<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 22, 1999
REGISTRATION NO. 333-79709
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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.
BROBECK, PHLEGER & HARRISON LLP JULIE M. ROBINSON, ESQ.
38 TECHNOLOGY DRIVE COOLEY GODWARD LLP
IRVINE, CALIFORNIA 92618 5 PALO ALTO SQUARE
(949) 790-6300 3000 EL CAMINO REAL
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 September 22, 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 APPLIED TO LIST OUR COMMON STOCK FOR QUOTATION ON THE NASDAQ NATIONAL
MARKET UNDER THE SYMBOL "TKTS."
------------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. 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>
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.
Tickets.com, Inc. has granted the underwriters a 30-day option to purchase up to
an additional 938,333 shares to cover over-allotments. Morgan Stanley & Co.
Incorporated expects to deliver the shares to purchasers on
, 1999.
------------------------------
MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
SG COWEN
E*OFFERING WIT CAPITAL CORPORATION
, 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.......................... 20
Use of Proceeds....................... 21
Dividend Policy....................... 21
Capitalization........................ 22
Dilution.............................. 23
Selected Unaudited Pro Forma Condensed
Combined Financial Information...... 24
Selected Consolidated Financial
Data................................ 28
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business.............................. 46
Management............................ 68
Certain Transactions.................. 81
Principal and Selling Stockholders.... 84
Description of Capital Stock.......... 86
Shares Eligible for Future Sale....... 88
Underwriters.......................... 90
Legal Matters......................... 92
Experts............................... 92
Additional Information................ 93
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 offering.
The conversion of all shares of convertible preferred stock outstanding as of
September 16, 1999 are 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.
OUR BUSINESS
Tickets.com is a leading source of entertainment tickets, event
information, and related products and services. 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 September
16, 1999, over 200,000 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.
OUR MARKET OPPORTUNITY
The entertainment and sports industries and, consequently, the event
ticketing market, are large and growing. We estimate that the market for event
ticketing in the United States based on the face value of tickets sold for live
entertainment and sporting events and attractions totaled $14.5 billion in 1998,
and we expect it to grow to $18.0 billion in 2001. We generate revenues from
ticket sales primarily from service fees paid by ticket purchasers. For the six
months ended June 30, 1999, the weighted average service fee for tickets sold
through Tickets.com was equal to 13.6% of the face value of tickets sold. As the
entertainment and sports industries have grown, so has the need for more
convenient methods for the sale and distribution of tickets. The process of
selling and distributing tickets is inherently complex. Entertainment
organizations often simultaneously sell tickets to a number of different events
through a variety of distribution channels, to groups of consumers with varying
ticketing needs and often at a rapid pace. An integrated technology solution is
required to effectively and efficiently meet these needs.
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 and its affiliates and
will provide information that will be posted on these web sites. As part of
these strategic relationships, Excite and Cox each made an equity investment in
Tickets.com.
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
1
<PAGE> 6
entertainment organizations. We believe consumers seek an integrated solution
where they can find information about a wide range of events and conveniently
buy tickets to those events. Moreover, entertainment organizations are
increasingly interested in using advanced software solutions and the Internet to
efficiently sell tickets, market their events and deliver event information,
generate increased revenues and build stronger customer relationships. During
the first and second quarters of 1999 our Internet-based revenues comprised 4.4%
and 8.2% 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.
OUR 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.
2
<PAGE> 7
In this prospectus, the terms "Tickets.com," "we," "us" and "our" refer to
Tickets.com, Inc. and its consolidated subsidiaries.
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.............. 60,774,543 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 September 16, 1999. Gives effect to the
automatic conversion of all debt instruments and equity securities which
convert into shares of common stock immediately prior to the closing of this
offering or expire upon 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 conversion of Series E preferred stock
may be adjusted based upon the initial public offering price. Excludes (1)
9,095,436 shares of common stock issuable upon exercise of stock options
outstanding as of September 16, 1999, with a weighted average exercise price
of approximately $4.88 per share; and (2) 771,788 shares of common stock
issuable upon exercise of warrants outstanding at September 16, 1999 with a
weighted average exercise price of approximately $1.87.
3
<PAGE> 8
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated financial data for the period from May
31, 1996, the date that we commenced our business operations, to December 31,
1996 and for the years ended December 31, 1997 and 1998 have been derived from
our audited consolidated financial statements included elsewhere in this
prospectus. The summary consolidated financial data for the six months ended
June 30, 1999 have been derived from the unaudited consolidated financial
statements included elsewhere in this prospectus. Our unaudited consolidated
financial statements have been prepared on substantially the same basis as the
audited consolidated financial statements and, in the opinion of our management,
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the results of operations for such period. Please be
advised that historical results are not necessarily indicative of the results to
be expected in the future, and results of interim periods are not necessarily
indicative of results for the entire year. You should read "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and the related notes for a further explanation of the
financial data summarized here. The unaudited pro forma combined statement of
operations data for the year ended December 31, 1998 and the six months ended
June 30, 1999 are derived from the unaudited pro forma condensed combined
financial information contained elsewhere in this prospectus.
The pro forma combined statement of operations data for the year ended
December 31, 1998 and the six months ended June 30, 1999 show our pro forma
results of operations as if the acquisitions of ProTix, Inc., California
Tickets.com, Inc. and TicketsLive Corporation had occurred on January 1, 1998.
See "Selected Unaudited Pro Forma Condensed Combined Financial Information."
Under the rules and regulations of the Securities and Exchange Commission,
Bay Area Seating Service, Inc. is deemed to be a predecessor of Tickets.com.
Please see "Selected Consolidated Financial Data."
<TABLE>
<CAPTION>
PRO FORMA COMBINED
---------------------------
MAY 31, 1996 YEAR ENDED SIX MONTHS SIX MONTHS
(INCEPTION) TO DECEMBER 31, ENDED YEAR ENDED ENDED
DECEMBER 31, ------------------ JUNE 30, DECEMBER 31, JUNE 30,
1996 1997 1998 1999 1998 1999
-------------- ------- -------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Ticketing services............. $ 119 $ 9,686 $ 26,558 $ 13,046 $ 29,858 $ 13,063
Software services and other.... 1,123 1,961 2,982 6,232 17,822 9,179
------- ------- -------- -------- -------- --------
Total revenues.......... 1,242 11,647 29,540 19,278 47,680 22,242
Total cost of services........... 1,430 8,413 18,706 12,542 29,253 14,610
------- ------- -------- -------- -------- --------
Gross profit (loss).............. (188) 3,234 10,834 6,736 18,427 7,632
Operating expenses(a)............ 2,915 8,223 43,668 28,604 73,324 30,527
------- ------- -------- -------- -------- --------
Loss from operations............. (3,103) (4,989) (32,834) (21,868) (54,897) (22,895)
Other expenses(b)................ 146 1,110 2,027 1,465 2,503 1,453
------- ------- -------- -------- -------- --------
Net loss......................... $(3,249) $(6,099) $(34,861) $(23,333) $(57,400) $(24,348)
======= ======= ======== ======== ======== ========
Basic and diluted net loss per
share.......................... (0.65) (1.17) (6.08) (2.64) (4.15) (1.74)
======= ======= ======== ======== ======== ========
Weighted average common shares
outstanding(c)................. 5,000 5,199 5,734 8,841 13,829 14,012
======= ======= ======== ======== ======== ========
Pro forma as adjusted basic and
diluted net loss per
share(d)....................... (0.81) (0.39) $ (1.10) $ (0.40)
======== ======== ======== ========
</TABLE>
4
<PAGE> 9
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(E)
------- --------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $20,138 $107,324
Working capital............................................. (608) 95,519
Total assets................................................ 123,347 218,331
Long-term debt(f)........................................... 21,587 1,248
Redeemable common stock and warrants........................ 9,596 --
Total stockholders' equity.................................. 60,859 205,909
</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 six months ended June
30, 1999.
(b) Other expenses include principally interest expense, net of interest income
and, to a lesser degree, minority interest and provision for income taxes.
(c) Reflects shares of common stock outstanding during the periods presented.
Pro forma data include common stock issuable with respect to the
acquisitions. Excludes shares of common stock issuable upon conversion of
outstanding shares of preferred stock, a convertible promissory note, and
upon exercise of outstanding stock options and warrants.
(d) Pro forma basic and diluted net loss per share, includes the effects of the
Series A, A1, B, C, D and E convertible preferred stock, warrants which
expire upon the closing of this offering, convertible debt and the
redeemable common stock outstanding as of the respective periods for actuals
and as of September 16, 1999 for proforma combined, as if all shares were
converted as of January 1, 1998.
(e) For a description of the assumptions reflected in the pro forma as adjusted
presentation, see "Capitalization."
(f) Amounts classified as long-term debt consist of long-term debt and capital
lease obligations, net of current portion.
5
<PAGE> 10
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks described below are not the only ones facing 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 and 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.
WE HAVE A LIMITED OPERATING HISTORY AS A CONSOLIDATED BUSINESS AND FACE
SIGNIFICANT RISKS OFTEN FACED BY EARLY STAGE TICKETING COMPANIES
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 our business and prospects must be considered in
light of the risks, expenses and difficulties frequently encountered by
companies in an early stage of development. In particular, we have an unproven
business model that is substantially dependent on the growth of ticket sales and
related products and services on the Internet, with which we have limited
experience. In addition, we face competition from companies with lengthy
operating histories, well established relationships with entertainment
organizations and greater brand recognition. To address these risks, we must,
among other things:
- continue to expand our relationships with our existing licensees;
- continue to develop the strength and quality of our operations;
- respond to competitive developments;
- continue to attract, retain and motivate qualified employees; and
- anticipate and adapt to developing markets and technologies.
We cannot be certain that we will be successful in meeting these challenges
and addressing these risks.
TICKETMASTER CORPORATION AND TICKETMASTER ONLINE-CITYSEARCH HAVE FILED A LAWSUIT
AGAINST US SEEKING AN INJUNCTION AND DAMAGES
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 provided false and misleading
information on our web site regarding the availability of tickets and related
information on the Ticketmaster web site. The suit also alleges that we have
engaged in other wrongful acts, including that we have taken 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. 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 the 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.
INFRINGEMENT OR OTHER CLAIMS COULD HARM OUR RESULTS OF OPERATIONS
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 trademark, patent or other 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. We could also be subject to lawsuits because we link consumers
directly
6
<PAGE> 11
to an internal page within other ticketing service providers' web sites. We have
also included the trademarks of these other ticketing service providers on our
web site.
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 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, and could have a material adverse
effect on our business, financial condition and results of operations.
WE FACE A NUMBER OF RISKS RELATED TO THE INTEGRATION OF OUR RECENT AND FUTURE
ACQUISITIONS
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. We
cannot be certain that we will be able to successfully integrate any operations,
personnel or systems of these acquired companies in a timely fashion, or at all.
Nor can we be certain that we will achieve value from our acquisitions
commensurate with the consideration paid. If we are unable to do so, or are
unable to generate sufficient revenue from any acquired companies, our business,
financial condition and results of operations will be adversely affected. The
integration of recently acquired companies and possible future acquisitions into
a cohesive business requires the combination of a variety of different business
models, different 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. This
process 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:
WE MAY LOSE KEY PERSONNEL OF ACQUIRED COMPANIES
Key personnel of acquired companies may chose 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.
THE PROCESS OF INTEGRATING TECHNOLOGIES COULD DISRUPT OUR TICKETING SYSTEMS
The process of integrating the various technologies of acquired companies
into an interactive whole 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. For example, in
connection with the conversion of the information and telecommunications systems
of Bay Area Seating Service, Inc., commonly known as BASS, 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.
7
<PAGE> 12
WE MUST RETAIN CLIENTS OF ACQUIRED COMPANIES
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. From March 1998 to July 1998 while we were in the process of
converting all of the clients that we acquired in the BASS transaction to our
ticketing system, two of these BASS 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 BASS 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, who we also acquired in the BASS transaction, 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.
ACQUISITIONS WILL CREATE CHARGES TO EARNINGS
As a result of past acquisitions, we have recorded a significant amount of
goodwill that will adversely affect our operating results for the foreseeable
future. As of June 30, 1999, we had goodwill and other intangible assets of
$80.0 million, which must be amortized in the future and will result in a
reduction of our earnings. If the amount of recorded goodwill or other
intangible assets is increased or we have future losses and are unable to
demonstrate our ability to recover the amount of goodwill, the amount of
amortization could be increased or the period of amortization could be
shortened. This would increase annual amortization charges or result in a
write-off of goodwill in a one-time noncash charge, which could be significant
based on our acquisitions to date. Any future acquisitions could also result in
amortization expense related to goodwill and other intangible assets. If any of
these events should occur, the market price of our common stock, and our
business, financial condition and results of operations could be adversely
affected. 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. In addition, our revenue growth should not be
taken as indicative of future revenues. 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.
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;
8
<PAGE> 13
- 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.
OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY BECAUSE OF THE
SEASONALITY OF THE LIVE ENTERTAINMENT INDUSTRY
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. In addition, our
quarterly operating results have in the past and will in the future vary
significantly depending on a variety of factors, including, among others:
- 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.
These seasonality issues could cause our quarterly operating results to
fall below market expectations, and adversely affect the market price of our
common stock.
WE EXPECT TO CONTINUE TO INCUR SIGNIFICANT NET OPERATING LOSSES AND EXPERIENCE
NEGATIVE CASH FLOW
We incurred net operating losses of approximately $34.9 million for the
year ended December 31, 1998, and $23.3 million for the six months ended June
30, 1999. At June 30, 1999, we had an accumulated deficit of approximately $72.5
million. We expect to continue to incur significant losses on a quarterly and
annual basis, and we cannot be certain that we will achieve or sustain
profitability. We currently intend to increase spending to fund, among other
things:
- expansion of our sales and marketing operations;
- significant increases in advertising expenses;
- development of our technology infrastructure;
- development of event-specific web site content; and
- development of our online transactional capabilities.
To the extent such expenses precede or are not subsequently followed by
increased revenues, our operating results will be adversely affected and
anticipated net losses in a given quarter may be greater than expected. In
addition, we expect increased operating expenses as a result of recent
acquisitions and future acquisitions, if any.
We have also 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
9
<PAGE> 14
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 business, financial condition and
results of operations could be materially and adversely affected.
THE SUCCESS OF OUR GROWTH STRATEGY DEPENDS SUBSTANTIALLY ON A MOVE INTO
E-COMMERCE
To date, our revenues generated from Internet sales have not been
significant. Our business model is based on the growth of our revenues through a
significant shift into e-commerce and depends on consumers purchasing
substantially higher volumes of sports, entertainment and travel tickets and
related merchandise from us online. In order to enter and compete successfully
in the Internet ticketing market, we must, among other things:
- significantly increase online traffic and sales volume;
- successfully implement and execute our business and marketing strategy;
- expand our offerings of products and services;
- substantially increase our available ticket inventories;
- increase the number of our clients who sell tickets online;
- respond to competitive developments;
- form and maintain relationships with strategic partners;
- provide quality customer service; and
- continue to develop and upgrade our technologies.
We cannot be certain that we will be successful in addressing these or
other necessary objectives. 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.
Our entry into e-commerce involves a number of other significant challenges
and risks, including the following:
WE HAVE LIMITED EXPERIENCE IN OFFERING E-COMMERCE SERVICES TO CONSUMERS
We began online ticket sales in the third quarter of 1997. Historically, we
have sold tickets primarily through retail stores and telephone sales centers.
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. In order to generate substantial
revenues from online ticket sales, we must substantially increase the number of
clients who use our online ticketing services. We cannot be certain that we will
be able to implement our Internet strategy in accordance with our business
model, or at all.
OUR BUSINESS MODEL REQUIRES CONTINUED GROWTH OF E-COMMERCE TO BE SUCCESSFUL
The growth of our future revenues and any future profits are substantially
dependent upon the widespread acceptance and use of the Internet by consumers as
an effective medium of commerce. The markets for our Internet ticketing services
have only recently begun to develop. These markets are relatively new and
rapidly evolving and are characterized by a number of entrants that have
introduced or plan to introduce competing services. As a result, demand for and
market acceptance of new services are subject to a high level of uncertainty and
risk. We cannot be certain that e-commerce, and particularly the number of
consumers who
10
<PAGE> 15
use online services to purchase tickets and related merchandise, will continue
to grow or be sustainable. The development of the Internet as a viable
commercial marketplace is subject to a number of factors, including:
- continued growth in the number of Internet users;
- concerns about transaction security and privacy;
- continued development of the technology infrastructure; and
- the level of government regulation.
WE MUST CONTINUALLY DEVELOP NEW SERVICES TO ADAPT TO THE EVOLVING INTERNET
MARKET
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
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. Some clients may, for various
reasons, be averse to change and may require a lengthy sales cycle before they
will upgrade to Internet ticketing on our system. We may also experience
difficulties in 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 cannot be certain that the markets for our Internet ticketing services
will develop or that demand for our Internet ticketing services will emerge or
become economically sustainable. The success of our Internet ticketing services
will depend on the willingness of consumers to purchase tickets to live events
online and on our ability to significantly increase online traffic and sales
volume.
THE SUCCESS OF OUR BUSINESS IS HIGHLY DEPENDENT ON OUR PROPRIETARY TECHNOLOGY
AND INTELLECTUAL PROPERTY
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
certain foreign countries. 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.
WE MUST PROTECT OUR BRANDS TO ACHIEVE OUR DESIRED GROWTH
We are depending on the broad recognition of our "Tickets.com" and
"1-800-TICKETS" brands for our business to grow. 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
11
<PAGE> 16
"Tickets.com," the stylized trademark "1.800.TICKETS," or both. We cannot be
certain that the steps we have taken and will take to protect our intellectual
property and proprietary rights will be adequate, and such steps may require
considerable expenditures. Nor can we be certain that third parties will not
infringe or misappropriate our copyrights, trademarks, trade dress and similar
proprietary rights. Ineffective protection of these rights could reduce the
value of our brands.
OUR LICENSEES COULD DIMINISH THE QUALITY OF OUR BRANDS
We have licensed in the past, and expect to license in the future, certain
proprietary rights such as trademarks or copyrighted material to third parties.
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.
WE MUST BE ABLE TO PRESERVE OUR DOMAIN NAMES
We currently hold the Internet domain names "tickets.com," "advantix.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. The regulation of domain names in the
U.S. 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. As a
result, 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 have a
material and adverse effect on our business, financial condition and results of
operations.
ONLINE SECURITY BREACHES COULD HARM OUR BUSINESS
The secure transmission of confidential information over the Internet is
essential in maintaining consumer and supplier confidence in our services. 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. Consumers generally are concerned with security and
privacy on the Internet, and any publicized security problems affecting third
parties conducting business over the Internet could inhibit the growth of
e-commerce and, therefore, our service as a means of conducting commercial
transactions. If we or other e-commerce companies experience a security breach,
our business, financial condition and results of operations could be materially
and adversely affected.
SYSTEM FAILURES COULD DAMAGE OUR REPUTATION AND OUR BUSINESS
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. In addition, 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.
12
<PAGE> 17
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 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 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.
BECAUSE WE ARE SIGNIFICANTLY SMALLER THAN OUR PRIMARY COMPETITOR, WE MAY LACK
THE FINANCIAL RESOURCES NEEDED TO CAPTURE INCREASED MARKET SHARE
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 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
The market for sports and entertainment tickets and related merchandise is
highly competitive and diverse. Our competitors include 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 our
competitors have greater financial and marketing resources than we do. Our
primary competitors are Ticketmaster Corporation and Ticketmaster
Online-CitySearch, Inc., which have operations in multiple locations throughout
the United States and compete with us on a national level. 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 and has greater financial and other resources than
we do. Many smaller ticketing services companies compete with us in specific
geographic regions. Our competitors may develop services superior to ours and
have achieved or may achieve greater acceptance of their products and services
than we do. They may also have significant competitive advantages through other
lines of business and existing business relationships.
WE MAY ALSO FACE COMPETITION FROM NEW COMPETITORS OR FROM EXISTING
COMPANIES WHO DECIDE TO ENTER THE TICKETING BUSINESS
Because barriers to entry in e-commerce are relatively low, and current and
new competitors can launch new web sites using commercially available software,
we expect competition in online ticketing to intensify. We face potential
competition from companies that offer services similar to those that we offer.
In addition, we may face competition from companies in other areas of e-commerce
who may seek to exploit their market presence by offering products and services
competitive with ours. These potential competitors may have a number of
competitive advantages, including:
- strong brand recognition;
- fully developed e-commerce functionality;
- comprehensive information and other content resources;
- an established presence on the Internet and an established base of users;
- longer operating histories;
- greater financial and marketing resources; and
- complementary lines of business and existing business relationships.
13
<PAGE> 18
In addition, some Internet portals direct Internet traffic to particular
web sites and may also channel users to services that compete with ours.
Arrangements with these and other Internet portals may allow potential as well
as existing competitors to expand their operations and information technology.
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 potential competitors.
ENTERTAINMENT INDUSTRY CONSOLIDATION MAY INCREASE COMPETITION FOR NEW
CLIENTS AND TICKET INVENTORY
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. If we
cannot attract new clients and ticket inventory, or if we lose clients to other
ticketing services or otherwise, our business, financial condition and results
of operations could be materially and adversely affected.
OUR RELIANCE ON THIRD PARTY SOFTWARE AND HARDWARE MAKES US VULNERABLE TO CHANGES
IN OUR SUPPLIERS' PRODUCTS AND SERVICES
Our software products incorporate and use software products and computer
hardware and equipment developed by other entities. We cannot be certain that
all of these entities 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. Any such
changes may impair our ability to provide adequate ticketing services to our
clients in a timely manner.
OUR RAPIDLY EXPANDING BUSINESS IN A HIGHLY COMPETITIVE MARKET NECESSITATES THE
ATTRACTION AND RETENTION OF QUALIFIED PERSONNEL IN ORDER TO SUCCEED
The significant growth of our business over the past two years has placed
significant 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 such
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.
WE DEPEND ON RETAIL STORES, ADVERTISING AGREEMENTS AND STRATEGIC RELATIONSHIPS
FOR TICKET SALES
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 Merchandis-
14
<PAGE> 19
ing Corporation, a subsidiary of International Management Group, GeoCities,
MP3.com, Sitematic 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 could be materially and adversely affected.
THE LOSS OF PERSONNEL COULD REQUIRE TICKETS.COM TO PROVIDE COSTLY SEVERANCE
PACKAGES
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.
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK AND A PUBLIC MARKET FOR OUR
SECURITIES MAY NOT DEVELOP OR BE SUSTAINED
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 response to factors
such as the following, some of which are beyond our control and may make us a
target of securities class action litigation:
- quarterly variations in our operating results;
- operating results that vary from the expectations of securities analysis
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 of technological innovations or new services by us or our
competitors;
- announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
- loss of a major venue or client;
- changes in the status of our intellectual property rights;
- announcements by third parties of significant claims or proceedings
against us;
- additions or departures of key personnel;
- future sales of our common stock;
- price and volume fluctuations in domestic and international stock
markets; and
- general political and economic conditions.
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. In the past, securities class action
litigation often has been brought against a company following periods of
volatility in the market price of its 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.
15
<PAGE> 20
WE MAY FACE LIABILITY FOR ONLINE CONTENT THAT MAY NOT BE COVERED BY 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 business, financial condition and results of
operations.
YEAR 2000 RISKS MAY HARM OUR 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
While we believe the most recent versions of our products and services are
substantially year 2000 ready, provided that all other products such as
hardware, software, firmware, and networks, used with our products and services
properly exchange accurate date data, we cannot be certain that they will not be
affected by the year 2000 problem. Our proprietary ticketing software systems
also operate in conjunction with hardware, databases, operating systems 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 such systems are indeed year 2000
ready because we have little or no control over the internal design, production
and testing of their systems.
OUR INTERNAL SYSTEMS COULD BE AFFECTED BY THE YEAR 2000 PROBLEM
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.
OUR VENDORS OR THE INTERNET COULD FACE SERIOUS DISRUPTIONS ARISING FROM THE
YEAR 2000 PROBLEM
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
Many states and municipalities have adopted statutes regulating the resale
of tickets within their jurisdiction and requiring 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
16
<PAGE> 21
governing the conduct of auctions. 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, our business,
financial condition and results of operations could be adversely affected.
WE MAY BECOME SUBJECT TO MORE RESTRICTIVE E-COMMERCE REGULATION THAT COULD
ADVERSELY AFFECT OUR BUSINESS
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. These laws 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. 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.
OUR ACQUISITION OF STOCK OF LASERGATE SYSTEMS, INC. COULD SUBJECT US TO COSTS,
LOSSES AND LIABILITIES
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 $783,733 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, (a) 75.592 shares of
our common stock for each Lasergate preferred share, (b) $435.00 for each
Lasergate preferred share, or (c) a combination thereof. Additionally,
Tickets.com and RBB agreed that we would purchase RBB's Lasergate common shares
for $0.10 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 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
$0.10 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 $754,290. If the merger is completed, we will incur goodwill
and other accounting charges related to this transaction. In addition, we would
consolidate the operating losses of Lasergate with our own results of operations
from the date of the acquisition.
17
<PAGE> 22
Until the merger is completed we may be considered a majority owner of
Lasergate because the preferred stock we own 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 owner, 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 one of several defendants in a consolidated class action filed
in the United States District Court for the Eastern District of New York. 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
making 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. 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.
Upon the completion of the proposed merger of Lasergate, damages awarded
against Lasergate that are not covered by or in excess of the policy limits of
Lasergate's insurance could have a material adverse effect on our results of
operations.
OUR MANAGEMENT AND EXISTING STOCKHOLDERS MAY EXERCISE CONTROL AFTER THIS
OFFERING
After this offering, our executive officers, directors and their respective
affiliates will beneficially own approximately 38.8% of our outstanding common
stock. As a result, these stockholders will be able to exercise control 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 NOT USE THE PROCEEDS EFFECTIVELY.
The net proceeds of this offering are estimated to be approximately $45.1
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.
18
<PAGE> 23
RISKS FROM INTERNATIONAL OPERATIONS
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 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 risk inherent in its assets and liabilities
denominated in currencies other than the U.S. dollar. If the United States
dollar becomes weaker against foreign currencies these payments will be greater
in dollar terms.
DIFFICULTIES RELATING TO THE ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS COULD
HARM OUR BUSINESS
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.
One or more of such factors may have a material and adverse effect on our
future international operations and, consequently, on our licensing revenues.
To date, the majority of our transactions have been denominated in United
States dollars, however, some ticket sales have been denominated in currencies
other than the United States dollar. Therefore, our operating results may be
adversely affected by changes in the value of the United States dollar relative
to other foreign currencies. As our international operations expand, our
exposure to exchange rate fluctuations will increase as we use an increasing
number of foreign currencies.
SUBSTANTIAL SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT OUR STOCK PRICE
Sales of a substantial number of shares of common stock after the offering
could adversely affect the market price of the common stock by introducing a
large number of sellers to the market. Given the likely volatility that will
exist for our shares, such sales could cause the market price of the common
stock to decline.
After this offering, we will have outstanding 60,774,543 shares of common
stock and we will have reserved an additional 11,732,250 shares of common stock
for issuance pursuant to outstanding stock options and warrants. All of the
shares of common stock to be sold in this offering will be freely tradable
without restriction or further registration under the federal securities laws
unless purchased by our "affiliates," as that term is defined in Rule 144 under
the Securities Act of 1933, as amended. The remaining shares of outstanding
common stock, representing approximately % of the outstanding common stock
upon completion of this offering, will be "restricted securities" under the
Securities Act subject to restrictions on the timing, manner and volume of sales
of such shares.
Our directors, executive officers, key employees and substantially all of
our current stockholders have agreed, subject to a few limited exceptions, for a
period of 180 days after the date of this prospectus, that they will not,
without the prior written consent of Morgan Stanley & Co. Incorporated, directly
or indirectly, offer to sell, sell or otherwise dispose of any shares of common
stock. Subject to the foregoing lock-up agreements, holders of up to
shares of common stock and securities convertible into or exercisable
for shares of common stock will have the right to request the registration of
their shares under the Securities Act. Upon the effectiveness of such
registration, all shares covered by such registration statement will be freely
transferable. Following the consummation of this offering, we also intend to
file a registration statement on Form S-8 under the Securities Act covering
12,491,617 shares of common stock reserved for issuance under our 1999 Stock
Incentive Plan; such registration statement will automatically become effective
upon filing. As of September 16, 1999, options to purchase 2,439,403 shares were
vested. However, none of the options issued or to be issued pursuant to the 1999
Stock Incentive Plan may be exercised until 180 days after the offering.
19
<PAGE> 24
Subject to the exercise of such options, shares registered under such
registration statement will be available for sale in the open market immediately
after the 180-day lock-up period expires.
We cannot predict if future sales of our common stock, or the availability
of our common stock for sale, will adversely affect the market price for our
common stock or our ability to raise capital by offering equity securities.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of common stock. Purchasers of
common stock in this offering will suffer immediate and substantial dilution.
The dilution will be $5.91 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. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of any
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus.
20
<PAGE> 25
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 $45.1 million
or approximately $52.6 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 $4.9 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. The primary
purposes of this offering are to obtain additional capital, create a public
market for our common stock and facilitate our future access to the public
capital markets.
We intend to use at least $20.7 million of the net proceeds of this
offering to repay outstanding current and long-term senior and subordinated
debt, including $16.7 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 7.0% to 12.0%. We expect to use the remainder of the net proceeds, over
time, for general corporate purposes, including working capital to fund
anticipated operating losses, expenses associated with our advertising
campaigns, brand-name promotions and other marketing efforts, development of our
technology infrastructure, website content and online capabilities, and capital
expenditures. We have not yet determined the actual expected expenditures for
the remainder of the net proceeds and thus cannot estimate the amounts to be
used for each purpose discussed above. The amounts actually expended for such
working capital purposes may vary significantly and will depend upon a number of
factors, including the amount of our future revenues and the other factors
described under "Risk Factors." Accordingly, 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." 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 lend $2 million to a major
ticketing services client as part of a new long-term ticketing services
agreement. The loan is to be repaid, during the term of the agreement, as an
offset against revenue sharing with the client. 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.
21
<PAGE> 26
CAPITALIZATION
The following table sets forth the capitalization of Tickets.com as of June
30, 1999:
- on an actual basis;
- on a pro forma basis to reflect:
- the issuance of the 1,481,480 shares of Series E convertible
preferred stock which occurred in August 1999;
- the issuance of the additional 2,716,050 shares of Series E
convertible preferred stock; and
- on a pro forma basis as adjusted to reflect:
- the automatic conversion of all outstanding shares of convertible
preferred stock into 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 2.53125 shares of common based on
an assumed initial public offering price of $8.00 per share.
- the conversion of $3.0 million convertible debt into shares of our
common stock;
- the exercise of redeemable warrants with an exercise price of $.0225
per share to purchase our common stock, which will otherwise expire
upon the close of the offering;
- the exercise of warrants with an exercise price of $4.50 per share to
purchase common stock, which will otherwise expire upon the close of
the offering.
- the receipt of the estimated net proceeds of $45.1 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 $16.7 million of long-term senior and subordinated debt
in accordance with contractual obligations.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and related notes and the pro forma consolidated financial
statements and related notes, included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term debt and capital lease obligations, net of current
portion................................................... $ 21,587 $ 20,884 $ 1,248
Redeemable common stock and warrants........................ 9,596 10,297 --
Stockholders' equity:
Series A, A1, B, C, D and E convertible preferred stock,
$.000225 par value; 40,000,000 shares authorized;
22,813,838, 27,011,368 and 0 shares actual, pro forma
and pro forma as adjusted, respectively................ 5 6 --
Common stock, $.000225 par value; 130,000,000 shares
authorized; 14,898,450, 14,898,450 and 60,774,543
shares actual, pro forma and pro forma as adjusted,
respectively........................................... 3 3 14
Additional paid-in capital.................................. 133,748 218,747 278,792
Cumulative other comprehensive income....................... (14) (14) (14)
Deferred compensation....................................... (398) (398) (398)
Accumulated deficit......................................... (72,485) (72,485) (72,485)
-------- -------- --------
Total stockholders' equity................................ 60,859 145,859 205,909
-------- -------- --------
Total capitalization.............................. $ 92,042 $177,040 $207,157
======== ======== ========
</TABLE>
22
<PAGE> 27
DILUTION
Our pro forma net tangible book value as of June 30, 1999, which includes
actual proceeds received of $30.0 million and proceeds to be received upon the
second closing of $55.0 million from the issuance of 4,197,530 shares of Series
E Preferred Stock subsequent to June 30, 1999, was approximately $65.8 million,
or $1.09 per share of common stock. Pro forma net tangible book value per share
represents our total tangible assets less total liabilities, divided by the pro
forma number of shares of common stock, after giving effect to the conversion of
all outstanding shares of our convertible debt instruments and equity securities
which immediately convert or expire upon close of this offering into 60,774,543
shares of common stock, outstanding as of September 16, 1999. Without taking
into account any other changes in pro forma net tangible book value other than
to give effect to our sale of 6,255,556 shares of common stock offered hereby
and the receipt and application of the net proceeds therefrom, the pro forma net
tangible book value as of June 30, 1999 would have been $125.8 million, or $2.09
per share of common stock. This represents an immediate increase in pro forma
net tangible book value of $.52 per share to existing stockholders and an
immediate dilution of $5.91 per share to investors purchasing common stock in
this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $8.00
Pro forma net tangible book value per share as of June 30,
1999................................................... $1.57
Increase per share attributable to new investors.......... .52
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.09
-----
Dilution per share to new investors......................... $5.91
=====
</TABLE>
The following table summarizes as of June 30, 1999 on the pro forma basis
described above the number of shares of common stock purchased from us, the
total consideration paid and the average price per share paid by existing
stockholders and by new investors, assuming an initial public offering price of
$8.00 per share, before deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED(A) TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 54,518,987 89.6% $218,750,475 81.4% $4.05
New investors........................ 6,255,556 10.4 50,044,000 18.6 8.00
---------- ----- ------------ -----
Total...................... 60,774,543 100.0% $268,794,475 100.0%
========== ===== ============ =====
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options or options to purchase 9,095,436
shares of common stock were at a weighted average exercise price of $4.88 per
share and warrants to purchase 771,788 shares of common stock outstanding at a
weighted average exercise price of approximately $1.87 per share which were
outstanding as of September 16, 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 88.2% 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 11.8% of the total number of shares of common stock to
be outstanding upon consummation of this offering.
23
<PAGE> 28
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma condensed combined financial
information and related notes contain forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
discussed herein. We undertake no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
The selected unaudited pro forma condensed combined financial information
is based upon, and should be read in conjunction with, the historical financial
statements of Tickets.com, ProTix, California Tickets.com and TicketsLive, and
the related notes to such financial statements. The selected unaudited pro forma
condensed combined financial information is based upon tentative allocations of
purchase price for the acquisitions and may not be indicative of the results
that would have been reported had such events actually occurred on the dates
specified, nor is it indicative of our future results. Purchase accounting is
based upon preliminary asset valuations, which are subject to change.
The selected unaudited pro forma condensed combined statement of operations
information for the year ended December 31, 1998 and the six months ended June
30, 1999 is presented as if Tickets.com had completed the acquisitions of
ProTix, California Tickets.com and TicketsLive as of January 1, 1998.
Since our historical unaudited consolidated balance sheets as of June 30,
1999 reflect the acquisitions of ProTix, California Tickets.com and TicketsLive,
no pro forma balance sheet adjustments are necessary as of June 30, 1999.
24
<PAGE> 29
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.................. $ (4.15)
========
Weighted average common
shares outstanding(h)...... 13,829
========
Pro forma as adjusted, basic
and diluted net loss per
share(i)................... $ (1.10)
========
</TABLE>
- ---------------
(a) Included in 1998 ticketing services revenues is $9.3 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.................... $ 5,925,182 $ 4,035,439
Liabilities assumed......................................... (7,211,609) (4,867,840)
Goodwill at acquisition date................................ 39,661,638 25,482,401
Purchased research and development.......................... 3,540,000 1,800,000
Less: costs of acquisition.................................. (450,000) (450,000)
----------- -----------
Total consideration................................. $41,465,211 $26,000,000
=========== ===========
</TABLE>
25
<PAGE> 30
The estimated useful lives of intangibles recognized in conjunction with the
acquisition are as follows:
<TABLE>
<CAPTION>
CALIFORNIA
TICKETS.COM TICKETSLIVE
----------- -----------
<S> <C> <C>
Existing product technology................................. 5 years 5 years
Customer relationships...................................... N/A 15 years
Tradename................................................... N/A 7 years
Domain names................................................ 10 years N/A
Assembled workforce......................................... 10 years 5 years
Goodwill.................................................... 10 years 15 years
</TABLE>
(g) This amount represents additional interest expense that would have been
recorded in connection with the $1.3 million of promissory notes issued to
the former shareholders of ProTix if the acquisition of ProTix occurred on
January 1, 1998.
(h) The combined weighted average number of shares calculation reflects the
shares of common stock outstanding during the periods presented. Pro forma
data includes common stock issuable with respect to the acquisitions as if
the stock was issued on January 1, 1998. Excludes shares of common stock
issuable upon conversion of outstanding shares of preferred stock, a
convertible promissory note, and upon exercise of outstanding stock options
and warrants.
(i) Pro forma basic and diluted net loss per share, includes the effects of the
Series A, A1, B, C, D, and E convertible preferred stock, warrants which
expire upon the closing of this offering, convertible debt and the
redeemable common stock, as of September 16, 1999, as if all shares were
converted as of January 1, 1998.
26
<PAGE> 31
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
CALIFORNIA
TICKETS.COM, TICKETS.COM TICKETSLIVE PRO FORMA PRO FORMA
INC. INC.(A) CORPORATION(B) ADJUSTMENTS COMBINED
------------ ------------ -------------- ----------- ---------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing services............... $ 13,046 $ -- $ 17 $ -- $ 13,063
Software services and other...... 6,232 354 2,593 -- 9,179
-------- ------- ------- ------- --------
Total revenues........... 19,278 354 2,610 -- 22,242
-------- ------- ------- ------- --------
Cost of services:
Ticketing services............... 8,971 -- -- -- 8,971
Software services and other...... 3,571 743 1,325 -- 5,639
-------- ------- ------- ------- --------
Total cost of services... 12,542 743 1,325 -- 14,610
-------- ------- ------- ------- --------
Gross profit (loss)................ 6,736 (389) 1,285 -- 7,632
Operating expenses................. 23,264 2,415 3,120 1,728(c) 30,527
-------- ------- ------- ------- --------
Loss from operations............... (16,528) (2,804) (1,835) (1,728) (22,895)
Other (income) expense, net........ 1,465 (4) (8) -- 1,453
-------- ------- ------- ------- --------
Net loss........................... $(17,993) $(2,800) $(1,827) $(1,728) $(24,348)
======== ======= ======= ======= ========
Basic and diluted net loss per
share............................ $ (1.74)
========
Weighted average common shares
outstanding(d)................... 14,012
========
Pro forma as adjusted, basic and
diluted net loss per share(e).... $ (0.40)
========
</TABLE>
- ---------------
(a) The results of operations of California Tickets.com were included in our
consolidated results as of April 1, 1999. This presentation shows the pro
forma effects of the operations of California Tickets.com as if the
acquisition occurred on January 1, 1998.
(b) The results of operations of TicketsLive were included in our consolidated
results as of April 1, 1999. This presentation shows the pro forma effects
of the operations of TicketsLive as if the acquisition occurred on January
1, 1998.
(c) This amount represents the amortization of intangibles that would have been
recorded for the six months ended June 30, 1999 if the acquisitions of
California Tickets.com and TicketsLive occurred on January 1, 1998.
(d) The combined weighted average number of shares calculation reflects the
shares of common stock outstanding during the periods presented. Pro forma
data includes common stock issuable with respect to the acquisitions as if
the stock was issued on January 1, 1998. Excludes shares of common stock
issuable upon conversion of outstanding shares of preferred stock, a
convertible promissory note, and upon exercise of outstanding stock options
and warrants.
(e) Pro forma basic and diluted net loss per share, includes the effects of the
Series A, A1, B, C, D, and E convertible preferred stock, warrants which
expire upon the closing of this offering, convertible debt and the
redeemable common stock, as of September 16, 1999, as if all shares were
converted as of January 1, 1998.
27
<PAGE> 32
SELECTED CONSOLIDATED FINANCIAL DATA
TICKETS.COM, INC.
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and related notes as well
as "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data presented below for the period from May 31, 1996 (Inception) to
December 31, 1996 and the years ended December 31, 1997 and 1998 and the
consolidated balance sheet data as of December 31, 1996, 1997 and 1998 are
derived from our audited consolidated financial statements, which have been
audited by Arthur Andersen LLP, our independent public accountants, and are
included elsewhere in this prospectus. The consolidated statement of operations
data for the six months ended June 30, 1998 and 1999 and the consolidated
balance sheet data as of June 30, 1999 are derived from our unaudited financial
statements included elsewhere in this prospectus. Our unaudited financial
statements have been prepared on substantially the same basis as the audited
consolidated financial statements and, in the opinion of our management, include
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial condition as of and results of operations for
such periods. The selected consolidated financial data for Tickets.com, Inc. and
its subsidiaries includes the historical financial data for Bay Area Seating
Service, Inc., commonly known as BASS, 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 BASS, which we acquired on September 26,
1997, are also included. Under the rules and regulations of the Securities and
Exchange Commission, BASS is deemed to be a predecessor of Tickets.com. The
statement of operations data presented below for the years ended March 31, 1993,
1994, 1995, 1996 and 1997 and the selected balance sheet data as of March 31,
1993, 1994, 1995, 1996 and 1997 are derived from BASS' audited financial
statements, which were audited by Burr, Pilger & Mayer, Inc., BASS' 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 BASS, are derived from the audited financial statements for
that period and were audited by Arthur Andersen LLP, our independent public
accountants.
28
<PAGE> 33
TICKETS.COM, INC. AND SUBSIDIARIES(A)
<TABLE>
<CAPTION>
MAY 31, 1996
(INCEPTION) YEAR ENDED SIX MONTHS ENDED
TO DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------ ------------------
1996 1997 1998 1998 1999
------------ ------- -------- ------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Ticketing services..................... $ 119 $ 9,686 $ 26,558 $12,729 $ 13,046
Software services and other............ 1,123 1,961 2,982 1,144 6,232
------- ------- -------- ------- --------
Total revenues................. 1,242 11,647 29,540 13,873 19,278
------- ------- -------- ------- --------
Cost of services:
Ticketing services..................... 816 7,702 17,155 8,048 8,971
Software services and other............ 614 711 1,551 407 3,571
------- ------- -------- ------- --------
Total cost of services......... 1,430 8,413 18,706 8,455 12,542
------- ------- -------- ------- --------
Gross profit (loss)............ (188) 3,234 10,834 5,418 6,736
------- ------- -------- ------- --------
Operating expenses:
Sales and marketing.................... 154 2,096 7,339 2,957 9,068
Technology development................. 690 2,233 6,417 2,289 4,793
General and administrative............. 2,071 3,182 9,204 4,005 6,827
Amortization of intangibles............ -- 712 2,082 903 2,576
Impairment of long-lived assets........ -- -- 17,026 -- --
Purchased in-process research and
development......................... -- -- 1,600 -- 5,340
------- ------- -------- ------- --------
Total operating expenses....... 2,915 8,223 43,668 10,154 28,604
------- ------- -------- ------- --------
Loss from operations..................... (3,103) (4,989) (32,834) (4,736) (21,868)
Other expenses(b)........................ 146 1,110 2,027 1,135 1,465
------- ------- -------- ------- --------
Net loss................................. $(3,249) $(6,099) $(34,861) $(5,871) $(23,333)
======= ======= ======== ======= ========
Basic and diluted net loss per share..... $ (0.65) $ (1.17) $ (6.08) $ (1.05) $ (2.64)
======= ======= ======== ======= ========
Weighted average common shares
outstanding............................ 5,000 5,199 5,734 5,574 8,841
======= ======= ======== ======= ========
Pro forma as adjusted, basic and diluted
net loss per share(c).................. $ (0.81) $ (0.39)
======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------- JUNE 30,
1996 1997 1998 1999
------- -------- -------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets................................ $ 6,090 $ 47,922 $ 38,512 $123,347
Working capital (deficit)................... (2,163) (1,538) (8,180) (608)
Total long-term debt(d)..................... 4,968 23,493 20,232 21,587
Redeemable common stock and warrants........ 2,500 3,599 4,506 9,596
Total stockholders' equity (deficit)........ (4,396) 2,186 (11,929) 60,859
</TABLE>
- ---------------
(a) Includes historical financial data for BASS, ProTix, California Tickets.com
and TicketsLive from the dates of acquisition.
(b) Other expenses include principally interest expense, net of interest income,
and to a lesser degree minority interest and provision for income taxes.
(c) Pro forma basic and diluted net loss per share, includes the effects of the
Series A, A1, B, C, D, and E convertible preferred stock, warrants which
expire upon the closing of this offering, convertible debt and the
redeemable common stock, outstanding as of the respective periods, as if all
shares were converted as of January 1, 1998.
(d) Amounts classified as long-term debt consist of long-term debt and capital
lease obligations, net of current portion.
29
<PAGE> 34
BAY AREA SEATING SERVICE, INC. (PREDECESSOR)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, APRIL 1, 1997 TO
----------------------------------------------- SEPTEMBER 26,
1993 1994 1995 1996 1997 1997
------- ------- ------- ------- ------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Ticketing services........... 17,547 19,696 $20,704 $18,752 $20,561 $10,858
Software services and
other..................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total revenues....... 17,547 19,696 20,704 18,752 20,561 10,858
------- ------- ------- ------- ------- -------
Cost of services:
Ticketing services........... 6,676 7,648 8,776 7,381 7,866 4,203
Software services and
other..................... -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total cost of
services........... 6,676 7,648 8,776 7,381 7,866 4,203
------- ------- ------- ------- ------- -------
Gross profit................... 10,871 12,048 11,928 11,371 12,695 6,655
General and administrative
expenses..................... 10,939 11,171 11,704 11,322 12,212 6,301
------- ------- ------- ------- ------- -------
Income from operations......... (68) 877 224 49 483 354
Other income, net(a)........... (494) 114 270 402 356 261
Provision for income taxes..... 236 257 (338) (162) (278) (211)
------- ------- ------- ------- ------- -------
Net income before change in
accounting principle......... 190 506 156 289 561 404
Change in accounting
principle(b)................. (110) -- -- -- -- --
------- ------- ------- ------- ------- -------
Net income..................... $ 300 $ 506 $ 156 $ 289 $ 561 $ 404
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------------------------------------
1993 1994 1995 1996 1997
------ ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets.................................. $9,605 $11,445 $11,099 $12,818 $14,443
Working capital............................... 813 1,040 1,080 1,591 749
Total long-term debt(c)....................... 138 187 22 6 1
Retained earnings............................. 1,213 1,556 1,608 1,897 2,407
Total shareholders' equity.................... 2,432 2,552 2,557 2,846 3,355
</TABLE>
- ---------------
(a) Other income, net includes principally interest income net of interest
expense and other miscellaneous income and expenses.
(b) Cumulative effect to April 1, 1992 of application of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
(c) Amounts classified as long-term debt consist of long-term debt and capital
lease obligations, net of current portion.
30
<PAGE> 35
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. 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 do not purchase tickets from our clients for resale to the public.
Accordingly, we do not bear any financial risk for unsold tickets.
Our ticketing services clients determine all face values for tickets sold
through our services. These clients also generally determine when tickets for
certain 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.
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
31
<PAGE> 36
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 five 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.
RESULTS OF OPERATIONS
GENERAL
Our historical operations consist primarily of (1) the provision of
outsourced ticketing and related services to clients such as performing arts
centers, amphitheaters, professional sports franchises, and concert promoters
and (2) the licensing, maintenance and support of our proprietary ticketing
software. The following discussion should also be read in connection with the
audited financial statements, the unaudited interim financial statements and the
selected unaudited pro forma condensed combined financial statements and the
related notes included elsewhere in this prospectus.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998
REVENUES
Ticketing services. Revenues from ticketing services increased 2.5% to
$13.0 million for the six months ended June 30, 1999 from $12.7 million for the
six months ended June 30, 1998. The increase in revenues was primarily due to an
increase in total tickets sold of 10.5% to 2,669,000 for the six months ended
June 30, 1999 from 2,415,000 for the six months ended June 30, 1998. Our
acquisition of ProTix contributed 777,000 tickets
32
<PAGE> 37
and $3.0 million of total ticketing services revenues for the six months ended
June 30, 1999. Excluding acquisitions, tickets sold decreased by 254,000 and
ticketing services revenues decreased by $2.7 million, primarily because of
contract terminations by our clients. From March 1998 to July 1998, two of our
largest clients, which we acquired in the BASS transaction in September 1997,
terminated their contracts with us after entering into agreements with an
alternative ticketing services provider. Additionally one other BASS client
elected not to renew its contract. In the aggregate, the termination of such
contracts is expected to reduce annualized revenues by approximately $5.8
million commencing in January 1999 based upon the average revenues we recognized
from these three clients during the past three fiscal years. As of December 31,
1998, we have ceased providing services to these clients. Additionally, in
November 1998, our largest client notified us of its intent not to renew its
contract with us at the end of its term on December 31, 1999. We believe that
the non-renewal was the result of the acquisition of this client by an
entertainment organization that entered into a master agreement with one of our
competitors. The loss of this client is expected to reduce annualized revenues
by approximately $3.5 million commencing in fiscal 2000 based upon the average
revenues we recognized from this client during the past three fiscal years.
Software Services and Other. Revenues from software services and other
increased 444.5% to $6.2 million for the six months ended June 30, 1999 from
$1.1 million for the six months ended June 30, 1998. Acquisitions contributed
all of the increase. As a result of our acquisitions and the loss of revenue
from certain terminated ticketing services client contracts in the last half of
1998, the six months ended June 30, 1999 included a higher proportion of
software services and other revenues to total revenues, as compared to the six
months ended June 30, 1998.
COST OF SERVICES
Ticketing Services. Cost of services for ticketing services increased 11.5%
to $9.0 million for the six months ended June 30, 1999 from $8.0 million for the
six months ended June 30, 1998. The increase was attributable to the acquisition
of ProTix, which accounted for $1.8 million of the total costs of services for
ticketing for the six months ended June 30, 1999. This increase was partially
offset by net decreases of approximately $900,000 associated with decreased
ticket sales, mainly related to a decrease in our clients' share of service
charges. As a percentage of revenues, total cost of ticketing services increased
to 68.8% from 63.2%. The increase was primarily attributable to the significant
decrease in ticket sales. We decreased personnel and related costs as a result
of the loss of ticket volume; however the timing of the reduction lagged behind
the loss of ticketing revenues. We expect the costs of ticketing as a percentage
of revenues to decrease in the future as ticketing services costs, mainly
payroll, are reduced. Additionally, as ticketing volume increases on the
www.tickets.com web site, costs of ticketing services are expected to decrease
as a percentage of total ticketing services revenue. Services provided via the
Internet are less costly than traditional methods of providing ticketing
services.
Software Services and Other. Cost of services for software services and
other increased 777.8% to $3.6 million for the six months ended June 30, 1999
from $400,000 for the six months ended June 30, 1998. As a percentage of
revenues, costs of software services and other increased to 57.3% from 35.6%.
The increase was primarily due to our acquisitions of ProTix and TicketsLive,
which perform custom programming services on behalf of certain of their clients.
These services often entail higher costs relative to the related revenue than do
the rest of our software services.
Sales and Marketing. Sales and marketing expenses increased 206.7% to $9.1
million for the six months ended June 30, 1999 from $3.0 million for the six
months ending June 30, 1998. Acquisitions accounted for $1.8 million of the
increase. As a percentage of revenues, sales and marketing expenses increased to
47.0% from 21.3%. In an effort to continue the development of the sales and
marketing infrastructure to support our growth plans and to increase consumer
awareness, we have begun to increase our sales and marketing expenses
significantly. Excluding acquisitions, we have increased personnel related
expenses by $1.5 million and advertising, public relations and trade show
expenses by $2.8 million. We expect sales and marketing expenses to continue to
increase as we continue our aggressive advertising campaign to increase consumer
awareness and build the brand equity of our web site.
33
<PAGE> 38
Technology Development. Technology development expenses increased 109.4% to
$4.8 million for the six months ended June 30, 1999 from $2.3 million for the
six months ended June 30, 1998. Of this increase, $1.2 million was related to
our acquisitions. As a percentage of revenues, technology development expenses
increased to 24.9% from 16.5%. We invested approximately $1.2 million to
develop, enhance and expand our web site reflecting increased personnel costs of
$400,000 and professional services of $800,000. We will continue to increase
technology development expenses to enhance system functionality, broaden
reporting capabilities and service delivery methods. Moreover, we have developed
an aggressive schedule to complete the Internet connections for our software
licensees to enable them to sell tickets on our web site. We expect technology
development expenses to increase in future periods as we further expand our
technical staff, develop new technologies, continue to enhance our web site and
augment existing technologies.
General and Administrative. General and administrative expenses increased
70.5% to $6.8 million for the six months ended June 30, 1999 from $4.0 million
for the six months ended June 30, 1998. Our acquisitions accounted for $2.2
million of the increase. As a percentage of revenues, general and administrative
expenses increased to 35.4% from 28.9%. The increase was primarily due to
increased payroll and related expenses of $435,000 as we continue to invest in
our managerial and administrative infrastructure commensurate with and to
facilitate our growth, and professional services, mainly legal and accounting
fees of $475,000. These increases were offset partially by a $180,000 decrease
in travel related costs. We expect general and administrative expenses to
increase in future periods as we continue to expand our staff and as we incur
additional costs related to the growth of our business and reporting as a public
company.
Amortization of Intangibles. Amortization expense increased 185.3% to $2.6
million for the six months ended June 30, 1999 from $900,000 for the six months
ended June 30, 1998. The increase was primarily due to our recent acquisitions,
which increased our amortization expense by $2.1 million for the six months
ended June 30, 1999. Of this amount, the acquisition of ProTix contributed six
months of expense totaling $476,000. We recorded three months of amortization in
connection with the acquisitions of California Tickets.com, including
TicketStop, and TicketsLive totaling $1.7 million. The increase from our
acquisitions was partially offset by the decrease in amortization expense due to
the write off of the goodwill and intangibles related to the acquisition of
BASS. The net decrease in amortization related to BASS totaled $660,000.
Purchased In-Process R&D. The purchased in-process research and development
charges recorded during the six months ended June 30, 1999 were two amounts
recorded in conjunction with the acquisitions of California Tickets.com and
TicketsLive. Each of the amounts, $3.5 million for California Tickets.com and
$1.8 million for TicketsLive, represented the estimated fair value related to
incomplete projects reflecting the risk-adjusted cash flows and the state of
completion. At the date of acquisition the projects associated with the
in-process research and development efforts had not yet reached technological
feasibility and had no alternative future uses. Accordingly, these costs were
expensed. TicketsLive was conducting development activities associated with the
completion of the next generation of Select, TicketsLive's automated ticketing
system. The projects under development were to increase speed, expand
functionality, flexibility and reporting. California Tickets.com was in the
process of completing customization and development of its web site and
transaction processing systems. Since we already had these systems in place, the
projects, which were in varying stages of completion, were of no continuing
value to the Company.
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
34
<PAGE> 39
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 was 35% and web site development was 30% to discount projected
cash flows. For each of the projects for TicketsLive, a risk-adjusted discount
rate of 25% was used to discount projected cash flows.
Total Other (Income) Expense. Total other (income) expense consists
principally of interest income and interest expense. Interest income is
generated primarily from cash and cash equivalents held in interest bearing
accounts. Interest income increased 26.0% to $379,000 for the six months ended
June 30, 1999 from $301,000 for the six months ended June 30, 1998. The increase
is mainly due to higher cash balances that resulted from our financing
activities. Interest expense increased by 17.3% to $1.7 million for the six
months ended June 30, 1999 from $1.4 million for the six months ended June 30,
1998. The increase was due to (1) 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," (2) increased
interest related to the additional $1.3 million of debt incurred in connection
with the 1998 acquisition of ProTix and (3) increased borrowings for leases of
capital equipment.
Net Loss. For the six months ended June 30, 1999, our net loss was $23.3
million or $2.64 per share. For the six months ended June 30, 1998, our net loss
was $5.9 million or $1.05 per share. The increase in the net loss was primarily
due to:
- Decreases in ticketing services revenues of $2.7 million net of
acquisition revenues;
- The write off of purchased in-process research and development of $5.3
million;
- Increased operating expenses, most significantly;
- Personnel expenses of $2.4 million;
- Advertising, public relations and trade shows of $2.5 million; and
- Professional services of $1.9 million
- Losses from acquisitions of $2.9 million.
The convertible preferred stock and other potentially dilutive securities
(including stock options) were antidilutive and therefore excluded from the
calculation of diluted loss per share.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES
Ticketing Services Revenues. Revenues from ticketing services increased
174.2% to $26.6 million in 1998 from $9.7 million in 1997. The increase was
primarily due to a $17.3 million increase in ticketing revenues as a result of
an additional nine months of revenue in 1998 from BASS 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 BASS 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 during the period. The remaining
increase in revenues was due to an 86% increase in the number of orders we
filled that included handling fees. These increases were offset slightly by a
decrease in the average per ticket service and handling fees.
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
35
<PAGE> 40
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 BASS 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 BASS 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 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 BASS operations and three months of ProTix operations.
Excluding acquisitions, sales and marketing expenses increased $2.3 million. In
1998, we began to significantly increase sales and marketing expenditures 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 expenses, advertising expenses, trade
show expenses and travel related expenses.
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 BASS 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 BASS and three months of operations for ProTix. In addition, from
January 1998 to June 1998, we converted BASS 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, BASS in September 1997 and ProTix in
October 1998.
36
<PAGE> 41
During the fourth quarter of 1998 we recorded a noncash impairment charge
of $17.0 million. During 1998, BASS 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 BASS at the time we acquired BASS. During
1998, estimated revenues attributable to these four clients totalled
approximately $9.3 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 BASS. Based upon this assessment, we
determined that some of the intangible assets resulting from the BASS
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 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 BASS;
37
<PAGE> 42
- 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 BASS 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.
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 BASS 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 BASS 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
38
<PAGE> 43
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.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, data regarding
our revenues, cost of services and gross profit. Such data have been derived
from our unaudited consolidated financial statements which we believe have been
prepared on substantially the same basis as our audited consolidated financial
statements. The operating results in any quarter are not necessarily indicative
of the results that may be expected for any future period. The ratios set forth
in the table below represent amounts as a percentage of total revenues.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 30, 1998 1998 1999 1999
------------ ------------ ------------ ------------ ------------ -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing services........ $5,591 92% $7,138 91% $7,438 90% $6,391 86% $5,070 77% $ 7,976 63%
Software services and
other................... 462 8 683 9 814 10 1,023 14 1,508 23 4,724 37
------ --- ------ --- ------ --- ------ --- ------ --- ------- ---
Total revenues.............. 6,053 100 7,821 100 8,252 100 7,414 100 6,578 100 12,700 100
------ --- ------ --- ------ --- ------ --- ------ --- ------- ---
Cost of services:
Ticketing services........ 3,150 52 4,899 63 4,628 56 4,478 60 3,725 57 5,246 41
Software services and
other................... 183 3 224 3 269 3 875 12 750 11 2,821 22
------ --- ------ --- ------ --- ------ --- ------ --- ------- ---
Total cost of services...... 3,333 55 5,123 65 4,897 59 5,353 72 4,475 68 8,067 63
------ --- ------ --- ------ --- ------ --- ------ --- ------- ---
Gross profit............ $2,720 45% $2,698 35% $3,355 41% $2,061 28% $2,103 32% $ 4,633 37%
====== === ====== === ====== === ====== === ====== === ======= ===
</TABLE>
Our operating results have varied on a quarterly basis during our short
operating history and may continue to fluctuate significantly in the future as a
result of a variety of factors. See "Risk Factors -- Because of Our Limited
Operating History and Limited Internet Experience Our Revenues are Unpredictable
and May Cause Significant Fluctuations in Our Operating Results" and "-- Our
Quarterly Operating Results May Fluctuate Significantly Because of the
Seasonality of the Live Entertainment Industry" for a list of the factors that
may affect our quarterly results.
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.
39
<PAGE> 44
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our activities through a series of
private placements of convertible preferred stock, and through debt and credit
facilities. As of June 30, 1999, we had raised a total of $91.2 million in
long-term capital from equity and debt instruments.
From December 31, 1998 to June 30, 1999, cash and cash equivalents
increased by $8.2 million. The increase resulted mainly from $29.9 million in
proceeds from the issuance of 5,925,926 shares of Series D convertible preferred
stock, net of issuance costs. The increase in cash was primarily offset by net
cash used in operating activities of $14.4 million, purchases of property and
equipment of $940,000 and principal payments on long term debt of $3.2 million.
Cash used in operating activities was primarily for funding of losses before
depreciation, amortization and in-process research and development of $13.7
million and the final contingent consideration payment to former shareholders of
BASS totaling $2.8 million. These decreases were partially offset by net
increases in accounts payable and other liabilities and a decrease in accounts
receivable.
In 1998, cash and cash equivalents increased by $7.6 million. This increase
resulted from $20.0 million in proceeds from the issuance of 5,154,272 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 a financial institution 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 BASS 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 a financial
institution. 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 BASS 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 BASS, which were made in March 1999.
As of June 30, 1999 we were in compliance with all of the financial covenants in
accordance with the first amendment to amended and restated credit agreement.
In connection with the acquisition of ProTix in September 1998, we issued
an aggregate of $1.3 million of promissory notes to the former shareholders of
ProTix. The notes bear interest at prime plus one percent payable semiannually
and the principal balance is due and payable on the earlier of an initial public
offering or the first anniversary of the closing of the acquisition.
Through June 30, 1999, we have issued 22,813,838 shares of various series
of convertible preferred stock, convertible into an aggregate of 33,438,843
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 $1.10 to $5.06 per share. As of June 30, 1999 we
had outstanding Series A, A1, B, C and D convertible preferred stock. Our
convertible preferred stock has liquidation preferences, voting rights
equivalent to, or for certain matters, superior to, common stock and does not
accrue dividends. At the option of the holder, each share of the convertible
preferred stock can be converted to one share of common stock.
40
<PAGE> 45
The conversion is automatic upon completion of the initial public offering. The
conversion rate is subject to adjustment in some circumstances in accordance
with antidilution provisions.
In August 1999, we issued and sold 1,481,480 shares of our Series E
preferred stock to Excite and Cox Interactive for an aggregate purchase price of
$30.0 million or $20.25 per share, pursuant to a stock purchase agreement. Under
the terms of this stock purchase agreement, Excite and Cox Interactive have
agreed to purchase 2,716,050 additional shares of our Series E preferred stock
for an aggregate purchase price of $55.0 million or $20.25 per share on or
before November 30, 1999, subject to the satisfaction of the closing conditions
set forth in the stock purchase agreement. Each share of our Series E preferred
stock is convertible into one 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 2.5 shares of our
common stock. The actual number of shares of common stock may be adjusted based
upon the actual initial public offering price. In connection with this
investment in Tickets.com, Excite entered into a letter of intent with
Tickets.com, and Cox Interactive entered into a content and distribution
agreement with Tickets.com. Under these agreements, Tickets.com will integrate
its event information and ticket purchasing capabilities on web sites of Excite
and Cox Interactive and their affiliates. The letter of intent provides that
Tickets.com will pay Excite distribution fees of $25.0 million over a period of
three years, as well as other fees, and 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. If, however,
Excite purchases additional Series E preferred stock as contemplated in the
stock purchase agreement, the $25.0 million payment to Excite will accelerate
and will immediately become due.
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 a wholly-owned subsidiary of Tickets.com,
subject to receipt of approval by the shareholders of Lasergate. At the
effective time of the merger, Lasergate will become a wholly-owned subsidiary of
Tickets.com. Holders of the Lasergate common stock will receive $0.10 per share.
On June 28, 1999, following the execution of the merger agreement, RBB Bank
AG sold 5,700 shares of Lasergate preferred stock to us in exchange for 299,796
shares of our common stock and $754,290. These shares are convertible into
24,818,217 shares of Lasergate common stock. For a complete description of the
transaction see "Acquisition History" in the Business section elsewhere in this
prospectus.
Between June 23, 1999 and September 16, 1999, we made advances aggregating
$1.8 million to Lasergate pursuant to various promissory notes. The promissory
notes are payable upon demand and bear interest at 10% per year.
Acquisition of dataCulture
On August 23, 1999 we purchased all of the outstanding capital stock of
dataCulture, Ltd., a private limited company incorporated under the laws of
England. The total purchase price was 4 million pounds sterling, or the
equivalent of approximately $6.4 million as of August 23, 1999. The purchase
price is payable 3 million pounds sterling at the closing of the acquisition and
1 million pounds sterling payable in 12 equal quarterly installments commencing
December 31, 1999.
We believe that cash on hand as of June 30, 1999, the $30.0 million
received in connection with the sale of Series E convertible preferred stock,
which occurred on August 5, 1999, the anticipated proceeds from the second
closing of the Series E financing, 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
41
<PAGE> 46
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
Since inception we have incurred net tax operating losses of approximately
$22.0 million as of December 31, 1998. 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. 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 September 16, 1999, we had outstanding non-qualified stock options to
purchase 4,340,989 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 $5.98. 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."
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.
42
<PAGE> 47
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. We
have also sought assurances from our vendors that their technology is year 2000
ready and have upgraded to newer versions of those products in order to meet the
recommended requirements of vendors. Although vendors have indicated 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. If our vendors are unable to resolve their year 2000 issues or if our
software does not operate in conjunction with our vendors' products in a timely
manner, we will experience a material interruption in our operations and ticket
sales.
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 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.
43
<PAGE> 48
External
Notwithstanding our year 2000 readiness efforts, the failure of a critical
system or 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. 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. Our primary telecommunications and data
communications vendor, AT&T, and each of our regional telecommunications
providers have indicated year 2000 readiness. 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%.
Other than our disaster recovery plan, Tickets.com has not put into effect
any other 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 such problems arise, Tickets.com
will need to make necessary expenditures to assess and remedy such problems. The
nature, timing and extent of such expenditures cannot be estimated. Such
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, 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. 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.
44
<PAGE> 49
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments. The
statement requires that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value, and that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. We do not have any derivative
instruments as of December 31, 1998. We believe that the adoption of SFAS No.
133 will not have a material effect on our consolidated financial statements.
45
<PAGE> 50
BUSINESS
OVERVIEW
Tickets.com is a leading source for entertainment tickets, event
information and related products and services. 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 September
16, 1999, over 200,000 sporting and entertainment events and performances,
purchase tickets from multiple sources and shop for related products. 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 a highly 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 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.
46
<PAGE> 51
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
certain 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.
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
47
<PAGE> 52
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 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.
48
<PAGE> 53
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
approximately 200,000 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.
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.
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
49
<PAGE> 54
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 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.
50
<PAGE> 55
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 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
51
<PAGE> 56
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 approximately
200,000 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 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 tickets via our auto-bidder, which automatically ensures that they are the
top bidder as long as their maximum bid is not exceeded.
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 also
52
<PAGE> 57
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 response to various keyword searches.
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.
53
<PAGE> 58
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
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.
54
<PAGE> 59
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.
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.
55
<PAGE> 60
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.
The following table describes our ticketing software family of products as
of September 16, 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 Kennedy Center for - Golden State Warriors
sports franchises, blockbuster events the Performing Arts - Buffalo Sabres
- Very large scale, high-speed system capacity - ARTE - San Francisco Giants
- Real-time information capture in a database; - Marine Midland Arena
tracks transaction history and facilitates
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 - Ticket King - University of N.C.
- Includes a suite of customizable "plug-in" - Wolf Trap Filene at Chapel Hill
enhancements, including student debit card Center
authorization, automated turnstiles and
membership/loyalty program integration
- -----------------------------------------------------------------------------------------------------------------------------
PASS SUITE - Performing arts, museums, universities, minor 1,785 - Lincoln Center for the - Tower of London
of league sports, and attractions Performing Arts - AMP Tower-Australia
PRODUCTS - Modular in design, sharing a common platform - Carrier Dome - Montage Ski Resort
and providing scalable ticketing solutions for - Pennsylvania State - Royal Albert Hall
small 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 - Kravis Center - Glyndebourne Opera
as 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
- Runs on Novell or NT network Theatre the 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
PROFESSIONAL manual ticketing systems, minor league sports, - Midway Slots & Music
casinos, small performing arts centers and Simulcast - Kentucky Speedway
attractions - California State - President's Casino
- Affordable PC-based ticketing solution for University - Irving Arts Center
organizations that seek a flexible, easy-to-use
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 - Dreamland Amusement - Santa Anita Race Track
CONTROL fairs and festivals Park - Supersplash Adventure
SYSTEM 2100 - Provides integrated access control (bar-code, - IGFA World Fishing - Rock & Roll Hall of
magnetic strip, turnstile readers) for Access Center Fame
Control System 2100, the Advantix SQL and - California Exposition - Baltimore Zoo
Prologue Systems & State Fair
- -----------------------------------------------------------------------------------------------------------------------------
DATABOX - Performing arts and museums in the United 249 - Bradford Theatres - The Lyric Theatre,
Kingdom - Wigmore Hall London Hammersmith
- PC-based product that offers easy-to-use, - Cheltenham Racecourse - BBC Nat'l Orchestra of
intuitive graphical user interface - Derngate Theatre- Wales.
- A multi-user system featuring complete box Northhampton - University Concert
office and patron database management - Sunderland Empire Hall Ireland.
Theatre
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE> 61
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 certain 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.
57
<PAGE> 62
- 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
Wallingford, Connecticut; Madison, Wisconsin; Bellevue, Washington; Syracuse,
New York and St. Albans, England facilities provides full-time product support
for our licensees.
58
<PAGE> 63
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
59
<PAGE> 64
the goal of increasing our presence within the entertainment and sports
industries, as well as increasing our offerings to consumers.
Excite
In August 1999, we entered into a letter of intent with Excite, Inc., a
leading online content provider and a wholly owned subsidiary of At Home
Corporation. At the same time, Excite acquired a minority equity interest in
Tickets.com. Under the terms of the letter of intent, we will create an event
information and ticketing service for Excite's web site and other web sites that
Excite has the right to program. In addition, we will design and create
ticketing web pages for Excite's network that will contain the ticketing
service, as well as feature or display links to various Excite community
products such as message boards, chat clubs and home pages. These web pages will
display both the Tickets.com and Excite brands. Under the terms of the letter of
intent, Excite will feature previews for the ticketing service and co-branded
web pages throughout the Excite network and will be responsible for selling
advertising on these web pages. In addition, we will link to content and tools,
such as calendars, message boards and clubs, on the Excite web site. Excite will
pay us fees based upon revenues it generates from advertising on the co-branded
web pages and we will pay Excite commissions for ticket sales over the Internet
and revenues that we receive from Excite users from ticket auctions, sales of
travel and event packages and merchandise sales. We will also pay Excite a fee
for a variety of services, such as e-mail delivery to users, e-mail response
tracking and database management and maintenance for registered users, and for
distribution on the Excite network. The letter of intent, as amended on
September 20, 1999, provides that Excite and Tickets.com will use good faith
efforts to negotiate and execute, by October 29, 1999, a more definitive
agreement that will have a term of three years. If a definitive agreement is not
executed by October 29, 1999, the letter of intent shall continue to be binding.
The letter of intent has a term of three years or until a definitive agreement
is executed.
Cox Interactive
In August 1999, we entered into a content and distribution agreement with
Cox Interactive, 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 network and will
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 and 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, and 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
web sites, radio stations, newspapers and cable. The agreement has a term of
five years, but may be terminated by either Cox Interactive or us if the other
party breaches the agreement and the breach remains uncured for a period of 90
days.
International Merchandising Corporation
In November 1998, we entered into a consulting agreement with International
Merchandising Corporation, a wholly-owned subsidiary of International Management
Group, a leading global sports marketing and event promotion company. Under this
agreement, IMC will assist us in developing and preparing a comprehensive sales
and marketing plan to identify expansion strategies for our business. IMC in its
sole
60
<PAGE> 65
discretion determines the methods and means of performing its services. IMC has
also agreed to provide us with the opportunity to discuss serving as the
ticketing service for various IMC owned or controlled events, subject to IMC's
existing and possible future obligations to other third parties for ticketing
services. Under this agreement, we pay IMC a monthly fee plus commissions on
ticket sales referred to us by IMC. We will assist IMC in developing its
sponsorship consulting businesses by referring to IMC any venue and event
clients who are interested in selling sponsorship rights. We will also recommend
IMC's services to those clients, and use reasonable efforts to arrange meetings
with those clients. IMC will pay us a referral fee for sponsorships directly
effected through our efforts. The agreement was amended in May 1999 to extend
the term to October 31, 1999. The amendment continues the terms of the original
agreement and further provides that IMC may assist us in securing third party
sponsors and advertisers, in exchange for which we will pay IMC a commission to
be negotiated based on a percentage of gross revenues received by us. We will
also pay IMC a percentage of gross profits from all sales of merchandise where
the source of the merchandise was referred by IMC, as well as a percentage of
auction revenues from auction tickets provided to us by IMC or items relating to
events referred to us by IMC. 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.
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 website. 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 certain maximum fee
increases.
Sitematic
In April 1999, we entered into an agreement with Sitematic Corporation, a
provider of services that permit end-users to create customized Internet web
sites. Under the terms of this agreement, we provide a venue list to Sitematic,
and Sitematic will market its web site development services to our clients
through a direct telemarketing campaign. Sitematic will develop and support
customized web pages for entertainment organizations. The agreement provides
that we will not engage any company other than Sitematic for the 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 automatically renews for successive one year terms unless
notice of non-renewal is given 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.
61
<PAGE> 66
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 which 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, they 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 September 16, 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 20 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 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. 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
62
<PAGE> 67
professional hockey franchise. The purchase price was $900,000. 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., commonly known as BASS, a Concord, California-based
ticketing services provider. At the time of the acquisition, BASS was the
largest ticketing services provider serving the Northern California and Northern
Nevada markets. As a result of our acquisition of BASS, we acquired ticketing
services contracts with the San Francisco Giants and Oakland Athletics
professional baseball franchises, the San Francisco 49'ers and Oakland Raiders
professional football franchises, Concord Pavilion and the Arena at Oakland,
among others. As of June 30, 1999, the aggregate purchase price recorded was
$24.8 million which included costs of the acquisition and contingent
consideration payments. Additional contingent consideration was paid based upon
BASS' net revenues meeting certain predefined targets. As of June 30, 1999,
contingent consideration is final and all payments have been made. The operating
results of BASS 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
TicketsLive Corporation. In April 1999, we purchased all of the outstanding
capital stock of TicketsLive Corporation. 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 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 aggregate purchase price
was $26.0 million. 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 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 aggregate
purchase price was $41.5 million. The results of operations 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 many well-known entertainment
organizations in the United Kingdom, including Chelthenham Racecourse, Widmore
Hall London and The Lync Theatre, among others. The aggregate purchase price was
4 million pounds sterling, or the equivalent of approximately $6.4 million as of
August 23, 1999. The operating results of dataCulture will be included in our
consolidated financial statements from the date of acquisition.
63
<PAGE> 68
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, 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, (a) 75.592 shares of
our common stock for each Lasergate preferred share, (b) $435.00 for each
Lasergate preferred share, or (c) a combination thereof. Additionally,
Tickets.com and RBB agreed that we would purchase the Lasergate common shares
for $0.10 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 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
$0.10 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 excess of 250 new
client relationships and add additional ticketing software to our family of
products.
Between June 23, 1999 and September 16, 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 affecting our market include client service, system
functionality, adaptability and performance, reputation and demonstrated
operational history, breadth of distribution channels and extent of ticket
inventory. Competition in online ticketing is subject to additional factors,
such as depth, quality and extensiveness of web site content, ease of use,
distribution and search capabilities and 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: 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 providers of automated
ticketing services such as Ticketmaster Corporation and its online partner
Ticketmaster Online-City Search, Inc., which have opera-
64
<PAGE> 69
tions 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 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 integrated patron data management capabilities.
On a regional level, we compete with smaller providers of automated
ticketing services that may have longer operational histories and greater
regional name recognition 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 addition, because
barriers to entry are relatively low, current and new competitors can launch new
web sites using commercially available software. These potential Internet
competitors may have competitive advantages, including strong brand recognition,
fully developed Internet-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.
65
<PAGE> 70
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," "advantix.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.
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 certain sporting and other events. 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 commercial online 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 commercial online services. For example, tax
authorities in a number of states are currently reviewing the appropriate tax
treatment of companies engaged in Internet-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.
66
<PAGE> 71
EMPLOYEES
As of September 16, 1999, we had a total of 818 employees including 550
full-time and 268 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 three telephone sales centers in Concord, California;
Cleveland, Ohio; and Fairfax, Virginia are housed in approximately 25,176, 9,500
and 5,764 square-foot leased facilities, respectively. These telephone sales
center leases expire on February 15, 2000, December 31, 2001 and March 31, 2001,
respectively. 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 seeking damages and a court order to prohibit
us from, among other things, deep linking consumers to an internal page within
its web site and using the Ticketmaster name on our web site. In addition, the
suit alleges that we have provided false and misleading information on our web
site regarding the availability of tickets and related information on the
Ticketmaster web site. The suit also alleges we have taken 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. If Ticketmaster
Corporation and Ticketmaster Online-City Search successfully assert their claims
against us, the efficacy of 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.
67
<PAGE> 72
MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Set forth below is certain information regarding the executive officers,
key employees and directors of Tickets.com as of the date hereof:
<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, Internet
Services Group
Michael R. Rodriguez................. 32 Vice President, Corporate Controller
C. Ian Sym-Smith(a)(b)(c)............ 69 Chairman of the Board
Peter Chernin........................ 48 Director
James A. Caccavo..................... 37 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
Technologies, Inc., a subsidiary of Iwerks Entertainment Inc., from March 1995
to July 1995. From March
68
<PAGE> 73
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 Internet 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
December 1996 until July 1997, he led the Web development and operations team of
Digital City, Inc., a
69
<PAGE> 74
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.
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. Mr. Chernin received a B.A. from the University of
California at Berkeley.
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.
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 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 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
70
<PAGE> 75
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.
Members of the Board of Tickets.com currently hold office and serve until
the next annual meeting of the stockholders or until their respective successors
have been elected.
All executive officers are appointed annually by and serve at the
discretion of the Board.
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 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 certain
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.
71
<PAGE> 76
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other 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
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 $1,830(a)
Thomas R. Pascoe
EVP and Chief Operating Officer................... 194,615 158,333 --
John M. Markovich
EVP and Chief Financial Officer................... 177,596 358,333 --
Andrew B. Dolich(b)
EVP, Sports Marketing............................. 180,769 200,000 --
</TABLE>
- ---------------
(a) Represents life insurance premiums paid by Tickets.com.
(b) Due to changes in organizational structure of Tickets.com, Mr. Dolich will
not be deemed to be a named executive officer in 1999.
Option Grants
The following table sets forth certain information concerning grants of
options to the Named Executive Officers of Tickets.com during the year ended
December 31, 1998. No stock appreciation rights were granted to the Named
Executive Officers during 1998.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBERS OF % OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM($)(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 $3,298,512 $5,252,328
Thomas R. Pascoe..... 158,333 6.56 3.38 9/14/2008 870,441 1,386,031
John M. Markovich.... 200,000 8.29 2.25 1/30/2008 733,003 1,167,184
158,333 6.56 3.38 9/14/2008 870,441 1,386,031
Andrew B. Dolich..... 200,000 8.29 2.25 2/09/2008 733,003 1,167,184
</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 certain 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
72
<PAGE> 77
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 exercise price at the date of grant 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 certain 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors established the Compensation Committee in December
1997. The Compensation Committee consists of Mr. Ford and Mr. Sym-Smith, and Mr.
Cotsakos. Certain transactions between Tickets.com and the members of the
Compensation Committee are as set forth under "Certain 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.
73
<PAGE> 78
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 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 (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. 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 (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. Upon an involuntary 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 without cause, or if the executive terminates 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
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 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.
74
<PAGE> 79
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.
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
75
<PAGE> 80
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.
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 1999 Special 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.
76
<PAGE> 81
- 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 1999 Special 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 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 1999 Special 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
77
<PAGE> 82
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.
The Financial Accounting Standards Board recently issued an exposure draft
of a proposed interpretation of the current accounting principles applicable to
equity incentive plans. Under the proposed interpretation, option grants made to
non-employee board members after December 15, 1998 will result in a direct
charge to the company's reported earnings based upon the fair value of the
option measured initially as of the grant date of that option and then
subsequently on the vesting date of each installment of the underlying option
shares. If the proposed interpretation is adopted, then the following changes
will be made to our automatic stock option program:
- The initial 13,333-share option grant will not be made to a newly-elected
or appointed non-employee board member until the first annual
stockholders meeting held more than 12 months after the date of his or
her initial election or appointment to the board. At that annual meeting,
the board member will also receive an option grant for an additional
4,444 shares under the annual grant portion of the program.
- One-third of the shares subject to the initial 13,333-share option grant
will be immediately vested at the time of the option grant, and the
remaining shares will vest in a series of twenty-four successive equal
monthly installments upon the optionee's completion of each month of
board service over the twenty-four month 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.
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
78
<PAGE> 83
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 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.
79
<PAGE> 84
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 following provisions will also be in effect under the plan: (1) the
plan will terminate no later than the last business day of July 2009; and (2)
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 the Company 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.
80
<PAGE> 85
CERTAIN 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. 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. 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., or ICP, in
consideration for services rendered by ICP in connection with the sale of shares
of preferred stock of Tickets.com to a group of investors. In November 1997, ICP
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 ICP.
In May 1998, Tickets.com sold an aggregate of 5,154,272 shares of its
Series C preferred stock to a group of investors for an aggregate purchase price
of approximately $20.3 million or $3.94 per share. Of such shares, an aggregate
of 5,079,365 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 4,212,291 shares of its
Series D preferred stock to a group of investors for an aggregate purchase price
of approximately $21.3 million or $5.06 per share. Of such shares, an aggregate
of 3,385,106 shares were sold to affiliates of General Atlantic. The shares of
Series D preferred stock held by affiliates of General Atlantic will
automatically convert into an aggregate of 3,385,106 shares of common stock upon
completion of this offering. Affiliates of General Atlantic own in excess of
five percent of the outstanding capital stock of Tickets.com. Mr. Ford, a
director of Tickets.com, is a managing member of General Atlantic Partners, LLC.
In May 1999, Tickets.com sold an aggregate of 1,713,635 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 $5.06 per share. Of such shares an aggregate of
581,461 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 1,481,480 shares of its
Series E preferred stock to Excite and Cox Interactive for an aggregate purchase
price of approximately $30.0 million or $20.25 per share pursuant to a stock
purchase agreement. Of such shares, 740,740 shares were sold to Excite and
740,740 shares were sold to Cox Interactive. Under the terms of the stock
purchase agreement, Excite and Cox Interactive have agreed to purchase an
aggregate of 2,716,050 additional shares of Series E preferred stock from
Tickets.com for an aggregate purchase price of approximately $55.0 million or
$20.25 per share on or before November 30, 1999, subject to the satisfaction of
the closing conditions set forth in the stock purchase
81
<PAGE> 86
agreement. However, if this sale of additional shares occurs after the closing
of this offering, then Excite and Cox Interactive Media will purchase shares of
common stock from Tickets.com instead of shares of Series E preferred stock. In
that case, Excite and Cox Interactive Media will purchase that number of shares
equal to the number of shares of common stock into which the 2,716,050 shares of
Series E preferred stock would have been convertible upon the closing of the
offering. Excite has agreed to purchase 1,975,309 of such additional shares and
Cox Interactive Media has agreed to purchase the remaining 740,741 shares. Each
share of our Series E preferred stock is convertible into one 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 2.5 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 & 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 Goetz. In addition, in connection
with this merger, Tickets.com granted Ms. Goetz the right to register and sell
up to 444,444 of her shares of common stock in this offering. Ms. Goetz
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. Goetz 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. Goetz' 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 in exchange for an aggregate of
3,928,386 shares of Tickets.com's common stock, all outstanding shares of
California Tickets.com Series A Preferred Stock of California Tickets.com in
exchange for an aggregate of 1,190,479 shares of Tickets.com's Series A1
Preferred Stock, and all outstanding shares of California Tickets.com Series C
Preferred Stock of California Tickets.com in exchange for an aggregate of
2,569,884 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 878,593 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
82
<PAGE> 87
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.
OTHER TRANSACTIONS
Tickets.com has entered into employment agreements with certain of its
executive officers. See "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 certain 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 ICP and C. Ian
Sym-Smith, a director of Tickets.com. Mr. Sinacori, a director of Tickets.com,
is a managing partner of ICP. 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.
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, purchase up to an aggregate
of 2,370,371 shares of convertible preferred stock from us for an aggregate
purchase price of $12.0 million, or $5.06 per share. In order to induce General
Atlantic, its affiliates and the other participating stockholders to make this
capital commitment, Tickets.com issued 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 stockholder's share of the commitment. Of
these 222,222 warrants, 201,058 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! 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."
83
<PAGE> 88
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 September
16, 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 four 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. 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 September 16, 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 NUMBER PERCENT IN OFFERING NUMBER PERCENT
------------------------ ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
William E. Ford(a)................... 8,576,506 20.2% -- 8,576,506 17.6%
Howard L. Morgan(b).................. 4,174,875 9.9 -- 4,174,875 8.6
Janice L. Richter(c)................. 4,615,038 10.7 -- 4,615,038 9.4
James A. Caccavo(d).................. 844,446 2.0 -- 844,446 1.7
W. Thomas Gimple(e).................. 491,667 1.2 -- 491,667 1.0
Nicholas E. Sinacori(f).............. 195,554 * -- 195,554 *
Thomas R. Pascoe(g).................. 167,356 * -- 167,356 *
John M. Markovich(h)................. 135,412 * -- 135,412 *
Andrew B. Dolich(i).................. 87,498 * -- 87,498 *
Christos M. Cotsakos(j).............. 176,542 * -- 176,542 *
C. Ian Sym-Smith(k).................. 17,777 * -- 17,777 *
Peter Chernin........................ -- -- -- -- --
General Atlantic Partners LLC(a)..... 8,565,395 20.2 -- 8,565,395 17.6
idealab! entities(b)................. 4,174,875 9.9 -- 4,174,875 8.6
R4 Holdings, LLC(l).................. 3,555,555 8.4 -- 3,555,555 7.3
Karen S. Goetz(m).................... 2,356,337 5.6 444,444 1,911,893 4.0
All directors and executive officers
as a group (14 persons)(a), (b),
(c), (d), (e), (f), (g), (h), (i),
(j), (k), ( n) )................... 19,581,556 44.2% -- 19,581,556 38.8%
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent.
(a) Includes the following securities held by various General Atlantic
partnerships: (1) 5,079,365 shares of Series C preferred stock, which will
be converted into 5,079,365 shares of common stock upon consummation of
this offering; (2) 3,286,340 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 to purchase 199,690 shares of common stock.
In addition, includes options outstanding to purchase 11,111 shares of
common stock which are exercisable within 60 days of September 16, 1999,
which options are held by Mr. William E. Ford. Mr. Ford, a director of
Tickets.com, is a general partner of certain General Atlantic entities and
a managing member of General Atlantic Partners, LLC, a general partner of
certain 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 does not
have beneficial ownership of the shares held by Mr. Ford. The address of
General Atlantic is 3 Pickwick Plaza, Greenwich, Connecticut 06830.
(b) Includes the following securities held by various idealab! entities: (1)
2,708,339 shares of common stock; (2) 878,592 shares of Series C preferred
stock, which will be converted into 878,592 shares of common stock upon
consummation of the offering; (3) 581,461 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. 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 address of idealab! is 130 W.
Union Street, Pasadena, California 91103.
84
<PAGE> 89
(c) Includes options outstanding to purchase 22,222 shares of common stock
which are exercisable within 60 days of September 16, 1999, of which 11,111
are held by Ms. Richter and 11,111 are held by her spouse. In addition,
includes 3,555,555 shares of common stock held by R4 Holdings, LLC, 225,848
shares of common stock held by Hill International, Inc. and a note held by
Hill International which is convertible into 808,080 shares of common
stock. 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.
(d) Includes options outstanding to purchase 66,667 shares which are
exercisable within 60 days of September 16, 1999.
(e) Comprises options outstanding to purchase 491,667 of common stock shares
which are exercisable within 60 days of September 16, 1999.
(f) 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 September 16, 1999 and (3) warrants to
purchase 6,666 shares of common stock held by International Capital
Partners. 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.
(g) Comprises options outstanding to purchase 167,356 shares of common stock
which are exercisable within 60 days of September 16, 1999.
(h) Comprises options outstanding to purchase 135,412 shares of common stock
which are exercisable within 60 days of September 16, 1999.
(i) Comprises options outstanding to purchase 87,498 shares of common stock
which are exercisable within 60 days of September 16, 1999.
(j) Includes 98,765 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.
(k) Includes warrants to purchase 6,666 shares.
(l) The address of R4 Holdings, LLC is One Levitt Parkway, Willingboro, New
Jersey 08046.
(m) Includes 1,466,666 shares held by BK (1999) LLC, a family owned limited
liability company, of which Ms. Goetz is the managing member.
(n) The address of all directors and executive officers, except for Christos M.
Cotsakos 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 Robert D.
McClintock is 10 Alexander Drive, Wallingford, Connecticut 06492.
85
<PAGE> 90
DESCRIPTION OF CAPITAL STOCK
Immediately following the consummation of this offering, the authorized
capital stock of Tickets.com will consist of 170 million shares of common stock,
par value $0.000225 per share, and no shares of preferred stock, par value
$0.000225 per share. As of September 16, 1999 and assuming completion of this
offering, there will be 60,774,543 outstanding shares of common stock,
outstanding options to purchase 9,095,436 shares of common stock and outstanding
warrants to purchase 771,788 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 September 16, 1999, (1) options to purchase a total of 9,095,436
shares of common stock were outstanding; and (2) 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 September 16, 1999, Tickets.com had the following outstanding
warrants to purchase shares of common stock: (1) a warrant to purchase up to
423,136 shares of common stock at an exercise price of $.0225 per share that is
held by The Provident Bank; (2) warrants to purchase up to 1,332,423 shares of
common stock at an exercise price of $4.50 held by the sellers of BASS; and (3)
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 of Tickets.com; all of the warrants contain standard antidilution
provisions.
REGISTRATION RIGHTS
As of the completion of this offering, the holders of an aggregate of
shares of common stock or securities convertible into common stock will
be entitled to certain registration rights. 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
86
<PAGE> 91
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 and Existing Stockholders May Exercise
Control After This Offering" and "-- We Are Subject to Anti-Takeover Provisions
That Could Delay or Prevent an Acquisition of Our Company."
Tickets.com is subject to Section 203 of the Delaware General Corporation
Law, which, subject to certain exceptions, 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;
(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;
87
<PAGE> 92
- 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 applied to list its common stock for quotation on the
Nasdaq National Market under the trading symbol "TKTS."
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 this offering, Tickets.com will have outstanding
60,774,543 shares of common stock, assuming no exercise of outstanding warrants
that do not expire upon this offering or options, based on an assumed initial
public offering price of $8.00 per share. The actual number of shares of common
stock issued upon conversion of Series E preferred stock may be adjusted based
upon the initial public offering price. Of these shares, the 6,700,000 shares of
common stock sold in this offering will be freely tradable without restriction
under the Securities Act unless purchased by "affiliates" of Tickets.com as that
term is defined in Rule 144 under the Securities Act.
As of September 16, 1999, there were a total of 9,095,436 shares of common
stock subject to outstanding options under our 1998 plan, 1997 plan, 1996 plan
and director plan, 2,439,403 of which are vested and exercisable. As of
September 16, 1999 there were a total additional 771,788 shares subject to
outstanding warrants to purchase common stock, which do not expire upon
completion of this offering, all of which are vested and exercisable.
Each of Tickets.com and the directors, executive officers and substantially
all of the 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, file a registration statement, in the
case of Tickets.com, 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 of
Tickets.com; 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.
88
<PAGE> 93
The restrictions described in this paragraph do not apply to certain
circumstances, including:
- the sale of the shares to the underwriters in this offering; and
- transactions by any person other than Tickets.com relating to shares of
common stock of Tickets.com or securities acquired in open market
transactions after the completion of the offering.
In addition, the stockholders 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 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. Beginning 180 days after the date of the prospectus, all such shares will
be eligible for sale in the public market, subject to certain timing, manner of
sale and volume limitations pursuant to Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, or persons whose shares are aggregated,
who has beneficially owned restricted shares for at least one year, including
the holding period of any prior owner except an affiliate, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of (1) 1% of the number of shares of common stock then outstanding,
which total outstanding number will equal approximately 60,774,543 shares
immediately after this offering, or (2) the average weekly trading volume of the
common stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 also are subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about Tickets.com. Under Rule 144(k), a person who is
not deemed to have been an affiliate of Tickets.com at any time during the three
months preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years, including the holding period of any prior owner
except an affiliate, is entitled to sell such shares without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions of Rule 144. Any employee, officer or
director of or consultant to Tickets.com who purchased his or her shares
pursuant to a written compensatory plan or contract may be entitled to rely on
the resale provisions of Rule 701. Rule 701 permits affiliates to sell their
Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
such shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
All holders of Rule 701 shares are required to wait until 90 days after the date
of this prospectus before selling such shares.
Following consummation of this offering, Tickets.com intends to file a
registration statement on Form S-8 under the Securities Act covering shares of
common stock subject to outstanding options or options to be issued under the
1999 Stock Incentive Plan. Based on the number of shares subject to outstanding
options at September 16, 1999 and currently reserved for issuance under such
plans, such registration statement would cover approximately 12,491,617 shares
issuable on exercise of the options of which 2,439,403 options have vested as of
such date. Such registration statement will automatically become effective upon
filing. Accordingly, subject to the exercise of such options, shares registered
under such registration statement will be available for sale in the open market
immediately after the 180-day lock-up agreements expire. Also beginning 90 days
after the date of this offering, certain holders of shares of common stock will
be entitled to certain rights with respect to registration of such shares of
common stock for offer and sale to the public. However, under certain lock-up
agreements with the underwriters, such rights will not be able to be exercised
until 180 days after the date of this prospectus. See "Description of Capital
Stock -- Registration Rights" for a description of our outstanding registration
rights.
89
<PAGE> 94
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, the underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Credit Suisse First Boston Corporation, SG Cowen
Securities Corporation, E*Offering Corporation and Wit Capital Corporation are
acting as representatives, have severally agreed to purchase, and Tickets.com
and the selling stockholders 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.............................
E*Offering Corporation......................................
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 certain legal matters by their counsel and to certain
other conditions. 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 certain 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 certain 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 certain conditions, 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 have informed Tickets.com that they may sell
shares accounts but the sales will not exceed five percent of the total number
of shares of common stock offered by them.
At the request of Tickets.com, the underwriters have reserved up to 670,000
shares offered hereby for sale at the initial public offering price to
directors, officers, employees, business associates and related persons of
Tickets.com. The number of shares of common stock available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not so purchased will be offered by the
underwriters to the general public on the same basis as the other shares offered
hereby.
Discover Brokerage Direct, Inc., an affiliate of Morgan Stanley & Co.
Incorporated, is acting as a selected dealer in connection with the offering,
and together with E*OFFERING Corp./E*TRADE and Wit Capital, will be distributors
of shares of common stock over the Internet to their respective eligible account
holders.
90
<PAGE> 95
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, Inc. 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 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 since March 1996 and currently serves as Chairman of the Board of E*TRADE.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "TKTS."
Each of Tickets.com, the directors, executive officers, selling stockholder
and certain other stockholders of Tickets.com has agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, it will not, during the period ending 180 days after the date of
this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock of Tickets.com or any
securities convertible into or exercisable or exchangeable for common
stock; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock of Tickets.com whether any such transaction described above
is to be settled by delivery of common stock of Tickets.com or such other
securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of the shares to the underwriters; and
- transactions by any person other than Tickets.com relating to shares of
common stock or other securities acquired in open market transactions
after the completion of the offering.
In addition, the stockholders of Tickets.com have agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, neither the stockholders nor any of their affiliates will, during
the period ending 180 days after the date of this prospectus, make any demand
for, or exercise any right with respect to, the registration of any shares of
common stock or any security convertible into or exercisable or exchangeable for
common stock.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may agree to sell, or
allot, more shares than the shares of common stock Tickets.com has agreed to
sell to them. This over-allotment would create a short position in the common
stock for the underwriters' account. To cover any over-allotments or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or a dealer
for distributing the common stock in the offering, if the syndicate repurchases
previously distributed common stock in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.
Tickets.com, the selling stockholder and the underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
91
<PAGE> 96
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. 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 certain other
financial and operating information of Tickets.com in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities and
certain 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.
(formerly Tickets.com Inc., a Delaware corporation) 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, 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 (formerly Select
Technologies 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.
92
<PAGE> 97
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.
93
<PAGE> 98
TICKETS.COM AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants.................... F-3
Consolidated Balance Sheets as of December 31, 1997 and 1998
and June 30, 1999 (unaudited)............................. F-4
Consolidated Statements of Operations for the period from
May 31, 1996 (Inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 and the six months
ended June 30, 1998 and 1999 (unaudited).................. F-5
Consolidated Statement of Stockholders' Equity (Deficit) for
the period from May 31, 1996 (Inception) to December 31,
1996 and for the years ended December 31, 1997 and 1998
and the six months ended June 30, 1999 (unaudited)........ F-6
Consolidated Statements of Cash Flows for the period from
May 31, 1996 (Inception) to December 31, 1996 and for the
years ended December 31, 1997 and 1998 and the six months
ended June 30, 1998 and 1999 (unaudited).................. F-7
Notes to Consolidated Financial Statements.................. F-9
FINANCIAL STATEMENTS OF BAY AREA SEATING SERVICE, INC.
Independent Auditor's Report................................ F-28
Report of Independent Public Accountants.................... F-29
Balance Sheets as of March 31, 1996 and 1997................ F-30
Statements of Income for the years ended March 31, 1996 and
1997 and for the period from April 1, 1997 to September
26, 1997.................................................. F-31
Statements of Shareholders' Equity for the years ended March
31, 1996 and 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 yeas 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
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 years ended December 31,
1998 and 1997 and the three months ended March 31, 1998
and 1999 (unaudited)...................................... F-70
</TABLE>
F-1
<PAGE> 99
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1997 and 1998 and the three months
ended March 31, 1999 (unaudited).......................... F-71
Statements of Cash Flows for the years ended December 31,
1997 and 1998 and the three months ended March 31, 1998
and 1999.................................................. F-72
Notes to Financial Statements............................... F-73
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Basis of Presentation....................................... PF-1
Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1998........... PF-2
Unaudited Pro Forma Condensed Combined Statement of
Operations for the six months ended June 30, 1999......... PF-3
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements................................................ PF-4
</TABLE>
F-2
<PAGE> 100
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
September 21, 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> 101
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY
-------------------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
----------- ------------ ------------ -------------
(UNAUDITED) (UNAUDITED)
(NOTE 10)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................... $ 4,380,559 $ 11,955,963 $ 20,138,233
Marketable securities........................ 6,804,269 -- --
Restricted cash and investments.............. 1,641,062 167,698 --
Accounts receivable, net of allowances of
$65,565, $255,121 and $217,761,
respectively............................... 2,849,703 3,620,875 6,306,402
Prepaid expenses and other current assets.... 1,311,310 850,182 3,212,770
----------- ------------ ------------
Total current assets.................. 16,986,903 16,594,718 29,657,405
----------- ------------ ------------
PROPERTY AND EQUIPMENT, net.................... 4,346,213 8,410,869 9,708,537
INTANGIBLE ASSETS, net......................... 20,795,715 9,043,288 80,033,742
OTHER ASSETS................................... 5,793,652 4,463,313 3,946,821
----------- ------------ ------------
TOTAL ASSETS................................... $47,922,483 $ 38,512,188 $123,346,505
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft............................... $ 2,677,287 $ -- $ --
Accounts payable............................. 8,662,734 10,257,716 15,780,899
Accrued liabilities.......................... 3,689,454 5,262,653 6,618,863
Current portion of long-term debt and capital
lease obligations.......................... 2,791,239 7,848,473 5,404,639
Deferred revenue and other current
liabilities................................ 704,386 1,405,707 2,461,355
----------- ------------ ------------
Total current liabilities............. 18,525,100 24,774,549 30,265,756
----------- ------------ ------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS,
net of current portion....................... 23,493,196 20,231,613 21,587,160
----------- ------------ ------------
OTHER LIABILITIES.............................. 118,510 748,762 712,920
----------- ------------ ------------
MINORITY INTEREST.............................. -- 179,890 325,973
----------- ------------ ------------
REDEEMABLE COMMON STOCK AND WARRANTS........... 3,599,415 4,506,119 9,595,593
----------- ------------ ------------
COMMITMENTS AND CONTINGENCIES -- -- --
STOCKHOLDERS' EQUITY (DEFICIT):
Series A, B, C and D convertible preferred
stock, $.000225 par value; 23,265,824
shares authorized; 7,973,277, 13,127,549,
22,813,838 and 0 issued and outstanding,
respectively............................... 1,794 2,954 5,133 --
Common stock, $.000225 par value; 44,444,444
shares authorized; 5,574,041, 6,328,383,
14,898,450 and 42,146,424 shares issued and
outstanding, respectively.................. 1,254 1,424 3,480 9,611
Additional paid-in capital................... 15,700,359 36,858,911 133,747,925 146,342,519
Deferred compensation........................ -- -- (398,279) (398,279)
Accumulated deficit.......................... (13,517,145) (48,792,034) (72,485,364) (72,485,364)
Cumulative other comprehensive income........ -- -- (13,792) (13,792)
----------- ------------ ------------ ------------
Total stockholders' equity
(deficit)........................... 2,186,262 (11,928,745) 60,859,103 73,454,695
----------- ------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..... $47,922,483 $ 38,512,188 $123,346,505 $
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 102
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MAY 31, 1996 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, --------------------------- ---------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Ticketing services........... $ 119,249 $ 9,686,138 $ 26,557,612 $12,728,748 $ 13,046,516
Software services and
other...................... 1,123,040 1,960,904 2,981,824 1,144,351 6,231,553
----------- ----------- ------------ ----------- ------------
Total revenues........ 1,242,289 11,647,042 29,539,436 13,873,099 19,278,069
----------- ----------- ------------ ----------- ------------
COST OF SERVICES:
Ticketing services........... 816,620 7,701,433 17,154,790 8,048,199 8,971,630
Software services and
other...................... 613,705 711,317 1,550,948 406,797 3,570,839
----------- ----------- ------------ ----------- ------------
Total cost of
services............ 1,430,325 8,412,750 18,705,738 8,454,996 12,542,469
----------- ----------- ------------ ----------- ------------
Gross profit (loss)............ (188,036) 3,234,292 10,833,698 5,418,103 6,735,600
----------- ----------- ------------ ----------- ------------
OPERATING EXPENSES:
Sales and marketing.......... 154,016 2,096,372 7,338,698 2,956,580 9,067,887
Technology development....... 690,024 2,232,684 6,416,829 2,289,403 4,793,261
General and administrative... 2,070,577 3,181,980 9,204,053 4,005,107 6,827,044
Amortization of
intangibles................ -- 712,416 2,081,561 902,803 2,575,907
Impairment of long-lived
assets..................... -- -- 17,026,149 -- --
Purchased in-process research
and development............ -- -- 1,600,000 -- 5,340,000
----------- ----------- ------------ ----------- ------------
Total operating
expenses............ 2,914,617 8,223,452 43,667,290 10,153,893 28,604,099
----------- ----------- ------------ ----------- ------------
Loss from operations........... (3,102,653) (4,989,160) (32,833,592) (4,735,790) (21,868,499)
----------- ----------- ------------ ----------- ------------
OTHER (INCOME) EXPENSE:
Interest income.............. -- (206,680) (878,242) (300,785) (378,866)
Interest expense............. 145,976 1,315,001 2,952,465 1,432,025 1,680,159
Minority interest............ -- -- (52,674) -- 146,083
----------- ----------- ------------ ----------- ------------
145,976 1,108,321 2,021,549 1,131,240 1,447,376
----------- ----------- ------------ ----------- ------------
Loss before provision for
income taxes................. (3,248,629) (6,097,481) (34,855,141) (5,867,030) (23,315,875)
Provision for income taxes..... -- 1,150 5,655 3,975 16,954
----------- ----------- ------------ ----------- ------------
Net loss....................... $(3,248,629) $(6,098,631) $(34,860,796) $(5,871,005) $(23,332,829)
=========== =========== ============ =========== ============
Basic and diluted net loss per
share........................ $ (0.65) $ (1.17) $ (6.08) $ (1.05) $ (2.64)
=========== =========== ============ =========== ============
Weighted average common shares
outstanding.................. 5,000,000 5,199,224 5,733,620 5,574,084 8,840,837
=========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 103
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........................ 2,729,524 614 -- -- 3,008,686 -- --
Net loss................................ -- -- -- -- -- -- (3,248,629)
---------- ------ ---------- ------ ------------ --------- ------------
Balance, December 31, 1996............... 2,729,524 614 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........................ 1,021,587 230 -- -- 1,081,463 -- --
Issuance of Series B convertible
preferred stock for cash, net of
issuance costs........................ 4,222,166 950 -- -- 11,155,048 -- --
Net loss................................ -- -- -- -- -- -- (6,098,631)
---------- ------ ---------- ------ ------------ --------- ------------
Balance, December 31, 1997............... 7,973,277 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........................ 5,154,272 1,160 -- -- 19,988,634 -- --
Accretion on redeemable common stock and
warrants.............................. -- -- -- -- -- -- (414,093)
Net loss................................ -- -- -- -- -- -- (34,860,796)
---------- ------ ---------- ------ ------------ --------- ------------
Balance, December 31, 1998............... 13,127,549 2,954 6,328,383 1,424 36,858,911 -- (48,792,034)
Exercise of common stock options........ -- -- 316,051 71 232,531 -- --
Exercise of common stock warrants....... 442,222 99 (99)
Issuance of common stock warrants in
connection with the acquisition of
ProTix, Inc........................... -- -- -- -- 2,149,672 -- --
Issuance of Series D convertible
preferred stock for cash, net of
issuance costs........................ 5,925,926 1,333 -- -- 29,947,999 -- --
Issuance of stock in connection with the
acquisition of California Tickets.com,
Inc................................... 3,760,363 846 3,928,386 884 41,463,481 -- --
Issuance of common stock in connection
with the acquisition of TicketsLive
Corporation........................... -- -- 3,583,612 935 21,323,065 -- --
Issuance of common stock in connection
with the acquisition of Lasergate
Systems, Inc. Series G preferred
stock................................. -- -- 299,796 67 1,349,015 -- --
Deferred compensation with respect to
employee stock options, related to the
acquisition of California Tickets.com,
Inc................................... -- -- -- -- 423,350 (398,279) --
Preferred dividends payable............. -- -- -- -- -- -- (105,102)
Foreign currency translation............ -- -- -- -- -- -- --
Accretion on redeemable common stock and
warrants.............................. -- -- -- -- -- -- (255,399)
Net loss................................ -- -- -- -- -- -- (23,332,829)
---------- ------ ---------- ------ ------------ --------- ------------
Balance, June 30, 1999 (unaudited)....... 22,813,838 $5,133 14,898,450 $3,480 $133,747,925 $(398,279) $(72,485,364)
========== ====== ========== ====== ============ ========= ============
<CAPTION>
CUMULATIVE
OTHER
COMPREHENSIVE
INCOME TOTAL
------------- ------------
<S> <C> <C>
Balance, May 31, 1996.................... $ -- $ (4,169,885)
Issuance of common stock for cash....... -- 13,500
Issuance of Series A convertible
preferred stock for cash, net of
issuance costs........................ -- 3,009,300
Net loss................................ -- (3,248,629)
-------- ------------
Balance, December 31, 1996............... -- (4,395,714)
Exercise of common stock options........ -- 12,918
Exercise of common stock warrants....... -- 4,000
Issuance of common stock in payment of
accrued interest on note payable...... -- 248,998
Issuance of common stock in connection
with the acquisition of Fantastix
Ticket Company, LLC, net of redeemable
common stock.......................... -- 177,000
Issuance of common stock in payment of
commissions on issuance of convertible
preferred stock....................... -- --
Issuance of Series A convertible
preferred stock for cash, net of
issuance costs........................ -- 1,081,693
Issuance of Series B convertible
preferred stock for cash, net of
issuance costs........................ -- 11,155,998
Net loss................................ -- (6,098,631)
-------- ------------
Balance, December 31, 1997............... -- 2,186,262
Exercise of common stock options........ -- 13,619
Exercise of common stock warrants....... -- 9,000
Issuance of common stock in connection
with the acquisition of ProTix,
Inc................................... -- 1,072,469
Issuance of common stock for services... -- 75,000
Issuance of Series C convertible
preferred stock for cash, net of
issuance costs........................ -- 19,989,794
Accretion on redeemable common stock and
warrants.............................. -- (414,093)
Net loss................................ -- (34,860,796)
-------- ------------
Balance, December 31, 1998............... -- (11,928,745)
Exercise of common stock options........ -- 232,602
Exercise of common stock warrants....... --
Issuance of common stock warrants in
connection with the acquisition of
ProTix, Inc........................... -- 2,149,672
Issuance of Series D convertible
preferred stock for cash, net of
issuance costs........................ -- 29,949,332
Issuance of stock in connection with the
acquisition of California Tickets.com,
Inc................................... -- 41,465,211
Issuance of common stock in connection
with the acquisition of TicketsLive
Corporation........................... -- 21,324,000
Issuance of common stock in connection
with the acquisition of Lasergate
Systems, Inc. Series G preferred
stock................................. -- 1,349,082
Deferred compensation with respect to
employee stock options, related to the
acquisition of California Tickets.com,
Inc................................... -- 25,071
Preferred dividends payable............. -- (105,102)
Foreign currency translation............ (13,792) (13,792)
Accretion on redeemable common stock and
warrants.............................. -- (255,399)
Net loss................................ -- (23,332,829)
-------- ------------
Balance, June 30, 1999 (unaudited)....... $(13,792) $ 60,859,103
======== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 104
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MAY 31, 1996 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------- --------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................... $(3,248,629) $(6,098,631) $(34,860,796) $(5,871,005) $(23,332,829)
Adjustments to reconcile net loss to net
cash used in operating activities:
Impairment of long-lived assets........... -- -- 17,026,149 -- --
Purchased in-process research and
development............................. -- -- 1,600,000 -- 5,340,000
Depreciation.............................. 75,000 482,488 1,946,604 794,869 1,745,270
Amortization of intangibles............... -- 712,416 2,081,561 902,803 2,575,907
Loss on disposal of property.............. -- -- 51,944 -- --
Noncash interest expense.................. -- 505,588 126,152 38,834 177,026
Noncash compensation expense.............. -- -- 75,000 -- 25,071
Minority interest......................... -- -- (52,674) -- 146,082
Changes in operating assets and
liabilities:
Accounts receivable..................... (95,173) 156,778 (130,627) 625,857 197,871
Prepaid expenses and other current
assets................................ (6,352) (344,500) (1,194,328) 299,499 (2,301,929)
Other assets............................ (6,550) (378,289) 1,330,339 85,268 64,921
Accounts payable........................ 830,087 849,200 482,968 (1,980,341) 1,334,711
Accrued liabilities..................... 568,914 1,617,987 369,513 315,794 (492,392)
Deferred revenue and other
liabilities........................... (6,919) 4,567 1,117,563 594,392 118,629
----------- ----------- ------------ ----------- ------------
Net cash used in operating
activities....................... (1,889,622) (2,492,396) (10,030,632) (4,194,030) (14,401,662)
----------- ----------- ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......... (596,509) (2,055,998) (3,936,918) (1,874,052) (943,347)
Contingent consideration in connection with
acquisition............................... -- (5,324,192) -- -- --
Proceeds from sale of marketable
securities................................ -- 1,244,006 6,804,269 6,051,382 --
(Increase) decrease in restricted cash and
investments............................... -- (740,467) 1,473,364 1,473,201 167,698
Acquisitions, net of cash acquired.......... -- (13,459,515) (3,708,752) -- (3,846,690)
----------- ----------- ------------ ----------- ------------
Net cash (used in) provided by
investing activities............. (596,509) (20,336,166) 631,963 5,650,531 (4,622,339)
----------- ----------- ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in bank overdraft.................. -- (514,161) (2,677,287) (2,677,287) --
Net increase in line of credit.............. -- -- -- -- 250,000
Proceeds from issuance of long-term debt.... -- 17,075,585 716,960 -- --
Principal payments on long-term debt........ -- (2,143,581) (1,078,013) (323,348) (3,225,730)
Net proceeds from issuance of preferred
stock..................................... 3,009,300 12,237,691 19,989,794 20,010,700 29,949,332
Proceeds from issuance of common stock...... 13,500 16,918 22,619 90 232,669
----------- ----------- ------------ ----------- ------------
Net cash (used in) provided by
financing activities............. 3,022,800 26,672,452 16,974,073 17,010,155 27,206,271
----------- ----------- ------------ ----------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS... 536,669 3,843,890 7,575,404 18,466,656 8,182,270
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.................................... -- 536,669 4,380,559 4,380,559 11,955,963
----------- ----------- ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.... $ 536,669 $ 4,380,559 $ 11,955,963 $22,847,215 $ 20,138,233
=========== =========== ============ =========== ============
</TABLE>
F-7
<PAGE> 105
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
MAY 31, 1996 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------- --------------------------
1996 1997 1998 1998 1999
-------------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid............................. $ 15,976 $ 94,042 $ 2,568,080 $ 1,192,716 $ 2,084,629
=========== =========== ============ =========== ============
Income taxes paid......................... $ -- $ 1,150 $ 5,655 $ 3,975 $ 3,125
=========== =========== ============ =========== ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations entered into for
equipment............................... $ 356,421 $ -- $ 1,306,649 $ -- $ 554,720
=========== =========== ============ =========== ============
Accretion on redeemable common stock
warrants issued in connection with
financing arrangements.................. $ -- $ -- $ 414,093 $ 133,438 $ 255,399
=========== =========== ============ =========== ============
ACQUISITIONS:
1996 -- Acquired certain assets of the
Advantix division of Playhouse Square
Foundation
1997 -- Acquired all the outstanding common
stock of Bay Area Seating Service, Inc., and
certain assets of Fantastix Ticket Company,
LLC
1998 -- Acquired all the outstanding common
stock of ProTix, Inc. and subsidiaries
1999 -- Acquired all the outstanding capital
stock of California Tickets.com, Inc. and
TicketsLive Corporation and all the
outstanding Series G preferred stock of
Lasergate Systems, Inc.
The following table outlines the assets
acquired, liabilities assumed and cash
paid:
Fair value of assets acquired........... $ 4,243,410 $32,600,913 $ 9,618,403 $ -- $ 86,348,032
Less:
Liabilities assumed................... -- (11,433,420) (2,107,639) -- (12,079,449)
Promissory notes to sellers, net of
discount........................... (1,743,410) (5,996,010) (1,297,000) -- --
Cash payable on first anniversary of
closing............................ -- -- (550,000) -- --
Preferred stock issued................ -- -- -- -- (18,376,979)
Common stock issued................... -- (177,000) (1,072,469) -- (45,761,314)
Redeemable common stock issued........ (2,500,000) (675,000) -- -- (4,676,000)
----------- ----------- ------------ ----------- ------------
Cash paid............................. -- 14,319,483 4,591,295 -- 5,454,290
Cash acquired......................... -- (859,968) (882,543) -- (1,607,600)
----------- ----------- ------------ ----------- ------------
Cash paid, net of cash acquired....... $ -- $13,459,515 $ 3,708,752 $ -- $ 3,846,690
=========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 106
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY BACKGROUND
Tickets.com, Inc. (formerly, Advantix, Inc.) and its wholly owned
subsidiaries Bay Area Seating Service, Inc. ("BASS"), ProTix, Inc. ("ProTix"),
and Advantix (Ohio) Inc., an inactive subsidiary, collectively (the "Company")
is a leading provider of entertainment ticket sales, event information, and
related products and services. The Company sells tickets and provides these
services through retail outlets, call centers, interactive voice response
systems, and the Internet. The Company provides automated ticketing solutions to
entertainment organizations such as stadiums, performing arts centers, museums
and professional sports franchises. The www.tickets.com web site enables
consumers to obtain information on entertainment organizations and sport and
entertainment events and performances, purchase tickets from multiple sources
and shop for related products. The Company also develops and sells proprietary
ticketing software. In April, 1999 the Company acquired California Tickets.com,
Inc. (see Note 3) and changed its name to Tickets.com, Inc.
The Company was originally organized as The Entertainment Express, Inc.
under the laws of the State of Delaware on January 25, 1995. The Company
commenced operations in May 1996 with the acquisition of Hill Arts and
Entertainment Systems, Inc. which had developed a proprietary ticketing software
system utilized primarily by performing arts centers, theater groups and
regional ticketing service providers. In December 1996, the Company acquired the
call center and ticketing operations of an Ohio-based performing arts center and
ticketing services provider, at which time the Company changed its name to
Advantix, Inc. In August 1997, the Company acquired the assets of Fantastix
Ticket Company, LLC, a regional ticketing services provider located in Buffalo,
New York, and in September 1997 the Company completed the acquisition of all of
the outstanding stock of BASS, a ticketing services provider in Northern
California and Nevada. In October 1998, the Company acquired all the outstanding
common stock of ProTix, a ticketing services provider and ticketing software
developer based in Madison, Wisconsin. For detailed discussion of each business
combinations see Note 3.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements and related notes
include the accounts of Tickets.com, Inc. and its wholly-owned subsidiaries,
BASS, ProTix and Advantix (Ohio), Inc. All intercompany account balances and
transactions have been eliminated in consolidation. The results of operations of
each acquired business have been consolidated for all periods subsequent to the
date of acquisition.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 130 "Reporting Comprehensive Income" in 1998. This statement
requires that all items that meet the definition of components of comprehensive
income be reported in a financial statement for the period in which they are
recognized. Components of comprehensive income include amounts that under SFAS
No. 130 are included in comprehensive income but are excluded from net income.
Differences between the Company's net income, as reported, and comprehensive
income, as defined, are immaterial.
F-9
<PAGE> 107
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
RESTRICTED CASH AND INVESTMENTS
Restricted cash and investments consist primarily of certificates of
deposit with original maturities greater than 90 days held for the benefit of
certain clients.
MARKETABLE SECURITIES
Marketable securities as of December 31, 1997 consist of municipal bonds
with stated maturities through September 1999, and a tax-free money market fund.
These securities are classified as available for sale and stated at fair value.
The fair value of the marketable securities as of December 31, 1997,
approximates their original cost less unamortized premium. There were no
marketable securities as of December 31, 1998.
CONCENTRATION RISKS
The Company is subject to concentration of credit risk related to accounts
receivable. Accounts receivable are due principally from retail ticketing
outlets and credit card merchant processors and represent the face value of the
tickets sold plus convenience and handling fees, generally net of outlet
commissions. Concentrations of credit risk are mitigated due to the large number
of clients comprising the Company's base of accounts receivable. The Company's
largest client accounted for 16% and 11% of total net revenues during the years
ended December 31, 1997 and 1998, respectively. The Company did not derive
revenue equal to or greater than 10% from any one client during 1996.
LONG-LIVED ASSETS
Property and Equipment. Property and equipment is stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of three to five years or, for leasehold
improvements, over the term of the lease if shorter. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
and any gain or loss is reflected in results of operations.
Intangible Assets. Intangible assets consist primarily of the portion of
the purchase price of businesses acquired allocated to existing technology,
customer relationships, tradenames, assembled workforce, goodwill and noncompete
agreements. Goodwill represents the excess of cost over the fair value of net
identified assets acquired in business combinations accounted for under the
purchase method.
Impairment of Long-Lived Assets. The Company assesses the recoverability of
its long-lived assets on an annual basis or whenever adverse events or changes
in circumstances or business climate indicate that expected undiscounted future
cash flows related to such long-lived assets may not be sufficient to support
the net book value of such assets. If undiscounted cash flows are not sufficient
to support the recorded assets, an impairment is recognized to reduce the
carrying value of the long-lived assets to the estimated fair value. Cash flow
projections, although subject to a degree of uncertainty, are based on trends of
historical performance and management's estimate of future performance, giving
consideration to existing and anticipated competitive and economic conditions.
Additionally, in conjunction with the review for impairment, the remaining
estimated lives of certain of the Company's long-lived assets are assessed.
REVENUE RECOGNITION
The Company generates ticketing services revenue primarily from per ticket
convenience fees charged directly to consumers who order tickets through the
Company's web site, telephone call centers, interactive
F-10
<PAGE> 108
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
voice response ("IVR") or retail outlets. In addition, the Company charges a
handling fee to consumers for all tickets sold by the Company, other than
through retail outlets. The Company recognizes convenience fee and handling fee
revenue from ticket sales at the time the sale is made.
Software revenue is recognized on sales contracts when the following
conditions are met: a signed contract is obtained , delivery has occurred, the
total sales price is fixed and determinable, collectibility is probable, and any
uncertainties with regard to customer acceptance are resolved. Deferred revenue
consists primarily of deferred software support revenue related to the license
of the Company's software, and related fees under maintenance and support
contracts. Deferred support revenue is recognized as it is earned, over the term
of the related agreement.
COST OF SERVICES
Cost of ticketing services includes expenses related to the distribution
and delivery of tickets. These expenses include primarily payroll related to
phone center and distribution personnel, telecommunications, data
communications, commissions paid on tickets distributed through outlets and the
clients' share of the convenience fee revenues. From time to time the Company
enters into contracts with clients whereby it pays a portion of the clients'
share of convenience fees up front. When this occurs, the up front fees are
amortized over the length of the contract under the terms of the underlying
contracts.
Cost of software services and other consists primarily of payroll and
travel costs related to the installation of software, maintenance and support.
INCOME TAXES
The Company applies an asset and liability method in recording income
taxes, under which deferred income tax assets and liabilities are determined
based on the differences between the financial reporting and tax bases of assets
and liabilities and are measured using currently enacted tax rates and laws.
Additionally, deferred tax assets are evaluated and a valuation allowance is
established if it is more likely than not that all or a portion of the deferred
tax asset will not be realized.
NET LOSS PER SHARE
Basic earnings per share is computed by dividing income or loss available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earning per share reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or result in the issuance of
common stock that would then share in the earnings of the Company. Potentially
dilutive securities are excluded from the Company's calculation of diluted
earnings per share ("EPS") when their inclusion would be antidilutive.
STOCK-BASED COMPENSATION
The Company has adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard, if fully adopted, requires the accounting for
employee stock-based compensation using a fair value methodology. For stock
options, fair value is determined using an option pricing model that takes into
account the stock price at the date of grant, the exercise price, the expected
life of the option, the volatility of the underlying stock, the expected
dividends and the risk-free interest rate. For stock-based compensation issued
to non-employees, the standard requires measurement based on the value of the
related services performed or the stock-based compensation issued, whichever is
more reliably measurable. The adoption of the accounting methodology of SFAS No.
123 related to employees is optional and as permitted under SFAS No. 123, the
Company intends to continue to account for employee stock options using the
intrinsic value methodology in
F-11
<PAGE> 109
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accordance with the Accounting Principles Board Opinion No. 25; however, pro
forma disclosures as if the Company adopted the accounting methodology of SFAS
No. 123 are required to be presented (see Note 11).
UNAUDITED INTERIM INFORMATION
The accompanying financial information as of June 30, 1999 and for the six
months ended June 30, 1998 and 1999 is unaudited. In the opinion of management,
this information has been prepared on substantially the same basis as the annual
consolidated financial statements and contains all adjustments (consisting of
normal recurring accruals) necessary to present fairly the financial position
and results of operations as of such date and for such periods.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which is effective
for fiscal years beginning after December 15, 1998. SOP 98-1 provides guidance
on accounting for the costs of computer software developed or obtained for
internal use and defines specific criteria that determine when such costs are
required to be expensed, and when such costs may be capitalized. The Company
expenses software development costs as incurred. Management believes that the
adoption of SOP 98-1 will not have a material effect on the Company's
consolidated financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities," which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 provides guidance on the financial reporting of
start-up costs and organization costs and require such costs to be expensed as
incurred. Management believes that the adoption of SOP 98-5 will not have a
material effect on the Company's consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments. The
statement requires that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value, and that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Management believes that the
adoption of SFAS No. 133 will not have a material effect on the Company's
consolidated financial statements.
3. BUSINESS COMBINATIONS
HILL ARTS AND ENTERTAINMENT SYSTEMS, INC.
On May 31, 1996, the Company, which had no prior operations, acquired
substantially all of the business of Hill Arts and Entertainment Systems, Inc.
("Hill A&E"). Hill A&E and the Company were at that time under common control.
The Company acquired certain assets and assumed certain liabilities of Hill A&E
in exchange for a $3,000,000 promissory note, convertible into shares of Company
common stock at the option of the holder. The transaction was accounted for as a
transfer between enterprises under common control, and as a result, the assets
and liabilities transferred were accounted for at historical cost, in a manner
similar to a pooling of interests.
ADVANTIX, A DIVISION OF PLAYHOUSE SQUARE FOUNDATION
In December 1996, the Company acquired the assets of Advantix, a division
of Playhouse Square Foundation ("PSF"), a Cleveland, Ohio-based performing arts
center and ticketing services provider. The acquisition was accounted for as a
purchase. The purchase price consisted of a $2,000,000 promissory note at an
interest rate of seven percent and the issuance of 481,068 shares of the
Company's common stock. The
F-12
<PAGE> 110
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
notes were recorded at a discount of $256,590 that yielded an effective interest
rate of 10%, which approximates the Company's incremental borrowing rate at the
time of the acquisition. In connection with the purchase agreement, the Company
entered into a Stock Issuance Agreement with PSF. The agreement provides that,
if the Company does not complete an Initial Public Offering ("IPO") of its
common stock prior to December 31, 1999, PSF may require the Company to
repurchase the stock at $5.20 per share. If the Company does complete an IPO
within the specified time, but for a price less than $5.20 per share, the
Company will issue additional shares of its common stock up to an aggregate
value of $2,500,000. The 481,068 shares of common stock were recorded as
redeemable common stock at their fair market value of $2,500,000 based on the
Company's redemption obligation. The operating results of the acquired division
have been included in the accompanying consolidated financial statements from
the date of acquisition. Goodwill is amortized on a straight line basis over its
estimated useful life of ten years.
FANTASTIX TICKET COMPANY, LLC
In August 1997, the Company acquired the assets of Fantastix Ticket
Company, LLC ("Fantastix"), a Buffalo, New York-based ticketing services
provider. The acquisition was accounted for as a purchase. The purchase price
consisted of the issuance of 504,888 shares of the Company's common stock. In
connection with the purchase agreement, the Company entered into a Repurchase
Right Agreement with Fantastix. The agreement, as amended, provides that if the
Company does not complete an IPO prior to December 31, 1999, the seller of
Fantastix may require the Company to repurchase up to 400,000 shares of common
stock at $4.21 per share for total consideration of $1,683,000. The 400,000
shares of common stock were recorded as redeemable common stock at their fair
market value of $675,000 on the acquisition date. In the event that the seller
of Fantastix exercises its repurchase right, any additional consideration paid
in connection with the repurchase right shall be recorded as goodwill. Goodwill
related to the repurchase, if any, will be amortized prospectively from the date
of capitalization over the remaining amortization period. The remaining 104,888
shares were recorded at their fair market value of $177,000. The operating
results of Fantastix have been included in the accompanying consolidated
financial statements from the date of acquisition. Goodwill is amortized on a
straight line basis over its estimated useful life of ten years.
BAY AREA SEATING SERVICE, INC.
In September 1997, the Company acquired BASS, a Concord, California-based
ticketing services provider. The acquisition was accounted for as a purchase.
The purchase price includes $11,481,000 in cash and an aggregate of $5,996,010
in promissory notes bearing interest at 1.5% above the prime rate, as defined.
Additional consideration of up to approximately $5,900,000 may be paid over a
three-year period should BASS net revenues, as defined, meet certain minimum
amounts.
The actual amount of the contingent payment will be determined using an
agreed-upon formula based on quarterly net revenues, as specified in the
acquisition agreement. Such payments shall be recorded as goodwill as the
contingent consideration is paid. Through December 31, 1998, contingent
consideration of $2,460,697 had been paid and recorded as goodwill. Goodwill
related to contingent consideration is amortized prospectively from the date of
capitalization over the remaining amortization period.
In conjunction with the acquisition, the Company entered into noncompete
agreements with certain officers of BASS, which prohibits them from competing
with the business of the Company for a period of three years. Consideration for
the noncompete agreements totaled $1,000,000 paid at the closing of the
acquisition, and an additional total of $1,000,000 to be paid over three years.
Additionally, under the terms of the acquisition agreement, a restricted cash
account totaling $1,500,000 was established for the payment of certain
transition costs, as defined, incurred by the Company. The funds were
established in a restricted cash account to be used for the payment of 50
percent of the total transition costs incurred by the Company, up to $3,000,000,
with unused funds returned to the sellers of BASS and treated as additional
purchase price. The
F-13
<PAGE> 111
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company has incurred in excess of the $3,000,000 in transition costs and as a
result no funds were returned to the sellers. Other terms of the agreement
include provisions for the establishment of several restricted cash accounts
including (i) $600,000 for the payment of an officer's salary over three years
(ii) $300,000 related to guaranteed levels of working capital subsequent to the
close of the acquisition, which pursuant to the terms of the agreement was
remitted to the sellers of BASS subsequent to year-end, and (iii) $750,000
relating to possible license fees to be paid by the Company; an indemnification
provision in the acquisition agreement; and certain acquisition fees to be paid
by the sellers. From these restricted cash accounts $168,000 will be returned to
the sellers.
Pursuant to the terms of the BASS acquisition agreement, the Company issued
warrants to the sellers of BASS for the purchase of 1,332,445 shares of common
stock at an exercise price of $4.50 per share, entered into a three year
employment agreement with a former officer of BASS and entered into a three year
consulting agreement with a former officer and shareholder of BASS. The
operating results of BASS have been included in the consolidated financial
statements from the date of acquisition.
As of December 31, 1998 the consideration paid in connection with the
acquisition of BASS, including contingent consideration, aggregated $22,000,000.
Substantially all of the goodwill and intangible assets related to the
acquisition of BASS have been written off (See Note 4 "Impairment of Long-Live
Assets"). The remaining goodwill will be amortized on a straight line basis over
the remaining life of the asset of approximately 10 years.
PROTIX, INC.
In September, 1998, the Company acquired ProTix, a Madison, Wisconsin-based
ticketing services provider and ticketing systems developer. The acquisition was
accounted for as a purchase. The aggregate purchase price at the date of
acquisition was approximately $7,511,000, which includes costs of the
acquisition. The aggregate consideration includes the issuance of 317,768 shares
of the Company's common stock, $4,591,000 in cash, which includes a repayment of
approximately $2,900,000 of existing ProTix obligations, and an aggregate of
$1,297,000 in promissory notes bearing interest at 1.0% above the prime rate, as
defined. Additional consideration in the form of warrants for the purchase of
637,964 of the Company's common stock at an exercise price of $0.0225 per share
were issued to the sellers of ProTix. The Company entered into an amendment with
ProTix whereby the parties agreed to vest 478,477 of the warrants and cancel the
remaining 159,487. The Company valued the vested warrants at their fair value as
of the effective date which resulted in $2,150,000 of additional goodwill.
Goodwill related to vested warrants will be amortized prospectively from the
date of capitalization over the remaining amortization period. The 317,768
shares of common stock were recorded at their fair market value of $1,072,469.
The operating results of ProTix have been included in the accompanying
consolidated financial statements from the date of acquisition.
In conjunction with the acquisition, the Company entered into a noncompete
agreement with a former officer of ProTix, which prohibits him from competing
with the business of the Company for a period of three years. Consideration for
the noncompete agreement totaled $162,000 to be paid over three years.
The Company has allocated the excess purchase price over the fair value of
net tangible assets acquired to the following identifiable intangible assets:
existing product technology, customer relationships, trade name, assembled
workforce, goodwill and in-process research and development ("IPR&D"). Goodwill
is amortized on a straight line basis over its estimated useful life of ten
years. An allocation of $1,600,000 represents the estimated fair value related
to incomplete projects which reflect the risk-adjusted cash flows and the stage
of completion. At the date of the acquisition, the projects associated with the
IPR&D efforts had not yet reached technological feasibility and had no
alternative future uses. Accordingly, these costs were expensed. At the
acquisition date, ProTix was conducting development activities associated with
the completion of next generations of the Company's automated ticketing
solutions and regional ticketing services. The projects under
F-14
<PAGE> 112
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 1,190,479, 2,569,884 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 $4.70, $4.97, and
$4.50 per share, respectively. The Company determined the estimated fair value
based on recent private placements of its Series D preferred stock (see Note
10). In
F-15
<PAGE> 113
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 initial public offering 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, Tickets.com entered into a Stock Purchase Agreement by and
among California Tickets.com, Inc., 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
F-16
<PAGE> 114
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
management uses financial data internally to make operating decisions and assess
performance. SFAS 131 also requires that all public business enterprises report
information about the revenues derived from the enterprise's products or
services (or groups of similar products and services), about the countries in
which the enterprise earns revenues and holds assets and about major customers
regardless of whether that information is used in making operating decisions.
The Company has two reportable segments: ticketing services and software
services. The Company derives revenues and gross profits mainly from ticketing
services and secondarily from software services and other. These products and
services are provided throughout the United States and internationally to a
similar customer base comprised mainly of stadiums, performing arts centers,
museums and professional sports franchises.
The Company provides ticketing services to its clients for the sale and
distribution of the clients' tickets through the Company's telephone sales
centers, retail stores, web site and interactive voice response system. In
addition, the Company can also connect its software licensees to its web site
whereby a licensee can sell its tickets on the Company's web site. Revenues from
ticketing services are derived primarily from convenience fees and handling fees
charged to the purchasers of the tickets.
Software services revenue is comprised mainly of license fees and support
fees for the use of the Company's ticketing software for the sale of tickets
through a clients' own box office. Software services revenue additionally
includes revenue recognized in connection with the hardware, installation and
training related to the use of the ticketing software. The Company generates
software services revenue internationally in 16 countries. However, revenues
generated internationally represent less than 10% of the Company's total
revenues.
The Company has sales to external customers only. There have been no
intersegment sales. The Company evaluates the performance of its operating
segments and allocates resources based on gross profit and therefore, segment
information has been provided at that level. Additionally, assets are not
allocated to specific products and, accordingly cannot be reported by segment.
For the period from May 31, 1996 (Inception) to December 31, 1996
<TABLE>
<CAPTION>
TICKETING SOFTWARE
SERVICES SERVICES OTHER TOTAL
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $ 119,249 $1,123,040 -- $ 1,242,289
Gross (loss) profit..................... (697,371) 509,335 -- (188,036)
</TABLE>
For the year ended December 31, 1997
<TABLE>
<CAPTION>
TICKETING SOFTWARE
SERVICES SERVICES OTHER TOTAL
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $ 9,686,138 $1,960,904 -- $11,647,042
Gross profit............................ 1,984,705 1,249,587 -- 3,234,292
</TABLE>
For the year ended December 31, 1998
<TABLE>
<CAPTION>
TICKETING SOFTWARE
SERVICES SERVICES OTHER TOTAL
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $26,557,612 $2,981,824 -- $29,539,436
Gross profit............................ 9,402,822 1,430,876 -- 10,833,698
</TABLE>
For the six months ended June 30, 1999 (unaudited)
<TABLE>
<CAPTION>
TICKETING SOFTWARE
SERVICES SERVICES OTHER TOTAL
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues................................ $13,046,516 $6,032,816 $ 198,737 $19,278,069
Gross profit............................ 4,074,886 2,906,002 (245,288) 6,735,600
</TABLE>
F-17
<PAGE> 115
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following as of December 31, 1997
and 1998:
<TABLE>
<CAPTION>
USEFUL LIVES 1997 1998
------------ ---------- ----------
<S> <C> <C> <C>
Computer equipment............................. 3 years $4,388,599 $7,713,751
Furniture and fixtures......................... 3 years 392,116 990,412
Leasehold improvements......................... 3 - 5 years 122,986 273,281
Vehicles....................................... 3 years -- 52,703
---------- ----------
4,903,701 9,030,147
Less -- accumulated depreciation............... (557,488) (619,278)
---------- ----------
Property and equipment, net.................... $4,346,213 $8,410,869
========== ==========
</TABLE>
Total depreciation and amortization expense was $75,000, $482,488 and
$1,946,604, for the period from May 31, 1996 (Inception) to December 31, 1996
and for the years ended December 31, 1997 and 1998, respectively.
INTANGIBLE ASSETS
Intangible assets consisted of the following as of December 31, 1997 and
1998:
<TABLE>
<CAPTION>
USEFUL LIVES 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Goodwill................................... 12 - 25 years $19,508,131 $ 5,768,168
Existing technology........................ 5 years -- 3,110,000
Customer relationships..................... 10 years -- 650,000
Tradenames................................. 20 years -- 1,200,000
Assembled workforce........................ 10 years -- 169,000
Noncompete agreements...................... 3 years 2,000,000 887,148
----------- -----------
21,508,131 11,784,316
Less -- accumulated amortization........... (712,416) (2,741,028)
----------- -----------
Intangible assets, net..................... $20,795,715 $ 9,043,288
=========== ===========
</TABLE>
OTHER ASSETS
Other assets consisted of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Deposit for contingent consideration........................ $5,324,192 $3,431,989
Deferred debt financing costs, net.......................... 343,400 240,070
Other....................................................... 126,060 791,254
---------- ----------
Other assets................................................ $5,793,652 $4,463,313
========== ==========
</TABLE>
Deposit for contingent consideration represents cash held in an escrow
account to be used for payment to the former shareholders of BASS over a
three-year period if BASS net revenues meet certain defined minimum targets (see
Note 3).
F-18
<PAGE> 116
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
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 1.5%, 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> 117
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Various installment payment agreements in connection with
the purchase of certain property and equipment, bearing
interest ranging from 11.1% to 14.0%, payable in
quarterly installments totaling $31,069 maturing at
various dates from April 30, 1999 to September 30,
2000.................................................... -- 199,198
----------- -----------
26,284,435 28,080,086
Less -- current portion................................... (2,791,239) (7,848,473)
----------- -----------
$23,493,196 $20,231,613
=========== ===========
</TABLE>
Annual maturities of long-term debt and capital lease obligations as of
December 31, 1998 are as follows:
Year ending December 31:
<TABLE>
<S> <C>
1999............................................ $ 7,848,473
2000............................................ 3,899,093
2001............................................ 6,623,527
2002............................................ 3,429,002
2003............................................ 7,110,000
-----------
28,910,095
Less -- discount................................ (830,009)
-----------
$28,080,086
===========
</TABLE>
SENIOR SECURED NOTES
The Company has a Credit Agreement (the "Agreement") with a senior lender
(the "Bank"), which provides for three credit facilities aggregating $16.0
million, secured by certain assets of the Company. The Agreement expires October
1, 2004. The facilities bear interest ranging from prime plus 1.0% to 12.0
percent fixed. The Agreement includes financial covenants related to a minimum
current ratio, interest coverage and fixed charge ratio, as defined, among
others. As of December 31, 1998, the Company was not in compliance with certain
of these financial covenants. On March 17, 1999 the Company entered into a First
Amendment to the Amended and Restated Credit Agreement (the "First Amendment")
with the Bank, which among other things, amended financial covenants and
provided for a waiver of all instances of default under the provisions of the
Agreement. The First Amendment also required the pay down of $2.0 million of the
Senior Secured Notes.
FORMER BASS SHAREHOLDERS
Under the terms of the BASS acquisition, the Company entered into separate
subordinated note agreements with each of the former shareholders of BASS,
aggregating $5,996,010. These notes are subordinated to the Senior Secured
Notes. The notes issued under the BASS purchase agreement are secured equally
and ratably by a security interest in substantially all of the assets of the
Company. The notes may be prepaid at the Company's option without penalty, and
must be repaid upon the earlier of the closing of an IPO or September 26, 2002.
8. INCOME TAXES
The Company incurred taxable losses for federal and state purposes for the
period from May 31, 1996 (Inception) to December 31, 1996 and for the years
ended December 31, 1997 and 1998. Accordingly, the Company did not incur any
federal income tax expense for those fiscal years other than the minimum
required
F-20
<PAGE> 118
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> 119
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 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 3,751,111 shares of
Series A convertible preferred stock in a private placement to various investors
at $1.10 per share, for net proceeds after stock issuance costs of $4,090,993.
From March 1997 to October 1997 the Company issued 4,222,166 shares of Series B
convertible preferred stock in a private placement to various investors at $2.81
per share, for net proceeds after stock issuance costs of $11,155,998. In
addition, in May 1998 the Company issued 5,154,272 shares of Series C
convertible preferred stock in a private placement to various investors at $3.94
per share, for net proceeds after stock issuance costs of $19,989,794.
On March 22, 1999 the Company issued 4,212,291 shares of series D
convertible preferred stock in a private placement with institutional investors
at $5.06 per share for total proceeds net of issuance costs of $21,279,600. On
May 17, 1999 the Company issued 1,713,635 shares of series D convertible
preferred stock in a private placement for $5.06 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 a liquidation preference, voting rights equivalent to, or for certain
matters, superior to, common stock, and do not accrue dividends unless declared
by the Company. At the option of the holder, each share of the Series A, Series
B, Series C and Series D convertible preferred stock can be converted into one
share of common stock. Such conversion is automatic in the event of an IPO. The
conversion rate is subject to adjustment under certain circumstances pursuant to
antidilution provisions. 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 334,588 and as of December 31 1997 and 1998, respectively. Under the terms
of the warrants, the Bank is
F-22
<PAGE> 120
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 Initial Public Offering of the
Company's common stock, all existing series of convertible preferred stock will
automatically convert to shares of common stock. Additionally, the Company's
$3.0 million convertible debt will automatically convert to common stock, and
all outstanding redemption privileges on the Company's common stock and warrants
will be cancelled, resulting in the reclassification of all related amounts to
stockholders' equity. The unaudited pro forma stockholders' equity at June 30,
1999 gives effect to these conversions and reclassifications.
11. EMPLOYEE BENEFIT PLANS
In October 1996, the Board of Directors approved the 1996 Stock Option Plan
(the "1996 Plan"). The 1996 Plan authorized the issuance of up to 1,333,333
shares of common stock to various employees. The exercise price is determined by
the compensation committee of the Board of Directors and may not be less than
100 percent of the fair market value of the Company's common stock at the date
of grant.
Options to acquire an aggregate of 1,035,778 shares of common stock under
the 1996 Plan at an exercise price of $0.90 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> 121
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 0.90
Exercised........................................ -- --
Cancelled or Expired............................. (444) $0.90
---------- -----
Outstanding as of December 31, 1996................ 887,556 $0.90
Granted.......................................... 1,406,769 $2.12
Exercised........................................ (14,354) $0.90
Canceled or expired.............................. (95,173) $0.90
---------- -----
Outstanding as of December 31, 1997................ 2,184,798 $1.69
Granted.......................................... 2,412,667 $3.20
Exercised........................................ (14,353) $0.92
Canceled 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> 122
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............ $ (0.65) $ (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 and 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
2,370,371 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 for RBB of
7,837,332 shares of common stock of Lasergate Systems, Inc., a Florida
corporation, for cash in the amount of $783,733 and 5,700 shares of preferred
stock of Lasergate for shares of common stock of Tickets.com equal to an
exchange ratio of 75.591 multiplied by the number of shares of Lasergate
preferred stock owned by RBB, which are convertible into 24,818,217 shares of
Lasergate common stock. Pursuant to the Stock Purchase Agreement, the closing
for purchase of the common and preferred stock of Lasergate was to be held not
later than May 15, 1999, or such later date as RBB and Tickets.com agreed.
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
F-25
<PAGE> 123
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RBB, (a) 75.592 shares of our common stock for each Lasergate preferred share,
or (b) $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 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 others terms of the
Stock Purchase Agreement 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 the 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. At the effective time
of the merger, Lasergate will be a wholly-owned subsidiary of Tickets.com.
Holders of the Lasergate common stock will receive $0.10 per share, subject to
withholding taxes. Holders of the Lasergate preferred stock shall continue to
hold their shares.
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
our common stock and $754,290.
Between June 23, 1999 and September 16, 1999, the Company made advances
aggregating $1.8 million to Lasergate Systems, Inc., pursuant various promissory
notes. The promissory notes are payable upon demand and bear interest at ten
percent (10%) per annum.
DATACULTURE
On August 23, 1999 we purchased all of the outstanding capital stock of
dataCulture, Ltd., a private limited company incorporated under the laws of
England. The total purchase price was 4 million pounds sterling, or the
equivalent of approximately $6.4 million as of August 23, 1999. The purchase
price is payable 3 million pounds sterling at the closing of the acquisition and
1 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 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 1,481,480 shares of Series E
preferred stock to Excite, Inc. and Cox Interactive Media for an aggregate
purchase price of $30.0 million or $20.25 per share, pursuant to a stock
purchase agreement. Under the terms of this stock purchase agreement, Excite and
Cox Interactive Media have agreed to purchase 2,716,050 additional shares of our
Series E preferred stock for an aggregate purchase price of $55.0 million or
$20.25 per share on or before November 30, 1999, subject to the satisfaction of
the closing conditions set forth in the stock purchase agreement. The Series E
convertible preferred stock has a liquidation preference, voting rights
equivalent to or for certain matters, superior to, common stock, and
F-26
<PAGE> 124
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 one 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 2.5 shares of our 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. The letter of intent provides that Tickets.com will pay Excite
distribution fees of $25.0 million over a period of three years, as well as
other fees, and the content and distribution agreement provides that Tickets.com
will purchase a minimum of $13.0 million in advertising from Cox Interactive
Media over a period of three years. If, however, Excite purchases additional
Series E preferred stock as contemplated in the stock purchase agreement, the
$25.0 million payment to Excite will accelerate and will immediately become due.
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 shares and per share data have been
restated to reflect the effect of this action.
F-27
<PAGE> 125
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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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> 133
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> 134
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> 135
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> 136
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> 137
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> 138
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> 139
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> 140
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> 141
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> 142
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> 143
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> 144
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> 145
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> 146
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> 147
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> 148
PROTIX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. MINORITY INTEREST
The Company has three separate legal entities. The purpose of Protix
Limited Partnership I and ProTix Connecticut GP is to provide ticketing
services, and ProTix Access Control LLC provides technical interface
capabilities via hardware and software development. For financial reporting
purposes, the assets, liabilities and earnings of the partnership entities have
been included in the Company's consolidated financial statements. The outside
investor's limited partnership interests in the partnerships have been recorded
as minority interests.
8. EMPLOYEE BENEFIT PLANS
The Company maintains a defined contribution and profit sharing benefit
plan (the "Plan") covering substantially all of its employees. Company
contributions to the Plan are voluntary and at the discretion of the Company.
For the year ended December 31, 1997, the Company's matching contributions to
the Plan were $8,300.
9. SALE OF THE COMPANY
On October 16, 1998, the Company was acquired by Tickets.com (formerly,
Advantix, Inc.). The aggregate purchase price was approximately $7,511,000,
which includes costs of the acquisition. The aggregate consideration includes
the issuance of 317,768 shares of Advantix' common stock, $1,620,000 in cash and
an aggregate of $1,297,000 in promissory notes bearing interest at 1.0% above
the prime rate, as defined. Additional consideration consisting of warrants to
purchase up to 637,964 shares of Advantix' common stock at an exercise price of
$0.01 may be issued over an 18 month period.
In conjunction with the acquisition, Advantix entered into a noncompete
agreement with a former officer of the Company, which prohibits him from
competing with the business of Advantix for a period of three years.
Consideration for the noncompete agreement totaled $162,000 to be paid over
three years.
F-51
<PAGE> 149
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> 150
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> 151
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> 152
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> 153
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> 154
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> 155
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> 156
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> 157
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> 158
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> 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)
(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> 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)
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> 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)
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> 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)
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> 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)
(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> 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)
(13) RESTRUCTURING
In April 1998, the Board of Directors of the Company approved a
restructuring plan for its subsidiary operations in Germany designed to improve
operating efficiencies. The plan involves a significant reduction in the
workforce from eight to three personnel employed under contracts of varying
terms, and a corresponding change to present operations. These reductions
include customer support, technical services, and administrative personnel.
Restructuring charges of $227,417 consist primarily of severance costs, legal
fees and lease commitment termination costs associated with the plan.
(14) FOREIGN OPERATIONS
The following table shows financial information about the Company's foreign
operations:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED APRIL 30, ENDED
-------------------------- JANUARY 31,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenues:
United States............................. $ 4,748,238 $ 6,314,243 $ 4,770,666
Foreign subsidiaries...................... 5,784,477 5,579,257 3,563,113
----------- ----------- -----------
$10,532,715 $11,893,500 $ 8,333,779
=========== =========== ===========
Operating loss:
United States............................. $ (979,516) $ (57,932) $(2,146,762)
Foreign subsidiaries...................... (378,434) (1,112,190) (873,505)
----------- ----------- -----------
$(1,357,950) $(1,170,122) $(3,020,267)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
------------------------ JANUARY 31,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Identifiable assets:
United States................................ $ 772,283 $4,928,616 $1,714,912
Foreign subsidiaries......................... 2,562,068 1,897,087 1,913,807
---------- ---------- ----------
$3,334,351 $6,825,703 $3,628,719
========== ========== ==========
</TABLE>
Approximately 50% of the Company's revenues are derived from customers
located outside the United States.
(15) SUBSEQUENT EVENT (UNAUDITED)
In April 1999, the stockholders of the Company entered into an agreement
for the sale of all outstanding stock of the Company to Tickets.com, Inc.,
formerly Advantix, Inc. (Tickets.com). The purchase price is approximately
$26,000,000 and is represented by the exchange of Advantix common stock for all
of the outstanding stock of the Company. The acquisition will be accounted for
as a purchase business combination with the Company merging into a wholly owned
subsidiary of Tickets.com and the Company being the surviving entity. In
conjunction with the acquisition, all of the Company's then outstanding stock
options become immediately vested and converted into Tickets.com options.
Commensurate with the acquisition, Advantix loaned the Company $1.0 million for
general working capital purposes.
F-67
<PAGE> 165
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> 166
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> 167
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> 168
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> 169
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> 170
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> 171
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> 172
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> 173
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> 174
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> 175
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 $0.20 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 $0.914 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 $0.914 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> 176
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 $0.04 and $0.16
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 1,190,478, 2,569,884
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> 177
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> 178
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The following Unaudited Pro Forma Condensed Combined Financial Statements
and related notes contain forward-looking statements that involve risks and
uncertainties. Our actual results may differ materially from those discussed
herein. We undertake no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect any
future events or circumstances.
In the opinion of our management, all adjustments necessary to fairly
present this pro forma information have been made. The Unaudited Pro Forma
Condensed Combined Financial Statements are based upon, and should be read in
conjunction with, the historical financial statements of Tickets.com, ProTix,
California Tickets.com and TicketsLive, and the respective notes to such
financial statements presented elsewhere in this Prospectus. The pro forma
information is based upon tentative allocations of purchase price for the
acquisitions and may not be indicative of the results that would have been
reported had such events actually occurred on the dates specified, nor is it
indicative of the Company's future results. Purchase accounting is based upon
preliminary asset valuations, which are subject to change.
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
year ended December 31, 1998 and the six months ended June 30, 1999 are
presented as if Tickets.com had completed the acquisitions of ProTix, California
Tickets.com and TicketsLive as of January 1, 1998.
Since our historical unaudited consolidated statements of operations for
the six months ended June 30, 1999 reflect the acquisition of ProTix, no pro
forma adjustments are necessary for ProTix for the six months ended June 30,
1999.
Since our historical unaudited consolidated balance sheets as of June 30,
1999 reflect the acquisitions of ProTix, California Tickets.com and TicketsLive,
no pro forma balance sheet adjustments are necessary as of June 30, 1999.
In addition, the Unaudited Pro Forma Condensed Combined Financial
Statements do not reflect purchase price adjustments and future contingent
payments contained in the agreements relating to certain acquisitions. You
should read "Risk Factors -- Risks Related to Acquisitions" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The pro forma financial statements do not include the effect of certain
immaterial acquisitions. No adjustments have been made to the Unaudited Pro
Forma Condensed Combined Statements of Operations relating to charges to
earnings that are non-recurring and unrelated to the transactions presented. You
should read "Risk Factors -- Future Charges to Earnings."
PF-1
<PAGE> 179
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.......................... $ (4.15)
========
Weighted average common
shares(h)...................... 13,829
========
</TABLE>
PF-2
<PAGE> 180
TICKETS.COM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
CALIFORNIA
TICKETS.COM, TICKETS.COM, TICKETSLIVE PRO FORMA PRO FORMA
INC. INC.(A) CORPORATION(B) ADJUSTMENTS COMBINED
------------ ------------ -------------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing services.................. $ 13,046 $ -- $ 17 $ -- $ 13,063
Software services and other......... 6,232 354 2,593 -- 9,179
-------- ------- ------- ------- --------
Total revenues.............. 19,278 354 2,610 -- 22,242
-------- ------- ------- ------- --------
Cost of services:
Ticketing services............... 8,971 -- -- -- 8,971
Software services and other...... 3,571 743 1,325 -- 5,639
-------- ------- ------- ------- --------
Total cost of services...... 12,542 743 1,325 -- 14,610
-------- ------- ------- ------- --------
Gross profit (loss)................... 6,736 (389) 1,285 -- 7,632
-------- ------- ------- ------- --------
Operating expenses:
Sales and marketing................. 9,068 1,255 789 -- 11,112
Technology development.............. 4,793 122 418 -- 5,333
General and administrative.......... 6,827 1,000 1,913 -- 9,740
Amortization of intangibles......... 2,576 38 -- 1,728(c) 4,342
Impairment of long-lived assets..... -- -- -- -- --
Purchased in-process research and
development expenses............. -- -- -- -- --
-------- ------- ------- ------- --------
Total operating expenses.... 23,264 2,415 3,120 1,728 30,527
-------- ------- ------- ------- --------
Loss from operations.................. (16,528) (2,804) (1,835) (1,728) (22,895)
Other (income) expense:
Interest income..................... (379) (7) (33) -- (419)
Interest expense.................... 1,681 3 21 -- 1,705
Minority interest................... 146 -- -- -- 146
Total other income expense.......... 1,448 (4) (12) -- 1,432
-------- ------- ------- ------- --------
Loss before provision for income
taxes............................... (17,976) (2,800) (1,823) (1,728) (24,327)
Provision for income taxes............ 17 -- 4 -- 21
-------- ------- ------- ------- --------
Net loss.............................. $(17,993) $(2,800) $(1,827) (1,728) $(24,348)
======== ======= ======= ======= ========
Basic and diluted net loss per
share............................... $ (1.74)
========
Weighted average common shares(d)..... 14,012
========
</TABLE>
PF-3
<PAGE> 181
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS)
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
(a) Included in 1998 ticketing services revenues is $9.3 million related to
three clients for whom we no longer provide ticketing services and one
client that notified us of its intent not to renew its contract with us at
the end of its term on December 31, 1999. We believe that this non-renewal
was the result of the acquisition of this client by an entertainment
organization that entered into a long-term master ticketing services
agreement with one of our competitors. No pro forma adjustments have been
made with respect to this expected reduction in revenue.
(b) The results of operations for ProTix were included in our consolidated
results of operations as of October 1, 1998. This presentation shows the pro
forma effects of the operations of ProTix as if the acquisition occurred on
January 1, 1998.
(c) The results of operations of California Tickets.com were included in our
consolidated results as of April 1, 1999. This presentation shows the pro
forma effects of the operations of California Tickets.com as if the
acquisition occurred on January 1, 1998.
(d) The results of operations of TicketsLive were included in our consolidated
results as of April 1, 1999. This presentation shows the pro forma effects
of the operations of TicketsLive as if the acquisition occurred on January
1, 1998.
(e) Represents the amortization of intangibles that would have been recorded for
the year ended December 31, 1998 if the acquisitions of ProTix, California
Tickets.com and TicketsLive occurred on January 1, 1998.
(f) Represents estimated in-process research and development charges that would
have been recorded if the acquisitions of California Tickets.com and
TicketsLive occurred on January 1, 1998. The estimated in-process research
and development for California Tickets.com are $3.5 million and for
TicketsLive are $1.8 million.
(g) Represents additional interest expense that would have been recorded in
connection with the $1.3 million of promissory notes issued to the former
shareholders of ProTix if the acquisition of ProTix occurred on January 1,
1998.
(h) Reflects shares of common stock outstanding during the periods presented.
Pro forma data includes common stock issuable with respect to the
acquisitions. Excludes shares of common stock issuable upon conversion of
outstanding shares of preferred stock, a convertible promissory note, and
upon exercise of outstanding stock options and warrant grants.
STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
(a) The results of operations of California Tickets.com were included in our
consolidated results commencing April 1, 1999. This presentation shows the
pro forma effects of the operations of California Tickets.com as if the
acquisition occurred on January 1, 1998.
(b) The results of operations of TicketsLive were included in our consolidated
results commencing April 1, 1999. This presentation shows the pro forma
effects of the operations of TicketsLive as if the acquisition occurred on
January 1, 1998.
(c) Represents the amortization of intangibles that would have been recorded for
the three months ended March 31, 1999 if the acquisitions of California
Tickets.com and TicketsLive occurred on January 1, 1998.
(d) 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> 182
The Tickets.com logo appears against a white background.
[Ticket.com Logo]
<PAGE> 183
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............................................. 10,500
Nasdaq National Market listing fee.......................... *
Blue sky fees and expenses.................................. *
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............................................. *
========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of Tickets.com under certain conditions and subject to
certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of Section 145 of the
Delaware General Corporation Law.
Article VII, Section I of the Restated Bylaws of Tickets.com provides that
Tickets.com shall indemnify its directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law. The rights to
indemnity thereunder continue as to a person who has ceased to be a director,
officer, employee or agent and inure to the benefit of the heirs, executors and
administrators of the person. In addition, expenses incurred by a director or
executive officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she is
or was a director or officer of Tickets.com (or was serving at Tickets.com's
request as a director or officer of another corporation) shall be paid by
Tickets.com in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by Tickets.com as authorized by the relevant
section of the Delaware General Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General. Corporation Law,
Article V, Section (A) of Tickets.com's Restated Certificate of Incorporation
provides that a director of Tickets.com shall not be personally liable for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to Tickets.com or
its stockholders, (ii) for acts or omissions not in good faith or acts or
omissions that involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived any improper personal benefit.
Tickets.com has entered into indemnification agreements with each of its
directors and executive officers. Generally, the indemnification agreements
attempt to provide the maximum protection permitted by
II-1
<PAGE> 184
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
$0.00225. 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 $0.000225 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 $0.0225 per share, warrants to purchase 844,444 shares of common stock
at $0.0225 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 3,751,112 shares of Series A Preferred Stock at $1.1025 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 930,744 shares
of Series B Preferred Stock at $2.8125 per share to 16 investors in a private
offering, for an aggregate cash consideration of
II-2
<PAGE> 185
$2,617,718. In September and October of 1997, the Registrant issued and sold
3,335,866 shares of Series B Preferred Stock at $2.8125 per share to 34
investors in a private offering (the "Second Series B Private Placement"), for
an aggregate cash consideration of $9,382,125. 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 $0.0225 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 $0.90 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 $0.90 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 $0.90 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 $0.0225 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 $0.90
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 5,154,272 shares of Series
C Preferred Stock at $3.9375 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 $0.0225 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. [discuss
additional shares to be issued]
(u) In May 1999, the Registrant issued 3,928,386 shares of common stock,
1,190,478 shares of Series Al Preferred Stock, and 2,569,884 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
II-3
<PAGE> 186
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.
(v) In March and May 1999, the Registrant issued and sold 5,925,926 shares
of Series D Preferred Stock at $5.0625 per share to 14 investors for an
aggregate cash consideration of $30,000,003.
(w) Since May 31, 1996, the Registrant has issued options to purchase an
aggregate of 6,555,885 shares of common stock to certain of its employees under
its 1996 and 1997 1998 Stock Option Plans, with exercise prices ranging from
$0.1125 to $7.3125 per share. 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 $ 0.90 Employee
10/01/96 to 08/04/97 471,111 $ 0.90 Officer
08/05/97 to 03/01/98 264,133 $ 0.13 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 $ 0.13 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 $ 0.45 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
</TABLE>
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.
II-4
<PAGE> 187
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 on May
14, 1999, as amended
3.2 * Amended and Restated Certificate of Incorporation of the
Company, as amended and filed with the Delaware Secretary of
State in June 1999
3.3 * Restated Certificate of Incorporation of the Company, to be
filed with the Delaware Secretary of State upon consummation
of this offering
3.4 * Bylaws of the Company
4.1 * Specimen certificate representing shares of common stock of
the Company
5.1 * Form of Opinion of Brobeck, Phleger & Harrison LLP
10.1 * Form of Indemnification Agreement
10.2 * 1999 Stock Incentive Plan, together with form of Stock
Option Agreement (and related Notice of Grant of Option),
Stock Purchase Agreement and Stock Issuance Agreement
10.3 * 1999 Employee Stock Purchase Plan
10.4 * 1998 Stock Incentive 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
10.5 ** 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 (and related Notice of Grant of
Option), Stock Purchase Agreement and Stock Issuance
Agreement
10.7 ** 1996 Stock Option Plan, together with form of Nonstatutory
Stock Option Agreement (and related Notice of Exercise of
Nonstatutory Stock Option), Incentive Stock Option Agreement
(and related Notice of Exercise of Incentive Stock Option),
Stock Purchase Agreement and Stock Issuance Agreement
10.8 ** Fourth Amended and Restated Investor Rights Agreement among
the Company and the stockholders named therein, dated May
17, 1999
10.9 ** Agreement dated as of May 21, 1999 between the Company and
Karen S. Goetz
10.10 ** Agreement and Plan of Merger and Reorganization by and among
the Company, Advantix Acquisition Corp., Tickets.com, Inc.
(n/k/a California Tickets.com, Inc.) and certain of its
stockholders dated as of January 26, 1999
10.11** Agreement and Plan of Merger and Reorganization by and among
the Company, Advantix Acquisition II Corp., TicketsLive
Corporation, and certain of its stockholders dated as of
March 18, 1999
10.12** Stock Purchase Agreement by and among the Company, ProTix,
Inc. and certain of its shareholders effective as of October
16, 1998
10.13 + Stock Purchase Agreement by and among the Company, Bay Area
Seating Service, Inc. and certain of its shareholders
effective as of September 18, 1997
10.14 ** Agreement by and between the Company and RBB Bank AG dated
as of January 24, 1999, as amended
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
</TABLE>
II-5
<PAGE> 188
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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 * Lease Agreement by and between the Company and The Irvine
Company dated February 3, 1999, as amended
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
21.1 ** List of Subsidiaries
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG LLP
23.3 Consent of Burr, Pilger & Mayer
23.4 * Consent of Brobeck, Phleger & Harrison LLP (contained in
Exhibit 5.1)
24.1 ** Power of Attorney (contained on signature page on page II-5)
27.1 ** Financial Data Schedule year end
27.2 ** Financial Data Schedule 3 months
27.3 Financial Data Schedule 6 months
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
II-6
<PAGE> 189
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> 190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused 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 21st day of September, 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 September 21, 1999
- -----------------------------------------------------
C. Ian Sym-Smith
/s/ W. THOMAS GIMPLE President, Chief September 21, 1999
- ----------------------------------------------------- Executive Officer
W. Thomas Gimple (principal executive
officer) and Director
* Chief Financial Officer September 21, 1999
- ----------------------------------------------------- (principal financial
John M. Markovich officer)
* Vice President, September 21, 1999
- ----------------------------------------------------- Corporate Controller
Michael R. Rodriguez (principal accounting
officer)
* Director September 21, 1999
- -----------------------------------------------------
James A. Caccavo
Director September , 1999
- -----------------------------------------------------
Peter Chernin
</TABLE>
II-8
<PAGE> 191
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Director September 21, 1999
- -----------------------------------------------------
Christos M. Cotsakos
* Director September 21, 1999
- -----------------------------------------------------
William E. Ford
* Director September 21, 1999
- -----------------------------------------------------
Howard L. Morgan
Director September 21, 1999
- -----------------------------------------------------
Janice L. Richter
* Director September 21, 1999
- -----------------------------------------------------
Nicholas E. Sinacori
</TABLE>
*By: /s/ W. THOMAS GIMPLE
--------------------------------------------------
W. Thomas Gimple
(Attorney-in-fact)
II-9
<PAGE> 192
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> 193
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 on May
14, 1999, as amended
3.2 * Amended and Restated Certificate of Incorporation of the
Company, as amended and filed with the Delaware Secretary of
State in June 1999
3.3 * Restated Certificate of Incorporation of the Company, to be
filed with the Delaware Secretary of State upon consummation
of this offering
3.4 * Bylaws of the Company
4.1 * Specimen certificate representing shares of common stock of
the Company
5.1 * Form of Opinion of Brobeck, Phleger & Harrison LLP
10.1 * Form of Indemnification Agreement
10.2 * 1999 Stock Incentive Plan, together with form of Stock
Option Agreement (and related Notice of Grant of Option),
Stock Purchase Agreement and Stock Issuance Agreement
10.3 * 1999 Employee Stock Purchase Plan
10.4 * 1998 Stock Incentive 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
10.5 ** 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 (and related Notice of Grant of
Option), Stock Purchase Agreement and Stock Issuance
Agreement
10.7 ** 1996 Stock Option Plan, together with form of Nonstatutory
Stock Option Agreement (and related Notice of Exercise of
Nonstatutory Stock Option), Incentive Stock Option Agreement
(and related Notice of Exercise of Incentive Stock Option),
Stock Purchase Agreement and Stock Issuance Agreement
10.8 ** Fourth Amended and Restated Investor Rights Agreement among
the Company and the stockholders named therein, dated May
17, 1999
10.9 ** Agreement dated as of May 21, 1999 between the Company and
Karen S. Goetz
10.10 ** Agreement and Plan of Merger and Reorganization by and among
the Company, Advantix Acquisition Corp., Tickets.com, Inc.
(n/k/a California Tickets.com, Inc.) and certain of its
stockholders dated as of January 26, 1999
10.11** Agreement and Plan of Merger and Reorganization by and among
the Company, Advantix Acquisition II Corp., TicketsLive
Corporation, and certain of its stockholders dated as of
March 18, 1999
10.12** Stock Purchase Agreement by and among the Company, ProTix,
Inc. and certain of its shareholders effective as of October
16, 1998
10.13 + Stock Purchase Agreement by and among the Company, Bay Area
Seating Service, Inc. and certain of its shareholders
effective as of September 18, 1997
10.14 ** Agreement by and between the Company and RBB Bank AG dated
as of January 24, 1999, as amended
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
</TABLE>
<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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 * Lease Agreement by and between the Company and The Irvine
Company dated February 3, 1999, as amended
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
21.1 ** List of Subsidiaries
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG LLP
23.3 Consent of Burr, Pilger & Mayer
23.4 * Consent of Brobeck, Phleger & Harrison LLP (contained in
Exhibit 5.1)
24.1 ** Power of Attorney (contained on signature page on page II-5)
27.1 ** Financial Data Schedule year end
27.2 ** Financial Data Schedule 3 months
27.3 Financial Data Schedule 6 months
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
<PAGE> 1
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND
ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.20
COMMERCIAL APPLICATION PARTNER (CAP) AGREEMENT
This Agreement is made effective April 6, 1998 between SYBASE, INC.
("Sybase") with offices at 6475 Chirstie Avenue, Emeryville, California 94608
(or SYBASE CANDA LIMITED, with offices at 1 Robert Speck Parkway, Suite 800,
Mississauga, Ontario, Canada L4Z 3M3), and Advantix, Inc. and its wholly-owned
subsidiaries Advantix (Ohio), Inc. and Bay Area Seating Service, Inc.
("Partner"), with offices at 4675 MacArthur Court, Suite 1400, Newport Beach, CA
92660.
1. LICENSE GRANT. Subject to the terms and conditions below, Sybase grants to
Partner a nonexclusive and nontransferable license to market and distribute
copies of unmodified object code versions of those Sybase and/or Powersoft
software products identified in the attached initial Schedules along with
accompanying documentation ("Programs") to Partner's customers ("End-Users") who
will use the Programs only for their own internal business purposes in the
applicable territory described in each Schedule A, provided that the programs
are distributed for use with computer application programs developed by Partner
for commercial distribution to more than one third party and containing
significant added functionality over the Programs ("Applications Software").
Partner shall license to each End-User the same number of copies of the Programs
and the same number of Seats/Named Users for such Programs as Partner licenses
to such End-User for its Application Software. In addition to being able to
distribute "full use" copies of the Programs, "full use" Seats and "full use"
Names Users, Partner may also distribute, with respect to certain Programs
identified in Sybase's then-current price list, Application Deployment Copies,
Application Deployment Seats and Application Deployment Named Users (which are
restricted licenses defined in the Sybase license agreement accompanying each
copy of the Program ("Sybase Shrinkwrap")). Partner may also sell to End-Users
certain Sybase services as described in the Schedules(s). Notwithstanding the
above, if the Territory includes any of the Prohibited Countries set forth in
Sybase's then current "Prohibited Country List") a current copy of which has
been provided to Partner), Parnter may not market or distribute Programs for use
in such Prohibited Countries. The Partner shall not be authorized to use or
allow its End-Users to use the Programs for timesharing, rental or service
bureau purposes on behalf of any third party. In connection with the
distribution rights granted above, Partner may appoint distributors to
distribute the Programs to End-Users within the Territory. The appointment of
distributors shall be by contracts which require that the distributor market the
Programs only in accordance with the terms of this Agreement and on a basis
which protects the proprietary interests of Sybase in and to the Programs to the
same extent that Partner's proprietary interests in its own products are
protected (but in any event no less than a reasonable extent). Partner may order
under this Agreement (a) copies of the Programs for its own internal production
purposes and/or developing and supporting the Application Software ("Internal
Use Copies"), (b) copies of the Programs which may only be used for developing
and supporting the Applications Software ("Development Copies"), (c) copies of
the programs which may be distributed to End-Users for evaluation purposes and
for up to the number of days designated in the applicable Schedule A, after
which they must be returned to Partner ("Evaluation Copies"), and (d) up to that
number of copies of the Programs shown on Schedule A for purposes of Partner
providing demonstrations and training for the Application Software
("Demonstration Copies"). Partner is authorized to incorporate into the
documentation for the Application Software portions of the documentation for the
Program to the extent such portions are necessary to document usage for the
Program in conjunction with the Application Software.
2. FEES AND PAYMENT TERMS. For the first year of this Agreement, Partner shall
be responsible for paying to Sybase a non-refundable program fee shown in
Schedule A ("Initial Fee'). The Initial Fee is due upon execution of this
Agreement by Partner. For each additional year, a non-refundable annual program
renewal fee ("Annual Renewal Fee") as set forth in such Schedule is due and
payable upon each anniversary of the date of this Agreement. Fees as set forth
in the attached Schedule(s) shall be due to Sybase for each copy of the Programs
and each service ordered by Partner; such fees shall be based on Sybase's
then-current price list for the country in which the Programs are to be issued
or the services are to be delivered ("Price List"). The license fee for
Development Copies is the same as the fee for Internal Use Copies unless Sybase
designated otherwise in its Price List. The license fee for Demonstration
Copies, if any, is set forth in the Schedule(s). Notwithstanding the above,
there is no charge for authorized Evaluation Copies distributed to End-Users.
License fees for Internal Use Copies, Development Copies, Demonstration Copies,
and copies of the Programs which Sybase ships to Partner for distribution to
End-Users shall be due and payable to Sybase with Partner's order for the
Programs or, upon Sybase credit approval of Partner, 30 days after the date of
Sybase's invoice for the Programs. Any past-due invoice may subject Partner to
credit hold at the sole discretion of Sybase. All fees under this Agreement are
stated in the United States.
3. OWNERSHIP. Programs are owned by Sybase or its licensors and are protected by
copyright law, trade secret laws and international conventions. All rights in
and to patents copyrights, trademarks and trade secrets in the Programs are and
shall remain with Sybase and its licensors. No title or ownership of the
Programs is transferred to Partner or End-User. Partner shall not translate,
localize or modify any portion of the Programs without the prior written consent
of Sybase.
CAP Agreement 62310
<PAGE> 2
4. ORDERING AND DELIVER. Internal Use Copies, Development Copies, Demonstration
Copies, Evaluation Copies and copies of the Programs for distribution directly
or indirectly to End-Users shall be ordered from Sybase and delivered by Sybase
to Partner (or in the case of Evaluation Copies and copies for distribution to
End-Users, Sybase shall deliver the copies directly to the End-Users if so
instructed by Partner). Partner will use the "Exhibit A" form adopted by Sybase
from time to time (or a Purchase Order containing the same information) to order
Programs from Sybase. All shipments are FOB origin, and Partner is responsible
for all shipping charges. Except for taxes on Sybase's income, Partner shall be
responsible for any sales, use, excise or any other form of taxes resulting from
this Agreement.
5. LICENSE ACCOMPANYING PROGRAMS. If Partner uses the Programs, Partner agrees
to be bound by terms and conditions of the Sybase Shrinkwrap. Notwithstanding
the above, Development Copies and Demonstration Copies shall only be used for
the purposes outlined in Section 1 above and shall be returned to Sybase upon
expiration or termination of this Agreement. Partner shall ensure that the
End-User's use of the Programs is either subject to the terms and conditions of
(a) the Sybase Shrinkwrap or (b) an executed license agreement or shrinkwrap
agreement between Partner and End-User which is substantially similar to, and no
less restrictive in protecting Sybase's interest than, the Sybase Shrinkwrap. If
Evaluation Copies are being licensed, the Sybase Shrinkwrap or license agreement
between Partner and End-User (as applicable) shall be modified by a written
commitment from End-User to use the Programs for a period not to exceed the
number of days designated in the applicable schedule to this Agreement. If a
conflict arises between this Agreement and any such license agreement, the terms
of this Agreement shall prevail. Partner shall undertake reasonable efforts to
enforce the terms of any license agreement between Partner and an End-User as it
relates to the Programs.
6. REPORTS. Partner shall keep or cause to be kept full and accurate accounts
and records of all transactions made by it and by its authorized distributors
under this Agreement (including Evaluation Copies) in form such that all amounts
owing hereunder to Sybase may be readily and accurately determined. Partner
shall undertake to assure that its distributors are (a) accurately reporting to
Partner all sales to End-Users and (b) otherwise complying with this Agreement.
Partner shall allow Sybase to examine its records to determine compliance with
this Agreement. Any examination shall be at the expense of Sybase, shall occur
during regular business hours at Partner's offices and shall not interfere
unreasonably with Partner's regular activities. Sybase shall give Partner 30
days or more prior written notice of the date of each such examination and the
name of the accountant who will be conducting the examination. All information
obtained from conducting the examinations shall be maintained as Confidential
Information. Partner agrees to pay Sybase any amounts owing as a result of
Partner's non-compliance with the payment provisions of this Agreement within 30
days of the date of the examination report which details such non-compliance. In
the event such amounts owed by Partner to Sybase exceeds 5% of total royalties
due, Partner shall pay the costs of such examination.
7. SUPPORT & MAINTENANCE. Partner shall be solely responsible for providing
End-User technical support and service of warranty claims for Partner's
Application Software, including the Programs, provided that Partner may also
sell Sybase technical support services for the programs only, on the terms
described in the attached Schedules. Partner may distribute to End-Users to whom
it has licensed Application Deployment Copies of Program updates to such Program
which are made generally available by Sybase so long as Partner has paid Sybase
all applicable Application Deployment Maintenance Fees.
8. INDEPENDENT CONTRACTORS. Partner and Sybase are independent contractors and
are not agents or representatives of each other. Partner does not have the right
to bind Sybase and shall not misstate or misinterpret its relationship to
Sybase.
9. ADVERTISING; TRADEMARKS. Sybase may identify Partner as a Commercial
Application Partner in Sybase advertising and marketing materials. Partner shall
not make any representations concerning the Programs which are inconsistent with
Sybase's marketing materials and advertising. Partner may utilize applicable
Sybase trademarks and logos only in accordance with Sybase's then-current
published guidelines, and trademarks shall remain the exclusive property of
Sybase or its licensors. Partner shall suitably feature the Programs and related
trademarks and Sybase's ownership of the Program in any advertising, marketing
literature, product documentation and packaging of the Application Software.
Partner shall give appropriate recognition in the Application Software of
Sybase's proprietary rights in the Programs in the same manner, places and times
and no less conspicuously than the recognition of the proprietary rights of
other including Partner in the Application Software.
10. TERMS AND RIGHTS UPON TERMINATION. This Agreement will become effective as
of the date first shown above and shall continue in force for period of 3 years,
subject to (a) Partner's payment of all fees owing hereunder, or (b) termination
under Section 11 below. Thereafter, this Agreement shall automatically renew for
additional one-year terms subject to payment of Sybase's then-current Annual
Renewal Fee and provided that Partner is not then in default of this Agreement,
unless written notice of termination is given by either party at least 30 days
prior to the expiration of the term then in effect. No expiration or termination
of the Agreement shall impair of affect (i) Internal Use Copies, which shall
continue so long as Partner is not in breach of the Sybase Shrinkwrap or (ii)
copies of Programs distributed by Partner to End-Users in accordance with this
Agreement prior to the effective date of the expiration or termination of this
Agreement. All Demonstration Copies shall be returned to Sybase. Termination or
expiration shall not release either party from its liability to pay any fees
accruing prior to the date of the termination or expiration. Sections 3, 5, 10,
11, 12, 13 14 and 18 of this Agreement shall survive any expiration or
termination of this Agreement.
11. DEFAULT. Either party may immediately terminate this Agreement or any
license granted hereunder by written notice to the other if such other party
breaches any term or condition of this Agreement, including but not limited to
failure to pay when due any fee hereunder, and does not remedy such breach
within 30 days written notice thereof from the non-breaching party. Each party
CAP Agreement 62310
<PAGE> 3
will reimburse the other party for all reasonable costs incurred by the other
party (including attorney's fees) in collecting past due amounts hereunder. Any
breach which by its nature cannot be remedied shall entitle the non-breaching
party to terminate this Agreement immediately upon written notice to the other
party. This remedy shall not be an exclusive remedy and shall be in addition to
any other remedies which the non-breaching party may have under this Agreement
or otherwise.
12. CONFIDENTIAL INFORMATION. Each party will not disclose or use any business
and/or technical information of the other designated orally or in writing as
"Confidential" or "Proprietary" (together, "Confidential Information") without
the prior written consent of the other party. Such restrictions do not extend to
any item of information which (a) is not or later becomes available in the
public domain without the fault of the receiving party; (b) is disclosed or made
available to the receiving party by a third party without restrictions and
without breach of any relationship of confidentiality; (c) is independently
developed by the receiving party without access to the disclosing party's
Confidential Information, (d) is known to the recipient at the time of
disclosure, or (e) is produced in compliance with applicable law or court order,
provided that the disclosing party is given reasonable notice of such law or
order and opportunity to attempt to preclude or limit such production. Upon
termination or expiration of this Agreement, each party shall immediately return
all copies of Confidential Information received from the other party. Partner
shall not release the results of any benchmark of the Programs to any third
party without the prior written approval of Sybase for each such release.
13. DISCLAIMER OF WARRANTY; LIMITATION OF LIABILITY. Except as expressly
provided in the Sybase Shrinkwrap, NO EXPRESS OR IMPLIED WARRANTY OR CONDITION
IS MADE WITH RESPECT TO THE PROGRAMS OR SERVICES SUPPLIED BY SYBASE OR ITS
SUBSIDIARIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. The aggregate liability to
Sybase and its subsidiaries, if any, for any losses or damages arising out of or
in connection with this Agreement, whether the claim is in contract, tort or
otherwise, shall not exceed the amount paid by Partner to Sybase under this
Agreement for the affected Programs or services. UNDER NO CIRCUMSTANCES SHALL
SYBASE, ITS SUBSIDIARIES OR ITS LICENSORS BE LIABLE FOR SPECIAL, INDIRECT,
EXEMPLARY, INCIDENTAL AND/OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED
TO, LEGAL FEES, LOSS OF PROFITS, LOSS OR INACCURACY OF DATA OR LOSS RESULTING
FROM BUSINESS DISRUPTION, EVEN IF SYBASE HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH DAMAGES.
14. INDEMNIFICATION. Partner indemnifies and holds harmless Sybase, its
affiliates, directors, employees and agents from all third party claims,
including court costs and reasonable fees of attorneys and expert witnesses,
arising in connection with (a) a breach by Partner of its agreement with an
End-User or distributor (unless such breach was caused by Sybase's breach of
this Agreement or the Sybase Shrinkwrap), or (b) use of the Application Software
if liability is not caused by the programs as provided by Sybase. Sybase
indemnifies and holds harmless Partner, its affiliates, directors, employees and
agents from all third party claims, including court costs and reasonable fees of
attorneys and expert witnesses, arising in connection with (i) a breach by
Sybase of the Sybase Shrinkwrap or (ii) use of the Programs as provided by
Sybase if liability is not caused by the Application Software.
15. EXPORT RESTRICTIONS. Partner shall not transfer, directly or indirectly, any
restricted Programs or technical data received from Sybase or its subsidiaries,
or the direct product of such data, to any destination subject to export
restrictions under U.S. law, unless prior written authorization is obtained from
the appropriate U.S. agency.
16. ASSIGNMENT. This Agreement may not be assigned (by operation of law or
otherwise) or otherwise transferred in whole or in part by Partner unless
Partner has received prior written permission from Sybase, such permission not
to be unreasonably denied by Sybase. To the extent Partner is permitted to
assign this Agreement, all provisions of this Agreement shall be binding upon
Partner's successors or assigns.
17. NOTICES. All notices under this Agreement shall be in writing and either
delivered personally, sent by first class mail, express carrier or by confirmed
facsimile transmission to the address of the party set forth above (and if to
Sybase, to the attention of the General Counsel). All notices shall be deemed
given on the business day actually received.
18. OTHER. This Agreement, the initialed Schedules, and any documents explicitly
referred to therein, constitute the entire agreement between the parties,
supersede any and all previous agreements authorizing Partner to distribute the
Programs to third parties and no representations, condition, understanding or
agreement of any kind, oral or written, shall be binding upon the parties unless
incorporated herein. This Agreement may not be modified or amended, nor will the
rights of either party be deemed waived, except by an agreement in writing
signed by authorized representatives of Partner and Sybase. Purchase orders
shall be binding as to the products and services ordered, and the site for
delivery of Programs or performances of services as set forth on the face side
of or a special attachment to the purchase order. Other terms and preprinted
terms on or attached to any purchase order shall be void. This Agreement shall
be governed by, and construed in accordance with, the laws of California if
Partner is located in the United States and the laws of Ontario if Partner is
located in Canada without regard to their conflict of laws rules or the United
Nations Convention on the International Sale of Goods. If any provision of this
Agreement is held to be unenforceable, the parties shall substitute for the
affected provision an enforceable provision which approximates the intent and
economic effect of the provision. The parties have requested that this Agreement
and all documents contemplated hereby be drawn up in English. For Quebec
Province transactions: Les parties aux presentes ont exige que cette entente et
tous autres documents envisages par les presentes soient rediges en anglais.
CAP Agreement 62310
<PAGE> 4
ACCEPTED AND AGREED ON BEHALF OF:
Advantix, Inc. ("Partner") Sybase, Inc. ("Sybase")
- ---------------------------------- (or Sybase Canada Limited,
if applicable)
/s/ Tom Pascoe /s/ Glen Germanowski
- ---------------------------------- -----------------------------------
(Authorized Signature) (Authorized Signature)
Tom Pascoe Glen Germanowski
- ---------------------------------- -----------------------------------
(Printed Name) (Printed Name)
Chief Operating Officer Senior Corporate Counsel
- ---------------------------------- -----------------------------------
(Title) (Date) (Title) (Date)
3/31/98 Apr 6 - 1998
CAP Agreement 62310
<PAGE> 5
ADDENDUM TO COMMERCIAL APPLICATION PARTNER AGREEMENT
This Addendum (the "Addendum") entered into on March 31, 1998 supplements and
amends the terms of the Commercial Application Partner Agreement dated April 6,
1998 (the "CAP Agreement") between Sybase, Inc. ("Sybase") and Advantix, Inc.
and its wholly-owned subsidiaries Advantix (Ohio), Inc. and Bay Area Seating
Service, Inc. ("Partner"). Capitalized terms not otherwise defined shall have
the meaning set forth in the Agreement.
1. Past Royalties. Partner agrees to pay Sybase past royalties in a total of
$[***] due for remarketing of Sybase Programs as follows: A payment of $[***]
net thirty (30) days after the first sale of Application Software (in
conjunction with the Sybase Programs below) in 1998. A second payment of $[***]
net (30) days after the second sale of such Application Software in 1998.
2. Software. The CAP Agreement is for remarketing by Partner of the Sybase
Programs Adaptive Server Enterprise (also known as Sybase SQL Server) and Open
Server only, only in conjunction with Partner's Application Software Artsoft and
Sportsoft.
3. Prepaid Royalties; Fee Arrangement. Partner will pay Sybase a non-refundable
royalty amount of $[***] due net sixty (60) days from the date of this
Addendum. In consideration of such prepaid amount, the royalty fees under the
CAP Agreement Schedule A are changed to the following arrangement which is based
on Partner's local country price list ("Partner's List Price"), Partner will pay
Sybase [***] percent ([***]%) of Partner's List Price for license fees for the
Application Software containing the above Sybase Program or Programs, provided
that for each copy of the Application Software, partner will pay Sybase a
minimum of $[***] (U.S.) or $[***] (outside U.S.). The current (U.S). Partner's
price list shall be submitted by Partner within 15 days after the signing of
this Addendum. In the event Partner changes its price list, Partner agrees to
give Sybase 60 days prior notice. In the event of material changes to Partner's
prices, Sybase shall have the right to review the above minimums. If Sybase
requires review and adjustment of minimums as a result of a price change by
Partner and the parties are unable to agree to new minimum prices, the minimum
prices shall not be decreased from those in effect immediately prior to
Partner's price change.
If the Application Software (licensed with the Sybase Programs) is offered with
services or support or bundled with hardware (in either case "Combined Offer"),
Partner must show that the portion of the revenues for the Combined Offer
allocated to the software portion is fair, equitable and representative of the
value of the software portion, provided that in no event shall the amount
allocated to the software portion be less than 30% of the total price for the
Combined Offer.
4. Report; Payment; End-User Support Fees. Partner will submit to Sybase reports
as set forth in the attached Master Disk Addendum, as the $[***] prepaid royalty
set forth above is used. Partner shall enclose with each report a check or
purchase order, for [***]% of the license fee owed (as determined in Section 3
above) for right to pass on updates and support to End-Users. After such $[***]
is fully used, Partner shall submit to Sybase a report and check or purchase
order for license fees and the right to pass on update fees. Partner shall
provide first level support as set forth in the CAP Agreement.
5. The parties agree that no prepaid royalty balance remains under the Value
Added Remarketer Agreement between Sybase and Artsoft (now known as Advantix,
Inc.) dated May 28, 1989. Once the $[***] set forth in Section 1 is paid, all
past due royalties owed from such Value Added Remarketer Agreement will have
been paid per the terms set forth in Schedule B.
Except as amended above, the Agreement shall remain in full force and effect.
Sybase, Inc. Advantix, Inc.
By: /s/ Glen Germanowski By: /s/ Tom Pascoe
-------------------- ---------------
Name: Glen Germanowski Name: Tom Pascoe
---------------- ----------
Title: Senior Corporate Counsel Title: Chief Operating Officer
------------------------ -----------------------
Apr 6 - 1998
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 6
Schedule B
1. Dispute Settlement. A dispute has arisen between Partner and
Sybase relating to the certain Value Added Remarketer Agreement originally
between Sybase and Artsoft, which was subsequently transferred to Advantix,
Inc., dated May 28, 1989 (the "Prior Agreement") regarding prepaid royalties,
past due royalties and certain other matters. In order to settle this dispute,
and in full and complete satisfaction of any and all claims by either party
relating to the Prior Agreement, Partner agrees to pay Sybase a total of $[***]
for remarketing of Sybase programs as follows: A payment of $[***] net thirty
(30) days after the first sales of Application Software (in conjunction with the
Sybase Programs below) in 1998. A second payment of $[***] net thirty (30) days
after the second sale of such Application Software 1998. In addition, each of
Partner and Sybase, on behalf of itself, its affiliates, assigns and successors
hereby fully releases and discharges the other party and the parties affiliates,
assigns and successors from any rights, claims and actions, known or unknown, of
any kind whatsoever, which each party now has or may hereafter have against the
other party, arising out of or relating to the Prior Agreement.
2. Unknown Claims. Each party expressly waives and relinquishes all
rights and benefits afforded in Section 1542 of the California Civil Code which
provides:
"A general release does not extend to claims which
the creditor does not know or suspect to exist in his
favor at the time of executing the release which is
known by him must have materially affected the
settlement with the debtor.
Each party understands and acknowledges the significance and consequences of
this waiver of Section 1542 and nevertheless elects to, and does, release those
claims described in this Agreement, known or unknown, that it may have now or in
the future arising out of any act, omission, cause or thing, relating to the
Prior Agreement.
Sybase, Inc.
LEGAL APPROVED
BY /s/ Glen Germanowski
------------------------------------
DATE 4/1/98
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 1
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND
ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.21
GEOCITIES PAGES THAT PAY MERCHANT AGREEMENT
This Merchant Agreement ("Agreement") is entered as of March 1, 1999
(the "Effective Date") by and between GeoCities, a California corporation, with
its principal place of business at 1918 Main Street, Suite 300, Santa Monica,
California 90405 ("GeoCities"), and Tickets.com, Inc., a Delaware corporation,
with its principal place of business at 4061 Glencoe Avenue, Marina del Rey, CA
90292 ("Merchant").
WHEREAS, GeoCities operates a leading community-oriented World Wide Web
("Web") site (the "GeoCities Site", deemed to include successor and related Web
sites) and has organized a GeoCities-branded affiliates programs under the name
"pages That Pay" comprising a network of affiliated Web sites and a
corresponding network of merchant Web sites whereby certain affiliate sites are
linked to certain merchant Web sites and merchants compensate such affiliates
for certain commercial activities on such merchant sites which result from user
traffic for which the affiliates are directly responsible;
WHEREAS, GeoCities has entered into an agreement with Be Free, Inc.
("Be Free"), for, among other things, Be Free to administer such affiliates
program using its leading edge proprietary technology and services (the "Be Free
Agreement");
WHEREAS, the parties hereto desire that Merchant participate in the
GeoCities affiliates program as a merchant;
AND WHEREAS, GeoCities is willing to enroll Merchant in the affiliates
program under the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. DEFINITIONS.
1.1 "Affiliate(s)" means an individual or legal entity which GeoCities
deems eligible to participate in the Program, agrees to certain terms and
conditions of membership, and places a Qualifying Link on its own Website for
the purpose of referring sales to Merchant for a Commission.
1.2 "Affiliate Pageview" means the successful move of a Visitor from an
Affiliate's Website to Merchant's Website directly through the use of a
Qualifying Link.
1.3 "Banner Impression" means a Web page containing a Merchant
advertising banner, Merchant text mention or hyperlink to the Merchant Website
transmitted by the GeoCities Site in response to a request from a third-party
Internet user entitled to interact with the GeoCities Site (whether or not such
user receives the tramitted Web page).
1
<PAGE> 2
1.4 "Confidential Information" of a Disclosing Party shall mean the
following, to the extent previously, currently or subsequently disclosed to the
other party hereunder or otherwise: information relating to products, services
or technology of the Disclosing Party or the properties, composition, structure,
organization, use or processing thereof, or systems therefor, or to the
Disclosing Party's business (including, without limitation, computer programs,
code, algorithms, schematics, data, know-how, processes, ideas, inventions
(whether patentable or not), names and expertise of employees and consultants
and other technical, business, financial, customer and product development
plans, forecasts, strategies and information). In particular, but without
limitation, Program Technology and modifications or improvements thereto by
whomever made shall be considered Confidential Information of GeoCities.
1.5 "Commission(s)" shall mean the fee(s) Merchant shall pay to
Affiliates for Qualifying Transactions under this Agreement as specified in
Addendum No. 1 to this Agreement (attached hereto).
1.6 "Customer Data" means any and all information reasonably obtainable
in connection with commercial transactions enabled or facilitated through the
Program concerning GeoCities Members, Affiliates Visitors and/or merchants,
whether in separately identifiable or aggregated form, including, without
limitation, first or last name; e-mail or other address; postal code; gender or
other demographic characteristics; year or date of birth; social security or
other tax identification number; occupation or other socio-economic or financial
information; nature, subject matter, date or amount paid in any commercial
transaction(s); number or identification of viewed/downloaded Website(s);
preferences or habits; and any other identifying information, whether or not
actually provided, collected, derived or deducted, and regardless or its
accuracy or completeness.
1.7 "Disclosing Party" shall mean a party hereto that discloses its
Confidential Information to the other party.
1.8 "FTC Order" means that certain "Agreement Containing Consent Order"
issued by the U.S. Federal Trade Commission on June 11, 1998, attached hereto as
Exhibit B as well as any and all subsequent or related official materials,
regulations, laws judgement or orders.
1.9 "GeoCities Member" means a GeoCities customer or other individual
or entity which, according to GeoCities' then-current policies and procedures is
entitled to participate in the Program as an Affiliate.
1.10 "Program" means the network of participating affiliates and
merchants, subject to the terms of applicable separate agreements, in GeoCities'
"Pages That Pay" affiliates program wherein (a) affiliates are enabled to
generate hypertext links ("Links") from their personalized Web pages to
participating merchant Web sites, (b) encourage/enable Visitors to affiliate Web
pages to use Links to make purchases and otherwise interact with merchant
Websites, and (c) receive compensation on an agreed upon basis with respect to
commercial activity generated by such Link.
2
<PAGE> 3
1.11 "Program Technology" means any software (in object code form
only), hardware or other technology provided to Merchant by BeFree or GeoCities
relating to the Program, and all updates, improvements, patches, upgrades, and
bug fixes thereof.
1.12 "Qualifying Link" means a graphics or textual link from an
Affiliate's Web page to Merchant's Website which effectuates a Qualifying
Transaction. The link will establish a direct hyperlink connection enabling
Visitors to move from Affiliate's Web page to Merchant's Website using a single
keystroke.
1.13 "Qualifying Transaction" means a sale or other event as described
in Addendum No. 1 to this Agreement (attached hereto) completed directly after a
hyperlink transfer from Affiliate's Web page to Merchant's Website through a
Qualifying Link that triggers an obligation on Merchant to pay such Affiliate a
Commission under this Agreement. All disputes regarding determinations of
Qualifying Transaction will be resolved mutually between GeoCities and Merchant.
1.14 "Receiving Party" shall mean a person or entity that receives
Confidential Information of another party.
1.15 "Visitor(s)" means, with respect to an Affiliate's Web page or
Merchant Website, a third party Internet user entitled to interact with such
Website (such as by viewing or downloading material).
1.16 "Website" or "Site" or "Web page" means a URL site or page on the
Web.
2. PROGRAM IMPLEMENTATION AND OPERATION.
2.1 Subject to the terms and conditions of this Agreement, GeoCities
shall have the sole right and responsibility to solicit merchants and affiliates
for participation in the Program, except as provided in Addendum No. 1.
2.2 Merchant agrees to use best efforts to assist (including but not
limited to the commitment of adequate technical personnel) Be Free and GeoCities
in the expeditious installation and testing of software and/or hardware
necessary to add Merchant to the Program and participate fully in the Program,
including, but not limited to, any materials needed to allow for accurate and
timely reporting of Qualifying Transaction data into the Be Free system and as
further specified in Exhibit A.
2.3 GeoCities shall compensate Be Free for the reasonable installation
costs of adding Merchant to the Program under this Agreement.
3. PROGRAM MANAGEMENT.
3.1 GeoCities will provide Merchant with reasonable program management
tools that will provide Merchant with comprehensive information relating to
Qualifying Links, Qualifying
3
<PAGE> 4
Transactions and other relevant data. Merchant shall have access to regular
reports reasonably necessary to allow Merchant generally to monitor Qualifying
Transactions and Commissions owed to Affiliates.
3.2 Merchant shall make available in a timely manner at no charge to
GeoCities all software, technical data, files, documentation, sample output or
other information and resources reasonably required by GeoCities or BeFree for
the operation of the Program. Merchant will be solely responsible for and
assumes the risk of any problems resulting from, the content, accuracy,
completeness and consistency of such data, materials and information supplied by
Merchant.
3.3 Merchant shall not operate a site, nor will GeoCities permit the
operation of any sites within its community, which: promotes sexually explicit
materials; promotes violence; promotes discrimination based on race, gender,
religion, ethnicity, nationality, disability, sexual orientation or age;
promotes illegal activities; or violates intellectual property rights. GeoCities
and Merchant represent and warrant that they shall each comply with all
applicable laws of all applicable jurisdictions (including, without limitation,
those relating to the protection of intellectual property, export restrictions,
consumer protection and taxation).
3.4 In addition to GeoCities' standard terms and conditions of the
Program, any Affiliate of Merchant shall also be required to comply with the
specific requirements set forth in Exhibit C (the "Merchant Terms and
Conditions"). Merchant represents and warrants that the enforcement of Merchant
Terms and Conditions in connection with the Program, will not violate any laws,
regulations or rights of Affiliates, GeoCities Members or other third parties.
Except as expressly set forth above, Merchant may not impose any additional
requirements or restrictions on Affiliates without the prior written consent of
GeoCities. GeoCities or Merchant shall have the right, upon ten (10) business
days notice to the other, to amend Exhibit C by removing a particular aspect of
Merchant Terms and Condition if either party determines, in its reasonable
discretion, that such aspect is unfair, offensive or otherwise objectionable.
Merchant represents and warrants that it will apply Merchant Terms and
Conditions in a fair and even manner.
3.6 Merchant shall automatically approve each and every GeoCities
Member that wishes to establish a Qualifying Link and become an Affiliate on a
preliminary basis. Merchant shall have the right to review Affiliate Sites and
reject the Affiliate, within five (5) business days of Merchant's discovery of a
Disqualification Fact. "Disqualification Fact" shall mean any demonstrable fact
relating to an Affiliate that puts such Affiliate in violation of any GeoCities
Program requirement or Merchant Terms and Conditions. Notwithstanding the
foregoing, Merchant shall provide notice to GeoCities at least two (2) business
days prior to notifying the Affiliate that it has been rejected by Merchant.
Such notice shall identify the rejected Affiliate, the URL of the Affiliate
Site, and a detailed explanation describing the Disqualification Fact and any
other bases for rejecting the Affiliate. Notwithstanding the disqualification of
an affiliate under this Section, Merchant shall, under the terms of this
Agreement, pay such affiliate any Commissions earned by the Affiliate for
Qualifying Transactions that occurred prior to the Affiliate's disqualification.
4
<PAGE> 5
3.7 GeoCities and BeFree shall have the sole right and responsibility
to host all Web pages relating to link generation, reporting, account management
and other functions of the Program. If Merchant wishes to add certain Program
functionality (e.g., link generations, profile management, etc.) to its Website,
it shall submit a written request to GeoCities. Merchant shall have the right to
add such functionality to its Website only with the consent of both GeoCities
and BeFree, such consent which shall not be unreasonably withheld by either
party, and only on terms and conditions to be negotiated by the parties.
4. PAYMENT TERMS.
4.1 Merchant shall pay Commissions to Affiliates on a quarterly basis
according to the terms of the BeFree payment system implemented by GeoCities, in
its sole discretion, as part of the Program (the "payment System")/ Such
payments shall be made within fifteen (15) days after the applicable calendar
quarter.
4.2 GeoCities shall be responsible for transmitting any payments
directly to Affiliates in the form of a check, or by other means that GeoCities,
in its sole discretion, deems appropriate, including but not limited to consumer
credits or merchant points.
4.3 GeoCities shall provide documentation as reasonably required under
the Payment System to substantiate payments to Affiliates.
4.4 The parties shall use best efforts to correct payment errors,
whether such errors result in overpayment or underpayment.
4.5 All late payments by Merchant under this Agreement will be assessed
a service fee of one and one-half percent (1.5%) of the amount due per month, to
the extent allowed by law. Additionally, Merchant shall pay any collection
costs, including reasonable attorneys' fees, incurred by GeoCities in the course
of collecting on such overdue or unpaid amounts.
5. SUPPORT AND MAINTENANCE.
5.1 BeFree shall provide standard support and maintenance for the
program pursuant to the BeFree Agreement. The Program Technology shall, from
time to time, be upgraded at no additional cost to Merchant; provided, however,
that Merchant uses best efforts to assist (including but not limited to the
commitment of adequate technical personnel) Be Free and GeoCities in the
expeditious installation and testing of software and/or hardware necessary to
implement such upgrades in a timely fashion.
5.2 GeoCities shall work diligently with BeFree to address technical
problems with Qualifying Links or other aspects of Program. In the event
equipment failure, human error or other technical problems prevent all
Qualifying Link from operating for more than twenty-four (24) consecutive hours,
GeoCities will compensate Merchant as follows: GeoCities will provide Merchant
with one Banner Impression for each Affiliate Pageview estimated to be lost as a
result of the total outage; the estimated number of Affiliate Pageviews lost
shall be calculated by
5
<PAGE> 6
multiplying the average number of Affiliate Pageviews per day for the
immediately preceding seven (7) calendar days by the number of days of complete
outage. Additionally, if such technical problems prevent all Qualifying Links
from operating for more than an aggregate of seventy-two (72) hours each month
for three (3) consecutive months, Merchant shall have the additional right,
within ten (10) days of the end of such period, to terminate this Agreement upon
thirty (30) days' notice. The compensation and termination right, if any, set
forth in this Section 5.2 shall be Merchant's sole and exclusive remedy for any
failures under this Section or errors in Qualifying Links or interruption of
services under the program due to equipment failure, human error or other
technical problems.
6. AFFILIATE INFORMATION.
6.1 Subject to the terms and conditions of this Agreement and any
applicable laws, rules or regulations, GeoCities shall provide Merchant with
Customer Data, and information relating to Affiliates as reasonably necessary to
accomplish the purposes of this Agreement ("Affiliate Information").
6.2 Merchant and GeoCities represent and warrant that they will not
resell any Affiliate Information or Customer Data or use Affiliate Information
or Customer Data or engage in any other conduct in violation of the FTC Order.
Merchant shall cooperate fully with GeoCities, and follow and comply with all
reasonable instructions and directions of GeoCities, to ensure compliance with
the FTC Order.
6.3 Merchant shall provide a readily-visible, accessible and otherwise
reasonable mechanism on its Site for Affiliates to request the removal of all
personally-identifiable information relating to such Affiliate from Merchant's
database and other records.
7. ADVERTISING, PROMOTION AND TRADEMARKS.
7.1 Merchant shall participate in the Program at the participation
level set forth in Addendum No. 1 to this Agreement (the "Participation Level").
As a condition to participating in Program at the Participation Level, Merchant
shall pay the participation fee as specified in Addendum No. 1 to this Agreement
(the "Participation Fee").
7.2 Merchant will use commercially reasonable efforts to provide art,
copy and other materials necessary for the creation of Qualifying Links and
other hyperlinks pursuant to this Agreement. Additionally, if Merchant chooses
to participate in any promotions in the Program, Merchant shall provide any
materials reasonably required by GeoCities for such participation.
7.3 Subject to all the terms and conditions of this Agreement, Merchant
hereby grants GeoCities and Affiliates a nonexclusive, non-transferable,
non-sublicensable license to use the Merchant Marks on their respective Websites
solely in connection with the activities contemplated herein. "Merchant Marks"
shall mean solely the Merchant name, logo, tag lines, and any other service
marks in the form provided by Merchant to GeoCities for use in the Program under
this Agreement; provided, however, that Merchant, from time to time, may
6
<PAGE> 7
change the appearance and/or style of the Merchant Marks. GeoCities hereby
acknowledges and agrees that (i) the Merchant Marks are owned solely and
exclusively by Merchant, (ii) except as set forth herein, GeoCities has no
rights, title or interest in or to the Merchant Marks and (iii) all use of the
Merchant Marks by GeoCities shall inure to the benefit of Merchant. GeoCities
agrees not to apply for registration of the Merchant Marks (or any mark
confusingly similar thereto) anywhere in the world.
7.4 Merchant shall have the right to promote the Program on its Website
provided however, that the form and substance of such promotion shall be subject
to GeoCities' prior review and written consent which consent shall not be
unreasonably withheld. Subject to all the terms and conditions of this Agreement
and to GeoCities' right to prior review and approval set forth in this Section,
GeoCities hereby grants Merchant a nonexclusive, non-transferable,
non-sublicensable license to use the GeoCities Marks on its Websites and in its
related off-line collateral solely in connection with the promotion of the
Program under this Section. "GeoCities Marks" shall mean solely GeoCities' name,
logo and tag lines in the form provided by GeoCities to Merchant for promoting
the Program under this Agreement; provided, however, that GeoCities, from time
to time, may change the appearance and/or style of the GeoCities Marks. Merchant
hereby acknowledges and agrees that (i) the GeoCities Marks are owned solely and
exclusively by GeoCities, (ii) except as set forth herein, Merchant has no
rights, title or interest in or to the GeoCities Marks and (iii) all use of the
GeoCities Marks by Merchant shall inure to the benefit of GeoCities. Merchant
agrees not to apply for registration of the GeoCities Marks (or any mark
confusingly similar thereto) anywhere in the world.
8. LICENSES.
8.1 Subject to the terms and conditions of this Agreement, GeoCities
hereby grants Merchant a nonsublicenseable, non-exclusive, non-transferable
worldwide right and license during the term of this Agreement to use the Program
Technology internally only to participate in the Program as set forth herein and
only as set forth in the documentation provided therewith. Merchant has no right
to receive, use or examine any source code or design documentation relating to
the Program Technology.
8.2 Other than the rights and licenses expressly granted to Merchant in
this Agreement, no rights or licenses, express or implied, are granted or deemed
granted hereunder or in connection herewith.
9. OWNERSHIP.
9.1 As between the parties, GeoCities, BeFree and their licensors
retain all title to, and all right to Program Technology and any intellectual
property rights thereto, all copies and derivative works thereof by whomever
made, and all related documentation and materials. GeoCities shall have all
right, title and interest in and to all Customer Data, Affiliate Information and
content created by or otherwise provided by GeoCities in conjunction with the
Program.
7
<PAGE> 8
9.2 Merchant represents, warrants and agrees not to (i) disassemble,
decompile or otherwise reverse engineer the Program Technology or otherwise
attempt to learn the source code, structure, algorithms or ideas underlying the
Program Technology, to the maximum extent allowed under applicable law, (ii)
rent, lease or otherwise provide temporary access to Program Technology, (iii)
copy, alter or modify the Program Technology, or (iv) allow others to do any of
the foregoing.
10. TERMS AND TERMINATION.
10.1 The Term of this Agreement and the rights granted herein is set
forth in Addendum No. 1 to this Agreement (attached hereto).
10.2. The Agreement may terminate immediately upon the following
events:
(i) if any party ceases to do business, or otherwise
terminates its business operation.; or
(ii) if any party materially breaches any material provisions
of this Agreement and fails to cure such breach within thirty (30) days
of written notice describing the breach; or
(iii) if any party becomes insolvent or seeks protection under
any bankruptcy, receivership, trust deed, creditors arrangement,
composition or comparable proceeding.
10.3 Either party shall have the right immediately to terminate this
Agreement in the event the other party commits fraud or violates any law,
statue, ordinance or regulation (including without limitation those governing
export control, consumer protection, unfair competition, anti-discrimination or
false advertising).
10.4 Additional termination rights of the parties, if any, are set
forth in Addendum No. 1 to this Agreement (attached hereto).
10.5 Upon any termination of this Agreement by either party, (I) all
rights and licenses granted to the other party under this Agreement shall
terminate, (ii) each party will immediately cease using and return to the other
party and/or destroy all of the other party's Confidential Information, Program
Technology, and other confidential materials in its possession, custody or
control in whichever form held (including without limitation all documents or
media containing any of the foregoing and all copies, extracts or embodiments
thereof), (iii) each party shall immediately pay al sums lawfully due the other
under this Agreement, (iv) Merchant shall not, directly or indirectly, initiate
or solicit contact with Affiliates or GeoCities Members for any purpose, and (v)
all other obligations and rights under this Agreement shall terminate except
Sections, 1, 4, 6, 9, 10, 11, 12, 13, 14, 16 (as applicable) of this Agreement
will continue in accordance with their terms.
8
<PAGE> 9
10.6 Each party understands that the rights of termination hereunder
are absolute. Neither party shall incur any liability whatsoever for any damage,
loss or expenses of any kind suffered or incurred by the other (or for any
compensation to the other) arising from or incident to any termination of this
Agreement by such party which complies with the terms of the Agreement whether
or not such party is aware of any such damage, loss or expenses. Termination is
not the sole remedy under this Agreement and, whether or not termination is
effected, all other remedies will remain available.
11. CONFIDENTIALITY.
11.1 Each party recognizes that the Confidential Information of the
other party (and the confidential nature thereof) are critical to the business
of the other party and that it would not enter into this Agreement without
assurance that such technology and information and the value thereof will be
protected as provided in this Section 11 and elsewhere in this Agreement.
11.2 The Receiving Party agrees (I) to hold the Disclosing Party's
Confidential Information in confidence and to take all reasonable precautions to
protect such Confidential Information (including, without limitation, all
precautions the Receiving Party employs with respect to its confidential
materials, (ii) not to divulge any such Confidential Information or any
information derived therefrom to any third person, (iii) not to make any use
whatsoever at any time of such Confidential Information except as expressly
authorized in this Agreement, and (iv) shall comply with all export laws,
restrictions, national security controls and regulations of the United States or
other applicable foreign agency or authority, and not to export or re-export, or
allow the export or re-export of any such Confidential Information or any copy
or direct product thereof in violation of any such restrictions, laws or
regulations, or to any Group D:1 or E:2 country (or any national of such
country) specified in the then current Supplement No. 1 to Part 740, or, in
violation of the embargo provisions in Part 746, of the U.S. Export
Administration Regulations (or any successor regulations or supplement), except
in compliance with and with all licenses and approvals required under applicable
export laws and regulations, including without limitation, those of the U.S.
Department of Commerce.
11.3 Any employee, contractor or other person given access to any such
Confidential Information must have a legitimate "need to know" and shall be
similarly bound in writing. Without granting any right or license, the
Disclosing Party agrees that the foregoing clauses (i), (ii) and (iii) shall not
apply with respect to information the Receiving Party can document (A) is in or
(through no improper action or inaction by the Receiving Party, agent or
employee) enters the public domain (and is readily available without substantial
effort), (B) was rightfully in its possession or known by it prior to receipt
from the Disclosing Party, (C) was rightfully disclosed to it by another person
without restriction, (D) was independently developed by it by persons without
access to such information and without use of any Confidential Information of
the Disclosing Party or (E) was required to be disclosed in accordance with
applicable law provided that reasonable efforts are undertaken by the Receiving
Party to minimize the extent of any required disclosure and to obtain an
undertaking from the recipient to maintain the confidentiality thereof. Each
party's obligations under this Section 11 (except under clause (iv)
9
<PAGE> 10
of Section 11.2) shall terminate, with respect to any particular information,
ten (10) years after the date of disclosure of such information.
11.4 The Receiving Party acknowledges and agrees that due to the unique
nature of the Disclosing Party's Confidential Information, there can be no
adequate remedy at law for any breach of its obligations hereunder, that any
such breach may allow the Receiving Party or third parties unfairly to compete
with the Disclosing Party resulting in irreparable harm to the Disclosing Party,
and therefore, that upon any such breach or any threat thereof, the Disclosing
Party shall be entitled to appropriate equitable relief in addition to whatever
remedies it might have at law and to be indemnified by the Receiving Party from
any loss or harm, including, without limitation, lost profits and attorney's
fees, in connection with any breach or enforcement of the Receiving Party's
obligations hereunder or the unauthorized use or release of any such
Confidential Information. The Receiving Party will notify the Disclosing Party
in writing immediately upon the occurrence of any such unauthorized release or
other breach. Any breach of this Section 11 will constitute a material breach of
this Agreement.
12. INCIDENTAL AND CONSEQUENTIAL DAMAGES. EXCEPT FOR A BREACH OF SECTION 11,
GEOCITIES WILL NOT BE LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR
OTHER THEORY FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING
WITHOUT LIMITATION LOST PROFITS) WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT.
13. LIMITATION OF LIABILITY; DISCLAIMER.
13.1 GEOCITIES MAKES NO REPRESENTATIONS THAT THE OPERATIONS OF THE
SERVICE WILL BE UNINTERRUPTED OR ERROR FREE. GEOCITIES HAS NO RESPONSIBILITY FOR
THE CONTENT, QUALITY AND ACCURACY OF THE PRODUCTS, SERVICES OR WEBSITES OF
MERCHANT, AFFILIATES OR BEFREE. UNDER NO CIRCUMSTANCES WILL GEOCITIES BE
RESPONSIBLE FOR THE TRANSACTIONS OR NEGLIGENCE OF EITHER MERCHANT OR AFFILIATES.
13.2 GEOCITIES MAKES NO EXPRESS OR IMPLIED WARRANTIES WITH RESPECT TO
THE SUBJECT MATTER OF THIS AGREEMENT INCLUDING BUT NOT LIMITED TO WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT.
13.3 GEOCITIES WILL NOT BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF
THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY
FOR COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES, TECHNOLOGY OR RIGHTS OR
FOR ANY AMOUNTS AGGREGATING IN EXCESS OF AMOUNTS PAID TO IT HEREUNDER IN THE
TWELVE MONTH (12) PERIOD BEFORE THE CAUSE OF ACTION AROSE.
14. Indemnification. Each party will defend and hold harmless the other party
against any claim or suit against the other part and its shareholders,
directors, officers, employees,
10
<PAGE> 11
contractors and agents from any claims, liability, damage, cost and expense
(including attorneys' fees and costs of suite) to the extent they arise out of
disputes involving the indemnifying party's breach of its obligations herein.
Each party shall indemnify and hold harmless the other party, its shareholder,
directors, officers, employees, contractors and agents against and from damages,
costs, expenses and attorneys' fees, if any, finally awarded in such suit or the
amount of the settlement thereof. Neither party is authorized to agree to any
settlement, compromise or the like which would require that the other party make
any payment, or bear other obligations.
15. Audit. Each party shall keep and maintain detailed and accurate books and
records with regard to its performance hereunder. Each party or its independent
certified public accountant shall be entitled to review and audit such books and
records twice a year during normal business hours upon reasonable notice to the
other party and at the requesting party's expense; provided that the audited
party will bear such expense fully if the review or audit shows any
non-compliance (in excess of five (5) percent) with the terms of this Agreement.
All books and records relating to each party's obligations under this Agreement
shall be retained by the party's for five years after the termination or
expiration of this Agreement.
16. General
16.1 Assignability. Merchant shall not, directly or indirectly, assign,
transfer, divide, share or sublicense this Agreement, or any or all of its
performance, rights or obligations hereunder to any third party without
GeoCities' prior written consent, which consent shall not be unreasonably
withheld. Any attempt to do so in violation of this Section shall be null and
void. This Agreement will inure to the benefit of and be biding upon the parties
and their respective successors and permitted assigns.
16.2 Waiver. Any failure on the part of any party to enforce at any
time, or for any period of time, any of the provisions of this Agreement shall
not be deemed or construed to be a waiver of such provisions or of the right of
such party thereafter to enforce each and every such provision. No waiver will
be binding unless executed in writing by the party making the waiver.
16.3 Severability. If a court of law finds any provision of this
Agreement unenforceable, the parties agree to replace the offending provision
with an enforceable provision that most nearly achieves the intent and economic
effect of the unenforceable provision and all other terms shall remain in full
force and effect.
16.4 Force Majeure. No party shall be liable hereunder by any reason of
any failure or delay in the performance of its obligations hereunder (except
payment of money) on account of strikes, riots, insurrection, fires, floods,
storms, explosions, war, governmental action, labor conditions, earthquakes,
material shortages or any other cause which is beyond the reasonable control of
such party.
16.5 No Third Party Beneficiaries. Except as otherwise expressly
provided herein, the provisions of this Agreement are for the benefit of the
parties hereto and not for any other person or entity. This Agreement shall not
provide any non-party with any remedy, claim, liability.
11
<PAGE> 12
reimbursement, claim of action or other right in excess of those existing
without reference hereto.
16.6 Notice. All notices, requests, demands, applications, services of
process, and other communications which are required to be or may be given under
this Agreement will be in writing and will be deemed to have been duly given if
sent by telecopy or facsimile transmission, answer back requested, or delivered
by courier or mailed, certified first class mail, postage prepaid, return
receipt requested, to the parties to this Agreement at the following addresses:
If to Merchant: Adam Epstein
VP Business Development & Counsel
Tickets.com, Inc.
4061 Glencoe Avenue
Marina del Rey, CA 90292
If to GeoCities: Michael Barrett
Senior Vice President of Advertising and Strategic Development
1065 Avenue of the Americas
New York, NY 10018
(212) 381-6810 (Direct)
(212) 381-6801 (fax)
cc: Greg Williams
Brobeck, Phleger & Harrison LLP
38 Technology Drive
Irvine, CA 92618
(949) 790-6301 (fax)
(949) 790-6300 (voice)
or to such other address as either party will have furnished to the other by
notice given in accordance with this Section. Such notice will be effective, (i)
if delivered in person or by courier, upon actual receipt by the intended
recipient, or (ii) if sent by telecopy or facsimile transmission, on the date of
transmission unless transmitted after normal business hours, in which case on
the following date, (iii) if mailed, upon the date of first attempted delivery.
16.7 Modification. No alteration of or modification to this Agreement
shall be effective unless made in writing and executed by the authorized
representative of both parties.
16.8 Relationship of Parties. The parties hereto are independent
contractors and nothing contained in this Agreement shall be deemed or construed
to create a partnership, joint venture, employment, franchise, or agency
relationship between the parties.
16.9 Governing Law. This Agreement will be governed by and construed
under, and the legal relations between the parties hereto will be determined in
accordance with, the laws of
12
<PAGE> 13
the State of California, without giving effect to such state's conflict of law
principles. The parties hereby submit to the personal jurisdiction of, and agree
that any legal proceeding with respect to or arising under this Agreement will
be brought in, the state and federal courts sitting in the State of California.
16.10 Attorneys' Fees. If any suit is brought, or an attorney retained
to collect any money due under this Agreement, or to collect a judgement for
breach of this Agreement, the prevailing party will be entitled to recover, in
addition to any other remedy, reimbursement for reasonable attorneys' fees,
courts costs, investigation costs and other related expenses incurred in
connection therewith.
16.11 Entire Agreement. This Agreement, together with all Exhibits
attached hereto, constitutes the entire agreement between the parties with
respect to the subject matter thereof, and supersedes all prior agreements,
understandings and other communications between the parties with respect to the
subject matter hereof.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this agreement the day and year first above written.
GEOCITIES MERCHANT: TICKETS.COM, INC.
By: /s/ Charles J. Barrett By: /s/ Adam Epstein
-------------------------------- -----------------------------
Name: Charles J. Barrett Name: Adam Epstein
-------------------------------- -----------------------------
Title: Advertising Director West Title: SVP Bus. Develop. & Counsel
-------------------------------- -----------------------------
14
<PAGE> 15
EXHIBIT A
INSTALLATION AND OPERATIONAL REQUIREMENTS
To be established by GeoCities, according to GeoCities' reasonable discretion
and the BeFree Agreement.
<PAGE> 16
EXHIBIT B
FTC ORDER
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
IN THE MATTER OF
GEOCITIES, A CORPORATION.
FILE NO. 9823015
AGREEMENT CONTAINING CONSENT ORDER
The Federal Trade Commission has conducted an investigation of certain acts and
practices of GeoCities, a corporation ("proposed respondent"). Proposed
respondent, having been represented by counsel, is willing to enter into an
agreement containing a consent order resolving the allegations contained in the
attached draft complain. Therefore,
IT IS HEREBY AGREED by and between GeoCities, by its duly authorized officer,
and counsel for the Federal Trade Commission that:
1. Proposed respondent GeoCities is a California corporation with its principal
office or place of business at 1918 Main Street, Suite 300, Santa Monica,
California 90405.
2. Proposed respondent admits all the jurisdictional facts set forth in the
draft complaint.
3. Proposed respondent waives:
(a) Any further procedural steps;
(b) The requirement that the Commission's decision contain a statement
of findings of fact and conclusions of law; and
(c) All rights to seek judicial review or otherwise to challenge or
contest the validity of the order entered pursuant to this agreement.
4. This agreement shall not become part of the public record of the proceeding
unless and until it is accepted by the Commission. If this agreement is accepted
by the Commission, it, together with the draft complaint, will be placed on the
public record for a period of sixty (60) days and information about it publicly
released. The Commission thereafter may either withdraw its acceptance of this
agreement and so
2
<PAGE> 17
notify proposed respondent, in which event it will take such action as it may
consider appropriate, or issue and serve its complaint (in such form as the
circumstances may require) and decision in disposition of the proceeding.
5. This agreement is for settlement purposes only and does not constitute an
admission by proposed respondent that the law has been violated as alleged in
the draft complaint, or that the facts as alleged in the draft complaint, other
than the jurisdictional facts, are true.
6. This agreement contemplates that, if it is accepted by the Commission, and if
such acceptance is not subsequently withdrawn by the Commission pursuant to the
provisions of Section 2.34 of the Commission's Rules, the Commission may,
without further notice to proposed respondent, (1) issue its complaint
corresponding in form and substance with the attached draft complaint and its
decision containing the following order in disposition of the proceeding, and
(2) make information about it public. When so entered, the order shall have the
same force and effect and may be altered, modified, or set aside in the same
manner and within the same time provided by statue for other orders. The order
shall become final upon service. Delivery of the complaint and the decision and
order to proposed respondent's address as stated in this agreement by any means
specified in Section 4.4 (a) of the Commission's Rules shall constitute service.
Proposed respondent waives any right it may have to any other manner of service.
The complaint may be used in construing the terms of the order. No agreement,
understanding, representation, or interpretation not contained in the order or
the agreement may be used to vary or contradict the terms of the order.
7. Proposed respondent has read the draft complaint and consent order. It
understands that it may be liable for civil penalties in the amount provided by
law and other appropriate relief for each violation of the order after it
becomes final.
ORDER
DEFINITIONS
For purposes of this order, the following definitions shall apply:
3
<PAGE> 18
1. "Child" or "children" shall mean a person of age twelve (12) or under.
2. "Parents" or "parental" shall mean a legal guardian, including, but not
limited to, a biological or adoptive parent.
3. "Personal identifying information" shall include, but is not limited to,
first and last name, home or other physical address (e.g., school), e-mail
address, telephone number, or any information that identifies a specific
individual, or any information which when tied to the above becomes identifiable
to a specific individual.
4. "Disclosure" or "disclosed to third party(ies)" shall mean (a) the release of
information in personally identifiable form to any other individual, firm, or
organization for any purpose or (b) making publicly available such information
by any means including, but not limited to, public posting on or through home
pages, pen pal services, e-mail services, message boards, or chat rooms.
5. "Clear(ly) and prominent(ly)" shall mean in a type size and location that are
not obscured by any distracting elements and are sufficiently noticeable for an
ordinary consumer to read and comprehend, and in a typeface that contrasts with
the background against which it appears.
6. "Archived" database shall mean respondent's off-site "back-up" computer tapes
containing member profile information and GeoCities Web site information.
7. "Electronically verifiable signature" shall mean a digital signature or other
electronic means that ensures a valid consent by requiring: (1) authentication
(guarantee that the message has come from the person who claims to have sent
it); (2) integrity (proof that the message contents have not been altered,
deliberately or accidentally, during transmission); and (3) non-repudiation
(certainty that the sender of the message cannot later deny sending it).
8. "Express parental consent" shall mean a parent's affirmative agreement that
is obtained by any of the following means: (1) a signed statement transmitted by
postal mail or facsimile: (2) authorizing a charge to a credit card via a secure
server; (3) e-mail accompanied by an electronically verifiable signature; (4) a
procedure that is specifically authorized by statue, regulation, or guideline
issued by the Commission; or (5) such other procedure that ensures verified
parental consent and ensures the identity of the parent, such as the use of a
reliable certifying authority.
9. Unless otherwise specified, "respondent" shall mean GeoCities, its successors
and assigns and its officers, agents, representatives, and employees.
10."Commerce" shall mean as defined in Section 4 of the Federal Trade Commission
Act, 15 U.S.C.Section 44.
4
<PAGE> 19
IT IS ORDERED that respondent, directly or through any corporation, subsidiary,
division, or other device, in connection with any online collection of personal
identifying information from consumers, in or affecting commerce, shall not make
any misrepresentation, in any manner, expressly or by implication, about its
collection or use of such information from or about consumers, including, but
not limited to, what information will be disclosed to third parties and how the
information will be used.
II.
IT IS FURTHER ORDERED that respondent, directly or through any corporation,
subsidiary, division, or other device, in connection with any online collection
of personal identifying information from consumers, in or affecting commerce,
shall not misrepresent, in any manner, expressly or by implication, the identity
of the party collecting any such information or the sponsorship of any activity
on its Web site.
III.
IT IS FURTHER ORDERED that respondent, directly or through any corporation,
subsidiary, division, or other device, in connection with the online collection
of personal identifying information from children, in or affecting commerce,
shall not collect personal identifying information from any child if respondent
has actual knowledge that such child does not have his or her parent's
permission to provide the information to respondent. Respondent shall not be
deemed to have actual knowledge if the child has falsely represented that (s)he
is not a child and respondent does not knowingly possess information that such
representation is false.
IV.
IT IS FURTHER ORDERED that respondent, directly or through any corporation,
subsidiary, division, or other device, in connection with the online collection
of personal identifying information, in or affecting commerce, shall provide
clear and prominent notice to consumers, including the parents of children, with
respect to respondent's practices with regard to its collection and use of
personal identifying information. Such notice shall include, but is not limited
to, disclosure of:
A. what information is being collected (e.g., "name," "home address,"
"e-mail address," "age," "interests");
5
<PAGE> 20
B. it's intended use(s);
C. the third parties to whom it will be disclosed (e.g., "advertisers
of consumer products," mailing list companies," "the general public");
D. the consumer's ability to obtain access to or directly access such
information and the means by which (s)he may do so;
E. the consumer's ability to remove directly or have the information
removed from respondent's databases and the means by which (s) he may
do so; and
F. the procedures to delete personal identifying information from
respondent's databases and any limitations related to such deletion.
Such notice shall appear on the home page of respondent's Web site(s) and at
each location on the site(s) at which such information is collected.
Provided that, respondent shall not be required to include the notice at the
locations at which information is collected if such information is limited to
tracking information and the collection of such information is described in the
notice required by this Part.
Provided further that, for purposes of this Part, compliance with all of the
following shall be deemed adequate notice: (a) placement of a clear and
prominent hyperlink or button labeled PRIVACY NOTICE on the home page(s), which
directly links to the privacy notice screen(s); (b) placement of the information
required in this Part clearly and prominently on the privacy notice screen(s),
followed on the same screen(s) with a button that must be clicked on to make it
disappear; and (c) at each location on the site at which any personal
identifying information is collected, placement of a clear and prominent
hyperlink on the initial screen on which the collection takes place, which links
directly to the privacy notice and which is accompanied by the following
statement in bold typeface:
NOTICE: We collect personal information on this site. To lean more
about how we use your information click here.
V.
IT IS FURTHER ORDERED that respondent, directly or through any corporation,
subsidiary, division, or other device, in connection with the online collection
of personal identifying information from children, in or affecting commerce,
shall maintain a procedure by which it obtains express parental consent prior to
collecting and using such information.
6
<PAGE> 21
Provided that, respondent may implement the following screening procedure that
shall be deemed to be in compliance with this Part. Respondent shall collect and
retain certain personal identifying information from a child, including birth
date and the child's and parent's e-mail addresses (hereafter "screening
information"), enabling respondent to identify the site visitor as a child and
to block the child's attempt to register with respondent without express
parental consent. If respondent elects to have the child register with it,
respondent shall: (1) give notice to the child to have his/her parent provided
express parental consent to register; and/or (2) sent a notice to the parent's
e-mail address for the purpose of obtaining express parental consent. The notice
to the child or parent shall provide instructions for the parent to: (1) go to a
specific URL on the Web site to receive information on respondent's practices
regarding its collection and use of personal identifying information from
children and (2) provide express parental consent for the collection and use of
such information. Respondent's collection of screening information shall be by a
manner that discourages children from providing personal identifying information
in addition to the screening information. All personal identifying information
collected from a child shall be held by respondent in a secure manner and shall
not be used in any manner other than to effectuate the notice to the child or
parent, or to block the child from further attempts to register or otherwise
provide personal identifying information to respondent without express parental
consent. The personal identifying information collected shall not be disclosed
to any third party prior to the receipt of express parental consent. If express
parental consent is not received by twenty (20) days after respondent's
collection of the information from the child, respondent shall remove all such
personal identifying information from its databases, except such screening
information necessary to block the child from further attempts to register or
otherwise provide personal identifying information to respondent without express
parent consent.
VI.
IT IS FURTHER ORDERED that respondent GeoCities, and its successors and assigns,
shall provide a reasonable means for consumers, including the parents of
children, to obtain removal of their or their children's personal identifying
information collected and retained by respondent and/or disclosed to third
parties, prior to the date of service of this order, as follows:
7
<PAGE> 22
A. Respondent shall provide a clear and prominent notice to each
consumer over the age of twelve (12) from whom it collected personal
identifying information and disclosed that information to CMG
Information Services, Inc., describing such consumer's options as
stated in Part VI.C and the manner in which (s)he may exercise them.
B. Respondent shall provide a clear and prominent notice to the parent
of each child from whom it collected personal identifying information
prior to May 20, 1998, describing the parent's options as stated in
Part VI.C and the manner in which (s)he may exercise them.
C. Respondent shall provide the notice within thirty (30) days after
the date of service of this order by e-mail, postal mail, or facsimile.
Notice to the parent of a child may be to the e-mail address of the
parent and, if not known by respondent, to the em-mail address of the
child. The notice shall include the following information:
1. the information that was collected (e.g., "name," "home
address," "e-mail address," "age," "interests"); its use(s)
and/or intended use(s); and third parties to whom it was or
will be disclosed (e.g., "advertisers of consumer products,"
"mailing list companies," "the general public") and with
respect to children, that the child's personal identifying
information may have been made public through various means,
such as by publicly posting on the child's personal home page
or disclosure by the child through the use of an em-mail
account;
2. the consumer's and child's parents right to obtain access
to such information and the means by which (s)he may do so;
3. the consumer's and child's parent's right to have the
information removed from respondent's or a third party's
databases and the means by which (s)he may do so;
4. a statement that children's information will not be
disclosed to third parties, including public posting, without
express parental consent to the disclosure or public posting;
5. the means by which express parental consent may be
communicated to the respondent permitting disclosure to third
parties of a child's information; and
6. a statement that the failure of a consumer over the age of
twelve (12) to request removal of the information from
respondent's databases will be deemed as approval to its
continued retention and/or disclosure to third parties by
respondent.
D. Respondent shall provide to consumers, including the parents of
children, a reasonable and secure means to request access to or
directly access their or their children's personal identifying
information. Such means may include direct access through password
protected personal profile, return e-mail bearing an electronically
verifiable signature, postal mail, or facsimile.
E. Respondent shall provide to consumers, including the parents of
8
<PAGE> 23
children, a reasonable means to request removal of their or their
children's personal identifying information from respondent's and/or
the applicable third party's databases or an assurance that such
information has been removed. Such means may include e-mail, postal
mail, or facsimile.
F. The failure of a consumer over the age of twelve (12) to request the
actions specified above within twenty (20) days after his/her receipt
of the notice required in Part VI.A shall be deemed to be consent to
the information's continued retention and use by respondent and any
third party.
G. Respondent shall provide to the parent of a child a reasonable means
to communicate express parental consent to the retention and/or
disclosure to third parties of his/her child's personal identifying
information. Respondent shall not use any such information or disclose
it to any third party unless and until it receives express parental
consent.
H. If, in response to the notice required in Part VI.A, respondent has
received a request by a consumer over the age of twelve (12) that
respondent should remove from its databases the consumer's personal
identifying information or has not received the express consent of a
parent of a child to the continued retention and/or disclosure to third
parties of a child's personal identifying information by respondent
within twenty (20) days after the parent's receipt of the notice
required in Part VI.B, respondent shall within ten (10) days:
1. Discontinue its retention and/or disclosure to third
parties of such information, including but not limited to (1)
removing from its databases all such information, (b) removing
all personal home pages created by the child, and (c)
terminating all e-mail accounts for the child; and
2. Contact all third parties to whom respondent has disclosed
the information, requesting that they discontinue using or
disclosing that information to other third parties, and remove
the information from their databases.
With respect to any consumer over the age of twelve (12) or
any parent of a child who has consented to respondent's
continued retention and use of personal identifying
information pursuant to this Part, such consumer's or parent's
continuing right to obtain access to his/her or a child's
personal identifying information or removal of such
information from respondent's databases shall be as specified
in the notice required by part IV of this order.
I. Within thirty (30) days after the date of service of this order,
respondent shall obtain from a responsible official of each third party
to whom it has disclosed personal identifying information and from each
GeoCities Community Leader a statement stating that (s)he has been
advised of the terms of this order and of respondent's obligations
under this Part, and that (s)he agrees, upon notification from
respondent, to discontinue using or disclosing a consumer's or child's
personal identifying information to other third parties and to remove
any such information from its databases.
9
<PAGE> 24
J. As may be permitted by law, respondent shall cease to do business
with any third party that fails within thirty (30) days of the date of
service of this order to provide the statement set forth in Part VI.I
or whom respondent knows or has reason to know has failed at any time
to (a) discontinue using or disclosing a child's personal identifying
information to other third parties, or (b) remove any such information
from their databases. With respect to any GeoCities Community Leader,
the respondent shall cease the Community Leader status of any personal
who fails to provide the statement set forth in Part VI.I or whom
respondent knows or has reason to know has failed at any time to (a)
discontinue using or disclosing a child's personal identifying
information t other third parties, or (b) remove any such information
from their databases.
For purposes of this Part: "third party(ies)" shall mean each GeoCities
Community Leader, CMG Information Services, Inc., Surplus Software, Inc.
(Surplus Direct/Egghead Computer), Sage Enterprises, Inc. (GeoPlanet/Planetall),
Netopia, Inc. (Netopia), and InfoBeat/Mercury Mail (InfoBeat).
VII.
IT IS FURTHER ORDERED that for the purposes of this order, respondent shall not
be required to remove personal identifying information from its archived
database if such information is retained solely for the purposes of Web site
system maintenance, computer file back-up, to block a child's attempt to
register with or otherwise provide personal identifying information to
respondent without express parental consent, or to respond to requests for such
information from law enforcement agencies or pursuant to judicial process.
Except as necessary to respond to requests from law enforcement agencies or
pursuant to judicial process, respondent shall not disclose to any third party
any information retained it its archived database. In any notice required by
this order, respondent shall include information, clearly and prominently, about
its policies for retaining information in its archived database.
VIII.
IT IS FURTHER ORDERED that for five (5) years after the date of this order,
respondent GeoCities, and its successors and assigns, shall place a clear and
prominent hyperlink within its privacy statement which states as follows in bold
typeface:
NOTICE: Click here for important information about safe surfing from
the Federal Trade Commission.
The hyperlink shall directly link to a hyperlink/URL to be
10
<PAGE> 25
provided to respondent by the Commission. The Commission may change the
hyperlink/URL upon thirty (30) days prior written notice to respondent.
IX.
IT IS FURTHER ORDERED that respondent GeoCities, and its successors and assigns,
shall maintain and upon request make available to the Federal Trade Commission
for inspection and copying the following:
A. For five (5) years after the last date of dissemination of a notice
required by this order, a print or electronic copying in HTML format of
all documents relating to compliance with Parts IV through VIII of this
order, including, but not limited to, a sample copy of every
information collection form, Web page, screen, or document containing
any representation regarding respondent's information collection and
use practices, the notice required by Parts IV through VI, any
communication to third parties required by Part VI, and every Web page
or screen linking to the Federal Trade Commission Web site. Each Web
page copy shall be accompanied by the URL of the Web page where the
material was posted online. Electronic copies shall include all text
and graphics files, audio scripts, and other computer files used in
presenting information on the World Wide Web; and
Provided that, after creation of any Web page or screen in compliance
with this order, respondent shall not be required to retain a print or
electronic copy of any amended Web page or screen to the extent that
the amendment does not affect respondent's compliance obligations under
this order.
B. For five (5) years after the last collection of personal identifying
information from a child, all materials evidencing the express parental
consent given to respondent.
X.
IT IS FURTHER ORDERED that respondent GeoCities, and its successors and assigns,
shall deliver a copy of this order to all current and future principals,
officers, directors, and managers, and to all current and future employees,
agents, and representatives having responsibilities with respect to the subject
matter of this order. Respondent shall deliver this order to current personnel
within thirty (30) days after the date of service of this order, and to future
personnel within thirty (30) days after the person assumes such position or
responsibilities.
11
<PAGE> 26
XI.
IT IS FURTHER ORDERED that respondent GeoCities, and its successors and assigns,
shall establish an "information practices training program" for any employee or
GeoCities Community Leader engaged in the collection or disclosure to third
parties of consumers' personal identifying information. The program shall
include training about respondent's privacy policies, information security
procedures, and disciplinary procedures for Violations of its privacy policies.
Respondent shall provide each such current employee and GeoCities Community
Leader with information practices training materials within thirty (30) days
after the date of service of this order, and each such future employee or
GeoCities Community Leader such materials and training within thirty (30) days
after (s) he assumes his/her position or responsibilities.
XII.
IT IS FURTHER ORDERED that respondent GeoCities, and its successors and assigns,
shall notify the Commission at least thirty (30) days prior to any change in the
corporation that may affect compliance obligations arising under this order,
including, but not limited to, a dissolution, assignment, sale, merger, or other
action that would result in the emergence of a successor corporation; the
creation or dissolution of a subsidiary, parent, or affiliate that engages in
any acts or practices subject to this order; the proposed filing of a bankruptcy
petition; or a change in the corporate name or address. Provided, however, that,
with respect to any proposed change in the corporation about which respondent
learns less than thirty (30) days prior to the date such action is to take
place, respondent shall notify the Commission as soon as is practicable after
obtaining such knowledge. All notices required by this Part shall be sent by
certified mail to the Associate Director, Division of Enforcement, Bureau of
Consumer Protection, Federal Trade Commission, Washington, D.C. 20580.
XIII.
IT IS FURTHER ORDERED that respondent GeoCities, and its successors and assigns,
shall, within sixty (60) days after service of this order, and at such other
times as the Federal Trade Commission may require, file with the Commission a
report, in writing, setting forth in detail the manner and form in which they
have complied with this order.
12
<PAGE> 27
XIV.
This order will terminate twenty (20) years from the date of its issuance, or
twenty (20) years from the most recent date that the United States or the
Federal Trade Commission files a complaint (with or without an accompanying
consent decree) in federal court alleging any violation of the order, whichever
comes later; provided, however, that the filing of such a complaint will not
affect the duration of:
A. Any Part in this order that terminates in less than twenty (20)
years;
B. This order's application to any respondent that is not named as a
defendant in such complaint; and
C. This order if such complaint is filed after the order has terminated
pursuant to this Part.
Provided, further, that if such complaint is dismissed or a federal court rules
that the respondent did not violate any provision of the order, and the
dismissal or ruling is either not appealed or upheld on appeal, then the order
will terminate according to this Part as though the complaint had never been
filed, except that the order will not terminate between the date such complaint
is filed and the later of the deadline for appealing such dismissal or ruling
and the date such dismissal or ruling is upheld on appeal.
In the matter of GeoCities FTC File No. 9823015
13
<PAGE> 28
EXHIBIT C
MERCHANT TERMS AND CONDITIONS
Each Affiliate shall provide its name, address, e-mail address to GeoCities
which will then make such information available to Merchant, subject to any
applicable laws and/or regulations. Merchant shall have the right to communicate
directly with Affiliates via e-mail in a reasonable fashion consistent with
industry-accepted practices regarding commercial e-mail frequency and content.
14
<PAGE> 29
ADDENDUM NO. 1
(1) DEFINITION OF "QUALIFYING TRANSACTION(S)": To be established based upon
the mutual agreement of the parties no later than March 1, 1999.
(2) DEFINITION OF "COMMISSION(S)": To be established based upon the mutual
agreement of the parties no later than March 1, 1999.
(3) DEFINITION OF "MERCHANT PARTICIPATION LEVEL": Subject to Merchant's
payment of the Merchant Participation Fee, GeoCities shall promote
Merchant in the Program as follows:
a) Merchant shall be featured at the PREMIER merchant partner level,
the highest level of promotion in the Program.
b) PREMIER merchant partner status provides that Merchant shall receive
at least the same level or promotion from GeoCities as all other PREMIER status
merchants in the Program.
c) Merchant shall receive three million (3,000,000) Banner Impressions
a month from GeoCities.
d) Subject to the terms and conditions of this Agreement and GeoCities'
reasonable policies regarding promotional materials, Merchant shall have a
one-time opportunity to deliver a live link message of up to thirty (30) words
to current GeoCities customers promoting Merchant's participation in the
Program.
e) GeoCities shall, from time to time, send e-mails to Affiliates
relating to the Program (the "Affiliate E-mails"). Subject to the terms and
conditions of this Agreement and GeoCities' reasonable policies regarding
promotional materials, Merchant shall have the right to prime placement in up to
six (6) Affiliate E-mails in which Merchant may message Affiliates regarding
specific programs of a commercial nature and, in addition, Merchant may state in
its Affiliate terms and conditions that it has the right to directly e-mail its
Affiliates with specific programs and promotions on a periodic basis.
f) GeoCities shall create an "Entertainment and Sports Ticket Booth"
(rotating mentions in designated neighborhoods) dedicated to highlighting
Merchant offers as well as showcasing the best "Fan Sites" within the GeoCities
Site.
(4) DEFINITION OF "MERCHANT PARTICIPATION FEE": Merchant shall pay the
following Merchant Participation Fee:
15
<PAGE> 30
a) Beginning on the Effective Date, Merchant shall pay [***] dollars
($[***]) for months one and two, and [***] per calendar month for months three
through twelve to GeoCities, which shall be billed by GeoCities and paid by
Merchant on a monthly basis.
b) Merchant shall also pay GeoCities a one time bounty acquisition fee
(the "Bounty Acquisition Fee") based on the following schedule:
<TABLE>
<CAPTION>
# of Affiliates Bounty Fee
--------------- ----------
<S> <C>
Affiliate Nos. 0-10,000 $[***] per Affiliate
Affiliate Nos. 10,001-50,000 $[***] per Affiliate
Affiliate Nos. 50,001 and over $[***] per Affiliate
</TABLE>
For example, if Merchant has 75,000 total Affiliates during the term of this
Agreement, Merchant shall owe a total Bounty Acquisition Fee according to the
above schedule of [***] dollars ($[***]) calculated as follows: $[***] per
Affiliate for the first 10,000 Affiliates, $[***] per Affiliate for the next
40,000 Affiliates, and $[***] per Affiliate for the next 25,000 Affiliates.
Merchant shall make Bounty Acquisition Fee payments to GeoCities on a quarterly
basis.
c) In addition to the fees set forth in (4)(a)&(b) above, Merchant
shall also pay GeoCities an "Active Affiliate Fee" The breakdown is as follows:
<TABLE>
<CAPTION>
# of Active Affiliate
Transfers or Transaction One Time Bounty Fee
------------------------ -------------------
<S> <C>
0-20,000 $[***]
20,000-40,000 $[***]
Over 40,000 $[***]
</TABLE>
For the purposes of this Agreement, "Active Affiliate" shall mean an
Affiliate responsible for at least an aggregate of [***] Affiliate
Pageviews or who is responsible for at least one Qualifying
Transaction. GeoCities shall be entitled only to one Active Affiliate
Fee per Active Affiliate during the term of this Agreement. Merchant
shall make Active Affiliate Fee payments to GeoCities on a quarterly
basis.
(5) Term of Agreement: This Agreement shall have a term of one year from
the Effective Date and Merchant will have an exclusive option (which
will terminate one month after this Agreement expires) to renew the
Agreement upon terms to be presented to Merchant no later than thirty
days prior to the expiration of year one.
(6) Additional Termination Right: Merchant shall have a one-time right, at
any time within sixty (60) days of the Effective Date, to terminate
this Agreement on sixty (60) days'
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
16
<PAGE> 31
written notice to GeoCities if GeoCities fails to implement the Program as set
forth in this Agreement. The parties expressly understand and acknowledge that
Merchant's decision to terminate the Agreement under this additional termination
right may not be based, in whole or in part, on the fact that an insufficient
number of GeoCities Members have become Affiliates or that an insufficient
number of Qualifying Transactions have resulted from the Program.
(7) Category Exclusivity: For the term of this Agreement, GeoCities shall
not allow Excluded Companies or other merchants (except "GeoShop"
merchants who do not have in excess of $[***] total annual revenue from
the sale of sports, travel, and/or entertainment tickets) primarily in
the business of marketing, distributing or selling tickets to travel,
live entertainment or sporting events to participate in the Program by
allowing affiliates in the Program to establish Links to such
merchants' Websites for the purpose of effectuating the sale of tickets
to live entertainment or sporting events. For the purposes of this
Agreement, "Excluded Companies" shall include, but not be limited to,
Ticketmaster, Inc., Ticketmaster Online Citysearch, Inc., USA Networks,
Lycos, ETM, Advantix, Inc., TicketStop, LaserGate, Schubert,
Nederlander, Paciolan, BASS, Protix, TicketsLive, Fantastix,
CultureFinder, Capital Tickets, Dillards, TicketWeb, Bill Graham
Presents, Center State, TicketWeb, and SFX.
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
17
<PAGE> 1
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND
ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.22
MP3.com, Inc.
P.O. BOX 910091
San Diego, CA 92191
(619) 558-9390
SPONSORSHIP AGREEMENT
This Sponsorship Agreement ("Agreement") is made an entered into on February 17,
1999 ("Effective Date"), by and between Tickets.com, Inc., a Delaware
corporation, located at 4061 Glencoe Ave., Marina del Rey, CA 90292 ("Tickets")
and MP3.com, Inc., having an address at P.O. Box 910091, San Diego, CA
92191-0091 ("MP3.com"). MP3.com owns and operates the website located at
www.mp3.com (the "Website").
1. Form of Sponsorship. During the term of this Agreement, Tickets shall be
MP3.com's exclusive partner/source for sports, entertainment, and travel
tickets, and MP3.com shall include a Tickets Portal on the "Music" page and the
"Pop," "Rock" and "Alternative" genre pages on the Website. A "Portal" is
defined as a web graphic with the dimensions not to exceed 125 x 125 pixels and
20Kb in size. The content of the Portal shall be supplied by Tickets and shall
conform with reasonable technical and content specifications supplied by
MP3.com.
2. Impressions. MP3.com agrees to deliver a guaranteed minimum of 3,000,000
Impressions per month for the term of this Agreement. An "Impression" is defined
as the display of the Tickets Portal to a user on one of the above referenced
pages.
3. Sponsor Fees. Tickets agrees to pay MP3.com, during the term of this
Agreement, as follows: (i) $[***] payable on the Effective Date; (ii) $[***]
payable on or before one month subsequent to the Effective Date; (iii) $[***]
payable on or before two months subsequent to the Effective Date; (iv) $[***]
payable on or before three months subsequent to the Effective Date; (v) $[***]
payable on or before four months subsequent to the Effective Date; (vi) $[***]
payable on or before five months subsequent to the Effective Date. Any late
payments under this Agreement will be assessed a service fee of one and one-half
percent (1.5%) per month, to the extent allowed by law.
4. Term and Termination. This Agreement shall commence on the Effective Date and
shall remain in full force and effect until one (1) year subsequent to the
Effective Date, provided however, that Tickets may terminate this Agreement for
any reason upon thirty (30) days' notice to MP3. com at any time prior to the
expiration of sixty (60) days subsequent to the Effective Date. Furthermore, for
a thirty (30) day period, beginning thirty (30) days prior to the first
anniversary of this Agreement, Tickets shall have the right to renew the
Agreement for another year with Sponsor Fees that do not exceed a [***] percent
increase over the existing Sponsor Fees. Any payments which have accrued prior
to the date of termination shall remain due and payable. Sections 6, 7, and 8
shall survive termination of this agreement.
5. Measurement. Upon request, Tickets shall have access to pertinent statistics
related to Impressions covering the period of this contract. Tickets agrees to
accept MP3.com's measurement of Impressions (the "Count") according to MP3.com's
logs and other tracking devices and/or software MP3.com may use, provided
however, that Tickets shall have the right to audit MP3.com's records in this
regard. If Tickets reasonably disputes the Count pursuant to this Agreement,
then Tickets shall have the right to select the independent auditor of its
choice to conduct an audit of MP3.com's records (the "Audit"). The Audit will be
conducted in such a way so as not to interfere to any material extent with
MP3.com's operations. If, for any applicable period, the independent auditor
determines that MP3.com overstated the Count by more than five percent (5%),
than MP3.com shall pay the cost of the Audit and shall refund Tickets the
difference between the amount originally paid and the amount which should have
been paid, or MP3.com shall credit the appropriate amount of Impressions to
Tickets' account.
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
<PAGE> 2
6. Representations and Warranties. Each party is solely responsible for any
legal liability arising out of or relating to the content of its site and any
material to which users can link through the sites. Each party represents and
warrants that its sites will not: (i) infringe upon any third party's copyright,
patent, trademark, trade secret or other proprietary rights or rights of
publicity or privacy; (ii) violate any law, statue, ordinance or regulation,
including without limitation any laws regarding unfair competition,
antidiscrimination or false advertising; (iii) be pornographic or obscene; (iv)
be defamatory or trade libelous; or (v) contain viruses other harmful
programming routines. Each party agrees to defend, indemnify and hold harmless
the other and its shareholders, directors, officers, agents and employees for
any and all losses, costs, liabilities or expenses (including without limitation
reasonable attorneys' and expert witnesses' fees) incurred or arising from: (a)
any breach of the foregoing representations or warranties; (b) any claim arising
from the sale or license of either party's goods or services; or (c) any other
act, omission or representation by either party. Either party may participate in
the defense of itself at its option and expense.
7. No Consequential Damages. Except for claims arising under section 6, in no
event will either party be liable for any special, indirect, incidental or
consequential damages.
8. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without reference to
conflict of law principles thereof. Any claim arising out of or related to this
Agreement must be brought exclusively in the state or federal courts located in
San Diego County, California, and each party hereby consent to the jurisdiction
thereof. In any action to enforce this Agreement the prevailing party will be
entitled to costs and attorneys' fees. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior discussions, documents, agreements and prior course of
dealing, and shall not be effective until signed by both parties. This Agreement
may not be assigned by Tickets without MP3.com's written consent, which shall be
promptly granted or denied and not unreasonably withheld, except that Tickets
may assign this Agreement without MP3.com's consent if another entity acquires
substantially all the assets of Tickets. The parties to this Agreement are
independent contractors, and no agency, partnership, joint venture or
employee-employer relationship is created by this Agreement. MP3.com intends to,
and does, bind its successors and assigns to the terms of this Agreement.
/s/ Greg Flores /s/ Adam Epstein
- ----------------------------------- -----------------------------------
Representative of MP3.com Representative of Tickets.com, Inc.
/s/ Greg Flores, VP Sales Adam Epstein, SVP Counsel
- ----------------------------------- -----------------------------------
Printed Name & Position Printed Name & Position
- ----------------------------------- -----------------------------------
Date Date
<PAGE> 1
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND
ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.23
AGREEMENT
---------
This Agreement (the "Agreement") is made as of November 1, 1998 by and
between Advantix, Inc. with offices at 4675 MacArthur Court, Suite 1400, Newport
Beach, California 92660 ("ADVANTIX") and International Merchandising Corporation
with offices at IMG Center, Suite 100, 1360 East 9th Street, Cleveland, Ohio
44114 ("IMC").
WITNESSETH:
WHEREAS, IMC is a member of the International Management Group of
companies and IMC and its affiliates have expertise in the management, marketing
and television production of various sports and leisure activities and events;
WHEREAS, ADVANTIX is a leading provider of automated ticketing
solutions to sports and entertainment venues worldwide; utilizing a proprietary
ticketing system which enables the capture and analysis of patron information;
and
WHEREAS, ADVANTIX and IMC desire to enter an agreement whereby (i) IMC
will provide certain marketing consulting services to ADVANTIX and assist
ADVANTIX in offering ticketing and marketing services to sports and
entertainment organizers, as well as information services to corporate sponsors
and (ii) ADVANTIX will assist IMC in developing its sponsorship consulting
business.
NOW, THEREFORE, in consideration of the mutual representations,
warranties and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. TERM. The term of this Agreement shall begin as of November 1, 1998 and shall
remain in effect through April 30, 1999 unless this Agreement is terminated
earlier in accordance with the provisions of Paragraph 6 (the "Term"). The Term
may be extended for an additional six-month period by mutual written agreement
of the parties.
2. IMC SERVICES.
(a) During the Term, IMC shall assist ADVANTIX in developing and preparing a
comprehensive sales and marketing plan which identifies strategies for the
expansion of ADVANTIX's business (the "Plan"). To facilitate the foregoing,
ADVANTIX's
<PAGE> 2
representatives shall meet (in person or via conference call) from time to time
with appropriate personnel from different IMC divisions and regions at mutually
agreeable times and locations.
(b) Subject to Paragraph 10(b), IMC shall provide ADVANTIX with the opportunity
to discuss serving as the ticketing service for certain IMC-owned or controlled
events, as deemed appropriate by IMC. In addition, IMC shall, as it deems
appropriate after consultation with ADVANTIX, offer ADVANTIX's database
information services and software packages to certain new and existing IMC event
sponsors and/or introduce ADVANTIX to such sponsors in order to facilitate a
business relationship between the parties.
(c) The parties agree that IMC shall determine in its sole discretion the means
and methods for performing its services hereunder. IMC shall devote such time,
attention and energies it deems necessary to perform the services requested of
it hereunder. If at any time during the Term, IMC determines that a ADVANTIX
request of IMC services hereunder requires an unreasonable devotion of time,
attention or energies by IMC, IMC shall so notify ADVANTIX and the parties shall
negotiate in good faith in a timely manner to determine (i) whether additional
remuneration shall be paid to IMC for such services; (ii) whether ADVANTIX's
in-house personnel shall share in the performance of such services or (iii) such
other mutually acceptable resolution of the matter.
(d) IMC shall not be authorized or entitled to bind or commit ADVANTIX to any
agreement. Any and all agreements or arrangements with IMC clients, sponsors or
other third parties binding or committing ADVANTIX shall be set forth in a
written document executed by an authorized representative of ADVANTIX and
ADVANTIX shall be solely responsible for all obligations under such agreements.
3. COMPENSATION TO IMC/EXPENSES. (a) In consideration of all of the services
rendered by IMC hereunder, ADVANTIX shall pay IMC the following amounts on a
monthly basis:
- - $[***] payable in advance on the first day of each month during the Term
(the "Retainer")
- - [***] percent ([***]%) of the Net Service Charge per ticket over $[***]
(but in no event less than [***] percent ([***]%) of the Net Service Charge
per ticket) received by ADVANTIX under any ticketing service arrangements
effected or substantially negotiated during the Term in connection with (i)
an IMC owned, controlled or represented event or (ii) any event that
ADVANTIX obtains the right to provide ticketing services for as a direct
result of the efforts of IMC and for which ADVANTIX did not have a previous
contractual arrangement (the "Service Charge Commission"). "Net Service
Charge" as used in the preceding sentence, means the gross revenue received
by ADVANTIX as an administrative fee, set up fee, service
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
2
<PAGE> 3
charge, convenience charge, commission, handling fee or like fee, minus any
revenue-sharing paid to the venue, promoter, producer or team, commissions
or fees to retail outlet, and the credit card merchant discount fee, where
applicable. ADVANTIX shall be entitled to credit the Retainer amounts paid
to IMC hereunder against all amounts owed to IMC as a Service Charge
Commission.
- - [***] percent ([***]%) of the gross revenues received by ADVANTIX for
providing software packages and/or database information or services to IMC
event sponsors, clients or other third parties pursuant to arrangements
effected or substantially negotiated during the Term with the assistance of
IMC (the "Database Commission").
(b) ADVANTIX shall pay IMC the Service Charge Commission and the Database
Commission on a monthly basis within 30 days following the end of each month.
Together with such payments, ADVANTIX shall provide IMC with a full, complete
and accurate itemized statement setting forth all revenues generated hereunder
as well as a calculation of IMC's commissions. ADVANTIX's obligation to pay the
Service Charge Commission and the Database Commission to IMC shall survive the
termination of this Agreement and continue for so long as ticketing, software or
database revenues are payable under contracts with third parties, including
under any extensions, modifications and renewals thereof.
(c) Unless otherwise specified by IMC, all payments shall be made by check
payable to International Merchandising Corporation and mailed to IMG Center,
Suite 100, 1360 East 9th Street, Cleveland, Ohio 44114, Attn: IMG Accounts
Receivable. Past due payments shall bear interest at the rate of (i) one and one
half percent (1.5%) per month or fraction thereof that payment is late or (ii)
the maximum interest rate permissible under law, whichever is less.
(d) ADVANTIX shall also reimburse IMC for all pre-approved travel and living
expenses which may be incurred by IMC representatives in the course of providing
services to ADVANTIX. Any travel by IMC representatives must be pre-approved in
writing by ADVANTIX. Such travel and living expenses will be billed separately,
and will be payable upon receipt of IMC's invoice and appropriate supporting
documentation.
4. ADVANTIX SERVICES/COMPENSATION.
(a) During the Term, ADVANTIX shall assist IMC in developing its sponsorship
consulting business by referring to IMC ADVANTIX's venue and event clients who
are interested in selling sponsorship rights. In furtherance of the foregoing,
ADVANTIX agrees to recommend IMC's services to such clients and, where
appropriate and as requested by IMC, use reasonable efforts to arrange meetings
between IMC and such clients.
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
3
<PAGE> 4
(b) ADVANTIX shall not be authorized or entitled to bind or commit IMC to any
agreement. Any and all agreements binding or committing IMC shall be set forth
in a written document executed by an authorized representative of IMC and IMC
shall be solely responsible for all obligations under such agreements.
(c) As consideration for ADVANTIX's services under this Paragraph 5, IMC shall
pay ADVANTIX [***] percent ([***]%) of the gross revenues actually received by
IMC (excluding expense reimbursement) under any sponsorship consulting
arrangements effected or substantially negotiated during the Term as a direct
result of the efforts of ADVANTIX with third parties with whom IMC did not have
a previous contractual or other relationship (the "Advantix Referral Fee"). IMC
shall pay ADVANTIX the Advantix Referral Fee within 30 days after receiving the
related consulting fees from the client. Together with such payments, IMC shall
provide ADVANTIX with a full, complete and accurate itemized statement setting
forth all revenues generated hereunder as well as a calculation of the Advantix
Referral Fee. IMC's obligation to pay the Advantix Referral Fee to Advantix
shall survive the termination of this Agreement and continue for so long as the
related consulting fees are payable under contracts with clients, including
under any extensions, modifications and renewals thereof. Past due payments
shall bear interest at the rate of (i) one and one half percent (1.5%) per month
or fraction thereof that payment is late or (ii) the maximum interest rate
permissible under law, whichever is less.
5. REPRESENTATIONS AND WARRANTIES. IMC and ADVANTIX each warrant and represent
that they have all rights, power and authority necessary to enter into and
perform this Agreement and that neither has granted to any third party any
rights inconsistent with the rights granted herein. Each party further
represents and warrants that it will maintain accurate and complete books and
records of account covering all transactions relating to the calculation of the
other party's commissions hereunder. Each party shall have the right during the
effectiveness of this Agreement and for two years thereafter, upon reasonable
prior notice to the other, to inspect and make copies of the books and records
of the other insofar as they shall relate to the computation of any compensation
payable hereunder.
6. DEFAULT/TERMINATION. If either party fails to perform its obligations
hereunder, then, without prejudice to its other available legal remedies, the
non-defaulting party may terminate this Agreement provided that it notifies the
defaulting party in writing of the specific default hereunder and the defaulting
party fails to cure such default within ten (10) days after it receives such
notice.
7. GOVERNING LAW; ARBITRATION. This Agreement shall be governed by and construed
in accordance with the laws of the State of Ohio, disregarding any rules
relating to the choice or conflict of laws. In the event a dispute or
controversy arises
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
4
<PAGE> 5
under this Agreement which cannot be resolved, such dispute or controversy shall
be submitted to arbitration and resolved by a single arbitrator (who shall be a
lawyer) in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. All such arbitration shall take place at
the office of the American Arbitration Association located in or closest to
Cleveland, Ohio. Each party is entitled to depose one (1) fact witness and any
expert witness retained by the other party, and to conduct such other discovery
as the arbitrator deems appropriate. These arbitration provisions do not prevent
any party from obtaining temporary or injunctive or other equitable relief from
a court of competent jurisdiction to enforce the obligations of the other party.
The arbitrator has authority to award any remedy or relief that a court of
competent jurisdiction could grant under applicable law, including attorneys'
fees. The award or decision by the arbitrator shall be final, binding and
conclusive and judgment may be entered upon such award by any court.
8. INDEMNIFICATION.
(a) IMC agrees to indemnify, defend and hold harmless ADVANTIX (including its
officers, directors, employees, shareholders, affiliates, successors and
assigns) from and against any and all claims, damages, liabilities, losses, and
costs and expenses, including reasonable outside attorneys' fees and costs of
suit arising out of: (i) any material breach of this Agreement by IMC, or (ii)
any negligent act or omission by it in the performance of its duties under this
Agreement.
(b) ADVANTIX agrees to indemnify, defend and hold harmless IMC (including its
officers, directors, employees, shareholders, affiliates, successors and
assigns) from and against any and all claims, damages, liabilities, losses and
costs and expenses, including reasonable outside attorneys' fees and costs of
suit, arising out of: (i) liabilities, obligations or any third party claims
(including without limitation, personal injury or property damage) relating to
ADVANTIX's products or services and any advertising, promotional or marketing
materials relating thereto, (ii) ADVANTIX's failure or alleged failure to
perform under any third party contract, or (iii) any material breach of this
Agreement by ADVANTIX.
9. LIMITATION OF LIABILITY. Notwithstanding anything to the contrary contained
herein, in the event either party incurs any expenses, damages or other
liabilities (including, without limitation, reasonable attorneys' fees) in
connection herewith, either Party's liability to the other hereunder (including
pursuant to any indemnification obligations hereunder) shall not exceed the
compensation (excluding reimbursement for expenses) actually paid to such party
hereunder. In no event shall either party be liable for any indirect,
incidental, reliance, special, punitive or consequential damages arising out of
its performance or non-performance under this Agreement, whether such liability
is asserted on the basis of contract, tort or otherwise and whether or not such
party had been advised of the possibility of such damages.
5
<PAGE> 6
10. IMC/ADVANTIX BUSINESS. (a) ADVANTIX acknowledges that IMC and certain of its
affiliates are engaged in the business of representing sports personalities and
organizing entities, organizing and creating events and programs and
representing and providing services to others in connection with the acquisition
and sale of various kinds of rights associated with sporting events and venues.
ADVANTIX agrees that nothing herein contained is intended to or shall restrict
the continuation of such activities, except that, during the Term, IMC agrees
not to serve as the exclusive marketing consultant to any other ticketing
service entity. ADVANTIX hereby grants IMC the right to use ADVANTIX's name and
identifying marks in IMC's corporate promotional materials to identify ADVANTIX
as a client of IMC.
(b) ADVANTIX further acknowledges that IMC and/or its affiliated companies
(collectively, "IMG") do have existing and may have future obligations to third
parties with respect to ticketing services for IMG-owned or represented events
and venues. ADVANTIX agrees that in such circumstances, ADVANTIX will not be
given any preferred position in relation to such properties and, as to all other
properties owned by IMG, such rights may be made generally available to all
prospective ticket companies for competitive bidding.
(c) IMC acknowledges that ADVANTIX and certain of its affiliates are engaged in
the business of providing ticketing services to various sporting events, venues
and event promoters and producers. IMC agrees that nothing herein contained is
intended to or shall restrict the continuation of such activities. IMC hereby
grants ADVANTIX the right to use IMC's name and identifying marks in ADVANTIX's
corporate promotional materials to identify IMC as a client of ADVANTIX. All
other uses of IMC's name and identifying marks by ADVANTIX shall be subject to
IMC's prior written consent.
11. USE OF IMC SERVICES. All services, materials, reports, analyses, studies,
recommendations and other information provided to ADVANTIX by IMC hereunder (the
"Work") are submitted on a confidential basis for use solely by ADVANTIX and its
employees and representatives. ADVANTIX agrees to maintain the confidentiality
of the Work. The Work may not be reproduced for or disclosed to third parties in
whole or in part and its use for any purpose other than by ADVANTIX in
connection with the marketing of its products and services is not authorized. No
estimate, projection, recommendation or other statement by IMC contained in the
Work shall be construed as a guarantee of any revenues or other benefits to
ADVANTIX. Unless otherwise expressly provided herein, the failure of ADVANTIX to
consummate any third party transactions relating to sponsorship, marketing,
programming or other areas on which IMC is consulting shall not relieve ADVANTIX
of its obligation to pay IMC the compensation set forth in paragraph 4 hereof.
12. NOTICES. All notices or other communications provided for by this Agreement
shall be made in writing and shall be deemed properly delivered when delivered
(a) personally, (b) by the mailing of such notice to the parties entitled
thereto, registered or certified mail, postage prepaid to the parties at the
following addresses (or to such address
6
<PAGE> 7
designated in writing by one party to the other) or (c) by confirmed fax at the
number indicated below:
If to ADVANTIX:
Advantix, Inc.
4675 MacArthur Court
Suite 1400
Newport Beach, CA 92660
Attn: Randy Kenworthy
John Markovich
Fax: (949) 862-5412
If to IMC:
International Merchandising Corporation
22 East 71st Street
New York, New York 10021
Attn: Chip Campbell
Fax: (212) 772-2617
with a copy to:
IMG Legal Department
22 East 71st Street
New York, New York 10021
Attn: Corporate Representation Attorney
Fax: (212) 772-2617
13. MISCELLANEOUS.
(a) Nothing in this Agreement is intended to create a partnership, association,
employment relationship or joint venture between IMC and ADVANTIX. Neither party
has the right to obligate or bind the other in any manner or enter into any
agreements on behalf of the other, and nothing contained in this Agreement is
intended to create any rights of any kind in any third party.
(b) Neither party may assign this Agreement without the prior consent of the
other, except that (i) ADVANTIX may assign this Agreement and all of ADVANTIX's
rights and obligations hereunder to any party acquiring all or substantially all
of ADVANTIX's capital stock or assets and (ii) IMC may assign its obligations
under this Agreement to any member of the International Management Group of
companies, as appropriate to carry out the services required hereunder.
7
<PAGE> 8
(c) This Agreement contains all of the terms and conditions agreed upon by the
parties hereto with respect to the matter contained herein and supersedes all
prior agreements and understandings, whether oral or written. This Agreement may
only be modified by written agreement signed by the parties. No waiver of any
provision hereof shall be valid unless in writing. No waiver of a particular
provision shall constitute a waiver of enforcement of such provision in the
future, or a waiver of any other provision hereof (whether or not similar).
(d) If any provision of this Agreement shall be declared illegal, void, invalid
or unenforceable under law, the validity of any other provision and of the
entire Agreement shall not be affected thereby.
(e) This instrument will not be considered an agreement or contract nor will it
create any obligation on the part of IMC or ADVANTIX, or either of them, until
it has been signed by representatives of both parties and delivery is made of a
fully signed original. Acceptance of the offer made herein is expressly limited
to the terms of the offer.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and
year first above written.
ADVANTIX, INC. INTERNATIONAL MERCHANDISING
CORPORATION
By: /s/ J. M. Markovich By: /s/ Chip Campbell
-------------------------------- --------------------------------
Name: J. M. Markovich Name: Chip Campbell
Title: EVP Finance & CFO Title: Vice President
8
<PAGE> 9
AMENDMENT TO AGREEMENT
This is an amendment to that certain Agreement (the "Agreement") between
Advantix, Inc. (ADVANTIX") and International Merchandising Corporation ("IMC")
which was entered into as of November 1, 1998.
WHEREAS, the parties desire to extend the Term of the Agreement for an
additional six-month period and to amend certain provisions of the Agreement.
NOW THEREFORE, the Agreement is hereby amended and modified as follows:
1. The Term of the Agreement is hereby extended through October 31, 1999.
2. During the Term, IMC may assist ADVANTIX in securing third party sponsors
and advertisers for Tickets.com or other ADVANTIX ticketing services. For
each such arrangement effected or substantially negotiated during the Term
as a direct result of the efforts of IMC with third parties with whom
ADVANTIX did not have a previous contractual or other relationship, the
parties will negotiate an appropriate commission to be paid to IMC based
on a percentage of the gross revenues actually received by ADVANTIX under
such sponsorship arrangement (the "IMC Sponsorship Fee"). ADVANTIX shall
pay IMC the IMC Sponsorship Fee within 30 days after receiving the related
sponsorship fees from the third party. Together with such payments,
ADVANTIX shall provide IMC with a full, complete and accurate itemized
statement setting forth all revenues generated hereunder as well as a
calculation of the IMC Sponsorship Fee. ADVANTIX' obligation to pay the
IMC Sponsorship Fee to IMC shall survive the termination of this Agreement
and continue for so long as the related sponsorship fees are payable under
contracts with clients, including under any extensions, modifications and
renewals thereof.
3. ADVANTIX shall pay IMC an amount equal to [***] percent ([***]%) of the
Gross Profit from all sales of merchandise by ADVANTIX, where the source of
such merchandise was referred or introduced to ADVANTIX by IMC or secured
with the assistance of IMC during the Term (the "Merchandise Fee"). The
Merchandise Fee payable with respect to Proteam.com shall be an amount
equal to [***] percent ([***]%) of the Gross Profit. ADVANTIX shall also
pay IMC an amount equal to [***] percent ([***]%) of the fees and charges
(the "Auction Fee") received by ADVANTIX from the auction or sale of
tickets and/or items (i) provided to ADVANTIX by IMC or (ii) relating to
events referred or introduced to ADVANTIX by IMC or secured with the
assistance of IMC during the Term, provided however, IMC's commission on
ticketing arrangements where ADVANTIX is compensated on a per-ticket basis
shall be governed by Paragraph 3(a) of the Agreement. ADVANTIX shall pay
IMC the Merchandise Fee and Auction Fee on a quarterly basis, within 30
days after the end of each calendar quarter. Together with such payments,
ADVANTIX shall provide IMC with a full, complete and accurate itemized
statement setting forth all revenues generated hereunder as well as a
calculation of the Merchandise Fee and Auction Fee. ADVANTIX' obligation to
pay the Merchandise Fee and Auction
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
1 of 2
<PAGE> 10
Fee to IMC shall survive the termination of this Agreement and continue for
so long as such merchandise is continued to be sold or such auctions are
held by ADVANTIX.
4. The term "Gross Profit," as used in the preceding section means the gross
sales price for the merchandise sold net of sales tax, shipping charges,
returns and any revenue-sharing payments less the actual cost of such
merchandise, provided however, if the merchandising arrangement is such
that ADVANTIX receives fees from the manufacturer/distributor on a
per-item-sold basis, as a percentage of net or gross receipts, or
otherwise, "Gross Profit" shall mean the gross fees actually received by
ADVANTIX, without deduction.
5. ADVANTIX shall be entitled to credit Retainer payments made to IMC (and
which were not previously credited against other amounts owed to IMC or
applied to the Rebate (as defined below)) against the Sponsorship Fee, the
Merchandise Fee and the Auction Fee payable to IMC.
6. In the event that ADVANTIX purchases sponsorship rights for an IMC-owned or
represented property during the Term, IMC shall rebate to ADVANTIX [***]
percent ([***]%) of the gross payments actually paid by ADVANTIX for such
sponsorship rights (the "Rebate"). The Rebate shall not exceed the
aggregate of the Retainer amounts paid by ADVANTIX and not otherwise
credited as provided herein. The Rebate shall be paid within thirty (30)
days after the expiration of the Term.
Except as expressly modified hereinabove, all of the terms and conditions
contained in the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and effective upon the date that both Advantix and IMC have signed it.
Advantix, Inc. International Merchandising Corporation
Signature /s/ J. M. Markovich Signature /s/ Chip Campbell
---------------------------- ------------------------------
Title EVP Finance & CFO Title Vice President
-------------------------------- ----------------------------------
Date 5/26/99 Date 5/26/99
--------------------------------- -----------------------------------
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
2 of 2
<PAGE> 1
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND
ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
EXHIBIT 10.28
CHANNEL PARTNER AGREEMENT
-------------------------
THIS CHANNEL PARTNER AGREEMENT ("AGREEMENT") is made as of the 20th day of April
1999 by and between Sitematic Corporation, a California corporation located at
10350 Science Center Drive, Suite 140, San Diego, California 92121 ("Sitematic")
and Tickets.com, Inc., a Delaware Corporation, having its principal place of
business at 4061 Glencoe Avenue, Marina Del Rey, CA 90292 ("Partner").
WHEREAS, Partner is a purveyor of tickets and information about tickets
("Partner's Service") which operates a Web site located at www.tickets.com
("Partner's Site); and
WHEREAS, Sitematic is a provider of services that permit endusers to create
high-impact, customized Internet websites ("Sitematic Service"), and operates a
Web site currently located at www. Sitematic.com ("Sitematic Site"); and
WHEREAS, Partner desires to engage Sitematic to host a Web site publishing and
hosting solution through which Partner subscribers can have direct access to
customized version of Sitematic Site ("Custom Site"), which customized version
shall be updated together with any updates in the Systematic Site, and shall be
consistent with the "look and feel" of the Sitematic Site, and Sitematic desires
to host such a Custom Site, all subject to the terms, conditions and
restrictions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereby agree as follows:
1. TERM. The term of this Agreement will commence on the date of this Agreement
and, unless earlier terminated as provided herein, will continue for a period of
one (1) year, at which time the term of this Agreement will automatically renew
for successive periods of one year, unless either party notifies the other in
writing at least thirty (30) days prior to the expiration of the then-current
term of its desire not to renew the Agreement.
2. CUSTOM WEB SITE.
a. CONTENTS/DELIVERY DATE. The Custom Site shall contain a version of the
Sitematic Site customized for use within the Partner Site, developed and
maintained in accordance with the guidelines set forth below. Sitematic will
complete development of, and provide to Partner for testing, the Custom Site on
or before May 31, 1999.
b. DESIGN/RESTRICTIONS. The parties acknowledge and agree that Sitematic shall
customize the Custom Site to conform to the "look and feel" of the Sitematic
Site and the Sitematic service, except as described in Exhibit A below,
provided, however, that Partner acknowledges and agrees that it may not publish
or otherwise require Sitematic to publish anything on the Custom Site which is
offensive, objectionable, or otherwise detrimental to the reasonable business
interests of Sitematic. Similarly, Sitematic may not publisher otherwise require
Partner to publish anything on the Custom Site, or elsewhere, which is
offensive, objectionable, or otherwise detrimental to the reasonable business
interests of Partner.
c. HOSTING. Sitematic shall install, maintain, and host the Custom Site on its
own servers, and systems, at its own expense.
d. TESTING. All pages to be included in the Custom shall be reviewed, and
approved by Partner before they appear live on the Custom Site.
e. UPGRADES/CHANGES. Sitematic will periodically perform maintenance on and
upgrades to both all its software code and network infrastructure. This
maintenance/release schedule and associated procedures shall be determined by
Sitematic at its sole discretion. In some instances, Sitematic may at its sole
discretion define a specific service change as "significant". In the event of a
"significant" service change, Sitematic will make reasonable efforts to notify
Partner prior to change, and ensure that Sitematic's Service hereunder is not
materially disrupted.
Upgrades to the service or to the Custom Site which have new fees associated
with them will be discussed in good faith if these enhanced services should be
included in a future release and under what terms.
Expenses for Partner requested changes, custom development, or alterations to
any part of the Custom Site will be borne by Partner; fees and schedule will be
mutually agreed before project commencement.
f. CUSTOMER AND TECHNICAL SUPPORT. Sitematic will provide all customer and
technical support for the Custom Site. Standard hours of operation shall be
Monday through Friday (excluding holidays) from 8am to 5pm PST. Customer support
shall be conducted via email and phone support in the same manner Sitematic
provides service for its direct customers. The parties will work together in
good faith to develop procedures for transfers between customer service
personnel and other policies and practices aimed at service personnel and other
policies and practices aimed at providing high quality customer services to
end-users. Sitematic will have a dedicated customer support phone line
represented as Tickets.com/Sitematic.
When Sitematic makes the Event Form (as defined in Exhibit A) available for use
by venue customers, Sitematic will be responsible for all active sites being
`upgraded' to new event form. Sitematic has the right to use direct email to
request the venue customer upgrades the web site themselves, but for upgrades
not made within 30 days of availability. Sitematic will be responsible for edits
to new Event Form.
g. TELESALES CAMPAIGN. Sitematic will initiate an outbound telesales campaign
into a Partner-supplied list of venues for the purpose of selling them a
co-branded website as described in Exhibit C. The costs of the telesales
campaign will be shared among the parties as described in Exhibit C. The parties
agree to evaluate the telesales campaign no later than three (3) months after
its start in order to review progress, and assess performance.
h. EXCLUSIVITY. In recognition of the investments and efforts of Sitematic under
this Agreement, Partner agrees not to engage with any other company for the
creation of venue websites or promotion of venue websites services to its
customer base or its potential customer base, or to do such initiative
internally, during the term of agreement, without the prior written consent of
Sitemmatic, which consent may be withheld in its sole discretion.
3. PRICING AND BILLING.
a. TERMS TO PARTNER SERVICE SUBSCRIBERS. On the Custom Site, Partner Service
subscribers will be offered the opportunity to
<PAGE> 2
purchase the Sitematic services listed in Exhibit A, and any other products or
services upon which the parties may mutually agree to in writing. The parties
agree that Partner retains the right to approve or reject any products and/or
services which Sitematic proposes to include on the Custom Site prior to their
appearing on the Custom Site.
b. BILLING. Sitematic will directly bill Partner Service subscribers for any
purchase of Sitematic products or services, using commercially reasonable
billing methods, provided that any methodology shall reflect the payee as
Sitematic/Tickets.com. Sitematic acknowledges and agrees that Partner shall
have no liability whatsoever for any fee or charge incurred by any Partner
Service subscriber.
5. PROMOTIONAL/MARKETING ACTIVITES.
a. PRESS RELEASES. The parties agree to an announcement and/or a press release
related to this Agreement with Sitematic within thirty (30) days after
execution of Agreement. Any such press release must first be submitted for
the other party's consent, which consent shall not be unreasonably withheld
or delayed. Any other or subsequent publicity related to the Sitematic and
Partner relationship must be approved in writing by both parties prior to
release.
b. MARKETING REPORTS. Sitematic agrees to periodically provide reports (no less
than once each month) to Partner that indicate information concerning, among
other things, usage of the Custom Site by venue customers (usage defined as
log-ons) including aggregate information detailing sale of Sitematic products
and/or services.
6. COMMISSIONS.
a. PAYMENT AND REPORTING OF SALES COMMISSION. During the term of this
Agreement, Sitematic shall pay Partner a sales commission ("Sales Commission")
on the user subscription revenue Sitematic collects from each end user who
successfully subscribes to the Sitematic Custom Service and is electronically
traced by Sitematic's tracking system back to Partner via reference to Partner's
Sitematic -assigned Partner Identification Number (PIN) code or other identifier
by Sitematic ("Eligible Accounts"), Partner must cause its unique identifier to
be electronically submitted simultaneously with the potential order for accounts
to be considered Eligible Accounts. Sitematic shall pay Partner a sales
commission on the user subscription revenue Sitematic collects from
Sitematic/Tickets.com telesales efforts. Sales Commissions due shall be
calculated on a calendar month basis by multiplying the funds collected by
Sitematic on eligible Accounts from the first day of the month through the last
day of the month by the percentages indicated in Exhibit B.
Sitematic reserves the right to deny Sales Commissions on orders for use of the
Sitematic Service by Partner and its agents and employees. OTHER THAN EXPRESSLY
PROVIDED FOR HEREIN, NO ORDERS OR OTHER TRANSACTIONS SHALL QUALIFY FOR SALES
COMMISSIONS.
b. PAYMENT OF SALES COMMISSION. Except as otherwise provided herein, Sales
Commissions payable to Partner shall be paid by Sitematic check (in United
States Dollars), and mailed to Partner no later than forty-five (45) days after
the last day of each calendar month during which funds generating Sales
Commissions were collected by Sitematic. Partner acknowledges and agrees that
Sitematic's liability for payment of Sales Commissions arises from and relates
solely to, funds collected by Sitematic. Sitematic shall have no liability
whatsoever to Partner for Sales Commissions arising from or relating to any
orders for which the licensee has not paid Sitematic. Partner acknowledges and
agrees that no interest shall accrue on Sales Commissions pending payment.
Provided that this Agreement has not been terminated in the then-current month,
Sales Commissions due to Partner totaling less than One Hundred Dollars
($100.00) shall be retained by Sitematic and payment shall be postponed until
the first subsequent month in which the total Sales Commission due to partner
exceeds One Hundred Dollars ($100.00).
c. GENERAL CONDITIONS APPLICABLE TO SALES COMMISSIONS. PARTNER ACKNOWLEDGES
AND AGREES THAT NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN:
(I) SITEMATIC SHALL HAVE THE RIGHT FOR ANY REASON IN ITS SOLE REASONABLE
DISCRETIONS TO REJECT ANY ORDER OBTAINED BY PARTNER WHICH SITEMATIC IN ITS
SOLE DISCRETION DEEMS UNDESIRABLE, FINACIALLY IMPRUDENT OR OTHERWISE
UNSUITABLE; (II) ANY PAYMENTS TO SITEMATIC ARISING UNDER THIS AGREEMENT SHALL
ONLY BECOME DUE AND PAYABLE OUT OF FUNDS ACTUALLY COLLECTED BY SITEMATIC;
(III) SITEMATIC SHALL AT ALL TIMES HAVE SOLE AND ABSOLUTE DISCRETION TO SET
THE SUBSCRIPTION PRICE OF THE SERVICE INCLUDING WITHOUT LIMITATION THE RIGHT
TO OFFER FREE PERIODS, CHARGE NO SUBSCRIPTION FEES, OR SET ANY OTHER PRICING
POLICIES IT SO DEEMS APPROPRIATE AND TO CHANGE SUCH PRICES AT ANY TIME
PROVIDED HOWEVER THAT SITEMATICE AGREES TO JOINTLY REVIEW ANY CHANGES TO THE
PRICES INCLUDED IN EXHIBIT B WITH PARTNER AND WILL NOT CHANGE SUCH PRICES
WITHOUT PARTNER'S CONSENT, WHICH CONSENT WILL NOT BE UNREASONABLY WITHHELD BY
PARTNER; (IV) SITEMATIC SHALL AT ALL TIMES HAVE THE SOLE AND ABSOLUTE
DISCRETION TO CANCEL, SUSPEND OR MODIFY THE ACCOUNT OF ANY USER OF THE
SERVICE, SUBJECT ONLY TO THE TERMS OF THE TERM OF SERVICE IN EFFECT AT TIME
OF SAID CANCELLLATION, SUSPENSION OR MODIFICATION, PROVIDED HOWEVER THAT
SITEMATIC WILL USE COMMERCIALLY REASONABLE JUDGEMENT AND GOOD FAITH IN THE
EXERCISE OF THIS DISCRETION.
d. PARTNER CO-FUNDING OF NEW TICKETS.COM/SITEMATIC SITES. During the term of
this Agreement, Tickets.com will pay Sitematic a development fee for each new
product created for a venue customer. See Exhibit A for lists of products and
Exhibit B for a list of prices.
e. TERMS AND OPERATION OF THE SITEMATIC SERVICE. Sitematic shall at all times
have the absolute right, in its sole discretion, to establish all prices,
charges, terms and conditions governing the sale of Sitematic Service. Except
as otherwise provided herein, Sitematic shall at all times have the exclusive
authority over all billing, service and support relating to the Sitematic
Service. Notwithstanding the above, Sitematic shall use commercially
reasonable judgment and good faith in the exercise of this discretion. Any
changes to site content will be jointly reviewed with Partner and Sitematic
will not change such content without Partner's consent, which consent will
not be unreasonably withheld by Partner. Partner shall not make any
representations or warranties whatsoever (written or oral) to any party with
respect to the Sitematic Service beyond those already expressly stated in
Sitematic provided sales materials.
f. ADVERTISING REVENUES. Any advertising revenues derived from the Custom
Site and the co-branded venue customer sites will be apportioned between the
parties as described in Exhibit B.
7. AUDITS RIGHTS. Sitematic will maintain accurate records with respect to sales
of services during the term of this Agreement. Partner may, upon reasonable
request (but not more than once every twelve (12) months), audit Sitematic's
records during regular business
2
<PAGE> 3
hours for the purpose of verifying the accuracy of any information provided in
any commission reports provided hereunder, or the amount of any other charges or
payment obligations arising under this Agreement. All costs and expenses
incurred in connection with any such audit and inspection will be borne by
Partner, unless the audit reveals an underpayment in excess of the greater of
$500 or five percent (5%) of the amount that should have been paid. In the event
of such underpayment, Sitematic shall be solely responsible for all reasonable
costs and expenses incurred by the other in connection with such audit, and
shall further pay the other the full amount of the underpayment revealed by the
audit.
8. PRIVACY. Both parties agree to respect and maintain the privacy of
subscribers to their respective services, and will keep confidential, and not
market, sell or otherwise provide third- party access to any personally
identifiable user data, unless required by law without the prior written consent
of the other party. Nothing contained in this Agreement, nor the absence or
presence of any existing relationship between Sitematic and a prospective,
existing or former user of the Partner Service shall be construed to grant
Sitematic rights in any user data independently collected and maintained by
Partner. All such data shall be the sole and exclusive property of the Partner.
9. CUSTOM OWNERSHIP. The parties acknowledge that customers will be customers of
each party with regard to their respective services, and agree that control over
the customers during the term of this agreement shall be joint. Each party shall
have the right to review and approve sales and marketing communications prior to
distribution to the customer base; such approval shall not be unreasonably
withheld. All such communications shall be co-branded. Upon the termination of
this Agreement, each party may continue to offer their respective services to
the customer separately, and each customer may decide individually whether or
not to continue to purchase service from one party or the other.
10. TERMINATION FOR CAUSE
a. Either Party may immediately terminate this Agreement should the other Party
breach any of its representations, warranties or obligations hereunder unless
such breach is cured to the satisfaction of the non-breaching Party after ten
(10) days written notice thereof.
b. Partner may terminate this Agreement without cause for its convenience, upon
the giving of sixty (60) days written notice to terminate. Both parties will be
responsible for their respective obligations up through the date of termination.
In addition, Partner will be required to pay Sitematic a cancellation fee of as
follows: $[***] for notice given within the first 3 months of this Agreement;
$[***] for notice given within the second 3 months of this Agreement; $[***]
for notice given within the third 3 months of the Agreement, and $[***] for
notice given within the fourth 3 months of this Agreement. For notice given
hereunder after the expiration of 12 months from execution of this agreement, no
additional fee shall be owing to Sitematic.
11. CONFIDENTIALITY. Unless required by law, neither party shall disclose the
specific terms and conditions of this Agreement to any third-party; provided,
however, either party may disclose such terms and conditions to any bona fide
prospective or existing lender, investor, or acquirer provided such lender,
investor or acquirer has executed a non-disclosure agreement containing
customary disclosure restrictions, including restricting use of the information
solely for the purpose of evaluating such loan, investment or purchases.
Notwithstanding the foregoing, the parties may disclose the general nature of
this Agreement to any third-party, subject to the limitations concerning press
releases as set forth in Section 5(b) hereof.
12. OTHER OBLIGATIONS, REPRESENTATIONS AND WARRANTIES.
a. Execution, Delivery and Performance. Both parties have all requisite power
and authority and hold all licenses, permits and other required authorizations
from governmental authorities necessary (if any) to fulfill its respective
obligations under this Agreement. Each party represents and warrants that it has
undertaken all necessary action to ensure that the execution, delivery and
performance of this Agreement is duly authorized. This Agreement constitutes the
legal, valid and binding agreement of both parties, enforceable in accordance
with its terms.
b. LIMITED LICENSE TO USE TRADENAMES, TRADEMARKS AND SERVICE MARKS. Each party
grants to the other a limited, non-exclusive, non-transferable, license to use
each other's tradenames, trademarks, and servicemarks (collectively, "Marks") in
connection with the performance of this Agreement. Marks shall only be used in
accordance with the specifications provided by the party whose Marks are being
used. In the event that such specifications are not provided, neither party
shall use any of the other party's Marks for any purpose without first obtaining
the prior advance written consent of the party whose Marks are contemplated to
be used. Each party shall retain ownership of all of its Marks and other
intellectual property rights.
c. OBLIGATIONS UPON TERMINATION. Upon termination (for any reason) each party
shall promptly return to the other all papers, materials and other property tot
the other party then in its possessions.
13. IDEMNIFICATION Each party will indemnify and hold harmless the other party
(the "Indemnified Party") and the other party's officers, directors,
shareholders and employees (collectively, together with the Indemnified Party,
the "Indemnified Persons") from and against any demand, suit, action or
proceeding brought by any third party arising in connection with a violation by
such party (the "Indemnifying Party") or any of the provisions of this Agreement
(including, without limitation, any of the representations or warranties of the
Indemnifying Party set forth in this Agreement) or the negligence or willful
misconduct of the Indemnifying Party, in each case to the extent not
attributable to a breach by the Indemnified Party of any of the provisions of
this Agreement or the negligence or willful misconduct of any of the Indemnified
Persons (collectively, the "Indemnified Claims"), and all damages, costs and
expenses (including , without limitation, reasonable attorneys' fees and
settlement costs, as applicable) sustained or incurred by Indemnified Person in
relation thereto.
14. LIMITATION OF LIABILITY/DISCLAIMER OF WARRANTY
THE PARTIES AGREE TO LIMIT THEIR LIABILITY TO EACH OTHER TO DIRECT DAMAGES ONLY.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN NEITHER PARTY SHALL
HAVE ANY LIABILITY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES OR ANY LOSSS OF REVENUE OR PROFITS ARISING UNDER OR RELATING TO THIS
AGREEMENT, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO
EVENT SHALL SITEMATIC'S LIABILITY EXCEED THE COMMISSIONS PAYABLE TO THE PARTNER
PURSUANT TO THIS AGREEMENT. EACH PARTY HEREBY DISCLAIMS ALL WARRANTIES TO THE
OTHER AND ALL THIRD-PARTIES, EXPRESS, IMPLIED, STATORY OR OTHERWISE, WITH
RESPECT TO THE SITEMATIC SERVICE, THE CUSTOMIZED SERVICE AND THE PARTNER
SERVICE, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR PARTICULAR PURPOSE.
15. DISPUTE RESOLUTION
a. INJUNCTIVE RELIEF. The parties agree that the breach by either of them of
their respective obligations regarding the other's trademarks,
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
3
<PAGE> 4
trade names, service marks or confidential information would result in
irreparable injury for which there is no adequate remedy at law. Therefore, in
the event of any breach or threatened breach by any party of its obligations
regarding trademarks, trade names, or service marks of confidential information
of the other, then the other party will be entitled to seek temporary and
permanent injunctive relief, in addition to any other remedies to which it may
be entitled at law or in equity.
16. FORCE MAJURE Neither party hereto shall be considered in default in
performance of its obligations hereunder if performance of such obligations is
prevented or delayed by acts of God or government, or other events beyond the
reasonable control of the party. Time of performance of either party's
obligations hereunder shall be extended by the time period reasonably necessary
to overcome the effects of such occurrences.
17. YEAR 2000 COMPLIANCE. Sitematic warrants that the Sitematic Site and the
Custom Site furnished pursuant to this Agreement shall, when used in accordance
with any applicable documentation, be able to accurately process date/time data
(including, but not limited to, calculating, comparing, and sequencing) from,
into, and between the twentieth and twenty-first centuries, and the years 1999
and 2000, including leap year calculations. This warranty shall apply to the
Custom Site operating as part of the Partner Service as contemplated by this
Agreement. In the event of any breach of this warranty, Sitematic shall restore
the Sitematic Site and/or the Custom Site to the same level of performance as
warranted herein, or repair or replace the same so as to minimize interruption
to Partner's ongoing business processes, time being of the essence, at
Sitematic's sole cost and expense. This warranty does not extend to correction
of Partner's errors in data entry or data conversion. Nothing in this warranty
shall be construed to limit any rights or remedies otherwise available under
this Agreement.
18. GENERAL Neither party shall assign its rights or delegate any of its duties
hereunder without the advance written consent of Sitematic, which consent shall
not be unreasonably withheld or delayed, provided however, that this restriction
shall not apply to an assignment as part of a merger or sale of company or
substantially all of the assets of the company. The terms and conditions of this
Agreement shall be binding upon and shall inure to the benefits of the parties
and their respective successors and permitted assigns. This Agreement shall not
be amended or modified except as by a written document signed by both parties.
This Agreement shall be governed by and construed in accordance with the laws of
the State of California, without reference to principles of conflicts of laws.
All notices hereunder shall be in writing and shall be deemed given upon
personal delivery or when sent by certified mail, postage prepaid, return
receipt requested, at above. A party may change such address for notice upon
written notice given in accordance with the provisions hereof. The headings used
herein are inserted for convenience only and are in no way intended to describe,
interpret, define or limit the scope, extend or intent of this Agreement. If any
provision of this Agreement is determined by a court of competent jurisdiction
to be unenforceable, such provision shall be automatically reformed and
construed so as to be valid, operative and enforceable to the maximum extent
permitted by law or equity while preserving its original intent. The invalidity
of any part of this Agreement shall not render invalid the remainder of this
Agreement. Waiver by a party of a breach of a provision of this Agreement shall
not operate as nor be construed as a waiver of any subsequent breach thereof.
Notwithstanding anything to the contrary contained herein, the parties
acknowledge and agree that their obligations pursuant to Section 8,9,11,13 and
14, and those which by their nature should survive termination of this
Agreement. Each party to this Agreement represents, agrees and warrants that it
will perform all other acts and execute and deliver all other documents that may
be necessary or appropriate to carry out the intent and purposes of this
Agreement. This Agreement constitutes the entire agreement between the parties
regarding the subject matter contained herein and supersedes all prior and
contemporaneous undertakings and agreements of the parties, whether written or
oral, with respect to the subject matter herein.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of the date
first set forth above.
TICKETS.COM, INC. SITEMATIC CORPORATION
By: /s/ Adam Epstein By: /s/ Peter J. Shaw
---------------------------- ----------------------------
Name: Adam Epstein Name: Peter J. Shaw
Title: S.V.P. & Counsel Title: President
Date: 4/28/99 Date: 4/20/99
4
<PAGE> 5
Exhibit A
PRODUCTS/SERVICE TO BE INCLUDED ON Custom Site
Product A
- ---------
"Bronze"
* See Specification Release 1 - Venue site.
* Date Applicable: May 31, 1999
* 4 pages including:
- Home Page
- Contact Page
- Location Page
- Event Page (DOES NOT include schedule piece; body copy only)
- Manual email sent to Tickets.com informing creation of new site;
no email to database transfer of venue data
* Six mutually agreed upon currently available Sitematic Styles available
for use by Tickets.com venue customers.
* All sites will be Tickets.com branded
* Sitematic to offer free transfer of existing domain name,
www.venue.tickets.com name for free.
* Sitematic to handle all customer support activities
* Sitematic to build all 4 page sites per venue customer information &
requirements
* Link to tickets.com included on all venue customer sites
Product B
- ---------
See Specification Release 1 - Venue site
Sitematic will create a co-branded Tickets.com-Sitematic for use by all
Tickets.com venue customers. This site will be their destination when making
edits/changes to their accounts.
Product C
- ---------
See Specification Release 2-Event page.
Sitematic will create a due date determined and mutually agreeable by both
parties, and Event Form to be used by all Tickets.com-Sitematic venue customers.
The Event Form will contain an event scheduler with email to database
capabilities that allow information to go from venue customers web sites
directly to the Tickets.com database.
5
<PAGE> 6
Tickets.com-Sitematic Product Specification
- --------------------------------------------------------------------------------
Specification - Venue Site Release 1
- ------------------------------------
* Co-Based on Sitematic 2.2. release (4/30/99 est.)
* URLS to be determined
- Co-band on info page: URL Tickets.com-Sitematic
* No demo or information site
- URL for the non-domain accounts: TBD (x).tcvenue.com (??)
* Site is frames compatible should Tickets.com decide to deliver in frame
* 1 plan, 4 pages
- Catalog upgrade available -
* Logo Graphic on every page bottom
- Powered by Sitematic
- Tickets.com TDB
* Template site creation
- Pre-population of graphics into `template' site
- Menu graphic and link (both specified to t.c.)
- Header graphic and link (both specified to t.c)
- (see figure 1)
* New Page type `events' based on current custom page
- Title in control panel = events
- Pre-populate body with ASCII text
* Site allows additional flexibility with multiple body blocks (graphic and
text) per page
* Site is `frame compatible' should Tickets.com decide to frame link from
tickets.com
Administration
* User Agreement - Tickets.com to specific additions and changes
* Reports to Tickets.com
- Monthly subscriber report for revenue share
- Weekly report detailing tickets.com subscribers and last publish date,
contact info
* Tickets.com customer service access to tickets.com-Sitematic sites
Specification - Venue Site Release 2
- ------------------------------------
* Partner ID in database for manual capture of Tickets.com Venue ID
* Events page with Tickets.com requested for functionality
- Standardized input of event data (Start Date, End Date, Time,
Name of Event, Genre, Event Description
- Add/modify/delete function of event data
- Real-time communication via email of event data change including venue
ID, name, zip
* Header or footer area will accept ad banner html code from Tickets.com
ad server
* Graphic field `lockout' by brand Tickets.com) ensuring menu and/or
header graphic/links/html are not changeable by customer.
Specification - Venue Site Release 1
Figure 1 - default graphics applied to all pages in 4 page Tickets.com template.
Note: Venue Use Agreement will be written to specify that removing the
Tickets.com logo or removing the link to Tickets.com would be constitute a
violation of the Venue Use agreement. Sitematic and Partner agree to coordinate
a policy to respond to such actions when and if they occur.
6
<PAGE> 7
EXHIBIT B
PRODUCTS/SERVICE PRICING AND COMMISSIONS
A. Fees to be paid by venue customer:
Bronze Website Monthly $[***]
6 Month Contract $[***]
12 Month Contract $[***]
Website Change Fee: $[***] per graphic change
$[***] per text change
B. Fees to be paid by tickets.com:
Telesales Marketing Calls; $[***] per call (maximum of
3 calls per customer)
Website Creation Fee: $[***] per site
Co-branded site development Fee: $[***] (one-time)
Event Form development Fee: $[***] (one-time)
Sitematic will pay to Tickets.com a sales commission of [***]% of the user
subscription revenue Sitematic collects from each venue customer who
successfully subscribes to Sitematic and becomes a paying customer for Product A
(See Exhibit A).
Tickets.com will pay Sitematic a $[***] site development fee for each
Tickets.com venue customer web site that is built by Sitematic. Within 30 days
of completion of the customer site or approval by the customer for the web site,
whichever comes first, Sitematic will charge venue customers for edits made to
their respective web sites. Charges incur as follows: $[***] for graphic changes
(includes scanning, downloading and/or uploading images into the web site) and
for $[***] for text changes. These charges will be added to the customer's bill
directly by Sitematic.
Tickets.com will pay Sitematic for telesales efforts. Payments will be broken
down as follows: $[***] for each proactive phone call made (this does not
include wrong phone numbers, wrong contact person). This does include all phone
calls made to the decision maker in the buying process and will not exceed three
phones calls per Tickets.com venue customer lead.
Tickets.com will pay Sitematic $[***] to develop a co-branded Tickets.com-
Sitematic website (Product B) for all Tickets.com venue customers to use when
accessing their web site (Exhibit A).
Sitematic will create, at a date to be determined and mutually agreed upon by
both parties, an Event Form to be used by paying Tickets.com venue customers.
Tickets.com will pay Sitematic $[***] for the creation and use of this Event
Form by Tickets.com venue customers. (See Exhibit A.)
C. `GRANDFATHERED' TICKETS.COM WEB SITES
- ----------------------------------------
Tickets.com has the right to `give' grandfathered Sitematic web sites to its key
accounts. Tickets.com will pay Sitematic for each site created according to one
of the two options listed below. Payment structure for these sites will
Offer#1: free 4pg site creation plus free service, hosting and support for 12
months-price*:
* $[***] per web site for any number up to and less than 250 sites
* $[***] per web site for any number up to 500 and more than 251
* $[***] per web site for any number of web sites over 501
Offer#2: free 4pg site creation plus free service, hosting and support for 6
months-price*:
* $[***] per web site for any number up to and less than 250 sites
* $[***] per web site for any number up to 500 and more than 251
* $[***] per web site for any number of web sites over 501
Offer #3 free 4 pg site creation plus 50/50 of ongoing monthly fees -price *:
* $[***] for 1>250 sites
* $[***] for 251>500
* $[***] for 501+
*Assumes no scanning and cropping
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
7
<PAGE> 8
D. COMMISSIONS
1. For all gross revenues collected under Schedule A, Sitematic will pay
Partner a commission of [***] percent ([***]%).
2. For all revenues collected from advertising on the Tickets.com-
Sitematic site, Partner will pay Sitematic a commission of [***]
percent ([***]%).
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
8
<PAGE> 9
EXHIBIT C
---------
TELEMARKETING CAMPAIGN
----------------------
Sitematic will obtain the list of venues with all relevant information including
phone number from Tickets.com and use this list to make proactive phone calls.
Sitematic will place up to three calls to each lead, fax/mail information upon
information upon request to the customer, send Welcome Kits and build the web
site once it has been sold to the customer. Telesales campaign will be preceded
by a direct marketing piece executed by Tickets.com to the venue customer
database list. Co-Branded Welcome Kit to include color sheet that allows choice
of six style templates, registration and web content & information pages to be
filled out by customer. Member Agreement which outlines the service and price
and Rules of the Road which include web site legal information pertinent to the
Sitematic business.
Partner will do the following:
1. Supply list.
2. Execute a direct marketing mailing to the venue customer database prior to
the start of the telemarketing campaign.
3. Help develop script and answers to frequently asked questions regarding
Partner.
4. Provide method to link new customers to Tickets.com website.
5. Reimburse Sitematic for up to 3 calls per lead at a cost of $[***] per call.
Note: For the purpose of item 5, a "call" shall include a call which is answered
by a live person and will exclude calls to wrong numbers, calls picked up by the
wrong contact person, and calls which are picked up by voice mail or answering
machine.
Sitematic will do the following:
1. Telemarket into Partner-supplied list.
2. Place a targeted number of 1000 calls per week (based on the assumption
of 2 telemarketing reps placing calls at a rate of 100 calls each per
day). The numbers of reps can be increased based on mutual agreement,
based on a review of the initial response to the campaign.
3. Develop a welcome kit containing 6 custom templates to be mailed to leads who
express interest in signing up for the service.
4. Create the initial Website for each venue customer for the fee described in
Exhibit B.
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
9
<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
-6-
<PAGE> 7
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
-7-
<PAGE> 8
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;
-8-
<PAGE> 9
(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
-9-
<PAGE> 10
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,
-10-
<PAGE> 11
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
-11-
<PAGE> 12
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
-12-
<PAGE> 13
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.
-13-
<PAGE> 14
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.
-14-
<PAGE> 15
(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
-15-
<PAGE> 16
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
-16-
<PAGE> 17
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
-17-
<PAGE> 18
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
-18-
<PAGE> 19
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.
-19-
<PAGE> 20
(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
-20-
<PAGE> 21
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
-21-
<PAGE> 22
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
-22-
<PAGE> 23
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;
-23-
<PAGE> 24
(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
-24-
<PAGE> 25
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
-25-
<PAGE> 26
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
-26-
<PAGE> 27
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.
-27-
<PAGE> 28
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
-28-
<PAGE> 29
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.
-29-
<PAGE> 30
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,
-30-
<PAGE> 31
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
-31-
<PAGE> 32
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
-32-
<PAGE> 33
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.
-33-
<PAGE> 34
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
-34-
<PAGE> 35
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
-35-
<PAGE> 36
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.
-36-
<PAGE> 37
(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
-37-
<PAGE> 38
(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
-38-
<PAGE> 39
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
-39-
<PAGE> 40
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
-40-
<PAGE> 41
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
-41-
<PAGE> 42
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
-42-
<PAGE> 43
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,
-43-
<PAGE> 44
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.]
-44-
<PAGE> 45
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
-45-
<PAGE> 46
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.
-46-
<PAGE> 47
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>
-47-
<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
B-49
<PAGE> 50
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
B-50
<PAGE> 51
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
B-51
<PAGE> 52
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
<PAGE> 53
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
<PAGE> 54
Title: ____________________________________
C-54
<PAGE> 55
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
D-55
<PAGE> 56
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
D-56
<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.
D-57
<PAGE> 58
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
D-58
<PAGE> 59
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
D-59
<PAGE> 60
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.
D-60
<PAGE> 61
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
E-61
<PAGE> 62
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
E-62
<PAGE> 63
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
E-63
<PAGE> 64
(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
E-64
<PAGE> 65
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.
E-65
<PAGE> 66
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
E-66
<PAGE> 67
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,
E-67
<PAGE> 68
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.
E-68
<PAGE> 69
Exhibit F
555 ANTON BOULEVARD
HELIPAD ACCESS AGREEMENT
F-69
<PAGE> 70
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 10.30
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND
ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
CONTENT AND DISTRIBUTION AGREEMENT BETWEEN
TICKETS.COM, INC. AND COX INTERACTIVE MEDIA, INC. (CIM)
This Content and Distribution Agreement ("Agreement") is made on this
4th day of August, 1999 between Cox Interactive Media, Inc. ("CIM"), a Delaware
corporation with an address at 530 Means Street, Atlanta, Georgia 30318, and
Tickets.com, Inc. ("Tickets.com"), a Delaware corporation with an address at
4675 MacArthur Court, Suite 1400, Newport Beach, California, 92660.
RECITALS
A. CIM is a wholly-owned subsidiary of Cox Enterprises, Inc. ("Cox"), a
leading media company with interests in a wide variety of Internet and
traditional media ventures, including broadcast, cable television and
newspapers.
B. Tickets.com is a leading provider of online ticketing functionality and
related information over the Internet.
C. The parties are conducting negotiations relating to (1) distribution of
the Tickets.com services and content through the CIM network of city
sites, MP3Radio.com radio station websites, and other websites in the
Cox Network (as defined in section 1(a) below),(2) ad rep services to be
performed by CIM, (3) advertising commitments made by Tickets.com to
promote Tickets.com through Cox media properties, including the CIM City
Sites (as defined in section 1(b) below) and MP3Radio.com L.L.C.
("MP3Radio.com"), and (4) joint promotion of the respective services of
the parties.
D. This Agreement and Exhibit One shall constitute the legally binding
obligation of the parties with respect to the matters set forth herein.
TERMS
1. CO-BRANDED TICKETING PAGES
a) Tickets.com shall be obligated to create, upon CIM's reasonable
request, a co-branded ticketing page ("Co-Branded Ticketing
Page") for any website in the Cox Network that is reasonably
suited for ticketing and entertainment functioning. As used
herein, a website is part of the "Cox Network" if it is (i)
directly or indirectly controlled by Cox, where "control" means
the power to direct the management of the entity, whether
through ownership of a majority of outstanding voting equity
interests or otherwise, (ii) operated by an entity in which Cox
owns, directly or indirectly, at least forty percent (40%) of
the outstanding equity interests in such entity, or (iii) is an
MP3Radio.com website for a radio station affiliate of
MP3Radio.com. Except as otherwise provided herein, upon CIM's
request to build a Co-Branded Ticketing Page for a particular
website, the parties shall mutually agree upon a timetable for
development and roll-out of such Co-Branded Ticketing Page.
b) As soon as is reasonably practicable after the date of this
Agreement, Tickets.com will build the Co-Branded Ticketing Pages
for the existing network of CIM city sites (the "CIM City
Sites") and MP3Radio.com websites. Tickets.com shall use its
best efforts to have the Co-Branded Ticketing Pages for the
existing CIM City Sites and MP3Radio.com sites available for
public launch on or before December 1, 1999, subject to CIM's
timely provision of specifications, design input and other
requirements of this Agreement or Exhibit One. CIM may add
additional City Sites and MP3Radio.com websites at any time and
require Tickets.com to promptly build corresponding Co-Branded
Ticketing Pages.
c) CIM and Tickets.com will work together to integrate Tickets.com
ticketing functionality and content into CIM's local events
listings and/or calendar. Tickets.com will update the content on
the Co-Branded Ticketing Pages on a regular basis, and at least
as frequently as it updates the content on the Tickets.com Site.
1
<PAGE> 2
d) CIM will have the right, but not the obligation, to link to and
integrate the Co-Branded Ticketing Pages within CIM City Sites
or other Cox Network websites as CIM sees fit, including without
limitation by listing them in category search results and
appropriate "CIM Sites Channels" including, but not limited to,
Sports, Entertainment and Travel. "CIM Sites Channels" are
channels on the CIM City Sites that display a site's navigation,
directory and community products.
e) The parties will mutually agree on design and user interface
standards and specifications for the Co-Branded Ticketing Pages,
including standards for a header, footer, sidebar, and other
design/user interface standards, and attach such specifications
as Exhibit One to this Agreement. Exhibit One may also address
additional details with respect to the development of the
Co-Branded Ticketing Pages, such as size and placement of
branding, timetable for development and launch of new Co-Branded
Ticketing Pages, type of functionality to be included, and other
matters agreed upon by the parties and not inconsistent with
this Agreement. The parties shall use their best efforts to
mutually develop and agree on Exhibit One on or before October
1, 1999. Tickets.com will design and create the Co-Branded
Ticketing Pages in accordance with Exhibit One. Without limiting
the foregoing, it is understood that the ticketing and
ticketing-related functionality of the Co-Branded Ticketing
Pages shall be substantially similar to the ticketing and
ticketing-related functionality of the Tickets.com Site. The
Co-Branded Ticketing Pages will carry both each individual Cox
Network site's branding and Tickets.com branding, displayed in
substantially equivalent location, size and prominence, as will
be defined in Exhibit One.
f) The "look and feel" of the Co-Branded Ticketing Pages will be
consistent with the "look and feel" of the corresponding Cox
Network site. CIM will have final approval over the "look and
feel" of the Co-Branded Ticketing Pages.
g) From time to time, the branding, functionality or look and feel
of any Cox Network website may be changed in CIM's sole
discretion. In the event that any such changes in branding,
functionality or look and feel would make it necessary to change
the design of the Co-Branded Ticketing Pages, Tickets.com will
work in good faith with CIM to have such changes made as soon as
is practicable.
h) Tickets.com will host and serve the Co-Branded Ticketing Pages.
However, the Co-Branded Ticketing Pages shall be made eligible
for roll-up so that the page views and reach may be counted as
part of the Cox Network by third party measuring agencies, such
as Media Metrix. CIM will work with Tickets.com and Media Metrix
to get reach credit for the Co-Branded Ticketing Pages on behalf
of Tickets.com, provided that any additional expenses paid to
third parties shall be the responsibility of Tickets.com.
i) Tickets.com will continue to maintain its own web site at
www.tickets.com ("Tickets.com Site").
2. CONTENT PROVIDED TO CIM FOR INTEGRATION
a) Tickets.com will provide certain content as described below (the
"Content") for display in the Event Guide sections of the CIM
City Sites or on other areas of the Cox Network as CIM deems
appropriate.
b) The Content provided by Tickets.com will include a comprehensive
listing of events and venues for each market served by a CIM
City Site. Events listings must include events for which other
ticketing providers can provide ticket buying functionality as
well as those events for which tickets can be purchased through
Tickets.com. Tickets.com will update the Content on a regular
basis, and at least as frequently as it updates the content on
the Tickets.com Site.
c) The Content provided by Tickets.com will reside on servers
controlled by CIM.
d) Tickets.com and CIM will determine mutually agreeable automated
methods for the transmission and incorporation of updates to the
Content.
e) Tickets.com will provide the Content to CIM, at Tickets.com's
reasonable expense, subject to any existing contractual
restrictions and additional costs incurred by Tickets.com with
respect to particular Content.
2
<PAGE> 3
3. ONLINE DISTRIBUTION AND OFF-LINE PROMOTION OF CO-BRANDED TICKETING PAGES
a) CIM will create a link to a ticket buying tool on the "Find it
Fast" feature (or equivalent feature) of each CIM City Site home
page.
b) CIM will feature the Events Calendar tool and/or events listings
on the Entertainment Page of each CIM City Site. CIM will also
feature the ticket-buying tool within the Events Calendar and/or
events listings (or equivalent features) of CIM City Sites.
c) CIM City Sites will promote ticket-buying functionality in
channels and applications that include, but are not limited to
Sports, Entertainment and Travel.
d) CIM will commit to the minimum number of Integration Impressions
on the CIM City Sites as set forth in Table I below. An
"Integration Impression" means each placement of Content from
Tickets.com, a link to Tickets.com or a Co-Branded Ticketing
Page, or a promotion of Tickets.com or a Co-Branded Ticketing
Page, including, but not limited to front-page placement,
programmed search results, keyword banners, channels,
applications and other forms of distribution; provided that an
Integration Impression shall not include an advertising banner
(other than a keyword banner) or a text link in the "Deals and
Steals" section (or equivalent section) of the CIM City Sites.
For the purposes of calculating Integration Impressions, if more
than one text link is included in a search result or content
placement on one web page, such multiple text links shall be
counted as only one Integration Impression.
TABLE I
<TABLE>
<CAPTION>
----------------------------------------------------------------------
YEAR 1 YEAR 2 YEAR 3
----------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Integration
Impression Guarantee [***] [***] [***]
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
e) CIM's obligation to provide the level of Integration Impressions
in Table I above shall be contingent upon Tickets.com providing
Content and Co-Branded Ticketing Pages that (i) are comparable
to those other ticketing services available on the Internet with
the most advanced and commercially successful, functionality,
performance, content, and features, whether utilitarian or
aesthetic, and (ii) are able to scale easily with only
additional hardware and to accommodate, at a minimum, the peak
traffic volume expected of one of the top Internet ticketing
sites.
f) CIM's obligation to provide Integration Impressions at this
level is for the entire network of CIM City Sites; CIM does not
make any specific guarantees with respect to any given CIM
website or market.
g) If, for any reason other than Tickets.com's failure to provide
quality content and Co-Branded Ticketing Pages, CIM fails to
deliver the number of Integration Impressions set forth above in
a given one year period, Tickets.com's sole remedy shall be to
require CIM to provide a "make good" of such Integration
Impressions over the following six month period.
h) Subject to existing contractual obligations, Tickets.com will
receive all banner inventory for the key word "tickets" on CIM
City Site and MP3Radio.com search results pages that will point
to the Co-Branded Ticketing Pages for the term. Such banner
inventory shall be used only for the purpose of promoting
Tickets.com or the corresponding Co-Branded Ticketing Page.
i) CIM will use commercially reasonable efforts to assist
Tickets.com in obtaining ticketing rights for venues in CIM
markets, such as by providing Tickets.com with introductions and
contacts with respect to such venues and participating in
negotiations when CIM deems it appropriate. Tickets.com will use
its commercially reasonable efforts in light of technological
and business constraints to ensure that
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
3
<PAGE> 4
tickets for such venues will not be available through the
websites of any CIM Competitor (as defined in section 13(c)
below).
j) Tickets.com will use its commercially reasonable efforts, in
light of technological and business constraints, to provide
software and hardware at a preferred rate for ticketing
functionality for resale or distribution by CIM to facilitate
the acquisition of ticket inventory by Tickets.com.
4. COMMUNITIES/DATA OWNERSHIP/USAGE REPORTS
a) At CIM's option, the Co-Branded Ticketing Pages for each Cox
Network website will point to corresponding CIM community
products which may include message boards, chat, clubs, home
pages, instant messaging, calendar, address book, email, photos
and any other community products developed by CIM during the
term of this Agreement ("Community Products"). The Co-Branded
Ticketing Pages will not feature or display links to non-CIM
community products without the written permission of CIM.
Tickets.com and CIM will work together, to the extent feasible,
to integrate Community Products into the Co-Branded Ticketing
Pages.
b) CIM and Tickets.com will explore opportunities to synchronize
the registration processes of both parties' sites so users can
have a seamless experience regardless of where they registered.
c) Tickets.com may collect user information on the Co-Branded
Ticketing Pages ("User Data"). Tickets.com's storage, use and
disclosure of User Data will comply with CIM's security
guidelines and CIM's privacy policies as amended from time to
time.
d) CIM and Tickets.com shall jointly own the User Data collected
through the Co-Branded Ticketing Pages.
e) Tickets.com agrees not to use User Data to directly or
indirectly solicit or contact any Cox Network users either
individually or in the aggregate. To the extent that Tickets.com
must share User Data with individual venues, and to the extent
consistent with applicable law and CIM's then current privacy
policy, CIM will honor the contractual agreements and privacy
policies between the venues and Tickets.com.
f) Tickets.com and CIM agree to not sell, disclose, transfer or
rent User Data to any third party without the express permission
of the user.
g) Tickets.com and CIM will provide usage reports to each other on
a monthly basis by email.
5. TICKETS.COM'S PREMIER STATUS ON CIM NETWORK
a) During the term, Tickets.com will be the premier provider of
ticketing functionality on the CIM Network ("Premier Status").
Premier ticketing functionality is defined as the most highly
promoted provider of integrated ticketing functionality.
b) In the event that CIM decides that it needs to add to the Cox
Network features, tools and/or content relating to online
ticketing (including movie tickets inventory, but excluding
events tickets inventory) that would be reasonably considered to
be directly competitive with Tickets.com and that Tickets.com
does not have ("Additional Functionality"), Tickets.com will
have ten (10) days to respond to CIM's written notice of its
desire to provide the Additional Functionality on or before the
later of (i) thirty (30) days or (ii) the date on which
Additional Functionality can reasonably be available to CIM from
a third party, as determined by a proposal by a third party. If
Tickets.com is not able to provide Additional Functionality, CIM
may enter into an agreement with another third party provider to
attain the Additional Functionality and incorporate it into the
CIM Network. In the event that CIM uses a third party provider
for Additional Functionality, Tickets.com Premier Status as
described in 5 (a) above will not be impacted with respect to
Tickets.com existing functionality. Without limiting the
foregoing, the parties agree that CIM may seek movie ticketing
functionality from a third party vendor subject to the notice
provisions of this paragraph.
4
<PAGE> 5
6. COX'S PREMIER STATUS AS TICKETS.COM DISTRIBUTION PARTNER
a) Cox Network websites, including specifically MP3Radio.com
websites, will receive Most Favored Nations status for content,
functionality, exclusivity, revenue sharing on transactions and
ticket sales, and any other economic terms, in comparison to any
other deals entered into by Tickets.com that provide a third
party website or online service with any of Tickets.com's
content and/or ticketing functionality. By way of example and
not of limitation, Tickets.com will not enter into any agreement
with a third party that provides such third party with more
favorable terms as described in (i), (ii) or (iii) below without
extending the more favorable terms in such agreement to Cox
Network websites:
i) An agreement under which a third party is allowed to
integrate its content with Tickets.com content in a
manner more favorable to such party than the permitted
integration of CIM's content with Tickets.com;
ii) An agreement under which a third party receives a
greater proportion of the net revenue for e-commerce or
a higher per-ticket commission than Tickets.com pays to
CIM; or
iii) An agreement under which a third party would receive an
additional financial incentive, in terms of an increased
per ticket commission, e-commerce revenue share or
otherwise, for such party's assistance to Tickets.com in
obtaining ticketing rights.
Notwithstanding the foregoing, Tickets.com may enter into an
agreement that provides a third party with more favorable terms
without making such terms available to Cox Network websites if
such agreement (i) is materially dissimilar to this Agreement
and such third party is not described in section 6(b)(i) or
6(b)(ii) below, or (ii) is with an entertainment organization
(such as a venue, event promoter or artist management company)
that provides ticketing inventory to Tickets.com pursuant to
such agreement, as long as such entertainment organization could
not reasonably be considered a competitor of CIM or any Cox
Network website. Tickets.com will allocate the engineering
resources necessary to make CIM as high a priority as any of
Tickets.com's other premier distribution partners.
b) As used in this paragraph, a "Cox Exclusive Area" means each of
the top [***] ADIs (Areas of Dominant Influence, as determined
by Arbitron) and any local consumer market then-served by a CIM
City Site. For [***] years from the date of this Agreement,
Tickets.com will not enter into any arrangement with respect to
any website or online service directed primarily towards
Internet users in a Cox Exclusive Area with any third party that
either (i) provides a broad offering of Internet delivery,
content, Web search functionality, directory and user services,
or (ii) could reasonably be considered a competitor of any CIM
City Site in such Cox Exclusive Area, including, without
limitation the websites for any local print media product,
television (but not radio) broadcast station, cable channel or
local cable operator, if, under any such arrangement covered by
(i) or (ii) above, (w) Tickets.com supplies content to such
party for display on its website(s), (x) the Tickets.com Site
and/or content is integrated with the content and functionality
of such third party's website(s), (y) Tickets.com builds web
pages with ticketing information and functionality that are
private-labeled or co-branded with the brands of such third
party, or (z) such third party is promoted through Tickets.com
advertising in any Cox Exclusive Area. After [***] year from the
date of this Agreement, if Tickets.com determines that it would
like to enter into an agreement described in the previous
sentence above with respect to a Cox Exclusive Area in which CIM
does not then have an existing City Site, it will notify CIM
prior to entering into such agreement, and CIM will have ten
(10) days to respond to Tickets.com as to whether it plans to
launch a City Site in such Cox Exclusive Area within six months
from the date of such notice. If CIM does plan to launch a City
Site in such Cox Exclusive Area within six months and makes
reasonable progress in doing so within three months from the
date of such notice, then Tickets.com may not enter into the
agreement with the third party. Otherwise, Tickets.com may enter
into such agreement.
c) If Tickets.com determines that it would like to enter into an
agreement that is described in the second sentence of section
6(b) above except that it relates to a market not in a Cox
Exclusive Area, it will notify CIM prior to entering into such
agreement, and CIM will have ten (10) days to respond to
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
5
<PAGE> 6
Tickets.com as to whether it plans to launch a City Site in such
market within six months from the date of such notice. If CIM
does plan to launch a City Site in such market within six months
and makes reasonable progress in doing so within three months
from the date of such notice, then Tickets.com may not enter
into the agreement with the third party. Otherwise, Tickets.com
may enter into such agreement.
d) In the event that Tickets.com enters into an agreement with a
third party to provide tickets or ticketing functionality
through advanced set-top boxes or interactive television,
Tickets.com will provide Cox and its affiliates with Most
Favored Nations status for content, functionality, and revenue
sharing on transactions and ticket sales in comparison to such
third party agreement.
7. CONTENT AND FUNCTIONALITY PROVIDED TO TICKETS.COM SITE
a) Tickets.com may link to CIM content such as local content for
any available local markets in the US, movie listings, local
event listings, reviews and related content ("CIM Content").
b) Tickets.com may link to CIM tools such as calendar, clubs,
message boards, chat, and classifieds ("CIM Tools").
c) CIM agrees to negotiate in good faith on a case-by-case basis
any requests by Tickets.com to display directly on the
Tickets.com Site any CIM content, in light of existing
contractual restrictions on the use of such content and
commercially reasonable revenue-sharing opportunities for the
display of such content.
8. QUALITY/CUSTOMER SUPPORT
a) Tickets.com will answer and/or fix significant bug reports on
the Co-Branded Ticketing Pages within 24 hours of delivery of
written notification via facsimile, email or otherwise.
b) Tickets.com Site and Co-Branded Ticketing Pages will be
accessible from the web twenty-four hours a day, seven days a
week, three hundred sixty-five days a year.
c) Tickets.com will copy CIM on all correspondence with Co-Branded
Ticketing Pages users. CIM will copy Tickets.com on all
correspondence related to the Co-Branded Ticketing Pages from
its users.
d) CIM will not specifically target direct mailings (including
e-mails) to users of the Tickets.com Site without the prior
consent of Tickets.com, provided that CIM may contact those
users for which CIM acquires user data or contact information
from a source other than Tickets.com. Tickets.com will not
specifically target direct mailings (including e-mails) to users
of the Cox Network websites without the prior consent of CIM,
provided that Tickets.com may contact those users for which
Tickets.com acquires user data or contact information from a
source other than CIM.
9. TERM
The term of this Agreement will be for five years. The parties agree to
meet and negotiate in good faith the terms and conditions of renewal no
later than 90 days prior to the expiration of this Agreement.
6
<PAGE> 7
10. ADVERTISING REVENUES FOR TICKETS.COM
Co-Branded Ticket Pages
a) CIM will be responsible for selling advertising on the
Co-Branded Ticketing Pages. CIM will also be responsible for ad
serving on the Co-Branded Ticketing Pages.
b) CIM will pay Tickets.com on a quarterly basis [***] percent
([***]%) of the "Net Advertising Revenue" that accrues to CIM
during the term of this Agreement from advertising on the
Co-Branded Ticketing Pages. "Net Advertising Revenue" means the
gross revenue from advertising on the Co-Branded Ticketing Pages
that is collected by CIM during the applicable payment period
minus sales commissions of [***] percent ([***]%) and ad serving
expenses of [***] percent ([***]%).
Tickets.com Site
c) CIM will be Tickets.com's exclusive ad sales rep for Local
Advertising on the Tickets.com Site, and will be responsible for
selling Local Advertising on the Tickets.com Site. CIM will also
be responsible for arranging for serving the Local Advertising
it sells on the Tickets.com Site. As used herein, "Local
Advertising" means advertising seeking to reach less than
seventy percent (70%) of the U.S. market. After six months have
elapsed from the date of this Agreement, Tickets.com will be
able terminate CIM's ad rep services under this paragraph upon
ninety (90) days written notice.
d) Notwithstanding anything in paragraph (c) above, if Tickets.com
determines that it would like to enter into an agreement for ad
rep services for Local Advertising in a market not served by a
CIM ad sales force, it will notify CIM prior to entering into
such agreement, and CIM will have ten (10) days to respond to
Tickets.com as to whether it plans to launch an ad sales force
to serve such market within thirty (30) days from the date of
such notice. If CIM does plan to launch an ad sales force to
serve such market within thirty (30) days, then Tickets.com may
not enter into the agreement with the third party. Otherwise,
Tickets.com may enter into such ad rep agreement.
e) "Tickets.com Local Ad Revenue" shall mean all revenue derived
from the CIM's sale of Local Advertising on the Tickets.com
Site. Tickets.com will pay to CIM a percentage of the
Tickets.com Local Ad Revenue as follows: sales commissions of
[***] percent ([***]%) and ad serving expenses of [***] percent
([***]%). All other revenues, less commission and ad serving
costs will accrue to Tickets.com.
f) Tickets.com will ensure that Tickets.com Site will have
flexibility in programming for advertising and will have at
least the same number of advertising opportunities as on the
channel and application pages on the CIM City Sites (currently
one banner ad and three sponsorship boxes).
11. REVENUES PAID TO CIM BY TICKETS.COM
a) Tickets.com will pay CIM on a quarterly basis [***] percent
([***]%) of the "Net Revenues" that accrues to Tickets.com from
CIM users during the term of this Agreement from e-commerce
opportunities, including but not limited to, merchandise,
travel, events packages and auctions. "Net Revenues" means
e-commerce related transaction revenue (excluding ticket sales),
less costs directly allocated to the goods sold, that accrues to
Tickets.com from the Co-Branded Ticketing Pages during the term
of the applicable payment period. CIM shall use commercially
reasonable efforts to distribute Tickets.com sourced and
initiated e-commerce transactions throughout the CIM City Sites
in relevant channels and applications, subject to existing
contractual obligations. For instance, merchandise may be
promoted in the Searchable Product Application that will reside
in the Shopping Channel and sports events packages will be
promoted in the Sports Channel.
b) Tickets.com will pay CIM on a quarterly basis a commission of
$[***] per ticket. The commission to CIM is intended to
represent [***] percent ([***]%) of the gross margin on tickets
sold over
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
7
<PAGE> 8
the Internet. In the event that the gross margin on tickets sold
over the Internet improves, CIM will, on an annual basis adjust
the dollar commission based on the increased gross margin, so
that CIM's commission is equal to [***]% of Tickets.com's gross
margin.
c) If CIM has played a primary, substantial and integral role in
assisting Tickets.com in obtaining ticketing rights to any
venue, Tickets.com will pay CIM a per ticket commission of
$[***] or [***] percent ([***]%) of the gross margin per ticket
sold, whichever is greater, for any tickets sold for such venue,
whether through a Co-Branded Ticketing Page, the Tickets.com
Site, another distribution partner of Tickets.com, or any other
method of distribution employed by or on behalf of Tickets.com.
d) If CIM believes it would be able to assist Tickets.com in
obtaining ticketing rights for a category of tickets that would
be sold with a significantly higher per-ticket service charge
than typical venue events, the parties agree to discuss in good
faith whether such assistance would be appropriate and what
compensation would be paid to CIM in the event that Tickets.com
obtains such ticketing rights.
e) In cases where CIM distributes Tickets.com content through the
broadband platform of Excite@Home, the foregoing revenue-sharing
provisions of section 11(a) and section 11(b) will apply only if
the content is integrated so that Tickets.com serves the user a
Co-Branded Ticketing Page that corresponds to the area of the
Excite@Home service programmed by CIM (or any Cox Network
website).
12. TICKETS.COM ADVERTISING THROUGH COX MEDIA PROPERTIES
a) If within sixty (60) days of the date of this Agreement,
MP3Radio.com acquires any number of equity interests in
Tickets.com from CIM, Tickets.com shall be required to spend the
annual minimum amounts on advertising set forth in Table II
below in the following Cox media properties: the CIM City Sites,
AutoConnect.com, ValPak.com, MP3Radio.com (national),and
MP3Radio.com websites of Cox radio station affiliates
(collectively, "Cox Internet Properties"), and also Cox Radio
Stations, Cox Newspapers, Cox Television Stations, ValPak and
Cox Communications (cable).
TABLE II
<TABLE>
<CAPTION>
---------------------------------------------------------------
Guaranteed Advertising YEAR 1 YEAR 2 YEAR 3
Expenditure
---------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------------------
CIM City Sites [***] [***] [***]
---------------------------------------------------------------
MP3Radio.com (national) [***] [***] [***]
---------------------------------------------------------------
MP3Radio.com (Cox [***] [***] [***]
Radio affiliate
websites only)
---------------------------------------------------------------
AutoConnect.com [***] [***] [***]
---------------------------------------------------------------
ValPak.com [***] [***] [***]
---------------------------------------------------------------
[SUBTOTAL FOR COX [[***]] [[***]] [[***]]
INTERNET PROPERTIES]
---------------------------------------------------------------
---------------------------------------------------------------
Cox Radio Stations [***] [***] [***]
---------------------------------------------------------------
---------------------------------------------------------------
Discretionary (i.e. [***] [***] [***]
any Cox Property
listed in Section
12(a) above)
---------------------------------------------------------------
Total [***] [***] [***]
---------------------------------------------------------------
</TABLE>
b) If within sixty (60) days of the date of this Agreement,
MP3Radio.com does not acquire any equity interests in
Tickets.com from CIM, Tickets.com shall be required to spend the
annual minimum amounts on advertising in the Cox media
properties listed in section 12(a) above as set forth in Table
III below.
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
8
<PAGE> 9
TABLE III
<TABLE>
<CAPTION>
---------------------------------------------------------------
Guaranteed Advertising YEAR 1 YEAR 2 YEAR 3
Expenditure
---------------------------------------------------------------
<S> <C> <C> <C>
---------------------------------------------------------------
CIM City Sites [***] [***] [***]
---------------------------------------------------------------
MP3Radio.com (national) [***] [***] [***]
---------------------------------------------------------------
MP3Radio.com (Cox Radio [***] [***] [***]
affiliate websites only)
---------------------------------------------------------------
AutoConnect.com [***] [***] [***]
---------------------------------------------------------------
ValPak.com [***] [***] [***]
---------------------------------------------------------------
[SUBTOTAL OF COX [[***]] [[***]] [[***]]
INTERNET PROPERTIES]
---------------------------------------------------------------
---------------------------------------------------------------
Cox Radio Stations [***] [***] [***]
---------------------------------------------------------------
---------------------------------------------------------------
Discretionary (i.e. any [***] [***] [***]
Cox Property listed in
Section 12(a) above)
---------------------------------------------------------------
Total [***] [***] [***]
---------------------------------------------------------------
</TABLE>
c) CIM may, at any time in its discretion, elect to decrease the
annual minimum expenditures set forth in Table II or Table III
above with respect to the Cox Internet Properties. If CIM
reduces the annual minimums, it may require Tickets.com to
re-allocate up to half of the guaranteed minimum expenditures to
other Cox Internet Properties, provided that CIM will make good
faith efforts to allocate Tickets.com's expenditures to Cox
Internet Properties that CIM believes will be useful and
attractive means of promoting Tickets.com.
d) With respect to advertising on the CIM City Sites, Tickets.com
shall make ad buys at a CPM of $[***]. With respect to ad buys
in other Cox media properties, Tickets.com shall be entitled to
the average rate paid by advertisers on such properties for ad
buys of a similar dollar amount and in consideration of the
prominence of the advertisements. The terms for such advertising
(other than rates) will be the same terms found in the standard
terms and conditions for such advertising.
e) Wherever commercially reasonable and appropriate,Tickets.com
advertisements in Cox media properties will include a specific
mention of the corresponding CIM City Site (by applicable brand)
in the market for which the Co-Branded Ticketing Pages are
available (e.g. "available through [nameofCIMsite.com]").
13. TERMINATION
a) Either party may terminate if the other party materially
breaches this Agreement and the breach remains uncured for a
period of ninety (90) days.
b) In the event of a Change of Control Transaction with respect to
Tickets.com, where the acquiring party in such transaction is a
"Competitor" as defined in c) below, Tickets.com agrees that:
(i) the Tickets.com branding on the Co-Branded Ticketing Pages
will remain unchanged and no additional or different branding,
other than CIM branding, will be displayed; (ii) the content and
functionality of the Tickets.com and Co-Branded Ticket Pages
will remain at least at the level that it exists at the time of
the Change of Control Transaction; and (iii) Tickets.com will
make available to CIM all content and functionality available on
the Tickets.com Site (or subsequent site).
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
9
<PAGE> 10
c) For the purposes hereof, (i) a "Competitor" shall mean an entity
which (a) acts as a provider of a broad offering of Internet
delivery, content, search, directory and user services to a
local consumer market and (b) is competitive with CIM; (ii)
"Change of Control Transaction" shall mean with respect to a
particular corporation (a) any merger, share exchange or other
acquisition (or series of related transactions of such nature)
as a result of which the holders of voting securities of the
corporation immediately prior thereto do not continue to own
beneficially voting securities representing 50% or more of the
total voting securities of the corporation (or any successor
entity or parent corporation) immediately thereafter or (b) a
sale or transfer of all or substantially all of a corporation's
assets.
d) CIM may terminate this Agreement if Tickets.com is not one of
the top providers in terms of online ticketing functionality and
tools (excluding ticket inventory) based on commercially
reasonable standards. Tickets.com may terminate this Agreement
if CIM's City Sites are not among the top local websites in
terms of tools and functionality based on commercially
reasonable standards.
14. WARRANTY AND INDEMNITY
a) Tickets.com will defend, indemnify and hold harmless CIM, Cox
Enterprises, Inc., and all of their affiliates from claims
arising from the content or transactions on the Tickets.com Site
or the Co-Branded Ticketing Pages (other than content provided
by CIM), or claims that its Content or transactions related
thereto infringe or violate any federal, state or local law,
third party copyright, patent, trade secret, trademark, right of
publicity or right of privacy or contains any defamatory
content.
b) CIM will defend, indemnify and hold harmless Tickets.com from
claims arising from content on the Cox Network, other than the
content or transactions provided by or on behalf of Tickets.com,
including claims that the content infringes or violates any
federal, state or local law, third party copyright, patent,
trade secret, trademark, right of publicity or right of privacy
or contains any defamatory content.
15. LIMITATION OF LIABILITY
Except for liability for indemnity, neither party will have liability
for any damages other than direct damages. Each party's liability will
be limited to the amounts actually paid by Tickets.com.
16. GENERAL
a) With each payment, each party will provide the other
documentation reasonably detailing the calculation of the
payment. Each party will maintain accurate records with respect
to the calculation of all payments due under this Agreement. No
more than once per year, either party may cause an independent
Certified Public Accountant to inspect the records of the other
reasonably related to the calculation of such payments. The fees
charged by such Certified Public Accountant in connection with
the inspection will be paid by the party initiating the audit,
unless the Certified Public Accountant discovers an underpayment
of greater than 10%, in which case the other party will pay such
fees.
b) CIM and Tickets.com shall jointly prepare, and determine the
timing of, any press release or other announcement to the public
relating to the transaction described in this Agreement. Prior
to the execution of any Definitive Agreement, neither of the
parties hereto, nor their respective affiliates, shall make any
public announcement with respect to this Agreement or the
transaction contemplated hereby without the express consent of
the other party as to form and content.
c) This Agreement is the complete and exclusive agreement between
the parties with respect to the subject matter hereof,
superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This Agreement
may only be modified, or any rights under it waived, by a
written document executed by both parties.
10
<PAGE> 11
d) This Agreement may be executed in counterparts, each of which
when taken together shall constitute one and the same
instrument.
AGREED as of the date first written above:
TICKETS.COM, INC. COX INTERACTIVE MEDIA, INC.
By: ____________________________ By: ____________________________
Name: __________________________ Name: __________________________
Title: _________________________ Title: _________________________
Date: __________________________ Date: __________________________
11
<PAGE> 1
EXHIBIT 10.31
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND
ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
REALNAME ADDRESS PREFIX AGREEMENT
BETWEEN CENTRAAL CORPORATION AND TICKETS.COM, INC.
This Agreement (this "Agreement") is entered into as of July 23, 1999
("Effective Date") by and between Centraal Corporation, a Delaware corporation
with offices at 2 Circle Star Way, 2nd Floor, San Carlos, CA 94070-1350
("Centraal"), and Tickets.com, Inc. a Delaware corporation with offices at 4675
MacArthur Court, Suite 1400, Newport Beach, CA 92660 ("Company" and, together
with Centraal, the "Parties").
WHEREAS, Company desires to have the use of a designated prefix to be
used in the RealNames Service on the terms and conditions set forth below.
NOW, THEREFORE, the Parties agree as follows:
1. DEFINITIONS.
1.1 "REALNAME PREFIX" means RealName addresses in the form of a
unique phrase to be used as a prefix followed by a rules-based dynamic syntax
query to be applied at Company's Web site. Centraal's resolvers will recognize
the format of a RealName Prefix from an Internet user's query, transform the
RealName Prefix into an appropriate query for the Company Web site, and,
following such Company Web site query, redirect the Internet user directly to
the Company URL appropriate to such RealName Prefix or, if appropriate, to an
intermediary Company Web site listing relevant directory results to such
RealName Prefix query (e.g. the prefix "ZZZ", to form RealNames Addresses such
as "ZZZ drowse" or "ZZZ sleep").
1.2 "REALNAMES ADDRESS" means the proprietary natural language
address assigned by Centraal to a third party subscriber which can be translated
into a URL address through Resolution (as herein defined).
1.3 "REALNAMES SERVICE" means Centraal's subscriber-based Internet
addressing system that utilizes unique RealName addresses to direct Internet
users to URLs determined by Centraal, which is described with greater
specificity in Centraal's representations in Exhibit A hereto, the terms of
which are incorporated herein by reference.
All other capitalized terms used herein will have the meanings assigned
to them herein.
2. REALNAME SUBSCRIPTION.
2.1 REALNAME SUBSCRIPTION. Subject to the terms and conditions of
this Agreement, Company hereby subscribes to the exclusive use (during the term
of this Agreement) of (i) the RealName Prefix for the terms "ticket", "tickets",
and "tickets.com" (the "Prefixes") in the RealNames Service and (ii) the
RealNames Addresses set forth on Exhibit A hereto (the "Company Addresses") for
the term of this Agreement. Through the use of the RealName Prefixes, Internet
users may type "ticket", "tickets" or "tickets.com" followed by event category,
city, artist name or other relevant terms and be directed directly to the
Company World Wide Web site page specifically relevant to such search query, or
such other location as the Company may reasonably specify.
2.2 OWNERSHIP. As between the Parties, subject to Section 4 below,
Centraal will retain all rights, titles, and interests in the RealName Prefixes
and RealNames Addresses; except that for the term hereof, Company is the
exclusive licensee of the Prefixes Company agrees that all goodwill in any
RealName Prefix or RealNames Address as an address in the RealNames Service
belongs exclusively to Centraal. Company's use of the RealNames Service confers
no property rights upon Company. Company understands and agrees that Centraal
has the right to compile usage statistics and other data regarding use of
Centraal's RealNames Service and to sell and provide any and all such aggregated
(as opposed to personal) data to third parties.
2.3 RESERVATION. Company agrees that allocation of RealName Prefixes
and RealNames Addreses by Centraal is subject to Centraal's discretion. Centraal
may at any time, with notice to Company that is reasonable in the circumstances
(including immediate notice when that is appropriate) withdraw a RealName Prefix
or RealNames Address previously or currently used by Company. However, Centraal,
and any entity acting at its direction, may not allocate, re-allocate, or
license the Prefixes to any entity other than the Company during the term
<PAGE> 2
hereof. Company understands and agrees that Centraal requires absolute
discretion over the allocation of RealName Prefixes and RealNames Addresses (1)
in light of the uncertain and often conflicting principles and law that are at
work in the current state of the Internet and (2) to exercise its own judgment
as to what constitutes an optimal service and system and that Centraal may apply
standards of decision regarding withdrawal of RealName Prefixes or RealNames
Addresses that evolve or change over time. Company agrees and acknowledges that
Centraal may withdraw approval of a RealName Prefix or RealNames Address. If
Centraal withdraws approval of a RealName Prefix or RealName Address , Centraal
will attempt to provide an alternative RealName Prefix or RealNames Address, as
applicable, that is acceptable to both Parties. However, Company is under no
obligation to accept any changes to the Prefixes, and in such event may, at its
discretion, elect to terminate this Agreement in accordance with Section 5.1(c).
If such termination occurs during a payment period (as opposed to at the
conclusion thereof) the fees owing Centraal hereunder shall be prorated. Company
accords to Centraal the right to make decisions that it deems best in each
context.
3. COMPENSATION.
3.1 SUBSCRIPTION FEES. During the term of this Agreement, Company
will pay a non-refundable fee, except as set forth in Paragraph 2.3, to Centraal
as follows:
(a) $[***] per calendar quarter for the period of Effective
Date to September 30, 1999;
(b) $[***] per calendar quarter for the period of October 1,
1999 to December 31, 1999;
(c) $[***] per each calendar quarter for the period of
January 1, 2000 to June 30, 2000;
(d) $[***] per each calendar quarter for the period of July
1, 2000 to December 31, 2000; and
(e) $[***] for the calendar quarter for the period of
January 1, 2001 to March 31, 2001.
(f) $[***] for the calendar quarter for the period of April
1, 2001 to June 30, 2001.
(g) $[***] for the calendar month for the period of July 1,
2001 to July 31, 2001.
3.2 PRICE PER RESOLUTION FEES. In addition to the fees set forth in
Section 3.1 above, during the term of this Agreement, Company will pay Centraal
a price per Resolution of $[***]; provided, however, that for each calendar
quarter beginning on July 1, 1999 through June 30, 2001, such fees will be due
and payable only in respect of Resolutions exceeding:
(a) [***] Resolutions delivered by Centraal for the calendar
quarter beginning on Effective Date through September 30, 1999;
(b) [***] Resolutions delivered by Centraal for the calendar
quarter beginning on October 1, 1999 through December 31, 1999;
(c) [***] Resolutions delivered by Centraal for each
calendar quarter during the period of January 1, 2000 through December 31, 2000;
and
(d) [***] Resolutions delivered by Centraal for each
calendar quarter during the period of January 1, 2001 through June 30, 2001.
A "Resolution" occurs each time Internet user uses a RealNames
Address or RealName Prefix subscribed by Company to navigate to a Company owned
or controlled uniform resource locator through the RealNames Service.
3.3 PAYMENT. At the end of each calendar quarter, Centraal will
submit to Company invoices of the fees due and payable to Centraal by Company
for such quarter under Sections 3.1 and 3.2 of this Agreement. Company shall pay
such invoices within thirty (30) days of receipt.
4. USE OF COMPANY NAMES. Either party may, upon the written permission of
the owner, use applicable trade names and brand names of Company (collectively,
the "Trademarks") in connection with the relationship envisioned herein. Nothing
herein will grant either party any right, title or interest in the other's
Trademarks. Any and all good will arising from either party's use of the other's
Trademarks will inure solely to the benefit of the owner. Notwithstanding the
foregoing, Company gives Centraal permission to utilize the applicable Company
Trademarks in connection with the provision of the RealNames Service as
contemplated herein.
5. TERM AND TERMINATION.
5.1 TERM AND TERMINATION.
(a) This Agreement will commence on the Effective Date and
continue for an initial term that will expire on June 30, 2001, unless earlier
terminated as set forth herein. Thereafter, this
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately with the
Securities and Exchange Commission.
- 2 -
<PAGE> 3
Agreement will be automatically renewed for successive one (1) year terms,
unless, at least thirty (30) days prior to the commencement of an additional one
(1) year term, a Party notifies the other Party in writing of its intention not
to renew this Agreement. Notwithstanding the foregoing, if Centraal elects not
to renew the Agreement, Centraal shall inform the Company in writing of its
intent, if any, to allocate, reallocate, or license the RealName prefixes
"ticket", "tickets", or "tickets.com" to another entity. Upon receipt of such
notice Company will have a thirty (30) day right of first refusal to renew the
subscription agreement for the Prefixes upon the terms being offered by such
other entity, or upon such other terms as Centraal and the Company may agree.
The right of first refusal granted by the preceding sentence shall terminate one
year following the non-renewal of this Agreement by Centraal.
(b) This Agreement may be terminated immediately for cause
by either Party on written notice to the other Party in the event that the other
Party: (i) ceases to function as a going concern or to conduct its operations in
the normal course of business; or (ii) is in material default of its obligations
under this Agreement and fails to cure such default within thirty (30) days
after written notice thereof.
(c) In the event that Centraal removes the RealName Prefix
"ticket", "tickets", or"tickets.com" from the RealNames Service, and fails to
replace such RealName Prefix with a substitute RealName Prefix acceptable to
Company, Company may terminate this Agreement if Centraal fails to cure the
deficiency upon ten (10) days' written notice to Centraal.
(d) In the event that Centraal reasonably believes that
Company's use of a RealName Prefix or a Company Address may result in imminent
liability to Centraal, Centraal may terminate this Agreement upon five (5)
business days' written notice to Company if the Parties are unable to cure such
threat during the same period.
(e) Centraal shall maintain a ninety-nine percent (99%)
uptime (net of network latency time, which is beyond the control of Centraal)
for the RealNames Service provided hereunder 24 hours per day, seven days per
week during each month of the term of this Agreement (with the exception of any
scheduled maintenance performed by Centraal). Service uptime means that a search
result will promptly return an accurate RealNames Address to URL link when that
link is applicable. If Centraal fails to meet such uptime performance standards,
Centraal shall have seventy-two (72) hours to correct the problem and restore
the system to ninety-nine percent (99%) uptime functionality. If any such
failure is not corrected within seventy-two (72) hours from written notification
to Centraal by Company, or if Centraal fails to meet such uptime performance
standards on more than three (3) occasions in any sixty (60) day period, Company
may immediately terminate this Agreement upon written notice to Centraal, or,
alternatively, elect to receive a pro rata refund for each day during such
period for which Centraal failed to meet the ninety-nine percent (99%) uptime
standard.
5.2 NO LIABILITY. Except as expressly required by law, in the event
of termination of this Agreement by either Party in accordance with its terms,
neither Party shall be liable to the other for compensation, reimbursement or
damages resulting from such termination and resulting from (i) the loss of
prospective profits or anticipated sales; or (ii) expenditures, inventory,
investments, leases or commitments in connection with the business or goodwill
of the Parties.
5.3 SURVIVAL. In the event of termination or cancellation of this
Agreement, Sections 1, 2.2, 2.3, 3, 4, 5.2, 5.3, 6, 7 and 8 shall survive and
shall continue to apply in accordance with their terms.
6. WARRANTY AND INDEMNITY.
6.1 WARRANTY AND DISCLAIMER. Company agrees that Subscription OF A
REALNAme PREFIX OR REALNAMES ADDRESS does not confer immunity from objection to
either the subscription or use of the RealNames PREFIX OR REALNAMES ADDRESS BY
THIRD PARTIES, HOWEVER, CENTRAAL WILL INDEMNIFY COMPANY AGAINST THE SAME.
COMPANY ACKNOWLEDGES AND AGREES THAT THE SERVICES OF CENTRAAL AND THE REALNAME
PREFIX AND THE REALNAMES ADDRESSES) (COLLECTIVELY, THE "SERVICES") ARE BEING
PROVIDED "AS IS," WITH "ALL FAULTS," AND THAT CENTRAAL MAKES NO REPRESENTATIONS
OR WARRANTIES, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, AND SPECIFICALLY
DISCLAIMS, ON ITS OWN BEHALF ON AND BEHALF OF ITS AFFILIATED PARTIES, ANY
WARRANTIES AS TO THE USEFULNESS, ACCURACY, RELIABILITY, NON-INFRINGEMENT OR
EFFECTIVENESS OF SUCH SERVICES, OR THAT ANY OF SUCH SERVICES WILL BE
UNINTERRUPTED, ERROR FREE, OR WILL MEET THE NEEDS OF ANY
- 3 -
<PAGE> 4
PARTY. WITHOUT LIMITING THE FOREGOING, CENTRAAL DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT WILL CENTRAAL
BE LIABLE TO THE COMPANY FOR ANY FAILURE, DISRUPTION, DOWNTIME, INCORRECT
LINKAGE OR OTHER NON PERFORMANCE OF THE REALNAMES SERVICE.
6.2 INDEMNITY. Both parties, at their own expense, will defend,
indemnify and hold the other, its officers, directors, employees, agents and
successors harmless against any liability, or any litigation cost or expense
(including attorneys' fee), arising out of third-party claims as a result of the
other party's negligence proximately in connection with performance of this
Agreement.
7. CONFIDENTIALITY. Each Party may disclose the existence of this
Agreement, but agrees that the terms and conditions of this Agreement will be
treated as Confidential Information; provided, however, that each Party may
disclose the terms and conditions of this Agreement: (i) as required by any
court or other governmental body; (ii) as otherwise required by law; (iii) to
legal counsel of the parties; (iv) in confidence, to accountants, banks, and
financing sources and their advisors; (v) in connection with the enforcement of
this Agreement or rights under this Agreement; or (vi) in confidence, in
connection with an actual or proposed merger, acquisition, or similar
transaction.
8. GENERAL.
8.1 MISCELLANEOUS. Nonperformance of either Party will be excused to
the extent that performance is rendered impossible by any other reason where
failure to perform is beyond the reasonable control and not caused by the gross
negligence or willful misconduct of the non-performing Party. The relationship
of Centraal and Company established by this Agreement is that of independent
contractors. This Agreement will be governed by and construed under the laws of
the State of California without reference to conflict of law principles. This
Agreement, together with all exhibits and attachments hereto, set forth the
entire agreement and understanding of the Parties relating to the subject matter
herein and merges all prior discussions between them. No modification of or
amendment to this Agreement, nor any waiver of any rights under this Agreement,
will be effective unless in writing signed by the Parties to the changes, and
the waiver of any breach or default will not constitute a waiver of any other
right hereunder or any subsequent breach or default. Company may not assign this
Agreement, or assign or delegate any right or obligation hereunder, without the
prior written consent of Centraal, except in connection with a sale of
substantially all the assets of the Company. If any provision in this Agreement
is found invalid then such provision will be construed, if feasible, so as to
render the provision enforceable, and if no feasible interpretation would save
such provision, it will be severed from the remainder of this Agreement, and the
parties will negotiate, in good faith, a substitute, valid and enforceable
provision that most nearly effects the Parties' intent in entering into this
Agreement. This Agreement will be binding upon the successors or the parties
hereto.
8.2 DISPUTES. In the event that Company's subscription of the
RealName Prefix, the Company Addresses, or any other aspect of the RealNames
Service, or any conduct by the Company results in any challenge, claim, demand,
or action to or against Centraal by any third party, Company agrees that
Centraal shall have the right to decide in its sole discretion what actions to
take, including without limitation whether to continue to provide Company's
subscription to the RealName Prefix or the Company Address, reservation or any
other aspect of the RealNames Service affected by such claim. Company
understands and agrees that it has no vested interest or right in any procedures
or rules of dispute resolution.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
signed by duly authorized officers or representatives as of the date first above
written.
TICKETS.COM, INC.
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
CENTRAAL CORPORATION
By: _____________________________________
Name: _____________________________________
Title: _____________________________________
- 4 -
<PAGE> 5
EXHIBIT A
Centraal represents that, as of the date hereof, it has entered into the
following principal agreements with respect to distribution of RealNames
Service:
1. LICENSE AND MARKETING AGREEMENT BETWEEN CENTRAAL AND MICROSOFT
CORPORATION DATED JUNE 2, 1999.
TERM: Two years; may be renewed for subsequent one-year periods.
TYPE OF IMPLEMENTATION: RealNames Service will be implemented on both,
"MSN Search" and "AutoSearch" search properties.
EXPECTED IMPLEMENTATION: Microsoft will endeavor to implement the
RealNames Service on MSN Search by September 1, 1999 and on AutoSearch
by August 1, 1999.
ASSIGNMENT: Binding upon any successor and lawful assign of Microsoft;
provided, however, that Microsoft may not assign to any competitor of
Centraal.
2. REALNAMES SERVICES AGREEMENT BETWEEN CENTRAAL AND INKTOMI DATED JANUARY
12, 1999.
TERM: Will expire on December 31, 2000. Renewable for two-year periods
thereafter upon the written consent of both parties.
EXPECTED IMPLEMENTATION: By August 1, 1999. Second implementation:
Q4'99.
ASSIGNMENT: Binding upon Inktomi's successor by merger/sale of assets,
provided that Inktomi may not assign the agreement to any competitor of
Centraal.
3. REALNAMES SERVICE AGREEMENT BETWEEN CENTRAAL AND INFOSEEK CORPORATION
DATED MAY 5, 1999.
TERM: One year, may be renewed for additional one-year terms upon the
prior written consent of the parties.
EXPECTED IMPLEMENTATION: Mid-August, 1999.
ASSIGNMENT: Binding upon Infoseek's successor by merger/sale of assets,
provided that agreement may not be assigned to a competitor of Centraal.
4. REALNAMES SERVICE AGREEMENT BETWEEN CENTRAAL AND GRUNER & JAHR
ELECTRONIC MEDIA SERVICE GMBH (FIREBALL) DATED MARCH 19, 1999.
TERM: Initial term - 3 years; renewable thereafter for one-year periods
upon mutual written consent of the parties.
ASSIGNMENT: Binding upon G&J's successor by merger/sale of assets.
EXPECTED IMPLEMENTATION: Done.
5. REALNAMES SERVICE AGREEMENT BETWEEN CENTRAAL AND ALTAVISTA COMPANY DATED
APRIL 1, 1999.
TERM: Will expire on December 31, 2000. Subsequent renewal for one-year
periods.
<PAGE> 6
EXPECTED IMPLEMENTATION: Fully integrated. Second implementation planned
by October 1, 1999.
ASSIGNMENT: Binding upon AltaVista's successor by merger/sale of assets.
6. REALNAMES SERVICE AGREEMENT BETWEEN CENTRAAL AND BRITISH
TELECOMMUNICATIONS, PLC. DATED JUNE 21, 1999.
TERM: Two years, will be automatically renewed for one-year terms
thereafter.
EXPECTED IMPLEMENTATION: Mid-September, 1999.
ASSIGNMENT: Binding upon BT's successor by merger/sale of assets,
provided that agreement may not be assigned to a competitor of Centraal.
7. REALNAME SERVICE AGREEMENT BETWEEN CENTRAAL AND LOOKSMART LTD. DATED
SEPTEMBER 25, 1998.
TERM: 2 years with automatic renewal thereafter for one-year terms.
EXPECTED IMPLEMENTATION: Fully implemented.
ASSIGNMENT: Binding upon LookSmart's successor by merger/sale of assets,
provided that agreement may not be assigned to a competitor of Centraal.
<PAGE> 1
EXHIBIT 10.32
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR CERTAIN REDACTED PROVISIONS OF
THIS AGREEMENT. THE REDACTED PROVISIONS ARE IDENTIFIED BY THREE ASTERISKS AND
ENCLOSED BY BRACKETS. THE CONFIDENTIAL PORTION HAS BEEN FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.
EXCITE@HOME
TICKETS.COM LETTER OF INTENT
THIS EXCITE@HOME/Tickets.com Letter of Intent is made as of August 4, 1999
("Effective Date") between Excite, Inc., a wholly owned subsidiary of At Home
Corporation, a Delaware corporation with principal offices at 425 Broadway,
Redwood City, CA 94063 ("Excite@Home"); and Tickets.com, Inc. a Delaware company
with principal offices at 4675 McArthur Court, Suite 1400, Newport Beach, CA
92660 ("Tickets.com ").
RECITALS
A. The parties are conducting negotiations relating to distribution,
advertising sales and other services on the Excite service. The parties
will continue to use good faith efforts to promptly negotiate and
execute a definitive agreement relating to those matters (the
"Definitive Agreement") on or prior to September 1, 1999.
B. Although the parties are not yet ready to enter into the Definitive
Agreement, the parties would like to set forth in this Letter of Intent
to agree on certain issues that will be addressed in the Definitive
Agreement. It is expressly understood that this Letter of Intent
constitutes a binding obligation of the parties. Until the parties
execute the Definitive Agreement, this Letter of Intent shall
constitute a valid and binding agreement of the parties hereto.
1. CO-BRANDED TICKETING APPLICATION
a) Tickets.com will create a co-branded ticketing application
("Co-Branded Ticketing Application") for the Excite Site and
other sites that Excite@Home has the right to program ("Excite
Network").
b) Co-Branded Ticketing Application will include content and
functionality that allows users to search for events by city,
venue, date, artist, team, and keywords as well as in
classifieds (Excite Classifieds) and in auctions (Tickets.com
Auctions), and to buy tickets to certain events ("Application
Content").
c) Previews to the Co-Branded Ticketing Application will be
featured in programmed search results and appropriate "Excite
Channels" including, but not limited to, Sports, Local, Music,
Movies, Entertainment and Travel. "Excite Channels" are
channels on Excite that display Excite navigation, Excite
directory and community products.
d) Tickets.com will design and create web pages containing the
Application Content ("Application Pages"). The Application
Pages will be in accordance with guidelines that Excite@Home
will provide Tickets.com which include, but are not limited
to, page performance standards, header and other design/user
interface standards.
e) The Application Pages will carry both Excite branding and
Tickets.com branding, displayed in substantially equivalent
location, size and prominence. Excite's branding will be
displayed as consistent with the rest of the Excite Network.
f) The "look and feel" of the Application Pages will be
consistent with the "look and feel" of the Excite Network.
Excite@Home will have final approval over the "look and feel"
of the Application Pages.
g) Tickets.com will host the Co-Branded Ticketing Application but
it will be served from an "excite.com" domain name (or such
other domain Excite@Home may determine) so that Excite@Home
can get the reach and page view credit. Excite@Home will work
with Tickets.com and Media Metrix to get reach credit for the
Co-Branded Ticketing Application on behalf of Tickets.com.
h) Tickets.com will continue to maintain its own web site at
www.tickets.com ("Tickets.com Site").
1
<PAGE> 2
2. CONTENT PROVIDED TO EXCITE FOR INTEGRATION
a) Tickets.com will provide content for display on the Excite
Network and on other sites Excite that has right to program.
b) Tickets.com will provide the content such as a full listing of
events and venues (listings should include events for which
both Tickets.com and other ticketing providers can provide
ticket buying functionality) (the "Content"). Excite will
create and host the Web pages ("Content Pages") incorporating
the Content. Content Pages are pages that display the Content
or any portion thereof and with respect to which at least a
majority of the content (excluding advertisements) on such
pages is composed of the Content. Content Pages specifically
exclude search results pages.
c) Excite@Home will integrate the Content into Excite@Home's
"Searchable Product Application", a database-driven commerce
application which will allow users to search or browse for
commerce-related information. Tickets.com will point to the
Searchable Product Application, as applicable, in the
Co-Branded Ticketing Application.
d) Tickets.com and Excite will determine mutually agreeable
automated methods for the transmission and incorporation of
updates to the Content.
e) Tickets.com will have sole responsibility for providing, at
its expense, the Content to Excite.
3. ONLINE AND DEVICE DISTRIBUTION AND OFF-WEB PROMOTION
a) Excite@Home will create a persistent link to a ticket buying
tool on the My Excite Start Page. Excite@Home will also create
a personalizable module for the My Excite Start Page for
ticket buying functionality.
b) Excite@Home will feature the ticket buying tool above the fold
on the My Excite Start Page for 60 days after launch of the
Co-Branded Ticketing Application ("Launch Period").
c) After the Launch Period, Excite@Home will feature the
ticketing buying tool above the fold on the My Excite Start
Page provided it is in the top 50% of the top performing links
as compared to other comparable links on the My Excite Start
Page based on the following metrics: click throughs on the
ticket buying tool and RPMs for the Co-Branded Ticketing
Application. In the event that the ticket buying tool falls
below the top 50% of the top performing links on the My Excite
Start Page in any one month, a mandatory reevaluation of the
programming of this tool will be initiated. In the event that
the ticket buying tool is below the top 50% of the top
performing links on the My Excite Start Page for two
consecutive months or two months in any one quarter, then
Excite@Home may move that link to another location on the My
Excite Start Page. Above the fold placement of the ticket
buying tool will be reevaluated if the ticket buying tool link
outperforms a comparable link above the fold for 30
consecutive days or the Co-Branded Ticketing Application goes
through a substantial relaunch. In those events, the ticket
buying tool will be placed above the fold for a one month
trial and the metrics stated above will apply.
d) Excite@Home will promote ticket buying functionality in
channels and applications that include, but are not limited
to, Sports, Local, Music, Movies, Entertainment and Travel.
Excite@Home will build an "Application Preview" for an events
application with integrated ticketing functionality in the
Entertainment Channel. "Application Preview" is defined as
featured text dedicated to previewing content and
functionality.
e) Excite@Home will integrate content feeds of events listings
and other venue information throughout the Excite Network
including programmed search results, directory and
applications.
2
<PAGE> 3
f) Excite@Home will distribute ticket buying functionality and
content throughout the @Home broadband service, subject only
to contractual obligations and MSO restrictions. Excite@Home
will also allow for broadband content distribution such as
video and audio clips promoting tickets sales. In the event
that Excite@Home gains full programming control of the @Home
broadband service, Excite@Home will provide Tickets.com
similar promotion and distribution as on the Excite Network.
g) Excite@Home will commit to the following minimum number of
Impressions. Impression means each placement of content,
links, or promotion including, but not limited to front page
placement, programmed search results, keyword banners,
channels, applications and other forms of distribution.
TABLE I
YEAR 1 YEAR 2 YEAR 3
------ ------ ------
Minimum Impression Guarantee [***] [***] [***]
h) If, on the last day of the twenty ninth month of the term of
the Letter of Intent, Excite@Home has not provided at least
[***] Impressions, the term will be extended for the lesser of
(i) six months; or (ii) the number of days necessary for
Excite to deliver the number of impressions listed in TABLE I.
i) Subject to existing contractual obligations, Tickets.com will
receive all banner inventory for the key word "tickets" on
search results pages that will point to the Co-Branded
Ticketing Application for the term of the Letter of Intent.
j) As Excite@Home distributes content in wireless devices and
web-enabled appliances. Excite@Home will commit, where
feasible and appropriate, to distribute Tickets.com content
such as venue and event listings and also promote
1-800-tickets in order to drive additional ticket buying.
k) Tickets.com will provide Excite@Home branding and promotion in
venues and in other off-web media, to be decided on a
case-by-case basis. Excite@Home will receive Most Favored
Nations status on commitments and pricing for online and
off-web promotions and marketing.
4. ADDITIONAL PROMOTION AND DISTRIBUTION
In addition to the promotion and distribution provided above,
Excite@Home will provide to Tickets.com promotion and distribution
valued as shown below according to pricing which is no less favorable
than the average price for the product offered to Excite@Home's top 20
advertisers.
YEAR 1 YEAR 2 YEAR 3
------ ------ ------
Additional Promotion and
Distribution Value [***] [***] [***]
Excite@Home will provide the additional promotion and distribution in
the form of (i) available targeted banner advertising inventory in
Entertainment, Sports, Travel and Local and/or additional links and
placements for the Co-Branded Ticketing Application; (ii) available key
word banner advertising related to event ticketing for the Co-Branded
Ticketing Application, exact key words to be identified in the
Definitive Agreement; (iii) additional MatchLogic services; (iv)
co-branding Excite's clubs product (gated communities); (v)
participation in future products as appropriate and available. The
parties will meet prior to the beginning of each year to determine the
combination of additional promotion and distribution.
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
3
<PAGE> 4
5. COMMUNTIES/DATA OWNERSHIP/USAGE REPORTS
a) The Co-Branded Ticketing Application will point to Excite@Home
community products which include message boards, chat, clubs,
home pages, instant messaging, calendar, address book, email,
photos and any other community products developed by
Excite@Home during the term of this Letter of Intent
("Community Products"). The Co-Branded Ticketing Application
will not feature or display links to non-Excite@Home community
products without the written permission of Excite@Home.
Tickets.com and Excite will work together, to the extent
feasible, to integrate Community Products into the Co-Branded
Ticketing Application.
b) Excite@Home and Tickets.com will work together to fully
integrate the Co-Branded Ticketing Application with
Excite@Home's Universal Registration System. Tickets.com will
integrate according to Excite@Home's technical and operational
specifications. Each party will incur their own costs related
to the integration. Tickets.com agree to abide by Excite's
privacy policies as amended from time to time.
c) Excite@Home and Tickets.com will explore opportunities to
synchronize the registration processes of both sites so that
users can have a seamless experience regardless of where they
registered.
d) Tickets.com may collect user information on the Co-Branded
Ticketing Application. ("User Data"). The storage of User Data
will comply with Excite@Home's security and privacy
guidelines.
e) The User Data collected through the Co-Branded Ticketing
Application shall be jointly owned by Excite@Home and
Tickets.com.
f) Tickets.com agrees not to use User Data to directly or
indirectly solicit or contact any Excite@Home users either
individually or in the aggregate, during or for a period of
ten (10) months following the expiration or termination of the
Letter of Intent. To the extent that Tickets.com must share
User Data with individual venues, Excite@Home will honor the
contractual agreements and privacy policies between the venues
and Tickets.com.
g) Tickets.com and Excite@Home agree to not sell, disclose,
transfer or rent user data to any 3rd party without the
express permission of the user.
h) Tickets.com and Excite@Home will provide usage reports to each
other on a monthly basis by email.
6. PREMIER STATUS
a) During the term of this Letter of Intent, Tickets.com will be
the premier provider of ticketing functionality on the Excite
Network ("Premier Status"). Premier ticketing functionality is
defined as the most highly promoted provider of integrated
ticketing functionality.
b) In the event that Excite@Home decides that it needs to add
features, tools and/or content (excluding tickets inventory)
("Additional Functionality") to the Excite Network that
Tickets.com does not have, Tickets.com will have ten (10) days
to respond to Excite@Home's written notice of its desire to
provide the Additional Functionality and on or before the
later of (i) thirty (30) days; or (ii) the date on which
Additional Functionality can reasonably be available to Excite
from a third party, as determined by a proposal by a third
party. If Tickets.com is not able to provide Additional
Functionality, Excite@Home may enter into an agreement with
another third party provider to attain the Additional
Functionality and incorporate it into the Excite Network. In
the event that Excite@Home uses a third party provider for
Additional Functionality, Tickets.com Premier Status as
described in 6 (a) above will not be impacted.
c) Excite@Home will receive Most Favored Nations status for
content, functionality, and revenue sharing on transactions
and ticket sales, in comparison to any other material deals
with specifically-identified competing portals (list to be
provided). Tickets.com will allocate the engineering resources
necessary to make Excite@Home the highest priority of any of
Tickets.com's distribution partners.
4
<PAGE> 5
7. CONTENT AND FUNCTIONALITY PROVIDED TO TICKETS.COM SITE
a) Tickets.com may link to Excite@Home content such as local
content for any available local markets in the US, maps,
driving directions, movies application and local events
application ("Excite@Home Content").
b) Tickets.com may link to Excite@Home tools such as calendar,
clubs, message boards, chat, instant messaging, jango and
classifieds ("Excite@Home Tools").
c) Excite will co-brand the Excite@Home Content and Tools, if
technically possible and contractually permitted, in
accordance to the branding of the Tickets.com Site provided
Tickets.com reimburses Excite for the co-branding development.
8. QUALITY/CUSTOMER SUPPORT
a) Tickets.com will answer and/or fix significant bug reports on
the Co-Branded Ticketing Application within three business
days of notification.
b) Tickets.com Site and Co-Branded Ticketing Application will be
accessible from the web twenty four hours a day, seven days a
week.
c) Tickets.com will copy Excite@Home on all correspondence with
Co-Branded Ticketing Application users. Excite@Home will copy
Tickets.com on all correspondence related to the Co-Branded
Ticketing Application from its users.
d) Tickets.com will not send direct mailings to Excite@Home users
without prior consent of Excite@Home. Excite@Home will not
send direct mailings to users of the Tickets.com Site,
provided that those users are not also Excite@Home users,
without prior consent of Tickets.com.
9. TERM
Three year term. The parties agree to meet and negotiate in good faith
the terms and conditions of renewal no later than 90 days prior to the
expiration of the Definitive Agreement.
10. ADVERTISING REVENUES FOR TICKETS.COM
CO-BRANDED TICKET APPLICATION
a) Excite@Home will be responsible for selling advertising on the
Co-Branded Ticketing Application. Excite@Home will also be
responsible for ad serving on the Co-Branded Ticketing
Application.
b) Excite@Home will pay Tickets.com on a quarterly basis the
greater of (i) advertising guarantee payments outlined in
TABLE II (ratably per quarter) or (ii) [***] percent ([***]%)
of the "Net Advertising Revenue" that accrues to Excite@Home
during the term of this Letter of Intent from banner
advertising on the Co-Branded Ticketing Application and
Content Pages. "Net Advertising Revenue" means the gross
revenue from banner advertising on the Co-Branded Ticketing
Application and Content Pages that accrues to Excite@Home
during the applicable payment period minus sales commissions
of [***] percent ([***]%) and ad serving expenses of [***]
percent ([***]%).
TABLE II
YEAR 1 YEAR 2 YEAR 3
------ ------ ------
Content Revenue Guarantee [***] [***] [***]
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
5
<PAGE> 6
TICKETS.COM SITE
c) Excite@Home will be responsible for selling advertising on the
Tickets.com Site. Excite@Home will also be responsible for ad
serving on the Tickets.com Site.
d) Subject to traffic guarantees described below, Excite@Home
will guarantee minimum advertising revenues to Tickets.com as
shown in TABLE III. Tickets.com will pay to Excite@Home a
percentage of the revenues as follows: sales commissions of
[***] percent ([***]%) of gross sales and ad serving expenses
of [***] percent ([***]%). Revenues, less commission and ad
serving costs earned in excess of the minimum guarantees will
accrue to Tickets.com. It is the intent of the parties that
Tickets.com be able to recognize gross sales revenue. The
parties agree to provide for a sales coordination, reporting
and documentation process in the Definitive Agreement that
will accomplish the recognition intent. Incremental costs to
Excite@Home incurred as a result of processes designed to
shift revenue recognition will be reimbursed by Tickets.com in
a manner or amount that will be provided in the Definitive
Agreement.
TABLE III
YEAR 1* YEAR 2 YEAR 3**
------- ------ --------
Excite Minimum Revenue Guarantee
(150% of management projections) [***] [***] [***]
Management Revenue Projections [***] [***] [***]
Implied Guaranteed RPM*** [***] [***] [***]
Projected Annual Page Views [***] [***] [***]
Unique Visitors (Monthly Average) [***] [***] [***]
---------------
All assumptions based on management projections.
* Year 1 is defined as year ended 9/30/2000
** Year 3 is defined as Q4 2001 management projections
annualized.
*** RPM means Revenue Per Thousand Pages which includes
revenues from advertising and sponsorship opportunities.
[Revenue, traffic and unique visitor guarantees will be provided on a quarterly
basis in the Definitive Agreement]
e) In the event that page views are different from that projected
in TABLE III, the following metrics will be applied to the
revenue guarantees:
i) If actual page views exceed 100% of the projected
page views, Excite@Home will guarantee Tickets.com
the minimum revenue guarantees shown in TABLE III.
ii) If actual page views are between 80% and 100% of the
projected page views, Excite@Home will pro-rate the
minimum revenue guarantees using the RPMs shown in
TABLE III on the actual page views.
iii) If actual page views are between 60% and 80% of the
projected page views, Excite@Home will calculate the
minimum revenue guarantees using an $[***] RPM and
the actual page views.
iv) If actual page views are less than 60% of projected
page views, Excite@Home will not provide minimum
revenue guarantees but will make good faith efforts
to sell the Tickets.com Site effectively.
v) If unique visitors are below 85% of projected unique
visitors in any one quarter, the minimum revenue
guarantees will be subject to adjustments to be
mutually agreed upon.
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
6
<PAGE> 7
f) In order to achieve the RPMs guaranteed above, Tickets.com
will ensure that Tickets.com Site will have flexibility in
programming for advertising and will have at least the same
number of advertising opportunities as on the channel and
application pages on the Excite Network (currently one banner
ad and three sponsorship boxes).
g) In the event that Tickets.com decides to build its own sales
force, Tickets.com may sell Tickets.com Site advertising
inventory. Excite@Home will manage sales coordination issues
and commensurately reduce its revenue guarantees on a pro-rata
basis. If Tickets.com elects to sell more than 40% of the
advertising inventory on Tickets.com Site, Excite@Home will
cooperate in the selling efforts but will not be subject to
minimum revenue guarantees shown in TABLE III.
h) On 30 days notice to Excite@Home, Tickets.com may take over
the selling of the Tickets.com Site provided that Tickets.com
will fulfill Excite@Home existing contractual obligations on
the Tickets.com Site. Tickets.com will recognize the revenues
and Excite@Home will recognize the expenses from the existing
contractual obligations. In that event, Excite@Home will no
longer sell additional advertising inventory on the
Tickets.com Site and there will be no further revenue
guarantees or ad serving from Excite@Home.
i) Tickets.com will receive Most Favored Nations status for sales
commissions and ad serving costs, in comparison to any other
material deal that has a combination of revenue guarantees for
content and applications and revenue guarantees for the
selling of a third party site based on guaranteed RPMs. In the
event that Tickets.com chooses to sell the Tickets.com Site,
then Tickets.com will receive Most Favored Nations status for
sales commissions and ad serving costs, in comparison to any
other material deal that has annual revenue guarantees for
content and applications of $750,000 and above.
11. REVENUES FOR EXCITE@HOME
a) Tickets.com will pay Excite@Home on a quarterly basis [***]
percent ([***]%) of the "Net Revenues" that accrues to
Tickets.com from Excite@Home users during the term of this
Letter of Intent from ecommerce opportunities, including but
not limited to, merchandise, travel, events packages and
auctions. "Net Revenues" means ecommerce related transaction
revenue (excluding ticket sales), less costs directly
allocated to the goods sold, that accrues to Tickets.com from
the Co-Branded Ticketing Application during the term of the
applicable payment period. Tickets.com sourced and initiated
ecommerce transactions will be distributed throughout the
Excite Network in relevant channels and applications, subject
to contractual obligations. For instance, merchandise will be
promoted in the Searchable Product Application which will
reside in the Shopping Channel and sports events packages will
be promoted in the Sports Channel.
b) Tickets.com will pay Excite@Home on a quarterly basis a
commission of $[***] per ticket. The commission to Excite@Home
is intended to represent [***] percent ([***]%) of the gross
margin on tickets sold over the Internet. In the event that
the gross margin on tickets sold over the Internet improves,
Excite will, on an annual basis adjust the dollar commission
based on the increased gross margin, so that Excite's
commission is equal to [***]% of Ticket.com's gross margin.
c) In addition to the payments above Tickets.com will pay to
Excite@Home or Matchlogic, as provided in the Definitive
Agreement [***] dollars ($[***]) as shown in TABLE IV, such
payment will be made in equal quarterly installments due and
payable on the last day of each quarter, with the first
payment due on October 29, 1999; provided, however, the full
payment of $[***] will be accelerated and become due and
payable in full immediately upon the closing of an investment
or other financing in the amount of $[***] by Excite@Home in
Tickets.com. , for a variety of MatchLogic services which may
include email delivery to users and email response tracking
and reporting to sponsors, advertisers, registered user
database management and maintenance, lead generation, custom
sweepstakes, modeling and user profiling. MatchLogic services
will be further detailed in the Definitive Agreement.
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
7
<PAGE> 8
d) In addition to the payments above Tickets.com will pay
Excite@Home [***] dollars ($[***]) as shown in TABLE IV for
distribution on the Excite Network as described in Section 3.
Payment will be made in equal quarterly installments due and
payable on the last day of each quarter, with the first
payment due on October 29, 1999; provided, however, the full
payment of $[***] will be accelerated and become due and
payable in full immediately upon the closing of an investment
or other financing in the amount of $[***] by Excite@Home in
Tickets.com..
TABLE IV
YEAR 1 YEAR 2 YEAR 3
------ ------ ------
MatchLogic Services [***] [***] [***]
Distribution* [***] [***] [***]
----- ----- -----
TOTAL [***] [***] [***]
===== ===== =====
-----------
* Based on the Minimum Impression Guarantee show in TABLE 1
which includes Front Page, Programmed Search Results,
Keyword Banners, Channels, Applications and Other Forms of
Distribution.
12. TERMINATION
a) Either party may terminate if the other party materially
breaches the Letter of Intent and the breach remains uncured
for a period of ninety (90) days.
b) Upon a Change of Control Transaction with respect to
Tickets.com, where the acquiring party in such transaction is
a "Competitor" as defined below, then Tickets.com agrees as
follows: (i) the Tickets.com branding on the Co-Branded
Ticketing Application will remain unchanged and no additional
or different branding, other than Excite@Home branding, will
be displayed; (ii) content and functionality of the
Tickets.com and Co-Branded Ticket Application will remain at
least at the level that it exists at the time of the Change of
Control Transaction; and (iii) Tickets.com will make available
to Excite@Home all content and functionality available on the
Tickets.Com Site (or subsequent site). Failure to meet the
criteria stated above at any time after a Change of Control
Transaction is a material breach of this Letter of Intent.
c) For the purposes hereof, (i) a "Competitor" shall mean an
entity which (a) acts as a provider of a broad offering of
internet delivery, content, search, directory and user
services to a broad consumer market and (b) is competitive
with Excite@Home's principal business; (ii) "Change of Control
Transaction" shall mean with respect to a particular
corporation (a) any merger, share exchange or other
acquisition (or series of related transactions of such nature)
as a result of which the holders of voting securities of the
corporation immediately prior thereto do not continue to own
beneficially voting securities representing 50% or more of the
total voting securities of the corporation (or any successor
entity or parent corporation) immediately thereafter or (b) a
sale or transfer of all or substantially all of a
corporation's assets.
d) Upon termination of this Letter of Intent by Tickets.com based
on material breach by Excite@Home, or by Excite@Home upon a
Change of Control Transaction under Section 12(b) above,
Excite@Home shall pay to Tickets.com within thirty (30) days
of the day on which display of Content ceases an amount equal
to the prorated portion of the Distribution Fee based on the
number of months remaining in the Term, plus the portion of
the MatchLogic fees for which services have not been
delivered.
e) Excite@Home may terminate selling advertising, revenue
guarantees and ad serving on Tickets.com Site if Tickets.com
page view fall below 60% of management projections in any one
quarter as shown in TABLE III.
[***] Confidential treatment has been requested for redacted portion. The
confidential redacted portion has been omitted and filed separately
with the Securities and Exchange Commission.
8
<PAGE> 9
f) Tickets.com may terminate this Letter of Intent if the Excite
Network is not one of the top portals in terms of tools and
functionality, based on commercially reasonable standards.
g) Excite@Home may terminate this Letter of Intent if Tickets.com
is not one of the top providers in terms of online ticketing
functionality and tools (excluding ticket inventory), based on
commercially reasonable standards.
13. GOVERNANCE
Excite@Home will have equal board representation on the Tickets.com
Board of Directors as any other Internet portal or Excite competitor
(list to be provided). This right of representation is unrelated to and
independent of any ownership interest Excite@Home may have in
Tickets.com.
14. WARRANTY AND INDEMNITY
a) Tickets.com will defend, indemnify and hold harmless
Excite@Home from claims arising from the content or
transactions, or claims that its Content or transactions
related thereto infringe or violate any federal, state or
local law, third party copyright, patent, trade secret,
trademark, right of publicity or right of privacy or contains
any defamatory content.
b) Excite@Home will defend, indemnify and hold harmless
Tickets.com from claims arising from content on the Excite
Network other than the content or transactions provided by, or
on behalf of Tickets.com including claims that the content
infringes or violates any federal, state or local law, third
party copyright, patent, trade secret, trademark, right of
publicity or right of privacy or contains any defamatory
content.
15. LIMITATION OF LIABILITY
Except for liability for indemnity, neither party will have liability
for any damages other than direct damages. Each party's liability will
be limited to the amounts actually paid by Tickets.com.
16. GENERAL
a) With each payment, each party will provide the other
documentation reasonably detailing the calculation of the
payment. Each party will maintain accurate records with
respect to the calculation of all payments due under this
Letter of Intent. No more than once per year, either party may
cause an independent Certified Public Accountant to inspect
the records of the other reasonably related to the calculation
of such payments. The fees charged by such Certified Public
Accountant in connection with the inspection will be paid by
the party initiating the audit, unless the Certified Public
Accountant discovers an underpayment of greater than 10%, in
which case the other party will pay such fees.
b) This Letter of Intent is the complete and exclusive agreement
between the parties with respect to the subject matter hereof,
superseding any prior agreements and communications (both
written and oral) regarding such subject matter. This Letter
of Intent may only be modified, or any rights under it waived,
by a written document executed by both parties.
9
<PAGE> 10
c) In the event of disputes between the parties arising from or
concerning in any manner the subject matter of this Letter of
Intent the parties will first attempt to resolve the
dispute(s) through good faith negotiation or mediation. In the
event that the dispute(s) cannot be resolved through good
faith negotiation or mediation, the parties will refer the
dispute(s) to a mutually acceptable arbitrator for hearing in
the county in which Excite has its principal place of business
under the then current rules of the American Arbitration
Association.
TICKETS.COM, INC. EXCITE, INC.
By: By:
--------------------------- -------------------------
Name: Name:
--------------------------- -------------------------
Title: Title:
--------------------------- -------------------------
Date: Date:
--------------------------- -------------------------
10
<PAGE> 1
Exhibit 10.33
AMENDMENT
TO
EXCITE@HOME
TICKETS.COM LETTER OF INTENT
This Amendment to Excite@Home/Tickets.com Letter of Intent (this
"Amendment") is made and entered into as of this 20th day of September 1999 by
and between Tickets.com, Inc., a Delaware corporation ("Tickets.com"), and
Excite, Inc., a Delaware corporation ("Excite@Home").
R E C I T A L S
WHEREAS, the undersigned are parties to that certain Letter of
Intent dated as of August 4, 1999 (the "Letter of Intent");
WHEREAS, the parties hereto wish to amend the Letter of Intent to
add a provision regarding the term of the Letter of Intent.
NOW, THEREFORE, for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the undersigned hereby agree as
follows:
1. Definitive Agreement. The parties hereby agree that
Recital A of the Letter of Intent shall be amended as
follows:
September 1, 1999 is deleted and replaced by October
29,1999.
2. Term of Letter of Intent. The parties hereby agree that
Section 9 of the Letter of Intent shall be amended in its entirety to read in
full as follows:
"9. TERM
Each of the parties hereto acknowledges and agrees that
this Letter of Intent shall constitute a valid and binding agreement
between Excite@Home and Tickets.com until such parties execute a
Definitive Agreement with respect to the subject matter hereof,
regardless of whether such Definitive Agreement is executed prior to or
after October 29, 1999. The term of the Definitive Agreement, or, if
such Definitive Agreement has not yet been executed, this Letter of
Intent, shall be for three years. The parties agree to meet and
negotiate in good faith the terms and conditions of a renewal to the
Definitive Agreement or this Letter of Intent, as the case may be, no
later than 90 days prior to the expiration of the Definitive Agreement
or Letter of Intent."
3. Successors and Assigns. This Amendment shall remain in full
force and effect and shall be binding upon the undersigned, and the respective
successors, permitted assigns, heirs and legal representatives of the
undersigned. Except as modified herein, the Letter of Intent shall remain in
full force and effect without change.
<PAGE> 2
4. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which taken
together shall constitute one and the same instrument.
5. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
[remainder of page intentionally left blank]
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Amendment
effective as of the date first hereinabove written.
TICKETS.COM, INC.
By: /S/ John M. Markovich
--------------------------------------------
Name: John M. Markovich
Title: Chief Financial Officer
EXCITE, INC.
By: /S/ David Pine
--------------------------------------------
Name: David Pine
Title: Vice President and General Counsel
<PAGE> 1
EXHIBIT 10.34
SEPARATION AGREEMENT
This Separation Agreement (Agreement) is entered into effective as of
August 9, 1999, by and between James A. Caccavo (Caccavo), and Tickets.com,
Inc., a Delaware corporation (the Company), with regard to the following:
R E C I T A L S
1. Caccavo was employed as Executive Vice President and President
Internet Operations of the Company.
2. Caccavo continues to serve as a member of the Board of Directors of
the Company.
3. Caccavo and the Company are parties to an Employment Agreement dated
May 17,1999 (Employment Agreement) and a Proprietary Information and Inventions
Agreement dated May 17, 1999 (Inventions Agreement).
4. Caccavo was granted options to acquire 750,000 shares of the
Company's Common Stock at an exercise price of $3.25 per share pursuant to a
Notice of Grant of Stock Option dated May 17, 1999 (the Stock Option).
5. Caccavo voluntarily resigned from his employment with the Company
effective August 13, 1999.
6. In connection with Caccavo's separation from the Company, the
Company and Caccavo have agreed to the releases, the cancellation of stock
options and the payments set forth herein.
Therefore, in consideration of the premises recited above, the mutual
exchange of promises contained in this Agreement and other valuable
consideration, the receipt and adequacy of which are acknowledged by the Company
and Caccavo, the parties agree as follows:
AGREEMENT
1. Resignation. Caccavo hereby acknowledges his voluntarily resignation
from his employment with the Company as Executive Vice President and President
Internet Operations, effective August 13, 1999.
1
<PAGE> 2
2. Payment.
2.1 The Company shall continue to pay Caccavo his regular base
salary and health insurance coverage, subject to any employee contribution
provisions, through February 13, 2000.
2.2 The Company shall also pay to Caccavo the gross sum of
$124,930.00, less applicable deductions and withholdings, to reimburse Caccavo
for relocation expenses incurred in connection with his relocation to Orange
County, California.
3. Waiver of Rights Under Employment Agreement; No Other Benefits.
Except for the continuing obligations of Caccavo under Article III of the
Employment Agreement and under the Inventions Agreement, which Caccavo hereby
reaffirms, the parties agree that the Employment Agreement is terminated in its
entirety as of August 13, 1999, and Caccavo expressly waives any notice periods
for termination or resignation under the Employment Agreement. Caccavo agrees
that he is not entitled to receive, and will not claim, any damages, profits,
compensation, bonuses, benefits, vacation, stock options or rights other than
what is expressly set forth in this Agreement. Caccavo acknowledges that the
consideration he is receiving under this Agreement is in lieu of, and he hereby
waives any other rights he may have had under, the Employment Agreement, and any
other agreements, express or implied, he may have had with the Company except
for any agreements or resolutions adopted by the Company's Board of Directors
providing rights of indemnification to officers and directors of the Company
that were in effect during the term of Caccavo's employment or directorship.
This Agreement supersedes all rights and/or benefits Caccavo may have or claim
arising out of the Employment Agreement.
4. Stock Options. The Company and Caccavo acknowledge and agree that
(i) the option to acquire 150,000 shares of Company Common Stock vesting upon
the closing of the Company's initial public offering (the IPO Option), which was
granted as a part of the Stock Option, shall remain in full force and effect
following the execution of this Agreement and shall be exercisable in accordance
with its terms, and (ii) the balance of the Stock Option to acquire 600,000
shares of Company Common Stock shall expire and be of no further force and
effect upon the execution of this Agreement.
5. Allocation of Directed Shares. If within six months of the date
hereof the Company shall close an initial public offering of its Common Stock,
Caccavo shall be allowed to designate the recipients of shares pursuant to the
Company's Directed Share Program in the same manner and amount as members of the
Company's executive management team that report directly to the Company's Chief
Executive Officer.
6. Other Agreements. Caccavo and the Company each promise and covenant
not to make any harassing or disparaging statements concerning the other.
2
<PAGE> 3
7. Return of Company Property; Expenses.
7.1 Concurrently with, or prior to, execution of this Agreement,
Caccavo shall return to the Company all Company property and equipment in his
possession or under his control, including, but not limited to, any cell phones,
computers and pagers.
7.2 On or before August 31, 1999, Caccavo must submit to the Company
all outstanding business expenses for reconciliation and payment. Expenses
submitted thereafter will not be reimbursed. The Company will pay only for
business expenses incurred through August 13, 1999. Reimbursement of business
expenses will be made by September 10, 1999.
8. Releases.
8.1 General Release by Caccavo. Excepting only the obligations
undertaken by the Company in accordance with this Agreement and the IPO Option
and except for any obligation to indemnify Caccavo pursuant to the Company's
Certificate of Incorporation or Bylaws as in effect as of the date hereof, which
obligations shall not be released or, except as specifically set forth in this
Agreement, altered or amended in any way by this Agreement, and in exchange for
the consideration provided to Caccavo in this Agreement, Caccavo hereby
releases, acquits, relieves and forever discharges the Company and its
successors, heirs, assigns, employees, officers, directors, agents,
representatives, stockholders, attorneys, stock option plans, affiliated
corporations, divisions or organizations, whether previously or hereinafter
affiliated in any manner (collectively, the Company Released Parties), from any
and all claims, rights, actions, complaints, demands, causes of actions, wage
claims, obligations, promises, contracts, agreements, controversies, suits,
debts, expenses, damages, attorneys' fees, costs and liabilities of any nature
whatsoever, matured or unmatured, fixed or contingent, which Caccavo ever had,
now has, or may claim to have from the beginning of time to the moment he signs
this Agreement against the Company Released Parties (whether directly or
indirectly), or any of them, by reason of any act, event or omission concerning
any matter, cause or thing, including, without limiting the generality of the
foregoing, any claims related to or arising out of (i) Caccavo's employment with
the Company or the cessation of that employment; (ii) any common law torts,
including, without limitation, infliction of emotional distress; (iii) any
federal, state or governmental constitution, statute, regulation or ordinance,
including, without limitation, Title VII of the Civil Rights Act of 1964, the
Fair Labor Standards Act of 1938, the Employee Retirement Income Security Act,
the California Labor Code, the California Fair Employment and Housing Act and
the Age Discrimination in Employment Act of 1967, the Wage, Pay and Collection
Act of the State of Delaware, and any other federal, state or local employment
practice legislation; (iv) any agreement, express or implied, between Caccavo
and any of the Company Released Parties; (v) any impairment of his ability to
compete in the open labor market; or (vi) any permanent or temporary disability
or loss of future earnings as a result of injury or disability arising from or
associated with his employment or termination of his employment relationship
with the Company.
3
<PAGE> 4
8.2 Caccavo's Release of Unknown Claims. Caccavo hereby waives and
relinquishes all rights and benefits afforded by Section 1542 of the Civil Code
of California. Caccavo hereby acknowledges that he understands the significance
and consequences of this specific waiver of Section 1542. Section 1542 of the
Civil Code of California states as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor.
Notwithstanding the provisions of Section 1542, and for the purpose of
implementing a full and complete release and discharge of the Company Released
Parties (except as provided in Section 8.1, above), Caccavo expressly
acknowledges that the Release contained in this Agreement is intended to include
in its effect, without limitation, all claims covered by the release set forth
in Section 8.1 above which Caccavo does not know or suspect to exist in his
favor.
8.3 Caccavo's Covenant To Forebear. Caccavo further agrees not to
institute, maintain, or aid any action at law or in equity or any legal
proceeding whatsoever against any or all of the Company Released Parties (as
defined in Section 8.1, above), which is based on, in whole, or in part, or
which arises out of, or is connected with, the claims hereby released.
8.4 Caccavo's Representation and Warranty Regarding Assignment of
Claims. Caccavo represents and warrants that he has not assigned any claims made
the subject of Section 8.1 of this Agreement or authorized any other person or
entity to assert any such claim on behalf of him. Further, Caccavo agrees that
by the releases contained in this Section 8.1 he waives any claim for damages
incurred at any time after the date on which he signs this Agreement because of
alleged continuing effects of any alleged acts or omissions involving the
Company that occurred on or before the date on which he signs this Agreement,
and any right to sue for monetary or injunctive relief against the alleged
continuing effects of acts or omissions that occurred before the date on which
he signs this Agreement.
9. No Employment Rights. Caccavo acknowledges that effective as of
August 13, 1999, he will no longer be an employee of the Company for any
purpose. Nothing in this Agreement shall be construed to continue, create or
imply any contract of employment between Caccavo and the Company.
10. Assistance/Cooperation With Litigation. In connection with the
Company's participation in current or future litigation relating to events which
occurred during Caccavo's employment or about which Caccavo has information,
Caccavo agrees to cooperate fully and devote such time as may be reasonably
required in the preparation, prosecution or defense of the Company's case or
cases, including, but not limited to, the execution of truthful declarations or
providing information and/or documents requested by the Company. The Company
shall reimburse Caccavo, promptly upon receipt of satisfactory evidence thereof,
for all reasonable expenses (not including any amount for Caccavo's time)
incurred by Caccavo in connection with such assistance and/or cooperation with
the Company with respect to such litigation.
4
<PAGE> 5
11. No Admission. Nothing contained in this Agreement or the fact that
the parties have signed this Agreement shall be considered an admission of any
liability whatsoever.
12. Fees and Costs. Caccavo and the Company agree that in the event of
litigation relating to a breach of this Agreement, the prevailing party shall be
entitled to its attorneys' fees and costs.
13. Successors and Assigns. This Agreement, and all the terms and
provisions hereof, shall be binding upon and shall inure to the benefit of the
parties and their respective heirs, legal representatives, successors and
assigns.
14. Waiver. No waiver of any of the provisions of this Agreement shall
be deemed, or shall constitute, a waiver of any other provision, whether or not
similar. No waiver shall constitute a continuing waiver. No waiver shall be
binding unless executed in writing by the party charged with the waiver.
15. Severability. In the event any provision of this Agreement shall
finally be determined by a court of competent jurisdiction to be unlawful, such
provision shall be deemed to be severed from this Agreement and every other
provision of this Agreement shall remain in full force and effect. If, moreover,
any one or more of the provisions contained in this Agreement shall for any
reason be held by a court of competent jurisdiction to be excessively broad, it
shall be construed, by limiting and reducing it, so as to be enforceable to the
extent compatible with the applicable law as it shall then appear.
16. Miscellaneous.
16.1 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations between the parties with respect to
the subject matter of this Agreement;
16.2 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, and all of which shall constitute one
and the same instrument;
16.3 Amendment. This Agreement may not be amended except by an
agreement in writing signed by the parties to this Agreement or their respective
successors-in-interest and expressly stating that it is an amendment of this
Agreement; and
16.4 Governing Law. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of California.
16.5 Survival of Representations and Warranties. All
representations and warranties contained in this Agreement shall survive the
execution and delivery of this Agreement.
5
<PAGE> 6
17. Notices. All notices, requests, demands and other communications
under this Agreement must be in writing and shall be deemed to have been duly
given (i) on the date of service if served personally on the party to whom
notice is to be given; (ii) on the second business day following delivery to a
courier or messenger service guaranteeing overnight delivery; (iii) on the date
of confirmation of receipt if sent by telecopy or telex and; and (iv) on the
date of receipt or refusal indicated on the return receipt if mailed to the
party to whom notice is to be given by first-class mail, registered or
certified, postage prepaid, return receipt requested, and in each case, properly
addressed as follows:
If to the Company: Tickets.com, Inc.
555 Anton Blvd., 12th Floor
Costa Mesa, CA 92626
Attn: President
with a copy to: Hewitt & McGuire, LLP
19900 MacArthur Blvd., Suite 1050
Irvine, CA 92612
Attn: Paul A. Rowe, Esq.
If to Caccavo:
with a copy to:
Any party may change its address for the purpose of this
Agreement by giving the other party written notice of the new address in the
manner set forth above.
This Agreement has been executed as of the day first hereinbefore
written.
Dated:______________________ COMPANY
TICKETS.COM, INC.,
a Delaware corporation
By: /s/ JOHN M. MARKOVICH
---------------------------------------
Its: EVP Finance and CFO
-----------------------------------
CACCAVO
Dated:______________________ /s/ JAMES A. CACCAVO
------------------------------------------
James A. Caccavo
6
<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
September 17, 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
September 15, 1999
Syracuse, New York
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 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
September 21, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 20,138,233
<SECURITIES> 0
<RECEIVABLES> 6,306,402
<ALLOWANCES> 217,761
<INVENTORY> 0
<CURRENT-ASSETS> 29,657,405
<PP&E> 9,708,537
<DEPRECIATION> 0
<TOTAL-ASSETS> 123,346,505
<CURRENT-LIABILITIES> 30,265,756
<BONDS> 0
0
5,133
<COMMON> 3,480
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 123,346,505
<SALES> 0
<TOTAL-REVENUES> 19,278,069
<CGS> 0
<TOTAL-COSTS> 12,542,469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,680,159
<INCOME-PRETAX> (23,315,875)
<INCOME-TAX> 16,954
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,332,829)
<EPS-BASIC> (2.64)
<EPS-DILUTED> (2.64)
</TABLE>
