<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1999
REGISTRATION NO. 333-79709
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
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>
------------------------
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>
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 29, 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
MORGAN STANLEY DEAN WITTER ONLINE
E*OFFERING
WIT CAPITAL CORPORATION
October 29, 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
----
<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
nine months ended September 30, 1999, the weighted average service fee for
tickets sold through us was equal to 13.4% 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, second and third quarters of 1999, our
Internet-based revenues comprised 4.2%, 8.0% and 8.3% 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.
1
<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 nine months ended
September 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 nine months ended
September 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 nine months ended September 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 NINE MONTHS NINE MONTHS
(INCEPTION) TO DECEMBER 31, ENDED YEAR ENDED ENDED
DECEMBER 31, ------------------ SEPTEMBER 30, DECEMBER 31, SEPTEMBER 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 $ 21,060 $ 29,858 $ 21,077
Software services and other.... 1,123 1,961 2,982 12,026 17,822 14,973
------- ------- -------- -------- -------- --------
Total revenues.......... 1,242 11,647 29,540 33,086 47,680 36,050
Total cost of services........... 1,430 8,413 18,706 21,272 29,253 23,340
------- ------- -------- -------- -------- --------
Gross profit (loss).............. (188) 3,234 10,834 11,814 18,427 12,710
Operating expenses(a)............ 2,915 8,223 43,668 48,321 73,324 50,244
------- ------- -------- -------- -------- --------
Loss from operations............. (3,103) (4,989) (32,834) (36,507) (54,897) (37,534)
Other expenses(b)................ 146 1,110 2,027 1,646 2,503 1,634
------- ------- -------- -------- -------- --------
Net loss......................... $(3,249) $(6,099) $(34,861) $(38,153) $(57,400) $(39,168)
======= ======= ======== ======== ======== ========
Basic and diluted net loss per
share.......................... $ (.65) $ (1.17) $ (6.08) $ (3.46) $ (4.25) $ (2.70)
Weighted average common shares
outstanding(c)................. 5,000 5,199 5,734 11,031 13,510 14,485
Pro forma as adjusted basic and
diluted net loss per
share(d)....................... $ (.78) $ (.77)
Pro forma combined as adjusted
basic and diluted net loss per
share(e)....................... $ (1.10) $ (.74)
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1999
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(F)
-------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 35,171 $ 87,456
Working capital............................................. 15,410 76,457
Total assets................................................ 148,673 208,930
Long-term debt(g)........................................... 20,391 1,121
Redeemable common stock and warrants........................ 10,865 --
Total stockholders' equity.................................. 78,084 193,379
</TABLE>
- ---------------
(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 nine months ended
September 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 combined data include common stock issued in connection with the
acquisitions assuming such common shares were issued as of January 1, 1998.
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 as adjusted basic and diluted net loss per share includes the
effects of the common shares to be issued upon conversion 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 redeemable common stock based
upon an initial offering price of $8.00 per share, assuming such common
shares were issued as of January 1, 1998. The actual number of shares of
common stock issued upon conversion of the Series E convertible preferred
stock may be adjusted based upon the initial public offering price. The net
effect of a decrease in interest expense and write-off of unamortized
discount associated with the assumed conversion of the convertible debt is
not included in this pro forma as adjusted basic and diluted net loss per
share calculation.
(e) Pro forma combined as adjusted basic and diluted net loss per share includes
the effects of the common shares issued in connection with the acquisitions
assuming such common stock was issued as of January 1, 1998, in addition to
the adjustments made in computing pro forma as adjusted basic and diluted
net loss per share as described in (d) above. The net effect of a decrease
in interest expense and write-off of unamortized discount associated with
the assumed conversion of the convertible debt is not included in this pro
forma combined as adjusted basic and diluted net loss per share calculation.
(f) For a description of the assumptions reflected in the pro forma as adjusted
presentation, see "Capitalization."
(g) 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,
second and third quarters of 1999 our Internet-based revenues comprised 4.2%,
8.0% and 8.3% 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 September 30, 1999, we had goodwill and other intangible assets of
$83.0 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 $38.2 million for the nine months ended
September 30, 1999. At September 30, 1999, we had an accumulated deficit of
approximately $87.4 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
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our expenses grow faster 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-CitySearch. 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.
WE MAY FACE LIABILITY DEFENDING A CLAIM BY A STOCKHOLDER
Mr. Irvin Richter is the Chairman and Chief Executive Officer of Hill
International Inc. and R4 Holdings, L.L.C., through which he claims to own or
control approximately 4.6 million shares of our common stock. Hill, R4 and Mr.
Richter each entered into a lock-up agreement with our underwriters under which
they each agreed not to offer, pledge or sell, or enter into any other contract
which might be the equivalent of an offer, pledge or sale of, any of the shares
of our common stock for a period of 180 days from the date of the final
prospectus relating to the public offering. Mr. Richter has written letters to
our underwriters and to us disputing the validity of the lock-up agreements. Mr.
Richter has also asserted that he would hold us liable for damages in the event
that he is prevented from selling his shares during the lock-up period and
suffers losses as a result of his inability to sell. While we believe that the
lock-up agreements are valid and enforceable, Mr. Richter may pursue his claims
by filing a lawsuit against us. If Mr. Richter were to prevail in a lawsuit, he
may be allowed to sell a portion of the 4.6 million shares of common stock
beneficially held by him prior to the expiration of the 180 day lock-up period.
However, the sale would be subject to Rule 144 including the volume limitations
for affiliates. The market price of our common stock could be negatively
impacted as a result of this sale. In addition, if Mr. Richter prevails in
litigation against us, he may recover monetary damages from us for any shares
that he is not able to sell in the 180 day lock-up period. Any litigation over
this matter, regardless of the outcome, could result in substantial costs and
diversion of managerial and other resources.
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 $6.19 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 $18.2 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. 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
September 30, 1999:
- on an actual basis;
- on a pro forma basis to reflect:
- 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 of 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 $18.2 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 SEPTEMBER 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................................................... $ 20,391 $ 19,941 $ 1,121
Redeemable common stock and warrants........................ 10,865 11,314 --
Stockholders' equity:
Series A, A1, B, C, D and E convertible preferred stock,
$.0001 par value; 90,000,000 shares authorized;
54,664,475, 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; 15,931,387, 15,931,387 and 60,904,649
shares actual, pro forma and pro forma as adjusted,
respectively........................................... 4 4 14
Additional paid-in capital.................................. 165,895 220,895 281,185
Cumulative other comprehensive income....................... (4) (4) (4)
Deferred compensation....................................... (369) (369) (369)
Accumulated deficit......................................... (87,447) (87,447) (87,447)
-------- -------- --------
Total stockholders' equity................................ 78,084 133,085 193,379
-------- -------- --------
Total capitalization.............................. $109,340 $164,340 $194,500
======== ======== ========
</TABLE>
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<PAGE> 26
DILUTION
Our pro forma net tangible book value as of September 30, 1999, which
includes actual proceeds received of $55.0 million from the issuance of
6,111,114 shares from the second closing of Series E convertible preferred stock
subsequent to September 30, 1999, was approximately $65.5 million, or $1.20 per
share of common stock. Pro forma net tangible book value per share represents
our total tangible assets less total liabilities, including the effects of the
conversion of convertible debt, and redeemable common stock and warrants that
expire upon this offering 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 September 30,
1999 would have been $110.4 million, or $1.81 per share of common stock. This
represents an immediate increase in pro forma net tangible book value of $.61
per share to existing stockholders and an immediate dilution of $6.19 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 September
30, 1999.................................................... $1.20
Increase per share attributable to new investors.......... .61
-----
Pro forma net tangible book value per share after this
offering.................................................. 1.81
-----
Dilution per share to new investors......................... $6.19
=====
</TABLE>
The following table summarizes as of September 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% $236,735,156 82.5% $4.33
New investors........................ 6,255,556 10.3 50,044,000 17.5 8.00
---------- ----- ------------ -----
Total...................... 60,904,649 100.0% $286,779,156 100.0%
========== ===== ============ =====
</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 nine months ended
September 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 September
30, 1999 reflect the acquisitions of ProTix, California Tickets.com and
TicketsLive, no pro forma balance sheet adjustments are necessary as of
September 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 combined as adjusted basic and diluted net loss per share includes
the effects of the common shares issued for the acquisitions and to be
issued upon conversion 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 redeemable common stock based upon an initial offering
price of $8.00 per share, assuming such common shares were issued as of
January 1, 1998. The actual number of shares of common stock issued upon
conversion of the Series E convertible preferred stock may be adjusted based
upon the initial public offering price. The net effect of a decrease in
interest expense and write-off of unamortized discount associated with the
assumed conversion of the convertible debt is not included in this pro forma
combined as adjusted basic and diluted net loss per share calculation.
25
<PAGE> 30
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS INFORMATION
FOR THE NINE MONTHS ENDED SEPTEMBER 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................. $ 21,060 $ -- $ 17 $ -- $ 21,077
Software services and other...... 12,026 354 2,593 -- 14,973
-------- ------- ------- ------- --------
Total revenues........... 33,086 354 2,610 -- 36,050
-------- ------- ------- ------- --------
Cost of services:
Ticketing services............... 14,747 -- -- -- 14,747
Software services and other...... 6,525 743 1,325 -- 8,593
-------- ------- ------- ------- --------
Total cost of services... 21,272 743 1,325 -- 23,340
-------- ------- ------- ------- --------
Gross profit (loss)................ 11,814 (389) 1,285 -- 12,710
Operating expenses................. 48,321 2,415 3,120 (3,612)(c) 50,244
-------- ------- ------- ------- --------
Loss from operations............... (36,507) (2,804) (1,835) 3,612 (37,534)
Other (income) expense, net........ 1,646 (4) (8) -- 1,634
-------- ------- ------- ------- --------
Net loss........................... (38,153) $(2,800) $(1,827) $ 3,612 $(39,168)
======== ======= ======= ======= ========
Basic and diluted net loss per
share............................ $ (2.70)
Weighted average common shares
outstanding(d)................... 14,485
Pro forma combined as adjusted,
basic and diluted net loss per
share(e)......................... $ (.74)
</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 three months ended March 31, 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. Amortization expense from June 1, 1999 through September 30, 1999 is
included in Tickets.com, Inc.'s actual results for the nine months ended
September 30, 1999.
(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 combined as adjusted basic and diluted net loss per share includes
the effects of the common shares issued for the acquisitions and to be
issued upon conversion 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 redeemable common stock based upon an initial offering
price of $8.00 per share, assuming such common shares were issued as of
January 1, 1998. The net effect of a decrease in interest expense and
write-off of unamortized discount associated with the conversion of the
convertible debt is not included in this pro forma combined as adjusted
basic and net loss calculation.
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 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 nine months ended September 30, 1998 and 1999 and the consolidated
balance sheet data as of September 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 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 NINE MONTHS ENDED
TO DECEMBER 31, SEPTEMBER 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 $20,166 $ 21,060
Software services and other............ 1,123 1,961 2,982 1,959 12,026
------- ------- -------- ------- --------
Total revenues................. 1,242 11,647 29,540 22,125 33,086
------- ------- -------- ------- --------
Cost of services:
Ticketing services..................... 816 7,702 17,155 12,677 14,747
Software services and other............ 614 711 1,551 676 6,525
------- ------- -------- ------- --------
Total cost of services......... 1,430 8,413 18,706 13,353 21,272
------- ------- -------- ------- --------
Gross profit (loss)............ (188) 3,234 10,834 8,772 11,814
------- ------- -------- ------- --------
Operating expenses:
Sales and marketing.................... 154 2,096 7,339 5,136 18,167
Technology development................. 690 2,233 6,417 3,696 8,130
General and administrative............. 2,071 3,182 9,204 6,348 11,833
Amortization of intangibles............ -- 712 2,082 1,366 4,851
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 16,546 48,321
------- ------- -------- ------- --------
Loss from operations..................... (3,103) (4,989) (32,834) (7,774) (36,507)
Other expenses(b)........................ 146 1,110 2,027 1,538 1,646
------- ------- -------- ------- --------
Net loss................................. $(3,249) $(6,099) $(34,861) $(9,312) $(38,153)
======= ======= ======== ======= ========
Basic and diluted net loss per share..... $ (.65) $ (1.17) $ (6.08) $ (1.63) $ (3.46)
Weighted average common shares
outstanding............................ 5,000 5,199 5,734 5,714 11,031
Pro forma as adjusted, basic and diluted
net loss per share(c).................. $ (.78) $ (.77)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------- SEPTEMBER 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 $148,673
Working capital (deficit)................. (2,163) (1,538) (8,180) 15,410
Total long-term debt(d)................... 4,968 23,493 20,232 20,391
Redeemable common stock and warrants...... 2,500 3,599 4,506 10,865
Total stockholders' equity (deficit)...... (4,396) 2,186 (11,929) 78,084
</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 as adjusted basic and diluted net loss per share includes the
effects of the common shares to be issued upon conversion 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 redeemable common stock based
upon an initial offering price of $8.00 per share, assuming such common
shares were issued as of January 1, 1998. The actual number of shares of
common stock issued upon conversion of the Series E convertible preferred
stock may be adjusted based upon the initial public offering price. The net
effect of a decrease in interest expense and write-off of unamortized
discount associated with the assumed conversion of the convertible debt is
not included in this pro forma as adjusted basic and diluted net loss per
share calculation.
(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 7,880 8,776 7,381 7,866 4,203
Software services and
other..................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total cost of
services........... 6,676 7,880 8,776 7,381 7,866 4,203
------- ------- ------- ------- ------- -------
Gross profit................... 10,871 11,816 11,928 11,371 12,695 6,655
General and administrative
expenses..................... 10,939 10,938 11,704 11,322 12,212 6,301
------- ------- ------- ------- ------- -------
(Loss) income from
operations................... (68) 878 224 49 483 354
Other income (expense),
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......... 190 507 156 289 561 404
Change in accounting
principle(b)................. 110 -- -- -- -- --
------- ------- ------- ------- ------- -------
Net income..................... $ 300 $ 507 $ 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)....................... -- 17 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 (expense), 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 recorded noncash
consulting expense of approximately $1.4 million in the third quarter of 1999
and expect to record 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.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1998
REVENUES
Ticketing Services. Revenues from ticketing services increased 4.4% to
$21.1 million for the nine months ended September 30, 1999 from $20.2 million
for the nine months ended September 30, 1998. The increase in revenues was
primarily due to an increase in total tickets sold of 8.2% to 4,358,000 for the
nine months ended September 30, 1999 from 4,028,000 for the nine months ended
September 30, 1998. Our acquisition of ProTix contributed 1,123,000 tickets and
$4.5 million of total ticketing services revenues for the nine months ended
September 30, 1999. Excluding acquisitions, tickets sold decreased by 827,000
and ticketing services revenues decreased by $3.6 million, primarily because of
contract terminations by clients obtained through our acquisition of Bay Area
Seating Service in September 1997. From March 1998 to July 1998, two of Bay Area
Seating Service's largest clients 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 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.
Software Services and Other. Revenues from software services and other
increased 514.0% to $12.0 million for the nine months ended September 30, 1999
from $2.0 million for the nine months ended September 30, 1998. Acquisitions
contributed all of the increase. Net of acquisitions software sales and other
decreased by $280,000 due to shifting software platforms to our new products. 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 nine months
ended September 30, 1999 included a higher proportion of software services and
other revenues to total revenues, as compared to the nine months ended September
30, 1998.
COST OF SERVICES
Ticketing Services. Cost of services for ticketing services increased 16.3%
to $14.7 million for the nine months ended September 30, 1999 from $12.7 million
for the nine months ended September 30, 1998. The increase was attributable to
the acquisition of ProTix, which accounted for $2.8 million of the total costs
of services for ticketing for the nine months ended September 30, 1999. This
increase was partially offset by net decreases of approximately $800,000
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 70.0%
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<PAGE> 37
from 62.9%. 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 behind the
loss of ticketing revenues. Additionally there was an increase in credit card
fees related to transactions processed on behalf of our clients, which were not
processed in our telephone sales centers. 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 865.6% to $6.5 million for the nine months ended September 30,
1999 from $676,000 for the nine months ended September 30, 1998. As a percentage
of revenues, costs of software services and other increased to 54.3% from 34.5%.
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 253.7% to $18.2
million for the nine months ended September 30, 1999 from $5.1 million for the
nine months ending September 30, 1998. Acquisitions accounted for $4.0 million
of the increase. As a percentage of revenues, sales and marketing expenses
increased to 54.9% from 23.2%. 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 advertising, promotions
and trade show expenses by $5.4 million, professional services by $2.5 million
and personnel related expenses by $1.5 million. The increase in professional
services reflects a $1.4 million noncash consulting expense we recorded in
September 1999, in connection with warrants issued to various entertainment
organizations and entertainers. 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 120.0% to
$8.1 million for the nine months ended September 30, 1999 from $3.7 million for
the nine months ended September 30, 1998. Of this increase, $2.5 million was
related to our acquisitions. As a percentage of revenues, technology development
expenses increased to 24.6% from 16.7%. We invested approximately $2.0 million
to develop, enhance and expand our web site reflecting increased personnel costs
of $700,000 and professional services of $1.3 million. We will continue to
increase technology development expenses to enhance system functionality and
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
92.9% to $11.8 million for the nine months ended September 30, 1999 from $6.3
million for the nine months ended September 30, 1998. Our acquisitions accounted
for $4.6 million of the increase. As a percentage of revenues, general and
administrative expenses increased to 35.8% from 28.7%. The increase was
primarily due to increased payroll and related expenses of $1.1 million as we
continue to invest in our managerial and administrative infrastructure
commensurate with and to facilitate our growth. 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 255.1% to $4.9
million for the nine months ended September 30, 1999 from $1.4 million for the
nine months ended September 30, 1998. The increase was primarily due to our
recent acquisitions, which increased our amortization expense by $4.4 million
for the nine months ended September 30, 1999. Of this amount, the acquisition of
ProTix contributed nine months of expense totaling $700,000. We recorded six
months of amortization in connection with the acquisitions of California
Tickets.com, including TicketStop, and TicketsLive totaling $3.6 million. The
increase from our acquisitions was partially offset by the decrease in
amortization expense due to the write off of the goodwill
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<PAGE> 38
and intangibles related to the acquisition of Bay Area Seating Service. The net
decrease in amortization related to Bay Area Seating Service totaled $950,000.
Purchased In-Process Research and Development. The purchased in-process
research and development charges recorded during the nine months ended September
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 72.4% to $1.1 million for the nine months
ended September 30, 1999 from $623,000 for the nine months ended September 30,
1998. The increase is mainly due to higher cash balances that resulted from our
financing activities. Interest expense increased by 16.5% to $2.5 million for
the nine months ended September 30, 1999 from $2.2 million for the nine months
ended September 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.
Upon closing of this offering, and in conjunction with the pay off of our
senior debt to the Provident Bank, we will write off the remaining unamortized
debt discount via a noncash charge to interest expense. We estimate that the
non-recurring charge will be approximately $3.0 million.
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<PAGE> 39
Net Loss. For the nine months ended September 30, 1999, our net loss was
$38.2 million or $3.46 per share. For the nine months ended September 30, 1998,
our net loss was $9.3 million or $1.63 per share. The increase in the net loss
was primarily due to:
- Decreases in ticketing services revenues of $3.6 million, net of
acquisition revenues;
- The write off of purchased in-process research and development of $5.3
million;
- Increased operating expenses net of acquisitions, most significantly:
- Personnel related expenses of $3.9 million;
- Advertising, public relations and trade shows of $5.4 million; and
- Professional services of $4.1 million.
- Losses from acquisitions of $6.0 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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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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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
------------------------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1999 1999 1999
------------ ------------- ------------ ------------ ------------- --------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing services... $7,138 91% $7,438 90% $6,391 86% $5,070 77% $ 7,976 63% $ 8,014 58%
Software services
and other........ 683 9 814 10 1,023 14 1,508 23 4,724 37 5,794 42
------ --- ------ --- ------ --- ------ --- ------- --- ------- ---
Total revenues....... 7,821 100 8,252 100 7,414 100 6,578 100 12,700 100 13,808 100
------ --- ------ --- ------ --- ------ --- ------- --- ------- ---
Cost of services:
Ticketing
services......... 4,899 62 4,628 56 4,478 60 3,725 57 5,246 41 5,776 42
Software services
and other........ 224 3 269 3 875 12 750 11 2,821 22 2,954 21
------ --- ------ --- ------ --- ------ --- ------- --- ------- ---
Total cost of
services........... 5,123 65 4,897 59 5,353 72 4,475 68 8,067 63 8,730 63
------ --- ------ --- ------ --- ------ --- ------- --- ------- ---
Gross profit..... $2,698 35% $3,355 41% $2,061 28% $2,103 32% $ 4,633 37% $ 5,078 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 September 30, 1999, we had raised gross proceeds of $115.2
million in long-term capital from equity and debt instruments.
From December 31, 1998 to September 30, 1999, cash and cash equivalents
increased by $23.2 million. The increase resulted mainly from $29.9 million in
proceeds from the issuance of 13,333,335 shares of Series D and $30.0 million in
proceeds from the issuance of 3,333,332 shares of Series E convertible preferred
stock, net of issuance costs. The increase in cash was primarily offset by net
cash used in operating activities of $23.7 million, acquisitions, net of cash
acquired of $7.3 million, purchases of property and equipment of $2.0 million
and principal payments on long term debt of $4.3 million. Cash used in operating
activities was primarily for funding of losses before depreciation, amortization
and in-process research and development of $25.2 million, increases in accounts
receivable and prepaid expenses and other assets 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 other assets.
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 September 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 September 30, 1999, we have issued 54,664,475 shares of various
series of convertible preferred stock, convertible into an aggregate of
26,563,839 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
September 30, 1999 we had outstanding Series A, A1, B, C,
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D and E convertible preferred stock. Each series of our convertible preferred
stock has liquidation preferences and does 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 Series A, A1, B, C and D
convertible preferred stock can be converted to .4444 of a share of common
stock. 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 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. 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 October 1999, Excite purchased an additional 4,444,448 shares and Cox
Interactive purchased an additional 1,666,666 shares of our Series E convertible
preferred stock for an aggregate purchase price of $55.0 million, or $9.00 per
share. 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 the date of the acquisition. 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 September 30, 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," as amended by
SFAS No. 137, 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%, 8.0% and 8.3% of our revenues from
Internet sales in the first, second and third 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. Under these
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. The minimum opening bid is set at the face value of the
tickets plus the service fees that we charge to consumers. 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. As of October 29, 1999 a definitive agreement had not yet been
executed and the letter of intent continues to be binding.
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
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event promotion company. Under this agreement, International Merchandising will
assist us in developing and 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 October 1999 to extend the
term to April 30, 2000. 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
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organizations. The agreement provides that we will not engage any company other
than Sitematic for the 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 September 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
September 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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<PAGE> 82
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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<PAGE> 83
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 3,286,340 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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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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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 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 Interactive 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) 7,394,267 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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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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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;
- 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.
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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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(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, substantially all 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. One
stockholder that has entered into such an agreement is, however, disputing the
enforceability of his agreement. See "Risk Factors -- We May Face Liability
Defending A Claim By A Stockholder." 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
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<PAGE> 97
(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, 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, Morgan Stanley Dean Witter Online 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.............................
Morgan Stanley Dean Witter Online 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.
Morgan Stanley Dean Witter Online 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
94
<PAGE> 99
Securities, 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, substantially all of 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 September 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 nine months
ended September 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 nine months ended September 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 nine months
ended September 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 nine months ended September 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 26, 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
--------------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
------------ ------------ ------------- -------------
(UNAUDITED) (UNAUDITED)
(NOTE 10)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................... $ 4,380,559 $ 11,955,963 $ 35,170,826
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 $495,125,
respectively............................... 2,849,703 3,620,875 10,491,696
Prepaid expenses and other current assets.... 1,311,310 850,182 7,115,778
------------ ------------ ------------
Total current assets.................. 16,986,903 16,594,718 52,778,300
------------ ------------ ------------
PROPERTY AND EQUIPMENT, net.................... 4,346,213 8,410,869 10,190,115
INTANGIBLE ASSETS, net......................... 20,795,715 9,043,288 82,980,537
OTHER ASSETS................................... 5,793,652 4,463,313 2,723,878
------------ ------------ ------------
TOTAL ASSETS................................... $ 47,922,483 $ 38,512,188 $148,672,830
============ ============ ============
CURRENT LIABILITIES:
Bank overdraft............................... $ 2,677,287 $ -- $ --
Accounts payable............................. 8,662,734 10,257,716 21,711,766
Accrued liabilities.......................... 3,689,454 5,262,653 7,446,824
Current portion of long-term debt and capital
lease obligations.......................... 2,791,239 7,848,473 4,969,191
Deferred revenue and other current
liabilities................................ 704,386 1,405,707 3,240,960
------------ ------------ ------------
Total current liabilities............. 18,525,100 24,774,549 37,368,741
------------ ------------ ------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
net of current portion....................... 23,493,196 20,231,613 20,391,449
------------ ------------ ------------
OTHER LIABILITIES.............................. 118,510 748,762 1,605,227
------------ ------------ ------------
MINORITY INTEREST.............................. -- 179,890 358,561
------------ ------------ ------------
REDEEMABLE COMMON STOCK AND WARRANTS........... 3,599,415 4,506,119 10,864,582
------------ ------------ ------------
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, 54,664,475 and 0 issued and
outstanding, respectively.................. 1,794 2,954 5,466 --
Common stock, $.000225 par value; 44,444,444
shares authorized; 5,574,041, 6,328,383,
15,931,387 and 45,368,691 shares issued and
outstanding, respectively.................. 1,254 1,424 3,713 10,336
Additional paid-in capital................... 15,700,359 36,858,911 165,895,403 179,758,828
Deferred compensation........................ -- -- (369,479) (369,479)
Accumulated deficit.......................... (13,517,145) (48,792,034) (87,446,707) (87,446,707)
Cumulative other comprehensive income........ -- -- (4,126) (4,126)
------------ ------------ ------------ ------------
Total stockholders' equity
(deficit)........................... 2,186,262 (11,928,745) 78,084,270 91,948,852
------------ ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..... $ 47,922,483 $ 38,512,188 $148,672,830
============ ============ ============
</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 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 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 $20,166,275 $ 21,060,020
Software services and
other...................... 1,123,040 1,960,904 2,981,824 1,958,821 12,026,517
----------- ----------- ------------ ----------- ------------
Total revenues........ 1,242,289 11,647,042 29,539,436 22,125,096 33,086,537
----------- ----------- ------------ ----------- ------------
COST OF SERVICES:
Ticketing services........... 816,620 7,701,433 17,154,790 12,676,628 14,746,758
Software services and
other...................... 613,705 711,317 1,550,948 675,811 6,525,473
----------- ----------- ------------ ----------- ------------
Total cost of
services............ 1,430,325 8,412,750 18,705,738 13,352,439 21,272,231
----------- ----------- ------------ ----------- ------------
Gross profit (loss)............ (188,036) 3,234,292 10,833,698 8,772,657 11,814,306
----------- ----------- ------------ ----------- ------------
OPERATING EXPENSES:
Sales and marketing.......... 154,016 2,096,372 7,338,698 5,136,056 18,166,710
Technology development....... 690,024 2,232,684 6,416,829 3,696,329 8,130,443
General and administrative... 2,070,577 3,181,980 9,204,053 6,347,872 11,832,816
Amortization of
intangibles................ -- 712,416 2,081,561 1,366,131 4,851,250
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 16,546,388 48,321,219
----------- ----------- ------------ ----------- ------------
Loss from operations........... (3,102,653) (4,989,160) (32,833,592) (7,773,731) (36,506,913)
----------- ----------- ------------ ----------- ------------
OTHER (INCOME) EXPENSE:
Interest income.............. -- (206,680) (878,242) (622,744) (1,073,608)
Interest expense............. 145,976 1,315,001 2,952,465 2,156,398 2,512,324
Minority interest............ -- -- (52,674) -- 178,670
----------- ----------- ------------ ----------- ------------
145,976 1,108,321 2,021,549 1,533,654 1,617,386
----------- ----------- ------------ ----------- ------------
Loss before provision for
income taxes................. (3,248,629) (6,097,481) (34,855,141) (9,307,385) (38,124,299)
Provision for income taxes..... -- 1,150 5,655 4,775 29,029
----------- ----------- ------------ ----------- ------------
Net loss....................... $(3,248,629) $(6,098,631) $(34,860,796) $(9,312,160) $(38,153,328)
=========== =========== ============ =========== ============
Basic and diluted net loss per
share........................ $ (.65) $ (1.17) $ (6.08) $ (1.63) $ (3.46)
=========== =========== ============ =========== ============
Weighted average common shares
outstanding.................. 5,000,000 5,199,224 5,733,620 5,713,722 11,030,781
=========== =========== ============ =========== ============
</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......... -- -- 1,348,988 304 1,003,298 -- --
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 -- -- 29,948,118 -- --
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 Series E convertible
preferred stock for cash, net of
issuance costs......................... 3,333,332 333 -- -- 29,958,359 -- --
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 (369,479) --
Consulting expense recognized in
connection with options and warrants
issued to entertainment
organizations.......................... -- -- -- -- 1,418,233 -- --
Preferred dividends payable.............. -- -- -- -- -- -- (105,102)
Foreign currency translation............. -- -- -- -- -- -- --
Accretion on redeemable common stock and
warrants............................... -- -- -- -- -- -- (396,243)
Net loss................................. -- -- -- -- -- -- (38,153,328)
---------- ------ ---------- ------ ------------ --------- ------------
Balance, September 30, 1999 (unaudited)... 54,664,475 $5,466 15,931,387 $3,713 $165,895,403 $(369,479) $(87,446,707)
========== ====== ========== ====== ============ ========= ============
<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......... -- 1,003,602
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......................... -- 29,949,451
Issuance of stock in connection with the
acquisition of California Tickets.com,
Inc.................................... -- 41,465,211
Issuance of Series E convertible
preferred stock for cash, net of
issuance costs......................... -- 29,958,692
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.................................... -- 53,871
Consulting expense recognized in
connection with options and warrants
issued to entertainment
organizations.......................... -- 1,418,233
Preferred dividends payable.............. -- (105,102)
Foreign currency translation............. (4,126) (4,126)
Accretion on redeemable common stock and
warrants............................... -- (396,243)
Net loss................................. -- (38,153,328)
-------- ------------
Balance, September 30, 1999 (unaudited)... $ (4,126) $ 78,084,270
======== ============
</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 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 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) $(9,312,160) $(38,153,328)
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 1,245,778 2,753,861
Amortization of intangibles............... -- 712,416 2,081,561 1,366,131 4,851,250
Loss on disposal of property.............. -- -- 51,944 -- --
Noncash interest expense.................. -- 505,588 126,152 52,214 237,159
Noncash compensation expense.............. -- -- 75,000 -- 53,871
Noncash consulting expense................ -- -- -- -- 1,418,233
Minority interest......................... -- -- (52,674) -- 178,671
Changes in operating assets and
liabilities:
Accounts receivable..................... (95,173) 156,778 (130,627) 428,850 (3,202,177)
Prepaid expenses and other current
assets................................ (6,352) (344,500) (1,194,328) (45,327) (5,485,124)
Other assets............................ (6,550) (378,289) 1,330,339 88,217 689,281
Accounts payable........................ 830,087 849,200 482,968 1,063,805 7,327,715
Accrued liabilities..................... 568,914 1,617,987 369,513 (705,351) (351,591)
Deferred revenue and other
liabilities........................... (6,919) 4,567 1,117,563 371,897 604,064
----------- ----------- ------------ ----------- ------------
Net cash used in operating
activities....................... (1,889,622) (2,492,396) (10,030,632) (5,445,946) (23,738,115)
----------- ----------- ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (596,509) (2,055,998) (3,936,918) (3,764,195) (1,981,529)
Contingent consideration in connection with
acquisition............................... -- (5,324,192) -- -- --
Proceeds from sale of marketable
securities................................ -- 1,244,006 6,804,269 6,804,269 --
(Increase) decrease in restricted cash and
investments............................... -- (740,467) 1,473,364 1,473,201 167,698
Equity investment in preferred stock ....... -- -- -- -- (754,290)
Acquisitions, net of cash acquired.......... -- (13,459,515) (3,708,752) 882,543 (7,348,186)
----------- ----------- ------------ ----------- ------------
Net cash (used in) provided by
investing activities............. (596,509) (20,336,166) 631,963 5,395,818 (9,916,307)
----------- ----------- ------------ ----------- ------------
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.... -- 17,075,585 716,960 716,960 --
Principal payments on long-term debt........ -- (2,143,581) (1,078,013) (959,296) (4,292,460)
Net proceeds from issuance of preferred
stock..................................... 3,009,300 12,237,691 19,989,794 19,989,794 59,908,143
Proceeds from issuance of common stock...... 13,500 16,918 22,619 21,923 1,003,602
----------- ----------- ------------ ----------- ------------
Net cash provided by financing
activities....................... 3,022,800 26,672,452 16,974,073 17,092,094 56,869,285
----------- ----------- ------------ ----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS... 536,669 3,843,890 7,575,404 17,041,966 23,214,863
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 $21,422,525 $ 35,170,826
=========== =========== ============ =========== ============
</TABLE>
F-7
<PAGE> 109
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
MAY 31, 1996 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, SEPTEMBER 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 $ 2,019,393 $ 2,130,931
=========== =========== ============ =========== ============
Income taxes paid......................... $ -- $ 1,150 $ 5,655 $ 4,775 $ 4,800
=========== =========== ============ =========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations entered into for
equipment............................... $ 356,421 $ -- $ 1,306,649 $ -- $ 883,857
=========== =========== ============ =========== ============
Accretion on redeemable common stock
warrants issued in connection with
financing arrangements.................. $ -- $ -- $ 414,093 $ 214,306 $ 396,243
=========== =========== ============ =========== ============
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.,
TicketsLive Corporation and dataCulture Ltd.
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 $ 9,618,403 $ 91,155,980
Less:
Liabilities assumed................... -- (11,433,420) (2,107,639) (2,107,639) (12,518,369)
Promissory notes to sellers, net of
discount........................... (1,743,410) (5,996,010) (1,297,000) (6,960,764) (1,605,500)
Cash payable on first anniversary of
closing............................ -- -- (550,000) (550,000) --
Preferred stock issued................ -- -- -- -- (18,376,979)
Common stock issued................... -- (177,000) (1,072,469) -- (44,412,232)
Redeemable common stock issued........ (2,500,000) (675,000) -- -- (4,676,000)
----------- ----------- ------------ ----------- ------------
Cash paid............................. -- 14,319,483 4,591,295 -- 9,566,900
Cash acquired......................... -- (859,968) (882,543) (882,543) (2,218,714)
----------- ----------- ------------ ----------- ------------
Cash paid, net of cash acquired....... $ -- $13,459,515 $ 3,708,752 $ (882,543) $ 7,348,186
=========== =========== ============ =========== ============
</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, telephone sales 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
combination 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 sales 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
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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 September 30, 1999 and for the
nine months ended September 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," as amended by
SFAS No. 137, 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
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TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
an interest rate of 7% and the issuance of 481,068 shares of the Company's
common stock. The 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
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TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$3,000,000, with unused funds returned to the sellers of BASS and treated as
additional purchase price. The 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 reflects 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
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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
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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 nine months ended September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
TICKETING SOFTWARE
SERVICES SERVICES OTHER TOTAL
----------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $21,060,020 $11,498,407 $528,110 $33,086,537
Gross profit............................ 6,313,262 5,402,797 98,247 11,814,306
</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).
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<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>
F-19
<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%
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 .4444
of a share of common stock based on the 2.25 reverse split of the Company's
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. 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 September 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 10% per annum.
ACQUISITION OF DATACULTURE LTD.
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 .4444 of
a 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.
ISSUANCE OF WARRANTS
In September and October, 1999 the Company entered into various agreements
with entertainment organizations and entertainers to provide the Company with
tickets for sale on its web site. In connection with these arrangements, on
September 30, the Company issued 177,778 warrants to purchase the Company's
common stock at $2.25 per share. The issuance of these warrants resulted in the
Company recording $1,418,000 in consulting expense in September 1999.
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
In September 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 Tickets.com's 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, Tickets.com 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, Tickets.com 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 nine months ended September 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 nine months ended September 30, 1999 reflect the acquisition of ProTix, no
pro forma adjustments are necessary for ProTix for the nine months ended
September 30, 1999.
Since our historical unaudited consolidated balance sheets as of September
30, 1999 reflect the acquisitions of ProTix, California Tickets.com and
TicketsLive, no pro forma balance sheet adjustments are necessary as of
September 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 NINE MONTHS ENDED SEPTEMBER 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.................... $ 21,060 $ -- $ 17 $ -- $ 21,077
Software services and other......... 12,026 354 2,593 -- 14,973
-------- ------- ------- ------- --------
Total revenues.............. 33,086 354 2,610 -- 36,050
-------- ------- ------- ------- --------
Cost of services:
Ticketing services............... 14,747 -- -- -- 14,747
Software services and other...... 6,525 743 1,325 -- 8,593
-------- ------- ------- ------- --------
Total cost of services...... 21,272 743 1,325 -- 23,340
-------- ------- ------- ------- --------
Gross profit (loss)................... 11,814 (389) 1,285 -- 12,710
-------- ------- ------- ------- --------
Operating expenses:
Sales and marketing................. 18,167 1,255 789 -- 20,211
Technology development.............. 8,130 122 418 -- 8,670
General and administrative.......... 11,833 1,000 1,913 -- 14,746
Amortization of intangibles......... 4,851 38 -- 1,728(c) 6,617
Impairment of long-lived assets..... -- -- -- -- --
Purchased in-process research and
development expenses............. 5,340 -- -- (5,340)(d) --
-------- ------- ------- ------- --------
Total operating expenses.... 48,321 2,415 3,120 (3,612) 50,244
-------- ------- ------- ------- --------
Loss from operations.................. (36,507) (2,804) (1,835) 3,612 (37,534)
Other (income) expense:
Interest income..................... (1,074) (7) (33) -- (1,114)
Interest expense.................... 2,512 3 21 -- 2,536
Minority interest................... 179 -- -- -- 179
-------- ------- ------- ------- --------
Other (income) expense........... 1,617 (4) (12) -- 1,601
-------- ------- ------- ------- --------
Loss before provision for income
taxes............................... (38,124) (2,800) (1,823) 3,612 (39,135)
Provision for income taxes............ 29 -- 4 -- 33
-------- ------- ------- ------- --------
Net loss.............................. $(38,153) $(2,800) $(1,827) $ 3,612 $(39,168)
======== ======= ======= ======= ========
Basic and diluted net loss per
share............................... $ (2.70)
========
Weighted average common shares(e)..... 14,485
========
</TABLE>
PF-3
<PAGE> 185
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
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 NINE MONTHS ENDED SEPTEMBER 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
September 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............................................. $1,346,350
==========
</TABLE>
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
August 1999
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 Amended and Restated Certificate of Incorporation of the
Company, to be filed with the Delaware Secretary of State
upon consummation of this offering
3.4 Amended and Restated 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
10.8.1 * Fifth Amended and Restated Investor Rights Agreement among
the Company and the stockholders named therein, dated August
4, 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
27.4 Financial Data Schedule 9 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. 4 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 29th 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 29, 1999
- -----------------------------------------------------
C. Ian Sym-Smith
/s/ W. THOMAS GIMPLE President, Chief Executive October 29, 1999
- ----------------------------------------------------- Officer (principal
W. Thomas Gimple executive officer) and
Director
/s/ JOHN M. MARKOVICH Chief Financial Officer October 29, 1999
- ----------------------------------------------------- (principal financial
John M. Markovich officer)
/s/ MICHAEL R. RODRIGUEZ Vice President, Corporate October 29, 1999
- ----------------------------------------------------- Controller (principal
Michael R. Rodriguez accounting officer)
Director October , 1999
- -----------------------------------------------------
George Bell
* Director October 29, 1999
- -----------------------------------------------------
James A. Caccavo
* Director October 29, 1999
- -----------------------------------------------------
Peter Chernin
</TABLE>
II-8
<PAGE> 196
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director October 29, 1999
- -----------------------------------------------------
Christos M. Cotsakos
* Director October 29, 1999
- -----------------------------------------------------
William E. Ford
* Director October 29, 1999
- -----------------------------------------------------
Howard L. Morgan
* Director October 29, 1999
- -----------------------------------------------------
Janice L. Richter
* Director October 29, 1999
- -----------------------------------------------------
Nicholas E. Sinacori
</TABLE>
*By: /s/ JOHN M. MARKOVICH
--------------------------------------------------
John M. Markovich
(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
August 1999
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 Amended and Restated Certificate of Incorporation of the
Company, to be filed with the Delaware Secretary of State
upon consummation of this offering
3.4 Amended and Restated 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
10.8.1* Fifth Amended and Restated Investor Rights Agreement among
the Company and the stockholders named therein, dated August
4, 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
27.4 Financial Data Schedule 9 months
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment has been 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 1.1
6,700,000 SHARES
TICKETS.COM, INC.
COMMON STOCK (PAR VALUE $.000225 PER SHARE)
UNDERWRITING AGREEMENT
November __, 1999
<PAGE> 2
November __, 1999
Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
SG Cowen Securities Corporation
Morgan Stanley Dean Witter Online Inc.
E* Offering Corp.
Wit Capital Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Tickets.com, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedule II hereto (the
"Underwriters"), and the Company stockholder (the "Selling Stockholder") named
in Schedule I hereto proposes to sell to the several Underwriters, an aggregate
of 6,700,000 shares of the Common Stock, $.000225 par value per share, of the
Company (the "Firm Shares"), of which 6,255,556 shares are to be issued and sold
by the Company and 444,444 shares are to be sold by the Selling Stockholder.
The Company also proposes to issue and sell to the several Underwriters
not more than an additional 938,333 shares of its Common Stock, $.000225 par
value per share (the "Additional Shares") if and to the extent that you, as
Managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares". The shares of Common
Stock, $.000225 par value per share of the Company to be outstanding after
giving effect to the sales contemplated hereby are hereinafter referred to as
the "Common Stock." The Company and the Selling Stockholder are hereinafter
sometimes collectively referred to as the "Sellers."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
1
<PAGE> 3
As part of the offering contemplated by this Agreement, Morgan Stanley
& Co. Incorporated ("Morgan Stanley") has agreed to reserve up to 670,000 of the
Shares to be purchased by it under this Agreement for sale to the Company's
directors, officers, employees and business associates and other parties related
to the Company (collectively, "Participants"), as set forth in the Prospectus
under the heading "Underwriters" (the "Directed Share Program"). The Shares to
be sold by Morgan Stanley pursuant to the Directed Share Program (the "Directed
Shares") will be sold by Morgan Stanley pursuant to this Agreement at the public
offering price). Any Directed Shares not orally confirmed for purchase by any
Participant by the end of the business day on which this Agreement is executed
will be offered to the public by the Underwriters as set forth in the
Prospectus.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or to the Company's knowledge
threatened by the Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph do
not apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good
2
<PAGE> 4
standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; all of the issued shares of capital stock of
each subsidiary of the Company have been duly and validly authorized and issued,
are fully paid and non-assessable and are owned directly by the Company, free
and clear of all liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus under the caption
"Description of Capital Stock."
(g) The shares of Common Stock (including the Shares to be sold by
the Selling Stockholder) outstanding prior to the issuance of the Shares to be
sold by the Company have been duly authorized and are validly issued, fully paid
and non-assessable.
(h) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights that have not
been effectively satisfied or waived.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or by-laws of the Company or any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except such
as may be required by the securities or Blue Sky laws of the various states and
jurisdictions or the National Association of Securities Dealers (the "NASD") in
connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement).
(k) There are no legal or governmental proceedings pending or, to
the Company's knowledge, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or any
of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
3
<PAGE> 5
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed on June 1, 1999 or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act, complied when
so filed in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(n) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct their
respective businesses and (iii) are in compliance with all terms and conditions
of any such permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(o) To the Company's knowledge, there are no costs or liabilities
associated with Environmental Laws (including, without limitation, any capital
or operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(p) Except as described in the Prospectus, there is no legal or
beneficial owner of any securities of the Company who has any rights, not
effectively satisfied or waived, to require the Company to include such
securities with the Shares registered pursuant to the Registration Statement.
(q) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (1) the Company and its
subsidiaries have not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the ordinary course
of business; (2) the Company has not purchased any of its outstanding capital
stock, nor declared, paid or otherwise made any dividend or distribution of any
kind on its capital stock other than ordinary and customary dividends; and (3)
there has not been any material change in the capital stock, short-term debt or
long-term debt of the Company and its subsidiaries, except in each case as
described in the Prospectus.
(r) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all personal
property owned by them that is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made and
4
<PAGE> 6
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries, in each case except as described in the Prospectus.
(s) The Company and its subsidiaries own or possess adequate
licenses or other rights to use, on reasonable terms, or can acquire on
reasonable terms, all material patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names currently employed by them in
connection with the business now operated by them, and neither the Company nor
any of its subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse affect on the Company and its
subsidiaries, taken as a whole.
(t) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in the Prospectus, or, to
the knowledge of the Company, is imminent; and the Company is not aware of any
existing, threatened or imminent labor disturbance by the employees of any of
its principal suppliers, manufacturers or contractors that could have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(u) The Company and its subsidiaries are insured by the insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; neither the Company nor any of its subsidiaries has been refused any
insurance coverage sought or applied for; and neither the Company nor any of its
subsidiaries has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole, except as described in the Prospectus.
(v) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective business, and
neither the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material adverse effect on
the Company and its subsidiaries, taken as a whole, except as described the
Prospectus.
(w) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance that (1)
transactions are executed in accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (3) access to material assets
is permitted only in accordance with management's general or specific
authorization; and (4) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
5
<PAGE> 7
(x) The Company has completed a substantial review of its operations
and those of its subsidiaries to evaluate the extent to which the business or
operations of the Company or any of its subsidiaries will be affected by the
Year 2000 Problem (that is, any significant risk that mission-critical computer
hardware or software applications used by the Company and its subsidiaries will
not, in the case of dates or time periods occurring after December 31, 1999,
function at least as effectively as in the case of dates or time periods
occurring prior to January 1, 2000); as a result of such review, (i) the Company
has no reason to believe, and does not believe, that (A) it will be materially
affected by the Year 2000 Problem (B) that there are any issues related to the
Company's preparedness to address the Year 2000 Problem that are of a character
required to be described or referred to in the Registration Statement or
Prospectus which have not been accurately described in the Registration
Statement or Prospectus and (C) the Year 2000 Problem will have a material
adverse effect on the condition, financial or otherwise, or on the earnings,
business or operations of the Company and its subsidiaries, taken as a whole, or
result in any material loss or interference with the business or operations of
the Company and its subsidiaries, taken as a whole; and (ii) the Company
reasonably believes, based upon its continuing inquiry, that the material
suppliers, vendors, customers or other material third parties used or served by
the Company and such subsidiaries are addressing or will address the Year 2000
Problem in a timely manner, except to the extent that a failure to address the
Year 2000 Problem by any material supplier, vendor, customer or material third
party would not have a material adverse effect on the condition, financial or
otherwise, or on the earnings, business or operations of the Company and its
subsidiaries, taken as a whole.
Furthermore, the Company represents and warrants to Morgan Stanley that
(i) the Registration Statement, the Prospectus and any preliminary prospectus
comply, and any further amendments or supplements thereto will comply, with any
applicable laws or regulations of foreign jurisdictions in which the Prospectus
or any preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that (ii) no
authorization, approval, consent, license, order, registration or qualification
of or with any government, governmental instrumentality or court, other than
such as have been obtained, is necessary under the securities laws and
regulations of foreign jurisdictions in which the Directed Shares are offered
outside the United States.
The Company has not offered, or caused the Underwriters to offer,
Shares to any person pursuant to the Directed Share Program with the specific
intent to unlawfully influence (i) a customer or supplier of the Company to
alter the customer's or supplier's level or type of business with the Company,
or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The
Selling Stockholder represents and warrants to and agrees with each of the
Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered
by or on behalf of the Selling Stockholder.
6
<PAGE> 8
(b) The execution and delivery by the Selling Stockholder of, and
the performance by the Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement signed by the Selling Stockholder and
ChaseMellon Shareholder Services, LLC, as Custodian, relating to the deposit of
the Shares to be sold by the Selling Stockholder (the "Custody Agreement") and
the Power of Attorney appointing certain individuals as the Selling
Stockholder's attorneys-in-fact to the extent set forth therein, relating to the
transactions contemplated hereby and by the Registration Statement (the "Power
of Attorney") will not contravene any provision of any agreement or other
instrument binding upon the Selling Stockholder or any judgment, order or decree
of any governmental body, agency or court having jurisdiction over the Selling
Stockholder, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Selling Stockholder of its obligations under this Agreement
or the Custody Agreement or Power of Attorney of the Selling Stockholder, except
such as may be required by the securities or Blue Sky laws of the various states
in connection with the offer and sale of the Shares.
(c) The Selling Stockholder has, and on the Closing Date will have,
valid title to the Shares to be sold by the Selling Stockholder and the legal
right and power, and all authorization and approval required by law, to enter
into this Agreement, the Custody Agreement and the Power of Attorney and to
sell, transfer and deliver the Shares to be sold by the Selling Stockholder.
(d) The Shares to be sold by the Selling Stockholder pursuant to
this Agreement have been duly authorized and are validly issued, fully paid and
non-assessable.
(e) The Custody Agreement and the Power of Attorney have been duly
authorized, executed and delivered by the Selling Stockholder and are valid and
binding agreements of the Selling Stockholder.
(f) Delivery of the Shares to be sold by the Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and clear of any
security interests, claims, liens, equities and other encumbrances.
(g) All information furnished in writing by or on behalf of such
Selling Stockholder for use in the Registration Statement is, and on the Closing
Date will be, true, correct and complete, and does not, and on the Closing Date,
will not, contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading, and all
information furnished in writing by or on behalf of such Selling Stockholder for
use in the Prospectus is, and on the Closing Date will not, contain any untrue
statement of a material fact or omit to state any material fact necessary to
make such information not misleading in the light of the circumstances under
which they were made.
3. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $______ a share (the "Purchase
Price") the number of Firm Shares (subject to such adjustments to eliminate
fractional shares as you may determine) that bears the same proportion to the
number of Firm Shares to be sold by such Seller as the number of Firm Shares set
forth in Schedule II hereto opposite the name of such Underwriter bears to the
total number of Firm Shares.
7
<PAGE> 9
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to 938,333 Additional
Shares at the Purchase Price. If you, on behalf of the Underwriters, elect to
exercise such option, you shall so notify the Company in writing not later than
30 days after the date of this Agreement, which notice shall specify the number
of Additional Shares to be purchased by the Underwriters and the date on which
such shares are to be purchased. Such date may be the same as the Closing Date
(as defined below) but not earlier than the Closing Date nor later than ten
business days after the date of such notice. Additional Shares may be purchased
as provided in Section 5 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule II hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
Each Seller hereby agrees 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 the Prospectus, (i) 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 or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) 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, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
to (A) the Shares to be sold hereunder, (B) the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing (C) transactions by any person other
than the Company relating to shares of Common Stock or other securities acquired
in open market transactions after the completion of the offering of the Shares
(D) the issuance or grant of options to purchase shares of Common Stock pursuant
to the Company's stock option plans existing on the date of consummation of the
offering or (E) any such transaction described in clause (i) or (ii) above
involving the issuance or grant of Common Stock, options, rights, warrants to
purchase or any securities convertible into Common Stock which in the aggregate
equals 25% or more of the shares of Common Stock outstanding as of the date
immediately following the closing of the public offering of the Shares (the
"Permitted Transfer"); provided, however, that the Company may engage in a
Permitted Transfer only if (1) the Company provides Morgan Stanley with written
notice of such Permitted Transfer 72 hours prior to the earlier of (x) entering
into any commitment, obligation or arrangement to enter into such Permitted
Transfer or (y) the issuance or grant of any Common Stock, options, rights,
warrants to purchase or any securities convertible into Common Stock pursuant to
a Permitted Transfer and (2) as a condition to the consummation of the Permitted
Transfer, all recipients of any Common Stock, options, rights,
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<PAGE> 10
warrants to purchase or securities convertible into Common Stock pursuant to
such Permitted Transfer have entered into a "lockup agreement" substantially in
the form of Exhibit A. In addition, the Selling Stockholder agrees 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
the 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.
4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
$_____________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of $______
a share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be sold by each
Seller shall be made to such Seller in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00 a.m., New York City
time, on ____________, 1999, or at such other time on the same or such other
date, not later than _________, 1999, as shall be designated in writing by you.
The time and date of such payment are hereinafter referred to as the "Closing
Date."
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 3 or at such other time on the same or on such other
date, in any event not later than _______, 1999, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Sellers to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 3:00 p.m. (New York City time) on the date hereof.
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The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of the
Company, to the effect set forth in Section 6(a)(i) above and to the effect that
the representations and warranties of the Company contained in this Agreement
are true and correct as of the Closing Date and that the Company has complied
with all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an opinion
of Brobeck, Phleger & Harrison LLP, outside counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the state of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus (and any amendment or supplement
thereto) and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Prospectus (and any
amendment or supplement thereto) and is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct of
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<PAGE> 12
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained under the caption
"Description of Capital Stock" in the Prospectus;
(iv) the shares of Common Stock (including the Shares to be sold
by the Selling Stockholder) outstanding prior to the issuance of the Shares to
be sold by the Company have been duly authorized and are validly issued,
non-assessable and, to such counsel's knowledge, fully paid;
(v) all of the issued shares of capital stock of each subsidiary of
the Company have been duly and validly authorized and issued, are nonassessable,
and to such counsel's knowledge, fully paid, and all of the issued shares of
capital stock of each subsidiary of the Company are owned directly by the
Company, free and clear of all liens, encumbrances, equities or claims;
(vi) the Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this Agreement,
will be validly issued, fully paid and non-assessable, and the issuance of such
Shares will not be subject to any preemptive or similar rights that have not
been effectively satisfied or waived;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not (A)
contravene any provision of the certificate of incorporation or by-laws of the
Company or, (B) to the best of such counsel's knowledge, constitute a default or
breach under any agreement or other instrument binding upon the Company or any
of its subsidiaries that is an exhibit to the Registration Statement or (C)
result in violation of an existing provision of Delaware, California or federal
law or regulation (other than applicable state securities or Blue Sky laws, as
to which such counsel need express no opinion) or any judgment, order or decree
of any governmental body, agency or court having jurisdiction over the Company
or any subsidiary;
(ix) no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except (A)
as have been obtained under the Securities Act or the Exchange Act or (B) such
as may be required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares;
(x) the statements (A) in the Prospectus under the captions
"Business - Strategic Alliances and Advertising Relationships," "Business -
Acquisition History," "Business -- Government Regulation," "Business - Legal
Proceedings," "Shares Eligible for Future Sale," "Description of Capital Stock,"
"Management Options Granted Under the Special Executive Stock Option Plan (to
the extent of the description of the terms of the stock option plan),
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<PAGE> 13
"Management - Employment and Severance Arrangements," "Management - Benefit
Plans (to the extent of the description of the terms of the employee benefit
plans)," "Certain Transactions" and "Underwriters" and (B) in the Registration
Statement in Items 14 and 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings referred to therein,
fairly present the information called for with respect to such legal matters,
documents and proceedings and fairly summarize the matters referred to therein;
(xi) to such counsel's knowledge (A) there are no legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or of any
Delaware, California or federal statutes or regulations, and (B) there are no
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required as the case
may be;
(xii) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended;
(xiii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and schedules and
other financial and statistical data included therein as to which such counsel
need not express any opinion) comply as to form in all material respects with
the Securities Act and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for financial statements
and schedules and other financial and statistical data as to which such counsel
need not express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading and (C) has no reason to believe that (except for financial
statements and schedules and other financial and statistical data as to which
such counsel need not express any belief) the Prospectus on the date hereof
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an opinion
of Brobeck, Phleger & Harrison LLP, counsel for the Selling Stockholder, dated
the Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and delivered
by or on behalf of the Selling Stockholder;
(ii) the execution and delivery by the Selling Stockholder of, and
the performance by the Selling Stockholder of its obligations under, this
Agreement and the Custody Agreement and Powers of Attorney of the Selling
Stockholder will not contravene any provision of applicable law, or, to the best
of such counsel's knowledge, any agreement or other instrument
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binding upon the Selling Stockholder or, to the best of such counsel's
knowledge, any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Selling Stockholder, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Selling Stockholder of its
obligations under this Agreement or the Custody Agreement or Power of Attorney
of the Selling Stockholder, except such as may be required by the securities or
Blue Sky laws of the various states in connection with offer and sale of the
Shares;
(iii) the Selling Stockholder has valid title to the Shares to be
sold by the Selling Stockholder and the legal right and power, and all
authorization and approval required by law, to enter into this Agreement and the
Custody Agreement and Power of Attorney of the Selling Stockholder and to sell,
transfer and deliver the Shares to be sold by the Selling Stockholder;
(iv) the Custody Agreement and the Power of Attorney of the Selling
Stockholder have been duly authorized, executed and delivered by the Selling
Stockholder and are valid and binding agreements of the Selling Stockholder;
(v) upon the delivery of and payment for the Shares to be sold by
the Selling Stockholder pursuant to this Agreement will pass title to such
Shares free and clear of any security interests, claims, liens, equities and
other encumbrances; and
(vi) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and schedules and
other financial and statistical data included therein as to which such counsel
need not express any opinion) comply as to form in all material respects with
the Securities Act and the applicable rules and regulations of the Commission
thereunder, (B) has no reason to believe that (except for financial statements
and schedules and other financial and statistical data as to which such counsel
need not express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became effective
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading and (C) has no reason to believe that (except for financial
statements and schedules and other financial and statistical data as to which
such counsel need not express any belief) the Prospectus on the date hereof,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(e) The Underwriters shall have received on the Closing Date an opinion
of Cooley Godward LLP, counsel for the Underwriters, dated the Closing Date,
covering the matters referred to in Sections 6(c)(vi), 6(c)(vii), 6(c)(ix) (but
only as to the statements in the Prospectus under "Description of Capital Stock"
and "Underwriters") and 6(c)(xiii) above.
With respect to Section 6(c)(xiii) above, Brobeck, Phleger & Harrison
LLP and Cooley Godward LLP and with respect to Section 6(d)(vi) above, Brobeck,
Phleger & Harrison LLP may state that their opinion and belief are based upon
their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification,
except
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as specified. With respect to Section 6(d) above, Brobeck, Phleger & Harrison
LLP may rely upon an opinion or opinions of counsel for the Selling Stockholder
and, with respect to factual matters and to the extent such counsel deems
appropriate, upon the representations of the Selling Stockholder contained
herein and in the Custody Agreement and Power of Attorney of the Selling
Stockholder and in other documents and instruments; provided that (A) each such
counsel for the Selling Stockholder is satisfactory to your counsel, (B) a copy
of each opinion so relied upon is delivered to you and is in form and substance
satisfactory to your counsel, (C) copies of such Custody Agreement and Power of
Attorney and of any such other documents and instruments shall be delivered to
you and shall be in form and substance satisfactory to your counsel and (D)
Brobeck, Phleger & Harrison LLP shall state in their opinion that they are
justified in relying on each such other opinion.
The opinions of Brobeck, Phleger & Harrison LLP and Cooley Godward LLP
described in Sections 6(c) and 6(d) above (and any opinions of counsel for the
Selling Stockholder referred to in the immediately preceding paragraph) shall be
rendered to the Underwriters at the request of the Company or the Selling
Stockholder, as the case may be, and shall so state therein.
(f) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters, from
Arthur Andersen LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus; provided
that the letter delivered on the Closing Date shall use a "cut-off date" not
earlier than the date hereof.
(g) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and certain stockholders, officers and directors
of the Company relating to sales and certain other dispositions of shares of
Common Stock or certain other securities, delivered to you on or before the date
hereof, shall be in full force and effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.
7. COVENANTS OF THE COMPANY. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, five (5) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge, prior
to 10:00 a.m. New York City time on the business day next succeeding the date of
this Agreement and during the period mentioned in Section 7(c) below, as many
copies of the Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
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(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which
you reasonably object, and to file with the Commission within the applicable
period specified in Rule 424(b) under the Securities Act any prospectus required
to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the reasonable opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in connection
with sales by an Underwriter or dealer, any event shall occur or condition exist
as a result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the reasonable
opinion of counsel for the Underwriters, it is necessary to amend or supplement
the Prospectus to comply with applicable law, forthwith to prepare, file with
the Commission and furnish, at its own expense, to the Underwriters and to the
dealers (whose names and addresses you will furnish to the Company) to which
Shares may have been sold by you on behalf of the Underwriters and to any other
dealers upon request, either amendments or supplements to the Prospectus so that
the statements in the Prospectus as so amended or supplemented will not, in the
light of the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will comply
with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders
and to you as soon as practicable an earning statement covering the twelve-month
period ending December 31, 2000 that satisfies the provisions of Section 11(a)
of the Securities Act and the rules and regulations of the Commission
thereunder.
(f) To ensure that, in connection with the Directed Share Program,
the Directed Shares will be restricted to the extent required by the National
Association of Securities Dealers, Inc. (the "NASD") or the NASD rules from
sale, transfer, assignment, pledge or hypothecation for a period of time
required by the NASD. Morgan Stanley will notify the Company as to which
Participants will need to be so restricted. The Company will direct the transfer
agent to place stop transfer restrictions upon such securities for such period
of time.
(g) To pay all fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp duties,
similar taxes or duties or other taxes, if any, incurred by the Underwriters in
connection with the Directed Share Program.
(h) To not: accelerate, otherwise change or take any action to
accelerate or otherwise change, the terms of exercise and of exercisability of
the warrants granted to the holders listed in Schedule III (the "Warrants").
Each of the Warrants shall have provided that such Warrant may not be exercised,
either in whole or in part, prior to the first year anniversary of the date such
Warrant was granted.
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Furthermore, the Company covenants with Morgan Stanley that the Company
will comply with all applicable securities and other applicable laws, rules and
regulations in each foreign jurisdiction in which the Directed Shares are
offered in connection with the Directed Share Program.
8. EXPENSES. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Sellers agree to
pay or cause to be paid all expenses incident to the performance of their
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel, the Company's accountants and counsel for the
Selling Stockholder in connection with the registration and delivery of the
Shares under the Securities Act and all other fees or expenses in connection
with the preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 7(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to listing the Shares on the
Nasdaq National Market, (vi) the cost of printing certificates representing the
Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the marketing of
the offering of the Shares, including, without limitation, expenses associated
with the production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expenses of the
representatives and officers of the Company and any such consultants, and
one-half of the cost of any aircraft chartered in connection with the road show,
and (ix) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise made
in this Section. It is understood, however, that except as provided in this
Section, Section 9 entitled "Indemnity and Contribution", and the last paragraph
of Section 12 below, the Underwriters will pay all of their costs and expenses,
including fees and disbursements of their counsel, stock transfer taxes payable
on resale of any of the Shares by them and any advertising expenses connected
with any offers they may make.
The provisions of this Section shall not supersede or otherwise affect
any agreement that the Sellers may otherwise have for the allocation of such
expenses among themselves.
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9. INDEMNITY AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from and
against any and all losses, claims, damages and liabilities (including, without
limitation, any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(b) The Selling Stockholder agrees to indemnify and hold harmless
the (i) Company, its directors, its officers who sign the Registration Statement
and each person, if any, who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, and (ii)
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
but only with reference to information relating to the Selling Stockholder
furnished in writing by or on behalf of the Selling Stockholder expressly for
use in the Registration Statement, any preliminary prospectus, the Prospectus or
any amendments or supplements thereto. The liability of the Selling Stockholder
under the indemnity agreement contained in this paragraph shall be limited to an
amount equal to the net proceeds received by such Selling Stockholder from the
offering of the shares sold by such Selling Stockholder.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Stockholder, the directors
of the Company, the officers of the Company who sign the Registration Statement
and each person, if any, who controls the Company or the Selling Stockholder
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or
17
<PAGE> 19
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 9(a), 9(b) or 9(c), such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm (in
addition to any local counsel) for all Underwriters and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm (in addition to any
local counsel) for the Selling Stockholder and all persons, if any, who control
the Selling Stockholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the case of
any such separate firm for the Underwriters and such control persons of any
Underwriters, such firm shall be designated in writing by Morgan Stanley. In the
case of any such separate firm for the Company, and such directors, officers and
control persons of the Company, such firm shall be designated in writing by the
Company. In the case of any such separate firm for the Selling Stockholder and
such control persons of the Selling Stockholder, such firm shall be designated
in writing by the persons named as attorneys-in-fact for the Selling Stockholder
under the Powers of Attorney. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and
18
<PAGE> 20
(ii) such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(e) To the extent the indemnification provided for in Section 9(a),
9(b) or 9(c) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by clause 9(e)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 9(e)(i) above but also the relative
fault of the indemnifying party or parties on the one hand and of the
indemnified party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Sellers on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Company or the Selling
Stockholder on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Selling
Stockholder or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute pursuant to
this Section 9 are several in proportion to the respective number of Shares they
have purchased hereunder, and not joint.
(f) The Sellers and the Underwriters agree that it would not be
just or equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in Section 9(e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged
19
<PAGE> 21
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this Section 9 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in this
Section 9 and the representations, warranties and other statements of the
Company and the Selling Stockholder contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter, the Selling Stockholder or any person
controlling the Selling Stockholder, or the Company, its officers or directors
or any person controlling the Company and (iii) acceptance of and payment for
any of the Shares.
10. DIRECTED SHARE PROGRAM INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Morgan
Stanley and its affiliates and each person, if any, who controls Morgan Stanley
or its affiliates within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act (collectively "Morgan Stanley Entities"), from
and against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) (i) caused
by any untrue statement or alleged untrue statement of a material fact contained
in any material prepared by or with the consent of the Company for distribution
to Participants in connection with the Directed Share Program or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; (ii)
caused by the failure of any Participant to pay for and accept delivery of
Directed Shares that the Participant agreed to purchase; or (iii) related to,
arising out of, or in connection with the Directed Share Program, other than
losses, claims, damages or liabilities (or expenses relating thereto) that are
finally judicially determined to have resulted from the bad faith or gross
negligence of Morgan Stanley Entities.
(b) In case any proceeding (including any governmental
investigation) shall be instituted involving any Morgan Stanley Entity in
respect of which indemnity may be sought pursuant to Section 10(a), the Morgan
Stanley Entity seeing indemnity, shall promptly notify the Company in writing
and the Company, upon request of the Morgan Stanley Entity, shall retain counsel
reasonably satisfactory to the Morgan Stanley Entity to represent the Morgan
Stanley Entity and any others the Company may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any Morgan Stanley Entity shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at the
expense of such Morgan Stanley Entity unless (i) the Company shall have agreed
to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the Company and the
Morgan Stanley Entity and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. The Company shall not, in respect of the legal expenses of the Morgan
Stanley Entities in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the fees and expenses of more than one
20
<PAGE> 22
separate firm (in addition to any local counsel) for all Morgan Stanley
Entities. Any such separate firm for the Morgan Stanley Entities shall be
designated in writing by Morgan Stanley. The Company shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
Company agrees to indemnify the Morgan Stanley Entities from and against any
loss or liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time a Morgan Stanley Entity shall have requested
the Company to reimburse it for fees and expenses of counsel as contemplated by
the second and third sentences of this paragraph, the Company agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by the Company of the aforesaid request and (ii) the Company shall not
have reimbursed the Morgan Stanley Entity in accordance with such request prior
to the date of such settlement. The Company shall not, without the prior written
consent of Morgan Stanley, effect any settlement of any pending or threatened
proceeding in respect of which any Morgan Stanley Entity is or could have been a
party and indemnity could have been sought hereunder by such Morgan Stanley
Entity, unless such settlement includes an unconditional release of the Morgan
Stanley Entitites from all liability on claims that are the subject matter of
such proceeding.
(c) To the extent the indemnification provided for in Section 10(a)
is unavailable to a Morgan Stanley Entity or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then the Company in
lieu of indemnifying the Morgan Stanley Entity thereunder, shall contribute to
the amount paid or payable by the Morgan Stanley Entity as a result of such
losses, claims, damages or liabilities (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company on the one hand and the
Morgan Stanley Entities on the other hand from the offering of the Directed
Shares or (ii) if the allocation provided by clause 10(c)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 10(c)(i) above but also the
relative fault of the Company on the one hand and of the Morgan Stanley Entities
on the other hand in connection with any statements or omissions that resulted
in such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Morgan Stanley Entities on the other hand in connection with
the offering of the Directed Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Directed Shares (before
deducting expenses) and the total underwriting discounts and commissions
received by the Morgan Stanley Entities for the Directed Shares, bear to the
aggregate Public Offering Price of the Directed Shares. If the loss, claim,
damage or liability is caused by an untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact, the
relative fault of the Company on the one hand and the Morgan Stanley Entities on
the other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement or the omission or alleged omission
relates to information supplied by the Company or by the Morgan Stanley Entities
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(d) The Company and the Morgan Stanley Entities agree that it would
not be just or equitable if contribution pursuant to this Section 10 were
determined by pro rata allocation (even if the Morgan Stanley Entities were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred
21
<PAGE> 23
to in Section 10(c). The amount paid or payable by the Morgan Stanley Entities
as a result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
the Morgan Stanley Entities in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 10, no
Morgan Stanley Entity shall be required to contribute any amount in excess of
the amount by which the total price at which the Directed Shares distributed to
the public were offered to the public exceeds the amount of any damages that
such Morgan Stanley Entity has otherwise been required to pay. The remedies
provided for in this Section 10 are not exclusive and shall not limit any rights
or remedies which may otherwise be available to any indemnified party at law or
in equity.
(e) The indemnity and contribution provisions contained in this
Section 10 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Morgan Stanley Entity or the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for any of
the Directed Shares.
11. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 11(a)(i) through 11(a)(iv), such event, singly
or together with any other such event, makes it, in your judgment, impracticable
to market the Shares on the terms and in the manner contemplated in the
Prospectus.
12. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule II bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to
22
<PAGE> 24
this Section 12 by an amount in excess of one-ninth of such number of Shares
without the written consent of such Underwriter. If, on the Closing Date, any
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the
aggregate number of Firm Shares with respect to which such default occurs is
more than one-tenth of the aggregate number of Firm Shares to be purchased, and
arrangements satisfactory to you, the Company and the Selling Stockholder for
the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholder. In any such
case either you or the relevant Sellers shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and in the Prospectus or
in any other documents or arrangements may be effected. If, on the Option
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Additional
Shares or (ii) purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
13. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
14. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
15. HEADINGS. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
TICKETS.COM, INC.
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
The Selling Stockholder
named in Schedule I hereto
By:
------------------------------
Attorney-in-Fact
23
<PAGE> 25
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
SG Cowen Securities Corporation
Morgan Stanley Dean Witter Online Inc.
E* Offering Corp.
Wit Capital Corporation
Acting severally on behalf of themselves
and the several Underwriters named in
Schedule II hereto.
By: Morgan Stanley & Co. Incorporated
By:
------------------------------------
Name:
-----------------------------
Title:
-----------------------------
24
<PAGE> 26
SCHEDULE I
NUMBER OF
FIRM SHARES
THE SELLING STOCKHOLDER TO BE SOLD
- ----------------------- ------------
The Karen S. Long 1999 Trust 444,444
-------
Total 444,444
=======
<PAGE> 27
SCHEDULE II
NUMBER OF
FIRM SHARES
UNDERWRITER TO BE PURCHASED
- -------------------------------------- ---------------
Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
SG Cowen Securities Corporation
Morgan Stanley Dean Witter Online Inc.
E* Offering Corp.
Wit Capital Corporation
---------
Total 6,700,000
=========
<PAGE> 28
SCHEDULE III
HOLDERS OF THE WARRANTS
- -----------------------
Kevin S. Richardson
Brian Thomas Liurell
Alexander J. McLean
Howard D. Dorough
Nickolas G. Carter
Reggie Arvizu
Jonathan Howsman Davis
James Schaffer
David Randall Silveria
Brian Phillip Welch
William Frederick Durst
Samuel Robert Rivers
Wesley Louden Borland
John Everett Otto
Leor Dimant
Southwest Sports Group, LLC
Happenstance, Ltd.
<PAGE> 29
EXHIBIT A
FORM OF LOCK-UP LETTER
__________ __, 1999
Morgan Stanley & Co. Incorporated
Credit Suisse First Boston Corporation
SG Cowen Securities Corporation
Morgan Stanley Dean Witter Online Inc.
E* Offering Corp.
Wit Capital Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Tickets.com Inc., a Delaware corporation (the
"Company"), providing for the public offering (the "Public Offering") by the
several Underwriters, including Morgan Stanley (the "Underwriters"), of
6,700,000 shares (the "Shares") of the Common Stock, par value $.000225 per
share, of the Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) 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 or any securities convertible into or exercisable or exchangeable for
Common Stock, or (2) 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, whether any such transaction described in clause (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (a) the sale of any
Shares to the Underwriters pursuant to the Underwriting Agreement or (b)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Public Offering. In
addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 180 days after the date of the
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.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
Very truly yours,
----------------------------------
(Name)
----------------------------------
(Address)
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TICKETS.COM, INC.
Tickets.com, Inc. (the "Corporation"), a corporation organized
and existing under the laws of the State of Delaware, does hereby certify:
FIRST: The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of Delaware on January 25,
1995, under the name "The Entertainment Express, Inc." On May 31, 1996, the
Corporation filed a Restated Certificate of Incorporation. On January 2, 1997,
the Corporation filed a Certificate of Amendment changing the name of the
Corporation to "Advantix, Inc." On March 25, 1997, the Corporation filed a
Restated Certificate of Incorporation and on September 25, 1997, the Corporation
filed an Amended and Restated Certificate of Incorporation (the "First Prior
Certificate"). On May 22, 1998, the Corporation filed an Amended and Restated
Certificate of Incorporation, which amended and restated the First Prior
Certificate (the "Second Prior Certificate") On March 19, 1999, the Corporation
filed an Amended and Restated Certificate of Incorporation, which amended and
restated the Second Prior Certificate (the "Third Prior Certificate"). On May
14, 1999, the Corporation filed an Amended and Restated Certificate of
Incorporation, which amended and restated the Third Prior Certificate. On May
25, 1999, the Corporation filed a Certificate of Amendment changing the name of
the Corporation to "Tickets.com, Inc."
SECOND: The Amended and Restated Certificate of Incorporation of
Tickets.com, Inc. in the form attached hereto as Exhibit A has been duly adopted
in accordance with the provisions of Sections 245 and 242 of the General
Corporation Law of the State of Delaware by the directors and stockholders of
the Corporation.
THIRD: The Amended and Restated Certificate of Incorporation so
adopted reads in its entirety as set forth in Exhibit A attached hereto and is
incorporated herein by this reference.
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed by its Chief Financial
Officer and attested by its Secretary, this 30th day of July, 1999.
TICKETS.COM, INC.
By: /s/ JOHN M. MARKOVICH
--------------------------
John M. Markovich
Chief Financial Officer
ATTEST:
By: /s/ PAUL ROWE
-----------------
Paul Rowe
Secretary
1
<PAGE> 2
EXHIBIT A
---------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TICKETS.COM, INC.
ARTICLE I
The name of this corporation is Tickets.com, Inc. (the "CORPORATION").
ARTICLE II
The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at such address is The Corporation
Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware (the "GCL").
ARTICLE IV
A. Classes of Stock. This Corporation is authorized to issue two
classes of stock to be designated, respectively, "COMMON STOCK" and "PREFERRED
STOCK." The total number of shares of capital stock that the Corporation is
authorized to issue is Three Hundred Sixty Million (360,000,000). The total
number of shares of Common Stock this Corporation shall have authority to issue
is Two Hundred Seventy Million (270,000,000). The total number of shares of
Preferred Stock this Corporation shall have authority to issue is Ninety Million
(90,000,000). The Common Stock shall have a par value of $.0001 per share and
the Preferred Stock shall have a par value of $.0001 per share.
B. Powers, Preferences, Rights and Restrictions of Preferred
Stock. The Preferred Stock shall be divided into series. The first series shall
consist of Eight Million Four Hundred Forty Thousand Two (8,440,002) shares and
is designated "SERIES A PREFERRED STOCK." The second series shall consist of Two
Million Seven Hundred Eighteen Thousand Eighteen (2,718,018) shares and is
designated "SERIES A1 PREFERRED STOCK." The third series shall consist of Nine
Million Five Hundred Thousand (9,500,000) shares and is designated "SERIES B
PREFERRED STOCK." The fourth series shall consist of Seventeen Million Three
Hundred Ninety Five Thousand Nine Hundred Forty Nine (17,395,949) shares and is
designated "SERIES C PREFERRED STOCK." The fifth series shall consist of
Thirteen Million, Three Hundred Thirty Three Thousand Three Hundred Thirty Five
(13,333,335) shares and is designated "SERIES D PREFERRED STOCK." The sixth
series shall consist of Thirty Million Five
1
<PAGE> 3
Hundred Fifty Five Thousand Five Hundred Fifty Six (30,555,556) shares and is
designated "SERIES E PREFERRED STOCK."
The remaining Eight Million Fifty Seven Thousand One Hundred
Forty (8,057,140) shares of Preferred Stock are undesignated as of the effective
date of this Amended and Restated Certificate of Incorporation and may be issued
from time to time in one or more series. The Board of Directors of the
Corporation (the "BOARD OF DIRECTORS") is expressly authorized to provide for
the issue of all or any of the remaining shares of the Preferred Stock in one or
more series, and to fix the number of shares and to determine or alter, for each
such series, such voting powers, full or limited, or no voting powers, and such
designations, preferences, and relative, participating, optional, or other
rights and such qualifications, limitations, or restrictions thereof, as shall
be stated and expressed in the resolution or resolutions adopted by the Board of
Directors providing for the issue of such shares (a "PREFERRED STOCK
DESIGNATION") and as may be permitted by the General Corporation Law of the
State of Delaware. The Board of Directors is also expressly authorized to
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any series other than the Series A
Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock subsequent
to the issue of shares of that series. In case the number of shares of any such
series shall be so decreased, the shares constituting such decrease shall resume
the status that they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
The relative powers, preferences, privileges, rights and
restrictions granted to or imposed upon the Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock are as follows:
1. Dividend Provisions.
(a) Beginning on January 1, 2000, the holders of shares of Series
E Preferred Stock shall be entitled to receive dividends, out of any funds
legally available therefor, at the rate of $0.54 per share (as adjusted for any
stock dividends, combinations, splits or recapitalizations with respect to such
shares) per annum, prior and in preference to any declaration or payment of any
dividend (excluding distributions payable solely in Common Stock or Common Stock
equivalents of this Corporation described in Section 4(e) hereof) on the Series
A Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Common Stock of the Corporation.
Such dividends shall accrue on each share of Series E Preferred Stock beginning
on January 1, 2000 and, to the extent declared, shall be paid on December 31st
of each year in which they accrue, beginning December 31, 2000. Such dividends
shall be cumulative and shall accumulate, whether or not earned or declared and
whether or not there are funds of the Corporation legally available for the
payment of dividends, so that, if such dividends in respect of any previous or
current annual dividend period, at the annual rate specified above, have not
been paid the deficiency shall first be fully paid before any dividend or other
distribution shall be
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paid on or declared and set apart for the Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Common Stock of the Corporation. Dividends payable on the
Series E Preferred Stock for any period less than a full annual dividend period
shall be computed on the basis of a 360-day year of twelve 30-day months. Any
accumulation of dividends on the Series E Preferred Stock shall not bear
interest. Cumulative dividends with respect to a share of Series E Preferred
Stock which are accrued, payable and/or in arrears shall, upon conversion of
such share to Common Stock pursuant to Section 4 hereof, subject to the rights
of series of Preferred Stock that may from time to time come into existence, be
paid to the extent funds are legally available therefor and any amounts for
which funds are not legally available shall be paid promptly as funds become
legally available therefor; any partial payment will be made ratably among the
holders of the Series E Preferred Stock in proportion to the amount of such
stock owned by each such holder.
(b) Unless full dividends on the Series E Preferred Stock for all
past dividend periods and the then current dividend period have been paid, or
have been or contemporaneously are declared and a sum sufficient for the payment
thereof set apart, no dividends shall be declared or paid or any sum set apart
for such payment or any other distribution made on or with respect to the Series
A Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Common Stock of the Corporation,
other than distributions payable solely in Common Stock or Common Stock
equivalents of this Corporation described in Section 4(e) hereof.
(c) Subject to payment in full of the cumulative dividends on the
Series E Preferred Stock, the holders of shares of Series A Preferred Stock,
Series A1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock shall be entitled to share in any dividends
declared and paid upon or set aside for the Common Stock of the Corporation pro
rata based upon the number of shares of Common Stock into which their shares of
Series A Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and/or Series D Preferred Stock are then convertible
pursuant to Section 4 hereof.
(d) For the purposes of this Section 1, the term dividends shall
include distributions payable in cash, securities of this Corporation or other
persons, evidences of indebtedness issued by this Corporation or other persons,
assets or options or rights (excluding distributions payable solely in Common
Stock or Common Stock equivalents of this Corporation described in Section 4(e)
hereof) without payment of any consideration by the recipient thereof.
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2. Liquidation Preference.
In the event of any liquidation, dissolution or winding up of this
Corporation, either voluntary or involuntary (a "LIQUIDATION"):
(a) Preferred Stock.
(i) Series E Preferred Stock, Series D Preferred Stock and
Series C Preferred Stock. Subject to the rights of series of Preferred
Stock that may from time to time come into existence, each holder of
Series E Preferred Stock, each holder of Series D Preferred Stock and
each holder of Series C Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets of this
Corporation to the holders of Common Stock, Series A Preferred Stock,
Series A1 Preferred Stock, Series B Preferred Stock and any other series
of Preferred Stock which is by its terms expressly made junior to the
Series E Preferred Stock, Series D Preferred Stock and Series C
Preferred Stock with respect to a Liquidation, by reason of such
holder's ownership thereof, an amount equal to (A) Nine Dollars ($9.00)
for each outstanding share of Series E Preferred Stock then held by such
holder (as adjusted for any stock dividends, combinations, splits or
recapitalizations with respect to such shares) (the "ORIGINAL SERIES E
ISSUE PRICE") plus any dividends accrued but unpaid thereon to the date
fixed for distribution (such sum, the "SERIES E LIQUIDATION
PREFERENCE"); (B) Two Dollars and Twenty Five Cents ($2.25) for each
outstanding share of Series D Preferred Stock then held by such holder
(as adjusted for any stock dividends, combinations, splits or
recapitalizations with respect to such shares) (the "ORIGINAL SERIES D
ISSUE PRICE") plus any dividends declared but unpaid thereon to the date
fixed for distribution (such sum, the "SERIES D LIQUIDATION
PREFERENCE"); and (C) One Dollar and Seventy Five Cents ($1.75) for each
outstanding share of Series C Preferred Stock then held by such holder
(as adjusted for any stock dividends, combinations, splits or
recapitalizations with respect to such shares) (the "ORIGINAL SERIES C
ISSUE PRICE") plus any dividends declared but unpaid thereon to the date
fixed for distribution (such sum, the "SERIES C LIQUIDATION
PREFERENCE"). The Series E Preferred Stock, Series D Preferred Stock and
Series C Preferred Stock shall rank on parity as to receipt of the
respective preferential amounts for such series upon a Liquidation. If
upon the occurrence of a Liquidation, the assets and funds to be
distributed among the holders of Series E Preferred Stock, holders of
Series D Preferred Stock and holders of Series C Preferred Stock shall
be insufficient to permit the payment to such holders of the full Series
E Liquidation Preference, Series D Liquidation Preference and Series C
Liquidation Preference, respectively, then, subject to the rights of
series of Preferred Stock that may from time to time come into
existence, the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the
holders of the Series E Preferred Stock, Series D Preferred Stock and
Series C Preferred Stock in proportion to the respective amounts which
would be payable with respect to the shares then held by them upon such
distribution if all amounts on or with respect to such shares of Series
E
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Preferred Stock, Series D Preferred Stock and Series C Preferred Stock
were paid in full.
(ii) Series B Preferred Stock. Subject to the payment in full of
the liquidation preferences of the Series E Preferred Stock, Series D
Preferred Stock and Series C Preferred Stock as provided in Section
2(a)(i) and any distribution which may be required with respect to a
series of Preferred Stock that may from time to time come into
existence, each holder of Series B Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the
assets of this Corporation to the holders of Common Stock, Series A
Preferred Stock, Series A1 Preferred Stock and any other series of
Preferred Stock which is by its terms expressly made junior to the
Series B Preferred Stock with respect to a Liquidation, by reason of
such holder's ownership thereof, an amount equal to One Dollar and
Twenty Five Cents ($1.25) for each outstanding share of Series B
Preferred Stock then held by such holder (as adjusted for any stock
dividends, combinations, splits or recapitalizations with respect to
such shares) (the "ORIGINAL SERIES B ISSUE PRICE") plus any dividends
declared but unpaid thereon to the date fixed for distribution (such
sum, the "SERIES B LIQUIDATION PREFERENCE"). If upon the occurrence of a
Liquidation, the assets and funds available for distribution, after
payment in full of the Series E Liquidation Preference, Series D
Liquidation Preference and Series C Liquidation Preference, shall be
insufficient to permit the payment to holders of the Series B Preferred
Stock of the full Series B Liquidation Preference, then, subject to the
rights of series of Preferred Stock that may from time to time come into
existence, the remaining assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the
holders of the Series B Preferred Stock in proportion to the amount of
such stock owned by each such holder.
(iii) Series A Preferred Stock and Series A1 Preferred Stock.
Subject to the payment in full of the liquidation preferences of the
Series E Preferred Stock, Series D Preferred Stock, Series C Preferred
Stock and Series B Preferred Stock as provided in Sections 2(a)(i) and
2(a)(ii) and any distribution which may be required with respect to a
series of Preferred Stock that may from time to time come into
existence, the holders of Series A Preferred Stock and Series A1
Preferred Stock shall be entitled to receive, prior and in preference to
any distribution of any of the assets of this Corporation to the holders
of Common Stock and any other series of Preferred Stock which is by its
terms expressly made junior to the Series A Preferred Stock with respect
to a Liquidation, by reason of their ownership thereof, an amount equal
to (A) Forty Nine Cents ($0.49) for each outstanding share of Series A
Preferred Stock then held by them (as adjusted for any stock dividends,
combinations, splits or recapitalizations with respect to such shares)
(the "ORIGINAL SERIES A ISSUE PRICE") plus any dividends declared but
unpaid thereon to the date fixed for distribution (the "SERIES A
LIQUIDATION PREFERENCE") and (B) Twenty Three Cents ($0.23) for each
outstanding share of Series A1 Preferred Stock then held by them (as
adjusted for any stock dividends, combinations, splits or
recapitalizations with respect to such shares) (the "ORIGINAL SERIES A1
ISSUE PRICE") plus any dividends declared but unpaid thereon to the
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<PAGE> 7
date fixed for distribution (the "SERIES A1 LIQUIDATION PREFERENCE").
The Series A Preferred Stock and Series A1 Preferred Stock shall rank on
parity as to the receipt of the respective preferential amounts for such
series upon a Liquidation. If upon the occurrence of a Liquidation, the
assets and funds available for distribution, after payment in full of
the Series E Liquidation Preference, Series D Liquidation Preference,
Series C Liquidation Preference and Series B Liquidation Preference,
shall be insufficient to permit the payment to holders of the Series A
Preferred Stock and Series A1 Preferred Stock of the full Series A
Liquidation Preference and Series A1 Liquidation Preference,
respectively, then, subject to the rights of series of Preferred Stock
that may from time to time come into existence, the remaining assets and
funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Series A Preferred Stock
and Series A1 Preferred Stock in proportion to the respective amounts
which would be payable with respect to the shares then held by them upon
such distribution if all amounts on or with respect to such shares of
Series A Preferred Stock and Series A1 Preferred Stock were paid in
full.
(b) Common Stock. Upon the completion of the distributions
required by subparagraph (a) of this Section 2 and any other distribution that
may be required with respect to series of Preferred Stock that may from time to
time come into existence, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed
ratably among the holders of Common Stock in proportion to the amount of such
stock owned by each such holder. Shares of Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall not be entitled to be
converted into shares of Common Stock in order to participate in any such
distribution, or series of distributions, to holders of Common Stock under this
Section 2(b) without first foregoing participation in the distribution, or
series of distributions, to holders of Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock, as applicable, pursuant to Section
2(a).
(c) Deemed Liquidation.
(i) For purposes of this Section 2, (A) the acquisition of the
Corporation by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization,
merger or consolidation, but excluding any merger effected exclusively
for the purpose of changing the domicile of the Corporation), or (B) a
sale of all or substantially all of the assets of the Corporation, shall
be treated as a Liquidation; unless the Corporation's stockholders of
record as constituted immediately prior to such acquisition or sale
will, immediately after such acquisition or sale (by virtue of
securities issued as consideration for the Corporation's acquisition or
sale or otherwise) hold at least a majority of the voting power of the
surviving or acquiring entity.
(ii) In any of such events, if the consideration received by the
Corporation is other than cash, its value will be deemed its fair market
value as
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determined in good faith by the Board of Directors of the Corporation.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter
or other similar restrictions on free marketability covered by
(B) below:
(1) If traded on a securities exchange or
through NASDAQ-NMS, the value shall be deemed to be the
average of the closing prices of the securities on such
exchange over the thirty-day period ending three (3)
days prior to the closing;
(2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing
bid or sale prices (whichever is applicable) over the
thirty-day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as
determined by the Board of Directors of the Corporation.
(B) The method of valuation of securities
subject to investment letter or other restrictions on free
marketability (other than restrictions arising solely by virtue
of a stockholder's status as an affiliate or former affiliate)
shall be to make an appropriate discount from the market value
determined as above in (A) (1), (2) or (3) to reflect the
approximate fair market value thereof, as determined by the
Board of Directors.
(iii) The Corporation shall give each holder of record of Series
A Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock written notice of such impending transaction not later than twenty
(20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such
transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such
notices shall describe the material terms and conditions of the
impending transaction and the provisions of this Section 2, and the
Corporation shall thereafter give such holders prompt notice of any
material changes. The transaction shall in no event take place sooner
than twenty (20) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation
has given notice of any material changes provided for herein; provided,
however, that such periods may be shortened upon the written consent of
the holders of Preferred Stock that are entitled to such notice rights
or similar notice rights and that represent at least a majority of the
voting power of all shares of Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock then outstanding.
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3. Redemption. The Series A Preferred Stock, Series A1 Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock are not redeemable.
4. Conversion. The holders of Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock shall have conversion rights as
follows (the "CONVERSION RIGHTS"):
(a) Right to Convert. Each share of Series A Preferred
Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock and Series E Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of this Corporation or any transfer agent
for such stock, into fully paid and nonassessable shares of Common Stock at the
applicable conversion rate then in effect for such series as calculated pursuant
to Section 4(c) below.
(b) Automatic Conversion. Each share of Series A
Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall
automatically be converted into fully paid and nonassessable shares of Common
Stock, at the applicable conversion rate then in effect for such series as
calculated pursuant to Section 4(c), except as provided below in Section 4(d),
immediately upon the closing of the sale of the Corporation's Common Stock in a
firm commitment underwritten public offering pursuant to a registration
statement on Form S-1 (or successor form then in effect) under the Securities
Act of 1933, as amended, resulting in gross aggregate proceeds of not less than
Fifty Million Dollars ($50,000,000), before deduction of any underwriting
discounts, commissions and registration expenses (a "QUALIFIED PUBLIC
OFFERING").
(c) Conversion Rate.
(i) Conversion Rate of Series A Preferred Stock.
Each share of Series A Preferred Stock shall be converted into the
number of shares of fully paid and nonassessable shares (calculated as
to each conversion to the nearest one-hundredth of a share) of Common
Stock of the Corporation, which results from dividing the Original
Series A Issue Price by the Series A Conversion Price (as defined below)
in effect at the time of conversion. The "SERIES A CONVERSION PRICE"
shall initially be the Original Series A Issue Price, subject to
adjustment from time to time in certain circumstances, as hereinafter
provided.
(ii) Conversion Rate of Series A1 Preferred Stock. Each
share of Series A1 Preferred Stock shall be converted into the number of
shares of fully paid and nonassessable shares (calculated as to each
conversion to the nearest one-hundredth of a share) of Common Stock of
the Corporation, which results from dividing the Original Series A1
Issue Price by the Series A1 Conversion Price (as defined below) in
effect at the time of conversion. The "SERIES A1 CONVERSION PRICE" shall
initially be the
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Original Series A1 Issue Price, subject to adjustment from time to time
in certain circumstances, as hereinafter provided.
(iii) Conversion Rate of Series B Preferred Stock. Each
share of Series B Preferred Stock shall be converted into the number of
shares of fully paid and nonassessable shares (calculated as to each
conversion to the nearest one-hundredth of a share) of Common Stock of
the Corporation, which results from dividing the Original Series B Issue
Price by the Series B Conversion Price (as defined below) in effect at
the time of conversion. The "SERIES B CONVERSION PRICE" shall initially
be the Original Series B Issue Price, subject to adjustment from time to
time in certain circumstances, as hereinafter provided.
(iv) Conversion Rate of Series C Preferred Stock. Each
share of Series C Preferred Stock shall be converted into the number of
shares of fully paid and nonassessable shares (calculated as to each
conversion to the nearest one-hundredth of a share) of Common Stock of
the Corporation, which results from dividing the Original Series C Issue
Price by the Series C Conversion Price (as defined below) in effect at
the time of conversion. The "SERIES C CONVERSION PRICE" shall initially
be the Original Series C Issue Price, subject to adjustment from time to
time in certain circumstances, as hereinafter provided.
(v) Conversion Rate of Series D Preferred Stock. Each
share of Series D Preferred Stock shall be converted into the number of
shares of fully paid and nonassessable shares (calculated as to each
conversion to the nearest one-hundredth of a share) of Common Stock of
the Corporation, which results from dividing the Original Series D Issue
Price by the Series D Conversion Price (as defined below) in effect at
the time of conversion. The "SERIES D CONVERSION PRICE" shall initially
be the Original Series D Issue Price, subject to adjustment from time to
time in certain circumstances, as hereinafter provided.
(vi) Conversion Rate of Series E Preferred Stock. Each
share of Series E Preferred Stock shall be converted into the number of
shares of fully paid and nonassessable shares (calculated as to each
conversion to the nearest one-hundredth of a share) of Common Stock of
the Corporation, which results from dividing the Original Series E Issue
Price by the Series E Conversion Price (as defined below) in effect at
the time of conversion. The "SERIES E CONVERSION PRICE" shall initially
be the Original Series E Issue Price, subject to adjustment from time to
time in certain circumstances, as hereinafter provided.
(d) Mechanics of Conversion. Before any holder of Series
A Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock shall be
entitled to convert the same into shares of Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for such series of Preferred Stock,
as applicable, and shall give written notice to the Corporation at its
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principal corporate office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred Stock,
or to the nominee or nominees of such holder, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of such surrender of the shares of Series A
Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock for conversion, be conditioned upon
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person or persons entitled to receive the Common
Stock upon conversion of the Series A Preferred Stock, Series A1 Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock shall not be deemed to have converted such
Series A Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock,
as the case may be, until immediately prior to the closing of such sale of
securities.
(e) Adjustments to Series A, Series A1, Series B, Series
C, Series D and Series E Conversion Prices for Certain Diluting Issues.
(i) Special Definitions. For purposes of this Section
4(e), the following definitions apply:
(A) "OPTIONS" shall mean rights, options, or warrants to
subscribe for, purchase or otherwise acquire either Common Stock
or Convertible Securities (defined below).
(B) "ORIGINAL ISSUE DATE" shall mean the date on which a
share of Series E Preferred Stock was first issued.
(C) "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares (other than Common Stock, Series A
Preferred Stock, Series A1 Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock) or other securities convertible into
or exchangeable for Common Stock.
(D) "ADDITIONAL SHARES OF COMMON STOCK" shall mean all
shares of Common Stock issued (or, pursuant to Section
4(e)(iii), deemed to be
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issued) by the Corporation after the Original Issue Date, other
than shares of Common Stock issued or issuable:
(1) upon conversion of shares of Series A Preferred
Stock, Series A1 Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock
or Series E Preferred Stock;
(2) upon exercise of any warrants to purchase
shares of Common Stock outstanding on the Original Issue
Date;
(3) to officers, directors or employees of, or
consultants to, the Corporation pursuant to stock option
or stock purchase plans or agreements on terms approved by
the Board of Directors, but not exceeding 23,500,000 (or
such greater number as the Board of Directors of this
Corporation shall determine) shares of Common Stock (net
of any repurchases of such shares), subject to adjustment
for all subdivisions and combinations;
(4) as a dividend or distribution on the Common
Stock, Series A Preferred Stock, Series A1 Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E
Preferred Stock;
(5) for which adjustment of the Series A Conversion
Price, Series A1 Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion
Price or Series E Conversion Price is made pursuant to
Section 4(e) or Section 4(f) hereof;
(6) in connection with any transaction approved by
the Board of Directors involving the acquisition of more
than fifty percent (50%) of the stock of another
corporation or substantially all of the assets of another
corporation or business, whether by way of merger,
exchange of shares, purchase of assets or otherwise,
including, without limitation, shares of Common Stock
issuable upon exercise of options, rights or warrants of
such other corporation or business assumed by the
Corporation in connection with such acquisition and shares
of Common Stock issued or issuable to a funding source
(equity and/or debt) for the acquisition and any placement
agent for such funding source; provided that in the event
that the Additional Shares of Common so issued or issuable
have an aggregate value of more than $10.0 million, then
the Corporation shall have received the opinion of an
investment advisor of national standing that the value of
the shares issued in any such transaction is not less than
the Series E Conversion Price as such Series E Conversion
Price has been adjusted pursuant to Section 4(e)(vi),
(vii) or (viii) hereof;
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(7) upon exercise of warrants or other rights
granted in connection with loans, bank financings or lease
or equipment lines of credit approved by the Board of
Directors, provided that the aggregate number of shares of
Common Stock issued or issuable upon exercise of such
warrants or other rights shall not exceed an amount equal
to one percent (1%) of the total number of shares of
Common Stock then outstanding on a fully diluted basis, as
if all shares of Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock and all Convertible Securities had been
fully converted into shares of Common Stock and any
outstanding Options had been fully exercised (and the
resulting securities fully converted into shares of Common
Stock, if so convertible);
(8) upon conversion of, or in lieu of interest on,
the Convertible Promissory Note, dated May 31, 1996,
issued by the Corporation to Hill Arts and Entertainment
Systems, Inc. (now known as Hill International, Inc.);
(9) to Playhouse Square Foundation pursuant to
Section 2 of that certain Stock Issuance Agreement, dated
December 31, 1996, between the Corporation and Playhouse
Square Foundation; or
(10) in connection with strategic alliances or
other partnering arrangements with venues, outlets,
customers, distributors, suppliers or any other strategic
partner of the Corporation approved by the Board of
Directors, but not exceeding an aggregate of 2,000,000
shares, subject to adjustment for all subdivisions and
combinations.
(ii) No Adjustment. Any provision herein to the contrary
notwithstanding, no adjustment in the Series A Conversion Price, Series
A1 Conversion Price, Series B Conversion Price, Series C Conversion
Price, Series D Conversion Price or Series E Conversion Price shall be
made in respect of the issuance of Additional Shares of Common Stock
unless the consideration per share (determined pursuant to Section
4(e)(v) hereof) for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the applicable Series A
Conversion Price, Series A1 Conversion Price, Series B Conversion Price,
Series C Conversion Price, Series D Conversion Price or Series E
Conversion Price in effect on the date of, and immediately prior to,
such issue.
(iii) Deemed Issue of Additional Shares of Common Stock.
In the event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or
shall fix a record date for the determination of holders of any class of
securities then entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in
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<PAGE> 14
the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock
issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on such
record date, provided further that in any such case in which Additional
Shares of Common Stock are deemed to be issued:
(A) no further adjustments in the Series A
Conversion Price, Series A1 Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price
and/or Series E Conversion Price shall be made upon the
subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange
of such Convertible Securities;
(B) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Corporation, or
decrease in the number of shares of Common Stock issuable, upon
the exercise, conversion or exchange thereof, the Series A
Conversion Price, Series A1 Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price
and/or Series E Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange
under such Convertible Securities (provided, however, that no
such adjustment of the Series A Conversion Price, Series A1
Conversion Price, Series B Conversion Price, Series C Conversion
Price, Series D Conversion Price or Series E Conversion Price
shall effect Common Stock previously issued upon conversion of
the Series A Preferred Stock, Series A1 Conversion Price, Series
B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock or Series E Preferred Stock);
(C) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Series A
Conversion Price, Series A1 Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price
and/or Series E Conversion Price computed upon the initial
conversion prices set forth in Section 4(c) above, and any
subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of
Common Stock issued
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were shares of Common Stock, if any, actually issued
upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, and the
consideration received therefor was the consideration
actually received by the Corporation for the issue of
all such Options, whether or not exercised, plus the
consideration actually received by the Corporation upon
such exercise, or for the issue of all such Convertible
Securities which were actually converted or exchanged
plus the consideration actually received by the
Corporation upon such conversion or exchange, if any,
and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued at
the time of issue of such Options and the consideration
received by the Corporation for the Additional Shares of
Common Stock deemed to have been then issued was the
consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by
the Corporation upon the issue of the Convertible
Securities with respect to which such Options were
actually exercised; and
(D) no readjustment pursuant to clause (B) or (C)
above shall have the effect of increasing the Series A Conversion
Price, Series A1 Conversion Price, Series B Conversion Price,
Series C Conversion Price, Series D Conversion Price or Series E
Conversion Price to an amount which exceeds the lower of (1) the
Series A Conversion Price, Series A1 Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion
Price or Series E Conversion Price on the original adjustment
date, and (2) the Series A Conversion Price, Series A1 Conversion
Price, Series B Conversion Price, Series C Conversion Price,
Series D Conversion Price or Series E Conversion Price that would
have resulted from any issuance of Additional Shares of Common
Stock between the original adjustment date and such readjustment
date (provided, however, that no such adjustment of the Series A
Conversion Price, Series A1 Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price or
Series E Conversion Price shall effect Common Stock previously
issued upon conversion of the Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock or Series E Preferred Stock).
(iv) Adjustments Upon Issuance of Additional Shares of
Common Stock. In the event this Corporation, at any time after the
Original Issue Date shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to Section 4(e)(iii) and Additional Shares of Common Stock sold
to the public in an underwritten public offering, but excluding stock
dividends, combinations, subdivisions or similar events that are the
subject of
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<PAGE> 16
adjustment pursuant to Section 4(e)(vi)) without consideration or for a
consideration per share less than the Series A Conversion Price, Series
A1 Conversion Price, Series B Conversion Price, Series C Conversion
Price, Series D Conversion Price and/or Series E Conversion Price in
effect on the date of and immediately prior to such issue, then and in
such event, the Series A Conversion Price, Series A1 Conversion Price,
Series B Conversion Price, Series C Conversion Price, Series D
Conversion Price and/or Series E Conversion Price, as applicable, shall
be reduced, concurrently with such issue, to a price (calculated to the
nearest cent) determined by multiplying the Series A Conversion Price,
Series A1 Conversion Price, Series B Conversion Price, Series C
Conversion Price, Series D Conversion Price and/or Series E Conversion
Price, as the case may be, in effect on the date of and immediately
prior to such issue by a fraction, (A) the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at the Series
A Conversion Price, Series A1 Conversion Price, Series B Conversion
Price, Series C Conversion Price, Series D Conversion Price or Series E
Conversion Price, as applicable, in effect immediately prior to such
issuance, and (B) the denominator of which shall be the number of shares
of Common Stock outstanding immediately prior to such issue plus the
number of such Additional Shares of Common Stock so issued; provided,
however, that in the event such issuance of Additional Shares of Common
shall occur on a date that is on or prior to the second anniversary of
the Original Issue Date, the Series E Conversion Price shall not be
adjusted in accordance with the calculation set forth above but,
instead, shall be reduced to a price equal to the price paid per share
for such Additional Shares of Common Stock; provided, further, however,
that no adjustment shall be made to the Series E Conversion Price if,
prior to the issuance of Additional Shares of Common, the holders of a
majority of the Series E Preferred Stock then outstanding shall have
agreed in writing to waive any adjustment to the Series E Conversion
Price pursuant to this Section 4(e)(iv). For the purpose of the
calculation set forth in this Section 4(e)(iv), the number of shares of
Common Stock outstanding immediately prior to such issue shall be
calculated on a fully diluted basis, as if all shares of Series A
Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock and all Convertible Securities had been fully converted
into shares of Common Stock and any outstanding Options had been fully
exercised (and the resulting securities fully converted into shares of
Common Stock, if so convertible) as of such date.
(v) Determination of Consideration. For purposes of this
Section 4(e), the consideration received by the Corporation for the
issue of any Additional Shares of Common Stock shall be computed as
follows:
(A) Cash and Property: Such consideration shall:
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<PAGE> 17
(1) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or
accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of
such issue, as determined in good faith by the Board of
Directors; and
(3) in the event Additional Shares of Common Stock
are issued together with other shares or securities or
other assets of the Corporation for consideration which
covers both, be the proportion of such consideration so
received, computed as provided in clauses (1) and (2)
above, as determined in good faith by the Board of
Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued
pursuant to Section 4(e)(iii), relating to Options and
Convertible Securities shall be determined by dividing
(1) the total amount, if any, received or
receivable by the Corporation as consideration for the
issue of such Options or Convertible Securities, plus the
minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without
regard to any provision contained therein designed to
protect against dilution) payable to the Corporation upon
the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of such Options
for Convertible Securities and the conversion or exchange
of such Convertible Securities, by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without
regard to any provision contained therein designed to
protect against the dilution) issuable upon the exercise
of such Options or conversion or exchange of such
Convertible Securities.
(vi) Adjustments for Stock Dividends and for
Combinations or Subdivisions of Common Stock. In the event that this
Corporation at any time or from time to time after the Original Issue
Date shall effect a subdivision of the outstanding shares of Common
Stock into a greater number of shares of Common Stock (by stock split,
reclassification or payment of a dividend in Common Stock), or in the
event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of
shares of Common Stock, then the Series A Conversion Price, Series A1
Conversion Price, Series B Conversion Price, Series C Conversion Price,
Series D Conversion Price and Series E Conversion Price
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<PAGE> 18
in effect immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased,
as appropriate.
(vii) Adjustments for Other Distributions. In the event
the Corporation at any time or from time to time makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive any distribution payable in securities of other persons,
evidences of indebtedness issued by this Corporation or other persons,
assets (excluding cash dividends) or options or rights not referred to
in Section 4(e)(vi), then, and in each such event, provision shall be
made so that the holders of the Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred, Series D
Preferred Stock and Series E Preferred Stock shall be entitled to a
proportionate share of any such distribution as though they were the
holders of the number of shares of Common Stock of the Corporation into
which their shares of Series A Preferred Stock, Series A1 Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock are convertible as of the
record date fixed for the determination of the holders of Common Stock
entitled to receive such distribution.
(viii) Adjustments for Reclassification and
Reorganization. If the Common Stock issuable upon conversion of the
Series A Preferred Stock, Series A1 Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock shall be changed into the same or a different number of
shares of any other class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision
or combination of shares provided for in Section 4(e)(vi) above or a
merger or other reorganization referred to in Section 2(c) above), the
Series A Conversion Price, Series A1 Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price
and Series E Conversion Price then in effect shall, concurrently with
the effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock shall be
convertible into, in lieu of the number of shares of Common Stock which
the holders would otherwise have been entitled to receive, a number of
shares of such other class or classes of stock equivalent to the number
of shares of Common Stock that would have been subject to receipt by the
holders upon conversion of the Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock immediately before
that change.
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<PAGE> 19
(f) Special Adjustments to Series B Conversion Price, Series C
Conversion Price, Series D Conversion Price and Series E Conversion Price.
(i) Special Adjustments to Series B and Series C Conversion
Price.
(A) In the event that, on or prior to September 26,
1999, this Company shall issue Additional Shares of Common Stock
in its initial Qualified Public Offering (as defined in Section
4(b) above), or in a Significant Corporate Transaction (as
defined below), for a consideration per share of Common Stock (or
the value of the consideration as determined below to be received
in a Significant Corporate Transaction) less than 140% of the
Series B Conversion Price, applicable on and immediately prior to
such offering or transaction, as the case may be, then
immediately prior to the closing of such Qualified Public
Offering or Significant Corporate Transaction, as applicable, the
then applicable Series B Conversion Price and Series C Conversion
Price shall each be reduced, concurrently with such issue, to a
price (calculated to the nearest one-tenth cent) equal to 71.4%
of such consideration per share.
(B) In the event that, after September 26, 1999 but
prior to September 26, 2000, this Company shall issue Additional
Shares of Common Stock in its initial Qualified Public Offering
or a Significant Corporate Transaction, for a consideration per
share of Common Stock (or the value of the consideration (as
determined below) to be received in a Significant Corporate
Transaction) less than 180% of the Series B Conversion Price,
applicable on and immediately prior to such offering or
transaction, as the case may be, then immediately prior to the
closing of such Qualified Public Offering or Significant
Corporate Transaction, as applicable, the then applicable Series
B Conversion Price and Series C Conversion Price shall each be
reduced, concurrently with such issue, to a price (calculated to
the nearest one-tenth cent) equal to 55.5% of such consideration
per share.
(C) In the event that, prior to September 26, 2000,
this Company has not consummated a Qualified Public Offering or a
Significant Corporate Transaction, then, effective as of such
date, the Series B Conversion Price and Series C Conversion Price
shall each be reduced to $0.70, as adjusted pursuant to Sections
4(e)(vi), (vii) or (viii) hereof.
(ii) Special Adjustments to Series D Conversion Price.
(A) In the event that, on or prior to December 31,
1999, this Company shall issue Additional Shares of Common Stock
in its initial Qualified Public Offering (as defined in Section
4(b) above), or in a Significant Corporate Transaction (as
defined below), for a consideration per share of Common Stock
(or the value of the consideration as determined below to be
received in a Significant Corporate Transaction) less than 140%
of the Series D Conversion Price, applicable on and immediately
prior to such offering or transaction, as the
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<PAGE> 20
case may be, then immediately prior to the closing of such
Qualified Public Offering or Significant Corporate Transaction,
as applicable, the then applicable Series D Conversion Price
shall be reduced, concurrently with such issue, to a price
(calculated to the nearest one-tenth cent) equal to 71.4% of
such consideration per share.
(B) In the event that, after December 31, 1999 but
prior to March 31, 2001, this Company shall issue Additional
Shares of Common Stock in its initial Qualified Public Offering
or a Significant Corporate Transaction, for a consideration per
share of Common Stock (or the value of the consideration (as
determined below) to be received in a Significant Corporate
Transaction) less than 180% of the Series D Conversion Price,
applicable on and immediately prior to such offering or
transaction, as the case may be, then immediately prior to the
closing of such Qualified Public Offering or Significant
Corporate Transaction, as applicable, the then applicable Series
D Conversion Price shall be reduced, concurrently with such
issue, to a price (calculated to the nearest one-tenth cent)
equal to 55.5% of such consideration per share.
(C) In the event that, prior to March 31, 2001,
this Company has not consummated a Qualified Public Offering or a
Significant Corporate Transaction, then, effective as of such
date, the Series D Conversion Price shall be reduced to $1.26, as
adjusted pursuant to Sections 4(e)(vi), (vii) or (viii) hereof.
(iii) Special Adjustments to Series E Conversion Price.
(A) In the event that, prior to September 26, 2000,
this Company has not consummated a Qualified Public Offering or a
Significant Corporate Transaction, then, effective as of such
date, the Series E Conversion Price shall be reduced as
calculated pursuant to Section 4(f)(iii)(C) below, so that the
aggregate number of shares of Common Stock into which shares of
Series E Preferred Stock are convertible represents the same
percentage of the total number of shares of Common Stock
outstanding, calculated on a fully diluted basis (calculated in
accordance with Section 4(e)(iv)), immediately following the
adjustment set forth herein as it represented immediately prior
to the adjustment set forth in Section 4(f)(i)(C).
(B) In the event that, prior to March 31, 2001,
this Company has not consummated a Qualified Public Offering or
a Significant Corporate Transaction, then, effective as of such
date, the Series E Conversion Price shall be further reduced as
calculated pursuant to Section 4(f)(iii)(C) below, so that the
aggregate number of shares of Common Stock into which shares of
Series E Preferred Stock are convertible represents the same
percentage of the total number of shares of Common Stock
outstanding, calculated on a fully diluted basis (calculated in
accordance with Section 4(e)(iv)), immediately following the
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<PAGE> 21
adjustment set forth herein as it represented immediately prior
to the adjustment set forth in Section 4(f)(ii)(C).
(C) In the event of an adjustment under Section
4(f)(iii)(A) or (B), the Series E Conversion Price shall be
reduced to the amount obtained by dividing (X) the result of (1)
Aggregate Series E Value minus (2) the product of the Aggregate
Series E Value multiplied by the Series E Percentage, by (Y) the
product of (1) the Series E Percentage multiplied by (2) the sum
of the Total Shares Outstanding minus the Total Series E
Outstanding plus the New Shares.
For the purposes of the foregoing calculation the
term:
(A) "AGGREGATE SERIES E VALUE" shall mean the
product obtained by multiplying the Total Series E Outstanding by
the Series E Conversion Price in effect immediately prior to the
adjustment set forth herein;
(B) "SERIES E PERCENTAGE" shall mean the product
obtained by dividing the Total Series E Outstanding by the Total
Shares Outstanding;
(C) "TOTAL SHARES OUTSTANDING" shall mean the total
number of shares of Common Stock outstanding immediately prior to
the adjustment set forth in Section 4(f)(i)(C) or 4(f)(ii)(C), as
applicable, calculated on a fully diluted basis, as if all shares
of Series A Preferred Stock, Series A1 Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock and all Convertible Securities
had been fully converted into shares of Common Stock and any
outstanding Options had been fully exercised (and the resulting
securities fully converted into shares of Common Stock, if so
convertible) as of such date;
(D) "TOTAL SERIES E OUTSTANDING" shall mean the
total number of shares of Common Stock issuable upon conversion
of all shares of Series E Preferred Stock outstanding immediately
prior to the adjustment set forth in Section 4(f)(i)(C) or
4(f)(ii)(C), as applicable; and
(E) "NEW SHARES" shall mean, with respect to an
adjustment pursuant to Section 4(f)(iii)(A), the total number of
additional shares of Common Stock issuable upon conversion of
shares of Series B Preferred Stock and Series C Preferred Stock
outstanding on September 26, 2000 as a result of the adjustment
set forth in Section 4(f)(i)(C) and, with respect to an
adjustment pursuant to Section 4(f)(iii)(B), the total number of
additional shares of Common Stock issuable upon conversion of
shares of Series D Preferred Stock outstanding on March 31, 2001
as a result of the adjustment set forth in Section 4(f)(ii)(C).
(iv) For purposes of this Section 4(f), the term "SIGNIFICANT
CORPORATE Transaction" shall mean (A) a reorganization, merger or
consolidation of
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<PAGE> 22
the Company with or into one or more other corporations as a
result of which the Company goes out of existence or becomes a
subsidiary of another corporation, or (B) a private sale, in a
transaction or series of related transactions, of more than 50%
of the Company's voting stock (determined after the consummation
thereof), to a single person or a group of persons acting
together (as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended).
(v) The fair market value of the consideration received
in a Significant Corporate Transaction will be determined in
accordance with Section 2(c)(ii) hereof.
(g) No Impairment. The Corporation will not, by
amendment of this Amended and Restated Certificate of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of the Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock against impairment.
(h) Certificates as to Adjustments. Upon the occurrence
of each adjustment or readjustment of the Series A Conversion Price, Series A1
Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D
Conversion Price or Series E Conversion Price pursuant to this Section 4, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock, Series A1 Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E
Preferred Stock, as the case may be, a certificate executed by the Corporation's
President or Chief Financial Officer setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, Series A1 Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or
Series E Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
applicable Series A Conversion Price, Series A1 Conversion Price, Series B
Conversion Price, Series C Conversion Price, Series D Conversion Price or Series
E Conversion Price for such series of Preferred Stock at the time in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which at the time would be received upon the conversion of the Series A
Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock.
(i) Notices of Record Date. In the event that the
Corporation shall propose at any time:
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(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other
securities, whether or not a regular cash dividend and whether
or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders
of any class or series of its stock any additional shares of
stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common
Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all
of its assets, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall
send to the holders of Series A Preferred Stock, Series A1 Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock: (1) at least twenty (20) days prior written notice of
the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote, if any, in
respect of the matters referred to in (iii) and (iv) above; and (2) in the case
of the matters referred to in (iii) and (iv) above, at least twenty (20) days
prior written notice of the date when the same shall take place (and specifying
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon the
occurrence of such event).
(j) No Fractional Shares. No fractional share shall be
issued upon the conversion of any share or shares of Series A Preferred Stock,
Series A1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series A Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock
by a holder thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall, in lieu of issuing
any fractional share, pay the holder otherwise entitled to such fraction a sum
in cash equal to the fair market value of such fraction on the date of
conversion (as determined in good faith by the Board of Directors).
(k) Issue Taxes. The Corporation shall pay any and all
issue and other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of shares of Series A Preferred Stock,
Series A1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock pursuant hereto; provided,
however, that the Corporation shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
conversion.
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<PAGE> 24
(l) Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, Series A1 Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock, Series A1 Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and
Series E Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series A Preferred Stock, Series A1
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose, including, without limitation, engaging in
best efforts to obtain the requisite stockholder approval of any necessary
amendment to this Amended and Restated Certificate of Incorporation.
(m) Notices. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Series A Preferred Stock,
Series A1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock or Series E Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of the Corporation.
5. Voting Rights. Except as otherwise required by law or
Section 6 hereof, holders of Series A Preferred Stock, Series A1 Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock shall be entitled to vote on all matters on
which the holders of Common Stock shall be entitled to vote and shall vote
together as a single class with other shares entitled to vote thereon. Each
holder of shares of Common Stock shall be entitled to one (1) vote per share,
and each holder of shares of Series A Preferred Stock, Series A1 Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and/or Series E Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which such shares of Series A
Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock could
be converted.
6. Protective Provisions.
(a) Subject to the rights of series of Preferred Stock
which may from time to time come into existence, so long as any shares of Series
A Preferred Stock are outstanding, this Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock:
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<PAGE> 25
(i) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock so as to affect adversely the shares;
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A Preferred
Stock;
(iii) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or
exercisable for any equity security having a preference over the Series
A Preferred Stock with respect to voting, dividends or upon liquidation;
(iv) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock
from employees, officers, directors, consultants or other persons
performing services for the Corporation or any subsidiary of the
Corporation pursuant to agreements under which the Corporation has the
option to repurchase such shares at cost or at cost upon the occurrence
of certain events, such as the termination of employment;
(v) amend the Corporation's Certificate of Incorporation or
Bylaws; or
(vi) declare a dividend upon the Common Stock or Preferred
Stock.
(b) Subject to the rights of series of Preferred Stock which may
from time to time come into existence, so long as any shares of Series B
Preferred Stock are outstanding, this Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series B
Preferred Stock:
(i) alter or change the rights, preferences or privileges of the
shares of Series B Preferred Stock so as to affect adversely the shares;
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series B Preferred
Stock;
(iii) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or
exercisable for any equity security having a preference over the Series
B Preferred Stock with respect to voting, dividends or upon liquidation;
(iv) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock
from employees, officers, directors, consultants or other
24
<PAGE> 26
persons performing services for the Corporation or any subsidiary of the
Corporation pursuant to agreements under which the Corporation has the
option to repurchase such shares at cost or at cost upon the occurrence
of certain events, such as the termination of employment;
(v) amend the Corporation's Certificate of Incorporation or
Bylaws; or
(vi) declare a dividend upon the Common Stock or Preferred
Stock.
(c) Subject to the rights of series of Preferred Stock which may
from time to time come into existence, so long as any shares of Series C
Preferred Stock are outstanding, this Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series C
Preferred Stock:
(i) alter or change the rights, preferences or privileges of the
shares of Series C Preferred Stock so as to affect adversely the shares;
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series C Preferred
Stock;
(iii) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or
exercisable for any equity security having a preference over the Series
C Preferred Stock with respect to voting, dividends or upon liquidation;
(iv) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock
from employees, officers, directors, consultants or other persons
performing services for the Corporation or any subsidiary of the
Corporation pursuant to agreements under which the Corporation has the
option to repurchase such shares at cost or at cost upon the occurrence
of certain events, such as the termination of employment;
(v) amend the Corporation's Certificate of Incorporation or
Bylaws; or
(vi) declare a dividend upon the Common Stock or Preferred
Stock.
(d) Subject to the rights of series of Preferred Stock which may
from time to time come into existence, so long as any shares of Series D
Preferred Stock are outstanding, this Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least sixty percent (60%) of the then outstanding shares of Series
D Preferred Stock:
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<PAGE> 27
(i) alter or change the rights, preferences or privileges of the
shares of Series D Preferred Stock so as to affect adversely the shares;
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series D Preferred
Stock;
(iii) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or
exercisable for any equity security having a preference over the Series
D Preferred Stock with respect to voting, dividends or upon liquidation;
(iv) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock
from employees, officers, directors, consultants or other persons
performing services for the Corporation or any subsidiary of the
Corporation pursuant to agreements under which the Corporation has the
option to repurchase such shares at cost or at cost upon the occurrence
of certain events, such as the termination of employment;
(v) amend the Corporation's Certificate of Incorporation or
Bylaws; or
(vi) declare a dividend upon the Common Stock or Preferred
Stock.
(e) So long as any shares of Series E Preferred Stock are
outstanding, this Corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series E Preferred Stock:
(i) alter or change the rights, preferences or privileges of the
shares of Series E Preferred Stock;
(ii) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series E Preferred
Stock;
(iii) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or
exercisable for any equity security having a preference over the Series
E Preferred Stock with respect to voting, dividends or upon liquidation;
(iv) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock
from employees, officers, directors, consultants or other persons
performing services for the Corporation or any subsidiary of the
Corporation
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<PAGE> 28
pursuant to agreements under which the Corporation has the option to
repurchase such shares at cost or at cost upon the occurrence of certain
events, such as the termination of employment;
(v) amend the Corporation's Certificate of Incorporation or
Bylaws; or
(vi) declare a dividend upon the Common Stock or Preferred
Stock.
(f) So long as there are outstanding any shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock or Series E Preferred Stock, this Corporation shall not sell,
convey, or otherwise dispose of all or substantially all of its property or
business or merge into or consolidate with any other corporation (other than a
wholly-owned subsidiary corporation) or effect any transaction or series of
related transactions in which more than fifty percent (50%) of the voting power
of the Corporation is disposed of, without first obtaining the approval (by vote
or written consent, as provided by law) of the holders of at least a majority of
the outstanding shares of all such series then outstanding voting together as a
single class; provided, however, that so long as any shares of each of the
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock are then outstanding, then
such approval shall be required of holders of at least a majority of the then
outstanding shares of Series E Preferred Stock and at least three of the
following: (i) holders of at least a majority of the then outstanding shares of
Series A Preferred Stock, (ii) holders of at least a majority of the then
outstanding shares of Series B Preferred Stock, (iii) holders of at least a
majority of the then outstanding shares of Series C Preferred Stock and/or (iv)
holders of at least a majority of the then outstanding shares of Series D
Preferred Stock.
7. Status of Converted Stock. In the event any shares of Series
A Preferred Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock or Series E Preferred Stock are
converted pursuant to Section 4 hereof, the shares so converted shall be
cancelled and shall not be issuable by the Corporation. The Amended and Restated
Certificate of Incorporation of this Corporation shall be appropriately amended
to effect the corresponding reduction in the Corporation's authorized capital
stock.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of
all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when,
as and if declared by the Board of Directors, out of any assets of the
Corporation legally available therefor, such dividends as may be declared from
time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation shall be
distributed as provided in Section 2 of Division B of this Article IV hereof.
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<PAGE> 29
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of this Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation. In addition, the
Bylaws may be amended by the affirmative vote of holders of at least sixty-six
and two-thirds percent (66 2/3%) of the outstanding shares of voting stock of
the Corporation entitled to vote at an election of directors.
ARTICLE VI
The Board of Directors of the Corporation shall consist of
eleven (11) members.
Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide. Advance notice of stockholder
nominations for the election of directors and of any other business to be
brought before any meeting of the stockholders shall be given in the manner
provided in the Bylaws of this Corporation.
At each annual meeting of stockholders, directors of the
Corporation shall be elected to hold office until the expiration of the term for
which they are elected, or until their successors have been duly elected and
qualified; except that if any such election shall not be so held, such election
shall take place at a stockholders' meeting called and held in accordance with
the GCL.
The directors of the Corporation shall be divided into three (3)
classes as nearly equal in size as is practicable, hereby designated Class I,
Class II and Class III. For the purposes hereof, the initial Class I, Class II
and Class III directors shall be those directors so designated by a resolution
of the Board of Directors. At the first annual meeting of stockholders following
the closing of the initial public offering of the Corporation's Common Stock,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three (3) years. At the second annual
meeting of stockholders following the closing of the initial public offering of
the Corporation's Common Stock, the term of office of the Class II directors
shall expire and Class II directors shall be elected for a full term of three
(3) years. At the third annual meeting of stockholders following the initial
public offering of the Corporation's Common Stock, the term of office of the
Class III directors shall expire and Class III directors shall be elected for a
full term of three (3) years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three (3) years to succeed the
directors of the class whose terms expire at such annual meeting. If the number
of directors is hereafter changed, each director then serving as such shall
nevertheless continue as a director of the Class of which he is a member until
the expiration of
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<PAGE> 30
his current term and any newly created directorships or decrease in
directorships shall be so apportioned among the classes as to make all classes
as nearly equal in number as is practicable.
Vacancies occurring on the Board of Directors for any reason may
be filled by vote of a majority of the remaining members of the Board of
Directors, even if less than a quorum, at any meeting of the Board of Directors.
A person so elected by the Board of Directors to fill a vacancy shall hold
office for the remainder of the full term of the director for which the vacancy
was created or occurred and until such director's successor shall have been duly
elected and qualified. A director may be removed from office by the affirmative
vote of the holders of 66 2/3% of the outstanding shares of voting stock of the
Corporation entitled to vote at an election of directors, provided that such
removal is for cause.
ARTICLE VII
Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. Special meetings of the stockholders,
for any purpose or purposes, may only be called by the Board of Directors of the
Corporation. The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
ARTICLE VIII
To the fullest extent permitted by applicable law, this
Corporation is authorized to provide indemnification of (and advancement of
expenses to) directors, officers, employees and agents (and any other persons to
which Delaware law permits this Corporation to provide indemnification) through
Bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the GCL,
subject only to limits created by applicable Delaware law (statutory or
non-statutory), with respect to action for breach of duty to the Corporation,
its stockholders, and others.
No director of the Corporation shall be personally liable to the
Corporation or any stockholder for monetary damages for breach of fiduciary duty
as a director, except for any matter in respect of which such director shall be
liable under Section 174 of the GCL or any amendment thereto or shall be liable
by reason that, in addition to any and all other requirements for such
liability, such director (1) shall have breached the director's duty or loyalty
to the Corporation or its stockholders, (2) shall have acted in manner involving
intentional misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or a knowing
violation of law, or (3) shall have derived an improper personal benefit. If the
GCL is hereafter amended to authorize the further elimination or limitation of
the liability of a director, the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the GCL, as so
amended.
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<PAGE> 31
Each person who was or is made a party or is threatened to be
made a party to or is in any way involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), including any appeal therefrom, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or a direct
or indirect subsidiary of the Corporation, or is or was serving at the request
of the Corporation as a director or officer of another entity or enterprise, or
was a director or officer of a foreign or domestic corporation which was
predecessor corporation of the Corporation or of another entity or enterprise at
the request of such predecessor corporation, shall be indemnified and held
harmless by the Corporation, and the Corporation shall advance all expenses
incurred by any such person in defense of any such proceeding prior to its final
determination, to the fullest extent authorized by the GCL. In any proceeding
against the Corporation to enforce these rights, such person shall be presumed
to be entitled to indemnification and the Corporation shall have the burden of
proving that such person has not met the standards of conduct for permissible
indemnification set forth in the GCL. The rights to indemnification and
advancement of expenses conferred by this Article VIII shall be presumed to have
been relied upon by the directors and officers of the Corporation in serving or
continuing to serve the Corporation and shall be enforceable as contract rights.
Said rights shall not be exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. The Corporation may, upon written
demand presented by a director or officer of the Corporation or of a direct or
indirect subsidiary of the Corporation, or by a person serving at the request of
the Corporation as a director or officer of another entity or enterprise, enter
into contracts to provide such persons with specified rights to indemnification,
which contracts may confer rights and protections to the maximum extent
permitted by the GCL, as amended and in effect from time to time.
If a claim under this Article VIII is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expenses of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce the right to be advanced expenses incurred in
defending any proceeding prior to its final disposition where the required
undertaking, if any, has been tendered to the Corporation ) that the claimant
has not met the standards of conduct which make it permissible under the GCL for
the Corporation to indemnify the claimant for the amount claimed, but the
claimant shall be presumed to be entitled to indemnification and the Corporation
shall have the burden of proving that the claimant has not met the standards of
conduct for permissible indemnification set forth in the GCL.
If the GCL is hereafter amended to permit the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment, the indemnification rights conferred by this
Article VIII shall be broadened to the fullest extent permitted by the GCL, as
so amended.
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<PAGE> 32
ARTICLE IX
The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in Articles
V, VI, VII, VIII and IX of this Amended and Restated Certificate of
Incorporation may not be repealed or amended in any respect without the
affirmative vote of holders at least 66-2/3% of the outstanding voting stock of
the Corporation entitled to vote at election of directors.
31
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
TICKETS.COM, INC.
Tickets.com, Inc. (the "Corporation"), a corporation organized and
existing under the laws of the State of Delaware, does hereby certify that:
FIRST: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on January 25, 1995, under the
name "The Entertainment Express, Inc." On May 31, 1996, the Corporation filed a
Restated Certificate of Incorporation. On January 2, 1997, the Corporation filed
a Certificate of Amendment changing the name of the Corporation to "Advantix,
Inc." On March 25, 1997, the Corporation filed a Restated Certificate of
Incorporation and on September 25, 1997, the Corporation filed an Amended and
Restated Certificate of Incorporation (the "First Prior Certificate"). On May
22, 1998, the Corporation filed an Amended and Restated Certificate of
Incorporation, which amended and restated the First Prior Certificate (the
"Second Prior Certificate"). On March 19, 1999, the Corporation filed an Amended
and Restated Certificate of Incorporation, which amended and restated the Second
Prior Certificate (the "Third Prior Certificate"). On May 14, 1999, the
Corporation filed an Amended and Restated Certificate of Incorporation, which
amended and restated the Third Prior Certificate (the "Fourth Prior
Certificate"). On May 25, 1999, the Corporation filed a Certificate of Amendment
changing the name of the Corporation to "Tickets.com, Inc." On August 4, 1999,
the Corporation filed an Amended and Restated Certificate of Incorporation,
which amended and restated the Fourth Prior Certificate.
SECOND: Division A of Article IV of the Amended and Restated
Certificate of Incorporation of the Corporation is hereby amended in its
entirety to read in full as follows:
"A. Classes of Stock. This Corporation is authorized to issue
two classes of stock to be designated, respectively, "COMMON STOCK" and
"PREFERRED STOCK." The total number of shares of capital stock that the
Corporation is authorized to issue is Three Hundred Sixty Million
(360,000,000). The total number of shares of Common Stock this
Corporation shall have authority to issue is Two Hundred Seventy
Million (270,000,000). The total number of shares of Preferred Stock
this Corporation shall have authority to issue is Ninety Million
(90,000,000). The Common Stock shall have a par value of $.000225 per
share and the Preferred Stock shall have a par value of $.000225 per
share.
Upon the effectiveness of this Certificate of Amendment of
Amended and Restated Certificate of Incorporation, each outstanding
share of Common Stock of the corporation will automatically be
converted, without any further action on the part of the holder
thereof, into .44444445 of a share of Common Stock, provided that no
fractional shares shall be issued pursuant to such conversion. The
Corporation shall pay to each stockholder who would otherwise be
entitled to a fractional share as a result of such conversion, the cash
value of such fractional share based on a $8.00 price per share of the
Common Stock after giving effect to the conversion."
<PAGE> 2
THIRD: Section 4(b) of Division B of Article IV of the Amended and
Restated Certificate of Incorporation of the Corporation is hereby amended in
its entirety to read in full as follows:
"(b) Automatic Conversion. Each share of Series A Preferred
Stock, Series A1 Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
shall automatically be converted into fully paid and nonassessable
shares of Common Stock, at the applicable conversion rate then in
effect for such series as calculated pursuant to Section 4(c), except
as provided below in Section 4(d), immediately upon the closing of the
sale of the Corporation's Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement on
Form S-1 (or successor form then in effect) under the Securities Act of
1933, as amended, resulting in gross aggregate proceeds of not less
than Forty-Six Million Dollars ($46,000,000), before deduction of any
underwriting discounts, commissions and registration expenses (a
"QUALIFIED PUBLIC OFFERING")."
FOURTH: The amendment described above was duly adopted in accordance
with the provisions of Section 245 and 228 of the Delaware General Corporation
Law by the Board of Directors and stockholders of the Corporation, and prompt
written notice was duly given pursuant to Section 228 of the Delaware General
Corporation Law to those stockholders who did not approve the amendment set
forth above by written consent.
2
<PAGE> 3
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Amended and Restated Certificate of Incorporation to be executed by
its Chief Financial Officer and attested by its Secretary this ___ day of
October, 1999.
TICKETS.COM, INC.
By:
-------------------------------------
John M. Markovich, Executive Vice
President and Chief Financial Officer
ATTEST:
- -------------------------------------
Paul A. Rowe, Secretary
3
<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TICKETS.COM, INC.
The undersigned W. Thomas Gimple and Paul A. Rowe, hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.
TWO: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on January 25, 1995, under the
name "The Entertainment Express, Inc." On May 31, 1996, the Corporation filed a
Restated Certificate of Incorporation. On January 2, 1997, the Corporation filed
a Certificate of Amendment changing the name of the Corporation to "Advantix,
Inc." On March 25, 1997, the Corporation filed a Restated Certificate of
Incorporation and on September 25, 1997, the Corporation filed an Amended and
Restated Certificate of Incorporation (the "First Prior Certificate"). On May
22, 1998, the Corporation filed an Amended and Restated Certificate of
Incorporation, which amended and restated the First Prior Certificate (the
"Second Prior Certificate"). On March 19, 1999, the Corporation filed an Amended
and Restated Certificate of Incorporation, which amended and restated the Second
Prior Certificate (the "Third Prior Certificate"). On May 14, 1999, the
Corporation filed an Amended and Restated Certificate of Incorporation, which
amended and restated the Third Prior Certificate (the "Fourth Prior
Certificate"). On May 25, 1999, the Corporation filed a Certificate of Amendment
changing the name of the Corporation to "Tickets.com, Inc." On August 4, 1999,
the Corporation filed an Amended and Restated Certificate of Incorporation,
which amended and restated the Fourth Prior Certificate. On October __, 1999,
the Corporation filed a Certificate of Amendment.
THREE: The Amended and Restated Certificate of Incorporation of said
corporation shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Tickets.com, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the Corporation's registered agent at such address is the
Corporation Trust Corporation.
<PAGE> 2
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware (the "GCL").
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares that the Corporation is authorized to issue is Two Hundred Seventy
Million (270,000,000). Two Hundred Twenty Five Million (225,000,000) shares
shall be Common Stock, par value $0.000225 per share, and Forty Five Million
(45,000,000) shares shall be Preferred Stock, par value $0.000225 per share.
The Preferred Stock may be issued from time to time in one or more
series, without further stockholder approval. The Board of Directors of the
Corporation is hereby authorized to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon each series of Preferred
Stock, and the number of shares constituting any such series and the designation
thereof, or of any of them. The rights, privileges, preferences and restrictions
of any such additional series may be subordinated to, pari passu with
(including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote), or senior to any of those of any present or future class or series of
Preferred Stock or Common Stock. The Board of Directors is also authorized to
increase or decrease the number of shares of any series prior or subsequent to
the issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
ARTICLE V
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation. In addition, the
Bylaws may be amended by the affirmative vote of holders of at least sixty-six
and two-thirds percent (66 2/3%) of the outstanding shares of voting stock of
the Corporation entitled to vote at an election of directors.
ARTICLE VI
The number of directors of the Corporation shall be determined by
resolution of the Board of Directors.
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide. Advance notice of stockholder nominations
for the election of directors and of any other business to be brought before any
meeting of the stockholders shall be given in the manner provided in the Bylaws
of this Corporation.
2
<PAGE> 3
At each annual meeting of stockholders, directors of the Corporation
shall be elected to hold office until the expiration of the term for which they
are elected, or until their successors have been duly elected and qualified;
except that if any such election shall not be so held, such election shall take
place at a stockholders' meeting called and held in accordance with the GCL.
The directors of the Corporation shall be divided into three (3)
classes as nearly equal in size as is practicable, hereby designated Class I,
Class II and Class III. For the purposes hereof, the initial Class I, Class II
and Class III directors shall be those directors so designated by a resolution
of the Board of Directors. At the first annual meeting of stockholders following
the closing of the initial public offering of the Corporation's Common Stock,
the term of office of the Class I directors shall expire and Class I directors
shall be elected for a full term of three (3) years. At the second annual
meeting of stockholders following the closing of the initial public offering of
the Corporation's Common Stock, the term of office of the Class II directors
shall expire and Class II directors shall be elected for a full term of three
(3) years. At the third annual meeting of stockholders following the initial
public offering of the Corporation's Common Stock, the term of office of the
Class III directors shall expire and Class III directors shall be elected for a
full term of three (3) years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three (3) years to succeed the
directors of the class whose terms expire at such annual meeting. If the number
of directors is hereafter changed, each director then serving as such shall
nevertheless continue as a director of the Class of which he is a member until
the expiration of his current term and any newly created directorships or
decrease in directorships shall be so apportioned among the classes as to make
all classes as nearly equal in number as is practicable.
Vacancies occurring on the Board of Directors for any reason may be
filled by vote of a majority of the remaining members of the Board of Directors,
even if less than a quorum, at any meeting of the Board of Directors. A person
so elected by the Board of Directors to fill a vacancy shall hold office for the
remainder of the full term of the director for which the vacancy was created or
occurred and until such director's successor shall have been duly elected and
qualified. A director may be removed from office by the affirmative vote of the
holders of 66 2/3% of the outstanding shares of voting stock of the Corporation
entitled to vote at an election of directors, provided that such removal is for
cause.
ARTICLE VII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. Special meetings of the stockholders, for
any purpose or purposes, may only be called by the Board of Directors of the
Corporation. The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors or in the
Bylaws of the Corporation.
ARTICLE VIII
To the fullest extent permitted by applicable law, this Corporation is
authorized to provide indemnification of (and advancement of expenses to)
directors, officers, employees and
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<PAGE> 4
agents (and any other persons to which Delaware law permits this Corporation to
provide indemnification) through Bylaw provisions, agreements with such agents
or other persons, vote of stockholders or disinterested directors or otherwise,
in excess of the indemnification and advancement otherwise permitted by Section
145 of the GCL, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to action for breach of duty to the
Corporation, its stockholders, and others.
No director of the Corporation shall be personally liable to the
Corporation or any stockholder for monetary damages for breach of fiduciary duty
as a director, except for any matter in respect of which such director shall be
liable under Section 174 of the GCL or any amendment thereto or shall be liable
by reason that, in addition to any and all other requirements for such
liability, such director (1) shall have breached the director's duty or loyalty
to the Corporation or its stockholders, (2) shall have acted in manner involving
intentional misconduct or a knowing violation of law or, in failing to act,
shall have acted in a manner involving intentional misconduct or a knowing
violation of law, or (3) shall have derived an improper personal benefit. If the
GCL is hereafter amended to authorize the further elimination or limitation of
the liability of a director, the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the GCL, as so
amended.
Each person who was or is made a party or is threatened to be made a
party to or is in any way involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), including any appeal therefrom, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or a direct
or indirect subsidiary of the Corporation, or is or was serving at the request
of the Corporation as a director or officer of another entity or enterprise, or
was a director or officer of a foreign or domestic corporation which was
predecessor corporation of the Corporation or of another entity or enterprise at
the request of such predecessor corporation, shall be indemnified and held
harmless by the Corporation, and the Corporation shall advance all expenses
incurred by any such person in defense of any such proceeding prior to its final
determination, to the fullest extent authorized by the GCL. In any proceeding
against the Corporation to enforce these rights, such person shall be presumed
to be entitled to indemnification and the Corporation shall have the burden of
proving that such person has not met the standards of conduct for permissible
indemnification set forth in the GCL. The rights to indemnification and
advancement of expenses conferred by this Article VIII shall be presumed to have
been relied upon by the directors and officers of the Corporation in serving or
continuing to serve the Corporation and shall be enforceable as contract rights.
Said rights shall not be exclusive of any other rights to which those seeking
indemnification may otherwise be entitled. The Corporation may, upon written
demand presented by a director or officer of the Corporation or of a direct or
indirect subsidiary of the Corporation, or by a person serving at the request of
the Corporation as a director or officer of another entity or enterprise, enter
into contracts to provide such persons with specified rights to indemnification,
which contracts may confer rights and protections to the maximum extent
permitted by the GCL, as amended and in effect from time to time.
If a claim under this Article VIII is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and,
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if successful in whole or in part, the claimant shall be entitled to be paid
also the expenses of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce the right to be advanced
expenses incurred in defending any proceeding prior to its final disposition
where the required undertaking, if any, has been tendered to the Corporation )
that the claimant has not met the standards of conduct which make it permissible
under the GCL for the Corporation to indemnify the claimant for the amount
claimed, but the claimant shall be presumed to be entitled to indemnification
and the Corporation shall have the burden of proving that the claimant has not
met the standards of conduct for permissible indemnification set forth in the
GCL.
If the GCL is hereafter amended to permit the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment, the indemnification rights conferred by this
Article VIII shall be broadened to the fullest extent permitted by the GCL, as
so amended.
ARTICLE IX
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding the foregoing, the provisions set forth in Articles
V, VI, VII, VIII and IX of this Amended and Restated Certificate of
Incorporation may not be repealed or amended in any respect without the
affirmative vote of holders at least 66-2/3% of the outstanding voting stock of
the Corporation entitled to vote at election of directors.
FOUR: The foregoing amendment and restatement has been duly adopted by
the Corporation's Board of Directors in accordance with the applicable
provisions of Sections 242 and 245 of the General Corporation Law of the State
of Delaware.
FIFTH: The foregoing amendment and restatement was approved by the
holders of the requisite number of shares of the Corporation in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
___________________, 1999.
--------------------------------------------
John M. Markovich
Executive Vice President, Finance and
Chief Financial Officer
--------------------------------------------
Paul A. Rowe
Secretary
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EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
TICKETS.COM, INC.
(AS AMENDED _______________, 1999)
ARTICLE I
OFFICES
Section 1. The address of the registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the Board of Directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
Board of Directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held at such date
and time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. At each annual meeting, the stockholders
shall elect directors to succeed those directors whose terms expire in that year
and shall transact such other business as may properly be brought before the
meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten (10) nor more than sixty (60) days before the
date of the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make available, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
<PAGE> 2
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, may only be called by the Board.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, either the Chairman of the
Board, or the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall be
present or represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted that might have been
transacted at the meeting as originally notified. If the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of applicable statute
or of the certificate of incorporation, a different vote is required, in which
case such express provision shall govern and control the decision of such
question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
Section 11. Nominations for election to the Board of Directors must be
made by the Board of Directors or by a committee appointed by the Board of
Directors for such purpose or by any stockholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Nominations by stockholders must be preceded by notification in
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writing received by the secretary of the corporation not less than one-hundred
twenty (120) days prior to any meeting of stockholders called for the election
of directors. Such notification shall contain the written consent of each
proposed nominee to serve as a director if so elected and the following
information as to each proposed nominee and as to each person, acting alone or
in conjunction with one or more other persons as a partnership, limited
partnership, syndicate or other group, who participates or is expected to
participate in making such nomination or in organizing, directing or financing
such nomination or solicitation of proxies to vote for the nominee:
(a) the name, age, residence, address, and business address of
each proposed nominee and of each such person;
(b) the principal occupation or employment, the name, type of
business and address of the corporation or other organization in which such
employment is carried on of each proposed nominee and of each such person;
(c) the amount of stock of the corporation owned beneficially,
either directly or indirectly, by each proposed nominee and each such person;
and
(d) a description of any arrangement or understanding of each
proposed nominee and of each such person with each other or any other person
regarding future employment or any future transaction to which the corporation
will or may be a party.
The presiding officer of the meeting shall have the authority to
determine and declare to the meeting that a nomination not preceded by
notification made in accordance with the foregoing procedure shall be
disregarded.
Section 12. At any meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting (a) pursuant to
the corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the corporation who is a stockholder of
record at the time of giving of the notice provided for in this Bylaw, who shall
be entitled to vote at such meeting and who complies with the notice procedures
set forth in this Bylaw.
For business to be properly brought before any meeting by a stockholder
pursuant to clause (c) above of this Section 12, the stockholder must have given
timely notice thereof in writing to the secretary of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than one hundred
twenty (120) days prior to the date of the meeting. A stockholder's notice to
the secretary shall set forth as to each matter the stockholder proposes to
bring before the meeting (a) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (b) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, and the name and address of the
beneficial owner, if any, on whose behalf the proposal is made, (c) the class
and number of shares of the corporation which are owned beneficially and of
record by such stockholder of record and by the beneficial owner, if any, on
whose behalf of the proposal is made and (d) any
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material interest of such stockholder of record and the beneficial owner, if
any, on whose behalf the proposal is made in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 12. The presiding officer of the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the procedures
prescribed by this Section 12, and if such person should so determine, such
person shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 12, a stockholder shall also comply with
all applicable requirements of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder with respect to the matters set forth
in this Section 12.
ARTICLE III
DIRECTORS
Section 1. The number of directors of this corporation that shall
constitute the whole board shall be determined by resolution of the Board of
Directors; provided, however, that no decrease in the number of directors shall
have the effect of shortening the term of an incumbent director. The Board of
Directors shall be classified, with respect to the time for which they severally
hold office, into three classes, as nearly equal in number as possible, as
determined by the Board of Directors, one class to hold office initially for a
term expiring at the annual meeting to be held in 2000, another class to hold
office initially for a term expiring at the annual meeting of stockholders held
in 2001 and another class to hold office initially for a term expiring at the
annual meeting of stockholders to be held in 2002, with the members of each
class to hold office until their successors are elected and qualified. At each
annual meeting of stockholders, the successors of the class of directors whose
term expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, even if less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next election
of the class for which such directors were chosen and until their successors are
duly elected and qualified or until earlier resignation or removal. If there are
no directors in office, then an election of directors may be held in the manner
provided by statute.
Section 3. The business of the corporation shall be managed by or under
the direction of its Board of Directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these bylaws directed or required to
be exercised or done by the stockholders.
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MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix the time or place of such first meeting of the newly elected
Board of Directors, or in the event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the Chairman
of the Board or the president on twelve (12) hours' notice to each director by
phone, fax or electronic mail; special meetings shall be called by the Chairman
of the Board, the president or secretary in like manner and on like notice on
the written request of a majority of the Board unless the Board consists of only
one director, in which case special meetings shall be called by the Chairman of
the Board, the president or secretary in like manner and on like notice on the
written request of the sole director.
Section 8. At all meetings of the board a majority of the directors
shall constitute a quorum for the transaction of business and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
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COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
In the absence of disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, adopting an
agreement of merger or consolidation, recommending to the stockholders the sale,
lease or exchange of all or substantially all of the corporation's property and
assets, recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice (except as provided in Section 7 of Article III of
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these Bylaws), but such notice may be given in writing, by mail, addressed to
such director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telephone, telegram or facsimile.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board
of Directors and shall be a president, a chief financial officer and a
secretary. The Board of Directors may elect from among its members a Chairman of
the Board. The Board of Directors may also choose one or more vice-presidents,
assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person, unless the certificate of incorporation or these bylaws
otherwise provide.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a president, a chief financial
officer, and a secretary and may choose vice presidents.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be
fixed by the Board of Directors or any committee established by the Board of
Directors for such purpose. The salaries of agents of the corporation shall,
unless fixed by the Board of Directors, be fixed by the president or any
vice-president of the corporation.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board, if any, shall preside at all
meetings of the Board of Directors and of the stockholders at which he/she shall
be present. He/she shall have and may exercise such powers as are, from time to
time, assigned to him/her by the Board and as may be provided by law.
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Section 7. In the absence of the Chairman of the Board, the president,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he shall be present. He shall have and may exercise such powers as are,
from time to time, assigned to him by the Board and as may be provided by law.
THE PRESIDENT AND VICE-PRESIDENTS
Section 8. The president shall be the chief executive officer of the
corporation; and in the absence of the Chairman of the Board he/she shall
preside at all meetings of the stockholders and the Board of Directors; he/she
shall have general and active management of the business of the corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect.
Section 9. The president or any vice president shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of the
corporation, except where required or permitted by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the corporation.
Section 10. In the absence of the president or in the event of his
inability or refusal to act, the vice-president, if any, (or in the event there
be more than one vice-president, the vice-presidents in the order designated by
the directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the
president. The vice-presidents shall perform such other duties and have such
other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 11. The secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committees
when required. He/she shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
president, under whose supervision he/she shall be. He/she shall have custody of
the corporate seal of the corporation and he/she, or an assistant secretary,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by his signature or by the signature of such
assistant secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his signature.
Section 12. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election) shall, in
the absence of the secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the secretary and shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe.
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THE CHIEF FINANCIAL OFFICER
Section 13. The chief financial officer shall be the chief financial
officer of the corporation, shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors.
Section 14. He/she shall disburse the funds of the corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Chief Financial Officer and of the financial condition
of the corporation.
Section 15. If required by the Board of Directors, he/she shall give
the corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his/her office and for the
restoration to the corporation, in case of his/her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his/her control
belonging to the corporation.
Section 16. The treasurer or an assistant treasurer, in the order
determined by the Board of Directors (or if there be no such determination, then
in the order of their election) shall, in the absence of the Chief Financial
Officer or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the Chief Financial Officer and shall perform such
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the corporation by, the
Chairman of the Board of Directors, or the president or a vice-president and the
treasurer or an assistant treasurer, or the secretary or an assistant secretary
of the corporation, certifying the number of shares owned by him/her in the
corporation.
Certificates may be issued for partly paid shares and in such case upon
the face or back of the certificates issued to represent any such partly paid
shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full
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or summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate that the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Any of or all the signatures on the certificate may be facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he/she were such
officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 2. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his/her
legal representative, to advertise the same in such manner as it shall require
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 3. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 4. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or
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to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 5. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
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FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 5. The Board of Directors may adopt a corporate seal having
inscribed thereon the name of the corporation, the year of its organization and
the words "Corporate Seal, Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 6. The corporation shall, to the fullest extent authorized
under the laws of the State of Delaware, as those laws may be amended and
supplemented from time to time, indemnify any director made, or threatened to be
made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section 6
shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be a director, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide indemnification under this Section 6 shall
be offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the corporation or
any other person.
Expenses incurred by a director of the corporation in defending a civil
or criminal action, suit or proceeding by reason of the fact that he is or was a
director of the corporation (or was serving at the corporation's request as a
director or officer of another corporation) shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized by relevant sections of the General Corporation Law of
Delaware. Notwithstanding the foregoing, the corporation shall not be required
to advance such expenses to an agent who is a party to an action, suit or
proceeding brought by the corporation and approved by a majority of the Board of
Directors of the corporation which alleges willful misappropriation of corporate
assets by such agent, disclosure of confidential information in violation of
such agent's fiduciary or contractual obligations to the corporation or any
other willful and deliberate breach in bad faith of such agent's duty to the
corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this
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bylaw is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought based in whole or in part upon any such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Section 6 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Section 6, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
ARTICLE VIII
AMENDMENTS
Section 1. These bylaws may be altered, amended or repealed or new
bylaws may be adopted by the affirmative vote of holders of at least 66-2/3%
vote of the outstanding voting stock of the corporation. These bylaws may also
be altered, amended or repealed or new bylaws may be adopted by the Board of
Directors, when such power is conferred upon the Board of Directors by the
certificate of incorporation. The foregoing may occur at any regular meeting of
the stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal bylaws is conferred upon
the Board of Directors by the certificate of incorporation it shall not divest
or limit the power of the stockholders to adopt, amend or repeal bylaws.
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CERTIFICATE OF ADOPTION BY THE SECRETARY OF
TICKETS.COM, INC.
The undersigned, _____________, hereby certifies that he is the duly
elected and acting Secretary of Tickets.com, Inc., a Delaware corporation (the
"Corporation"), and that the Bylaws attached hereto constitute the Bylaws of
said Corporation as duly adopted by the Board of Directors on _____________,
1999.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name
this _____ day of ____________, 1999.
---------------------------------------
Paul A. Rowe
Secretary
<PAGE> 1
EXHIBIT 5.1
November __, 1999
Tickets.com, Inc.
555 Anton Boulevard, 12 Floor
Costa Mesa, California 92626
Re Tickets.com, Inc. Registration Statement on Form S-1 for
6,700,000 Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to Tickets.com, Inc., a Delaware corporation (the
"Company"), in connection with the proposed issuance and sale by the Company of
up to 6,255,556 shares of the Company's Common Stock (the "Company Shares") and
the sale by a selling stockholders of up to 444,444 shares of the Company's
Common Stock (the "Selling Stockholder Shares") pursuant to the Company's
Registration Statement on Form S-1 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act").
This opinion is being furnished in accordance with the requirements of Item
16(a) of Form S-1 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of the
Company Shares and the sale of the Selling Stockholder Shares. Based on such
review, we are of the opinion that (i) the Company Shares and Selling
Stockholder Shares have been duly authorized, and (ii) the Company Shares, if,
as and when issued in accordance with the Registration Statement and the related
prospectus (as amended and supplemented through the date of issuance), will be
legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the
category of persons whose consent is required under Section 7 of the Act, the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder, or Item 509 of Regulation S-K.
<PAGE> 2
This opinion letter is rendered as of the date first written above and
we disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
2
<PAGE> 1
EXHIBIT 10.1
[FORM]
TICKETS.COM
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this ___ day
of _______________, ____ between Tickets.com, Inc., a Delaware corporation (the
"Company"), and ____________________, an individual ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company have adopted a
Certificate of Incorporation (the "Certificate") permitting the Board of
Directors to indemnify the officers and directors of the Company; and
WHEREAS, the Certificate and Section 145 of the Delaware General
Corporation Law, as amended ("Law"), by their nonexclusive nature permit
contracts between the Company and the officers and directors of the Company with
respect to indemnification of such officers and directors; and
WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers and directors in the performance of their
obligations as officers and directors of the Company; and
WHEREAS, as a result of recent developments affecting the terms, scope
and availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded the Company's officers and directors by such D & O
Insurance and said uncertainty also exists under statutory and bylaw
indemnification provisions; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer and/or a director of the Company,
the Company has determined and agreed to enter into this contract with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as
an officer and/or a director after the date hereof, the parties hereto agree as
follows:
1. INDEMNITY OF INDEMNITEE. The Company hereby agrees to hold harmless
and indemnify Indemnitee to the full extent authorized or permitted by the
provisions of the Law, as such may be amended from time to time, and the
Certificate, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:
<PAGE> 2
(1) Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 1(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the right
of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified
against all Expenses (as hereinafter defined), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
(2) Proceedings by or in the Right of the Company. Indemnitee shall
be entitled to the rights of indemnification provided in this Section 1(b) if,
by reason of his Corporate Status, he is, or is threatened to be made, a party
to or participant in any Proceeding brought by or in the right of the Company to
procure a judgment in its favor. Pursuant to this Section 1(b), Indemnitee shall
be indemnified against all Expenses actually and reasonably incurred by him or
on his behalf in connection with such Proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company; provided, however, that, if applicable law so provides, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Company unless and to the extent that the Court of
Chancery of the State of Delaware, or the court in which such Proceeding shall
have been brought or is pending, shall determine that such indemnification may
be made.
(3) Indemnification for Expenses of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. ADDITIONAL INDEMNITY.
(1) Subject only to the exclusions set forth in Section 2(b) hereof,
the Company hereby further agrees to hold harmless and indemnify Indemnitee
against any and all Expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by Indemnitee in connection with any Proceeding
(including an action by or on behalf of the Company) to which Indemnitee is, was
or at any time becomes a party, or is threatened to be made a party, by reason
of his Corporate Status; provided, however, that with respect to actions by or
on behalf of the Company, indemnification of Indemnitee against any judgments
shall be made by the Company only as authorized in the specific case upon a
determination that Indemnitee acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company; and
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(2) No indemnity pursuant to this Section 2 shall be paid by the
Company:
(1) In respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(2) On account of any suit in which judgment is rendered against
Indemnitee for an accounting of profits made from the purchase or sale by
Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;
(3) On account of Indemnitee's conduct which is finally adjudged
to have been knowingly fraudulent or deliberately dishonest, or to constitute
willful misconduct; or
(4) If a final decision by a court having jurisdiction in the
matter shall determine that such indemnification is not lawful.
3. CONTRIBUTION. If the indemnification provided in Sections 1 and 2 is
unavailable and may not be paid to Indemnitee for any reason other than those
set forth in paragraphs (i), (ii) and (iii) of Section 2(b), then in respect to
any Proceeding in which the Company is jointly liable with Indemnitee (or would
be if joined in such Proceeding), the Company shall contribute to the amount of
Expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and by the Indemnitee on the other hand from the transaction from which
such Proceeding arose, and (ii) the relative fault of the Company on the one
hand and of the Indemnitee on the other hand in connection with the events which
resulted in such Expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of the Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such Expenses, judgments, fines or settlement amounts. The Company
agrees that it would not be just and equitable if contribution pursuant to this
Section 3 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
4. INDEMNIFICATION FOR EXPENSES OF A WITNESS. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is, by reason of his
Corporate Status, a witness in any Proceeding to which Indemnitee is not a
party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
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<PAGE> 4
5. ADVANCEMENT OF EXPENSES. Notwithstanding any other provision of this
Agreement, the Company shall advance all reasonable Expenses incurred by or on
behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee's
Corporate Status within ten days after the receipt by the Company of a statement
or statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses. Any advances and undertakings to repay pursuant to this Section 5
shall be unsecured and interest free. Notwithstanding the foregoing, the
obligation of the Company to advance Expenses pursuant to this Section 5 shall
be subject to the condition that, if, when and to the extent that the Company
determines that Indemnitee would not be permitted to be indemnified under
applicable law, the Company shall be entitled to be reimbursed, within thirty
(30) days of such determination, by Indemnitee (who hereby agrees to reimburse
the Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Company that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any advance of Expenses until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed).
6. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(1) To obtain indemnification (including, but not limited to, the
advancement of Expenses and contribution by the Company) under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Indemnitee has requested indemnification.
(2) Upon written request by Indemnitee for indemnification pursuant
to the first sentence of Section 6(a) hereof, a determination, if required by
applicable law, with respect to Indemnitee's entitlement thereto shall be made
in the specific case: (i) if a Change in Control (as hereinafter defined) shall
have occurred, by Independent Counsel (as hereinafter defined) in a written
opinion to the Board of Directors, a copy of which shall be delivered to
Indemnitee (unless Indemnitee shall request that such determination be made by
the Board of Directors or the stockholders, in which case the determination
shall be made in the manner provided in Clause (ii) below), or (ii) if a Change
in Control shall not have occurred, (A) by the Board of Directors by a majority
vote of a quorum consisting of Disinterested Directors (as hereinafter defined),
or (B) if a quorum of the Board of Directors consisting of Disinterested
Directors is not obtainable or, even if obtainable, said Disinterested Directors
so direct, by Independent Counsel in a written opinion to the Board of
Directors, a copy of which shall be delivered to Indemnitee, or (C) if so
directed by said Disinterested Directors, by the stockholders of the Company;
and, if it is determined that Indemnitee
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<PAGE> 5
is entitled to indemnification, payment to Indemnitee shall be made within ten
(10) days after such determination. Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as to
Indemnitee's entitlement to indemnification) and the Company hereby indemnifies
and agrees to hold Indemnitee harmless therefrom.
(3) If the determination of entitlement to indemnification is to be
made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). If a Change in
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
in Control shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which event the preceding sentence shall apply), and
Indemnitee shall give written notice to the Company advising it of the identity
of the Independent Counsel so selected. In either event, Indemnitee or the
Company, as the case may be, may, within 10 days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 14 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel. If a written
objection is made and substantiated, the Independent Counsel selected may not
serve as Independent Counsel unless and until such objection is withdrawn or a
court has determined that such objection is without merit. If, within 20 days
after submission by Indemnitee of a written request for indemnification pursuant
to Section 6(a) hereof, no Independent Counsel shall have been selected and not
objected to, either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware or other court of competent jurisdiction for resolution
of any objection which shall have been made by the Company or Indemnitee to the
other's selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the court or by such other person as
the court shall designate, and the person with respect to whom all objections
are so resolved or the person so appointed shall act as Independent Counsel
under Section 6(b) hereof. The Company shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to Section 6(b) hereof, and the Company shall
pay all reasonable fees and expenses incident to the procedures of this Section
6(c), regardless of the manner in which such Independent Counsel was selected or
appointed. Upon the due commencement of any judicial proceeding or arbitration
pursuant to Section 8(a)(iii) of this Agreement, Independent Counsel shall be
discharged and relieved of any further responsibility in such capacity (subject
to the applicable standards of professional conduct then prevailing).
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(4) The Company shall not be required to obtain the consent of the
Indemnitee to the settlement of any Proceeding which the Company has undertaken
to defend if the Company assumes full and sole responsibility for such
settlement and the settlement grants the Indemnitee a complete and unqualified
release in respect of the potential liability.
7. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(1) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
(2) If the person, persons or entity empowered or selected under
Section 6 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within thirty (30) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 30-day period
may be extended for a reasonable time, not to exceed an additional fifteen (15)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating documentation and/or information relating thereto;
and provided, further, that the foregoing provisions of this Section 7(b) shall
not apply (i) if the determination of entitlement to indemnification is to be
made by the stockholders pursuant to Section 6(b) of this Agreement and if (A)
within fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made thereat, or (ii) if the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 6(b) of
this Agreement.
(3) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement (with or without court approval),
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal Proceeding, that Indemnitee had reasonable cause to
believe that his conduct was unlawful.
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(4) For purposes of any determination of good faith, Indemnitee
shall be deemed to have acted in good faith if Indemnitee's action is based on
the records or books of account of the Enterprise (as hereinafter defined),
including financial statements, or on information supplied to Indemnitee by the
officers and directors of the Enterprise in the course of their duties, or on
the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. The provisions of this Section 7(d) shall not be deemed to be
exclusive or to limit in any way the other circumstances in which the Indemnitee
may be deemed to have met the applicable standard of conduct set forth in this
Agreement.
8. REMEDIES OF INDEMNITEE.
(1) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 3 or 4 of this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 6 or 7 of this Agreement, Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of Delaware, or in any other
court of competent jurisdiction, of his entitlement to such indemnification.
Alternatively, Indemnitee, at his option, may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of
the American Arbitration Association. Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within 180 days following the
date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 8(a). The Company shall not oppose Indemnitee's right
to seek any such adjudication or award in arbitration.
(2) In the event that a determination shall have been made pursuant
to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 8 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination.
(3) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 8, absent
7
<PAGE> 8
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement not materially
misleading, in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(4) In the event that Indemnitee, pursuant to this Section 8, seeks
a judicial adjudication of or an award in arbitration to enforce his rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any and all expenses (of the types described in the definition of
Expenses in Section 14 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
sought, the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated. The Company shall
indemnify Indemnitee against any and all expenses and, if requested by
Indemnitee, shall (within ten (10) days after receipt by the Company of a
written request therefor) advance such expenses to Indemnitee, which are
incurred by Indemnitee in connection with any action brought by Indemnitee to
recover under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advancement of expenses or
insurance recovery, as the case may be.
(5) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 8 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
9. NONEXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
(1) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the Certificate, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in the Law, whether
by statute or judicial decision, permits greater indemnification than would be
afforded currently under the Certificate and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change. No right or remedy herein conferred is
intended to be exclusive of any other right or remedy, and every other right and
remedy shall be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other right or remedy.
8
<PAGE> 9
(2) To the extent that the Company maintains an insurance policy or
policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(3) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(4) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
10. EXCEPTION TO RIGHT OF INDEMNIFICATION. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors or (b) such Proceeding
is being brought by the Indemnitee to assert his rights under this Agreement.
11. DURATION OF AGREEMENT. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is an
officer and/or a director of the Company (or is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall continue
thereafter so long as Indemnitee shall be subject to any Proceeding (or any
proceeding commenced under Section 8 hereof) by reason of his Corporate Status,
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer and/or a director of the Company or
any other enterprise at the Company's request.
12. SECURITY. To the extent requested by the Indemnitee and approved by
the Board of Directors, the Company may at any time and from time to time
provide security to the Indemnitee for the Company's obligations hereunder
through an irrevocable bank line of credit, funded trust or other collateral.
Any such security, once provided to the Indemnitee, may not be revoked or
released without the prior written consent of the Indemnitee.
9
<PAGE> 10
13. ENFORCEMENT.
(1) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve as an officer and/or a director of the Company, and
the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as an officer and/or a director of the Company.
(2) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
14. DEFINITIONS. For purposes of this Agreement:
(1) "Change in Control" means a change in control of the Company
occurring after the date of this Agreement of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934, as amended (the "Act"), whether or not the
Company is then subject to such reporting requirement; provided, however, that,
without limitation, such a Change in Control shall be deemed to have occurred if
after the date of this Agreement (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Act, as amended) other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 15% or more of
the combined voting power of the Company's then outstanding securities (other
than any such person or any affiliate thereof that is such a 15% beneficial
owner as of the date hereof) without the prior approval of at least two-thirds
of the members of the Board of Directors in office immediately prior to such
person attaining such percentage interest; (ii) there occurs a proxy contest, or
the Company is a party to a merger, consolidation, sale of assets, plan of
liquidation or other reorganization, as a consequence of which members of the
Board of Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter; or (iii)
during any period of two consecutive years, other than as a result of an event
described in clause (a)(ii) of this Section 14, individuals who at the beginning
of such period constituted the Board of Directors (including for this purpose
any new director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board of Directors. A Change
in Control shall not be deemed to have occurred under item (i) above if the
"person" described under item (i) is entitled to report its ownership on
Schedule 13G promulgated under the Act and such person is able to represent that
it acquired such securities in the ordinary course of its business and not with
the purpose nor with the effect of changing or influencing the control of the
Company, nor in connection with or as a participant in any transaction having
such purpose or effect. If the "person" referred to in the previous sentence
would at any time not be entitled to continue to report such ownership on
Schedule 13G pursuant to Rule 13d-1(b)(3)(i)(B) of the Act, then a Change in
Control shall be deemed to have occurred at such time.
10
<PAGE> 11
(2) "Corporate Status" describes the status of a person who is or
was a director, officer, employee or agent or fiduciary of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the express written
request of the Company.
(3) "Disinterested Director" means a director of the Company who is
not and was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(4) "Enterprise" shall mean the Company and any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise of
which Indemnitee is or was serving at the express written request of the Company
as a director, officer, employee, agent or fiduciary.
(5) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(6) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(7) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was an officer and/or a director of the Company, by
reason of any action taken by him or of any inaction on his part while acting as
an officer and/or a director of the Company, or by reason of the fact that he is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise; in each case whether or
11
<PAGE> 12
not he is acting or serving in any such capacity at the time any liability or
expense is incurred for which indemnification can be provided under this
Agreement; including one pending on or before the date of this Agreement; and
excluding one initiated by an Indemnitee pursuant to Section 8 of this Agreement
to enforce his rights under this Agreement.
15. SEVERABILITY. If any provision or provisions of this Agreement
shall be held by a court of competent jurisdiction to be invalid, void, illegal
or otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this Agreement (including
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby and shall remain enforceable to the fullest extent permitted by law; and
(b) to the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested thereby.
16. MODIFICATION AND WAIVER. No supplement, modification,
termination or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
17. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise.
18. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
(b) If to the Company, to:
Tickets.com, Inc.
555 Anton Blvd., 12th Floor
Costa Mesa, CA 92626
Attention: President
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
12
<PAGE> 13
19. IDENTICAL COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
20. HEADINGS. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
21. GOVERNING LAW. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
22. GENDER. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on and as of the day and year first above written.
TICKETS.COM, INC., a Delaware corporation
By:_____________________________________
[Name]
[Title]
________________________________________
[Name], Indemnitee
13
<PAGE> 1
EXHIBIT 10.29
555 ANTON BOULEVARD
LEASE AGREEMENT
BETWEEN
AGL INVESTMENTS NO. 5
LIMITED PARTNERSHIP,
AS LANDLORD, AND
TICKETS.COM, INC.,
AS TENANT
<PAGE> 2
LEASE AGREEMENT
555 ANTON BOULEVARD
COSTA MESA, CALIFORNIA
THIS LEASE AGREEMENT ("Lease") is entered into as of the Date, and by
and between the Landlord and Tenant, identified in Section 1.1 below.
1. BASIC LEASE DEFINITIONS, EXHIBITS AND ADDITIONAL DEFINITIONS.
1.1 BASIC LEASE DEFINITIONS. In this Lease, the following defined terms
have the meanings indicated:
(a) "Date" means July 23, 1999.
(b) "Landlord" means AGL Investments No. 5 Limited Partnership,
a Colorado limited partnership.
(c) "Tenant" means Tickets.com, Inc., a Delaware corporation.
(d) "Premises" means those premises consisting of the entire
twelfth floor of the Building which contains approximately 20,128
rentable square feet, and those premises consisting of a portion of the
eleventh floor of the Building which contains approximately 12,089
rentable square feet, for a total of approximately 32,217 rentable
square feet as identified on Exhibit A. The Premises do not include any
areas above the finished ceiling or below the finished floor covering
installed in the Premises or any other areas not shown on Exhibit A as
being part of the Premises. Landlord reserves, for Landlord's exclusive
use (subject to the other terms and conditions of this Lease), any of
the following (other than those installed for Tenant's exclusive use)
that may be located in the Premises: janitor closets, stairways and
stairwells; fan, mechanical, electrical, telephone and similar rooms;
and elevator, pipe and other vertical shafts, flues and ducts.
(e) "Use" means general office use only and related lawful uses,
including training of employees and other personnel, computer or
internet related technology development and telephone and internet sales
and services.
(f) "Term" means the duration, of this Lease, which will be
approximately seventy-two (72) months, beginning on the "Commencement
Date" (as defined in Exhibit B) and ending on the "Expiration Date" (as
defined below) unless terminated earlier or extended further as provided
in this Lease. The "Expiration Date" means (i) if the Commencement Date
is the first day of a month, the date which is seventy-two (72) months
from the date preceding the Commencement Date; or (ii) if the
Commencement Date is not the first day of a month, the date which is
seventy-two (72) months from the last day of the month in which the
Commencement Date occurs. The Building and Premises were measured using
the "Standard Method For Measuring For Area in Office Buildings
(ANSI\BOMAZ65.1, 1996)". The determination of the total number of usable
square feet within the Premises (i.e., 27,920) was done using a 15.39%
-2-
<PAGE> 3
"load factor". Tenant may, at its expense, have a qualified architect
approved by Landlord verify said measurement and must notify Landlord of
any objections thereto by no later than ninety (90) days after the Date
of this Lease or any right to object is thereafter waived. If any such
remeasurement results in the square footage of the Premises being less
than or greater than the square footage set forth herein, then the Base
Rent shall be retroactively, prospectively and proportionately increased
or decreased, as the case may be, to reflect the actual number of square
feet, and Tenant's Share (as hereinafter defined) shall also be
appropriately adjusted.
(g) "Base Rent" means the Rent payable according to Section 3.
1, which will be in an amount per month or portion thereof during the
Term as follows (the Base Rent payable for the first month of the Term
shall be paid by Tenant upon execution of this Lease):
<TABLE>
<CAPTION>
Amount of Base Rent
Payable Per Month Amount of Base Rent
Months (Per Rentable Square Foot) Payable Per Month
------ -------------------------- -----------------
<S> <C> <C>
1 - 12 $2.05 $66,044.85
13 - 24 $2.25 $72,488.25
25 - 48 $2.50 $80,542.50
49 - 72 $2.70 $86,985.90
</TABLE>
(h) "Tenant's Share" means, with respect to the calculation of
Additional Rent according to Section 3.2, 13.63%.
(i) "Base Year" means the calendar year ending December 31,
1999.
(j) "Security Deposit" means $86,985.90.
(k) "Landlord's Building Address" means:
555 Anton Boulevard
Costa Mesa, CA 92626
Attention: Property Manager
(l) "Landlord's General Address" means:
Suite 1220 Independence Plaza
1050 17th Street
Denver, Colorado 80265
Attention: General Counsel
(m) "Tenant's Notice Address" means,
for notices given before the Commencement
Date:
-3-
<PAGE> 4
4675 MacArthur Court
Suite 1400
Newport Beach, California 92626
Attention: John Markovich
with a copy to:
Hewitt & McGuire, LLP
19900 MacArthur Boulevard
Suite 1050
Irvine, California 92612
Attention: Leasing Counsel
and for notices given after the Commencement
Date:
To the Premises:
Attention: John Markovich
with a copy to:
Hewitt & McGuire, LLP
19900 MacArthur Boulevard
Suite 1050
Irvine, California 92612
Attention: Leasing Counsel
(n) "Tenant's Invoice Address" means:
To the Premises
Attention: John Markovich
(o) "Brokers" means the following brokers who will be paid by
Landlord: Tenant's broker is J.M. Commercial and Landlord's broker is
Cushman Realty Corporation.
(p) "Liability Insurance Amount" means $2,000,000.
1.2 EXHIBITS AND RIDERS. The Exhibits and Riders listed below are
attached to and incorporated in this Lease. In the event of any inconsistency
between such Exhibits or Riders and the terms and provisions of this Lease, the
terms and provisions of the Exhibits and Riders will control. The Exhibits to
this Lease are:
<TABLE>
<S> <C>
Exhibit A Plan Delineating the Premises
Exhibit A-1 Site Plan
Exhibit B Possession and Leasehold Improvements Agreement
Exhibit C Occupancy Estoppel Certificates
Exhibit D Rules and Regulations
</TABLE>
-4-
<PAGE> 5
<TABLE>
<S> <C>
Exhibit E Rider
Exhibit F Helipad Access Agreement
Exhibit G Cleaning Specifications
Exhibit H Building Signage
Exhibit I Tenant's Corporate Graphics & Logo
Exhibit J Tenant's Competitors
Exhibit K Assigned Parking Spaces
</TABLE>
1.3 ADDITIONAL DEFINITIONS. In addition to those terms defined in
Section 1.1 and other sections of this Lease, the following defined terms when
used in this Lease have the meanings indicated:
(a) "Additional Rent" means the Rent payable according to
Section 3.2.
(b) "Affiliates" of a party means that party's parent,
subsidiary and affiliated corporations and its and their partners,
venturers, directors, officers, shareholders, agents, servants and
employees.
(c) "Building" means the office building containing
approximately 236,183 total rentable square feet located at 555 Anton
Boulevard, Costa Mesa, CA 92626 ("Building"), together with the parking
garage and other improvements commonly known as 555 Anton Boulevard,
located on the Land and in which the Premises are located. The Land and
Building are depicted on the site plan ("Site Plan") attached hereto as
Exhibit A-1.
(d) "Building Standard" means the scope and quality of leasehold
improvements, Building systems or Building services, as the context may
require, generally offered from time to time to all office tenants of
the Building.
(e) "Business Hours" means the hours from 8:00 a.m. to 6:00 p.m.
on Monday through Friday and from 8:00 a.m. to 12:00 p.m. on Saturday,
excluding New Year's Day, President's Day, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, the day after Thanksgiving, and
Christmas Day.
(f) "Common Areas" means certain interior and exterior common
and public areas located on the Land and in the Building as may be
designated by Landlord for the nonexclusive use in common by Tenant,
Landlord and other tenants, and their employees, guests, customers,
agents and invitees, subject to rules and regulations established by
Landlord.
(g) "Expenses" means the aggregate of any and all costs (other
than those expressly excluded below) incurred or accrued (any costs or
expenses that are treated on an accrual or cash basis for the Base Year
shall be treated consistently for each Comparison Year thereafter)
during each calendar year according to generally accepted accounting
principles consistently applied for operating, managing, administering,
equipping, securing, protecting, insuring, heating, cooling,
ventilating, lighting, repairing, replacing, renewing, cleaning,
maintaining, decorating, inspecting, and providing water, sewer and
other energy and utilities to, the Land, Building and
-5-
<PAGE> 6
Common Areas; management fees calculated; according to the management
agreement between Landlord and its managing agent; fees and expenses
(including reasonable attorneys' fees incurred in contesting the
validity of any Laws that would cause an increase in Expenses;
depreciation on personal property and moveable equipment which is or
should be capitalized on Landlord's books; and costs (whether capital or
not) that are incurred in order to conform to changes subsequent to the
Commencement Date in any Laws, or that are intended to reduce Expenses
or the rate of increase in Expenses (such costs will not be included in
Expenses for the Base Year and will otherwise be charged to Expenses in
annual installments over the useful life of the items for which such
costs are incurred (in the case of items required by changes in Laws) or
over the period Landlord reasonably estimates that it will take for the
savings in Expenses achieved by such items to equal their cost (in the
case of items intended to reduce Expenses or their rate of increase),
and in either case together with interest, each calendar year such costs
are charged to Expenses, on the unamortized balance at the average Prime
Rate in effect during such calendar year). If any new, material
categories or subcategories of Expenses are incurred in connection with
the Land or Building after the Base Year, the cost of such new Expenses
shall be imputed into and treated as if such costs were incurred in the
Base Year. Conversely, if any material categories or subcategories of
Expenses incurred in the Base Year are no longer included as Expenses in
any calendar year after the Base Year, then for purposes of calculating
Expenses for the Base Year under this Lease, such items shall be treated
as if they were not paid as Expenses in the Base Year. Expenses will
include any common area maintenance charges, taxes, assessments, fees
and other costs payable by Landlord under any covenants, conditions and
restrictions or association documents governing the Land or Building
existing on the Commencement Date and not included as part of Taxes
below. Expenses will not include (1) mortgage principal or interest; (2)
ground lease payments; (3) leasing commissions; (4) costs of advertising
space for lease in the Building; (5) costs for which Landlord is
reimbursed by insurance proceeds or from tenants of the Building (other
than such tenants' regular contributions to Expenses); (6) any
depreciation or capital expenditures (except as expressly provided
above); (7) legal fees incurred for negotiating leases or collecting
rents; and (8) costs directly and solely related to the maintenance and
operation of the entity that constitutes the Landlord, such as
accounting fees incurred solely for the purpose of reporting Landlord's
financial condition. For each calendar year during the Term including
the Base Year, the amount by which those Expenses that vary with
occupancy (such as cleaning costs and utilities) would have increased
had the Building been 95% leased, completed, improved, operational and
occupied and had all Building services been provided to all tenants will
be reasonably determined and the amount of such increase will be
included in Expenses for such calendar year.
Notwithstanding anything in this Section 1.3(g) to the contrary,
for purposes of this Lease, Expenses shall not include any of the
following:
(i) costs incurred in connection with the original
construction of the Land or Building or in connection with any
major change in the Land or Building, such as adding or deleting
floors;
(ii) costs of the design and construction of tenant
improvements to the Premises or the premises of other tenants or
other occupants and the amount of any allowances or credits paid
to or granted to tenants or other occupants for any such design
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or construction;
(iii) marketing costs, legal fees (except as provided in
this Section 1.3(g)), space planners' fees, advertising and
promotional expenses, and brokerage fees incurred in connection
with the original development, subsequent improvement, or
original or future leasing of the Land or Building;
(iv) any bad debt loss, rent loss, or reserves for bad
debts or rent loss or any reserves of any kinds;
(v) costs associated with the operation of the business
of the partnership or entity which constitutes the Landlord, as
the same are distinguished from the costs of operation of the
Land or Building, including partnership accounting and legal
matters , costs of defending any lawsuits with any mortgagee
(except in connection with the actions of Tenant), costs of
selling, syndicating, financing, mortgaging or hypothecating any
of the Landlord's interest in the Land or Building, and costs
incurred in connection with any disputes between Landlord and
its employees, between Landlord and Building management, or
between Landlord and other tenants or occupants;
(vi) the wages and benefits of any employee who does not
devote substantially all of his or her employed time to the Land
or Building unless such wages and benefits are prorated to
reflect time spent on operating and managing the Land or
Building, vis-a-vis time spent on matters unrelated to operating
and managing the Land or Building; provided, that in no event
shall Expenses for purposes of this Lease include wages and/or
benefits attributable to personnel above the level of Land or
Building manager or Land or Building engineer;
(vii) late charges, penalties, liquidated damages, and
interest;
(viii) any amount paid by Landlord to the parent
organization or a subsidiary or affiliate of the Landlord for
supplies and/or services in the Land or Building to the extent
the same exceeds the costs of such supplies and/or services (of
comparable quality) rendered by unaffiliated third parties on a
competitive basis;
(ix) any compensation paid to clerks, attendants or
other persons in commercial concessions operated by or on behalf
of the Landlord, except to the extent such concessions
specifically provide service to the tenants or other occupants
of the Building such as the Building concierge;
(x) rentals and other related expenses incurred in
leasing air conditioning systems, elevators or other equipment
which if purchased the cost of which would be excluded from
Expenses as a capital cost under this Section 1.3(g), except
equipment not affixed to the Land or Building which is used in
providing janitorial, maintenance, repairs or similar services;
(xi) all items and services for which Tenant or any
other tenant in the Land
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or Building reimburses Landlord, or which Landlord provides
selectively to one or more tenants (other than Tenant) without
reimbursement;
(xii) electric power costs or costs for natural gas for
which any tenant (including Tenant) directly contracts with a
public service company, or any costs for electricity, water,
heat, air conditioning or other utilities provided by Landlord
to any tenant free of charge in excess of the costs for
utilities offered by Landlord to Tenant free of charge;
(xiii) costs, other than those incurred in ordinary
maintenance and repair, for sculpture, paintings, or other
objects of art;
(xiv) fees and reimbursements payable to Landlord
(including its parent organization, subsidiaries and/or
affiliates) or by Landlord for management of the Land or
Building which materially exceed the amount which would normally
be paid to a company in connection with the management of
comparable buildings in the vicinity of the Building;
(xv) rent for any office space occupied by Land or
Building management personnel to the extent the size or rental
rate of such office space materially exceeds the size of fair
market rental value of office space occupied by management
personnel of comparable buildings in the vicinity of the
Building, with adjustment where appropriate for the size of the
applicable land or building;
(xvi) costs arising from the gross negligence or willful
misconduct of Landlord or its Affiliates;
(xvii) costs incurred to comply with Laws in effect
prior to the Commencement Date or to comply with Laws with
respect to "Hazardous Material," as that term is defined in this
Lease, which is in existence in the Building or on or under the
Land prior to the Commencement Date; and costs incurred with
respect to Hazardous Material, which Hazardous Material is
brought into the Building or onto the Land after the
Commencement Date by a party or parties other than Tenant or its
agents, employees, contractors, licensees or invitees;
(xviii) costs arising from Landlord's charitable or
political contributions;
(xix) any entertainment, dining or travel expenses for
any purpose; any flowers, gifts, balloons, etc. provided to any
entity whatsoever, including, but not limited to, Tenant, other
tenants, occupants, employees, vendors, contractors, prospective
tenants and agents;
(xx) the costs of any tenant relations parties, events or
promotion not consented to by an authorized representative of
Tenant in writing;
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(xxi) amounts paid by Landlord in any calendar year as a
result of damage caused by earthquakes which are in excess of
the amount equal to One Hundred Thousand and 00/100 Dollars
($100,000) in excess of Landlord's insurance coverage;
(xxii) costs associated with any portions of the Common
Areas dedicated to the exclusive use of others to the exclusion
of Tenant; and
(xxiii) costs for which Landlord receives complete
recovery from insurance proceeds or for which Landlord would
have received complete recovery from insurance proceeds if
Landlord had maintained the insurance required to be maintained
by Landlord under this Lease and any insurance premium increases
caused by any acts or omissions of other tenants leasing space
in the Building.
In the event any facilities, services or utilities used in connection
with the Land or Building are provided from another building owned or
operated by Landlord or vice versa, the costs incurred by Landlord in
connection therewith shall be allocated to Expenses by Landlord on a
reasonable equitable basis. Landlord shall (i) not make a profit by
charging items to Expenses that are otherwise also charged separately to
other tenants/occupants, and (ii) Landlord shall not collect Expenses
from Tenant and all other tenants/occupants in the Building in an amount
in excess of what Landlord incurred or accrued for the items included in
Expenses. All assessments and premiums which are not specifically
charged to Tenant due to Tenant's operations, which can be paid by
Landlord in, installments, shall be paid by Landlord in the maximum
number of installments permitted by law and shall not be included in
Expenses except in the year in which the assessment or premium
installment is actually paid.
(h) "Land" means the real property located at 555 Anton
Boulevard, Costa Mesa, California, less any portions that may be
conveyed separately from the Building by Landlord from time to time.
(i) "Laws" means any and all present or future federal, state or
local laws, statutes, ordinances, rules, regulations or orders of any
and all governmental or quasi-governmental authorities having
jurisdiction.
(j) "Prime Rate" means the rate of interest announced from time
to time by Norwest Bank Colorado, N.A., Denver, or any successor to it,
as its prime rate. If Norwest Bank Colorado, N.A., Denver or any
successor to it ceases to announce a prime rate, Landlord will designate
a reasonably comparable financial institution for purposes of
determining the Prime Rate.
(k) "Rent" means the Base Rent, Additional Rent and all other
amounts required to be paid by Tenant under this Lease.
(l) "Taxes" means the amount incurred or accrued during each
calendar year according to generally accepted accounting principles for
all property taxes which shall include, without limitation: (i) any form
of tax or assessment, license fee, license tax, tax or excise on
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rent or any other levy, charge, expense, or imposition made or required
by any federal, state, county, city, district, or other political
subdivision on any interest of Landlord and/or Tenant in the Premises,
the Building, or the Land including without limitation, the underlying
real property and appurtenances, and the personal property used in
operating the Building; (ii) any fee for services charged by any
governmental agency or quasi-governmental agency for any services such
as fire protection, street, sidewalk, and road maintenance, refuse
collection, school systems, or other services provided, or formerly
provided through real property taxes or assessments, to property owners
and residents within the general area of the Building or Land; (iii) any
governmental impositions allocable to or measured by the area of the
Premises or the amount of any rent payable under this Lease, including,
without limitation, any tax on gross receipts or any excise tax or other
charges levied by any federal, state, county, city, district, or other
governmental agency or political subdivision with respect to rent; (iv)
any reasonable expenses incurred by Landlord in attempting to reduce or
avoid an increase in Taxes, including, without limitation, reasonable
legal fees and costs; and (v) any increase in any of the foregoing based
upon construction of improvements on the Building or Land or changes in
ownership (as defined in the California Revenue and Taxation Code) of
the Building or Land. Taxes shall not include (a) taxes on the
Landlord's net income including franchise taxes, inheritance, estate,
gift taxes, any excess profits taxes, capital stock taxes, federal and
state income taxes, and other taxes to the extent applicable to
Landlord's general or net income (as opposed to rents or receipts), (b)
any items included as Expenses, (c) any personal property or business
tax items directly payable by Tenant under this Lease, and (d) real
property taxes resulting from the creation of additional rentable area
in the Building or assessed against tenant improvements constructed for
other tenants in the Building to the extent the scope and cost of such
tenant improvements ("Excessive Improvements") substantially exceed the
scope and cost of tenant improvements constructed in connection with
other leases entered into for space in the Building during the period
commencing six (6) months prior to the substantial completion of the
Excessive Improvements and ending six (6) months thereafter. The tax
parcel as to which Taxes shall be included in Expenses shall contain no
building other than the Building. For each calendar year during the Term
(including the Base Year), Taxes shall be adjusted, on a basis
consistent with generally accepted accounting and tax principles, to
reflect Taxes for a ninety-five percent (95%) leased, completed,
improved, operational and occupied Building. For purposes of calculating
Expenses for the Base Year under this Lease, no future reduction in real
property taxes applicable to the Base Year that Landlord may achieve
through protest or otherwise shall be applied to reduce the total
Expenses for the Base Year.
2. GRANT OF LEASE.
2.1 DEMISE. Subject to the terms, covenants, conditions and provisions
of this Lease, Landlord leases to Tenant and Tenant leases from Landlord the
Premises, together with the nonexclusive right to use the Common Areas, for the
Term.
2.2 QUIET ENJOYMENT. Landlord covenants that during the Term, Tenant
will have quiet and peaceable possession of the Premises by, through and under
Landlord, subject to the terms, covenants,
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conditions and provisions of this Lease, and Landlord will not disturb such
possession except as expressly provided in this Lease.
2.3 LANDLORD AND TENANT COVENANTS. Landlord covenants to observe and
perform all of the terms, covenants and conditions applicable to Landlord in
this Lease. Tenant covenants to pay the Rent when due, and to observe and
perform all of the terms, covenants and conditions applicable to Tenant in this
Lease.
3. RENT.
3.1 BASE RENT. Commencing on the Commencement Date and then throughout
the Term, Tenant agrees to pay Landlord Base Rent according to the following
provisions. Base Rent during each month (or portion of a month) described in
Section 1.1(g) will be payable in equal monthly installments for such month (or
portion), in advance, on or before the first day of each and every month during
the Term. However, if the Term commences on other than the first day of a month
or ends on other than the last day of a month, Base Rent for such month will be
appropriately adjusted on a prorated basis.
3.2 ADDITIONAL RENT. Commencing on the one (1) year anniversary of the
date of Tenant's initial occupancy of the Premises in accordance with the terms
of Exhibit B ("Initial Occupancy Date"), Tenant agrees to pay Landlord, as
Additional Rent, in the manner provided below for each calendar year or portion
thereof subsequent to the Initial Occupancy Date, Tenant's Share of (i) the
amount by which Expenses for such calendar year or portion thereof exceed
Expenses for the Base Year ("Additional Expenses"); and (ii) the amount by which
Taxes for such calendar year or portion thereof exceed Taxes for the Base Year
("Additional Taxes").
(a) Estimated Payments. Prior to or as soon as practicable after
the beginning of each calendar year subsequent to the Base Year,
Landlord will notify Tenant of Landlord's reasonable estimate of
Tenant's Share of Additional Expenses and Additional Taxes for the
ensuing calendar year. Landlord shall use commercially reasonable
efforts to give Tenant such estimate not later than one hundred twenty
(120) days following the end of the prior calendar year. Such statement
shall be reasonably itemized on a line-item by line-item basis, and the
estimated Additional Expenses and Additional Taxes shall be calculated
by comparing the estimated Expenses and Taxes for the coming year to the
amount of actual Expenses and actual Taxes for the Base Year. Commencing
on the one (1) year anniversary of the Initial Occupancy Date and on or
before the first day of each month thereafter during the ensuing
calendar year but not sooner than twenty (20) days after receipt of the
statement referenced above, Tenant will pay to Landlord, in advance,
1/12 of such estimated amounts, provided that until such notice is given
with respect to the ensuing calendar year, Tenant will continue to pay
on the basis of the prior calendar year's estimate until the month after
the month in which such notice is given. In the month Tenant first pays
based on Landlord's new estimate, Tenant will pay to Landlord 1/12 of
the difference between the new estimate and the prior year's estimate
for each month which has elapsed since the beginning of the current
calendar year or the Initial Occupancy Date, as applicable. If at any
time or times it reasonably appears to Landlord that Tenant's Share of
Additional Expenses or Tenant's Share of Additional Taxes for the
then-current calendar year will vary from Landlord's estimate by more
than 5%, Landlord may, by notice to Tenant, revise its estimate for such
year and subsequent payments by Tenant for such year will be based upon
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the revised estimate.
(b) Annual Settlement. As soon as practicable after the close of
each calendar year subsequent to the Base Year, Landlord will deliver to
Tenant its statement of Tenant's Share of Additional Expenses and
Additional Taxes for such calendar year, in accordance with Section
3.2(a) above. If on the basis of such statement Tenant owes an amount
that is less than the estimated payments previously made by Tenant for
such calendar year, Landlord will either refund such excess amount to
Tenant or credit such excess amount against the next payment(s), if any,
due from Tenant to Landlord. If on the basis of such statement Tenant
owes an amount that is more than the estimated payments previously made
by Tenant for such calendar year, Tenant will pay the deficiency to
Landlord within 30 days after the delivery of such statement; provided,
however, that Tenant shall not be required to make such payment if such
statement is not delivered to Tenant within eighteen (18) months after
the end of the calendar year as to which such statement relates. If this
Lease commences on a day other than the first day of a calendar year or
terminates on a day other than the last day of a calendar year, Tenant's
Share of Additional Expenses and Additional Taxes applicable to the
calendar year in which such commencement or termination occurs will be
prorated on the basis of the number of days within such calendar year
that are within the Term.
(c) Final Payment. Tenant's obligation to pay the Additional
Rent provided for in this Section 3.2 which is accrued but not paid for
periods prior to the expiration or early termination of the Term will
survive such expiration or early termination. Prior to or as soon as
practicable after the expiration or early termination of the Term,
Landlord may submit an invoice to Tenant stating Landlord's reasonable
estimate of the amount by which Tenant's Share of Additional Expenses
and Additional Taxes through the date of such expiration or early
termination will exceed Tenant's estimated payments of Additional Rent
for the calendar year in which such expiration or termination has
occurred or will occur. Tenant will pay the amount of any such excess to
Landlord within 30 days after the date of Landlord's invoice. In the
event that Tenant is entitled to a refund pursuant to this Section 3.2,
Landlord's obligation to refund any such amounts shall survive
termination or expiration of the Term.
(d) Audit Rights. Notwithstanding the foregoing, if Tenant in
good faith desires to conduct a review of the amount due as Tenant's
Share of Additional Expenses, Tenant and/or its agents and
representatives shall be entitled one time in any calendar year, after
reasonable notice and at reasonable times (but in no event later than
one (1) year after receiving any Annual Statement), to conduct a
reasonable audit and/or review of Landlord's records to determine the
proper amount of Tenant's Share. Should the audit of Landlord's books
and records show errors in excess of five percent (5%) of the proper
amount of Tenant's Share of Additional Expenses, then Landlord shall be
responsible for the payment of all reasonable, actual and documented
fees incurred by Tenant with respect to the audit. In addition, if the
audit shows that Landlord overcharged Tenant for Tenant's Share of
Additional Expenses, the amount of such overcharge shall be reimbursed
to Tenant within thirty (30) days from the conclusion of the audit.
Conversely, if the audit shows that Landlord undercharged Tenant for
Tenant's Share of Additional Expenses, Tenant shall pay all expenses and
fees for the audit and shall pay the
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amount of such underpayment to Landlord within thirty (30) days after
the conclusion of the audit.
3.3 OTHER TAXES. Tenant will reimburse Landlord upon demand for any and
all taxes payable by Landlord (other than net income taxes and taxes included in
Taxes) whether or not now customary or within the contemplation of Landlord and
Tenant: (a) upon, measured by or reasonably attributable to the cost or value of
Tenant's equipment, furniture, fixtures and other personal property located in
the Premises; (b) upon or measured by Rent; (c) upon or with respect to the
possession, leasing, operation, management, maintenance, alteration, repair, use
or occupancy by Tenant of the Premises or any portion of the Premises; and (d)
upon this transaction or any document to which Tenant is a party creating or
transferring an interest or an estate in the Premises. If it is not lawful for
Tenant to reimburse Landlord, the Base Rent payable to Landlord under this Lease
will be revised to yield to Landlord the same net rental after the imposition of
any such tax upon Landlord as would have been payable to Landlord prior to the
imposition of any such tax.
3.4 TERMS OF PAYMENT. All Base Rent, Additional Rent and other Rent will
be paid to Landlord in lawful money of the United States of America, at
Landlord's Building Address or to such other person or at such other place as
Landlord may from time to time designate in writing, without notice or demand
and without right of deduction, abatement or set-off, except as otherwise
expressly provided in this Lease.
3.5 INTEREST ON LATE PAYMENTS, LATE CHARGE. Tenant hereby acknowledges
that the late payment by Tenant to Landlord of any amount payable under this
Lease will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. All amounts
payable under this Lease by Tenant to Landlord, if not paid when due (after any
applicable cure periods set forth in this Lease), will bear interest from the
date thirty (30) days after the due date until paid at the lesser of the highest
interest rate permitted by law or 5% in excess of the then-current Prime Rate.
Landlord, at Landlord's option, in addition to past due interest, may charge
Tenant a late charge for all payments more than five (5) days past due (after
any applicable cure periods set forth in this Lease), equal to 3% of the amount
of said late payment. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Landlord will incur by reason of
late payment by Tenant. Acceptance of such late charge by Landlord shall in no
event constitute a waiver of Tenant's default with respect to such overdue
amount, nor prevent Landlord from exercising any of the other rights and
remedies granted hereunder.
3.6 RIGHT TO ACCEPT PAYMENTS. No receipt by Landlord of an amount less
than Tenant's full amount due will be deemed to be other than payment "on
account", nor will any endorsement or statement on any check or any accompanying
letter effect or evidence an accord and satisfaction. Landlord may accept such
check or payment without prejudice to Landlord's right to recover the balance or
pursue any right of Landlord. No payments by Tenant to Landlord after the
expiration or other termination of the Term, or after the giving of any notice
(other than a demand for payment of money) by Landlord to Tenant, will
reinstate, continue or extend the Term or make ineffective any notice given to
Tenant prior to such payment. After notice or commencement of a suit, or after
final judgment granting Landlord possession of the Premises, Landlord may
receive and collect any sums of Rent due under this Lease, and such receipt will
not void any notice or in any manner affect any pending suit or any judgment
obtained.
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4. USE AND OCCUPANCY.
4.1 USE. Tenant agrees to use and occupy the Premises only for the Use
described in Section 1.1(e), or for such other purpose as Landlord expressly
authorizes in writing. Tenant's use of the Premises may, at its option, include
a lunch and/or dining facility of an ancillary nature comparable to other
facilities of office tenants in comparable buildings in the vicinity of the
Building.
4.2 COMPLIANCE. Tenant agrees to use the Premises in a safe, careful and
proper manner, and to comply with all Laws applicable to Tenant's use, occupancy
or alteration of the Premises or the condition of the Premises resulting from
such use, occupancy or alteration, at Tenant's sole cost and expense. Tenant
shall not have any obligations to make modifications and/or additions to the
Building and/or Building systems unless and to the extent modifications and/or
additions to the Building are part of the work to be performed in accordance
with the Possession and Leasehold Improvements Agreement attached hereto as
Exhibit B or are required because (i) Tenant uses the Premises for other than
normal and customary business office operations, and/or (ii) Tenant has made any
non-Building standard improvements to the Premises which are not otherwise
ordinarily permitted by Landlord. Tenant shall also be responsible for (i)
causing any future improvements or alterations by Tenant to the Premises to be
done in compliance with ADA, and (ii) making any modifications required under
ADA as a result of any changes in use by Tenant or changes in laws applicable to
Tenant's business, all at Tenant's sole cost and expense. However, after the
Commencement Date, any costs incurred in connection with any new laws enacted in
connection with ADA or any similar laws or regulations, or as a result of any
new or different interpretations of ADA as it currently exists, shall be paid by
Landlord and treated as costs which will constitute Expenses under this Lease.
4.3 OCCUPANCY. Tenant will not do or permit anything which unreasonably
obstructs or interferes with other tenants' rights or with Landlord's providing
Building services, or which injures or unreasonably annoys other tenants. Tenant
will not cause, maintain or permit any nuisance in or about the Premises and
will keep the Premises free of debris, and anything of a dangerous, noxious,
toxic or offensive nature or which could create a fire hazard or undue
vibration, heat or noise. If any item of equipment, building material or other
property brought into the Building by Tenant or on Tenant's request causes a
dangerous, noxious, toxic or offensive effect (including an environmental
effect) and in Landlord's reasonable opinion such effect will not be permanent
but will only be temporary and is able to be eliminated, then Tenant will not be
required to remove such item, provided that Tenant promptly and diligently
causes such effect to be eliminated, pays for all costs of elimination and
indemnifies Landlord against all liabilities arising from such effect. Tenant
will not make or permit any use of the Premises which may jeopardize any
insurance coverage, increase the cost of insurance or require additional
insurance coverage. If by reason of Tenant's failure to comply with the
provisions of this Section 4.3, (a) any insurance coverage is jeopardized, then
Landlord will have the option, after providing Tenant with no less than fifteen
(15) days prior written notice and an opportunity to cure such failure within
said fifteen (15) day period, to terminate this Lease; or (b) insurance premiums
are increased, then Landlord may require Tenant to immediately pay Landlord as
Rent the amount of the increase in insurance premiums.
4.4 HAZARDOUS MATERIAL.
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(a) The term "Hazardous Material" as used in this Lease means
any product, substance, chemical, material, or waste whose presence,
nature, quantity and/or intensity of existence, use, manufacture,
disposal, transportation, spill, release, or effect, either by itself or
in combination with other materials expected to be owned or about the
Premises is either: (i) potentially injurious to the public health,
safety, or welfare, the environment, or the Premises, (ii) regulated or
monitored by any governmental authority, or (iii) a basis for liability
of Landlord to any governmental agency or third party under applicable
statute or common law theory. Hazardous Material shall include, but not
be limited to, hydrocarbons, petroleum, gasoline, crude oil, or any
products, by-products or fractions thereof, asbestos,
chlorofluorocarbons, polychlorinated biphenyls (PCBs) and formaldehyde.
Hazardous Materials shall not include, and Tenant shall have the right,
without obtaining prior written consent of Landlord, to utilize within
the Premises reasonable quantities of standard office products that may
contain Hazardous Materials (such as, but not limited to, photocopy
toner, commercially acceptable and available office cleaning supplies
and lubricants, "White Out", and the like), provided such products are
kept, stored, and disposed of in compliance with all Applicable
Environmental Laws. Tenant shall not bring, place, hold, treat, or
dispose of any Hazardous Material on, under, or about the Premises, the
Building, or the Land. Tenant shall not cause or allow any Hazardous
Material to be incorporated into any improvements or alterations which
it makes or causes to be made to the Premises. Tenant's liability under
this Section 4.4(a) shall extend to any and all such Hazardous Material
whether or not such substance was defined, recognized, or known or
suspected of being hazardous, toxic, dangerous, or wasteful, at the time
of any act or omission giving rise to Tenant's liability.
(b) Tenant shall promptly comply with the requirements of
Section 25359.7(b) of the California Health and Safety Code and/or any
successor or similar statute. Accordingly, if Tenant knows, or has
reasonable cause to believe, that Hazardous Materials, or a condition
involving or resulting from same, has come to be located in, on, under,
or about the Premises, other than as previously consented to by
Landlord, Tenant shall immediately give written notice of such fact to
Landlord. Tenant shall also immediately give Landlord a copy of any
statement, report, notice, registration, application, permit, business
plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party, or persons entering or
occupying the Premises, concerning the presence, spill, release,
discharge off, or exposure to, any Hazardous Materials, or contamination
in, on, under, or about the Premises. Should Tenant fail to so notify
Landlord, Landlord shall have all rights and remedies provided for such
a failure by such Section 25359.7(b) in addition to all other rights and
remedies which Landlord may have under this Lease or otherwise.
Additionally, Tenant shall immediately notify Landlord in writing of (i)
any enforcement, clean-up, removal, or other governmental action
instituted, completed, or threatened with regard to Hazardous Materials
involving the Premises, the Building, or the Land, (ii) any claim made
or threatened by any person against Tenant, Landlord, the Premises, the
Building, or the Land related to damage, contribution, cost recovery,
compensation, loss, or injury resulting from or claimed to result from
any Hazardous Materials, (iii) any reports made to any environmental
agency arising out of or in connection with any Hazardous Materials at
or removed from the Premises, the Building, or the Land, including any
complaints, notices, warnings, or assertions of any violation in
connection therewith, (iv) any spill, release, discharge, or disposal of
Hazardous Materials that occurs with respect to the Premises or Tenant's
operations, including, without limitation, those that would constitute a
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violation of California Health and Safety Code Section 25249.5 or any
other Applicable Environmental Law (defined hereafter); and (v) Tenant's
discovery of any occurrence or condition on, under, or about the
Premises, the Building, or the Land or any real property adjoining or in
the vicinity of the Building or Land or any part thereof causing or
possibly causing the Building or Land or any part thereof to be subject
to any restrictions on the ownership, occupancy, transferability, or use
under any Applicable Environmental Law, including, without limitation,
Tenant's discovery of any occurrence or condition on any real property
adjoining or in the vicinity of the Building or Land that could cause
the Building or Land or any part thereof to be classified as
"border-zone property" under the provisions of California Health and
Safety Code Sections 25220 et seq. or any regulation adopted in
accordance therewith, or to be otherwise subject to any restrictions on
the ownership, occupancy, transferability, or use of the Building or
Land, or any part thereof under any Applicable Environmental Law.
(c) Tenant shall immediately abate any Hazardous Material
brought, placed, or leaked onto, or under, the Premises allowed or
caused by Tenant or its Affiliates during the Term of the Lease.
Additionally, to the extent Tenant brings, places, holds, treats,
disposes of, or utilizes any chlorofluorocarbons on or about the
Premises, Tenant shall remove all such chlorofluorocarbons prior to, or
upon, termination of the Lease, regardless of whether such
chlorofluorocarbons are then defined, recognized, known or supposed to
be Hazardous Materials. Tenant, however, shall not take any remedial
action related to Hazardous Materials located in or about the Premises,
the Building, or the Land and shall not enter into a settlement, consent
decree, or compromise in response to any claim related to Hazardous
Materials, without first notifying Landlord in writing of Tenant's
proposed action and affording Landlord a reasonable opportunity to
appear, intervene, or otherwise participate in any discussion or
proceeding for the purposes of protecting Landlord's interest in the
Premises, the Building, and the Land.
(d) In addition to any other indemnity contained in this Lease,
Tenant hereby shall protect, defend, indemnify, and hold Landlord, its
agents, employees, lenders, and ground lessor, if any, and the Premises,
harmless from and against any and all losses, liabilities, general,
special, consequential and/or incidental damages, injuries, costs,
expenses, claims of any and every kind whatsoever (including, without
limitation, court costs, attorneys' fees, damages to any person, the
Premises, the Building, the Land, or any other property or loss of
rents) which at any time or from time to time may be paid, incurred, or
suffered by or asserted against Landlord with respect to, or as a direct
or indirect result of: (a) breach by Tenant of any of the covenants set
forth in this Article, and/or (b) to the extent caused or allowed by
Tenant, or any agent, employee, contractor, invitee, or licensee of
Tenant, the presence on, under, or the escape, seepage, leakage,
spillage, discharge, emission, release from, onto, or into the Premises,
the Building, the Land, any land, the atmosphere, or any watercourse,
body of water, or ground water, of any Hazardous Material (including,
without limitation, any losses, liabilities, damages, injuries, costs,
expenses, or claims asserted or arising under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. Sections 9601 et seq.), any so-called "Superfund" or
"Superlien" law, the Resource Conservation and Recovery Act of 1980 (42
U.S.C. Sections 6901 et seq.), the Federal Water Pollution Control
Act (33 U.S.C. Sections 1251 et seq.), the
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Safe Drinking Water Act (42 U.S.C. Sections 300f et seq.), the Toxic
Substances Control Act (15 U.S.C. Sections 2601 et seq.), the Clean Air
Act (42 U.S.C. Sections 7401 et seq.), California Health & Safety Code
Sections 25100 et seq. and Sections 39000 et seq., the California Safe
Drinking Water & Toxic Enforcement Act of 1986 (California Health &
Safety Code Sections 25249.5 et seq.), the Porter-Cologne Water Quality
Control Act (California Water Code Sections 13000 et seq.), any and all
amendments and recodifications of the foregoing statutes, or any other
federal, state, local, or other statute, law, ordinance, code, rule,
regulation, permit, order, or decree regulating, relating to or imposing
liability or standards of conduct concerning Hazardous Materials; all of
the foregoing shall collectively be referred to as "Applicable
Environmental Laws". The undertaking and indemnification set forth in
this Section shall survive the termination of this Lease and shall
continue to be the personal liability and obligation of Tenant.
(e) Notwithstanding the foregoing prohibition against the
location of Hazardous Materials on or about the Premises, the Building,
or the Land, if Tenant or its agents, employees, or contractors cause
any Hazardous Materials to be located on or about the Premises, the
Building, or the Land, then Tenant shall obtain insurance or other means
of financial capability satisfactory to Landlord (in its sole
discretion) to assure compliance with the indemnity and other
obligations of Tenant related to Hazardous Materials set forth in this
Lease or otherwise now or in the future required by law; such insurance
or other means of financial capability shall be on such forms, in such
amounts and with such persons as from time to time required by Landlord,
and otherwise be satisfactory to Landlord (in its sole discretion).
(f) Landlord and Landlord's lender(s) shall have the right to
enter the Premises at any time in the case of an emergency, and
otherwise at reasonable times subject to Tenant's reasonable security
and confidentiality requirements (and, at Tenant's election, accompanied
by a representative of Tenant), for the purpose of inspecting the
condition of the Premises and for verifying compliance by Tenant with
this Lease and with all Applicable Environmental Laws, and to employ
experts and/or consultants in connection therewith and/or to advise
Landlord with respect to Tenant's activities including but not limited
to the installation, operation, use, monitoring, maintenance, or removal
of any Hazardous Materials from the Premises. Any such entry into the
Premises shall be performed in a manner so as not to unreasonably
interfere with Tenant's use of, or ingress or egress to, the Premises
and shall be performed after Building Hours if reasonably practical. The
costs and expenses of such inspection shall be paid by the party
requesting same, unless a Default of this Lease, violation of Applicable
Environmental Law, or a contamination, caused or contributed to by
Tenant is found to exist or be imminent, or unless the inspection is
required or ordered by governmental authority as the result of any such
existing or imminent violation or contamination. In any such case,
Tenant shall upon request reimburse Landlord or Landlord's lender(s), as
the case may be, for the costs and expenses of such inspections.
(g) Landlord shall protect, defend, indemnify, and hold Tenant,
its directors, officers, partners, venturers, members, agents and
employees harmless from and against any and all losses, liabilities,
injuries, costs, expenses, claims of any and every kind whatsoever
(including, without limitation, court costs and attorneys' fees, but
excluding consequential or punitive damages) which at any time or from
time to time may be paid, incurred, or suffered by or asserted against
Tenant, with respect to the presence in the Premises or other portions
of the
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Building of any Hazardous Material but only to the extent such Hazardous
Material were installed or deposited in such locations by Landlord, or
any agent, employee, or contractor of Landlord.
5. SERVICES AND UTILITIES.
5.1 LANDLORD'S STANDARD SERVICES. During the Term, Landlord will operate
and maintain the Land and Building in compliance with all applicable Laws and
according to those standards from time to time prevailing for comparable office
buildings in the vicinity in which the Building is located. Landlord will
provide the following services on all days (unless otherwise stated below)
during the Term according to such standards, the costs of which will be included
in Expenses to the extent provided in (and not otherwise excluded by) Section
1.3(g):
(a) repair, maintenance and replacement of the Common Areas, all
structural elements of the Building and all general mechanical, plumbing
and electrical systems installed in the Building, but excluding those
portions of any mechanical, plumbing or electrical systems that exceed
Building Standard and exclusively serve the Premises and are installed
by or on behalf of Tenant (including the Tenant Improvements). Landlord
shall maintain in good order and repair the structural portions of the
Building, including the foundation, floor/ceiling slabs, roof, curtain
wall, exterior glass and mullions, columns, beams, shafts (including
elevator shafts), stairs, parking areas, landscaping, exterior project
signage, stairwells, elevator cabs, plazas, art work, sculptures, men's
and women's washrooms, Building mechanical, electrical and telephone
closets, and all common and public areas (collectively, the "Building
Structure") and the base Building mechanical, electrical, life safety,
plumbing, sprinkler systems and HVAC systems which were not constructed
by Tenant (collectively, the "Building Systems");
(b) heating, ventilating and air conditioning for the Premises
and interior Common Areas during Business Hours, at temperatures and in
amounts as may be reasonably required for comfortable use and occupancy
under normal business office operations with "Customary Office
Equipment" (as used in this Lease, "Customary Office Equipment" includes
typewriters, calculators, copiers, file servers, fax machines, coffee
machines, dishwashers, microwaves, refrigerators, dictation recorders,
desk top personal computers and printers and similar devices and
equipment; but will not include any machines, devices or equipment that
adversely affect the temperature otherwise maintained in the Premises or
that require a voltage other than 120 volts (other than photocopy
machines which may require 220 volts), single phase, such as, e.g., data
processing or heavy-duty computer or reproduction equipment);
(c) electricity for lighting and operating Customary Office
Equipment in the Premises in an amount not to exceed an average of 4.5
kilowatts per usable square foot of the Premises multiplied by the
Building Hours on a monthly basis (not including the electricity
required to run the Building HVAC system);
(d) water for small kitchens, washrooms and drinking fountains;
(e) janitorial services to the Premises and Common Areas. The
janitorial services to the Premises shall be in material conformance
with the specifications attached hereto as Exhibit
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G, and shall include periodic window washing services in a manner
consistent with other comparable buildings in the vicinity of the
Building. Notwithstanding the foregoing, if Tenant desires to provide
janitorial services which are in addition to the services provided by
Landlord ("Tenant's Janitors"), then to the extent that Tenant's
Janitors do not unreasonably interfere with the janitorial services
provided by Landlord for the Building, Landlord shall permit Tenant's
Janitors reasonable ingress and egress to the Premises; provided that if
Tenant elects to use Tenant's Janitors there shall be no offset from
Expenses for janitorial costs;
(f) passenger elevators for access to and from the floor(s) on
which the Premises are located, at least one of which, subject to events
beyond Landlord's reasonable control, shall be available at all times
after Building Hours to provide service to the Premises. Landlord shall
not reduce the number of elevators existing in the Building as of the
Commencement Date. In addition, Landlord shall provide nonexclusive
freight elevator service at all times, subject to scheduling by Landlord
and free of direct charge to Tenant. Landlord shall provide Tenant with
exclusive freight elevator service as reasonably necessary, subject to
availability and reasonable scheduling by Landlord, in connection with
Tenant's move-in to the Premises;
(g) toilet facilities, including necessary washroom supplies
sufficient for Tenant's normal use;
(h) electric lighting for all Common Areas that require electric
light during the day or are open at night, including replacement of
tubes and ballasts in lighting fixtures;
(i) replacement of tubes and ballasts in those Building Standard
lighting fixtures installed in the Premises; and
(j) reasonable security services for the Building and in the
Building parking facility seven (7) days per week, twenty-four (24)
hours per day, including a card-reader system for the Building.
5.2 ADDITIONAL SERVICES.
(a) If Tenant requires heating, ventilating or air conditioning
for the Premises during hours other than Business Hours, Landlord will
furnish the same for the hours specified in a request from Tenant,
provided the request is made during Business Hours and in the manner
reasonably designated by Landlord for such requests from time to time
and no later than noon on any non-holiday weekday during which Tenant
requests after-hours service for that day, or no later than noon on the
preceding non-holiday business day if the additional service is required
for any weekend day. Tenant will pay for such additional services at the
actual cost to Landlord. For purposes of this Section, "actual cost"
shall mean the actual direct out-of-pocket cost incurred by Landlord to
supply the utility or item in question, without charge for depreciation,
profit, overhead or administration. When determining the actual cost of
Tenant's after hours HVAC usage pursuant to the terms of this Section,
Landlord agrees that it shall use the monthly average rate paid by
Landlord for the prior twelve (12) month period. The minimum time period
for after hours HVAC usage shall not exceed one (1) hour.
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(b) If Tenant requires electric current, water or any other
energy at times or in amounts in excess of those provided by Landlord
according to Section 5.1, such excess electric, water or other energy
requirements will be supplied only with Landlord's consent, which
consent will not be unreasonably withheld. If Landlord grants such
consent, Tenant will pay all actual costs of meter service and
installation of facilities or professional services necessary to measure
and/or furnish the excess requirements and the entire actual cost of
such additional electricity, water or other energy so required, which
actual costs will be determined and charged to Tenant (i) by metering at
applicable rates, where meters exist or are installed at Landlord's
direction, including all service and meter installation and/or reading
charges; and/or (ii) by use and engineering surveys identifying all
actual costs relating to consumption of such additional electricity,
water or other energy (including, without limitation, survey costs,
labor, and utility rates). For purposes of this Section 5.2(b), from
time to time during the Term, Landlord may enter the Premises to
install, maintain, replace or read meters for such excess requirements
and/or to evaluate Tenant's consumption of and demand for them.
(c) If Tenant installs any machines, equipment or devices in the
Premises that do not constitute Customary Office Equipment and such
machines, equipment or devices cause the temperature in any part of the
Premises to materially and adversely exceed the temperature the
Building's mechanical system would be able to maintain in the Premises
were it not for such machines, equipment or devices as determined by
Landlord in its sole discretion, then Landlord reserves the right, after
notice to Tenant and Tenant's failure to cure same within a reasonable
time, to install supplementary air conditioning units in the Premises,
and Tenant will pay Landlord the actual costs of installing, operating
and maintaining such supplementary units.
(d) If Tenant requires any janitorial or cleaning services in
excess of the amounts provided by Landlord according to Section 5.1
(such as cleaning services beyond normal office janitorial services for
kitchens, computer rooms or other special use areas), Landlord will
provide such excess services to Tenant within a reasonable period after
Tenant's request made to Landlord's Building manager ("Property
Manager"), provided that such excess services are available from
Landlord's regular janitorial or cleaning contractor. Tenant will pay
the actual cost of such excess services. Landlord will also provide,
within a reasonable period after Tenant's request made to the Property
Manager, at Tenant's cost and to the extent available to Landlord,
replacement of bulbs, tubes or ballasts in any non-Building Standard
lighting fixtures in the Premises.
(e) Tenant will pay as Rent, within thirty (30) days after the
date of Landlord's invoice, all costs which may become payable by Tenant
to Landlord under this Section 5.2.
5.3 INTERRUPTION OF SERVICES. If any of the services provided for in
this Section 5 are interrupted or stopped, Landlord will use commercially
reasonable due diligence to resume the service; provided, however, no
irregularity or stoppage of any of these services will create any liability for
Landlord (including, without limitation, any liability for damages to Tenant's
personal property caused by any such irregularity or stoppage), constitute an
actual or constructive eviction or, except as expressly provided below, cause
any abatement of the Rent payable under this Lease or in any manner or for any
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purpose relieve Tenant from any of its obligations under this Lease. If any of
the services required to be provided by Landlord under this Section 5 are not
provided, or if any repair, maintenance or alteration performed by Landlord, or
which Landlord fails to perform as required by this Lease, materially and
adversely interferes with Tenant's use of or ingress to or egress from the
Building, Premises or the parking areas, and such failure or interference with
Tenant's use or ingress or egress continues for a period in excess of 60 hours
after notice of such failure or interference from Tenant to Landlord, and if
such failure or interference should render all or any portion of the Premises
untenantable, then commencing upon the expiration of such 60-hour period,
Tenant's Rent will equitably abate in proportion to the portion of the Premises
so rendered untenantable for so long as such failure or interference continues.
Tenant hereby waives the provisions of Sections 1932, 1933(4) and 1942 of the
Civil Code of California or any similar or successor statutes to the fullest
extent permitted by law, and Tenant acknowledges that, except as specifically
provided herein, in the event Landlord fails to make a repair or perform
maintenance, Tenant's sole remedy for such breach by Landlord shall be an action
for damages or equitable relief, and that Tenant shall not be entitled to
terminate this Lease, withhold rent, or make any repair and deduct the cost of
repair from rent payable under this Lease; provided, that if the entire Premises
are rendered untenantable for 180 consecutive days, then Tenant shall have the
right to terminate this Lease upon 30 days prior written notice to Landlord;
provided further, however, that such termination right shall be void if within
said 30 day period Landlord restores such services and Tenant is able to conduct
its business in the Premises in substantially the same manner as it had done
prior to the interruption.
6. REPAIRS.
6.1 REPAIRS WITHIN THE PREMISES. Subject to the terms of Sections 4, 5,
10 and 12, and except to the extent Landlord is required or elects to perform or
pay for certain maintenance or repairs according to those sections, Tenant will,
at Tenant's own expense: (a) at all times during the Term, maintain the
Premises, all fixtures and equipment in the Premises and those portions of any
mechanical, plumbing or electrical systems that exceed Building Standard and
exclusively serve the Premises and are installed by or on behalf of Tenant
(including the Tenant Improvements) in good order and repair and in a condition
that complies with all applicable Laws; and (b) promptly and adequately repair
all damage to the Premises and replace or repair all of such fixtures, equipment
and portions of the mechanical, plumbing or electrical systems that are damaged
or broken, all under the supervision and subject to the prior reasonable
approval of Landlord. All work done by Tenant or its contractors (which
contractors will be subject to Landlord's reasonable approval) will be done in a
first-class workmanlike manner using only grades of materials at least equal in
quality to Building Standard materials and will comply with all insurance
requirements and all applicable Laws. Tenant shall not place any object or
series of objects on the floors of the Premises in such a manner as to exceed
the load capacity of the floors on a per square foot basis as determined by any
architect, engineer, or other consultant of Landlord, or as otherwise limited by
any applicable Laws.
6.2 FAILURE TO MAINTAIN PREMISES. If Tenant fails to perform any of its
obligations under Section 6.1, then Landlord may, after the applicable cure
period under this Lease (unless such failure poses an emergency or threatens
imminent harm to the property or rights of other tenants in the Building, in
which case no cure period shall be applicable), perform such obligations and
Tenant will pay as Rent to Landlord the cost of such performance, including an
amount sufficient to reimburse Landlord for overhead and supervision, within
thirty (30) days after the date of Landlord's invoice. For purposes of
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performing such obligations, or to inspect the Premises, Landlord may, subject
to Tenant's reasonable security and confidentiality requirements, enter the
Premises upon not less than 24 hours' prior notice to Tenant (except in cases of
actual or suspected emergency, in which case no prior notice will be required)
without liability to Tenant for any loss or damage incurred as a result of such
entry, provided that Landlord will take reasonable steps in connection with such
entry to minimize any disruption to Tenant's business or its use of the
Premises. Entry by Landlord to pursue repair, maintenance, or correction
performed in accordance with the foregoing shall not be deemed an actual or
constructive eviction and shall not entitle Tenant to any abatement or reduction
of Rent. All work done during the course of any such entry must be done by
Landlord in good and workmanlike manner and with due diligence so as to result
in minimal interference with Tenant's ability to use the Premises as
contemplated by this Lease. No work shall result in a permanent and material
reduction of the rentable square feet within the Premises. After completion of
any such work, Landlord shall restore the Premises as closely as possible to the
condition existing immediately prior to the commencement of such work.
6.3 NOTICE OF DAMAGE. Tenant will notify Landlord promptly after Tenant
learns of (a) any fire or other casualty in the Premises; (b) any damage to or
defect in the Premises, including the fixtures and equipment in the Premises,
for the repair of which Landlord might be responsible; and (c) any damage to or
defect in any parts or appurtenances of the Building's sanitary, electrical,
heating, air conditioning, elevator or other systems located in or passing
through the Premises.
7. ALTERATIONS.
7.1 ALTERATIONS BY TENANT. Tenant may, from time to time, at its own
expense make changes, additions and improvements to the Premises to better adapt
the same to its business, provided that any such change, addition or improvement
will (a) comply with all applicable Laws; (b) be made only with the prior
written consent of Landlord, which consent will not be unreasonably withheld;
(c) equal or exceed Building Standard; and (d) be carried out only by persons
selected by Tenant and approved in writing by Landlord, who will if reasonably
required by Landlord deliver to Landlord before commencement of the work
performance and payment bonds. Tenant will maintain, or will cause the persons
performing any such work to maintain, worker's compensation insurance and public
liability and property damage insurance (with Landlord named as an additional
insured), in amounts, with companies and in a form reasonably satisfactory to
Landlord, which insurance will remain in effect during the entire period in
which the work will be carried out. If requested by Landlord, Tenant will
deliver to Landlord proof of all such insurance. Tenant will promptly pay, when
due, the cost of all such work and, upon completion, Tenant will deliver to
Landlord, to the extent not previously received by Landlord, evidence of
payment, contractors' affidavits and full and final waivers of all liens for
labor, services or materials. Tenant will also pay any increase in property
taxes on, or fire or casualty insurance premiums for, the Building attributable
to such change, addition or improvement and the cost of any modifications to the
Building outside the Premises that are required to be made in order to make the
change, addition or improvement to the Premises. Tenant, at its expense, will
have promptly prepared and submitted to Landlord reproducible as-built plans of
any such change, addition or improvement upon its completion. All changes,
additions and improvements to the Premises, whether temporary or permanent in
character, made or paid for by Landlord will, without compensation to Tenant,
become Landlord's property upon installation. All changes, additions and
improvements to the Premises, whether temporary or permanent in character, made
or paid for by Tenant (without using Landlord's Allowance) will, without
compensation to Tenant, become Landlord's property upon expiration or earlier
termination of this
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Lease. If at the time Landlord consents to their installation, Landlord requests
or approves the removal by Tenant of any such changes, additions or improvements
upon termination of this Lease, Tenant will remove the same upon termination of
this Lease as provided in Section 15.1. All other changes, additions and
improvements will remain Landlord's property upon termination of this Lease and
will be relinquished to Landlord in good condition, ordinary wear and tear
excepted. Tenant shall have the right, without Landlord's consent, to make
strictly cosmetic, non-structural additions and alterations ("Cosmetic
Alterations") to the Premises that do not (i) affect the exterior appearance of
the Building or (ii) affect the Building Systems or the Building Structure,
provided that the aggregate cost for such additions and alterations do not
exceed $20,000 in any calendar year.
7.2 ALTERATIONS BY LANDLORD. Landlord may from time to time make
repairs, changes, additions and improvements to the Building, Common Areas and
those Building systems necessary to provide the services described in Section 5,
and for such purposes, Landlord may enter the Premises upon not less than 24
hours' prior notice to Tenant (except in cases of actual or suspected emergency,
in which case no prior notice will be required) without liability to Tenant for
any loss or damage incurred as a result of such entry, provided that in doing so
Landlord will not disturb or interfere with Tenant's use of the Premises and
operation of its business any more than is reasonably necessary in the
circumstances and will repair any damage to the Premises caused by such entry.
No permanent change, addition or improvement made by Landlord will materially
impair access to the Premises. Landlord's rights of entry under this Section
shall be subject to the same restrictions and limitations as set forth in
Section 6.2.
8. LIENS. Tenant agrees to pay before delinquency all costs for work,
services or materials furnished to Tenant for the Premises, the nonpayment of
which could result in any lien against the Land or Building. Tenant will keep
title to the Land and Building free and clear of any such lien. Tenant will
immediately notify Landlord of the filing of any such lien or any pending claims
or proceedings relating to any such lien and will protect, defend, indemnify and
hold Landlord harmless from and against all loss, damages and expenses
(including reasonable attorneys' fees) suffered or incurred by Landlord as a
result of such lien, claims and proceedings. In case any such lien attaches,
Tenant agrees to cause it to be immediately released and removed of record
(failing which Landlord may do so at Tenant's sole expense), unless Tenant has a
good faith dispute as to such lien in which case Tenant may contest such lien by
appropriate proceedings so long as Tenant deposits with Landlord a bond or other
security in an amount reasonably acceptable to Landlord which may be used by
Landlord to release such lien if Tenant's contest is abandoned or is
unsuccessful. Upon final determination of any permitted contest, Tenant will
immediately pay any judgment rendered and cause the lien to be released.
9. INSURANCE.
9.1 LANDLORD'S INSURANCE. During the Term, Landlord will provide and
keep in force the following insurance:
(a) comprehensive or commercial general liability insurance
relating to Landlord's operation of the Building, including coverage for
personal and bodily injury and death, and damage to others' property;
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(b) "all risk" (full replacement cost) property insurance
relating to the Building (but excluding Tenant's fixtures, furnishings,
equipment, personal property, documents, files and work products and all
leasehold improvements in the Premises that were paid for by Tenant; for
purposes of this Section 9.1(b) and Section 9.2(b) below, any leasehold
improvements paid for with an allowance provided by Landlord, regardless
of whether a portion of the Base Rent is intended to reimburse Landlord
for such allowance, will be deemed paid for by Landlord);
(c) loss of rental income insurance or loss of insurable gross
profits commonly insured against by prudent landlords; and
(d) such other insurance (including boiler and machinery
insurance) as Landlord reasonably elects to obtain or any Building
mortgagee requires.
Insurance effected by Landlord under this Section 9.1 will be in amounts which
Landlord from time to time reasonably determines sufficient or any Building
mortgagee requires; will be subject to such deductibles and exclusions as
Landlord reasonably determines; and will otherwise be on such terms and
conditions as Landlord from time to time reasonably determines sufficient.
9.2 TENANT'S INSURANCE. During the Term, Tenant will provide and keep in
force the following insurance:
(a) comprehensive or commercial general liability insurance
relating to Tenant's business (carried on, in or from the Premises) and
Tenant's use and occupancy, for personal and bodily injury and death,
and damage to others' property, with limits of not less than the
Liability Insurance Amount for any one accident or occurrence;
(b) "all risk" property insurance (including standard extended
endorsement perils, leakage from fire protective devices and other water
damage) relating to Tenant's fixtures, furnishings, equipment,
inventory, stock-in-trade and all leasehold improvements in the Premises
that were paid for by Tenant on a full replacement cost basis in amounts
sufficient to prevent Tenant from becoming a coinsurer and subject only
to such deductibles and exclusions as Landlord may reasonably approve;
and
(c) if any boiler or machinery is operated in the Premises,
boiler and machinery insurance.
Landlord will be named as an additional insured in the policy described in
Section 9.2(a), which will include cross liability and severability of interests
clauses and will be on an "occurrence" (and not a "claims made") form. Landlord
will be named as a loss payee, as its interest may appear, in the policies
described in Sections 9.2(b) and (c), and such policies will permit the release
of Landlord from certain liability under Section 11.1. Tenant's insurance
policies will otherwise be upon such terms and conditions as Landlord from time
to time reasonably requires. Tenant will provide Landlord, on or before the
Commencement Date and at least ten (10) days before the expiration date of
expiring policies, with such copies of certificates, or other proofs, as may be
reasonably required to establish Tenant's insurance coverage in effect, and each
certificate shall provide that Landlord shall receive ten (10) days' prior
written
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notice for cancellation for non-payment of premium and thirty (30) days' prior
written notice for cancellation for non-renewal. If Tenant fails to insure or
pay premiums, or to file satisfactory proof as required, Landlord may, upon a
minimum of two (2) business days' notice, effect such insurance and recover from
Tenant on demand any premiums paid.
9.3 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waives any
and all rights of recovery against the other (and against the officers,
employees, and agents of the other party), for loss of or damage to such waiving
party or its property or the property of others under its control, to the extent
such loss or damage is covered by standard fire and extended coverage insurance
policies or endorsements; provided, however, that this waiver does not apply to
any rights that either party may have with respect to the insurance proceeds at
the time of such loss or damage. Landlord and Tenant shall, in obtaining the
policies of standard fire and extended coverage insurance which they are
required to maintain under this Lease, give notice to their respective insurance
carriers that the foregoing mutual waiver of subrogation is contained in this
Lease; and Landlord and Tenant shall each obtain from its insurance carrier a
consent to such waiver. If either Landlord or Tenant is unable to obtain the
insurance described in this Section because it is determined to be generally
unavailable in the insurance industry due to the waiver of subrogation set forth
in this Section, then neither Landlord nor Tenant shall be obligated to comply
with the provisions of this Section.
10. DAMAGE OR DESTRUCTION.
10.1 TERMINATION OPTIONS. If the Premises or the Building are damaged by
fire or other casualty Landlord will, promptly after learning of such damage,
notify Tenant in writing of the time necessary to repair or restore such damage,
as estimated by an independent, competent architect, engineer or contractor
selected by Landlord, which estimate shall be provided to Tenant within 30 days
after the date of the casualty. Landlord's architect, engineer or contractor. If
such estimate states that repair or restoration of all of such damage that was
caused to the Premises or to any other portion of the Building necessary for
Tenant's occupancy cannot be completed within 180 days from the date of such
damage (or within 30 days from the date of such damage if such damage occurred
within the last 12 months of the Term), then Tenant will have the option to
terminate this Lease, unless such damage was caused by an act or omission of
Tenant (in which event Tenant shall make the repairs using insurance proceeds,
if any, paid pursuant to coverage to be maintained by Landlord, provided that
any deductible and increases in premium costs associated with such damage shall
be paid by Tenant). If such estimate states that repair or restoration of all of
such damage that was caused to the Building cannot be completed within 180 days
from the date of such damage, or if such damage occurred within the last 12
months of the Term and such estimate states that repair or restoration of all
such damage that was caused to the Premises or to any other portion of the
Building necessary for Tenant's occupancy cannot be completed within 30 days
from the date of such damage, or if such damage is not insured against by the
insurance policies required to be maintained by Landlord according to Section
9.1, then Landlord will have the option to terminate this Lease. Any option to
terminate granted above must be exercised by written notice to the other party
given within 10 days after Landlord delivers to Tenant the notice of estimated
repair time. If either party exercises its option to terminate this Lease, the
Term will expire and this Lease will terminate 10 days after notice of
termination is delivered; provided, however, that Rent for the period commencing
on the date of such damage until the date this Lease terminates will be reduced
to the reasonable value of any use or occupation of the Premises by Tenant
during such period and Landlord will be entitled to all proceeds of the
insurance policy described in Section 9.2(b) applicable to any damaged leasehold
improvements in the Premises. Landlord shall exercise its
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termination rights hereunder in good faith and may not terminate this Lease
unless it elects not to commence rebuilding or reconstructing within one (1)
year from the date of such damage and destruction.
10.2 REPAIR OBLIGATIONS. If the Premises or the Building are damaged by
fire or other casualty and neither party terminates this Lease according to
Section 10.1, then Landlord will repair and restore such damage with reasonable
promptness, subject to delays for insurance adjustments and delays caused by
matters beyond Landlord's control. Landlord will have no liability to Tenant and
Tenant will not be entitled to terminate this Lease if such repairs and
restoration are not in fact completed within the estimated time period, provided
that Landlord promptly commences and diligently pursues such repairs and
restoration to completion. In no event will Landlord be obligated to repair,
restore or replace any of the property required to be insured by Tenant
according to Section 9.2. Tenant agrees to repair, restore or replace, at its
expense, all leasehold improvements required to be insured by Tenant according
to Section 9.2(b) as soon as possible after the date of damage, to at least the
condition existing prior to their damage (unless changes thereto are approved by
Landlord in its reasonable discretion), using materials at least equal to
Building Standard. However, in connection with its repair and restoration of
such damage, Landlord may, at its option, elect to repair and restore the
damage, if any, caused to any or all of such leasehold improvements required to
be insured by Tenant. If Landlord makes such election, Landlord will be entitled
to all proceeds of the insurance policy described in Section 9.2(b) applicable
to the leasehold improvements Landlord so elects to repair or restore and may
limit its repair or restoration of such leasehold improvements to that which may
be paid for in full by such proceeds.
10.3 RENT ABATEMENT. If any fire or casualty damage renders the Premises
untenantable and if this Lease is not terminated according to Section 10.1, then
Rent will abate beginning on the date of such damage, provided that if the
damage was the result of an act or omission of Tenant, such abatement shall
apply only to the extent Landlord receives loss of rental income insurance
proceeds or would have received such proceeds if Landlord had maintained the
insurance coverage required under this Lease. Such abatement will end on the
date Landlord has substantially completed the repairs and restoration Landlord
is required to perform according to Section 10.2 and Tenant has had a reasonable
period of time to substantially complete any repairs and restoration Tenant is
required to perform according to Section 10.2. Such abatement will be in an
amount bearing the same ratio to the total amount of Rent for such period as the
untenantable portion of the Premises bears to the entire Premises. In no event
will Landlord be liable for any inconvenience or annoyance to Tenant or injury
to the business of Tenant resulting in any way from damage caused by fire or
other casualty or the repair of such damage, provided however that, to the
extent Tenant remains in possession of a portion of the Premises, Landlord will
take all reasonable steps to minimize the disruption to Tenant's business and
use of such portion of the Premises during the period of repair.
11. WAIVERS AND INDEMNITIES.
11.1 TENANT'S WAIVERS. Except if caused by the willful misconduct or
gross negligence of Landlord, Landlord and its Affiliates will not be liable or
in any way responsible for, and Tenant waives all claims against Landlord and
its Affiliates for, any loss, injury or damage suffered by Tenant or
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others relating to (a) loss or theft of, or damage to, property of Tenant; (b)
injury or damage to Tenant or persons claiming under Tenant or property
resulting from fire, explosion, falling plaster, escaping steam or gas,
electricity, water, rain or snow, or leaks from any part of the Building or from
any pipes, appliances or plumbing, or from dampness; or (c) damage caused by
other tenants, occupants or persons in the Premises or other premises in the
Building, or caused by the public or by construction of any private or public
work. Landlord and its Affiliates will not be liable or in any way responsible
to Tenant for, and Tenant waives all claims against Landlord and its Affiliates
for, any loss, injury or damage that is insured or required to be insured by
Tenant under Sections 9.2(b), or (c), so long as such loss, injury or damage
results from or in connection with this Lease or Landlord's operation of the
Building.
11.2 LANDLORD'S INDEMNITY. Subject to Sections 5.3 and 11.1 and except
if caused by the act or omission or breach of this Lease by Tenant or anyone for
whom Tenant is legally responsible, Landlord will protect, defend, indemnify and
hold Tenant harmless from and against any and all liability, loss, claims,
demands, damages or expenses (including reasonable attorneys' fees) due to or
arising out of any willful misconduct or active negligence of Landlord.
Landlord's obligations under this Section 11.2 will survive the expiration or
early termination of the Term.
11.3 TENANT'S INDEMNITY. Except if caused by the willful misconduct or
active negligence of Landlord, Tenant will protect, defend, indemnify and hold
Landlord harmless from and against any and all liability, loss, claims, demands,
damages or expenses (including reasonable attorneys' fees) due to or arising out
of any accident or occurrence on or about the Premises (including, without
limitation, accidents or occurrences resulting in injury, death, property damage
or theft) or any act or omission of or breach of this Lease by Tenant or anyone
for whom Tenant is legally responsible. Tenant's obligations under this Section
11.3 will survive the expiration or early termination of the Term.
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12. CONDEMNATION.
12.1 FULL TAKING. If all or substantially all of the Building or
Premises are taken for any public or quasi-public use under any applicable Laws
or by right of eminent domain, or are sold to the condemning authority in lieu
of condemnation, then this Lease will terminate as of the date when the
condemning authority takes physical possession of the Building or Premises.
12.2 PARTIAL TAKING.
(a) Landlord's Termination of Lease. If only part of the
Building or Premises is thus taken or sold, and if after such partial
taking, in Landlord's reasonable judgment, alteration or reconstruction
is not economically justified, then Landlord (whether or not the
Premises are affected) may terminate this Lease by giving written notice
to Tenant within 60 days after the taking.
(b) Tenant's Termination of Lease. If (i) over 20% of the
Premises is thus taken or sold; or (ii) if a material portion of the
Common Areas or parking area is taken; or (iii) the taking has a
permanent material adverse affect on ingress or egress to the Building
or Premises, then Tenant may terminate this Lease if in Tenant's
reasonable judgment the Premises cannot be operated by Tenant in an
economically viable fashion because of such partial taking. Such
termination by Tenant must be exercised by written notice to Landlord
given not later than 60 days after Tenant is notified of the taking of
the Premises.
(c) Effective Date of Termination. Termination by Landlord or
Tenant will be effective as of the date when physical possession of the
applicable portion of the Building or Premises is taken by the
condemning authority.
(d) Election to Continue Lease. If neither Landlord nor Tenant
elects to terminate this Lease upon a partial taking of a portion of the
Premises, the Rent payable under this Lease will be diminished by an
amount allocable to the portion of the Premises which was so taken or
sold or rendered unusable. Any Common Areas taken shall be excluded from
the Common Areas usable by Tenant and no reduction of Rent shall occur
with respect thereto or by reason thereof. If this Lease is not
terminated upon a partial taking of the Building or Premises, Landlord
will, at Landlord's sole expense, promptly restore and reconstruct the
Building and Premises to substantially their former condition to the
extent the same is feasible. However, Landlord will not be required to
spend for such restoration or reconstruction an amount in excess of the
net amount received by Landlord as compensation or damages for the part
of the Building or Premises so taken.
12.3 AWARDS. As between the parties to this Lease, Landlord will be
entitled to receive, and Tenant assigns to Landlord, all of the compensation
awarded upon taking of any part or all of the Building or Premises, including
any award for the value of the unexpired Term. However, Tenant may assert a
claim in a separate proceeding against the condemning authority for any damages
resulting from the taking of Tenant's trade
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fixtures or personal property, or for moving expenses, business relocation
expenses or damages to Tenant's business incurred as a result of such
condemnation.
13. ASSIGNMENT AND SUBLETTING.
13.1 LIMITATION. Without Landlord's prior written consent, Tenant will
not assign all or any of its interest under this Lease, sublet all or any part
of the Premises or permit the Premises to be used by any parties other than
Tenant and its employees.
13.2 NOTICE OF PROPOSED TRANSFER; LANDLORD'S OPTIONS. If Tenant desires
to enter into any assignment of this Lease or a sublease of all or any part of
the Premises, Tenant will first give Landlord written notice of the proposed
assignment or sublease, which notice will contain the name and address of the
proposed transferee, the proposed use of the Premises, statements reflecting the
proposed transferee's current financial condition and income and expenses for
the past 2 years, and the principal terms of the proposed assignment or
sublease. Landlord will have the following options, which must be exercised, if
at all, by notice given to Tenant within 10 business days after Landlord's
receipt of Tenant's notice of the proposed transfer:
(a) if Tenant's notice relates to a subletting, to sublet from
Tenant such space as is described in the notice for such portion of the
Term as is described in the notice, upon the same terms and conditions
and for the same Rent (apportioned, as appropriate, to the amount of
such space) as provided in Tenant's notice, and with all other terms as
set forth in this Lease. Notwithstanding anything to the contrary in
this Lease, Landlord's option to sublet from Tenant shall not be
applicable if the contemplated transfer is for a term of less than 50%
of the then remaining initial Term of the Lease or is for less than
5,000 rentable square feet of the Premises. In addition, if Landlord
elects to sublet from Tenant, Tenant may by written notice rescind its
request for consent within 10 days thereafter; or
(b) if Tenant's notice relates to an assignment, to cancel and
terminate this Lease. If Landlord exercises its option to terminate this
Lease, this Lease shall cancel and terminate on the last day of the
month following said 10-day period and Tenant shall be released from any
further liability under this Lease. Landlord may then enter into a new
lease with the intended assignee, or any other person, on whatever terms
the parties may negotiate. In such a case, Tenant is not entitled to any
portion of the profit, if any, realized by Landlord from the termination
and reletting.
Except in the event of termination of this Lease by Landlord as provided in this
Section 13.2, no provision of this Section shall be construed to relieve Tenant
of the obligations as set forth in this Lease.
13.3 CONSENT NOT TO BE UNREASONABLY WITHHELD. If Landlord does not
exercise any of its applicable options under Section 13.2, then Landlord will
not unreasonably withhold or delay its consent to the proposed assignment or
subletting. Landlord's approval or disapproval shall be given to Tenant within
fifteen (15) business days after receipt of Tenant's request for consent,
failing which Landlord's consent shall be deemed given. If Landlord disapproves
a transfer, Landlord shall advise Tenant with reasonable specificity of the
reasonable grounds upon which Landlord is withholding its consent.
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13.4 FORM OF TRANSFER. If Landlord consents to a proposed assignment or
sublease, Landlord's consent will not be effective unless and until Tenant
delivers to Landlord an original duly executed assignment or sublease, as the
case may be, that provides, in the case of a sublease, that the sublease is
subject and subordinate to this Lease and the subtenant will comply with all
applicable terms and conditions of this Lease and, in the case of an assignment,
an assumption by the assignee of all of the obligations which this Lease
requires Tenant to perform and an acknowledgment by Tenant that it remains
liable for the performance of all of such obligations. If Tenant's obligations
under this Lease have been guaranteed by third parties, then an assignment or
sublease, and Landlord's consent thereto, shall not be effective unless said
guarantors give their written consent to such assignment or sublease and the
terms thereof.
13.5 PAYMENTS TO LANDLORD. If Landlord does not exercise its applicable
option under Section 13.2 and Tenant effects an assignment or sublease, then
Landlord will be entitled to receive and collect, either from Tenant or directly
from the transferee, fifty percent (50%) of the amount by which the rental
consideration required to be paid by the transferee for the use and enjoyment of
Tenant's rights under this Lease (after deducting from such consideration
Tenant's reasonable costs incurred in effecting the assignment or sublease,
including (i) any improvement allowance or other economic concessions (space
planning allowance, moving expenses, etc.) paid by Tenant to the transferee in
connection with such transfer; (ii) any brokerage commissions incurred by Tenant
in connection with the transfer; (iii) reasonable attorneys' fees incurred by
Tenant in connection with the transfer; (iv) any out-of-pocket lease takeover
costs incurred by Tenant in connection with the transfer; (v) any reasonable
out-of-pocket costs of advertising the space subject to the transfer) exceeds
the Rent payable by Tenant to Landlord allocable to the transferred space. Such
percentage of such amount will be payable to Landlord at the time(s) Tenant
receives the same from its transferee (whether in monthly installments, in a
lump sum, or otherwise).
13.6 CHANGE OF OWNERSHIP. Any material change by Tenant in the form of
its legal organization (such as, for example, a change from a corporation to a
limited partnership), and any transfer of interest effecting a change in
identity of persons exercising effective control of Tenant will be deemed an
"assignment" of this Lease requiring Landlord's prior written consent.
Notwithstanding the foregoing, the following transactions shall not be deemed an
assignment, subletting or transfer under this Article 13: (i) the transfer of
stock of Tenant if Tenant is a publicly held corporation over a recognized
securities exchange or over-the-counter market or in connection with Tenant
"going public" or "going private" (i.e., changing from a private company to a
public company and vice-versa); or (ii) the acquisition or transfer of
substantially all of Tenant's assets or stock by merger, purchase, consolidation
or reorganization, provided that (a) Tenant notifies Landlord of any such
transaction and promptly supplies Landlord with any documents or information
reasonably requested by Landlord regarding such transaction, (b) such
transaction is for a legitimate purpose, and (c) immediately after any such
transaction involving "going private" or described in subsection (ii) above,
Tenant's net worth is $100,000,000 or greater. In addition, Tenant shall have
the right, without Landlord's consent, to assign this Lease or sublet a portion
of the Premises, to any entity that is a wholly owned or controlled by Tenant,
wholly owns or controls Tenant, or is under common control with Tenant
(collectively,
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Permitted Transferee(s)"), provided, that, Tenant shall provide to Landlord a
copy of each such assignment or subletting agreement at least ten (10) days
prior to such assignment or subletting, and the provisions of Sections 13.5 and
13.7 shall apply.
13.7 EFFECT OF TRANSFERS. Unless Landlord agrees to the contrary in
writing, no subletting or assignment will release Tenant from any of its
obligations under this Lease and such obligations of Tenant will continue in
full force and effect as if no subletting or assignment had been made,
regardless of any action taken by or on behalf of a subtenant or assignee, or
limitations imposed on remedies against a subtenant or assignee, in any
bankruptcy, insolvency, receivership, reorganization or dissolution proceeding
instituted by or against such subtenant or assignee. Acceptance of Rent by
Landlord from any person other than Tenant will not be deemed a waiver by
Landlord of any provision of this Section 13. Consent to one assignment or
subletting will not be deemed a consent to any subsequent assignment or
subletting. In the event of any default by any assignee or subtenant or any
successor of Tenant in the performance of any Lease obligation, Landlord may
proceed directly against Tenant without exhausting remedies against such
assignee, subtenant or successor. The voluntary or other surrender of this Lease
by Tenant or the cancellation of this Lease by mutual agreement of Tenant and
Landlord will not work a merger and will, at Landlord's option, terminate all or
any subleases or operate as an assignment to Landlord of all or any subleases;
such option will be exercised by notice to Tenant and all known subtenants in
the Premises. The discovery of the fact that any financial statement relied upon
by Landlord in giving its consent to an assignment or subletting was materially
false or misleading shall, at Landlord's election, render Landlord's said
consent null and void.
13.8 TENANT'S OCCUPANTS. Notwithstanding any contrary provision of this
Article 13, Tenant shall have the right, without being subject to Sections 13.2,
and without the receipt of Landlord's consent, to permit the occupancy of office
space of up to twenty percent (20%) of the rentable square feet of the Premises,
in the aggregate, to any individual(s) or entities with an ongoing, business
relationship with Tenant ("Tenant's Occupants") on and subject to the following
conditions: (i) such individuals or entities shall not be permitted to occupy a
separately demised portion of the Premises which contains an entrance to such
portion of the Premises other than the primary entrance to the Premises; (ii)
all such individuals or entities shall be of a character and reputation
consistent with the quality of the Building; (iii) such occupancy shall not be a
subterfuge by Tenant to avoid its obligations under this Lease or the
restrictions on transfers pursuant to this Article 13, and (iv) Tenant shall
provide Landlord a copy of each such subletting or occupancy agreement at least
ten (10) days prior to such subletting or occupancy; and the provisions of
Sections 13.5 and 13.7 shall apply. Tenant shall promptly supply Landlord with
any documents or information reasonably requested by Landlord regarding any such
individuals or entities.
14. PERSONAL PROPERTY.
14.1 INSTALLATION AND REMOVAL. Tenant may install in the Premises its
personal property (including Tenant's usual trade fixtures) in a proper manner,
provided that no such installation will interfere with or damage the mechanical,
plumbing or electrical systems or the structure of the Building, and provided
further, that if such installation would require any change, addition or
improvement to the Premises, such installation will be subject to Section 7.1.
Any such personal property installed in the Premises by Tenant (a) may be
removed from the Premises from time to time in the ordinary course of Tenant's
business or in the course of making any changes, additions or improvements to
the Premises permitted under Section 7.1, and (b) will be removed by Tenant at
the end of the Term according to
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Section 15.1. Tenant will promptly repair at its expense any damage to the
Building resulting from such installation or removal. Landlord hereby waives any
statutory liens related to Tenant's personal property and agrees to execute
waivers or other documents that may be required by Tenant's equipment vendors or
lenders so long as the form is acceptable to Landlord in its reasonable
discretion.
14.2 RESPONSIBILITY. Tenant will be solely responsible for all costs and
expenses related to personal property used or stored in the Premises. Tenant
will pay any taxes or other governmental impositions levied upon or assessed
against such personal property, or upon Tenant for the ownership or use of such
personal property, on or before the delinquency date for payment. Such personal
property taxes or impositions are not included in Taxes. Tenant agrees that all
personal property of whatever kind, including, without limitation, inventory
and/or goods stored at or about the Premises, Tenant's trade fixtures, and
Tenant's interest in tenant improvements which may be at any time located in, on
or about the Premises or the Building, whether owned by Tenant or third parties,
shall be at the sole risk or at the risk of those claiming through Tenant, and
that Landlord shall not be liable for any damage to or loss of such property
except for loss or damage arising from or caused by the sole gross negligence of
Landlord or any of Landlord's officers, employees, agents, or authorized
representatives each acting within the scope of their authority.
15. END OF TERM.
15.1 SURRENDER. Upon the expiration or other termination of the Term,
Tenant will immediately vacate and surrender possession of the Premises in good
order, repair and condition, except for ordinary wear and tear, casualty,
condemnation and repairs which are specifically made the responsibility of
Landlord under this Lease. Upon the expiration or other termination of the Term,
Tenant agrees to remove, at Tenant's sole cost and expense (a) all changes,
additions and improvements to the Premises the removal of which Landlord
requested or approved according to Section 7.1 at the time Landlord consented to
their installation, except that the same shall not apply to any of the initial
Tenant Improvements in the Premises or any tenant improvements which are typical
for general office tenants which have been approved in writing by Landlord, and
(b) all of Tenant's trade fixtures, office furniture, office equipment and other
personal property. Tenant will pay Landlord on demand the cost of repairing any
damage to the Premises or Building caused by the installation or removal of any
such items. Any of Tenant's property remaining in the Premises more than one (1)
week following termination of this Lease will be conclusively deemed to have
been abandoned by Tenant and may be appropriated, stored, sold, destroyed or
otherwise disposed of by Landlord without notice or obligation to account to or
compensate Tenant, and Tenant will pay Landlord on demand all costs incurred by
Landlord relating to such abandoned property. Tenant's obligations under this
Section 15.1 will survive the expiration or early termination of this Lease.
15.2 HOLDING OVER. Tenant understands that it does not have the right to
hold over at any time and Landlord may exercise any and all remedies at law or
in equity to recover possession of the Premises, as well as any damages incurred
by Landlord, due to Tenant's failure to vacate the Premises and deliver
possession to Landlord as required by this Lease. If Tenant holds over after the
Expiration Date with Landlord's prior written consent, Tenant will be deemed to
be a tenant from month-to-month, at a monthly Base Rent, payable in advance,
equal to 120% of the monthly Base Rent payable during the last year of the Term,
and Tenant will be bound by all of the other terms, covenants and agreements of
this Lease as the same may apply to a month-to-month tenancy. If Tenant holds
over after the Expiration
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Date without Landlord's prior written consent, Tenant will be deemed a tenant at
sufferance, at a daily Base Rent, payable in advance, equal to 120% of the Base
Rent for the first month and 150% of the Base Rent thereafter per day payable
during the last year of the Term, and Tenant will be bound by all of the other
terms, covenants and agreements of this Lease as the same may apply to a tenancy
at sufferance. If Tenant fails to surrender the Premises upon expiration of this
Lease despite demand to do so by Landlord, Tenant shall indemnify and hold
Landlord harmless from all loss, cost, expense, or liability, including without
limitation, any claim made by any succeeding tenant founded on or resulting from
such failure to surrender and any attorneys' fees and other costs of legal
proceedings; provided, however, that such indemnity shall not include or cover
consequential damages incurred by Landlord unless such holdover exceeds sixty
(60) days.
16. ESTOPPEL CERTIFICATES. Promptly upon Landlord's request after Tenant
has occupied the Premises, Tenant will execute and deliver to Landlord an
Occupancy Estoppel Certificate in the form of Exhibit C. In addition, Tenant
agrees that at any time and from time to time (but on not less than 10 business
days' prior request by Landlord), Tenant will execute, acknowledge and deliver
to Landlord a certificate indicating any or all of the following: (a) the
Commencement Date and Expiration Date; (b) that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that this Lease is
in full force and effect, as modified, and stating the date and nature of each
modification); (c) the date, if any, through which Base Rent, Additional Rent
and any other Rent payable have been paid; (d) that to Tenant's actual knowledge
no default by Landlord or Tenant exists which has not been cured, except as to
defaults stated in such certificate; (e) that to Tenant's actual knowledge
Tenant has no existing defenses or set-offs to enforcement of this Lease, except
as specifically stated in such certificate; (f) provided such events have
occurred, that Tenant has accepted the Premises and that all improvements
required to be made to the Premises by Landlord have been completed according to
this Lease; (g) that, except as specifically stated in such certificate, Tenant,
and only Tenant, currently occupies the Premises; and (h) such other matters as
may be reasonably requested by Landlord. Any such certificate may be relied upon
by Landlord and any prospective purchaser or present or prospective mortgagee,
deed of trust beneficiary or ground lessor of all or a portion of the Building.
At Tenant's written request, Landlord will provide Tenant with a similar
estoppel certificate, with appropriate modifications reflecting that Landlord is
the responding party and Tenant is the requesting party.
17. TRANSFERS OF LANDLORD'S INTEREST.
17.1 SALE, CONVEYANCE AND ASSIGNMENT. Subject only to Tenant's rights
under this Lease, nothing in this Lease will restrict Landlord's right to sell,
convey, assign or otherwise deal with the Land, Building or Landlord's interest
under this Lease.
17.2 EFFECT OF SALE, CONVEYANCE OR ASSIGNMENT. A sale, conveyance or
assignment of the Building will automatically release Landlord from liability
under this Lease from and after the effective date, of the transfer, except for
any liability relating to the period prior to such effective date so long as
such transfer is not a subterfuge to avoid Landlord's obligations under this
Lease; and Tenant will look solely to Landlord's transferee for performance of
Landlord's obligations relating to the period after such effective date and
Landlord's transferee will be deemed to have assumed all such obligations. This
Lease will not be affected by any such sale, conveyance or assignment and Tenant
will attorn to Landlord's transferee.
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17.3 SUBORDINATION AND NONDISTURBANCE. This Lease is and will be subject
and subordinate in all respects to any first mortgage or first deed of trust now
or later encumbering the Building or Land, and to all their renewals,
modifications, supplements, consolidations and replacements (an "Encumbrance");
provided, however, with respect to any Encumbrance first encumbering the
Building or Land subsequent to the Date of this Lease, Landlord will cause the
holder of such Encumbrance to agree (either in the Encumbrance or in a separate
agreement with Tenant) that so long as Tenant is not in default of its
obligations under this Lease, this Lease will not be terminated and Tenant's
possession of the Premises will not be disturbed by the termination or
foreclosure, or proceedings for enforcement, of such Encumbrance. While such
subordination will occur automatically (subject to the foregoing sentence),
Tenant agrees, upon request by and without cost to Landlord or any successor in
interest, to promptly execute and deliver to Landlord or the holder of an
Encumbrance such instrument(s) as may be reasonably required to evidence such
subordination. In the alternative, however, the holder of an Encumbrance may
unilaterally elect to subordinate such Encumbrance to this Lease. Landlord shall
use commercially reasonable efforts to provide Tenant with a subordination,
nondisturbance and attornment agreement in a form reasonably acceptable to
Landlord, Tenant and Landlord's lender within forty-five (45) days after
execution of this Lease by Tenant and Landlord.
17.4 ATTORNMENT. If the interest of Landlord is transferred to any
person (a "Transferee") by reason of the termination or foreclosure, or
proceedings for enforcement, of an Encumbrance, or by delivery of a deed in lieu
of such foreclosure or proceedings, Tenant will immediately and automatically
attorn to the Transferee. Upon attornment this Lease will continue in full force
and effect as a direct lease between the Transferee and Tenant, upon all of the
same terms, conditions and covenants as stated in this Lease, except the
Transferee will not be subject to any set-offs or claims which Tenant might have
against any prior landlord and will not be liable for any act or omission of any
prior landlord except as otherwise set forth in such non-disturbance
agreement(s). Tenant agrees, upon request by and without cost to the Transferee,
to promptly execute and deliver to the Transferee such instrument(s) as may be
reasonably required to evidence such attornment.
18. RULES AND REGULATIONS. Tenant agrees to observe and comply with the
Rules and Regulations set forth on Exhibit D and with all reasonable
modifications and additions to such Rules and Regulations (which will be
applicable to all Building tenants) from time to time adopted by Landlord and of
which Tenant is notified in writing. No such modification or addition will
contradict or abrogate any right expressly granted to Tenant under this Lease or
result in any additional charges or increases in Tenant's Base Rent hereunder.
Landlord's enforcement of the Rules and Regulations will be uniform and
nondiscriminatory, but Landlord will not be responsible to Tenant for the
failure of any person to comply with the Rules and Regulations. If the violation
of any such Rule or Regulations by a tenant of the Building other than Tenant
shall create a nuisance for Tenant or shall materially adversely impact Tenant's
ability to conduct its business at the Premises, or affect the health or safety
of any occupant of the Building, then Landlord shall use commercially reasonable
efforts to enforce such Rule or Regulations against such other tenant of the
Building. No Rule or Regulation or any modifications or additions thereto shall
materially adversely interfere with Tenant's use of the Premises.
19. PARKING. Tenant may elect to lease up to four and 27/100 (4.27)
parking spaces per 1,000 usable square feet of the Premises (i.e., 119 spaces)
for the parking of vehicles at the current rates set forth below of which no
more than twenty percent (20%) may be assigned spaces in the parking garage at
the Building (i.e., no more than 24 assigned parking garage spaces) and of which
no more than
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thirty-nine percent (39%) may be unassigned spaces on surface parking areas
adjacent to the Building (i.e., no more than 46 unassigned surface spaces) and
of which the remaining shall be unassigned spaces either on surface parking
areas adjacent to the Building or in the parking garage at the Building.
Tenant's initially assigned parking spaces shall be in the location shown on
Exhibit K. During the initial Term Tenant shall not lease less than two (2)
parking spaces per 1,000 usable square feet of the Premises (i.e., 56 spaces).
Tenant will notify Landlord at least thirty (30) days prior to the Commencement
Date of how many of such assigned and/or unassigned spaces Tenant elects to
lease, and Landlord will make that number of assigned and/or unassigned spaces
available for lease by Tenant within thirty (30) days after the early occupancy
date. Tenant will pay monthly parking rent for each space Tenant so elects to
lease at the monthly rate established by Landlord from time to time for the use
of that type of parking space by tenants of the Building (currently the monthly
rate for unassigned spaces either on surface areas adjacent to the Building or
in the parking garage at the Building is Fifty Dollars ($50) per space and the
monthly rate for assigned spaces in the parking garage at the Building is One
Hundred Dollars ($100) per space). Landlord will give Tenant at least thirty
(30) days notice before increasing the parking rates; provided, however, that
the monthly parking rent shall be imposed non-discriminatorily and shall be
comparable to the rates charged for similar parking in comparable buildings. All
monthly parking rent will be payable in advance on the first day of each month
during the Term to the same place as Base Rent (or to such other place as
Landlord may direct in writing) and will be considered Rent under this Lease.
Tenant may relinquish any parking space it previously elected to lease as of the
last day of any calendar month by notice to Landlord given at least thirty (30)
days prior to such last day. Any parking space so relinquished and any of the
total available spaces described above that Tenant does not elect to lease at
least thirty (30) days prior to the Commencement Date will, unless the same are
leased to one or more other tenants in the Building, remain available for lease
to Tenant, upon Tenant's sixty (60) day prior written notice to Landlord.
Tenant's rights to use the Building's parking garage and adjacent surface
parking areas are nonexclusive (except Landlord will not grant any other party
the right to use Tenant's assigned spaces), will be deemed a license only and
are conditioned upon this Lease being in full force and effect and there being
no Default. Tenant will not abuse its privileges with respect to such parking
and will use the same in accordance with Landlord's reasonable directions.
Landlord's inability to make any of the parking spaces leased by Tenant
available at any time during the Term for reasons beyond Landlord's reasonable
control will not be deemed a default by Landlord giving rise to any claim by
Tenant, except that Tenant will be entitled to an abatement of monthly parking
rent for any such spaces during the period of unavailability and such abatement
will be in full settlement of any claims that Tenant might otherwise have had
for such unavailability. If at any time during the Term Tenant fails to make
timely payment of any monthly parking rent due, in addition to any other
remedies available to Landlord under Section 20.2, Landlord may, if it is
concurrently terminating this Lease, terminate Tenant's license under this
Section 19 and Tenant will then have no further right to use any parking spaces
in the Building's parking garage. Any material modifications to Tenant's parking
areas may only be made by Landlord to the extent required by laws or provisions
of this Lease. Landlord shall use commercially reasonable efforts to cause any
such work to be conducted in a manner which will minimize any inconvenience to
Tenant and to provide alternative parking.
20. TENANT'S DEFAULT AND LANDLORD'S REMEDIES.
20.1 TENANT'S DEFAULT. The occurrence of any one or more of the
following events shall be a
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material default ("Default") and breach of this Lease by Tenant. Any notice
required by the terms of this Lease in connection with any such default shall be
in lieu of, and not in addition to, any notice required under Sections 1161, et
seq., of the California Code of Civil Procedure:
(a) Tenant fails to pay any rent payment or other sum due under
this Lease after the same shall be due and payable, and such failure
continues for a period of ten (10) days after written notice thereof
from Landlord to Tenant.
(b) Tenant fails to perform or observe any term, condition,
covenant, or obligation required to be performed or observed by it under
this Lease for a period of thirty (30) days (or such shorter time
provided herein) after notice thereof from Landlord; provided, however,
that if the term, condition, covenant, or obligation to be performed by
Tenant is of such nature that the same cannot reasonably be cured within
thirty (30) days and if Tenant commences such performance within said
thirty-day (30) period and thereafter diligently undertakes to complete
the same, then such failure shall not be a default hereunder.
(c) [Intentionally Omitted.]
(d) A trustee, disbursing agent, or receiver is appointed to
take possession of all or substantially all of Tenant's assets in, on or
about the Premises or of Tenant's interest in this Lease (and Tenant or
any guarantor of Tenant's obligations under this Lease does not regain
possession within ninety (90) days after such appointment); or Tenant
makes an assignment for the benefit of creditors; or all or
substantially all of Tenant's assets in, on or about the Premises or
Tenant's interest in this Lease are attached or levied upon under
execution (and Tenant does not discharge the same within ninety (90)
days thereafter).
(e) A petition in bankruptcy, insolvency, or for reorganization
or arrangement is filed by or against Tenant or any guarantor of
Tenant's obligations under this Lease pursuant to any federal or state
statute, and, with respect to any such petition filed against it, Tenant
or such guarantor fails to secure a stay or discharge thereof within
ninety (90) days after the filing of the same. In the event that any
provision of this Subsection 20.1(e) is contrary to any applicable Laws,
such provision shall be of no force or effect.
(f) Any assignment or other transfer for which the prior written
consent of the Landlord has not been obtained or any subletting for
which the prior written consent of Landlord has not been obtained that
continues after thirty (30) days notice to Tenant from Landlord.
(g) Discovery of any materially false or misleading statement
concerning financial information submitted by Tenant or any guarantor of
Tenant's obligations under this Lease to Landlord in connection with
obtaining this Lease or any other consent or agreement by Landlord.
(h) Tenant's admission in writing of its inability to pay its
debts as they mature.
(i) Suspension of Tenant's right to conduct its business for
more than sixty (60) days, caused by the order, judgment, decree,
decision, or other act of any court or governmental agency.
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(j) Tenant's failure to execute, acknowledge, and deliver to
Landlord, within the ten (10) business day period specified in Article
17, any documents required to effectuate an attornment, a subordination,
or to make this Lease or any option granted herein prior to the lien of
any mortgage, deed of trust, or ground lease, or any estoppel
certificate, as the case may be where such failure continues for a
period of ten (10) days after a second request therefor containing the
words "Failure to Respond May Result in Termination of Your Lease" in
bold-face.
(k) If the performance of Tenant's obligations under this Lease
is guaranteed: (a) the termination of a guarantor's liability with
respect to this Lease other than in accordance with the terms of such
guaranty, (b) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (c) a guarantor's refusal or inability to honor the
guarantee, or (d) a guarantor's breach of its guarantee obligation, and
Tenant's failure within sixty (60) days following written notice by or
on behalf of Landlord to Tenant of any such event, to provide Landlord
with written alternative assurance or security, which, when coupled with
the then existing resources of Tenant, equals or exceeds the combined
financial resources of Tenant and the guarantors that existed at the
time of execution of this Lease.
20.2 LANDLORD'S REMEDIES. Upon the occurrence of any event of Default,
Landlord shall have the following rights and remedies, in addition to those
allowed by law or in equity, any one or more of which may be exercised or not
exercised without precluding the Landlord from exercising any other remedy
provided in this Lease or otherwise allowed by law or in equity:
(a) Landlord may terminate this Lease and Tenant's right to
possession of the Premises. If Tenant has abandoned and vacated the
Premises, the mere entry onto the Premises by Landlord in order to
perform acts of maintenance, cure defaults, preserve the Premises, or
attempt to relet the Premises, or the appointment of a receiver in order
to protect the Landlord's interest under this Lease, shall not be deemed
a termination of Tenant's right to possession or a termination of this
Lease unless Landlord has notified Tenant in writing that this Lease is
terminated. If Landlord terminates this Lease and Tenant's right to
possession of the Premises pursuant to this Subsection 20.2(a), then
Landlord may recover from Tenant:
(i) The worth at the time of the award of unpaid rent,
including, without limitation, Tenant's share of Additional
Expenses and Additional Taxes, which had been earned at the time
of termination; plus
(ii) The worth at the time of the award of the amount by
which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably
avoided; plus
(iii) The worth at the time of the award of the amount
by which the unpaid rent for the balance of the term after the
time of the award exceeds the amount of such rental loss that
Tenant proves could be reasonably avoided; plus
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(iv) Any other amounts necessary to compensate Landlord
for all of the detriment proximately caused by Tenant's failure
to perform its obligations under this Lease which in the
ordinary course of things would be likely to result therefrom,
including, without limitation, any legal expenses, brokers
commissions, or finders fees in connection with reletting the
Premises; the costs of repairs, cleanup, refurbishing, removal,
and storage or disposal of Tenant's personal property,
equipment, fixtures, and anything else that Tenant is required
under this Lease to remove but does not remove (including those
alterations which Tenant is required to remove pursuant to an
election by Landlord, and which Landlord actually removes,
whether or not notice to remove shall be delivered to Tenant);
and any costs for alterations, additions, and renovations
incurred by Landlord in regaining possession of and reletting
(or attempting to relet) the Premises.
All computations of the "worth at the time of the award"
of amounts recoverable by Landlord under Subsections (i) and
(ii) hereof shall be computed by allowing interest at the
maximum lawful rate per annum allowed for commercial
transactions as of the date on which the event of default
occurred. The "worth at the time of the award" recoverable by
Landlord under Subsection (iii) and the discount rate for
purposes of determining any amounts recoverable under Subsection
(iv), if applicable, shall be computed by discounting the amount
recoverable by Landlord at the discount rate of the Federal
Reserve Bank of California San Francisco at the time of the
award plus one percent (1%). If Tenant tenders to Landlord in an
offer of settlement all sums due under this Subsection 20.2(a)
after Landlord has notified Tenant of exercise of the remedies
under this Subsection 20.2(a), then the "worth at the time of
the award" shall be determined at the time of the tender of
payment of the entire amount of such sums by Tenant.
(b) Upon termination of this Lease, whether by lapse of time or
otherwise, Tenant shall immediately vacate the Premises and deliver
possession to Landlord. If Tenant has vacated the Premises and Landlord
or any of its agents has reason to believe that Tenant does not intend
to reoccupy the Premises, and current or past rent has been due or
unpaid for at least fourteen (14) consecutive days, then Landlord shall
have the right to send Tenant a notice of belief of abandonment pursuant
to Section 1951.3 of the California Civil Code. The Premises will be
deemed abandoned, and the Tenant's right to possession of the Premises
will terminate on the date set forth in such notice, unless Landlord
receives (at its address for notices pursuant to this Lease) before such
date a notice from Tenant stating (i) Tenant's intent not to abandon the
Premises, and (ii) an address at which Tenant may be served in any
action for unlawful detainer of the Premises and/or damages or other
relief available at law or in equity. If the Premises are deemed
abandoned (either through the aforementioned procedure or due to any
statement by Tenant to that effect), or if Landlord or any of its agents
acts pursuant to a court order, then Landlord or any of its agents shall
have the right, without terminating this Lease, to re-enter the Premises
and remove all persons therefrom and any or all of Tenant's fixtures,
equipment, furniture, and other personal property (herein collectively
referred to as "Property") from the Premises, without being deemed in
any manner liable for trespass, eviction, or forcible entry or detainer,
or conversion of Property, and without relinquishing any right given to
Landlord under
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this Lease or by operation of law. If Landlord re-enters the Premises in
such situation, all Property removed from the Premises by Landlord or
any of its agents and not claimed by the owner may be handled, removed,
or stored, in a commercial warehouse or otherwise by Landlord at
Tenant's risk and expense, and Landlord shall in no event be responsible
for the value, preservation, or safekeeping thereof. Before the retaking
of any such Property from storage, Tenant shall pay to Landlord, upon
demand, all expenses incurred in such removal and all storage charges
against such Property. Any such Property of Tenant not so retaken from
storage by Tenant within thirty (30) days after such Property is removed
from the Premises shall be deemed abandoned and may be either disposed
of by Landlord pursuant to Section 1988 of the California Civil Code or
retained by Landlord as its own property.
(c) Notwithstanding Landlord's right to terminate this Lease
pursuant to Section 20.2(a), Landlord may, at its option, even though
Tenant has breached this Lease and abandoned the Premises, continue this
Lease in full force and effect and not terminate Tenant's right to
possession, and enforce all of Landlord's rights and remedies under this
Lease. In such event, Landlord shall have the remedy described in
California Civil Code Section 1951.4 (Landlord may continue this Lease
in effect after Tenant's breach and abandonment and recover rent as it
becomes due, if Tenant has the right to sublet or assign, subject only
to reasonable limitations). Further, in such event, Landlord shall be
entitled to recover from Tenant all costs of maintenance and
preservation of the Premises, and all costs, including attorneys' fees
and receivers' fees, incurred in connection with appointment of and
performance by a receiver to protect the Premises and Landlord's
interest under this Lease. No reentry or taking possession of the
Premises by Landlord pursuant to this Section 20.2(c) shall be construed
as an election to terminate this Lease unless a written notice (signed
by a duly authorized representative of Landlord) of intention to
terminate this Lease is given to Tenant. Landlord may at any time after
default by Tenant elect to terminate this Lease pursuant to Section
20.2(a), notwithstanding Landlord's prior continuance of this Lease in
effect for any period of time, and upon and after Tenant's default under
this Lease, Landlord may, but need not, relet the Premises or any part
thereof for the account of Tenant to any person, firm, partnership,
corporation, or other business entity for such rent, for such time, and
upon such terms as Landlord, in its sole discretion, shall determine.
Subject to the provisions of this Lease regarding assignment and
subletting in Article 13, Landlord shall not be required to accept any
substitute tenant offered by Tenant or to observe any instructions given
by Tenant regarding such reletting. Landlord may remove (and repair any
damage caused by such removal) and store (or dispose of) any of Tenant's
personal property, equipment, fixtures, and anything else Tenant is
required (under this Lease at the election of Landlord or otherwise) to
remove but does not remove, and Landlord may also make repairs,
renovations, alterations, and/or additions to the Premises to the extent
deemed by Landlord necessary or desirable in connection with any attempt
to relet the Premises. Tenant shall upon demand pay the cost of such
repairs, alterations, additions, removal, storage, and renovations,
together with any legal expenses, brokers commissions, or finders fees
and any other expenses incurred by Landlord in connection with its entry
upon the Premises and attempt to relet the Premises. If Landlord is able
to relet the Premises for Tenant's account during the remaining portion
of the Term and the consideration collected by Landlord from any
reletting is not sufficient to pay monthly the full amount of rent and
additional rent payable by Tenant under this
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Lease, together with any legal expenses, brokers commissions, or finders
fees, any cost for repairs, alterations, additions, removal, storage,
and renovations, and any other cost and expense incurred by Landlord in
re-entering the Premises and reletting the Premises, then Tenant shall
pay to Landlord the amount of each monthly deficiency upon demand. Any
rentals received by Landlord from any such reletting shall be applied as
follows:
(i) First, to the payment of any indebtedness other than
rent due hereunder from Tenant to Landlord;
(ii) Second, to the payment of any costs of reentry and
reletting the Premises;
(iii) Third, to the payment of costs of any such
alterations, repairs, additions, removal, storage, and
renovations to the Premises;
(iv) Fourth, to the payment of rent due and unpaid under
this Lease; and
(v) The residue, if any, shall be held by Landlord and
applied as payment of future rent as the same may become due and
payable under this Lease.
(d) No act or omission by Landlord or its agents during the Term
shall be an acceptance of a surrender of the Premises, and no agreement
to accept a surrender of the Premises shall be valid, unless made in
writing and signed by a duly authorized representative of Landlord.
Neither any remedy set forth in this Lease nor pursuit of any particular
remedy shall preclude Landlord from any other remedy set forth in this
Lease or otherwise available at law or in equity. Landlord shall be
entitled to a restraining order or injunction to prevent Tenant from
breaching or defaulting under any of its obligations under this Lease
other than the payment of rent or other sums due hereunder.
(e) Neither the termination of this Lease nor the exercise of
any remedy under this Lease or otherwise available at law or in equity
shall affect the right of Landlord to any right of indemnification set
forth in this Lease or otherwise available at law or in equity by reason
of Tenant's occupancy of the Premises, and all rights to indemnification
or other obligations of Tenant shall survive termination of this Lease
and termination of Tenant's right to possession under this Lease.
20.3 [Intentionally Omitted.]
20.4 LANDLORD'S DEFAULT AND TENANT'S REMEDIES.
(a) It shall be a default and breach of this Lease by Landlord
if it shall fail to perform or observe any term, condition, covenant, or
obligation required to be performed or observed by it under this Lease
for a period of thirty (30) days after written notice thereof from
Tenant; provided, however, that if the term, condition, covenant, or
obligation to be performed by Landlord is of such nature that the same
cannot reasonably be performed within, such thirty (30) day period, such
default shall be deemed to have been cured if Landlord commences such
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performance within said thirty (30) day period and thereafter diligently
undertakes to complete the same.
(b) Except as specifically set forth in this Lease, Tenant shall
not have the right based upon a default of Landlord to terminate this
Lease or to withhold, offset, or abate rent, Tenant's sole recourse for
Landlord's default being an action for actual damages against Landlord
which is proximately caused by Landlord's default. Tenant shall not have
the right to terminate this Lease or to withhold, offset, or abate the
payment of rent based upon a failure by Landlord to perform its repair
and/or maintenance obligations under this Lease or upon the unreasonable
or arbitrary withholding by Landlord of its consent or approval of any
matter requiring Landlord's consent or approval, including but not
limited to any proposed assignment or subletting, Tenant's remedies in
such instances being limited to a declaratory relief action, specific
performance, injunctive relief, or an action of actual damages. Tenant
shall not in any case be entitled to any consequential or punitive
damages based upon any Landlord default or withholding of consent or
approval.
(c) Notwithstanding anything to the contrary contained in this
Lease, Tenant agrees and understands that Tenant shall look solely to
the estate and property of Landlord in the Building of which the
Premises are a part as well as the Land, and all rents, profits and
proceeds therefrom for the enforcement of any judgment (or other
judicial decree) requiring the payment of money by Landlord or any other
partner, director, officer, employee, or agent of Landlord [or Landlord
Affiliate] to Tenant by reason of any default or breach by Landlord in
the performance of its obligations under this Lease, it being intended
that no other assets of Landlord or any of Landlord's Affiliates shall
be subject to levy, execution, attachment, or any other legal process
for the enforcement or satisfaction of the remedies pursued by Tenant in
the event of such default or breach.
20.5 NON-WAIVER OF DEFAULT. The failure or delay by either party hereto
to enforce or exercise at any time any of the rights or remedies or other
provisions of this Lease shall not be construed to be a waiver thereof, nor
affect the validity of any part of this Lease or the right of either party
thereafter to enforce each and every such right or remedy or other provision. No
waiver of any Default or breach of this Lease shall be held to be a waiver of
any other or subsequent Default or breach. The receipt by Landlord of less than
the full rent due shall not be construed to be other than a payment on account
of rent then due, no statement on Tenant's check or any letter accompanying
Tenant's check be deemed an accord and satisfaction, and Landlord may accept any
payment without prejudice to Landlord's right to recover the balance of the rent
due or to pursue any other remedies provided in this Lease or available at law
or in equity.
21. SIGNAGE.
21.1 SIGNS. Subject to approval of the City of Costa Mesa and the
provisions set forth in this Section, Tenant shall, at its expense, be entitled
to: (i) install one (1) "eyebrow" building sign identifying Tenant's business on
the south side of the Building at a location shown on Exhibit H, and (ii) place
one (1) listing identifying Tenant's business on the monument sign currently
being designed by Landlord for a location at the Building to be determined by
Landlord. Notwithstanding the foregoing (a) Tenant's corporate graphics and logo
as shown on Exhibit I are hereby approved, and (b) the location, design and
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dimensions of Tenant's signage shall be as depicted on Exhibit H attached
hereto, all subject to approval of the City of Costa Mesa. In no event shall the
sign rights of any other tenant or occupant of the Building which is a
competitor of Tenant or whose sign includes the word "ticket" or "tickets" be
more prominent than the sign rights granted to Tenant pursuant to this Lease,
nor shall any name and/or identifying corporate logo of a tenant or occupant of
the Building which is a competitor of Tenant appear above that of Tenant. In
addition, Landlord shall not name the Building with a name which includes as any
part thereof the name of a competitor of Tenant or the name "Tickets.com." For
purposes of this Section, the term "competitor of Tenant" shall mean any entity
or person listed on Exhibit J attached hereto, which Tenant may modify or
supplement upon thirty (30) days written notice to Landlord. All such Tenant
signage shall be designed, fabricated, constructed, installed, maintained, and
removed at Tenant's sole cost and expense, and the lettering, design, color and
size of Tenant's business name for the monument sign shall be consistent with
the design of such monument sign. Except as set forth below, such signage rights
shall be personal to the original Tenant and any assignment or subletting by
Tenant of this Lease which results in Tenant occupying less than one (1) full
floor of the Premises (even if such assignment or subletting does not require
the consent of Landlord or is approved by Landlord) terminates Tenant's rights
with respect to such signage rights, unless Landlord consents to the contrary in
writing at the time of such assignment or subletting. The exterior signage shall
consist only of the name "Tickets.com" or such other trade name or logo as is
customarily used from time to time by the original Tenant or Permitted
Transferees under this Lease; provided, however, should the name or logo of
Tenant be changed or should the Lease be assigned to Permitted Transferees under
this Lease having a new name (in either case, the "New Name"), Tenant shall be
entitled to modify, at Tenant's sole cost and expense, Tenant's name on the
exterior signage to reflect Tenant's New Name, so long as Tenant's New Name is
not an "Objectionable Name." The term "Objectionable Name" shall mean any name
which relates to an entity which is of a character or reputation, or is
associated with a political orientation or faction, which is inconsistent with
the quality of the Building, or which would otherwise reasonably offend a
landlord of comparable buildings as determined by Landlord in Landlord's sole
discretion. Tenant shall not erect or maintain any other temporary or permanent
sign on or about the Premises, the Building, or the Land, or visible from the
Common Areas or exterior, without obtaining prior written approval from
Landlord, which may be granted or withheld in Landlord's sole and absolute
discretion. Any request for approval of a sign shall be made in such detail as
Landlord shall request. Landlord shall be obligated to place a sign, at
Landlord's expense, used to identify Tenant's business name, in the exterior
doorway or walls of the Premises. All signs, whether erected by Landlord or
Tenant, shall conform to Landlord's building standard signage and to all laws,
ordinances, rules, regulations, permits, covenants, conditions, restrictions,
and easements pertaining to signs. In the event of a violation of the foregoing
by Tenant, Landlord may remove same without any liability, and may charge the
expense incurred in such removal to Tenant. Tenant shall remove all approved
signs which it has erected upon the termination of the Lease and repair all
damage caused by such removal.
21.2 DIRECTORY BOARD. Tenant shall have the right to include, at
Tenant's expense, one (1) listing per 2,500 rentable square feet of the Premises
on the Building directory board in the main Building lobby.
22. SECURITY DEPOSIT.
22.1 AMOUNT. Upon execution of this Lease, Tenant will deposit the
Security Deposit with Landlord in the amount described in Section 1.1(j).
Landlord and Tenant intend the Security Deposit to
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be used solely as security for Tenant's faithful and diligent performance of all
of Tenant's obligations under this Lease. The Security Deposit will remain in
Landlord's possession for the entire Term, and Landlord will not be required to
segregate it from Landlord's general funds. Tenant will not be entitled to any
interest on the Security Deposit.
22.2 USE AND RESTORATION. If Tenant fails to perform any of its
obligations under this Lease beyond applicable notice and cure periods, Landlord
may, at its option, use, apply or retain all or any part of the Security Deposit
for the payment of (1) any Rent in arrears; (2) any expenses Landlord may incur
as a direct or indirect result of Tenant's failure to perform; and (3) any other
losses or damages Landlord may suffer as a direct or indirect result of Tenant's
failure to perform. If Landlord so uses or applies all or any portion of the
Security Deposit, Landlord will notify Tenant of such use or application and
Tenant will, within ten (10) days after the date of Landlord's notice, deposit
with Landlord a sum sufficient to restore the Security Deposit to the amount
held by Landlord immediately prior to such use or application. Tenant's failure
to so restore the Security Deposit will constitute a Default.
22.3 TRANSFERS. Tenant will not assign or encumber the Security Deposit
without Landlord's express written consent. Neither Landlord nor its successors
or assigns will be bound by any assignment or encumbrance unless Landlord has
given its consent. Landlord will have the right, at any time and from time to
time, to transfer the Security Deposit to any purchaser or lessee of the entire
Building and deliver to Tenant the notice required by Section 1950.7 of the
Civil Code of California. Upon any such transfer, Tenant agrees to look solely
to the new owner or lessee for the return of the Security Deposit.
22.4 REFUND. Provided that Tenant has fully and faithfully performed all
of its obligations under this Lease, Landlord will refund the Security Deposit,
or any balance remaining, to Tenant or, at Landlord's option, to the latest
assignee of Tenant's interest under this Lease, within thirty (30) days after
the expiration or early termination of the Term and Tenant's vacation and
surrender of the Premises to Landlord in the condition required by Section 15.1.
If Tenant fails to make any final estimated payment of Additional Rent required
by Landlord according to Section 3.2(c), Landlord may withhold such final
payment from the amount of the Security Deposit refund.
23. BROKERS. Landlord and Tenant represent and warrant that no broker or
agent negotiated or was instrumental in negotiating or consummating this Lease
except the Brokers. Neither party knows of any other real estate broker or agent
who is or might be entitled to a commission or compensation in connection with
this Lease. Landlord will pay all fees, commissions or other compensation
payable to the Brokers pursuant to a separate agreement. Tenant and Landlord
will protect, defend, indemnify and hold each other harmless from all damages
paid or incurred by the other resulting from any claims asserted against either
party by any other brokers or agents claiming through the other party (including
reasonable attorneys' fees).
24. LIMITATIONS ON LANDLORD'S LIABILITY. Any liability for damages,
breach or nonperformance by Landlord, or arising out of the subject matter of,
or the relationship created by, this Lease, will be collectible only out of
Landlord's interest in the Building as well as the Land, and all rents, profits
and proceeds therefrom and no personal liability is assumed by, or will at any
time be asserted against,
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Landlord, its parent and affiliated corporations, its and their partners,
venturers, directors, officers, agents, servants and employees, or any of its or
their successors or assigns; all such liability, if any, being expressly waived
and released by Tenant. Landlord's review, supervision, commenting on or
approval of any aspect of work to be done by or for Tenant (under Section 7,
Exhibit B or otherwise) are solely for Landlord's protection and, except as
expressly provided, create no warranties or duties to Tenant or to third
parties.
25. NOTICES. All notices required or permitted under this Lease must be
in writing and will only be deemed properly given and received (a) when actually
given and received, if delivered in person to a party who acknowledges receipt
in writing; or (b) one business day after deposit with a private courier or
overnight delivery service, if such courier or service obtains a written
acknowledgment of receipt; or (c) two (2) business days after deposit in the
United States mails, certified or registered mail with return receipt requested
and postage prepaid. All such notices must be transmitted by one of the methods
described above to the party to receive the notice at, in the case of notices to
Landlord, both Landlord's Building Address and Landlord's General Address, and
in the case of notices to Tenant, the applicable Tenant's Notice Address, or, in
either case, at such other address(es) as either party may notify the other of
according to this Section 25.
26. MISCELLANEOUS.
26.1 BINDING EFFECT. Each of the provisions of this Lease will extend to
bind or inure to the benefit of, as the case may be, Landlord and Tenant, and
their respective heirs, successors and assigns, provided this clause will not
permit any transfer by Tenant contrary to the provisions of Section 13.
26.2 COMPLETE AGREEMENT; MODIFICATION. All of the representations and
obligations of the parties are contained in this Lease and no modification,
waiver or amendment of this Lease or of any of its conditions or provisions will
be binding upon a party unless in writing signed by such party.
26.3 DELIVERY FOR EXAMINATION. Submission of the form of the Lease for
examination will not bind Landlord in any manner, and no obligations will arise
under this Lease until it is signed by both Landlord and Tenant and delivery is
made to each.
26.4 NO AIR RIGHTS. This Lease does not grant any easements or rights
for light, air or view. Any diminution or blockage of light, air or view by any
structure or condition now or later erected will not affect this Lease or impose
any liability on Landlord.
26.5 ENFORCEMENT EXPENSES. Each party agrees to pay, upon demand, all of
the other party's costs, charges and expenses, including the fees and
out-of-pocket expenses of counsel, agents, and others retained, incurred in
successfully enforcing the other party's obligations under this Lease.
26.6 [Intentionally Omitted.]
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26.7 BUILDING NAME. Tenant will not, without Landlord's consent, use
Landlord's or the Building's name, or any facsimile or reproduction of the
Building, for any purpose; except that Tenant may use the Building's name in the
address of the business to be conducted by Tenant in the Premises. Landlord
reserves the right, upon reasonable prior notice to Tenant, to change the name
or address of the Building provided Landlord reimburses Tenant for the
reasonable costs incurred by Tenant to obtain new stationery, business cards,
and address change notices.
26.8 NO WAIVER. No waiver of any provision of this Lease will be implied
by any failure of either party to enforce any remedy upon the violation of such
provision, even if such violation is continued or repeated subsequently. No
express waiver will affect any provision other than the one specified in such
waiver, and that only for the time and in the manner specifically stated.
26.9 RECORDING; CONFIDENTIALITY. Tenant will not record this Lease, or a
short form memorandum, without Landlord's written consent and any such recording
without Landlord's written consent will be a Default. Tenant agrees to keep the
Lease terms, provisions and conditions confidential and will not disclose them
to any other person without Landlord's prior written consent. However, Tenant
may disclose Lease terms, provisions and conditions to any governmental
authority or agency and to Tenant's accountants, attorneys, managing employees,
potential assignees or sublessees and others in privity with Tenant, as
reasonably necessary for Tenant's business purposes, without such prior consent.
Landlord acknowledges that if Tenant becomes a publically traded company some or
all of this Lease may become part of the public record.
26.10 CAPTIONS. The captions of sections are for convenience only and
will not be deemed to limit, construe, affect or alter the meaning of such
sections.
26.11 INVOICES. All bills or invoices to be given by Landlord to Tenant
will be sent to Tenant's Invoice Address. Tenant may change Tenant's Invoice
Address by notice to Landlord given according to Section 25. If Tenant fails to
give Landlord specific written notice of its objections within one (1) year
after receipt of any bill or invoice from Landlord, such bill or invoice will be
deemed true and correct and neither party may later question the validity of
such bill or invoice or the underlying information or computations used to
determine the amount stated.
26.12 SEVERABILITY. If any provision of this Lease is declared void or
unenforceable by a final judicial or administrative order, this Lease will
continue in full force and effect, except that the void or unenforceable
provision will be deemed deleted and replaced with a provision as similar in
terms to such void or unenforceable provision as may be possible and be valid
and enforceable.
26.13 JURY TRIAL. Landlord and Tenant waive trial by jury in any action,
proceeding or counterclaim brought by Landlord or Tenant against the other with
respect to any matter arising out of or in connection with this Lease, Tenant's
use and occupancy of the Premises, or the relationship of Landlord and Tenant.
However, such waiver of jury trial will not apply to any claims for personal
injury.
26.14 AUTHORITY TO BIND. The individuals signing this Lease on behalf of
Landlord and Tenant repre sent and warrant that they are empowered and duly
authorized to bind Landlord or Tenant, as the
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case may be, to this Lease according to its terms.
26.15 ONLY LANDLORD/TENANT RELATIONSHIP. Landlord and Tenant agree that
neither any provision of this Lease nor any act of the parties will be deemed to
create any relationship between Landlord and Tenant other than the relationship
of landlord and tenant.
26.16 COVENANTS INDEPENDENT. The parties intend that this Lease be
construed as if the covenants between Landlord and Tenant are independent and
not dependent and that the Rent will be payable without offset, reduction or
abatement for any cause except as otherwise specifically provided in this Lease.
26.17 GOVERNING LAW. This Lease will be governed by and construed
according to the laws of the State of California.
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26.18 FORM OF EXECUTION COPY. The parties acknowledge that they intend
to execute a blacklined copy of this Lease, which shows all changes (except
those in Sections 1.1 and 1.2) to Landlord's form of lease for the Building. The
parties acknowledge that this Lease reflects the final agreement between the
parties hereto and that any words or items stricken herein are intended to be
deleted and any words or items underscored are intended to be included and made
a part of this Lease.
Having read and intending to be bound by the terms and provisions of
this Lease, Landlord and Tenant have signed it as of the Date.
TENANT:
TICKETS.COM, INC., a Delaware corporation
<TABLE>
<S> <C>
By _________________________ LANDLORD:
_________________________ AGL INVESTMENTS NO. 5. LIMITED PARTNERSHIP,
a Colorado limited partnership
[Printed Name]
By: AHM INVESTMENTS, LTD., a Colorado limited
_________________________ partnership,
[Title] its General Partner
By: AMHI, LTD., a
Colorado limited partnership,
its General Partner
By AGL MORGANS INC., a
Colorado corporation,
its General Partner
By________________________
David B. Agnew,
President
</TABLE>
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<PAGE> 48
Exhibit A
555 ANTON BOULEVARD
PLAN DELINEATING THE PREMISES
Exhibit A-1
555 ANTON BOULEVARD
SITE PLAN
A-1-48
<PAGE> 49
Exhibit B
555 ANTON BOULEVARD
POSSESSION AND LEASEHOLD IMPROVEMENTS AGREEMENT
1. CONFLICTS; TERMS. If there is any conflict or inconsistency between
the provisions of the Lease and those of this Exhibit B ("Work Letter"), the
provisions of this Work Letter will control. Except for those terms expressly
defined in this Work Letter, all initially capitalized terms will have the
meanings stated for such terms in the Lease. The following terms, which are not
defined in the Lease, have the meanings indicated:
(a) "Commencement Date" means October 1, 1999, provided that the
Commencement Date shall be extended one (1) calendar day for each one (1) full
calendar day of delay in construction of the Tenant Improvements (defined below)
caused solely and directly by acts or omissions of Landlord.
(b) "Landlord's Allowance" means an amount not to exceed Two
Hundred Seventy-Nine Thousand Two Hundred Dollars ($279,200) (i.e., $10 per
usable square foot of the Premises) which shall be paid by Landlord towards the
Total Cost, and, at Tenant's request, a portion of such amount not to exceed One
Hundred Thirty-Nine Thousand Six Hundred Dollars ($139,600) (i.e., $5 per usable
square feet of the Premises) shall be paid by Landlord towards reimbursement of
Tenant's actual, incurred costs for non-Building improvements for the Premises
such as telecommunications cabling and related wiring within the Premises and
furniture and equipment for or with respect to the Premises. Landlord shall
provide, at Tenant's request to be made by delivery of written notice to
Landlord prior to the Commencement Date, an additional amount not to exceed One
Hundred Thirty-Nine Thousand Six Hundred Dollars ($139,600) (i.e., $5 per usable
square foot of the Premises) towards the cost of the Total Cost which Tenant
shall repay to Landlord, plus 9.5% per annum, in equal monthly installments
commencing on the Commencement Date, amortized over the initial Term of the
Lease, which payments shall be made at the same time and in the same manner as
the monthly Base Rent. Landlord shall pay for the construction and installation
of the Tenant Improvements up to but not in excess of the Landlord's Allowance.
Tenant shall pay the cost of all Tenant Improvements in excess of the Landlord's
Allowance. The cost of Tenant Improvements shall include the cost of all labor
and materials for the construction and installation of the Tenant Improvements;
the cost of all permits, licenses, and fees; all amounts paid to Tenant's
contractors under and pursuant to contracts for the construction and
installation of the Tenant Improvements; all architectural, engineering, space
planning, and other consultants' fees; all amounts paid for mechanical drawings,
plans, specifications, shop drawings, designs, and layouts; and incidental costs
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related to the foregoing.
By no later than ten (10) days after the parties' execution of
the Lease, Landlord, Tenant and an escrow holder to be mutually approved by
Landlord and Tenant ("Escrow Holder"), shall enter into an escrow agreement in
form and content satisfactory to all such parties ("Escrow Agreement"). Within
three (3) business days after the execution of the Escrow Agreement, Landlord
shall deliver into an interest bearing account to be established by Escrow
Holder ("Escrow Account"), the amount of the Landlord's Allowance. Escrow Holder
will disburse the Landlord's Allowance within thirty (30) days after receipt of
invoices and lien releases that have been approved by Landlord and Tenant for
work that has been completed, less a ten percent (10%) retention (the aggregate
amount of such retentions referred to herein as the "Final Retention"). Subject
to the terms of the Lease and Escrow Agreement, Escrow Holder shall deliver to
Tenant the Final Retention following the substantial completion of construction
of the Tenant Improvements in the Premises, provided that (i) Landlord
determines that the Tenant Improvements have been constructed in accordance with
the terms of the Lease, and (ii) Tenant's architect delivers to Landlord a
certificate, in a form acceptable to Landlord, certifying that the construction
of the Tenant Improvements in the Premises has been substantially completed and
the Premises are ready for occupancy in accordance with Tenant's Documents. If
the Total Cost of the Tenant Improvements is less than the Landlord's Allowance,
the difference shall be promptly paid by Escrow Holder to Landlord upon
termination or expiration of the Escrow Agreement. Neither Escrow Holder nor
Landlord shall have any obligation to disburse any portion of the Landlord's
Allowance including the Final Retention after the date which is twelve (12)
months following the Commencement Date.
(c) "Tenant Improvements" means all alterations, leasehold
improvements and installations to be constructed or installed by Tenant
in the Premises according to this Work Letter.
(d) "Total Cost" means the total cost of preparing the Space
Plans and Construction Documents, obtaining all necessary permits,
constructing and installing the Tenant Improvements in the Premises, and
payment of any Building services required during construction (such as
electricity and other utilities, refuse removal and housekeeping).
2. EARLY OCCUPANCY. Landlord shall permit Tenant to take possession of
the Premises for purposes relating to construction work in the Premises
according to the terms of this Work Letter and the permitted uses as of the
execution of the Lease by Tenant and Landlord, provided that as of the date
Tenant takes possession of any part of the Premises all of the covenants and
conditions of the Lease will bind both parties with respect to the Premises,
except that Tenant shall not be required to pay Landlord Base Rent and
Additional Rent until the Commencement Date. No early occupancy under this
Paragraph 2 will change the Commencement Date or the Expiration Date.
3. TENANT IMPROVEMENTS.
3.1 Tenant's Design Development Documents. Landlord will provide Tenant
with base building plans and drawings for the Building and any other plans in
Landlord's possession. Tenant will prepare
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for review by Landlord two complete sets of Tenant's Design Development
Documents consisting of drawings, details, outlines, specifications and other
documents to fix and describe the size and character of the Premises with
respect to architectural, structural, mechanical, electrical and fire safety
systems, materials and such other components as may be appropriate; such
documents shall indicate material finishes, heat load requirements of
Tenant-supplied equipment and such other specialty systems and components as
Landlord reasonably will request.
3.2 Tenant's Construction Documents. Within ten (10) business days of
Landlord's receipt of Tenant's Design Development Documents, Landlord will
review those documents. Based upon such review Landlord may order reasonable
modifications to any of Tenant's Design Development Documents, which
modifications will be made by Tenant in accordance with Landlord's direction and
will be incorporated in Tenant's Construction Documents to be prepared by
Tenant. Tenant will prepare for review by Landlord two complete sets of Tenant's
Construction Documents consisting of drawings and specifications setting forth
in complete detail the final requirements for the construction of the Premises.
Landlord will complete its review of Tenant's Construction Documents within ten
(10) business days of receipt of those documents. Based upon such review
Landlord may order reasonable modifications to any of Tenant's Construction
Documents and the modifications will be made by Tenant in accordance with
Landlord's direction within fifteen (15) business days of request by Landlord.
3.3 Applicable Law; Budgetary Constraints. Tenant's Design Development
Documents and Tenant's Construction Documents are herein occasionally
collectively called "Tenant's Documents." All Tenant's Documents will conform
with applicable federal, state and local law (including without limitation The
Americans With Disabilities Act of 1990 and its implementing regulations, as
amended or supplemented from time to time) and with Building plans and
specifications. It will be the responsibility of Tenant to prepare and submit
Tenant's Documents that fall within Tenant's budgetary constraints (if any). Any
redesign made necessary by the failure of Tenant's documentation to fall within
Tenant's budgetary constraints, and any resulting delay therefrom, will be the
sole responsibility of Tenant. Landlord will not be responsible for any failure
of bidder's estimates to fall within Tenant's budgetary constraints.
3.4 Requirements of Tenant's Documents. Tenant's Documents will be
completed and fully coordinated. Tenant's Documents will also illustrate all
existing site conditions and will include all work necessary to achieve a
Certificate or Statement of Occupancy for the Premises. Tenant's Documents will
be signed and sealed by an architect or professional engineer (where
applicable), licensed and registered in the State of California. All costs and
expenses incurred by Tenant in connection with Tenant's Documents may be paid
from the Landlord's Allowance.
3.5 Contractors/Bidding Procedures. Landlord and Tenant will agree on a
list of mutually acceptable contractors who will be asked to submit bids for the
demolition of the existing tenant improvements (as may be necessary) and
construction of the Tenant Improvements. Upon receipt of the bids, Tenant will
select the contractor from the agreed upon list. The selected bid need not be
the low bid.
3.6 Construction. Tenant may commence construction of the Tenant
Improvements for the Premises at any time on or after Landlord allows Tenant
access to the Premises in accordance with the Lease. The provisions of Section
7.1 of the Lease related to insurance and lien releases shall apply to such
construction. Tenant's contractor will comply with reasonable construction rules
made by Landlord and will coordinate its work with any other work being
undertaken at the Building. The Tenant
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Improvements will be constructed in accordance with Tenant's Documents. Tenant
diligently will pursue the demolition of the existing tenant improvements (as
may be necessary) and the construction of the Tenant Improvements in a lien
free, good and workmanlike manner in accordance with generally accepted
construction practices until all of the work has been completed.
3.7 Access/Landlord's Approval. Landlord will be entitled (but will not
be obligated) to inspect the Tenant Improvements for the Premises under
construction and upon completion, at reasonable times and intervals, for the
purpose of determining that the work is being constructed in accordance with
Tenant's Documents and the provisions of this Lease. No approval by Landlord or
Landlord's architect or engineer of any drawings, plans or specifications which
are prepared in connection with construction of improvements in the Premises
will constitute a representation or warranty by Landlord as to the adequacy or
sufficiency of such drawings, plans or specifications, or the improvements to
which they relate, for any use, purpose or condition, but such approval will
merely be the consent of Landlord to the construction or installation of
improvements in the Premises according to such drawings, plans or
specifications.
B-52
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Exhibit C
555 ANTON BOULEVARD
OCCUPANCY ESTOPPEL CERTIFICATE
This Occupancy Estoppel Certificate ("Certificate") is given by
_____________________ ("Tenant") to AGL Investments No. 5 Limited Partnership
("Landlord"), with respect to that certain Lease Agreement dated _____________,
19___ ("Lease"), under which Tenant has leased from Landlord certain premises
consisting of the entire twelfth floor of the Building and a portion of the
eleventh floor of the Building for a total of 30,128 rentable square feet
("Premises") in 555 Anton Boulevard, Costa Mesa, California ("Building").
In consideration of the mutual covenants and agreements stated in the
Lease, and intending that this Certificate may be relied upon by Landlord and
any prospective purchaser or present or prospective mortgagee, deed of trust
beneficiary or ground lessor of all or a portion of the Building, Tenant
certifies as follows:
1. Except for those terms expressly defined in this Certificate, all
initially capitalized terms will have the meanings stated for such terms in the
Lease.
2. Landlord first delivered possession of the Premises to Tenant (either
for occupancy by Tenant or for the commencement of construction by Tenant) on
_________________, 19___.
3. Tenant moved into the Premises (or otherwise first occupied the
Premises for Tenant's business purposes on _________________, 19___.
4. The Commencement Date occurred on ____________________, 19___, and
the Expiration Date will occur on ____________________, 19__.
5. Tenant's obligation to make monthly payments of Base Rent under the
Lease began (or will begin) on _______________________, 19___.
6. Tenant's obligation to make monthly estimated payments of Additional
Rent under the Lease began (or will begin) on ___________________, 19___.
TENANT:
____________________________________
____________________________________
By: ____________________________________
Printed Name: ____________________________________
C-53
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Title: ____________________________________
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Exhibit D
555 ANTON BOULEVARD
OFFICE BUILDING LEASE
Rules and Regulations
(Revised Jan 97)
1. (Purpose). The purpose of these Rules and Regulations is to ensure
that the Building remains a first-class operation, by adopting a workable code
of regulations protecting both AGL Investments No. 5 Limited Partnership as
"Landlord" and each tenant of the Building as "Tenant", with the goal of
creating a harmonious atmosphere of high professional competence in the
Building. These Rules and Regulations have been revised as of the date set forth
above, pursuant to Landlord's rights reserved in its lease agreement with each
Tenant. Landlord agrees that these rules and regulations (a) shall be enforced
consistently and in non-discriminatory manner against all Tenants in the
Building, (b) shall not increase Tenant's cost of doing business at the
Premises, and (c) to the extent any of these rules and regulations conflict with
the terms of the Lease, the Lease shall control.
2. (Building Hours). The Building hours of operation (excluding
holidays) are:
8:00 A.M. to 6:00 P.M. - Monday through Friday
8:00 A.M. to 12:00 P.M. - Saturday
3. (Keys). Landlord agrees to furnish Tenant two (2) keys without
charge. Additional keys will be furnished at a nominal charge. Tenant shall not
change locks or install additional locks on doors without the prior written
consent of Landlord. Tenant shall not make or cause to be made duplicates of
keys procured from Landlord without the prior written approval of Landlord. All
keys to the Premises shall be surrendered to Landlord upon termination of this
Lease.
4. (Directory). Subject to Section 21.2 of the Lease, the directory
board at the entrance to the Building is provided for the exclusive display of
the name and location in the building of each tenant, and Landlord reserves the
right to exclude any other name therefrom, and to make a charge reflective only
to Landlord's actual cost for each and every name in addition to the name of
Tenant, placed on the directory board.
5. (Materials Move-in/Move-out). Movement in or out of the Building or
Premises of furniture or office supplies and equipment, or dispatch or receipt
by Tenant of any merchandise or materials which requires use of elevators or
stairways, or movement through the Building entrances or lobby, shall be
restricted to hours designated by Landlord. All such movement shall be under
supervision of Landlord and carried out in the manner agreed between Tenant and
Landlord by pre-arrangement before performance. Such pre-arrangement will
include determination by Landlord of time, method, and
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routine of movement and limitations imposed by safety or other concerns which
may prohibit any article, equipment or any other item from being brought into
the Building or Premises. Tenant assumes, and shall indemnify Landlord and
Landlord's Representative against, all risks and claims of damage to persons and
properties arising in connection with any said movement.
6. (Cart Usage). Tenant shall not use in any space, Common Areas, or
other areas of the Building, any hand trucks except those equipped with rubber
tires and side guards or such other material handling equipment as Landlord may
approve. No other vehicles of any kind shall be brought by Tenant into the
Building or kept in or about the Premises without the prior written approval of
Landlord.
7. (Blocking Areas). None of the parking, plaza, recreation or lawn
areas, entries, passages, doors, elevators, hallways or stairway shall be
blocked or obstructed or any rubbish, litter, trash, or material of any nature
placed, emptied or thrown into these areas or such areas used by Tenant's
agents, employees or invitees at any time for purposes inconsistent with their
designation by Landlord.
8. (Lost/Stolen Property). Landlord will not be responsible for lost or
stolen merchandise, trade fixtures, furniture, furnishings, personal property,
equipment, money or jewelry from the Premises or the Building regardless of
whether such loss occurs when the area is locked against entry or not.
9. (Loitering). Tenant and Tenant's employees shall not loiter in the
entrance or corridors of the Building, or in any way obstruct the sidewalks,
halls, stairways and elevators, and shall use the same only as a means of
passage to and from their respective offices.
10. (Machinery Installation). Tenant shall not install or use any
machinery in the Premises which may cause any unreasonable noise, jar or tremor
to the floors or walls, or which by its weight might injure the floors of the
building, which in all cases shall stand on a wood or metal base of size and
type designated by Landlord. All damage to the Building caused by installing or
removing any safe, furniture, equipment or other property shall be repaired at
the expense of Tenant.
11. (Closed/Locked Doors). Tenant shall see that the doors of the
Premises are closed and securely locked before leaving the Premises, and must
observe strict care and caution that all water faucets or water apparatus are
shut off before Tenant or Tenant's employees leave, and that all electricity
shall likewise be carefully shut off, so as to prevent waste or damage, and
(subject to the Lease) for any default or carelessness Tenant shall make good
all injuries sustained by other tenants or occupants of the Building or
Landlord.
12. (Entrance/Exit Doors). Landlord reserves the right to close and keep
locked all entrance and exit doors of the Building during hours Landlord may
reasonably deem advisable for the adequate protection of the property. Except to
those having keys to the Building and Tenants' employees and invitees, use of
the Building before 7:00 a.m. or after 6:00 p.m., on Monday through
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<PAGE> 57
Friday, or at any time during Saturdays, Sundays or legal holidays, shall be
permissive and subject to the rules and regulations Landlord may reasonably
prescribe. Landlord assumes no responsibility and shall not be liable for any
damage resulting from the entry of any authorized or unauthorized person in the
Building unless caused by the gross negligence or willful misconduct of
Landlord.
13. (Elevator Stoppage). Landlord and Landlord's Representative shall
not be liable for any damages from the stoppage of elevators for unavoidable
repairs or improvements in connection with the elevator service.
14. (Floor Covering). Except as provided in Exhibit B and elsewhere in
the Lease, Tenant shall not lay floor covering within the Premises without
written approval of Landlord. The use of cement or other similar adhesive
materials not easily removed with water is expressly prohibited.
15. (Window Covering). Except as provided in Exhibit B and elsewhere in
the Lease, Tenant shall not install blinds, shades, awnings or other form of
inside or outside window covering, or window ventilators or similar devices
without the prior written consent of Landlord.
16. (Construction/Installation). Tenant will refer all contractors,
contractor's representatives and installation technicians rendering any service
on or to the Premises for Tenant to Landlord for identification before
performance of any contractual service. Tenant's contractors and installation
technicians shall comply with Landlord's rules and regulations pertaining to
construction and installation only if attached to this Lease. This provision
shall apply to all work performed on or about the Premises, including
installation of telephones, telegraph equipment, electrical services and
attachments and installations of any nature affecting floors, walls, woodwork,
trim, windows, ceilings and equipment or any other physical portion of the
Premises or the Building.
17. (License/Permits). If any governmental license or permit shall be
required for the proper and lawful conduct of Tenant's business, Tenant, before
occupying the Premises, shall procure and maintain such license or permit and
submit it for Landlord's inspection. Tenant shall at all times comply with the
terms of any such license or permit.
18. (Thermostats). Tenant shall not tamper with or attempt to adjust
temperature control thermostats in the Premises. Landlord shall make adjustments
in thermostats on call from Tenant.
19. (Soliciting). Tenant shall not disturb, solicit or canvass any
occupant of the Building and shall cooperate to prevent same.
20. (Auctions). Tenant shall not conduct any auction on the Premises.
21. (Sale of Merchandise). Except with the prior written consent of
Landlord, Tenant shall not sell, or permit the sale from the Premises of, or use
or permit the use of any sidewalk or mail area adjacent to the Premises for the
sale of newspapers, magazines, periodicals, theater tickets or any other goods
or merchandise, nor shall Tenant carry on, or permit or allow any employee or
other person to carry on, business in or from the Premises for the service or
accommodation of occupants of any other portion of the Building, nor shall the
Premises be used for manufacturing of any kind, or for any business or activity
other than that specifically provided for in Tenant's lease.
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22. (Advertising). Landlord shall have the right to prohibit any
advertising by any agent which in Landlord's opinion, tends to impair the
reputation of the Building or its desirability as a Building for offices, and
upon written notice from Landlord, such Tenant shall refrain from or discontinue
such advertising.
23. (Vending Machines). Vending machines may not be installed,
maintained or operated in the Premises without Landlord's prior consent, which
shall not be unreasonably withheld or delayed.
24. (Accidents/Defects). Tenant shall give Landlord prompt notice of any
accidents to or defects in the water pipes, gas pipes, electric lights and
fixtures, heating apparatus or any other service equipment.
25. (Plumbing). The water closets, urinals and other plumbing shall be
used for the purpose for which they were constructed and no rubbish, newspapers
or other substances of any kind shall be thrown in them.
26. (Cooking). No cooking shall be done or permitted by Tenant on the
Premises, except in areas specifically designed for the purpose, without the
consent of Landlord, nor shall the Premises be used for storage of merchandise,
for washing clothes, for lodging, or for any unreasonable purposes.
27. (Heating/Air Conditioning). Tenant shall not use or keep in the
Premises or the building any kerosene, gasoline or flammable or combustible
fluid or material, or use any method of heating or air conditioning other than
that permitted or approved, which approval will not be unreasonably withheld.
28. (Foul Odors/Noise). Tenant shall not use, keep or permit to be used
or kept any foul or noxious gas or substance in the Premises, or permit or
suffer the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors and/or vibrations, or interfere in any way with other tenants or those
having business therein.
29. (Musical Instruments). Tenant and Tenant's agents and employees
shall not play any musical instrument, including radio and television, in a loud
or objectionable manner, or make or permit any improper noises in the Building,
or unreasonably interfere in any way with other tenants or those having business
with them.
30. (Employees of Landlord). Employees of Landlord shall not receive or
carry messages for or to any Tenant or other person or contract with or render
free or paid services to any Tenant or to any of Tenant's agents, employees or
invitees.
31. (Sleeping/Lodging). Tenant shall not at any time occupy any part of
the Leased Premises as sleeping or lodging quarters.
32. (Animals). No dogs, cats, fowl, or other animals shall be brought
into or kept in or about the Premises or the Property, provided, however, if
Tenant is visually disabled, Tenant may
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request Landlord's written permission to allow for a guide dog in the Premises.
33. (Intoxication/Drug Use). Landlord reserves the right to exclude or
expel from the Building any person who, in the judgment of the Lessor, is
intoxicated or under the influence of liquor or drugs, or who shall do any act
in violation of the rules and regulations of the Building.
34. (Long-term Parking). All parking authorized by Article 19 of the
Lease shall be for the personal transportation to and from the Building of
Tenant and its employees, and not for long-term (i.e., for more than forty-eight
hours) storage of automobiles or for short or long term storage of boats,
trailers, recreational vehicles, motorcycles or other vehicles or equipment.
35. (Furnishing of Auto License Numbers/Vehicles in State of Disrepair).
Tenant shall furnish Landlord with state automobile license numbers of vehicles
and its employees' vehicles within five (5) days after taking possession of the
Premises and shall notify Landlord of any changes within five (5) days after
such change occurs. Tenant shall not leave any vehicle in a state of disrepair
(including without limitation, flat tires, out of date inspection stickers or
license plates) on or around any area of the Building or Land. If Tenant or its
employees, agents or invitees leave any vehicle in a state of disrepair,
Landlord, after giving written notice to Tenant of such violation, shall have
the right to remove such vehicles at Tenant's expense.
36. (Parking Rules and Regulations). Parking in a parking garage or area
shall be in compliance with all parking rules and regulations including any
sticker or other identification system established by Landlord. Failure to
observe the rules and regulations shall terminate the rights of Tenant's
employee who violated the rules to use the parking garage or area, and subject
the vehicle in violation of the parking rules and regulations to removal and
impoundment which shall not create any liability of Landlord or be deemed to
interfere with Tenant's right to possession of the Premises. Vehicles must be
parked entirely within the stall lines and all directional signs, arrows and
posted speed limits must be observed. Parking is prohibited in areas not striped
for parking, in aisles, where "No Parking" signs are posted, on ramps, in cross
hatched areas, and in other areas as may be designated by Landlord. Parking
stickers or other forms of identification supplied by Landlord shall remain the
property of Landlord and not the property of Tenant and are not transferable.
Every person is required to park and lock his vehicle. All responsibility for
damage to vehicles or persons is assumed by the owner of the vehicle or its
driver.
37. (Designated Smoking Areas). The smoking of cigarettes, cigars,
pipes, etc. is STRICTLY PROHIBITED anywhere in the interior of the Building
including the Parking Garage. The ONLY DESIGNATED SMOKING AREA SHALL BE IN A
LOCATION DESIGNATED BY LANDLORD IN WRITING TO TENANT FROM TIME TO TIME. LANDLORD
AGREES TO MAINTAIN A DEDICATED SMOKING AREA, SUBJECT TO APPLICABLE LAWS.
38. (Property Standards). Landlord desires to maintain in the Building
the highest standard of dignity and good taste consistent with the comfort and
convenience for Tenants. Any action or condition not meeting this high standard
should be reported directly to Landlord. Your cooperation will be mutually
beneficial and sincerely appreciated. Landlord reserves the right to
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make such other and further reasonable rules and regulations as in its judgment
may from time to time be necessary, for the safety, care and cleanliness of the
Premises and for the preservation of good order therein.
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Exhibit E
555 ANTON BOULEVARD
LEASE RIDER
1. The following new Sections 27 through 31 are added to the end of the
Lease:
27. RENEWAL OPTION.
27.1 RENEWAL OPTION. Subject to the terms and provisions of this Section
27, Tenant, at its option, may extend the Term of this Lease for one (1) period
of sixty (60) months at the end of the initial Term (the "Renewal Term"). To
exercise such option, Tenant must deliver notice of the exercise thereof (the
"Renewal Notice") to Landlord no earlier than eighteen (18) months, and no later
than twelve (12) months, prior to the expiration of the initial Term. During the
Renewal Term, all of the terms and provisions of this Lease will apply, except
that (a) after the Renewal Term there will be no further right of renewal; (b)
the Base Year will be changed to the calendar year during which the applicable
Renewal Term will commence; and (c) the Base Rent during the Renewal Term will
be payable at a rate per square foot of rentable area of the Premises per year
equal to ninety-five percent (95%) of the prevailing market rate then offered
for comparable non-sublease, non-equity space in comparable buildings in the
Costa Mesa area and for a comparable term taking into consideration any tenant
improvement allowances, commissions and other concessions Landlord is then
offering (or the lack thereof) contained in such comparable transaction (the
"Renewal Rental Rate"). During the thirty (30) days after Tenant delivers its
Renewal Notice, the parties shall negotiate in good faith the Renewal Rental
Rate at which Base Rent will be payable during the Renewal Term ("Negotiation
Period") and if the parties cannot agree on a Renewal Rental Rate during the
Negotiation Period, then the Renewal Rental Rate shall be determined pursuant to
Section 27.2 below; provided that in no event shall the Renewal Rental Rate be
less than the Rent in effect under this Lease immediately prior to the
commencement of the Renewal Term.
27.2 DETERMINATION OF RENEWAL RENTAL RATE. Each party within ten (10)
business days after the end of the Negotiation Period shall be required to
submit in writing to the other party a statement ("Renewal Rent Proposal")
containing the following: (A) the amount of the Renewal Rental Rate the
submitting party believes to be correct, together with a written summary of the
methods used and data collected to make such determination; (B) a proposal
setting forth each of the following components: (1) initial Base Rent, (2) any
rental escalations during the Renewal Term; and (C) the name of the licensed
commercial real estate broker who shall have at least five (5) years current
leasing experience in office buildings in Costa Mesa, California appointed by
the submitting party. If either party fails to submit such a Renewal Rent
Proposal, or if either party fails to designate its appointed broker in its
Renewal Rent Proposal, within such time period, the other party's submitted
proposal shall determine the Renewal Rental
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Rate, and the initial Base Rent and rental escalations, to be applicable during
the Renewal Term. If both parties submit Renewal Rent Proposals, then the
Renewal Rental Rate, and the initial Base Rent and rental escalations, to be
applicable during the Renewal Term, shall be determined according to the
following procedure:
(a) The two brokers set forth in the parties Renewal Rent
Proposals shall within ten (10) business days after the end of the time
period to submit the Renewal Rent Proposals agree upon and appoint a
third broker who shall be qualified under the same criteria set forth
hereinabove for qualification of the initial two brokers. The three
brokers shall within ten (10) business days after the appointment of the
third broker reach a decision as to whether the parties shall use
Landlord's or Tenant's submitted Renewal Rental Rate, and shall notify
Landlord and Tenant thereof. The decision of the majority of the three
brokers shall be binding upon Landlord and Tenant. If the two brokers
fail to agree upon and appoint a third broker, then upon the application
of either party, the third broker shall be designated by the presiding
judge of the Superior Court for Orange County, California. The cost of
the third broker shall be split equally by Landlord and Tenant, and
Landlord and Tenant shall each be responsible for the fees and costs of
the broker which it appoints. If the Renewal Rental Rate shall not have
been determined by the commencement date of the applicable Renewal Term,
then until it is determined, Tenant shall pay Base Rent when due during
such Renewal Term using Landlord's proposed Renewal Rental Rate, and
when the actual adjusted Renewal Rental Rate is determined, Tenant shall
pay to Landlord any additional rent due for the months which have
elapsed in the Renewal Term, or Landlord shall credit any excess payment
for the elapsed months to the next Base Rent becoming due.
27.3 LIMITATIONS ON TENANT'S RIGHTS. Tenant will have no right to extend
the Term, and Tenant's Renewal Notice will be ineffective, if a Default exists,
or circumstances exist with the passage of time or the giving of notice could
ripen into a Default, at the time the Renewal Notice is given or at the time of
the Renewal Term is scheduled to commence. Any termination of this Lease
terminates all rights under this Section 27. Tenant's right to extend the Term
under this Section 27 is personal to the original Tenant and may be exercised
only by the original Tenant. Any assignment or subletting by Tenant of this
Lease whereby Tenant does not continue to occupy at least one (1) full floor of
the Premises (even if such assignment or subletting does not require the consent
of Landlord or is approved by Landlord) terminates Tenant's rights with respect
to the Renewal Term, unless Landlord consents to the contrary in writing at the
time of such assignment or subletting, or unless such assignment or subletting
is to a Permitted Transferee under this Lease.
28. RIGHT TO LEASE AND RIGHT OF FIRST REFUSAL. Provided Tenant is not in
Default, and that no circumstances exist which with the passage of time or the
giving of notice could ripen into a Default, Tenant shall have a continuing
right to lease and right of first refusal to lease any additional space
available on the eleventh floor of the Building ("Right of First Refusal
Space"). Landlord shall notify Tenant in writing when Landlord has received a
bonafide offer to lease all or a portion of the Right of First Refusal Space
from a third party which is acceptable to Landlord setting forth all of the
material terms and conditions of the bonafide offer ("Landlord's Notice"). If
Tenant wishes to exercise Tenant's right of first refusal with respect to the
space described in Landlord's Notice, then within ten (10) business days after
delivery of the Landlord's Notice to Tenant, Tenant shall deliver written notice
to Landlord of Tenant's election to exercise the
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right of first refusal. If Tenant does not deliver such notice in the time
period required, Tenant's rights to such space under this Section 28 shall
expire unless (i) Landlord thereafter fails to lease such space to the tenant
who delivered the bonafide offer within 180 days, or (ii) such space again
becomes available for lease, in either of which cases Tenant's rights hereunder
shall renew. In addition, Tenant shall have the right at any time prior to
Landlord's delivery of a bonafide offer to deliver to Landlord written notice
that Tenant elects to lease the First Refusal Space in accordance with the terms
set forth herein. If Tenant exercises its right to lease or right of first
refusal, Tenant shall lease the Right of First Refusal Space on the same terms
and conditions as then applicable under this Lease, including without
limitation, the term therefor will be coterminous with the expiration of the
initial Term, or the Renewal Term, if exercised; provided that, the rates and
percentages applicable to Base Rent and Additional Rent shall be adjusted to
reflect the increase in rentable square feet and the Landlord's Allowance shall
be adjusted to reflect any reduced term and, if there are less than thirty-six
(36) months remaining in the initial Term or the Renewal Term, if exercised, the
term for such space shall be the same as set forth in the Landlord's Notice. If
Tenant elects to lease such space, then Landlord and Tenant shall enter into an
amendment to this Lease to reflect the addition of the Right of First Refusal
Space to the Premises. Any termination of this Lease terminates all rights under
this Section 28. Tenant's rights under this Section 28 are personal to the
original Tenant and may be exercised only by the original Tenant while occupying
all of the Premises. Any assignment or subletting by Tenant of this Lease or of
all or a portion of the Premises (even if such assignment or subletting does not
require the consent of Landlord or is approved by Landlord) terminates Tenant's
rights under this Section 28, unless Landlord consents to the contrary in
writing at the time of such subletting or assignment, or unless such assignment
or subletting is to a Permitted Transferee under this Lease.
29. RELOCATION ALLOWANCE. Landlord shall pay to Tenant, upon Tenant's
occupancy of the Premises and Tenant's payment of the Security Deposit and the
first month's Base Rent, an amount equal to One Hundred Thousand Dollars
($100,000) as reimbursement for Tenant's costs paid or payable to third parties
for moving and installing Tenant's furniture, equipment, and personal property
into the Premises and other costs of moving such as subleasing costs and
reprinting stationery with Tenant's new location.
30. HELIPAD ACCESS. Landlord and Tenant shall enter into a helipad
access agreement substantially in the form of Exhibit F, granting Tenant
non-exclusive access to the helipad located at the Building ("Helipad Access
Agreement"). Any termination of this Lease terminates all rights under this
Section 30. Tenant's rights under this Section 30 are personal to the original
Tenant and may be exercised only by the original Tenant while occupying at least
one contiguous, full floor of the Premises. Any assignment or subletting by
Tenant of this Lease or of all or a portion of the Premises (even if such
assignment or subletting does not require the consent of Landlord or is approved
by Landlord) terminates Tenant's rights under this Section 30, unless Landlord
consents to the contrary in writing at the time of such subletting or
assignment, or unless such assignment or subletting is to a Permitted Transferee
under this Lease. Any Default under this Lease shall be considered a default
under the terms of the Helipad Access Agreement and any default under the terms
of the Helipad Access Agreement shall be considered a Default under the terms of
this Lease.
31. TENANT'S SECURITY SYSTEM. Tenant may, at Tenant's sole cost and
expense
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(provided that such costs may be paid out of Landlord's Allowance), install and
maintain in the Premises a security system. The security system and its location
shall be approved by Landlord in writing prior to installation. Prior to
installation of the security system, Tenant shall provide to Landlord a written
description of the security system, which shall be in detail reasonably
satisfactory to Landlord. Upon installation of the security system, Tenant shall
provide Landlord with a bypass key for the security system. Tenant shall be
solely responsible for any damage to or loss of the security system. Tenant, at
its expense, shall remove the security system prior to the termination date of
this Lease and repair any and all damage caused in connection with such removal.
32. TELECOMMUNICATIONS.
32.1 TELECOMMUNICATION RIGHTS. Landlord agrees that Tenant shall have
the right to select and utilize telecommunications and data carriers (the
"Carrier(s)") of its choice with respect to the Premises, subject to Landlord's
prior approval of such Carrier(s) which shall not be unreasonably withheld or
delayed, subject however to the provisions of this Article 32. Landlord agrees
and Tenant acknowledges that: (i) Landlord shall grant any Landlord approved
Carrier selected by Tenant a license (the "Carrier License") for a term which is
consistent with the Term (subject to earlier termination as provided therein) to
install, operate, maintain, repair and replace cables and associated equipment,
provided that the license agreement is in a form acceptable to Landlord in its
reasonable discretion; (ii) Landlord shall provide such approved Carriers
reasonable access to vertical and horizontal shafts to enable Carriers to
provide Carriers' public utility telecommunication services to the Premises,
(iii) the Carrier License shall not constitute an exclusive right to Tenant or
Tenant's Carriers or vendors, and Landlord reserves the right to grant, renew or
extend similar licenses to other carriers at Landlord's sole discretion; and
(iv) nothing contained herein shall be construed as granting Carriers or Tenant
any property or ownership rights in the Building or Project or to create a
partnership or joint venture between or among Landlord, Carriers or Tenant.
Landlord shall have the right to review and approve Carriers submitted by Tenant
pursuant to Section 32.2 below and the rights of the Carriers shall be limited
to providing fiber optics to the Premises.
32.2 LANDLORD'S REVIEW AND APPROVAL OF PROPOSED CARRIERS. As provided in
Section 32.1 above, Landlord shall have the right of prior approval with respect
to any Carriers proposed by Tenant, which approval shall be subject to any
reasonable conditions and standards as determined by Landlord, with Landlord and
Tenant agreeing and acknowledging that it shall be reasonable for Landlord to
refuse to give its approval of any Carrier for the following reasons (which are
not exclusive): (i) Landlord is required in connection with such approval to
incur expenses or costs relating thereto which are not fully paid for or
reimbursed by Carriers or Tenant; (ii) the Carrier refuses to supply to Landlord
any written indemnities, insurance, financial statements, or other information
as required by the Carrier License; (iii) the Carrier will not agree to abide by
any rules and regulations, building and other codes, or other requirements as
reasonably imposed by Landlord; (iv) the Carrier will not agree to any Landlord
requirements regarding the use of existing Building conduits, and pipes or the
use of Building contractors or subcontractors as required by Landlord; or (v)
the Carrier refuses to execute the form of a Carrier License attached as Exhibit
K together with any reasonable modifications required by Landlord. The
provisions of this Section may be enforced
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solely by Tenant and Landlord, and are not for the benefit of and no other party
shall claim the benefit of these provisions including, but not limited to, any
proposed Carrier, and any such proposed Carrier shall not be deemed a third
party beneficiary of this Lease or this Section for any reason.
33. ROOF RIGHTS. Provided Tenant is not in Default under the terms of
this Lease, Tenant is hereby granted a non-exclusive license to install and
maintain on the roof of the Building in an area not exceeding 250 square feet,
at Tenant's sole cost and expense, two (2) antenna(e) and related equipment
and/or one back-up generator and related equipment (collectively, the
"Equipment") on the terms and conditions set forth herein. Prior to the
installation of the Equipment on the roof, Tenant shall provide in writing to
Landlord the Equipment specifications, including the total square footage,
location, and design of the Equipment for approval by Landlord, in Landlord's
sole and absolute discretion. If required by Landlord, the Equipment, at
Tenant's cost and expense, shall be screened with a material similar to the
exterior of the Building so as to cause the screening to appear to be part of
the Building. If any repairs or replacement of the roof or other materials on
the roof are required, Tenant shall pay the cost and expense for Landlord to
remove or relocate the Equipment for such reasonable time as may be necessary
for Landlord and its contractors and agents to conduct such repair or
replacement. Tenant shall be solely responsible for any damage to or loss of the
Equipment and shall carry loss and casualty insurance with full replacement
value coverage. Landlord, at its option, shall remove or require Tenant to
remove the Equipment upon the termination of this Lease, and Tenant shall
promptly reimburse Landlord for the cost and expense to repair any and all
damage caused to the Building in connection with such removal. Tenant shall not
be entitled to modify or add to the Equipment without Landlord's prior written
consent. The placement of the Equipment shall not interfere with any existing
facilities, including but not limited to existing equipment of other tenants of
the Building, located in or on the roof of the Building. Tenant shall be
responsible for obtaining (prior to installation of the Equipment) any and all
permits or licenses that may be required by any governmental authorities in
connection with the Equipment. Tenant acknowledges that Landlord and its agents,
employees, contractors and consultants shall retain reasonable access rights to
the roof of the Building through the corridors and stairwells located within or
adjacent to the Premises for purposes related to the operation, maintenance or
repair of the Building or equipment used in connection therewith.
34. YEAR 2000 COMPLIANCE. Landlord warrants that the Premises, the
Building and all Building related operating systems, including but not limited
to elevators, escalators, HVAC systems, Building access and security systems,
and other similar systems and devices, comply with the Year 2000 Compliance
Standards. For purposes of this Lease, "Year 2000 Compliance Standards" shall
mean (i) all dates receivable by software or microprocessors will accept a
century and millennium indicator; (ii) date calculations involving either a
single century or millennium will neither cause an abnormal ending nor generate
incorrect results; and (iii) when sorting by date, all records will be sorted in
accurate sequence, and when the date is used as a key, records will be read and
written in accurate sequence. To the extent Landlord's failure to comply with
the requirements of this Section causes the Premises to be untenantable, Tenant
shall be entitled to an equitable abatement of Rent and such other rights as are
provided above in Section 5.3 regarding interruptions in services.
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35. ADDITIONAL PROVISIONS.
(a) Tenant shall have use of the loading dock in common with
other tenants. Landlord shall provide loading dock service during
Tenant's construction of the Tenant Improvements and initial move into
the Premises, without any charge or fee.
(b) Access to the Premises, Common Areas and parking areas shall
be provided on a 24-hour 7 days per week basis.
(c) Landlord will use commercially reasonable efforts to
investigate and remedy any legitimate complaints by Tenant regarding the
Building's air quality, provided that the items complained of are not
caused by Tenant or related to the Leasehold Improvements.
(d) Any consents or approvals to be given by a party hereto
shall not be unreasonably withheld unless another standard for giving or
withholding such consent or approval is specifically set forth herein as
to such consent or approval.
(e) Tenant acknowledges and agrees that the Lease and all of
Tenant's obligations thereunder are subject and subordinate to the terms
of that certain Ground Lease dated May 9, 1978, as amended from time to
time, as referenced in a Preliminary Report dated as of April 16, 1999,
issued by First American Title Insurance Company, as well as all other
exceptions set forth in said Preliminary Report, copies of all of which
have been provided to Tenant for its review.
(f) The submittal of all matters to arbitration in accordance
with the provisions of this Section is the sole and exclusive method,
means and procedure to resolve any and all claims, disputes or
disagreements arising under this Lease, including, but not limited to
any matter relating to the disbursement of Landlord's allowance or
Landlord's failure to approve an assignment, sublease or other transfer
of Tenant's interest in the Lease under this Lease, any other defaults
by Landlord or Tenant, except for (i) all claims by either party which
(a) seek anything other than enforcement of rights under this Lease, or
(b) are primarily founded upon matters of fraud, willful misconduct, bad
faith or any other allegations of tortious action, and seek the award of
punitive or exemplary damages, (ii) claims relating to Landlord's
exercise of any unlawful detainer rights pursuant to California law or
rights or remedies used by Landlord to gain possession of the Premises
or terminate Tenant's right of possession to the Premises (including any
defenses or counterclaims of Tenant thereto), and (iii) claims for
specific performance of any obligations under this Lease which disputes
shall be resolved by suit filed in the Superior Court of Orange County,
California, the decision of which court shall be subject to appeal
pursuant to applicable law. The parties hereby irrevocably waive any and
all rights to the contrary and shall at all times conduct themselves in
strict, full, complete and timely accordance with the provisions of this
Section and all attempts to circumvent the provisions of this Section be
absolutely null and void and of no force or effect whatsoever. As to any
matter submitted to arbitration (except with respect to the payment of
money or pursuant to preceding clause (iii) to determine whether a
matter would, with the passage of time, constitute a default, such
passage of time shall not
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commence to run until any such affirmative arbitrated determination, as
long as it is simultaneously determined in such arbitration that the
challenge of such matter would, with the passage of time, constitute a
default, such passage of time shall not commence to run in the event
that the party which is obligated to make the payment does in fact make
the payment to the other party. Such payment can be made "under
protest," which shall occur when such payment is accompanied by a good
faith notice stating the reasons that the party has elected to make a
payment under protest. Such protest will be deemed waived unless the
subject matter identified in the protest is submitted to arbitration as
set forth in this Section.
Any dispute to be arbitrated pursuant to the provisions of this
Section shall be determined by binding arbitration before a retired
judge of the Superior Court of the State of California (the
"Arbitrator") under the auspices of Judicial Arbitration & Mediation
Services, Inc. ("JAMS"). Such arbitration shall be initiated by the
parties or either of them, within ten (10) days after either party sends
written notice (the "Arbitration Notice") of a demand to arbitrate to
the other party and to JAMS. The Arbitration Notice shall contain a
description of the subject matter of the arbitration, the dispute with
respect thereto, the amount involved, if any, and the remedy or
determination sought. The parties may agree on a retired judge from the
JAMS panel. If they are unable to agree within five (5) days after
initiating the Arbitration, either party may direct JAMS to immediately
provide a list of three available judges and each party may strike one
(the strike list must be returned to JAMS within 3 days after receipt
thereof, failing which either party may direct JAMS to immediately
select the Arbitrator from the remaining judge (or if there are two,
from the remaining two judges)). The remaining judge (or if there are
two, the one selected by JAMS) will serve as the Arbitrator. In the
event that JAMS shall no longer exist or if JAMS fails or refuses to
accept submission of such dispute, then the dispute shall be resolved by
binding arbitration before the American Arbitration Association ("AAA")
under the AAA's commercial arbitration rules then in effect.
The Arbitrator shall schedule a pre-hearing conference to
resolve procedural matters, arrange for the exchange of information,
obtain stipulations, narrow the issues and provide a schedule for the
Arbitration. The parties will submit proposed discovery schedules to the
Arbitrator at the pre-hearing conference. The scope and duration of
discovery will be within the sole discretion of the Arbitrator. The
Arbitrator shall have the discretion to order a pre-hearing exchange of
information by the parties, including, without limitation, production of
requested documents, exchange of summaries of testimony of proposed
witnesses, and examination by deposition of parties and third-party
witnesses. This discretion shall be exercised in favor of discovery
reasonable under the circumstances.
The arbitration shall be conducted in Orange County, California.
Any party may be represented by counsel or other authorized
representative. In rendering a decision(s), the Arbitrator shall
determine the rights and obligations of the parties according to the
substantive and procedural laws of the State of California and the
provisions of this Lease. The Arbitrator's decision shall be based on
the evidence introduced at the hearing, including all logical and
reasonable inferences therefrom. The Arbitrator may make any
determination,
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and/or grant any remedy or relief (an "Arbitration Award") that is just
and equitable. The decision must be based on, and accompanied by, a
written statement of decision explaining the factual and legal basis for
the decision as to each of the principal controverted issues. The
decision shall be conclusive and binding, and it may thereafter be
confirmed as a judgment by the Superior Court of the State of
California, subject only to challenge on the grounds set forth in the
California Code of Civil Procedure Section 1286.2. The validity and
enforceability of the Arbitrator's decision is to be determined
exclusively by the California courts pursuant to the provisions of this
Lease. The Arbitrator shall award costs, including without limitation
attorneys' fees, and expert and witness costs, to the prevailing party
as defined in California Code of Civil Procedure Section 1032
("Prevailing Party"), if any, as determined by the Arbitrator in his
discretion. The Arbitrator's fees and costs shall be paid by the
non-prevailing party as determined by the Arbitrator in his discretion.
A party shall be determined by the Arbitrator to be the prevailing party
if its proposal for the resolution of dispute is the closer to that
adopted by the Arbitrator.
During the pendency of any arbitration or other proceedings,
Tenant shall continue to pay all Rent and perform all obligations on its
part to be performed under this Lease.
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Exhibit F
555 ANTON BOULEVARD
HELIPAD ACCESS AGREEMENT
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Exhibit G
555 ANTON BOULEVARD
CLEANING SPECIFICATIONS
G-70
<PAGE> 71
Exhibit H
555 ANTON BOULEVARD
BUILDING SIGNAGE
H-71
<PAGE> 72
Exhibit I
555 ANTON BOULEVARD
TENANT'S CORPORATE GRAPHICS & LOGO
I-72
<PAGE> 73
Exhibit J
555 ANTON BOULEVARD
TENANT'S COMPETITORS
The following is a list of competitors:
1. Ticketmaster, Inc.
2. Ticketmaster, Group Inc.
3. Ticketmaster, Online-City Search Inc.
4. SFX Entertainment, Inc.
5. USA Networks, Inc.
6. ETM Entertainment Network, Inc.
7. Paciolon, Inc.
8. Any entity controlled by or under common control with any of the
foregoing whose primary business is ticketing sales and/or services (if
Landlord has actual (non-imputed) knowledge of such affiliate and its
primary business prior to entering into a lease with such entity).
J-73
<PAGE> 74
Exhibit K
555 ANTON BOULEVARD
ASSIGNED PARKING SPACES
K-74
<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 26, 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 28, 1999
Syracuse, New York
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 4 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 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 35,170,826
<SECURITIES> 0
<RECEIVABLES> 10,291,696
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,778,300
<PP&E> 10,190,115
<DEPRECIATION> 0
<TOTAL-ASSETS> 148,672,830
<CURRENT-LIABILITIES> 37,368,741
<BONDS> 0
0
5,466
<COMMON> 3,713
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 148,672,830
<SALES> 0
<TOTAL-REVENUES> 33,086,536
<CGS> 0
<TOTAL-COSTS> 21,272,231
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,512,324
<INCOME-PRETAX> (38,124,299)
<INCOME-TAX> 29,029
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,153,328)
<EPS-BASIC> (3.46)
<EPS-DILUTED> (3.46)
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