sabres professional
hockey franchise. Upon completion of the acquisition, the ticketing services
operations of Fantastix' business was relocated from its Buffalo, New York
facility to our Cleveland, Ohio facility, and all administrative functions were
consolidated into our corporate office. The operating results of Fantastix have
been included in our consolidated financial statements from the date of the
acquisition.
Bay Area Seating Service, Inc. In September 1997, we acquired Bay Area
Seating Service, Inc., a Concord, California-based ticketing services provider.
At the time of the acquisition, Bay Area Seating Service was the largest
ticketing services provider serving the Northern California and Northern Nevada
markets. As a result of our acquisition of Bay Area Seating Service, we acquired
ticketing services contracts with the San Francisco Giants and Oakland Athletics
professional baseball franchises, the San Francisco 49'ers and Oakland Raiders
professional football franchises, Concord Pavilion and the Arena at Oakland,
among others. As of June 30, 1999, the aggregate purchase price recorded was
$24.8 million which included costs of the acquisition and contingent
consideration payments. Additional contingent consideration was paid based upon
Bay Area Seating Service's net revenues meeting pre-defined revenue targets set
forth in our acquisition agreement with Bay Area Seating Service. As of June 30,
1999, contingent consideration is final and all payments have been made. The
operating results of Bay Area Seating Service have been included in our
consolidated financial statements from the date of the acquisition.
1998 ACQUISITION
ProTix, Inc. In October 1998, we acquired ProTix, Inc., commonly known as
ProTix, a Madison, Wisconsin-based ticketing services provider and developer of
in-house ticketing systems. The aggregate purchase price was $9.7 million, which
includes costs of the acquisition. The acquisition of ProTix added another
software product to our family of products, as well as several important client
relationships including those with Merriweather Post Pavilion, Wolf Trap Filene
Center, the Texas Rangers and Milwaukee Brewers professional baseball
franchises, and International Speedway Corp., among others. The operating
results of ProTix have been included in our consolidated financial statements
from the date of the acquisition.
1999 ACQUISITIONS
TicketStop, Inc. In March 1999, California Tickets.com entered into a stock
purchase agreement with TicketStop, Inc. and the shareholders of TicketStop to
purchase all of the outstanding common stock of TicketStop. The purchase was for
cash consideration equaling approximately $2.3 million, consisting of an initial
cash payment of $2.2 million. Additional consideration, in the form of a
contingent cash payment of up to approximately $400,000, is subject to
TicketStop attaining a targeted number of active clients. In September 1999,
California Tickets.com entered into an amendment with the shareholders of
TicketStop whereby the parties agreed to remove the contingency behind the
remaining cash payment, which resulted in approximately $400,000 of additional
goodwill. The operating results of TicketStop have been included in our
consolidated financial statements from the date we acquired California
Tickets.com.
TicketsLive Corporation. In April 1999, we purchased all of the outstanding
capital stock of TicketsLive Corporation. The aggregate purchase price was $26.0
million. The acquisition of TicketsLive added a suite of ticketing software to
our family of products. In addition, we acquired our system-to-system interface,
the Transaction Application Gateway, that facilitates our ability to sell
tickets on our web site from a variety of sources. We also acquired client
relationships with several well-known entertainment organizations, including
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the Lincoln Center for the Performing Arts, the New York Philharmonic, the
Carrier Dome, Pennsylvania State University and the National Air & Space Museum,
among others. The operating results of TicketsLive Corporation have been
included in our consolidated financial statements from the date of the
acquisition.
California Tickets.com, Inc. Effective April 1999, we completed the
acquisition of California Tickets.com, and in May 1999 we changed the name of
our company to Tickets.com, Inc. The aggregate purchase price was $41.5 million.
The acquisition of California Tickets.com added some of our most significant
brand assets, including our web site address (www.tickets.com) as well as our
1-800-TICKETS telephone number. The operating results of California Tickets.com
are included in our consolidated financial statements from the date of the
acquisition.
dataCulture, Ltd. In August 1999, we purchased all of the outstanding
capital stock of dataCulture, Ltd. The acquisition of dataCulture added another
software product to our family of products, an expanded presence in the United
Kingdom, and client relationships with several well-known entertainment
organizations in the United Kingdom, including Chelthenham Racecourse, Widmore
Hall London and The Lyric Theatre, among others. The aggregate purchase price
was 4 million pounds sterling, or the equivalent of approximately $6.4 million
at August 23, 1999. The operating results of dataCulture will be included in our
consolidated financial statements from the date of acquisition.
PENDING ACQUISITIONS
Lasergate
On January 24, 1999, Tickets.com and RBB Bank AG entered into a stock
purchase agreement, providing for the purchase by Tickets.com from RBB of
7,837,332 shares of common stock of Lasergate Systems, Inc., a Florida
corporation, for cash in the amount of $784,000, and 5,700 shares of preferred
stock of Lasergate, which are convertible into 24,818,217 shares of Lasergate
common stock, for an aggregate of 430,872 shares of Tickets.com common stock.
Pursuant to the stock purchase agreement, the closing of the purchase of
Lasergate stock was to be held not later than May 15, 1999, or such later date
as RBB and Tickets.com agreed.
Subsequently, on June 21, 1999, Tickets.com and RBB amended the stock
purchase agreement. Under the amendment, we agreed to purchase Lasergate
preferred shares in exchange for, at the election of RBB, 75.592 shares of our
common stock for each Lasergate preferred share, $435.00 for each Lasergate
preferred share, or a combination thereof. Additionally, Tickets.com and RBB
agreed that we would purchase the Lasergate common shares for $.10 per share in
cash as part of a merger of Tickets.com or its subsidiary with Lasergate
pursuant to a definitive agreement and plan of merger and not as a separate
transaction under the stock purchase agreement. All other terms of the stock
purchase agreement would continue in full force and effect, including RBB's
agreement to support a merger of Lasergate with Tickets.com, and to vote all of
the Lasergate common shares in favor of a merger.
On June 21, 1999, Lasergate and Tickets.com entered into a definitive
agreement and plan of merger. Under this merger agreement, Lasergate agreed to
the merger of Lasergate with a wholly owned subsidiary of Tickets.com, subject
to receipt of approval by the shareholders of Lasergate and satisfaction of
other closing conditions. Holders of the Lasergate common stock will receive
$.10 per share in cash. After completion of the merger, Tickets.com will own
100% of the outstanding stock of Lasergate.
On June 28, 1999, following the execution of the merger agreement, RBB sold
the Lasergate preferred shares to us in exchange for 299,796 shares of our
common stock and $754,000. Lasergate currently does not have sufficient shares
of common stock authorized to allow for the conversion of all shares of
preferred stock into common stock.
The acquisition of Lasergate is expected to bring in approximately 97 new
client relationships and add additional ticketing software to our family of
products.
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Between June 23, 1999 and October 15, 1999, we made advances totaling $1.8
million to Lasergate under various promissory notes. These promissory notes are
payable upon demand and bear interest at 10 percent per year. We anticipate that
the merger will be completed in the fourth quarter of 1999.
COMPETITION
The market for automated ticketing services is intensely competitive, and
we expect competition to increase in the future. We believe that the principal
competitive factors that we must address include:
- greater brand recognition of some of our competitors' brands;
- longer operating histories of some of our competitors;
- the size of ticket inventories maintained by our competitors; and
- greater financial and other resources available to our competitors.
Our specific concerns include the following:
- an inability to gain access to our competitors' established clientele who
may have lengthy existing contracts;
- difficulties associated with gaining national recognition, as well as
penetrating specific regional clientele; and
- the current consolidation of the ticketing industry into a few large
conglomerates with lengthy operating histories and stronger brand
recognition.
Although we believe that we compete favorably with respect to these
factors, we expect we will be continually challenged by current competitors who
may have significantly greater financial marketing, service, distribution,
technical and other competitive resources, as well as by new entrants into the
industry. Our principal competitors include two large national providers of
automated ticketing services, smaller regional providers of ticketing services,
entertainment organizations that operate and maintain in-house ticketing
functions software companies that license ticketing software applications and a
variety of Internet competitors.
On a national level, we primarily compete with two national providers of
automated ticketing services, Ticketmaster Corporation and its online partner
Ticketmaster Online-CitySearch, Inc., which have operations in multiple
locations throughout the United States. Ticketmaster Online-CitySearch has an
exclusive license to do all of the online ticketing for Ticketmaster
Corporation. Ticketmaster has a widely recognized brand name in the live event
ticketing business, a longer operating history in the ticketing industry
generally and in Internet ticketing specifically and has greater financial and
other resources than we do. We seek to distinguish ourselves from these national
ticketing companies principally through the versatility and functionality of our
ticketing system and our ability to capture and manage data regarding ticketing
transactions and consumer purchasing patterns.
On a regional level, we compete with smaller providers of automated
ticketing services that may have longer operational histories, greater name
recognition and a broader established client base in the geographic areas in
which they operate than we do. We believe, however, that many regional providers
of automated ticketing services are at a competitive disadvantage because they
have not developed their own ticketing software applications, have
geographically restricted license arrangements with software providers, and in
some instances are controlled by a major entertainment organization which may
prevent them from contracting with that organization's competitors.
Finally, we also face competition from independent software companies that
license ticketing software applications to providers of regional ticketing
services and individual entertainment organizations. These companies may develop
more effective ticketing software applications than ours that could render our
products obsolete.
On the Internet, we compete with online ticketing companies, as well as
online providers of entertainment information, merchandise and related services
whose suites of services overlap with our target markets. In
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addition, because barriers to entry are relatively low, we may face competition
from companies in other areas of e-commerce that can launch new web sites using
commercially available software. These potential Internet competitors may have
competitive advantages, including strong brand recognition, fully developed
e-commerce functionality, comprehensive information and an established presence
on the Internet. Strategic relationships with these and other Internet portals
may allow potential as well as existing competitors to expand their operations
and information technology.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We regard our proprietary technology and other intellectual property as
critical to our success. We rely on trademark, trade secret and copyright law to
protect our technology and our brand. We also rely on confidentiality and/or
license and other agreements with employees, customers and others to protect our
proprietary rights. We have no patents. Despite our efforts to control access to
our proprietary information, it may be possible for a third party to copy or
otherwise obtain and use our products, technologies or other intellectual
property without authorization.
We have applied to register the tradename "Tickets.com" and the stylized
trademark, "1.800.TICKETS," and we have registered the service mark "Advantix"
and other trademarks in the United States. We have also applied to register the
tradename "Tickets.com" in various foreign countries.
We have licensed in the past, and expect to license in the future, various
proprietary rights, such as trademarks or copyrighted material, to third
parties. While we attempt to ensure that the quality of our brands is maintained
by our licensees, we cannot be certain that our licensees will not take actions
that might materially adversely affect the value of our proprietary rights or
reputation.
Although we believe we have valid proprietary rights to all of our
intellectual property, the possibility exists that other parties will assert
infringement claims or claims related to our business practices against us. We
could be subject to claims of alleged infringement as a result of our actions or
the actions of our licensees. We could be subject to claims of alleged trademark
infringement by parties whose corporate names are similar to ours.
Any litigation over intellectual property rights or business practices
raises the possibility of substantial damages. Such litigation may also result
in injunctive or other equitable relief that could block our ability to market
or license our products in the United States or elsewhere. We could also lose
the rights to technologies necessary to operate portions of our business.
Moreover, sustained intellectual property litigation is costly and could
adversely affect our operating results.
Litigation may be necessary in the future to, among other things:
- enforce our intellectual property rights;
- protect our trade secrets;
- determine the validity and scope of the proprietary rights of others; or
- defend against claims of infringement or invalidity.
Any litigation, regardless of the outcome, could result in substantial
costs and diversion of managerial resources.
We currently hold the Internet domain names "tickets.com," "protix.com,"
"bass-tix.com," "basstickets.com," "fantastix.com" and others. The acquisition
and maintenance of domain names generally is regulated by governmental agencies
and their designees.
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GOVERNMENT REGULATION
Our products and services are regulated by federal and state governments.
Ticket Sales and Auctions
Many states and municipalities have adopted statutes regulating the sale of
tickets within their jurisdictions and requiring that ticket sellers obtain a
license. We believe that we are not required to qualify to do business in any
state other than California, which does not require a license. One or more
states or municipalities, however, could take the position that a telephonic or
electronic ticket sale to one of their residents is a sufficient basis for
application of that jurisdiction's reseller statute.
Government agencies or authorities could also argue that other state or
local licensing or "ticket scalping" statutes apply to our activities. Some
state and local regulations establish maximum convenience and handling charges
on tickets for sporting and other entertainment events subject to these
regulations. In addition, many states, including California, have laws and
regulations governing the conduct of auctions. It is not yet clear whether or to
what extent such laws and regulations apply to online auctions.
Internet Commerce
We are subject to regulations applicable to businesses generally and laws
or regulations directly applicable to Internet commerce. Currently we believe
there are few laws and regulations directly applicable to the Internet and
e-commerce services; however, it appears likely that this area will be
increasingly regulated in the future. These laws may impose additional burdens
on companies conducting business online and may decrease the growth of the
Internet or e-commerce services.
In addition, it is unclear whether some existing laws governing issues such
as property ownership, sales and other taxes, libel and personal privacy are
applicable to the Internet and e-commerce services. For example, tax authorities
in a number of states are currently reviewing the appropriate tax treatment of
companies engaged in e-commerce. New state tax regulations may subject us to
additional state sales and income taxes. These and other similar issues may take
years to resolve.
Consumer Protection and Related Laws
Many of our services may be subject to federal and state consumer
protection laws and regulations prohibiting unfair and deceptive trade
practices. Although there are very few laws and regulations directly applicable
to the protection of consumers in an online environment, it is possible that
legislation will be enacted in this area. New legislation could cover such
topics as permissible online content and user privacy, including the collection,
use, transmission and retention of personal information provided by online
users. The growth and demand for online commerce may also result in more
stringent consumer protection laws that impose additional compliance burdens and
costs on businesses that engage in e-commerce.
EMPLOYEES
As of October 1, 1999, we had a total of 824 employees including 552
full-time and 272 part-time employees. The vast majority of our part-time
employees serve as operators at our three national call centers. None of our
employees is represented by a labor union. We have not experienced any work
stoppages and believe our relationship with our employees to be good.
FACILITIES
Our principal administrative offices total approximately 32,000 square feet
and are located in Costa Mesa, California under a lease that expires on
September 30, 2005. Our telephone sales center in Concord, California is housed
in an approximately 25,176 square-foot facility under a lease that expires on
February 15, 2000. Our telephone sales center in Cleveland, Ohio is located in
an approximately 9,500 square-foot facility under a lease that expires on
December 31, 2001. Our telephone center in Fairfax, Virginia is housed in an
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approximately 5,764 square-foot facility under a lease that expires on March 31,
2001. We also maintain other regional offices for development, sales and support
services.
We believe that our existing facilities are adequate to meet our current
needs and that suitable additional space will be available in the future, if
necessary, on commercially reasonable terms. We do not own any real estate.
LEGAL PROCEEDINGS
On July 23, 1999, Ticketmaster Corporation and Ticketmaster Online-City
Search filed a lawsuit against us in the United States District Court for the
Central District of California seeking unspecified damages and a court order to
prohibit us from, among other things, linking Internet consumers to internal
pages within Ticketmaster's web site and using the Ticketmaster name on our web
site. In addition, the suit alleges that we have engaged in other wrongful acts,
such as providing false and misleading information on our web site regarding the
availability of tickets and related information on the Ticketmaster web site and
taking copyrighted information from the Ticketmaster web site for use on our own
web site. The suit seeks an injunction to prohibit us from further engaging in
any alleged unlawful activity, treble damages, attorneys' fees and other
unspecified damages. On September 15, 1999 we filed a motion to dismiss the
lawsuit. A hearing on the motion to dismiss has been scheduled for January 2000.
If Ticketmaster Corporation and Ticketmaster Online-City Search successfully
assert their claims against us, our web site could be severely impacted. Any
injunction could eliminate our ability to directly refer consumers to tickets to
events sold by Ticketmaster at Ticketmaster's web site. The Ticketmaster suit
could result in limitations on how we implement our e-commerce strategy, delays
and costs associated with redesigning our web site and substantial payments to
Ticketmaster Corporation and Ticketmaster Online-City Search. In addition, the
litigation could result in significant expenses and diversion of our
management's time and other resources.
We currently are not a party to any other material litigation, nor are we
aware of any pending or threatened litigation that would have a material adverse
effect on us or our business.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth the names, ages and positions of our
executive officers, key employees and directors as of the date hereof. The
background of each person listed in the table is described below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
W. Thomas Gimple..................... 37 President, Chief Executive Officer and Director
John M. Markovich.................... 43 Executive Vice President, Finance and Chief Financial
Officer
Thomas R. Pascoe..................... 44 Executive Vice President and Chief Operating Officer
Timothy E. Kelly..................... 40 Executive Vice President, Chief Marketing Officer
Mardan M. Afrasiabi.................. 32 Executive Vice President, Business Development
Andrew B. Dolich..................... 52 Executive Vice President, Sports Marketing
Steve Perlinski...................... 38 Senior Vice President and Chief Information Officer
Lisa M. Marquardt.................... 37 Senior Vice President Product Development
Robert D. McClintock................. 46 Senior Vice President, Software Development
Michael R. Starkenburg............... 28 Senior Vice President and General Manager, Interactive
Services Group
Michael R. Rodriguez................. 32 Vice President, Corporate Controller
C. Ian Sym-Smith(a)(b)(c)............ 69 Chairman of the Board
George Bell.......................... 41 Director
James A. Caccavo..................... 37 Director
Peter Chernin........................ 48 Director
Christos M. Cotsakos(a).............. 51 Director
William E. Ford(a)(b)(c)............. 38 Director
Howard L. Morgan(c).................. 53 Director
Janice L. Richter.................... 52 Director
Nicholas E. Sinacori(b)(c)........... 54 Director
</TABLE>
- ---------------
(a) Member of Personnel and Compensation Committee
(b) Member of Finance Committee
(c) Member of Pricing Committee
W. Thomas Gimple has served as President, Chief Executive Officer and a
director of Tickets.com since November 1996. Prior to joining Tickets.com, Mr.
Gimple served as Executive Vice President of Iwerks Entertainment, Inc., a
leading provider of software-based theater attractions, from July 1995 to
January 1996 and as President of Iwerks Touring Technologies, Inc., a subsidiary
of Iwerks Entertainment, Inc., from November 1991 to July 1995. Mr. Gimple
received his B.S. in Business Administration with a focus on Entrepreneurial
Studies from the University of Southern California.
John M. Markovich has served as Executive Vice President, Finance and Chief
Financial Officer of Tickets.com since January 1998. Prior to joining
Tickets.com, Mr. Markovich served as Senior Vice President, Finance and Chief
Financial Officer of Autobytel.com, Inc., an Internet-based automotive
information and purchasing service, from January 1997 to January 1998. He served
as Vice President, Finance and Chief Financial Officer of Optical Coating
Laboratory, Inc., a publicly held manufacturer of thin film coated optical
products from April 1995 to January 1997. From July 1993 to February 1995, Mr.
Markovich served as Vice President, Finance and Chief Financial Officer of
Electrosci, Inc., an early stage environmental technology company. Mr. Markovich
received his B.S. in general business from Miami University and his M.B.A. from
Michigan State University.
Thomas R. Pascoe has served as Executive Vice President and Chief Operating
Officer of Tickets.com since November 1996. Prior to joining Tickets.com, Mr.
Pascoe served as Vice President of Manufacturing of Iwerks Entertainment, Inc.
from July 1995 to June 1996 and as Director of Operations for Iwerks Touring
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Technologies, Inc., a subsidiary of Iwerks Entertainment Inc., from March 1995
to July 1995. From March 1994 to March 1995, Mr. Pascoe was Chief Financial
Officer of the Pacific Legal Foundation, a national nonprofit legal aid
foundation. Mr. Pascoe received his B.A. in psychology and philosophy from
Chapman College and his M.B.A. from Pepperdine University.
Timothy E. Kelly has served as Executive Vice President, Chief Marketing
Officer of Tickets.com since August 1999. Prior to joining Tickets.com, Mr.
Kelly served as Vice President of Marketing for Sprint Telecommunications, Inc.,
from June 1994 to August 1999. He served as Senior Vice President, Group
Director of Partners & Shevak, Inc., an advertising agency, from August 1991 to
June 1994. From July 1986 to August 1991, Mr. Kelly was an advertising account
director with D'arcy Masius Benton & Bowles, Inc. Mr. Kelly received his B.S. in
Marketing from the University of Florida and his M.B.A. from Nova University.
Mardan M. Afrasiabi has served as Executive Vice President, Business
Development of Tickets.com since August 1999. From June 1998 to August 1999, Mr.
Afrasiabi served as our Vice President, Strategic and International Business
Development. Prior to joining Tickets.com, Mr. Afrasiabi served as Vice
President of Ventana Global Ltd., an international venture capital firm, from
May 1995 until June 1998. While at Ventana Global, Mr. Afrasiabi was involved in
the formation and initial capitalization of Tickets.com. From August 1992 to
December 1995 he attended the University of Southern California. Mr. Afrasiabi
received his B.S. in Business Administration with a focus on Entrepreneurial
Studies, his M.B.A. and his J.D. from the University of Southern California.
Andrew B. Dolich has served as Executive Vice President of Sports Marketing
of Tickets.com since February 1998. Prior to joining Tickets.com, Mr. Dolich was
the President of Dolich & Associates, a management consulting firm serving the
sports and entertainment industries, from November 1995 to January 1998. From
November 1994 to November 1995, Mr. Dolich served as President and Chief
Operating Officer of the Golden State Warriors, a professional basketball team.
From November 1980 to November 1994, he held a number of senior management
positions with the Oakland Athletics, a professional baseball organization. Mr.
Dolich received his B.A. in Government and Public Administration from American
University and his M.A. in Education and Sports Administration from Ohio
University.
Steve Perlinski has served as Senior Vice President and Chief Information
Officer of Tickets.com since July 1999. Prior to joining Tickets.com, Mr.
Perlinski served as General Director of e-commerce for General Motors
Corporation from January 1998 to June 1999. From July 1996 to October 1998, he
served as Chief Information Officer for NextCard.com, Inc., a national credit
card bank deployed exclusively on the Internet. From January 1989 to July 1996,
Mr. Perlinski founded and served as Chief Executive Officer of i-Sol, Inc., a
consulting firm concentrating on strategic systems development.
Lisa M. Marquardt has served as Senior Vice President of Product
Development of Tickets.com since September 1998. From February 1998 to August
1998, Ms. Marquardt acted as our Vice President of Sales and Client Services,
and from January 1997 to February 1998, she served as our Vice President of
Sales and Marketing. Prior to its acquisition by Tickets.com, Ms. Marquardt was
the General Manager of Advantix, a division of Playhouse Square Foundation from
February 1996 to January 1997 and Director of Contemporary Programming from July
1993 to February 1996. Ms. Marquardt received her B.S. in Information Systems
from Ohio State University and her M.B.A. from Case Western University.
Robert D. McClintock has served as Senior Vice President of Software
Development of Tickets.com since January 1999. Prior to that, he served as the
Vice President of Connecticut Operations of Tickets.com after rejoining
Tickets.com in April 1997. Previously, Mr. McClintock served as Principal of
Robert McClintock Associates, a software consulting company from August 1995 to
March 1997. From July 1984 to July 1995, Mr. McClintock served as Senior Vice
President of Operations for Hill Arts & Entertainment Systems, Inc. Mr.
McClintock received his B.A. from Cornell University and his M.F.A. from Yale
University.
Michael R. Starkenburg has served as Senior Vice President and General
Manager of Interactive Services Group of Tickets.com since August 1999. Prior to
joining Tickets.com, Mr. Starkenburg served as Chief Technology Officer of
Cyberian Outpost, Inc., an online retailer, from July 1997 to July 1999. From
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December 1996 until July 1997, he led the web development and operations team of
Digital City, Inc., a content based Internet company. From August 1995 to
December 1996, Mr. Starkenburg worked for America Online, Inc. where he was
responsible for the development and operations of several large Internet sites.
From November 1991 until joining America Online, he was an Internet and
networking consultant to a variety of clients, including the International
Monetary Fund, the national Academy of Sciences and the Information Technology
Association of America. Mr. Starkenburg received his B.B.A. in International
Business from George Washington University.
Michael R. Rodriguez has served as Vice President, Corporate Controller of
Tickets.com since May 1999. He previously served as our Corporate Controller
since September 1997. Prior to joining Tickets.com, Mr. Rodriguez served as
Director of Finance and Corporate Controller of EDiX Corporation, a healthcare
information technology company, from July 1995 until September 1997. From
September 1993 to July 1995, he was a student at the Stanford University
Graduate School of Business. Mr. Rodriguez is a certified public accountant and
received his B.S. in Accounting from the University of Southern California and
his M.B.A. from Stanford University.
C. Ian Sym-Smith has served as Chairman of the board of directors of
Tickets.com since 1996. Mr. Sym-Smith has been an independent investor and has
been a special limited partner of Ventana Global and several affiliated
investment funds since May 1994. From 1988 to May 1994, Mr. Sym-Smith served as
Chairman of the Board of Rural/Metro Corporation, a publicly held emergency
service company. Mr. Sym-Smith received his diploma in electrical engineering
from the College of Technology in Birmingham, England and an M.B.A. from the
Wharton School of the University of Pennsylvania.
George Bell has served as a director of Tickets.com since October 1999.
Since May 1999, Mr. Bell has served as President and a director of Excite@Home.
From January 1996 until May 1999, he was President, Chief Executive Officer and
a director of Excite, Inc. From May 1991 to December 1995, Mr. Bell was Senior
Vice President of Times Mirror Magazines, a publisher of special-interest
magazines. Prior to joining Times Mirror Magazines, Mr. Bell worked as an
independent producer, writer and packager of television sports and documentary
programming and as a staff producer and writer for the ABC television network.
He received a B.A. in English from Harvard College.
James A. Caccavo has served as a director of Tickets.com since May 1999.
From May 1999 to August 1999, Mr. Caccavo served as Executive Vice President and
President of Internet Operations of Tickets.com. Prior to the merger of
Tickets.com with California Tickets.com in May 1999, Mr. Caccavo served as
President and Chief Executive Officer of California Tickets.com since December
1997. Mr. Caccavo served as a Senior Vice President of Sullivan Communications,
Inc., a graphic arts services company, from August 1988 to November 1996. Mr.
Caccavo also served as the President of American Color, a digital imaging
company and a wholly owned subsidiary of Sullivan Communication from January
1994 to October 1996. In addition, from March 1995 to October 1996, Mr. Caccavo
also served as President of Digiscope, a computer-based motion picture special
effects company and a division of Sullivan Communications. Mr. Caccavo received
his B.S. in Economics and Finance from the University of Scranton.
Peter Chernin has served as a director of Tickets.com since August 1999.
Mr. Chernin has been a Director and President and Chief Operating Officer of Fox
Entertainment since August 1998. Mr. Chernin has been an Executive Director,
President and Chief Operating Officer of News Corporation and a director,
Chairman and Chief Executive Officer of NAI since 1996. Mr. Chernin was Chairman
and Chief Executive Officer of Fox Filmed Entertainment from 1994 until 1996,
Chairman of Twentieth Century Fox Film from 1992 until 1994 and President of the
Fox Entertainment Group of Fox Broadcasting Company from 1989 until 1992. Mr.
Chernin also served as a director of T.V. Guide, Inc. and currently serves as a
director of E*TRADE Group, Inc. Mr. Chernin received a B.A. from the University
of California at Berkeley.
Christos M. Cotsakos has served as a director of Tickets.com since May
1999. Mr. Cotsakos has served as Chief Executive Officer of the E*TRADE Group,
Inc., an online financial services company, since March 1996. Currently, he also
serves as the Chairman of the Board of E*TRADE. In addition, Mr. Cotsakos served
as E*TRADE's President from March 1996 to January of 1999. Prior to joining
E*TRADE, he served as President, Co-Chief Executive Officer, Chief Operating
Officer and a director of A.C. Nielsen, Inc. from
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March 1995 to January 1996, as President and Chief Operating Officer of Nielsen
International from September 1993 to March 1995, and as President and Chief
Operating Officer of Nielsen Europe, Middle East and Africa from March 1992 to
September 1993. Mr. Cotsakos serves as a director of National Processing
Company, Critical Path and Fox Entertainment Group. He also serves as a director
of E*OFFERING Corp., one of the underwriters in this offering. Mr. Cotsakos
received a B.A. from William Paterson College, an M.B.A. from Pepperdine
University and is currently pursuing a Ph.D. in economics at the Management
School, University of London.
William E. Ford has served as a director of Tickets.com since May 1998. Mr.
Ford has served as a managing member of General Atlantic Partners, LLC or its
predecessor, a private equity firm that invests globally in software, Internet
services and related information technology companies, since 1991. Mr. Ford also
serves as a director of GT Interactive Software Corp., Quintiles Transnational
Corp., LHS Group Inc., E*TRADE Group, Inc., Eclipsys Corporation, Priceline.com
Incorporated, and several private information technology companies. Mr. Ford
received his B.A. in Economics from Amherst College and his M.B.A. from Stanford
University.
Howard L. Morgan has served as a director of Tickets.com since the merger
of the company with California Tickets.com in May 1999. Dr. Morgan has served as
General Partner of bill gross' idealab! corporation, an incubator of Internet
and e-commerce companies, since January 1999. Since 1989, Dr. Morgan has also
been President of Arca Group, Inc., a consulting and investment management firm
specializing in the areas of computer and communications technologies. Dr.
Morgan was Professor of Decision Sciences at the Wharton School of the
University of Pennsylvania from 1972 through 1986. He serves as a director for a
number of public companies, including Cylink Corp., Franklin Electronic
Publishers, Inc., Infonautics Corporation, Kentek Information Systems, Inc.,
MetaCreations Corporation, MyPoints.com, Inc., Segue Software, Inc. and
Unitronix Corp. Dr. Morgan holds a B.S. from City College of New York and a
Ph.D. from Cornell University.
Janice L. Richter served as a director of Tickets.com from May 1996 through
April 1998 and was re-appointed to the Board in August 1999. Ms. Richter has
served as counsel to the law firm of Fellheimer, Braverman & Kaskey since July
1997. Ms. Richter, who specializes in commercial litigation is a member of the
New Jersey and Pennsylvania Bars. Ms. Richter is a shareholder of R4 Holdings,
LLC, a venture capital firm, and serves on a number of non-profit boards
including Philadelphia Health Care Trust, the College of New Jersey Foundation,
and the Coriell Institute for Medical Research. Ms. Richter received her B.S.N.
from the Trenton State College and her J.D. from Rutgers University School of
Law at Camden.
Nicholas E. Sinacori has served as a director of Tickets.com since
September 1997. Mr. Sinacori has been a Managing Partner of International
Capital Partners, Inc., a private equities investment firm since June 1989. Mr.
Sinacori also serves on the board of directors of Arrow Corporation, Shared
Technologies Cellular, Inc., Cambric, Inc., Ralin, Inc., and Beverage Marketing
Technologies, Inc. Mr. Sinacori received his B.S. in Operations Research and his
M.B.A. in finance, both from Columbia University.
All executive officers are appointed annually by and serve at the
discretion of the Board.
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CLASSIFIED BOARD
Tickets.com's certificate of incorporation provides that the Board of
Directors will be divided into three classes. The term of office of directors
assigned to Class I will expire at the annual meeting of stockholders in 2000
and at each third succeeding annual meeting after that. The term of office of
directors assigned to Class II will expire at the annual meeting of stockholders
in 2001 and at each third succeeding annual meeting after that. The term of
office of directors assigned to Class III will expire at the annual meeting of
stockholders in 2002 and at each third succeeding annual meeting after that. As
of the date of this prospectus, none of our directors had been assigned to a
class. All directors will be assigned to a class prior to the consummation of
this offering.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Finance Committee and a Personnel
and Compensation Committee ("Compensation Committee"). The functions of the
Finance Committee include recommending to the Board of Directors the selection
and retention of independent auditors, reviewing the scope of the annual audit
undertaken by Tickets.com independent auditors and the progress and results of
their work, and reviewing the financial statements and internal accounting and
auditing procedures. The functions of the Compensation Committee include
establishing the compensation of the Chief Executive Officer, reviewing and
approving executive compensation policies and practices, reviewing salaries and
bonuses for executive officers, and considering such other matters as may, from
time to time, be delegated to the Compensation Committee by the Board of
Directors.
The Board of Directors has established a Pricing Committee. The functions
of the Pricing Committee include recommending the underwriters for our initial
public offering and approving the price at which our common stock will be
offered. The Pricing Committee consists of Nicholas E. Sinacori, C. Ian
Sym-Smith, William E. Ford and Howard L. Morgan.
EXECUTIVE COMPENSATION
Summary of Cash and Other Executive Compensation
The following table sets forth the aggregate compensation earned by the
President and Chief Executive Officer of Tickets.com and each of the other three
most highly compensated executive officers of Tickets.com (the "Named Executive
Officers") for services rendered in all capacities for the year ended December
31, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Securities
Underlying All Other
Name and Principal Position Salary($) Options(#) Compensation($)
--------------------------- --------- ------------ ---------------
<S> <C> <C> <C>
W. Thomas Gimple
President and Chief Executive Officer............. $268,431 600,000 $1,830(a)
Thomas R. Pascoe
EVP and Chief Operating Officer................... 194,615 158,333 --
John M. Markovich
EVP and Chief Financial Officer................... 177,596 358,333 --
Andrew B. Dolich(b)
EVP, Sports Marketing............................. 180,769 200,000 --
</TABLE>
- ---------------
(a) Represents life insurance premiums paid by Tickets.com.
(b) Due to changes in organizational structure of Tickets.com, Mr. Dolich will
not be deemed to be a named executive officer in 1999.
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Option Grants
The following table sets forth certain information concerning grants of
options to the Named Executive Officers of Tickets.com during the year ended
December 31, 1998. No stock appreciation rights were granted to the Named
Executive Officers during 1998.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBERS OF % OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM($)(C)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------------
NAME GRANTED(#)(A) FISCAL YEAR SHARE($)(B) DATE 5% 10%
---- ------------- -------------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
W. Thomas Gimple..... 600,000 24.86 $3.38 9/14/2008 $7,818,694 $12,449,964
Thomas R. Pascoe..... 158,333 6.56 3.38 9/14/2008 2,063,262 3,285,400
John M. Markovich.... 200,000 8.29 2.25 1/30/2008 2,606,231 4,149,988
158,333 6.56 3.38 9/14/2008 2,063,262 3,285,400
Andrew B. Dolich..... 200,000 8.29 2.25 2/09/2008 2,606,231 4,149,988
</TABLE>
- ---------------
(a) All of such options were granted under the Tickets.com 1997 and 1998 Stock
Option Plan and 1998 Stock Incentive Plan for a term of 10 years, subject
to the earlier termination in connection with events related to termination
of employment. To the extent not already exercisable, the options generally
become exercisable upon a sale of assets, a merger or consolidation of
Tickets.com with or into another corporation, or the acquisition by another
corporation or person of all or substantially all of Tickets.com's assets
or 50% or more of Tickets.com's outstanding voting stock, unless the
options assumed are replaced with a comparable option of the surviving
entity. However, the options granted to Messrs. Gimple and Markovich will
vest immediately upon such an acquisition, whether or not assumed or
otherwise continued in effect. If the options granted to Messrs. Pascoe and
Dolich are assumed or otherwise continued in effect, those options will not
vest at the time of the acquisition, but will vest as to all the unvested
option shares upon the earlier of (i) completion of 24 months of employment
following the effective date of the acquisition or (ii) the involuntary
termination of the optionee's employment following such acquisition. All of
the options granted to Mr. Pascoe, Mr. Markovich and Mr. Dolich and options
to acquire 493,333 shares granted Mr. Gimple vest in equal quarterly
installments over four years. Mr. Gimple's remaining options to acquire
111,111 shares vest on September 14, 2004. Upon an involuntary termination
of a Named Executive Officer's employment or a resignation for good reason,
his options will immediately vest as to 50% of the unvested option shares.
(b) All options were granted at the fair market value of the common stock on
the date of grant, as determined by the Board of Directors.
(c) Sets forth potential option gains based on assumed annualized rates of
stock price appreciation from the assumed initial public offering price of
$8.00 per share of 5.0% and 10.0% (compounded annually) over the full term
of the grant with appreciation determined as of the expiration date. The
5.0% and 10.0% assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission, and do not represent Tickets.com's
estimate or projection of future common stock prices.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information regarding option exercises by
the Named Executive Officers during the fiscal year 1998 and held by them on
December 31, 1998:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL YEAR THE-MONEY OPTIONS AT
SHARES END(#) FISCAL YEAR END($)(A)
ACQUIRED ON VALUE ----------------------- -------------------------
NAME EXERCISE(#) REALIZED($) VESTED UNVESTED VESTED UNVESTED
---- ----------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
W. Thomas Gimple............. -- -- 275,000 1,125,000 $515,000 $925,000
Thomas R. Pascoe............. -- -- 73,784 306,771 119,875 226,125
John M. Markovich............ -- -- 47,396 310,938 42,188 182,813
Andrew B. Dolich............. -- -- 37,500 162,500 42,188 182,813
</TABLE>
- ---------------
(a) Represents the difference between the fair market value of the shares
underlying such option at fiscal year-end ($3.375 per share, as determined
by the Board of Directors) and the exercise price of such option.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors established the Compensation Committee in December
1997. The Compensation Committee consists of Mr. Ford, Mr. Sym-Smith and Mr.
Cotsakos. Material transactions between Tickets.com and the members of the
Compensation Committee are as set forth under "Related Party Transactions."
Tickets.com currently intends that any future transactions with affiliates of
Tickets.com will be on terms at least as favorable to Tickets.com as those that
can be obtained from nonaffiliated third parties.
PERFORMANCE OPTIONS
On April 29, 1999, Tickets.com granted to Mr. Gimple an option to purchase
666,667 shares of common stock at an exercise price of $6.19 per share. On that
date we also granted options to each of Messrs. Markovich and Pascoe to purchase
171,111 shares at an exercise price of $6.19 per share. On May 17, 1999, we
granted to Mr. Caccavo an option to purchase 333,333 shares at an exercise price
of $7.31 per share. Upon his resignation from Tickets.com on August 13, 1999,
the vesting of 66,667 of these option shares was accelerated so that they were
immediately vested, and the remaining 266,666 unvested option shares were
cancelled. We have designated each of these options Performance Options. All of
the Performance Options, other than the 66,667 vested performance options held
by Mr. Caccavo, are exercisable on the sixth anniversary of the date of grant,
but vest on an accelerated basis as follows:
- 20% will be exercisable upon closing of this offering if the public
offering price on the cover of this prospectus exceeds $11.25 per share.
- 40% will be exercisable if the closing price of our common stock is over
$22.50 per share for 20 consecutive trading days at any time after
January 1, 2000; and
- 40% will be exercisable if the closing price of our common stock is over
$28.13 per share for 20 consecutive trading days at any time after June
30, 2000.
On August 13, 1999, in accordance with the separation agreement between us
and Mr. Caccavo, his option to purchase 266,666 shares was cancelled. His
remaining option to purchase 66,667 shares is currently exercisable.
The Performance Options will also become exercisable upon an acquisition of
Tickets.com to the extent that the price per share to our stockholders exceeds
each of these share price thresholds.
OPTIONS GRANTED UNDER THE SPECIAL EXECUTIVE STOCK OPTION PLAN
On September 16, 1999, Tickets.com granted an option under the Special
Executive Stock Option Plan to purchase 222,222 shares of common stock to Mr.
Gimple, 244,444 shares of common stock to Mr. Kelly and 133,333 shares of common
stock to each of Messrs. Markovich, Pascoe and Afrasiabi. All of these options
have an exercise price of $9.00 per share and, other than options to purchase
48,888 shares granted to Mr. Kelly which vested immediately, vest in equal
quarterly installments over a four year period. To the extent not already
exercisable, these options generally become fully exercisable upon a sale of
assets, a merger or consolidation of Tickets.com with or into another
corporation, or the acquisition by another corporation or person of all or
substantially all of Tickets.com's assets or 50% or more of Tickets.com's
outstanding voting stock, unless the options assumed are replaced with a
comparable option of the surviving entity. However, the options granted to
Messrs. Gimple and Markovich will vest immediately upon such an acquisition,
whether or not assumed or otherwise continued in effect. If the options granted
to Messrs. Pascoe or Kelly are assumed or otherwise continued in effect, those
options will not vest at the time of acquisition, but will vest as to all the
unvested option shares upon the earlier of (1) completion of 24 months of
employment following the effective date of the acquisition or (2) the
involuntary termination of the optionee's employment following such acquisition.
If the option granted to Mr. Afrasiabi is assumed or otherwise continues in
effect, the option will not vest at the time of the acquisition, but will vest
as to 50% of the unvested option shares upon the earlier of (1) completion of 24
months of employment following the effective date of the acquisition or (2) the
involuntary termination of the optionee's employment following such acquisition.
Upon an involuntary
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termination of these individuals' employment or a resignation for good reason,
their respective options will immediately vest as to 50% of the unvested option
shares.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
In October 1998, Tickets.com and Messrs. Gimple, Markovich, Pascoe and
Dolich entered into employment agreements. In April 1999, Tickets.com entered
into new employment agreements with Messrs. Gimple, Markovich and Pascoe that
continue in effect for six years plus any extensions or renewals. These
agreements provide Mr. Gimple with a base salary of $275,000, and each of
Messrs. Markovich, Pascoe and Dolich with a base salary of $200,000. In
addition, each agreement provides other benefits during its term and upon the
termination of the employment of the executive. If Tickets.com terminates the
executive's employment without cause, or if the executive terminates his
employment voluntarily for good reason, then Mr. Gimple is entitled to nine
months of salary and immediate vesting of 50% of all unvested options other than
the Performance Options and Messrs. Markovich, Pascoe and Dolich are entitled to
six months of salary and immediate vesting of 50% of all unvested options, other
than the Performance Options. Messrs. Gimple's and Markovich's employment
agreements provide for immediate vesting of all unvested options, other than the
Performance Options, as defined in their respective agreements following a
change in control or corporate transaction. All unvested options of Messrs.
Pascoe and Dolich will vest 12 months following a change in control or corporate
transaction or immediately if their employment is terminated without cause or
they terminate their employment voluntarily for good reason within 24 months
following a change of control or corporate transaction. If within 24 months
following a change in control or corporate transaction, Tickets.com terminates
the employment of the executive without cause or the executive terminates his
employment voluntarily for good reason, then Mr. Gimple is entitled to 18 months
of salary and Messrs. Markovich, Pascoe and Dolich are entitled to 12 months of
salary. The employment agreements also include provisions regarding the
protection of confidential information of Tickets.com, non-competition with
Tickets.com, non-solicitation of other employees of Tickets.com and
indemnification of the executives by Tickets.com.
In August 1999, Mr. Caccavo resigned from his position as Executive Vice
President of Internet Operations of Tickets.com. Pursuant to a Separation
Agreement dated August 9, 1999 between Tickets.com and Mr. Caccavo, Mr. Caccavo
will receive his regular base salary and health insurance coverage from
Tickets.com through February 13, 2000. Tickets.com also agreed to pay Mr.
Caccavo a one time lump sum payment of $125,000 and to pay some of his
relocation expenses. In addition, Mr. Caccavo will retain 66,667 of his
Performance Options, which are fully vested.
DIRECTOR COMPENSATION
Tickets.com reimburses its directors for all reasonable and necessary
travel and other incidental expenses incurred in connection with their
attendance at meetings of the board. Directors currently receive no cash
compensation for serving on the board. However, in December 1997, each
non-employee board member serving on the board received an option to purchase
11,111 shares of common stock at an exercise price of $2.25 per share, and such
options are fully exercisable and terminate on December 22, 2007. In May 1999,
Mr. Cotsakos was granted an option to purchase 11,111 shares of common stock at
exercise price of $7.31 per share and a warrant to purchase 77,778 shares of
common stock at an exercise price of $7.31 per share upon joining the board of
directors. In addition, in May 1999, Messrs. Ford and Morgan were each granted
options to purchase an aggregate of 11,111 shares at an exercise price of $7.31
per share. Mr. Ford's options were fully vested upon grant, and Mr. Morgan's
options will vest in full after one year. In August 1999, Mr. Chernin was
granted an option to purchase 11,111 shares of common stock at an exercise price
of $9.00 per share upon joining the Board of Directors. Under our 1999 Stock
Incentive Plan, each new non-employee director typically will receive an option
to purchase 13,333 shares of common stock upon joining the board of directors.
Each incumbent director will be granted an option to purchase an additional
4,444 shares of common stock annually which will be fully exercisable upon
grant. See "Management -- Benefit Plans" for a description of our 1999 Stock
Incentive Plan.
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BENEFIT PLANS
1999 Stock Incentive Plan
Introduction
The 1999 Stock Incentive Plan is intended to serve as the successor program
to our Special Executive Stock Option Plan, 1998 Stock Incentive Plan, 1997
Stock Option Plan, 1996 Stock Option Plan and 1997 Non-Employee Director's
Option Plan. The 1999 Stock Incentive Plan was adopted by the board on May 26,
1999 and is subject to stockholder approval. The 1999 Stock Incentive Plan will
become effective when the underwriting agreement for this offering is signed. At
that time, all outstanding options granted under our Special Executive Stock
Option Plan, 1998 plan, 1997 plan, 1996 plan and the directors' plan will be
transferred to the 1999 Stock Incentive Plan, and no further option grants will
be made under these predecessor plans. The transferred options will continue to
be governed by their existing terms, unless our personnel and compensation
committee decides to extend one or more features of the 1999 Stock Incentive
Plan to those options. Except as otherwise noted below, the transferred options
have substantially the same terms as will be in effect for grants made under the
discretionary option grant program of our 1999 Stock Incentive Plan.
Share Reserve
10,506,391 shares of our common stock have been authorized for issuance
under the 1999 Stock Incentive Plan. This share reserve consists of the number
of shares we estimate will be carried over from the Special Executive Stock
Option Plan, 1998 plan, 1997 plan, 1996 plan and directors' plan plus an
additional increase of approximately 1,066,667 shares. The share reserve under
our 1999 Stock Incentive Plan will automatically increase on the first trading
day in January each year, beginning with calendar year 2000, by an amount equal
to 3.5% of the total number of shares of our common stock outstanding on the
last trading day of December in the prior year, but in no event will this annual
increase exceed 2,222,222 shares. In addition, no participant in the 1999 Stock
Incentive Plan may be granted stock options or direct stock issuances for more
than 444,444 shares of common stock in total in any calendar year.
Programs
Our 1999 Stock Incentive Plan has five separate programs:
- the discretionary option grant program, under which eligible individuals
in our employ may be granted options to purchase shares of our common
stock at an exercise price not less than the fair market value of those
shares on the grant date;
- the stock issuance program, under which eligible individuals may be
issued shares of common stock which will vest upon the attainment of
performance milestones or upon the completion of a period of service or
which are fully vested at issuance as a bonus for past services;
- the salary investment option grant program, under which our executive
officers and other highly compensated employees may be given the
opportunity to apply a portion of their base salary to the acquisition of
special below market stock option grants;
- the automatic option grant program, under which option grants will
automatically be made at periodic intervals to eligible non-employee
board members to purchase shares of common stock at an exercise price
equal to the fair market value of those shares on the grant date; and
- the director fee option grant program, under which our non-employee board
members may be given the opportunity to apply a portion of any retainer
fee otherwise payable to them in cash for the year to the acquisition of
special below-market option grants.
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Eligibility
The individuals eligible to participate in our 1999 Stock Incentive Plan
include our officers and other employees, our board members and any consultants
we hire.
Administration
The discretionary option grant and stock issuance programs will be
administered by our personnel and compensation committee. This committee will
determine which eligible individuals are to receive option grants or stock
issuances under those programs, the time or times when the grants or issuances
are to be made, the number of shares subject to each grant or issuance, the
status of any granted option as either an incentive stock option or a
nonstatutory stock option under the federal tax laws, the vesting schedule to be
in effect for the option grant or stock issuance and the maximum term for which
any granted option is to remain outstanding. The compensation committee will
also have the authority to select the executive officers and other highly
compensated employees who may participate in the salary investment option grant
program in the event that program is put into effect for one or more calendar
years.
Plan Features
Our 1999 Stock Incentive Plan will include the following features:
- The exercise price for any options granted under the plan may be paid in
cash or in shares of our common stock valued at fair market value on the
exercise date. The option may also be exercised through a same-day sale
program without any cash outlay by the optionee.
- The personnel and compensation committee will have the authority to
cancel outstanding options under the discretionary option grant program,
including any transferred options from our Special Executive Stock Option
Plan, 1998 plan, 1997 plan, 1996 plan or directors' plan, in return for
the grant of new options for the same or different number of option
shares with an exercise price per share based upon the fair market value
of our common stock on the new grant date.
- Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. No stock appreciation rights are
outstanding under our Special Executive Stock Option Plan, 1998 plan,
1997 plan, 1996 plan or directors' plan.
Change in Control
The 1999 Stock Incentive Plan will include the following change in control
provisions which may result in the accelerated vesting of outstanding option
grants and stock issuances:
- In the event that we are acquired by merger or asset sale, each
outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation will immediately become
exercisable for all the option shares, and all outstanding unvested
shares will immediately vest, except to the extent our repurchase rights
with respect to those shares are to be assigned to the successor
corporation.
- The personnel and compensation committee will have complete discretion to
grant one or more options which will become exercisable for all the
option shares in the event those options are assumed in the acquisition
but the optionee's service with us or the acquiring entity is
subsequently terminated. The vesting of any outstanding shares under our
1999 Stock Incentive Plan may be accelerated upon similar terms and
conditions.
- The personnel and compensation committee may grant options and structure
repurchase rights so that the shares subject to those options or
repurchase rights will immediately vest in connection with a successful
tender offer for more than 50% of our outstanding voting stock or a
change in the majority of
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our board through one or more contested elections. Such accelerated
vesting may occur either at the time of such transaction or upon the
subsequent termination of the individual's service.
- The options currently outstanding under our Special Executive Stock
Option Plan, 1998 plan, 1997 plan, 1996 plan and director's plan will
generally vest immediately in the event we are acquired by merger or
asset sale or in the event there is a change in control resulting from a
successful tender offer for more than 50% of our outstanding common stock
or a change in the majority of our board through one or more contested
elections, unless those options are assumed by the successor company or
otherwise continued in effect. However, a number of options outstanding
under those plans have special acceleration provisions. Some of those
options will vest immediately upon the acquisition or change in control,
whether or not the options are assumed or otherwise continued in effect.
Other options which do not vest at the time of the acquisition or change
in control because they are assumed or otherwise continued in effect will
subsequently vest as to all of the unvested option shares or as to 50% of
those unvested option shares upon the optionee's completion of 24 months
of employment following the effective date of the acquisition or change
in control or, if earlier, upon the involuntary termination of the
optionee's employment following the acquisition or change in control.
Salary Investment Option Grant Program
In the event the personnel and compensation committee decides to put this
program into effect for one or more calendar years, each of our executive
officers and other highly compensated employees may elect to reduce his or her
base salary for the calendar year by an amount not less than $10,000 nor more
than $50,000. Each selected individual who makes such an election will
automatically be granted, on the first trading day in January of the calendar
year for which his or her salary reduction is to be in effect, an option to
purchase that number of shares of common stock determined by dividing the salary
reduction amount by two-thirds of the fair market value per share of our common
stock on the grant date. The option will have an exercise price per share equal
to one-third of the fair market value of the option shares on the grant date. As
a result, the option will be structured so that the fair market value of the
option shares on the grant date less the exercise price payable for those shares
will be equal to the amount of the salary reduction. The option will become
exercisable in a series of twelve equal monthly installments over the calendar
year for which the salary reduction is to be in effect.
Automatic Option Grant Program
Each individual who first becomes a non-employee board member at any time
after the effective date of this offering will receive an option grant for
13,333 shares of common stock on the date such individual joins the board. In
addition, on the date of each annual stockholders meeting held after the
effective date of this offering, each non-employee board member who is to
continue to serve as a non-employee board member, including each of our current
non-employee board members, will automatically be granted an option to purchase
4,444 shares of common stock, provided such individual has served on the board
for at least six months.
Each automatic grant will have an exercise price per share equal to the
fair market value per share of our common stock on the grant date and will have
a term of 10 years, subject to earlier termination following the optionee's
cessation of board service. The option will be immediately exercisable for all
of the option shares; however, we may repurchase, at the exercise price paid per
share, any shares purchased under the option which are not vested at the time of
the optionee's cessation of board service. The shares subject to each annual
automatic grant will be fully vested when granted. The shares subject to each
initial 13,333-share automatic option grant will vest in a series of three
successive equal monthly installments upon the optionee's completion of each
year of board service over the three year period measured from the grant date.
However, the shares will immediately vest in full upon certain changes in
control or ownership or upon the optionee's death or disability while a board
member.
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Director Fee Option Grant Program
If this program is put into effect in the future, then each non-employee
board member may elect to apply all or a portion of any cash retainer fee for
the year to the acquisition of a below-market option grant. The option grant
will automatically be made on the first trading day in January in the year for
which the non-employee board member would otherwise be paid the cash retainer
fee in the absence of his or her election. The option will have an exercise
price per share equal to one-third of the fair market value of the option shares
on the grant date, and the number of shares subject to the option will be
determined by dividing the amount of the retainer fee applied to the program by
two-thirds of the fair market value per share of our common stock on the grant
date. As a result, the option will be structured so that the fair market value
of the option shares on the grant date less the exercise price payable for those
shares will be equal to the portion of the retainer fee applied to that option.
The option will become exercisable in a series of twelve equal monthly
installments over the calendar year for which the election is in effect.
However, the option will become immediately exercisable for all the option
shares upon the death or disability of the optionee while serving as a board
member.
Additional Program Features
Our 1999 Stock Incentive Plan will also have the following features:
- Outstanding options under the salary investment and director fee option
grant programs will immediately vest if we are acquired by a merger or
asset sale or if there is a successful tender offer for more than 50% of
our outstanding voting stock or a change in the majority of our board
through one or more contested elections.
- Limited stock appreciation rights will automatically be included as part
of each grant made under the salary investment option grant program and
the automatic and director fee option grant programs, and these rights
may also be granted to one or more officers as part of their option
grants under the discretionary option grant program. Options with this
feature may be surrendered to us upon the successful completion of a
hostile tender offer for more than 50% of our outstanding voting stock.
In return for the surrendered option, the optionee will be entitled to a
cash distribution from us in an amount per surrendered option share based
upon the highest price per share of our common stock paid in that tender
offer.
- The board may amend or modify the 1999 Stock Incentive Plan at any time,
subject to any required stockholder approval. The 1999 Stock Incentive
Plan will terminate no later than May 23, 2009.
1999 EMPLOYEE STOCK PURCHASE PLAN
Introduction
Our 1999 Employee Stock Purchase Plan was adopted by the board in May 1999
and approved by the stockholders in August 1999. The plan will become effective
immediately upon the signing of the underwriting agreement for this offering.
The plan is designed to allow our eligible employees and the eligible employees
our participating subsidiaries to purchase shares of common stock, at
semi-annual intervals, with their accumulated payroll deductions.
Share Reserve
666,667 shares of our common stock will initially be reserved for issuance.
The reserve will automatically increase on the first trading day in January each
year, beginning in calendar year 2000, by an amount equal to 1% of the total
number of outstanding shares of our common stock on the last trading day in
December in the prior year. In no event will any such annual increase exceed
666,667 shares.
Offering Periods
The plan will have a series of successive offering periods, each with a
maximum duration of 24 months. The initial offering period will start on the
date the underwriting agreement for this offering is signed and will
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end on the last business day in July 2001. The next offering period will start
on the first business day in August 2001, and subsequent offering periods will
be set by our compensation committee.
Eligible Employees
Individuals scheduled to work more than 20 hours per week for more than
five calendar months per year may join an offering period on the start date or
any semi-annual entry date within that period. Semi-annual entry dates will
occur on the first business day of February and August each year. Individuals
who become eligible employees after the start date of an offering period may
join the plan on any subsequent semi-annual entry date within that offering
period.
Payroll Deductions
A participant may contribute up to 10% of his or her cash earnings through
payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on each semi-annual purchase date. The purchase price per
share will be equal to 85% of the fair market value per share on the
participant's entry date into the offering period or, if lower, 85% of the fair
market value per share on the semi-annual purchase date. Semi-annual purchase
dates will occur on the last business day of January and July each year. In no
event, however, may any participant purchase more than 533 shares on any
purchase date, and not more than 266,667 shares may be purchased in total by all
participants on any purchase date.
Reset Feature
If the fair market value per share of our common stock on any purchase date
is less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day. All
participants in the terminated offering will be transferred to the new offering
period.
Change in Control
Should we be acquired by merger or sale of substantially all of our assets
or more than 50% of our voting securities, then all outstanding purchase rights
will automatically be exercised immediately prior to the effective date of the
acquisition. The purchase price will be equal to 85% of the market value per
share on the participant's entry date into the offering period in which an
acquisition occurs or, if lower, 85% of the fair market value per share
immediately prior to the acquisition.
Plan Provisions
The plan will terminate no later than the last business day of July 2009.
In addition, the board may at any time amend, suspend or discontinue the plan.
Certain amendments may require stockholder approval.
401(k) Plan
In 1996, we established an employee savings and retirement plan covering
all of our employees. Pursuant to our 401(k) Plan, employees who have attained
age 21 and have one month of service with Tickets.com may elect to reduce their
current compensation by up to 15% of compensation, which will not exceed the
annual limit prescribed by statute of $10,000 in 1999, and contribute the amount
of such reduction to the 401(k) Plan. The 401(k) Plan allows for matching
contributions to the 401(k) Plan by us, such matching and the amount of such
matching to be determined at the sole discretion of the Board of Directors. To
date, no such matching contributions have been made with respect to the 401(k)
Plan. The trustee under the 401(k) Plan, at the direction of each participant,
invests the assets of the 401(k) Plan in various investment options.
Participants may obtain a 401(k) Plan distribution upon termination of
employment, at age 65 or upon financial hardship. Distributions can be made in
one lump sum payment or in installments. Loans are available to participants
from the 401(k) Plan. The 401(k) Plan is intended to qualify under Section 401
of the Code so that contributions by employees to the 401(k) Plan, and income
earned on plan contributions, are not taxable until withdrawn, and so that the
contributions by employees will be deductible by Tickets.com when made.
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RELATED PARTY TRANSACTIONS
EQUITY TRANSACTIONS
In May 1996, Tickets.com sold 3,555,555 shares of its common stock to R4
Holdings, LLC, at a purchase price of $.000225 per share for the purpose of
issuing shares to the founders of Tickets.com. Ms. Janice Richter, a director of
Tickets.com, together with members of her immediate family, owns all of the
membership interests in R4 Holdings, LLC.
In May 1996, Tickets.com sold 555,555 shares of its common stock to Ventana
Express, LLC at a purchase price of $.0225 per share to raise working capital
and for other general corporate purposes. Mr. C. Ian Sym-Smith, a director of
Tickets.com, is a non-managing member of Ventana Express, LLC.
In May 1996, Tickets.com issued warrants to purchase up to 844,444 shares
of its common stock to Ventana Express, LLC in consideration for services
rendered in connection with organization matters and the sale of shares of
preferred stock to a group of investors. In August 1998 and in April 1999,
Ventana exercised its warrants and purchased 400,000 shares and 442,222 shares,
respectively, of Tickets.com's common stock for an aggregate purchase price of
$19,000 or $.0225 per share. Mr. Sym-Smith, a director of Tickets.com, is a
non-managing member of Ventana Express, LLC.
In September 1997, Tickets.com issued a warrant to purchase up to 177,778
shares of its common stock to International Capital Partners, Inc., in
consideration for services rendered by International Capital Partners in
connection with the sale of shares of preferred stock of Tickets.com to a group
of investors. In November 1997, International Capital Partners exercised its
warrant and purchased 177,778 shares of Tickets.com's common stock for an
aggregate purchase price of $4,000 or $.0225 per share. Mr. Nicholas E.
Sinacori, a director of Tickets.com, is a managing partner of International
Capital Partners.
In May 1998, Tickets.com sold an aggregate of 11,597,114 shares of its
Series C preferred stock to a group of investors for an aggregate purchase price
of approximately $20.3 million or $1.75 per share to raise working capital and
for other general corporate purposes. Of such shares, an aggregate of 11,428,572
shares were sold to affiliates of General Atlantic. The shares of Series C
preferred stock held by affiliates of General Atlantic will automatically
convert into an aggregate of 5,079,365 shares of common stock upon completion of
this offering. Affiliates of General Atlantic own in excess of five percent of
the outstanding capital stock of Tickets.com. Mr. William E. Ford, a director of
Tickets.com, is a managing member of General Atlantic Partners, LLC.
In March 1999, Tickets.com sold an aggregate of 9,477,655 shares of its
Series D preferred stock to a group of investors for an aggregate purchase price
of approximately $21.3 million or $2.25 per share. Of such shares, an aggregate
of 7,616,489 shares were sold to affiliates of General Atlantic. The shares of
Series D preferred stock held by affiliates of General Atlantic will
automatically convert into an aggregate of 3,385,106 shares of common stock upon
completion of this offering. Affiliates of General Atlantic own in excess of
five percent of the outstanding capital stock of Tickets.com. Mr. Ford, a
director of Tickets.com, is a managing member of General Atlantic Partners, LLC.
In May 1999, Tickets.com sold an aggregate of 3,855,680 shares of its
Series D preferred stock to a group of investors comprised of former
stockholders of California Tickets.com for an aggregate purchase price of
approximately $8.7 million or $2.25 per share. Of such shares an aggregate of
1,308,288 shares were sold to affiliates of idealab! The shares of Series D
preferred stock held by affiliates of idealab! are automatically convertible
into an aggregate of 581,461 shares of common stock upon completion of this
offering. Affiliates of idealab! own in excess of five percent of the
outstanding capital stock of Tickets.com. Mr. Howard L. Morgan, a director of
Tickets.com, is a General Partner of idealab!.
In August 1999, Tickets.com sold an aggregate of 3,333,332 shares of its
Series E preferred stock to Excite and Cox Interactive for an aggregate purchase
price of approximately $30.0 million or $9.00 per share pursuant to a stock
purchase agreement. Of such shares, 1,666,666 shares were sold to Excite and
1,666,666 shares were sold to Cox Interactive. In October 1999, Excite and Cox
Interactive purchased an aggregate of 6,111,114 additional shares of Series E
preferred stock from Tickets.com for an aggregate purchase price of
approximately $55.0 million or $9.00 per share. Of such shares, 4,444,446 shares
were sold to Excite and
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1,666,668 shares were sold to Cox Interactive. Each share of our Series E
preferred stock is convertible into .4444 of a share of common stock, provided
that the initial public offering price is $20.25 per share or greater. If the
initial public offering price is less than $20.25 per share, then each share of
Series E preferred stock will convert into a greater number of shares of our
common stock. Assuming an initial public offering price of $8.00 per share, each
share of Series E preferred stock will convert into approximately 1.125 shares
of our common stock. The actual number of shares of common stock to be issued
upon conversion of Series E Preferred Stock may be adjusted based upon the
initial public offering price.
ACQUISITIONS
In May 1996, Tickets.com entered into an asset purchase agreement with Hill
Arts and Entertainment Systems, Inc. pursuant to which it acquired substantially
all of the assets and assumed certain liabilities of Hill Arts & Entertainment
in exchange for a $3,000,000 convertible promissory note. The note bears
interest at a rate of 8% per annum, compounded monthly. In November 1996, the
note was transferred by Hill Arts and Entertainment to Hill International, Inc.,
a Delaware corporation. During the first year following the issuance of the
note, interest on the note was payable in shares of common stock of Tickets.com
at a price of $1.10 per share or 225,848 shares. Thereafter, at the election of
Tickets.com, interest was payable in cash or in shares of common stock valued at
a price per share equal to $1.10 or, in the event that Tickets.com consummated a
private placement of shares of its capital stock, at the price per share at
which the stock was most recently sold in a private placement. In connection
with this offering, the unpaid principal on the note will be converted into an
aggregate of 808,080 shares of common stock at a price of $3.71 per share. Ms.
Richter, a director of Tickets.com and the beneficial owner of approximately
9.9% of the outstanding common stock of Tickets.com, together with members of
her immediate family, owns all of the capital stock of Hill International.
Effective April 1999, a wholly owned subsidiary of Tickets.com merged with
and into TicketsLive Corporation. In connection with this merger, the former
stockholders of TicketsLive exchanged all outstanding shares of capital stock of
TicketsLive in exchange for an aggregate of 5,195,779 shares of Tickets.com's
common stock. Of such shares of common stock, 2,356,338 were issued to the
founder of TicketsLive Corporation, Ms. Karen Long. In addition, in connection
with this merger, Tickets.com granted Ms. Long the right to register and sell
up to 444,444 of her shares of common stock in this offering. Ms. Long
currently owns in excess of five percent of the outstanding capital stock of
Tickets.com. In April 1999, Tickets.com entered into an employment agreement
with Ms. Long as Executive Vice President of TicketsLive and President of the
Select Technologies Group, for an annual base salary of $175,000, plus customary
benefits and an automobile allowance. The agreement terminates not later than
March 31, 2001. Also in April 1999, Tickets.com entered into an employment
agreement with Robert Long, Ms. Long's husband, as Chief Technology Officer of
TicketsLive, for an annual base salary of $175,000, plus outstanding benefits
and an automobile allowance. This agreement terminates not later than March 31,
2001.
Effective April 1999, a wholly owned subsidiary of Tickets.com merged with
and into California Tickets.com. In connection with this merger, the former
common stockholders of California Tickets.com exchanged all outstanding shares
of common stock of California Tickets.com for an aggregate of 3,928,386 shares
of Tickets.com's common stock. The former Series A preferred stockholders of
California Tickets.com exchanged all outstanding shares of California
Tickets.com Series A preferred stock of California Tickets.com for an aggregate
of 2,678,577 shares of Tickets.com's Series A1 preferred stock. The former
Series C preferred stockholders of California Tickets.com exchanged all
outstanding shares of California Tickets.com Series C preferred stock for an
aggregate of 5,782,241 shares of Tickets.com's Series C preferred stock. 142,857
shares of Tickets.com common stock were issued to Mr. James A. Caccavo, a
director of Tickets.com. 2,708,340 shares of Tickets.com's common stock and
1,976,835 shares of Tickets.com's Series C preferred stock were issued to
affiliates of Bill Gross' idealab!, who own in excess of five percent of the
outstanding capital stock of Tickets.com. In addition, Tickets.com assumed
options to purchase 634,922 shares of Tickets.com common stock held by Mr.
Caccavo.
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<PAGE> 90
OTHER TRANSACTIONS
Tickets.com has entered into employment agreements with four of its
executive officers as described in "Management -- Summary of Compensation."
In April 1998, Tickets.com entered into a promissory note and warrant
purchase agreement, pursuant to which it received an aggregate of $500,000 in
short term loans, and issued warrants to purchase an aggregate of 33,333 shares
of its common stock to a group of investors at a price of $3.94 per share. Under
this agreement, Tickets.com issued a promissory note in the amount of $100,000
and warrants to purchase 6,667 shares of common stock to each of International
Capital Partners and C. Ian Sym-Smith, a director of Tickets.com. Mr. Sinacori,
a director of Tickets.com, is a managing partner of International Capital
Partners. In addition, under the agreement, Tickets.com issued a promissory note
in the amount of $50,000 and warrants to purchase 3,333 shares of common stock
to Janice L. Richter, a director of Tickets.com.
In May 1999, we entered into a letter agreement with General Atlantic
Partners LLC. Under that letter agreement, General Atlantic agreed, subject to
certain conditions, that, in the event we reasonably require capital to enable
us to satisfy and discharge our liabilities as they become due, it will, through
its affiliates or with other participating stockholders who hold preemptive
rights under our Stockholders Agreement, purchase up to an aggregate of
5,333,334 shares of convertible preferred stock from us for an aggregate
purchase price of $12.0 million, or $2.25 per share. In order to induce General
Atlantic, its affiliates and the other participating stockholders to make this
capital commitment, Tickets.com agreed to issue a warrant to General Atlantic,
its affiliates and the other participating stockholders to purchase an aggregate
of up to 222,222 shares of our common stock at an exercise price of $5.06 per
share, in proportion to the respective participating stockholder's share of the
commitment. These warrants were issued in August 1999. Of these 222,222
warrants, 199,690 were issued to affiliates of General Atlantic, and 6,484 were
issued to affiliates of idealab!. The letter agreement will terminate upon the
earlier to occur of (1) the closing of this offering or (2) March 31, 2000.
Affiliates of General Atlantic and affiliates of idealab!, one of the
participating stockholders, each own in excess of five percent of the
outstanding capital stock of Tickets.com. Mr. William E. Ford, a director of
Tickets.com, is a managing member of General Atlantic Partners, LLC. Howard L.
Morgan, a director of Tickets.com, is a general partner of bill gross idealab!
corporation.
Tickets.com has granted registration rights to some stockholders and
warrant holders as described under "Description of Capital Stock -- Registration
Rights."
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<PAGE> 91
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to Tickets.com, with
respect to beneficial ownership of Tickets.com's common stock as of October 15,
1999 by (1) each stockholder known by Tickets.com to own beneficially more than
5% of Tickets.com's common stock, (2) each director of Tickets.com, (3)
Tickets.com's Chief Executive Officer and each of its other three most highly
compensated executive officers, and (4) all executive officers and directors as
a group. Unless otherwise indicated below, to the knowledge of Tickets.com, all
persons listed below have sole voting and investment power with respect to their
shares of common stock, except to the extent spouses share authority under
applicable law. The number of shares beneficially owned and percentage of shares
beneficially owned by each stockholder listed below are based on 44,863,149
shares of common stock outstanding as or October 15, 1999, assuming conversion
of all shares of preferred stock outstanding as of that date, and 60,904,649
shares of common stock outstanding upon the closing of this offering. 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. Shares of common stock options, warrants or convertible
debt that are currently exercisable or exercisable within 60 days of October 15,
1999 are deemed to be outstanding and to be beneficially owned by the person
holding such options, warrants or debt for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
-------------------------- SHARES SOLD --------------------------
NAME OF BENEFICIAL OWNER(A) NUMBER PERCENT IN OFFERING NUMBER PERCENT
--------------------------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
William E. Ford(b)................... 8,576,506 19.0% -- 8,576,506 14.0%
Howard L. Morgan(c).................. 4,174,875 9.3 -- 4,174,875 6.9
Janice L. Richter(d)................. 4,615,038 10.1 -- 4,615,038 7.5
George Bell(e)....................... 2,716,049 6.1 6,875,001 11.3
James A. Caccavo(f).................. 844,446 1.9 -- 844,446 1.4
W. Thomas Gimple(g).................. 597,222 1.3 -- 597,222 *
Nicholas E. Sinacori(h).............. 195,554 * -- 195,554 *
Thomas R. Pascoe(i).................. 168,919 * -- 168,919 *
John M. Markovich(j)................. 136,975 * -- 136,975 *
Andrew B. Dolich(k).................. 87,498 * -- 87,498 *
Christos M. Cotsakos(l).............. 176,542 * -- 176,542 *
C. Ian Sym-Smith(m).................. 17,777 * -- 17,777 *
Peter Chernin........................ -- -- -- -- --
General Atlantic Partners LLC(b)..... 8,565,395 19.0 -- 8,565,395 14.0
idealab! entities(c)................. 4,174,875 9.3 -- 4,174,875 6.9
R4 Holdings, LLC(n).................. 3,555,555 7.9 -- 3,555,555 5.8
Excite, Inc.(e)...................... 2,716,049 6.1 6,875,001 11.3
Karen S. Long(o)..................... 2,356,337 5.3 2,425,526 4.0
Karen S. Long 1999 Trust............. 602,701 * 444,444 158,257 *
All directors and executive officers
as a group (15 persons)(b), (c),
(d), (e), (f), (g),)(h), (i), (j),
(k), (l), (m)...................... 22,404,897 47.6% -- 26,563,849 42.1%
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent.
(a) As of October 15, 1999, Cox Interactive Media held 3,333,334 shares of
Series E preferred stock, which were convertible into 1,481,481 shares of
common stock, or 3.3% of Tickets.com's common stock. However, if the
initial public offering price is less than $20.25 per share, these shares
of Series E preferred stock will convert into a greater number of shares of
common stock. Assuming an initial public offering price of $8.00 per share,
each share of Series E preferred stock will convert into approximately
1.125 shares of common stock. In that event, immediately following the
consummation of this offering, Cox will hold 3,750,000 shares of common
stock, or 6.2% of Tickets.com's common stock.
(b) Includes the following securities held by various General Atlantic
partnerships: (1) 11,428,572 shares of Series C preferred stock, which will
be converted into 5,079,365 shares of common stock upon consummation of
this offering; (2) 7,394,265 shares of Series D preferred stock, which will
be converted into 3,286,340 shares of common stock upon consummation of
this offering; and (3) warrants
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<PAGE> 92
to purchase 199,690 shares of common stock that are exercisable within 60
days of October 15, 1999. In addition, includes options outstanding to
purchase 11,111 shares of common stock that are exercisable within 60 days
of October 15, 1999, which options are held by Mr. William E. Ford. Mr.
Ford, a director of Tickets.com, is a general partner of General Atlantic
entities that have invested in Tickets.com and a managing member of General
Atlantic Partners, LLC, a general partner of a number of General Atlantic
partnerships. Mr. Ford disclaims beneficial ownership of the shares
referred to in clauses (1), (2) and 3 above, except to the extent of his
pecuniary interest therein. General Atlantic is not a beneficial owner of
the options held by Mr. Ford. The address of General Atlantic is 3 Pickwick
Plaza, Greenwich, Connecticut 06830.
(c) Includes the following securities held by various idealab! entities: (1)
2,708,339 shares of common stock; (2) 1,976,835 shares of Series C
preferred stock, which will be converted into 878,592 shares of common
stock upon consummation of the offering; (3) 1,308,288 shares of Series D
preferred stock, which will be converted into 581,461 shares of common
stock upon consummation of the offering; and (4) warrants to purchase 6,483
shares of common stock that are exercisable within 60 days of October 15,
1999. Of the shares beneficially owned by the idealab! entities, 70,779
shares of common stock and 170,800 shares of Series C preferred stock are
currently held in escrow until May 2000, in accordance with the terms of
the Tickets.com merger agreement with California Tickets.com. Mr. Morgan, a
director of Tickets.com, is a general partner of an idealab! entity. Mr.
Morgan disclaims beneficial ownership of the shares referred to in clauses
(1), (2), (3) and (4) above, except to the extent of his pecuniary interest
therein. The idealab! entities are not beneficial owners of the warrants
held by Mr. Morgan. The address of idealab! is 130 W. Union Street,
Pasadena, California 91103.
(d) Includes options outstanding to purchase 22,222 shares of common stock that
are exercisable within 60 days of October 15, 1999, of which 11,111 are
held by Ms. Richter and 11,111 are held by her spouse. In addition,
includes (1) 3,555,555 shares of common stock held by R4 Holdings, LLC, (2)
225,848 shares of common stock held by Hill International, Inc., (3) a note
held by Hill International that is convertible into 808,080 shares of
common stock upon the closing of this offering and (4) warrants to purchase
3,333 shares of common stock that are exercisable within 60 days of October
15, 1999. Ms. Richter, a director of Tickets.com, is a member of R4
Holdings, LLC and is the spouse of the majority shareholder of Hill
International. Ms. Richter disclaims beneficial ownership of the shares
held by R4 Holdings and Hill International except to the extent of her
pecuniary interest therein.
(e) Includes 6,111,112 shares of Series E preferred stock, which are
convertible into 2,716,049 shares of common stock as of October 15, 1999.
However, if the initial public offering price is less than $20.25 per
share, then these shares of Series E preferred stock will convert into a
greater number of shares of common stock. Assuming an initial public
offering price of $8.00 per share, each share of Series E preferred stock
will convert into approximately 1.125 shares of common stock. In that
event, immediately following the consummation of this offering, Excite will
hold 6,875,001 shares of common stock. Mr. Bell, a director of Tickets.com,
is the President and Chief Executive Officer and a director of Excite. Mr.
Bell disclaims beneficial ownership of the shares held by Excite, except to
the extent of his pecuniary interest therein. The address of Excite is 555
Broadway, Redwood, California 94063.
(f) Includes options outstanding to purchase 66,667 shares that are exercisable
within 60 days of October 15, 1999. Of the 777,779 shares of common stock
held by Mr. Caccavo, 14,285 are currently held in escrow until May 2000, in
accordance with the terms of the Tickets.com merger agreement with
California Tickets.com.
(g) Comprises options outstanding to purchase 491,667 of common stock shares
that are exercisable within 60 days of October 15, 1999.
(h) Includes (1) 177,777 shares held by International Capital Partners, Inc.,
(2) options outstanding to purchase 11,111 shares of common stock which are
exercisable within 60 days of October 15, 1999 and (3) warrants to purchase
6,666 shares of common stock held by International Capital Partners that
are exercisable within 60 days of October 15, 1999. Mr. Sinacori, a
director of Tickets.com, is a managing partner of International Capital
Partners. Mr. Sinacori disclaims beneficial ownership of the shares held by
International Capital Partners except to the extent of his pecuniary
interest therein.
(i) Comprises options outstanding to purchase 167,356 shares of common stock
that are exercisable within 60 days of October 15, 1999.
(j) Comprises options outstanding to purchase 135,412 shares of common stock
that are exercisable within 60 days of October 15, 1999.
(k) Comprises options outstanding to purchase 87,498 shares of common stock
that are exercisable within 60 days of October 15, 1999.
(l) Includes 77,777 shares of common stock held by Cotsakos Ventures LLC and
222,222 shares of Series D preferred stock, held by the Cotsakos Ventures
LLC, which will be converted into 98,765 shares of common stock upon
consummation of the offering. Mr. Cotsakos is the managing member of the
Cotsakos Ventures LLC.
(m) Includes warrants to purchase 6,666 shares of common stock that are
exercisable within 60 days of October 15, 1999.
(n) The address of R4 Holdings, LLC is One Levitt Parkway, Willingboro, New
Jersey 08046.
(o) Includes 602,701 shares held by the Karen S. Long 1999 Trust. As a trustee
of the Karen S. Long 1999 Trust, Ms. Long, formerly known as Ms. Goetz,
shares voting and dispositive power over all shares held by the trust. In
addition, includes 1,466,666 shares held by BK (1999) LLC, a family owned
limited liability company, of which Ms. Long is the managing member. All of
the 286,970 shares held directly by Ms. Long are currently held in escrow
until April 2000, in accordance with the terms of the Tickets.com merger
agreement with TicketsLive. A total of 513,633 additional shares of common
stock will be issued to Ms. Long on or about October 29, 1999, in
accordance with the terms of the Tickets.com merger agreement with
TicketsLive.
(p) The address of all directors and executive officers, except for Christos M.
Cotsakos, George Bell and Robert P. McClintock, is 555 Anton Boulevard,
12th Floor, Costa Mesa, California 92626. The address of Christos M.
Cotsakos is 4500 Bohannon Drive, Menlo Park, California 94025. The address
of George Bell is 555 Broadway, Redwood City, California 94063. The address
of Robert D. McClintock is 10 Alexander Drive, Wallingford, Connecticut
06492.
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<PAGE> 93
DESCRIPTION OF CAPITAL STOCK
Immediately following the consummation of this offering, the authorized
capital stock of Tickets.com will consist of 225 million shares of common stock,
par value $.000225 per share, and 45 million shares of preferred stock, par
value $.000225 per share. As of October 15, 1999 and assuming completion of this
offering, there will be 60,904,649 outstanding shares of common stock,
outstanding options to purchase 9,236,529 shares of common stock and outstanding
warrants to purchase 1,104,565 shares of common stock.
COMMON STOCK
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the board of directors may from time to time
determine. Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of stockholders. Cumulative voting
for the election of directors is not provided for in the Tickets.com certificate
of incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The common stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon the occurrence of a liquidation, dissolution or winding-up, the
holders of shares of common stock would be entitled to share ratably in the
distribution of all of the company's assets remaining available for distribution
after satisfaction of all its liabilities and the payment of the liquidation
preference of any outstanding preferred stock. Each outstanding share of common
stock is, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid.
PREFERRED STOCK
The board of directors has the authority, within the limitations and
restrictions stated in the certificate of incorporation, to provide by
resolution for the issuance of shares of preferred stock, in one or more classes
or series, and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of preferred stock could
have the effect of decreasing the market price of the common stock and could
adversely affect the voting and other rights of the holders of common stock.
OPTIONS
As of October 15, 1999, options to purchase a total of 9,236,529 shares of
common stock were outstanding and up to 1,066,667 additional shares of common
stock may be subject to options granted in the future under the 1999 Stock
Incentive Plan. All of the options contain standard anti-dilution provisions.
See "Management -- Benefit Plans" and "-- Summary of Compensation" for a
description of the "1999 Stock Incentive Plan."
WARRANTS
As of October 15, 1999, Tickets.com had the following outstanding warrants
to purchase shares of common stock:
- a warrant to purchase up to 552,536 shares of common stock at an exercise
price of $.0225 per share that is held by The Provident Bank;
- warrants to purchase up to 1,332,423 shares of common stock at an
exercise price of $4.50 held by the sellers of Bay Area Seating Service;
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<PAGE> 94
- warrants to purchase up to an aggregate of 771,788 shares of common stock
at a weighted average exercise price of $1.87 per share, that are held by
various stockholders and consultants of Tickets.com; and
- warrants to purchase up to 332,778 shares of common stock at an exercise
price of $2.25 held by various entertainment organizations and
entertainers.
All of the warrants contain standard antidilution provisions. In addition, the
warrant issued to The Provident Bank contains antidilution provisions which give
The Provident Bank the right to acquire a constant ownership interest in
Tickets.com, subject to the terms of the warrant. Also, the number of shares of
common stock issuable upon exercise of the warrants issued to various
stockholders in August 1999 will adjust in the event that Tickets.com issues
shares of common stock or securities convertible into or exercisable for shares
of common stock for purchase price that is less than $5.06 per share at any time
prior to 180 days following the closing of this offering.
REGISTRATION RIGHTS
As of the completion of this offering, the holders of an aggregate of
49,087,476 shares of common stock or securities convertible into common stock
will be entitled to registration rights as described below. These rights are
provided under the terms of an investor rights agreement between Tickets.com and
the holders of the registrable securities, who include General Atlantic and all
other holders of Tickets.com's preferred stock. This agreement provides demand
registration rights to substantially all former holders of Tickets.com preferred
stock and various holders of Tickets.com's warrants and common stock. In
addition, the holders of all of the registrable securities are entitled under
the agreement, subject to some limitations, to require Tickets.com to include
their registrable securities in future registration statements that the company
may file. Registration of shares of common stock pursuant to the rights granted
in this agreement will result in such shares becoming freely tradable without
restriction under the Securities Act of 1933. However, the agreement provides
Tickets.com the right to delay any registration request until 90 days after the
effective date of this prospectus. All registration expenses incurred in
connection with the above registrations will be borne by Tickets.com.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS,
DELAWARE LAW
Tickets.com's certificate of incorporation authorizes the board to
establish one or more series of undesignated preferred stock, the terms of which
can be determined by the board at the time of issuance. See "-- Preferred
Stock." In addition, the certificate of incorporation and bylaws do not permit
stockholders of Tickets.com to call a special meeting of stockholders. Only
Tickets.com's Chief Executive Officer, President, Chairman of the Board or a
majority of the board are permitted to call a special meeting of stockholders.
The certificate of incorporation also provides that the board is divided into
three classes, with each director assigned to a class with a term of three
years, and that the number of directors may only be determined by the board of
directors. The bylaws also require that stockholders give advance notice to
Tickets.com's Secretary of any nominations for director or other business to be
brought by stockholders at any stockholders' meeting, and that the Chairman has
the authority to adjourn any such meeting. The bylaws also require a
supermajority vote of stockholders or a majority vote of the board of directors
to amend the bylaws. These provisions of the restated certificate of
incorporation and the bylaws could discourage potential acquisition proposals
and could delay or prevent a change in control of Tickets.com. These provisions
also may have the effect of preventing changes in the management of Tickets.com.
See "Risk Factors -- Our Management Will Control 42.1% of Tickets.com After This
Offering; Their Interests May Be Different Than Yours."
Tickets.com is subject to Section 203 of the Delaware General Corporation
Law, which, subject to limited exceptions set forth in the Delaware General
Corporation Law, prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that the stockholder became an interested stockholder,
unless:
(i) prior to that date, the board of directors of the corporation
approved either the business combination or the transaction that resulted
in the stockholder becoming an interested stockholder;
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<PAGE> 95
(ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at
the time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned:
(a) by persons who are directors and also officers; and
(b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer; or
(iii) on or subsequent to that date, the business combination is
approved by the board of directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock that is not owned
by the interested stockholder.
Section 203 defines "business combination" to include the following:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
- subject to some exceptions, any transaction that results in the issuance
or transfer by the corporation of any stock of the corporation to the
interested stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by any of these entities or persons.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Chase Mellon
Shareholder Services, LLC.
LISTING
Tickets.com has been approved for quotation upon notice of issuance on the
Nasdaq National Market under the symbol "TIXX."
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<PAGE> 96
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock, and
there can be no assurance that a significant public market for the common stock
will develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market after this offering could adversely
affect market prices prevailing from time to time and could impair Tickets.com's
ability to raise capital through the sale of its equity securities.
Upon completion of the offering, we will have 60,904,649 shares of common
stock outstanding (61,842,982 shares if the underwriters' over-allotment option
is exercised in full), assuming no exercise of options after October 15, 1999.
Of this amount, the 6,700,000 shares offered by this prospectus, as well as
48,888 additional shares, will be available for immediate sale in the public
market as of the date of this prospectus. Approximately 37,299,802 additional
shares will be available for sale in the public market following the expiration
of 180-day lock-up agreements with the representatives of our underwriters,
subject in some cases to compliance with the volume and other limitations of
Rule 144. If the underwriters waive the 180-day lock-up agreements within the
first 90 days after the date of this prospectus, an additional 26,634,996 shares
will be available for sale in the public market 90 days following the date of
this prospectus, subject in some cases to compliance with the volume and other
limitations of Rule 144.
<TABLE>
<CAPTION>
APPROXIMATE
SHARES
DAYS AFTER THE DATE ELIGIBLE FOR
OF THIS PROSPECTUS FUTURE SALE COMMENT
------------------- ------------ -------
<S> <C> <C>
Upon Effectiveness..... 6,748,888 Freely tradeable shares sold in offering and shares
saleable under Rule 144(k) that are not subject to
180-day lock-up
90 days................ 59,734 Shares saleable under Rule 144, 144(k) or 701 that
are not subject to 180-day lock-up
180 days............... 37,299,802 Lock-up released; shares saleable under Rule 144,
144(k) or 701
</TABLE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this prospectus a number of shares that does not exceed the greater
of (a) 1% of the then outstanding shares of common stock, which will be equal to
approximately 609,046 shares immediately after the offering, or (b) the average
weekly trading volume during the four calendar weeks preceding such sale,
subject to the filing of a Form 144 with respect to such sale. A person, or
persons whose shares are aggregated, who is not deemed to have been an affiliate
of Tickets.com at any time during the 90 days immediately preceding the sale and
who has beneficially owned his or her shares for at least two years is entitled
to sell such shares pursuant to Rule 144(k) without regard to the limitations
described above. Persons deemed to be affiliates must always sell pursuant to
Rule 144, even after the applicable holding periods have been satisfied.
We are unable to estimate the number of shares that will be sold under Rule
144, since this will depend on the market price for our common stock, the
personal circumstances of the sellers and other factors. Prior to the offering,
there has been no public market for the common stock, and there can be no
assurance that a significant public market for the common stock will develop or
be sustained after the offering. Any future sale of substantial amounts of the
common stock in the open market may adversely affect the market price of the
common stock offered hereby.
Our directors, executive officers, stockholders with registration rights
and certain other stockholders and optionholders have agreed pursuant to the
underwriting agreement and other agreements that they will not sell any common
stock without the prior written consent of Morgan Stanley & Co. Incorporated for
a period of 180 days from the date of this prospectus. We have also agreed not
to issue any shares during the 180-day lock-up period without the consent of
Morgan Stanley & Co. Incorporated, except that we may, without such consent, (1)
grant options and sell shares under our stock incentive and purchase plans, and
(2) grant options and issue shares or warrants in connection with specified
transactions, if we submit prior written notification to Morgan Stanley & Co.
Incorporated of the transaction, grant or issuance, and if all the recipients of
options,
92
<PAGE> 97
shares or warrants granted pursuant to the specified transaction enter into
lock-up agreements in a form agreed to by Morgan Stanley & Co. Incorporated.
Any of our employees or consultants who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus.
We intend to file a registration statement on Form S-8 under the Securities
Act of 1933 within days after the completion of the offering to register the
shares of common stock subject to outstanding stock options reserved for
issuance under our stock plans and common stock purchase warrants issued to
employees and consultants, thus permitting the resale of such shares by
nonaffiliates in the public market without restriction under the Securities Act
of 1933. As of October 15, 1999, there were outstanding options to purchase
approximately 9,069,198 shares of common stock under our stock plans and
outstanding warrants and options issued outside of our stock option plans to
purchase approximately 1,271,896 shares of common stock issued to employees,
entertainment organizations and consultants.
In addition, some of our stockholders have registration rights with respect
to approximately 49,087,476 shares of common stock and common stock equivalents.
Registration of these registrable securities under the Securities Act of 1933
would result in those shares becoming freely tradeable without restriction under
the Securities Act of 1933. See "Description of Capital Stock -- Registration
Rights" for a description of our outstanding registration rights.
93
<PAGE> 98
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated the date hereof, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Credit Suisse First Boston Corporation, SG Cowen
Securities Corporation, Discover Brokerage Direct, Inc., E*OFFERING Corp. and
Wit Capital Corporation are acting as representatives, have severally agreed to
purchase, and Tickets.com and the selling stockholder have agreed to sell to
them, severally, the respective number of shares of common stock set forth
opposite the names of such underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Credit Suisse First Boston Corporation......................
SG Cowen Securities Corporation.............................
Discover Brokerage Direct, Inc..............................
E*OFFERING Corp.............................................
Wit Capital Corporation.....................................
--------
Total............................................. 6,700,000
========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from Tickets.com and subject to prior sale. The
underwriting agreement provides that the obligations of the several underwriters
to pay for and accept delivery of the shares of common stock offered hereby are
subject to the approval of legal matters by their counsel and to other
conditions specified in the underwriting agreement. The underwriters are
obligated to take and pay for all of the shares of our common stock offered
hereby, other than those covered by the over-allotment option described below,
if any such shares are taken.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page hereof and part to securities dealers at a price that represents a
concession not in excess of $ per share under the public offering price. Any
underwriter may allow, and such dealers may reallow, a concession not in excess
of $ per share to other underwriters or to other dealers. After the initial
offering of the shares of common stock, the offering price and other selling
terms may from time to time be varied by the representatives.
Tickets.com has granted to the underwriters an option, exercisable for 30
days from the date of this prospectus, to purchase up to an aggregate of 938,333
additional shares of common stock at the public offering price set forth on the
cover page hereof, less underwriting discounts and commissions. The underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any made in connection with the offering of the shares of common stock offered
hereby. To the extent such option is exercised, each underwriter will become
obligated, subject to conditions set forth in the underwriting agreement, to
purchase approximately the same percentage of such additional shares of common
stock as the number set forth next to such underwriter's name in the preceding
table bears to the total number of shares of common stock set forth next to the
names of all underwriters in the preceding table. If the underwriters' option is
exercised in full, the total price to the public for this offering would be
$ the total underwriters' discounts and commissions would be
$ and the total proceeds to Tickets.com would be $ .
Each of the underwriters has informed Tickets.com that it may sell shares
to discretionary accounts, but the sales will not exceed five percent of the
total number of shares of common stock offered by each of them.
At the request of Tickets.com, the underwriters have reserved up to 670,000
shares offered hereby for sale at the initial public offering price to
directors, officers, employees, business associates and related persons of
Tickets.com. The number of shares of common stock available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares offered
hereby.
Discover Brokerage Direct, Inc., an affiliate of Morgan Stanley & Co.
Incorporated, is acting as an underwriter in connection with the offering, and
together with E*OFFERING Corp./E*TRADE Securities,
94
<PAGE> 99
Inc. and Wit Capital Corporation, will be distributors of shares of common stock
over the Internet to their respective eligible account holders.
The National Association of Securities Dealers, Inc. approved the
membership of Wit Capital on September 4, 1997. Since that time, Wit Capital has
acted as a co-managing underwriter on one offering, a co-manager on 42
offerings, and a dealer on 84 offerings. Except for its participation in this
offering and except as noted below, Wit Capital has no relationship with
Tickets.com or any of its founders or significant stockholders. Robert Lessin,
the Chairman and Chief Executive Officer of Wit Capital, currently holds 267,857
shares of common stock of Tickets.com.
E*TRADE Group, Inc. is an affiliate of E*OFFERING Corp. Christos Cotsakos,
who is a director of Tickets.com, has served as Chief Executive Officer of the
E*TRADE Group, Inc. since March 1996 and currently serves as Chairman of the
Board of E*TRADE Group, Inc. Mr. Cotsakos also serves as a director of
E*OFFERING. William Ford and Peter Chernin, who are directors of Tickets.com,
each also serves as a director of E*TRADE Group, Inc.
We have been approved upon notice of issuance on the Nasdaq National Market
under the symbol "TIXX."
Each of Tickets.com, the directors, executive officers, selling stockholder
and substantially all other stockholders of Tickets.com has agreed that, without
the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, it will not, during the period ending 180 days after the date of
this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock of Tickets.com or any
securities convertible into or exercisable or exchangeable for common
stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock of Tickets.com whether any such transaction described above
is to be settled by delivery of common stock of Tickets.com or such other
securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of the shares to the underwriters; and
- transactions by any person other than Tickets.com relating to shares of
common stock or other securities acquired in open market transactions
after the completion of the offering.
In addition, the stockholders of Tickets.com have agreed that, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, neither the stockholders nor any of their affiliates will, during
the period ending 180 days after the date of this prospectus, make any demand
for, or exercise any right with respect to, the registration of any shares of
common stock or any security convertible into or exercisable or exchangeable for
common stock.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may agree to sell, or
allot, more shares than the shares of common stock Tickets.com has agreed to
sell to them. This over-allotment would create a short position in the common
stock for the underwriters' account. To cover any over-allotments or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
95
<PAGE> 100
The underwriting agreement contains covenants of indemnity among the
underwriters and us against a number of specified liabilities, including
liabilities under the Securities Act of 1933 and liabilities arising from
breaches of representations and warranties contained in the underwriting
agreement.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price has been determined by negotiations
between Tickets.com and the representatives of the underwriters. Among the
factors considered in determining the initial public offering price were:
- the future prospects of Tickets.com and its industry in general;
- sales, earnings and other financial and operating information of
Tickets.com in recent periods; and
- the price-earnings ratios, price-sales ratios, market prices of
securities and other financial and operating information of companies
engaged in activities similar to those of Tickets.com.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for us by Brobeck, Phleger & Harrison LLP, Irvine, California. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Cooley Godward LLP, Palo Alto, California.
EXPERTS
The consolidated balance sheets of Tickets.com, Inc. as of December 31,
1997 and 1998 and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows, for the period from May 31, 1996
(Inception) to December 31, 1996 and the years ended December 31, 1997 and 1998;
the statements of income and cash flows of Bay Area Seating Service, Inc. for
the period from April 1, 1997 to September 26, 1997; the consolidated balance
sheets of ProTix, Inc. as of December 31, 1997, and the related consolidated
statements of operations, shareholders' deficit and cash flows for the year
ended December 31, 1997; the balance sheets of California Tickets.com, Inc. as
of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity (deficit) and cash flows for the period from January 29,
1997 (Inception) to December 31, 1997 and for the year ended December 31, 1998
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving such reports.
The balance sheets of Bay Area Seating Service, Inc. as of March 31, 1996
and 1997 and the related statements of income, shareholders' equity and cash
flows for the years then ended included in this Prospectus and elsewhere in the
Registration Statement have been audited by Burr, Pilger & Mayer, Inc.,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving such reports.
The consolidated balance sheets of TicketsLive Corporation as of April 30,
1997 and 1998, and the related consolidated statements of operations, redeemable
preferred stock, stockholders' equity (deficit) and comprehensive income (loss)
and cash flows for the years then ended included in this Prospectus and
elsewhere in the Registration Statement have been audited by KPMG LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving such reports.
96
<PAGE> 101
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus does not contain all the
information set forth in the registration statement and exhibits thereto. For
further information with respect to Tickets.com and the shares to be sold in the
offering, reference is made to the registration statement and exhibits thereto.
Statements contained in this prospectus regarding the contents of any contract,
agreement or other document to which reference is made are not necessarily
complete, and in each instance where a copy of such contract, agreement or other
document has been filed as an exhibit to the registration statement, reference
is made to the copy so filed, each such statement being qualified in all
respects by such reference. A copy of the registration statement and the
exhibits thereto may be inspected without charge at the Public Reference Room of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and copies of all or any part of the registration statement may be
obtained from the Public Reference Section of the Commission upon the payment of
the fees prescribed by the Commission. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Commission also maintains a web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants, such as Tickets.com, that file electronically with the
Commission.
Tickets.com intends to provide its stockholders with annual reports
containing combined financial statements audited by an independent accounting
firm and quarterly reports containing unaudited combined financial data for the
first three quarters of each year.
97
<PAGE> 102
TICKETS.COM AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................... F-3
Consolidated Balance Sheets as of December 31, 1997 and 1998
and June 30, 1999 (unaudited)............................. F-4
Consolidated Statements of Operations for the period from
May 31, 1996 (Inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 and the six months
ended June 30, 1998 and 1999 (unaudited).................. F-5
Consolidated Statement of Stockholders' Equity (Deficit) for
the period from May 31, 1996 (Inception) to December 31,
1996 and for the years ended December 31, 1997 and 1998
and the six months ended June 30, 1999 (unaudited)........ F-6
Consolidated Statements of Cash Flows for the period from
May 31, 1996 (Inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 and the six months
ended June 30, 1998 and 1999 (unaudited).................. F-7
Notes to Consolidated Financial Statements.................. F-9
FINANCIAL STATEMENTS OF BAY AREA SEATING SERVICE, INC.
Independent Auditor's Report................................ F-28
Report of Independent Public Accountants.................... F-29
Balance Sheets as of March 31, 1996 and 1997................ F-30
Statements of Income for the years ended March 31, 1996 and
1997 and for the period from April 1, 1997 to September
26, 1997.................................................. F-31
Statements of Shareholders' Equity for the years ended March
31, 1996 and for the period from April 1, 1997 to
September 26, 1997........................................ F-32
Statements of Cash Flows for the years ended March 31, 1996
and 1997 and for the period from April 1, 1997 to
September 30, 1997........................................ F-33
Notes to Financial Statements............................... F-34
CONSOLIDATED FINANCIAL STATEMENTS OF PROTIX, INC.
Report of Independent Public Accountants.................... F-42
Consolidated Balance Sheet as of December 31, 1997.......... F-43
Consolidated Statement of Operations for the year ended
December 31, 1997......................................... F-44
Consolidated Statement of Stockholders' Deficit for the year
ended December 31, 1997................................... F-45
Consolidated Statements of Cash Flows for the year ended
December 31, 1997......................................... F-46
Notes to Consolidated Financial Statements.................. F-47
CONSOLIDATED FINANCIAL STATEMENTS OF TICKETSLIVE CORPORATION
Independent Auditors' Report................................ F-52
Consolidated Balance Sheets as of April 30, 1997 and 1998
and January 31, 1999 (unaudited).......................... F-53
Consolidated Statements of Operations for the years ended
April 30, 1997 and 1998 and the nine months ended January
31, 1998 and 1999 (unaudited)............................. F-54
Consolidated Statements of Redeemable Preferred Stock,
Stockholders' Equity (Deficit) and Comprehensive Income
(Loss) for the years ended April 30, 1997 and 1998 and the
nine months ended January 31, 1999 (unaudited)............ F-55
Consolidated Statements of Cash Flows for the years ended
April 30, 1997 and 1998 and the nine months ended January
31, 1998 and 1999 (unaudited)............................. F-56
Notes to Consolidated Financial Statements.................. F-57
</TABLE>
F-1
<PAGE> 103
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS OF CALIFORNIA TICKETS.COM, INC.
Report of Independent Public Accountants.................... F-68
Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 (unaudited)...................................... F-69
Statements of Operations for the period from January 29,
1997 (inception) to December 31, 1997 and 1998, for the
year ended December 31, 1998 and the three months ended
March 31, 1998 and 1999 (unaudited)....................... F-70
Statements of Stockholders' Equity (Deficit) for the period
from January 29, 1997 (inception) to December 31, 1997,
for the year ended December 31, 1998 and the three months
ended March 31, 1999 (unaudited).......................... F-71
Statements of Cash Flows for the period from January 29,
1997 (inception) to December 31, 1997, for the year ended
December 31, 1998 and the three months ended March 31,
1998 and 1999............................................. F-72
Notes to Financial Statements............................... F-73
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Basis of Presentation....................................... PF-1
Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1998........... PF-2
Unaudited Pro Forma Condensed Combined Statement of
Operations for the six months ended June 30, 1999......... PF-3
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements................................................ PF-4
</TABLE>
F-2
<PAGE> 104
The accompanying consolidated financial statements retroactively reflect a
one for 2.25 reverse stock split of the Company's common stock, approved by the
Company's Board of Directors in September 1999, but which has not yet been
consummated. The opinion below is in the form which will be signed by Arthur
Andersen LLP upon consummation of the reverse stock split, which is described in
Note 13 of the Notes to the Consolidated Financial Statements, and assumes that
from May 17, 1999 to the date of such reverse stock split, no other events shall
have occurred that would affect the accompanying financial statements and notes
thereto.
ARTHUR ANDERSEN LLP
Orange County, California
October 18, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
of Tickets.com, Inc.:
We have audited the accompanying consolidated balance sheets of Tickets.com,
Inc., (formerly Advantix, Inc.) a Delaware corporation, and subsidiaries as of
December 31, 1997 and 1998, and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows, for the period from
May 31,1996 (Inception) to December 31, 1996 and for the years ended December
31, 1997 and 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tickets.com, Inc. and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for the period from May 31, 1996 (Inception) to
December 31, 1996, and for the years ended December 31, 1997 and 1998 in
conformity with generally accepted accounting principles.
Orange County, California
May 17, 1999, except for
Note 12, for which the
date is May 28, 1999
F-3
<PAGE> 105
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
--------------------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
------------ ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
(NOTE 10)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................... $ 4,380,559 $ 11,955,963 $ 20,138,233
Marketable securities....................... 6,804,269 -- --
Restricted cash and investments............. 1,641,062 167,698 --
Accounts receivable, net of allowances of
$65,565, $255,121 and $217,761,
respectively.............................. 2,849,703 3,620,875 6,306,402
Prepaid expenses and other current assets... 1,311,310 850,182 3,212,770
------------ ------------ ------------
Total current assets................. 16,986,903 16,594,718 29,657,405
------------ ------------ ------------
PROPERTY AND EQUIPMENT, net................... 4,346,213 8,410,869 9,708,537
INTANGIBLE ASSETS, net........................ 20,795,715 9,043,288 80,033,742
OTHER ASSETS.................................. 5,793,652 4,463,313 3,946,821
------------ ------------ ------------
TOTAL ASSETS.................................. $ 47,922,483 $ 38,512,188 $123,346,505
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft.............................. $ 2,677,287 $ -- $ --
Accounts payable............................ 8,662,734 10,257,716 15,780,899
Accrued liabilities......................... 3,689,454 5,262,653 6,618,863
Current portion of long-term debt and
capital lease obligations................. 2,791,239 7,848,473 5,404,639
Deferred revenue and other current
liabilities............................... 704,386 1,405,707 2,461,355
------------ ------------ ------------
Total current liabilities............ 18,525,100 24,774,549 30,265,756
------------ ------------ ------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
net of current portion...................... 23,493,196 20,231,613 21,587,160
------------ ------------ ------------
OTHER LIABILITIES............................. 118,510 748,762 712,920
------------ ------------ ------------
MINORITY INTEREST............................. -- 179,890 325,973
------------ ------------ ------------
REDEEMABLE COMMON STOCK AND WARRANTS.......... 3,599,415 4,506,119 9,595,593
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES -- -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Series A, A1, B, C and D convertible
preferred stock, $.0001 par value;
52,348,106 shares authorized; 17,939,876,
29,536,990, 51,331,143 and 0 issued and
outstanding, respectively................. 1,794 2,954 5,133 --
Common stock, $.000225 par value; 44,444,444
shares authorized; 5,574,041, 6,328,383,
14,898,450 and 42,719,481 shares issued
and outstanding, respectively............. 1,254 1,424 3,480 9,611
Additional paid-in capital.................. 15,700,359 36,858,911 133,747,925 146,342,519
Deferred compensation....................... -- -- (398,279) (398,279)
Accumulated deficit......................... (13,517,145) (48,792,034) (72,485,364) (72,485,364)
Cumulative other comprehensive income....... -- -- (13,792) (13,792)
------------ ------------ ------------ ------------
Total stockholders' equity
(deficit).......................... 2,186,262 (11,928,745) 60,859,103 73,454,695
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.... $ 47,922,483 $ 38,512,188 $123,346,505
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 106
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MAY 31, 1996 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, --------------------------- ---------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Ticketing services........... $ 119,249 $ 9,686,138 $ 26,557,612 $12,728,748 $ 13,046,516
Software services and
other...................... 1,123,040 1,960,904 2,981,824 1,144,351 6,231,553
----------- ----------- ------------ ----------- ------------
Total revenues........ 1,242,289 11,647,042 29,539,436 13,873,099 19,278,069
----------- ----------- ------------ ----------- ------------
COST OF SERVICES:
Ticketing services........... 816,620 7,701,433 17,154,790 8,048,199 8,971,630
Software services and
other...................... 613,705 711,317 1,550,948 406,797 3,570,839
----------- ----------- ------------ ----------- ------------
Total cost of
services............ 1,430,325 8,412,750 18,705,738 8,454,996 12,542,469
----------- ----------- ------------ ----------- ------------
Gross profit (loss)............ (188,036) 3,234,292 10,833,698 5,418,103 6,735,600
----------- ----------- ------------ ----------- ------------
OPERATING EXPENSES:
Sales and marketing.......... 154,016 2,096,372 7,338,698 2,956,580 9,067,887
Technology development....... 690,024 2,232,684 6,416,829 2,289,403 4,793,261
General and administrative... 2,070,577 3,181,980 9,204,053 4,005,107 6,827,044
Amortization of
intangibles................ -- 712,416 2,081,561 902,803 2,575,907
Impairment of long-lived
assets..................... -- -- 17,026,149 -- --
Purchased in-process research
and development............ -- -- 1,600,000 -- 5,340,000
----------- ----------- ------------ ----------- ------------
Total operating
expenses............ 2,914,617 8,223,452 43,667,290 10,153,893 28,604,099
----------- ----------- ------------ ----------- ------------
Loss from operations........... (3,102,653) (4,989,160) (32,833,592) (4,735,790) (21,868,499)
----------- ----------- ------------ ----------- ------------
OTHER (INCOME) EXPENSE:
Interest income.............. -- (206,680) (878,242) (300,785) (378,866)
Interest expense............. 145,976 1,315,001 2,952,465 1,432,025 1,680,159
Minority interest............ -- -- (52,674) -- 146,083
----------- ----------- ------------ ----------- ------------
145,976 1,108,321 2,021,549 1,131,240 1,447,376
----------- ----------- ------------ ----------- ------------
Loss before provision for
income taxes................. (3,248,629) (6,097,481) (34,855,141) (5,867,030) (23,315,875)
Provision for income taxes..... -- 1,150 5,655 3,975 16,954
----------- ----------- ------------ ----------- ------------
Net loss....................... $(3,248,629) $(6,098,631) $(34,860,796) $(5,871,005) $(23,332,829)
=========== =========== ============ =========== ============
Basic and diluted net loss per
share........................ $ (.65) $ (1.17) $ (6.08) $ (1.05) $ (2.64)
=========== =========== ============ =========== ============
Weighted average common shares
outstanding.................. 5,000,000 5,199,224 5,733,620 5,574,084 8,840,837
=========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 107
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------- ------------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
---------- ------ ---------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1996.................... -- $ -- -- $ -- $ -- $ -- $ (4,169,885)
Issuance of common stock for cash....... -- -- 5,000,000 1,125 12,375 -- --
Issuance of Series A convertible
preferred stock for cash, net of
issuance costs........................ 6,141,430 614 -- -- 3,008,686 -- --
Net loss................................ -- -- -- -- -- -- (3,248,629)
---------- ------ ---------- ------ ------------ --------- ------------
Balance, December 31, 1996............... 6,141,430 614 5,000,000 1,125 3,021,061 -- (7,418,514)
Exercise of common stock options........ -- -- 14,354 3 12,915 -- --
Exercise of common stock warrants....... -- -- 177,777 40 3,960 -- --
Issuance of common stock in payment of
accrued interest on note payable...... -- -- 225,848 51 248,947 -- --
Issuance of common stock in connection
with the acquisition of Fantastix
Ticket Company, LLC, net of redeemable
common stock.......................... -- -- 104,888 24 176,976 -- --
Issuance of common stock in payment of
commissions on issuance of convertible
preferred stock....................... -- -- 51,174 11 (11) -- --
Issuance of Series A convertible
preferred stock for cash, net of
issuance costs........................ 2,298,572 230 -- -- 1,081,463 -- --
Issuance of Series B convertible
preferred stock for cash, net of
issuance costs........................ 9,499,874 950 -- -- 11,155,048 -- --
Net loss................................ -- -- -- -- -- -- (6,098,631)
---------- ------ ---------- ------ ------------ --------- ------------
Balance, December 31, 1997............... 17,939,876 1,794 5,574,041 1,254 15,700,359 -- (13,517,145)
Exercise of common stock options........ -- -- 14,352 3 13,616 -- --
Exercise of common stock warrants....... -- -- 400,000 90 8,910 -- --
Issuance of common stock in connection
with the acquisition of ProTix,
Inc................................... -- -- 317,768 72 1,072,397 -- --
Issuance of common stock for services... -- -- 22,222 5 74,995 -- --
Issuance of Series C convertible
preferred stock for cash, net of
issuance costs........................ 11,597,114 1,160 -- -- 19,988,634 -- --
Accretion on redeemable common stock and
warrants.............................. -- -- -- -- -- -- (414,093)
Net loss................................ -- -- -- -- -- -- (34,860,796)
---------- ------ ---------- ------ ------------ --------- ------------
Balance, December 31, 1998............... 29,536,990 2,954 6,328,383 1,424 36,858,911 -- (48,792,034)
Exercise of common stock options........ -- -- 316,051 71 232,531 -- --
Exercise of common stock warrants....... 442,222 99 (99)
Issuance of common stock warrants in
connection with the acquisition of
ProTix, Inc........................... -- -- -- -- 2,149,672 -- --
Issuance of Series D convertible
preferred stock for cash, net of
issuance costs........................ 13,333,335 1,333 -- -- 29,947,999 -- --
Issuance of stock in connection with the
acquisition of California Tickets.com,
Inc................................... 8,460,818 846 3,928,386 884 41,463,481 -- --
Issuance of common stock in connection
with the acquisition of TicketsLive
Corporation........................... -- -- 3,583,612 935 21,323,065 -- --
Issuance of common stock in connection
with the acquisition of Lasergate
Systems, Inc. Series G preferred
stock................................. -- -- 299,796 67 1,349,015 -- --
Deferred compensation with respect to
employee stock options, related to the
acquisition of California Tickets.com,
Inc................................... -- -- -- -- 423,350 (398,279) --
Preferred dividends payable............. -- -- -- -- -- -- (105,102)
Foreign currency translation............ -- -- -- -- -- -- --
Accretion on redeemable common stock and
warrants.............................. -- -- -- -- -- -- (255,399)
Net loss................................ -- -- -- -- -- -- (23,332,829)
---------- ------ ---------- ------ ------------ --------- ------------
Balance, June 30, 1999 (unaudited)....... 51,331,143 $5,133 14,898,450 $3,480 $133,747,925 $(398,279) $(72,485,364)
========== ====== ========== ====== ============ ========= ============
<CAPTION>
CUMULATIVE
OTHER
COMPREHENSIVE
INCOME TOTAL
------------- ------------
<S> <C> <C>
Balance, May 31, 1996.................... $ -- $ (4,169,885)
Issuance of common stock for cash....... -- 13,500
Issuance of Series A convertible
preferred stock for cash, net of
issuance costs........................ -- 3,009,300
Net loss................................ -- (3,248,629)
-------- ------------
Balance, December 31, 1996............... -- (4,395,714)
Exercise of common stock options........ -- 12,918
Exercise of common stock warrants....... -- 4,000
Issuance of common stock in payment of
accrued interest on note payable...... -- 248,998
Issuance of common stock in connection
with the acquisition of Fantastix
Ticket Company, LLC, net of redeemable
common stock.......................... -- 177,000
Issuance of common stock in payment of
commissions on issuance of convertible
preferred stock....................... -- --
Issuance of Series A convertible
preferred stock for cash, net of
issuance costs........................ -- 1,081,693
Issuance of Series B convertible
preferred stock for cash, net of
issuance costs........................ -- 11,155,998
Net loss................................ -- (6,098,631)
-------- ------------
Balance, December 31, 1997............... -- 2,186,262
Exercise of common stock options........ -- 13,619
Exercise of common stock warrants....... -- 9,000
Issuance of common stock in connection
with the acquisition of ProTix,
Inc................................... -- 1,072,469
Issuance of common stock for services... -- 75,000
Issuance of Series C convertible
preferred stock for cash, net of
issuance costs........................ -- 19,989,794
Accretion on redeemable common stock and
warrants.............................. -- (414,093)
Net loss................................ -- (34,860,796)
-------- ------------
Balance, December 31, 1998............... -- (11,928,745)
Exercise of common stock options........ -- 232,602
Exercise of common stock warrants....... --
Issuance of common stock warrants in
connection with the acquisition of
ProTix, Inc........................... -- 2,149,672
Issuance of Series D convertible
preferred stock for cash, net of
issuance costs........................ -- 29,949,332
Issuance of stock in connection with the
acquisition of California Tickets.com,
Inc................................... -- 41,465,211
Issuance of common stock in connection
with the acquisition of TicketsLive
Corporation........................... -- 21,324,000
Issuance of common stock in connection
with the acquisition of Lasergate
Systems, Inc. Series G preferred
stock................................. -- 1,349,082
Deferred compensation with respect to
employee stock options, related to the
acquisition of California Tickets.com,
Inc................................... -- 25,071
Preferred dividends payable............. -- (105,102)
Foreign currency translation............ (13,792) (13,792)
Accretion on redeemable common stock and
warrants.............................. -- (255,399)
Net loss................................ -- (23,332,829)
-------- ------------
Balance, June 30, 1999 (unaudited)....... $(13,792) $ 60,859,103
======== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 108
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MAY 31, 1996 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------- --------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................... $(3,248,629) $(6,098,631) $(34,860,796) $(5,871,005) $(23,332,829)
Adjustments to reconcile net loss to net
cash used in operating activities:
Impairment of long-lived assets........... -- -- 17,026,149 -- --
Purchased in-process research and
development............................. -- -- 1,600,000 -- 5,340,000
Depreciation.............................. 75,000 482,488 1,946,604 794,869 1,745,270
Amortization of intangibles............... -- 712,416 2,081,561 902,803 2,575,907
Loss on disposal of property.............. -- -- 51,944 -- --
Noncash interest expense.................. -- 505,588 126,152 38,834 177,026
Noncash compensation expense.............. -- -- 75,000 -- 25,071
Minority interest......................... -- -- (52,674) -- 146,082
Changes in operating assets and
liabilities:
Accounts receivable..................... (95,173) 156,778 (130,627) 625,857 197,871
Prepaid expenses and other current
assets................................ (6,352) (344,500) (1,194,328) 299,499 (2,301,929)
Other assets............................ (6,550) (378,289) 1,330,339 85,268 64,921
Accounts payable........................ 830,087 849,200 482,968 (1,980,341) 1,334,711
Accrued liabilities..................... 568,914 1,617,987 369,513 315,794 (492,392)
Deferred revenue and other
liabilities........................... (6,919) 4,567 1,117,563 594,392 118,629
----------- ----------- ------------ ----------- ------------
Net cash used in operating
activities....................... (1,889,622) (2,492,396) (10,030,632) (4,194,030) (14,401,662)
----------- ----------- ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (596,509) (2,055,998) (3,936,918) (1,874,052) (943,347)
Contingent consideration in connection with
acquisition............................... -- (5,324,192) -- -- --
Proceeds from sale of marketable
securities................................ -- 1,244,006 6,804,269 6,051,382 --
(Increase) decrease in restricted cash and
investments............................... -- (740,467) 1,473,364 1,473,201 167,698
Acquisitions, net of cash acquired.......... -- (13,459,515) (3,708,752) -- (3,846,690)
----------- ----------- ------------ ----------- ------------
Net cash (used in) provided by
investing activities............. (596,509) (20,336,166) 631,963 5,650,531 (4,622,339)
----------- ----------- ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in bank overdraft.................. -- (514,161) (2,677,287) (2,677,287) --
Net increase in line of credit.............. -- -- -- -- 250,000
Proceeds from issuance of long-term debt.... -- 17,075,585 716,960 -- --
Principal payments on long-term debt........ -- (2,143,581) (1,078,013) (323,348) (3,225,730)
Net proceeds from issuance of preferred
stock..................................... 3,009,300 12,237,691 19,989,794 20,010,700 29,949,332
Proceeds from issuance of common stock...... 13,500 16,918 22,619 90 232,669
----------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities....................... 3,022,800 26,672,452 16,974,073 17,010,155 27,206,271
----------- ----------- ------------ ----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS... 536,669 3,843,890 7,575,404 18,466,656 8,182,270
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................... -- 536,669 4,380,559 4,380,559 11,955,963
----------- ----------- ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.... $ 536,669 $ 4,380,559 $ 11,955,963 $22,847,215 $ 20,138,233
=========== =========== ============ =========== ============
</TABLE>
F-7
<PAGE> 109
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
MAY 31, 1996 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------- --------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid............................. $ 15,976 $ 94,042 $ 2,568,080 $ 1,192,716 $ 2,084,629
=========== =========== ============ =========== ============
Income taxes paid......................... $ -- $ 1,150 $ 5,655 $ 3,975 $ 3,125
=========== =========== ============ =========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations entered into for
equipment............................... $ 356,421 $ -- $ 1,306,649 $ -- $ 554,720
=========== =========== ============ =========== ============
Accretion on redeemable common stock
warrants issued in connection with
financing arrangements.................. $ -- $ -- $ 414,093 $ 133,438 $ 255,399
=========== =========== ============ =========== ============
ACQUISITIONS:
1996 -- Acquired certain assets of the
Advantix division of Playhouse Square
Foundation
1997 -- Acquired all the outstanding common
stock of Bay Area Seating Service, Inc., and
certain assets of Fantastix Ticket Company,
LLC
1998 -- Acquired all the outstanding common
stock of ProTix, Inc. and subsidiaries
1999 -- Acquired all the outstanding capital
stock of California Tickets.com, Inc. and
TicketsLive Corporation and all the
outstanding Series G preferred stock of
Lasergate Systems, Inc.
The following table outlines the assets
acquired, liabilities assumed and cash
paid:
Fair value of assets acquired........... $ 4,243,410 $32,600,913 $ 9,618,403 $ -- $ 86,348,032
Less:
Liabilities assumed................... -- (11,433,420) (2,107,639) -- (12,079,449)
Promissory notes to sellers, net of
discount........................... (1,743,410) (5,996,010) (1,297,000) -- --
Cash payable on first anniversary of
closing............................ -- -- (550,000) -- --
Preferred stock issued................ -- -- -- -- (18,376,979)
Common stock issued................... -- (177,000) (1,072,469) -- (45,761,314)
Redeemable common stock issued........ (2,500,000) (675,000) -- -- (4,676,000)
----------- ----------- ------------ ----------- ------------
Cash paid............................. -- 14,319,483 4,591,295 -- 5,454,290
Cash acquired......................... -- (859,968) (882,543) -- (1,607,600)
----------- ----------- ------------ ----------- ------------
Cash paid, net of cash acquired....... $ -- $13,459,515 $ 3,708,752 $ -- $ 3,846,690
=========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 110
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY BACKGROUND
Tickets.com, Inc. (formerly, Advantix, Inc.) and its wholly owned
subsidiaries Bay Area Seating Service, Inc. ("BASS"), ProTix, Inc. ("ProTix"),
and Advantix (Ohio) Inc., an inactive subsidiary, collectively (the "Company")
is a leading provider of entertainment ticket sales, event information, and
related products and services. The Company sells tickets and provides these
services through retail outlets, call centers, interactive voice response
systems, and the Internet. The Company provides automated ticketing solutions to
entertainment organizations such as stadiums, performing arts centers, museums
and professional sports franchises. The www.tickets.com web site enables
consumers to obtain information on entertainment organizations and sport and
entertainment events and performances, purchase tickets from multiple sources
and shop for related products. The Company also develops and sells proprietary
ticketing software. In April, 1999 the Company acquired California Tickets.com,
Inc. (see Note 3) and changed its name to Tickets.com, Inc.
The Company was originally organized as The Entertainment Express, Inc.
under the laws of the State of Delaware on January 25, 1995. The Company
commenced operations in May 1996 with the acquisition of Hill Arts and
Entertainment Systems, Inc. which had developed a proprietary ticketing software
system utilized primarily by performing arts centers, theater groups and
regional ticketing service providers. In December 1996, the Company acquired the
call center and ticketing operations of an Ohio-based performing arts center and
ticketing services provider, at which time the Company changed its name to
Advantix, Inc. In August 1997, the Company acquired the assets of Fantastix
Ticket Company, LLC, a regional ticketing services provider located in Buffalo,
New York, and in September 1997 the Company completed the acquisition of all of
the outstanding stock of BASS, a ticketing services provider in Northern
California and Nevada. In October 1998, the Company acquired all the outstanding
common stock of ProTix, a ticketing services provider and ticketing software
developer based in Madison, Wisconsin. For detailed discussion of each business
combinations see Note 3.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements and related notes
include the accounts of Tickets.com, Inc. and its wholly-owned subsidiaries,
BASS, ProTix and Advantix (Ohio), Inc. All intercompany account balances and
transactions have been eliminated in consolidation. The results of operations of
each acquired business have been consolidated for all periods subsequent to the
date of acquisition.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130 "Reporting Comprehensive Income" in 1998. This statement
requires that all items that meet the definition of components of comprehensive
income be reported in a financial statement for the period in which they are
recognized. Components of comprehensive income include amounts that under SFAS
No. 130 are included in comprehensive income but are excluded from net income.
Differences between the Company's net income, as reported, and comprehensive
income, as defined, are immaterial.
F-9
<PAGE> 111
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
RESTRICTED CASH AND INVESTMENTS
Restricted cash and investments consist primarily of certificates of
deposit with original maturities greater than 90 days held for the benefit of
certain clients.
MARKETABLE SECURITIES
Marketable securities as of December 31, 1997 consist of municipal bonds
with stated maturities through September 1999, and a tax-free money market fund.
These securities are classified as available for sale and stated at fair value.
The fair value of the marketable securities as of December 31, 1997,
approximates their original cost less unamortized premium. There were no
marketable securities as of December 31, 1998.
CONCENTRATION RISKS
The Company is subject to concentration of credit risk related to accounts
receivable. Accounts receivable are due principally from retail ticketing
outlets and credit card merchant processors and represent the face value of the
tickets sold plus convenience and handling fees, generally net of outlet
commissions. Concentrations of credit risk are mitigated due to the large number
of clients comprising the Company's base of accounts receivable. The Company's
largest client accounted for 16% and 11% of total net revenues during the years
ended December 31, 1997 and 1998, respectively. The Company did not derive
revenue equal to or greater than 10% from any one client during 1996.
LONG-LIVED ASSETS
Property and Equipment. Property and equipment is stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of three to five years or, for leasehold
improvements, over the term of the lease if shorter. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
and any gain or loss is reflected in results of operations.
Intangible Assets. Intangible assets consist primarily of the portion of
the purchase price of businesses acquired allocated to existing technology,
customer relationships, tradenames, assembled workforce, goodwill and noncompete
agreements. Goodwill represents the excess of cost over the fair value of net
identified assets acquired in business combinations accounted for under the
purchase method.
Impairment of Long-Lived Assets. The Company assesses the recoverability of
its long-lived assets on an annual basis or whenever adverse events or changes
in circumstances or business climate indicate that expected undiscounted future
cash flows related to such long-lived assets may not be sufficient to support
the net book value of such assets. If undiscounted cash flows are not sufficient
to support the recorded assets, an impairment is recognized to reduce the
carrying value of the long-lived assets to the estimated fair value. Cash flow
projections, although subject to a degree of uncertainty, are based on trends of
historical performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
Additionally, in conjunction with the review for impairment, the remaining
estimated lives of certain of the Company's long-lived assets are assessed.
REVENUE RECOGNITION
The Company generates ticketing services revenue primarily from per ticket
convenience fees charged directly to consumers who order tickets through the
Company's web site, telephone call centers, interactive
F-10
<PAGE> 112
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
voice response ("IVR") or retail outlets. In addition, the Company charges a
handling fee to consumers for all tickets sold by the Company, other than
through retail outlets. The Company recognizes convenience fee and handling fee
revenue from ticket sales at the time the sale is made.
Software revenue is recognized on sales contracts when the following
conditions are met: a signed contract is obtained , delivery has occurred, the
total sales price is fixed and determinable, collectibility is probable, and any
uncertainties with regard to customer acceptance are resolved. Deferred revenue
consists primarily of deferred software support revenue related to the license
of the Company's software, and related fees under maintenance and support
contracts. Deferred support revenue is recognized as it is earned, over the term
of the related agreement.
COST OF SERVICES
Cost of ticketing services includes expenses related to the distribution
and delivery of tickets. These expenses include primarily payroll related to
phone center and distribution personnel, telecommunications, data
communications, commissions paid on tickets distributed through outlets and the
clients' share of the convenience fee revenues. From time to time the Company
enters into contracts with clients whereby it pays a portion of the clients'
share of convenience fees up front. When this occurs, the up front fees are
amortized over the length of the contract under the terms of the underlying
contracts.
Cost of software services and other consists primarily of payroll and
travel costs related to the installation of software, maintenance and support.
INCOME TAXES
The Company applies an asset and liability method in recording income
taxes, under which deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using currently enacted tax rates and laws.
Additionally, deferred tax assets are evaluated and a valuation allowance is
established if it is more likely than not that all or a portion of the deferred
tax asset will not be realized.
NET LOSS PER SHARE
Basic earnings per share is computed by dividing income or loss available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earning per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or result in the issuance of
common stock that would then share in the earnings of the Company. Potentially
dilutive securities are excluded from the Company's calculation of diluted
earnings per share ("EPS") when their inclusion would be antidilutive.
STOCK-BASED COMPENSATION
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard, if fully adopted, requires the accounting for
employee stock-based compensation using a fair value methodology. For stock
options, fair value is determined using an option pricing model that takes into
account the stock price at the date of grant, the exercise price, the expected
life of the option, the volatility of the underlying stock, the expected
dividends and the risk-free interest rate. For stock-based compensation issued
to non-employees, the standard requires measurement based on the value of the
related services performed or the stock-based compensation issued, whichever is
more reliably measurable. The adoption of the accounting methodology of SFAS No.
123 related to employees is optional and as permitted under SFAS No. 123, the
Company intends to continue to account for employee stock options using the
intrinsic value methodology in
F-11
<PAGE> 113
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accordance with the Accounting Principles Board Opinion No. 25; however, pro
forma disclosures as if the Company adopted the accounting methodology of SFAS
No. 123 are required to be presented (see Note 11).
UNAUDITED INTERIM INFORMATION
The accompanying financial information as of June 30, 1999 and for the six
months ended June 30, 1998 and 1999 is unaudited. In the opinion of management,
this information has been prepared on substantially the same basis as the annual
consolidated financial statements and contains all adjustments (consisting of
normal recurring accruals) necessary to present fairly the financial position
and results of operations as of such date and for such periods.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which is effective
for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal use and defines specific criteria that determine when such costs are
required to be expensed, and when such costs may be capitalized. The Company
expenses software development costs as incurred. Management believes that the
adoption of SOP 98-1 will not have a material effect on the Company's
consolidated financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities," which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs and require such costs to be expensed as
incurred. Management believes that the adoption of SOP 98-5 will not have a
material effect on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments. The
statement requires that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value, and that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Management believes that the
adoption of SFAS No. 133 will not have a material effect on the Company's
consolidated financial statements.
3. BUSINESS COMBINATIONS
HILL ARTS AND ENTERTAINMENT SYSTEMS, INC.
On May 31, 1996, the Company, which had no prior operations, acquired
substantially all of the business of Hill Arts and Entertainment Systems, Inc.
("Hill A&E"). Hill A&E and the Company were at that time under common control.
The Company acquired certain assets and assumed certain liabilities of Hill A&E
in exchange for a $3,000,000 promissory note, convertible into shares of Company
common stock at the option of the holder. The transaction was accounted for as a
transfer between enterprises under common control, and as a result, the assets
and liabilities transferred were accounted for at historical cost, in a manner
similar to a pooling of interests.
ADVANTIX, A DIVISION OF PLAYHOUSE SQUARE FOUNDATION
In December 1996, the Company acquired the assets of Advantix, a division
of Playhouse Square Foundation ("PSF"), a Cleveland, Ohio-based performing arts
center and ticketing services provider. The acquisition was accounted for as a
purchase. The purchase price consisted of a $2,000,000 promissory note at an
interest rate of seven percent and the issuance of 481,068 shares of the
Company's common stock. The
F-12
<PAGE> 114
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
notes were recorded at a discount of $256,590 that yielded an effective interest
rate of 10%, which approximates the Company's incremental borrowing rate at the
time of the acquisition. In connection with the purchase agreement, the Company
entered into a Stock Issuance Agreement with PSF. The agreement provides that,
if the Company does not complete an Initial Public Offering ("IPO") of its
common stock prior to December 31, 1999, PSF may require the Company to
repurchase the stock at $5.20 per share. If the Company does complete an IPO
within the specified time, but for a price less than $5.20 per share, the
Company will issue additional shares of its common stock up to an aggregate
value of $2,500,000. The 481,068 shares of common stock were recorded as
redeemable common stock at their fair market value of $2,500,000 based on the
Company's redemption obligation. The operating results of the acquired division
have been included in the accompanying consolidated financial statements from
the date of acquisition. Goodwill is amortized on a straight line basis over its
estimated useful life of ten years.
FANTASTIX TICKET COMPANY, LLC
In August 1997, the Company acquired the assets of Fantastix Ticket
Company, LLC ("Fantastix"), a Buffalo, New York-based ticketing services
provider. The acquisition was accounted for as a purchase. The purchase price
consisted of the issuance of 504,888 shares of the Company's common stock. In
connection with the purchase agreement, the Company entered into a Repurchase
Right Agreement with Fantastix. The agreement, as amended, provides that if the
Company does not complete an IPO prior to December 31, 1999, the seller of
Fantastix may require the Company to repurchase up to 400,000 shares of common
stock at $4.21 per share for total consideration of $1,683,000. The 400,000
shares of common stock were recorded as redeemable common stock at their fair
market value of $675,000 on the acquisition date. In the event that the seller
of Fantastix exercises its repurchase right, any additional consideration paid
in connection with the repurchase right shall be recorded as goodwill. Goodwill
related to the repurchase, if any, will be amortized prospectively from the date
of capitalization over the remaining amortization period. The remaining 104,888
shares were recorded at their fair market value of $177,000. The operating
results of Fantastix have been included in the accompanying consolidated
financial statements from the date of acquisition. Goodwill is amortized on a
straight line basis over its estimated useful life of ten years.
BAY AREA SEATING SERVICE, INC.
In September 1997, the Company acquired BASS, a Concord, California-based
ticketing services provider. The acquisition was accounted for as a purchase.
The purchase price includes $11,481,000 in cash and an aggregate of $5,996,010
in promissory notes bearing interest at 1.5% above the prime rate, as defined.
Additional consideration of up to approximately $5,900,000 may be paid over a
three-year period should BASS net revenues, as defined, meet certain minimum
amounts.
The actual amount of the contingent payment will be determined using an
agreed-upon formula based on quarterly net revenues, as specified in the
acquisition agreement. Such payments shall be recorded as goodwill as the
contingent consideration is paid. Through December 31, 1998, contingent
consideration of $2,460,697 had been paid and recorded as goodwill. Goodwill
related to contingent consideration is amortized prospectively from the date of
capitalization over the remaining amortization period.
In conjunction with the acquisition, the Company entered into noncompete
agreements with certain officers of BASS, which prohibits them from competing
with the business of the Company for a period of three years. Consideration for
the noncompete agreements totaled $1,000,000 paid at the closing of the
acquisition, and an additional total of $1,000,000 to be paid over three years.
Additionally, under the terms of the acquisition agreement, a restricted cash
account totaling $1,500,000 was established for the payment of certain
transition costs, as defined, incurred by the Company. The funds were
established in a restricted cash account to be used for the payment of 50
percent of the total transition costs incurred by the Company, up to $3,000,000,
with unused funds returned to the sellers of BASS and treated as additional
purchase price. The
F-13
<PAGE> 115
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company has incurred in excess of the $3,000,000 in transition costs and as a
result no funds were returned to the sellers. Other terms of the agreement
include provisions for the establishment of several restricted cash accounts
including (i) $600,000 for the payment of an officer's salary over three years
(ii) $300,000 related to guaranteed levels of working capital subsequent to the
close of the acquisition, which pursuant to the terms of the agreement was
remitted to the sellers of BASS subsequent to year-end, and (iii) $750,000
relating to possible license fees to be paid by the Company; an indemnification
provision in the acquisition agreement; and certain acquisition fees to be paid
by the sellers. From these restricted cash accounts $168,000 will be returned to
the sellers.
Pursuant to the terms of the BASS acquisition agreement, the Company issued
warrants to the sellers of BASS for the purchase of 1,332,423 shares of common
stock at an exercise price of $4.50 per share, entered into a three year
employment agreement with a former officer of BASS and entered into a three year
consulting agreement with a former officer and shareholder of BASS. The
operating results of BASS have been included in the consolidated financial
statements from the date of acquisition.
As of December 31, 1998 the consideration paid in connection with the
acquisition of BASS, including contingent consideration, aggregated $22,000,000.
Substantially all of the goodwill and intangible assets related to the
acquisition of BASS have been written off (See Note 4 "Impairment of Long-Live
Assets"). The remaining goodwill will be amortized on a straight line basis over
the remaining life of the asset of approximately 10 years.
PROTIX, INC.
In September, 1998, the Company acquired ProTix, a Madison, Wisconsin-based
ticketing services provider and ticketing systems developer. The acquisition was
accounted for as a purchase. The aggregate purchase price at the date of
acquisition was approximately $7,511,000, which includes costs of the
acquisition. The aggregate consideration includes the issuance of 317,768 shares
of the Company's common stock, $4,591,000 in cash, which includes a repayment of
approximately $2,900,000 of existing ProTix obligations, and an aggregate of
$1,297,000 in promissory notes bearing interest at 1.0% above the prime rate, as
defined. Additional consideration in the form of warrants for the purchase of
637,964 of the Company's common stock at an exercise price of $0.0225 per share
were issued to the sellers of ProTix. The Company entered into an amendment with
ProTix whereby the parties agreed to vest 478,477 of the warrants and cancel the
remaining 159,487. The Company valued the vested warrants at their fair value as
of the effective date which resulted in $2,150,000 of additional goodwill.
Goodwill related to vested warrants will be amortized prospectively from the
date of capitalization over the remaining amortization period. The 317,768
shares of common stock were recorded at their fair market value of $1,072,469.
The operating results of ProTix have been included in the accompanying
consolidated financial statements from the date of acquisition.
In conjunction with the acquisition, the Company entered into a noncompete
agreement with a former officer of ProTix, which prohibits him from competing
with the business of the Company for a period of three years. Consideration for
the noncompete agreement totaled $162,000 to be paid over three years.
The Company has allocated the excess purchase price over the fair value of
net tangible assets acquired to the following identifiable intangible assets:
existing product technology, customer relationships, trade name, assembled
workforce, goodwill and in-process research and development ("IPR&D"). Goodwill
is amortized on a straight line basis over its estimated useful life of ten
years. An allocation of $1,600,000 represents the estimated fair value related
to incomplete projects which reflect the risk-adjusted cash flows and the stage
of completion. At the date of the acquisition, the projects associated with the
IPR&D efforts had not yet reached technological feasibility and had no
alternative future uses. Accordingly, these costs were expensed. At the
acquisition date, ProTix was conducting development activities associated with
the completion of next generations of the Company's automated ticketing
solutions and regional ticketing services. The projects under
F-14
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TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
development, at the valuation date, were expected to address requirements in the
areas of greater scalability, significant new functionality, and greater speed.
In making its purchase price allocation, the Company considered present
value calculations of income, an analysis of project accomplishments and
completion costs, an assessment of overall contributions, as well as project
risks. The values assigned to IPR&D were determined by estimating the costs to
develop the purchased technology into commercially viable products, estimating
the resulting net cash flows from each project, excluding the cash flows related
to the portion of each project that was incomplete at the acquisition date, and
discounting the resulting net cash flows to their present value. Each of the
project forecasts was based upon future discounted cash flows, taking into
account the state of development of each in-process project, the cost to
complete that project, the expected income stream, the lifecycle of the product
ultimately developed, and the associated risks.
Aggregate revenue attributable to the IPR&D projects was estimated to peak,
as a percentage of total revenue, in 2001, and decline thereafter through the
end of the life of the IPR&D (2004) as new product technologies are expected to
be introduced by ProTix. The costs to complete the IPR&D efforts are expected to
be as follows: $402,000 for automated ticketing solutions and $108,000 for
regional ticketing services. For both of the project categories, a risk-adjusted
discount rate of 20% was utilized to discount projected cash flows.
The following unaudited pro forma consolidated results of operations for
the years ended December 31, 1997 and 1998 assume that the ProTix and BASS
acquisitions occurred as of January 1, 1997:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Pro forma revenues....................................... $34,415,125 $ 35,612,184
Pro forma net loss....................................... (9,594,744) (36,526,136)
Pro forma basic and diluted loss per share............... (1.73) (6.03)
</TABLE>
The pro forma results include interest expense on debt issued to finance
the purchases, debt issued to sellers and amortization expense of intangible
assets resulting from the purchases. The pro forma results are not necessarily
indicative of what actually would have occurred if the acquisitions had been
completed at the beginning of each of the fiscal periods presented, nor are they
indicative of future consolidated results.
The estimated fair value of assets acquired and the liabilities assumed as
of the date of the acquisitions are summarized as follows:
<TABLE>
<CAPTION>
ADVANTIX FANTASTIX BASS PROTIX
---------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Fair value of identified assets
acquired...................... $ 300,000 $300,000 $ 16,503,350 $ 3,307,228
Liabilities assumed............. -- -- (11,433,420) (2,107,639)
Goodwill at acquisition date.... 3,943,410 552,000 14,411,391 4,711,175
Purchased research and
development................... -- -- -- 1,600,000
---------- -------- ------------ -----------
Total consideration........ $4,243,410 $852,000 $ 19,481,321 $ 7,510,764
========== ======== ============ ===========
</TABLE>
ACQUISITION OF CALIFORNIA TICKETS.COM, INC.
In April 1999, Advantix, Inc. acquired all of the outstanding capital stock
of California Tickets.com Inc. and in May, 1999 Advantix, Inc. changed its name
to Tickets.com, Inc. The purchase price equaled approximately $41.5 million,
consisting of the issuance of 2,678,577, 5,782,241 and 3,928,386 shares of the
Company's Series A1 convertible preferred stock, Series C convertible preferred
stock and common stock, valued at estimated fair value of $2.09, $2.21, and
$4.50 per share, respectively. The Company determined the estimated fair value
based on recent private placements of its Series D preferred stock (see Note
10). In
F-15
<PAGE> 117
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
addition, the Company assumed all of the outstanding options to purchase common
stock at California Tickets.com, Inc. by issuing to the holders of such options,
options to purchase 1,507,341 shares of the Company's common stock. The
acquisition was accounted for as a purchase. In March, the Company made a $3.7
million loan for general working capital purposes to California Tickets.com,
Inc., primarily to fund the purchase of TicketStop, Inc. This loan was
incorporated as an element of the California Tickets.com purchase price upon the
close of the acquisition.
ACQUISITION OF TICKETSLIVE CORPORATION
In March 1999, the Company entered into an Agreement and Plan of
Reorganization and Merger (the "TicketsLive Agreement") with the shareholders of
TicketsLive Corporation ("TicketsLive") to purchase all of the outstanding
capital stock of TicketsLive. The purchase price equaled approximately $26.0
million, consisting of the issuance of 5,195,779 shares of Company's common
stock, valued at estimated fair value of $4.50 per share. The Company determined
the estimated fair value based on recent private placements of its Series D
preferred stock (see Note 10). In accordance with the agreement, 573,057 of
these shares are held in escrow to be issued to certain recipients determined by
the offering price of an IPO. In addition, the Company assumed all of the
outstanding options to purchase TicketsLive common stock by issuing to the
holders of such options, options to purchase 581,998 shares of the Company's
common stock. The TicketsLive Agreement provides that if the Company does not
complete an IPO prior to August 31, 1999 and April 5, 2001, the majority
shareholder of TicketsLive may require the Company to repurchase up to 622,222
and 416,888 shares, respectively, of the Company's common stock at $9.36 and
$9.97 per share, respectively. The acquisition was accounted for as a purchase.
During March, the Company made a loan to TicketsLive of $1.0 million for general
working capital purposes. This loan was incorporated as an element of the
purchase price of TicketsLive upon the close of the acquisition.
ACQUISITION OF TICKETSTOP, INC.
In March 1999, California Tickets.com entered into a Stock Purchase
Agreement with TicketStop, Inc. ("TicketStop") and the shareholders of
TicketStop to purchase all of the outstanding common stock of TicketStop. The
purchase was for cash consideration equaling approximately $2.3 million,
consisting of an up front cash payment of $2.2 million. Additional
consideration, in the form of a contingent cash payment of up to approximately
$400,000, is subject to TicketStop attaining a targeted number of active
clients, as defined. The acquisition was accounted for as a purchase on the
books of California Tickets.com, Inc.
4. IMPAIRMENT OF LONG-LIVED ASSETS
During the fourth quarter of 1998 the Company recorded a noncash impairment
charge of $17,026,149. During 1998, BASS was given notice of termination by four
of its clients, its largest client giving notice during the fourth quarter of
1998. The loss of these clients prompted an assessment of the carrying value of
the long-lived assets associated with the acquisition of BASS. Based upon this
assessment, the Company determined that certain of the intangible assets
resulting from the BASS acquisition met the test for impairment, principally
goodwill and noncompete agreements. Accordingly, the Company has reduced the
carrying value of the related long-lived assets to their estimated fair value.
The Company also reviewed the estimated lives of certain of the Company's
long-lived assets which resulted in shortened lives and the acceleration of
amortization expense for certain intangible assets.
5. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes new standards for
reporting operating segments of publicly held companies. This approach requires
the Company to present segment information externally the same way management
uses financial data internally to make operating decisions and assess
performance. SFAS 131
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<PAGE> 118
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
also requires that all public business enterprises report information about the
revenues derived from the enterprise's products or services (or groups of
similar products and services), about the countries in which the enterprise
earns revenues and holds assets and about major customers regardless of whether
that information is used in making operating decisions. The Company has two
reportable segments: ticketing services and software services. The Company
derives revenues and gross profits mainly from ticketing services and
secondarily from software services and other. These products and services are
provided throughout the United States and internationally to a similar customer
base comprised mainly of stadiums, performing arts centers, museums and
professional sports franchises.
The Company provides ticketing services to its clients for the sale and
distribution of the clients' tickets through the Company's telephone sales
centers, retail stores, web site and interactive voice response system. In
addition, the Company can also connect its software licensees to its web site
whereby a licensee can sell its tickets on the Company's web site. Revenues from
ticketing services are derived primarily from convenience fees and handling fees
charged to the purchasers of the tickets.
Software services revenue is comprised mainly of license fees and support
fees for the use of the Company's ticketing software for the sale of tickets
through a clients' own box office. Software services revenue additionally
includes revenue recognized in connection with the hardware, installation and
training related to the use of the ticketing software. The Company generates
software services revenue internationally in 16 countries. However, revenues
generated internationally represent less than 10% of the Company's total
revenues.
The Company has sales to external customers only. There have been no
intersegment sales. The Company evaluates the performance of its operating
segments and allocates resources based on gross profit and therefore, segment
information has been provided at that level. Additionally, assets are not
allocated to specific products and, accordingly cannot be reported by segment.
For the period from May 31, 1996 (Inception) to December 31, 1996
<TABLE>
<CAPTION>
TICKETING SOFTWARE
SERVICES SERVICES OTHER TOTAL
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $ 119,249 $1,123,040 -- $ 1,242,289
Gross (loss) profit..................... (697,371) 509,335 -- (188,036)
</TABLE>
For the year ended December 31, 1997
<TABLE>
<CAPTION>
TICKETING SOFTWARE
SERVICES SERVICES OTHER TOTAL
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $ 9,686,138 $1,960,904 -- $11,647,042
Gross profit............................ 1,984,705 1,249,587 -- 3,234,292
</TABLE>
For the year ended December 31, 1998
<TABLE>
<CAPTION>
TICKETING SOFTWARE
SERVICES SERVICES OTHER TOTAL
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $26,557,612 $2,981,824 -- $29,539,436
Gross profit............................ 9,402,822 1,430,876 -- 10,833,698
</TABLE>
For the six months ended June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
TICKETING SOFTWARE
SERVICES SERVICES OTHER TOTAL
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $13,046,516 $6,032,816 $ 198,737 $19,278,069
Gross profit............................ 4,074,886 2,906,002 (245,288) 6,735,600
</TABLE>
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<PAGE> 119
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
USEFUL LIVES 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Computer equipment............................. 3 years $4,388,599 $7,713,751
Furniture and fixtures......................... 3 years 392,116 990,412
Leasehold improvements......................... 3 - 5 years 122,986 273,281
Vehicles....................................... 3 years -- 52,703
---------- ----------
4,903,701 9,030,147
Less -- accumulated depreciation............... (557,488) (619,278)
---------- ----------
Property and equipment, net.................... $4,346,213 $8,410,869
========== ==========
</TABLE>
Total depreciation and amortization expense was $75,000, $482,488 and
$1,946,604, for the period from May 31, 1996 (Inception) to December 31, 1996
and for the years ended December 31, 1997 and 1998, respectively.
INTANGIBLE ASSETS
Intangible assets consisted of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
USEFUL LIVES 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Goodwill................................... 12 - 25 years $19,508,131 $ 5,768,168
Existing technology........................ 5 years -- 3,110,000
Customer relationships..................... 10 years -- 650,000
Tradenames................................. 20 years -- 1,200,000
Assembled workforce........................ 10 years -- 169,000
Noncompete agreements...................... 3 years 2,000,000 887,148
----------- -----------
21,508,131 11,784,316
Less -- accumulated amortization........... (712,416) (2,741,028)
----------- -----------
Intangible assets, net..................... $20,795,715 $ 9,043,288
=========== ===========
</TABLE>
OTHER ASSETS
Other assets consisted of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Deposit for contingent consideration........................ $5,324,192 $3,431,989
Deferred debt financing costs, net.......................... 343,400 240,070
Other....................................................... 126,060 791,254
---------- ----------
Other assets................................................ $5,793,652 $4,463,313
========== ==========
</TABLE>
Deposit for contingent consideration represents cash held in an escrow
account to be used for payment to the former shareholders of BASS over a
three-year period if BASS net revenues meet certain defined minimum targets (see
Note 3).
F-18
<PAGE> 120
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTS PAYABLE
Accounts payable consisted of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Accounts payable -- clients............................... $ 7,383,062 $ 8,620,789
Accounts payable -- other................................. 1,279,672 1,636,927
----------- -----------
Accounts payable.......................................... $ 8,662,734 $10,257,716
=========== ===========
</TABLE>
Accounts payable -- clients represents primarily contractual amounts due
for tickets sold by the Company on behalf of the organizations that sponsor
events.
ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Payroll and payroll related............................... $ 644,070 $ 1,239,519
Accrued interest.......................................... 845,372 1,231,839
Other..................................................... 2,200,012 2,791,295
----------- -----------
Accrued liabilities....................................... $ 3,689,454 $ 5,262,653
=========== ===========
</TABLE>
7. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consisted of the following as
of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Senior secured notes with interest rates ranging from
prime (7.75% at December 31, 1998) plus 1.0% to 12.0%
fixed, maturing between October 1, 2003 and October 1,
2004, net of discount................................... $15,575,585 $15,139,991
Convertible note payable to Hill International (successor
to Hill A&E) at 8.0%, due and payable on May 31, 2001... 3,000,000 3,000,000
Note payable to PSF at an effective rate of 10.0%;
maturing March 31, 2000................................. 500,000 500,000
Subordinated BASS shareholder notes at prime (7.75% at
December 31, 1998) plus 1.5%, secured by certain assets
of the Company, maturing at the earlier of a qualified
initial public offering or September 26, 2002........... 5,996,010 5,996,010
Subordinated ProTix shareholder notes at prime (7.75% at
December 31, 1998) plus 1.0%, secured by certain assets
of the Company, maturing October 16, 1999............... -- 1,297,000
Obligations payable to former officers of BASS for
noncompete agreements, bearing interest at 10.0%,
secured by certain assets of the Company, due in equal
quarterly installments beginning December 1997, maturing
December 2000........................................... 1,000,000 583,333
Various capital lease obligations bearing interest ranging
from 10.0% to 14.3%, payable in monthly installments
totaling approximately $54,101, maturing at various
dates from January 31, 1999 to November 30, 2001........ 212,840 1,364,554
</TABLE>
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<PAGE> 121
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Various installment payment agreements in connection with
the purchase of certain property and equipment, bearing
interest ranging from 11.1% to 14.0%, payable in
quarterly installments totaling $31,069 maturing at
various dates from April 30, 1999 to September 30,
2000.................................................... -- 199,198
----------- -----------
26,284,435 28,080,086
Less -- current portion................................... (2,791,239) (7,848,473)
----------- -----------
$23,493,196 $20,231,613
=========== ===========
</TABLE>
Annual maturities of long-term debt and capital lease obligations as of
December 31, 1998 are as follows:
Year ending December 31:
<TABLE>
<S> <C>
1999............................................ $ 7,848,473
2000............................................ 3,899,093
2001............................................ 6,623,527
2002............................................ 3,429,002
2003............................................ 7,110,000
-----------
28,910,095
Less -- discount................................ (830,009)
-----------
$28,080,086
===========
</TABLE>
SENIOR SECURED NOTES
The Company has a Credit Agreement (the "Agreement") with a senior lender
(the "Bank"), which provides for three credit facilities aggregating $16.0
million, secured by certain assets of the Company. The Agreement expires October
1, 2004. The facilities bear interest ranging from prime plus 1.0% to 12.0
percent fixed. The Agreement includes financial covenants related to a minimum
current ratio, interest coverage and fixed charge ratio, as defined, among
others. As of December 31, 1998, the Company was not in compliance with certain
of these financial covenants. On March 17, 1999 the Company entered into a First
Amendment to the Amended and Restated Credit Agreement (the "First Amendment")
with the Bank, which among other things, amended financial covenants and
provided for a waiver of all instances of default under the provisions of the
Agreement. The First Amendment also required the pay down of $2.0 million of the
Senior Secured Notes.
FORMER BASS SHAREHOLDERS
Under the terms of the BASS acquisition, the Company entered into separate
subordinated note agreements with each of the former shareholders of BASS,
aggregating $5,996,010. These notes are subordinated to the Senior Secured
Notes. The notes issued under the BASS purchase agreement are secured equally
and ratably by a security interest in substantially all of the assets of the
Company. The notes may be prepaid at the Company's option without penalty, and
must be repaid upon the earlier of the closing of an IPO or September 26, 2002.
8. INCOME TAXES
The Company incurred taxable losses for federal and state purposes for the
period from May 31, 1996 (Inception) to December 31, 1996 and for the years
ended December 31, 1997 and 1998. Accordingly, the Company did not incur any
federal income tax expense for those fiscal years other than the minimum
required
F-20
<PAGE> 122
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
taxes for certain state and local jurisdictions. The Company is subject to
minimum income taxes in various states for each corporate entity, which is
reflected in the accompanying consolidated statements of operations.
The significant components of the Company's net deferred tax asset as of
December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Nondeductible reserves............................ $ 155,784 $ 512,682
Net operating loss carryforwards.................. 3,097,413 7,813,124
Other............................................. 89,611 1,130,402
Valuation allowance............................... (3,342,808) (9,456,208)
----------- -----------
Deferred tax asset, net........................... $ -- $ --
=========== ===========
</TABLE>
As of December 31, 1998, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $21,989,650, which can be used
to offset taxable income from operations through the year 2013. Additionally,
the Company has net operating loss carryforwards for California income tax
purposes of approximately $8,034,187, which can be used to offset taxable income
from operations through the year 2003.
Under the Tax Reform Act of 1986, the benefits from net operating losses
carried forward may be impaired or limited in certain circumstances. Events
which may cause limitations in the amount of net operating losses that the
Company may utilize in any one year include, but are not limited to, a
cumulative ownership change of more than 50.0% over a three year period. At
December 31, 1998, only net operating losses attributable to periods prior to
September 1997 were subject to such limitations, in the amount of approximately
$900,000 per year. The impact of any additional limitations that may be imposed
for future issuances of equity securities, including issuances with respect to
acquisitions, has not been determined.
A valuation allowance is provided for the deferred tax asset when it is
more likely than not that some portion of the deferred tax asset will not be
realized. The Company has established a full valuation allowance on the
aforementioned deferred tax asset due to the uncertainty of realization.
9. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and equipment under various operating
leases that expire at various dates through 2003. Total rent expense under these
operating leases was approximately $185,220, $625,200 and $1,708,088 for the
period from May 31, 1996 (Inception) to December 31, 1996 and for the years
ended December 31, 1997 and 1998, respectively. Future minimum rentals on these
operating leases are as follows:
Year ending December 31:
<TABLE>
<S> <C>
1999............................................. $1,514,597
2000............................................. 845,782
2001............................................. 299,763
2002............................................. 74,577
2003............................................. 49,276
----------
$2,783,995
==========
</TABLE>
F-21
<PAGE> 123
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LITIGATION
The Company is subject to litigation in the normal course of its business.
In the opinion of management, the disposition of all litigation pending as of
December 31, 1998, will not have a material effect on the Company's consolidated
financial condition and results of operations.
TICKETING SERVICE AGREEMENTS
The Company has entered into agreements with terms from one to five years
with clients to provide ticketing services. The terms of certain agreements
require the Company to make aggregate minimum annual payments or payments based
on the number of tickets sold or both. Certain of these agreements require that
the Company provide annual advertising allowances ranging from $5,000 to
$25,000. In addition, certain agreements require the Company's commitment to
purchase agreed-upon seating for events at certain facilities.
10. STOCKHOLDERS' EQUITY
REDEEMABLE COMMON STOCK
In connection with the Advantix and Fantastix acquisitions, the Company
issued 481,068 and 400,000 shares of common stock subject to redemption,
respectively (see Note 3). As redemption of the common stock is outside of the
control of the Company, the value attributable to such common stock is presented
outside of stockholders' equity.
CONVERTIBLE PREFERRED STOCK
From May 1996 to January 1997, the Company issued 8,440,002 shares of
Series A convertible preferred stock in a private placement to various investors
at $0.49 per share, for net proceeds after stock issuance costs of $4,090,993.
From March 1997 to October 1997 the Company issued 9,499,874 shares of Series B
convertible preferred stock in a private placement to various investors at $1.25
per share, for net proceeds after stock issuance costs of $11,155,998. In
addition, in May 1998 the Company issued 11,597,114 shares of Series C
convertible preferred stock in a private placement to various investors at $1.75
per share, for net proceeds after stock issuance costs of $19,989,794.
On March 22, 1999 the Company issued 9,477,655 shares of series D
convertible preferred stock in a private placement with institutional investors
at $2.25 per share for total proceeds net of issuance costs of $21,279,600. On
May 17, 1999 the Company issued 3,855,680 shares of series D convertible
preferred stock in a private placement for $2.25 per share for total proceeds,
net of issuance costs, of $8,669,732.
The Series A, Series B, Series C and Series D convertible preferred stock
have liquidation preferences, voting rights equivalent to, or for certain
matters, superior to, common stock, and do not accrue dividends unless declared
by the Company. At the option of the holder, each share of the Series A, Series
B, Series C and Series D convertible preferred stock can be converted into one
share of common stock. Such conversion is automatic in the event of an IPO. The
conversion rate is subject to adjustment under certain circumstances pursuant to
antidilution provisions. The conversion is also subject to adjustment based on a
split of the Company's common stock. No dividends have been declared on
convertible preferred stock through December 31, 1998.
COMMON STOCK WARRANTS
In connection with the Senior Secured Notes, the Company issued warrants to
the Bank to purchase 177,778 shares of the Company's common stock at an exercise
price of $0.0225 per share. The warrants are subject to certain antidilution
provisions and, as a result of such provisions, such warrants totaled 188,629
and
F-22
<PAGE> 124
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
334,588 and as of December 31 1997 and 1998, respectively. Under the terms of
the warrants, the Bank is entitled to receive warrants for the purchase of
shares of common stock equivalent to 1.19725% of the outstanding common stock of
the Company, as defined, which includes securities convertible into common stock
and common stock equivalents. The warrants expire eight years from the date of
issuance or as of the closing of an IPO, whichever is earlier. As a result of
this provision, the Company will be required to issue additional warrants to the
Bank concurrent with any future issuances of common stock, securities
convertible into common stock, or common stock equivalents, subject to certain
exceptions as provided in the warrants. The warrants are also subject to an
adjustment by an additional 0.23945% of the outstanding common stock of the
Company, as defined, on each anniversary date of the warrant through September
26, 2000 if the Company has not yet completed an IPO, and are subject to a put
option, whereby the Company may be required to repurchase the warrants, or the
related common stock should the warrants be exercised, at a price of $11.25 per
share. The put option is exercisable by the Bank beginning on the sixth
anniversary of the Agreement, and expires on the eighth anniversary of the
Agreement or as of an IPO, whichever is earlier. The warrants were initially
recorded at fair value, and the Company provides for accretion of the warrants
to the repurchase price through a periodic charge to retained earnings. The
issuance of the warrants in conjunction with the incurrence of the debt resulted
in the allocation of approximately $424,000 and $917,000 of value to the
warrants and a corresponding discount on the debt, as of December 31, 1997 and
1998, respectively, which will be amortized over the life of the related debt.
As redemption of the warrants is outside of the control of the Company, the
value attributable to such warrants is presented outside of stockholders'
equity.
In connection with the acquisition of BASS, the Company issued warrants to
purchase 1,332,423 shares of the Company's common stock to the sellers of BASS
at an exercise price of $4.50 per share. The estimated fair value attributable
to the warrants was included in the purchase price calculation for BASS. The
warrants are fully vested, and expire at the earlier of five years or upon the
close of an IPO.
In connection with the acquisition of ProTix, the Company issued warrants
to purchase 637,964 shares of common stock to the sellers of ProTix at an
exercise price of $0.0225 per share. The Company entered into an amendment
subsequent to December 31, 1998, whereby 478,477 warrants were vested and the
remaining 159,487 warrants were cancelled. The warrants were recorded at fair
market value of the underlying common stock at the time of vesting of $4.50 per
share for a total value of $2,150,000. The value of the warrants was recorded as
additional purchase price related to the acquisition of ProTix.
UNAUDITED PRO FORMA STOCKHOLDERS' EQUITY
Concurrent with the consummation of the IPO of the Company's common stock,
all existing series of convertible preferred stock will automatically convert to
shares of common stock. Additionally, the Company's $3.0 million convertible
debt will automatically convert to common stock, and all outstanding redemption
privileges on the Company's common stock and warrants will be cancelled,
resulting in the reclassification of all related amounts to stockholders'
equity. The unaudited pro forma stockholders' equity at June 30, 1999 gives
effect to these conversions and reclassifications.
11. EMPLOYEE BENEFIT PLANS
In October 1996, the Board of Directors approved the 1996 Stock Option Plan
(the "1996 Plan"). The 1996 Plan authorized the issuance of up to 1,333,333
shares of common stock to various employees. The exercise price is determined by
the compensation committee of the Board of Directors and may not be less than
100 percent of the fair market value of the Company's common stock at the date
of grant.
Options to acquire an aggregate of 1,035,778 shares of common stock under
the 1996 Plan at an exercise price of $.90 per share were granted to employees
during the period from October 1996 through August 1997. The options generally
vest quarterly over a four-year period and have a term of 10 years.
F-23
<PAGE> 125
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In September 1997, the Board of Directors approved the 1997 Stock Option
Plan (the "1997 Plan"). The 1997 Plan authorized the issuance of up to 1,333,333
shares of common stock to various employees. The exercise price is determined by
the compensation committee of the Board of Directors and may not be less than
100% of the fair market value of the Company's common stock at the date of
grant.
Options to acquire an aggregate of 1,333,333 shares of common stock under
the 1997 Plan at an exercise price of $2.25 per share were granted to employees
during the period from October 1997 through June 1998. The options generally
vest quarterly over a four-year period and have a term of 10 years.
In September 1998, the Board of Directors approved the 1998 Stock Incentive
Plan (the "1998 Plan"). The 1998 Plan authorized the issuance of up to 3,999,923
shares of common stock to various employees. The exercise price is determined by
the compensation committee of the Board of Directors and may not be less than
100 percent of the fair market value of the Company's common stock at the date
of grant.
Options to acquire an aggregate of 2,155,622 shares of common stock under
the 1998 plan at an exercise price of $3.38 per share were granted to employees
during the period from July 1998 through December 1998. The options generally
vest quarterly over a four-year period and have a term of 10 years.
In September 1998, in connection with the approval of the 1998 Plan, the
reserve of 1,333,333 shares authorized for issuance under the 1997 Plan,
together with all outstanding options under the 1997 Plan, were transferred to
the 1998 Plan and the 1997 Plan was terminated.
Stock option activity from May 31, 1996 (Inception) to December 31, 1998 is
as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE EXERCISE
OPTIONS PRICE
--------- ----------------
<S> <C> <C>
Outstanding as of May 31, 1996 -- --
Granted........................................... 888,000 $ .90
Exercised......................................... -- --
Cancelled or expired.............................. (444) .90
--------- -----
Outstanding as of December 31, 1996................. 887,556 .90
Granted........................................... 1,406,769 2.12
Exercised......................................... (14,354) .90
Cancelled or expired.............................. (95,173) .90
--------- -----
Outstanding as of December 31, 1997................. 2,184,798 1.69
Granted........................................... 2,412,667 3.20
Exercised......................................... (14,353) .92
Cancelled or expired.............................. (58,378) 1.76
--------- -----
Outstanding as of December 31, 1998................. 4,524,734 2.48
========= =====
Options exercisable as of December 31, 1998......... 939,525 $1.94
========= =====
</TABLE>
For pro forma purposes under SFAS 123 the fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in fiscal 1996,
1997 and 1998, dividend yield of 0.0%; expected volatility of 0.0%; risk-free
rate of 6.40%, 6.40% and 6.23%, respectively; and expected lives of five years.
F-24
<PAGE> 126
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The pro forma effect of adopting the measurement principles prescribed
under SFAS No. 123 for the period from May 31, 1996 (Inception) to December 31,
1996 and the years ended December 31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
MAY 31, 1996
(INCEPTION) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1996 1997 1998
-------------- ----------- ------------
<S> <C> <C> <C>
Pro forma net loss......................... $(3,262,126) $(6,189,002) $(35,568,266)
Pro forma basic and diluted EPS............ $ (.65) $ (1.19) $ (6.20)
</TABLE>
Pro forma results of operations costs may not be representative of that to
be expected in future years.
STOCK OPTION GRANTS
In April and May 1999 the Company granted options to acquire a total of
1,836,889 shares of common stock to employees at exercise prices ranging from
$4.50 to $7.31. Of the granted options, 494,667 vest quarterly and have a term
of 10 years. The remaining 1,342,222 options fully vest at the earlier of six
years or upon consummation of certain events, including the completion of the
initial public offering and the achievement of certain defined minimum trading
prices for the Company's common stock for specified periods.
401(k) PLAN
The Company maintains a defined contribution benefit plan (the "401(k)
Plan") covering substantially all of its employees. Company contributions to the
401(k) Plan are voluntary and at the discretion of the Company. There were no
matching Company contributions for the period from May 31, 1996 (Inception)
through December 31, 1996 or for the years ended December 31, 1997 and 1998.
12. COMMITMENT FOR EQUITY INVESTMENT
In May 1999, the Company entered into an agreement with a significant
shareholder, whereby the shareholder agreed to purchase up to an aggregate of
5,333,334 shares of convertible preferred stock for an aggregate purchase price
of $12.0 million, under certain conditions. The shares will only be purchased in
the event that the Company requires additional capital to satisfy and discharge
its obligations as they become due. The agreement expires upon the earlier of
the completion of the initial public offering, or March 31, 2000. Pursuant to
the agreement, the Company issued to the shareholder a warrant for the purchase
of up to 222,222 shares of common stock at an exercise price of $5.06 per share,
with a term of 10 years.
13. UNAUDITED SUBSEQUENT EVENTS
ACQUISITION OF LASERGATE SYSTEMS, INC.
On January 24, 1999, Tickets.com and RBB Bank AG entered into a stock
purchase agreement, providing for the purchase by Tickets.com from RBB of
7,837,332 shares of common stock of Lasergate Systems, Inc. a Florida
corporation, for cash in the amount of $784,000, and 5,700 shares of preferred
stock of Lasergate, which are convertible into 24,818,217 shares of Lasergate
common stock, for an aggregate of 430,872 shares of Tickets.com common stock.
Pursuant to the stock purchase agreement, the closing of the purchase of
Lasergate stock was to be held not later than May 15, 1999, or such later date
as RBB and Tickets.com agreed.
Subsequently, on June 21, 1999, Tickets.com and RBB amended the stock
purchase agreement. Under the amendment, the Company agreed to purchase
Lasergate preferred shares in exchange for, at the election of RBB, 75.592
shares of the Company's common stock for each Lasergate preferred share, $435.00
for each
F-25
<PAGE> 127
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Lasergate preferred share, or a combination thereof. Additionally, Tickets.com
and RBB agreed that Tickets.com would purchase the Lasergate common shares for
$.10 per share in cash as part of a merger of Tickets.com or its subsidiary with
Lasergate pursuant to a definitive agreement and plan of merger and not as a
separate transaction under the stock purchase agreement. All other terms of the
stock purchase agreement would continue in full force and effect, including
RBB's agreement to support a merger of Lasergate with Tickets.com, and to vote
all of the Lasergate common shares in favor of a merger.
On June 21, 1999, Lasergate and Tickets.com entered into a definitive
agreement and plan of merger. Under this merger agreement, Lasergate agreed to
the merger of Lasergate with a wholly owned subsidiary of Tickets.com, subject
to receipt of approval by the shareholders of Lasergate and satisfaction of
other closing conditions. Holders of the Lasergate common stock will receive
$.10 per share in cash. After completion of the merger, Tickets.com will own
100% of the outstanding stock of Lasergate.
On June 28, 1999, following the execution of the merger agreement, RBB sold
the Lasergate preferred shares to the Company in exchange for 299,796 shares of
Tickets.com's common stock and $754,290.
Between June 23, 1999 and October 15, 1999, the Company made advances
aggregating $1.8 million to Lasergate Systems, Inc., pursuant to various
promissory notes. The promissory notes are payable upon demand and bear interest
at ten percent (10%) per annum.
DATACULTURE
On August 23, 1999 we purchased all of the outstanding capital stock of
dataCulture, Ltd., a private limited company incorporated under the laws of
England. The total purchase price was 4.0 million pounds sterling, or the
equivalent of approximately $6.4 million as of the date of purchase. The
purchase price is payable 3.0 million pounds sterling at the closing of the
acquisition and 1.0 million pounds sterling payable in 12 equal quarterly
installments commencing December 31, 1999.
PENDING LITIGATION
In July 1999, Ticketmaster Corporation and Ticketmaster Online-CitySearch,
Inc. filed a lawsuit against the Company alleging claims for, among other
things, copyright infringement, unfair business practices, and tortious
interference with prospective economic advantages. The complaint seeks
injunctive relief and damages of an unspecified amount. The Company believes
that the claims are without merit and intends to vigorously defend itself
against these claims. Any potential losses to the Company as a result of this
action are not reasonably estimable, and accordingly, no reserve for loss has
been established in the accompanying consolidated financial statements. Any
losses that might be incurred by the Company related to these claims depending
on the magnitude, could adversely impact the financial condition and results of
operations of the Company.
SERIES E CONVERTIBLE PREFERRED STOCK
In August 1999, the Company issued and sold 3,333,332 shares of Series E
Convertible Preferred Stock to Excite, Inc. and Cox Interactive Media for an
aggregate purchase price of $30.0 million or $9.00 per share, pursuant to a
stock purchase agreement. In October 1999 Excite and Cox Interactive Media
purchased 6,111,114 additional shares of the Company's Series E Convertible
Preferred Stock for an aggregate purchase price of $55.0 million or $9.00 per
share. The Series E Convertible Preferred Stock has a liquidation preference,
voting rights equivalent to or for certain matters, superior to, common stock,
and does not accrue dividends unless declared by the Company. At the option of
the holder, each share of Series E preferred stock is convertible into a .4444
share of common stock based on a 1-for-2.25 reverse split of the Company's
common stock, provided that the initial public offering price is $20.25 per
share or greater. If the initial public offering price is less than $20.25 per
share, then each share of Series E Convertible Preferred Stock will
F-26
<PAGE> 128
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
convert into a greater number of shares of our common stock. Assuming an initial
public offering price of $8.00 per share, each share of Series E Convertible
Preferred Stock will convert into approximately 1.125 shares of the Company's
common stock.
OPERATING AGREEMENTS
In connection with its investment in Tickets.com, Excite entered into a
letter of intent with Tickets.com, and Cox Interactive Media entered into a
content and distribution agreement with Tickets.com. Under these agreements,
Tickets.com will integrate its event information and ticket purchasing
capabilities on web sites of Excite and Cox Interactive Media and their
affiliates. Pursuant to the letter of intent and in conjunction with the closing
of the sale and issuance of the 6,111,114 shares of Series E Convertible
Preferred Stock in October 1999, the Company paid Excite $25.0 million and must
pay other additional fees to Excite over a period of three years. The content
and distribution agreement with Cox Interactive Media provides that Tickets.com
will purchase a minimum of $13.5 million in advertising from Cox Interactive
Media over a period of three years.
TICKETSTOP, INC.
In September 1999, the Company entered into an amendment with the
shareholders of TicketStop whereby the parties agreed to remove the contingency
behind the remaining $400,000 cash payment, which resulted in additional
goodwill. See Note 3, "Business Combinations."
STOCK SPLIT
In September 1999, the Board of Directors of the Company approved a one for
2.25 reverse stock split. All references in the accompanying consolidated
financial statements to the number of common shares and warrants and options to
purchase common shares and per share data have been restated to reflect the
effect of this action. The Company's Convertible Preferred Stock was not subject
to the split, until such shares are converted to common. The conversion rate to
common of the preferred shares gives effect to the one for 2.25 split.
F-27
<PAGE> 129
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Bay Area Seating Service, Inc.
We have audited the accompanying balance sheets of Bay Area Seating Service,
Inc. (a corporation) as of March 31, 1997 and 1996 and the related statements of
income, shareholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The statements of income and cash flows for the period from April 1,
1997 to September 26, 1997 were audited by other auditors whose report dated
January 30, 1998 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Bay Area Seating Service, Inc.
as of March 31, 1997 and 1996 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ BURR, PILGER & MAYER
Burr, Pilger & Meyer
San Francisco, California
May 15, 1997
F-28
<PAGE> 130
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and shareholders
of BAY AREA SEATING SERVICES, INC.:
We have audited the accompanying statements of income and cash flows of BAY AREA
SEATING SERVICE, INC. (a California corporation) for the period from April 1,
1997 to September 26, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of BAY AREA
SEATING SERVICE, INC. for the period from April 1, 1997 to September 26, 1997,
in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Arthur Andersen, LLP
Orange County, California
January 30, 1998
F-29
<PAGE> 131
BAY AREA SEATING SERVICE, INC.
BALANCE SHEETS -- MARCH 31, 1996 AND 1997
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 679,104 $ 827,611
Restricted cash........................................... 350,000 550,000
Accounts receivable, net of allowance for doubtful
accounts of $22,887 and $22,415, respectively........... 1,821,853 2,731,079
Accounts receivable -- related party...................... 28,014 32,965
Investment securities..................................... 7,962,677 6,804,450
Other investments......................................... 204,441 204,441
Prepaid expenses and other assets......................... 274,184 290,412
Prepaid income taxes...................................... 37,300 --
Deferred income taxes..................................... 40,100 115,000
----------- -----------
Total current assets............................... 11,397,673 11,555,958
PROPERTY AND EQUIPMENT, net................................. 1,171,524 937,763
LEASEHOLD IMPROVEMENTS, Less -- Accumulated amortization of
$145,380 and $174,935 and in 1996 and 1997,
respectively.............................................. 113,804 87,299
INVESTMENT SECURITIES....................................... -- 1,745,949
DEPOSITS AND OTHER ASSETS................................... 37,160 37,160
DEFERRED INCOME TAX BENEFIT, net of valuation allowance of
zero in 1996 and $119,000 in 1997......................... 97,600 78,900
----------- -----------
TOTAL ASSETS................................................ $12,817,761 $14,443,029
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft............................................ $ 2,032,444 $ 2,344,303
Due to promoters, net..................................... 6,209,727 7,196,811
Current portion of notes payable.......................... 58,661 5,812
Accounts payable.......................................... 311,296 175,614
Other accrued liabilities................................. 861,605 616,448
Accrued rent-short-term................................... 54,694 54,694
Accrued profit sharing.................................... -- 200,000
Income taxes payable...................................... 79,000 11,500
Deferred income taxes..................................... 2,000 --
Deferred revenue-short-term............................... 196,775 202,025
----------- -----------
Total current liabilities.......................... 9,806,202 10,807,207
NOTES PAYABLE, Less -- Current portion...................... 6,324 685
ACCRUED RENT-LONG-TERM...................................... 159,530 104,836
DEFERRED REVENUE-LONG-TERM.................................. -- 175,000
----------- -----------
TOTAL LIABILITIES........................................... 9,972,056 11,087,728
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY:
Common stock, $1 par value, 500,000 shares authorized
206,083 shares issued and outstanding in 1996 and
1997.................................................... 219,583 219,583
Additional paid-in capital................................ 999,074 999,074
Retained earnings......................................... 1,897,048 2,406,644
----------- -----------
3,115,705 3,625,301
Treasury stock, 13,500 shares held in treasury in 1996 and
1997.................................................... (270,000) (270,000)
----------- -----------
Total shareholders' equity......................... 2,845,705 3,355,301
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $12,817,761 $14,443,029
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-30
<PAGE> 132
BAY AREA SEATING SERVICE, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1996 AND 1997 AND
FOR THE PERIOD FROM APRIL 1, 1997 TO SEPTEMBER 26, 1997
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------- APRIL 1, 1997 TO
MARCH 31, MARCH 31, SEPTEMBER 26,
1996 1997 1997
----------- ----------- ----------------
<S> <C> <C> <C>
REVENUE:
Fees from ticket sales........................... $14,801,723 $16,221,651 $ 8,643,086
Handling charges................................. 1,326,630 1,461,276 793,420
Promoter inside charges.......................... 951,863 1,321,035 776,737
Advertising income............................... 449,182 636,670 275,116
Reservation fees................................. 461,807 427,556 220,966
Other service related revenue.................... 147,226 179,847 63,489
Entertainment guide revenue...................... 483,812 170,429 31,664
Processing charges............................... 130,003 142,022 53,325
----------- ----------- -----------
18,752,246 20,560,486 10,857,803
----------- ----------- -----------
OPERATING EXPENSES:
Ticket center commissions........................ 2,843,033 3,048,196 1,582,174
Other commissions................................ 2,480,637 2,739,629 1,505,787
Charge card fees................................. 831,282 939,223 498,012
Data line expense................................ 340,683 416,244 260,482
Software commissions -- license agreement........ 276,227 299,125 186,064
Ticket stock expense............................. 190,751 252,009 136,126
Entertainment guide costs........................ 418,238 171,204 33,921
----------- ----------- -----------
7,380,851 7,865,630 4,202,566
----------- ----------- -----------
Gross profit............................. 11,371,395 12,694,856 6,655,237
GENERAL AND ADMINISTRATIVE EXPENSES................ 11,321,983 12,212,431 6,301,559
----------- ----------- -----------
Income before other income(expense) and
provision for income taxes............. 49,412 482,425 353,678
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income.................................. 278,665 347,787 193,138
Loss on disposal of assets....................... -- (25,199) --
Miscellaneous, net............................... 142,658 114,384 94,116
Legal settlement................................. -- (67,100) --
Interest expense................................. (19,955) (13,454) (25,817)
----------- ----------- -----------
Total other income....................... 401,368 356,418 261,437
----------- ----------- -----------
Income before provision for income
taxes.................................. 450,780 838,843 615,115
PROVISION FOR INCOME TAXES......................... (162,021) (277,727) (211,002)
----------- ----------- -----------
Net income............................... $ 288,759 $ 561,116 $ 404,113
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 133
BAY AREA SEATING SERVICE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1997
AND FOR THE PERIOD FROM APRIL 1, 1997 TO SEPTEMBER 26, 1997
<TABLE>
<CAPTION>
TREASURY STOCK COMMON STOCK ADDITIONAL TOTAL
------------------ ------------------ PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ --------- ------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1995......... 13,500 $(270,000) 206,083 $219,583 $999,074 $1,608,289 $2,556,946
Net income....................... -- -- -- -- -- 288,759 288,759
------ --------- ------- -------- -------- ---------- ----------
Balances, March 31, 1996......... 13,500 (270,000) 206,083 219,583 999,074 1,897,048 2,845,705
Net income....................... -- -- -- -- -- 561,116 561,116
Dividends (Note 12).............. -- -- -- -- -- (51,520) (51,520)
------ --------- ------- -------- -------- ---------- ----------
Balances, March 31, 1997......... 13,500 (270,000) 206,083 219,583 999,074 2,406,644 3,355,301
Net income....................... -- -- -- -- -- 404,113 404,113
------ --------- ------- -------- -------- ---------- ----------
Balances, September 26, 1997..... 13,500 $(270,000) 206,083 $219,583 $999,074 $2,810,757 $3,759,414
====== ========= ======= ======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 134
BAY AREA SEATING SERVICE, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996 AND 1997 AND THE
PERIOD FROM APRIL 1, 1997 TO SEPTEMBER 26, 1997
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, SEPTEMBER 26,
1996 1997 1997
----------- ----------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 288,759 $ 561,116 $ 404,113
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization........................... 595,417 537,715 235,216
Loss on disposal of assets.............................. -- 25,199 --
Gain on investment...................................... (43,662) -- --
Allowance for doubtful accounts......................... 13,834 (472) (8,912)
Straight-line rent (benefit) expense.................... (25,344) (54,694) (27,347)
Deferred income tax (benefit) expense................... (14,600) (58,200) --
(Increase) decrease in operating assets:
Accounts receivable................................... (899,994) (908,754) 65,661
Accounts receivable -- related parties................ 7,101 (4,951) (2,172)
Prepaids and other assets............................. 31,080 21,072 (360,734)
Increase (decrease) in operating liabilities:
Accounts payable and due to promoters................. 1,601,204 851,402 (388,978)
Accrued expenses...................................... 231,134 (245,157) 363,982
Income taxes payable.................................. 16,016 (67,500) 230,097
Deferred revenue (15,716) 180,250.... (324,233)
Accrued profit sharing................................ (200,000) 200,000 (200,000)
----------- ----------- ----------
Net cash provided by (used in) operating
activities....................................... 1,585,229 1,037,026 (13,307)
----------- ----------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of equipment.................................... (267,994) (351,089) (428,426)
Proceeds from sale of assets.............................. -- 48,441 --
(Increase)/decrease in investments........................ (1,295,810) (787,722) 202,124
----------- ----------- ----------
Net cash used in investing activities.............. (1,563,804) (1,090,370) (226,302)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid............................................ -- (51,520) (51,520)
Bank overdraft............................................ 48,774 311,859 847,145
Cash paid on the principal amount of long-term debt....... (224,819) (58,488) (6,497)
Proceeds from the sale of common stock.................... -- -- 30,000
Proceeds from the sale of treasury stock.................. -- -- 270,000
----------- ----------- ----------
Net cash provided by (used in) financing
activities....................................... (176,045) 201,851 1,089,128
----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH............................. $ (154,620) $ 148,507 $ 849,519
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 833,724 679,104 827,611
----------- ----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 679,104 $ 827,611 $1,677,130
=========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................. $ 19,955 $ 13,454 $ 29,640
=========== =========== ==========
Cash paid during the period for income taxes.............. $ 190,605 $ 339,500 $ 134,820
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE> 135
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Business
Bay Area Seating Service, Inc. (BASS) is a California corporation (the
Company) that offers a time/space reservation system to facilitate the sale of
admission tickets to mass entertainment events on behalf of promoters, provides
reservations for selected hotels, and sells related merchandise and
publications. The Company operates all of its services in northern California.
The Company was acquired by Tickets.com, Inc. (formerly Advantix, Inc.) a
ticketing and related services provider on September 26, 1997. The acquisition
was accounted for as a purchase and was paid in cash and promissory notes, with
additional consideration to be paid if certain criteria are met. The
accompanying financial statements do not reflect any effects of the acquisition,
including the application of purchase accounting. Under the rules and
regulations of the Securities and Exchange Commission, BASS is deemed to be a
predecessor of Tickets.com.
b. Revenue Recognition
The Company recognizes all revenue from ticket, merchandise, and
publication sales at the time the sale is made. Revenue from the reservation
services is recognized after the departure of the guest from the property booked
at the end of each month.
c. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
investments purchased with an original maturity date of three months or less and
not restricted to be cash equivalents.
d. Restricted Cash
Restricted cash in 1997 and 1996 represents funds secured in certificates
of deposit with certain venues to insure proper performance from BASS.
e. Investment Securities
Investment securities consist of municipal bonds that mature within the
next sixteen months and a tax-free money market fund. These securities are
available for sale and are stated at fair value. The fair value of the municipal
bonds is equal to their original cost less the amortized premium.
f. Property and Equipment and Leasehold Improvements
Computer equipment, office furniture and equipment, and vehicles are
recorded at cost and depreciated on a straight-line basis over their estimated
useful lives, which range from four to seven years. Leasehold improvements are
amortized on the straight-line basis over the life of the related lease.
Maintenance and repairs are charged to expense as incurred. When assets are sold
or retired, their cost and related accumulated depreciation are removed from the
accounts with the resulting gain or loss reflected in the income statement.
g. Income Taxes
Deferred income taxes arise from timing differences created by different
methods of depreciation and amortization used for tax and financial accounting
purposes, the accrual of state franchise taxes, treatment of accrued vacation,
the amortization of scheduled rent increases, and treatment of charitable
contributions.
F-34
<PAGE> 136
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
h. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
and expenses and disclosures of contingencies, commitments, and other matters
discussed in the notes to the financial statements. Actual results could differ
from those estimates.
i. Reclassifications
Certain reclassifications have been made to the prior year's numbers in
order to conform to the presentation in the current period.
j. Bank Overdraft
Bank overdraft represents checks written from the Company's zero balance
account. When checks are disbursed from this account the same amount is
transferred from the Company's operating account. The overdraft results from
timing differences in the transfer of funds.
2. ACCOUNTS RECEIVABLE -- RELATED PARTY
The BASS Tickets Foundation (the Foundation) is funded in part by the
Company. The Foundation utilizes employees of the Company for its record-keeping
and other needs. As of March 31, 1996 and 1997, the Foundation owed $28,014 and
$32,965 respectively, to the Company for reimbursement of salaries, payroll
taxes, and employee benefits.
3. INVESTMENTS
The amortized cost and estimated market values of investment securities
available for sale as of March 31, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
GROSS ESTIMATED
AMORTIZED UNREALIZED MARKET
COST GAINS/LOSSES VALUE
---------- ------------ ----------
<S> <C> <C> <C>
March 31, 1996:
Municipal securities -- short-term.................. $6,895,858 -- $6,895,858
Tax-free institute portfolio........................ 1,066,819 -- 1,066,819
---------- --------- ----------
$7,962,677 -- $7,962,677
========== ========= ==========
March 31, 1997:
Municipal securities -- short-term.................. $6,005,233 -- $6,005,233
Tax-free institute portfolio........................ 799,217 -- 799,217
---------- --------- ----------
6,804,450 -- 6,804,450
Municipal securities -- long-term................... 1,745,949 -- 1,745,949
---------- --------- ----------
$8,550,399 -- $8,550,399
========== ========= ==========
</TABLE>
F-35
<PAGE> 137
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
There were no unrealized gains or losses, and amortized cost was $46,311
and $9,725 for 1996 and 1997, respectively.
<TABLE>
<CAPTION>
ESTIMATED MARKET VALUE AMORTIZED COST
------------------------ ------------------------
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1997 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Municipal securities maturing in one year
or less................................. $6,895,858 $6,005,233 $6,895,858 $6,005,233
Municipal securities maturing in more than
one year and less than two.............. -- 1,745,949 -- 1,745,949
---------- ---------- ---------- ----------
$6,895,858 $7,751,182 $6,895,858 $7,751,182
========== ========== ========== ==========
</TABLE>
4. OTHER INVESTMENTS
At March 31, 1996 and 1997, other investments consisted primarily of
certificates of deposit that have a maturity of more than 90 days at time of
purchase and are not considered cash equivalents with a cost of $200,000 and
other minor investments. At March 31, 1996, $150,000 is restricted and $50,000
is unrestricted. At March 31, 1997, $100,000 is restricted and $100,000 is
unrestricted.
5. PROPERTY AND EQUIPMENT
Property and Equipment consist of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
---------- ----------
<S> <C> <C>
Computer and equipment...................................... $3,102,788 $3,342,995
Office furniture and equipment............................ 1,054,411 628,554
Vehicles.................................................. 27,959 27,959
---------- ----------
4,185,158 3,999,508
Less -- Accumulated Depreciation.......................... 3,013,634 3,061,745
---------- ----------
$1,171,524 $ 937,763
========== ==========
</TABLE>
Total depreciation expense was $567,077 and $508,160 in 1996 and 1997,
respectively. Total depreciation expense for the period from April 1, 1997 to
September 26, 1997 was $235,216.
6. NOTES PAYABLE
Notes payable consists of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
--------- ---------
<S> <C> <C>
Bank of Marin note payable, secured by equipment and general
intangibles, payable in monthly installments of $18,070,
including interest at a variable prime rate initiating at
8.25%, through July 5, 1996............................... $ 53,256 $ --
Note payable, secured by a vehicle, payable in monthly
installments of $510 including interest at 7.3%; through
May 1998.................................................. 11,729 6,497
-------- -------
64,985 6,497
Less -- Current Portion..................................... (58,661) (5,812)
-------- -------
$ 6,324 $ 685
======== =======
</TABLE>
F-36
<PAGE> 138
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. PROFIT SHARING PLAN
The Company has a profit sharing plan (the Plan) whereby discretionary
annual contributions may be made of up to 15% of total payroll for all permanent
employees of the Company who are age eighteen or older, have one year of service
(1,000 hours), and have six full months of service for the period ending on the
last day of the Plan year. Upon reaching the age of 62 1/2, employees are
eligible to receive benefits equal to the total amount allocated to their
account during participation in the plan. Vesting of the Company's percentage of
gross pay contribution, its related earnings, and net investment gains and
forfeitures is based on years of continuous service.
For the year ended March 31, 1997, a contribution of $200,000 was made.
There was no contribution to the Plan for the year ended March 31, 1996 and the
period from April 1, 1997 to September 26, 1997.
8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31, SEPTEMBER 26,
1996 1997 1997
--------- --------- -------------
<S> <C> <C> <C>
Currently payable:
Federal.......................................... $120,768 $247,927 $163,986
State............................................ 55,853 87,000 39,329
Deferred:
Federal.......................................... (11,800) (44,600) 5,737
State............................................ (2,800) (12,600) 1,950
-------- -------- --------
$162,021 $277,727 $211,002
======== ======== ========
</TABLE>
Deferred taxes have been calculated as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
--------- ---------
<S> <C> <C>
Current deferred tax:
Federal asset............................................. $33,500 $105,000
State asset............................................... 6,600 10,000
------- --------
40,100 115,000
State Liability........................................... (2,000) --
------- --------
Net current deferred tax asset.................... $38,100 $115,000
======= ========
Long-term deferred tax:
Federal asset............................................. $97,600 $179,000
State asset............................................... -- 18,900
------- --------
97,600 197,900
Valuation allowance......................................... -- (119,000)
------- --------
Net long-term deferred tax asset.................. $97,600 $ 78,900
======= ========
</TABLE>
F-37
<PAGE> 139
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The difference between the statutory tax rate and the effective tax rate
consists of officers' life insurance, nondeductible expenses, and tax-exempt
interest. The Company has charitable contribution carryovers for federal income
tax purposes of approximately $349,000 available to offset future federal
taxable income, for which all has been reserved with the federal valuation
allowance of $119,000. If not used, the carryforwards will expire as follows:
<TABLE>
<CAPTION>
FISCAL YEAR YEAR OF
CREATED MARCH 31, EXPIRATION, MARCH 31, CARRYOVER
- ----------------- --------------------- ---------
<S> <C> <C>
1993 1998 $108,400
1994 1999 27,600
1995 2000 87,900
1996 2001 92,400
1997 2002 32,700
--------
$349,000
========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
a. Leases
The company leases office space, vehicles, and office equipment pursuant to
noncancelable operating leases. The administrative office space lease, which
expires in 2000, provides for annual percentage rate adjustments based on the
Consumer Price index. These scheduled rent increases have been amortized on a
straight-line basis over the life of the lease. The remaining office, vehicle
and office equipment leases expire at various dates through 2001.
The minimum future lease payments under all operating leases as of March
31, 1997 are as follows:
<TABLE>
<CAPTION>
CASH PAYMENT DEFERRAL EXPENSE
------------ --------- ----------
<S> <C> <C> <C>
1998.................................. $ 739,403 $ (54,694) $ 684,709
1999.................................. 689,223 (54,694) 634,529
2000.................................. 559,512 (50,142) 509,370
2001.................................. 75,781 -- 75,781
---------- --------- ----------
$2,063,919 $(159,530) $1,904,389
========== ========= ==========
</TABLE>
Total rent expense, including short-term equipment rentals, for the years
ended March 31, 1997 and 1996, was $709,677 and $637,611, respectively. Total
rent expense for the period from April 1, 1997 to September 26, 1997 was
$385,488.
b. License Agreement
Under the terms of a license agreement that expires December 31, 1999, the
Company uses ticketing software developed and sold by a nationally recognized
ticketing company. Licensing fees are based on a per-ticket charge that varies
through 1999 with a minimum quarterly payment of $25,000. Total payments
pursuant to this license agreement were $276,227 and $299,125 in 1996 and 1997,
respectively. Total payments for the period from April 1, 1997 to September 26,
1997 were $186,064.
c. Ticket Service Agreements
The Company has entered into ticket service agreements of varying lengths,
other than the agreement with its major customer discussed in Note 11, with
entertainment facilities to provide ticketing services. The terms of these
agreements require the Company to make aggregate minimum annual payments of
$50,000 and/or payments based on the number of tickets sold. Certain of these
agreements indicate that the Company
F-38
<PAGE> 140
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
will provide annual advertising allowances ranging from $32,200 to $67,500 per
year. In addition, said agreements indicate the Company's commitment to purchase
agreed-upon seating for events at said facilities.
d. Credit Facilities
The Company has a letter of credit totaling $50,000 issued for the benefit
of a theater owner. The line is collateralized by a certificate of deposit of
the same amount. At March 31, 1997, there was no balance outstanding on the
line. The line expires on June 30, 1997.
10. DIVIDENDS
For the year ended March 31, 1997, the Company declared and paid dividends
totaling $0.25 per share for a total of $51,520. No dividends were declared or
paid for the year ended March 31, 1996.
11. MAJOR CUSTOMERS
A portion of the fee revenue from ticket sales is for the events of two
promoters (Promoters A and B) who receive a commission on such ticket sales.
Promoter A: For the years ended March 31, 1996 and 1997, actual ticket
sales for Promoter A's events approximated 32% of the Company's total ticket
sales. For the period from April 1, 1997 to September 26, 1997, ticket sales for
promoter A's events approximated 31% of the Company's total ticket sales.
The related booking fee revenue was approximately $5,684,000 and $6,208,000
in 1996 and 1997, respectively. The related commissions paid, which are included
in other commissions, were approximately $1,962,000 and $1,949,000 in 1997 and
1996, respectively. For the period from April 1, 1997 to September 26, 1997,
booking fees and related commissions paid approximated $3,476,000 and $1,137,000
respectively.
Promoter B: For the years ended March 31, 1996 and 1997, actual ticket
sales for Promoter B's events approximated 12 percent and 13 percent,
respectively, of the Company's total ticket sales. For the period from April 1,
1997 to September 26, 1997, ticket sales for promoter B's events approximated 8%
of the Company's total ticket sales.
The related booking fee revenue was approximately $2,188,000 and $2,496,000
in 1996 and 1997, respectively. The related commissions paid, which are included
in other commissions, were $326,000 and $328,000 in 1997 and 1996, respectively.
For the period from April 1, 1997 to September 26, 1997, booking fees and
related commissions paid approximated $92,000 and $134,000 respectively
Effective January 1, 1996, the Company entered into amended ticket service
agreements with Promoter A. These amended ticket service agreements supersede
the prior agreements dated September 7, 1990. The significant terms of these
amended agreements are as follows:
- The Company generally receives the exclusive rights to sell tickets to
the promoter's events within the Company's market area and at the
promoter's entertainment facilities for the period from January 1, 1996
through June 30, 2004.
- The minimum monthly advances paid against the annual fee is a sum equal
to 90% of the average of the three previous years' payments to said
promoter. Any overpayments or underpayments resulting from these advances
are reconciled annually.
- Promoter fees are calculated at specific rates per ticket sold. Rates are
determined based on the price of the ticket. Additional promoter fees are
payable based on the method of ticket sales and for certain specified
events.
F-39
<PAGE> 141
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. CONCENTRATION OF CREDIT RISK
a. Cash
At March 31, 1996 and 1997 the Company maintained cash balances in excess
of the federally insured limits of $100,000 per institution. The Company had
approximately $1,175,261 at a single financial institution at March 31, 1997.
b. Accounts Receivable
The Company's accounts receivable consist of amounts due from major credit
card companies and contracted ticket-selling venues located throughout
California. One ticket-selling venue (including all branch locations) accounts
for 38% of the accounts receivable balance.
13. BUY/SELL AGREEMENT
On March 1, 1992 Harold Silen (President), Gerald Seltzer (Chairman of the
Board), and the Company entered into an agreement to restrict the transfer of
the shares held by Silen and Seltzer. Upon the death of the first shareholder,
the surviving life insurance agreement confirmation shareholder shall purchase
the shares held by the deceased shareholder at the price determined in
accordance with Section 3.1 of the agreement.
To facilitate the continuation of the Company's business without disruption
and to provide for partial or full funding of the purchase of shares upon the
death of a shareholder, each shareholder shall purchase and maintain a whole
life insurance policy insuring the life of the other shareholder in the initial
face amount of $2 million. Each shareholder shall be the owner and beneficiary
of the policy insuring the life of the other shareholder. Effective upon closing
of the sale of the Company to Advantix, Inc., such agreement was cancelled.
14. LITIGATION SETTLEMENT
In 1993, The Company was named as a co-defendant in actions alleging
violation of certain antitrust laws. The suits sought damages totaling $200
million. On May 11, 1994 the case was settled in the Superior Court of the State
of California. The Court ordered the Company to pay $375,000 to Plaintiff's
counsel and required the Company to distribute tickets worth $750,000 to various
charities. The $375,000 was charged to expense for the year ended March 31,
1994. No amount has been accrued for the distributed tickets, as there will be
no cost to BASS. On April 29, 1996, the Company entered into an agreement with
BASS Tickets Foundation to solicit ticket donations and to distribute the
tickets to various charitable organizations and other organizations as defined
in the agreement. The Company is required by the settlement to distribute
$250,000 worth of tickets per year over three years. The Company is paying BASS
Tickets Foundation an annual fee of $10,000 for each of the three years for the
distribution of the tickets. As of March 31, 1997, approximately $286,000 worth
of tickets had been distributed. The settlement was appealed by persons who have
opted out of the settlement. On July 10, 1995 a new complaint was filed alleging
virtually word-for-word the same purported violations cited in the original
class action lawsuit for the time period after the date of the original
complaint filing.
During 1996, both the 1995 claim and appeal were settled for $134,200, with
BASS and Ticketmaster equally sharing the liability. As of March 31, 1997, BASS
has paid $59,100 of its $67,100 share of the settlement, and the remainder is to
be paid in installments through February 1, 1999.
F-40
<PAGE> 142
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. STOCK OPTION AGREEMENT
The Company has entered into a nonqualified stock option agreement,
effective October 1, 1996, for a key employee, under which options to purchase
shares of the Company's common stock were granted with an exercise price of $20
per share. Options may be exercised at the discretion of the employee through
September 30, 2006. No compensation expense has been charged to operations in
1997.
<TABLE>
<CAPTION>
SHARES
UNDER OPTIONS
-------------
<S> <C>
Outstanding, April 1, 1996.................................. --
Granted..................................................... 15,000
Canceled.................................................... --
Exercised................................................... --
------
Outstanding, September 26, 1997............................. 15,000
======
Eligible for exercise currently............................. 15,000
======
</TABLE>
16. DEFERRED REVENUE
The Company has multiple advertising and sponsorship agreements, which
often result in deferred revenue. During 1997 the Company entered into a
three-year agreement with a sponsor to provide advertising and promotional
opportunities through the Company's marketing programs. The sponsor agreed to
pay $125,000 each year beginning November 1, 1996 for a total of $375,000. Of
the total agreement amount, $75,000 has been recognized during the year ended
March 31, 1997 and $300,000 has been deferred.
Total deferred revenue as of March 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1997
--------- ---------
<S> <C> <C>
Sponsorship agreement................................. $ -- $ 300,000
Other advertising agreements.......................... 104,127 77,025
Entertainment guide................................... 92,648 --
-------- ---------
196,775 377,025
Less long-term portion................................ -- (175,000)
-------- ---------
$196,775 $ 202,025
======== =========
</TABLE>
F-41
<PAGE> 143
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of ProTix, Inc.
We have audited the accompanying consolidated balance sheet of ProTix, Inc. and
subsidiaries as of December 31, 1997, and the related consolidated statements of
operations, shareholders' deficit and cash flows for the year ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ProTix, Inc. and subsidiaries
as of December 31, 1997, and the results of their operations and their cash
flows for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
May 17, 1999
F-42
<PAGE> 144
PROTIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 930,945
Accounts receivable, net of allowance for doubtful
accounts of $219,259................................... 624,867
Notes receivable -- current............................... 416,439
Inventory................................................. 121,572
Prepaid expenses.......................................... 146,179
----------
Total current assets.............................. 2,240,002
Property and equipment, net................................. 1,174,324
Intangible assets........................................... 1,063,069
Notes receivable -- net of current portion.................. 545,188
----------
Total assets...................................... $5,022,583
==========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable and due to venues........................ $1,075,502
Accrued liabilities....................................... 233,916
Other liabilities......................................... 115,059
Current portion of long-term debt, short-term debt and
capital lease obligations.............................. 2,530,211
----------
Total current liabilities......................... 3,954,688
Long-term debt and capital lease obligations, net of current
portion................................................... 1,279,213
Minority interest liability................................. 130,389
Commitments and contingencies
Shareholders' deficit:
Common share, $1 par value; 56,000 shares Authorized
20,000 shares issued and outstanding................... 20,000
Additional paid-in capital................................ 289,530
Accumulated deficit....................................... (651,237)
----------
Total shareholders' deficit....................... (341,707)
----------
Total liabilities and shareholders' deficit....... $5,022,583
==========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-43
<PAGE> 145
PROTIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
Revenues:
Ticketing services and other.............................. $4,519,545
Software licensing and services........................... 2,433,643
Hardware.................................................. 486,746
----------
Total revenues.............................................. 7,439,934
----------
Cost of services:
Ticketing services........................................ 794,916
Software licensing and hardware........................... 372,230
----------
Total cost of services...................................... 1,167,146
----------
Gross profit................................................ 6,272,788
Operating expenses:
Sales, marketing and general and administrative........... 5,083,368
Depreciation and amortization of intangibles.............. 709,477
----------
Total operating expenses.................................... 5,792,845
----------
Income from operations...................................... 479,943
Other (income) expenses:
Interest income........................................... (79,851)
Interest expense.......................................... 352,525
Other expense............................................. 19,434
Minority interest......................................... 114,526
----------
Total other (income) expenses............................... 406,634
----------
Income before provision for income taxes.................... 73,309
Provision for income taxes.................................. 159,204
----------
Net loss.................................................... $ (85,895)
==========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-44
<PAGE> 146
PROTIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996........ 20,000 $20,000 $289,530 $(482,070) $(172,540)
Distributions................... -- -- -- (83,272) (83,272)
Net loss........................ -- -- -- (85,895) (85,895)
------ ------- -------- --------- ---------
Balance, December 31, 1997........ 20,000 $20,000 $289,530 $(651,237) $(341,707)
====== ======= ======== ========= =========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-45
<PAGE> 147
PROTIX, INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (85,895)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization of intangibles.............. 709,477
Minority interest:........................................ 114,526
Changes in operating assets and liabilities:
Accounts receivable....................................... (69,474)
Prepaid expenses and inventory............................ (161,449)
Accounts payable and due to venues........................ 420,667
Accrued liabilities....................................... 82,189
Other liabilities......................................... (46,067)
-----------
Net cash provided by operating activities.............. 963,974
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (584,306)
Cash paid for notes receivable............................ (694,412)
Payments received on notes receivable..................... 209,904
-----------
Net cash used in investing activities.................. (1,068,814)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt.............. 1,967,223
Principal payments on long-term debt and capital lease
obligations............................................ (1,351,903)
Distributions to partners................................. (83,272)
-----------
Net cash provided by financing activities.............. 532,048
NET INCREASE IN CASH........................................ 427,208
CASH AND CASH EQUIVALENTS, beginning of year................ 503,737
-----------
CASH AND CASH EQUIVALENTS, end of year...................... $ 930,945
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Interest paid............................................. $ 349,065
===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Capital lease obligations entered into for equipment...... $ 11,379
===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-46
<PAGE> 148
PROTIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY BACKGROUND
ProTix, Inc. ("ProTix," collectively with its subsidiaries, the "Company")
was originally organized as Prologue Systems Limited Partnership under the laws
of the State of Wisconsin in April 1988 and was incorporated as Prologue
Systems, Inc. on June 12, 1990. In December 1991, the Company entered the
ticketing services business and formed ProTix Limited Partnership I to serve
organizations and consumers in the Washington DC/Baltimore metropolitan area.
Operations began in May 1992. In 1995, the Company established regional offices
in Windsor, Connecticut and Albuquerque, New Mexico, and began providing
ticketing services in those metropolitan areas. On December 31, 1996, the
Company merged with All Pro Management Group, Inc. and changed its name to
ProTix, Inc. In October 1998, Advantix, Inc. acquired 100% of the Company's
stock.
The Company provides ticketing and related services worldwide to various
clients such as performing arts centers, amphitheaters, professional sports
franchises and concert promoters through the use of proprietary ticketing
software.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements and related notes
include the accounts of ProTix and its subsidiaries, ProTix Limited Partnership
I, ProTix Connecticut General Partnership and ProTix Access Control LLC. All
intercompany account balances and transactions have been eliminated in
consolidation. The results of operations of each acquired business have been
consolidated for all periods subsequent to the date of acquisition.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
REVENUE RECOGNITION
The Company generates revenues primarily through convenience and handling
fees charged to consumers for the sale and distribution of tickets on behalf of
its clients, and through license and support fees charged directly to its
clients for the use of its software. The Company recognizes convenience and
handling fees revenue from ticket sales at the time the sale is made.
Revenue from software licensing and support is recognized in accordance
with Statement of Position 97-2, "Software Revenue Recognition," which
establishes rules for the recognition of the Company's software and maintenance
and support revenues. Software revenue is recognized in sales contracts when the
following conditions are met: a signed contract is obtained, delivery has
occurred, the total sales price is fixed and determinable, collectibility is
probable, and any uncertainties with regard to customer acceptance are resolved.
Deferred revenue consists primarily of deferred software support revenue related
to the license of the Company's software, and related fees under maintenance and
support contracts. Deferred support revenue is recognized as it is earned, over
the term of the related agreement.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
F-47
<PAGE> 149
PROTIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACCOUNTS RECEIVABLE
Accounts receivable are due principally from retail ticketing outlets and
represent the face value of the tickets sold plus convenience fees, generally
net of outlet commissions.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets (four years) or, for leasehold improvements, over the term of the
lease, if shorter. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation or amortization is removed and any gain or
loss is reflected in results of operations.
DUE TO VENUES
Due to venues represents contractual amounts due for tickets sold by the
Company on behalf of the organizations that sponsor events.
INCOME TAXES
Deferred income taxes are provided for temporary differences between
financial accounting and taxable income under the liability method, as required
by Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." The Company has filed an election with the Internal Revenue
Service, which causes any federal taxes on the earnings of the Company to be
passed through the Company and paid directly by its shareholder. The provision
for income taxes consists primarily of foreign income taxes on revenues
generated overseas. For state tax purposes, the Company's current tax rate is
1.5%.
DEFERRED REVENUE
Deferred revenue consists primarily of deferred software support revenue
related to the license of the Company's software, and related fees under
maintenance and support contracts. Deferred revenue is recognized as it is
earned, over the term of the related agreement.
3. BUSINESS COMBINATIONS
On December 4, 1997, Protix Access Control LLC ("PAC") was formed. The
Company's initial capital contribution upon execution of the agreement entitled
it to a 60% interest in PAC. On December 19, 1997, PAC entered into an asset
purchase agreement with Data Service Company of America, Inc. ("DSCA"). As of
the date of acquisition, DSCA had a net asset value of approximately zero. In
consideration of the assignment and transfer of the purchased assets, with a
fair value of approximately $387,000, PAC assumed all the obligations and
liabilities of DSCA equaling approximately $388,000. The acquisition was
accounted for as a purchase.
F-48
<PAGE> 150
PROTIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 1997:
<TABLE>
<CAPTION>
USEFUL LIVES
------------
<S> <C> <C>
Furniture and fixtures............................. 5-7 years $ 949,740
Computer equipment................................. 3 years 2,462,315
Leasehold improvements............................. 5 years 25,457
-----------
3,437,512
Accumulated depreciation........................... (2,263,188)
-----------
Net property and equipment......................... $ 1,174,324
===========
</TABLE>
Total depreciation expense was $560,473 for the year ended December 31,
1997.
INTANGIBLE ASSETS
Intangible assets consisted of the following as of December 31, 1997:
<TABLE>
<CAPTION>
USEFUL LIVES
------------
<S> <C> <C>
Goodwill............................................ 10 years $ 478,959
Customer acquisition costs.......................... 10 years 825,000
Organizational fees................................. 5 years 44,674
Loan fees and other................................. 6-7 years 34,506
----------
1,383,139
Accumulated amortization............................ (320,070)
----------
Total intangible assets............................. $1,063,069
==========
</TABLE>
NOTES RECEIVABLE
Notes receivable consisted of the following at December 31, 1997:
<TABLE>
<S> <C>
Note receivable from affiliate at 9.4%; maturing March 31,
2004...................................................... $ 694,413
Related party notes receivable at various rates from 8.0% to
9.0%; due and payable..................................... 267,214
---------
961,627
Less current portion........................................ (416,439)
---------
Total notes receivable...................................... $ 545,188
=========
</TABLE>
ACCRUED LIABILITIES
Accrued liabilities consisted of the following as of December 31, 1997:
<TABLE>
<S> <C>
Payroll and payroll related................................. $144,195
Accrued interest............................................ 77,087
Other....................................................... 12,634
--------
Total accrued liabilities................................... $233,916
========
</TABLE>
F-49
<PAGE> 151
PROTIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT, SHORT-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consisted of the following as
of December 31, 1997:
<TABLE>
<S> <C>
Various bank notes payable at prime plus 1.0%; maturing at
various dates from 1998 through 2005...................... $ 2,202,284
Line of credit at 10.5%; payable on demand.................. 96,987
Line of credit at prime plus 1%; payable on demand.......... 200,000
Notes payable to various shareholders of the Company at
9.5%; maturing April 1, 2002 and 2003..................... 463,654
Note payable to affiliate at 9.4%; maturing December 31,
2004...................................................... 694,412
Various capital lease obligations bearing interest rates
ranging from 10.7% to 15.8% payable in monthly
installments of approximately $16,786, with maturity dates
ranging from October 1, 1998 to December 1, 2001.......... 152,087
-----------
Total debt.................................................. 3,809,424
Less -- current portion..................................... (2,530,211)
-----------
$ 1,279,213
===========
</TABLE>
Annual maturities of long-term debt and capital lease obligations of
December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998........................................... $2,530,211
1999........................................... 483,302
2000........................................... 292,718
2001........................................... 263,460
2002........................................... 219,202
Thereafter..................................... 20,531
----------
$3,809,424
==========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space and equipment under various operating
leases that expire at various dates through 2002. Total rent expense under these
operating leases was approximately $136,377 for the year ended December 31,
1997. Future minimum rentals on these operating leases are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998........................................... $ 249,080
1999........................................... 239,139
2000........................................... 76,698
2001........................................... 5,869
2002........................................... 4,426
Thereafter..................................... 575,213
----------
$1,150,425
==========
</TABLE>
LITIGATION
The Company is subject to litigation in the normal course of its business.
In the opinion of management, the disposition of all litigation pending will not
have a material effect on the Company's consolidated financial condition and
results of operations.
F-50
<PAGE> 152
PROTIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. MINORITY INTEREST
The Company has three separate legal entities. The purpose of Protix
Limited Partnership I and ProTix Connecticut GP is to provide ticketing
services, and ProTix Access Control LLC provides technical interface
capabilities via hardware and software development. For financial reporting
purposes, the assets, liabilities and earnings of the partnership entities have
been included in the Company's consolidated financial statements. The outside
investor's limited partnership interests in the partnerships have been recorded
as minority interests.
8. EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution and profit sharing benefit
plan (the "Plan") covering substantially all of its employees. Company
contributions to the Plan are voluntary and at the discretion of the Company.
For the year ended December 31, 1997, the Company's matching contributions to
the Plan were $8,300.
9. SALE OF THE COMPANY
On October 16, 1998, the Company was acquired by Tickets.com (formerly,
Advantix, Inc.). The aggregate purchase price was approximately $7,511,000,
which includes costs of the acquisition. The aggregate consideration includes
the issuance of 317,768 shares of Advantix' common stock, $1,620,000 in cash and
an aggregate of $1,297,000 in promissory notes bearing interest at 1.0% above
the prime rate, as defined. Additional consideration consisting of warrants to
purchase up to 637,964 shares of Advantix' common stock at an exercise price of
$0.01 may be issued over an 18 month period.
In conjunction with the acquisition, Advantix entered into a noncompete
agreement with a former officer of the Company, which prohibits him from
competing with the business of Advantix for a period of three years.
Consideration for the noncompete agreement totaled $162,000 to be paid over
three years.
F-51
<PAGE> 153
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
TicketsLive Corporation:
We have audited the accompanying consolidated balance sheets of TicketsLive
Corporation (formerly Select Technologies Corporation) and subsidiaries, as of
April 30, 1997 and 1998, and the related consolidated statements of operations,
redeemable preferred stock, stockholders' equity (deficit) and comprehensive
income (loss), and cash flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial 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 TicketsLive
Corporation and subsidiaries as of April 30, 1997 and 1998, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ KPMG LLP
Syracuse, New York
June 12, 1998
F-52
<PAGE> 154
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
CONSOLIDATED BALANCE SHEETS
ASSETS (NOTE 6)
<TABLE>
<CAPTION>
APRIL 30,
------------------------ JANUARY 31,
1997 1998 1999
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 96,805 $ 3,843,948 $ 181,931
Accounts receivable, net of allowance for doubtful
accounts of $131,000 in 1997, $208,000 in 1998, and
$202,000 in 1999 (unaudited)........................ 1,626,789 1,606,523 1,651,715
Notes receivable -- current............................ 185,005 165,873 149,211
Inventories............................................ 222,062 217,321 292,105
Prepaid expenses and other current assets.............. 184,911 181,236 442,796
Deferred income taxes.................................. 47,825 -- --
---------- ----------- -----------
Total current assets........................... 2,363,397 6,014,901 2,717,758
Notes receivable -- long-term............................ 306,892 221,954 132,683
Property and equipment, less accumulated depreciation.... 664,062 588,848 778,278
---------- ----------- -----------
$3,334,351 $ 6,825,703 $ 3,628,719
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Short-term borrowings.................................. $ 391,837 $ 120,396 $ 162,342
Current portion of long-term debt...................... 156,529 109,945 203,159
Current portion of obligations under capital leases.... 6,415 4,651 3,985
Accounts payable....................................... 1,230,051 1,406,660 1,035,470
Accrued liabilities.................................... 494,547 734,161 1,042,728
Accrued restructuring liability........................ -- 227,417 --
Income taxes payable................................... 174,686 241,494 170,085
Deferred revenue....................................... 695,403 573,973 611,231
---------- ----------- -----------
Total current liabilities...................... 3,149,468 3,418,697 3,229,000
Long-term debt........................................... 130,691 19,520 --
Obligations under capital leases......................... 650 5,411 3,585
Deferred income taxes.................................... 64,685 22,000 22,947
---------- ----------- -----------
Total liabilities.............................. 3,345,494 3,465,628 3,255,532
---------- ----------- -----------
Redeemable Series A preferred stock, 9% cumulative,
convertible stock, $1 par value, with a redemption and
liquidation value of $1 per share; 5,000,000 shares
authorized, issued and outstanding in 1998 and 1999
(unaudited)............................................ -- 4,667,982 5,047,400
---------- ----------- -----------
Commitments
Stockholders' deficit:
Common stock, $.01 par value -- 25,000,000 shares
authorized; 8,894,694 shares issued and outstanding
in 1998 and 1999 (unaudited) (note 12).............. 113 88,947 88,947
Additional paid-in capital............................. 183,231 96,397 96,397
Accumulated deficit.................................... (175,180) (1,469,710) (4,819,533)
Accumulated other comprehensive loss................... (19,307) (23,541) (40,024)
---------- ----------- -----------
Total stockholders' deficit.................... (11,143) (1,307,907) (4,674,213)
---------- ----------- -----------
$3,334,351 $ 6,825,703 $ 3,628,719
========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-53
<PAGE> 155
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
APRIL 30, JANUARY 31,
------------------------- ------------------------
1997 1998 1998 1999
----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Software and services................... $ 7,666,639 $ 8,584,825 $6,686,484 $ 6,169,239
Hardware and related resale items....... 2,866,076 3,308,675 2,613,540 2,164,540
----------- ----------- ---------- -----------
Total revenues.................. 10,532,715 11,893,500 9,300,024 8,333,779
----------- ----------- ---------- -----------
Costs of revenues:
Software and services................... 2,946,250 3,293,514 2,388,634 2,852,511
Hardware and related resale items....... 2,059,166 2,319,904 1,786,676 1,534,222
----------- ----------- ---------- -----------
Total costs of revenues......... 5,005,416 5,613,418 4,175,310 4,386,733
----------- ----------- ---------- -----------
Gross profit.................... 5,527,299 6,280,082 5,124,714 3,947,046
Operating expenses:
Selling, general and administrative
expenses............................. 6,256,184 6,438,809 4,475,794 5,856,228
Technology development.................. 629,065 783,978 596,326 1,111,085
Restructuring provision................. -- 227,417 -- --
----------- ----------- ---------- -----------
Total operating expenses........ 6,885,249 7,450,204 5,072,120 6,967,313
----------- ----------- ---------- -----------
Operating income (loss)......... (1,357,950) (1,170,122) 52,594 (3,020,267)
----------- ----------- ---------- -----------
Other (income) expense:
Interest (income) expense, net.......... 49,117 14,348 22,069 (57,858)
Other, net.............................. 10,332 (5,314) 4,867 4,012
----------- ----------- ---------- -----------
Total other (income) expense.... 59,449 9,034 26,936 (53,846)
----------- ----------- ---------- -----------
Income (loss) before income
taxes......................... (1,417,399) (1,179,156) 25,658 (2,966,421)
Income tax expense (benefit).............. (81,603) 115,374 91,904 3,984
----------- ----------- ---------- -----------
Net loss........................ $(1,335,796) $(1,294,530) $ (66,246) $(2,970,405)
=========== =========== ========== ===========
Net loss per common and common equivalent
share -- basic and diluted.............. $ (0.13) $ (0.14) $ (0.01) $ (0.38)
=========== =========== ========== ===========
Shares used in computing net loss per
common and common equivalent
share -- basic and diluted.............. 10,249,738 9,087,716 9,172,647 8,894,694
=========== =========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-54
<PAGE> 156
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK,
STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
-------------------------------------
REDEEMABLE PREFERRED
STOCK COMMON STOCK ADDITIONAL
---------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ---------- --------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Balances, April 30, 1996........................... -- $ -- 104 $ 104 $ 49,900
Comprehensive income:
Net loss......................................... -- -- -- -- --
Other comprehensive income -- cumulative foreign
currency translation adjustments............... -- -- -- -- --
Total comprehensive loss..................
Issuance of common stock........................... -- -- 9 9 133,331
--------- ---------- --------- ------- --------
Balances, April 30, 1997........................... -- -- 113 113 183,231
Comprehensive income:
Net loss......................................... -- -- -- -- --
Other comprehensive loss -- cumulative foreign
currency translation adjustments............... -- -- -- -- --
Total comprehensive loss..................
Issuance of redeemable preferred stock............. 5,000,000 4,667,982 -- -- --
Issuance of common stock........................... -- -- 1 1 19,999
Purchase of common stock........................... -- -- (18) (18) (17,982)
Common stock recapitalization...................... -- -- 8,894,598 88,851 (88,851)
--------- ---------- --------- ------- --------
Balances, April 30, 1998........................... 5,000,000 4,667,982 8,894,694 88,947 96,397
Comprehensive income:
Net loss (unaudited)............................. -- -- -- -- --
Other comprehensive loss -- cumulative foreign
currency translation adjustments (unaudited)... -- -- -- -- --
Total comprehensive loss..................
Dividends on redeemable preferred stock
(unaudited)...................................... -- 379,418 -- -- --
--------- ---------- --------- ------- --------
Balances, January 31, 1999 (unaudited)............. 5,000,000 $5,047,400 8,894,694 $88,947 $ 96,397
========= ========== ========= ======= ========
<CAPTION>
STOCKHOLDERS' EQUITY (DEFICIT)
--------------------------------------------
RETAINED ACCUMULATED TOTAL
EARNINGS OTHER STOCKHOLDERS'
(ACCUMULATED COMPREHENSIVE EQUITY
DEFICIT) INCOME (LOSS) (DEFICIT)
------------ ------------- -------------
<S> <C> <C> <C>
Balances, April 30, 1996........................... $ 1,160,616 $(43,861) $ 1,166,759
Comprehensive income:
Net loss......................................... (1,335,796) -- (1,335,796)
Other comprehensive income -- cumulative foreign
currency translation adjustments............... -- 24,554 24,554
-----------
Total comprehensive loss.................. (1,311,242)
-----------
Issuance of common stock........................... -- -- 133,340
----------- -------- -----------
Balances, April 30, 1997........................... (175,180) (19,307) (11,143)
Comprehensive income:
Net loss......................................... (1,294,530) -- (1,294,530)
Other comprehensive loss -- cumulative foreign
currency translation adjustments............... -- (4,234) (4,234)
-----------
Total comprehensive loss.................. (1,309,907)
-----------
Issuance of redeemable preferred stock............. -- -- --
Issuance of common stock........................... -- -- 20,000
Purchase of common stock........................... -- -- (18,000)
Common stock recapitalization...................... -- -- --
----------- -------- -----------
Balances, April 30, 1998........................... (1,469,710) (23,541) (1,307,907)
Comprehensive income:
Net loss (unaudited)............................. (2,970,405) -- (2,970,405)
Other comprehensive loss -- cumulative foreign
currency translation adjustments (unaudited)... -- (16,483) (16,483)
-----------
Total comprehensive loss.................. (2,986,888)
-----------
Dividends on redeemable preferred stock
(unaudited)...................................... (379,418) -- (379,418)
----------- -------- -----------
Balances, January 31, 1999 (unaudited)............. $(4,819,533) $(40,024) $(4,674,213)
=========== ======== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-55
<PAGE> 157
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
APRIL 30, JANUARY 31,
-------------------------- ------------------------
1997 1998 1998 1999
----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................. $(1,335,796) $(1,294,530) $ (66,246) $(2,970,405)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization..... 411,027 298,021 293,579 216,584
Deferred income taxes............. (222,240) 5,140 32,585 947
Restructuring provision........... -- 227,417 -- --
Changes in operating assets and
liabilities:
Accounts receivable............. 382,157 20,266 158,877 (45,192)
Inventories..................... 60,802 4,741 43,544 (74,784)
Prepaid expenses and other
current assets............... 108,237 3,675 4,691 (261,560)
Notes receivable................ (181,675) 104,070 81,177 105,933
Accounts payable................ 418,069 176,609 126,041 (371,190)
Accrued liabilities............. (29,445) 239,614 (194,236) 308,567
Accrued restructuring
liability.................... -- -- -- (227,417)
Income taxes payable............ 53,460 66,808 52,810 (71,409)
Deferred revenue................ 96,506 (121,430) (120,400) 37,258
----------- ----------- --------- -----------
Net cash provided by (used
in) operating activities... (238,898) (269,599) 412,422 (3,352,668)
----------- ----------- --------- -----------
Cash flows from investing activities --
purchases of equipment............... (288,039) (207,245) (55,957) (164,325)
----------- ----------- --------- -----------
Cash flows from financing activities:
Net change in short-term
borrowings........................ 142,228 (271,441) (53,532) 41,946
Proceeds from long-term debt......... 89,585 -- -- --
Payments on long-term debt........... (135,143) (157,755) (133,079) (167,995)
Payments on capital leases........... (18,813) (12,565) (4,839) (2,492)
Purchase of common stock............. -- (18,000) (18,000) --
Issuance of common stock............. 133,340 20,000 -- --
Issuance of redeemable preferred
stock............................. -- 4,667,982 -- --
----------- ----------- --------- -----------
Net cash provided by (used
in) financing activities... 211,197 4,228,221 (209,450) (128,541)
----------- ----------- --------- -----------
Effect of foreign exchange rate
changes.............................. 24,554 (4,234) (31,315) (16,483)
----------- ----------- --------- -----------
Net increase (decrease) in
cash and cash
equivalents................ (291,186) 3,747,143 115,700 (3,662,017)
Cash and cash equivalents at beginning
of period............................ 387,991 96,805 96,805 3,843,948
----------- ----------- --------- -----------
Cash and cash equivalents at end of
period............................... $ 96,805 $ 3,843,948 $ 212,505 $ 181,931
=========== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-56
<PAGE> 158
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1997 AND 1998 AND NINE MONTHS
ENDED JANUARY 31, 1998 AND 1999 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) NATURE OF OPERATIONS
TicketsLive Corporation (formerly Select Technologies Corporation prior to
its name change effective June 26, 1998) and its subsidiaries (the Company) are
engaged in the development, marketing and support of microcomputer based
ticketing, reservation, and events management systems for sports and
entertainment venues. The Company serves international markets comprised of both
public and private sector customers.
(b) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of TicketsLive
Corporation and its wholly owned subsidiaries located in the United States,
United Kingdom, the Netherlands, Germany, and Australia. All significant
intercompany balances and transactions have been eliminated in consolidation.
(c) REVENUE RECOGNITION
Effective May 1, 1998, the Company adopted the provisions of Statement of
Position (SOP) 97-2, Software Revenue Recognition, which provides guidance on
when revenue should be recognized and in what amounts for licensing, selling,
leasing, or otherwise marketing computer software. The adoption of SOP 97-2 did
not have a material effect on the Company's operations.
Revenues derived from hardware sales, license fees, and royalties are
recognized at the time the system is delivered to the customer, installed and
becomes operational. Revenues from postcontract support agreements are
recognized ratably over the term of the related agreement. Revenues from the
provision of other service elements (primarily support and consulting) is
recognized as the services are provided.
(d) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less to be cash equivalents. Cash includes cash on hand and
demand deposits with financial institutions.
(e) INVENTORIES
Inventories are valued at the lower of cost or market with cost being
determined on the basis of the first-in, first-out (FIFO) method.
(f) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed by the
straight-line method based on estimated useful lives of three to seven years.
Leasehold improvements are depreciated on a straight-line basis over their
estimated useful life, or the term of the related lease, if shorter.
(g) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
F-57
<PAGE> 159
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1998 AND NINE MONTHS
ENDED JANUARY 31, 1998 AND 1999 (UNAUDITED)
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(h) FOREIGN CURRENCY TRANSLATION
Foreign currency assets and liabilities are translated into U.S. dollars at
the current exchange rate in effect at year end. All income and expenses are
translated at the weighted average exchange rates during the year. Translation
adjustments result from the process of translating foreign currency financial
statements into U.S. dollars. These translation adjustments, which are generally
not included in the determination of net earnings, are reported separately as a
component of stockholders' equity (deficit).
(i) TECHNOLOGY DEVELOPMENT
Technology development expenses consist primarily of payroll and related
expenses of development and operations personnel, and systems and
telecommunications infrastructure costs.
(j) NET LOSS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (Statement 128).
Statement 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic earnings per share is
based on the weighted average number of common shares outstanding. Diluted
earnings per share is based on the weighted average number of common shares
outstanding, plus any dilutive potential common shares.
Anti-dilutive potential common shares outstanding were 493,151 for the year
ended April 30, 1998 and 5,650,776 for the nine months ended January 31, 1999.
For the nine months ended January 31, 1999, the net loss was increased by
cumulative redeemable preferred stock dividends of $379,418 to arrive at net
loss attributable to common stockholders in calculating basic and diluted loss
per share.
Earnings per share amounts for all periods have been restated to conform to
Statement 128 requirements. The adoption of Statement 128 did not have a
material effect on the calculation of earnings per share.
(k) STOCK OPTIONS
The Company accounts for its stock options in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. On May 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (Statement 123), which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, Statement 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants as if the
fair-value-based method defined in Statement 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure stipulated by Statement 123.
F-58
<PAGE> 160
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1998 AND NINE MONTHS
ENDED JANUARY 31, 1998 AND 1999 (UNAUDITED)
(l) FINANCIAL INSTRUMENTS
The Company's financial instruments, which include cash and cash
equivalents, accounts and notes receivable, accounts payable, and long-term
debt, are stated at cost which approximates fair value at April 30, 1997 and
1998, and January 31, 1999.
(m) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities, the disclosure of
contingent assets and liabilities, and reported amounts of revenues and expenses
to prepare these consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(n) COMPREHENSIVE INCOME (LOSS)
On May 1, 1998, the Company adopted Financial Accounting Standards Board
Statement No. 130, Reporting Comprehensive Income (Statement 130). Statement 130
establishes standards for reporting and presentation of comprehensive income and
its components in a full set of financial statements. Comprehensive income
consists of net income (loss) and net unrealized gains (losses) on foreign
currency fluctuations and is presented in the consolidated statements of
redeemable preferred stock, stockholders' equity (deficit) and comprehensive
income (loss). The Statement requires only additional disclosures in the
consolidated financial statements; it does not affect the Company's financial
position or results of operations. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130.
(o) RECENT PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 131, Disclosures About
Segments of an Enterprise and Related Information (Statement 131), was issued in
1997. Statement 131 establishes standards for the reporting of information about
operating segments and related disclosures about products and services,
geographic areas, and major customers. Adoption of Statement 131 will be
required in fiscal 1999 and will require interim disclosures beginning in fiscal
2000. Adoption of Statement 131 is not expected to have a material effect on the
Company's financial statement disclosures.
(p) INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet at January 31, 1999 and the
related consolidated statements of operations and cash flows for the nine months
ended January 31, 1998 and 1999, and the statement of redeemable preferred
stock, stockholders' equity (deficit) and comprehensive income (loss) for the
nine months ended January 31, 1999 are unaudited. In the opinion of management,
these consolidated statements have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of results of the interim periods. The data disclosed in these notes
to the consolidated financial statements at such dates and for such periods is
unaudited.
(q) RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the
current period presentation.
F-59
<PAGE> 161
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1998 AND NINE MONTHS
ENDED JANUARY 31, 1998 AND 1999 (UNAUDITED)
(2) INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
APRIL 30,
-------------------- JANUARY 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Microcomputer hardware, peripherals and purchased
software......................................... $204,239 $216,852 $274,849
Goods on consignment............................... 17,823 469 17,256
-------- -------- --------
$222,062 $217,321 $292,105
======== ======== ========
</TABLE>
(3) NOTES RECEIVABLE
The Company has entered into agreements with certain customers to allow
such customers to finance the purchase of hardware and software over time. The
terms of the agreements vary, but generally call for fixed monthly payments
(including interest at varying rates) for up to a five year period. Notes
receivable amounted to $491,897 and $387,827 at April 30, 1997 and 1998,
respectively, and $281,894 at January 31, 1999 (unaudited).
(4) PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
APRIL 30,
------------------------ JANUARY 31,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment............................. $1,714,521 $1,690,904 $1,802,734
Office furniture and fixtures.................. 737,172 770,506 871,097
Leasehold improvements......................... 30,571 32,924 18,014
Motor vehicles................................. 21,980 -- --
---------- ---------- ----------
2,504,244 2,494,334 2,691,845
Less accumulated depreciation and
amortization................................. 1,840,182 1,905,486 1,913,567
---------- ---------- ----------
$ 664,062 $ 588,848 $ 778,278
========== ========== ==========
</TABLE>
(5) SHORT-TERM BORROWINGS AND LONG-TERM DEBT
The Company has short-term available borrowing capacity of $688,338,
$778,189 and $735,310, of which $391,837, $120,396 and $162,342 was outstanding
at April 30, 1997 and 1998, and January 31, 1999 (unaudited), respectively. As
of April 30, 1998 and January 31, 1999, outstanding borrowings under the
facilities consist of domestic overdraft facilities of $0 and $51,503,
respectively, bearing interest at prime (8.5% at April 30, 1998), and foreign
overdraft facilities of $120,396 and $110,839, respectively, bearing interest at
10.25%.
F-60
<PAGE> 162
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1998 AND NINE MONTHS
ENDED JANUARY 31, 1998 AND 1999 (UNAUDITED)
Long-term debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
-------------------- JANUARY 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable, at prime plus 1%, payable in monthly
installments of $7,778 through November 10, 1998......... $147,778 $ 54,445 $ --
Note payable, at prime plus 1%, payable in monthly
installments of $2,778 through January 10, 1999.......... 58,333 25,000 --
Note payable, at prime plus 1%, payable in monthly
installments of $1,750 through December 4, 1999.......... 56,000 35,000 19,251
Term loan, at 9.2%, payable in monthly installments of $837
through November 30, 1999................................ 25,109 15,020 10,710
Note payable, with an effective interest rate of 8.75%,
payable in quarterly installments of $43,102 through
January 1, 2000.......................................... -- -- 173,198
-------- -------- --------
287,220 129,465 203,159
Less current portion..................................... 156,529 109,945 203,159
-------- -------- --------
$130,691 $ 19,520 $ --
======== ======== ========
</TABLE>
The short-term borrowing facilities and notes payable are secured by the
Company's assets, excluding cash and cash equivalents, and personal guarantees
of the majority stockholders. The term loan is secured by certain foreign
equipment.
The aggregate maturities of long-term debt for each of the years subsequent
to April 30, 1998 are as follows: 1999 -- $109,945 and 2000 -- $19,520.
The debt agreements contain certain restrictions on the Company activities,
including requirements for maintenance of a minimum net worth. The Company has
complied with all restrictions and covenants, or has obtained the necessary
waivers for technical violations, as of and for the years ended April 30, 1997
and 1998. The Company was not in compliance with certain restrictions and
covenants as of and for the nine months ended January 31, 1999 relating to the
note payable aggregating $19,251, nor had the Company obtained waivers for such
technical violations. As of January 31, 1999, all debt is classified as current
in the accompanying consolidated balance sheet in accordance with their normal
amortization terms.
Cash payments for interest on debt were $37,623 and $70,099 during fiscal
1997 and 1998, respectively, and $56,136 and $65,699 for the nine months ended
January 31, 1998 and 1999 (unaudited), respectively.
F-61
<PAGE> 163
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1998 AND NINE MONTHS
ENDED JANUARY 31, 1998 AND 1999 (UNAUDITED)
(6) LEASES
The Company leases office space and certain equipment under various leases
classified as operating and capital leases. Under the terms of these leases, the
Company has future minimum lease obligations of:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ----------
<S> <C> <C>
Year ended April 30:
1999...................................................... $ 5,187 $ 494,035
2000...................................................... 5,187 395,703
2001...................................................... 3,459 362,327
2002...................................................... -- 50,738
2003...................................................... -- 12,951
------- ----------
13,833 $1,315,754
==========
Less imputed interest....................................... 3,771
-------
Present value of minimum lease payments..................... 10,062
Less current portion of obligations under capital leases.... 4,651
-------
Obligations under capital leases............................ $ 5,411
=======
</TABLE>
Rent expense on operating leases was $552,622 and $422,341 for the years
ended April 30, 1997 and 1998, respectively.
(7) INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- --------- --------
<S> <C> <C> <C>
Year ended April 30, 1997:
U.S. federal.................................... $ -- $ (34,553) $(34,553)
State........................................... -- (3,147) (3,147)
Foreign......................................... 140,637 (184,540) (43,903)
-------- --------- --------
$140,637 $(222,240) $(81,603)
======== ========= ========
Year ended April 30, 1998:
U.S. federal.................................... $ -- $ -- $ --
State........................................... -- -- --
Foreign......................................... 110,234 5,140 115,374
-------- --------- --------
$110,234 $ 5,140 $115,374
======== ========= ========
</TABLE>
F-62
<PAGE> 164
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1998 AND NINE MONTHS
ENDED JANUARY 31, 1998 AND 1999 (UNAUDITED)
Income tax expense (benefit) differs from the amounts computed by applying
the U.S. federal income tax rate of 34% to pretax loss as a result of the
following:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1997 1998
--------- ---------
<S> <C> <C>
Computed expected tax expense (benefit)..................... $(481,916) $(400,913)
State income taxes, net of federal tax benefit.............. (2,077) --
Nondeductible expenses...................................... 27,884 5,918
Foreign tax rate differential............................... (133,753) (72,850)
Change in valuation allowance............................... 476,388 562,535
Other, net.................................................. 31,871 20,684
--------- ---------
$ (81,603) $ 115,374
========= =========
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
APRIL 30,
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
Deferred tax assets:
Foreign net operating loss carryforwards................. $ 774,651 $ 1,278,360
Federal net operating loss carryforwards................. 150,611 126,996
State net operating loss carryforwards................... 39,773 37,669
Provision for doubtful accounts.......................... 41,221 5,645
Inventory obsolescence................................... 6,604 8,624
Restructuring provision.................................. -- 20,952
Other.................................................... 9,606 --
---------- -----------
Gross deferred tax assets........................ 1,022,466 1,478,246
Less valuation allowance................................... (476,388) (1,038,923)
---------- -----------
Net deferred tax assets.......................... 546,078 439,323
---------- -----------
Deferred tax liabilities:
Deferred revenues........................................ 519,335 425,306
Tax depreciation......................................... 43,603 36,017
---------- -----------
Deferred tax liabilities......................... 562,938 461,323
---------- -----------
Net deferred tax liability....................... $ 16,860 $ 22,000
========== ===========
</TABLE>
The deferred taxes are presented in the consolidated balance sheets as:
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1997 1998
-------- --------
<S> <C> <C>
Current deferred income tax asset........................... $ 47,825 $ --
Long-term deferred income tax liability..................... (64,685) (22,000)
-------- --------
$(16,860) $(22,000)
======== ========
</TABLE>
At January 31, 1999, the Company had available foreign net operating loss
carryforwards of approximately $3,620,000 which can be carried forward
indefinitely to offset foreign taxable income. At January 31, 1999, the Company
has net operating loss carryforwards for federal and state income tax purposes
of
F-63
<PAGE> 165
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1998 AND NINE MONTHS
ENDED JANUARY 31, 1998 AND 1999 (UNAUDITED)
approximately $2,475,000 and $2,953,000, respectively, which are available to
offset future domestic taxable income through 2019.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income, the reversal of deferred
tax liabilities, or both, during the periods in which the related temporary
differences become deductible. Based upon these issues, management believes it
is more likely than not the Company will realize the benefits of the deferred
tax assets recognized, net of the existing valuation allowances.
Cash payments for income taxes net of refunds were $57,098 and $43,426
during fiscal 1997 and 1998, respectively.
(8) RELATED PARTY TRANSACTIONS
The Company's ticketing software products have been developed using network
operating system and database software owned and developed by MegaSoft, Inc.
(MegaSoft), a company principally owned by the majority shareholders of the
Company. During 1997 and 1998, and for the nine months ended January 31, 1999
(unaudited), licensing and consulting fees paid to MegaSoft, included in costs
of revenues, totaled $463,000, $314,266, and $130,579, respectively. Commencing
in fiscal 1998, the Company entered into an agreement with MegaSoft to provide
certain administrative, development and technical services. Services revenue
recognized in conjunction with this agreement was $282,695 in fiscal 1998 and
$130,005 for the nine months ended January 31, 1999. Included in accounts
payable are amounts due to MegaSoft of $58,040, $29,062, and $34,575 at April
30, 1997 and 1998, and January 31, 1999 (unaudited), respectively.
(9) RETIREMENT PLAN
Eligible employees of the Company may participate in a defined contribution
401(k) retirement plan. Under the plan, the Company matches 10% of the first 6%
of participant contributions. In addition, the Company may make discretionary
contributions as provided in the plan. Company contributions under the plan were
$7,818 and $10,558, and $8,967 in fiscal 1997, 1998, and for the nine months
ended January 31, 1999 (unaudited), respectively.
(10) INCENTIVE PLAN
During fiscal 1998, the Board of Directors adopted an Incentive Plan (the
Plan) which permits the granting of incentive compensation to certain officers,
employees, consultants and directors. The Company may grant any combination of
incentive stock options (ISOs), nonqualified stock options (NSOs), stock
appreciation rights, or restricted stock grants. On recapitalization of the
Company's capital in March 1998 (note 12), a pool of stock options representing
a maximum of 2,105,306 was established. The option price for ISOs may not be
less than fair market value or par value per share of common stock on the date
of the grant (or 110% of the fair market value if the grantee is a 10%
stockholder). The option price per share of common stock with respect to each
NSO will be determined by the Compensation Committee (the Committee) of the
Board of Directors. There were no NSOs issued in fiscal 1997 and 1998, and for
the nine months ended January 31, 1999 (unaudited).
ISOs and NSOs become exercisable as determined by the Committee and must be
exercised no later than ten years from the date of grant (or five years if the
grantee is also a 10% stockholder).
F-64
<PAGE> 166
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1998 AND NINE MONTHS
ENDED JANUARY 31, 1998 AND 1999 (UNAUDITED)
Information for the years ended April 30, 1997, 1998 and January 31, 1999
with respect to these plans are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION EXERCISE
SHARES PRICE PRICE
--------- --------- --------
<S> <C> <C> <C>
Outstanding at April 30, 1997............................... -- -- --
ISOs issued............................................... 185,306 $.18 $.18
---------
Outstanding at April 30, 1998............................... 185,306
ISOs issued............................................... 1,428,800 $.50 $.50
---------
Outstanding at January 31, 1999 (unaudited)................. 1,614,106 $.18 - .50 $.47
=========
Shares exercisable at January 31, 1999 (unaudited).......... 1,614,106 $.18 - .50 $.47
=========
Shares available for grant at January 31, 1999
(unaudited)............................................... 491,200
=========
</TABLE>
The per share weighted average fair value of stock options granted during
fiscal 1998 and for the nine months ended January 31, 1999 was $.09 and $.23,
respectively, on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Expected life............................................... 10 10
Interest rate............................................... 6.5% 6.2%
Dividend yield.............................................. 0% 0%
Expected volatility......................................... 0% 0%
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its stock options
and, accordingly, no compensation cost has been recognized in the consolidated
financial statements. The pro forma impact of recognizing compensation cost
based on the fair value at the grant date for stock options under SFAS No. 123
on the Company's reported operations was approximately $16,700 and $20,300
(unaudited) in fiscal 1998 and for the nine months ended January 31, 1999,
respectively. Accordingly, the pro forma impact of recognizing compensation cost
under SFAS No. 123 on basic and diluted loss per share was approximately $.002
in fiscal 1998 and for the nine months ended January 31, 1999.
In connection with the Plan, the Company may grant stock appreciation
rights (SARs). Units are awarded to participants entitling them to share in the
appreciation in value of the Company's common stock through cash payments. If a
SAR is issued in conjunction with a stock option and is exercised, the
participant will receive the aggregate of the excess of fair market value of
each share of common stock over the option price. Each SAR shall expire on a
date determined by the Committee at the time of the grant. If a stock option is
exercised in whole or part, any SAR related to the shares purchased in
connection with the exercise shall terminate immediately. The Company did not
grant any SARs during fiscal 1998 or during the nine months ended January 31,
1999 (unaudited).
In connection with the Plan, the Company may grant restricted stock grants
(RSGs). Upon the issuance or transfer of the restricted common stock the
participant shall be entitled to vote the shares and receive dividends paid. The
participant may not sell, assign, transfer, pledge or otherwise dispose of the
shares during the restriction period. The restriction period for each RSG
expires the earlier of the date determined by the Committee at the time of the
grant or upon termination of employment. The Company did not grant any RSGs
during fiscal 1998 or during the nine months ended January 31, 1999 (unaudited).
F-65
<PAGE> 167
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1998 AND NINE MONTHS
ENDED JANUARY 31, 1998 AND 1999 (UNAUDITED)
(11) NONCASH FINANCING AND INVESTING ACTIVITIES
Capital lease obligations of $3,145, $15,562 and $0 were incurred in fiscal
1997, 1998 and for the nine months ended January 31, 1999 (unaudited),
respectively, when the Company entered into leases for equipment. During the
nine months ended January 31, 1999, the Company purchased software in the amount
of $241,689 (unaudited) through a financing arrangement.
(12) COMMON STOCK RECAPITALIZATION AND REDEEMABLE PREFERRED STOCK ISSUANCE
In March 1998, the Board of Directors approved recapitalization of the
Company's authorized common stock from 200 shares, no par value, to 25,000,000
shares, $.01 par value. The par value of the existing issued shares was
transferred from additional paid-in capital to common stock. For periods prior
to the recapitalization, weighted average shares outstanding and per share data
have been restated to reflect the impact of the recapitalization.
In conjunction with the recapitalization, the Company issued 5,000,000
shares of Series A redeemable 9% cumulative convertible preferred stock, $1 par
and liquidation value, less related issuance costs of $332,018. Holders of
preferred stock are entitled to receive cumulative annual dividends as declared
by the Company's Board of Directors at a rate of 9% per share. Additionally,
holders of preferred stock are entitled to dividends in excess of 9% after the
common stock has received the same rate. No dividends were declared during
fiscal 1998 or for the nine months ended January 31, 1999 (unaudited). Dividends
of $379,418 (unaudited) were accrued (reflected as an increase in redeemable
preferred stock) for the nine months ended January 31, 1999. Preferred shares
are convertible at the stockholders' option into shares of common stock at a
conversion rate subject to periodic adjustments as defined. As of April 30, 1998
and January 31, 1999, preferred shares were convertible to common shares on the
bases of 1 to 1 and approximately 1 to 1.11 (unaudited), respectively. Upon any
conversion of the preferred shares to common stock, all accrued and unpaid
dividends, whether or not declared, will be forgiven. Each holder of preferred
stock is entitled to vote on all matters equal to the number of shares of common
stock into which the preferred shares are convertible. In the event of any
liquidation, dissolution or winding down of the affairs of the Company, holders
of the preferred stock shall be paid an amount equal to $1 per share plus all
accrued and unpaid dividends, before any payment to other stockholders. The
holders of the preferred stock will then share ratably in any remaining assets
of the Company.
The preferred stock will automatically be converted to common stock if at
any time the Company effects a Qualified Public Offering (defined as one in
which the aggregate net proceeds to the Company equal at least $20,000,000, and
in which the price per share of common stock is such that the equity valuation
of the Company immediately prior to the offering is at least $80,000,000),
capital reorganization, or merger, as defined.
Redemption of the preferred stock occurs at the option of the holders at
the earlier of an initial public offering (other than a Qualified Public
Offering as defined above) or on a pro rata basis (one-third) on March 20, 2003,
2004, and 2005. Upon such an initial public offering, the preferred stock will
be redeemed at the liquidation value, including accrued and unpaid dividends.
Otherwise, the redemption value is equal to the greater of the liquidation
value, including accrued and unpaid dividends, or the fair market value of the
preferred shares on the redemption date. As redemption of the preferred stock is
outside the control of the Company, the preferred stock, with accrued dividends
thereon, is presented outside stockholders' equity (deficit).
F-66
<PAGE> 168
TICKETSLIVE CORPORATION
(FORMERLY SELECT TECHNOLOGIES CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED APRIL 30, 1997 AND 1998 AND NINE MONTHS
ENDED JANUARY 31, 1998 AND 1999 (UNAUDITED)
(13) RESTRUCTURING
In April 1998, the Board of Directors of the Company approved a
restructuring plan for its subsidiary operations in Germany designed to improve
operating efficiencies. The plan involves a significant reduction in the
workforce from eight to three personnel employed under contracts of varying
terms, and a corresponding change to present operations. These reductions
include customer support, technical services, and administrative personnel.
Restructuring charges of $227,417 consist primarily of severance costs, legal
fees and lease commitment termination costs associated with the plan.
(14) FOREIGN OPERATIONS
The following table shows financial information about the Company's foreign
operations:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED APRIL 30, ENDED
-------------------------- JANUARY 31,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
United States............................. $ 4,748,238 $ 6,314,243 $ 4,770,666
Foreign subsidiaries...................... 5,784,477 5,579,257 3,563,113
----------- ----------- -----------
$10,532,715 $11,893,500 $ 8,333,779
=========== =========== ===========
Operating loss:
United States............................. $ (979,516) $ (57,932) $(2,146,762)
Foreign subsidiaries...................... (378,434) (1,112,190) (873,505)
----------- ----------- -----------
$(1,357,950) $(1,170,122) $(3,020,267)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
------------------------ JANUARY 31,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Identifiable assets:
United States................................ $ 772,283 $4,928,616 $1,714,912
Foreign subsidiaries......................... 2,562,068 1,897,087 1,913,807
---------- ---------- ----------
$3,334,351 $6,825,703 $3,628,719
========== ========== ==========
</TABLE>
Approximately 50% of the Company's revenues are derived from customers
located outside the United States.
(15) SUBSEQUENT EVENT (UNAUDITED)
In April 1999, the stockholders of the Company entered into an agreement
for the sale of all outstanding stock of the Company to Tickets.com, Inc.,
formerly Advantix, Inc. (Tickets.com). The purchase price is approximately
$26,000,000 and is represented by the exchange of Advantix common stock for all
of the outstanding stock of the Company. The acquisition will be accounted for
as a purchase business combination with the Company merging into a wholly owned
subsidiary of Tickets.com and the Company being the surviving entity. In
conjunction with the acquisition, all of the Company's then outstanding stock
options become immediately vested and converted into Tickets.com options.
Commensurate with the acquisition, Advantix loaned the Company $1.0 million for
general working capital purposes.
F-67
<PAGE> 169
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of California Tickets.com, Inc.:
We have audited the accompanying balance sheets of California Tickets.com, Inc.
(formerly Tickets.com, Inc., a Delaware corporation) as of December 31, 1997 and
1998, and the related statements of operations, stockholders' equity and cash
flows for the period from January 29, 1997 (inception) to December 31, 1997 and
for the year ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of California Tickets.com, Inc. as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from January 29, 1997 (inception) to December 31, 1997 and
for the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Orange County, California
May 17, 1999
F-68
<PAGE> 170
CALIFORNIA TICKETS.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1997 1998 1999
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 482,140 $ 1,091,056 $ 898,146
Accounts receivable................................ 24,363 38,649 324,109
Inventories........................................ -- -- 105,981
Prepaid expenses and other current assets.......... -- 485,905 179,691
---------- ----------- -----------
Total current assets............................ 506,503 1,615,610 1,507,927
---------- ----------- -----------
Property and equipment, net.......................... 12,391 1,211,907 1,344,392
Intangible assets, net............................... 48,800 1,380,699 3,410,511
Other assets......................................... -- 180,000 205,000
---------- ----------- -----------
Total assets.................................... $ 567,694 $ 4,388,216 $ 6,467,830
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................... $ 59,398 $ 852,354 $ 1,671,364
Accrued liabilities................................ -- 892,342 884,857
Due to affiliate................................... -- -- 3,700,000
Current portion of long-term debt and capital lease
obligations..................................... -- 519,603 545,488
Deferred revenue................................... -- -- 242,226
---------- ----------- -----------
Total current liabilities....................... 59,398 2,264,299 7,043,935
---------- ----------- -----------
Long-term debt and capital lease obligations......... -- 170,390 159,142
---------- ----------- -----------
Other liabilities.................................... -- -- 8,532
---------- ----------- -----------
Redeemable common stock.............................. 42,000 -- --
---------- ----------- -----------
Commitments and contingencies
Stockholders' equity (deficit):
Series A convertible preferred stock, $.0001 par
value, 3,000,000 shares authorized, issued and
outstanding..................................... 300 300 300
Series B convertible preferred stock, $.0001 par
value, 15,599,562 shares authorized, 80,000, 0
and 0 shares issued and outstanding,
respectively.................................... 8 -- --
Series C convertible preferred stock, $.0001 par
value, 6,400,438 shares authorized, 0, 6,400,438
and 6,400,438 shares issued and outstanding,
respectively.................................... -- 640 640
Common stock, $.0001 par value, 25,000,000 shares
authorized, 6,925,000, 9,470,836 and 9,582,086
shares issued and outstanding, respectively..... 693 947 958
Additional paid-in capital......................... 1,100,249 8,603,716 8,676,730
Deferred compensation.............................. (283,750) (1,215,932) (1,186,076)
Accumulated deficit................................ (351,204) (5,436,144) (8,236,331)
---------- ----------- -----------
Total stockholders' equity (deficit)............ 466,296 1,953,527 (743,779)
---------- ----------- -----------
Total liabilities and stockholders' equity...... $ 567,694 $ 4,388,216 $ 6,467,830
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-69
<PAGE> 171
CALIFORNIA TICKETS.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
JANUARY 29, 1997
(INCEPTION) TO YEAR ENDED THREE MONTHS ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ----------------------------
1997 1998 1998 1999
---------------- ------------ ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.............................. $ 34,360 $ 1,092,284 $ 44,770 $ 353,811
Cost of services...................... 48,041 1,682,645 65,167 742,854
--------- ----------- --------- -----------
Gross loss............................ (13,681) (590,361) (20,397) (389,043)
--------- ----------- --------- -----------
Operating expenses:
Sales and marketing................. 16,916 819,988 63,738 1,254,662
Technology development.............. -- 148,532 19,075 121,846
General and administrative.......... 317,407 3,456,904 277,296 999,639
Amortization of intangibles......... 3,200 152,101 29,006 38,424
--------- ----------- --------- -----------
Total operating expenses.... 337,523 4,577,525 389,115 2,414,571
--------- ----------- --------- -----------
Loss from operations.................. (351,204) (5,167,886) (409,512) (2,803,614)
Interest (income) expense, net........ -- (82,946) 5,606 (3,427)
--------- ----------- --------- -----------
Net loss.............................. $(351,204) $(5,084,940) $(415,118) $(2,800,187)
========= =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE> 172
CALIFORNIA TICKETS.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
----------------------------------------------------------
SERIES A SERIES B SERIES C COMMON STOCK
------------------ ---------------- ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ------ ------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 27, 1997 (Inception)..... -- $ -- -- $-- -- $ -- -- $ --
Issuance of common stock for cash....... -- -- -- -- -- -- 6,925,000 693
Issuance of Series A convertible
preferred stock for cash.............. 3,000,000 300 -- -- -- -- -- --
Issuance of Series B convertible
preferred stock for cash.............. -- -- 80,000 8 -- -- -- --
Deferred compensation with respect to
employee stock options................ -- -- -- -- -- -- -- --
Net loss................................ -- -- -- -- -- -- -- --
--------- ---- ------- --- --------- ---- --------- ----
Balance, December 31, 1997................ 3,000,000 $300 80,000 $ 8 -- $ -- 6,925,000 $693
Exercise of common stock options........ -- -- -- -- -- -- 1,133,336 113
Issuance of common stock in connection
with the purchase of intangible
assets................................ -- -- -- -- -- -- 1,412,500 141
Repurchase of Series B convertible
preferred stock in connection with
rescission of financing............... -- -- (80,000) (8) -- -- -- --
Issuance of Series C convertible
preferred stock for cash.............. -- -- -- -- 6,400,438 640 -- --
Contribution of capital related to bank
note payable.......................... -- -- -- -- -- -- -- --
Deferred compensation with respect to
employee stock options and warrants... -- -- -- -- -- -- -- --
Net loss................................ -- -- -- -- -- -- -- --
--------- ---- ------- --- --------- ---- --------- ----
Balance, December 31, 1998................ 3,000,000 $300 -- $-- 6,400,438 $640 9,470,836 $947
Exercise of common stock options........ -- -- -- -- -- -- 111,250 11
Deferred compensation with respect to
employee stock options................ -- -- -- -- -- -- -- --
Net loss................................ -- -- -- -- -- -- -- --
--------- ---- ------- --- --------- ---- --------- ----
Balance, March 31, 1999................... 3,000,000 $300 -- $-- 6,400,438 $640 9,582,086 $958
========= ==== ======= === ========= ==== ========= ====
<CAPTION>
ADDITIONAL
PAID-IN DEFERRED ACCUMULATED
CAPITAL COMPENSATION DEFICIT TOTAL
---------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Balance, January 27, 1997 (Inception)..... $ -- $ -- $ -- $ --
Issuance of common stock for cash....... 136,807 -- -- 137,500
Issuance of Series A convertible
preferred stock for cash.............. 599,700 -- -- 600,000
Issuance of Series B convertible
preferred stock for cash.............. 19,992 -- -- 20,000
Deferred compensation with respect to
employee stock options................ 343,750 (283,750) -- 60,000
Net loss................................ -- -- (351,204) (351,204)
---------- ----------- ----------- -----------
Balance, December 31, 1997................ $1,100,249 $ (283,750) $ (351,204) $ 466,296
Exercise of common stock options........ 78,454 -- -- 78,567
Issuance of common stock in connection
with the purchase of intangible
assets................................ 225,859 -- -- 226,000
Repurchase of Series B convertible
preferred stock in connection with
rescission of financing............... (19,992) -- -- (20,000)
Issuance of Series C convertible
preferred stock for cash.............. 5,849,360 -- -- 5,850,000
Contribution of capital related to bank
note payable.......................... 100,833 -- -- 100,833
Deferred compensation with respect to
employee stock options and warrants... 1,268,953 (932,182) -- 336,771
Net loss................................ -- -- (5,084,940) (5,084,940)
---------- ----------- ----------- -----------
Balance, December 31, 1998................ $8,603,716 $(1,215,932) $(5,436,144) $ 1,953,527
Exercise of common stock options........ 20,014 -- -- 20,025
Deferred compensation with respect to
employee stock options................ 53,000 29,856 -- 82,856
Net loss................................ -- -- (2,800,187) (2,800,187)
---------- ----------- ----------- -----------
Balance, March 31, 1999................... $8,676,730 $(1,186,076) $(8,236,331) $ (743,779)
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE> 173
CALIFORNIA TICKETS.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
JANUARY 29, 1997 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -------------------------
1997 1998 1998 1999
---------------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $(351,204) $(5,084,940) $ (415,118) $(2,800,187)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.......................................... 1,247 87,396 2,263 96,872
Amortization of intangible assets..................... 3,200 152,101 29,006 38,424
Noncash interest expense.............................. -- 30,833 5,606 --
Noncash compensation expense.......................... 60,000 336,772 84,193 82,849
Changes in operating assets and liabilities:
Accounts receivable................................. (24,363) (14,286) 19,958 (30,188)
Prepaid expenses and other current assets........... -- (485,905) -- 326,336
Other assets........................................ -- (180,000) (5,092) (89,049)
Accounts payable.................................... 59,398 792,956 88,413 (25,000)
Accrued liabilities................................. -- 692,342 750,000 504,255
Deferred revenue.................................... -- -- -- 47,000
--------- ----------- ----------- -----------
Net cash (used in) provided by operating
activities................................... (251,722) (3,672,731) 559,229 (1,848,688)
--------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment...................... (13,638) (1,026,920) (23,111) (161,241)
Purchase of intangible assets........................... (10,000) (1,100,000) (1,050,000) --
Acquisition, net of cash acquired....................... -- -- -- (1,880,316)
--------- ----------- ----------- -----------
Net cash used in investing activities.......... (23,638) (2,126,920) (1,073,111) (2,041,557)
--------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable................. -- 430,000 430,000 3,700,000
Proceeds from issuance of preferred stock............... 620,000 5,850,000 -- --
Proceeds from issuance of common stock.................. 137,500 148,567 70,000 20,025
Repurchase of Series B preferred stock due to recission
of financing.......................................... -- (20,000) -- --
Payment of capital lease obligations.................... -- -- -- (22,690)
--------- ----------- ----------- -----------
Net cash provided by financing activities...... 757,500 6,408,567 500,000 3,697,335
--------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents.... 482,140 608,916 (13,882) (192,910)
Cash and cash equivalents, beginning of period.......... -- 482,140 482,140 1,091,056
--------- ----------- ----------- -----------
Cash and cash equivalents, end of period................ $ 482,140 $ 1,091,056 $ 468,258 $ 898,146
========= =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid......................................... $ -- $ 2,796 $ -- $ --
========= =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Redeemable common stock issued in connection with the
purchase of intangible assets....................... $ 42,000 $ -- $ -- $ --
========= =========== =========== ===========
Capital lease obligations entered into for
equipment........................................... $ -- $ 313,942 $ -- $ 6,434
========= =========== =========== ===========
Common stock issued in connection with the purchase of
intangible assets................................... $ -- $ 226,000 $ 226,000 $ --
========= =========== =========== ===========
The Company acquired all the outstanding common stock
of TicketStop, Inc. during the three months ended
March 31, 1999. The following table outlines the
assets acquired, liabilities assumed and cash paid:
Fair value of assets acquired....................... $ -- $ -- $ -- $ 2,741,927
Less:
Liabilities assumed............................... -- -- -- (406,927)
Cash payable six months subsequent to closing
date........................................... -- -- -- (135,000)
--------- ----------- ----------- -----------
Cash paid......................................... -- -- -- 2,200,000
Cash acquired..................................... -- -- -- (319,684)
--------- ----------- ----------- -----------
Cash paid, net of cash acquired................... $ -- $ -- $ -- $ 1,880,316
========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-72
<PAGE> 174
CALIFORNIA TICKETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
1. COMPANY BACKGROUND
California Tickets.com, Inc. (the "Company") provides sports, entertainment
and travel tickets and event and venue information to consumers over the
Internet and through its call center. The Company was incorporated in January
1997, but did not commence operations until October 1997, when the Company
launched its Internet site and commenced call center operations in early 1998.
The Company has historically generated revenues primarily through the
resale of tickets for sports and entertainment events to consumers. Tickets
resold have generally been purchased from secondary ticket sellers. Revenues are
derived from the gross resale value of the tickets and per order handling fees
charged to consumers. The Company also receives commissions for travel services
provided.
On January 26, 1999, the Company signed a definitive agreement with
Advantix, Inc. a ticketing services provider ("Advantix"), to acquire all
outstanding stock of the Company (see note 10). In conjunction with the
acquisition, the Company ceased reselling tickets to consumers in favor of
adopting fully outsourced ticketing services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
The Company recognizes revenues from ticket sales at the time the tickets
are shipped. Revenues from travel services are recognized at the time the
commissions are earned in accordance with the underlying contracts.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets ranging from three to five years, or for leasehold improvements,
over the term of the lease, if shorter. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation or amortization are
removed and any gain or loss is reflected in results of operations.
INTANGIBLE ASSETS
Intangible assets consists of the consideration paid for certain trade and
Internet domain names, net of accumulated amortization. The Company amortizes
intangible assets over their estimated useful lives of 10 years.
F-73
<PAGE> 175
CALIFORNIA TICKETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES
The Company applies an asset and liability method in recording income
taxes, under which deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using currently enacted tax rates and laws.
Additionally, deferred tax assets are evaluated and a valuation allowance is
established if it is more likely than not that all or a portion of the deferred
tax asset will not be realized.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130 "Reporting Comprehensive Income" in 1998. This statement requires that
all items that meet the definition of components of comprehensive income be
reported in a financial statement for the period in which they are recognized.
Components of comprehensive income include amounts that under SFAS No. 130 are
included in comprehensive income but are excluded from net income. There are no
differences between the Company's net loss, as reported and comprehensive
income, as defined, for the periods presented.
STOCK-BASED COMPENSATION
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard, if fully adopted, requires the accounting for
employee stock-based compensation using a fair value methodology. For stock
options, fair value is determined using an option pricing model that takes into
account the stock price at the date of grant, the exercise price, the expected
life of the option, the volatility of the underlying stock, the expected
dividends and the risk-free interest rate. For stock-based compensation issued
to non-employees, the standard requires measurement based on the value of the
related services performed or the stock-based compensation issued, whichever is
more reliably measurable.
The adoption of the accounting methodology of SFAS No. 123 related to
employees is optional and as permitted under SFAS No. 123, the Company accounts
for employee stock options using the intrinsic value methodology in accordance
with the Accounting Principles Board Opinion No. 25; however, pro forma
disclosures, as if the Company fully adopted the accounting methodology of SFAS
No. 123, have been presented.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which is effective
for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal use and defines specific criteria that determine when such costs are
required to be expensed, and when such costs may be capitalized. Management
believes that the adoption of SOP 98-1 will not have a material effect on the
Company's consolidated financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities," which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs and require such costs to be expensed as
incurred. Management believes that the adoption of SOP 98-5 will not have a
material effect on the Company's consolidated financial statements.
F-74
<PAGE> 176
CALIFORNIA TICKETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
PREPAID EXPENSES AND OTHER CURRENT ASSETS
The Company had no prepaid expenses or other current assets as of December
31, 1997. Prepaid expenses and other current assets consisted of the following
as of December 31, 1998.
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Prepaid advertising......................................... $298,698
Prepaid software license fees............................... 126,517
Other....................................................... 60,690
--------
Prepaid expenses and other current assets................... $485,905
========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIVES 1997 1998
------------ ------- ----------
<S> <C> <C> <C>
Computer equipment................................ 3 years $ 7,276 $ 493,531
Furniture and fixtures............................ 5 years 6,362 168,253
Leasehold improvements............................ 5 years -- 86,321
Purchased software................................ 3 years -- 552,445
------- ----------
13,638 1,300,550
Less -- accumulated depreciation.................. (1,247) (88,643)
------- ----------
Property and equipment, net....................... $12,391 $1,211,907
======= ==========
</TABLE>
Total depreciation expense was $1,247 and $87,396 for the period from
January 29, 1997 (Inception) to December 31, 1997 and for the year ended
December 31, 1998, respectively.
INTANGIBLE ASSETS
Intangible assets consisted of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
------- ----------
<S> <C> <C>
Trade name.................................................. $ -- $1,426,000
Domain names................................................ 52,000 110,000
------- ----------
Total....................................................... 52,000 1,536,000
Less -- accumulated amortization............................ (3,200) (155,301)
------- ----------
Intangible assets, net...................................... $48,800 $1,380,699
======= ==========
</TABLE>
ACCRUED LIABILITIES
The Company had no accrued liabilities as of December 31, 1997. Accrued
liabilities consisted of the following as of December 31, 1998.
<TABLE>
<CAPTION>
1998
--------
<S> <C>
Lawsuit settlement.......................................... $461,499
Contingent liability........................................ 200,000
Other....................................................... 230,843
--------
Accrued liabilities......................................... $892,342
========
</TABLE>
F-75
<PAGE> 177
CALIFORNIA TICKETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
The Company had no long-term debt or capital leases as of December 31,
1997. Long-term debt and capital lease obligations consisted of the following as
of December 31, 1998:
<TABLE>
<CAPTION>
1998
---------
<S> <C>
Bank note payable at 7.4%, maturing February 1999........... $ 430,000
Various capital lease obligations bearing interest rates
ranging from 4.2% to 7.4%, payable in monthly installments
of approximately $8,400, with maturity dates ranging from
August 2000 to September 2003............................. 259,993
---------
Total....................................................... 689,993
Less -- current portion..................................... (519,603)
---------
$ 170,390
=========
</TABLE>
Interest on the bank note payable is being paid by a stockholder of the
Company. The payments are recorded as additional paid-in capital. On February
10, 1999 the Company obtained a 90-day extension of the note, extending the
maturity date to May 11, 1999. Interest payments for the extension period will
be paid by the Company at a rate of 6.5%.
Annual maturities of long-term debt and capital lease obligations as of
December 31, 1998 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999............................................ $519,603
2000............................................ 79,787
2001............................................ 31,732
2002............................................ 33,105
2003............................................ 25,766
--------
$689,993
========
</TABLE>
5. INCOME TAXES
The Company has incurred taxable losses for federal and state purposes
since inception. Accordingly, the Company has not recorded any federal income
tax expense.
The significant components of the Company's net deferred tax asset as of
December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Net operating loss carry forwards.................. $ 106,274 $ 1,971,640
Other.............................................. -- 13,167
Valuation allowance................................ (106,274) (1,984,807)
--------- -----------
Deferred tax asset, net............................ $ -- $ --
========= ===========
</TABLE>
A valuation allowance is provided for the deferred tax asset when it is
more likely than not that some portion of the deferred tax asset will not be
realized. The Company has established a full valuation allowance on the
aforementioned deferred tax asset due to uncertainty of realization.
As of December 31, 1998, the Company had net operating loss carry forwards
for federal income tax purposes of approximately $5,340,334, which can be used
to offset taxable income from operations through the year 2013. Additionally,
the Company has net operating loss carryforwards for California income tax
purposes of approximately $2,669,980, which can be used to offset taxable income
from operations through the year 2003.
F-76
<PAGE> 178
CALIFORNIA TICKETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
During 1998, the Company entered into a non-cancelable operating lease for
office space that expires in September 2003. Total rent expense under the lease
was approximately $88,280 for the year ended December 31, 1998. Future minimum
rentals on the operating lease are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1999........................................... $ 238,116
2000........................................... 238,116
2001........................................... 238,116
2002........................................... 238,116
2003........................................... 158,744
----------
$1,111,208
==========
</TABLE>
CONTINGENT LIABILITY
On January 9, 1998, the Company entered into an Asset Purchase Agreement
("Agreement"), to purchase certain intangible assets. Total consideration for
the purchase was $1,426,000, consisting of $1,000,000 cash, 1,412,500 shares of
the Company's common stock and a contingent payment of $200,000. The contingent
payment is due within 120 days of the end of a fiscal period in which the
Company earns in excess of $20.0 million in revenues and has at least $800,000
in cash. The Company has recognized this contingency as a current liability on
its balance sheet as of December 31, 1998.
LITIGATION
During 1998, the Company recorded costs in the amount of $686,000 in
connection with a lawsuit that was filed by a former employee of the Company.
The lawsuit was settled and all amounts owed by the Company were accrued. As of
December 31, 1998, $461,000 of these costs remained due and were included in
accrued liabilities on the Company's balance sheet.
The Company is subject to litigation in the normal course of its business.
In the opinion of management, the disposition of all litigation pending will not
have a material effect on the Company's consolidated financial condition and
results of operations.
7. REDEEMABLE COMMON STOCK
On April 16, 1997, the Company entered into an agreement to purchase
certain intangible assets. Consideration for the purchase consisted of cash and
100,000 shares of common stock. The stock was treated as redeemable common stock
based upon the seller's ability to require the Company to purchase all or any
portion of the shares previously issued for cash consideration. The
consideration was the higher of $40,000, or the then current value of the shares
assessed by an independent body. The seller was required to exercise this option
by April 16, 1998 or at any time within 30 days thereafter. On May 12, 1998, the
seller agreed to relinquish all claims to the Company's capital stock in
exchange for a cash payment of $50,000.
8. STOCKHOLDERS' EQUITY
COMMON STOCK
Holders of the Company's Common Stock are entitled to one vote for each
share held of record on all matters to be submitted to a vote of the
stockholders, and do not have preemptive rights. The Company's Certificate of
Incorporation does not provide for cumulative voting in the election of
directors. Subject to
F-77
<PAGE> 179
CALIFORNIA TICKETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
preferences applicable to outstanding shares of Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. All outstanding shares of Common Stock are fully paid and
nonassessable. In the event of any liquidation, dissolution or winding-up of the
affairs of the Company, holders of Common Stock will be entitled to share
ratably in the assets of the Company remaining after payment or provision for
payment of all of the Company's debts and obligations and liquidation payments
to holders of outstanding shares of Preferred Stock.
During 1998, the Company issued warrants for the purchase of 121,454 shares
of Common Stock at exercise prices ranging from $.05 to $.18 to various
consultants. All related services were performed during 1998. As a result, the
Company recognized the value attributable to the warrants as an expense in 1998.
SERIES A PREFERRED STOCK
Each share of Series A Preferred Stock carries a liquidation preference in
the amount of $0.20 per share, subject to adjustment, plus accrued and unpaid
dividends. The liquidation preference of the Series A Preferred Stock is subject
to the prior payment of the liquidation preference of the Series C Preferred
Stock. Each share of Series A Preferred Stock is presently convertible into one
share of Common Stock at the initial conversion price of $.20 per share, subject
to adjustment upon the occurrence of certain events. In addition, the Series A
Preferred Stock is subject to mandatory conversion to Common Stock upon the
consummation of a firm commitment underwritten public offering resulting in
gross proceeds to the Company of at least $5,000,000 at a per share price of at
least $2.00.
The holders of the Series A Preferred Stock are entitled to notice of and
to vote (as a single class together with the holders of Common Stock, except to
the extent otherwise required by law) upon any matter submitted to the Company's
stockholders for a vote. Such voting rights shall be exercised on the basis of
one vote for each share into which such holder's shares of Preferred Stock are
convertible.
SERIES C PREFERRED STOCK
Each share of Series C Preferred Stock carries a noncumulative dividend of
7% per annum and a liquidation preference in the amount of $.914 per share,
subject to adjustment, plus accrued and unpaid dividends. The liquidation
preference of the Series C Preferred Stock is senior in right to payment of the
liquidation preference of the Series A Preferred Stock. Each share of Series C
Preferred Stock is convertible into one share of Common Stock at the conversion
price of $.914 per share, subject to adjustment upon the occurrence of certain
events.
In addition, the Series C Preferred Stock is subject to mandatory
conversion to Common Stock upon the consummation of a firm commitment
underwritten public offering resulting in gross proceeds to the Company of at
least $10,000,000 at a per share price of at least $5.48. The holders of the
Series C Preferred Stock have preemptive rights with respect to certain
issuances by the Company of additional equity securities.
The holders of the Series C Preferred Stock are entitled to notice of and
to vote (as a single class together with the holders of Common Stock, except to
the extent otherwise required by law) upon any matter submitted to the Company
stockholders' for a vote. Such voting rights shall be exercised on the basis of
one vote for each share into which such holder's shares of Preferred Stock are
convertible.
9. EMPLOYEE BENEFIT PLANS
In April 1998, the Company's Board of Directors approved the 1998 Stock
Option Plan and, in November 1998, an amendment to the 1998 Stock Option Plan
(the "1998 Plan"). The 1998 Plan authorized the issuance of up to 6,000,000
shares of common stock to various employees. The exercise price is determined by
the compensation committee of the Board of Directors. The exercise prices at
which certain options were
F-78
<PAGE> 180
CALIFORNIA TICKETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
issued was determined to be below fair value at the dates of grants. The Company
recorded total deferred compensation at the date the options were granted of
$344,000 and $1,269,000 during the years ended 1997 and 1998, respectively. Of
these amounts, $60,000 and $337,000 was recognized as compensation expense
during the years ended December 1997 and 1998, respectively.
Under the 1998 Plan, options to acquire an aggregate of 2,975,000 and
2,218,888 shares of common stock at an average exercise price of $.04 and $.16
per share were granted to employees during the years ended December 1997 and
1998, respectively. The options generally vest annually over a four-year period
and have a term of 10 years.
Stock option activity from January 29, 1997 (Inception) to December 31,
1998 was as follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
---------- --------------
<S> <C> <C>
Outstanding as of January 29, 1997................... -- --
Granted............................................ 2,975,000 $.04
---------- ----
Outstanding as of December 31, 1997.................. 2,975,000 .04
Granted............................................ 2,218,888 .16
Exercised.......................................... (1,083,342) .06
---------- ----
Outstanding as of December 31, 1998.................. 4,110,546 $.11
========== ====
Options exercisable as of December 31, 1998.......... 789,362 $.08
========== ====
</TABLE>
For disclosure purposes under SFAS No. 123, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants during the
years ended December 31, 1997 and 1998: Dividend yield of 0.0%; 0.0% expected
volatility; risk-free rate of 6.4%; and expected lives of five years.
The pro forma effect of adopting the measurement principles prescribed
under SFAS No. 123 for the years ended December 31, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
1997 1998
--------- -----------
<S> <C> <C>
Actual net loss.................................... $(351,204) $(5,084,940)
Pro forma net loss................................. $(418,056) $(5,302,750)
</TABLE>
Pro forma compensation costs may not be representative of that to be
expected in future years.
10. SUBSEQUENT EVENTS
ACQUISITION OF TICKETSTOP, INC.
In March 1999, the Company entered into a Stock Purchase Agreement by and
among the Company, TicketStop, Inc. ("TicketStop") and the shareholders of
TicketStop to purchase all of the outstanding common stock of TicketStop. The
purchase was for cash consideration equaling approximately $2.3 million,
consisting of an up front cash payment of $2.2 million. Additional
consideration, in the form of a contingent cash payment of up to approximately
$400,000, is subject to TicketStop attaining a targeted number of active
clients, as defined. The acquisition was accounted for as a purchase.
ACQUISITION BY ADVANTIX, INC.
In April 1999, all of the outstanding capital stock of the Company was
purchased by Advantix, Inc. ("Advantix"). The purchase price equaled
approximately $41.5 million, consisting of the issuance of 2,678,577, 5,782,241
and 3,928,386 shares of Advantix' Series A1 convertible preferred stock, Series
C convertible preferred stock and common stock, respectively. In addition,
Advantix assumed all of the
F-79
<PAGE> 181
CALIFORNIA TICKETS.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
outstanding options to purchase common stock at the Company by issuing to the
holders of such options, options to purchase 1,507,341 shares of Advantix'
common stock.
Prior to the consummation of the acquisition, the Company received cash
advances aggregating $3,700,000 from Advantix. The proceeds of these advances
were used principally to fund the acquisition of TicketStop and also for general
working capital purposes. The advances were included as part of the purchase
price in the acquisition. Subsequent to the acquisition, Advantix changed its
name to Tickets.com, Inc.
F-80
<PAGE> 182
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following Unaudited Pro Forma Condensed Combined Financial Statements
and related notes contain forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those discussed
herein. We undertake no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
In the opinion of our management, all adjustments necessary to fairly
present this pro forma information have been made. The Unaudited Pro Forma
Condensed Combined Financial Statements are based upon, and should be read in
conjunction with, the historical financial statements of Tickets.com, ProTix,
California Tickets.com and TicketsLive, and the respective notes to such
financial statements presented elsewhere in this Prospectus. The pro forma
information is based upon tentative allocations of purchase price for the
acquisitions and may not be indicative of the results that would have been
reported had such events actually occurred on the dates specified, nor is it
indicative of the Company's future results. Purchase accounting is based upon
preliminary asset valuations, which are subject to change.
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
year ended December 31, 1998 and the six months ended June 30, 1999 are
presented as if Tickets.com had completed the acquisitions of ProTix, California
Tickets.com and TicketsLive as of January 1, 1998.
Since our historical unaudited consolidated statements of operations for
the six months ended June 30, 1999 reflect the acquisition of ProTix, no pro
forma adjustments are necessary for ProTix for the six months ended June 30,
1999.
Since our historical unaudited consolidated balance sheets as of June 30,
1999 reflect the acquisitions of ProTix, California Tickets.com and TicketsLive,
no pro forma balance sheet adjustments are necessary as of June 30, 1999.
In addition, the Unaudited Pro Forma Condensed Combined Financial
Statements do not reflect purchase price adjustments and future contingent
payments contained in the agreements relating to certain acquisitions. You
should read "Risk Factors -- Risks Related to Acquisitions" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The pro forma financial statements do not include the effect of certain
immaterial acquisitions. No adjustments have been made to the Unaudited Pro
Forma Condensed Combined Statements of Operations relating to charges to
earnings that are non-recurring and unrelated to the transactions presented. You
should read "Risk Factors -- Future Charges to Earnings."
PF-1
<PAGE> 183
TICKETS.COM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
CALIFORNIA
TICKETS.COM, PROTIX, TICKETS.COM, TICKETSLIVE PRO FORMA PRO FORMA
INC. INC.(B) INC.(C) CORPORATION(D) ADJUSTMENTS COMBINED
------------ ------------ ------------ -------------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing services(a)........... $ 26,558 $ 3,234 $ -- $ 66 $ -- $ 29,858
Software services and other..... 2,982 2,696 1,092 11,052 -- 17,822
-------- ------- ------- ------- -------- --------
Total revenues.......... 29,540 5,930 1,092 11,118 -- 47,680
-------- ------- ------- ------- -------- --------
Cost of services:
Ticketing services.............. 17,155 2,060 -- 33 -- 19,248
Software services and other..... 1,551 1,067 1,683 5,704 -- 10,005
-------- ------- ------- ------- -------- --------
Total cost of
services.............. 18,706 3,127 1,683 5,737 -- 29,253
-------- ------- ------- ------- -------- --------
Gross profit (loss)............... 10,834 2,803 (591) 5,381 -- 18,427
-------- ------- ------- ------- -------- --------
Operating expenses:
Sales and marketing............. 7,339 913 820 2,112 -- 11,184
Technology development.......... 6,417 717 148 1,146 -- 8,428
General and administrative...... 9,204 1,809 3,457 5,413 -- 19,883
Amortization of intangibles..... 2,082 177 152 -- 7,452(e) 9,863
Impairment of long-lived
assets....................... 17,026 -- -- -- -- 17,026
Purchased in-process research
and development expenses..... 1,600 -- -- -- 5,340(f) 6,940
-------- ------- ------- ------- -------- --------
Total operating
expenses.............. 43,668 3,616 4,577 8,671 12,792 73,324
-------- ------- ------- ------- -------- --------
Loss from operations.............. (32,834) (813) (5,168) (3,290) (12,792) (54,897)
Other (income) expense:
Interest income................. (878) (29) (117) (141) -- (1,165)
Interest expense................ 2,952 236 34 81 92(g) 3,395
Minority interest............... (53) 286 -- -- -- 233
-------- ------- ------- ------- -------- --------
Total other (income)
expense............... 2,021 493 (83) (60) 92 2,463
-------- ------- ------- ------- -------- --------
Loss before provision for income
taxes........................... (34,855) (1,306) (5,085) (3,230) (12,884) (57,360)
Provision for income taxes........ 6 -- -- 34 -- 40
-------- ------- ------- ------- -------- --------
Net loss.......................... $(34,861) $(1,306) $(5,085) $(3,264) $(12,884) $(57,400)
======== ======= ======= ======= ======== ========
Basic and diluted net loss per
share........................... $ (4.25)
========
Weighted average common
shares(h)....................... 13,510
========
</TABLE>
PF-2
<PAGE> 184
TICKETS.COM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
CALIFORNIA
TICKETS.COM, TICKETS.COM, TICKETSLIVE PRO FORMA PRO FORMA
INC. INC.(A) CORPORATION(B) ADJUSTMENTS COMBINED
------------ ------------ -------------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing services.................. $ 13,046 $ -- $ 17 $ -- $ 13,063
Software services and other......... 6,232 354 2,593 -- 9,179
-------- ------- ------- ------- --------
Total revenues.............. 19,278 354 2,610 -- 22,242
-------- ------- ------- ------- --------
Cost of services:
Ticketing services............... 8,971 -- -- -- 8,971
Software services and other...... 3,571 743 1,325 -- 5,639
-------- ------- ------- ------- --------
Total cost of services...... 12,542 743 1,325 -- 14,610
-------- ------- ------- ------- --------
Gross profit (loss)................... 6,736 (389) 1,285 -- 7,632
-------- ------- ------- ------- --------
Operating expenses:
Sales and marketing................. 9,068 1,255 789 -- 11,112
Technology development.............. 4,793 122 418 -- 5,333
General and administrative.......... 6,827 1,000 1,913 -- 9,740
Amortization of intangibles......... 2,576 38 -- 1,728(c) 4,342
Impairment of long-lived assets..... -- -- -- -- --
Purchased in-process research and
development expenses............. 5,340 -- -- (5,340)(d) --
-------- ------- ------- ------- --------
Total operating expenses.... 28,604 2,415 3,120 (3,612) 30,527
-------- ------- ------- ------- --------
Loss from operations.................. (21,868) (2,804) (1,835) 3,612 (22,895)
Other (income) expense:
Interest income..................... (379) (7) (33) -- (419)
Interest expense.................... 1,681 3 21 -- 1,705
Minority interest................... 146 -- -- -- 146
-------- ------- ------- ------- --------
Other income expense............. 1,448 (4) (12) -- 1,432
-------- ------- ------- ------- --------
Loss before provision for income
taxes............................... (23,316) (2,800) (1,823) 3,612 (24,327)
Provision for income taxes............ 17 -- 4 -- 21
-------- ------- ------- ------- --------
Net loss.............................. $(23,333) $(2,800) $(1,827) $ 3,612 $(24,348)
======== ======= ======= ======= ========
Basic and diluted net loss per
share............................... $ (1.74)
========
Weighted average common shares(e)..... 14,012
========
</TABLE>
PF-3
<PAGE> 185
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS)
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
(a) Included in 1998 ticketing services revenues is $9.3 million related to
three clients for whom we no longer provide ticketing services and one
client that notified us of its intent not to renew its contract with us at
the end of its term on December 31, 1999. We believe that this non-renewal
was the result of the acquisition of this client by an entertainment
organization that entered into a long-term master ticketing services
agreement with one of our competitors. No pro forma adjustments have been
made with respect to this expected reduction in revenue.
(b) The results of operations for ProTix were included in our consolidated
results of operations as of October 1, 1998. This presentation shows the pro
forma effects of the operations of ProTix as if the acquisition occurred on
January 1, 1998.
(c) The results of operations of California Tickets.com were included in our
consolidated results as of April 1, 1999. This presentation shows the pro
forma effects of the operations of California Tickets.com as if the
acquisition occurred on January 1, 1998.
(d) The results of operations of TicketsLive were included in our consolidated
results as of April 1, 1999. This presentation shows the pro forma effects
of the operations of TicketsLive as if the acquisition occurred on January
1, 1998.
(e) Represents the amortization of intangibles that would have been recorded for
the year ended December 31, 1998 if the acquisitions of ProTix, California
Tickets.com and TicketsLive occurred on January 1, 1998.
(f) Represents estimated in-process research and development charges that would
have been recorded if the acquisitions of California Tickets.com and
TicketsLive occurred on January 1, 1998. The estimated in-process research
and development for California Tickets.com are $3.5 million and for
TicketsLive are $1.8 million.
(g) Represents additional interest expense that would have been recorded in
connection with the $1.3 million of promissory notes issued to the former
shareholders of ProTix if the acquisition of ProTix occurred on January 1,
1998.
(h) Reflects shares of common stock outstanding during the periods presented.
Pro forma data includes common stock issuable with respect to the
acquisitions. Excludes shares of common stock issuable upon conversion of
outstanding shares of preferred stock, a convertible promissory note, and
upon exercise of outstanding stock options and warrant grants.
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
(a) The results of operations of California Tickets.com were included in our
consolidated results commencing April 1, 1999. This presentation shows the
pro forma effects of the operations of California Tickets.com as if the
acquisition occurred on January 1, 1998.
(b) The results of operations of TicketsLive were included in our consolidated
results commencing April 1, 1999. This presentation shows the pro forma
effects of the operations of TicketsLive as if the acquisition occurred on
January 1, 1998.
(c) Represents the amortization of intangibles that would have been recorded for
the three months ended March 31, 1999 if the acquisitions of California
Tickets.com and TicketsLive occurred on January 1, 1998.
(d) Represents the in process research and development charge recorded as of
June 30, 1999 related to the acquisitions of California Tickets.com and
TicketsLive that would have been recorded in 1998 if the acquisitions were
completed on January 1, 1998.
(e) Reflects shares of common stock outstanding during the periods presented.
Pro forma data includes common stock issuable with respect to the
acquisitions. Excludes shares of common stock issuable upon conversion of
outstanding shares of preferred stock, a convertible promissory note, and
upon exercise of outstanding stock options and warrant grants.
PF-4
<PAGE> 186
[Graphics depicting Tickets.com home page on it's web site.]
<PAGE> 187
The Tickets.com logo appears against a white background.
[Ticket.com Logo]
<PAGE> 188
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission, NASD and Nasdaq National Market
fees. All of the expenses below will be paid by Tickets.com.
<TABLE>
<CAPTION>
ITEM
- ----
<S> <C>
Registration fee............................................ $ 20,850
NASD filing fee............................................. 8,000
Nasdaq National Market listing fee.......................... 95,000
Blue sky fees and expenses.................................. 10,000
Printing and engraving expenses............................. 350,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 250,000
Transfer Agent and Registrar fees........................... 12,500
Miscellaneous............................................... 100,000
----------
Total............................................. $1,348,850
==========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of Tickets.com under certain conditions and subject to
certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of Section 145 of the
Delaware General Corporation Law.
Article VII, Section I of the Restated Bylaws of Tickets.com provides that
Tickets.com shall indemnify its directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law. The rights to
indemnity thereunder continue as to a person who has ceased to be a director,
officer, employee or agent and inure to the benefit of the heirs, executors and
administrators of the person. In addition, expenses incurred by a director or
executive officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she is
or was a director or officer of Tickets.com (or was serving at Tickets.com's
request as a director or officer of another corporation) shall be paid by
Tickets.com in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by Tickets.com as authorized by the relevant
section of the Delaware General Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General. Corporation Law,
Article V, Section (A) of Tickets.com's Restated Certificate of Incorporation
provides that a director of Tickets.com shall not be personally liable for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to Tickets.com or
its stockholders, (ii) for acts or omissions not in good faith or acts or
omissions that involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived any improper personal benefit.
Tickets.com has entered into indemnification agreements with each of its
directors and executive officers. Generally, the indemnification agreements
attempt to provide the maximum protection permitted by
II-1
<PAGE> 189
Delaware law as it may be amended from time to time. Moreover, the
indemnification agreements provide for certain additional indemnification. Under
such additional indemnification provisions, however, an individual will not
receive indemnification for judgments, settlements or expenses if he or she is
found liable to Tickets.com (except to the extent the court determines he or she
is fairly and reasonably entitled to indemnity for expenses), for settlements
not approved by Tickets.com or for settlements and expenses if the settlement is
not approved by the court. The indemnification agreements provide for
Tickets.com to advance to the individual any and all reasonable expenses
(including legal fees and expenses) incurred in investigating or defending any
such action, suit or proceeding. In order to receive an advance of expenses, the
individual must submit to Tickets.com copies of invoices presented to him or her
for such expenses. Also, the individual must repay such advances upon a final
judicial decision that he or she is not entitled to indemnification.
Tickets.com has purchased directors' and officers' liability insurance.
Tickets.com intends to enter into additional indemnification agreements with
each of its directors and executive officers to effectuate these indemnity
provisions.
The underwriting agreement (Exhibit 1.1 hereto) contains provisions by
which the Underwriters have agreed to indemnify Tickets.com, each person, if
any, who controls Tickets.com within the meaning of Section 15 of the Securities
Act, each director of Tickets.com, and each officer of Tickets.com. who signs
this Registration Statement, with respect to information furnished in writing by
or on behalf of the Underwriters for use in the Registration Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following securities of the Registrant have been sold by the Registrant
during the past three years without registration under the Securities Act of
1933, as amended (the "Act"). Securities issued prior to May 25, 1999 were
issued under the Registrant's former name "Advantix, Inc." or "Entertainment
Express, Inc."
(a) In May 1996, the Registrant repurchased 2,000,000, 444,444 and 444,444
shares of common stock sold in May 1995 to Irvin E. Richter, James S. Cassano
and Laurence F. Schwartz, respectively, at a purchase price per share of
$.00225. The shares were repurchased at their original issue price. The
Registrant then issued and sold 3,555,555, 444,444 and 444,444 shares of common
stock at $.000225 per share to R4 Holdings, LLC, James S. Cassano and Laurence
F. Schwartz, respectively, for an aggregate consideration of $1,000.
(b) In May 1996, the Registrant issued a $3,000,000 Convertible Promissory
Note ("Hill Note") to Hill Arts & Entertainment Systems, Inc. ("Hill A&E") in
connection with the acquisition of certain assets and liabilities of Hill A&E.
(c) In May 1996, the Registrant issued and sold 555,555 shares of common
stock at $.0225 per share, warrants to purchase 844,444 shares of common stock
at $.0225 per share and 181,405 shares of Series A Preferred Stock at $1.1025
per share to Ventana Express, LLC, for an aggregate cash consideration of
$212,500.
(d) In September and October of 1996 and January of 1997, the Registrant
issued and sold 8,440,002 shares of Series A Preferred Stock at $.49 per share
to 25 investors in a private offering, for a net aggregate cash consideration of
$4,090,993. In connection with the Series A Private Placement, 22,448, 8,748 and
19,976 shares of the Registrant's common stock were issued to All Asia Company,
Ltd., PS Holdings, Ltd. and IPPC Investments, Inc., respectively, as finder's
fees. These parties also purchased shares of Series A Preferred Stock in the
offering.
(e) In December 1996, the Registrant issued 481,068 shares of common stock
to Playhouse Square Foundation ("PSF"), an Ohio not-for-profit corporation, in
connection with the acquisition of certain assets and liabilities of the
Advantix ticketing division of PSF.
(f) In March and May of 1997, the Registrant issued and sold 2,094,174
shares of Series B Preferred Stock at $1.25 per share to 16 investors in a
private offering, for an aggregate cash consideration of $2,617,718. In
September and October of 1997, the Registrant issued and sold 7,405,700 shares
of Series B Preferred
II-2
<PAGE> 190
Stock at $1.25 per share to 34 investors in a private offering (the "Second
Series B Private Placement"), for an aggregate cash consideration of $9,525,125.
In connection with the issuance of such Series B Preferred Stock, International
Capital Partners, Inc. received as a finder's fee a warrant to purchase up to
177,777 shares of the Registrant's common stock at $.0225 per share.
(g) In March 1997, a terminated employee of the Registrant exercised a
stock option to acquire 167 shares of the Registrant's common stock at $.90 per
share, for an aggregate cash consideration of $150.
(h) In April 1997, terminated employees of the Registrant exercised stock
options to acquire 9,264 shares of the Registrant's common stock at $.90 per
share, for an aggregate cash consideration of $8,337.
(i) In May 1997, the Registrant issued 217,687 shares of common stock at
$1.1025 per share in lieu of interest in the amount of $240,000 due on the Hill
Note.
(j) In July 1997, a terminated employee of the Registrant exercised an
outstanding stock option to acquire 396 shares of the Registrant's common stock
at $.90 per share, for an aggregate cash consideration of $356.
(k) In August 1997, the Registrant issued 504,888 shares of common stock to
Fantastix Ticket Company, LLC ("Fantastix") in connection with the acquisition
of substantially all of the assets and liabilities of Fantastix.
(l) In November 1997, the Registrant issued and sold 177,777 shares of
common stock in connection with the exercise of the warrant described in
paragraph (1) above, for an aggregate cash consideration of $4,000.
(m) In September 1997, the Registrant issued warrants to purchase 1,332,446
shares of common stock at $4.50 per share to the shareholders of Bay Area
Seating Service ("BASS") in connection with the acquisition of the outstanding
securities of BASS.
(n) In September 1997, the Registrant issued Provident Bank a warrant to
purchase up to 177,777 shares of the Registrant's common stock at $.0225 per
share, in connection with a loan from Provident Bank.
(o) In October 1997, a terminated employee of the Registrant exercised a
stock option to acquire 4,444 shares of the Registrant's common stock at $.90
per share, for an aggregate cash consideration of $4,000.
(p) In October 1997, the Registrant issued an additional 8,161 shares of
common stock representing underpaid interest on the Hill Note.
(q) In December 1997, the Registrant, pursuant to its 1997 Nonemployee
Directors' Stock Option Plan, issued options to purchase 100,000 shares of
common stock to its nonemployee directors, with an exercise price of $2.25 per
share.
(r) In May 1998, the Registrant issued and sold 11,597,114 shares of Series
C Preferred Stock at $1.75 per share to three investors in a private offering,
for an aggregate cash consideration of $20,294,949.
(s) In October 1998, the Registrant issued 317,768 shares of common stock,
warrants to purchase 637,964 shares of common stock at $.0225 per share and
promissory notes in the aggregate principal amount of $1,297,000 to the
stockholders of ProTix, Inc., in exchange for all of the issued and outstanding
capital stock of ProTix, Inc.
(t) In April 1999, the Registrant issued 5,195,779 shares of common stock
to the shareholders of TicketsLive Corporation, a New York corporation
("TicketsLive") in connection with the acquisition of TicketsLive, in exchange
for all of the issued and outstanding capital stock of TicketsLive.
(u) In May 1999, the Registrant issued 3,928,386 shares of common stock,
2,678,577 shares of Series Al Preferred Stock, and 5,782,241 shares of Series C
Preferred Stock to the stockholders of California Tickets.com in exchange for
9,899,510 shares of California Tickets.com common stock, 3,000,000 shares of
California Tickets.com Series A Preferred Stock, and 6,400,438 shares of
California Tickets.com Series C Preferred Stock, respectively, in connection
with the acquisition of California Tickets.com., Inc.
II-3
<PAGE> 191
(v) In March and May 1999, the Registrant issued and sold 13,333,335 shares
of Series D Preferred Stock at $2.25 per share to 14 investors for an aggregate
cash consideration of $30,000,003.
(w) In August 1999, the Registrant issued warrants to purchase an aggregate
of 222,222 shares of the Registrant's common stock at an exercise price of $5.06
per share to General Atlantic and 14 other existing stockholders of the
Registrant pursuant to a letter agreement between the Registrant and General
Atlantic dated May 28, 1999. The warrants were issued in consideration of the
agreement by General Atlantic and the other existing stockholders to purchase up
to an aggregate of $12 million of preferred stock of the Registrant at a price
equal to $5.06 per share in the event the Registrant requires working capital on
or before the earlier (a) the closing date of the Registrant's initial public
offering of its common stock and (b) March 31, 2000.
(x) From September 30, 1999 through October 15, 1999, the Registrant issued
warrants to purchase an aggregate of 332,778 shares of common stock at $2.25 per
share in connection with agreements with certain entertainment organizations and
entertainers involving arrangements for the sale of tickets on the Registrant's
web site.
(y) Since May 31, 1996, the Registrant has issued options to purchase an
aggregate of 7,095,131 shares of common stock to certain of its employees under
its 1996, 1997 and 1998 Stock Option Plans, with exercise prices ranging from
$.1125 to $7.3125 per share, and 167,333 options at an exercise price of $2.25
per share to certain consultants to the Registrant. In addition, the Registrant
assumed options to purchase an aggregate of 477,884 shares of common stock in
connection with its acquisition of TicketsLive and options to purchase 1,496,181
shares of common stock in connection with its acquisition of California
Tickets.com.
None of the optionees paid any cash consideration for such options. Such
options did not involve a "sale" of securities, and, accordingly, registration
was not required. The following table sets forth the grant date, number of
options, current exercise price and class of optionees for all of such options:
<TABLE>
<CAPTION>
GRANT DATE NO. OF OPTIONS EXERCISE PRICE CLASS OF OPTIONEES
---------- -------------- -------------- ------------------
<S> <C> <C> <C>
10/01/96 to 08/04/97 564,649 $ .90 Employee
10/01/96 to 08/04/97 471,111 $ .90 Officer
08/05/97 to 03/01/98 264,133 $ .13 Employee
09/26/97 to 02/09/98 808,753 $ 2.25 Employee
10/15/97 to 01/30/98 751,111 $ 2.25 Officer
12/01/97 634,922 $ .13 Officer
12/22/97 99,999 $ 2.25 Director
03/17/98 to 04/16/99 82,665 $ 4.50 Employee
05/04/98 to 04/20/99 615,068 $ .45 Employee
06/23/98 to 12/17/98 1,091,989 $ 3.38 Employee
09/14/98 916,666 $ 3.38 Officer
11/09/98 to 02/01/99 38,095 $ 1.89 Employee
12/01/98 9,920 $ 2.52 Consultant
04/20/99 423,097 $ 1.40 Employee
04/29/99 to 05/17/99 1,120,000 $ 6.19 Officer
05/14/99 333,333 $ 7.31 Officer
05/14/99 to 05/26/99 327,064 $ 7.31 Employee
05/26/99 11,111 $ 7.31 Director
07/12/99 to 07/21/99 249,776 $15.75 Employee
08/01/99 11,111 $ 9.00 Director
09/16/99 1,688,195 $ 9.00 Employee
09/16/99 866,665 $ 9.00 Officer
10/04/99 to 10/15/99 167,333 $ 2.25 Consultants
</TABLE>
II-4
<PAGE> 192
All sales and issuances of securities for amounts less than $5 million involved
all accredited investors or less than 35 other purchasers, did not involve any
general solicitation on advertising and were deemed to be exempt from
registration under Rule 505 promulgated under the Securities Act. All sales and
issuances for amounts in excess of $5 million involved all accredited investors,
did not involve any general solicitation or advertising and were deemed exempt
from registration under Section 4(2) of the Securities Act or Rule 506
promulgated thereunder. All options were granted under Rule 701 promulgated
under the Securities Act. Appropriate legends are affixed to the stock
certificates issued in such transactions. Similar legends were imposed in
connection with any subsequent sales of any such securities. All recipients
either received adequate information about the Company or had access, through
employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 * Form of Underwriting Agreement
3.1 * Amended and Restated Certificate of Incorporation of the
Company as filed with the Delaware Secretary of State in
June 1999, as amended
3.2 * Certificate of Amendment to Amended and Restated Certificate
of Incorporation of the Company, as amended to be filed with
the Delaware Secretary of State prior to the closing of this
offering
3.3 * Restated Certificate of Incorporation of the Company, to be
filed with the Delaware Secretary of State upon consummation
of this offering
3.4 * Bylaws of the Company
4.1 * Specimen certificate representing shares of common stock of
the Company
5.1 * Form of Opinion of Brobeck, Phleger & Harrison LLP
10.1 * Form of Indemnification Agreement
10.2 1999 Stock Incentive Plan, together with form of Stock
Option Agreement (and related Notice of Exercise of Option),
Stock Issuance Agreement and Notice of Grant of Option
10.3 1999 Employee Stock Purchase Plan
10.4 1998 Stock Incentive Plan, together with form of Stock
Option Agreement, Stock Purchase Agreement and Stock
Issuance Agreement
10.5 ** 1997 Stock Option Plan (California and Other Employees),
together with form of Nonstatutory Stock Option Agreement
(and related Notice of Exercise of Nonstatutory Stock
Option), Incentive Stock Option Agreement (and related
Notice of Exercise of Incentive Stock Option), Stock
Purchase Agreement and Stock Issuance Agreement
10.6 1997 Non-Employee Director's Option Plan, together with form
of Stock Option Agreement
10.7 ** 1996 Stock Option Plan, together with form of Nonstatutory
Stock Option Agreement (and related Notice of Exercise of
Nonstatutory Stock Option), Incentive Stock Option Agreement
(and related Notice of Exercise of Incentive Stock Option),
Stock Purchase Agreement and Stock Issuance Agreement
10.8 ** Fourth Amended and Restated Investor Rights Agreement among
the Company and the stockholders named therein, dated May
17, 1999
10.9 ** Agreement dated as of May 21, 1999 between the Company and
Karen S. Goetz
10.10 ** Agreement and Plan of Merger and Reorganization by and among
the Company, Advantix Acquisition Corp., Tickets.com, Inc.
(n/k/a California Tickets.com, Inc.) and certain of its
stockholders dated as of January 26, 1999
10.11** Agreement and Plan of Merger and Reorganization by and among
the Company, Advantix Acquisition II Corp., TicketsLive
Corporation, and certain of its stockholders dated as of
March 18, 1999
</TABLE>
II-5
<PAGE> 193
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.12** Stock Purchase Agreement by and among the Company, ProTix,
Inc. and certain of its shareholders effective as of October
16, 1998
10.13 + Stock Purchase Agreement by and among the Company, Bay Area
Seating Service, Inc. and certain of its shareholders
effective as of September 18, 1997
10.14 ** Agreement by and between the Company and RBB Bank AG dated
as of January 24, 1999, as amended
10.15 ** Employment Agreement between W. Thomas Gimple and the
Company effective as of April 29, 1999
10.16 ** Employment Agreement between John M. Markovich and the
Company effective as of April 29, 1999
10.17 ** Employment Agreement between Thomas R. Pascoe and the
Company effective as of April 29, 1999
10.18 ** Employment Agreement between James A. Caccavo and the
Company effective as of May 17, 1999
10.19 Employment Agreement between Karen S. Goetz and the Company
dated as of April 21, 1999
10.20 + Commercial Application Partner Agreement by and between the
Company, Advantix (Ohio), Inc., Bay Area Seating Service,
Inc. and Sybase, Inc. dated as of April 6, 1998
10.21 + Merchant Agreement dated as of March 1, 1999 by and between
GeoCities and the Company
10.22 + Sponsorship Agreement by and between the Company and
MP3.com., Inc. dated February 17, 1999
10.23 + Agreement dated as of November 1, 1998, by and between
International Merchandising Corporation and the Company, as
amended
10.24 [Intentionally Omitted]
10.25 ** Lease Agreement between Sierra Pacific Properties, Inc. and
Bay Area Seating Service, Inc. dated December 29, 1989, and
amendments thereto
10.26 Lease Agreement by and between ProTix, Inc. and Guinea Road
Associates dated January 30, 1995
10.27 ** Lease Agreement by and between Advantix (Ohio), Inc. and
Playhouse Square Foundation dated October 1, 1997
10.28 + Channel Partner Agreement dated as of April 20, 1999 by and
between Sitematic Corporation and the Company
10.29 * Lease Agreement between the Company and AGL Investments No.
5 Limited Partnership dated July 23, 1999.
10.30 + Content and Distribution Agreement between the Company and
Cox Interactive Media, Inc. dated as of August 4, 1999
10.31 + RealName Address Prefix Agreement by and between the Company
and Centraal Corporation (n/k/a RealNames Corporation) dated
as of July 23, 1999
10.32 + Letter of Intent between the Company and Excite@Home dated
as of August 4, 1999
10.33 ** Amendment to Excite@Home Tickets.com Letter of Intent by and
between the Company and Excite, Inc. dated as of September
20, 1999
10.34 ** Separation Agreement dated as of August 9, 1999 by and
between the Company and James A. Caccavo
10.35 Special Executive Stock Option Plan
10.36 Employment Agreement dated as of October 1, 1998 by and
between the Company and Andrew Dolich
10.37 Agreement and Plan of Merger by and among the Company,
Advantix Acquisition Corp. and Lasergate Systems, Inc. dated
as of June 21, 1999
10.38 Letter Agreement dated as of May 28, 1999 between the
Company and General Atlantic Partners
</TABLE>
II-6
<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.39 Warrant Issuance Agreement dated as of August 5, 1999 by and
among the Company and the persons named therein
10.40 Agreement dated January 24, 1999 by and between the Company
and RBB Bank, AG, as amended June 21, 1999
21.1 ** List of Subsidiaries
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG LLP
23.3 Consent of Burr, Pilger & Mayer
23.4 * Consent of Brobeck, Phleger & Harrison LLP (contained in
Exhibit 5.1)
24.1 ** Power of Attorney (contained on signature page on page II-5)
27.1 ** Financial Data Schedule year end
27.2 ** Financial Data Schedule 3 months
27.3 ** Financial Data Schedule 6 months
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE> 195
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 3 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Newport
Beach, State of California, on the 19th day of October, 1999.
TICKETS.COM, INC.
By: /s/ W. THOMAS GIMPLE
------------------------------------
W. Thomas Gimple
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and
appoint W. Thomas Gimple and John M. Markovich, and each of them, his true and
lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, or any related registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman of the Board October 19, 1999
- -----------------------------------------------------
C. Ian Sym-Smith
/s/ W. THOMAS GIMPLE President, Chief Executive October 19, 1999
- ----------------------------------------------------- Officer (principal
W. Thomas Gimple executive officer) and
Director
/s/ JOHN M. MARKOVICH Chief Financial Officer October 19, 1999
- ----------------------------------------------------- (principal financial
John M. Markovich officer)
/s/ MICHAEL R. RODRIGUEZ Vice President, Corporate October 19, 1999
- ----------------------------------------------------- Controller (principal
Michael R. Rodriguez accounting officer)
Director October , 1999
- -----------------------------------------------------
George Bell
* Director October 19, 1999
- -----------------------------------------------------
James A. Caccavo
/s/ PETER CHERNIN Director October 19, 1999
- -----------------------------------------------------
Peter Chernin
</TABLE>
II-8
<PAGE> 196
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director October 19, 1999
- -----------------------------------------------------
Christos M. Cotsakos
* Director October 19, 1999
- -----------------------------------------------------
William E. Ford
* Director October 19, 1999
- -----------------------------------------------------
Howard L. Morgan
/s/ JANICE L. RICHTER Director October 19, 1999
- -----------------------------------------------------
Janice L. Richter
* Director October 19, 1999
- -----------------------------------------------------
Nicholas E. Sinacori
</TABLE>
*By: /s/ W. THOMAS GIMPLE
--------------------------------------------------
W. Thomas Gimple
(Attorney-in-fact)
II-9
<PAGE> 197
BASS TICKETS
(PREDECESSOR COMPANY)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
APRIL, 1997 TO YEAR ENDED YEAR ENDED
SEPTEMBER 26, MARCH 31, MARCH 31,
1997 1997 1996
-------------- ---------- ----------
<S> <C> <C> <C>
Allowance for doubtful accounts
Beginning balance..................................... $22,415 $22,887 $ 9,053
Additions:
Charged to costs and expenses......................... -- -- 13,834
Charged to other accounts............................. -- -- --
Deductions/write-offs................................. (8,912) (472) --
------- ------- -------
Ending balance.......................................... $13,503 $22,415 $22,887
======= ======= =======
</TABLE>
S-1
<PAGE> 198
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 * Form of Underwriting Agreement
3.1 * Amended and Restated Certificate of Incorporation of the
Company as filed with the Delaware Secretary of State in
June 1999, as amended
3.2 * Certificate of Amendment to Amended and Restated Certificate
of Incorporation of the Company, as amended to be filed with
the Delaware Secretary of State prior to the closing of this
offering
3.3 * Restated Certificate of Incorporation of the Company, to be
filed with the Delaware Secretary of State upon consummation
of this offering
3.4 * Bylaws of the Company
4.1 * Specimen certificate representing shares of common stock of
the Company
5.1 * Form of Opinion of Brobeck, Phleger & Harrison LLP
10.1 * Form of Indemnification Agreement
10.2 1999 Stock Incentive Plan, together with form of Stock
Option Agreement (and related Notice of Exercise of Option),
Stock Issuance Agreement and Notice of Grant of Option
10.3 1999 Employee Stock Purchase Plan
10.4 1998 Stock Incentive Plan, together with form of Stock
Option Agreement, Stock Purchase Agreement and Stock
Issuance Agreement
10.5 ** 1997 Stock Option Plan (California and Other Employees),
together with form of Nonstatutory Stock Option Agreement
(and related Notice of Exercise of Nonstatutory Stock
Option), Incentive Stock Option Agreement (and related
Notice of Exercise of Incentive Stock Option), Stock
Purchase Agreement and Stock Issuance Agreement
10.6 1997 Non-Employee Director's Option Plan, together with form
of Stock Option Agreement
10.7 ** 1996 Stock Option Plan, together with form of Nonstatutory
Stock Option Agreement (and related Notice of Exercise of
Nonstatutory Stock Option), Incentive Stock Option Agreement
(and related Notice of Exercise of Incentive Stock Option),
Stock Purchase Agreement and Stock Issuance Agreement
10.8 ** Fourth Amended and Restated Investor Rights Agreement among
the Company and the stockholders named therein, dated May
17, 1999
10.9 ** Agreement dated as of May 21, 1999 between the Company and
Karen S. Goetz
10.10 ** Agreement and Plan of Merger and Reorganization by and among
the Company, Advantix Acquisition Corp., Tickets.com, Inc.
(n/k/a California Tickets.com, Inc.) and certain of its
stockholders dated as of January 26, 1999
10.11** Agreement and Plan of Merger and Reorganization by and among
the Company, Advantix Acquisition II Corp., TicketsLive
Corporation, and certain of its stockholders dated as of
March 18, 1999
10.12** Stock Purchase Agreement by and among the Company, ProTix,
Inc. and certain of its shareholders effective as of October
16, 1998
10.13 + Stock Purchase Agreement by and among the Company, Bay Area
Seating Service, Inc. and certain of its shareholders
effective as of September 18, 1997
10.14 ** Agreement by and between the Company and RBB Bank AG dated
as of January 24, 1999, as amended
</TABLE>
<PAGE> 199
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.15 ** Employment Agreement between W. Thomas Gimple and the
Company effective as of April 29, 1999
10.16 ** Employment Agreement between John M. Markovich and the
Company effective as of April 29, 1999
10.17 ** Employment Agreement between Thomas R. Pascoe and the
Company effective as of April 29, 1999
10.18 ** Employment Agreement between James A. Caccavo and the
Company effective as of May 17, 1999
10.19 Employment Agreement between Karen S. Goetz and the Company
dated as of April 21, 1999
10.20 + Commercial Application Partner Agreement by and between the
Company, Advantix (Ohio), Inc., Bay Area Seating Service,
Inc. and Sybase, Inc. dated as of April 6, 1998
10.21 + Merchant Agreement dated as of March 1, 1999 by and between
GeoCities and the Company
10.22 + Sponsorship Agreement by and between the Company and
MP3.com., Inc. dated February 17, 1999
10.23 + Agreement dated as of November 1, 1998, by and between
International Merchandising Corporation and the Company, as
amended
10.24 [Intentionally Omitted]
10.25 ** Lease Agreement between Sierra Pacific Properties, Inc. and
Bay Area Seating Service, Inc. dated December 29, 1989, and
amendments thereto
10.26 Lease Agreement by and between ProTix, Inc. and Guinea Road
Associates dated January 30, 1995
10.27 ** Lease Agreement by and between Advantix (Ohio), Inc. and
Playhouse Square Foundation dated October 1, 1997
10.28 + Channel Partner Agreement dated as of April 20, 1999 by and
between Sitematic Corporation and the Company
10.29 * Lease Agreement between the Company and AGL Investments No.
5 Limited Partnership dated July 23, 1999.
10.30 + Content and Distribution Agreement between the Company and
Cox Interactive Media, Inc. dated as of August 4, 1999
10.31 + RealName Address Prefix Agreement by and between the Company
and Centraal Corporation (n/k/a RealNames Corporation) dated
as of July 23, 1999
10.32 + Letter of Intent between the Company and Excite@Home dated
as of August 4, 1999
10.33 ** Amendment to Excite@Home Tickets.com Letter of Intent by and
between the Company and Excite, Inc. dated as of September
20, 1999
10.34 ** Separation Agreement dated as of August 9, 1999 by and
between the Company and James A. Caccavo
10.35 Special Executive Stock Option Plan
10.36 Employment Agreement dated as of October 1, 1998 by and
between the Company and Andrew Dolich
10.37 Agreement and Plan of Merger by and among the Company,
Advantix Acquisition Corp. and Lasergate Systems, Inc. dated
as of June 21, 1999
10.38 Letter Agreement dated as of May 28, 1999 between the
Company and General Atlantic Partners
10.39 Warrant Issuance Agreement dated as of August 5, 1999 by and
among the Company and the persons named therein
</TABLE>
<PAGE> 200
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.40 Agreement dated January 24, 1999 by and between the Company
and RBB Bank, AG, as amended June 21, 1999
21.1 ** List of Subsidiaries
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG LLP
23.3 Consent of Burr, Pilger & Mayer
23.4 * Consent of Brobeck, Phleger & Harrison LLP (contained in
Exhibit 5.1)
24.1 ** Power of Attorney (contained on signature page on page II-5)
27.1 ** Financial Data Schedule year end
27.2 ** Financial Data Schedule 3 months
27.3 ** Financial Data Schedule 6 months
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 10.2
TICKETS. COM, INC.
1999 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the interests
of Tickets.com, Inc., a Delaware corporation, by providing eligible persons in
the Corporation's service with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in
the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity programs:
- the Discretionary Option Grant Program under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of Common Stock,
- the Salary Investment Option Grant Program under which
eligible employees may elect to have a portion of their base salary invested
each year in special option grants,
- the Stock Issuance Program under which eligible persons may,
at the discretion of the Plan Administrator, be issued shares of Common Stock
directly, either through the immediate purchase of such shares or as a bonus for
services rendered the Corporation (or any Parent or Subsidiary),
- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at
designated intervals over their period of continued Board service, and
- the Director Fee Option Grant Program under which non-employee
Board members may elect to have all or any portion of their annual retainer fee
otherwise payable in cash applied to a special stock option grant.
B. The provisions of Articles One and Seven shall apply to all
equity programs under the Plan and shall govern the interests of all persons
under the Plan.
<PAGE> 2
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option Grant
and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power to
administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee shall be made by a disinterested majority of the Board.
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its
administrative functions under the Plan, have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive authority
to determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
F. Administration of the Automatic Option Grant and Director Fee
Option Grant Programs shall be self-executing in accordance with the terms of
those programs, and no Plan Administrator shall exercise any discretionary
functions with respect to any option grants or stock issuances made under those
programs.
2.
<PAGE> 3
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option
Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors
of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly
compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of its
administrative jurisdiction under the Plan, have full authority to determine,
(i) with respect to the option grants under the Discretionary Option Grant
Program, which eligible persons are to receive such grants, the time or times
when those grants are to be made, the number of shares to be covered by each
such grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive such issuances, the time or times when the issuances are
to be made, the number of shares to be issued to each Participant, the vesting
schedule (if any) applicable to the issued shares and the consideration for such
shares.
D. The Plan Administrator shall have the absolute discretion either
to grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the
Automatic Option Grant Program shall be limited to (i) those individuals serving
as non-employee Board members on the Underwriting Date who have not previously
received an option grant from the Corporation in connection with their Board
service, (ii) those individuals who first become non-employee Board members
after the Underwriting Date, whether through appointment by the Board or
election by the Corporation's stockholders, and (iii) those individuals who
continue to serve as non-employee Board members at one or more Annual
Stockholders Meetings held after the Underwriting Date. A non-employee Board
member who has previously been in the employ of the Corporation (or any Parent
or Subsidiary) shall not be eligible to receive an option grant under the
Automatic Option Grant Program at the time he or she first becomes a
non-employee Board member, but shall be eligible to receive periodic option
grants under the Automatic Option Grant Program while he or she continues to
serve as a non-employee Board member.
3.
<PAGE> 4
F. All non-employee Board members shall be eligible to participate
in the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized
but unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed 17,500,000
shares. Such reserve shall consist of (i) the number of shares estimated to
remain available for issuance, as of the Plan Effective Date, under the
Predecessor Plans as last approved by the Corporation's stockholders, including
the shares subject to outstanding options under those Predecessor Plans, (ii)
plus an additional increase of approximately 2,500,000 shares to be approved by
the Corporation's stockholders prior to the Underwriting Date.
B. The number of shares of Common Stock available for issuance under
the Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2000, by
an amount equal to four percent (4%) of the total number of shares of Common
Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
5,000,000 shares.
C. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,000,000 shares of Common Stock in the aggregate per calendar year.
D. Shares of Common Stock subject to outstanding options (including
options incorporated into this Plan from the Predecessor Plan) shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently cancelled or
repurchased by the Corporation at the original issue price paid per share,
pursuant to the Corporation's repurchase rights under the Plan shall be added
back to the number of shares of Common Stock reserved for issuance under the
Plan and shall accordingly be available for reissuance through one or more
subsequent option grants or direct stock issuances under the Plan. However,
should the exercise price of an option under the Plan be paid with shares of
Common Stock or should shares of Common Stock otherwise issuable under the Plan
be withheld by the Corporation in satisfaction of the withholding taxes incurred
in connection with the exercise of an option or the vesting of a stock issuance
under the Plan, then the number of shares of Common Stock available for issuance
under the Plan shall be reduced by the gross number of shares for which the
option is exercised or which vest under the stock issuance, and not by the net
number of shares of Common Stock issued to the holder of such option or stock
issuance. Shares of Common Stock underlying one or more stock appreciation
rights exercised under Section IV of Article Two, Section III of Article Three,
Section 11 of Article Five or Section III of Article Six of the Plan shall NOT
be available for subsequent issuance under the Plan.
4.
<PAGE> 5
E. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made by the Plan Administrator to (i) the maximum number and/or class of
securities issuable under the Plan, (ii) the number and/or class of securities
for which any one person may be granted stock options, separately exercisable
stock appreciation rights and direct stock issuances under the Plan per calendar
year, (iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and price per
share in effect under each outstanding option incorporated into this Plan from
the Predecessor Plan and (vi) the maximum number and/or class of securities by
which the share reserve is to increase automatically each calendar year pursuant
to the provisions of Section V.B of this Article One. Such adjustments to the
outstanding options are to be effected in a manner which shall preclude the
enlargement or dilution of rights and benefits under such options. The
adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
5.
<PAGE> 6
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Seven
and the documents evidencing the option, be payable in one or more of the forms
specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or
(iii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable instructions
to (a) a Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares plus
all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise
and (b) the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
6.
<PAGE> 7
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's
cessation of Service for any reason shall remain exercisable for such
period of time thereafter as shall be determined by the Plan
Administrator and set forth in the documents evidencing the option, but
no such option shall be exercisable after the expiration of the option
term.
(ii) Any option held by the Optionee at the time of death
and exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance or by the Optionee's
designated beneficiary or beneficiaries of that option.
(iii) Should the Optionee's Service be terminated for
Misconduct, then all outstanding options held by the Optionee shall
terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion,
exercisable either at the time an option is granted or at any time while the
option remains outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following the Optionee's cessation of Service from
the limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time
7.
<PAGE> 8
of the Optionee's cessation of Service but also with respect to one or
more additional installments in which the Optionee would have vested had
the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become a
holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. However, a Non-Statutory Option may, in
connection with the Optionee's estate plan, be assigned in whole or in part
during the Optionee's lifetime to one or more members of the Optionee's
immediate family or to a trust established exclusively for one or more such
family members. The assigned portion may only be exercised by the person or
persons who acquire a proprietary interest in the option pursuant to the
assignment. The terms applicable to the assigned portion shall be the same as
those in effect for the option immediately prior to such assignment and shall be
set forth in such documents issued to the assignee as the Plan Administrator may
deem appropriate. Notwithstanding the foregoing, the Optionee may also designate
one or more persons as the beneficiary or beneficiaries of his or her
outstanding options under this Article Two, and those options shall, in
accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section 11, all the
provisions of Articles One, Two and Seven shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options when
issued under the Plan shall not be subject to the terms of this Section 11.
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
8.
<PAGE> 9
B. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares
of Common Stock (determined as of the respective date or dates of grant) for
which one or more options granted to any Employee under the Plan (or any other
option plan of the Corporation or any Parent or Subsidiary) may for the first
time become exercisable as Incentive Options during any one calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
C. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding
option shall automatically accelerate so that each such option shall,
immediately prior to the effective date of the Corporate Transaction, become
fully exercisable for the total number of shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully vested shares of Common Stock. However, an outstanding option shall NOT
become exercisable on such an accelerated basis if and to the extent: (i) such
option is, in connection with the Corporate Transaction, to be assumed by the
successor corporation (or parent thereof) or (ii) such option is to be replaced
with a cash incentive program of the successor corporation which preserves the
spread existing at the time of the Corporate Transaction on any shares for which
the option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are to be assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate
Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also
9.
<PAGE> 10
be made to (i) the exercise price payable per share under each outstanding
option, provided the aggregate exercise price payable for such securities shall
remain the same, (ii) the maximum number and/or class of securities available
for issuance over the remaining term of the Plan and (iii) the maximum number
and/or class of securities for which any one person may be granted stock
options, separately exercisable stock appreciation rights and direct stock
issuances under the Plan per calendar year and (iv) the maximum number and/or
class of securities by which the share reserve is to increase automatically each
calendar year.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of
such Corporate Transaction, become fully exercisable for the total number of
shares of Common Stock at the time subject to those options and may be exercised
for any or all of those shares as fully vested shares of Common Stock, whether
or not those options are to be assumed in the Corporate Transaction. In
addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the
Discretionary Option Grant Program so that those rights shall not be assignable
in connection with such Corporate Transaction and shall accordingly terminate
upon the consummation of such Corporate Transaction, and the shares subject to
those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall become fully exercisable for the total
number of shares of Common Stock at the time subject to those options in the
event the Optionee's Service is subsequently terminated by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of any Corporate Transaction in which those
options are assumed and do not otherwise accelerate. Any options so accelerated
shall remain exercisable for fully vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1) year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may structure one or more of the Corporation's repurchase
rights so that those rights shall immediately terminate with respect to any
shares held by the Optionee at the time of such Involuntary Termination, and the
shares subject to those terminated repurchase rights shall accordingly vest in
full at that time.
G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effect date of a
Change in Control, become fully exercisable for the total number of shares of
Common Stock at the time subject to those options and may be exercised for any
or all of those shares as fully vested shares of Common Stock. In addition, the
Plan Administrator shall have the discretionary authority to structure one or
more of the Corporation's repurchase rights under the Discretionary Option Grant
Program so that those rights shall terminate automatically upon the consummation
of such Change in Control, and the shares subject to those terminated rights
shall thereupon vest in full. Alternatively, the Plan Administrator may
condition the automatic acceleration of one or more outstanding options
10.
<PAGE> 11
under the Discretionary Option Grant Program and the termination of one or more
of the Corporation's outstanding repurchase rights under such program upon the
subsequent termination of the Optionee's Service by reason of an Involuntary
Termination within a designated period (not to exceed eighteen (18) months)
following the effective date of such Change in Control. Each option so
accelerated shall remain exercisable for fully vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the one (1)
year period measured from the effective date of Optionee's cessation of Service.
H. The portion of any Incentive Option accelerated in connection
with a Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any
time and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to
grant to selected Optionees tandem stock appreciation rights and/or limited
stock appreciation rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right,
exercisable upon such terms as the Plan Administrator may establish, to
elect between the exercise of the underlying option for shares of Common
Stock and the surrender of that option in exchange for a distribution
from the Corporation in an amount equal to the excess of (a) the Fair
Market Value (on the option surrender date) of the number of shares in
which the Optionee is at the time vested under the surrendered option
(or surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.
11.
<PAGE> 12
(ii) No such option surrender shall be effective unless it
is approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so
approved, then the distribution to which the Optionee shall be entitled
may be made in shares of Common Stock valued at Fair Market Value on the
option surrender date, in cash, or partly in shares and partly in cash,
as the Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the
Plan Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the option
is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of
limited stock appreciation rights:
(i) One or more Section 16 Insiders may be granted limited
stock appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each
individual holding one or more options with such a limited stock
appreciation right shall have the unconditional right (exercisable for a
thirty (30)-day period following such Hostile Take-Over) to surrender
each such option to the Corporation. In return for the surrendered
option, the Optionee shall receive a cash distribution from the
Corporation in an amount equal to the excess of (A) the Take-Over Price
of the shares of Common Stock at the time subject to such option
(whether or not the option is otherwise at that time exercisable for
those shares) over (B) the aggregate exercise price payable for the
shares. Such cash distribution shall be paid within five (5) days
following the option surrender date.
(iii) At the time such limited stock appreciation right is
granted, the Plan Administrator shall pre-approve any subsequent
exercise of that right in accordance with the terms of this Paragraph C.
Accordingly, no further approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution.
12.
<PAGE> 13
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A divided by (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the reduction in the Optionee's base
salary for the calendar year to be in effect pursuant to this program,
and
13.
<PAGE> 14
B is the Fair Market Value per share of Common Stock on the
option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) successive equal monthly installments upon the
Optionee's completion of each calendar month of Service in the calendar year for
which the salary reduction is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
D. EFFECT OF TERMINATION OF SERVICE. Should the Optionee cease
Service for any reason while holding one or more options under this Article
Three, then each such option shall remain exercisable, for any or all of the
shares for which the option is exercisable at the time of such cessation of
Service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Service. Should the Optionee die while holding one or more
options under this Article Three, then each such option may be exercised, for
any or all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant to
the Optionee's will or the laws of inheritance or by the designated beneficiary
or beneficiaries of such option. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the three (3)-year period measured from the date
of the Optionee's cessation of Service. However, the option shall, immediately
upon the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains in Service, each outstanding option held by such Optionee under this
Salary Investment Option Grant Program shall automatically accelerate so that
each such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. Each such outstanding
option shall terminate immediately following the Corporate Transaction, except
to the extent assumed by the successor corporation (or parent thereof) in such
Corporate Transaction. Any option so assumed and shall remain exercisable for
the fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each such
option shall immediately become fully exercisable for the total number of shares
of Common Stock at the time subject to such option and may be exercised for any
or all of those shares as fully-vested shares of Common Stock.
14.
<PAGE> 15
The option shall remain so exercisable until the earliest to occur of (i) the
expiration of the ten (10)-year option term, (ii) the expiration of the three
(3)-year period measured from the date of the Optionee's cessation of Service,
(iii) the termination of the option in connection with a Corporate Transaction
or (iv) the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for the shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. The Primary Committee shall, at the time the option
with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
E. The grant of options under the Salary Investment Option Grant
Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
15.
<PAGE> 16
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below. Shares of Common Stock
may also be issued under the Stock Issuance Program pursuant to share right
awards which entitle the recipients to receive those shares upon the attainment
of designated performance goals.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven,
shares of Common Stock may be issued under the Stock Issuance Program for any of
the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any
Parent or Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance
Program may, in the discretion of the Plan Administrator, be fully and
immediately vested upon issuance or may vest in one or more installments over
the Participant's period of Service or upon attainment of specified performance
objectives. The elements of the vesting schedule applicable to any unvested
shares of Common Stock issued under the Stock Issuance Program shall be
determined by the Plan Administrator and incorporated into the Stock Issuance
Agreement. Shares of Common Stock may also be issued under the Stock Issuance
Program pursuant to share right awards which entitle the recipients to receive
those shares upon the attainment of designated performance goals.
2. Any new, substituted or additional securities or other
property (including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or
16.
<PAGE> 17
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration shall be issued subject to (i) the same
vesting requirements applicable to the Participant's unvested shares of Common
Stock and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with
respect to any shares of Common Stock issued to the Participant under the Stock
Issuance Program, whether or not the Participant's interest in those shares is
vested. Accordingly, the Participant shall have the right to vote such shares
and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while
holding one or more unvested shares of Common Stock issued under the Stock
Issuance Program or should the performance objectives not be attained with
respect to one or more such unvested shares of Common Stock, then those shares
shall be immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase money note of
the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the
surrender and cancellation of one or more unvested shares of Common Stock which
would otherwise occur upon the cessation of the Participant's Service or the
non-attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance
Program shall automatically terminate, and no shares of Common Stock shall
actually be issued in satisfaction of those awards, if the performance goals
established for such awards are not attained. The Plan Administrator, however,
shall have the discretionary authority to issue shares of Common Stock under one
or more outstanding share right awards as to which the designated performance
goals have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the
Stock Issuance Program shall terminate automatically, and all the shares of
Common Stock subject to those terminated rights shall immediately vest in full,
in the event of any Corporate Transaction, except to the extent (i) those
repurchase rights are to be assigned to the successor corporation (or parent
thereof) in connection with such Corporate Transaction or (ii) such accelerated
vesting is precluded by other limitations imposed in the Stock Issuance
Agreement.
17.
<PAGE> 18
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights shall
immediately vest, in the event the Participant's Service should subsequently
terminate by reason of an Involuntary Termination within a designated period
(not to exceed eighteen (18) months) following the effective date of any
Corporate Transaction in which those repurchase rights are assigned to the
successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Stock Issuance Program so that those rights shall automatically terminate in
whole or in part, and the shares of Common Stock subject to those terminated
rights shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held
in escrow by the Corporation until the Participant's interest in such shares
vests or may be issued directly to the Participant with restrictive legends on
the certificates evidencing those unvested shares.
18.
<PAGE> 19
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each individual serving as a non-employee Board member on the
Underwriting Date shall automatically be granted at that time a Non-Statutory
Option to purchase 30,000 shares of Common Stock, provided that individual has
not previously been in the employ of the Corporation or any Parent or Subsidiary
and has not previously received an option grant from the Corporation (either
directly or through his or her affiliation with a venture capital fund) in
connection with his or her Board service.
2. Each individual who is first elected or appointed as a
nonemployee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 30,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting, beginning
with the first Annual Stockholders Meeting after the Underwriting Date, each
individual who is to continue to serve as a non-employee Board member, whether
or not that individual is standing for re-election to the Board at that
particular Annual Meeting, shall automatically be granted a Non-Statutory Option
to purchase 10,000 shares of Common Stock, provided such individual has served
as a non-employee Board member for at least six (6) months. There shall be no
limit on the number of such 10,000-share option grants any one non-employee
Board member may receive over his or her period of Board service, and
non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have previously received stock
options in connection with their Board service prior to the Underwriting Date
shall be eligible to receive one or more such annual option grants over their
period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred
percent (100%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years
measured from the option grant date.
19.
<PAGE> 20
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation, at
the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each initial
30,000-share grant shall vest, and the Corporation's repurchase right shall
lapse, in a series of three (3) successive equal annual installments upon the
Optionee's completion of each year of service as a Board member over the three
(3) year period measured from the option grant date. The shares subject to each
annual 10,000-share option grant shall be fully vested as of the grant date.
E. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Five may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Three, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
F. TERMINATION OF BOARD SERVICE. The following provisions shall
govern the exercise of any options held by the Optionee at the time the Optionee
ceases to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or the laws of inheritance or the designated beneficiary or
beneficiaries of such option) shall have a twelve (12)-month period
following the date of such cessation of Board service in which to
exercise each such option.
(ii) During the twelve (12)-month exercise period, the
option may not be exercised in the aggregate for more than the number of
vested shares of Common Stock for which the option is exercisable at the
time of the Optionee's cessation of Board service.
20.
<PAGE> 21
(iii) Should the Optionee cease to serve as a Board member
by reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully-vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after
the expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Board
service for any reason other than death or Permanent Disability,
terminate and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
G. SPECIAL MODIFICATION. If the financial accounting treatment for
non-employee director stock options proposed in the March 31, 1999 Exposure
Draft of the Financial Accounting Standards Board under APB Opinion No. 25 is
adopted, then following changes shall be made to the foregoing provisions of the
Automatic Option Grant Program:
- The 30,000-share option grant shall not be made to a
newly-elected or appointed non-employee Board member until the
first Annual Stockholders Meeting held more than twelve (12)
months after the date of his or her initial election or
appointment to the Board. At that annual meeting, the
non-employee Board member shall also receive an option grant for
an additional 10,000 shares under the annual grant portion of
the Automatic Option Grant Program.
- One-third of the shares subject to the 30,000-share
option grant shall be immediately vested at the time of the
option grant, and the remaining shares shall vest in a series of
twenty-four (24) successive equal monthly installments upon the
Optionee's completion of each month of Board service over the
twenty-four (24)-month period measured from the grant date.
II. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become exercisable for
all of the option shares as fully-vested shares of Common Stock and may be
exercised for all or any portion of those vested shares. Immediately following
the consummation of the Corporate Transaction, each automatic option grant shall
terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof).
21.
<PAGE> 22
B. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become exercisable for all
of the option shares as fully-vested shares of Common Stock and may be exercised
for all or any portion of those vested shares. Each such option shall remain
exercisable for such fully-vested option shares until the expiration or sooner
termination of the option term or the surrender of the option in connection with
a Hostile Take-Over.
C. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction or Change in
Control.
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
of the Board or any Plan Administrator shall be required at the time of the
actual option surrender and cash distribution.
E. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
F. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
22.
<PAGE> 23
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may elect to apply all or any portion of
the annual retainer fee otherwise payable in cash for his or her service on the
Board for that year to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to first day of the calendar year
for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee Option
Grant Program on the first trading day in January in the calendar year for which
the annual retainer fee which is the subject of that election would otherwise be
payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms
and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be thirty-three and
one-third percent (33-1/3%) of the Fair Market Value per share of Common Stock
on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the extent
the sale and remittance procedure specified thereunder is utilized, payment of
the exercise price for the purchased shares must be made on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of Common Stock
subject to the option shall be determined pursuant to the following formula
(rounded down to the nearest whole number):
X = A divided by (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the non-
employee Board member's election, and
B is the Fair Market Value per share of Common Stock on the
option grant date.
23.
<PAGE> 24
C. EXERCISE AND TERM OF OPTIONS. The option shall become exercisable
in a series of twelve (12) equal monthly installments upon the Optionee's
completion of each month of Board service over the twelve (12)-month period
measured from the grant date. Each option shall have a maximum term of ten (10)
years measured from the option grant date.
D. LIMITED TRANSFERABILITY OF OPTIONS. Each option under this
Article Six may, in connection with the Optionee's estate plan, be assigned in
whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Plan Administrator
may deem appropriate. The Optionee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding options under this
Article Three, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
E. TERMINATION OF BOARD SERVICE. Should the Optionee cease Board
service for any reason (other than death or Permanent Disability) while holding
one or more options under this Director Fee Option Grant Program, then each such
option shall remain exercisable, for any or all of the shares for which the
option is exercisable at the time of such cessation of Board service, until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such cessation
of Board service. However, each option held by the Optionee under this Director
Fee Option Grant Program at the time of his or her cessation of Board service
shall immediately terminate and cease to remain outstanding with respect to any
and all shares of Common Stock for which the option is not otherwise at that
time exercisable.
F. DEATH OR PERMANENT DISABILITY. Should the Optionee's service as a
Board member cease by reason of death or Permanent Disability, then each option
held by such Optionee under this Director Fee Option Grant Program shall
immediately become exercisable for all the shares of Common Stock at the time
subject to that option, and the option may be exercised for any or all of those
shares as fully-vested shares until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Board service. Should the Optionee
die while holding such option, then the option may be exercised by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or the laws of inheritance
or by the designated beneficiary or beneficiaries of that option.
24.
<PAGE> 25
Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or persons
to whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the three
(3)-year period measured from the date of the Optionee's cessation of Board
service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee
remains a Board member, each outstanding option held by such Optionee under this
Director Fee Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become fully exercisable for all the shares of Common Stock at the
time subject to such option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the
fully-vested shares until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall immediately become fully exercisable for all the shares of Common Stock at
the time subject to such option and may be exercised for any or all of those
shares as fully-vested shares of Common Stock. The option shall remain so
exercisable until the earliest to occur of (i) the expiration of the ten
(10)-year option term, (ii) the expiration of the three (3)-year period measured
from the date of the Optionee's cessation of Board service, (iii) the
termination of the option in connection with a Corporate Transaction or (iv) the
surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for the shares. Such cash
distribution shall be paid within five (5) days following the surrender of the
option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required at the time of the actual option surrender and
cash distribution.
25.
<PAGE> 26
D. The grant of options under the Director Fee Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
26.
<PAGE> 27
ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay
the option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest rate
and the terms of repayment) shall be established by the Plan Administrator in
its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
those shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock
upon the exercise of options or the issuance or vesting of such shares under the
Plan shall be subject to the satisfaction of all applicable Federal, state and
local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all
holders of Non-Statutory Options or unvested shares of Common Stock under the
Plan (other than the options granted or the shares issued under the Automatic
Option Grant or Director Fee Option Grant Program) with the right to use shares
of Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their options
or the vesting of their shares. Such right may be provided to any such holder in
either or both of the following formats:
Stock Withholding. The election to have the Corporation
withhold, from the shares of Common Stock otherwise issuable upon the exercise
of such Non-Statutory Option or the vesting of such shares, a portion of those
shares with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
Stock Delivery: The election to deliver to the Corporation, at
the time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Withholding
Taxes) with an aggregate Fair Market Value equal to the percentage of the
Withholding Taxes (not to exceed one hundred percent (100%)) designated by the
holder.
27.
<PAGE> 28
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan Effective
Date. However, the Salary Investment Option Grant Program and the Director Fee
Option Grant Program shall not be implemented until such time as the Primary
Committee may deem appropriate. Options may be granted under the Discretionary
Option Grant at any time on or after the Plan Effective Date, and the initial
option grants under the Automatic Option Grant Program shall also be made on the
Plan Effective Date to any non-employee Board members eligible for such grants
at that time. However, no options granted under the Plan may be exercised, and
no shares shall be issued under the Plan, until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to each of the Predecessor
Plans, and no further option grants or direct stock issuances shall be made
under the Predecessor Plans after the Plan Effective Date. All options
outstanding under the Predecessor Plans on the Plan Effective Date shall be
incorporated into the Plan at that time and shall be treated as outstanding
options under the Plan. However, each outstanding option so incorporated shall
continue to be governed solely by the terms of the documents evidencing such
option, and no provision of the Plan shall be deemed to affect or otherwise
modify the rights or obligations of the holders of such incorporated options
with respect to their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without
limitation) the option/vesting acceleration provisions of Article Two relating
to Corporate Transactions and Changes in Control, may, in the Plan
Administrator's discretion, be extended to one or more options incorporated from
the Predecessor Plans which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) May
15, 2009, (ii) the date on which all shares available for issuance under the
Plan shall have been issued as fully vested shares or (iii) the termination of
all outstanding options in connection with a Corporate Transaction. Should the
Plan terminate on May 15, 2009, then all option grants and unvested stock
issuances outstanding at that time shall continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects. However, no such amendment
or modification shall adversely affect the rights and obligations with respect
to stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
28.
<PAGE> 29
B. Options to purchase shares of Common Stock may be granted under
the Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under the Plan, provided any excess shares actually issued under those programs
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
29.
<PAGE> 30
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option
grant program in effect under Article Five of the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of
the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period
of thirty-six (36) consecutive months or less such that a majority of
the Board members ceases, by reason of one or more contested elections
for Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
<PAGE> 31
G. CORPORATION shall mean Tickets.com, Inc., a Delaware corporation,
and any corporate successor to all or substantially all of the assets or voting
stock of Tickets.com, Inc. which shall by appropriate action adopt the Plan.
H. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Six of the
Plan.
I. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under Article Two of the Plan.
J. ELIGIBLE DIRECTOR shall mean a non-employee Board member eligible
to participate in the Automatic Option Grant Program in accordance with the
eligibility provisions of Articles One and Five.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall
have received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal to
the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
A-2.
<PAGE> 32
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the Service
of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation which materially
reduces his or her duties and responsibilities or the level of
management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and target
bonus under any corporate-performance based bonus or incentive programs)
by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected by the
Corporation without the individual's consent.
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted under
the Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
A-3.
<PAGE> 33
U. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
W. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of twelve
(12) months or more. However, solely for purposes of the Automatic Option Grant
and Director Fee Option Grant Programs, Permanent Disability or Permanently
Disabled shall mean the inability of the non-employee Board member to perform
his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
X. PLAN shall mean the Corporation's 1999 Stock Incentive Plan, as
set forth in this document.
Y. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Z. PLAN EFFECTIVE DATE shall mean the date the Plan shall become
effective and shall be coincident with the Underwriting Date.
AA. PREDECESSOR PLANS shall mean the Corporation's (i) 1998 Stock
Incentive Plan, (ii) the 1997 Stock Option Plan, (iii) the 1997 Non-Employee
Directors Option Plan and (iv) the 1996 Stock Option Plan, as each of those
plans is in effect immediately prior to the Plan Effective Date hereunder.
BB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
nonemployee Board members appointed by the Board to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders and
to administer the Salary Investment Option Grant Program solely with respect to
the selection of the eligible individuals who may participate in such program.
CC. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment option grant program in effect under Article Three of the Plan.
A-4.
<PAGE> 34
DD. SECONDARY COMMITTEE shall mean a committee of one or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
EE. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
FF. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in the
documents evidencing the option grant or stock issuance.
GG. STOCK EXCHANGE shall mean either the American Stock Exchange or
the New York Stock Exchange.
HH. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
II. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under Article Four of the Plan.
JJ. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
KK. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
LL. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
MM. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
NN. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
A-5.
<PAGE> 35
OO. WITHHOLDING TAXES shall mean the Federal, state and local income
and employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
A-6.
<PAGE> 36
TICKETS.COM, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or of the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY.
(a) This option shall be neither transferable nor assignable
by Optionee other than by will or the laws of inheritance following Optionee's
death and may be exercised, during Optionee's lifetime, only by Optionee.
However, Optionee may designate one or more persons as the beneficiary or
beneficiaries of this option, and this option shall, in accordance with such
designation, automatically be transferred to such beneficiary or beneficiaries
upon the Optionee's death while holding such option. Such beneficiary or
beneficiaries shall take the transferred option subject to all the terms and
conditions of this Agreement, including (without limitation) the limited time
period during which this option may, pursuant to Paragraph 5, be exercised
following Optionee's death.
(b) If this option is designated a Non-Statutory Option in the
Grant Notice, then this option may, in connection with the Optionee's estate
plan, be assigned in whole or in part during Optionee's lifetime to one or more
members of Optionee's immediate family or to a trust established for the
exclusive benefit of one or more such family members. The assigned portion shall
be exercisable only by the person or persons who acquire a proprietary interest
in the option pursuant to such assignment. The terms applicable to the assigned
portion shall be the same as those in effect for this option immediately prior
to such assignment.
<PAGE> 37
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
(a) Should Optionee cease to remain in Service for any reason
(other than death, Permanent Disability or Misconduct) while holding this
option, then Optionee shall have a period of three (3) months (commencing with
the date of such cessation of Service) during which to exercise this option, but
in no event shall this option be exercisable at any time after the Expiration
Date.
(b) Should Optionee die while holding this option, then the
personal representative of Optionee's estate or the person or persons to whom
the option is transferred pursuant to Optionee's will or the laws of inheritance
shall have the right to exercise this option. However, if Optionee has
designated one or more beneficiaries of this option, then those persons shall
have the exclusive right to exercise this option following Optionee's death. Any
such right to exercise this option shall lapse, and this option shall cease to
be outstanding, upon the earlier of (i) the expiration of the twelve (12)-month
period measured from the date of Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Permanent
Disability while holding this option, then Optionee shall have a period of
twelve (12) months (commencing with the date of such cessation of Service)
during which to exercise this option. In no event shall this option be
exercisable at any time after the Expiration Date.
(d) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number of
Option Shares for which the option is exercisable at the time of Optionee's
cessation of Service. Upon the expiration of such limited exercise period or (if
earlier) upon the Expiration Date, this option shall terminate and cease to be
outstanding for any exercisable Option Shares for which the option has not been
exercised. However, this option shall, immediately upon Optionee's cessation of
Service for any reason, terminate and cease to be outstanding with respect to
any Option Shares for which this option is not otherwise at that time
exercisable.
(e) Should Optionee's Service be terminated for Misconduct,
then this option shall terminate immediately and cease to remain outstanding.
2
<PAGE> 38
6. SPECIAL ACCELERATION OF OPTION.
(a) This option, to the extent outstanding at the time of a
Corporate Transaction but not otherwise fully exercisable, shall automatically
accelerate so that this option shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all of the Option Shares at
the time subject to this option and may be exercised for any or all of those
Option Shares as fully vested shares of Common Stock. No such acceleration of
this option shall occur, however, if and to the extent: (i) this option is, in
connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or (ii) this option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing at the time of the Corporate Transaction on the Option Shares for which
this option is not otherwise at that time exercisable (the excess of the Fair
Market Value of those Option Shares over the aggregate Exercise Price payable
for such shares) and provides for subsequent payout in accordance with the same
option exercise/vesting schedule set forth in the Grant Notice.
(b) Immediately following the Corporate Transaction, this
option shall terminate and cease to be outstanding, except to the extent assumed
by the successor corporation (or parent thereof) in connection with the
Corporate Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(d) This Agreement shall not in any way affect the right of
the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become a holder of record
of the purchased shares.
3
<PAGE> 39
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or
any part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
(i) Execute and deliver to the Corporation a Notice of
Exercise for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the
Corporation;
(B) a promissory note payable to the
Corporation, but only to the extent authorized by the Plan
Administrator in accordance with Paragraph 13;
(C) shares of Common Stock held by Optionee (or
any other person or persons exercising the option) for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair
Market Value on the Exercise Date; or
(D) through a special sale and remittance
procedure pursuant to which Optionee (or any other person or
persons exercising the option) shall concurrently provide
irrevocable instructions (i) to a Corporation-designated
brokerage firm to effect the immediate sale of the purchased
shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for the purchased shares plus
all applicable Federal, state and local income and employment
taxes required to be withheld by the Corporation by reason of
such exercise and (ii) to the Corporation to deliver the
certificates for the purchased shares directly to such brokerage
firm in order to complete the sale.
Except to the extent the sale and remittance procedure is
utilized in connection with the option exercise, payment of the
Exercise Price must accompany the Notice of Exercise delivered to
the Corporation in connection with the option exercise.
(iii) Furnish to the Corporation appropriate
documentation that the person or persons exercising the option
(if other than Optionee) have the right to exercise this option.
4
<PAGE> 40
(iv) Make appropriate arrangements with the Corporation
(or Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and
employment tax withholding requirements applicable to the option
exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any
fractional shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from
any regulatory body having authority deemed by the Corporation to be necessary
to the lawful issuance and sale of any Common Stock pursuant to this option
shall relieve the Corporation of any liability with respect to the non-issuance
or sale of the Common Stock as to which such approval shall not have been
obtained. The Corporation, however, shall use its best efforts to obtain all
such approvals.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns, the legal representatives, heirs and legatees
of Optionee's estate and any beneficiaries of this option designated by
Optionee.
12. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
13. FINANCING. The Plan Administrator may, in its absolute discretion
and without any obligation to do so, permit Optionee to pay the Exercise Price
for the purchased Option Shares by delivering a full-recourse promissory note
payable to the Corporation. The terms of any such promissory note (including the
interest rate, the requirements for collateral and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion.
5
<PAGE> 41
14. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
15. GOVERNING LAW. The interpretation, performance and enforcement of
this Agreement shall be governed by the laws of the State of California without
resort to that State's conflict-of-laws rules.
16. EXCESS SHARES. If the Option Shares covered by this Agreement
exceed, as of the Grant Date, the number of shares of Common Stock which may
without stockholder approval be issued under the Plan, then this option shall be
void with respect to those excess shares, unless stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock issuable
under the Plan is obtained in accordance with the provisions of the Plan.
17. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (A) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (B) more than twelve (12) months after the date Optionee ceases to
be an Employee by reason of Permanent Disability.
(b) No installment under this option shall qualify for
favorable tax treatment as an Incentive Option if (and to the extent) the
aggregate Fair Market Value (determined at the Grant Date) of the Common Stock
for which such installment first becomes exercisable hereunder would, when added
to the aggregate value (determined as of the respective date or dates of grant)
of the Common Stock or other securities for which this option or any other
Incentive Options granted to Optionee prior to the Grant Date (whether under the
Plan or any other option plan of the Corporation or any Parent or Subsidiary)
first become exercisable during the same calendar year, exceed One Hundred
Thousand Dollars ($100,000) in the aggregate. Should such One Hundred Thousand
Dollar ($100,000) limitation be exceeded in any calendar year, this option shall
nevertheless become exercisable for the excess shares in such calendar year as a
Non-Statutory Option.
(c) Should the exercisability of this option be accelerated
upon a Corporate Transaction, then this option shall qualify for favorable tax
treatment as an Incentive Option only to the extent the aggregate Fair Market
Value (determined at the Grant Date) of the Common Stock for which this option
first becomes exercisable in the calendar year in which the Corporate
Transaction occurs does not, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock or other securities
for which this option
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<PAGE> 42
or one or more other Incentive Options granted to Optionee prior to the Grant
Date (whether under the Plan or any other option plan of the Corporation or any
Parent or Subsidiary) first become exercisable during the same calendar year,
exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should the
applicable One Hundred Thousand Dollar ($100,000) limitation be exceeded in the
calendar year of such Corporate Transaction, the option may nevertheless be
exercised for the excess shares in such calendar year as a Non-Statutory Option.
(d) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
7
<PAGE> 43
EXHIBIT I
NOTICE OF EXERCISE
I hereby notify Tickets.com, Inc. (the "Corporation") that I elect to
purchase ______________ shares of the Corporation's Common Stock (the "Purchased
Shares") at the option exercise price of $____ per share (the "Exercise Price")
pursuant to that certain option (the "Option") granted to me under the
Corporation's 1999 Stock Incentive Plan on __________, ____.
Concurrently with the delivery of this Exercise Notice to the
Corporation, I shall hereby pay to the Corporation the Exercise Price for the
Purchased Shares in accordance with the provisions of my agreement with the
Corporation (or other documents) evidencing the Option and shall deliver
whatever additional documents may be required by such agreement as a condition
for exercise. Alternatively, I may utilize the special broker-dealer sale and
remittance procedure specified in my agreement to effect payment of the Exercise
Price.
__________________, ______
Date
_______________________________________
Optionee
Address: ______________________________
_______________________________________
Print name in exact manner it is to
appear on the stock certificate: _______________________________________
Address to which certificate is to
be sent, if different from address
above: _______________________________________
_______________________________________
Social Security Number: _______________________________________
<PAGE> 44
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. COMMON STOCK shall mean shares of the Corporation's common stock.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a
party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Tickets.com, Inc., a Delaware corporation,
and any successor corporation to all or substantially all of the assets or
voting stock of Tickets.com, Inc. which shall by appropriate action adopt the
Plan.
G. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
H. EXERCISE DATE shall mean the date on which the option shall have
been exercised in accordance with Paragraph 9 of the Agreement.
I. EXERCISE PRICE shall mean the exercise price per Option Share as
specified in the Grant Notice.
J. EXPIRATION DATE shall mean the date on which the option expires
as specified in the Grant Notice.
K. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
A-1
<PAGE> 45
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be deemed equal
to the closing selling price per share of Common Stock on the date in
question, as the price is reported by the National Association of
Securities Dealers on the Nasdaq National Market. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists, or
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be deemed equal to the
closing selling price per share of Common Stock on the date in question
on the Stock Exchange determined by the Plan Administrator to be the
primary market for the Common Stock, as such price is officially quoted
in the composite tape of transactions on such exchange. If there is no
closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
L. GRANT DATE shall mean the date of grant of the option as
specified in the Grant Notice.
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation (or any Parent or
Subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Corporation (or any
Parent or Subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other individual in the Service of the Corporation (or any
Parent or Subsidiary).
P. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
Q. NOTICE OF EXERCISE shall mean the notice of exercise in the form
attached hereto as Exhibit I.
R. OPTION SHARES shall mean the number of shares of Common Stock
subject to the option as specified in the Grant Notice.
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<PAGE> 46
S. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
T. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
U. PERMANENT DISABILITY shall mean the inability of Optionee to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which is expected to result in death
or has lasted or can be expected to last for a continuous period of twelve (12)
months or more.
V. PLAN shall mean the Corporation's 1999 Stock Incentive Plan.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee of
the Board acting in its capacity as administrator of the Plan.
X. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor.
Y. STOCK EXCHANGE shall mean the American Stock Exchange or the New
York Stock Exchange.
Z. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
A-3
<PAGE> 47
TICKETS.COM, INC.
STOCK ISSUANCE AGREEMENT
AGREEMENT made this ____ day of _________________, by and between
Tickets.com, Inc., a Delaware corporation, and ____________________________, a
Participant in the Corporation's 1999 Stock Incentive Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
1. PURCHASE. Participant hereby purchases ______ shares of
Common Stock (the "Purchased Shares") pursuant to the provisions of the Stock
Issuance Program at the purchase price of $______ per share (the "Purchase
Price").
2. PAYMENT. Concurrently with the delivery of this Agreement
to the Corporation, Participant shall pay the Purchase Price for the Purchased
Shares in cash or check payable to the Corporation and shall deliver a
duly-executed blank Assignment Separate from Certificate (in the form attached
hereto as Exhibit I) with respect to the Purchased Shares.
3. STOCKHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right, Participant (or any successor in interest) shall
have all the rights of a stockholder (including voting, dividend and liquidation
rights) with respect to the Purchased Shares, subject, however, to the transfer
restrictions of this Agreement.
4. ESCROW. The Corporation shall have the right to hold the
Purchased Shares in escrow until those shares have vested in accordance with the
Vesting Schedule.
5. COMPLIANCE WITH LAW. Under no circumstances shall shares
of Common Stock or other assets be issued or delivered to Participant pursuant
to the provisions of this Agreement unless, in the opinion of counsel for the
Corporation or its successors, there shall have been compliance with all
applicable requirements of Federal and state securities laws, all applicable
listing requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock is at the time listed for trading and all
other requirements of law or of any regulatory bodies having jurisdiction over
such issuance and delivery.
B. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted
Transfer, Participant shall not transfer, assign, encumber or otherwise dispose
of any of the Purchased Shares which are subject to the Repurchase Right.
<PAGE> 48
2. RESTRICTIVE LEGEND. The stock certificate for the
Purchased Shares shall be endorsed with the following restrictive legend:
"The shares represented by this certificate are unvested and
subject to certain repurchase rights granted to the Corporation and
accordingly may not be sold, assigned, transferred, encumbered, or in
any manner disposed of except in conformity with the terms of a written
agreement dated ____________, ______ between the Corporation and the
registered holder of the shares (or the predecessor in interest to the
shares). A copy of such agreement is maintained at the Corporation's
principal corporate offices."
3. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
the Repurchase Right to the same extent such shares would be so subject if
retained by Participant.
C. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the ninety (90)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price all or any portion of the Purchased Shares in
which Participant is not, at the time of his or her cessation of Service, vested
in accordance with the Vesting Schedule set forth in Paragraph C.3 of this
Agreement or the special vesting acceleration provisions of Paragraph C.5 of
this Agreement (such shares to be hereinafter referred to as the "Unvested
Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right
shall be exercisable by written notice delivered to each Owner of the Unvested
Shares prior to the expiration of the ninety (90)-day exercise period. The
notice shall indicate the number of Unvested Shares to be repurchased and the
date on which the repurchase is to be effected, such date to be not more than
thirty (30) days after the date of such notice. The certificates representing
the Unvested Shares to be repurchased shall be delivered to the Corporation on
or before the close of business on the date specified for the repurchase.
Concurrently with the receipt of such stock certificates, the Corporation shall
pay to Owner, in cash or cash equivalent (including the cancellation of any
purchase-money indebtedness), an amount equal to the Purchase Price previously
paid for the Unvested Shares to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph C.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Participant vests in accordance with the following Vesting Schedule:
2
<PAGE> 49
(i) Upon Participant's completion of one (1) year of
Service measured from ______________, _______, Participant shall acquire
a vested interest in, and the Repurchase Right shall lapse with respect
to, twenty-four percent (24%) of the Purchased Shares.
(ii) Participant shall acquire a vested interest in, and
the Repurchase Right shall lapse with respect to, the remaining
Purchased Shares in a series of thirty eight (38) successive equal
monthly installments upon Participant's completion of each additional
month of Service over the thirty-eight (38)-month period measured from
the initial vesting date under subparagraph (i) above.
4. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right and
any escrow requirements hereunder, but only to the extent the Purchased Shares
are at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of securities subject to this Agreement and to the price per share to be
paid upon the exercise of the Repurchase Right in order to reflect the effect of
any such Recapitalization upon the Corporation's capital structure; provided,
however, that the aggregate purchase price shall remain the same.
5. CORPORATE TRANSACTION.
(a) Immediately prior to the consummation of any
Corporate Transaction, the Repurchase Right shall automatically lapse in
its entirety and the Purchased Shares shall vest in full, except to the
extent the Repurchase Right is to be assigned to the successor
corporation (or parent thereof) in connection with the Corporate
Transaction.
(b) To the extent the Repurchase Right remains in
effect following a Corporate Transaction, such right shall apply to the
new capital stock or other property (including any cash payments)
received in exchange for the Purchased Shares in consummation of the
Corporate Transaction, but only to the extent the Purchased Shares are
at the time covered by such right. Appropriate adjustments shall be made
to the price per share payable upon exercise of the Repurchase Right to
reflect the effect of the Corporate Transaction upon the Corporation's
capital structure; provided, however, that the aggregate purchase price
shall remain the same. The new securities or other property (including
cash payments) issued or distributed with respect to the Purchased
Shares in consummation of the Corporate Transaction shall immediately be
deposited in escrow with the Corporation (or the successor entity) and
shall not be released from escrow until Participant vests in such
securities or other property in accordance with the same Vesting
Schedule in effect for the Purchased Shares.
3
<PAGE> 50
D. SPECIAL TAX ELECTION
1. SECTION 83(b) ELECTION. Under Code Section 83, the excess
of the fair market value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right.
Participant may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be filed
with the Internal Revenue Service within thirty (30) days after the date of this
Agreement. Even if the fair market value of the Purchased Shares on the date of
this Agreement equals the Purchase Price paid (and thus no tax is payable), the
election must be made to avoid adverse tax consequences in the future. THE FORM
FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO. PARTICIPANT
UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY
(30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE
FORFEITURE RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(b), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
E. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase
Right to any person or entity selected by the Board, including (without
limitation) one or more stockholders of the Corporation.
2. AT WILL EMPLOYMENT. Nothing in this Agreement or in the
Plan shall confer upon Participant any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Participant) or of Participant, which rights are hereby expressly
reserved by each, to terminate Participant's Service at any time for any reason,
with or without cause.
3. NOTICES. Any notice required to be given under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, registered or certified, postage
prepaid and properly addressed to the party entitled to such notice at the
address indicated below such party's signature line on this Agreement or at such
other address as such party may designate by ten (10) days advance written
notice under this paragraph to all other parties to this Agreement.
4
<PAGE> 51
4. NO WAIVER. The failure of the Corporation in any instance
to exercise the Repurchase Right shall not constitute a waiver of any other
repurchase rights that may subsequently arise under the provisions of this
Agreement or any other agreement between the Corporation and Participant. No
waiver of any breach or condition of this Agreement shall be deemed to be a
waiver of any other or subsequent breach or condition, whether of like or
different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
6. PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Participant or the
Purchased Shares pursuant to the provisions of this Agreement.
7. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes
the entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
8. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
5
<PAGE> 52
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first indicated above.
TICKETS.COM, INC.
By:_____________________________________
Title:__________________________________
Address:________________________________
________________________________________
PARTICIPANT
________________________________________
Signature
Address:________________________________
________________________________________
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<PAGE> 53
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of the Participant has read and hereby
approves the foregoing Stock Issuance Agreement. In consideration of the
Corporation's granting the Participant the right to acquire the Purchased Shares
in accordance with the terms of such Agreement, the undersigned hereby agrees to
be irrevocably bound by all the terms of such Agreement, including (without
limitation) the right of the Corporation (or its assigns) to purchase any
Purchased Shares in which the Participant is not vested at the time of his or
her termination of Service.
________________________________________
PARTICIPANT'S SPOUSE
Address:________________________________
________________________________________
<PAGE> 54
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _______________ hereby sell(s), assign(s) and
transfer(s) unto Tickets.com, Inc. (the "Corporation"), _______________ (______)
shares of the Common Stock of the Corporation standing in his or her name on the
books of the Corporation represented by Certificate No. ______ herewith and
do(es) hereby irrevocably constitute and appoint ______________________________
Attorney to transfer the said stock on the books of the Corporation with full
power of substitution in the premises.
Dated: _________________, _____.
Signature ______________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
<PAGE> 55
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
________ shares of the common stock of Tickets.com, Inc.
(3) The property was issued on _________________, _________.
(4) The taxable year in which the election is being made is the calendar
year _________.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's service with the issuer terminates.
The issuer's repurchase right will lapse in a series of annual and
monthly installments over a fifty (50)-month period ending on _________.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will
never lapse) is $ per share.
(7) The amount paid for such property is $__________ per share.
(8) A copy of this statement was furnished to Tickets.com, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on ________________________, _______.
________________________________________________________________________________
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center
with which taxpayer files his or her Federal income tax returns and must be made
within thirty (30) days after the execution date of the Stock Issuance
Agreement. This filing should be made by registered or certified mail, return
receipt requested. Participant must retain two (2) copies of the completed form
for filing with his or her Federal and state tax returns for the current tax
year and an additional copy for his or her records.
<PAGE> 56
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Issuance Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. COMMON STOCK shall mean shares of the Corporation's common
stock.
D. CODE shall mean the Internal Revenue Code of 1986, as
amended.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions:
(i) a merger or consolidation in which
securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding
those securities immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
F. CORPORATION shall mean Tickets.com, Inc., a Delaware
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of Tickets.com, Inc.
G. OWNER shall mean Participant and all subsequent holders of
the Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
H. PARENT shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
I. PARTICIPANT shall mean the person to whom the Purchased
Shares are issued under the Stock Issuance Program.
A-1
<PAGE> 57
J. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of
the Purchased Shares, provided and only if Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness incurred
by Participant in connection with the acquisition of the Purchased Shares.
K. PLAN shall mean the Corporation's 1999 Stock Incentive
Plan.
L. PLAN ADMINISTRATOR shall mean either the Board or a
committee of the Board acting in its administrative capacity under the Plan.
M. PURCHASE PRICE shall have the meaning assigned to such
term in Paragraph A.1.
N. PURCHASED SHARES shall have the meaning assigned to such
term in Paragraph A.1.
O. RECAPITALIZATION shall mean any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares or other
change affecting the Corporation's outstanding Common Stock as a class without
the Corporation's receipt of consideration.
P. REPURCHASE RIGHT shall mean the right granted to the
Corporation in accordance with Article C.
Q. SERVICE shall mean the Participant's performance of
services for the Corporation (or any Parent or Subsidiary) in the capacity of an
employee, subject to the control and direction of the employer entity as to both
the work to be performed and the manner and method of performance, a
non-employee member of the board of directors or an independent consultant.
R. STOCK ISSUANCE PROGRAM shall mean the Stock Issuance
Program under the Plan.
S. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
T. VESTING SCHEDULE shall mean the vesting schedule specified
in Paragraph C.3, pursuant to which the Purchased Shares are to vest in a series
of installments over Participant's period of Service.
A-2
<PAGE> 58
U. UNVESTED SHARES shall have the meaning assigned to such
term in Paragraph C.1.
A-3
<PAGE> 59
TICKETS.COM, INC.
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following option grant (the
"Option") to purchase shares of the Common Stock of Tickets.com, Inc. (the
"Corporation"):
Optionee:_____________________________________________________
Grant Date:___________________________________________________
Vesting Commencement Date:____________________________________
Exercise Price: $__________________________________ per share
Number of Option Shares: _______________________________shares
Expiration Date:______________________________________________
Type of Option: _______ Incentive Stock Option
_______ Non-Statutory Stock Option
Exercise Schedule: The Option shall become exercisable for
twenty-five percent (25%) of the Option Shares upon Optionee's
completion of one (1) year of Service measured from the
Vesting Commencement Date and shall become exercisable for the
balance of the Option Shares in thirty-six (36) successive
equal monthly installments upon Optionee's completion of each
additional month of Service over the thirty-six (36) month
period measured from the first anniversary of the Vesting
Commencement Date. In no event shall the Option become
exercisable for any additional Option Shares after Optionee's
cessation of Service.
Optionee understands and agrees that the Option is granted
subject to and in accordance with the terms of the Tickets.com, Inc. 1999 Stock
Incentive Plan (the "Plan"). Optionee further agrees to be bound by the terms of
the Plan and the terms of the Option as set forth in the Stock Option Agreement
attached hereto as Exhibit A. Optionee hereby acknowledges the receipt of a copy
of the official prospectus for the Plan in the form attached hereto as Exhibit
B. A copy of the Plan is available upon request made to the Corporate Secretary
at the Corporation's principal offices.
<PAGE> 60
Employment at Will. Nothing in this Notice or in the attached
Stock Option Agreement or in the Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
Definitions. All capitalized terms in this Notice shall have
the meaning assigned to them in this Notice or in the attached Stock Option
Agreement.
DATED:______________________________
TICKETS.COM, INC.
By:
------------------------------------
Title:
---------------------------------
----------------------------------------
OPTIONEE
Address:
--------------------------------
----------------------------------------
ATTACHMENTS
- -----------
EXHIBIT A - STOCK OPTION AGREEMENT
EXHIBIT B - PLAN SUMMARY AND PROSPECTUS
<PAGE> 61
EXHIBIT A
STOCK OPTION AGREEMENT
<PAGE> 62
EXHIBIT B
PLAN SUMMARY AND PROSPECTUS
<PAGE> 1
EXHIBIT 10.3
TICKETS.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the
interests of Tickets.com, Inc., a Delaware corporation, by providing eligible
employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll-deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to
such terms in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret
and construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares of Common
Stock purchased on the open market. The number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall be limited to
One Million Five Hundred Thousand (1,500,00) shares.
B. The number of shares of Common Stock available for issuance
under the Plan shall automatically increase on the first trading day of January
each calendar year during the term of the Plan, beginning with calendar year
2000, by an amount equal to one percent (1%) of the total number of shares of
Common Stock outstanding on the last trading day in December of the immediately
preceding calendar year, but in no event shall any such annual increase exceed
One Million Five Hundred Thousand (1,500,000) shares.
C. Should any change be made to the Common Stock by reason of
any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and class of securities
issuable under the Plan, (ii) the maximum number and class of securities
purchasable per Participant on any one Purchase Date, (iii) the maximum number
and class of securities purchasable by all Participants in the aggregate on any
one Purchase Date, (iv) the maximum
<PAGE> 2
number and/or class of securities by which the share reserve is to increase
automatically each calendar year pursuant to the provisions of Section III.B of
this Article One and (v) the number and class of securities and the price per
share in effect under each outstanding purchase right in order to prevent the
dilution or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under
the Plan through a series of successive offering periods until such time as (i)
the maximum number of shares of Common Stock available for issuance under the
Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated.
B. Each offering period shall be of such duration (not to exceed
twenty-four (24) months) as determined by the Plan Administrator prior to the
start date of such offering period. However, the initial offering period shall
commence at the Effective Time and terminate on the last business day in July
2001. The next offering period shall commence on the first business day in
August 2001, and subsequent offering periods shall commence as designated by the
Plan Administrator.
C. Each offering period shall be comprised of a series of one or
more successive Purchase Intervals. Purchase Intervals shall run from the first
business day in February to the last business day in July each year and from the
first business day in August each year to the last business day in January in
the following year. However, the first Purchase Interval in effect under the
initial offering period shall commence at the Effective Time and terminate on
the last business day in January 2000.
D. Should the Fair Market Value per share of Common Stock on any
Purchase Date within an offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then the
offering period shall automatically terminate immediately after the purchase of
shares of Common Stock on such Purchase Date, and a new offering period shall
commence on the next business day following such Purchase Date. The new offering
period shall have a duration of twenty (24) months, unless a shorter duration is
established by the Plan Administrator within five (5) business days following
the start date of that offering period.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date
of any offering period under the Plan may enter that offering period on such
start date or on any subsequent Semi-Annual Entry Date within that offering
period, provided he or she remains an Eligible Employee.
B. Each individual who first becomes an Eligible Employee after
the start date of an offering period may enter that offering period on any
subsequent Semi-Annual Entry Date within that offering period on which he or she
is an Eligible Employee.
2.
<PAGE> 3
C. The date an individual enters an offering period shall be
designated his or her Entry Date for purposes of that offering period.
D. To participate in the Plan for a particular offering period,
the Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a stock purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate) on or before his or her scheduled Entry Date.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock during an offering period may be
any multiple of one percent (1%) of the Base Salary paid to the Participant
during each Purchase Interval within that offering period, up to a maximum of
ten percent (10%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the offering
period, reduce his or her rate of payroll deduction to become effective
as soon as possible after filing the appropriate form with the Plan
Administrator. The Participant may not, however, effect more than one
(1) such reduction per Purchase Interval.
(ii) The Participant may, prior to the commencement of
any new Purchase Interval within the offering period, increase the rate
of his or her payroll deduction by filing the appropriate form with the
Plan Administrator. The new rate (which may not exceed the ten percent
(10%) maximum) shall become effective on the start date of the first
Purchase Interval following the filing of such form.
B. Payroll deductions shall begin on the first pay day
administratively feasible following the Participant's Entry Date into the
offering period and shall (unless sooner terminated by the Participant) continue
through the pay day ending with or immediately prior to the last day of that
offering period. The amounts so collected shall be credited to the Participant's
book account under the Plan, but no interest shall be paid on the balance from
time to time outstanding in such account. The amounts collected from the
Participant shall not be required to be held in any segregated account or trust
fund and may be commingled with the general assets of the Corporation and used
for general corporate purposes.
C. Payroll deductions shall automatically cease upon the
termination of the Participant's purchase right in accordance with the
provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan
on any Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Purchase Date, whether within the
same or a different offering period.
3.
<PAGE> 4
VII. PURCHASE RIGHTS
A. GRANT OF PURCHASE RIGHT. A Participant shall be granted a
separate purchase right for each offering period in which he or she
participates. The purchase right shall be granted on the Participant's Entry
Date into the offering period and shall provide the Participant with the right
to purchase shares of Common Stock, in a series of successive installments over
the remainder of such offering period, upon the terms set forth below. The
Participant shall execute a stock purchase agreement embodying such terms and
such other provisions (not inconsistent with the Plan) as the Plan Administrator
may deem advisable.
Under no circumstances shall purchase rights be granted under
the Plan to any Eligible Employee if such individual would, immediately after
the grant, own (within the meaning of Code Section 424(d)) or hold outstanding
options or other rights to purchase, stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of stock of the
Corporation or any Corporate Affiliate.
B. EXERCISE OF THE PURCHASE RIGHT. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. PURCHASE PRICE. The purchase price per share at which Common
Stock will be purchased on the Participant's behalf on each Purchase Date within
the offering period shall be equal to eighty-five percent (85%) of the lower of
(i) the Fair Market Value per share of Common Stock on the Participant's Entry
Date into that offering period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.
D. NUMBER OF PURCHASABLE SHARES. The number of shares of Common
Stock purchasable by a Participant on each Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the Purchase
Interval ending with that Purchase Date by the purchase price in effect for the
Participant for that Purchase Date. However, the maximum number of shares of
Common Stock purchasable per Participant on any one Purchase Date shall not
exceed 1,200 shares, subject to periodic adjustments in the event of certain
changes in the Corporation's capitalization. In addition, the maximum number of
shares of Common Stock purchasable in the aggregate by all Participants on any
one Purchase Date shall not exceed 600,000 shares, subject to periodic
adjustments in the event of certain changes in the Corporation's capitalization.
However, the Plan Administrator shall have the discretionary authority,
exercisable prior to the start of any offering period under the Plan, to
increase or decrease the limitations to be in effect for the number of shares
purchasable per Participant and in the aggregate by all Participants on each
Purchase Date during that offering period.
4.
<PAGE> 5
E. EXCESS PAYROLL DEDUCTIONS. Any payroll deductions not applied
to the purchase of shares of Common Stock on any Purchase Date because they are
not sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date. However, any payroll
deductions not applied to the purchase of Common Stock by reason of the
limitation on the maximum number of shares purchasable per Participant or in the
aggregate on the Purchase Date shall be promptly refunded.
F. TERMINATION OF PURCHASE RIGHT. The following provisions shall
govern the termination of outstanding purchase rights:
(i) A Participant may, at any time prior to the next
scheduled Purchase Date in the offering period, terminate his or her
outstanding purchase right by filing the appropriate form with the Plan
Administrator (or its designate), and no further payroll deductions
shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the Purchase
Interval in which such termination occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on
the next Purchase Date. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected with
respect to the terminated right shall be refunded as soon as possible.
(ii) The termination of such purchase right shall be
irrevocable, and the Participant may not subsequently rejoin the
offering period for which the terminated purchase right was granted. In
order to resume participation in any subsequent offering period, such
individual must re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into that offering period.
(iii) Should the Participant cease to remain an Eligible
Employee for any reason (including death, disability or change in
status) while his or her purchase right remains outstanding, then that
purchase right shall immediately terminate, and all of the Participant's
payroll deductions for the Purchase Interval in which the purchase right
so terminates shall be immediately refunded. However, should the
Participant cease to remain in active service by reason of an approved
unpaid leave of absence, then the Participant shall have the right,
exercisable up until the last business day of the Purchase Interval in
which such leave commences, to (a) withdraw all the payroll deductions
collected to date on his or her behalf for that Purchase Interval or (b)
have such funds held for the purchase of shares on his or her behalf on
the next scheduled Purchase Date. In no event, however, shall any
further payroll deductions be collected on the Participant's behalf
during such leave. Upon the Participant's return to active service (x)
within ninety (90) days following the commencement of such leave or (y)
prior to the expiration of any longer period for which such
Participant's right to reemployment with the Corporation is guaranteed
by statute or contract, his or her payroll deductions under the Plan
shall automatically resume at the rate in
5.
<PAGE> 6
effect at the time the leave began, unless the Participant withdraws
from the Plan prior to his or her return. An individual who returns to
active employment following a leave of absence which exceeds in duration
the applicable (x) or (y) time period will be treated as a new Employee
for purposes of subsequent participation in the Plan and must
accordingly re-enroll in the Plan (by making a timely filing of the
prescribed enrollment forms) on or before his or her scheduled Entry
Date into the offering period.
G. CHANGE IN CONTROL. Each outstanding purchase right shall
automatically be exercised, immediately prior to the effective date of any
Change in Control, by applying the payroll deductions of each Participant for
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share equal to eighty-five
percent (85%) of the lower of (i) the Fair Market Value per share of Common
Stock on the Participant's Entry Date into the offering period in which such
Change in Control occurs or (ii) the Fair Market Value per share of Common Stock
immediately prior to the effective date of such Change in Control. However, the
applicable limitation on the number of shares of Common Stock purchasable per
Participant shall continue to apply to any such purchase, but not the limitation
applicable to the maximum number of shares of Common Stock purchasable in the
aggregate by all participants.
The Corporation shall use its best efforts to provide at least
ten (10)-days prior written notice of the occurrence of any Change in Control,
and Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. PRORATION OF PURCHASE RIGHTS. Should the total number of
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded.
I. ASSIGNABILITY. The purchase right shall be exercisable only
by the Participant and shall not be assignable or transferable by the
Participant.
J. STOCKHOLDER RIGHTS. A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant's behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (i) rights to purchase Common
Stock accrued under any other purchase right granted under this Plan and (ii)
similar rights accrued under other employee stock purchase plans
6.
<PAGE> 7
(within the meaning of Code Section 423) of the Corporation or any Corporate
Affiliate, would otherwise permit such Participant to purchase more than
Twenty-Five Thousand Dollars ($25,000.00) worth of stock of the Corporation or
any Corporate Affiliate (determined on the basis of the Fair Market Value per
share on the date or dates such rights are granted) for each calendar year such
rights are at any time outstanding.
B. For purposes of applying such accrual limitations to the
purchase rights granted under the Plan, the following provisions shall be in
effect:
(i) The right to acquire Common Stock under each
outstanding purchase right shall accrue in a series of installments on
each successive Purchase Date during the offering period on which such
right remains outstanding.
(ii) No right to acquire Common Stock under any
outstanding purchase right shall accrue to the extent the Participant
has already accrued in the same calendar year the right to acquire
Common Stock under one or more other purchase rights at a rate equal to
Twenty-Five Thousand Dollars ($25,000.00) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the date
or dates of grant) for each calendar year such rights were at any time
outstanding.
C. If by reason of such accrual limitations, any purchase right
of a Participant does not accrue for a particular Purchase Interval, then the
payroll deductions which the Participant made during that Purchase Interval with
respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of
this Article and one or more provisions of the Plan or any instrument issued
thereunder, the provisions of this Article shall be controlling.
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on May 24, 1999 and shall
become effective at the Effective Time, provided no purchase rights granted
under the Plan shall be exercised, and no shares of Common Stock shall be issued
hereunder, until (i) the Plan shall have been approved by the stockholders of
the Corporation and (ii) the Corporation shall have complied with all applicable
requirements of the 1933 Act (including the registration of the shares of Common
Stock issuable under the Plan on a Form S-8 registration statement filed with
the Securities and Exchange Commission), all applicable listing requirements of
any stock exchange (or the Nasdaq National Market, if applicable) on which the
Common Stock is listed for trading and all other applicable requirements
established by law or regulation. In the event such stockholder approval is not
obtained, or such compliance is not effected, within twelve (12) months after
the date on which the Plan is adopted by the Board, the Plan shall terminate and
have no further force or effect, and all sums collected from Participants during
the initial offering period hereunder shall be refunded.
7.
<PAGE> 8
B. Unless sooner terminated by the Board, the Plan shall
terminate upon the earliest of (i) the last business day in July 2009, (ii) the
date on which all shares available for issuance under the Plan shall have been
sold pursuant to purchase rights exercised under the Plan or (iii) the date on
which all purchase rights are exercised in connection with a Change in Control.
No further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at
any time to become effective immediately following the close of any Purchase
Interval. However, the Plan may be amended or terminated immediately upon Board
action, if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the Corporation's recognition of
compensation expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following
amendments or revisions to the Plan without the approval of the Corporation's
stockholders: (i) increase the number of shares of Common Stock issuable under
the Plan, except for permissible adjustments in the event of certain changes in
the Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation in
the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation; however, each Plan Participant shall bear
all costs and expenses incurred by such individual in the sale or other
disposition of any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any
right to continue in the employ of the Corporation or any Corporate Affiliate
for any period of specific duration or interfere with or otherwise restrict in
any way the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
C. The provisions of the Plan shall be governed by the laws of
the State of California without resort to that State's conflict-of-laws rules.
8.
<PAGE> 9
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
Tickets.com, Inc.
<PAGE> 10
APPENDIX
The following definitions shall be in effect under the Plan:
A. BASE SALARY shall mean the regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan. Base
Salary shall be calculated before deduction of (A) any income or employment tax
withholdings or (B) any and all contributions made by the Participant to any
Code Section 401 (k) salary deferral plan or Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. Base Salary shall not include (i) any overtime payments, bonuses,
commissions, profit-sharing distributions and other incentive-type payments
received during the period of participation in the Plan and (ii) any
contributions made on the Participant's behalf by the Corporation or any
Corporate Affiliate to any employee benefit or welfare plan now or hereafter
established (other than Code Section 401 (k) or Code Section 125 contributions
deducted from Base Salary).
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership of the
Corporation pursuant to any of the following transactions:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation in complete
liquidation or dissolution of the Corporation, or
(iii) the acquisition, directly or indirectly by an
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by or is
under common control with the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders.
D. CODE shall mean the Internal Revenue Code of 1986, as
amended.
E. COMMON STOCK shall mean the Corporation's common stock.
A-1.
<PAGE> 11
F. CORPORATE AFFILIATE shall mean any parent or subsidiary
corporation of the Corporation (as determined in accordance with Code Section
424), whether now existing or subsequently established.
G. CORPORATION shall mean Tickets.com, Inc., a Delaware
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Tickets.com, Inc. which shall by appropriate action
adopt the Plan.
H. EFFECTIVE TIME shall mean the time at which the Underwriting
Agreement is executed and the Common Stock priced for the initial public
offering. Any Corporate Affiliate which becomes a Participating Corporation
after such Effective Time shall designate a subsequent Effective Time with
respect to its employee-Participants.
I. ELIGIBLE EMPLOYEE shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly expected
to render more than twenty (20) hours of service per week for more than five (5)
months per calendar year for earnings considered wages under Code Section
3401(a).
J. ENTRY DATE shall mean the date an Eligible Employee first
commences participation in the offering period in effect under the Plan. The
earliest Entry Date under the Plan shall be the Effective Time.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) For purposes of the initial offering period which
begins at the Effective Time, the Fair Market Value shall be deemed to
be equal to the price per share at which the Common Stock is sold in the
initial public offering pursuant to the Underwriting Agreement.
A-2.
<PAGE> 12
L. 1933 ACT shall mean the Securities Act of 1933, as amended.
M. PARTICIPANT shall mean any Eligible Employee of a
Participating Corporation who is actively participating in the Plan.
N. PARTICIPATING CORPORATION shall mean the Corporation and such
Corporate Affiliate or Affiliates as may be authorized from time to time by the
Board to extend the benefits of the Plan to their Eligible Employees. The
Participating Corporations in the Plan are listed in attached Schedule A.
O. PLAN shall mean the Corporation's 1999 Employee Stock
Purchase Plan, as set forth in this document.
P. PLAN ADMINISTRATOR shall mean the committee of two (2) or
more Board members appointed by the Board to administer the Plan.
Q. PURCHASE DATE shall mean the last business day of each
Purchase Interval. The initial Purchase Date shall be January 31, 2000.
R. PURCHASE INTERVAL shall mean each successive six (6)-month
period within the offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
S. SEMI-ANNUAL ENTRY DATE shall mean the first business day in
February and August each year on which an Eligible Employee may first enter an
offering period.
T. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
U. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-3.
<PAGE> 13
TICKETS.COM, INC.
STOCK PURCHASE AGREEMENT
I hereby elect to participate in the 1999 Employee Stock
Purchase Plan (the "ESPP") for the offering period specified below, and I hereby
subscribe to purchase shares of Common Stock of Tickets.com, Inc. (the
"Corporation") in accordance with the provisions of this Agreement and the ESPP.
I hereby authorize payroll deductions from each of my paychecks following my
entry into the ESPP in the 1% multiple of my base salary (not to exceed a
maximum of 10%) specified in my attached Enrollment Form.
The offering period is divided into a series of consecutive
purchase intervals. With the exception of the initial purchase interval which
will begin at the time of the initial public offering of the Common Stock and
end on January 31, 2000, those purchase intervals will each be of six months
duration and will run from the first business day of February to the last
business day of July each year and from the first business day of August each
year to the last business day of January in the following year. My participation
will automatically remain in effect from one purchase interval to the next in
accordance with my payroll deduction authorization, unless I withdraw from the
ESPP or change the rate of my payroll deduction or unless my employment status
changes. I may reduce the rate of my payroll deductions on one occasion per
purchase interval, and I may increase my rate of payroll deductions to become
effective at the beginning of any subsequent purchase interval.
My payroll deductions will be accumulated for the purchase of
shares of common stock on the last business day of each purchase interval within
the offering period. The purchase price per share will be equal to 85% of the
lower of (i) the fair market value per share of Common Stock on my Entry Date
into the offering period or (ii) the fair market value per share on the purchase
date. I will also be subject to ESPP restrictions (i) limiting the maximum
number of shares which I may purchase per purchase interval, (ii) limiting the
maximum number of shares which may be purchased in total by all participants per
purchase interval and (iii) prohibiting me from purchasing more than $25,000
worth of Common Stock for each calendar year my purchase right remains
outstanding.
I may withdraw from the ESPP at any time prior to the last
business day of the purchase interval and elect either to have the Corporation
refund all my payroll deductions for that interval or to have such payroll
deductions applied to the purchase of Common Stock at the end of such interval.
However, I may not rejoin that particular offering period at any later date.
Upon the termination of my employment for any reason, including death or
disability, or my loss of eligible employee status, my participation in the ESPP
will immediately cease, and all my payroll deductions for the purchase interval
in which my employment terminates or my loss of eligibility occurs will
immediately be refunded.
If I take an unpaid leave of absence, my payroll deductions will
immediately cease, and any payroll deductions for the purchase interval in which
my leave begins will, at my election, either be refunded or applied to the
purchase of shares of Common Stock at the end of that purchase interval. If my
re-employment is guaranteed by either law or contract, or if I return to active
service within ninety (90) days, then upon my return my payroll deductions will
automatically resume at the rate in effect when my leave began.
The Corporation will issue a stock certificate for the shares
purchased on my behalf after the end of each purchase interval. The certificate
will be issued in street name and will be deposited directly in my
Corporation-designated brokerage account. I will notify the Corporation of any
disposition of shares purchased under the ESPP, and I will satisfy all
applicable income and employment tax withholding requirements at the time of
such disposition.
The Corporation has the right, exercisable in its sole
discretion, to amend or terminate all outstanding purchase rights under the ESPP
at any time, with such amendment or termination to become effective immediately
following the end of any purchase interval. However, such purchase rights may be
amended or terminated with an immediate effective date to the extent necessary
to avoid the Corporation's recognition of compensation expense for financial
reporting purposes, should the accounting principles applicable to the ESPP
change. Upon any such termination, I will cease to have any further rights to
purchase shares of common stock under this Agreement.
I have read this Agreement and hereby agree to be bound by the
terms of both this Agreement and the ESPP. The effectiveness of this Agreement
is dependent upon my eligibility to participate in the ESPP.
Date:
------------------------------
Signature of Employee
--------------------
Printed Name:
----------------------------
Offering Period: Initial Offering Period Ending July 31, 2001
<PAGE> 1
EXHIBIT 10.4
ADVANTIX, INC.
1998 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1998 Stock Incentive Plan is intended to promote the interests of
Advantix, Inc., a Delaware corporation, by providing eligible persons with the
opportunity to acquire a proprietary interest, or otherwise increase their
proprietary interest, in the Corporation as an incentive for them to remain in
the service of the Corporation.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into three separate equity programs:
- the Discretionary Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options to purchase
shares of Common Stock,
- the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common Stock directly,
either through the immediate purchase of such shares or as a bonus for services
rendered the Corporation (or any Parent or Subsidiary), and
- the Automatic Option Grant Program under which eligible
non-employee Board members shall automatically receive option grants at periodic
intervals to purchase shares of Common Stock.
B. The provisions of Articles One and Five shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the Discretionary Option
Grant and Stock Issuance Programs shall be administered by the Board. Beginning
with the Section 12 Registration Date, the Primary Committee shall have sole and
exclusive authority to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to Section 16 Insiders. Administration of the
Discretionary Option Grant and Stock Issuance Programs with respect to all other
persons eligible to participate in those programs may, at the Board's
discretion, be vested in the Primary Committee or a Secondary Committee, or the
Board may retain the power to administer those programs with respect to all such
persons.
<PAGE> 2
B. Members of the Primary Committee or any Secondary Committee shall
serve for such period of time as the Board may determine and may be removed by
the Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of such programs and any outstanding options
or stock issuances thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator within the scope of its administrative functions under
the Plan shall be final and binding on all parties who have an interest in the
Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or
any option or stock issuance thereunder.
D. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under the
Plan.
E. Administration of the Automatic Option Grant Program shall be
self-executing in accordance with the terms of that program, and no Plan
Administrator shall exercise any discretionary functions with respect to any
option grants or stock issuances made under such program.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant
and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors
of any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
2.
<PAGE> 3
B. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i) with respect
to the option grants under the Discretionary Option Grant Program, which
eligible persons are to receive option grants, the time or times when such
option grants are to be made, the number of shares to be covered by each such
grant, the status of the granted option as either an Incentive Option or a
Non-Statutory Option, the time or times when each option is to become
exercisable, the vesting schedule (if any) applicable to the option shares and
the maximum term for which the option is to remain outstanding and (ii) with
respect to stock issuances under the Stock Issuance Program, which eligible
persons are to receive stock issuances, the time or times when such issuances
are to be made, the number of shares to be issued to each Participant, the
vesting schedule (if any) applicable to the issued shares and the consideration
to be paid for such shares.
C. The Plan Administrator shall have the absolute discretion either to
grant options in accordance with the Discretionary Option Grant Program or to
effect stock issuances in accordance with the Stock Issuance Program.
D. The individuals eligible to participate in the Automatic Option Grant
Program shall be limited to (i) those individuals serving as non-employee Board
members on the Underwriting Date who have not previously received option grants
(either directly or through their affiliation with a venture capital fund) in
connection with their Board service, (ii) those individuals who first become
non-employee Board members on or after the Underwriting Date, whether through
appointment by the Board or election by the Corporation's stockholders, and
(iii) those individuals who continue to serve as non-employee Board members at
one or more Annual Stockholders Meetings held after the Underwriting Date,
including individuals serving as non-employee Board members on the Underwriting
Date who have previously received option grants, whether directly or through
their affiliation with a venture capital fund. A non-employee Board member who
has previously been in the employ of the Corporation (or any Parent or
Subsidiary) shall not be eligible to receive an option grant under the Automatic
Option Grant Program at the time he or she first becomes a non-employee Board
member, but shall be eligible to receive periodic option grants under the
Automatic Option Grant Program while he or she continues to serve as a
non-employee Board member.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The maximum number of shares of Common Stock
initially reserved for issuance over the term of the Plan shall not exceed
8,999,826 shares, subject to certain changes in the Corporation's capital
structure. Such authorized share reserve is comprised of (i) the number of
shares which remain available for issuance, as of the Plan Effective Date, under
the Predecessor Plan as last approved by the Corporation's stockholders,
including shares subject to the outstanding options to be incorporated into the
Plan and the additional shares which would otherwise be available for future
grant, plus (ii) an additional increase of 6,000,000 shares authorized by the
Board, but subject to stockholder approval prior to the Section 12 Registration
Date.
3.
<PAGE> 4
B. No one person participating in the Plan may receive options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,000,000 shares of Common Stock in the aggregate per calendar year.
C. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) those options
expire or terminate for any reason prior to exercise in full or (ii) those
options are cancelled in accordance with the option cancellation/regrant
provisions of Section IV of Article Two. Unvested shares issued under the Plan
and subsequently repurchased by the Corporation, at the original exercise or
direct issue price paid per share, pursuant to the Corporation's repurchase
rights under the Plan shall be added back to the number of shares of Common
Stock reserved for issuance under the Plan and shall accordingly be available
for reissuance through one or more subsequent option grants or direct stock
issuances under the Plan. However, shares subject to any options surrendered in
connection with the stock appreciation right provisions of the Plan shall not be
available for reissuance. Should the exercise price of an option under the Plan
be paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or the
vesting of a stock issuance under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross number
of shares for which the option is exercised or which vest under the stock
issuance, and not by the net number of shares of Common Stock issued to the
holder of such option or stock issuance.
D. If any change is made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan, (ii) the maximum number and/or class of securities by which the share
reserve may increase automatically each year, (iii) the number and/or class of
securities for which any one person may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances under the Plan
per calendar year, (iv) the number and/or class of securities for which grants
are subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, and (v) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan. Such adjustments to the outstanding options are to be
effected in a manner which shall preclude the enlargement or dilution of rights
and benefits under such options. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive.
4.
<PAGE> 5
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the option grant date. However, for
any option granted prior to the Section 12 Registration Date to a 10%
Stockholder, the exercise price per share shall not be less than one hundred ten
percent (110%) of the Fair Market Value per share of Common Stock on the option
grant date.
2. The exercise price shall become immediately due upon exercise of
the option and shall, subject to the provisions of Section I of Article Five and
the documents evidencing the option, be payable in cash or check made payable to
the Corporation. Should the Common Stock be registered under Section 12 of the
1934 Act at the time the option is exercised, then the exercise price may also
be paid as follows:
(i) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date,
or
(ii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions (A) to a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (B) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
5.
<PAGE> 6
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable at
such time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service for any
reason other than death, Disability or Misconduct, then the period
during which each such outstanding option may be exercised shall be
limited to the three (3)-month period measured from the date of such
cessation of Service.
(ii) Should Optionee's Service terminate by reason of
Disability, then the period during which each such outstanding option
may be exercised shall be limited to the twelve (12)-month period
measured from the date of such cessation of Service.
(iii) Should the Optionee die while holding an outstanding
option under the Plan, then the personal representative of his or her
estate or the person or persons to whom the option is transferred
pursuant to the Optionee's will or the laws of inheritance shall have a
twelve (12)-month period measured from the date of the Optionee's death
in which to exercise such option.
(iv) Under no circumstances, however, shall any such option be
exercisable after the specified expiration of the option term.
(v) During the limited post-Service exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares for which the option is exercisable on the date of the Optionee's
cessation of Service. Upon the exercise of the applicable post-Service
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent the option is not otherwise at
that time exercisable for vested shares.
(vi) Should the Optionee's Service be terminated for Misconduct,
then all outstanding options held by the Optionee shall terminate
immediately and cease to be outstanding.
6.
<PAGE> 7
2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the applicable
post-Service exercise period, not only with respect to the number of
vested shares of Common Stock for which such option is exercisable at
the time of the Optionee's cessation of Service but also with respect to
one or more additional installments in which the Optionee would have
vested had the Optionee continued in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of record
of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have the discretion
to grant options which are exercisable for unvested shares of Common Stock.
Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right. However, with respect to any option grant made prior to the
Section 12 Registration Date, the Plan Administrator may not impose a vesting
schedule upon that grant or any shares of Common Stock subject to that option
which is more restrictive than twenty percent (20%) per year vesting, with the
initial vesting to occur not later than one (1) year after the option grant
date. Such limitation shall not be applicable to any option grants made to
individuals who are officers of the Corporation, non-employee Board members or
independent consultants and shall not be in effect for any options granted after
the Section 12 Registration Date.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, Incentive Options shall be exercisable only by the Optionee and shall
not be assignable or transferable other than by will or by the laws of descent
and distribution following the Optionee's death.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Five shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under the
Plan shall not be subject to the terms of this Section II.
7.
<PAGE> 8
A. ELIGIBILITY. Incentive Options may only be granted to Employees.
B. EXERCISE PRICE. The exercise price per share shall not be less than
one-hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price per share shall not be
less than one hundred ten percent (110%) of the Fair Market Value per share of
Common Stock on the option grant date, and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option
shall automatically accelerate so that each such option shall, immediately prior
to the effective date of the Corporate Transaction, become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as fully
vested shares of Common Stock. However, an outstanding option shall NOT become
exercisable on such an accelerated basis if and to the extent: (i) such option
is, in connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or (ii) such option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing at the time of the Corporate Transaction on any shares for which the
option is not otherwise at that time exercisable and provides for subsequent
payout in accordance with the same exercise/vesting schedule applicable to those
option shares or (iii) the acceleration of such option is subject to other
limitations imposed by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate, and
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent:
(i) those repurchase rights are to be assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
8.
<PAGE> 9
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments to reflect such Corporate Transaction shall also be made
to (i) the exercise price payable per share under each outstanding option,
provided the aggregate exercise price payable for such securities shall remain
the same, (ii) the maximum number and/or class of securities available for
issuance over the remaining term of the Plan , (iii) the maximum number and/or
class of securities by which the share reserve may automatically increase each
year and (iv) the maximum number and/or class of securities for which any one
person may be granted stock options, separately exercisable stock appreciation
rights and direct stock issuances under the Plan per calendar year.
E. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration (in whole
or in part) of one or more outstanding options (and the immediate termination of
the Corporation's repurchase rights with respect to the shares subject to those
options) upon the occurrence of a Corporate Transaction, whether or not those
options are to be assumed in the Corporate Transaction. Any portion of an option
so accelerated shall remain exercisable for fully vested shares until the
earlier of (i) the expiration of the option term or (ii) the expiration of the
twelve (12)-month period measured from the effective date of the acceleration of
the option.
F. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration (in whole
or in part) of one or more outstanding options (and the immediate termination of
the Corporation's repurchase rights with respect to the shares subject to those
options) within a designated period (not to exceed twenty-four (24) months)
following the consummation of a Corporate Transaction in which such options are
assumed and do not otherwise accelerate. Any portion of an option so accelerated
shall remain exercisable for fully vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the twelve (12)-month
period measured from the effective date of the acceleration of the option.
G. The Plan Administrator shall have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to provide for the automatic acceleration of all or
a portion of one or more outstanding options in the event the Optionee's Service
is subsequently terminated by reason of an Involuntary Termination within a
designated period (not to exceed twenty-four (24) months) following the
effective date of any Corporate Transaction in which those options are assumed
and do not otherwise accelerate. Any options so accelerated shall remain
exercisable for fully vested shares until the earlier of (i) the expiration of
the option term or (ii) the expiration of the twelve (12)-month period measured
from the effective date of the Involuntary Termination. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Involuntary Termination shall immediately terminate, and the shares subject
to those terminated repurchase rights shall accordingly vest in full.
9.
<PAGE> 10
H. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding to provide for the automatic acceleration of one or
more outstanding options upon the occurrence of a Change in Control so that each
such option shall, either immediately prior to or within a designated period
(not to exceed twenty-four (24) months) following the effective date of such
Change in Control, become exercisable with respect to all or a portion of the
number of shares of Common Stock at the time subject to that option but not
exercisable or otherwise vested and may be exercised for any or all of such
shares as fully vested shares of Common Stock. Any portion of an option so
accelerated shall remain exercisable for fully vested shares until the earlier
of (i) the expiration of the option term or (ii) the expiration of the twelve
(12)-month period measured from the effective date of such acceleration. In
addition, the Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights so that those
rights shall terminate either automatically upon, or within a designated period
(not to exceed twenty-four (24) months) following, the consummation of such
Change in Control, and the shares subject to those terminated rights shall
thereupon vest in full.
I. The Plan Administrator may also condition the automatic acceleration
of one or more outstanding options and the termination of one or more of the
Corporation's outstanding repurchase rights upon the subsequent termination of
the Optionee's Service by reason of an Involuntary Termination within a
designated period (not to exceed twenty-four (24) months) following the
effective date of such Change in Control. Each option so accelerated shall
remain exercisable for fully vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the twelve (12)-month
period measured from the effective date of Optionee's cessation of Service.
J. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Non-Statutory Option under the Federal tax laws.
K. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program and to grant in substitution new options covering the same or
different number of shares of Common Stock but with an exercise price per share
based on the Fair Market Value per share of Common Stock on the new grant date.
10.
<PAGE> 11
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have the authority to grant to selected
Optionees tandem stock appreciation rights and/or limited stock appreciation
rights.
B. The following terms shall govern the grant and exercise of tandem
stock appreciation rights:
(i) One or more Optionees may be granted the right, exercisable
upon such terms as the Plan Administrator may establish, to elect
between the exercise of the underlying option for shares of Common Stock
and the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which
the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price
payable for those shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so
approved, then the distribution to which the Optionee shall be entitled
may be made in shares of Common Stock valued at Fair Market Value on the
option surrender date, in cash, or partly in shares and partly in cash,
as the Plan Administrator shall in its sole discretion deem appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion) on
the option surrender date and may exercise such rights at any time prior
to the later of (a) five (5) business days after ----- the receipt of
the rejection notice or (b) the last day on which the option is
otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of limited
stock appreciation rights:
(i) One or more Section 16 Insiders may, at any time following
the Section 12 Registration Date, be granted limited stock appreciation
rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual
holding one or more options with such a limited stock appreciation right
shall have the unconditional right (exercisable for a thirty (30) day
period following such Hostile Take-Over) to surrender each such option
to the Corporation, to the extent the option is at the time exercisable
for vested shares of
11.
<PAGE> 12
Common Stock. In return for the surrendered option, the Optionee shall
receive a cash distribution from the Corporation in an amount equal to
the excess of (A) the Take-Over Price of the shares of Common Stock
which are at the time vested under each surrendered option (or
surrendered portion) over (B) the aggregate exercise price payable for
those shares. Such cash distribution shall be paid within five (5) days
following the option surrender date.
(iii) The Plan Administrator shall pre-approve, at the time the
limited right is granted, the subsequent exercise of that right in
accordance with the terms of the grant and the provisions of this
Section V. No additional approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution.
(iv) The balance of the option (if any) shall remain outstanding
and exercisable in accordance with the documents evidencing such option.
12.
<PAGE> 13
ARTICLE THREE
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of designated
performance goals.
A. PURCHASE PRICE.
1. The purchase price per share shall be fixed by the Plan
Administrator, but shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the issuance date. However, prior to
the Section 12 Registration Date, the purchase price per share of Common Stock
issued to a 10% Stockholder shall not be less than one hundred and ten percent
(110%) of such Fair Market Value.
2. Subject to the provisions of Section I of Article Five, shares of
Common Stock may be issued under the Stock Issuance Program for any combination
of the following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. VESTING PROVISIONS.
1. Shares of Common Stock issued under the Stock Issuance Program
may, in the discretion of the Plan Administrator, be fully and immediately
vested upon issuance or may vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. However, with respect to any stock issuance effected under the Stock
Issuance Program prior to the Section 12 Registration Date, the Plan
Administrator may not impose a vesting schedule which is more restrictive than
twenty percent (20%) per year vesting, with initial vesting to occur not later
than one (1) year after the issuance date. Such limitation shall not apply to
any Common Stock issuances made to the officers of the Corporation, non-employee
Board members or independent consultants and shall not be in effect for any
stock issuances effected after the Section 12 Registration Date.
13.
<PAGE> 14
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock and
(ii) such escrow arrangements as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder rights with respect to
any shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding
one or more unvested shares of Common Stock issued under the Stock Issuance
Program or should the performance objectives not be attained with respect to one
or more such unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the Participant
shall have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the Participant for
consideration paid in cash or cash equivalent (including the Participant's
purchase money indebtedness), the Corporation shall repay to the Participant the
cash consideration paid for the surrendered shares and shall cancel the unpaid
principal balance of any outstanding purchase money note of the Participant
attributable to the surrendered shares.
5. The Plan Administrator may in its discretion waive the surrender
and cancellation of one or more unvested shares of Common Stock which would
otherwise occur upon the cessation of the Participant's Service or the non
attainment of the performance objectives applicable to those shares. Such waiver
shall result in the immediate vesting of the Participant's interest in the
shares as to which the waiver applies. Such waiver may be effected at any time,
whether before or after the Participant's cessation of Service or the attainment
or non attainment of the applicable performance objectives.
6. Outstanding share right awards under the Stock Issuance Program
shall automatically terminate, and no shares of Common Stock shall actually be
issued in satisfaction of those awards, if the performance goals established for
such awards are not attained. The Plan Administrator, however, shall have the
discretionary authority to issue shares of Common Stock in satisfaction of one
or more outstanding share right awards as to which the designated performance
goals are not attained.
14.
<PAGE> 15
C. CORPORATE TRANSACTION/CHANGE IN CONTROL
1. All of the Corporation's outstanding repurchase rights shall
terminate automatically, and all the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent (i) those repurchase rights are to be assigned
to the successor corporation (or parent thereof) in connection with such
Corporate Transaction or (ii) such accelerated vesting is precluded by other
limitations imposed in the Stock Issuance Agreement.
2. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to structure one or more of the Corporation's repurchase rights so
that those rights shall terminate in whole or in part either immediately upon or
within a designated period (not to exceed twenty-four (24) months) following the
effective date of such Corporate Transaction, and the shares subject to those
terminated rights shall thereupon vest in full.
3. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall automatically terminate in whole
or in part, and the shares of Common Stock subject to those terminated rights
shall immediately vest, in the event the Participant's Service should
subsequently terminated by reason of an Involuntary Termination within a
designated period (not to exceed twenty-four (24) months) following the
effective date of any Corporate Transaction in which those repurchase rights are
assigned to the successor corporation (or parent thereof).
4. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to structure one or more of the Corporation's repurchase rights so
that those rights shall terminate in whole or in part either immediately upon or
within a designated period (not to exceed twenty-four (24) months) following the
effective date of such Change in Control, and the shares subject to those
terminated rights shall thereupon vest in full.
5. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the unvested shares are issued or any time while
the Corporation's repurchase rights with respect to those shares remain
outstanding, to provide that those rights shall automatically terminate in whole
or in part, and the shares of Common Stock subject to those terminated rights
shall immediately vest, in the event the Participant's Service should
subsequently terminated by reason of an Involuntary Termination within a
designated period (not to exceed twenty-four (24) months) following the
effective date of any Change in Control.
15.
<PAGE> 16
II. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
16.
<PAGE> 17
ARTICLE FOUR
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. GRANT DATES. Option grants shall be made on the dates specified
below:
1. Each individual serving as a non-employee Board member on the
Underwriting Date shall automatically be granted at that time a Non-Statutory
Option to purchase 30,000 shares of Common Stock, provided that individual has
not previously been in the employ of the Corporation or any Parent or Subsidiary
and has not previously received an option grant from the Corporation (either
directly or through his or her affiliation with a venture capital fund) in
connection with his or her Board service.
2. Each individual who is first elected or appointed as a
non-employee Board member at any time after the Underwriting Date shall
automatically be granted, on the date of such initial election or appointment, a
Non-Statutory Option to purchase 30,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
3. On the date of each Annual Stockholders Meeting, beginning with
the first Annual Stockholders Meeting after the Underwriting Date, each
individual who is to continue to serve as a non-employee Board member, whether
or not that individual is standing for re-election to the Board at that
particular Annual Meeting, shall automatically be granted a Non-Statutory Option
to purchase 10,000 shares of Common Stock, provided such individual has served
as a non-employee Board member for at least six (6) months. There shall be no
limit on the number of such 10,000-share option grants any one non-employee
Board member may receive over his or her period of Board service, and
non-employee Board members who have previously been in the employ of the
Corporation (or any Parent or Subsidiary) or who have previously received stock
options in connection with their Board service prior to the Underwriting Date
shall be eligible to receive one or more such annual option grants over their
period of continued Board service.
B. EXERCISE PRICE.
1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.
2. The exercise price shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made on
the Exercise Date.
C. OPTION TERM. Each option shall have a term of ten (10) years measured
from the option grant date.
17.
<PAGE> 18
D. EXERCISE AND VESTING OF OPTIONS. Each option shall be immediately
exercisable for any or all of the option shares. However, any shares purchased
under the option shall be subject to repurchase by the Corporation, at the
exercise price paid per share, upon the Optionee's cessation of Board service
prior to vesting in those shares. The shares subject to each initial
30,000-share grant shall vest, and the Corporation's repurchase right shall
lapse with respect to those shares, in three (3) equal annual installments upon
Optionee's completion of each year of Board service over the three (3)-year
period measured from the option grant date. The shares subject to each annual
10,000-share grant shall vest upon the Optionee's completion of one year of
Board service measured from the option grant date.
E. TERMINATION OF BOARD SERVICE. The following provisions shall govern
the exercise of any options held by the Optionee at the time the Optionee ceases
to serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the
personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution) shall
have a twelve (12)-month period following the date of such cessation of
Board service in which to exercise each such option.
(ii) During the twelve (12)-month exercise period, the option
may not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time
of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by
reason of death or Permanent Disability, then all shares at the time
subject to the option shall immediately vest so that such option may,
during the twelve (12)-month exercise period following such cessation of
Board service, be exercised for all or any portion of those shares as
fully vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve
(12)-month exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Board
service for any reason other than death or Permanent Disability,
terminate and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
18.
<PAGE> 19
F. CORPORATE TRANSACTION/CHANGE IN CONTROL/ HOSTILE TAKE-OVER
1. In the event of any Corporate Transaction, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Corporate Transaction, become fully
exercisable for all of the shares of Common Stock at the time subject to such
option and may be exercised for all or any portion of those shares as
fully-vested shares of Common Stock. Immediately following the consummation of
the Corporate Transaction, each automatic option grant shall terminate and cease
to be outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
2. In connection with any Change in Control, the shares of Common
Stock at the time subject to each outstanding option but not otherwise vested
shall automatically vest in full so that each such option shall, immediately
prior to the effective date of the Change in Control, become fully exercisable
for all of the shares of Common Stock at the time subject to such option and may
be exercised for all or any portion of those shares as fully-vested shares of
Common Stock. Each such option shall remain exercisable for such fully-vested
option shares until the expiration or sooner termination of the option term or
the surrender of the option in connection with a Hostile Take-Over.
3. All outstanding repurchase rights shall automatically terminate,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction or Change in
Control.
4. Upon the occurrence of a Hostile Take-Over, the Optionee shall
have a thirty (30)-day period in which to surrender to the Corporation each of
his or her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or consent
of the Board or any Plan Administrator shall be required in connection with such
option surrender and cash distribution.
5. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to the exercise price payable per
share under each outstanding option, provided the aggregate exercise price
payable for such securities shall remain the same.
6. The grant of options under the Automatic Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
19.
<PAGE> 20
II. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
20.
<PAGE> 21
ARTICLE FIVE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering a
full recourse, interest bearing promissory note payable in one or more
installments and secured by the purchased shares. All other terms of any such
promissory note (including the interest rate and the terms of repayment) shall
be established by the Plan Administrator in its sole discretion. In no event may
the maximum credit available to the Optionee or Participant exceed the sum of
(i) the aggregate option exercise price or purchase price payable for the
purchased shares plus (ii) any Federal, state and local income and employment
tax liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon
the exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. At any time after the Section 12 Registration Date, the Plan
Administrator may, in its discretion, provide one or more holders of
Non-Statutory Options or unvested shares of Common Stock under the Plan (other
than the options granted or the shares issued under the Automatic Option Grant
Program) with the right to use shares of Common Stock in satisfaction of all or
part of the Taxes incurred by such holders in connection with the exercise of
their options or the vesting of their shares. Such right may be provided to any
such holder in either or both of the following formats:
STOCK WITHHOLDING: The election to have the Corporation withhold,
from the shares of Common Stock otherwise issuable upon the exercise of such
Non-Statutory Option or the vesting of such shares, a portion of those shares
with an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
STOCK DELIVERY: The election to deliver to the Corporation, at the
time the Non-Statutory Option is exercised or the shares vest, one or more
shares of Common Stock previously acquired by such holder (other than in
connection with the option exercise or share vesting triggering the Taxes) with
an aggregate Fair Market Value equal to the percentage of the Taxes (not to
exceed one hundred percent (100%)) designated by the holder.
21.
<PAGE> 22
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant and Stock Issuance Programs became
effective immediately on the Plan Effective Date. The Automatic Option Grant
Program shall become effective on the Underwriting Date. Options may be granted
under the Discretionary Option Grant at any time on or after the Plan Effective
Date; however, no options granted under the Plan may be exercised, and no shares
shall be issued under the Plan, until the Plan is approved by the Corporation's
stockholders. If such stockholder approval is not obtained within twelve (12)
months after the Plan Effective Date, then all options previously granted under
this Plan shall terminate and cease to be outstanding, and no further options
shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and no
further option grants shall be made under the Predecessor Plan after the Plan
Effective Date. All options outstanding under the Predecessor Plan on the Plan
Effective Date shall be incorporated into the Plan at that time and shall be
treated as outstanding options under the Plan. However, each outstanding option
so incorporated shall continue to be governed solely by the terms of the
documents evidencing such option, and no provision of the Plan shall be deemed
to affect or otherwise modify the rights or obligations of the holders of such
incorporated options with respect to their acquisition of shares of Common
Stock.
C. One or more provisions of the Plan, including (without limitation)
the option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the Predecessor
Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) August 31,
2008, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as fully vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Upon such plan
termination, all outstanding option grants and unvested stock issuances shall
thereafter continue to have force and effect in accordance with the provisions
of the documents evidencing those grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the Plan
unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant Program and shares of Common Stock may be issued
under the Stock Issuance Program that are in each instance in excess of the
number of shares then available for issuance under the Plan, provided any excess
shares actually issued under those programs
22.
<PAGE> 23
shall be held in escrow until there is obtained stockholder approval of an
amendment sufficiently increasing the number of shares of Common Stock available
for issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made, then
(i) any unexercised options granted on the basis of such excess shares shall
terminate and cease to be outstanding and (ii) the Corporation shall promptly
refund to the Optionees and the Participants the exercise or purchase price paid
for any excess shares issued under the Plan and held in escrow, together with
interest (at the applicable Short Term Federal Rate) for the period the shares
were held in escrow, and such shares shall thereupon be automatically cancelled
and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option
under the Plan and the issuance of any shares of Common Stock (i) upon the
exercise of any granted option or (ii) under the Stock Issuance Program shall be
subject to the Corporation's procurement of all approvals and permits required
by regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or
delivered under the Plan unless and until there shall have been compliance with
all applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing requirements
of any stock exchange (or the Nasdaq National Market, if applicable) on which
Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant
any right to continue in Service for any period of specific duration or
interfere with or otherwise restrict in any way the rights of the Corporation
(or any Parent or Subsidiary employing or retaining such person) or of the
Optionee or the Participant, which rights are hereby expressly reserved by each,
to terminate such person's Service at any time for any reason, with or without
cause.
VIII. FINANCIAL REPORTS
Prior to the Section 12 Registration Date, the Corporation shall deliver
a balance sheet and an income statement at least annually to each individual
holding an outstanding option under the Plan, unless such individual is a key
Employee whose duties in connection with the Corporation (or any Parent or
Subsidiary) assure such individual access to equivalent information. The
requirement to deliver financial statements under this Section VIII shall
terminate on the Section 12 Registration Date.
23.
<PAGE> 24
APPENDIX
The following definitions shall be in effect under the Plan:
A. AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant
program in effect under the Plan.
B. BOARD shall mean the Corporation's Board of Directors.
C. CHANGE IN CONTROL shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or
related group of persons (other than the Corporation or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Corporation), of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange
offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
D. CODE shall mean the Internal Revenue Code of 1986, as amended.
E. COMMON STOCK shall mean the Corporation's common stock.
F. COMMON STOCK EQUIVALENTS shall mean any security issued by the
Corporation that is convertible into or exercisable for shares of Common Stock,
excluding options granted under this Plan or any other similar equity incentive
plan of the Corporation or options granted to individuals in connection with
their Service. Such securities shall include, but not be limited to, Preferred
Stock, convertible debt or warrants issued by the Corporation.
G. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
A-1.
<PAGE> 25
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
H. CORPORATION shall mean Advantix, Inc., a Delaware corporation, and
any successor corporation to all or substantially all of the assets or voting
stock of Advantix, Inc. which shall by appropriate action adopt the Plan.
I. DISABILITY shall mean the inability of the Optionee or the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment and shall be determined by
the Plan Administrator on the basis of such medical evidence as the Plan
Administrator deems warranted under the circumstances. However, solely for
purposes of the Automatic Option Grant Program, Permanent Disability or
Permanently Disabled shall mean the inability of the non-employee Board member
to perform his or her usual duties as a Board member by reason of any medically
determinable physical or mental impairment expected to result in death or to be
of continuous duration of twelve (12) months or more.
J. DISCRETIONARY OPTION GRANT PROGRAM shall mean the discretionary
option grant program in effect under the Plan.
K. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
L. EXERCISE DATE shall mean the date on which the Corporation shall have
received written notice of the option exercise.
M. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as such price
is reported by the National Association of Securities Dealers on the
Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
A-2.
<PAGE> 26
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) For any option grants made on the Underwriting Date, the
Fair Market Value shall be deemed equal to the price per share at which
the Common Stock is to sold in the initial public offering pursuant to
the Underwriting Agreement.
(iv) For any option grants or direct stock issuances made prior
to the Underwriting Date, the Fair Market Value shall be determined by
the Plan Administrator after taking into account such factors as the
Plan Administrator shall deem appropriate.
N. HOSTILE TAKE-OVER shall mean the acquisition, directly or indirectly,
by any person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is under
common control with, the Corporation) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made directly to
the Corporation's stockholders which the Board does not recommend such
stockholders to accept.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. INVOLUNTARY TERMINATION shall mean the termination of the Service of
any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a
change in his or her position with the Corporation (or Parent or
Subsidiary) which materially reduces his or her duties and
responsibilities or the level of management to which he or she reports,
(B) a reduction in his or her level of compensation (including base
salary, fringe benefits and target bonus under any corporate performance
based bonus or incentive programs) by more than fifteen percent (15%) or
(C) a relocation of such individual's place of employment by more than
fifty (50) miles, provided and only if such change, reduction or
relocation is effected by the Corporation without the individual's
consent.
A-3.
<PAGE> 27
Q. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of the
Corporation (or any Parent or Subsidiary), or any other intentional misconduct
by such person adversely affecting the business or affairs of the Corporation
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
R. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
S. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
T. OPTIONEE shall mean any person to whom an option is granted under the
Discretionary Option Grant or Automatic Option Grant Program.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PARTICIPANT shall mean any person who is issued shares of Common
Stock under the Stock Issuance Program.
W. PLAN shall mean the Corporation's 1998 Stock Incentive Plan, as set
forth in this document.
X. PLAN ADMINISTRATOR shall mean the particular entity, whether the
Primary Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity is
carrying out its administrative functions under those programs with respect to
the persons under its jurisdiction.
Y. PLAN EFFECTIVE DATE shall mean September 1, 1998, the date the Plan
was adopted by the Board.
Z. PREDECESSOR PLAN shall mean the Corporation's pre-existing 1997 Stock
Option Plan in effect immediately prior to the Plan Effective Date hereunder.
AA. PREFERRED STOCK shall mean the Corporation's preferred stock.
BB. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders.
A-4.
<PAGE> 28
CC. SECONDARY COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to administer the Discretionary Option Grant and
Stock Issuance Programs with respect to eligible persons other than Section 16
Insiders.
DD. SECTION 12 REGISTRATION DATE shall mean the date on which the Common
Stock is first registered under Section 12 of the 1934 Act.
EE. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short swing profit liabilities of Section 16 of the
1934 Act.
FF. SERVICE shall mean the performance of services for the Corporation
(or any Parent or Subsidiary) by a person in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
GG. STOCK EXCHANGE shall mean either the American Stock Exchange or the
New York Stock Exchange.
HH. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by
the Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
II. STOCK ISSUANCE PROGRAM shall mean the stock issuance program in
effect under the Plan.
JJ. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
KK. TAKEOVER PRICE shall mean the greater of (i) the Fair Market Value
per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Takeover or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Takeover. However, if the surrendered option is an Incentive Option, the
Takeover Price shall not exceed the clause (i) price per share.
LL. TAXES shall mean the Federal, state and local income and employment
tax liabilities incurred by the holder of Non-Statutory Options or unvested
shares of Common Stock in connection with the exercise of those options or the
vesting of those shares.
MM. 10% STOCKHOLDER shall mean the owner of stock (as determined under
Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
NN. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
A-5.
<PAGE> 29
OO. UNDERWRITING DATE shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
A-6.
<PAGE> 30
ADVANTIX, INC.
STOCK OPTION AGREEMENT
RECITALS
A. The Board has adopted the Plan for the purpose of retaining the
services of selected Employees, non-employee members of the Board or of the
board of directors of any Parent or Subsidiary and consultants and other
independent advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Optionee is to render valuable services to the Corporation (or a
Parent or Subsidiary), and this Agreement is executed pursuant to, and is
intended to carry out the purposes of, the Plan in connection with the
Corporation's grant of an option to Optionee.
C. All capitalized terms in this Agreement shall have the meaning
assigned to them in the attached Appendix.
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee, as of
the Grant Date, an option to purchase up to the number of Option Shares
specified in the Grant Notice. The Option Shares shall be purchasable from time
to time during the option term specified in Paragraph 2 at the Exercise Price.
2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall accordingly expire at the close of
business on the Expiration Date, unless sooner terminated in accordance with
Paragraph 5 or 6.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee.
4. DATES OF EXERCISE. This option shall become exercisable for the
Option Shares in one or more installments as specified in the Grant Notice. As
the option becomes exercisable for such installments, those installments shall
accumulate, and the option shall remain exercisable for the accumulated
installments until the Expiration Date or sooner termination of the option term
under Paragraph 5 or 6.
5. CESSATION OF SERVICE. The option term specified in Paragraph 2
shall terminate (and this option shall cease to be outstanding) prior to the
Expiration Date should any of the following provisions become applicable:
<PAGE> 31
(a) Should Optionee cease to remain in Service for any reason
(other than death, Disability or Misconduct) while this option is outstanding,
then the period during which this option may be exercised shall be limited to
the three (3)-month period measured from the date of such cessation of Service,
but in no event shall this option be exercisable at any time after the
Expiration Date.
(b) Should Optionee die while holding this option, then the
personal representative of Optionee's estate or the person or persons to whom
the option is transferred pursuant to Optionee's will or in accordance with the
laws of inheritance shall have the right to exercise this option. Such right
shall lapse, and this option shall cease to be outstanding, upon the earlier of
(i) the expiration of the twelve (12)-month period measured from the date of
Optionee's death or (ii) the Expiration Date.
(c) Should Optionee cease Service by reason of Disability while
this option is outstanding, then the period during which this option may be
exercised shall be limited to the twelve (12)-month period measured from the
date of such cessation of Service, but in no event shall this option be
exercisable at any time after the Expiration Date.
Note: Exercise of this option more than three (3) months after
cessation of Service due to Disability will result in loss of
favorable Incentive Option treatment, unless such Disability
constitutes Permanent Disability. In the event that Incentive
Option treatment is not available, this option will be taxed as
a Non-Statutory Option upon exercise.
(d) During the limited period of post-Service exercisability,
this option may not be exercised in the aggregate for more than the number of
vested Option Shares for which the option is exercisable at the time of
Optionee's cessation of Service. Upon the expiration of such limited exercise
period or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding for any vested Option Shares for which the option has
not been exercised. However, this option shall, immediately upon Optionee's
cessation of Service for any reason, terminate and cease to be outstanding with
respect to any Option Shares for which this option is not otherwise at that time
exercisable.
(e) Should Optionee's Service be terminated for Misconduct, then
this option shall terminate immediately and cease to remain outstanding.
6. SPECIAL ACCELERATION OF OPTION.
(a) This option to the extent outstanding at the time of a
Corporate Transaction, but not otherwise fully exercisable, shall automatically
accelerate so that this option shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all of the Option Shares at
the time subject to this option and may be exercised for any or all of those
Option Shares as fully vested shares of Common Stock. No such acceleration of
this
2
<PAGE> 32
option shall occur, however, if and to the extent: (i) this option is, in
connection with the Corporate Transaction, to be assumed by the successor
corporation (or parent thereof) or (ii) this option is to be replaced with a
cash incentive program of the successor corporation which preserves the spread
existing at the time of the Corporate Transaction on the Option Shares for which
this option is not otherwise at that time exercisable (the excess of the Fair
Market Value of those Option Shares over the aggregate Exercise Price payable
for such shares) and provides for subsequent payout in accordance with the same
option exercise/vesting schedule set forth in the Grant Notice.
(b) Immediately following the Corporate Transaction, this option
shall terminate and cease to be outstanding, except to the extent assumed by the
successor corporation (or parent thereof) in connection with the Corporate
Transaction.
(c) If this option is assumed in connection with a Corporate
Transaction, then this option shall be appropriately adjusted, immediately after
such Corporate Transaction, to apply to the number and class of securities which
would have been issuable to Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction, and appropriate adjustments shall also be made to the Exercise
Price, provided the aggregate Exercise Price shall remain the same.
(d) The option may also become exercisable on an accelerated
basis in accordance with the terms and conditions of any special addendum
attached to this Agreement.
(e) This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. Should any change be made to the
Common Stock by reason of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Exercise Price in
order to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
8. STOCKHOLDER RIGHTS. The holder of this option shall not have any
stockholder rights with respect to the Option Shares until such person shall
have exercised the option, paid the Exercise Price and become the holder of
record of the purchased shares.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Option Shares for which this option is at the time exercisable,
Optionee (or any other person or persons exercising the option) must take the
following actions:
3
<PAGE> 33
(i) Execute and deliver to the Corporation a Purchase
Agreement for the Option Shares for which the option is exercised.
(ii) Pay the aggregate Exercise Price for the purchased
shares in one or more of the following forms:
(A) cash or check made payable to the Corporation; or
(B) a promissory note payable to the Corporation, but
only to the extent authorized by the Plan Administrator in accordance
with Paragraph 14.
Should the Common Stock be registered under Section 12 of the 1934
Act at the time the option is exercised, then the Exercise Price may
also be paid as follows:
(C) in shares of Common Stock held by Optionee (or any other
person or persons exercising the option) for the requisite period
necessary to avoid a charge to the Corporation's earnings for financial
reporting purposes and valued at Fair Market Value on the Exercise Date;
or
(D) through a special sale and remittance procedure pursuant
to which Optionee (or any other person or persons exercising the option)
shall concurrently provide irrevocable instructions (a) to a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate Exercise Price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes required
to be withheld by the Corporation by reason of such exercise and (b) to
the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
Except to the extent the sale and remittance procedure is utilized
in connection with the option exercise, payment of the Exercise Price
must accompany the Purchase Agreement delivered to the Corporation in
connection with the option exercise.
4
<PAGE> 34
(iii) Furnish to the Corporation appropriate documentation
that the person or persons exercising the option (if other than
Optionee) have the right to exercise this option.
(iv) Execute and deliver to the Corporation such written 4
representations as may be requested by the Corporation in order for it
to comply with the applicable requirements of Federal and state
securities laws.
(v) Make appropriate arrangements with the Corporation (or
Parent or Subsidiary employing or retaining Optionee) for the
satisfaction of all Federal, state and local income and employment tax
withholding requirements applicable to the option exercise.
(b) As soon as practical after the Exercise Date, the
Corporation shall issue to or on behalf of Optionee (or any other person or
persons exercising this option) a certificate for the purchased Option Shares,
with the appropriate legends affixed thereto.
(c) In no event may this option be exercised for any fractional
shares.
10. RIGHT OF FIRST REFUSAL. ALL OPTION SHARES ACQUIRED UPON THE
EXERCISE OF THIS OPTION SHALL BE SUBJECT TO A RIGHT OF FIRST REFUSAL EXERCISABLE
BY THE CORPORATION AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH
THE TERMS SPECIFIED IN THE PURCHASE AGREEMENT.
11. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of the Option
Shares upon such exercise shall be subject to compliance by the Corporation and
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange (or the Nasdaq National Market, if
applicable) on which the Common Stock may be listed for trading at the time of
such exercise and issuance.
(b) The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
12. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraphs 3 and 6, the provisions of this Agreement shall inure to the
benefit of, and be binding upon, the Corporation and its successors and assigns
and Optionee, Optionee's assigns and the legal representatives, heirs and
legatees of Optionee's estate.
5
<PAGE> 35
13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation at its principal corporate offices. Any notice required to be
given or delivered to Optionee shall be in writing and addressed to Optionee at
the address indicated below Optionee's signature line on the Grant Notice. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
14. FINANCING. The Plan Administrator may, in its absolute
discretion and without any obligation to do so, permit Optionee to pay the
Exercise Price for the purchased Option Shares by delivering a full-recourse
promissory note payable to the Corporation. The terms of any such promissory
note (including the interest rate, the requirements for collateral and the terms
of repayment) shall be established by the Plan Administrator in its sole
discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the terms of the Plan. All decisions of the Plan Administrator with
respect to any question or issue arising under the Plan or this Agreement shall
be conclusive and binding on all persons having an interest in this option.
16. GOVERNING LAW. The interpretation, performance and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
17. STOCKHOLDER APPROVAL. If the Option Shares covered by this
Agreement exceed, as of the Grant Date, the number of shares of Common Stock
which may without stockholder approval be issued under the Plan, then this
option shall be void with respect to those excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares of Common
Stock issuable under the Plan is obtained in accordance with the provisions of
the Plan.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. In the event
this option is designated an Incentive Option in the Grant Notice, the following
terms and conditions shall also apply to the grant:
(a) This option shall cease to qualify for favorable tax
treatment as an Incentive Option if (and to the extent) this option is exercised
for one or more Option Shares: (i) more than three (3) months after the date
Optionee ceases to be an Employee for any reason other than death or Permanent
Disability or (ii) more than twelve (12) months after the date Optionee ceases
to be an Employee by reason of Permanent Disability.
(b) No installment under this option shall qualify for favorable
tax treatment as an Incentive Option if (and to the extent) the aggregate Fair
Market Value (determined at the Grant Date) of the Common Stock for which such
installment first becomes exercisable hereunder would, when added to the
aggregate value (determined as of the respective
6
<PAGE> 36
date or dates of grant) of the Common Stock or other securities for which this
option or any other Incentive Options granted to Optionee prior to the Grant
Date (whether under the Plan or any other option plan of the Corporation or any
Parent or Subsidiary) first become exercisable during the same calendar year,
exceed One Hundred Thousand Dollars ($100,000) in the aggregate. Should such One
Hundred Thousand Dollar ($100,000) limitation be exceeded in any calendar year,
this option shall nevertheless become exercisable for the excess shares in such
calendar year as a Non-Statutory Option.
(c) Should the exercisability of this option be accelerated upon
a Corporate Transaction, then this option shall qualify for favorable tax
treatment as an Incentive Option only to the extent the aggregate Fair Market
Value (determined at the Grant Date) of the Common Stock for which this option
first becomes exercisable in the calendar year in which the Corporate
Transaction occurs does not, when added to the aggregate value (determined as of
the respective date or dates of grant) of the Common Stock or other securities
for which this option or one or more other Incentive Options granted to Optionee
prior to the Grant Date (whether under the Plan or any other option plan of the
Corporation or any Parent or Subsidiary) first become exercisable during the
same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the
aggregate. Should the applicable One Hundred Thousand Dollar ($100,000)
limitation be exceeded in the calendar year of such Corporate Transaction, the
option may nevertheless be exercised for the excess shares in such calendar year
as a Non-Statutory Option.
(d) Should Optionee hold, in addition to this option, one or
more other options to purchase Common Stock which become exercisable for the
first time in the same calendar year as this option, then the foregoing
limitations on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
7
<PAGE> 37
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Option Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Advantix, Inc., a Delaware corporation, and
any successor corporation to all or substantially all of the assets or voting
stock of Advantix, Inc. which shall by appropriate action adopt the Plan.
G. DISABILITY shall mean the inability of Optionee to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Plan Administrator on the basis
of such medical evidence as the Plan Administrator deems warranted under the
circumstances. Disability shall be deemed to constitute PERMANENT DISABILITY in
the event that such Disability is expected to result in death or has lasted or
can be expected to last for a continuous period of twelve (12) months or more.
H. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
I. EXERCISE DATE shall mean the date on which the option shall have been
exercised in accordance with Paragraph 9 of the Agreement.
A-1
<PAGE> 38
J. EXERCISE PRICE shall mean the exercise price payable per Option Share
as specified in the Grant Notice.
K. EXPIRATION DATE shall mean the date on which the option expires as
specified in the Grant Notice.
L. FAIR MARKET VALUE per share of Common Stock on any relevant date
shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq
National Market, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question, as the price is
reported by the National Association of Securities Dealers on the Nasdaq
National Market. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for which
such quotation exists.
(iii) If the Common Stock is at the time neither listed on any
Stock Exchange nor traded on the Nasdaq National Market, then the Fair
Market Value shall be determined by the Plan Administrator after taking
into account such factors as the Plan Administrator shall deem
appropriate.
M. GRANT DATE shall mean the date of grant of the option as specified in
the Grant Notice.
N. GRANT NOTICE shall mean the Notice of Grant of Stock Option
accompanying the Agreement, pursuant to which Optionee has been informed of the
basic terms of the option evidenced hereby.
O. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
P. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Corporation (or any
Parent or Subsidiary), or any other intentional misconduct by Optionee adversely
affecting the business or affairs of the Corporation
A-2
<PAGE> 39
(or any Parent or Subsidiary) in a material manner. The foregoing definition
shall not be deemed to be inclusive of all the acts or omissions which the
Corporation (or any Parent or Subsidiary) may consider as grounds for the
dismissal or discharge of Optionee or any other individual in the Service of the
Corporation (or any Parent or Subsidiary).
Q. 1934 ACT shall mean the Securities Exchange Act of 1934, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy the
requirements of Code Section 422.
S. OPTION SHARES shall mean the number of shares of Common Stock subject
to the option as specified in the Grant Notice.
T. OPTIONEE shall mean the person to whom the option is granted as
specified in the Grant Notice.
U. PARENT shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
V. PLAN shall mean the Corporation's 1998 Stock Incentive Plan.
W. PLAN ADMINISTRATOR shall mean either the Board or a committee of the
Board acting in its capacity as administrator of the Plan.
X. PURCHASE AGREEMENT shall mean the stock purchase agreement in
substantially the form of Exhibit B to the Grant Notice.
Y. SERVICE shall mean the Optionee's performance of services for the
Corporation (or any Parent or Subsidiary) in the capacity of an Employee, a
non-employee member of the board of directors or a consultant or an independent
consultant.
Z. STOCK EXCHANGE shall mean the American Stock Exchange or the New York
Stock Exchange.
AA. SUBSIDIARY shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation, provided
each corporation (other than the last corporation) in the unbroken chain owns,
at the time of the determination, stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain.
A-3
<PAGE> 40
ADVANTIX, INC.
STOCK PURCHASE AGREEMENT
AGREEMENT made this ____ day of ___________________ 19___, by and
between Advantix, Inc., a Delaware corporation, and
_____________________________________, Optionee under the Corporation's 1998
Stock Incentive Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. EXERCISE OF OPTION
1. Exercise. Optionee hereby purchases __________________ shares of
Common Stock (the "Purchased Shares") pursuant to that certain option (the
"Option") granted Optionee on __________________ , 199 (the "Grant Date") to
purchase up to _________________ shares of Common Stock (the "Option Shares")
under the Plan at the exercise price of $_____________________ per share (the
"Exercise Price").
2. Payment. Concurrently with the delivery of this Agreement to the
Corporation, Optionee shall pay the Exercise Price for the Purchased Shares in
accordance with the provisions of the Option Agreement and shall deliver
whatever additional documents may be required by the Option Agreement as a
condition for exercise, together with a duly executed blank Assignment Separate
from Certificate (in the form attached hereto as Exhibit I with respect to the
Purchased Shares.
3. Stockholder RIGHTS. Until such time as the Corporation exercises
the Repurchase Right or the First Refusal Right, Optionee (or any successor in
interest) shall have all the rights of a stockholder (including voting, dividend
and liquidation rights) with respect to the Purchased Shares, subject, however,
to the transfer restrictions of Articles B and C.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Optionee in reliance upon
the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Optionee hereby
confirms that Optionee has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Optionee hereby acknowledges that Optionee is prepared to hold the Purchased
Shares for an indefinite period and that Optionee is aware that SEC Rule 144
issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
<PAGE> 41
2. RESTRICTIONS ON DISPOSITION OF PURCHASED SHARES. Optionee shall
make no disposition of the Purchased Shares (other than a Permitted Transfer)
unless and until there is compliance with all of the following requirements:
A. Optionee shall have provided the Corporation with a written
summary of the terms and conditions of the proposed disposition.
B. Optionee shall have complied with all requirements of this
Agreement applicable to the disposition of the Purchased Shares.
C. Optionee shall have provided the Corporation with written
assurances, in form and substance satisfactory to the Corporation, that (a) the
proposed disposition does not require registration of the Purchased Shares under
the 1933 Act or (b) all appropriate action necessary for compliance with the
registration requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its books
any Purchased Shares which have been sold or transferred in violation of the
provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the Purchased
Shares shall be endorsed with one or more of the following restrictive legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold
or offered for sale in the absence of (a) an effective registration
statement for the shares under such Act, (b) a "no action" letter of the
Securities and Exchange Commission with respect to such sale or offer or
(c) satisfactory assurances to the Corporation that registration under
such Act is not required with respect to such sale or offer."
"The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the
Corporation and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with the
terms of a written agreement dated ____________________, 199___ between
the Corporation and the registered holder of the shares (or the
predecessor in interest to the shares). A copy of such agreement is
maintained at the Corporation's principal corporate offices."
2.
<PAGE> 42
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted Transfer,
Optionee shall not transfer, assign, encumber or otherwise dispose of any of the
Purchased Shares which are subject to the Repurchase Right. In addition,
Purchased Shares which are released from the Repurchase Right shall not be
transferred, assigned, encumbered or otherwise disposed of in contravention of
the First Refusal Right or the Market Stand-Off.
2. TRANSFEREE OBLIGATIONS. Each person (other than the Corporation)
to whom the Purchased Shares are transferred by means of a Permitted Transfer
must, as a condition precedent to the validity of such transfer, acknowledge in
writing to the Corporation that such person is bound by the provisions of this
Agreement and that the transferred shares are subject to (i) the Repurchase
Right, (ii) the First Refusal Right and (iii) the Market Stand-Off, to the same
extent such shares would be so subject if retained by Optionee.
3. MARKET STAND-OFF.
(i) In connection with any underwritten public offering by the
Corporation of its equity securities pursuant to an effective
registration statement filed under the 1933 Act, including the
Corporation's initial public offering, Owner shall not sell, make any
short sale of, loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose or transfer for value or otherwise
agree to engage in any of the foregoing transactions with respect to,
any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market
Stand-Off") shall be in effect for such period of time from and after
the effective date of the final prospectus for the offering as may be
requested by the Corporation or such underwriters. In no event, however,
shall such period exceed one hundred eighty (180) days and the Market
Stand-Off shall in all events terminate two (2) years after the
effective date of the Corporation's initial public offering.
(ii) Owner shall be subject to the Market Stand-Off provided and
only if the officers and directors of the Corporation are also subject
to similar restrictions.
(iii) Any new, substituted or additional securities which are by
reason of any Recapitalization or Reorganization distributed with
respect to the Purchased Shares shall be immediately subject to the
Market Stand-Off, to the same extent the Purchased Shares are at such
time covered by such provisions.
(iv) In order to enforce the Market Stand-Off, the Corporation
may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
3.
<PAGE> 43
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Optionee ceases for any reason to remain in Service or (if
later) during the sixty (60)-day period following the execution date of this
Agreement, to repurchase at the Exercise Price any or all of the Purchased
Shares in which Optionee is not, at the time of his or her cessation of Service,
vested in accordance with the Vesting Schedule applicable to those shares or the
special vesting acceleration provisions of Paragraph D.6 of this Agreement (such
shares to be hereinafter referred to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right shall be
exercisable by written notice delivered to each Owner of the Unvested Shares
prior to the expiration of the sixty (60)-day exercise period. The notice shall
indicate the number of Unvested Shares to be repurchased and the date on which
the repurchase is to be effected, such date to be not more than thirty (30) days
after the date of such notice. The certificates representing the Unvested Shares
to be repurchased shall be delivered to the Corporation on or before the close
of business on the date specified for the repurchase. Concurrently with the
receipt of such stock certificates, the Corporation shall pay to Owner, in cash
or cash equivalents (including the cancellation of any purchase-money
indebtedness), an amount equal to the Exercise Price previously paid for the
Unvested Shares which are to be repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right shall
terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Optionee vests in accordance with the Vesting Schedule. All Purchased
Shares as to which the Repurchase Right lapses shall, however, remain subject to
(i) the First Refusal Right and (ii) the Market Stand-Off.
4. AGGREGATE VESTING LIMITATION. If the Option is exercised in more
than one increment so that Optionee is a party to one or more other Stock
Purchase Agreements (the "Prior Purchase Agreements") which are executed prior
to the date of this Agreement, then the total number of Purchased Shares as to
which Optionee shall be deemed to have a fully-vested interest under this
Agreement and all Prior Purchase Agreements shall not exceed in the aggregate
the number of Purchased Shares in which Optionee would otherwise at the time be
vested, in accordance with the Vesting Schedule, had all the Purchased Shares
(including those acquired under the Prior Purchase Agreements) been acquired
exclusively under this Agreement.
5. RECAPITALIZATION. Any new, substituted or additional securities
or other property (including cash paid other than as a regular cash dividend)
which is by reason of any Recapitalization distributed with respect to the
Purchased Shares shall be immediately subject to the Repurchase Right and any
escrow requirements hereunder, but only to the extent the
Purchased Shares are at the time covered by such right or escrow
requirements. Appropriate adjustments to reflect such distribution shall be made
to the number and/or class of Purchased Shares subject to this Agreement and to
the price per share to be paid upon the
4.
<PAGE> 44
exercise of the Repurchase Right in order to reflect the effect of any such
Recapitalization upon the Corporation's capital structure; provided, however,
that the aggregate purchase price shall remain the same.
6. Corporate Transaction.
(a) The Repurchase Right shall automatically terminate in its
entirety, and all the Purchased Shares shall vest in full, immediately prior to
the consummation of any Corporate Transaction, except to the extent the
Repurchase Right is to be assigned to the successor entity in such Corporate
Transaction.
(b) To the extent the Repurchase Right remains in effect
following a Corporate Transaction, such right shall apply to any new securities
or other property (including any cash payments) received in exchange for the
Purchased Shares in consummation of the Corporate Transaction, but only to the
extent the Purchased Shares are at the time covered by such right. Appropriate
adjustments shall be made to the price per share payable upon exercise of the
Repurchase Right to reflect the effect of the Corporate Transaction upon the
Corporation's capital structure; provided, however, that the aggregate purchase
price shall remain the same. The new securities or other property (including any
cash payments) issued or distributed with respect to the Purchased Shares in
consummation of the Corporate Transaction shall be immediately deposited in
escrow with the Corporation (or the successor entity) and shall not be released
from escrow until Optionee vests in such securities or other property in
accordance with the same Vesting Schedule in effect for the Purchased Shares.
(c) The Repurchase Right may also terminate on an accelerated
basis, and the Purchased Shares shall immediately vest in full, in accordance
with the terms and conditions of any special addendum attached to this
Agreement.
E. RIGHT OF FIRST REFUSAL
1. Grant. The Corporation is hereby granted the right of first
refusal (the "First Refusal Right"), exercisable in connection with any proposed
transfer of the Purchased Shares in which Optionee has vested in accordance with
the provisions of Article D. For purposes of this Article E, the term "transfer"
shall include any sale, assignment, pledge, encumbrance or other disposition of
the Purchased Shares intended to be made by Owner, but shall not include any
Permitted Transfer.
2. Notice of Intended Disposition. In the event any Owner of
Purchased Shares in which Optionee has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
5.
<PAGE> 45
3. Exercise of the First Refusal Right. The Corporation shall, for a
period of twenty-five (25) days following receipt of the Disposition Notice,
have the right to repurchase any or all of the Target Shares subject to the
Disposition Notice upon the same terms as those specified therein or upon such
other terms (not materially different from those specified in the Disposition
Notice) to which Owner consents. Such right shall be exercisable by delivery of
written notice (the "Exercise Notice") to Owner prior to the expiration of the
twenty-five (25)-day exercise period. If such right is exercised with respect to
all the Target Shares, then the Corporation shall effect the repurchase of such
shares, including payment of the purchase price, not more than five (5) business
days after delivery of the Exercise Notice; and at such time the certificates
representing the Target Shares shall be delivered to the Corporation.
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. Non-Exercise of the First Refusal Right. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the First Refusal Right, but the acquired shares shall remain subject to the
provisions of Article B and Paragraph C.3. In the event Owner does not effect
such sale or disposition of the Target Shares within the specified thirty
(30)-day period, the First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses.
5. Partial Exercise of the First Refusal Right. In the event the
Corporation makes a timely exercise of the First Refusal Right with respect to a
portion, but not all, of the Target Shares specified in the Disposition Notice,
Owner shall have the option, exercisable by written notice to the Corporation
delivered within five (5) business days after Owner's receipt of the Exercise
Notice, to effect the sale of the Target Shares pursuant to either of the
following alternatives:
6.
<PAGE> 46
(i) sale or other disposition of all the Target Shares to the
third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of Paragraph E.4, as if the Corporation
did not exercise the First Refusal Right; or
(ii) sale to the Corporation of the portion of the Target Shares
which the Corporation has elected to purchase, such sale to be effected
in substantial conformity with the provisions of Paragraph E.3. The
First Refusal Right shall continue to be applicable to any subsequent
disposition of the remaining Target Shares until such right lapses.
Owner's failure to deliver timely notification to the Corporation
shall be deemed to be an election by Owner to sell the Target Shares pursuant to
alternative (i) above.
6. Recapitalization/Reorganization.
(a) Any new, substituted or additional securities or other
property which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the First Refusal Right,
but only to the extent the Purchased Shares are at the time covered by such
right.
(b) In the event of a Reorganization, the First Refusal Right
shall remain in full force and effect and shall apply to the new capital stock
or other property received in exchange for the Purchased Shares in consummation
of the Reorganization, but only to the extent the Purchased Shares are at the
time covered by such right.
7. Lapse. The First Refusal Right shall lapse upon the earliest to
occur of (i) the first date on which shares of the Common Stock are held of
record by more than five hundred (500) persons, (ii) a determination made by the
Board that a public market exists for the outstanding shares of Common Stock or
(iii) a firm commitment underwritten public offering, pursuant to an effective
registration statement under the 1933 Act, covering the offer and sale of the
Common Stock in the aggregate amount of at least ten million dollars
($10,000,000). However, the Market Stand-Off shall continue to remain in full
force and effect following the lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
The acquisition of the Purchased Shares may result in adverse tax
consequences which may be avoided or mitigated by filing an election under Code
Section 83(b). Such election must be filed within thirty (30) days after the
date of this Agreement. A description of the tax consequences applicable to the
acquisition of the Purchased Shares and the form for making the Code Section
83(b) election are set forth in Exhibit II. OPTIONEE SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES OF ACQUIRING THE PURCHASED
SHARES AND THE ADVANTAGES AND DISADVANTAGES OF FILING THE CODE SECTION 83(b)
ELECTION. OPTIONEE ACKNOWLEDGES THAT IT IS OPTIONEE'S SOLE RESPONSIBILITY, AND
NOT THE CORPORATION'S, TO FILE A TIMELY
7.
<PAGE> 47
ELECTION UNDER CODE SECTION 83(b), EVEN IF OPTIONEE REQUESTS THE CORPORATION OR
ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
G. GENERAL PROVISIONS
1. ASSIGNMENT. The Corporation may assign the Repurchase Right
and/or the First Refusal Right to any person or entity selected by the Board,
including (without limitation) one or more shareholders of the Corporation.
2. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this Agreement or
in the Plan shall confer upon Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Parent or Subsidiary employing or
retaining Optionee) or of Optionee, which rights are hereby expressly reserved
by each, to terminate Optionee's Service at any time for any reason, with or
without cause.
3. NOTICES. Any notice required to be given under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the U.S. mail, registered or certified, postage prepaid and properly
addressed to the party entitled to such notice at the address indicated below
such party's signature line on this Agreement or at such other address as such
party may designate by ten (10) days advance written notice under this paragraph
to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance to
exercise the Repurchase Right or the First Refusal Right shall not constitute a
waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Optionee. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make available,
at the time and place and in the amount and form provided in this Agreement, the
consideration for the Purchased Shares to be repurchased in accordance with the
provisions of this Agreement, then from and after such time, the person from
whom such shares are to be repurchased shall no longer have any rights as a
holder of such shares (other than the right to receive payment of such
consideration in accordance with this Agreement). Such shares shall be deemed
purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
6. OPTIONEE UNDERTAKING. Optionee hereby agrees to take whatever
additional action and execute whatever additional documents the Corporation may
deem necessary or advisable in order to carry out or effect one or more of the
obligations or restrictions imposed on either Optionee or the Purchased Shares
pursuant to the provisions of this Agreement.
8.
<PAGE> 48
7. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes the
entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
8. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California without resort to that
State's conflict-of-laws rules.
9. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute one and the same instrument.
10. SUCCESSORS AND ASSIGNS. The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the Corporation and its successors
and assigns and upon Optionee, Optionee's permitted assigns and the legal
representatives, heirs and legatees of Optionee's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first indicated above.
ADVANTIX, INC.
By:
--------------------------------
Title:
-----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
OPTIONEE
Address:
---------------------------
-----------------------------------
9.
<PAGE> 49
SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of Optionee has read and hereby approves the
foregoing Stock Purchase Agreement. In consideration of the Corporation's
granting Optionee the right to acquire the Purchased Shares in accordance with
the terms of such Agreement, the undersigned hereby agrees to be irrevocably
bound by all the terms of such Agreement, including (without limitation) the
right of the Corporation (or its assigns) to purchase any Purchased Shares in
which Optionee is not vested at time of his or her cessation of Service.
-----------------------------------
OPTIONEE'S SPOUSE
Address:
---------------------------
-----------------------------------
<PAGE> 50
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED _________ hereby sell(s), assign(s) and
transfer(s) unto Advantix, Inc. (the "Corporation"),_____________ (___) shares
of the Common Stock of the Corporation standing in his or her name on the books
of the Corporation represented by Certificate No.__________ herewith and do(es)
hereby irrevocably constitute and appoint ___________________ Attorney to
transfer the said stock on the books of the Corporation with full power of
substitution in the premises.
Dated:
--------------------------
Signature
-----------------------
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Optionee.
<PAGE> 51
EXHIBIT II
FEDERAL INCOME TAX CONSEQUENCES AND
SECTION 83(b) TAX ELECTION
I. FEDERAL INCOME TAX CONSEQUENCES AND SECTION 83(B) ELECTION FOR
EXERCISE OF NON-STATUTORY OPTION. If the Purchased Shares are acquired pursuant
to the exercise of a Non-Statutory Option, as specified in the Grant Notice,
then under Code Section 83, the excess of the Fair Market Value of the Purchased
Shares on the date any forfeiture restrictions applicable to such shares lapse
over the Exercise Price paid for such shares will be reportable as ordinary
income on the lapse date. For this purpose, the term "forfeiture restrictions"
includes the right of the Corporation to repurchase the Purchased Shares
pursuant to the Repurchase Right. However, Optionee may elect under Code Section
83(b) to be taxed at the time the Purchased Shares are acquired, rather than
when and as such Purchased Shares cease to be subject to such forfeiture
restrictions. Such election must be filed with the Internal Revenue Service
within thirty (30) days after the date of the Agreement. Even if the Fair Market
Value of the Purchased Shares on the date of the Agreement equals the Exercise
Price paid (and thus no tax is payable), the election must be made to avoid
adverse tax consequences in the future. The form for making this election is
attached as part of this exhibit. FAILURE TO MAKE THIS FILING WITHIN THE
APPLICABLE THIRTY (30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY
INCOME BY OPTIONEE AS THE FORFEITURE RESTRICTIONS LAPSE.
II. FEDERAL INCOME TAX CONSEQUENCES AND CONDITIONAL SECTION 83(b)
ELECTION FOR EXERCISE OF INCENTIVE OPTION. If the Purchased Shares are acquired
pursuant to the exercise of an Incentive Option, as specified in the Grant
Notice, then the following tax principles shall be applicable to the Purchased
Shares:
(a) For regular tax purposes, no taxable income will be
recognized at the time the Option is exercised.
(b) The excess of (a) the Fair Market Value of the Purchased
Shares on the date the Option is exercised or (if later) on the date any
forfeiture restrictions applicable to the Purchased Shares lapse over (b) the
Exercise Price paid for the Purchased Shares will be includible in Optionee's
taxable income for alternative minimum tax purposes.
(c) If Optionee makes a disqualifying disposition of the
Purchased Shares, then Optionee will recognize ordinary income in the year of
such disposition equal in amount to the excess of (a) the Fair Market Value of
the Purchased Shares on the date the Option is exercised or (if later) on the
date any forfeiture restrictions applicable to the Purchased Shares lapse over
(b) the Exercise Price paid for the Purchased Shares. Any additional gain
recognized upon the disqualifying disposition will be either short-term or
long-term capital gain depending upon the period for which the Purchased Shares
are held prior to the disposition.
(d) For purposes of the foregoing, the term "forfeiture
restrictions" will include the right of the Corporation to repurchase the
Purchased Shares pursuant to the
II-1
<PAGE> 52
Repurchase Right. The term "disqualifying disposition" means any sale or other
disposition(1) of the Purchased Shares within two (2) years after the Grant Date
or within one (1) year after the exercise date of the Option.
(e) In the absence of final Treasury Regulations relating to
Incentive Options, it is not certain whether Optionee may, in connection with
the exercise of the Option for any Purchased Shares at the time subject to
forfeiture restrictions, file a protective election under Code Section 83(b)
which would limit (a) Optionee's alternative minimum taxable income upon
exercise and (b) Optionee's ordinary income upon a disqualifying disposition to
the excess of the Fair Market Value of the Purchased Shares on the date the
Option is exercised over the Exercise Price paid for the Purchased Shares.
Accordingly, such election if properly filed will only be allowed to the extent
the final Treasury Regulations permit such a protective election. Page 2 of the
attached form for making the election should be filed with any election made in
connection with the exercise of an Incentive Option.
- -------------
(1) Generally, a disposition of shares purchased under an Incentive
Option includes any transfer of legal title, including a transfer by sale,
exchange or gift, but does not include a transfer to the Optionee's spouse, a
transfer into joint ownership with right of survivorship if Optionee remains one
of the joint owners, a pledge, a transfer by bequest or inheritance or certain
tax free exchanges permitted under the Code.
II-2
<PAGE> 53
SECTION 83(b) ELECTION
This statement is being made under Section 83(b) of the Internal
Revenue Code, pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is shares
of the common stock of Advantix, Inc.
(3) The property was issued on _____________ , 199__ .
(4) The taxable year in which the election is being made is the calendar
year 199__ .
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase price if
for any reason taxpayer's service with the issuer terminates. The issuer's
repurchase right lapses in a series of installments over a -year period ending
on , 200 .
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will never lapse)
is $ per share.
(7) The amount paid for such property is $____________ per share.
(8) A copy of this statement was furnished to Advantix, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on _______________________ , 199__.
- --------------------------------- ------------------------------------
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Purchase Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Optionee must retain two (2) copies of the completed form for filing with his or
her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 54
The property described in the above Section 83(b) election is
comprised of shares of common stock acquired pursuant to the exercise of an
incentive stock option under Section 422 of the Internal Revenue Code (the
"Code"). Accordingly, it is the intent of the Taxpayer to utilize this election
to achieve the following tax results:
1. The purpose of this election is to have the alternative minimum
taxable income attributable to the purchased shares measured by the amount by
which the fair market value of such shares at the time of their transfer to the
Taxpayer exceeds the purchase price paid for the shares. In the absence of this
election, such alternative minimum taxable income would be measured by the
spread between the fair market value of the purchased shares and the purchase
price which exists on the various lapse dates in effect for the forfeiture
restrictions applicable to such shares.
2. Section 421(a)(1) of the Code expressly excludes from income any
excess of the fair market value of the purchased shares over the amount paid for
such shares. Accordingly, this election is also intended to be effective in the
event there is a "disqualifying disposition" of the shares, within the meaning
of Section 421(b) of the Code, which would otherwise render the provisions of
Section 83(a) of the Code applicable at that time. Consequently, the Taxpayer
hereby elects to have the amount of disqualifying disposition income measured by
the excess of the fair market value of the purchased shares on the date of
transfer to the Taxpayer over the amount paid for such shares. Since Section
421(a) presently applies to the shares which are the subject of this Section
83(b) election, no taxable income is actually recognized for regular tax
purposes at this time, and no income taxes are payable, by the Taxpayer as a
result of this election. The foregoing election is to be effective to the full
extent permitted under the Code.
THIS PAGE 2 IS TO BE ATTACHED TO ANY SECTION 83(b) ELECTION FILED IN CONNECTION
WITH THE EXERCISE OF AN INCENTIVE STOCK OPTION UNDER THE FEDERAL TAX LAWS.
<PAGE> 55
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Purchase Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON Stock shall mean shares of the Corporation's common stock.
E. CORPORATE Transaction shall mean either of the following
shareholder-approved transactions:
i) merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different from the
persons holding those securities immediately prior to such transaction, or
ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
F. CORPORATION shall mean Advantix, Inc., a Delaware corporation,
and any successor corporation to all or substantially all of the assets or
voting stock of Advantix, Inc. which shall by appropriate action adopt the Plan.
G. DISPOSITION NOTICE shall have the meaning assigned to such term
in Paragraph E.2.
H. EXERCISE NOTICE shall have the meaning assigned to such term in
Paragraph E.3.
I. EXERCISE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
J. FAIR MARKET VALUE of a share of Common Stock on any relevant
date, prior to the initial public offering of the Common Stock, shall be
determined by the Plan Administrator after taking into account such factors as
it deems appropriate.
K. FIRST REFUSAL RIGHT shall mean the right granted to the
Corporation in accordance with Article E.
L. GRANT DATE shall have the meaning assigned to such term in
Paragraph A.1.
A-1
<PAGE> 56
M. GRANT NOTICE shall mean the Notice of Grant of Stock Option
pursuant to which Optionee has been informed of the basic terms of the Option.
N. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
O. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
P. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
Q. 1933 ACT shall mean the Securities Act of 1933, as amended.
R. NON-STATUTORY OPTION shall mean an option not intended to satisfy
the requirements of Code Section 422.
S. OPTION shall have the meaning assigned to such term in Paragraph
A.1.
T. OPTION Agreement shall mean all agreements and other documents
evidencing the Option.
U. OPTIONEE shall mean the person to whom the Option is granted
under the Plan.
V. OWNER shall mean Optionee and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Optionee.
W. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
X. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Optionee obtains the Corporation's prior
written consent to such transfer, (ii) a transfer of title to the Purchased
Shares effected pursuant to Optionee's will or the laws of intestate succession
following Optionee's death or (iii) a transfer to the Corporation in pledge as
security for any purchase-money indebtedness incurred by Optionee in connection
with the acquisition of the Purchased Shares.
Y. PLAN shall mean the Corporation's 1998 Stock Incentive Plan.
Z. PLAN Administrator shall mean either the Board or a committee of
the Board acting in its capacity as administrator of the Plan.
AA. PRIOR PURCHASE AGREEMENT shall have the meaning assigned to such
term in Paragraph D.4.
A-2
<PAGE> 57
BB. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
CC. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
DD. REORGANIZATION shall mean any of the following transactions:
i) a merger or consolidation in which the Corporation is not the
surviving entity,
ii) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
iii) a reverse merger in which the Corporation is the surviving
entity but in which the Corporation's outstanding voting securities are
transferred in whole or in part to a person or persons different from the
persons holding those securities immediately prior to the merger, or
iv) any transaction effected primarily to change the state in
which the Corporation is incorporated or to create a holding company structure.
EE. REPURCHASE RIGHT shall mean the right granted to the Corporation
in accordance with Article D.
FF. SEC shall mean the Securities and Exchange Commission.
GG. SERVICE shall mean the Optionee's performance of services for
the Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or a consultant.
HH. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
II. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
JJ. VESTING SCHEDULE shall mean the vesting schedule specified in
the Grant Notice pursuant to which the Optionee is to vest in the Option Shares
in a series of installments over his or her period of Service.
A-3
<PAGE> 58
KK. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
A-4
<PAGE> 59
ADVANTIX, INC.
STOCK ISSUANCE AGREEMENT
AGREEMENT made this ____ day of __________ 19___ , by and between
Advantix, Inc., a Delaware corporation, and __________________________________,
a Participant in the Corporation's 1998 Stock Incentive Plan.
All capitalized terms in this Agreement shall have the meaning
assigned to them in this Agreement or in the attached Appendix.
A. PURCHASE OF SHARES
1. PURCHASE. Participant hereby purchases shares of Common
Stock (the "Purchased Shares") pursuant to the provisions of the Stock Issuance
Program at the purchase price of $______ per share (the "Purchase Price").
2. PAYMENT. Concurrently with the delivery of this Agreement
to the Corporation, Participant shall pay the Purchase Price for the Purchased
Shares in cash or check payable to the Corporation and shall deliver a
duly-executed blank Assignment Separate from Certificate (in the form attached
hereto as Exhibit I) with respect to the Purchased Shares.
3. STOCKHOLDER RIGHTS. Until such time as the Corporation
exercises the Repurchase Right or First Refusal Right, Participant (or any
successor in interest) shall have all the rights of a stockholder (including
voting, dividend and liquidation rights) with respect to the Purchased Shares,
subject, however, to the transfer restrictions of Articles B and C.
4. ESCROW. The Corporation shall have the right to hold the
Purchased Shares in escrow until those shares have vested in accordance with the
Vesting Schedule.
B. SECURITIES LAW COMPLIANCE
1. RESTRICTED SECURITIES. The Purchased Shares have not been
registered under the 1933 Act and are being issued to Participant in reliance
upon the exemption from such registration provided by SEC Rule 701 for stock
issuances under compensatory benefit plans such as the Plan. Participant hereby
confirms that Participant has been informed that the Purchased Shares are
restricted securities under the 1933 Act and may not be resold or transferred
unless the Purchased Shares are first registered under the Federal securities
laws or unless an exemption from such registration is available. Accordingly,
Participant hereby acknowledges that Participant is prepared to hold the
Purchased Shares for an indefinite period and that Participant is aware that SEC
Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted
securities is not presently available to exempt the resale of the Purchased
Shares from the registration requirements of the 1933 Act.
2. DISPOSITION OF PURCHASED SHARES. Participant shall make no
disposition of the Purchased Shares (other than a Permitted Transfer) unless and
until there is compliance with all of the following requirements:
<PAGE> 60
(A) Participant shall have provided the Corporation
with a written summary of the terms and conditions of the proposed
disposition.
(B) Participant shall have complied with all
requirements of this Agreement applicable to the disposition of the
Purchased Shares.
(C) Participant shall have provided the Corporation
with written assurances, in form and substance satisfactory to the
Corporation, that (a) the proposed disposition does not require
registration of the Purchased Shares under the 1933 Act or (b) all
appropriate action necessary for compliance with the registration
requirements of the 1933 Act or any exemption from registration
available under the 1933 Act (including Rule 144) has been taken.
The Corporation shall not be required (i) to transfer on its
books any Purchased Shares which have been sold or transferred in violation of
the provisions of this Agreement or (ii) to treat as the owner of the Purchased
Shares, or otherwise to accord voting, dividend or liquidation rights to, any
transferee to whom the Purchased Shares have been transferred in contravention
of this Agreement.
3. RESTRICTIVE LEGENDS. The stock certificates for the
Purchased Shares shall be endorsed with one or more of the following restrictive
legends:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933. The shares may not be sold
or offered for sale in the absence of (a) an effective registration
statement for the shares under such Act, (b) a "no action" letter of the
Securities and Exchange Commission with respect to such sale or offer or
(c) satisfactory assurances to the Corporation that registration under
such Act is not required with respect to such sale or offer."
"The shares represented by this certificate are subject to
certain repurchase rights and rights of first refusal granted to the
Corporation and accordingly may not be sold, assigned, transferred,
encumbered, or in any manner disposed of except in conformity with the
terms of a written agreement dated __________________, 199___ between
the Corporation and the registered holder of the shares (or the
predecessor in interest to the shares). A copy of such agreement is
maintained at the Corporation's principal corporate offices."
C. TRANSFER RESTRICTIONS
1. RESTRICTION ON TRANSFER. Except for any Permitted
Transfer, Participant shall not transfer, assign, encumber or otherwise dispose
of any of the Purchased Shares which are subject to the Repurchase Right. In
addition, Purchased Shares which are released from the Repurchase Right shall
not be transferred, assigned, encumbered or otherwise disposed of in
contravention of the First Refusal Right or the Market Stand-Off.
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<PAGE> 61
2. TRANSFEREE OBLIGATIONS. Each person (other than the
Corporation) to whom the Purchased Shares are transferred by means of a
Permitted Transfer must, as a condition precedent to the validity of such
transfer, acknowledge in writing to the Corporation that such person is bound by
the provisions of this Agreement and that the transferred shares are subject to
(i) the Repurchase Right, (ii) the First Refusal Right and (iii) the Market
Stand-Off, to the same extent such shares would be so subject if retained by
Participant.
3. MARKET STAND-OFF.
(i) In connection with any underwritten public offering
by the Corporation of its equity securities pursuant to an effective
registration statement filed under the 1933 Act, including the
Corporation's initial public offering, Owner shall not sell, make any
short sale of, loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose or transfer for value or otherwise
agree to engage in any of the foregoing transactions with respect to,
any Purchased Shares without the prior written consent of the
Corporation or its underwriters. Such restriction (the "Market
Stand-Off") shall be in effect for such period of time from and after
the effective date of the final prospectus for the offering as may be
requested by the Corporation or such underwriters. In no event, however,
shall such period exceed one hundred eighty (180) days and the Market
Stand-Off shall in all events terminate two (2) years after the
effective date of the Corporation's initial public offering.
(ii) Owner shall be subject to the Market Stand-Off
provided and only if the officers and directors of the Corporation are
also subject to similar restrictions.
(iii) Any new, substituted or additional securities which
are by reason of any Recapitalization or Reorganization distributed with
respect to the Purchased Shares shall be immediately subject to the
Market Stand-Off, to the same extent the Purchased Shares are at such
time covered by such provisions.
(iv) In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the
Purchased Shares until the end of the applicable stand-off period.
D. REPURCHASE RIGHT
1. GRANT. The Corporation is hereby granted the right (the
"Repurchase Right"), exercisable at any time during the sixty (60)-day period
following the date Participant ceases for any reason to remain in Service, to
repurchase at the Purchase Price any or all of the Purchased Shares in which
Participant is not, at the time of his or her cessation of Service, vested in
accordance with the Vesting Schedule set forth in Paragraph D.3 or the special
vesting acceleration provisions of Paragraph D.5 of this Agreement (such shares
to be hereinafter referred to as the "Unvested Shares").
2. EXERCISE OF THE REPURCHASE RIGHT. The Repurchase Right
shall be exercisable by written notice delivered to each Owner of the Unvested
Shares prior to the expiration of the sixty (60)-day exercise period. The notice
shall indicate the number of
3
<PAGE> 62
Unvested Shares to be repurchased and the date on which the repurchase is to be
effected, such date to be not more than thirty (30) days after the date of such
notice. The certificates representing the Unvested Shares to be repurchased
shall be delivered to the Corporation on or before the close of business on the
date specified for the repurchase. Concurrently with the receipt of such stock
certificates, the Corporation shall pay to Owner, in cash or cash equivalents
(including the cancellation of any purchase-money indebtedness), an amount equal
to the Purchase Price previously paid for the Unvested Shares which are to be
repurchased from Owner.
3. TERMINATION OF THE REPURCHASE RIGHT. The Repurchase Right
shall terminate with respect to any Unvested Shares for which it is not timely
exercised under Paragraph D.2. In addition, the Repurchase Right shall terminate
and cease to be exercisable with respect to any and all Purchased Shares in
which Participant vests in accordance with the following Vesting Schedule:
Participant shall vest in twenty-five percent (25%) of the
Purchased Shares, and the Repurchase Right shall concurrently lapse with
respect to those Purchased Shares, upon Participant's completion of one
(1) year of Service measured from , 199 .
Participant shall vest in the remaining seventy-five
percent (75%) of the Purchased Shares, and the Repurchase Right shall
concurrently lapse with respect to those Purchased Shares, in a series
of thirty-six (36) successive equal monthly installments upon
Participant's completion of each additional month of Service over the
thirty-six (36)-month period measured from the date on which the first
twenty-five percent (25%) of the Purchased Shares vests hereunder.
All Purchased Shares as to which the Repurchase Right lapses
shall, however, remain subject to (i) the First Refusal Right and (ii) the
Market Stand-Off.
4. RECAPITALIZATION. Any new, substituted or additional
securities or other property (including cash paid other than as a regular cash
dividend) which is by reason of any Recapitalization distributed with respect to
the Purchased Shares shall be immediately subject to the Repurchase Right and
any escrow requirements hereunder, but only to the extent the Purchased Shares
are at the time covered by such right or escrow requirements. Appropriate
adjustments to reflect such distribution shall be made to the number and/or
class of Purchased Shares subject to this Agreement and to the price per share
to be paid upon the exercise of the Repurchase Right in order to reflect the
effect of any such Recapitalization upon the Corporation's capital structure;
provided, however, that the aggregate purchase price shall remain the same.
5. CORPORATE TRANSACTION.
(a) Immediately prior to the consummation of any
Corporate Transaction, the Repurchase Right shall automatically lapse in its
entirety and the Purchased Shares shall vest in full, except to the extent the
Repurchase Right is to be assigned to the successor corporation (or parent
thereof) in connection with the Corporate Transaction.
4
<PAGE> 63
(b) To the extent the Repurchase Right remains in
effect following a Corporate Transaction, such right shall apply to the new
capital stock or other property (including any cash payments) received in
exchange for the Purchased Shares in consummation of the Corporate Transaction,
but only to the extent the Purchased Shares are at the time covered by such
right. Appropriate adjustments shall be made to the price per share payable upon
exercise of the Repurchase Right to reflect the effect of the Corporate
Transaction upon the Corporation's capital structure; provided, however, that
the aggregate purchase price shall remain the same. The new securities or other
property (including cash payments) issued or distributed with respect to the
Purchased Shares in consummation of the Corporate Transaction shall immediately
be deposited in escrow with the Corporation (or the successor entity) and shall
not be released from escrow until Participant vests in such securities or other
property in accordance with the same Vesting Schedule in effect for the
Purchased Shares.
(c) The Repurchase Right may also be subject to
termination in whole or in part on an accelerated basis, and the Purchased
Shares subject to immediate vesting, in accordance with the terms of any special
Addendum attached to this Agreement.
E. RIGHT OF FIRST REFUSAL
1. GRANT. The Corporation is hereby granted the right of
first refusal (the "First Refusal Right"), exercisable in connection with any
proposed transfer of the Purchased Shares in which Participant has vested in
accordance with the provisions of Article D. For purposes of this Article E, the
term "transfer" shall include any sale, assignment, pledge, encumbrance or other
disposition of the Purchased Shares intended to be made by Owner, but shall not
include any Permitted Transfer.
2. NOTICE OF INTENDED DISPOSITION. In the event any Owner of
Purchased Shares in which Participant has vested desires to accept a bona fide
third-party offer for the transfer of any or all of such shares (the Purchased
Shares subject to such offer to be hereinafter referred to as the "Target
Shares"), Owner shall promptly (i) deliver to the Corporation written notice
(the "Disposition Notice") of the terms of the offer, including the purchase
price and the identity of the third-party offeror, and (ii) provide satisfactory
proof that the disposition of the Target Shares to such third-party offeror
would not be in contravention of the provisions set forth in Articles B and C.
3. EXERCISE OF THE FIRST REFUSAL RIGHT. The Corporation
shall, for a period of twenty-five (25) days following receipt of the
Disposition Notice, have the right to repurchase any or all of the Target Shares
subject to the Disposition Notice upon the same terms as those specified therein
or upon such other terms (not materially different from those specified in the
Disposition Notice) to which Owner consents. Such right shall be exercisable by
delivery of written notice (the "Exercise Notice") to Owner prior to the
expiration of the twenty-five (25)-day exercise period. If such right is
exercised with respect to all the Target Shares, then the Corporation shall
effect the repurchase of such shares, including payment of the purchase price,
not more than five (5) business days after delivery of the Exercise Notice; and
at such time the certificates representing the Target Shares shall be delivered
to the Corporation.
5
<PAGE> 64
Should the purchase price specified in the Disposition Notice be
payable in property other than cash or evidences of indebtedness, the
Corporation shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If Owner and the Corporation
cannot agree on such cash value within ten (10) days after the Corporation's
receipt of the Disposition Notice, the valuation shall be made by an appraiser
of recognized standing selected by Owner and the Corporation or, if they cannot
agree on an appraiser within twenty (20) days after the Corporation's receipt of
the Disposition Notice, each shall select an appraiser of recognized standing
and the two (2) appraisers shall designate a third appraiser of recognized
standing, whose appraisal shall be determinative of such value. The cost of such
appraisal shall be shared equally by Owner and the Corporation. The closing
shall then be held on the later of (i) the fifth (5th) business day following
delivery of the Exercise Notice or (ii) the fifth (5th) business day after such
valuation shall have been made.
4. NON-EXERCISE OF THE FIRST REFUSAL RIGHT. In the event the
Exercise Notice is not given to Owner prior to the expiration of the twenty-five
(25)-day exercise period, Owner shall have a period of thirty (30) days
thereafter in which to sell or otherwise dispose of the Target Shares to the
third-party offeror identified in the Disposition Notice upon terms (including
the purchase price) no more favorable to such third-party offeror than those
specified in the Disposition Notice; provided, however, that any such sale or
disposition must not be effected in contravention of the provisions of Articles
B and C. The third-party offeror shall acquire the Target Shares free and clear
of the First Refusal Right, but the acquired shares shall remain subject to the
provisions of Article B and Paragraph C.3. In the event Owner does not effect
such sale or disposition of the Target Shares within the specified thirty
(30)-day period, the First Refusal Right shall continue to be applicable to any
subsequent disposition of the Target Shares by Owner until such right lapses.
5. PARTIAL EXERCISE OF THE FIRST REFUSAL RIGHT. In the event
the Corporation makes a timely exercise of the First Refusal Right with respect
to a portion, but not all, of the Target Shares specified in the Disposition
Notice, Owner shall have the option, exercisable by written notice to the
Corporation delivered within five (5) business days after Owner's receipt of the
Exercise Notice, to effect the sale of the Target Shares pursuant to either of
the following alternatives:
(A) sale or other disposition of all the Target Shares
to the third-party offeror identified in the Disposition Notice, but in full
compliance with the requirements of Paragraph E.4, as if the Corporation did not
exercise the First Refusal Right; or
(B) sale to the Corporation of the portion of the
Target Shares which the Corporation has elected to purchase, such sale to be
effected in substantial conformity with the provisions of Paragraph E.3. The
First Refusal Right shall continue to be applicable to any subsequent
disposition of the remaining Target Shares until such right lapses.
Owner's failure to deliver timely notification to the
Corporation shall be deemed to be an election by Owner to sell the Target Shares
pursuant to alternative (i) above.
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<PAGE> 65
6. RECAPITALIZATION/REORGANIZATION.
(i) Any new, substituted or additional securities or
other property which is by reason of any Recapitalization distributed
with respect to the Purchased Shares shall be immediately subject to the
First Refusal Right, but only to the extent the Purchased Shares are at
the time covered by such right.
(ii) In the event of a Reorganization, the First Refusal
Right shall remain in full force and effect and shall apply to the new
capital stock or other property received in exchange for the Purchased
Shares in consummation of the Reorganization, but only to the extent the
Purchased Shares are at the time covered by such right.
7. LAPSE. The First Refusal Right shall lapse upon the
earliest to occur of (i) the first date on which shares of the Common Stock are
held of record by more than five hundred (500) persons, (ii) a determination
made by the Board that a public market exists for the outstanding shares of
Common Stock or (iii) a firm commitment underwritten public offering, pursuant
to an effective registration statement under the 1933 Act, covering the offer
and sale of the Common Stock in the aggregate amount of at least ten million
dollars ($10,000,000). However, the Market Stand-Off shall continue to remain in
full force and effect following the lapse of the First Refusal Right.
F. SPECIAL TAX ELECTION
1. SECTION 83(b) ELECTION. Under Code Section 83, the excess
of the Fair Market Value of the Purchased Shares on the date any forfeiture
restrictions applicable to such shares lapse over the Purchase Price paid for
such shares will be reportable as ordinary income on the lapse date. For this
purpose, the term "forfeiture restrictions" includes the right of the
Corporation to repurchase the Purchased Shares pursuant to the Repurchase Right.
Participant may elect under Code Section 83(b) to be taxed at the time the
Purchased Shares are acquired, rather than when and as such Purchased Shares
cease to be subject to such forfeiture restrictions. Such election must be filed
with the Internal Revenue Service within thirty (30) days after the date of this
Agreement. Even if the Fair Market Value of the Purchased Shares on the date of
this Agreement equals the Purchase Price paid (and thus no tax is payable), the
election must be made to avoid adverse tax consequences in the future. THE FORM
FOR MAKING THIS ELECTION IS ATTACHED AS EXHIBIT II HERETO. PARTICIPANT
UNDERSTANDS THAT FAILURE TO MAKE THIS FILING WITHIN THE APPLICABLE THIRTY
(30)-DAY PERIOD WILL RESULT IN THE RECOGNITION OF ORDINARY INCOME AS THE
FORFEITURE RESTRICTIONS LAPSE.
2. FILING RESPONSIBILITY. PARTICIPANT ACKNOWLEDGES THAT IT IS
PARTICIPANT'S SOLE RESPONSIBILITY, AND NOT THE CORPORATION'S, TO FILE A TIMELY
ELECTION UNDER CODE SECTION 83(b), EVEN IF PARTICIPANT REQUESTS THE CORPORATION
OR ITS REPRESENTATIVES TO MAKE THIS FILING ON HIS OR HER BEHALF.
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<PAGE> 66
G. GENERAL PROVISIONS
1. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in this
Agreement or in the Plan shall confer upon Participant any right to continue in
Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining Participant) or of Participant, which rights are hereby
expressly reserved by each, to terminate Participant's Service at any time for
any reason, with or without cause.
2. ASSIGNMENT. The Corporation may assign the Repurchase
Right and/or the First Refusal Right to any person or entity selected by the
Board, including (without limitation) one or more stockholders of the
Corporation.
3. NOTICES. Any notice required to be given under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the U.S. mail, registered or certified, postage
prepaid and properly addressed to the party entitled to such notice at the
address indicated below such party's signature line on this Agreement or at such
other address as such party may designate by ten (10) days advance written
notice under this paragraph to all other parties to this Agreement.
4. NO WAIVER. The failure of the Corporation in any instance
to exercise the Repurchase Right or the First Refusal Right shall not constitute
a waiver of any other repurchase rights and/or rights of first refusal that may
subsequently arise under the provisions of this Agreement or any other agreement
between the Corporation and Participant. No waiver of any breach or condition of
this Agreement shall be deemed to be a waiver of any other or subsequent breach
or condition, whether of like or different nature.
5. CANCELLATION OF SHARES. If the Corporation shall make
available, at the time and place and in the amount and form provided in this
Agreement, the consideration for the Purchased Shares to be repurchased in
accordance with the provisions of this Agreement, then from and after such time,
the person from whom such shares are to be repurchased shall no longer have any
rights as a holder of such shares (other than the right to receive payment of
such consideration in accordance with this Agreement). Such shares shall be
deemed purchased in accordance with the applicable provisions hereof, and the
Corporation shall be deemed the owner and holder of such shares, whether or not
the certificates therefor have been delivered as required by this Agreement.
6. PARTICIPANT UNDERTAKING. Participant hereby agrees to take
whatever additional action and execute whatever additional documents the
Corporation may deem necessary or advisable in order to carry out or effect one
or more of the obligations or restrictions imposed on either Participant or the
Purchased Shares pursuant to the provisions of this Agreement.
7. AGREEMENT IS ENTIRE CONTRACT. This Agreement constitutes
the entire contract between the parties hereto with regard to the subject matter
hereof. This Agreement is made pursuant to the provisions of the Plan and shall
in all respects be construed in conformity with the terms of the Plan.
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8. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California without resort
to that State's conflict-of-laws rules.
9. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10. SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall inure to the benefit of, and be binding upon, the Corporation and its
successors and assigns and upon Participant, Participant's assigns and the legal
representatives, heirs and legatees of Participant's estate, whether or not any
such person shall have become a party to this Agreement and have agreed in
writing to join herein and be bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the day and year first indicated above.
ADVANTIX, INC.
By: ____________________________________
Title: _________________________________
Address: _______________________________
________________________________________
PARTICIPANT
Address: _______________________________
________________________________________
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SPOUSAL ACKNOWLEDGMENT
The undersigned spouse of the Participant has read and hereby approves
the foregoing Stock Issuance Agreement. In consideration of the Corporation's
granting the Participant the right to acquire the Purchased Shares in accordance
with the terms of such Agreement, the undersigned hereby agrees to be
irrevocably bound by all the terms of such Agreement, including (without
limitation) the right of the Corporation (or its assigns) to purchase any
Purchased Shares in which the Participant is not vested at the time of his or
her termination of Service.
________________________________________
PARTICIPANT'S SPOUSE
Address: _______________________________
_______________________________
<PAGE> 69
EXHIBIT I
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED hereby sell(s), assign(s) and transfer(s) unto
Advantix, Inc. (the "Corporation"), ( ) shares of the Common Stock of the
Corporation standing in his or her name on the books of the Corporation
represented by Certificate No. herewith and do(es) hereby irrevocably constitute
and appoint Attorney to transfer the said stock on the books of the Corporation
with full power of substitution in the premises.
Dated: ________________, 199___.
Signature ______________________________
INSTRUCTION: Please do not fill in any blanks other than the signature line.
Please sign exactly as you would like your name to appear on the issued stock
certificate. The purpose of this assignment is to enable the Corporation to
exercise the Repurchase Right without requiring additional signatures on the
part of Participant.
<PAGE> 70
EXHIBIT II
SECTION 83(b) TAX ELECTION
This statement is being made under Section 83(b) of the Internal Revenue Code,
pursuant to Treas. Reg. Section 1.83-2.
(1) The taxpayer who performed the services is:
Name:
Address:
Taxpayer Ident. No.:
(2) The property with respect to which the election is being made is
__________ shares of the common stock of Advantix, Inc.
(3) The property was issued on _____________, 199___.
(4) The taxable year in which the election is being made is the calendar
year 199__.
(5) The property is subject to a repurchase right pursuant to which the
issuer has the right to acquire the property at the original purchase
price if for any reason taxpayer's service with the issuer terminates.
The issuer's repurchase right lapses in a series of annual and monthly
installments over a four (4)-year period ending on __________.
(6) The fair market value at the time of transfer (determined without regard
to any restriction other than a restriction which by its terms will
never lapse) is $________ per share.
(7) The amount paid for such property is $ ________ per share.
(8) A copy of this statement was furnished to Advantix, Inc. for whom
taxpayer rendered the services underlying the transfer of property.
(9) This statement is executed on ________________________, 199__.
_____________________________________ ___________________________________
Spouse (if any) Taxpayer
This election must be filed with the Internal Revenue Service Center with which
taxpayer files his or her Federal income tax returns and must be made within
thirty (30) days after the execution date of the Stock Issuance Agreement. This
filing should be made by registered or certified mail, return receipt requested.
Participant must retain two (2) copies of the completed form for filing with his
or her Federal and state tax returns for the current tax year and an additional
copy for his or her records.
<PAGE> 71
EXHIBIT III
1998 STOCK INCENTIVE PLAN
<PAGE> 72
APPENDIX
The following definitions shall be in effect under the Agreement:
A. AGREEMENT shall mean this Stock Issuance Agreement.
B. BOARD shall mean the Corporation's Board of Directors.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean shares of the Corporation's common stock.
CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
E. CORPORATION shall mean Advantix, Inc., a Delaware corporation,
and any successor corporation to all or substantially all of the assets or
voting stock of Advantix, Inc. which shall by appropriate action adopt the Plan.
F. DISPOSITION NOTICE shall have the meaning assigned to such term
in Paragraph E.2.
G. EXERCISE NOTICE shall have the meaning assigned to such term in
Paragraph E.3.
H. FAIR MARKET VALUE of a share of Common Stock on any relevant
date, prior to the initial public offering of the Common Stock, shall be
determined by the Plan Administrator after taking into account such factors as
it deems appropriate.
I. FIRST REFUSAL RIGHT shall mean the right granted to the
Corporation in accordance with Article E.
J. MARKET STAND-OFF shall mean the market stand-off restriction
specified in Paragraph C.3.
K. 1933 ACT shall mean the Securities Act of 1933, as amended.
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L. OWNER shall mean Participant and all subsequent holders of the
Purchased Shares who derive their chain of ownership through a Permitted
Transfer from Participant.
M. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
N. PARTICIPANT shall mean the person to whom the Purchased Shares
are issued under the Stock Issuance Program.
O. PERMITTED TRANSFER shall mean (i) a gratuitous transfer of the
Purchased Shares, provided and only if Participant obtains the Corporation's
prior written consent to such transfer, (ii) a transfer of title to the
Purchased Shares effected pursuant to Participant's will or the laws of
intestate succession following Participant's death or (iii) a transfer to the
Corporation in pledge as security for any purchase-money indebtedness incurred
by Participant in connection with the acquisition of the Purchased Shares.
P. PLAN shall mean the Corporation's 1998 Stock Incentive Plan
attached hereto as Exhibit III.
Q. PLAN ADMINISTRATOR shall mean either the Board or a committee of
the Board acting in its capacity as administrator of the Plan.
R. PURCHASE PRICE shall have the meaning assigned to such term in
Paragraph A.1.
S. PURCHASED SHARES shall have the meaning assigned to such term in
Paragraph A.1.
T. RECAPITALIZATION shall mean any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the Corporation's outstanding Common Stock as a class without the
Corporation's receipt of consideration.
U. REORGANIZATION shall mean any of the following transactions:
(A) a merger or consolidation in which the Corporation
is not the surviving entity,
(B) a sale, transfer or other disposition of all or
substantially all of the Corporation's assets,
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(C) a reverse merger in which the Corporation is the
surviving entity but in which the Corporation's outstanding voting
securities are transferred in whole or in part to a person or persons
different from the persons holding those securities immediately prior to
the merger, or
(D) any transaction effected primarily to change the
state in which the Corporation is incorporated or to create a holding
company structure.
V. REPURCHASE RIGHT shall mean the right granted to the Corporation
in accordance with Article D.
W. SEC shall mean the Securities and Exchange Commission.
X. SERVICE shall mean the Participant's performance of services for
the Corporation (or any Parent or Subsidiary) in the capacity of an employee,
subject to the control and direction of the employer entity as to both the work
to be performed and the manner and method of performance, a non-employee member
of the board of directors or a consultant.
Y. STOCK ISSUANCE PROGRAM shall mean the Stock Issuance Program
under the Plan.
Z. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
AA. TARGET SHARES shall have the meaning assigned to such term in
Paragraph E.2.
BB. VESTING SCHEDULE shall mean the vesting schedule specified in
Paragraph D.3 pursuant to which Participant is to vest in the Purchased Shares
in a series of installments over the Participant's period of Service, subject to
the special vesting acceleration provisions of Paragraph D.5.
CC. UNVESTED SHARES shall have the meaning assigned to such term in
Paragraph D.1.
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<PAGE> 1
EXHIBIT 10.6
AMENDED AND RESTATED
ADVANTIX, INC.
1997 NONEMPLOYEE DIRECTORS'
STOCK OPTION PLAN
(AS AMENDED MAY 14, 1999)
Advantix, Inc., a corporation organized under the laws of the State
of Delaware (the "Company"), hereby adopts this Advantix, Inc. 1997 Nonemployee
Directors' Stock Option Plan (the "Plan"). The purpose of this Plan is to
advance the interests of the Company by enhancing its ability to retain
qualified persons who are neither employees nor officers of the Company to serve
as members of the Company's Board of Directors. This Plan provides such persons
with the opportunity to become owners of capital stock of the Company by the
grant of Options to purchase Shares. Options granted hereunder shall be
"nonstatutory options," and shall not include "incentive stock options" intended
to qualify for treatment under Sections 421 and 422A of the Internal Revenue
Code of 1986, as amended.
Section 1. Definitions. As used herein, the following definitions
shall apply:
(a) "Administrator" shall mean the entity, whether the Board or
the Committee, responsible for administering this Plan, as provided in Section
2.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(d) "Committee" shall mean the committee, if any, appointed by
the Board in accordance with Section 3(c) to administer this Plan.
(e) "Company" shall mean Advantix, Inc., a Delaware corporation.
(f) "Common Stock" shall mean the Company's $.0001 par value
Common Stock.
(g) "Expiration Date" shall mean the last day of the term of an
Option established under Section 5(b).
(h) "Fair Market Value" shall mean, as of the date in question:
(i) the closing price of a Share on the principal exchange on which Shares of
the Company's stock are then trading, if any, on the day previous to such date,
or, if shares were not traded on the day previous to
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<PAGE> 2
such date, then on the next preceding trading day during which a sale occurred;
or (ii) if such stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, (1) the last sales price (if the stock is then
listed as a National Market Issue under the NASD National Market System) or (2)
the mean between the closing representative bid and asked prices (in all other
cases) for the stock on the day previous to such date as reported by NASDAQ or
such successor quotation system; or (iii) if such stock is not publicly traded
on an exchange and not quoted on NASDAQ or a successor quotation system, the
mean between the closing bid and asked prices for the stock, on the day previous
to such date, as determined in good faith by the Committee; or (iv) if the
Company's stock is not publicly traded, the fair market value established by the
Committee acting in good faith. Such determination shall be conclusive and
binding on all persons.
(i) "Nonemployee Director" shall mean any person who is a member
of the Board but is not an employee or officer of the Company or any Parent or
Subsidiary of the Company. Service as a director does not in itself constitute
employment for purposes of this definition.
(j) "Option" shall mean a stock option granted pursuant to this
Plan. Each Option shall be a nonstatutory option not intended to qualify as an
incentive stock option within the meaning of Section 422A of the Code.
(k) "Option Agreement" shall mean the written agreement described
in Section 5 evidencing the grant of an Option to a Nonemployee Director and
containing the terms, conditions and restrictions pertaining to such Option.
(l) "Option Shares" shall mean the Shares subject to an Option
granted under this Plan.
(m) "Optionee" shall mean a Nonemployee Director who holds an
Option.
(n) "Plan" shall mean this Advantix, Inc. 1997 Nonemployee
Directors' Stock Option Plan, as it may be amended from time to time.
(o) "Section," unless the context clearly indicates otherwise,
shall refer to a Section of this Plan.
(p) "Share" shall mean a share of Common Stock, as adjusted in
accordance with Section 7.
(q) "Subsidiary" shall mean a "subsidiary corporation" of the
Company, whether now or hereafter existing, within the meaning of Section 425(f)
of the Code, but only for so long as it is a "subsidiary corporation."
Section 2. Administration.
(a) The Board shall administer this Plan, including implementing
and overseeing (i) all necessary actions in connection with the delivery of
Option Agreements evidencing
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Option grants under this Plan, (ii) the exercise or termination of Options
pursuant to the terms of this Plan, and (iii) the interpretation of the
provisions of this Plan and any Option granted under this Plan. The Board shall
adopt by resolution such rules and regulations as may be required to carry out
the purposes of this Plan and shall have authority to do everything necessary or
appropriate to administer this Plan. All decisions, determinations and
interpretations of the Board shall be final and binding on all Optionees.
(b) The Board may delegate administration of the Plan to a
Committee of no less than two directors appointed by the Board. The Board may
from time to time remove members from, or add members to, the Committee, and
vacancies on the Committee shall be filled by the Board. Furthermore, the Board
at any time by resolution may abolish the Committee and revest in the Board the
administration of this Plan. (For purposes of this Plan document, the term
"Administrator" shall mean the Board or, to the extent that the Board's powers
have been delegated to the Committee, the Committee.)
(c) All decisions, interpretations and other actions of the
Administrator shall be final and binding on all persons. No member of the
Committee or Board shall be liable for any action that he or she has taken or
failed to take in good faith with respect to this Plan or any Option.
Section 3. Eligibility and Consideration. Only Nonemployee Directors
may receive Options under this Plan.
Section 4. Shares Subject to Plan.
(a) Aggregate Number. Subject to Section 7 (relating to
adjustments upon changes in Shares), the Shares which may be issued upon
exercise of Options shall not exceed in the aggregate 225,000 Shares. Shares
issued under this Plan may be unissued Shares or reacquired Shares. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
(b) No Rights as a Stockholder. An Optionee shall have no rights
as a stockholder with respect to any Shares covered by his or her Option until
the issuance (as evidenced by the appropriate entry on the books of the Company
or its duly authorized transfer agent) of a stock certificate evidencing such
Shares. Subject to Section 7, no adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions, or other rights for which the record date is prior to the date
the certificate is issued.
Section 5. Grant of Options.
(a) Option Grants. Each Nonemployee Director on the date the Plan
is approved by the Board of Directors of the Company shall be automatically
granted on such date, an Option to purchase 25,000 shares at an exercise price
per share equal to the Fair Market Value of the Shares as of such date of
approval.
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(b) Terms; Vesting. Subject to the other provisions of this Plan,
each Option granted pursuant to this Plan shall be for a term of ten years. Each
Option granted under this Section 5 shall become exercisable immediately.
(c) Option Agreement. As soon as practicable after the grant of
an Option, the Optionee and the Company shall enter into a written Option
Agreement which specifies the date of grant, the number of Option Shares, the
option price, and the other terms and conditions applicable to the Option.
(d) Transferability. No Option shall be transferable otherwise
than by will or the laws of descent and distribution, and an Option shall be
exercisable during the Optionee's lifetime only by the Optionee.
(e) Limits on Exercise. Subject to the other provisions of this
Plan, an Option shall be exercisable in such amounts as are specified in the
Option Agreement.
(f) Exercise Procedures. To the extent the right to purchase
Shares has accrued, Options may be exercised, in whole or in part, from time to
time, by written notice from the Optionee to the Company stating the number of
Shares being purchased, accompanied by payment of the exercise price for the
Shares, and other applicable amounts, as provided in Section 6.
(g) Expiration of Options. No Option may be exercised to any
extent by anyone after the first to occur of the following events:
(i) The expiration of ten years from the date the Option
was granted; or
(ii) The expiration of five years from the date of the
termination of service by Optionee as a director of the Company.
Section 6. Payment upon Exercise of Options.
(a) Purchase Price. The purchase price of Shares issued under
this Plan shall be paid in full at the time an Option is exercised.
(b) Form of Consideration. Optionees may make all or any portion
of any payment due to the Company upon exercise of an Option by delivery of cash
or any Shares or other securities of the Company, so long as such Shares or
other securities constitute valid consideration for the stock under applicable
law and are surrendered in good form for transfer; provided, however, that
Options may not be exercised by the delivery of Shares or other securities of
the Company if they have not been held for the requisite period necessary to
avoid a charge to the Company's earnings for financial reporting purposes.
Shares or other securities delivered upon exercise shall be valued at their Fair
Market Value on the delivery date.
(c) Taxes. Irrespective of the form of payment made for exercise
of an Option, exercise shall be conditioned upon payment in cash to the Company
by the Optionee of all
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<PAGE> 5
local, state and federal withholding taxes applicable, in the Administrator's
judgment, to the exercise of the Option.
Section 7. Adjustment of Shares.
(a) Changes in Capital Structure. Subject to Section 7(b), if the
outstanding Shares are changed into or exchanged for a different number or kind
of shares or other securities of the Company or of another corporation, by
reason of a reorganization, merger, consolidation, recapitalization,
reclassification, stock split, combination of securities or stock dividend, the
total number and/or kind of securities for the purchase of which Options may be
granted under this Plan, and the number and/or kind of securities as to which
Options (or portions thereof) are outstanding, shall be adjusted proportionately
by the Administrator. Any adjustment in an outstanding Option shall be made
without change in the total exercise price applicable to the unexercised portion
of such Option and with a corresponding adjustment in the exercise price per
Share. Any adjustment under this Section 7(a) shall be subject to the provisions
of the Company's Certificate of Incorporation, as amended, and applicable law.
Any such adjustment shall be final and binding upon all Optionees, the Company
and all other interested persons.
(b) Reorganization and Other Transactions. In its absolute
discretion, and on such terms and conditions as it deems appropriate, the
Administrator may provide by the terms of any Option that such Option cannot be
exercised after the merger or consolidation of the Company with or into another
corporation, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80% or more of the Company's then
outstanding voting stock or the liquidation or dissolution of the Company; and
if the Administrator so provides, it may, in its absolute discretion and on such
terms and conditions as it deems appropriate, also provide, either by the terms
of such Option or by a resolution adopted prior to the occurrence of such
merger, consolidation, acquisition, liquidation or dissolution, that, for some
period of time prior to such event, such Option shall be exercisable as to all
shares covered thereby, notwithstanding anything to the contrary in Section 5.
Section 8. No Right to Directorship. Neither, this Plan nor any
Option granted hereunder shall confer upon any Optionee any right with respect
to continuation of the Optionee's membership on the Board or shall interfere in
any way with provisions in the Company's Certificate of Incorporation and Bylaws
relating to the election, appointment, terms of office, and removal of members
of the Board.
Section 9. Legal Requirements. The Company shall not be obligated to
offer or sell any Shares upon exercise of any Option unless the Shares are at
that time effectively registered or exempt from registration under the federal
securities laws and the offer and sale of the Shares are otherwise in compliance
with all applicable securities laws and the regulations of any stock exchange on
which the Company's securities may then be listed. The Company shall have no
obligation to register the securities covered by this Plan under the federal
securities laws or take any other steps as may be necessary to enable the
securities covered by this Plan to be offered and sold under federal or other
securities laws. Upon exercising all or any portion of an Option, an Optionee
may be required to furnish representations or undertakings deemed appropriate by
the Company to enable the offer and sale of the Shares or subsequent transfers
of any interest in the Shares to comply with applicable
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securities laws. Certificates evidencing Shares acquired upon exercise of
Options shall bear any legend required by, or useful for purposes of compliance
with, applicable securities laws, this Plan or the Option Agreements.
Section 10. Duration and Amendments.
(a) Duration. This Plan shall become effective on December 22,
1997. This Plan shall terminate automatically on December 21, 2007, and may be
terminated on any earlier date pursuant to Section 10(b).
(b) Amendment; Termination. The Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. Neither the amendment, suspension nor
termination of the Plan shall, without the consent of the holder of the Option,
alter or impair any rights or obligations under any Option theretofore granted.
(c) Effect of Amendment or Termination. No Shares shall be issued
or sold under this Plan after the termination hereof, except upon exercise of an
Option granted before termination. Termination or amendment of this Plan shall
not affect any Shares previously issued and sold or any Option previously
granted under this Plan.
Date Plan approved by Board: December 22, 1997
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NONEMPLOYEE DIRECTOR
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated December 22, 1997, is made by and between
Advantix, Inc., a Delaware corporation (the "Company"), and
____________________, a nonemployee director of the Company (the "Director").
WHEREAS, the Company wishes to afford the Director the opportunity
to purchase shares of its Common Stock; and
WHEREAS, the Company wishes to carry out the Advantix, Inc. 1997
Nonemployee Directors' Stock Option Plan (the "Plan") a copy of which is
delivered herewith and the terms of which are hereby incorporated by reference
and made a part of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used but not defined herein shall have the meaning
specified in the Plan. The masculine pronoun shall include the feminine and
neuter, and the singular the plural, where the context so indicates.
ARTICLE II
GRANT OF OPTION
Section 2.1 - Grant of Option
In consideration of the Director's agreement to continue in his
service to the Company, and for other good and valuable consideration, on the
date hereof the Company irrevocably grants to the Director the option to
purchase any part or all of an aggregate of 25,000 Shares of its Common Stock
upon the terms and conditions set forth in this Agreement.
Section 2.2 - Purchase Price
The purchase price of the Shares of Common Stock covered by the
Option shall be $1.00 per share without commission or other charge.
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Section 2.3 - Consideration to Company
In consideration of the granting of this Option by the Company, the
Director agrees to render faithful and efficient services to the Company, with
such duties and responsibilities as the Board of Directors shall from time to
time prescribe. Nothing in this Agreement or in the Plan shall confer upon the
Director any right to continue serving in a directorship position of the Company
or shall interfere with or restrict in any way the rights of the stockholders of
the Company, which are hereby expressly reserved, to remove the Director
pursuant to provisions therefor in the charter or bylaws of the Company.
ARTICLE III
PERIOD OF EXERCISABILITY
Section 3.1 - Commencement of Exercisability
The Option shall become exercisable on December 22, 1997.
Section 3.2 - Expiration of Option
The Option may not be exercised to any extent by the Director after
the first to occur of the events set forth in Section 5(g) of the Plan.
ARTICLE IV
EXERCISE OF OPTION
Section 4.1 - Person Eligible to Exercise
During the lifetime of the Director, only the Director may exercise
the Option or any portion thereof. After the death of the Director, any
exercisable portion of the Option may, prior to the time when the Option becomes
unexercisable, be exercised by the Director's personal representative or by any
person empowered to do so under the Director's will or under the then applicable
laws of descent and distribution.
Section 4.2 - Partial Exercise
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable; provided,
however, that each partial exercise shall be for not less than 100 Shares.
Section 4.3 - Manner of Exercise
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary of the Company or the Secretary's office of
all of the following prior to the time when the exercisable Option or portion
thereof becomes unexercisable:
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(a) Notice in writing signed by the Director or such other person
then entitled to exercise the Option or portion thereof, stating that the Option
or portion thereof is thereby exercised, such notice complying with all
applicable rules established by the Administrator; and
(b) (i) Full payment (in cash or by check) for the
Shares with respect to which such Option or portion is exercised;
(ii) With the consent of the Administrator, Shares of
the Company's Common Stock owned by the Director duly endorsed for
transfer to the Company with a Fair Market Value on the date of
delivery equal to the aggregate purchase price of the Shares with
respect to which such Option or portion is exercised; or
(iii) Any combination of the consideration provided in
the foregoing subparagraphs (i) and (ii); and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Administrator, signed by the Director or other person then
entitled to exercise such Option or portion thereof, stating that the Shares of
stock are being acquired for his or her own account, for investment and without
any present intention of distributing or reselling said Shares or any of them
except as may be permitted under the Securities Act of 1933, as amended (the
"Securities Act"), and then applicable rules and regulations thereunder, and
that the Director or other person then entitled to exercise such Option or
portion thereof will indemnify the Company against and hold it free and harmless
from any loss, damage, expense or liability resulting to the Company if any sale
or distribution of the Shares by such person is contrary to the representation
and agreement referred to above. The Administrator may, in its absolute
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Administrator may require an opinion of counsel acceptable to it to the effect
that any subsequent transfer of Shares acquired on an Option exercise does not
violate the Securities Act, and may issue stop-transfer orders covering such
shares. Share certificates evidencing stock issued on exercise of this Option
shall bear an appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and agreement referred
to in the first sentence of this subsection (c) shall, however, not be required
if the Shares to be issued pursuant to such exercise have been registered under
the Securities Act, and such registration is then effective in respect of such
Shares; and
(d) Full payment to the Company of all amounts which it is
required to withhold under federal, state or local law upon exercise of the
Option; and
(e) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the Director,
appropriate proof of the right of such person or persons to exercise the Option
or portion thereof.
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Section 4.4 - Conditions to Issuance of Stock Certificates
The Shares deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares which have then been reacquired by the Company. Such Shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for Shares purchased upon the exercise
of the Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The admission of such Shares to listing on all stock
exchanges, if any, on which such class of stock is then listed;
(b) The completion of any registration or other qualification of
such Shares under any state or federal law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental regulatory
body, which the Administrator shall, in its absolute discretion, deem necessary
or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Administrator shall, in its
absolute discretion, determine to be necessary or advisable;
(d) The payment to the Company of all amounts which it is
required to withhold under federal, state or local law upon exercise of the
Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Administrator may from time to time establish for
reasons of administrative convenience.
Section 4.5 - Rights as Shareholder
The holder of the Option shall not be, nor shall such holder have
any of the rights of privileges of, a stockholder of the Company in respect of
any Shares purchasable upon the exercise of any part of the Option unless and
until a certificate or certificates representing such Shares shall have been
issued by the Company to such holder.
ARTICLE V
OTHER PROVISIONS
Section 5.1 - Administration
The Administrator shall have the power to interpret the Plan and
this Agreement and to adopt such rules for the administration, interpretation
and application of the Plan as are consistent therewith and to interpret, amend
or revoke any such rules. All actions taken and all interpretations and
determinations made by the Administrator in good faith shall be final and
binding upon the Director, the Company and all other interested persons.
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Section 5.2 - Option Not Transferable
Neither the Option nor any interest or right therein or part thereof
shall be subject to or liable for the debts, contracts or engagements of the
Director or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3 - Shares to Be Reserved
The Company shall at all times during the term of the Option reserve
and keep available such number of Shares as will be sufficient to satisfy the
requirements of this Agreement.
Section 5.4 - Notices
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Director shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Director shall, if
the Director is then deceased, be given to the Director's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5 - Titles
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6 - Construction
This Agreement shall be administered, interpreted and enforced under
the laws of the State of California.
Section 5.7 - The Plan
A copy of the Plan has been delivered to the Director, and receipt
of such copy is hereby expressly acknowledged by the Director. This Agreement
hereby incorporates by reference said Plan document and all of the terms and
conditions of the Plan as the same may be amended from time to time hereafter in
accordance with the terms thereof. The terms of this Agreement shall in no
manner limit or modify the controlling provisions of the Plan, and in the case
of any conflict
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between the provisions of the Plan and this Agreement, the provisions of the
Plan shall be controlling and binding upon the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties hereto.
ADVANTIX, INC.
By:
-------------------------------------
W. Thomas Gimple
President and Chief Executive Officer
- ----------------------------------
Director
- ----------------------------------
Address
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Exhibit 10.19
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated effective as of
April 20, 1999, between Advantix, Inc., a Delaware corporation ("Company"), and
Karen S. Goetz ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
EMPLOYMENT
The Company hereby employs Executive and Executive accepts
employment with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and Executive
agrees to serve as the Executive Vice President of TicketsLive Corporation and
President of the Select Technologies Group responsible for managing TicketsLive
licensing business on a worldwide basis, including the U.S. sales, marketing,
sales support and operations of the software licensing business, as well as
directing the Managing Directors of the UK and Asia/Pacific businesses while
working closely with Advantix to ensure coordination of efforts and efficient
use of resources. Executive agrees to devote Executive's full business time and
attention and best efforts to the affairs of the Company during the term of this
Agreement.
1.2 Term. Subject to the earlier termination of Executive's employment
by the Company pursuant to the provisions hereof, the term of employment of
Executive under this Agreement shall commence on the date hereof and shall
continue in effect until the later of (i) March 31, 2000 or (ii) the earlier of
(w) the expiration of the lock up period provided for in that certain
Shareholder Voting Agreement dated March __, 1999 by and among the Company,
TicketsLive Corporation and certain shareholders of TicketsLive Corporation, (x)
the date that Executive exercises her "put" right under that certain Agreement
dated as of March ___1999 by and between the Company and Executive, with respect
to an aggregate of at least $1,000,000 worth of shares (the "Put"), (y) the last
date that Executive has the right to exercise the Put and (z) the first date
upon which Executive has the ability, along with other stockholders of Advantix,
Inc., to exchange her shares of Advantix common stock for cash or publicly
traded stock in connection with an extraordinary corporate transaction involving
Advantix, such as a merger, acquisition of the Company, consolidation or other
business combinations; provided, however, that in any event the initial term of
this Agreement shall terminate no later than March 31, 2001. At the end of the
initial term, or any additional term, this Agreement shall automatically be
extended for an additional one (1) year period, unless either Executive or
Company gives written notice to the other of its desire to terminate this
Agreement at least one hundred twenty (120) days prior to the scheduled end of
that term; provided, however, that if the initial term ends by reason of an
event set forth in Section 1.2(ii) above, there shall be no automatic renewal
extending the term.
1.3 Principal Business Office. Executive's principal business office
during the term of employment will be in Syracuse, New York.
ARTICLE II
COMPENSATION
2.1 Annual Salary. During the employment of Executive, the Company shall
pay to Executive a base salary at the annual rate of $ 175,000 (the "Base
Salary"), payable on the Company's regular payroll dates. Executive's base
salary may not be decreased below the Base Salary during the term of this
Agreement.
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2.2 Reimbursement of Expenses. Executive shall be entitled to receive
prompt reimbursement of all reasonable and necessary expenses incurred by
Executive in performing services hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
2.3 Benefits. Executive shall be entitled to participate in and be
covered by health, insurance, pension and other employee plans and benefits
currently or hereafter established for the employees of the Company generally
(collectively referred to as the "Company Benefit Plans") on at least the same
terms as other employees of the Company, subject to meeting applicable
eligibility requirements.
2.4 Vacations and Holidays. During Executive's employment with the
Company, Executive shall be entitled to accrue vacation leave monthly up to a
maximum of four (4) weeks annually at full pay, or such greater vacation
benefits as may be provided for by the Company's vacation policies applicable to
senior executives. Executive shall be entitled to such holidays as are
established by the Company for all employees.
2.5 Automobile. The Company shall continue to provide Executive with the
use of the automobile currently provided for Executive's use by TicketsLive
Corporation through the expiration of the lease thereof in September 1999, and
thereafter the Company shall provide Executive with an automobile allowance of
$600 per month.
ARTICLE III
CONFIDENTIALITY, NONDISCLOSURE AND NONCOMPETITION
3.1 Confidentiality. Executive will not during Executive's employment by
the Company or thereafter at any time disclose, directly or indirectly, to any
person or entity or use for Executive's own benefit any trade secrets or
confidential information relating to the Company's business operations,
marketing data, business plans, strategies, employees, negotiations and
contracts with other companies, or any other confidential subject matter
pertaining to the business of the Company or any of their clients, customers,
consultants, or licensees, known, learned, or acquired by Executive during the
period of Executive's employment by the Company (collectively "Confidential
Information"), except as may be necessary in the ordinary course of performing
Executive's particular duties as an employee of the Company and further
excepting any such information which is or becomes available to the public
through no fault of Executive. For purposes of this Article III, the term
"Company" shall mean Advantix, Inc., and each of its subsidiaries.
3.2 Return of Confidential Material. Executive shall promptly deliver to
the Company on termination of Executive's employment with the Company, whether
or not for cause and whatever the reason, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints,
Confidential Information and any other documents of a confidential nature
belonging to the Company, including all copies of such materials which Executive
may then possess or have under Executive's control. Upon termination of
Executive's employment by the Company, Executive shall not take any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
Executive's employment with the Company and for a period of one (1) year
thereafter, Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver of
any and all rights and
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remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
Contractors After Termination. During the term of Executive's employment with
the Company and for a period of one (1) year thereafter, Executive will not
solicit any of the employees, agents or independent contractors of the Company
to leave the employ of the Company for a competitive company or business.
However, Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with the Company after a period of
90 days have elapsed since the termination date of such employee, agent or
independent contractor. None of the foregoing shall be deemed a waiver of any
and all rights and remedies the Company may have under applicable law.
3.5 Noncompetition.
(a) Executive acknowledges that: (i) the services to be performed by
Executive under this Agreement are of a special, unique, unusual, extraordinary,
and intellectual character; (ii) the Company has required that Executive make
the covenants set forth in this Section 3.5 as a condition to the Company's
entering into this Agreement; and (iii) the provisions of this Section 3.5 are
reasonable and necessary to protect the business of the Company.
(b) In consideration of the acknowledgments by Executive, and in
consideration of the compensation and benefits to be paid or provided to
Executive by the Company under this Agreement, Executive covenants that
Executive will not, directly or indirectly:
(i) during the term of Executive's employment with the Company
hereunder and for a period of one (1) year thereafter (the "Covenant
Period"), engage or invest in, own, manage, operate, finance, control,
or participate in the ownership, management, operation, financing, or
control of, be employed by, associated with, or in any manner connected
with, lend Executive's name or any similar name to, lend Executive's
credit to, or render services or advice to, any business whose products
or activities compete in the Territory (as defined below), directly or
indirectly, with the Company's ticketing products or services or;
provided, however, that Executive may purchase or otherwise acquire up
to (but not more than) one percent of any class of securities of any
enterprise (but without otherwise participating in the activities of
such enterprise) if such securities are listed on any national or
regional securities exchange or have been registered under Section 12(g)
of the Securities Exchange Act of 1934. Executive agrees that this
covenant is reasonable with respect to its duration, geographical area,
and scope. For purposes hereof, "Territory" shall mean any county of any
state of the United States of America, including any county in the
States of California, Connecticut, Ohio or New York, and any other
states or international jurisdictions in which the Company is doing
business at the time of Executive's termination.
(ii) at any time during or after the Covenant Period, disparage
the Company, or any of its shareholders, directors, officers, employees,
or agents.
(c) Executive will, for the Covenant Period, within ten days after
accepting any employment, advise the Company of the identity of any employer of
Executive. The Company may serve notice upon each such employer that Executive
is bound by this Agreement and furnish each such employer with a copy of this
Agreement or relevant portions thereof.
3.6 Enforcement. It is the intent of the parties that the restrictive
covenants contained in this Article III are severable and separate and the
unenforceability of any individual provision shall not effect the enforceability
of any other. If any covenant in this Article III is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary,
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and not against public policy, will be effective, binding and enforceable
against the Executive.
3.7 Survival of Obligations. Executive agrees that the terms of this
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined as a refusal
to execute or carry out directions from the Board not
inconsistent with this Agreement or its duly appointed
designees) where Executive has been given written notice
of the acts or omissions constituting such neglect or
insubordination and Executive has failed to cure such
conduct, where susceptible to cure, within thirty (30)
days following notice;
(ii) conviction of any felony or any crime involving moral
turpitude;
(iii) participation in any fraud against the Company ;
(iv) willful breach of Executive's duties to the Company,
including but not limited to theft from the Company,
failure to fully disclose personal pecuniary interest in a
transaction involving the Company;
(v) intentional damage to any material property of the
Company;
(vi) conduct by Executive which in the good faith, reasonable
determination of the Board demonstrates gross unfitness to
serve including, but not be limited to, gross neglect,
non-prescription use of controlled substances, any abuse
of controlled substances whether or not by prescription,
or habitual drunkenness, intoxication, or other impaired
state induced by consumption of any drug, including
alcohol; or
(vii) material breach by the Executive of those provisions of
this Agreement concerning non-competition or the
confidentiality of trade secrets or proprietary or other
information.
(b) Disability. "Disability" shall mean a physical or mental incapacity
as a result of which Executive becomes unable to continue the proper performance
of her duties hereunder (reasonable absences because of sickness for up to two
(2) consecutive months excepted; provided, however, that any new period of
incapacity or absences shall be deemed to be part of a prior period of
incapacity or absences if the prior period terminated within ninety (90) days of
the beginning of the new period of incapacity or absence and the incapacity or
absence is determined by the Company's Board of Directors, in good faith, to be
related to the prior incapacity or absence.) A determination of Disability shall
be subject to the certification of a qualified medical doctor agreed to by the
Company and Executive or, in the event of Executive's incapacity to designate a
doctor, Executive's legal representative. In the absence of agreement between
the Company and Executive, each party shall nominate a qualified medical doctor
and the two (2) doctors so nominated shall select a third doctor, who shall make
the determination as to Disability.
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(c) Good Reason. "Good Reason" shall mean the assignment of Executive to
a position of materially lesser status than her position as of the date of this
Agreement.
4.2 Termination by Company. The Company may terminate Executive's
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be the
date of notice of termination if for Cause and thirty (30) days subsequent to
written notice of termination for any reason other than Cause; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Termination by Executive. Executive may terminate this Agreement
upon thirty (30) days' written notice to the Company. The effective date of
termination ("Effective Date") shall be considered to be thirty (30) days
subsequent to written notice of termination; however, the Company may elect to
have Executive leave the Company immediately.
4.4 Death or Disability of Executive. This Agreement shall terminate
immediately upon the death or Disability of Executive (the "Effective Date").
4.5 Severance Benefits Received Upon Termination.
(a) If Executive's employment is terminated by the Company for Cause, or
Executive terminates this Agreement without Good Reason, then the Company shall
pay Executive's Base Salary through the Effective Date of such termination plus
credit for any vacation earned but not taken and the Company shall thereafter
have no further obligations to Executive under this Agreement.
(b) If Executive's employment is terminated by the Company without Cause
or as a result of Disability, or if Executive's employment is terminated by
Executive for Good Reason, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's then
Base Salary through the later of March 31, 2000 or six (6) months after
the Effective Date, commencing on the Effective Date, said sum to be
paid in equal installments at the times salary payments are usually made
by the Company; and
(ii) health insurance coverage as then in effect for Executive,
Executive's spouse and dependent children for a period of twelve (12)
months, commencing on the Effective Date, subject to any employee
contribution provisions as defined in the Company Benefit Plans.
Subsequent health insurance benefits will be in accordance with COBRA.
The Company shall thereafter have no further obligations under this
Agreement.
(c) If Executive's employment is terminated by the Company as a result
of death, then the Company shall pay Executive's Base Salary through the
Effective Date of such termination plus credit for any vacation earned but not
taken and the Company shall provide Executive's spouse and dependent children
health insurance coverage as then in effect for Executive, Executive's spouse
and dependent children for a period of twelve (12) months, subject to any
employee contribution provisions as defined in the Company Benefit Plans. Health
insurance benefits subsequent to the continuation period will be in accordance
with COBRA. The Company shall thereafter have no further obligations under this
Agreement.
4.6 Expiration of Term. If Executive's employment is terminated as a
result of the expiration of the term of this Agreement, then the Company shall
pay Executive's Base Salary through the expiration date plus credit for any
vacation earned but not taken and the Company
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shall thereafter have no further obligations under this Agreement.
ARTICLE V
GENERAL PROVISIONS
5.1 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be deposited in the United States mail,
registered or certified, return receipt requested, postage prepaid, addressed as
follows:
To the Company: Advantix, Inc.
4675 MacArthur Court, Suite 1400
Newport Beach, CA 92660
Attn: Chief Executive Officer
To Executive: Karen S. Goetz
8410 Hobnail Road
Manlius, NY 13104
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the date so mailed or on the date of actual
receipt, whichever is earlier.
5.2 Proprietary Information and Inventions. Contemporaneously with the
execution of this Agreement, Executive shall execute a Proprietary Information
and Inventions Agreement in the form attached as Exhibit A hereto. The terms of
said agreement are incorporated by reference in this Agreement, and Executive
agrees to be bound thereby.
5.3 Covenant to Notify Management. Executive agrees to abide by the
reasonable ethics policies of the Company as well as the Company's other
reasonable rules, regulations, policies and procedures. Executive agrees to
comply with all governmental laws and regulations as well as ethics codes
applicable to the profession. In the event that Executive is aware the Company,
or any of its officers or agents, is violating any such laws, ethics codes,
rules, regulations, policies or procedures, Executive agrees to bring all such
actual violations which are material to the attention of the Company immediately
so that the matter may be properly investigated and appropriate action taken.
Executive understands that she is precluded from filing a complaint with any
governmental agency or court having jurisdiction over wrongful conduct unless
Executive has first notified the Company of the facts and permits it to
investigate and correct the concerns.
5.4 No Waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Executive and the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
5.5 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to her hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive's devisee, legatee, or other designee
or, if there be no such designee, to Executive's estate.
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5.6 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
5.7 Statute of Limitations. Executive and the Company hereby agree that
there shall be a one year statute of limitations for the filing of any requests
for arbitration or any lawsuit relating to this Agreement or the terms or
conditions of Executive's employment by the Company. If such a claim is filed
more than one year subsequent to Executive's last day of employment it shall be
precluded by this provision, regardless of whether or not the claim has accrued
at that time.
5.8 Right to Injunctive and Equitable Relief. Executive's obligations
under Article III are of a special and unique character which gives them a
peculiar value. The Company cannot be reasonably or adequately compensated for
damages in an action at law in the event Executive breaches such obligations.
Therefore, Executive expressly agrees that the Company shall be entitled to
injunctive and other equitable relief without bond or other security in the
event of such breach in addition to any other rights or remedies which the
Company may possess or be entitled to pursue. Furthermore, the obligations of
Executive and the rights and remedies of the Company under Article III are
cumulative and in addition to, and not in lieu of, any obligations, rights, or
remedies created by applicable law.
5.9 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.10 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument.
5.11 Attorneys' Fees. In the event any action in law or equity,
arbitration or other proceeding is brought for the enforcement of this Agreement
or in connection with any of the provisions of this Agreement, the prevailing
party shall be entitled to her or its attorneys' fees and other costs reasonably
incurred in such action or proceeding.
5.12 Entire Agreement. This Agreement, along with the Proprietary
Information and Inventions Agreement by and between Executive and the Company of
even date herewith (the "Proprietary Information Agreement"), constitutes the
entire agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement, along with
the Proprietary Information Agreement, is intended by the parties as the final
expression of their agreement with respect to such terms as are included herein
and therein and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement, along
with the Proprietary Information Agreement, constitutes the complete and
exclusive statement of their terms and that no extrinsic evidence may be
introduced in any judicial proceeding involving such agreements.
5.13 Assignment. This Agreement and the rights, duties, and obligations
hereunder may not be assigned or delegated by any party without the prior
written consent of the other party and any attempted assignment or delegation
without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.13, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the
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date first above written.
"COMPANY"
Advantix, Inc., a Delaware corporation
By: /s/ W. THOMAS GIMPLE
-------------------------------------
W. Thomas Gimple
President and Chief Executive Officer
"EXECUTIVE"
/s/ KAREN S. GOETZ
-------------------------------------
Karen S. Goetz
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<PAGE> 1
EXHIBIT 10.26
L E A S E
F O R
MAINLAND OFFICE BUILDING
- --------------------------------------------------------------------------------
L A N D L O R D Guinea Road Associates, T/A Mainland Enterprises
----------------------------------------------------------------
T E N A N T PROTIX, INC.
--------------------------------------------------------------------
2/24/95 - 3/31/98
<PAGE> 2
LEASE
TABLE OF CONTENTS
1. Lease Premises/Term/Base Rent
2. CPI Increase
3. Operating Expenses
4. Basic Terms and Provisions
5. Use of Demised Premises
6. Upkeep of Demised Premises
7. Assignment and Subletting
8. Additional Use of Demised Premises
9. Improvements/Alterations
10. Signage/Advertisements/Heavy Equipment/Moving
11. Office Machinery
12. Entry for Repairs and Inspections
13. Conforming to Governmental Rules and Regulations/Manufacturing on
Premises
14. Rules and Regulations
15. Repairs and Maintenance
16. Liability Insurance
17. Tenant's Waiver of Claim
18. Services
19. Bankruptcy
20. Late Charges
21. Remedies of Landlord
22. Damage by Fire or Casualty
23. Subordination
24. Eminent Domain
25. Survivorship and Assignment
26. Lease Renewals
27. Holding Over
28. Possession
29. Right to Enter
30. Written Space Plan Approval
31. Environmental Clause
32. Written Changes
33. Gender
34. Notices
36. Validity Clause
37. Endorsements
38. Personal Guaranty
Addendum
Exhibit A
<PAGE> 3
L E A S E
THIS AGREEMENT made this 30th day of January, 1995 by and between
Guinea Road Associates ProTix (Tenant), and Guinea Road Associates (Landlord).
WITNESSETH:
1. LEASE PREMISES/TERM/BASE RENT: That the Landlord for and in
consideration of the covenants and agreements hereinafter set forth and the rent
hereinafter specifically reserved, has leased, and does hereby lease, unto said
Tenant the space described as follows: Suite #340, 5,764 rentable square feet as
shown on Exhibit "A", including 31 parking spaces at no charge. in the building
located at 106880 Main Street, Fairfax, VA for the term of Three (3 and thirty
six days) years (or until such term shall sooner cease and expire as hereinafter
provided) commencing on the 24th day of February, 1995, and ending on the 31st
day of March , 1998, both dates inclusive, the said tenant yielding and paying
as rent for said term the sum of Two Hundred Seventy-two thousand six hundred
ninety-four & 96/100 dollars ($272,694.96) without deduction or demand, payable
in advance in equal monthly installments of
See Addendum
Seven thousand five hundred seventy-four &
86/100 (7,574.86 On the entire space) (hereinafter referred to as the basic
monthly rental), a one month deposit payable on the execution of this agreement
and all rental installments payable in advance on the first day of each and
every month during the said term at the office of Guinea Road Associates 3975
University Drive, Fairfax, VA 22030, or at such other place as the Landlord may
hereafter designate in writing. Rent checks are to be made payable to Guinea
Road Associates or such other person, firm or corporation as the Landlord may
designate in writing.
3. OPERATING EXPENSES: The basic monthly rental stipulated above shall
be increased each lease year, beginning the second lease year, or any portion
thereof, one-twelfth (1/12) of the Tenant's pro-rata share, namely ten percent
(10%) for any increase in real estate taxes and operating expenses as
hereinafter defined. Landlord and Tenant agree that the foregoing percentage of
Tenant's pro-rata share represents the ratio of the area that the leased
premises bears to the rentable area of office space contained in the building of
which the leased premises is a part.
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The term "real estate taxes" shall be defined as meaning all taxes and
assessments levied, assessed or imposed at any time by any governmental
authority upon or against the land and/or building of which the leased premises
form a part, and also any tax or assessments levied, assessed or imposed at any
time by any governmental authority in connection with the receipt of income or
rents from said land and/or building to the extent that same shall be in lieu of
all or a portion of the aforesaid taxes or assessments upon or against said land
or buildings.
* Tenant's prorata share of real
estate tax and operating expense
pass-throughs, ___ be applied
after the base year shall not be
increased by more than $0.40 per
square foot per year.
The term "operating expenses" is defined as meaning any and all
expenses incurred by the Landlord in connection with the servicing, operating,
maintenance and repair of the building and related exterior appurtenances of
which the leased premises is a part. "Operating expenses" shall not include any
of the following: capital improvements, painting, decorating or other work which
is paid for by such Tenant, interest and amortization of mortgages, depreciation
of the building, ground rent, compensation paid to officers or executives of the
Landlord or management agent; and income of the Landlord from the operation of
the building.
A statement of "operating expenses of the building" prepared by
Landlord's accountant shall be provided to the Tenant within a reasonable time
from the Tenant's request.
The term "lease year" is defined as meaning the first (1st) consecutive
twelve (12) month period commencing on February 24 19 95 , and each succeeding
twelve (12) month period thereafter.
The appropriate increase in real estate taxes and operating expenses to
be paid by the Tenant shall be calculated by comparing the costs of operating
expenses and real estate taxes incurred in
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the calendar year of the first lease year (calendar year 1995 ) to the operating
expenses and real estate taxes for the calendar year prior to the first lease
year. Any increase in operating expenses and real estate taxes shall then be
divided by Tenant's pro-rata share in order to determine Tenant's additional
rent. At the end of each (fiscal) year, the Landlord shall render to the Tenant
a statement reflecting Tenant's pro-rata share of any increase in operating
expenses and real estate taxes.
Tenant agrees to pay as additional rent to the Landlord for each lease
year beginning the second lease year Tenant's pro-rata share of any increase in
operating expenses and real estate taxes, said payments to be made in equal
monthly installments (namely 1/12th of the annual increase aforesaid) on the
stipulated day of each month as previously determined for payment of rent and
each month thereafter until a new pro-rata share is calculated for the
subsequent lease year.
4. BASIC TERMS AND PROVISIONS: The Tenant does hereby take and hold
said demised premises at the rent hereinabove specifically reserved and payable
as aforesaid, and upon and subject to the terms and conditions herein contained.
5. USE OF DEMISED PREMISES: The Tenant shall use and occupy the demised
premises for offices and for the operation of a city wide ticketing system and
for no other purposes whatsoever without the prior written consent of the
Landlord.
6. UPKEEP OF DEMISED PREMISES: The Tenant agrees that he will keep the
demised premises and the fixtures therein in good order and condition and will,
at the expiration or other termination of the term hereof surrender and deliver
up the same in like good order and condition as the same now is or shall be at
the commencement of the term hereof, ordinary wear and tear, and damage by the
elements, fire, and other unavoidable casualty excepted.
7. ASSIGNMENT AND SUBLETTING: Tenant shall not voluntarily or by
operation of law assign, encumber or otherwise transfer this Lease, and shall
not sublet the leased premises or allow any other person to occupy or use all of
or any part of the leased premises without the prior written consent of
Landlord, which consent shall
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not be unreasonably withheld; provided, it shall not be unreasonable for
Landlord to withhold its consent to any assignment, encumbrance, sublease or
other transfer if a proposed transferee's anticipated use of the leased premises
involves the generation, storage, use, treatment or disposal of any Hazardous
Material. No consent to any assignment or subletting shall constitute a further
waiver of this section. Any such assignment or subletting without such consent
shall be void and shall at Landlord's option constitute a default. No sublease
or assignment shall be deemed to release Tenant from any of the obligation
hereunder.
Any modification, revisions or changes in this lease shall be by
instrument in writing properly executed by the parties herein. The fact of such
modifications, revision or change shall be noted on the margin of the Lease and
shall be properly numbered.
8. ADDITIONAL USE OF DEMISED PREMISES: The Tenant will not do or permit
anything to be done in the demised premises or the building of which they are a
part or bring or keep anything therein which shall in any way increase the rate
of fire or other insurance in said building, or on the property kept therein, or
obstruct, or interfere with the rights of other tenants, or in any way injure or
annoy them, or those having business with them, or conflict with them, or
conflict with the fire laws or regulations, or with any insurance policy upon
said building or any part thereof, or with any statutes, rules or regulations
enacted or established by the appropriate governmental authority.
9. IMPROVEMENTS/ALTERATIONS: Tenant will not make any alterations,
installations, changes, replacements, additions, or improvements (structural or
otherwise) in or to the demised premises or any part thereof, without the prior
written consent of Landlord, which shall not be unreasonably withheld.
It is distinctly understood that all alterations,
installations, changes, replacements, additions to or improvements upon the
demised premises (whether with or without the Landlord's consent), shall at the
election of the Landlord remain upon the demised premises and be surrendered
with the demised premises at
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<PAGE> 7
the expiration of this lease without disturbance, molestation or injury. Should
the Landlord elect that alterations, installations, changes, replacements,
additions to or improvements made by the Tenant upon the demised premises be
removed upon termination of this lease or upon termination of any renewal period
hereof, the Tenant hereby agrees to cause same to be removed and the premises
restored to original condition and repaired at the Tenant's sole cost and
expense and should Tenant fail to remove the same, then and in such event the
Landlord may cause same to be removed at the Tenant's expense and the Tenant
hereby agrees to reimburse the Landlord for the cost of such removal together
with any and all damages which the Landlord may suffer and sustain by reason of
the failure of the Tenant to remove the same.
10. SIGNAGE/ADVERTISEMENTS/HEAVY EQUIPMENT/MOVING: Tenant further
agrees that no sign, advertisement or notice shall be inscribed, painted or
affixed on any part of the outside or inside of the demised premises or
building, except on the directories and doors of offices, and then only in such
size, color, and style as the Landlord shall approve; the Landlord may have the
right to prohibit any advertisement of any Tenant which in the Landlord's
opinion tends to impair the reputation of the building or its desirability as a
building for offices or for financial, insurance or other institutions and
businesses of like nature, and upon written notice from the Landlord, Tenant
shall refrain from and discontinue such advertisement; that the Landlord shall
have the right to prescribe the weight, and method of installation and position
of safes or other heavy fixtures or equipment and Tenant will not install in the
premises any fixture, equipment or machinery that will place a load upon any
floor exceeding floor load per square foot area which such floor was designed to
carry; that all damage done to the building by taking in or removing a safe or
any other article of the Tenant's office equipment, or due to its being in the
premises shall be repaired at the expense of the Tenant. No freight, furniture
or other bulky matter of any description will be received into the building or
carried in the elevators, except at times approved by the Landlord. All moving
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<PAGE> 8
of furniture, material and equipment shall be under the direct control and
supervision of the Landlord, who shall however, not be responsible for any
damage to or charges for moving same. Tenant agrees to promptly remove from the
public area adjacent to said building any of the Tenant's merchandise there
delivered or deposited.
11. OFFICE MACHINERY: Tenant will not install or operate in the
premises any electrically operated equipment or other machinery, other than
typewriters, adding machines and other such electrically operated office
machinery and equipment normally used in modern offices and city wide ticketing
system including phone rooms, without first obtaining the prior written consent
of the Landlord, who may condition such consent upon the payment of the Tenant
of additional rent as compensation for such excess consumption of water and/or
electricity as may be occasioned by the operation of said equipment or
machinery; nor shall the Tenant install any other equipment of any kind or
nature whatsoever which will or may necessitate any changes, replacements or
additions to or require the use of the water system, plumbing system, heating
system, air conditioning system or the electrical system of the demised premises
without the prior written consent of the Landlord.
12. ENTRY FOR REPAIRS AND INSPECTIONS: Tenant further agrees that it
will allow the Landlord, its agent or employees to enter the demised premises at
all reasonable times to examine, inspect or to protect the same or to prevent
damage or injury to the same, or to make such alterations and repairs to the
demised or other premises as the Landlord may deem necessary; or to exhibit the
same to prospective Tenants during the last three (3) months of the term of this
lease or extensions hereof.
13. CONFORMING TO GOVERNMENTAL RULES AND REGULATIONS/ MANUFACTURING ON
PREMISES: Tenant, at Tenant's expense, shall comply with all laws, rules,
orders, ordinances, directions, regulations and requirements of federal, state,
county and municipal authorities pertaining to Tenant's use of the leased
premises and with the recorded covenants, conditions and restrictions,
regardless of when they come effective, including, without limitation, all
applicable federal, state and local laws,
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<PAGE> 9
regulations or ordinances pertaining to air and water quality, Hazardous
Materials (as hereinafter defined), waste disposal, air emissions and other
environmental matters, all zoning and other land use matters, and utility
availability, and with any direction of any public officer or officers, pursuant
to law, which shall impose any duty upon Landlord or Tenant with respect to the
use or occupation of the leased premises.
14. RULES AND REGULATIONS: The Tenant covenants that the following
rules and regulations, and such other and further reasonable rules and
regulations as the Landlord may make and which in the Landlord's reasonable
judgment are needful for the general well being, safety, care and cleanliness of
the demised premises and the building of which they are a part together with
their appurtenances, shall be faithfully kept, observed and performed by the
Tenant, and by his agents, servants, employees and guests unless waived in
writing by the Landlord.
(a) The sidewalks, entries, passages, elevators, public
corridors and staircases and other parts of the building which are not occupied
by the Tenant shall not be obstructed or used for any purpose other than ingress
or egress.
(b) The Tenant shall not install or permit the installation of
any awnings, shades, and the like other than those approved by the Landlord in
writing.
(c) No additional locks shall be placed upon any doors of the
demised premises; and the doors leading to the corridors or main halls shall be
kept closed during business hours except as they may be used for ingress or
egress.
(d) The Tenant shall not construct, maintain, use or operate
within said demised premises or elsewhere in the building of which the demised
premises form a part or on the outside of the building, any equipment or
machinery which produces music, sound or noise which is audible beyond the
demised premises.
(e) Electric and telephone floor distribution boxes must
remain accessible at all times.
15. REPAIRS AND MAINTENANCE: All injury to the demised premises or the
building of which they are a part, caused by moving the property of Tenant into,
or out of, the said building
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<PAGE> 10
and all breakage done by the Tenant, or the agents, servants, employees and
visitors of Tenant, shall be repaired by the Tenant, at the expense of the
Tenant. In the event that the Tenant shall fail to do so, then the Landlord
shall have the right to make such necessary repairs, alterations or replacements
(structural, non-structural or otherwise) and any charge or cost so incurred by
the Landlord shall be paid by the Tenant with the right on the part of the
Landlord to elect in its discretion, to regard the same as additional rent, in
which event such cost or charge shall become additional rent payable with the
installment of rent next becoming due or thereafter falling due under the terms
of this lease. This provision shall be construed as an additional remedy granted
to the Landlord and not in limitation of any other rights and remedies which the
Landlord has or may have in said circumstances.
16. LIABILITY INSURANCE: Tenant agrees to maintain and pay for public
liability insurance with bodily limits of $500,000 and $1,000,000, and property
damage limits of $300,000, protecting Tenant and Landlord against liability for
any accident, injury, or damage on the Demised Premises or caused by the same,
and to furnish Landlord with a copy of such insurance policy. Tenant agrees to
increase such policy limits if requested by Landlord, except that such increases
shall not be unreasonable.
17. TENANT'S WAIVER OF CLAIM: All personal property of the Tenant in
the demised premises or in the building of which the demised premises is a part
shall be at the sole risk of the Tenant. The Landlord shall not be liable for
any accident to or damage to property of Tenant resulting from the use or
operation of elevators or of the heating, cooling, electrical or plumbing
apparatus. Landlord shall not, in any event, be liable for damages to property
resulting from water, steam or other causes. Tenant hereby expressly releases
Landlord from any liability incurred or claimed by reason of damage to the
Tenant's property. Landlord shall not be liable in damages, nor shall this lease
be affected, for conditions arising or resulting, and which may affect the
building of which the demised premises is a part, due to construction on an
adjoining or nearby building.
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<PAGE> 11
Landlord assumes no liability or responsibility whatsoever with respect
to the conduct and operation of the business to be conducted in the demised
premises. The Landlord shall not be liable for any accident to or injury to any
person or persons or property in or about the demised premises which are caused
by the conduct and operations of said business or by virtue of equipment or
property of the Tenant in said premises. The Tenant agrees to hold the Landlord
harmless against all such claims.
18. SERVICES: The Landlord shall furnish at all times reasonably
adequate electrical current, water, lavatory supplies, and automatically
operated elevator service during tenant's normal business hours, and normal and
usual cleaning and char services after business hours; the Landlord further
agrees to furnish heat and air conditioning during the appropriate seasons of
the year, between the hours of 8:00 a.m. to 6:00 p.m., Monday through Friday,
provided; however, that the Landlord shall not be liable for failure to furnish,
or for suspension or delays in furnishing, any of such services caused by
breakdown, maintenance or repair work or strike, riot or civil commotion, or any
cause or reason whatever beyond the control of the Landlord.
19. BANKRUPTCY: If, at any time prior to or during the term of the
lease, a petition is filed, either by or against the Tenant, in any Court or
pursuant to any Federal, State or municipal Statute whether in bankruptcy,
insolvency, for the appointment of a receiver of Tenant's property or for any
general assignment made by the Tenant of Tenant's property for the benefit of
Tenant's creditors, and if such filing is not dismissed within sixty (60) days
of such filing or if Tenant is adjudged bankrupt, then the Landlord, without
entry or other act by Landlord, may, at its option, consider this Lease
rejected, canceled and terminated. Upon such termination, the Tenant will not be
released from any obligations and damages due under the lease prior to
termination, and the Landlord shall have the immediate right to re-enter the
leased premises and to remove all persons and property therefrom and this Lease
shall not be treated as an asset of the Tenant's estate and neither Tenant nor
anyone claiming by, through or under Tenant by virtue of any order of the
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<PAGE> 12
court shall be entitled to the possession thereof. Upon the termination of said
Lease, Landlord shall have the right top retain as partial damages, and not as a
penalty, any prepaid rents and any security deposited by Tenant hereunder and
Landlord shall also be entitled to exercise such rights and remedies to recover
from Tenant as damages such amounts as specified in this section and as allowed
by law.
20. LATE CHARGES: All rental payments shall be due and payable at the
office of the Landlord on the first of each month and shall be considered late
on the sixth day of each month of tenancy. The Landlord, in its sole discretion,
may impose a five percent (5%)( late charge on any late payments and shall, upon
receipt of late charge notice by Tenant, expect immediate payment or have the
right o deduct said late charge from the security deposit made hereunder. Tenant
shall also give Landlord ninety (90) days written notice that the Tenant intends
to quit the premises at the original date of expiration of the Lease or of any
renewal of the Lease term under the conditions of this paragraph.
21. REMEDIES OF LANDLORD: It is agreed that if the Tenant shall fail to
pay the rent, for period in excess of five business days after written notice
thereof or any installments thereof as aforesaid, at the time the same shall
become due and payable and/or any additional rent as herein provided although no
demand, or if the Tenant within twenty days after written notice thereof shall
violate or fail or neglect to keep and perform any of the material covenants,
conditions and agreements herein contained on the part of the Tenant to be kept
and performed or if the demised premises shall become vacant or deserted, then
and in each and every such event from thenceforth, and all times thereafter, at
the option of the Landlord, the Tenant's right of possession shall thereupon
cease and the Landlord shall be entitled to the possession of the demised
premises and to re-enter the same without demand of rent or demand of possession
of said premises and may forthwith proceed to recover possession of the demised
premises by process of law, any notice to quit, or of intention to re-enter the
same being hereby expressly waived by the Tenant. And, in the event of such
re-entry by process of law or otherwise, the Tenant nevertheless agrees to
remain answerable for any and all damage, deficiency or
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<PAGE> 13
loss of rent which the Landlord may sustain by such re-entry, including
reasonable attorneys' fees and court costs; and in such case, the Landlord
reserves full power, which is hereby acceded to by the Tenant, to relet the said
premises for the benefit of Tenant, in liquidation and discharge, in whole or in
part, as the cause may be, of liability of the Tenant under the terms and
provisions of this Lease.
In the event of a default on payment of rent by the Tenant, Landlord
has the option of (a) re-entering the premises pursuant to the above terms of
this paragraph and considering the Lease term terminated at which point the
Tenant shall remain responsible for any outstanding rent due, plus any damages,
or deficiencies suffered by the Landlord as a result of said re-entry, including
reasonable attorneys fee and court costs; (b) enter and re-let the premises
without considering the Lease terminated and apply said rentals received from
any new Tenant on the lease as a credit to be applied to the balance owed by the
original Tenant during the remaining term of the Lease; (c) seek no re-entry and
seek recovery of accrued rent in successive suits; or (d) after appropriate
written notice by the Landlord to the Tenant of said default, the Landlord, at
its option, may declare all of the rent for the then current term of the Lease
as due and payable, whether or not such rent has accrued, and Landlord, and its
agents shall have the right to re-enter and resume possession of the property,
and also to re-let the property as agent for Tenant for any unexpired balance of
the then current term and receive the rent arising from such re-letting. Under
this alternative, no such entry or re-letting shall constitute either a
surrender or termination of this lease except at the option of Landlord or
deprive Landlord of any other right, action, or proceeding for rent, possession,
or damages by statute or otherwise. However, if the Landlord does activate its
option to accelerate said rent, then any suit or litigation commenced under this
option shall be for recovery of this entire outstanding amount of rent for the
current term minus any credits for re-letting and Landlord will be barred from
seeking multiple suits to recover any outstanding rent.
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<PAGE> 14
And it is further provided, that if, under the provisions hereof, a
seven (7) day summons or other applicable summary process shall be served, and a
compromise or settlement thereof shall be made, it shall not be construed as a
waiver of any breach of any covenant, condition or agreement herein contained
and that no waiver of any breach of any covenant, condition or agreement itself,
or of any subsequent breach thereof. No provision of this Lease shall be deemed
to have been waived by Landlord unless such waiver shall be in writing signed by
Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly installments of rent herein stipulated shall be deemed to be other
than an account of the earliest stipulated rent nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as rent
be deemed in accord and satisfaction, and the Landlord may accept such check or
payment without prejudice to the Landlord's right to recover the balance of such
rent or pursue any other remedy in this Lease provided.
22. DAMAGE BY FIRE OR CASUALTY: In case of damage by fire or other
casualty to the demised premises or any part thereof, the Landlord shall have
reasonable time within which to repair and restore the damaged portion of said
premises, then during the period that the Tenant is deprived of the use of the
damaged portion of said premises, the Tenant shall be required to pay rental
covering only that part of the premises that it is able to occupy, the rent for
the remaining space shall be that portion of the total rent which the amount of
square foot area remaining that can be occupied bears to the total square foot
of all the premises covered by this lease. If during the term of this lease the
premises shall be so damaged by fire or other casualty as to be untenantable,
then, unless said damage be repaired within ninety (90) days thereafter as
herein specified, either party hereto, upon written notice to the other party
given at any time following the expiration of the ninety (90) days after said
fire or other casualty, may terminate this lease, in which case the rent shall
be apportioned and paid to the date of said fire or other casualty. No
compensation, or claim or diminution
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<PAGE> 15
of rent will be allowed, or paid, by Landlord, by reason of inconvenience,
annoyance, or injury to business, arising from the necessity of repairing the
demised premises or any portion of the building of which they are a part;
however, the necessity may occur.
23. SUBORDINATION: This lease is subject and subordinate to all ground
or underlying leases and to all mortgages and/or deeds of trust which may now or
hereafter affect such leases or the real property of which the demised premises
form a part, and to all renewals, modifications, consolidations, replacements
and extensions thereof. This clause shall be self-operative and no further
instrument of subordination should be required by any mortgage or trustee. In
confirmation of all such subordination Tenant shall execute promptly any
certificate that the Landlord may request. Tenant hereby constitutes and
appoints Landlord the Tenant's attorney-in-fact to execute any such certificate
or certificates for and on behalf of the Tenant. Provided, however, that
notwithstanding the foregoing, the party secured by any such deed of trust shall
have the right to recognize this lease and, in the event of any foreclosure sale
under such deed of trust, this lease shall continue in full force and effect at
the option of the party secured by such deed of trust or the purchaser under any
such foreclosure sale; and the Tenant covenants and agrees that it will, at the
written request of the party secured by such deed of trust, execute, acknowledge
and delivery any instrument that has for its purpose and effect the
subordination of said deed of trust to the lien of this lease.
24. EMINENT DOMAIN: Tenant agrees that if the said premises, or any
part thereof, shall be taken or condemned for any public or quasi-public use or
purpose by any competent authority, Tenant shall have no claim against the
Landlord and shall not have any claim or right to any portion of the amount that
may be awarded as damages or paid as a result of any such condemnation; and all
right of the Tenant to damages therefore, if any, are hereby assigned by the
Tenant to the Landlord. And upon such condemnation or taking, the term of this
lease may be terminated by Landlord from the date of such governmental taking or
condemnation, and the Tenant shall haven o claim against the Landlord for the
value of any unexpired term of this lease.
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<PAGE> 16
25. SURVIVORSHIP AND ASSIGNMENT: The Landlord shall have the right to
distrain for rental and for any other amount due and payable by the Tenant
hereunder if the same is not paid when due, pursuant to the applicable statutory
requirements. If there is any default by the Tenant hereunder, and pursuant to
proper legal action, the Landlord shall have the right to re-enter and take
possession of the demised premises.
26. LEASE RENEWALS: The term of this lease may be extended by the
Tenant beyond the initial term for one (1) three (3) year period upon Tenant
delivering written notice of such renewal to Landlord ninety (90) days prior to
the expiration of the initial term of this lease. All other terms, conditions,
covenants and provisions of this lease shall remain in full force and effect
during the option period. The rental rate shall be determined upon Landlord's
receipt of notice to extend the lease as herein described.
27. HOLDING OVER: If the Tenant shall, with the knowledge and consent
of the Landlord, continue to remain in the premises after the expiration of the
term of the lease, then and in that event, Tenant shall, by virtue of this
agreement become a Tenant by the month at one and one-half the rental per month
of the monthly installment of rent agreed by the said Tenant to be paid as
aforesaid, commencing said monthly tenancy with the first day next after the end
of the term above demised; and said Tenant shall give to the Landlord at least
ninety (90) days' written notice of any intention to quit said premises, and
Tenant shall be entitled to thirty (30) days' written notice to quit said
premises, except in the event of nonpayment of rent in advance or of the breach
of any other covenant by the said Tenant, in which event the said Tenant shall
not be entitled to any notice to quit, the usual thirty (30) days' notice to
quit being hereby expressly waived; provided, however, that in the event that
the Tenant shall hold over after the expiration of the term hereby created, and
if the Landlord shall desire to regain possession of said premises promptly at
the expiration of the term aforesaid, then at any time prior to the Landlord's
acceptance of rent from the
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Tenant as a monthly Tenant hereunder, the Landlord, at its option, may forthwith
re-enter and take possession of said premises without process, or by any legal
process in force.
28. POSSESSION: If Landlord shall be unable to give possession of the
demised premises on the date of the commencement of the term hereof by reason of
the fact that the premises are located in a building being constructed and which
has not been sufficiently completed to make the premises ready for occupancy, or
by reason of the fact that a certificate of occupancy has not been procured or
if the Landlord is unable to give possession of the demised premises on the date
of commencement of the term hereof by reason of the holding over or retention of
possession of any Tenant or occupancy, or if repairs, improvements or decoration
of the demised premises, or of the building of which the demised premises form a
part, are not completed, or for any other reasons, Landlord shall not be subject
to any liability for failure to give possession on said date. Under such
circumstances the rent reserved and covenanted to be paid herein shall not
commence until the possession of demised premises is given or the premises are
available for occupancy by Tenant, and no such failure to give possession on the
date of commencement of the term shall in any other respect affect the validity
of this lease or the obligations of Tenant hereunder, nor shall same be
construed in any way to extend the term of this lease. If permission is given to
Tenant to enter into the possession of the demised premises or to occupy
premises other than the demised premises prior to the date specified as the
commencement of the term of this lease, Tenant covenants and agrees that such
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this lease.
29. RIGHT TO ENTER: The Landlord shall have the right to enter the
demised premises at all reasonable hours to examine the same as well as to make
any alterations and repairs to the demised premises or to the building, Landlord
covenants that such entry shall occur at such times as to cause minimum
interference with Tenant's business operations. During the last three months
preceding the termination of this Lease, the Landlord shall have
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<PAGE> 18
the right to enter the demised premises at reasonable hours to exhibit the same
for rental.
30. WRITTEN SPACE PLAN APPROVAL: It is agreed that the Tenant will
furnish to the Landlord its partition, electric, telephone and all other
requirements by no later than February 20, 1995. Within 10 days after Landlord's
submission of working drawings, the Tenant shall approve same in writing. In the
event Tenant fails to comply with either of the aforesaid by the date within the
time specified, any delay in completing the demised premises shall not in any
manner affect commencement date of this lease or the Tenant's liability for the
payment of rent from such commencement date, and under such circumstances
Landlord agrees to make the demised premises ready for Tenant's occupancy no
later than the commencement date of this lease, plus the number of days delay
resulting from Tenant's failure to comply with the provisions of this paragraph.
31. ENVIRONMENTAL CLAUSE:
(1) Tenant shall not cause or permit any Hazardous Material to be
brought upon, kept or used in or about the leased premises by Tenant, its
agents, employees, contractors or invitees without the prior written consent of
Landlord, which Landlord shall not unreasonably withhold as long as Tenant
demonstrates to Landlord's reasonable satisfaction that such Hazardous Material
is necessary or useful to Tenant's business and will be used, stored and
disposed of in a manner that complies with all laws regulating any such
Hazardous Material so brought upon or used or kept in or about the leased
premises. If Tenant breaches the obligations stated in the preceding sentence,
or if the presence of Hazardous Material on the leased premises caused or
permitted by Tenant results in contamination of the leased premises, or if
contamination of the leased premises by Hazardous Material otherwise occurs for
which Tenant is legally liable to Landlord for damage resulting therefrom, then
Tenant shall indemnify, defend and hold Landlord harmless from any and all
claims, judgments, damages, penalties, fines, costs, liabilities or losses
(including, without limitation, diminution in value of the leased
- 16 -
<PAGE> 19
premises, damages for the loss or restriction on use of rentable or usable space
or any amenity of the Premises, damages arising from any advertise impact on
marketing of space, sums paid in settlement of claims, attorneys' fees,
consultant fees and expert fees) which arise during or after the lease term as a
result of such contamination. This indemnification of Landlord by Tenant
includes, without limitation, costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Material present in the soil or
ground water on or under the leased premises. Without limiting the foregoing, if
the presence of any Hazardous Material on the leased premises caused or
permitted by Tenant result in any contamination of the leased premises, Tenant
shall promptly take all actions at its sole expense as are necessary to return
the leased premises to the condition existing prior to the introduction of any
such Hazardous Material to the leased premises; provided that Landlord's
approval shall not be unreasonably withheld so long as such actions would not
potentially have any material adverse long-term or short-term effect on the
leased premises. The foregoing indemnity shall survive the expiration or earlier
termination of this Lease.
(2) As used herein, the term "Hazardous Material" means any
hazardous or toxic substance, material or waste, including, but not limited to,
those substances, materials and wastes listed in the United States Department of
Transportation Hazardous Materials Table (49 CFR 172.101) or by the
Environmental Protection Agency as hazardous substances (40 CFR Part 302) and
amendments thereto, or such substances, materials and wastes that are or become
regulated under any applicable local, state or federal law.
(3) Disclosure. At the commencement of this Lease, and on
January 1 of each year thereafter, including January 1 of the year after the
termination of this lease, Tenant shall disclose to Landlord the names and
amounts of all Hazardous Materials, or any combination thereof, which were
stored, used or disposed of on the leased premises, or which Tenant intends to
store, use or dispose of on the leased premises.
- 17 -
<PAGE> 20
(4) Inspection. Landlord and its Agents shall have the right,
but not the duty, to inspect the leased premises at any time to determine
whether Tenant is complying with the terms of this Lease. If Tenant is not in
compliance with this Lease, Landlord shall have the right to immediately enter
upon the leased premises to remedy any contamination caused by Tenant's failure
to comply notwithstanding any other provision of this Lease. Landlord shall use
its best efforts to minimize interference with Tenant's business but shall not
be liable for any interference caused thereby.
(5) Default. Any default under this Paragraph shall be
material default enabling Landlord to exercise any of the remedies set forth in
this Lease.
32. WRITTEN CHANGES: It is understood and agreed that if the Tenant
requires extra facilities, finishes, or services above and beyond the
requirements for standard office space as shown in the Landlord's standard
allowances, the Tenant will be responsible for the payment of any additional
costs. It is further agreed that if the Tenant elects to provide the extra
facilities, finishes, or services in lieu of the Landlord's provision of
standard facilities, finishes, or services the Landlord will provide the Tenant
an offset allowance for the work not done by the Landlord. All such changes
shall be in writing signed by both parties.
33. GENDER: Feminine or neuter pronouns shall be substituted for those
of the masculine form, and the plural shall be substituted for the singular
number, in any place or places herein in which the context may require such
substitution or substitutions. The Landlord herein for convenience has been
referred to in neuter form.
34. NOTICES: All notices required or desired to be given hereunder by
either party to the other shall be given by certified or registered mail.
Notices to the respective parties shall be addressed as follows:
If to the Landlord - 3975 University Drive, #200
------------------------------------
Fairfax, VA 22030
------------------------------------
- 18 -
<PAGE> 21
If to the Tenant - 4513 Vernon Boulevard
------------------------------------
Madison, WI 53705
------------------------------------
Either party may, by like written notice, designate a new address to which such
notices shall be directed.
35. SECURITY DEPOSIT:
(a) Tenant, contemporaneously with execution of this lease, has
deposited with Landlord the sum of Two Thousand Four Hundred Twenty-Nine &
52/100 Dollars ($2,429.52), plus the $5,145.34 from the previous lease dated
2/13/92, receipt of which is hereby acknowledged by Landlord, to be held by
Landlord, without liability for interest, as security for the faithful
performance by Tenant of all of the terms, covenants, and conditions of this
lease by said Tenant to be kept and performed during the term thereof. If at any
time during the term of this lease any of the rent herein reserved shall be
overdue and unpaid, or any other sum payable by Tenant to Landlord hereunder
shall be overdue and unpaid then landlord may, at the option of Landlord (but
Landlord shall not be required to), appropriate and apply any portion of said
deposit to the payment of such overdue rent or other sum.
(b) In the event of the failure of Tenant to keep and perform any
of the material terms, covenants, and conditions of the lease, then the Landlord
at its option, may appropriate and apply said entire deposit, or so much thereof
as may be necessary to compensate the Landlord for loss or damage sustained or
suffered by Landlord due to such breach on the part of Tenant. Should the entire
deposit, or any portion thereof, be appropriated and applied by Landlord for the
payment of overdue rent or other sums due and payable to Landlord by Tenant
hereunder, then Tenant shall, upon the written demand of Landlord, forthwith
remit to Landlord a sufficient amount in cash to restore said security to the
original sum deposited, and Tenant's failure to do so within five (5) days after
receipt of such demand shall constitute a breach of this lease.
(c) Should Tenant surrender the premises at the end of the term of
this lease, or upon earlier termination, or retaking by Landlord, and Tenant has
failed to keep and perform
- 19 -
<PAGE> 22
any of the material terms, covenants, and conditions of this lease, then the
Landlord at its option, may appropriate and apply said entire deposit, or so
much thereof as may be necessary, to compensate the Landlord for loss or damage
sustained or suffered by Landlord due to such breach on the part of the Tenant.
(d) Should Tenant comply with all of said material terms,
covenants, and conditions and promptly pay all of the rental herein provided for
as it falls due, and all other sums payable by Tenant to Landlord hereunder, the
said deposit shall be returned in full to Tenant within 30 days after the end of
the term of this lease, or the earlier termination of this lease.
(e) Landlord may deliver the funds deposited hereunder by
Tenant to the purchaser of Landlord's interest in the leased premises, in the
event that such interest be sold, and thereupon Landlord shall be discharged
from any further liability with respect to such deposit.
36. VALIDITY CLAUSE: If any term, covenant, condition or provision of
the Lease or the application thereof to any circumstance or to any person, firm,
or corporation shall be invalid or unenforceable to any extent, the remaining
terms, covenants, conditions, and provisions of this Lease or the application
thereof to any circumstances or to any person, firm, or corporation other than
those as to which any term, covenant, condition, or provision is held invalid or
unenforceable, shall not be affected thereby, and each remaining term, covenant,
condition, and provision of this Lease shall be valid and shall be enforceable
to the fullest extent permitted by law.
37. ENDORSEMENTS: In Witness Whereof, Landlord and Tenant have hereunto
affixed their respective hands and seals (or caused these presents to be
executed in their respective corporate name or names and its corporate seal(s)
to be affixed by its duly authorized officers) on the day and year first
hereinabove written.
- 20 -
<PAGE> 23
AGREED TO AND ACKNOWLEDGED:
LANDLORD:
/s/Arthur E. Foster /s/Judy G. Silvia
- ------------------------------------ --------------------------
Arthur E. Foster, General Partner Witness
Date: February 1, 1995
-------------------------------
TENANT: PROTIX, INC.
/s/Gregory P. Cutshall /s/Judy G. Silvia
- ------------------------------------ --------------------------
Gregory P. Cutshall, General Manager Witness
Date: 2/1/95
-------------------------------
/s/Mark. O. Scioscia /s/
- ------------------------------------ --------------------------
Mark O. Scioscia, Vice President Witness
Date: 2/7/95
-------------------------------
PERSONAL GUARANTEE:
- ------------------------------------ --------------------------
Witness
Date:
-------------------------------
- 21 -
<PAGE> 24
ADDENDUM I
This Addendum attaches to and becomes part of the lease between ProTix, Inc.
(Tenant) and Guinea Road Associates (Landlord). The lease is dated January 30,
1995.
1. LEASED PREMISES:
The space leased through March 31, 1995 (the first 36 days of the
lease) will be the original 3,405 square feet leased with the rent for this
period to be $5,295.96.
2. RETROFIT OF ORIGINAL SPACE:
Landlord will make the following changes in the original space as soon
as possible:
a. Demolition of all half walls, and the three small
offices along the south window line.
b. Recarpet and repair carpet where needed.
c. Install a three prong outlet for the new computer.
d. Remove the wall for an expanded computer room.
e. Electrical outlets for 70 cubicle areas.
f. An opening will be made into the adjoining space
April 1, 1995.
g. Enlarge the break room.
h. Paint will be touched up and the carpet will be
cleaned where necessary in the expansion space.
3. AFTER HOURS HVAC CHARGE:
The "building standard" hours of operation are from 7:30am to 5:00pm
Monday through Friday. Tenant will operate from 9:00am to 9:00pm Monday through
Saturday and from 12:00pm to 6:00pm on Sunday.
Tenant agrees to pay $5.00 per hour for each hour of extra HVAC use.
This amount is based on Landlord's cost of HVAC, and at the beginning of each
Lease year, Landlord will study HVAC costs and make an adjustment to the per
hour amount.
If Tenant desires to change its hours of operation then Tenant shall
give Landlord written notice by the Tuesday of the week prior to the change in
hours. Tenant shall pay landlord at the specified per hour rate for each extra
hour of HVAC use at the end of each month.
4. AFTER HOURS ELECTRICITY USE:
Tenant agrees to pay Landlord $100.00 per month for after hours
electricity use.
ALL OTHER TERMS AND CONDITIONS OF THE LEASE WILL REMAIN THE SAME.
AGREED TO AND ACCEPTED:
LANDLORD: GUINEA ROAD ASSOCIATES
/s/Arthur E. Foster /s/Judy G. Silvia
- ---------------------------------- ------------------------------
Arthur E. Foster, General Partner Witness
Date: February 1, 1995
-----------------------------
TENANT: PROTIX, INC.
/s/Gregory P. Cutshall /s/Judy G. Silvia
- ---------------------------------- ------------------------------
Gregory P. Cutshall, General Manager Witness
Date: 2/1/1995
-----------------------------
/s/Mark O. Scioscia /s/
- ---------------------------------- ------------------------------
Mark O. Scioscia, Vice President Witness
Date: 2/7/1995
-----------------------------
<PAGE> 25
ADDENDUM II
This Addendum attaches to and becomes part of the lease by and between Mainland
Enterprises, L.C. (Landlord) and Protix, Inc. (Tenant) said lease dated January
30, 1995 for 5,764 leasable square feet at 10680 Main Street, Suite 340,
Fairfax, Virginia. By this Addendum, the following additions and changes are
made:
1. TERM: The term will be extended for three years commencing April 1, 1998,
and terminating March 31, 2001, both dates inclusive.
2. RENTAL RATE: The new base rent for the first lease year of this renewal
will be Nine-five Thousand One Hundred Six and no/100 dollars
($95,106.00), or Seven Thousand Nine Hundred Twenty-five and 50/100
dollars ($7,925.50) per month.
3. ANNUAL INCREASE: The previous lease year's total rent shall be increased
annually by three percent (3%), plus the operating expenses pass through.
4. CARPET CLEANING: The carpet will be cleaned in the space and Tenant is
responsible for moving any of the furniture if they wish to do so.
5. AFTER HOURS ELECTRICITY USE: Tenant agrees to continue to pay Landlord
$100.00 per month for after hours electricity use.
All other terms and conditions shall remain the same.
ACKNOWLEDGED AND AGREED TO:
LANDLORD: MAINLAND ENTERPRISES, L.C.
By: /s/Donald E. Foster /s/Judy Silvia
------------------------------------ ------------------------------
Donald E. Foster, Member Witness
1/30/98
------------------
Date
TENANT: Protix, Inc.
By: /s/Gregory P. Cutshall /s/C.J. Ratcliffe
------------------------------------ ------------------------------
Gregory P. Cutshall, General Manager Witness
1-19-98
------------------
Date
By: /s/Mark O. Scioscia /s/Diane Bartley 1/22/98
------------------------------------ ------------------- -------
Mark O. Scioscia, Vice President Witness Date
<PAGE> 1
EXHIBIT 10.35
TICKETS.COM, INC.
SPECIAL EXECUTIVE STOCK OPTION PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This Special Executive Stock Option Plan is intended to promote the
interests of Tickets.com, Inc., a Delaware corporation, by providing eligible
persons in the Corporation's employ or service with the opportunity to acquire a
proprietary interest, or otherwise increase their proprietary interest, in the
Corporation as an incentive for them to continue in such employ or service.
Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.
II. ADMINISTRATION OF THE PLAN
A. The Plan shall be administered by the Board. However, any or all
administrative functions otherwise exercisable by the Board may be delegated to
the Committee. Members of the Committee shall serve for such period of time as
the Board may determine and shall be subject to removal by the Board at any
time. The Board may also at any time terminate the functions of the Committee
and reassume all powers and authority previously delegated to the Committee.
B. The Plan Administrator shall have full power and authority (subject
to the provisions of the Plan) to establish such rules and regulations as it may
deem appropriate for proper administration of the Plan and to make such
determinations under, and issue such interpretations of, the Plan and any
outstanding options thereunder as it may deem necessary or advisable. Decisions
of the Plan Administrator shall be final and binding on all parties who have an
interest in the Plan or any option grant thereunder.
C. All stock options under the Plan shall be made in compliance with the
applicable requirements of Section 25102(f) of the California Corporations Code
so that the qualification of those securities shall not be required in the State
of California.
III. ELIGIBILITY
A. The persons eligible to participate in the Plan shall be limited
solely to (i) Employees who are officers of the Corporation or other highly
compensated individuals and (ii) the non-employee members of the Board.
<PAGE> 2
B. The Plan Administrator shall have full authority to determine which
eligible persons are to receive such grants, the time or times when those grants
are to be made, the number of shares to be covered by each such grant, the
status of the granted option as either an Incentive Option or a Non-Statutory
Option, the time or times when each option is to become exercisable, the vesting
schedule (if any) applicable to the option shares and the maximum term for which
the option is to remain outstanding.
IV. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock. The maximum number of shares of Common
Stock which may be issued over the term of the Plan shall not exceed 5,000,000
shares.
B. Shares of Common Stock subject to outstanding options shall be
available for subsequent issuance under the Plan to the extent (i) the options
expire or terminate for any reason prior to exercise in full or (ii) the options
are cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and subsequently repurchased by the
Corporation, at the option exercise price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the number
of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants under the Plan.
C. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class without
the Corporation's receipt of consideration, appropriate adjustments shall be
made to (i) the maximum number and/or class of securities issuable under the
Plan and (ii) the number and/or class of securities and the exercise price per
share in effect under each outstanding option in order to prevent the dilution
or enlargement of benefits thereunder. The adjustments determined by the Plan
Administrator shall be final, binding and conclusive. In no event shall any such
adjustments be made in connection with the conversion of one or more outstanding
shares of the Corporation's preferred stock into shares of Common Stock.
2.
<PAGE> 3
ARTICLE TWO
OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form
approved by the Plan Administrator; provided, however, that each such document
shall comply with the terms specified below. Each document evidencing an
Incentive Option shall, in addition, be subject to the provisions of the Plan
applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed by the Plan
Administrator, but in no event shall such exercise price per share shall not be
less than eighty-five percent (85%) of the Fair Market Value per share of Common
Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise
of the option and shall, subject to the provisions of Section I of Article Four
and the documents evidencing the option, be payable in cash or check made
payable to the Corporation. Should the Common Stock be registered under Section
12 of the 1934 Act at the time the option is exercised, then the exercise price
may also be paid as follows:
(i) in shares of Common Stock held for the requisite
period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the
Exercise Date, or
(ii) to the extent the option is exercised for vested
shares, through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable instructions
(A) to a Corporation-designated brokerage firm to effect the immediate
sale of the purchased shares and remit to the Corporation, out of the
sale proceeds available on the settlement date, sufficient funds to
cover the aggregate exercise price payable for the purchased shares plus
all applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise
and (B) to the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
3.
<PAGE> 4
B. EXERCISE AND TERM OF OPTIONS. Each option shall be exercisable
at such time or times, during such period and for such number of shares as shall
be determined by the Plan Administrator and set forth in the documents
evidencing the option grant. However, no option shall have a term in excess of
ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the exercise of any
options held by the Optionee at the time of cessation of Service or death:
(i) Should the Optionee cease to remain in Service for
any reason other than death, Disability or Misconduct, then the Optionee
shall have a period of three (3) months following the date of such
cessation of Service during which to exercise each outstanding option
held by such Optionee.
(ii) Should Optionee's Service terminate by reason of
Disability, then the Optionee shall have a period of twelve (12) months
following the date of such cessation of Service during which to exercise
each outstanding option held by such Optionee.
(iii) If the Optionee dies while holding an outstanding
option, then the personal representative of his or her estate or the
person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance shall have a twelve
(12)-month period following the date of the Optionee's death to exercise
such option.
(iv) Under no circumstances, however, shall any such
option be exercisable after the specified expiration of the option term.
(v) During the applicable post-Service exercise period,
the option may not be exercised in the aggregate for more than the
number of vested shares for which the option is exercisable on the date
of the Optionee's cessation of Service. Upon the expiration of the
applicable exercise period or (if earlier) upon the expiration of the
option term, the option shall terminate and cease to be outstanding for
any vested shares for which the option has not been exercised. However,
the option shall, immediately upon the Optionee's cessation of Service,
terminate and cease to be outstanding with respect to any and all option
shares for which the option is not otherwise at the time exercisable or
in which the Optionee is not otherwise at that time vested.
(vi) Should Optionee's Service be terminated for
Misconduct or should Optionee otherwise engage in Misconduct while
holding one or more outstanding options under the Plan, then all
outstanding options held by the Optionee shall terminate immediately and
cease to remain outstanding.
4.
<PAGE> 5
2. The Plan Administrator shall have the discretion, exercisable
either at the time an option is granted or at any time while the option remains
outstanding, to:
(i) extend the period of time for which the option is to
remain exercisable following Optionee's cessation of Service or death
from the limited period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem appropriate,
but in no event beyond the expiration of the option term, and/or
(ii) permit the option to be exercised, during the
applicable post-Service exercise period, not only with respect to the
number of vested shares of Common Stock for which such option is
exercisable at the time of the Optionee's cessation of Service but also
with respect to one or more additional installments in which the
Optionee would have vested under the option had the Optionee continued
in Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall have no
stockholder rights with respect to the shares subject to the option until such
person shall have exercised the option, paid the exercise price and become the
recordholder of the purchased shares.
E. UNVESTED SHARES. The Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the Optionee cease Service while holding such unvested shares, the
Corporation shall have the right to repurchase, at the exercise price paid per
share, any or all of those unvested shares. The terms upon which such repurchase
right shall be exercisable (including the period and procedure for exercise and
the appropriate vesting schedule for the purchased shares) shall be established
by the Plan Administrator and set forth in the document evidencing such
repurchase right.
F. FIRST REFUSAL RIGHTS. Until such time as the Common Stock is
first registered under Section 12 of the 1934 Act, the Corporation shall have
the right of first refusal with respect to any proposed disposition by the
Optionee (or any successor in interest) of any shares of Common Stock issued
under the Plan. Such right of first refusal shall be exercisable in accordance
with the terms established by the Plan Administrator and set forth in the
document evidencing such right.
G. LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the
Optionee, the option shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or by the laws of inheritance
following the Optionee's death. However, a Non-Statutory Option may be assigned
in whole or in part during the Optionee's lifetime to one or more members of the
Optionee's immediate family or to a trust established exclusively for one or
more such family members or to one or more individuals, to the extent such
assignment is in connection with the Optionee's estate plan or pursuant to a
domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary
5.
<PAGE> 6
interest in the option pursuant to the assignment. The terms applicable to the
assigned portion shall be the same as those in effect for the option immediately
prior to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate.
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Three shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options shall not be subject
to the terms of this Section II.
A. ELIGIBILITY. Incentive Options may only be granted to Employees who
are officers of the Corporation or employee members of the Board.
B. EXERCISE PRICE. The exercise price per share shall not be less than
one hundred percent (100%) of the Fair Market Value per share of Common Stock on
the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one (1) calendar year shall
not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an Incentive Option is
granted is a 10% Stockholder, then the exercise price paid shall not be less
than the one hundred ten percent (110%) of the Fair Market value per share of
Common Stock on the option grant date and the option term shall not exceed five
(5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. The shares subject to each option outstanding under the Plan at the
time of a Corporate Transaction shall automatically vest in full so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all of the shares of Common Stock at the
time subject to that option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. However, the shares subject to an
outstanding option shall NOT vest on such an accelerated basis if and to the
extent: (i) such option is assumed by the successor corporation (or parent
thereof) in the Corporate Transaction and any repurchase rights of the
Corporation with respect to the unvested option shares are
6.
<PAGE> 7
concurrently assigned to such successor corporation (or parent thereof) or (ii)
such option is to be replaced with a cash incentive program of the successor
corporation which preserves the spread existing on the unvested option shares at
the time of the Corporate Transaction and provides for subsequent payout in
accordance with the same vesting schedule applicable to those unvested option
shares or (iii) the acceleration of such option is subject to other limitations
imposed by the Plan Administrator at the time of the option grant.
B. All outstanding repurchase rights shall also terminate automatically,
and the shares of Common Stock subject to those terminated rights shall
immediately vest in full, in the event of any Corporate Transaction, except to
the extent: (i) those repurchase rights are assigned to the successor
corporation (or parent thereof) in connection with such Corporate Transaction or
(ii) such accelerated vesting is precluded by other limitations imposed by the
Plan Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction,
all outstanding options shall terminate and cease to be outstanding, except to
the extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction, had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan following the consummation of
such Corporate Transaction and (ii) the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same. To the extent the actual holders of the
Corporation's outstanding Common Stock receive as consideration for their Common
Stock in consummation of the Corporate Transaction, the successor corporation
may, in connection with the assumption of the outstanding options under this
Plan, substitute one or more shares of its own common stock with a fair market
value equivalent to the cash consideration paid per share of Common Stock in
such Corporate Transaction.
E. The Plan Administrator shall have the discretion, exercisable either
at the time the option is granted or at any time while the option remains
outstanding, to structure one or more options so that the shares subject to
those options will automatically vest in whole or in part (and the repurchase
rights of the Corporation with respect to those shares shall immediately
terminate to the same extent) upon the occurrence of a Corporate Transaction,
whether or not those options are to be assumed in the Corporate Transaction.
F. The Plan Administrator shall have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest in whole or in part on an accelerated
basis (and the Corporation's repurchase rights with respect to those shares
shall immediately terminate to the same extent) within a designated period (not
to exceed
7.
<PAGE> 8
twenty-four (24) months) following the effective date of any Corporate
Transaction in which the option is assumed and the repurchase rights applicable
to the unvested shares subject to that option do not otherwise terminate. Any
portion of an option so accelerated shall remain exercisable for the vested
option shares until the expiration or sooner termination of the option term.
G. The Plan Administrator shall also have full power and authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the shares subject
to that option will automatically vest in whole or in part on an accelerated
basis should the Optionee's Service terminate by reason of an Involuntary
Termination within a designated period (not to exceed twenty-four (24) months)
following the effective date of any Corporate Transaction in which the option is
assumed and the repurchase rights applicable to the unvested shares subject to
that option do not otherwise terminate. Any portion of an option so accelerated
shall remain exercisable for the vested option shares until the expiration or
sooner termination of the option term. In addition, the Plan Administrator shall
have the discretionary authority to structure one or more of the Corporation's
repurchase rights so that those rights will terminate in whole or in part with
respect to any unvested shares held by the Optionee at the time of such
Involuntary Termination, and the shares subject to those terminated rights shall
accordingly vest at that time.
H. The Plan Administrator shall have the discretionary authority,
exercisable either at the time the option is granted or at any time while the
option remains outstanding, to structure such option so that the option will,
either immediately prior to or within a designated period (not to exceed
twenty-four (24) months) following the effective date of a Change in Control,
become exercisable for all or a portion of the number of shares of Common Stock
at the time subject to that option but not otherwise exercisable or vested and
may be exercised for any or all of those shares as fully vested shares of Common
Stock. Any portion of an option so accelerated shall remain exercisable for
fully vested shares until the expiration or sooner termination of the option
term. In addition, the Plan Administrator shall have the discretionary authority
to structure one or more of the Corporation's repurchase rights so that those
rights will terminate in whole or in part either automatically upon, or within a
designated period (not to exceed twenty-four (24) months) following, the
consummation of such Change in Control, and the shares subject to those
terminated rights shall accordingly vest at that time.
I. The Plan Administrator may also condition the automatic acceleration
of one or more outstanding options and the termination of one or more of the
Corporation's outstanding repurchase rights upon the subsequent termination of
the Optionee's Service by reason of an Involuntary Termination within a
designated period (not to exceed twenty-four (24) months) following the
effective date of such Change in Control. Each option so accelerated shall
remain exercisable for fully vested shares until the expiration or sooner
termination of the option term.
8.
<PAGE> 9
J. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
limitation is not exceeded. To the extent such dollar limitation is exceeded,
the accelerated portion of such option shall be exercisable as a Non-Statutory
Option under the Federal tax laws.
K. The grant of options under the Plan shall in no way affect the right
of the Corporation to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Plan and to grant in
substitution therefor new options covering the same or different number of
shares of Common Stock but with an exercise price per share based on the Fair
Market Value per share of Common Stock on the new option grant date.
9.
<PAGE> 10
ARTICLE THREE
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee to pay the option
exercise price by delivering a full-recourse, interest bearing promissory note
payable in one or more installments and secured by the purchased shares. In no
event may the maximum credit available to the Optionee exceed the sum of (i) the
aggregate option exercise price payable for the purchased shares plus (ii) any
Federal, state and local income and employment tax liability incurred by the
Optionee in connection with the option exercise.
II. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board, but no
option granted under the Plan may be exercised, until the Plan is approved by
the Corporation's stockholders. If such stockholder approval is not obtained
within twelve (12) months after the date of the Board's adoption of the Plan,
then all options previously granted under the Plan shall terminate and cease to
be outstanding, and no further options shall be granted under the Plan. Subject
to such limitation, the Plan Administrator may grant options under the Plan at
any time after the effective date of the Plan and before the date fixed herein
for termination of the Plan.
B. The Plan shall terminate upon the earliest of (i) the expiration of
the ten (10)-year period measured from the date the Plan is adopted by the
Board, (ii) the date on which all shares available for issuance under the Plan
shall have been issued as vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. All options
outstanding at the time of a clause (i) termination event shall continue to have
full force and effect in accordance with the provisions of the documents
evidencing those options.
III. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to
amend or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
options at the time outstanding under the Plan unless the Optionee consents to
such amendment or modification. In addition, certain amendments may require
stockholder approval pursuant to applicable laws and regulations.
B. Options may be granted in excess of the number of shares of Common
Stock then available for issuance under the Plan, provided any excess shares
actually issued under the Plan shall be held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess grants are made, then (i) any unexercised options granted
on
10.
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the basis of such excess shares shall terminate and cease to be outstanding and
(ii) the Corporation shall promptly refund to the Optionees the exercise price
paid for any excess shares issued under the Plan and held in escrow, together
with interest (at the applicable Short Term Federal Rate) for the period the
shares were held in escrow, and such shares shall thereupon be automatically
cancelled and cease to be outstanding.
IV. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
V. WITHHOLDING
The Corporation's obligation to deliver shares of Common Stock upon the
exercise of any options granted under the Plan shall be subject to the
satisfaction of all applicable Federal, state and local income and employment
tax withholding requirements.
VI. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under the
Plan and the issuance of any shares of Common Stock upon the exercise of any
option shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan and
the options granted under it.
VII. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee any right to continue
in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary
employing or retaining such person) or of the Optionee, which rights are hereby
expressly reserved by each, to terminate such person's Service at any time for
any reason, with or without cause.
11.
<PAGE> 12
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any
person or related group of persons (other than the Corporation or a
person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule l3d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who
either (A) have been Board members continuously since the beginning of
such period or (B) have been elected or nominated for election as Board
members during such period by at least a majority of the Board members
described in clause (A) who were still in office at the time the Board
approved such election or nomination.
C. CODE shall mean the Internal Revenue Code of 1986, as
amended.
D. COMMITTEE shall mean a committee of two (2) or more Board
members appointed by the Board to exercise one or more administrative functions
under the Plan.
E. COMMON STOCK shall mean the Corporation's common stock.
F. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
A-1.
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G. CORPORATION shall mean Tickets.com, Inc., a Delaware
corporation, and any successor corporation to all or substantially all of the
assets or voting stock of Tickets.com, Inc. which shall by appropriate action
adopt the Plan.
H. DISABILITY shall mean the inability of the Optionee to engage
in any substantial gainful activity by reason of any medically determinable
physical or mental impairment and shall be determined by the Plan Administrator
on the basis of such medical evidence as the Plan Administrator deems warranted
under the circumstances.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the
Nasdaq National Market, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as such
price is reported by the National Association of Securities Dealers on
the Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any
Stock Exchange, then the Fair Market Value shall be the closing selling
price per share of Common Stock on the date in question on the Stock
Exchange determined by the Plan Administrator to be the primary market
for the Common Stock, as such price is officially quoted in the
composite tape of transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(iii) If the Common Stock is at the time neither listed
on any Stock Exchange nor traded on the Nasdaq National Market, then the
Fair Market Value shall be determined by the Plan Administrator after
taking into account such factors as the Plan Administrator shall deem
appropriate.
L. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
A-2
<PAGE> 14
M. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge
by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following
(A) a change in his or her position with the Corporation which
materially reduces his or her duties and responsibilities or the level
of management to which he or she reports, (B) a reduction in his or her
level of compensation (including base salary, fringe benefits and target
bonus under any corporate-performance based bonus or incentive programs)
by more than fifteen percent (15%) or (C) a relocation of such
individual's place of employment by more than fifty (50) miles, provided
and only if such change, reduction or relocation is effected without the
individual's consent.
N. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material manner. The foregoing definition shall not
be deemed to be inclusive of all the acts or omissions which the Corporation (or
any Parent or Subsidiary) may consider as grounds for the dismissal or discharge
of any Optionee or other person in the Service of the Corporation (or any Parent
or Subsidiary).
O. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
P. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
Q. OPTIONEE shall mean any person to whom an option is granted
under the Plan.
R. PARENT shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations ending with the Corporation,
provided each corporation in the unbroken chain (other than the Corporation)
owns, at the time of the determination, stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
S. PLAN shall mean the Corporation's Special Executive Stock
Option Plan, as set forth in this document.
T. PLAN ADMINISTRATOR shall mean either the Board or the
Committee acting in its capacity as administrator of the Plan.
A-3
<PAGE> 15
U. SERVICE shall mean the provision of services to the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee or an employee member of the board of directors, except to the extent
otherwise specifically provided in the documents evidencing the option grant.
V. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
W. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
X. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
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<PAGE> 1
EXHIBIT 10.36
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated effective as of
October 1, 1998, between Advantix, Inc., a Delaware corporation ("Company"), and
Andrew Dolich ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
EMPLOYMENT
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and Executive agrees
to serve as the Company's Executive Vice President, Sales and Marketing,
reporting directly to the Chief Executive Officer, or in such other management
position consistent with Executive's experience and reputation in the industry
as the Company shall determine, during the term of this Agreement. Executive
agrees to devote Executive's full business time and attention and best efforts
to the affairs of the Company during the term of this Agreement.
1.2 Term. Subject to the earlier termination of Executive's employment
by the Company pursuant to the provisions hereof, the term of employment of
Executive under this Agreement shall commence on the date hereof and shall
continue in effect for a period of one (1) year and four (4) months, plus any
extension as provided below. At the end of the initial term, or any additional
term, this Agreement shall automatically be extended for an additional one (1)
year, unless either Executive or Company gives written notice to the other of
its desire to terminate this Agreement at least six (6) months prior to the
scheduled end of the term.
1.3 Termination of Prior Agreement. Immediately upon the commencement of
Executive's employment pursuant to the terms of this Agreement, that certain
Employment Agreement by and between Executive and the Company dated as of
February 9, 1998, shall terminate and shall be of no further force or effect.
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<PAGE> 2
ARTICLE II
COMPENSATION
2.1 Annual Salary. During the employment of Executive, the Company
shall pay to Executive an initial base salary at the annual rate of $200,000
(the "Base Salary"), payable on the Company's regular payroll dates. The Company
may, in its sole and absolute discretion, increase Executive's Base Salary in
light of Executive's performance, inflation and cost of living, and other
factors deemed relevant by the Company; provided, however, Executive's Base
Salary may not be decreased below the initial Base Salary during the term of
this Agreement.
2.2 Bonus. In addition to Executive's Base Salary, Executive shall be
entitled to receive such bonuses, if any, as shall be determined by the Board of
Directors of the Company (the "Board") in its sole and absolute discretion. The
Board of Directors of the Company intends to develop a bonus plan for its
executive officers which will provide for potential bonus opportunities of up to
fifty percent (50%) of base salary.
2.3 Stock Option. Executive has been granted stock options to purchase
shares of the Company's Common Stock pursuant to the Company's Stock Option
Plans. The options granted to Executive on or prior to the date of this
Agreement are referred to as the "Options". To the extent the Options is
outstanding twenty-four (24) months following a Corporate Transaction or Change
in Control (as defined in Article IV), all option shares at the time subject to
the Options shall automatically vest in full on an accelerated basis so that the
Options will immediately become exercisable for all the option shares as fully
vested shares. Not withstanding the terms and conditions of the Options
agreements and the applicable stock options plan, Section 4.5 of this Agreement
shall govern the acceleration, if any, of the Options upon the Executive's
termination of employment.
2.4 Reimbursement of Expenses. Executive shall be entitled to receive
prompt reimbursement of all reasonable and necessary expenses incurred by
Executive in performing services hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
2.5 Benefits. Executive shall be entitled to participate in and be
covered by health, insurance, pension and other employee plans and benefits
currently or
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<PAGE> 3
hereafter established for the employees of the Company generally (collectively
referred to as the "Company Benefit Plans") on at least the same terms as other
employees of the Company, subject to meeting applicable eligibility
requirements. The Company will pay for Executive's existing health care package
up to a maximum of $1,000 per month until Executive can reasonably obtain
coverage under the Company's benefit plans.
2.6 Vacations and Holidays. During Executive's employment with the Company,
Executive shall be entitled to an annual vacation leave of three (3) weeks at
full pay, or such greater vacation benefits as may be provided for by the
Company's vacation policies applicable to senior executives. Executive shall be
entitled to such holidays as are established by the Company for all employees.
2.7 Automobile Allowance. The Company shall provide Executive with an
automobile allowance of $600 per month.
2.8 Relocation Expense Reimbursement. At the time of Executive's
relocation to Orange County, California, the Company will provide Executive a
reasonable reimbursement arrangement with respect to relocation expenses,
including the following:
(a) The physical move and storage (if required) of a reasonable amount
of personal/household goods.
(b) Temporary housing in Orange County, as required until the sale of
Executive's current principal residence and/or the purchase of a new
principal residence in Orange County can be finalized.
(c) Two house-hunting trips to the Orange County area.
(d) Air (coach class) and ground transportation between the Bay Area and
Orange County.
(e) Reimbursement of reasonable brokerage commissions/fees (closing
costs and other fees) associated with the disposition of Executive's
current principal residence in Alameda, California, as well as the
closing costs associated with the purchase of a suitable principal
residence in Orange County.
(f) Any reasonable documented expenses not previously referenced as
incurred by Executive in connection with his relocation.
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<PAGE> 4
All such expenses to be approved by the Company in advance.
ARTICLE III
CONFIDENTIALITY, NONDISCLOSURE AND NONCOMPETITION
3.1 Confidentiality. Executive will not during Executive's employment by the
Company or thereafter at any time disclose, directly or indirectly, to any
person or entity or use for Executive's own benefit any trade secrets or
confidential information relating to the Company's business operations,
marketing data, business plans, strategies, employees, negotiations and
contracts with other companies, or any other subject matter pertaining to the
business of the Company or any of their clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company and further excepting any such
information which is or becomes available to the public through no fault of
Executive. For purposes of this Article III, the term "Company" shall mean the
Company and each of its subsidiaries.
3.2 Return of Confidential Material. Executive shall promptly deliver to the
Company on termination of Executive's employment with the Company, whether or
not for cause and whatever the reason, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints,
Confidential Information and any other documents of a confidential nature
belonging to the Company, including all copies of such materials which Executive
may then possess or have under Executive's control. Upon termination of
Executive's employment by the Company, Executive shall not take any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of Executive's
employment with the Company and for a period of two (2) years thereafter,
Executive shall not, directly or indirectly, either for Executive or for any
other person or entity, solicit any person or entity to terminate such person's
or entity's contractual and/or business relationship with the Company, nor shall
Executive interfere with or disrupt or attempt to interfere with or disrupt any
such relationship. None of the foregoing shall be deemed a waiver of any and all
rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
Contractors After Termination. During the term of Executive's employment with
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<PAGE> 5
the Company and for a period of two (2) years thereafter, Executive will not
solicit any of the employees, agents or independent contractors of the Company
to leave the employ of the Company for a competitive company or business.
However, Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with the Company after a period of
90 days have elapsed since the termination date of such employee, agent or
independent contractor. None of the foregoing shall be deemed a waiver of any
and all rights and remedies the Company may have under applicable law.
3.5 Noncompetition.
(a) Executive acknowledges that: (i) the services to be
performed by Executive under this Agreement are of a special, unique,
unusual, extraordinary, and intellectual character; (ii) the Company has
required that Executive make the covenants set forth in this Section 3.5
as a condition to the Company's entering into this Agreement; and (iii)
the provisions of this Section 3.5 are reasonable and necessary to
protect the business of the Company.
(b) In consideration of the acknowledgments by Executive, and in
consideration of the compensation and benefits to be paid or provided to
Executive by the Company under this Agreement, Executive covenants that
Executive will not, directly or indirectly:
(i) during the term of Executive's employment with the
Company hereunder and for a period of two (2) years thereafter
(the "Covenant Period"), engage or invest in, own, manage,
operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by,
associated with, or in any manner connected with, lend
Executive's name or any similar name to, lend Executive's credit
to, or render services or advice to, any business whose products
or activities compete in the Territory (as defined below),
directly or indirectly, with (i) the Company's ticketing products
or services or (ii) with any products or services of the Company
as of the time of the Executive's termination; provided, however,
that Executive may purchase or otherwise acquire up to (but not
more than) one percent of any class of securities of any
enterprise (but without otherwise participating in the activities
of such enterprise) if such securities are listed on any national
or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934. Executive
agrees that this covenant is
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<PAGE> 6
reasonable with respect to its duration, geographical area, and
scope. For purposes hereof, "Territory" shall mean any county of
any state of the United States of America, including any county
in the States of California, Connecticut, Ohio or New York, and
any other states or international jurisdictions in which the
Company is doing business at the time of Executive's
termination.
(ii) at any time during or after the Covenant Period,
disparage the Company, or any of its shareholders, directors,
officers, employees, or agents.
(c) Executive will, for the Covenant Period, within ten days
after accepting any employment, advise the Company of the identity of
any employer of Executive. The Company may serve notice upon each such
employer that Executive is bound by this Agreement and furnish each such
employer with a copy of this Agreement or relevant portions thereof.
3.6 Enforcement. It is the intent of the parties that the restrictive
covenants contained in this Article III are severable and separate and the
unenforceability of any individual provision shall not effect the enforceability
of any other. If any covenant in this Article III is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding and enforceable against the Executive.
3.7 Survival of Obligations. Executive agrees that the terms of this
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined as a
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<PAGE> 7
refusal to execute or carry out directions from the Board or its
duly appointed designees) where Executive has been given written
notice of the acts or omissions constituting such neglect or
insubordination and Executive has failed to cure such conduct,
where susceptible to cure, within thirty (30) days following
notice;
(ii) conviction of any felony or any crime involving moral
turpitude;
(iii) participation in any fraud against the Company;
(iv) willful breach of Executive's duties to the Company,
including but not limited to theft from the Company, failure to
fully disclose personal pecuniary interest in a transaction
involving the Company, violation of the Company's authority
limits on commitments, trading, controls and notification;
(v) intentional damage to any property of the Company;
(vi) conduct by Executive which in the good faith,
reasonable determination of the Board demonstrates gross
unfitness to serve including, but not be limited to, gross
neglect, non-prescription use of controlled substances, any abuse
of controlled substances whether or not by prescription, or
habitual drunkenness, intoxication, or other impaired state
induced by consumption of any drug, including alcohol; or
(vii) material breach by the Executive of those provisions
of this Agreement concerning non-competition or the
confidentiality of trade secrets or proprietary or other
information.
(b) Change in Control. "Change in Control" shall mean a change
in ownership or control of the Company effected through either of the
following transactions:
(i) the acquisition, directly or indirectly, by any person
or related group of persons (other than the Company or a person
that directly or indirectly controls, is controlled by, or is
under common control with, the Company) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934
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<PAGE> 8
Securities Exchange Act, as amended) of securities possessing
more than fifty (50%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange
offer made directly to the Company's stockholders, or
(ii) a change in the composition of the Company's Board
over a period of thirty-six (36) consecutive months or less such
that a majority of the Board members ceases, by reason of one or
more contested elections for Board membership, to be comprised of
individuals who either (a) have been Board members continuously
since the beginning of such period or (b) have been elected or
nominated for election as Board members described in clause (a)
who were still in office at the time the Board approved such
election or nomination.
(c) Corporate Transaction. "Corporate Transaction" shall mean
either of the following stockholder-approved transactions to which the
Company is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities are
transferred to a person or persons different from the persons
holding those securities immediately prior to such transaction,
or
(ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets in complete liquidation
or dissolution of the Company.
(d) Disability. "Disability" shall mean a physical or mental
incapacity as a result of which Executive becomes unable to continue the
proper performance of his duties hereunder (reasonable absences because
of sickness for up to three (3) consecutive months excepted; provided,
however, that any new period of incapacity or absences shall be deemed
to be part of a prior period of incapacity or absences if the prior
period terminated within ninety (90) days of the beginning of the new
period of incapacity or absence and the incapacity or absence is
determined by the Company's Board of Directors, in good faith, to be
related to the prior incapacity or absence.) A determination of
Disability shall be subject to the certification of a qualified medical
doctor agreed to by the Company and Executive or, in the event of
Executive's incapacity to designate a doctor, Executive's legal
representative. In the absence of agreement between the Company and
Executive, each party shall nominate a qualified medical
8
<PAGE> 9
doctor and the two (2) doctors so nominated shall select a third doctor,
who shall make the determination as to Disability.
(e) Good Reason. "Good Reason" shall mean:
(i) assignment of the Executive without Executive's
consent to a position, responsibilities or duties of a materially
lesser status or degree of responsibility than his position,
responsibilities or duties as of the date of this Agreement;
(ii) relocation of the Executive outside of the Orange
County area without Executive's consent;
(iii) a reduction by the Company of the Executive's Base
Salary below the initial Base Salary or, following a Change in
Control, below Executive's Base Salary at the time of the Change
in Control, without Executive's consent;
(iv) a failure by the Company to continue in effect,
without substantial change, any benefit plan or arrangement in
which the Executive was participating or the taking of any action
by the Company which would adversely affect the Executive's
participation in or materially reduce his benefits under any
benefit plan (unless such failure, action or changes apply
equally to substantially all other management employees of
Company); or
(v) any material breach by the Company of any provision of
this Agreement without the Executive having committed any
material breach of Executive's obligations hereunder, which
breach is not cured within thirty (30) days following written
notice thereof to the Company of such breach; provided, however,
that the events listed herein shall constitute "Good Reason" only
for a period of ninety (90) days following the occurrence
thereof.
4.2 Termination by Company. The Company may terminate Executive's employment
hereunder immediately for Cause. Subject to the other provisions contained in
this Agreement, the Company may terminate this Agreement for any reason other
than Cause upon thirty (30) days' written notice to Executive. The effective
date of termination ("Effective Date") shall be considered to be the date of
notice of termination if for Cause and thirty (30) days subsequent to written
notice of termination for any reason other than Cause; however, the Company may
elect to have Executive leave the Company immediately.
9
<PAGE> 10
4.3 Termination by Executive. Executive may terminate this Agreement
upon thirty (30) days' written notice to the Company. The effective date of
termination ("Effective Date") shall be considered to be thirty (30) days
subsequent to written notice of termination; however, the Company may elect to
have Executive leave the Company immediately.
4.4 Death or Disability of Executive. This Agreement shall terminate
immediately upon the death or Disability of Executive (the "Effective Date").
4.5 Severance Benefits Received Upon Termination.
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement without Good Reason, then
the Company shall pay Executive's Base Salary through the Effective Date
of such termination plus credit for any vacation earned but not taken
and the Company shall thereafter have no further obligations to
Executive under this Agreement. If as a result of arbitration, or if a
court of competent jurisdiction later determines that termination by the
Company of the Executive's employment purportedly for Cause was without
Cause, the termination will be deemed a termination without Cause, and
Executive will be entitled to the benefits set forth below.
(b) Except as otherwise provided in Section 4.5(c) below, if
Executive's employment is terminated by the Company without Cause or as
a result of Disability, or if Executive's employment is terminated by
Employee for Good Reason, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period of six (6) months, commencing on
the Effective Date, said sum to be paid in equal installments at
the times salary payments are usually made by the Company; and
(ii) if, and only if, such termination occurs more than
six (6) months after Executive commences employment with the
Company, acceleration and immediate vesting of fifty percent
(50%) of the unvested shares subject to each of the Executive's
options outstanding at the Effective Date (including the Options
described in Section 2.3), and such accelerated Options as well
as any other Options which have vested shall be exercisable for
the three (3)-month period measured from the date of the
Executive's termination, except for Executive's termination by
reason of a disability where the Options shall remain exercisable
for such fully
10
<PAGE> 11
vested shares until the expiration of the twelve (12)-month
period measured from the date of the Executive's termination of
continuous status as an employee, and shall then expire and be of
no further force or effect;
(iii) health insurance coverage as then in effect for
Executive, Executive's spouse and dependent children for a period
of six (6) months, commencing on the Effective Date, subject to
any employee contribution provisions as defined in the Company
Benefit Plans. Subsequent health insurance benefits will be in
accordance with COBRA. The Company shall thereafter have no
further obligations under this Agreement.
(c) If within twenty-four (24) months of a Corporate Transaction
or Change in Control the Executive's employment is terminated by the
Company without Cause or by Executive for Good Reason, then the Company
shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period of twelve (12) months, commencing
on the Effective Date, said sum to be paid in equal installments
at the times salary payments are usually made by the Company; and
(ii) if, and only if, such termination occurs more than
six (6) months after Executive commences employment with the
Company, acceleration and immediate vesting of one hundred
percent (100%) of Executive's Options which have not yet vested
by the Effective Date, and such accelerated Options as well as
any other Options which have vested and which are then
exercisable for a period of twelve (12) months following the
Effective Date and shall then expire and be of no further force
or effect; and
(iii) health insurance coverage as then in effect for
Executive, Executive's spouse and dependent children for a period
of twelve (12) months, commencing on the Effective Date, subject
to any employee contribution provisions as defined in the Company
Benefit Plans. Subsequent health insurance benefits will be in
accordance with COBRA. The Company shall thereafter have no
further obligations under this Agreement.
(d) If Executive's employment is terminated by the Company as a
result of death, then the Company shall pay Executive's Base Salary
through the Effective Date of such termination plus credit for any
vacation earned but not
11
<PAGE> 12
taken and the Company shall provide Executive's spouse and dependent
children health insurance coverage as then in effect for Executive,
Executive's spouse and dependent children for a period of six (6)
months, subject to any employee contribution provisions as defined in
the Company Benefit Plans. Health insurance benefits subsequent to the
continuation period will be in accordance with COBRA. The Company shall
thereafter have no further obligations under this Agreement.
(e) Notwithstanding the foregoing, Executive shall not be
entitled to the severance benefits set forth in this Section 4.5 in the
event of Executive's termination upon expiration of the term of this
Agreement.
4.6 Expiration of Term. If Executive's employment is terminated as a
result of the expiration of the term of this Agreement, then the Company shall
pay Executive's Base Salary through the expiration date plus credit for any
vacation earned but not taken and the Company shall thereafter have no further
obligations under this Agreement.
ARTICLE V
GENERAL PROVISIONS
5.1 Notices. All notices, demands, requests, consents, approvals or other
communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be deposited in the United States mail,
registered or certified, return receipt requested, postage prepaid, addressed as
follows:
To the Company: Advantix, Inc.
4675 MacArthur Court, Suite 1400
Newport Beach, CA 92660
Attn: W. Thomas Gimple
To Executive: Andrew Dolich
127 Seabridge Court
Alameda, CA 94502
or such other address as such party shall have specified most
recently by written notice. Notice mailed as provided herein
shall be deemed given on the fifth business day following the
date so mailed or on the date of actual receipt, whichever is
earlier.
12
<PAGE> 13
5.2 Proprietary Information and Inventions. Contemporaneously with the
execution of this Agreement, Executive shall execute a Proprietary Information
and Inventions Agreement in the form attached as Exhibit A hereto. The terms of
said agreement are incorporated by reference in this Agreement, and Executive
agrees to be bound thereby.
5.3 Covenant to Notify Management. Executive agrees to abide by the ethics
policies of the Company as well as the Company's other rules, regulations,
policies and procedures. Executive agrees to comply in full with all
governmental laws and regulations as well as ethics codes applicable to the
profession. In the event that Executive is aware or suspects the Company, or any
of its officers or agents, of violating any such laws, ethics codes, rules,
regulations, policies or procedures, Executive agrees to bring all such actual
and suspected violations to the attention of the Company immediately so that the
matter may be properly investigated and appropriate action taken. Executive
understands that he is precluded from filing a complaint with any governmental
agency or court having jurisdiction over wrongful conduct unless Executive has
first notified the Company of the facts and permits it to investigate and
correct the concerns.
5.4 No Waivers. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Executive and the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
5.5 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to him hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive's devisee, legatee, or other designee
or, if there be no such designee, to Executive's estate.
5.6 Choice of Law. This Agreement shall be governed by and
13
<PAGE> 14
construed in accordance with the laws of the State of California.
5.7 Statute of Limitations. Executive and the Company hereby agree that
there shall be a one year statute of limitations for the filing of any requests
for arbitration or any lawsuit relating to this Agreement or the terms or
conditions of Executive's employment by the Company. If such a claim is filed
more than one year subsequent to Executive's last day of employment it shall be
precluded by this provision, regardless of whether or not the claim has accrued
at that time.
5.8 Right to Injunctive and Equitable Relief. Executive's obligations
under Article III are of a special and unique character which gives them a
peculiar value. The Company cannot be reasonably or adequately compensated for
damages in an action at law in the event Executive breaches such obligations.
Therefore, Executive expressly agrees that the Company shall be entitled to
injunctive and other equitable relief without bond or other security in the
event of such breach in addition to any other rights or remedies which the
Company may possess or be entitled to pursue. Furthermore, the obligations of
Executive and the rights and remedies of the Company under Article III are
cumulative and in addition to, and not in lieu of, any obligations, rights, or
remedies created by applicable law.
5.9 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.10 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument.
5.11 Attorneys' Fees. In the event any action in law or equity, arbitration
or other proceeding is brought for the enforcement of this Agreement or in
connection with any of the provisions of this Agreement, the prevailing party
shall be entitled to his or its attorneys' fees and other costs reasonably
incurred in such action or proceeding.
5.12 Entire Agreement. This Agreement, along with the Proprietary Information
and Inventions Agreement by and between Executive
14
<PAGE> 15
and the Company of even date herewith (the "Proprietary Information Agreement"),
constitutes the entire agreement of the parties and supersedes all prior written
or oral and all contemporaneous oral agreements, understandings, and
negotiations between the parties with respect to the subject matter hereof. This
Agreement, along with the Proprietary Information Agreement, is intended by the
parties as the final expression of their agreement with respect to such terms as
are included herein and therein and may not be contradicted by evidence of any
prior or contemporaneous agreement. The parties further intend that this
Agreement, along with the Proprietary Information Agreement, constitutes the
complete and exclusive statement of their terms and that no extrinsic evidence
may be introduced in any judicial proceeding involving such agreements.
5.13 Assignment. This Agreement and the rights, duties, and obligations
hereunder may not be assigned or delegated by any party without the prior
written consent of the other party and any attempted assignment or delegation
without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.13, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
5.14 Dispute Resolution. Except as provided in Section 5.8, any controversy,
dispute, claim or other matter in question arising out of or relating to the
interpretation, performance or breach of this Agreement shall be finally
determined, at the request of any party, by binding arbitration conducted in
accordance with the then existing rules for commercial arbitration of the
American Arbitration Association, and judgment upon any award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. Such
arbitration shall be conducted in Orange County, California. The arbitrator
shall award to the prevailing party, in addition to the costs of the proceeding,
that party's reasonable attorney's fees. The Company reserves the right to seek
judicial provisional remedies and equitable relief regarding any breach or
threatened breach of Executive's obligations regarding the matters set forth in
Article III hereof.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
ADVANTIX, INC.
By:
---------------------------------
William E. Ford
Chairman
Compensation Committee
"EXECUTIVE"
---------------------------------
Andrew Dolich
16
<PAGE> 17
MEMO
To: Andy Dolich
From: Deanna Kenard
Date: October 27, 1998
Subject: Revised Employment Agreement
Enclosed is a revised employment agreement reflecting changes consistent with
the 1998 Stock Incentive Plan. Specifically, these differences include the
definition of a Change in Control (or Corporate Transaction as defined in the
new agreement) and the acceleration of vesting provision for those contract
employees classified as Class B as defined in the 1998 Stock Option Plan
document. Below is a summary of the changes to the section of the agreement as
noted. All other provisions remain the same.
CHANGE IN CONTROL OR CORPORATE TRANSACTION
(SECTION 4.1 OF AGREEMENT)
Definition per old agreement:
Change in Control" shall mean a change in ownership or control of the Company
effected through either of the following transactions:
(i) any corporation, partnership, person, other entity or group
(as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended) (collectively, a "Person"), after the successful completion
of an initial public offering of the Company's capital stock, acquires
shares of capital stock of the Company representing more than thirty
percent (30%) of the total number of shares of capital stock that may be
voted for the election of directors of the Company;
(ii) a merger, consolidation or other business combination of
the Company with or into another Person is consummated, or all or
substantially all of the assets of the Company are acquired by another
Person, as a result of which the stockholders of the Company immediately
prior to the consummation of such transaction own, immediately after
consummation of such transaction, equity securities possessing less than
seventy percent (70%) of the voting power of the surviving or acquiring
Person (or any Person in control of the surviving or acquiring Person),
the equity securities of which are issued or transferred in such
transaction;
(iii) as the result of or in connection with any tender or
exchange offer, any contested election of directors or any combination
thereof, the persons who were
<PAGE> 18
directors of the Company immediately before such tender or exchange
offer, contested election or combination thereof cease to constitute a
majority of the Board of Directors of the Company or any successor to
the Company;
(iv) the stockholders of the Company approve a plan of complete
liquidation, dissolution or winding up of the Company or an agreement
for the sale or other disposition of all or substantially all of the
assets of the Company; or
(v) the adoption of a resolution by the affirmative vote of not
less than two-thirds of the members of the Board of Directors who are
members immediately prior to any Change in Control, which resolution
shall state that, in the good faith determination of the Board of
Directors, a Change in Control of the Company has occurred.
Notwithstanding anything to the contrary set forth in this definition, if a
transaction that would otherwise create or result in a Change in Control of the
Company is approved by the affirmative vote of not less than two-thirds of the
members of the Board of Directors of the Company, who are members of the Board
of Directors immediately prior to any Change in Control, then no Change in
Control of the Company shall be deemed to have occurred for the purposes of this
Agreement.
DEFINITIONS PER NEW AGREEMENT
Change in Control" shall mean a change in ownership or control of the Company
effected through either of the following transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Company) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Securities Exchange Act, as amended) of
securities possessing more than fifty (50%) of the total combined voting
power of the Company's outstanding securities pursuant to a tender or
exchange offer made directly to the Company's stockholders, or
(ii) a change in the composition of the Company's Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more contested
elections for Board membership, to be comprised of individuals who
either (a) have been Board members continuously since the beginning of
such period or (b) have been elected or nominated for election as Board
members described in clause (a) who were still in office at the time the
Board approved such election or nomination.
<PAGE> 19
Corporate Transaction. "Corporate Transaction" shall mean either of the
following stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets in complete liquidation or
dissolution of the Company.
ACCELERATION OF VESTING PROVISIONS
(SECTIONS 2.3 AND 4.5 OF AGREEMENT)
<TABLE>
<CAPTION>
Employee Old Agreement New Agreement
<S> <C> <C>
Andy Dolich If terminated within 12 100% vested as of 24 months of
(Class B) months of Change in Control Change in Control or Corporate
50% immediate vesting of Transaction or 100% vested if
unvested shares. involuntarily terminated within 24
months of Change in Control or
Corporate Transaction.
</TABLE>
Andy, please sign both copies and return one original to may attention. Please
call me if you have any questions.
<PAGE> 1
EXHIBIT 10.37
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TICKETS.COM, INC.,
ADVANTIX ACQUISITION CORP.
AND
LASERGATE SYSTEMS, INC
DATED AS OF
JUNE 21, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.1 Definitions..................................................................1
ARTICLE II
THE MERGER
Section 2.1 Effective Time of the Merger.................................................5
Section 2.2 Closing......................................................................5
Section 2.3 Effects of the Merger........................................................5
Section 2.4 Directors and Officers of the Surviving Corporation..........................5
ARTICLE III
EXCHANGE OF SECURITIES
Section 3.1 Exchange of Capital Stock....................................................5
(a) Exchange of LSi Common Stock.................................................7
(b) LSi Preferred Stock..........................................................7
(c) Cancellation of LSi Common Stock.............................................7
Section 3.2 Stock Options and Warrants...................................................5
Section 3.3 Exchange of Certificates.....................................................5
(a) Exchange Agent...............................................................9
(b) Exchange Procedures..........................................................9
(c) No Further Ownership Rights in LSi Common Stock.............................10
(d) Termination of Exchange Fund................................................10
(e) No Liability................................................................10
(f) Dissenting Shares...........................................................10
Section 3.4 Certain Adjustments..........................................................5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LSI
Section 4.1 Organization.................................................................5
Section 4.2 Capitalization...............................................................5
Section 4.3 Authority....................................................................5
Section 4.4 Consents and Approvals; No Violations........................................5
Section 4.5 SEC Reports and Financial Statements........................................13
Section 4.6 Absence of Certain Changes...................................................5
Section 4.7 No Undisclosed Liabilities..................................................14
Section 4.8 Employee Benefit Plans......................................................14
Section 4.9 Other Benefit Plans.........................................................17
Section 4.10 litigation..................................................................17
Section 4.11 Compliance with Applicable Law...............................................5
Section 4.12 Opinion of Financial Advisor................................................18
Section 4.13 Board Action, Vote Required.................................................18
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.14 Tax Returns and Audits......................................................5
Section 4.15 Material Contracts.........................................................19
Section 4.16 Insurance..................................................................19
Section 4.17 Subsidiaries...............................................................20
Section 4.18 Real Property..............................................................20
Section 4.19 Environmental and Employee Safety Matters..................................20
Section 4.20 Intellectual Property......................................................21
Section 4.21 Tangible Personal Property.................................................21
Section 4.22 Employees and Independent Contractors......................................22
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF TICKETS.COM AND THE COMPANY
Section 5.1 Organization...............................................................22
Section 5.2 Authority..................................................................22
Section 5.3 Consents and Approvals; No Violations......................................23
Section 5.4 Financial Statements.......................................................23
ARTICLE VI
COVENANTS
Section 6.1 Covenants of LSi...........................................................23
(a) Ordinary Course............................................................23
(b) Dividends; Changes in Stock................................................24
(c) Issuance of Securities.....................................................24
(d) Governing Documents........................................................24
(e) No Solicitation............................................................24
(f) No Acquisitions............................................................25
(g) No Dispositions............................................................25
(h) Indebtedness and Leases....................................................25
(i) Other Actions..............................................................25
(j) Advise of Changes; Filings.................................................25
(k) Additional Matters.........................................................26
(l) Certain Resignations and Appointments......................................26
(m) Required Filings...........................................................26
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Board Approval, Fairness Opinion, Shareholder Approval and
Proxy Statement............................................................27
Section 7.2 Access to Information......................................................28
Section 7.3 Legal Conditions to Merger.................................................28
Section 7.4 Expenses...................................................................29
Section 7.5 Brokers or Finders.........................................................29
Section 7.6 Additional Agreements; Reasonable Best Efforts.............................29
Section 7.7 Public Announcements.......................................................30
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 7.8 Indemnification; Directors' and Officers' Liability Insurance..............30
Section 7.9 Confidentiality/Non-Disclosure; Non-Solicitation...........................30
Section 7.10 Loan to LSi................................................................31
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation To Effect the Merger.................31
(a) Shareholder Approval.......................................................31
(b) Other Approvals............................................................31
(c) No Injunctions or Restraints...............................................32
Section 8.2 Conditions to Obligations of Tickets.com...................................32
(a) Representations and Warranties.............................................32
(b) Performance of Obligations of LSi..........................................32
(c) No Amendments to Resolutions...............................................32
(d) Consents Under LSi Obligations.............................................32
Section 8.3 Conditions to Obligations of LSi...........................................32
(a) Representations and Warranties.............................................33
(b) Performance of Obligations of Tickets.com..................................33
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination................................................................33
Section 9.2 Amendment..................................................................35
Section 9.3 Extension; Waiver..........................................................35
Section 9.4 Fees and Expenses Upon Termination.........................................35
(a) Termination Fees...........................................................35
ARTICLE X
MISCELLANEOUS
Section 10.1 Nonsurvival of Representations, Warranties, and Agreements. ..............36
Section 10.2 Notices....................................................................36
Section 10.3 Interpretation.............................................................37
Section 10.4 Counterparts...............................................................37
Section 10.5 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership................................................................37
Section 10.6 Governing Law..............................................................38
Section 10.7 No Remedy in Certain Circumstances.........................................38
Section 10.8 Assignment.................................................................38
</TABLE>
EXHIBITS
Exhibit 4.9 Consulting Agreement
Exhibit 7.10(i) Promissory Note
iii
<PAGE> 5
Exhibit 7.10(ii) Security Agreement
SCHEDULES
Schedule 4.1 Organization
Schedule 4.5 Outstanding Accounts Receivable, Accounts Payable and
other Liabilities
Schedule 4.6 LSi Certain Changes
Schedule 4.7 LSi Undisclosed Liabilities
Schedule 4.8 LSi Employee Benefit Plans
Schedule 4.9 Other LSi Benefit Plans
Schedule 4.10 LSi Litigation
Schedule 4.14 LSi Tax Returns and Audits
Schedule 4.15 LSi Material Contracts
Schedule 4.16 LSi Insurance
Schedule 4.17 LSi Subsidiaries
Schedule 4.20 LSi Intellectual Property
Schedule 4.21 LSi Tangible Personal Property
Schedule 4.22 LSi Employees and Independent Contractors
Schedule 6.1(a) Ordinary Course of Business
iv
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of June 21,
1999, by and among Tickets.com, Inc., a Delaware corporation ("Tickets.com"),
Advantix Acquisition Corp. (the "Company") and Lasergate Systems, Inc., a
Florida corporation ("LSi").
BACKGROUND
The boards of directors of Tickets.com and LSi deem it advisable and in
the best interests of their respective shareholders to consummate, and have
approved, the business combination transaction provided for in this Agreement,
in which the Company will merge with and into LSi and will become a wholly-owned
subsidiary of Tickets.com (the "Merger"). Accordingly, in consideration of the
mutual representations, warranties, covenants, and agreements set forth below,
the parties to this Agreement agree as follows:
TERMS
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. When used in this Agreement, the following
terms shall have the meanings specified below, which apply to both the singular
and the plural forms of such terms:
"Adverse Consequences" means all actions, suits, proceedings,
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, codes,
amounts paid in settlement, or Liabilities.
"Affiliate" means a Person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, the Person specified.
"Agreement" has the meaning set forth in the preface of this
Agreement.
"Articles of Merger" has the meaning set forth in Section 2.1.
"Cash Consideration" has the meaning set forth in Section 3.1(a).
"Certificates" has the meaning set forth in Section 3.3(b).
"Closing" has the meaning set forth in Section 2.2.
1
<PAGE> 7
"Closing Date" has the meaning set forth in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface of this
Agreement.
"Confidential Information" means any information concerning the
operations, businesses and affairs of any of the parties to this Agreement, as
the context may require, that is not already generally available to the public.
Without limiting the foregoing, "Confidential Information" shall include
marketing and sales information, customer and account lists and pricing
information, internal forecasts and projections, employee information and
information relating to any confidential process, technique or procedure, any
trade secrets and the names, addresses, or other information relating to any
customer or supplier.
"Constituent Corporations" has the meaning set forth in Section
2.3.
"Current Policy" has the meaning set forth in Section 7.8.
"Dissenting Shares" has the meaning set forth in Section 3.1(a).
"D & O Insurance" has the meaning set forth in Section 7.8.
"Effective Time" has the meaning set forth in Section 2.1.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Agent" has the meaning set forth in Section 3.3(a).
"Exchange Fund" has the meaning set forth in Section 3.3(a).
"FBCA" means the Florida Business Corporation Act, as amended.
"Finder's Fees" has the meaning set forth in Section 7.5.
"Governmental Entity" has the meaning set forth in Section 4.4.
"Indemnified Property" has the meaning set forth in Section 7.8.
"Intellectual Property" means all (a) patents, patent
applications, patent disclosures, and improvements thereto, (b) trademarks,
service marks,
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trade dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (c) copyrights, whether or not
registered, copyright registrations and applications for copyright registration,
and works of authorship, including operating manuals, (d) computer software,
data, and documentation, (e) trade secrets and confidential business
information, including ideas, formulae, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, financial, marketing, and business data, pricing and
cost information, business and marketing plans, and customer, employee, and
supplier lists and information, (f) other proprietary rights, and (g) copies and
tangible embodiments thereof (in whatever form or medium).
"IRS" means the United States Internal Revenue Service.
"Knowledge" with respect to an entity means to the knowledge of
its executive officers.
"Liabilities" means any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"LSi" has the meaning set forth in the preface of this Agreement.
"LSi Benefit Plans" has the meaning set forth in Section 4.8(a).
"LSi Common Stock" means the shares of common stock, par value
$0.03 per share, of LSi.
"LSi ERISA Affiliate" has the meaning set forth in Section
4.8(a).
"LSi Financial Statements" has the meaning set forth in Section
4.5.
"LSi Permits" has the meaning set forth in Section 4.11.
"LSi Preferred Stock" means the shares of Series G preferred
stock of LSi.
"LSi SEC Documents" has the meaning set forth in Section 4.5.
"LSi Shareholders" means the holders of shares of LSi Common
Stock.
"LSi Stock Option Plan" means the 1994 Stock Option Plan of LSi.
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"LSi Subsidiaries" means all of the Subsidiaries of LSi.
"Material Adverse Effect" means such event, change, or effect is
materially adverse to the properties, assets (including intangible assets),
liabilities (including contingent liabilities), or businesses of such entity and
its Subsidiaries taken as a whole.
"Merger" has the meaning set forth in the background section of
this Agreement.
"Most Recent LSi SEC Documents" means the Form 10-KSB for the
period ending December 31, 1997 the Schedule 14A filed January 30, 1998 and the
Form 10-QSB filed on November 16, 1998.
"Option Consideration" has the meaning set forth in Section
3.2(c).
"Options" means any outstanding option validly issued pursuant to
the LSi Stock Option Plan or otherwise.
"Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Public Warrants" means any outstanding warrants issued pursuant
to the Warrant Agreement between LSi and American Securities Transfer, Inc.,
dated October 25, 1994.
"RBB" means RBB Bank, AG.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholders' Meeting" has the meaning set forth in Section
7.1(b).
"Subsidiary" means, with respect to any party, any corporation,
or other organization, whether incorporated or unincorporated, of which (a) such
party or any other Subsidiary of such party is a general partner (excluding
partnerships whose general partnership interests held by such party or any
Subsidiary of such party do not have a majority of the voting interest in such
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partnership) or (b) at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the board of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries.
"Surviving Corporation" has the meaning set forth in Section 2.3.
"Takeover Proposal" means any tender or exchange offer, proposal
for a merger, consolidation, or other business combination involving LSi or any
of its Subsidiaries taken as a whole, or any proposal or offer to acquire in any
manner the entire or more than a 20% equity interest in, or all of, or more than
20% of, the assets of LSi, one of the or any of its Subsidiaries taken as a
whole; other than the transactions contemplated by this Agreement or
transactions in the Ordinary Cause of Business of LSi.
"Taxes" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto.
"Terminating Tickets.com Breach" has the meaning set forth in
Section 9.1(f).
"Terminating LSi Breach" has the meaning set forth in Section
9.1(g).
"Termination Fee" has the meaning set forth in Section 9.4(a).
"Tickets.com" has the meaning set forth in the preface of this
Agreement.
"Underwriter's Warrants" means any outstanding warrants issued
pursuant to the Underwriter's Warrant Agreement between LSi and Sterling Foster
& Co. Corporation.
"Voting Debt" has the meaning set forth in Section 4.2.
"Warrant Consideration" has the meaning set forth in Section
3.2(d).
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ARTICLE II
THE MERGER
Section 2.1 Effective Time of the Merger. Subject to the provisions of
this Agreement, articles of merger (the "Articles of Merger") shall be duly
prepared, executed, and acknowledged by the Company and LSi as required and will
be delivered to the Secretary of State of Florida for filing, in accordance with
the FBCA as soon as practicable on or after the Closing. The Merger will become
effective at such time as is provided in the Articles of Merger (the "Effective
Time").
Section 2.2 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") will take place as soon as practicable after the
satisfaction or waiver of all of the conditions to the Merger (the "Closing
Date"), at the offices of Holland & Knight LLP, 400 North Ashley Drive, Suite
2300, Tampa, Florida 33602, unless another date or place is agreed to in writing
by the parties.
Section 2.3 Effects of the Merger.
(a) At and after the Effective Time (i) LSi will continue as the
surviving corporation of the Merger (the "Surviving Corporation"); (ii) the
separate existence of the Company will cease and the Company will be merged with
and into LSi (the Company and LSi are sometimes referred to in this Agreement as
the "Constituent Corporations"); (iii) the Merger will have all of the effects
provided by the Articles of Merger and applicable law; (iv) the articles of
incorporation of the Company in effect immediately before the Effective Time
shall be the articles of incorporation of the Surviving Corporation, with the
exception that the name of the Surviving Corporation shall become Lasergate
Systems, Inc.; and (v) the bylaws of the Company as in effect immediately before
the Effective Time shall be the bylaws of the Surviving Corporation.
(b) At and after the Effective Time, the Surviving Corporation
shall possess all the rights, privileges, immunities, and franchises, of a
public as well as of a private nature, and be subject to all the restrictions,
disabilities, and duties, of each of the Constituent Corporations; and all the
singular rights, privileges, immunities, and franchises of each of the
Constituent Corporations, and all property, real, personal, and mixed, and all
debts due to either of the Constituent Corporations on whatever account,
including subscriptions to shares and all other choses in action, and all and
every other interest of or belonging to or due to each of the Constituent
Corporations, shall be taken and deemed to be transferred to and vested in the
Surviving Corporation, and all property, rights, privileges, powers, and
franchises, and all and every other
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interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the Constituent Corporations, and the title to any
real estate vested by deed or otherwise in either of the Constituent
Corporations shall not revert or be in any way impaired; but all rights of
creditors and all liens upon any property of either of the Constituent
Corporations shall be preserved unimpaired, and all debts, Liabilities, and
duties of the Constituent Corporations shall attach to the Surviving
Corporation, and may be enforced against it to the same extent as if such debts
and Liabilities had been incurred by it.
Section 2.4 Directors and Officers of the Surviving Corporation. The
board of directors of the Surviving Corporation shall have three members, all of
whom will be chosen by Tickets.com, until their successors shall have been duly
elected or appointed and qualified or until their earlier death, resignation, or
removal in accordance with the Surviving Corporation's articles of incorporation
and bylaws. The officers of LSi at the Effective Time shall, from and after the
Effective Time, be the officers of the Surviving Corporation until their
successors shall have been duly appointed and qualified or until their earlier
death, resignation, or removal in accordance with the Surviving Corporation's
articles of incorporation and bylaws.
ARTICLE III
EXCHANGE OF SECURITIES
Section 3.1 Exchange of Capital Stock. As of the Effective Time, by
virtue of the Merger and without any further action on the part of the
Constituent Corporations or the holders of any shares of capital stock of the
Constituent Corporations:
(a) Exchange of LSi Common Stock. At the Effective Time, the
holders of each issued and outstanding share of LSi Common Stock (other than
shares to be cancelled pursuant to Section 3.1(c) and excluding shares owned by
holders who have properly exercised their rights of appraisal within the meaning
of the FBCA (the "Dissenting Shares")), shall be entitled to receive $0.10 for
each share of LSi Common Stock (the "Cash Consideration").
(b) LSi Preferred Stock. At the Effective Time, the holders of
each issued and outstanding share of LSi Preferred Stock (other than shares to
be cancelled pursuant to Section 3.1(c) and excluding shares owned by holders
who have properly exercised their rights of appraisal within the meaning of the
FBCA) shall remain outstanding.
(c) Cancellation of LSi Common Stock. Each share of LSi Common
Stock and LSi Preferred Stock that is owned by LSi as treasury stock and each
share of LSi Common Stock and LSi Preferred Stock owned by
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Tickets.com, or any other wholly-owned Subsidiary of Tickets.com, shall be
cancelled and retired and shall cease to exist, and no other consideration shall
be delivered in exchange therefor. All shares of LSi Common Stock, when
converted pursuant to this Section 3.1, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the Cash Consideration in
consideration therefor upon the surrender of such certificate pursuant to
Section 3.3.
Section 3.2 Stock Options and Warrants.
(a) LSi will (i) terminate the LSi Stock Option Plan and any
other option plan immediately before the Effective Time, without prejudice to
the rights of the holders of the outstanding Options issued pursuant to the LSi
Stock Option Plan, (ii) grant no additional Options after the date of this
Agreement under the LSi Option Plan, and (iii) grant no other Options, warrants,
rights, convertible securities or other agreements or commitments pursuant to
which LSi is required to issue any shares of its capital stock or any securities
convertible into or exchangeable for its capital stock.
(b) LSi will, at or before the Closing, cancel and cause the
surrender of all outstanding Options, regardless of whether the Options are then
exercisable.
(c) In settlement of the surrender and cancellation of each
Option, each holder of an Option that is exercisable at the Effective Time will
be entitled to receive an amount in cash (the "Option Consideration"), without
interest, equal to the product of (i)(A) the Cash Consideration, minus (B) the
exercise price per share of the LSi Common Stock under the Option, multiplied by
(ii) the number of shares of the LSi Common Stock covered by such Option;
provided, however, that LSi shall withhold any applicable federal and state
withholding Taxes. All Options shall be surrendered and cancelled at the Closing
and, upon such surrender and cancellation, Tickets.com will instruct the
Exchange Agent (as defined below) to promptly pay the Option Consideration on
the business day following the Closing. On or prior to the Closing, LSi shall
use its commercially reasonable efforts to take all actions (including, without
limitation, commercially reasonable efforts to obtain the necessary consents
from each holder of an Option) required to effect the matters set forth in this
Section 3.2, and to the surrender and cancellation of all of such holder's
Options and those necessary to effect the surrender, cancellation and settlement
of Options pursuant to this Section 3.2. In the event that the Cash
Consideration is less than or equal to the exercise price of the Option, the
holders will receive no Option Consideration or any other Cash Consideration.
The effect of the Merger shall be to terminate all Options prior to the
Effective Time.
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(d) (i) At the Effective Time, the holders of each issued and
outstanding Public Warrant shall be entitled to receive an amount in cash (the
"Warrant Consideration"), without interest, equal to the product of (i)(A) the
Cash Consideration, minus (B) the exercise price of each Public Warrant,
multiplied by (ii) the number of shares of the LSi Common Stock covered by such
Public Warrant; provided, however LSi shall withhold any applicable federal and
state withholding Taxes. In the event that the Cash Consideration is less than
or equal to the exercise price of the Public Warrant, the holders will receive
no Warrant Consideration or any other Cash Consideration. The effect of the
Merger shall be to terminate all Warrants prior to the Effective Time.
(ii) At the Effective Time, each issued and outstanding
Underwriter's Warrant shall remain outstanding.
Section 3.3 Exchange of Certificates.
(a) Exchange Agent. At the Effective Time, Tickets.com shall
deposit with Imperial Bank or such other bank or trust company designated by
Tickets.com and reasonably acceptable to LSi (the "Exchange Agent"), for the
benefit of the holders of shares of LSi Common Stock, Options and Public
Warrants, to the extent applicable, for exchange in accordance with this Article
III, through the Exchange Agent, cash in exchange for outstanding shares of LSi
Common Stock, Options and Public Warrants payable pursuant to Sections 3.1 and
3.2 (the "Exchange Fund"). On or prior to the Closing, Tickets.com, LSi and the
Exchange Agent shall enter into an exchange agreement in form and substance
reasonably acceptable to each of them reflecting the terms of this Article III.
(b) Exchange Procedures. As soon as reasonably practicable after
the Effective Time, Tickets.com will instruct the Exchange Agent to mail to each
holder of record of a certificate or certificates that immediately before the
Effective Time represented outstanding shares of LSi Common Stock (the
"Certificates") whose shares were converted pursuant to Section 3.1 into the
right to receive the Cash Consideration, (i) a letter of transmittal (which
shall specify that delivery shall be effected and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates or affidavits of
loss in lieu thereof), to the Exchange Agent and shall be in such form and have
such other provisions as Tickets.com and LSi may reasonably specify, and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Cash Consideration. Upon surrender of a Certificate for cancellation to
the Exchange Agent together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive the Cash Consideration
in exchange therefor, and the Certificate so surrendered shall immediately be
cancelled. In the event of a transfer of ownership of LSi Common Stock that is
not registered in the transfer records of LSi, the Cash Consideration may be
issued to a transferee if the Certificate representing such LSi Common Stock is
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presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer Taxes have been paid. Until surrendered as contemplated by this Section
3.3, each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive the Cash Consideration upon such surrender
as contemplated by this Section 3.3.
(c) No Further Ownership Rights in LSi Common Stock. The Cash
Consideration issued upon the surrender for exchange of shares of LSi Common
Stock in accordance with the terms of this Agreement shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares of LSi
Common Stock, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of LSi Common
Stock that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be cancelled and exchanged as provided in this Article
III. All rights of holders of Options and Public Warrants shall be terminated at
the Effective Time, subject to the rights, if any, of the holders thereof to
receive only the Cash Consideration set forth in Section 3.2 of this Agreement,
if any.
(d) Termination of Exchange Fund. Any part of the Exchange Fund
that remains undistributed to the holders of LSi Common Stock, Options or Public
Warrants for one year after the Effective Time shall be delivered to
Tickets.com, upon demand, and any holders of LSi Common Stock, Options or Public
Warrants who by such time have not complied with this Article III shall
thereafter look only to Tickets.com for payment of the Cash Consideration,
Option Consideration and Warrant Consideration.
(e) No Liability. Neither Tickets.com, the Company nor LSi shall
be liable to any holder of shares of LSi Common Stock, Options or Public
Warrants for the Cash Consideration delivered to a public official pursuant to
any applicable abandoned property, escheat, or similar law.
(f) Dissenting Shares. Any Dissenting Shares shall be converted
into the right to receive from the Surviving Corporation such cash consideration
as may be determined to be due with respect to each such Dissenting Share
pursuant to Section 607.1302 of the FBCA; provided, however, that shares of LSi
Common Stock or LSi Preferred Stock that are Dissenting Shares at the Effective
Time of the Merger and are held by a holder who shall, after the Effective Time
of the Merger, withdraw his demand for appraisal or lose his right of appraisal
as provided in the Section 607.1302 of the FBCA, shall be deemed to be
converted, as of the Effective Time of the Merger, into the right to receive the
Cash Consideration (or retain the LSi Preferred Stock, as the case may be) in
accordance with the procedures specified in the other provisions of this Article
III. LSi will give Tickets.com (i)
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prompt notice of any written demands for appraisal, withdrawals of demands for
appraisal and any other instruments served pursuant to Section 607.1302 of the
FBCA received by LSi and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under Section 607.1302 of the
FBCA. LSi will not voluntarily make any payment with respect to any demands for
appraisal and will not, except with the prior written consent of Tickets.com,
settle or offer to settle any such demands. It is understood and agreed that the
obligation to make any payment under Section 607.1302 of the FBCA shall be a
joint obligation of Tickets.com and the Surviving Corporation.
Section 3.4 Certain Adjustments. If between the date of this Agreement
and the Effective Time, the outstanding shares of LSi Common Stock are changed
into a different number of shares by reason of any reorganization,
reclassification, recapitalization, split-up, combination, or exchange of
shares, or any dividend payable in stock or other securities shall be declared
thereon with a record date within such period, the Cash Consideration shall be
adjusted accordingly to provide to the holders of LSi Common Stock, Options or
Public Warrants the same economic effect as contemplated by this Agreement prior
to such reclassification, reorganization, recapitalization, split-up,
combination, exchange, or dividend.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LSI
LSi represents and warrants to Tickets.com and the Company as follows:
Section 4.1 Organization. Except as set forth in Schedule 4.1, each of
LSi and the LSi Subsidiaries is: (a) a corporation duly organized, validly
existing and with active status or in good standing under the laws of their
respective jurisdictions of incorporation and (b) has all the requisite
corporate power and authority and all necessary governmental approvals to own,
lease, and operate its properties and to carry on its businesses as now being
conducted, except where the failure to be so organized, existing, and in good
standing or to have such power, authority, and governmental approvals would not
have a Material Adverse Effect on LSi. Each of LSi and the LSi Subsidiaries is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased, or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and be
in good standing would not in the aggregate have a Material Adverse Effect on
LSi. Schedule 4.1 lists the dates of all board and shareholder resolutions since
January 1, 1998 and LSi has provided to Tickets.com copies of all resolutions
listed in Schedule 4.1. There are no other resolutions other than those listed
on Schedule 4.1.
Section 4.2 Capitalization. As of the date of this Agreement, the
authorized capital stock of LSi consists of (a) 20,000,000 shares of LSi
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Common Stock of which, as of May 31, 1998, 15,299,393 shares were issued and
outstanding, and (b) 2,000,000 shares of LSi Preferred Stock, of which, as of
May 31, 1998, 5,700 shares were issued and outstanding. As of the date of this
Agreement, 58,333 shares of LSi Common Stock were reserved for issuance upon
exercise of outstanding Options pursuant to the LSi Stock Option Plan, and
1,800,000 shares were reserved for issuance in connection with outstanding
Public Warrants and Underwriter's Warrants. The exercise price of all
outstanding Public Warrants is $5.50 per share and the exercise prices of
outstanding Options range from $.10 to $5.50 per share. All of the outstanding
shares of LSi capital stock are, duly authorized, validly issued, fully paid and
nonassessable, and free of any preemptive rights. No bonds, debentures, notes,
or other indebtedness having the right to vote (or convertible into securities
having the right to vote) ("Voting Debt") of LSi are issued or outstanding.
Except as described above, there are no existing options, warrants, calls,
subscriptions, or other rights, agreements, or commitments of any character
relating to the issued or unissued capital stock or Voting Debt of LSi, or
obligating LSi to issue, transfer, or sell or cause to be issued, transferred,
or sold any shares of capital stock or Voting Debt of, or other equity interests
in, LSi, or securities convertible into or exchangeable for such shares or
equity interests or obligating LSi to grant, extend, or enter into any such
option, warrant, call, subscription or other right, agreement, or commitment. As
of the date of this Agreement, there are no outstanding contractual obligations
of LSi to repurchase, redeem, or otherwise acquire any shares of capital stock
of LSi.
Section 4.3 Authority. LSi has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement (other than, with respect to the
Merger, the approval and adoption of this Agreement by the holders of a majority
of the outstanding shares of LSi Common Stock). The execution, delivery, and
performance of this Agreement and the consummation of the Merger and of the
other transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action on the part of LSi and no other corporate
proceedings on the part of LSi are necessary to authorize this Agreement or to
consummate the transactions so contemplated (other than, with respect to the
Merger, the approval and adoption of this Agreement by the holders of a majority
of the outstanding shares of LSi Common Stock). This Agreement has been duly
executed and delivered by LSi and, assuming this Agreement constitutes a valid
and binding obligation of Tickets.com, constitutes a valid and binding
obligation of LSi enforceable against LSi in accordance with its terms, subject
to bankruptcy, solvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
or relating to general equity principles.
Section 4.4 Consents and Approvals; No Violations. Except for filings,
permits, authorizations, consents, and approvals as may be required under,
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and other applicable requirements of the Exchange Act, the Securities Act, the
FBCA, the laws of other states in which LSi is qualified to do or is doing
business and state takeover laws, and foreign laws, neither the execution,
delivery, or performance of this Agreement by LSi nor the consummation by LSi of
the transactions contemplated by this Agreement, nor compliance by LSi with any
of the provisions of this Agreement will (a) conflict with or result in any
breach of any provision of the articles of incorporation or the bylaws of LSi;
(b) require any filing with, or authorization, consent, permit, or approval of,
any court, arbitral tribunal, administrative agency or commission, or other
governmental or other regulatory authority or agency (a "Governmental Entity"),
except where the failure to obtain such authorizations, consents, permits, or
approvals or to make such filings, would not have a Material Adverse Effect on
LSi; (c) result in a violation or breach of, or constitute (with or without
notice or lapse of time or both) a default (or give rise to any right of
termination, amendment, cancellation, or acceleration) under, any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, lease,
license, contract, option, warrant, agreement, or other instrument or obligation
to which LSi is a party or by which it or its properties or assets may be bound;
or (d) violate any order, writ, injunction, decree, statute, rule, or regulation
applicable to LSi, or its properties or assets, except as they relate to (c) or
(d), for violations, breaches, or defaults that would not, individually or in
the aggregate, have a Material Adverse Effect on LSi.
Section 4.5 SEC Reports and Financial Statements. LSi has filed with the
SEC, and has made available to Tickets.com true and complete copies of, all
forms, reports, schedules, statements, and other documents required to be filed
by it since October, 1994, under the Exchange Act or the Securities Act (as such
documents have been amended since the time of their filing, and including any
such documents filed subsequent to the date of this Agreement, collectively, the
"LSi SEC Documents"). The LSi SEC Documents, including without limitation any
financial statements and schedules included in such documents, at the time filed
(the "LSi Financial Statements") (subject to and taking into account any and all
amendments filed thereto, as of, or prior to, the date of this Agreement), (a)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements in such documents, in light of the circumstances under which they
were made, not misleading; and (b) complied in all material respects with the
applicable requirements of the Exchange Act and the Securities Act, as the case
may be, and the applicable rules and regulations of the SEC. The LSi Financial
Statements included in the LSi SEC Documents (subject to and taking into account
any and all amendments filed as of or prior to the date of this Agreement)
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect to such documents, have been prepared from and in accordance with the
books and records of LSi in accordance with generally accepted accounting
principles applied on a consistent basis during
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the periods involved (except as may be indicated in the notes to the LSi
Financial Statements or, in the case of the unaudited statements, as permitted
by the accounting rules applicable to reports on Form 10-Q or Form 10-QSB under
the Exchange Act) and fairly present (subject, in the case of the unaudited
statements, to normal, recurring audit adjustments) the consolidated financial
position of LSi as of the dates of the LSi Financial Statements and the
consolidated results of their operations and cash flows for the periods then
ended. Additionally, the December 31, 1998 unaudited balance sheet of LSi
provided to Tickets.com is true and correct in all material respects as of such
date and LSi has set forth in Schedule 4.5 a list of all outstanding accounts
receivable, accounts payable and other liabilities (including accrued expenses)
as of May 31, 1999. In addition, Schedule 4.5 lists all monies owed to each of
Jacqueline E. Soechtig, Cliff Soechtig, Frank W. Swacker and John J. Chluski.
Section 4.6 Absence of Certain Changes. Except as disclosed in the Most
Recent LSi SEC Documents or in Schedule 4.6, there have been no events, changes,
or effects having, individually or in the aggregate, a Material Adverse Effect
on LSi (including, without limitation, any threatened or actual loss of
customers), which would have a Material Adverse Effect on LSi.
Section 4.7 No Undisclosed Liabilities. Except as and to the extent set
forth in the Most Recent LSi SEC Documents and except as set forth in Schedule
4.7, LSi has no material Liabilities that were not reflected on the LSi
Financial Statements (including the notes thereto), except for Liabilities that
arose in the Ordinary Course of Business since December 31, 1998.
Section 4.8 Employee Benefit Plans.
(a) Schedule 4.8 sets forth a complete and accurate list of each
pension, retirement, profit sharing, deferred compensation, stock option, stock
purchase, bonus, medical, welfare, disability, severance or termination pay,
insurance or incentive plan, and each other employee benefit plan, program,
agreement or arrangement, whether funded or unfunded, sponsored, maintained or
contributed to or required to be contributed to by LSi or any of the LSi
Subsidiaries or by any trade or business, whether or not incorporated, that
together with LSi would be deemed a "single employer" within the meaning of
Section 4001 of ERISA (an "LSi ERISA Affiliate"), for the benefit of any
employee or terminated employee of LSi or any LSi ERISA Affiliate (the "LSi
Benefit Plans").
(b) Neither LSi nor any LSi ERISA Affiliate participates
currently or has ever participated in, or is required currently or has ever been
required to contribute to or otherwise participate in any "multi-employer plan,"
as defined in Sections 3(37)(A) and 4001(a)(3) of ERISA and Section 414(f) of
the Code.
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(c) Complete and accurate copies of each of the LSi Benefit Plans
and related trusts have been furnished to Tickets.com. To the extent not yet
furnished to Tickets.com, there shall be furnished to Tickets.com within five
days of the date of this Agreement, with respect to each of the LSi Benefit
Plans, the most recent financial statement and the most recent actuarial report
prepared with respect to any of such LSi Benefit Plans that is funded, the most
recent IRS determination letter, the most recent Summary Plan Description and
the most recent Annual Report together with a statement setting forth any such
material documents which cannot be furnished, and any such documents furnished
and the nature of the documents which cannot be furnished shall be reasonably
satisfactory to Tickets.com.
(d) With respect to each LSi Benefit Plan intended to be
"qualified" within the meaning of Section 401(a) of the Code, a determination
letter from the IRS has been received to the effect that LSi Benefit Plan is
qualified under Section 401 of the Code and any trust maintained pursuant to
such plan is exempt from federal income taxation under Section 501 of the Code,
and nothing has occurred or will occur through the Effective Time (including,
without limitation, the transactions contemplated by this Agreement) which would
cause the loss of such qualification or exemption or the imposition of any
material penalty or tax liability.
(e) All contributions required by each LSi Benefit Plan or by law
with respect to all periods through the Effective Time shall have been made by
such date (or provided for by LSi by adequate reserves on the LSi Financial
Statements) and no excise or other taxes have been incurred or are due and owing
with respect to LSi Benefit Plan because of any failure to comply with the
minimum funding standards of ERISA and the Code.
(f) No "accumulated funding deficiency", as defined in Section
302 of ERISA, has been incurred with respect to any LSi Benefit Plan, whether or
not waived.
(g) No "reportable event" of the type set forth in Section 4043
of ERISA has occurred and is continuing with respect to any LSi Benefit Plan.
(h) There are no material violations of ERISA or the Code with
respect to the filing of applicable reports, documents, and notices regarding
any LSi Benefit Plan with the Secretary of Labor, Secretary of the Treasury, or
the Pension Benefit Guaranty Corporation or furnishing such documents to
participants or beneficiaries, as the case may be.
(i) No claim, lawsuit, arbitration, or other action has been
threatened, asserted, or instituted against any LSi Benefit Plan, any trustee or
fiduciaries of such plan, LSi, or any of the assets of any trust maintained
under any LSi Benefit Plan, which would have a Material Adverse Effect on LSi.
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(j) All amendments required to bring any LSi Benefit Plan into
conformity in all material aspects with any of the applicable provisions of
ERISA and the Code have been duly adopted and filed with the appropriate agency
as required.
(k) Any bonding required with respect to any LSi ERISA Plan in
accordance with applicable provisions of ERISA has been obtained and is in full
force and effect.
(l) Each LSi Benefit Plan has been operated and administered in
accordance with its terms in all material respects and the material terms and
the provisions of ERISA and the Code (including rules and regulations
thereunder) applicable thereto and in practice is tax qualified under Sections
401(a) and 501 of the Code.
(m) All required material information filings for each LSi
Benefit Plan have been timely filed, including, without limitation, all Form
5500 filings.
(n) LSi has not incurred nor reasonably expects to incur, any
material liability to the Pension Benefit Guaranty Corporation.
(o) No "prohibited transaction," as such term is defined in
Section 4975 of the Code and Section 406 of ERISA, has occurred with respect to
any LSi Benefit Plan (and the transactions contemplated by this Agreement will
not constitute or directly or indirectly result in such a "prohibited
transaction") which could subject LSi or its successors, or any officer,
director or employee of any of the foregoing, or any trustee, administrator or
other fiduciary, to a material tax or penalty on prohibited transactions imposed
by either Section 502 of ERISA or Section 4975 of the Code.
(p) No LSi Benefit Plan is under audit by the IRS or the
Department of Labor.
(q) The present value, determined on a termination basis, of all
accrued benefits, vested and unvested, under each LSi Benefit Plan, determined
using the actuarial valuation assumptions and methods (including interest rates)
contained in the most recent actuarial report for such LSi Benefit Plan, does
not exceed the assets thereof allocable to such benefits.
(r) No welfare benefit plan (within the meaning of Section 3(1)
of ERISA) provides for continuing benefits or coverage for any participant or
beneficiary of a participant after such participant's termination of employment,
except as may be required by the Consolidated Omnibus Budget Reconciliation Act
of 1985 or by Sections 601 through 608 of ERISA, or Sections 162 and 4980B of
the Code at the expense of the participant or the beneficiary of the
participant.
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(s) LSi does not currently maintain or contribute to any
severance pay plan.
(t) No individual shall accrue or receive any additional
benefits, service, or accelerated rights to payment of benefits under any LSi
Benefit Plan as a result of the actions contemplated by this Agreement.
(u) LSi has complied with all of the requirements of the
Consolidated Omnibus Budget Reconciliation Act of 1985, Sections 601 through 608
of ERISA, and Sections 162 and 4980B of the Code.
Section 4.9 Other Benefit Plans. Except as: (a) disclosed in the Most
Recent LSi SEC Documents or in Schedule 4.9, and (b) provided for in this
Agreement, as of the date of this Agreement, LSi is not a party to any oral or
written (i) consulting agreement not terminable on 60 days or less notice; (ii)
union or collective bargaining agreement; (iii) agreement with any executive
officer or other key employee of LSi providing for contingent benefits or the
alteration of terms, based upon the occurrence of a transaction involving LSi of
the nature contemplated by this Agreement, or agreement concerning any executive
officer of LSi providing any term of employment or compensation guarantee
extending for a period longer than one year and for the payment of in excess of
$50,000 per year (except for an Employment Agreement with Jacqueline E.
Soechtig, dated March 7, 1995 and consulting agreements with Frank W. Swacker
and John J. Chluski in the form attached to this Agreement as Exhibit 4.9); or
(iv) agreement or plan, including any stock option plan, stock appreciation
right plan, restricted stock plan, or stock purchase plan, providing for
increased benefits or the accelerated vesting of the benefits by the occurrence
of any of the transactions contemplated by this Agreement, or the calculation of
the value of any of the benefits on the basis of any of the transactions
contemplated by this Agreement.
Section 4.10 Litigation. Except as disclosed in the Most Recent LSi SEC
Documents or Schedule 4.10, there is no suit, claim, action, proceeding, or
investigation pending or, to the Knowledge of LSi, threatened against LSi before
any Governmental Entity that, individually or in the aggregate, is likely to
have a Material Adverse Effect on LSi or would prevent LSi from consummating the
transactions contemplated by the Agreement. Except as disclosed in the Most
Recent LSi SEC Documents, LSi is not subject to any outstanding order, writ,
injunction, or decree that, insofar as can be reasonably foreseen, individually
or in the aggregate, in the future would have a Material Adverse Effect on LSi
or would prevent LSi from consummating the transactions contemplated by this
Agreement.
Section 4.11 Compliance with Applicable Law. Each of LSi and the LSi
Subsidiaries hold all permits, licenses, variances, exemptions, orders, and
approvals of all Governmental Entities necessary for the lawful conduct of their
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respective businesses (the "LSi Permits"), except where the failure to hold such
permits, licenses, variances, exemptions, orders, and approvals would not,
individually or in the aggregate, have a Material Adverse Effect on LSi. Each of
LSi and the LSi Subsidiaries is in material compliance with the terms of LSi
Permits except where the failure to hold such permits, licenses, variances,
exemptions, orders, and approvals would not, individually or in the aggregate,
have a Material Adverse Effect on LSi. Except as disclosed in the LSi SEC
Documents filed prior to the date of this Agreement, the businesses of each of
LSi and the LSi Subsidiaries is in material compliance with all laws,
ordinances, and regulations of any Governmental Entity, except where a failure
to comply would not have a Material Adverse Effect on LSi. No investigation or
review by any Governmental Entity with respect to LSi or any of the LSi
Subsidiaries is pending or, to the Knowledge of LSi, threatened, nor has any
Governmental Entity indicated in writing an intention to conduct any
investigation or review, which investigation or review could have a Material
Adverse Effect on LSi.
Section 4.12 Opinion of Financial Advisor. LSi has received the opinion
of Raymond James & Associates, Inc., to the effect that, as of such date, the
consideration to be received in the Merger by the LSi Shareholders is fair to
such shareholders from a financial point of view. Subject to approval by Raymond
James & Associates, Inc., a copy of the opinion will be delivered to Tickets.com
within five days of the date of this Agreement.
Section 4.13 Board Action, Vote Required.
(a) As of the date of this Agreement and subject to the last
sentence of Section 6.1(e), the board of directors of LSi has determined that
the transactions contemplated by this Agreement are in the best interests of LSi
and the LSi Shareholders and has resolved to recommend to such shareholders that
they vote in favor of such transactions.
(b) The affirmative vote of a majority of the LSi Shareholders is
the only vote of the holders of any class or series of LSi's securities
necessary to approve this Agreement and the transactions contemplated by this
Agreement.
Section 4.14 Tax Returns and Audits. Except as set forth in Schedule
4.14, each of LSi and the LSi Subsidiaries has duly filed all federal, state,
local, and foreign Tax returns required to be filed by it, has correctly and
fully reflected the taxable income required to be shown thereon, and to the
Knowledge of LSi has duly paid or made adequate provision for the payment of all
Taxes, including state income and payroll and sales Taxes, that have been
incurred or are due and payable pursuant to such returns or pursuant to any
assessment with respect to Taxes in such jurisdictions, whether or not in
connection with such returns. There are no circumstances or pending
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questions relating to potential Tax Liabilities or claims asserted for Taxes or
assessments of LSi or any of the LSi Subsidiaries that, if adversely determined,
could result in a Tax Liability that would have a Material Adverse Effect on LSi
for any period prior to, including, or beginning after the Closing or on LSi's
present practices in computing or reporting Taxes excluding any claims that
might arise from the transactions contemplated by this Agreement. LSi is not
subject to, and has no Knowledge of, a pending or a threatened (in writing)
local, state or federal Tax audit or inquiry.
Section 4.15 Material Contracts. Schedule 4.15 lists all material
contracts, agreements, licenses and written arrangements to which LSi or any of
the LSi Subsidiaries is a party or by which any of their assets are bound,
required to be filed with the SEC. To the Knowledge of LSi and the LSi
Subsidiaries, no party to any contract listed on the LSi's SEC Documents plans
to terminate any such contract with either entity or the Surviving Corporation,
the termination of which would have a Material Adverse Effect on LSi and the LSi
Subsidiaries taken as a whole or the Surviving Corporation and its Subsidiaries
taken as a whole. With respect to each such written arrangement: (i) the written
arrangement is legal, valid, binding, enforceable against LSi, and in full force
and effect, assuming the other parties thereto have duly executed and delivered
such arrangements and had the necessary power and authority to enter into such
written arrangements when executed and delivered; (ii) the written arrangement
will continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms following the Closing, subject to bankruptcy,
solvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights or to general
equity principles, and in full force and effect, assuming, if applicable, that
required consents to assignment are obtained; (iii) to LSi's Knowledge, no party
is in material breach or default, and no event has occurred that with notice or
lapse of time or both would constitute a material breach or default, or permit
termination, modification, or acceleration under the written arrangement; and
(iv) to LSi's Knowledge, no party has repudiated any provision of the written
arrangement.
Section 4.16 Insurance. Except as set forth in Schedule 4.16, LSi has
customary insurance coverages for companies of its size in its industry
(including liability, property, business risk, employee health, group life,
director/officer liability, and bond insurance and surety arrangements),
currently in effect, to which LSi is a party, a named insured, or otherwise the
beneficiary of coverage. With respect to each insurance policy currently in
effect: (a) the policy is legal, valid, binding, and enforceable and in full
force and effect, assuming the other parties thereto have duly executed and
delivered such policy and had the necessary power and authority to enter into
such policy when executed and delivered; (b) the policy will continue to be
legal, valid, binding, and enforceable and in full force and effect on identical
terms until the Closing, except to the extent terminated in the Ordinary Course
of
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Business; (c) LSi is not in material breach or default (including with respect
to the payment of premiums or the giving of notices), and no event has occurred
that, with notice or the lapse of time or both, would constitute such a material
breach or default or permit termination, modification, or acceleration under the
policy; and (d) to LSi's Knowledge, no party to the policy has repudiated any
provision thereof. LSi has not received any notification of a reservation of
rights from any of its insurers regarding any open material claim.
Section 4.17 Subsidiaries. Except as set forth in the LSi SEC Documents
or in Schedule 4.17, LSi has no Subsidiaries. LSi owns all of the outstanding
securities of all of its Subsidiaries.
Section 4.18 Real Property. LSi owns no real property. The LSi SEC
Documents list all parcels of real property leased by LSi. With respect to each
parcel of leased real property, the lease or sublease is legal, valid, binding,
and enforceable, subject to bankruptcy, solvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights or to general equity principles, and in full
force and effect. To LSi's knowledge, all leased facilities have received all
approvals of Governmental Entities (including licenses and permits) required in
connection with the occupancy or operation thereof, except for any approval, the
failure of which to obtain, individually or in the aggregate, would not have a
Material Adverse Effect on LSi.
Section 4.19 Environmental and Employee Safety Matters. Except for such
matters that, individually or in the aggregate, are not reasonably likely to
have a Material Adverse Effect on LSi or the LSi Subsidiaries, to the Knowledge
of LSi, each of LSi and the LSi Subsidiaries has complied with all laws
(including rules and regulations thereunder) of all federal, state, local, and
foreign governments (and all agencies thereof) concerning the environment,
public health and safety, and employee health and safety, and no charge,
complaint, action, suit, proceeding, hearing, investigation, claim, demand, or
notice has been filed or commenced against any of them alleging any failure to
comply with any such law or regulation. To the Knowledge of LSi, LSi and the LSi
Subsidiaries have no Liability, and there is no basis for such Liability, under
any law (or rule or regulation thereunder) of any federal, state, local, or
foreign government (or agencies thereof), concerning release or threatened
release of hazardous substances or pollution or protection of the environment.
Section 4.20 Intellectual Property
(a) Except as set forth in Schedule 4.20, to the Knowledge of
LSi, LSi owns or has the right to use all Intellectual Property necessary for
the operation of its business and those of the LSi Subsidiaries as presently
conducted. All such Intellectual Property will be owned or available for use by
the Surviving Corporation on identical terms and conditions immediately on
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and after the Closing, subject to the filing of customary assignments with the
United States Patent and Trademark Office. LSi has taken all reasonable actions
to protect each such item of Intellectual Property.
(b) Except as set forth in Schedule 4.20, to the Knowledge of
LSi, neither LSi nor any of the LSi Subsidiaries has interfered with, infringed
upon, misappropriated, or otherwise violated in any material respect any
Intellectual Property rights of third parties, and, there is no pending charge,
complaint, claim, or notice alleging any such material interference,
infringement, misappropriation, or violation. To the Knowledge of LSi, no third
party has interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any of its Intellectual Property rights.
Section 4.21 Tangible Personal Property
(a) LSi or one of the LSi Subsidiaries owns or leases all
tangible personal property (including, without limitation, furniture, fixtures,
equipment, and supplies) necessary for the conduct in all material respects of
the business of LSi and the LSi Subsidiaries as presently conducted.
(b) Except as set forth in the LSi Financial Statements or in
Schedule 4.21, LSi is the sole lawful and beneficial owner of its tangible
personal property set forth in the LSi Financial Statements as of December 31,
1997 to the date of this Agreement, free and clear of all liens and
encumbrances, except for (i) liens for current Taxes not yet due or payable;
(ii) liens imposed by law and incurred in the Ordinary Course of Business for
obligations not yet due to landlords carriers, warehousemen, laborers and
materialmen; and (iii) liens in respect of pledges or deposits under worker's
compensation laws, and LSi or one of the LSi Subsidiaries has good and
marketable title to all such property subject to such liens and encumbrances.
(c) The tangible personal property of LSi is in serviceable
condition, reasonable wear and tear excepted, and the value attributed to it in
the LSi Financial Statements represents an amount not in excess of the purchase
price, less reasonable depreciation, of such property.
Section 4.22 Employees and Independent Contractors Except as set forth
in Schedule 4.22, to the Knowledge of LSi, no employee or group of employees or
independent contractors plans to terminate employment with either entity or the
Surviving Corporation, which termination would have a Material Adverse Effect on
LSi.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF TICKETS.COM AND THE COMPANY
Tickets.com and the Company represent and warrant to LSi as follows:
Section 5.1 Organization. Each of Tickets.com and the Company is a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction and has all requisite corporate power and authority and
all necessary governmental approvals to own, lease, and operate its properties
and to carry on its business as now being conducted except where the failure to
be so organized, existing, and in good standing or to have such power,
authority, and governmental approvals would not have a Material Adverse Effect
on Tickets.com. Each of Tickets.com and the Company is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the property owned, leased, or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and be in good standing would
not in the aggregate have a Material Adverse Effect on Tickets.com.
Section 5.2 Authority. Each of Tickets.com and the Company has the
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated by this Agreement. In addition,
Tickets.com currently has the financial resources to consummate the Merger. The
execution, delivery, and performance of this Agreement, and the consummation of
the Merger and the other transactions contemplated by this Agreement, have been
duly authorized by all necessary corporate action on the part of Tickets.com and
the Company and no other corporate proceedings on the part of Tickets.com or the
Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly executed and
delivered by Tickets.com and the Company, and, assuming this Agreement
constitutes a valid and binding obligation of LSi, constitutes a valid and
binding obligation of each of Tickets.com and the Company, enforceable against
it in accordance with its terms.
Section 5.3 Consents and Approvals; No Violations. Except for filings,
authorizations, consents, permits, and approvals as may be required under, and
other applicable requirements of the Exchange Act, the Securities Act and the
FBCA, the laws of other states in which Tickets.com or the Company is qualified
to do or is doing business and state takeover laws, neither the execution,
delivery, or performance of this Agreement by Tickets.com or the Company, nor
the consummation by Tickets.com or the Company of the transactions contemplated
by this Agreement, nor compliance by Tickets.com or the Company with any of the
provisions of this Agreement, will (a) conflict with or result in any breach of
any provision of the respective certificates of
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incorporation, or bylaws of Tickets.com or the Company; (b) require any filing
with, or authorization, consent, permit, or approval of, any Governmental Entity
(except where the failure to obtain such permits, authorizations, consents, or
approvals or to make such filings would not have a Material Adverse Effect on
Tickets.com); (c) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation, or acceleration) under, any of the terms, conditions,
or provisions of any note, bond, mortgage, indenture, license, lease, contract,
agreement, or other instrument or obligation to which Tickets.com or the Company
is a party or by which any of them or any of their properties or assets may be
bound; or (d) violate any order, writ, injunction, decree, statute, rule, or
regulation applicable to Tickets.com or the Company, or any of its properties or
assets, except as they relate to (c) and (d), for violations, breaches, or
defaults that would not, individually or in the aggregate, have a Material
Adverse Effect on Tickets.com.
Section 5.4 Financial Statements. Tickets.com has delivered to LSi its
unaudited balance sheet dated December 31, 1998. This balance sheet complies
with generally accepted accounting principles for the period covered thereby and
(a) presents fairly the financial condition of Tickets.com as of such date, and
(b) is correct and complete, and is consistent with the books and records of
Tickets.com.
ARTICLE VI
COVENANTS
Section 6.1 Covenants of LSi. During the period from the date of this
Agreement and continuing until the Effective Time (except as expressly
contemplated or permitted by this Agreement, or to the extent that Tickets.com
shall otherwise consent in writing):
(a) Ordinary Course. Except as set forth in Schedule 6.1(a), each
of LSi and the LSi Subsidiaries shall carry on its business in the usual,
regular, and ordinary course in substantially the same manner as conducted prior
to the date of this Agreement and shall use all commercially reasonable efforts
to preserve intact its present business organizations, keep available the
services of its present officers and employees, and preserve its relationships
with customers and others having business dealings with them to the end that
their goodwill and ongoing business shall not be impaired in any material
respect at the Effective Time. Provided, however, all payments or commitments
requiring future payments in excess of an aggregate of $5,000 in any week shall
be approved in writing by the President of LSi. LSi shall not commence any
proceedings under any federal or state bankruptcy, insolvency, or related law.
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(b) Dividends; Changes in Stock. LSi shall not, nor shall LSi
propose to, (i) declare or pay any dividends on or make other distributions in
respect of any of its capital stock except for dividends by a wholly-owned
Subsidiary; (ii) split, combine, or reclassify any of its capital stock; or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of, or in substitution for shares of its capital stock; or (iii)
repurchase, redeem, or otherwise acquire any shares of its capital stock.
(c) Issuance of Securities. LSi shall not, issue, deliver, or
sell, or authorize or propose the issuance, delivery, or sale of, any shares of
its capital stock of any class, any Voting Debt, or any securities convertible
into, or any rights, warrants, calls, subscriptions, or options to acquire, any
such shares, Voting Debt or convertible securities, other than the issuance of
shares of LSi Common Stock, upon the exercise of Options issued, awarded, or
granted or made prior to the date of this Agreement pursuant to the LSi Stock
Option Plan, except for the conversion of the LSi Preferred Stock.
(d) Governing Documents. LSi shall not amend or propose to amend
its articles of incorporation or its bylaws, except as contemplated by this
Agreement. LSi shall deliver to Tickets.com complete and accurate copies of
resolutions of the board of directors of LSi approving the consummation of the
Merger and the transactions contemplated by this Agreement prior to the
execution of this Agreement.
(e) No Solicitation. LSi shall not, nor shall it authorize or
permit any of its officers, directors, or employees or any investment banker,
financial advisor, attorney, accountant, or other representative retained by it
or any of the LSi Subsidiaries to, solicit, initiate, or encourage (including by
way of furnishing information), or take any other action to facilitate, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal, or agree to or endorse any Takeover
Proposal. LSi shall immediately advise Tickets.com orally and as soon as
practicable in writing of any such inquiries or proposals, including all
relevant details. Notwithstanding the foregoing, LSi shall not be obligated to
take any of the actions set forth in this Section 6.1(e) or otherwise in this
Agreement (other than as set forth in the immediately preceding sentence or
otherwise in this Agreement), or refrain from taking any of the actions set
forth in this Section 6.1(e) or otherwise in this Agreement, if the board of
directors of LSi, acting upon advice of counsel determines that such actions or
inactions would be contrary to their legal or fiduciary obligations as directors
of LSi and Tickets.com is notified promptly of such action.
(f) No Acquisitions. LSi shall not, acquire or agree to acquire
by merging or consolidating with, or by purchasing any equity interest in or
substantial portion of the assets of, or by any manner, any business or any
corporation, partnership, association, or other business organization or
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division thereof, or otherwise acquire or agree to acquire any assets not in the
Ordinary Course of Business. Without limiting the generality of the foregoing,
LSi shall not, nor shall it permit any of its Subsidiaries to (i) make any
capital expenditures in excess of $5,000 unless such expenditure shall have been
approved by the President of LSi; (ii) make any venture capital investment; or
(iii) open any additional facilities.
(g) No Dispositions. Other than (i) as may be required by law to
consummate the transactions contemplated by this Agreement or (ii) in the
Ordinary Course of Business, neither LSi nor any of the LSi Subsidiaries shall
sell, lease, license, encumber, or otherwise dispose of, or agree to sell,
lease, license, encumber, or otherwise dispose of, any of its material assets.
(h) Indebtedness and Leases. Except in the Ordinary Course of
Business, neither LSi nor any of the LSi Subsidiaries shall incur any material
indebtedness for borrowed money, guarantee any such indebtedness, issue or sell
any debt securities, warrants, or rights to acquire any debt securities of
itself or any of its Subsidiaries, guarantee any debt securities of others, or
prepay any material indebtedness. LSi shall not, nor shall it permit any of the
LSi Subsidiaries to, enter into any leases other than in the Ordinary Course of
Business.
(i) Other Actions. Except in the Ordinary Course of Business,
notwithstanding the fact that such action might otherwise be permitted pursuant
to this Section 6.1, but subject to the last sentence of Section 6.1(e), LSi
shall not, nor shall LSi permit any of the LSi Subsidiaries to, take any action
that would result in any of its representations and warranties set forth in this
Agreement being untrue in any material respect, or in any of the conditions to
the Merger set forth in Article VII not being satisfied.
(j) Advise of Changes; Filings. Subject to applicable law, LSi
shall confer with reasonable frequency with Tickets.com, report on operational
matters, and promptly advise Tickets.com orally and in writing of any change or
event having, or which, insofar as can reasonably be foreseen, would have, a
Material Adverse Effect on LSi. Each party shall promptly provide the other (or
its counsel) copies of all filings made by such party with any federal, state,
or foreign Governmental Entity in connection with this Agreement and the
transactions contemplated by this Agreement and all SEC and other material
filings made by such party under any federal, state or foreign governmental
entity.
(k) Additional Matters. The period from the date of this
Agreement and continuing until the Effective Time, LSi agrees that it will not,
without the prior written consent of Tickets.com which will not be unreasonably
withheld or delayed, (i) enter into, adopt, amend (except as may be required by
law), or terminate any LSi Benefit Plan, or any agreement,
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arrangement, plan, or policy between LSi and one or more of its directors or
officers; (ii) increase in any manner the compensation or fringe benefits of any
director, officer, or employee; (iii) pay any benefit not required by any plan
or arrangement as in effect as of the date of this Agreement (including, without
limitation, the granting of stock options, stock appreciation rights, restricted
stock, or performance units); or (iv) enter into any contract, agreement,
commitment, or arrangement to do any of the foregoing other than any amendments
required to be made to any LSi Benefit Plan in order to maintain LSi's qualified
status under applicable law.
(l) Certain Resignations and Appointments. Immediately after the
execution of this Agreement, (i) individuals designated by RBB shall be
appointed to fill vacancies on the board of directors of LSi, and immediately
thereafter, Jacqueline E. Soechtig, Frank W. Swacker and John J. Chluski shall
resign from the board of directors; (ii) LSi shall accept the election of
Jacqueline E. Soechtig to terminate her employment pursuant to her Employment
Agreement; (iii) LSi shall receive and accept the resignations of Alfred P.
Jones as Secretary of LSi, James H. Moore, Jr. as Assistant Secretary of LSi and
Cliff Soechtig as an employee and officer of LSi; and (iv) the LSi board of
directors shall appoint David A. Riley as President, Chief Executive Officer and
Secretary of LSi.
(m) Required Filings. LSi shall make all required periodic
filings with the SEC as soon as practicable but no later than the Closing Date,
including without limitation the Form 10-KSB for the period ending December 31,
1998, the Form 10-QSB for the period ending March 31, 1999 and all other
required filings. None of these filings will contain any untrue statement of a
material fact or omit any material fact required to be stated therein or
necessary in order to make the statements in such documents, in light of the
circumstances under which they were made, not misleading and shall comply in all
material respects with the applicable requirements of the Exchange Act and the
Securities Act, as the case may be, and the applicable rules and regulations of
the SEC.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Board Approval, Fairness Opinion, Shareholder Approval and
Proxy Statement.
(a) LSi approves of and consents to the Merger and represents
that the board of directors of LSi, at a meeting duly called and held, duly
adopted resolutions approving this Agreement and the Merger, determining that
the terms of the Merger are fair to, and in the best interest of the LSi
Shareholders and recommending that the LSi Shareholders accept the Merger
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and approve and adopt this Agreement and the Merger. LSi represents that its
board of directors has received the opinion of Raymond James & Associates, Inc.
dated as of June 21, 1999, that the proposed Cash Consideration to be received
by the LSi Shareholders pursuant to the Merger is fair to such holders from a
financial point of view, and a complete and correct signed copy of such opinion
will be delivered by LSi to Tickets.com within five days of the date of this
Agreement.
(b) LSi will, at Tickets.com's request, as soon as practicable
following execution of this Agreement, duly call, give notice of, and convene
and hold a meeting of the LSi Shareholders (the "Shareholders' Meeting") for the
purpose of obtaining the requisite approval of the LSi Shareholders with respect
to the Merger. LSi will, through its board of directors, recommend to the LSi
Shareholders that they vote in favor of, or otherwise consent to, the approval
of this Agreement, the Merger and the transactions contemplated by this
Agreement subject to Section 6.1(e). Without limiting the generality of the
foregoing, LSi agrees that its obligations pursuant to the first sentence of
this Section 7.1(b) shall not be affected by (i) the commencement, public
proposal, public disclosure or communication to LSi of any Takeover Proposal or
(ii) the withdrawal or modification by the board of directors of LSi of its
approval or recommendation of this Agreement or the Merger.
(c) LSi will, at Tickets.com's request, as soon as reasonably
practicable following execution of this Agreement prepare and file a preliminary
proxy statement with the SEC and will use its commercially reasonable efforts to
respond to any comments of the SEC or its staff and to cause the proxy statement
to be mailed to the LSi Shareholders as promptly as practicable after responding
to all such comments to the satisfaction of the staff of the SEC. Tickets.com
and its counsel shall be given reasonable opportunity to review and comment upon
the proxy statement prior to its filing with the SEC or dissemination to the LSi
Shareholders. LSi will notify Tickets.com promptly of the receipt of any written
comments from the SEC or its staff and of any requests by the SEC or its staff
for amendments or supplements to the proxy statement or for additional
information and will supply Tickets.com with copies of all correspondence
between LSi or any of its representatives, on the one hand, and the SEC or its
staff, on the other hand, with respect to the proxy statement or the Merger.
Each of LSi and Tickets.com agrees promptly to correct any information provided
by it for use in the proxy statement if and to the extent that such information
shall have become false or misleading in any material respect, and LSi further
agrees to take all steps necessary to amend or supplement the proxy statement
and to cause the proxy statement as so amended or supplemented to be filed with
the SEC and disseminated to the LSi Shareholders, in each case as and to the
extent required by applicable federal securities laws. If at any time prior to
the Shareholders' Meeting there shall occur any event that should be set forth
in an amendment or supplement to the proxy statement, LSi will promptly prepare
and mail to the LSi
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Shareholders such an amendment or supplement. LSi will not mail any proxy
statement, or any amendment or supplement thereto, to which Tickets.com
reasonably objects.
(d) Tickets.com agrees to cause all shares of LSi Common Stock
owned by Tickets.com or any Subsidiary of Tickets.com to be voted in favor of
the approval of the Merger. Tickets.com has a contract with RBB whereby RBB has
agreed to vote all of its shares of LSi Common Stock in favor of the Merger.
Section 7.2 Access to Information. Subject to Section 7.9, upon
reasonable notice and during normal business hours and applicable law, LSi shall
afford to the officers, employees, accountants, counsel, and all other
authorized representatives of Tickets.com, reasonable access during the period
before the Effective Time, to all its properties, books, contracts, commitments,
records, management employees, accountants, and counsel. During the period
before the Effective Time, each of LSi and Tickets.com shall (and shall cause
each of the LSi Subsidiaries to) furnish promptly to Tickets.com a copy of each
report, schedule, registration statement, and other document filed or received
by it during such period pursuant to the requirements of federal securities
laws. LSi shall furnish promptly to Tickets.com all other information concerning
its business, properties, and personnel, and access for discussions with such of
its management and other personnel, as Tickets.com may reasonably request.
Section 7.3 Legal Conditions to Merger. LSi, Tickets.com and the Company
each will take all reasonable actions necessary to comply promptly with all
legal requirements that may be imposed on itself with respect to the Merger
(which actions shall include furnishing all information required in connection
with approvals of or filings with any other Governmental Entity), and will
promptly cooperate with and furnish information to each other in connection with
any such requirements imposed upon any of them or any of their Subsidiaries in
connection with the Merger. LSi, Tickets.com and the Company will each cause
their Subsidiaries to, take all reasonable actions necessary to obtain (and will
cooperate with each other in obtaining) any consent, authorization, order, or
approval of, or any exemption by, any Governmental Entity or other public or
private third party, required to be obtained or made by Tickets.com, the Company
LSi, or any of their Subsidiaries in connection with the Merger or the taking of
any action contemplated thereby or by this Agreement.
Section 7.4 Expenses. Except as set forth in Section 9.4, whether or not
the Merger is consummated, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated by this Agreement shall be paid
by the party incurring such expenses, and, in connection therewith, each of
Tickets.com and LSi shall pay, with its own funds and not
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with funds provided by the other party, any and all property or transfer taxes
imposed on such party.
Section 7.5 Brokers or Finders. Each of Tickets.com and LSi represents,
as to itself, its Subsidiaries, and its Affiliates, that no agent, broker,
investment bankers, financial advisor, or other firm or Person is or will be
entitled to any brokers' or finder's fee or any other commission or similar fee
("Finder's Fees") in connection with any of the transactions contemplated by
this Agreement, except Raymond James & Associates, Inc., whose fees and expenses
will be paid by LSi at the Closing in accordance with LSi's agreement with such
firm (copies of which have been delivered by LSi to Tickets.com prior to the
date of this Agreement) subject to the provisions of Section 9.4 of this
Agreement, and each of Tickets.com and LSi agree to indemnify and hold the other
harmless from and against any and all claims, Liabilities, or obligations with
respect to any other Finder's Fees asserted by any Person on the basis of any
act or statement alleged to have been made by such party or its Affiliate.
Section 7.6 Additional Agreements; Reasonable Best Efforts. Subject to
the terms and conditions of this Agreement, including, without limitation, the
last sentence of Section 6.1(e) each of the parties agrees to use its reasonable
best efforts to take, or cause to be taken, all actions and to do, or cause to
be done, all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of the LSi Shareholders
described in Section 7.1(a), including cooperating fully with the other parties.
Without limiting the generality of the foregoing sentence, the parties shall
provide all information and shall use their reasonable best efforts to obtain
regulatory approvals or clearances to consummate the transactions contemplated
by this Agreement. If at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement or to vest
the Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities, and franchises of either of the Constituent Corporations,
the proper officers and directors of each party to this Agreement, in such
capacity, shall use reasonable best efforts to take all such necessary action.
Section 7.7 Public Announcements. Subject to applicable federal and
state law, rules and regulations or on the advice of counsel, each of LSi and
Tickets.com shall use its reasonable best efforts to develop a joint
communications plan and each party shall use its reasonable best efforts to
ensure that all press releases and other public statements with respect to the
transactions contemplated by this Agreement shall be consistent with such joint
communications plan or, to the extent inconsistent therewith, shall have
received the prior written approval of the other.
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Section 7.8 Indemnification; Directors' and Officers' Liability
Insurance. All rights to indemnification and/or reimbursement existing in favor
of any present or former director, officer, or employee of LSi (an "Indemnified
Party") as provided in (a) LSi's articles of incorporation or bylaws; (b) the
certificate of incorporation, bylaws, or similar organizational documents of any
of the LSi Subsidiaries; and (c) such related contracts as each is in effect
prior to the date of this Agreement, shall survive the Merger with respect to
matters occurring at or prior to the Effective Time including without
limitation, those with respect to this Agreement. Tickets.com agrees that
pursuant to the terms of the Merger such obligations and Liabilities with
respect to indemnification and reimbursement of the Indemnified Parties shall
become joint and several obligations and Liabilities of the Surviving
Corporation and Tickets.com, and the Surviving Corporation shall as of the
Effective Time assume entirely those obligations and Liabilities. For a period
of six years after the Closing, the Surviving Corporation and Tickets.com shall
cause to be maintained in effect, at no expense to the insured thereunder, the
current policy or policies (hereinafter, the "Current Policy") of directors' and
officers' liability insurance ("D&O Insurance") maintained by LSi for the
benefit of the Indemnified Parties; however, (i) the Surviving Corporation shall
have the right to substitute therefor a policy or policies that provide the same
or greater limits of liability as the Current Policy and that provide, the same
or greater coverage in all material respects (including, without limitation,
extent and scope) as the Current Policy; and (ii) the D&O Insurance to be
maintained during such six-year period shall cover only acts of the insured that
occur on or prior to the Effective Time. In addition, the Surviving Corporation
and Tickets.com specifically agree to indemnify the current directors of LSi
from and against the entirety of any Adverse Consequences that the LSi directors
may suffer that directly relate to claims made by or relating to Jackson
International LLC if this Merger is consummated.
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Section 7.9 Confidentiality/Non-Disclosure; Non-Solicitation. Except for
such disclosure to the parties' professional advisors as may be necessary or
appropriate and such disclosure as may be required by court order or by any law
or regulation to which a party is subject, the parties to this Agreement agree
that they shall maintain in confidence the existence and terms of this Agreement
and any of the terms and conditions of any of the transactions contemplated by
this Agreement and shall refrain from using any Confidential Information, except
in connection with their own (without disclosure to others) evaluation whether
to enter into this Agreement, and no party will issue any press release or
public statement concerning this Agreement or any of the transactions
contemplated by this Agreement without the prior written consent of the other
parties; provided, however, that LSi may make such disclosure as is required by
law or on the advice of counsel. Upon the termination of this Agreement, each of
the parties shall promptly deliver to the other parties all tangible embodiments
(and all copies) of the Confidential Information which are in its possession.
Section 7.10 Loan to LSi. Promptly after the execution of this
Agreement, LSi will execute and deliver to Tickets.com a secured promissory note
and security agreement in the respective forms attached to this Agreement as
Exhibit 7.10(i) and 7.10(ii), respectively, whereupon Tickets.com will loan
$600,000 to LSi, such funds to be applied by LSi as follows: (a) $325,000 to the
payment of certain outstanding accounts payable which by their terms are due and
payable; (b) up to $100,000 (plus accrued interest) to the repayment of loans
made by RBB during June 1999 to LSi; and (c) the remainder to the immediate
working capital needs of LSi. Thereafter and from time to time until the
Closing, Tickets.com will loan LSi an aggregate of approximately $400,000 in
installments as needed (which may or may not be equal in amount) to be used to
fund the ongoing working capital needs of LSi (consistent with past practices);
provided, however, that if the ongoing capital needs of LSi exceed $400,000
Tickets.com shall consider but shall have no obligation to make any additional
loans to LSi.
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions to Each Party's Obligation To Effect the Merger.
The respective obligation of each party to effect the Merger shall be subject to
the satisfaction prior to the Closing of the following conditions:
(a) Shareholder Approval. This Agreement shall have been approved
and adopted by the affirmative vote of the LSi Shareholders at the Shareholders'
Meeting or by written consent.
(b) Other Approvals. Other than the filing provided for by
Section 2.1 and any filing pursuant to state takeover laws permitted to be filed
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after the Effective Time, all authorizations, consents, orders, or approvals of,
or declarations or filings with, or expirations of waiting periods imposed by,
any Governmental Entity, the failure to obtain of which would have a Material
Adverse Effect on Tickets.com and its Subsidiaries or the Surviving Corporation,
in each case taken as a whole, shall have been filed, occurred, or been
obtained.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction, or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect.
Section 8.2 Conditions to Obligations of Tickets.com. The obligations of
Tickets.com to effect the Merger are subject to the satisfaction of the
following conditions, unless waived by Tickets.com:
(a) Representations and Warranties. The representations and
warranties of LSi set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing as though made on and as of the Closing, except as otherwise
contemplated by this Agreement; provided, however, if any such representation or
warranty is already qualified by materiality, for purposes of determining
whether this condition has been satisfied, such representation or warranty must
be true and correct in all respects without regard to materiality. Tickets.com
shall have received a certificate signed on behalf of LSi by an executive
officer of LSi to such effect.
(b) Performance of Obligations of LSi. LSi shall have performed
in all material respects all obligations, agreements and covenants required to
be performed by it under this Agreement at or prior to the Closing, and
Tickets.com shall have received a certificate signed on behalf of LSi by an
executive officer of LSi to such effect.
(c) No Amendments to Resolutions. Neither the board of directors
of LSi nor any committee thereof shall have amended, modified, rescinded, or
repealed the resolutions adopted by such board on June 18, 1999 and shall not
have adopted any other resolutions in connection with this Agreement and the
transactions contemplated by this Agreement inconsistent with such resolutions.
(d) Consents Under LSi Obligations. LSi shall have obtained the
consent or approval of any Person whose consent or approval shall be required
under any agreement or instrument in order to permit the consummation of the
transactions contemplated by this Agreement except those which the failure to
obtain would not, individually or in the aggregate, have a Material
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Adverse Effect on Tickets.com and its Subsidiaries taken as a whole, with or
without including its ownership of LSi after the Merger, or LSi.
Section 8.3 Conditions to Obligations of LSi. The obligation of LSi to
effect the Merger is subject to the satisfaction of the following conditions,
unless waived by LSi:
(a) Representations and Warranties. The representations and
warranties of Tickets.com set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date as of the
Closing as though made on and as of the Closing and except as otherwise
contemplated by this Agreement); provided, however, if any such representation
or warranty is already qualified by materiality, for purposes of determining
whether this condition has been satisfied, such representation or warranty must
be true and correct in all respects without regard to materiality. LSi shall
have received a certificate signed on behalf of Tickets.com by an executive
officer of Tickets.com to such effect.
(b) Performance of Obligations of Tickets.com. Tickets.com shall
have performed in all material respects all obligations, agreements and
covenants required to be performed by them under this Agreement, including its
funding commitments, at or prior to the Closing, and LSi shall have received a
certificate signed on behalf of Tickets.com by an executive officer of
Tickets.com to such effect.
ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time before the Effective Time, notwithstanding any
requisite approval and adoption of this Agreement and the transactions
contemplated by this Agreement by the LSi Shareholders:
(a) by written consent duly authorized by the boards of directors
of both of Tickets.com and LSi:
(b) by Tickets.com or LSi if either (i) the Effective Time shall
not have occurred on or before October 31, 1999; however, the right to terminate
this Agreement under this Section 9.1(b)(i) 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 Effective Time to occur on or before such
date unless such failure has been outside the control of such party using its
reasonable efforts; or (ii) there shall be any statute, law, ordinance, rule, or
regulation that makes consummation of the Merger illegal or otherwise
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prohibited or if any court of competent jurisdiction or Governmental Entity
shall have issued an order, decree, or ruling or taken any other action
restraining, enjoining, or otherwise prohibiting the Merger and such order,
decree, ruling, or other action shall have become final and nonappealable,
except such as have been sought by or on behalf of Tickets.com;
(c) by Tickets.com, if (i) the board of directors of LSi
withdraws, modifies, or changes its recommendation of this Agreement or the
Merger, or shall have resolved to do any of the foregoing or the board of
directors of LSi shall have recommended to the LSi Shareholders any Takeover
Proposal or resolved to do so; or (ii) a tender offer or exchange offer for 20%
or more of the outstanding shares of capital stock of LSi is commenced, and the
board of directors of LSi, within ten business days after such tender offer or
exchange offer is so commenced, either fails to recommend against acceptance of
such tender offer or exchange offer by the LSi Shareholders or takes no position
with respect to the acceptance of such tender offer or exchange offer by the LSi
Shareholders;
(d) by LSi in order to accept an offer for, or to enter into a
definitive agreement for a Takeover Proposal, upon one business day's prior
written notice to Tickets.com setting forth, in reasonable detail, the identity
of the Person proposing the Takeover Proposal and the terms and conditions of
such Takeover Proposal, if, as a result of an unsolicited proposal for such
Takeover Proposal, the board of directors of LSi, after advice of LSi's
independent counsel (who may be LSi's regularly engaged independent legal
counsel), determines in good faith that their legal or fiduciary duties under
applicable law require that such Takeover Proposal be accepted; provided,
however, that any termination of this Agreement by LSi pursuant to this Section
9.1(d) shall not be effective until LSi has made payment of the full fee
required by Section 9.4(a) of this Agreement;
(e) by either Tickets.com or LSi, if the Shareholders' Meeting of
LSi shall have been held and the LSi Shareholders shall have failed to adopt
this Agreement at such meeting (including any adjournment or postponement
thereof);
(f) by LSi, upon a breach of any representation, warranty, or
agreement set forth in this Agreement such that the condition set forth in
Section 8.3(a) would not be satisfied (a "Terminating Tickets.com Breach");
however, if such Terminating Tickets.com Breach is curable by Tickets.com
through the exercise of its commercially reasonable efforts and Tickets.com
continues to exercise its commercially reasonable efforts, LSi may not terminate
this Agreement under this Section 9.1(f) for a period of 30 days after LSi's
delivery to Tickets.com of written notice setting forth in reasonable detail the
circumstances giving rise to such Terminating Tickets.com Breach; or
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(g) by Tickets.com, upon a breach of any representation,
warranty, or agreement set forth in this Agreement such that the condition set
forth in Section 8.2(a) would not be satisfied (a "Terminating LSi Breach");
however, if such Terminating LSi Breach is curable by LSi through the exercise
of its commercially reasonable efforts and LSi continues to exercise such
commercially reasonable efforts, Tickets.com may not terminate this Agreement
under this Section 9.1(g) for a period of 30 days from the date on which
Tickets.com delivers to LSi written notice setting forth in reasonable detail
the circumstances giving rise to such Terminating LSi Breach.
Section 9.2 Amendment. This Agreement may be amended by the mutual
agreement of the parties, by action taken or authorized by their respective
boards of directors, at any time before or after approval of the matters
presented in connection with the Merger by the LSi Shareholders, but, after any
such approval, no amendment shall be made that by law requires further approval
by such shareholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties to this Agreement.
Section 9.3 Extension; Waiver. At any time prior to the Effective Time,
the parties to this Agreement, by action taken or authorized by their respective
boards of directors may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of the other parties to
this Agreement; (b) waive any inaccuracies in the representations and warranties
contained in this Agreement or in any document delivered pursuant to this
Agreement; and (c) waive compliance with any of the covenants, agreements,
obligations or conditions contained in this Agreement. Any agreement on the part
of a party of this Agreement to any such extension or waiver shall be valid only
if set forth in a written instrument signed on behalf of such party.
Section 9.4 Fees and Expenses Upon Termination.
(a) Termination Fee. LSi shall pay Tickets.com a fee of $250,000,
which amount includes fees and expenses (the "Termination Fee"), if this
Agreement is terminated:
(i) by LSi pursuant to Section 9.1(b)(i) and a Takeover
Proposal, having a value per share of LSi Common Stock exceeding the value per
share of LSi Common Stock as determined based on the Cash Consideration on the
date of termination, shall have been consummated within 12 months of the date of
this Agreement;
(ii) pursuant to Section 9.1(c);
(iii) pursuant to Section 9.1(d);
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(iv) pursuant to Section 9.1(g) and a Takeover Proposal
shall have been consummated within 12 months of the date of this Agreement.
(b) Any payment required to be made pursuant to Section 9.4(a)
shall be made as promptly as practicable but in any event not later than five
business days after Tickets.com delivers a written request for such payment and
shall be made by wire transfer of immediately available funds to an account
designated by the recipient of such payment.
(c) If the party obligated to make a payment pursuant to Section
9.4(a) or 9.4(b) fails to pay the entire amount of such payment when due,
interest shall be paid on such unpaid amount, commencing on the date that the
Termination Fee became due, at a daily rate equal to the rate of interest
publicly announced by Citibank, N.A., from time to time, in the City of New
York, as such bank's Base Rate plus 2%, divided by 360.
ARTICLE X
MISCELLANEOUS
Section 10.1 Nonsurvival of Representations, Warranties, and Agreements.
None of the representations, warranties, and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Sections 3.1, 3.2, 3.3, 7.4, 7.8
and 7.9.
Section 10.2 Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed given when delivered
personally or by overnight courier, telecopied (if confirmed), or, three
business days after having mailed, by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to Tickets.com or the Company:
Tickets.com, Inc.
4675 MacArthur Court, Suite 1400
Newport Beach, California 92660
Attention: Mr. John M. Markovich,
Executive Vice President
Telecopy No.: (949) 862-5410
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with a copy to:
Robert J. Grammig, Esquire
Holland & Knight LLP
400 North Ashley Drive, Suite 2300
Tampa, Florida 33602
Telecopy No.: (813) 229-0134
(b) if to LSi:
Lasergate Systems, Inc.
2189 Cleveland Street, Suite 230
Clearwater, Florida 33765
Attention: Chief Executive Officer
Telecopy No.: (727) 803-1590
with a copy to:
Mark S. Hirsch, Esquire
Parker, Chapin, Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036-8735
Telecopy No.: (212) 704-6288
Section 10.3 Interpretation. When a reference is made in this Agreement
to sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes," or "including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation." The phrase "made available" in
this Agreement shall mean that the information referred to has been made
available if requested by the party to whom such information is to be made
available. The parties acknowledge that they have each participated in the
negotiation and drafting of this Agreement and this Agreement shall not be
construed against either party as being the drafter of the Agreement.
Section 10.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 10.5 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement (including the documents and instruments referred to
herein) (a) constitutes the entire agreement and supersedes all prior
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agreements and understandings, both written and oral, among the parties with
respect to the subject matter of this Agreement; and (b) except as otherwise
contemplated in the covenants and agreements listed in Articles 6 and 7 (which
covenants and agreements shall be enforceable by the Persons affected thereby
following the Effective Time), are not intended to confer upon any Person other
than the parties hereto any rights or remedies under this Agreement.
Section 10.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of Florida without regard to any
applicable conflicts of law.
Section 10.7 No Remedy in Certain Circumstances. Each party agrees that,
should any court or other competent authority hold any provision of this
Agreement or part of this Agreement to be null, void, or unenforceable, or order
any party to take any action inconsistent with this Agreement or not to take any
action required herein, the other party shall not be entitled to specific
performance of such provision or part of this Agreement or to any other remedy,
including money damages for breach of this Agreement or of any other provision
of this Agreement or part of this Agreement as a result of such holding or
order.
Section 10.8 Assignment. Neither this Agreement nor any of the rights,
interests, or obligations under this Agreement shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties which consent cannot be arbitrarily
withheld, except that the Company may assign, in its sole discretion, any or all
of its rights, interests, and obligations under this Agreement to Tickets.com or
to any direct or indirect wholly-owned Subsidiary of Tickets.com. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by the parties and their respective successors and
permitted assigns.
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IN WITNESS WHEREOF, Tickets.com, the Company, and LSi have caused this
Agreement to be executed on the date first written above.
LASERGATE SYSTEMS, INC. TICKETS.COM, INC.
By: /s/ Jacqueline E. Soechtig By: /s/ John M. Markovich
------------------------------- -------------------------------
Jacqueline E. Soechtig, John M. Markovich,
Chairman and Chief Executive Executive Vice President
Officer
ADVANTIX ACQUISITION CORP.
By: /s/ John M. Markovich
-------------------------------
John M. Markovich,
Executive Vice President
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<PAGE> 1
GENERAL ATLANTIC PARTNERS, LLC
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
May 28, 1999
PERSONAL AND CONFIDENTIAL
- -------------------------
Tickets.com, Inc.
4675 MacArthur Court
Suite 1400
Newport Beach, California 92660
Attn: Thomas Gimple
John Markovich
Ladies and Gentlemen:
This letter (this "Letter") sets forth the binding agreement and
commitment of General Atlantic Partners, LLC ("GAP") to make through affiliated
limited partnerships (such limited partnerships, together with GAP, "General
Atlantic") an equity investment in Tickets.com, Inc. (the "Company"), on the
following terms and conditions (the "Transaction").
1. Investment; Warrants. Subject to Sections 3 and 7 below, in the event
that the Company reasonably requires capital to fund the working
capital reasonably necessary to enable the Company to satisfy and
discharge its liabilities as such liabilities become due and payable,
General Atlantic agrees and commits to purchase from the Company at a
price per share of $2.25, newly issued shares of convertible preferred
stock of the Company (the "Preferred Stock") for an aggregate purchase
price of up to $12 million. In order to induce General Atlantic to
enter into this Letter and commit such capital, the Company hereby
grants to General Atlantic warrants (the "Warrants") to purchase
500,000 shares of common stock of the Company (the "Common Stock") at
an exercise price of $2.25 per share.
(a) Preferred Stock. The Preferred Stock shall have the same rank,
dividend, voting, anti-dilution and other rights and
preferences as the Series D Convertible Preferred Stock, par
value $.0001 per share, of the Company.
(b) Warrants. The Warrants shall have a term of 10 years and
include anti-dilution provisions customary for transactions of
this nature and reasonably acceptable to General Atlantic.
2. Additional Investors. GAP and the Company covenant and agree that each
of the stockholders of the Company entitled to preemptive rights with
respect to the Transaction, pursuant to Section 4 of the Third Amended
and Restated Stockholders Agreement, dated as of May 17, 1999 (the
"Stockholders Agreement"), among the Company and the parties set forth
on Schedule I thereto, shall be entitled to exercise such preemptive
rights and commit to purchase its applicable percentage (as determined
in accordance with Section 4.2 of the
<PAGE> 2
2
Stockholders Agreement) of the Preferred Stock and the Warrants until
5:00 p.m., PDT, on June 4, 1999. If any such stockholder does not
exercise or waive in writing such preemptive rights on or prior to such
date, then the Company shall obtain from such stockholder a written
waiver of its rights under the Stockholders Agreement with respect to
the Transaction.
3. Termination. This Letter shall terminate and be of no further force or
effect, and General Atlantic shall have no obligations hereunder, upon
the earlier to occur of (a) the closing of the Company's initial public
offering of shares of Common Stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended,
and (b) March 31, 2000. In the event of a termination pursuant to this
Section 3, neither the Company nor General Atlantic shall have any
liability for any damages whatsoever with respect to such termination;
provided, however, that notwithstanding the foregoing, Section 4 below
shall survive such termination.
4. Expenses. The Company shall pay all of General Atlantic's
transaction-related legal expenses in connection with this transaction.
5. Warrant Agreements. As soon as practicable after the date hereof, but
in any case no more than 10 business days after the date hereof, (a)
the Company shall execute and issue to General Atlantic the Warrants,
in form and substance reasonably satisfactory to the Company and
General Atlantic, and the Company and General Atlantic shall enter into
such additional agreements, containing customary representations,
warranties, covenants and indemnities, as are reasonably necessary to
evidence the issuance of the Warrants pursuant to Section 1 of this
Letter, (b) the Stockholders Agreement shall be amended to grant
General Atlantic the same first offer, tag-along rights, preemptive and
other rights with respect to its Warrants and the shares of Common
Stock issuable upon exercise of the Warrants that General Atlantic
currently enjoys with respect to its other shares of capital stock of
the Company and (c) the Fourth Amended and Restated Investor Rights
Agreement, dated as of May 17, 1999 (the "Investor Rights Agreement"),
among the Company and the parties set forth on Schedule I thereto shall
be amended to grant General Atlantic the same registration rights with
respect to the shares of Common Stock issuable upon exercise of the
Warrants that General Atlantic currently enjoys with respect to its
other shares of capital stock of the Company
6. Disclosure. From and after the date hereof, each of General Atlantic
and the Company agrees that it shall make no written or other public
disclosures regarding the Transaction or regarding the parties hereto
to any individual or organization without the prior written consent of
the other party, provided that such disclosure may be made (i) to
agents, banks, shareholders, employees and representatives of the
parties hereto and (ii) in the Company's registration statement with
respect to its initial public offering of shares of Common Stock to be
filed with the Securities and Exchange Commission if the Company's
counsel reasonably determines that such disclosure is required under
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
7. Conditions. This Letter is subject to (i) the negotiation of a
definitive stock purchase agreement governing the transactions
contemplated by this Letter, in form and substance reasonably
satisfactory to the Company and General Atlantic, containing
representations, warranties, covenants and indemnities customary for
transactions of this nature; (ii) the
<PAGE> 3
3
amendment of the Stockholders Agreement granting General Atlantic the
same first offer, tag-along rights, preemptive and other rights with
respect to its Preferred Stock that General Atlantic currently enjoys
with respect to its other shares of capital stock of the Company; (iii)
the amendment of the Investor Rights Agreement granting General
Atlantic the same registration rights with respect to the shares of
Common Stock issuable upon conversion of the Preferred Stock that
General Atlantic currently enjoys with respect to its other shares of
capital stock of the Company; and (iv) any governmental or third party
consents, if any.
8. No Brokers. The Company represents and warrants that it has incurred no
liability for any brokerage fees, agents' fees, commissions or finders'
fees in connection with this Letter or the consummation of the
transactions contemplated hereby.
<PAGE> 4
'
4
If the terms of this Letter are acceptable to the Company, please so
indicate on the enclosed copy of this letter and return it to the undersigned.
Yours sincerely,
General Atlantic Partners, LLC
By: /s/ WILLIAM E. FORD
---------------------------
Name: William E. Ford
Title: A Managing Member
Accepted and Agreed:
Tickets.com, Inc.
By: /s/ W. THOMAS GIMPLE
--------------------------
Name: W. Thomas Gimple
Title: President and Chief
Executive Officer
<PAGE> 1
EXHIBIT 10.39
================================================================================
WARRANT ISSUANCE AGREEMENT
among
TICKETS.COM, INC.
and
THE PERSONS NAMED HEREIN
------------------------------
Dated as of: August 5, 1999
------------------------------
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
Table of Contents
Page
<S> <C>
ARTICLE 1 DEFINITIONS............................................................2
1.1 Definitions...................................................................2
ARTICLE 2 COMMITMENT OF CAPITAL AND ISSUANCE OF WARRANTS.........................5
2.1 Commitment of Capital.........................................................5
2.2 Issuance of Warrants..........................................................6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................7
3.1 Corporate Existence and Power.................................................7
3.2 Authorization; No Contravention...............................................7
3.3 Governmental Authorization; Third Party Consents..............................8
3.4 Binding Effect................................................................8
3.5 Litigation....................................................................8
3.6 Capitalization................................................................8
3.7 No Default or Breach..........................................................9
3.8 Private Offering.............................................................10
3.9 Broker's, Finder's or Similar Fees...........................................10
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS......................10
4.1 Existence and Power..........................................................10
4.2 Authorization; No Contravention..............................................10
4.3 Governmental Authorization; Third Party Consents.............................10
4.4 Binding Effect...............................................................10
4.5 Purchase for Own Account.....................................................11
4.6 Restricted Securities........................................................11
4.7 No Public Market.............................................................11
4.8 Broker's, Finder's or Similar Fees...........................................11
ARTICLE 5 CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE...............12
5.1 Secretary's Certificate......................................................12
ARTICLE 6 AFFIRMATIVE COVENANTS.................................................12
6.1 Reservation of Common Stock..................................................12
ARTICLE 7 MISCELLANEOUS.........................................................12
7.1 Survival of Representations and Warranties...................................12
7.2 Notices......................................................................13
7.3 Successors and Assigns; Third Party Beneficiaries............................14
7.4 Amendment and Waiver.........................................................14
7.5 Counterparts.................................................................15
7.6 Headings.....................................................................15
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
7.7 Governing Law................................................................15
7.8 Severability.................................................................15
7.9 Entire Agreement.............................................................15
7.10 Publicity....................................................................15
7.11 Further Assurances...........................................................16
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Page
EXHIBITS
<S> <C>
A Letter Agreement
B Form of Warrant
SCHEDULES
2.1 Commitment of Capital
2.2 Warrants
3.6(a) List of Stockholders and Capital Stock and Stock Equivalents
3.6(b) Other Stockholders in Subsidiaries
</TABLE>
<PAGE> 5
WARRANT ISSUANCE AGREEMENT
AGREEMENT, dated as of August 5, 1999 (this "Agreement"), among
Tickets.com, Inc., a Delaware corporation (the "Company"), and the persons
listed on Schedule A hereto (each, a "Purchaser" and collectively, the
"Purchasers").
WHEREAS, the Company and General Atlantic Partners, LLC, a Delaware
limited liability company ("GAP LLC"), entered into a Letter Agreement (the
"Letter Agreement"), dated May 28, 1999, attached hereto as Exhibit A, pursuant
to which GAP LLC agreed and committed to purchase (through its affiliated
limited partnerships) from the Company at any time prior to the Termination Date
(as hereinafter defined), in the event that the Company reasonably requires
capital to fund the working capital reasonably necessary to enable it to satisfy
and discharge its liabilities as such liabilities become due and payable, newly
issued shares of convertible preferred stock of the Company at a price per share
of $2.25 and for an aggregate purchase price of $12 million (the "New Preferred
Stock");
WHEREAS, pursuant to the Stockholders Agreement (as defined below),
the Purchasers enjoy preemptive rights with respect to the issuance of the New
Preferred Stock and the Warrants (as hereinafter defined) and agreed to commit
capital to the Company and purchase their ratable portion of the New Preferred
Stock in the event that the Company reasonably requires capital to fund the
working capital reasonably necessary to enable it to satisfy and discharge its
liabilities and such liabilities become due and payable;
WHEREAS, in order to induce the Purchasers to commit such capital,
the Company issued to the Purchasers on May 28, 1999 pursuant to the Letter
Agreement warrants (the "Warrants") to purchase, subject to the terms and
conditions thereof, an aggregate of 500,000 shares of common stock, par value
$.0001 per share of the Company (the "Common Stock"), at an exercise price of
$2.25 per share (subject to adjustment);
WHEREAS, the Warrants contain the terms and conditions set forth in
the form of warrant attached hereto as Exhibit B; and
WHEREAS, as contemplated by Section 5 of the Letter Agreement, the
Company and the Purchasers are entering into this Agreement to confirm and
ratify the terms of the Letter Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
2
<PAGE> 6
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as defined
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. The
following shall be deemed to be Affiliates of GAP Coinvestment II and GAP 54:
(a) GAP LLC, the members of GAP LLC, the limited partners of GAP Coinvestment II
and the limited partners of GAP 54; (b) any Affiliate of GAP LLC, the members of
GAP LLC, the limited partners of GAP Coinvestment II and the limited partners of
GAP 54; and (c) any limited liability company or partnership a majority of whose
members or partners, as the case may be, are members, former members,
consultants or key employees of GAP LLC. GAP 54 and GAP Coinvestment II shall be
deemed to be Affiliates of one another.
"Agreement" has the meaning set forth in the preamble to this
Agreement.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in the States of New York or California are
authorized or required by law or executive order to close.
"Bylaws" means the bylaws of the Company in effect on the date
hereof, as the same may be amended from time to time.
"Capital Commitment" has the meaning set forth in Section 2.1(a) of
this Agreement.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of the Company in effect on the date hereof, as the
same may be amended from time to time.
"Claims" has the meaning set forth in Section 3.5 of this Agreement.
"Closing Date" has the meaning set forth in Section 2.1(c) of this
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" has the meaning set forth in the recitals to this
Agreement.
3
<PAGE> 7
"Company" has the meaning set forth in the preamble to this
Agreement.
"Condition of the Company" means the assets, business, properties,
operations or financial condition of the Company and the Subsidiaries, taken as
a whole.
"Contractual Obligations" means, as to any Person, any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such Person is a party or by which it or any of its property is bound.
"Defaulting Purchaser" has the meaning set forth in Section 2.2(a)
of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"GAP Coinvestment II" means GAP Coinvestment Partners II, L.P., a
Delaware limited partnership.
"GAP 54" means General Atlantic Partners 54, L.P., a Delaware
limited partnership.
"GAP LLC" has the meaning set forth in the recitals to this
Agreement.
"Governmental Authority" means any federal, state, city or local
governmental authority or any political subdivision thereof.
"Investor Rights Agreement" means the Fourth Amended and Restated
Investor Rights Agreement, dated as of May 17, 1999, among the Company and the
parties set forth on Schedule I thereto, as the same shall be amended from time
to time.
"Knowledge of the Company" shall mean, with respect to the Company,
the knowledge of any officer of the Company.
"Letter Agreement" has the meaning set forth in the recitals to this
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or other security interest.
"Notice of Claim" has the meaning set forth in Section 6.3 of this
Agreement.
"New Preferred Stock" has the meaning set forth in the recitals to
this Agreement.
"Orders" has the meaning set forth in Section 3.2 of this Agreement.
4
<PAGE> 8
"Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Purchasers" has the meaning set forth in the preamble to this
Agreement.
"Redemption Price" has the meaning set forth in Section 2.2(b) of
this Agreement.
"Requirements of Law" means, as to any Person, any law, statute,
treaty, rule or regulation of a court or other Governmental Authority, in each
case applicable or binding upon such Person or any of its property or to which
such Person or any of its property is bound.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder.
"Stock Equivalents" means any security or obligation which is by its
terms convertible into or exchangeable for shares of Common Stock or other
capital stock or securities of the Company, and any option, warrant or other
subscription or purchase right with respect to Common Stock or such other
capital stock or securities of the Company.
"Stockholders Agreement" means the Third Amended and Restated
Stockholders Agreement, dated as of May 17, 1999, among the Company and the
parties set forth on Schedule I thereto, as the same shall be amended from time
to time.
"Subsidiary" means, with respect to any Person, a corporation or
other entity of which 50% or more of the combined voting power of the then
outstanding securities ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of directors is owned,
directly or indirectly, by such Person.
"Termination Date" means the earlier to occur of (a) the closing
date of the Company's initial public offering of shares of Common Stock pursuant
to an effective registration statement under the Securities Act and (b) March
31, 2000.
"Warrants" has the meaning set forth in the recitals to this
Agreement.
"Warrant Shares" has the meaning set forth in Section 2.2(a) of this
Agreement.
5
<PAGE> 9
ARTICLE 2
COMMITMENT OF CAPITAL AND ISSUANCE OF WARRANTS
2.1 Commitment of Capital.
(a) Each Purchaser agrees to commit capital to the Company in
the amount set forth opposite such Purchaser's name on Schedule 2.1 hereto at
any time on or prior to the Termination Date (the "Capital Commitment") in the
event the Company reasonably requires capital to fund the working capital
reasonably necessary to enable it to satisfy and discharge its liabilities as
such liabilities become due and payable (the "Working Capital Purposes"), in
consideration of the aggregate number of shares of New Preferred Stock set forth
opposite such Purchaser's name on Schedule 2.1 hereto. In the event that the
Company requires a portion, but not all, of the Purchasers' Capital Commitments
to fund the Working Capital Purposes, the aggregate Capital Commitments shall be
funded pro rata by all of the Purchasers based on the ratio that each
Purchaser's Capital Commitment bears to the aggregate Capital Commitments of all
of the Purchasers set forth on Schedule 2.1 hereto.
(b) (i) The shares of New Preferred Stock shall be issued in
consideration of each Purchaser's Capital Commitment at a price equal to $2.25
per share and have the same rank, dividend, voting, anti-dilution and other
rights and preferences as the Series D Convertible Preferred Stock, par value
$.0001 per share, of the Company and (ii) the terms of the New Preferred Stock
shall be in form and substance reasonably satisfactory to the Company and the
Purchasers. Each of the Purchasers hereby consents to the amendment to the
Certificate of Incorporation necessary to enable the Company to issue such New
Preferred Stock in accordance with this Agreement.
(c) If the Company requires capital to fund the Working Capital
Purposes, then it shall give written notice thereof not less than 10 Business
Days prior to the date upon which such capital is so required by the Company
(the "Closing Date"). The closing of the funding of the Capital Commitment and
the sale of the New Preferred Stock in consideration thereof shall take place at
the offices of the Company, at 10:00 a.m., local time, on the Closing Date. On
the Closing Date, (i) the Company shall deliver to each of the Purchasers a
stock certificate(s) representing the aggregate number of shares of New
Preferred Stock being purchased by such Purchaser, against delivery by such
Purchaser to the Company of the aggregate purchase price therefor by wire
transfer of immediately available funds and (ii) the Company and the Purchasers
shall execute such additional documents as are reasonably necessary to close
such transaction, including, without limitation, (x) a stock purchase agreement
in which the Company shall make representations and warranties to the Purchasers
substantially similar to those set forth in Article 3 below and other customary
representations and warranties reasonably required by the Purchasers and in
which the Purchasers severally shall make representations and warranties to the
Company substantially similar to those set forth in
6
<PAGE> 10
Article 4 below and (y) all necessary amendments to each of the Stockholders
Agreement and the Investor Rights Agreement.
2.2 Issuance of Warrants.
(a) Subject to the terms and conditions herein set forth, the
Company agrees in consideration of each of the Purchaser's Capital Commitment to
issue as of May 28, 1999 to such Purchaser, Warrants to purchase the aggregate
number of shares of Common Stock set forth opposite such Purchaser's name on
Schedule 2.2 hereto (all of the shares of Common Stock issuable upon exercise of
the Warrants being issued pursuant hereto being referred to herein as the
"Warrant Shares"); provided, however, that such Warrants shall be immediately
canceled and shall be of no further force and effect if a Purchaser (a
"Defaulting Purchaser") fails to satisfy its Capital Commitment when due to the
Company in accordance with Section 2.1; and provided, further, that such
canceled Warrants shall be re-issued to any Purchaser electing to fund the
Capital Commitment of a Defaulting Purchaser, which opportunity shall be offered
ratably to all Purchasers in accordance with their funded Capital Commitments
pursuant to Section 2.1.
(b) If a Defaulting Purchaser exercises its Warrants at any time
on or prior to the Termination Date and fails to satisfy its Capital Commitment
when due to the Company in accordance with Section 2.1, then the Company shall
have the right and option (the "Company Option") to purchase from such
Defaulting Purchaser all of the shares of Common Stock issued upon exercise of
such Warrants (subject to anti-dilution adjustment) for an aggregate purchase
price of $1.00 (the "Redemption Price"). If the Company wishes to exercise the
Company Option, then it shall deliver to such Defaulting Purchaser written
notice of the exercise thereof, and such Defaulting Purchaser shall be obligated
to sell all of such shares of Common Stock to the Company at the Redemption
Price. The closing of such transaction shall occur at the offices of the
Company, at 10:00 a.m., local time, not more than three Business Days after the
Company delivers such written notice to such Defaulting Purchaser. At such
closing, (i) the Defaulting Purchaser shall deliver the certificate(s)
representing such shares of Common Stock, against payment by the Company of the
Redemption Price and (ii) the Company and the Defaulting Purchaser shall execute
such additional documents as may be reasonably required.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers as
follows:
3.1 Corporate Existence and Power. Each of the Company and each
Subsidiary of the Company (a) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation;
(b) has all requisite
7
<PAGE> 11
power and authority to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged;
(c) is duly qualified as a foreign corporation, licensed and in good standing
under the laws of each jurisdiction in which its ownership, lease or operation
of property or the conduct of its business requires such qualification, except
(i) to the extent that the failure to do so would not have a material adverse
effect on the Condition of the Company or (ii) where such failure to be so
qualified is related solely to the fact that the Company is deemed to conduct
commerce over the Internet through interstate telephone lines or the use of an
"800" number in a particular jurisdiction; and (d) has the corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the Warrants. To the Knowledge of the Company, no jurisdiction, other than
those referred to in clause (c) above, has claimed, in writing or otherwise,
that the Company or any Subsidiary is required to qualify as a foreign
corporation therein, and neither the Company nor any Subsidiary thereof files
any franchise, income or other tax returns in any other jurisdiction based upon
the ownership or use of property therein or the derivation of income therefrom.
3.2 Authorization; No Contravention. The execution, delivery and
performance by the Company of this Agreement and the Warrants, the issuance of
the Warrant Shares and the transactions contemplated hereby and thereby (a) have
been duly authorized by all necessary corporate action of the Company; (b) do
not contravene the terms of the Certificate of Incorporation or the Bylaws, or
the certificate of incorporation or bylaws or other organizational documents of
any Subsidiary of the Company; (c) do not, in any material respect, violate,
conflict with or result in any breach or contravention of, or the creation of
any Lien under, any Contractual Obligation of the Company or any Subsidiary
thereof, or any Requirement of Law applicable to the Company or any Subsidiary
thereof; and (d) do not violate any judgment, injunction, writ, award, decree or
order of any nature (collectively, "Orders") of any Governmental Authority
against, or binding upon, the Company or any Subsidiary thereof.
3.3 Governmental Authorization; Third Party Consents. Except as set
forth on Schedule 3.3, no approval, consent, compliance, exemption,
authorization or other action by, or notice to, or filing with, any Governmental
Authority or any other Person, and no lapse of a waiting period under a
Requirement of Law, is necessary or required in connection with the execution,
delivery or performance (including, without limitation, the sale, issuance and
delivery of the Warrant Shares) by, or enforcement against, the Company of this
Agreement and the Warrants or the transactions contemplated hereby and thereby.
3.4 Binding Effect. This Agreement and the Warrants have been duly
executed and delivered by the Company, and constitute the legal, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms, except (a) as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity)
8
<PAGE> 12
and (b) to the extent the indemnification provisions of this Agreement may be
limited by applicable federal or state securities laws.
3.5 Litigation. Except as set forth on Schedule 3.5, there are no
actions, suits, proceedings, claims, complaints, disputes, arbitrations or
investigations (collectively, "Claims") pending or, to the Knowledge of the
Company, threatened, at law, in equity, in arbitration or before any
Governmental Authority against the Company or any Subsidiary thereof, which
would, if adversely determined, have a material adverse effect on the Condition
of the Company or the ability of the Company to perform its obligations under
this Agreement or the Warrants. No Order has been issued by any court or other
Governmental Authority against the Company or any Subsidiary purporting to
enjoin or restrain the execution, delivery or performance of this Agreement or
the Warrants.
3.6 Capitalization. On the closing date of the sale of the Company's
Series E Preferred Stock (the "Series E Closing Date") pursuant to that certain
Series E Preferred Stock Purchase Agreement, dated August 5, 1999, by and among
the Company, Excite, Inc., and Cox Interactive Media, Inc. (the "Series E
Purchase Agreement"), after giving effect to the transactions contemplated by
the Series E Purchase Agreement to occur on or prior thereto, the authorized
capital stock of the Company shall consist of (i) 270,000,000 shares of Common
Stock, par value $.0001, of which 37,940,070 shares are and shall be issued and
outstanding and (ii) 90,000,000 shares of Preferred Stock, par value $.0001, of
which (A) 8,440,002 shares have been designated Series A Preferred Stock, of
which 8,440,002 shares are and shall be issued and outstanding, which shares are
convertible into 8,440,002 shares of Common Stock, (B) 2,718,018 shares have
been designated Series A1 Preferred Stock, of which 2,677,578 shares are and
shall be issued and outstanding, which shares are convertible into 2,677,578
shares of Common Stock, (C) 9,500,000 shares have been designated Series B
Preferred Stock, of which 9,499,874 shares are and shall be issued and
outstanding, which shares are convertible into 9,499,874 shares of Common Stock,
(D) 17,395,949 shares have been designated Series C Preferred Stock, of which
17,379,355 shares shall be issued and outstanding, which shares are convertible
into 17,379,355 shares of Common Stock, (E) 13,333,335 shares have been
designated Series D Preferred Stock, of which 13,333,335 shares shall be issued
and outstanding, which shares are convertible into 13,333,335 shares of Common
Stock and (F) 30,555,556 shares have been designated Series E Preferred Stock,
of which (i) 9,444,446 shares shall be issued and outstanding, which shares
shall be convertible into 9,444,446 shares of Common Stock and (ii) 21,111,110
shares shall be duly reserved for future sale and issuance pursuant to Section
2.1 of the Series E Purchase Agreement, which shares shall be convertible into
24,444,444 shares of Common Stock. Schedule 3.6(a) sets forth, at and on the
Series E Closing Date, a true and complete list of (x) the stockholders of the
Company and, opposite the name of each stockholder, the amount of all
outstanding capital stock and Stock Equivalents owned by each such stockholder
and (y) the holders of Stock Equivalents (other than the stockholders set forth
in clause (x) above) and, opposite the name of each such holder, the amount of
all Stock Equivalents owned by each such holder. The Company has reserved
500,000 shares of Common
9
<PAGE> 13
Stock for issuance upon conversion of the Warrants. Except as set forth on
Schedule 3.6(a) and except for the Warrants, there are no options, warrants,
conversion privileges, subscription or purchase rights or other rights presently
outstanding to purchase or otherwise acquire (i) any authorized but unissued,
unauthorized or treasury shares of the Company's capital stock, (ii) any Stock
Equivalents or (iii) other securities of the Company. The Warrants and the
Warrant Shares are duly authorized, and when the Warrant Shares are issued and
sold to the Purchasers upon exercise of the Warrants, will be validly issued,
fully paid and nonassessable and will be issued in compliance with the
registration and qualification requirements of all applicable federal and state
securities laws. The issued and outstanding shares of Common Stock are all duly
authorized, validly issued, fully paid and nonassessable, and, to the Knowledge
of the Company, except as set forth on Schedule 3.6(a), were issued in
compliance with the registration and qualification requirements of all
applicable federal and state securities laws.
3.7 No Default or Breach. Except as set forth on Schedule 3.7,
neither the Company nor any Subsidiary thereof has received notice of default
under or with respect to, or is in default under or with respect to, any
material Contractual Obligation. All of such Contractual Obligations are valid,
in full force and effect and binding upon the Company or the applicable
Subsidiary thereof, as the case may be, and the other parties thereto, and
neither the Company nor the applicable Subsidiary thereof, as the case may be,
is in breach or default under (and no event has occurred which with notice of
the passage of time or both would constitute a breach or default under) any
material provision thereof. To the Knowledge of the Company, no other party to
any such Contractual Obligation is in default thereunder nor does any condition
exist that with notice or lapse of time or both would constitute a default
thereunder.
3.8 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the issuance of the Warrants. No registration of the Warrants or the Warrant
Shares, pursuant to the provisions of the Securities Act or any state securities
or "blue sky" laws, will be required by the offer, sale or issuance of the
Warrants or the Warrant Shares.
3.9 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the Company
or any Subsidiary thereof in connection with the issuance of the Warrants or the
Warrant Shares or transactions contemplated hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each of the Purchasers severally and not jointly hereby represents
and warrants to the Company as follows:
10
<PAGE> 14
4.1 Existence and Power. Such Purchaser (a) is a corporation,
partnership, limited liability company or trust, as the case may be, duly
organized and validly existing under the laws of the jurisdiction of its
formation and (b) has the requisite corporate, partnership, limited liability
company or trust, as the case may be, power and authority to execute, deliver
and perform its obligations under this Agreement.
4.2 Authorization; No Contravention. The execution, delivery and
performance by such Purchaser of this Agreement and the transactions
contemplated hereby, (a) have been duly authorized by all necessary corporate,
partnership or limited liability company action, as the case may be, (b) do not
contravene the terms of such Purchaser's organizational documents, or any
amendment thereof, and (c) do not and will not violate, in any material respect,
conflict with or result in any breach or contravention of or the creation of any
Lien under, any Contractual Obligation of such Purchaser, or any Requirement of
Law applicable to such Purchaser.
4.3 Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption, authorization, or other action by, or notice to,
or filing with, any Governmental Authority or any other Person, and no lapse of
a waiting period under any Requirement of Law, is necessary or required in
connection with the execution, delivery or performance by, or enforcement
against, such Purchaser of this Agreement or the transactions contemplated
hereby.
4.4 Binding Effect. This Agreement has been duly executed and
delivered by such Purchaser and constitute the legal, valid and binding
obligation of such Purchaser, enforceable against it in accordance with its
terms, except (a) as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability (regardless of whether
considered in a proceeding at law or in equity) and (b) to the extent the
indemnification provisions of this Agreement may be limited by applicable
federal or state securities law.
4.5 Purchase for Own Account. The Warrants to be acquired by such
Purchaser pursuant to this Agreement and the Warrant Shares are being or will be
acquired for its own account and with no intention of distributing or reselling
such Warrants or Warrant Shares or any part thereof in any transaction that
would be in violation of the securities laws of the United States of America, or
any state, without prejudice, however, to the rights of such Purchaser at all
times to sell or otherwise dispose of all or any part of the Warrants or the
Warrant Shares under an effective registration statement under the Securities
Act, or under an exemption available under the Securities Act, and subject,
nevertheless, to the disposition of such Purchaser's property being at all times
within its control. If such Purchaser should in the future decide to dispose of
any of the Warrants or the Warrant Shares, such Purchaser understands and agrees
that it may do so only in compliance with the Securities Act and applicable
state
11
<PAGE> 15
securities laws, as then in effect. Such Purchaser agrees to the imprinting on
certificates representing the Warrant Shares of legends in substantially the
form stipulated in the Stockholders Agreement (so long as such agreement is in
effect) or, if the Stockholders Agreement is no longer in effect, of legends
required by law.
4.6 Restricted Securities. Such Purchaser understands that the
Warrants and the Warrant Shares will not be registered at the time of their
issuance under the Securities Act for the reason that exempt from registration
pursuant to Section 4(2) of the Securities Act and that the reliance of the
Company on such exemption is predicated in part on such Purchaser's
representations set forth herein. Such Purchaser represents that it is
experienced in evaluating companies such as the Company, is an "accredited
investor" within the meaning of Rule 501 promulgated under the Securities Act,
has such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment and has the ability
to suffer the total loss of its investment.
4.7 No Public Market. Such Purchaser understands that no public
market now exists for the Warrants and that it is unlikely that a public market
will ever exist for the Warrants.
4.8 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable by the
Purchasers in connection with the transactions contemplated hereby.
ARTICLE 5
CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE
The obligation of each Purchaser under Section 2.1 of this Agreement
shall be subject to the satisfaction or waiver of the following conditions on or
before the date hereof:
5.1 Secretary's Certificate. The Purchasers shall have received a
certificate from the Company, in form and substance satisfactory to the
Purchasers, dated the date hereof and signed by the Secretary or an Assistant
Secretary of the Company, certifying that the attached resolutions of the Board
of Directors of the Company approving this Agreement and the issuance of the
Warrants, and the transactions contemplated hereby and thereby, are true,
complete and correct and remain unamended and in full force and effect.
5.2 Warrants. The Company shall have delivered to each Purchaser
Warrants in definitive form to purchase the aggregate number of Warrant Shares
set forth opposite such Purchaser's name on Schedule 2.2 hereto.
12
<PAGE> 16
ARTICLE 6
AFFIRMATIVE COVENANTS
The Company hereby covenants and agrees with the Purchasers as
follows:
6.1 Reservation of Common Stock. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issue and delivery of the Warrant Shares upon exercise of the
Warrants, the maximum number of shares of Common Stock that may be issuable or
deliverable upon such exercise. Such shares of Common Stock are duly authorized
and, when issued or delivered upon exercise of the Warrants, shall be validly
issued, fully paid and nonassessable.
ARTICLE 7
MISCELLANEOUS
7.1 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Purchaser,
or exercise of the Warrants, until sixty days after the date upon which each of
the Purchasers receives the audited financial statements of the Company for the
fiscal year ending December 31, 2000 (or any successor fiscal year then in
effect), but, notwithstanding the foregoing, the representations and warranties
in Sections 3.2, 3.4, 3.6, 4.2, 4.4, 4.5 and 4.6 shall survive until the third
anniversary of the date hereof.
7.2 Notices. All notices, demands and other communications provided
for or permitted hereunder shall be made in writing and shall be by registered
or certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(a) if to the Company:
Tickets.com, Inc.
555 Anton Boulevard
12th Floor
Costa Mesa, California 92626
Telecopy: (714) 327-5510
Attention: John Markovich
W. Thomas Gimple
with a copy to:
13
<PAGE> 17
Brobeck, Phleger & Harrison LLP
38 Technology Drive
Irvine, California 92618
Telecopy: (949) 790-6301
Attention: Bruce R. Hallett, Esq.
and
Hewitt & McGuire, LLP
19900 MacArthur Boulevard, Suite 1050
Irvine, California 92612
Telecopy: (949) 798-0511
Attention: Paul A. Rowe, Esq.
(b) if to GAP 54 or GAP Coinvestment II:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. William E. Ford
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(c) if to any other Purchaser, at its address as it
appears on the record books of the Company.
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied.
7.3 Successors and Assigns; Third Party Beneficiaries. This
Agreement shall inure to the benefit of and be binding upon the successors and
permitted assigns of the parties hereto. Subject to applicable securities laws
and the terms and conditions of the Warrants, each of the Purchasers may assign
any of its rights or obligations under this Agreement or the Warrants to any of
its Affiliates. Except as
14
<PAGE> 18
provided in the foregoing sentence, neither the Company nor any Purchaser may
assign any of its rights under this Agreement without the written consent of the
other parties hereto. Except as provided in Article 6, no Person other than the
parties hereto and their successors and permitted assigns is intended to be a
beneficiary of this Agreement.
7.4 Amendment and Waiver.
(a) No failure or delay on the part of the Company or the
Purchasers in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the Purchasers at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by the Company or the Purchasers from the terms of
any provision of this Agreement, shall be effective only if it is made or given
in writing and signed by the Company and the Purchasers to whom a majority of
the Warrants are issued pursuant to this Agreement. Except where notice is
specifically required by this Agreement, no notice to or demand on the Company
in any case shall entitle the Company to any other or further notice or demand
in similar or other circumstances.
7.5 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
7.6 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
7.7 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
7.8 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
15
<PAGE> 19
7.9 Entire Agreement. This Agreement, together with the schedules
and exhibits hereto, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to the subject matter hereof.
7.10 Publicity. Except as may be required by applicable Requirement
of Law, none of the parties hereto shall issue a publicity release or public
announcement or otherwise make any disclosure concerning this Agreement or the
transactions contemplated hereby, without prior approval by the other parties
hereto (which approval shall not be unreasonably withheld); provided, however,
that nothing in this Agreement shall restrict any party from disclosing
information (a) that is already publicly available; (b) to a permitted
prospective transferee in connection with any contemplated transfer of any of
the Warrants or Warrant Shares; (c) to its Affiliates, members, with respect to
any Purchaser that is a limited liability company, or partners, with respect to
any Purchaser that is a limited partnership, and (d) to its attorneys,
accountants, consultants and other advisors in connection with such Persons
rendering of service to any such party in connection with the transactions
contemplated hereby or by the other Transaction Documents. In addition, GAP LLC
and the idealab! Entities shall be permitted to disclose the fact of their
respective investment in the Company, the aggregate amount so invested and the
identity of the Company and its President on their respective Worldwide Web
Pages, www.gapartners.com and www.icp.com. If any announcement is required by
law to be made by any party hereto, prior to making such announcement such party
will deliver a draft of such announcement to the other parties and shall give
the other parties an opportunity to comment thereon.
7.11 Further Assurances. Each of the parties shall execute such
documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement and to
consummate and make effective as promptly as possible the transactions
contemplated by this Agreement.
7.12 Expenses. The Company shall pay all of the transaction-related
legal expenses of GAP 54 and GAP Coinvestment II in connection with the
transactions contemplated by this Agreement.
16
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their respective officers hereunto duly authorized
on the date first above written.
TICKETS.COM, INC.
By:
----------------------------------
Name: John M. Markovich
Title: Chief Financial Officer
GENERAL ATLANTIC PARTNERS 54, L.P.
By: GENERAL ATLANTIC PARTNERS,
LLC, its General Partner
By:
----------------------------------
Name:
Title: Managing Member
GAP COINVESTMENT PARTNERS II, L.P.
By:
----------------------------------
Name:
Title: Managing Member
S.A.M. TRUST
By:
----------------------------------
Name:
Title:
ATTRACTOR INSTITUTIONAL LP
By: Attractor Ventures LLC,
its General Partner
By:
----------------------------------
Name:
Title:
17
<PAGE> 21
ATTRACTOR LP
By: Attractor Ventures LLC,
its General Partner
By:
----------------------------------
Name:
Title:
ATTRACTOR VENTURES LLC
By:
----------------------------------
Name:
Title:
IDEALAB! CAPITAL PARTNERS I-A LP
By: idealab! Capital Management I,LLC,
its General Partner
By:
----------------------------------
Name:
Title:
IDEALAB! CAPITAL PARTNERS I-B LP
By: idealab! Capital Management I,LLC,
its General Partner
By:
----------------------------------
Name:
Title:
MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Inc.,
its Trading Advisor
By:
----------------------------------
Name:
Title:
18
<PAGE> 22
THE JOHN D. AND CATHERINE T.
MACARTHUR FOUNDATION
By:
----------------------------------
Name:
Title:
REMINGTON INVESTMENTS STRATEGIES, L.P.
By: Moore Capital Advisors, L.L.C.,
its General Partner
By:
----------------------------------
Name:
Title:
MULTI-STRATEGIES FUND, L.P.
By: Moore Capital Management, Inc.,
its Trading Advisor
By:
----------------------------------
Name:
Title:
MULTI-STRATEGIES FUND LTD.
By: Moore Capital Advisors, L.L.C.,
its General Partner
By:
----------------------------------
Name:
Title:
19
<PAGE> 23
JACKSON INTERNATIONAL, LLC
By:
----------------------------------
Name:
Title:
SPORTS CAPITAL TICKETS, LLC
By:
----------------------------------
Name:
Title:
20
<PAGE> 24
Schedule 2.1
Commitment of Capital
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES OF
NEW PREFERRED COMMITMENT
NAME OF PURCHASER STOCK (DOLLARS)
<S> <C> <C>
General Atlantic Partners 54, L.P. 3,964,854 $ 8,920,921.50
GAP Coinvestment Partners II, L.P. 827,732 1,862,397.00
Attractor Institutional LP 14,985 33,716.25
Attractor Ventures LLC 12,687 28,545.75
Attractor LP 172,949 389,135.25
idealab! Capital Partners 1-A LP 85,590 192,577.50
idealab! Capital Partners 1-B LP 70,022 157,549.50
Moore Global Investments, Ltd. 39,717 89,363.25
Remington Investments Strategies, L.P. 5,654 12,721.50
SAM Trust 4,682 10,534.50
Multi-Strategies Fund, L.P. 3,141 7,067.25
Multi-Strategies Fund, Ltd. 14,311 32,199.75
Jackson International, LLC 42,105 94,736.25
The John D. and Catherine T. MacArthur 32,797 73,793.25
Foundation
Sports Capital Tickets, LLC 42,105 94,736.25
TOTAL 5,333,331 $11,999,994.75
- --------------------------------------------------------------------------------
</TABLE>
21
<PAGE> 25
Schedule 2.2
Warrants
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME OF PURCHASER NUMBER OF WARRANT SHARES
<S> <C>
General Atlantic Partners 54, L.P. 371,706
GAP Coinvestment Partners II, L.P. 77,600
Attractor Institutional LP 1,405
Attractor Ventures LLC 1,189
Attractor LP 16,214
idealab! Capital Partners 1-A LP 8,024
idealab! Capital Partners 1-B LP 6,565
Moore Global Investments, Ltd. 3,723
Remington Investments Strategies, L.P. 530
SAM Trust 439
Multi-Strategies Fund, L.P. 294
Multi-Strategies Fund, Ltd. 1,342
Jackson International, LLC 3,947
Sports Capital Tickets, LLC 3,947
The John D. and Catherine T. MacArthur Foundation 3,075
-------
TOTAL 500,000
- --------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 1
EXHIBIT 10.40
AGREEMENT
This Agreement ("Agreement"), made and entered into on the 24th day of
January 1999 by and between Advantix, Inc., a California corporation
("Advantix"), and RBB Bank AG, a bank organized under the laws of Austria
("RBB").
RECITALS
A. RBB is the record holder of seven million eight hundred thirty
seven thousand three hundred thirty two (7,837,332) shares (the
"Common Shares") of common stock of Lasergate Systems, Inc., a
Florida corporation ("Lasergate") (the "Lasergate Common Stock")
and five thousand seven hundred (5,700) shares (the "Preferred
Shares," and together with the Common Shares, the "Shares") of
Series G Preferred Stock of Lasergate (the "Lasergate Preferred
Stock"), which are convertible into twenty four million eight
hundred eighteen thousand two hundred seventeen (24,818,217)
shares of Lasergate Common Stock. The term Shares shall include
appropriate adjustments for stock splits, recapitalizations,
combinations, conversions, exchanges and other similar events
relating to the Lasergate Common Stock and Lasergate Preferred
Stock.
B. RBB owns the Shares as nominee for its clients who are
beneficial owners of such shares.
C. Advantix desires to purchase all of the Shares and RBB desires
to sell all of the Shares on the terms and subject to the
conditions set forth in this Agreement (the "Purchase
Transaction").
D. Advantix has proposed to the Board of Directors of Lasergate
that Lasergate will merge (the "Merger") with a subsidiary of
Advantix ("New Subsidiary") whereby the outstanding Lasergate
Common Stock will be exchanged for $0.10 cash per share and the
outstanding shares of Lasergate Preferred Stock will be
exchanged for preferred stock of New Subsidiary (the "New
Subsidiary Preferred Stock").
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the respective
mutual agreements, covenants, representations and warranties set forth herein,
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
TERMS
1. RECITALS. The recitals set forth above are true and correct and are
hereby incorporated into and made a part of this Agreement.
<PAGE> 2
2. APPROVAL OF MERGER. RBB agrees to vote all of its Shares in favor of
the Merger and to actively support the Merger and to execute such documents and
take such steps as are reasonably necessary to consummate the Merger. On or
after May 15, 1999, at the option of RBB upon 15 days prior written notice to
Advantix, the New Subsidiary Preferred Stock to be received by RBB in exchange
for the Preferred Shares shall be convertible into either (i) cash in the amount
of U.S.$0.10 for each share of Lasergate Common Stock into which such shares
could have been converted immediately prior to the consummation of the Merger
(the "Cash Consideration") or (ii) 170.081 shares of Advantix Common Stock for
each Preferred Share that was exchanged for such shares pursuant to the Merger
(the "Stock Consideration"). On or after June 15, 1999, at the option of
Advantix upon 15 days prior written notice to RBB, the New Subsidiary Preferred
Stock to be received by RBB in exchange for the Preferred Shares shall be
redeemable for the Cash Consideration or the Stock Consideration.
3. PURCHASE OF SHARES. In the event that the Board of Directors of
Lasergate does not approve the Merger on or before January 31, 1999, RBB agrees
to sell, and Advantix agrees to purchase, the Shares upon the terms and
conditions hereinafter set forth. In the event that the Board of Directors of
Lasergate approves the Merger on or before January 31, 1999, the provisions
herein relating to the purchase and sale of the Shares (other than pursuant to
Section 2) shall not become effective and the acquisition and disposition of the
Shares shall be pursuant to the definitive agreements governing the Merger.
4. SALE OF SHARES. On the Closing Date (as defined in below), RBB shall
sell, transfer, convey and deliver to Advantix, and Advantix shall purchase and
accept delivery of, the Shares, and RBB shall deliver to Advantix stock
certificates representing the Shares, together with appropriate stock powers
endorsed in blank or as otherwise instructed by Advantix.
5. PURCHASE PRICE.
A. PURCHASE PRICE. As consideration for this Agreement and as the
purchase price to be paid by Advantix for the Shares and all other obligations
of RBB under this Agreement, Advantix shall pay and deliver to RBB the following
consideration (the "Purchase Price"): (i) cash in an amount equal to U.S.$0.10
for each Common Share owned by RBB and being purchased by Advantix under this
Agreement, and (ii) subject to adjustment as set forth below, such number of
shares (the "Advantix Shares") of common stock of Advantix ("Advantix Common
Stock") as shall be equal to the Exchange Ratio (as defined below) multiplied by
the number of Preferred Shares owned by RBB and being purchased by Advantix
under this Agreement. The Exchange Ratio shall be 170.081 shares of Advantix
Common Stock for each share of Lasergate Preferred Stock.
B. ADJUSTMENT OF PURCHASE PRICE. In the event that prior to
Closing Advantix consummates a private offering of its equity securities which
results in gross proceeds to Advantix of not less than $5 million (the "Private
Financing"), and the pre-offering valuation of Advantix in connection with such
Private Financing is less than or greater than U.S.$190 million, then the
Exchange Ratio shall be increased or decreased, as the case may be, on a
proportionate basis.
C. PAYMENT OF PURCHASE PRICE IN CASH. In the event that Advantix
has not consummated a registered public offering of Advantix Common Stock on or
before May 15, 1999
2
<PAGE> 3
(the "Advantix IPO"), or such later date as Advantix and RBB may agree, then,
notwithstanding paragraphs A and B of this Section 3, the Purchase Price shall
be an amount equal to the sum of (i) U.S.$0.10 for each Common Share owned by
RBB and being purchased by Advantix under this Agreement and (ii) U.S.$0.10 for
each share of Lasergate Common Stock into which the Preferred Shares may be
converted on the Closing Date.
6. ADDITIONAL AGREEMENTS.
A. RIGHTS. From and after the date hereof, Advantix shall be
entitled to receive, and RBB shall promptly deliver to Advantix, all of RBB's
rights, title and interest with respect to any proceeds, revenues, dividends,
distributions, conversions, exchanges, penalties and all other economic benefits
arising from the ownership of the Shares, including without limitation any cash
penalties or other consideration payable on account of the Shares as a result of
Lasergate's failure to obtain shareholder authorization for the issuance of
additional shares of Lasergate Common Stock upon the conversion of the Lasergate
Preferred Stock.
B. PAYMENT OF PROMISSORY NOTE. Upon the consummation of the
Merger, Advantix shall cause Lasergate, or its successor, to pay to RBB all
amounts as they become due under the terms of that certain Promissory Note
issued by Lasergate in favor of RBB in the original principal amount of
$300,000.
C. CONTROL OF LASERGATE BOARD OF DIRECTORS. In the event that the
Board of Directors of Lasergate does not approve the Merger on or before January
31, 1999, RBB shall, as soon as possible thereafter, take all appropriate or
necessary actions, including without limitation making all appropriate filings
with the Securities and Exchange Commission, to elect a majority of the members
of the Lasergate board of directors. The members of the Lasergate board of
directors shall include David A. Riley and Stephen Fryer, or such other
individuals as are acceptable to Advantix, and David A. Riley shall be named as
Lasergate's business manager.
D. FUTURE ACTION. RBB agrees, and agrees to cause Lasergate, not
to take any action, including voting the Shares, inconsistent with the purposes
of this Agreement or the Merger or otherwise detrimental to Advantix.
E. CONVERSION. RBB agrees not to convert the Preferred Shares
into shares of Common Stock prior to the earlier to occur of the Closing and the
consummation of the Merger without the prior written consent of Advantix.
7. NON-SOLICITATION. From and after the date hereof until the earlier to
occur of the Closing and the consummation of the Merger, RBB shall not, and
shall not permit its officers, directors, employees, advisors, representatives
or agents to directly or indirectly, solicit, initiate, encourage (including by
way of furnishing information) or take any other action to facilitate any
inquiry or the making of any proposal which constitutes, or may be reasonably
expected to lead to, any acquisition or purchase of any of the Shares. If RBB
receives a proposal relating to the purchase of all or any portion of the
Shares, RBB shall immediately inform Advantix in writing of the terms and
conditions of such proposal and the identity of the person(s) making such
proposal, and keep Advantix fully and promptly informed of the status and
details of any such proposal and
3
<PAGE> 4
the response thereto.
8. REPRESENTATIONS AND WARRANTIES OF RBB. As an inducement for Advantix
to enter into this Agreement, RBB hereby represents and warrants to Advantix as
follows:
A. RBB has all requisite power and authority to enter into this
Agreement and to carry out its obligations hereunder. RBB has taken all action
necessary to authorize the execution and delivery of this Agreement, the
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by RBB and constitutes a legal, valid and binding obligation of RBB,
enforceable against RBB in accordance with its terms. RBB is not bound by any
contractual or legal restriction from selling the Shares pursuant to the terms
of this Agreement.
B. RBB is the record owner of the Shares, and as of the date
hereof and the Closing Date, such Shares are owned by RBB free and clear of all
liens, encumbrances, security interests, and restrictions of any kind.
C. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in a
breach of any provision of, or the termination of, or constitute a default under
any agreement to which RBB is a party or by which it or any of its assets may be
bound, (ii) violate or conflict with any applicable law, statute, ordinance,
rule, regulation, decree, writ, judgment, injunction or order of any
governmental authority, or (iii) require the consent, approval, authorization or
permit of, or filing with or notification to, any governmental authority other
than the U.S. Securities and Exchange Commission.
D. As of the Closing Date, RBB will have the absolute right and
authority to transfer the Shares to Advantix as described herein without the
consent of any other party, including without limitation the beneficial owners
of the Shares, and no agreement or instrument will be violated as a result such
transfer.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF ADVANTIX. As an
inducement for RBB to enter into this Agreement, Advantix hereby represents,
warrants and covenants to RBB as follows:
A. Advantix has all requisite power and authority to enter into
this Agreement and to carry out its obligations hereunder. Advantix has taken
all action necessary to authorize the execution and delivery of this Agreement,
the performance of its obligations hereunder and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Advantix and constitutes a legal, valid and binding obligation of
Advantix, enforceable against Advantix in accordance with its terms.
B. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in a
breach of any provision of, or the termination of, or constitute a default under
any agreement to which Advantix is a party or by which it or any of its assets
may be bound, (ii) violate or conflict with any applicable law, statute,
ordinance, rule, regulation, decree, writ, judgment, injunction or order of any
governmental
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authority, or (iii) require the consent, approval, authorization or permit of,
or filing with or notification to, any governmental authority other than the
U.S. Securities and Exchange Commission.
10. INDEMNIFICATION OF ADVANTIX BY RBB. RBB agrees to indemnify, defend
and hold Advantix and its successors and assigns harmless against and in respect
of any and all liabilities, losses, damages, claims, penalties, fines, costs and
expenses of any kind which may be incurred (including, without limitation,
reasonable attorneys' and accountants' fees) (collectively, "Losses"), arising
out of or due to:
A. any and all liabilities arising out of any claims of ownership
to any of the Shares, whether absolute, accrued, contingent, liquidated or
unliquidated, existing or arising out of a state of facts existing at or prior
to the Closing, and expenses relating thereto;
B. any misrepresentation or any breach of any representation or
warranty on the part of RBB under, in or with respect to this Agreement;
C. any breach of any covenant or agreement on the part of RBB
under, in or with respect to this Agreement;
D. any and all and all liabilities arising out of any claims by
the beneficial owners of the Shares; and
E. any and all actions, suits, proceedings, demands, assessments
or judgments, costs and expenses incidental to any of the foregoing matters.
Notwithstanding the foregoing, RBB's aggregate liability for
indemnifiable Losses pursuant to clauses A or B of this Section shall not exceed
the Purchase Price.
11. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
INDEMNIFICATION OBLIGATIONS. All representations, warranties, covenants,
agreements and indemnification obligations of RBB and Advantix contained in this
Agreement shall survive the Closing.
12. ATTORNEYS' FEES. In the event a suit or proceeding is brought by a
party to this Agreement to enforce its provisions, or to seek remedy for any
breach hereof, the prevailing party shall be entitled to receive its reasonable
attorneys' fees and disbursements incurred in connection with such suit or
proceeding, including fees and expenses incurred in any appellate proceedings.
13. CLOSING. The transfers and deliveries to be made pursuant to this
Agreement (the "Closing") shall take place not later than ten days following the
consummation of the Advantix IPO (the "Closing Date"); provided however, that in
the event that Advantix has not consummated the Advantix IPO on or before May
15, 1999, or such later date as Advantix and RBB may agree, May 15, 1999, or
such later date shall be the Closing Date. Time shall be of the essence with
respect to this Agreement.
14. CONDITIONS TO CLOSING. The obligations of the parties to consummate
the Purchase
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<PAGE> 6
Transaction shall be subject to the following conditions, which may be waived in
whole or in part by the parties:
A. LASERGATE BANKRUPTCY. In the event that Lasergate (i) applies
for or consents to the appointment of a receiver, trustee or liquidator of all
or a substantial portion of its assets, files a voluntary petition in bankruptcy
or consents to an involuntary petition, makes a general assignment for the
benefit of its creditors, or files a petition or answer seeking reorganization
or arrangement with its creditors; or (ii) suffers any order, judgment or decree
to be entered by any court of competent jurisdiction, adjudicating Lasergate to
be bankrupt or approving a petition seeking its reorganization or the
appointment of a receiver, trustee or liquidator of Lasergate or of all or a
substantial part of its assets, then, unless RBB and Advantix otherwise agree in
writing, the Closing Date shall be postponed so long as such condition exists
for up to 180 days. This Agreement shall automatically be terminated in the
event that such condition continues for more than 180 days.
B. BREACHES. In the event that either party breaches any of its
agreements, covenants, representations or warranties under this Agreement, and
such breach can not be cured or remains uncured for more than ten days after
notice of such breach is delivered by the non-breaching party, then the
non-breaching party shall not be obligated to consummate the Purchase
Transaction.
15. EXPENSES. Each of Advantix and RBB shall bear its own expenses
(whether or not incurred prior to the date hereof) in connection with the
discussion, evaluation, negotiation and documentation of, or otherwise arising
out of, this Agreement and the transactions contemplated thereby.
16. ENTIRE AGREEMENT. This Agreement contains the entire Agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements, understandings, negotiations and discussions,
both written and oral, between the parties hereto with respect to the
transactions contemplated hereby.
17. FURTHER ASSURANCES. From and after the Closing, RBB shall, upon
request of Advantix and at no expense to Advantix, execute and deliver such
documents and instruments and perform such other acts as Advantix shall from
time to time reasonably request in order to confirm or more fully vest in
Advantix title to the Shares and allow Advantix to realize the benefits of this
Agreement.
18. AMENDMENT. No amendment, modification or termination of the
Agreement shall be effective unless in writing signed by the parties hereto.
19. NO WAIVER. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof, nor
shall any such waiver constitute a continuing waiver unless otherwise expressly
so provided.
20. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining
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portions of this Agreement, all of which are inserted conditionally on their
being valid in law, and, in the event that any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall be
declared invalid, this Agreement shall be construed as if such word(s),
phrase(s), sentence(s), clause(s) or section(s) had not been inserted.
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement and
each of which shall be deemed an original.
22. APPLICABLE LAW; VENUE; SPECIFIC PERFORMANCE. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of New
York. The parties agree to the jurisdiction of any court located in the State of
New York agree that the venue of any action or proceeding relating to this
Agreement shall be in New York. Advantix and RBB agree that each shall be
entitled to the equitable remedy of specific performance if at any time any such
party hereto shall desire to enforce any provision of this Agreement.
23. JURY WAIVER. RBB AND Advantix HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO
ANY LITIGATION BASED HEREIN, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT, ANY OTHER DOCUMENTS OR INSTRUMENTS CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.
NOW THEREFORE, the parties hereto have executed and delivered this
Agreement as of the date first written above.
RBB BANK AG
By: /s/ Herbert Strauss
Its: Managing director US Equity
ADVANTIX, INC.
By: /s/ Tom Gimple
Its: President & CEO
7
<PAGE> 8
FIRST AMENDMENT TO AGREEMENT
This First Amendment to the Agreement (the "Amendment") dated as of June
21, 1999 (the "Agreement") is entered into by and between Tickets.com, Inc., a
Delaware corporation ("Tickets.com", formerly known as Advantix, Inc.) and RBB
Bank AG, a bank organized under the laws of Austria ("RBB").
BACKGROUND
The parties have determined that it is in their mutual best interest to
amend the Agreement in order to permit Tickets.com to purchase the 5,700 shares
of Series G Preferred Stock (the "Preferred Shares") of Lasergate Systems, Inc.
("Lasergate") held by RBB prior to any merger between Tickets.com and Lasergate
(the "Merger"). Accordingly, in consideration of the mutual covenants and
agreements set forth below, the parties agree as follows:
TERMS
1. Purchase of Preferred Shares. Tickets.com agrees to purchase all
of the Preferred Shares within three business days (the "Closing
Date") of the execution of a definitive agreement and plan of
merger between Tickets.com, Advantix Acquisition Corp. and
Lasergate, in exchange for, at the election of RBB, (a) 170.081
shares of the common stock of Tickets.com for each outstanding
Preferred Share; or (b) $435.00 per each outstanding Preferred
Share, or a combination thereof. RBB shall make its election, in
writing, no later than 5:00 p.m. Eastern time on June 21, 1999.
If RBB elects to receive cash, it shall include its wire
transfer instructions with the notice of its election.
2. Sale of Preferred Shares. On the Closing Date, RBB shall sell,
transfer, convey and deliver to Tickets.com, and Tickets.com
shall purchase and accept delivery of, the Preferred Shares. RBB
shall deliver to Tickets.com stock certificates representing the
Preferred Shares, together with appropriate stock powers
endorsed in blank.
3. Purchase Price. In exchange for this transfer of the Preferred
Shares by RBB, Tickets.com shall transfer, convey and deliver to
RBB cash or shares of the common stock of Tickets.com, or a
combination thereof, pursuant to the election made by RBB on or
before June 11, 1999 in accordance with Section 1 above. If
<PAGE> 9
applicable, Tickets.com shall deliver to RBB a stock certificate
representing such shares of Tickets.com common stock.
4. Shares of Common Stock Held by RBB. The shares of common stock
of Lasergate held by RBB shall be purchased as part of the
Merger and not as part of this purchase transaction.
5. Conditions to Closing. The obligation of Tickets.com to purchase
RBB's Preferred Shares shall be subject to the following
conditions: (a) the execution of a definitive merger agreement
by Tickets.com and Lasergate; and (b) the resignation of
Jacqueline E. Soechtig ("JES") as an officer and director of
Lasergate and the receipt by Lasergate of a release from JES
(reasonably acceptable to Tickets.com).
6. Effect of the Agreement. All other provisions contained in the
Agreement and not amended by this Amendment, remain in full
force and effect.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date set forth above.
TICKETS.COM, INC.
By: /s/ John M. Markovich
--------------------------------
John M. Markovich,
Executive Vice President
RBB BANK AG
By: /s/ Herbert Strausz
--------------------------------
Herbert Strausz, Manager
U.S. Equities
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Orange County, California
October 18, 1999
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
TicketsLive Corporation:
We consent to inclusion in the Registration Statement on Form S-1 of
Tickets.com, Inc. of our report dated June 12, 1998, relating to the
consolidated balance sheets of TicketsLive Corporation (formerly Select
Technologies Corporation) and subsidiaries as of April 30, 1997 and 1998, and
the related consolidated statements of operations, redeemable preferred stock,
stockholders' equity (deficit) and comprehensive income (loss), and cash flows
for the years then ended, and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ KPMG LLP
October 15, 1999
Syracuse, New York
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No.
333-79709 of Tickets.com, Inc. on Form S-1 of our reports dated May 15, 1997,
appearing in the Prospectus, which is part of this Registration Statement, and
to the references to us under the headings "Selected Financial Data" and
"Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned
report also included the financial statement Schedule II -- Valuation and
Qualifying Accounts of Bay Area Seating Service, Inc. for the years ended March
31, 1997 and 1996 listed in Item 16. This financial statement schedule is the
responsibility of the Corporation's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statements
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects the information set forth
therein.
/s/ BURR, PILGER & MAYER
--------------------------------------
Burr, Pilger & Mayer
San Francisco, CA
October 18, 1999
