<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 1, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TICKETS.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 7999 06-1424841
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
</TABLE>
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4675 MACARTHUR COURT, SUITE 1400
NEWPORT BEACH, CALIFORNIA 92626
(949) 862-5400
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
W. THOMAS GIMPLE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
4675 MACARTHUR COURT, SUITE 1400
NEWPORT BEACH, CALIFORNIA 92626
(949) 862-5400
(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 COOLEY GODWARD LLP
38 TECHNOLOGY DRIVE 5 PALO ALTO SQUARE
IRVINE, CALIFORNIA 92618 3000 EL CAMINO REAL
(949) 790-6300 PALO ALTO, CALIFORNIA 94306
(650) 843-5000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
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Common Stock, $.0001 par value................. $75,000,000 $20,850
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS (Subject to Completion)
Issued June 1, 1999
Shares
[Ticket.com Logo]
COMMON STOCK
------------------------------
TICKETS.COM, INC. IS OFFERING SHARES OF ITS COMMON STOCK AND
THE SELLING STOCKHOLDERS ARE OFFERING 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 $ AND $ 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 4.
------------------------------
PRICE $ A SHARE
------------------------------
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<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY STOCKHOLDERS
-------- ------------- ----------- ------------
<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. and a selling stockholder have granted the underwriters a
30-day option to purchase up to an additional 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
VOLPE BROWN WHELAN & COMPANY
, 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), 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
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PAGE
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<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Special Note Regarding Forward-Looking
Statements.......................... 19
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Unaudited Pro Forma Condensed
Combined Financial Information...... 23
Selected Consolidated Financial
Data................................ 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
</TABLE>
<TABLE>
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PAGE
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Business.............................. 44
Management............................ 62
Certain Transactions.................. 74
Principal and Selling Stockholders.... 76
Description of Capital Stock.......... 78
Shares Eligible for Future Sale....... 79
Underwriters.......................... 81
Legal Matters......................... 82
Experts............................... 83
Additional Information................ 83
Index to Financial Statements......... F-1
</TABLE>
Tickets.com, Inc. was incorporated in Delaware in January 1995 as The
Entertainment Express, 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 4675 MacArthur Court, Suite 1400, Newport Beach,
California 92660, and our telephone number is (949) 862-5400. Our World Wide Web
site is located at http://www.tickets.com. Information contained in our web site
shall not be deemed to be part of this prospectus. Events or transactions
occurring prior to May 25, 1999 occurred or were undertaken by us under our
former names, "Advantix, Inc." and "The Entertainment Express, Inc." unless
otherwise indicated.
In this prospectus, the terms "Tickets.com," "company," "we," "us" and
"our" refer to Tickets.com, Inc. and its consolidated subsidiaries. Unless the
context otherwise requires, the term "common stock" refers to the common stock,
par value $.0001 per share, of Tickets.com.
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 notes thereto appearing
elsewhere in this prospectus.
OUR BUSINESS
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 outlets, call centers, interactive voice response
systems and 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 3,800 entertainment
organizations such as stadiums, performing arts centers, museums and
professional sports franchises. In 1998, we sold approximately 5.3 million
tickets for which we received convenience 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 over 200,000 sporting and entertainment
events and performances, 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 U.S. totaled $14.5 billion in 1998 and we expect it to grow to
$18.0 billion in 2001. As the entertainment and sports industries have grown, so
has the need for more convenient methods for the sale and distribution of
tickets. The process of selling and distributing tickets is inherently complex.
Entertainment organizations often simultaneously sell tickets to a number of
different events through a variety of distribution channels, to groups of
consumers with varying ticketing needs and often at a rapid pace. An integrated
technology solution is required to effectively and efficiently meet these needs.
The Internet has emerged as a powerful medium for selling tickets and
related products, aggregating and disseminating event information and promoting
events. According to Forrester Research, Inc., a market research firm, online
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 convenience for consumers and
entertainment organizations. We believe consumers seek an integrated solution
where they can find information about a wide range of events and conveniently
buy tickets to those events. Moreover, entertainment organizations are
increasingly interested in using advanced software solutions and the Internet to
efficiently sell tickets, market their events and deliver event information,
generate increased revenues and build stronger customer relationships. We
believe significant 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 leverage our brand, our advanced ticketing technology and
our installed base of 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,
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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 leverage our existing
licensee relationships and create new alliances with international
ticketing companies and entertainment organizations.
THE OFFERING
Common stock offered............... shares including shares
owned by selling stockholders(a)
Common stock to be outstanding
after this offering.............. 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."
Proposed Nasdaq National Market
symbol............................. TKTS
- ---------------
(a) Unless otherwise specifically stated, the information throughout this
prospectus does not take into account the possible issuance of up to
additional shares to the underwriters pursuant to their right to
purchase additional shares to cover over-allotments.
(b) Based on shares outstanding as of May 17, 1999. Gives effect to the
automatic conversion of all outstanding shares of our preferred stock into
shares of common stock immediately prior to the closing of this offering.
Excludes (1) 18,170,917 shares of common stock issuable upon exercise of
stock options outstanding as of May 17, 1999, with a weighted average
exercise price of approximately $1.30 per share; (2) 5,027,520 shares of
common stock issuable upon exercise of warrants outstanding at May 17, 1999
with a weighted average exercise price of approximately $1.24; and (3)
1,818,182 shares of common stock issuable upon conversion of a convertible
promissory note outstanding at May 17, 1999.
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated financial data for the period from May
31, 1996 (Inception) 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 three months ended March 31, 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 notes
thereto 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 three months ended March 31, 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 three months ended March 31, 1999 shows 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.")
<TABLE>
<CAPTION>
PRO FORMA COMBINED
---------------------------
THREE THREE
MAY 31, 1996 YEAR ENDED MONTHS MONTHS
(INCEPTION) TO DECEMBER 31, ENDED YEAR ENDED ENDED
DECEMBER 31, ------------------ MARCH 31, DECEMBER 31, MARCH 31,
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 $ 5,070 $ 30,950 $ 5,441
Software services and other.... 1,123 1,961 2,982 1,508 16,730 4,101
------- ------- -------- ------- -------- --------
Total revenues.......... 1,242 11,647 29,540 6,578 47,680 9,542
Total cost of services........... 1,430 8,413 18,706 4,475 29,253 6,543
------- ------- -------- ------- -------- --------
Gross profit (loss).............. (188) 3,234 10,834 2,103 18,427 2,999
Operating expenses(a)............ 2,915 8,223 43,668 7,345 73,243 14,588
------- ------- -------- ------- -------- --------
Loss from operations............. (3,103) (4,989) (32,834) (5,242) (54,816) (11,589)
Other expenses(b)................ 146 1,110 2,027 805 2,503 793
------- ------- -------- ------- -------- --------
Net loss......................... $(3,249) $(6,099) $(34,861) $(6,047) $(57,319) $(12,382)
======= ======= ======== ======= ======== ========
Basic and diluted net loss per
share.......................... $ (0.29) $ (0.52) $ (2.70) $ (0.42) $ (1.83) $ (0.39)
======= ======= ======== ======= ======== ========
Weighted average common shares
outstanding(e)................. 11,250 11,698 12,901 14,248 31,358 32,110
======= ======= ======== ======= ======== ========
</TABLE>
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AS OF MARCH 31, 1999
----------------------
PRO FORMA
AS
ACTUAL ADJUSTED(C)
------- ------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents (includes restricted cash)........ $21,642 $
Working capital............................................. 8,656
Total assets................................................ 54,147
Long-term debt(d)........................................... 20,200
Redeemable common stock and warrants........................ 4,634
Total stockholders' equity.................................. 5,335
</TABLE>
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(a) Includes nonrecurring noncash charges for the year ended December 31, 1998
of $17.0 million for impairment of long-lived assets and $1.6 million for
purchased in-process research and development.
(b) Other expenses include principally interest expense, net of interest income
and, to a lesser degree, minority interest and provision for income taxes.
(c) For a description of the assumptions reflected in the Pro Forma As Adjusted
presentation, see "Capitalization."
(d) Amounts classified as long-term debt consist of long-term debt and capital
lease obligations, net of current portion.
(e) Reflects shares of common stock outstanding during the periods presented.
Pro forma data includes common stock issuable with respect to the
acquisitions. Excludes shares of common stock issuable upon conversion of
outstanding shares of preferred stock, a convertible promissory note, and
upon exercise of outstanding stock options and warrant grants.
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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.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus.
OUR LIMITED OPERATING HISTORY AS A CONSOLIDATED BUSINESS MAKES EVALUATING OUR
BUSINESS DIFFICULT
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 upon which to base an investment decision. 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 addition, the ticketing and e-commerce markets are rapidly
changing. Our risks include, among other things, an evolving business model and
the management of our acquisition-based growth. To address these risks, we must,
among other things:
- continue to leverage 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. If we are unable to do so, our business, financial
condition and results of operations would be materially and adversely affected.
WE FACE A NUMBER OF RISKS RELATED TO THE INTEGRATION OF 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
must effectively integrate recent and any future acquisitions into a cohesive
business and eliminate any redundancies in order to be successful. This 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
U.S. and internationally. In order to establish ourselves as a successful online
ticketing service, we must quickly assimilate the knowledge and experience of
management of acquired companies into our business. We cannot be certain that we
will be able to successfully integrate any operations, personnel or systems of
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 has placed
and will continue to
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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 BASS' information and telecommunications
systems to our system, our Concord, California call 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 call center. Any system failures could cause one
or more of our clients to terminate its contract or fail to renew its contract
with us.
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, two of our largest clients terminated
their contracts with us, and one other 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, and 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.
Our failure to successfully address any of the risks listed above would
have a material and adverse effect on our business, financial condition and
results of operations.
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 March 31, 1999, we had goodwill and other intangible assets of
$11.1 million. In addition, the acquisitions of California Tickets.com and
TicketsLive in 1999 resulted in additional goodwill and other intangible assets
of $63.7 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 write
off 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 expect to incur charges to earnings of $5.3 million in
the second quarter of
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1999 for the recognition of purchased in-process research and development in
connection with the acquisitions of California Tickets.com and TicketsLive. In
1999, we also may take a significant non-recurring charge of with respect to
integration costs related to completed acquisitions. These charges will
adversely affect our results of operations.
THE SUCCESS OF OUR BUSINESS MODEL DEPENDS SUBSTANTIALLY ON A MOVE INTO
E-COMMERCE
To date, our revenues generated from Internet sales have not been
significant. The success of our business model 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;
- attract and retain a loyal base of frequent web site visitors;
- successfully implement and execute our business and marketing strategy;
- create and maintain market awareness and brand loyalty for the
"Tickets.com" brand;
- expand our 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 guarantee that we will be successful in addressing these or other
necessary objectives. If we are not, our business, financial condition and
results of operations would be materially and adversely affected.
Our entry into e-commerce involves a number of other significant challenges
and risks that may adversely affect our business, financial condition and
results of operations, 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 outlets and call centers. Presently,
only a small portion of our clients are able to use our Internet ticketing
services, and historically our revenues from Internet sales have not been
significant. 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
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 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;
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- 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 and achieve our plan
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 some 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 various code lines and in developing
functional links to our Transaction Application Gateway, or TAG.
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
and related merchandise 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, or any third party development
of similar or superior technologies could materially and adversely affect our
business, financial condition and results of operations.
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 certain other trademarks in the
United States and certain other countries. Eastman Kodak Company has registered
the trademark "Advantix" in the United States and certain other countries in
connection with its digital photography technology and has notified us of that
fact. 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 may be other parties who have corporate names or brand
names very similar to ours (and whose names may also include the term "tickets")
and who may, as a result, bring claims against us for trademark infringement or
challenge our rights to register the tradename "Tickets.com," the stylized
trademark "1.800.TICKETS," or both. 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
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proprietary rights. Ineffectual protection of, or diligent, but ineffective
efforts to protect, these rights could materially and adversely affect our
business, financial condition and results of operations.
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 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. This could have a material adverse effect on our business, financial
condition and results of operations.
Third parties could assert costly infringement or other claims against us
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. We could also
be subject to lawsuits because we link consumers to an internal page within
other ticketing service providers' web sites -- a practice called "deep"
hypertext linking. We have also included the trademarks of these other ticketing
service providers on our web site. For example, we link consumers to pages
within Ticketmaster Online-City Search's web site in circumstances where
Ticketmaster has the exclusive right to sell tickets to certain events and also
have included Ticketmaster's name on our web site. While Ticketmaster receives
all revenues from this practice and controls the advertising on its order page,
deep linking is controversial, and Ticketmaster Corporation has sued Microsoft
Corporation for deep linking practices.
Any litigation over intellectual property rights or business practices
(including claims relating to deep linking) raises the possibility of
substantial damages. Such litigation may also result in injunctive or other
equitable relief that could block our ability to market or license our products
in the United States or elsewhere. We could also lose the rights to technologies
necessary to operate portions of our business. Moreover, sustained intellectual
property litigation is costly and could adversely affect our operating results.
Litigation may be necessary in the future to, among other things:
- enforce our intellectual property rights;
- protect our trade secrets;
- determine the validity and scope of the proprietary rights of others; or
- defend against claims of infringement or invalidity.
Any litigation, regardless of the outcome, could result in substantial
costs and diversion of managerial resources, and could have a material adverse
effect on our business, financial condition and results of operations.
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
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otherwise decrease the value of our trademarks and other proprietary rights. Any
such inability could have a material adverse effect on our business, financial
condition and results of operations.
OUR REVENUES ARE UNPREDICTABLE AND MAY CAUSE SIGNIFICANT FLUCTUATIONS IN OUR
OPERATING RESULTS
Because of our limited operating history and limited Internet experience we
cannot accurately forecast our future revenues. 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 even more difficult and 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 revenue.
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:
- our access to tickets and ability to increase our available ticket
inventory;
- changes in our revenue mix;
- delays in implementation of our services by clients;
- the announcement or introduction of new or enhanced sites and services by
us or our competitors;
- consumer acceptance of the Internet for services such as ours;
- the amount of traffic on our web sites;
- 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);
- our ability to upgrade and develop our systems;
- 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.
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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 OPERATING LOSSES AND EXPERIENCE
NEGATIVE CASH FLOW
We incurred operating losses of approximately $34.8 million for the year
ended December 31, 1998, and $6.0 million for the quarter ended March 31, 1999.
At March 31, 1999, we had an accumulated deficit of approximately $55.0 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. We cannot be certain that additional financing will be available on
acceptable terms 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.
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.
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SYSTEM FAILURES COULD DAMAGE OUR REPUTATION AND OUR BUSINESS
Our business is almost entirely dependent on our call 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.
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. If that happens, our business, financial
condition and results of operations could be materially and adversely affected.
COMPETITION IN TICKETING IS SUBJECT TO MANY VARIABLES AND WE MAY NOT BE ABLE TO
COMPETE EFFECTIVELY
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. If we cannot compete effectively, our business, financial condition
and results of operations would be materially and adversely affected.
We face intense competition from a variety of 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. They may
also have significant competitive advantages through other lines of business and
existing business relationships.
Our competitors include 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 others compete with us in specific geographic regions. Our
competitors may develop services superior to ours or achieve greater acceptance
of their products and services than we do.
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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 that we offer. In addition, we
may face competition from companies in other areas of e-commerce who may seek to
leverage 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.
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. If we cannot, our
business, financial condition and results of operations would be materially and
adversely affected.
Entertainment industry consolidation may increase competition for new
clients and ticket inventories
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.
WE MUST KEEP PACE WITH RAPIDLY EVOLVING TICKETING AND E-COMMERCE TECHNOLOGY IN
ORDER TO BE SUCCESSFUL
The automated ticketing industry is characterized by continual enhancement
of existing technology to improve and provide additional capabilities. To be
successful, we must continually be on the forefront of emerging technology and
industry standards. We must also design, develop, test and support new products
or enhancements of existing products in a cost-effective and timely manner that
meet changing consumer needs and preferences. In addition, we must continually
improve the performance, features and reliability of our services. We cannot be
certain that we will be able to successfully develop or support new products or
enhancements to existing products on a timely basis, or at all. The development
of proprietary technology entails significant technical and business risks and
requires substantial expenditures and lead time. New products could contain
errors or bugs that could interrupt service, cause client and customer
dissatisfaction
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and require costly fixes. If we incur increased costs or are unable, for
technical or other reasons, to develop and introduce new products or
enhancements of existing products or services in a timely manner, 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 could have a material and adverse effect on our business and operations.
INSTABILITY OF THE INTERNET COULD ADVERSELY AFFECT OUR BUSINESS
The success of our services depends in large part upon the development and
maintenance of the Internet infrastructure. It must continue to evolve as a
reliable network backbone with the necessary speed, accessibility, data capacity
and security. However, the stability of the Internet's infrastructure is
unproven. The rapid rise in the number of Internet users and increased
transmission of audio, video, graphic and other multimedia content over the
Internet places increasing strains on its communications and transmission
capabilities. Continuation of such trends could lead to significant
deterioration in transmission speeds and reliability. Failure of the Internet to
support increased traffic due to inadequate infrastructure or otherwise could
seriously limit the development of e-commerce, which could materially and
adversely affect our business, financial condition and results of operations.
WE MUST ATTRACT AND RETAIN 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. 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. In addition, a significant portion of our
workforce is comprised of call center service representatives. We compete with
telemarketing firms, among others, for call center 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 business, financial condition and results of operations could be materially
and adversely affected.
WE DEPEND ON RETAIL OUTLETS, ADVERTISING AGREEMENTS AND STRATEGIC RELATIONSHIPS
FOR TICKET SALES
A significant portion of our ticket sales is generated through arrangements
with retail outlets. Our contracts with these retail outlets are generally for a
one-year term, and subject to periodic negotiations regarding sales commissions,
customer service and other matters. These outlets 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 MP3.com, GeoCities, International Merchandising
Corporation, a subsidiary of International Management Group, Sitematic
Corporation and others can
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provide us with access to consumers. If we cannot maintain good retail,
strategic and advertising relationships and continue to establish new
relationships, our business, financial condition and results of operations could
be materially and adversely affected.
OUR STOCK PRICE IS LIKELY TO BE VERY VOLATILE
Prior to this offering, you could not buy or sell our common stock
publicly. Although the initial public offering price was determined based on
several factors, the market price after the offering may vary substantially from
the initial public offering price. The market price of our common stock 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:
- 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, which could have a
material and adverse effect on our business, financial condition and results of
operations.
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.
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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 (for example
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 complaint.
Year 2000 problems with the Internet could interfere with consumers' ability to
visit our web site and our ability and our ability to process ticket orders.
Any of these problems could materially and adversely affect our business,
financial condition and results of operations.
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 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 so,
it could have a material adverse effect on our business, financial condition and
results of operations.
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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
commercial online services. It is likely, however, that a number of laws and
regulations may be adopted with respect to the Internet or commercial online
services. These laws might cover matters such as, among other things, user
privacy, pricing, content, taxation, copyrights, distribution, antitrust and the
characteristics and quality of products and services.
Furthermore, the growth and development of the market for e-commerce may
prompt calls for more stringent consumer protection laws. These laws may impose
additional burdens on companies conducting business online. The adoption of any
additional laws or regulations may decrease the growth of the Internet or
commercial online services. This could decrease the demand for our products and
services and increase our cost of doing business.
In addition, the applicability to the Internet and commercial online
services of existing laws in various jurisdictions governing a wide variety of
issues 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 have a material adverse
effect on our business, financial condition and results of operations.
OUR ACQUISITION OF STOCK OF LASERGATE SYSTEMS, INC. COULD SUBJECT US TO COSTS,
LOSSES AND LIABILITIES
On January 24, 1999, we entered into an agreement with RBB Bank, AG, a bank
organized under the laws of Austria, to purchase from RBB 7,837,332 shares of
common stock of Lasergate Systems, Inc., a Florida corporation, for $783,733 in
cash, and 5,700 shares of Lasergate Series G Preferred Stock for either, at the
option of RBB, $2.5 million in cash or 969,462 shares of our common stock,
subject to certain adjustments. In addition, pursuant to the agreement, RBB
agreed to exercise its rights to take control of Lasergate's board of directors.
On February 26, 1999, RBB filed a complaint in the Pinellas County Florida
Circuit Court against Lasergate and four individuals seeking a court order to
remove the four individual defendants as directors of Lasergate, set a date for
a shareholders meeting to elect new directors, provide access to Lasergate's
shareholder's list and appoint a provisional director to manage Lasergate's
business until new directors are elected by the shareholders. The court has
scheduled a hearing for June 8, 1999. We have agreed to indemnify RBB for its
legal fees incurred in connection with this suit, which could be substantial.
The consummation of the transaction was originally to take place on May 15,
1999. Although we have not yet consummated this transaction because we believe
that RBB is in breach of certain representations made to us in the agreement, we
may decide to purchase the shares. This agreement provides that we are obligated
to consummate this transaction unless (1) Lasergate voluntarily or involuntarily
enters into bankruptcy, reorganization or receivership, or (2) RBB breaches any
agreements, covenants, representations or warranties in the agreement. If we
proceed with the purchase of the Lasergate shares from RBB, we will incur the
expenditure of the cash portion of the purchase price and, depending on the
portion of the purchase price RBB elects to receive in cash, we may issue an
additional 969,462 shares of our common stock. We would also 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.
If we complete the purchase of Lasergate stock from RBB, we will own a
majority of the outstanding voting stock of Lasergate. Shares of Lasergate
common stock are publicly traded over-the-counter (bulletin board). As a
majority owner, we will be 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 will have 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 or in connection with past
16
<PAGE> 21
actions of officers and directors. We may also be subject to potential
liabilities to our own stockholders in connection with the Lasergate
transaction.
In addition, if we complete the acquisition of the Lasergate shares and
thereafter desire to acquire the remaining interests of the minority
shareholders of Lasergate, we may be exposed to costs, losses and liabilities
associated with:
- opposition by Lasergate directors to removal from the board and our
efforts to purchase the interest of minority shareholders;
- compliance with applicable rules under the Securities Exchange Act of
1934 and state law necessary to effectuate a merger or purchase of
minority shares; and
- necessary expenditures associated with a merger or the purchase of shares
from minority shareholders.
If we determine not to, or are unable to, purchase remaining shares of
Lasergate held by minority shareholders, we may incur material costs, losses or
liabilities associated with:
- disputes with present or former shareholders, management or directors of
Lasergate;
- compliance with obligations under the Securities Exchange Act of 1934
relating to significant shareholders of publicly held companies; and
- other obligations asserted under applicable state corporate and
securities laws.
In addition, if we determine not to complete the purchase from RBB, we
could incur significant costs and liabilities to RBB. Any significant cost, loss
or liabilities that we may incur in relation to our contract to purchase the
Lasergate shares from RBB or, if we effectuate that purchase, our ownership of
the Lasergate shares, could materially and adversely affect our business,
financial condition and results of operations.
OUR MANAGEMENT AND EXISTING STOCKHOLDERS MAY EXERCISE CONTROL AFTER THIS
OFFERING
After this offering, our executive officers, key employees, directors and
their respective affiliates will beneficially own approximately %
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. This concentration of ownership may also have
the effect of preventing or discouraging tender offers for our common stock,
unless the terms are approved by these stockholders.
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:
- unexpected changes in regulatory requirements;
- fluctuations in currency exchange rates;
- difficulties relating to the enforcement of contracts;
- instability of economies and governments;
- seasonal reduction in business activities in certain parts of the world;
- difficulties in staffing and managing foreign operations;
- potentially adverse tax consequences;
- laws and policies affecting trade and investment in jurisdictions where
the Company operates;
- exposure to varying legal standards in jurisdictions where the Company
operates; and
- reduced protection for intellectual property rights outside the U.S.
17
<PAGE> 22
One or more of such factors may have a material and adverse effect on our
future international operations and, consequently, on our business, results of
operations and financial condition.
To date, the majority of our transactions have been denominated in U.S.
dollars, however, some ticket sales have been denominated in currencies other
than the U.S. dollar. Therefore, our operating results may be adversely affected
by changes in the value of the U.S. 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 shares of
common stock and we will have reserved an additional 23,198,437 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 certain 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
21,941,647 shares of common stock reserved for issuance under our 1999 Stock
Incentive Plan; such registration statement will automatically become effective
upon filing. As of May 17, 1999, options to purchase 5,620,033 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. 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 $ 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.
18
<PAGE> 23
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 such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus.
19
<PAGE> 24
USE OF PROCEEDS
The net proceeds to be received by Tickets.com from the sale of the shares
of common stock in this offering are estimated to be approximately $
million (approximately $ million, if the underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$ per share and after deducting estimated offering expenses of $
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 stockholders. 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 $21.8 million of the net proceeds of this
offering to repay outstanding current and long-term senior and subordinated
debt, including $16.9 million of long-term senior and subordinated debt. This
debt matures between October 1999 and October 2004 or on 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. 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 January 24, 1999, we entered into an agreement
with RBB Bank, AG, a bank organized under the laws of Austria, to purchase from
RBB 7,837,332 shares of common stock of Lasergate Systems, Inc., a Florida
corporation, for $783,733 in cash, and 5,700 shares of Lasergate Series G
Preferred Stock for either, at the option of RBB, $2.5 million in cash or
969,462 shares of our common stock, subject to certain adjustments. 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." 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.
20
<PAGE> 25
CAPITALIZATION
Unless otherwise indicated, all information in this prospectus reflects the
conversion of all outstanding shares of our convertible preferred stock into
51,331,143 shares of common stock upon the consummation of this offering. See
"Description of Capital Stock."
The following table sets forth the capitalization of Tickets.com as of
March 31, 1999:
- on an actual basis;
- on a pro forma combined basis to reflect the acquisition of California
Tickets.com and the acquisition of TicketsLive as if the acquisitions had
occurred on March 31, 1999;
- on a pro forma basis as adjusted to reflect:
- the closing of the offering of 3,855,680 shares of Series D
convertible preferred stock;
- the automatic conversion of all outstanding shares of convertible
preferred stock into common stock upon the consummation of this
offering;
- the conversion of $3.0 million convertible debt into shares of our
common stock;
- the exercise of redeemable warrants with an exercise price of $.01
per share to purchase our common stock, which will otherwise expire
upon the close of the offering;
- the receipt of the estimated net proceeds of $ million from the
sale of the 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 $16.9 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 thereto and the pro forma consolidated
financial statements and related notes thereto, included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
----------------------------------
PRO FORMA PRO FORMA
ACTUAL COMBINED AS ADJUSTED
-------- --------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term debt and capital lease obligations, net of current
portion................................................... $ 20,200 $ 20,374
-------- -------- --------
Redeemable common stock and warrants........................ 4,634 9,310
-------- -------- --------
Stockholders' equity:
Series A, A1, B, C and D convertible preferred stock,
$.0001 par value; 51,370,451 shares authorized;
39,014,645, 47,475,463 and 0 shares actual, pro forma
combined and pro forma as adjusted, respectively....... 4 5
Common stock, $.0001 par value; 240,000,000 shares
authorized; 14,276,703, 32,430,559 and
shares actual, pro forma combined
and pro forma as adjusted, respectively................ 1 3
Additional paid-in capital.................................. 60,302 122,256
Cumulative other comprehensive income....................... (6) (6)
Deferred compensation....................................... -- (576)
Accumulated deficit......................................... (54,966) (60,305)
-------- -------- --------
Total stockholders' equity................................ 5,335 61,377
-------- -------- --------
Total capitalization.............................. $ 30,169 $ 91,061
======== ======== ========
</TABLE>
21
<PAGE> 26
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was a deficit of
approximately $16.9 million, or ($0.54) per share of common stock. Pro forma net
tangible book value per share represents our pro forma total tangible assets
less pro forma total liabilities, divided by the pro forma number of shares of
common stock outstanding as of March 31, 1999. Without taking into account any
other changes in pro forma net tangible book value other than to give effect to
our sale of the shares of common stock offered hereby and the receipt
and application of the net proceeds therefrom, the pro forma net tangible book
value of as of March 31, 1999 would have been $ million, or $ per share
of common stock. This represents an immediate increase in pro forma net tangible
book value of $ per share to existing stockholders and an immediate dilution
of $ 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............. $
Pro forma net tangible book value per share as of March
31, 1999............................................... $
Increase per share attributable to new investors..........
--------
Pro forma net tangible book value per share after this
offering..................................................
--------
Dilution per share to new investors......................... $
========
</TABLE>
The following table summarizes as of March 31, 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
$ per share (before deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us):
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED(A) TOTAL CONSIDERATION PRICE
-------------------- ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
-------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..................... % $ % $
New investors.............................
------- ----- -------- ------
Total........................... 100.0% $ $100.0%
======= ===== ======== ======
</TABLE>
The foregoing table assumes no exercise of the underwriters' over-allotment
option or shares underlying outstanding options. As of May 17, 1999, options to
purchase 18,170,917 shares of common stock were outstanding at a weighted
average exercise price of $1.30 per share and warrants to purchase 5,027,520
shares of common stock were outstanding at a weighted average exercise price of
approximately $1.24 per share. To the extent that these options and warrants are
exercised, new investors will 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 % 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
shares or % of the total number of shares of common stock to be
outstanding upon consummation of this offering.
22
<PAGE> 27
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma condensed combined financial
information and related notes contain forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
discussed herein. We undertake no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
The selected unaudited pro forma condensed combined financial information
is based upon, and should be read in conjunction with, the historical financial
statements of Tickets.com, ProTix, California Tickets.com and TicketsLive, and
the notes thereto. 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 balance sheet
information at March 31, 1999 is presented as if the acquisitions of California
Tickets.com and TicketsLive were completed as of March 31, 1999. The selected
unaudited pro forma condensed combined statement of operations information for
the year ended December 31, 1998 and the three months ended March 31, 1999 is
presented as if Tickets.com had completed the acquisitions of ProTix, California
Tickets.com and TicketsLive as of January 1, 1998.
23
<PAGE> 28
SELECTED UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET INFORMATION
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
CALIFORNIA
TICKETS.COM, TICKETS.COM, TICKETSLIVE PRO FORMA PRO FORMA
INC. INC. CORPORATION ADJUSTMENTS COMBINED
------------ ------------ ----------- ----------- ---------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 21,642 $ 898 $ 709 $ -- $ 23,249
Accounts receivable, net....................... 8,964 324 1,812 (4,700)(a) 6,400
Prepaid expenses and other current assets...... 1,163 286 649 (205)(b) 1,893
-------- ------- ------- ------- --------
Total current assets....................... 31,769 1,508 3,170 (4,905) 31,542
-------- ------- ------- ------- --------
Property and equipment, net...................... 7,841 1,344 743 (543)(c) 9,385
Intangible assets, net........................... 11,131 3,411 -- 63,736(c) 78,278
Other assets..................................... 3,406 205 122 -- 3,733
-------- ------- ------- ------- --------
Total assets............................... $ 54,147 $ 6,468 $ 4,035 $58,288 $122,938
======== ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities....... $ 15,879 $ 2,556 $ 2,608 $ 695(b) $ 21,738
Current portion of long-term debt.............. 5,562 4,245 600 (3,700)(a) 6,707
Deferred revenue and other current
liabilities.................................. 1,673 242 616 -- 2,531
-------- ------- ------- ------- --------
Total current liabilities.................. 23,114 7,043 3,824 (3,005) 30,976
-------- ------- ------- ------- --------
Long-term debt................................... 20,200 159 1,015 (1,000)(a) 20,374
-------- ------- ------- ------- --------
Minority interest and other liabilities.......... 864 9 28 -- 901
-------- ------- ------- ------- --------
Redeemable common stock and warrants............. 4,634 -- -- 4,676(d) 9,310
-------- ------- ------- ------- --------
Redeemable preferred stock....................... -- -- 4,668 (4,668)(d) --
-------- ------- ------- ------- --------
Stockholders' equity (deficit):
Preferred stock................................ 4 1 -- -- 5
Common stock................................... 1 1 89 (88)(d) 3
Additional paid-in capital..................... 60,302 8,677 96 53,181(d) 122,256
Deferred compensation.......................... -- (1,186) -- 610(e) (576)
Accumulated deficit............................ (54,966) (8,236) (5,677) 8,574(f) (60,305)
Cumulative foreign currency translation
adjustments.................................. (6) -- (8) 8(d) (6)
-------- ------- ------- ------- --------
Total stockholders' equity (deficit)....... 5,335 (743) (5,500) 62,285 61,377
-------- ------- ------- ------- --------
Total liabilities and stockholders'
equity.................................. $ 54,147 $ 6,468 $ 4,035 $58,288 $122,938
======== ======= ======= ======= ========
</TABLE>
- ---------------
(a) Represents the elimination of intercompany advances made by us to California
Tickets.com for $3.7 million and to TicketsLive for $1.0 million.
(b) Represents estimated closing costs of the acquisitions of California
Tickets.com and TicketsLive, which consist primarily of legal and accounting
fees.
(c) Represents intangible assets recorded in connection with purchase price
premiums for the acquisitions of California Tickets.com and TicketsLive and
the write down to fair market value of certain property and equipment of
California Tickets.com. Certain property and equipment will be disposed of
subsequent to the acquisition and therefore have no value at the acquisition
date.
(d) Represents the issuance of redeemable common stock, convertible preferred
stock and common stock in connection with the acquisitions of California
Tickets.com and TicketsLive, as well as the elimination of their respective
capital stock balances and cumulative foreign currency translation
adjustments, as of March 31, 1999.
(e) Represents a reduction of deferred compensation related to certain
California Tickets.com stock options, which vested in full upon the closing
of the acquisition.
(f) Represents the elimination of the March 31, 1999 retained earnings balances
of California Tickets.com and TicketsLive. Also, the amount includes the
effect of a charge to earnings as of March 31, 1999 related to estimated
in-process research and development as if the acquisitions occurred on March
31, 1999. The estimated in-process research and development for California
Tickets.com is $3.5 million and for TicketsLive is $1.8 million.
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
------------ --------------- ------------ -------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing services(a)... $ 26,558 $ 3,234 $ 1,092 $ 66 $ -- $ 30,950
Software services and
other................. 2,982 2,696 -- 11,052 -- 16,730
-------- ------- ------- ------- -------- --------
Total revenues... 29,540 5,930 1,092 11,118 -- 47,680
-------- ------- ------- ------- -------- --------
Cost of services:
Ticketing services...... 17,155 2,060 1,683 33 -- 20,931
Software services and
other................. 1,551 1,067 -- 5,704 -- 8,322
-------- ------- ------- ------- -------- --------
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 12,711(f) 73,243
-------- ------- ------- ------- -------- --------
Loss from operations...... (32,834) (813) (5,168) (3,290) (12,711) (54,816)
Other (income) expense,
net..................... 2,027 493 (83) (26) 92(g) 2,503
-------- ------- ------- ------- -------- --------
Net loss.................. $(34,861) $(1,306) $(5,085) $(3,264) $(12,803) $(57,319)
======== ======= ======= ======= ======== ========
Basic and diluted net loss
per share............... $ (1.83)
========
Weighted average common
shares outstanding(h)... 31,358
========
</TABLE>
- ---------------
(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 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 will be 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.
(d) The results of operations of TicketsLive will be 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.
(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) 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. Also represents
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 is $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.
25
<PAGE> 30
SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 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............... $ 5,070 $ 354 $ 17 $ -- $ 5,441
Software services and other...... 1,508 -- 2,593 -- 4,101
------- ------- ------- ------- --------
Total revenues........... 6,578 354 2,610 -- 9,542
------- ------- ------- ------- --------
Cost of services:
Ticketing services............... 3,725 743 -- -- 4,468
Software services and other...... 750 -- 1,325 -- 2,075
------- ------- ------- ------- --------
Total cost of services... 4,475 743 1,325 -- 6,543
------- ------- ------- ------- --------
Gross profit (loss)................ 2,103 (389) 1,285 -- 2,999
Operating expenses................. 7,345 2,415 3,120 1,708(c) 14,588
------- ------- ------- ------- --------
Loss from operations............... (5,242) (2,804) (1,835) (1,708) (11,589)
Other (income) expense, net........ 805 (4) (8) -- 793
------- ------- ------- ------- --------
Net loss........................... $(6,047) $(2,800) $(1,827) $(1,708) $(12,382)
======= ======= ======= ======= ========
Basic and diluted net loss per
share............................ $ (0.39)
========
Weighted average common shares
outstanding(d)................... 32,110
========
</TABLE>
- ---------------
(a) The results of operations of California Tickets.com will be 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 will be 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.
26
<PAGE> 31
SELECTED CONSOLIDATED FINANCIAL DATA
TICKETS.COM, INC.
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the notes thereto 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 three months ended March 31, 1998 and 1999 and the consolidated
balance sheet data as of March 31, 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, and ProTix from the dates of the
acquisitions but does not include financial data for California Tickets.com or
TicketsLive. 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.
The selected financial data for BASS, which we acquired on September 26,
1997, are also included. The statement of operations data presented below for
the years ended March 31, 1995, 1996 and 1997 and the selected balance sheet
data as of March 31, 1995, 1996 and 1997 are derived from BASS' audited
financial statements, which were audited by Burr, Pilger & Mayer, Inc., BASS'
independent public accountants, and (except for the balance sheet data as of
March 31, 1995) 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.
27
<PAGE> 32
TICKETS.COM, INC. AND SUBSIDIARIES(A)
<TABLE>
<CAPTION>
MAY 31, 1996
(INCEPTION) YEAR ENDED THREE MONTHS ENDED
TO DECEMBER 31, MARCH 31,
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 $ 5,591 $ 5,070
Software services and other................ 1,123 1,961 2,982 462 1,508
------- ------- -------- ------- -------
Total revenues..................... 1,242 11,647 29,540 6,053 6,578
------- ------- -------- ------- -------
Cost of services:
Ticketing services......................... 816 7,702 17,155 3,150 3,725
Software services and other................ 614 711 1,551 183 750
------- ------- -------- ------- -------
Total cost of services............. 1,430 8,413 18,706 3,333 4,475
------- ------- -------- ------- -------
Gross profit (loss)................ (188) 3,234 10,834 2,720 2,103
------- ------- -------- ------- -------
Operating expenses:
Sales and marketing........................ 154 2,096 7,339 1,416 2,919
Technology development..................... 690 2,233 6,417 1,101 1,813
General and administrative................. 2,071 3,182 9,204 1,788 2,244
Amortization of intangibles................ -- 712 2,082 430 369
Impairment of long-lived assets............ -- -- 17,026 -- --
Purchased in-process research and
development............................. -- -- 1,600 -- --
------- ------- -------- ------- -------
Total operating expenses........... 2,915 8,223 43,668 4,735 7,345
------- ------- -------- ------- -------
Loss from operations......................... (3,103) (4,989) (32,834) (2,015) (5,242)
Other expenses(b)............................ 146 1,110 2,027 603 805
------- ------- -------- ------- -------
Net loss..................................... $(3,249) $(6,099) $(34,861) $(2,618) $(6,047)
======= ======= ======== ======= =======
Basic and diluted net loss per share......... $ (0.29) $ (0.52) $ (2.70) $ (0.22) $ (0.42)
======= ======= ======== ======= =======
Weighted average common shares outstanding... 11,250 11,698 12,901 11,698 14,248
======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------- MARCH 31,
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 $ 54,147
Working capital (deficit)................... (2,163) (1,538) (8,180) 8,656
Total long-term debt(c)..................... 4,968 23,493 20,232 20,200
Redeemable common stock and warrants........ 2,500 3,599 4,506 4,634
Accumulated deficit......................... (7,419) (13,517) (48,792) (54,966)
Total stockholders' equity (deficit)........ (4,396) 2,186 (11,929) 5,335
</TABLE>
- ---------------
(a) Includes historical financial data for BASS and ProTix from the dates of
acquisition but does not include financial data for California Tickets.com
or TicketsLive.
(b) Other expenses include principally interest expense, net of interest income,
and to a lesser degree minority interest and provision for income taxes.
(c) Amounts classified as long-term debt consist of long-term debt and capital
lease obligations, net of current portion.
28
<PAGE> 33
BAY AREA SEATING SERVICE, INC.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, APRIL 1, 1997 TO
----------------------------- SEPTEMBER 26,
1995 1996 1997 1997
------- ------- ------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Ticketing services........................... $20,704 $18,752 $20,561 $10,858
Software services and other.................. -- -- -- --
------- ------- ------- -------
Total revenues....................... 20,704 18,752 20,561 10,858
------- ------- ------- -------
Cost of services:
Ticketing services........................... 8,776 7,381 7,866 4,203
Software services and other.................. -- -- -- --
------- ------- ------- -------
Total cost of services............... 8,776 7,381 7,866 4,203
------- ------- ------- -------
Gross profit................................... 11,928 11,371 12,695 6,655
General and administrative expenses............ 11,704 11,322 12,212 6,301
------- ------- ------- -------
Income from operations......................... 224 49 483 354
Other income, net(a)........................... 270 402 356 261
Provision for income taxes..................... (338) (162) (278) (211)
------- ------- ------- -------
Net income..................................... $ 156 $ 289 $ 561 $ 404
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Total assets................................................ $11,099 $12,818 $14,443
Working capital............................................. 1,080 1,591 749
Total long-term debt(b)..................................... 22 6 1
Retained earnings........................................... 1,608 1,897 2,407
Total shareholders' equity.................................. 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) Amounts classified as long-term debt consist of long-term debt and capital
lease obligations, net of current portion.
29
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations should be read in conjunction with our consolidated financial
statements as of December 31, 1998 and related notes. The following discussion
contains certain 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 outlets, call centers, interactive voice response
systems, and 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 3,800 entertainment
organizations such as stadiums, performing arts centers, museums and
professional sports franchises. In 1998 we sold approximately 5.3 million
tickets for which we received convenience 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 200,000 sporting and entertainment events
and performances, purchase tickets from multiple sources and shop for related
products. Our goal is to leverage 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.
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
call 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. In August 1997, we
acquired the assets of Fantastix Ticket Company, LLC, a regional ticketing
services provider located in Buffalo, New York, and in September 1997, we
acquired all of the outstanding capital stock of Bay Area Seating Service, Inc.,
commonly known as BASS, a ticketing services provider serving the Northern
California and Nevada markets. In October 1998, we acquired all of the
outstanding capital stock of ProTix, Inc., a ticketing services provider and
developer of in-house ticketing systems based in Madison, Wisconsin. Effective
April 1999, we acquired all of the outstanding capital stock of TicketsLive
Corporation and California Tickets.com. We changed our name from Advantix to
Tickets.com, Inc. in May 1999. Our corporate office is located in Newport Beach,
California.
SOURCES OF REVENUE
Ticketing Services
We generate revenues from ticketing services pursuant to contracts we enter
into with our clients. These contracts generally 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. We primarily generate revenue from per
ticket convenience fees charged directly to consumers who purchase tickets
through our retail outlets, call centers, IVR and the Internet. In addition, we
charge a per order handling fee to consumers for all tickets we sell, other than
through retail outlets. The
30
<PAGE> 35
amount of the convenience 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 convenience fee for each client
is determined by us and our clients through arms-length negotiations during the
contract process. During 1998, our convenience fees generally ranged from $1.50
to $7.00 per ticket.
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. We do not purchase
tickets from our clients for resale to the public. Accordingly, we do not bear
any financial risk for unsold tickets.
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 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 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 call center and distribution payroll,
telecommunications and data communications, commissions paid on tickets
distributed through outlets and our clients' share of convenience fees. Cost of
services associated with software services and other include primary 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, including amortization
of intangibles. 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.
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<PAGE> 36
ACQUISITION HISTORY
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 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 March 31, 1999, the aggregate purchase price recorded was
$22.3 million which included costs of the acquisition and contingent
consideration payments made to date. Additional contingent consideration of $3.1
million may be paid if BASS' net revenues meet certain predefined targets. 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
one of the industry's leading suites of ticketing software to our family of
products. In addition, we acquired the Transaction Application Gateway, or TAG,
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
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<PAGE> 37
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 $40.6 million. The results of
operations of California Tickets.com are included in our consolidated financial
statements from the date of the acquisition.
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.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1998
REVENUES
Ticketing services. Revenues from ticketing services decreased 9.3% to $5.1
million for the three months ended March 31, 1999 from $5.6 million for the
three months ended March 31, 1998. The decrease in revenues was primarily due to
a decrease in total tickets sold of 23.9% to 842,000 for the three months ended
March 31, 1999 from 1,107,000 for the three months ended March 31, 1998. From
March 1998 to July 1998, two of our largest clients terminated their contracts
with us, and one 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, and 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 226.6% to $1.5 million for the three months ended March 31, 1999 from
$500,000 for the three months ended March 31, 1998. The acquisition of ProTix
contributed approximately 92.2% of the increase. The remaining amount of the
increase was primarily due to the addition of new licensees who purchase our
software systems and the fees related to the maintenance and support of that
software. We expect our software services and other revenue to increase
significantly in the second quarter and over the remainder of the year due to
our acquisition of TicketsLive in April 1999 and California Tickets.com's
acquisition of TicketStop in March 1999. As a result of the acquisition of
ProTix and the loss of certain client contracts in the last half of 1998, the
quarter ended March 31, 1999 included a higher proportion of software services
and other revenues.
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<PAGE> 38
COST OF SERVICES
Ticketing Services. Cost of services for ticketing services increased 18.2%
to $3.7 million for the three months ended March 31, 1999 from $3.2 million for
the three months ended March 31, 1998. As a percentage of revenues, total cost
of ticketing services increased to 73.5% from 56.3%. 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 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 311.1% to $800,000 for the three months ended March 31, 1999
from $200,000 for the three months ended March 31, 1998. As a percentage of
revenues, costs of software services and other increased to 49.7% from 39.5%.
The increase was primarily due to the acquisition of ProTix, which performs
custom programming services on behalf of certain of its 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 106.1% to $2.9
million for the three months ended March 31, 1999 from $1.4 million for the
three months ending March 31, 1998. As a percentage of revenues, sales and
marketing expenses increased to 44.4% from 23.4%. 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. The increase primarily represents
increased advertising expenses, payroll expenses, trade shows expenses and
travel related expenses. As a percentage of revenues, we expect sales and
marketing expenses to continue to increase. We intend to put into place an
aggressive advertising campaign to increase consumer awareness and build the
brand equity of our web site.
Technology Development. Technology development expenses increased 64.7% to
$1.8 million for the three months ended March 31, 1999 from $1.1 million for the
three months ended March 31, 1998. The acquisition of ProTix contributed
$100,000 or 20% of this increase. As a percentage of revenues, technology
development expenses increased to 27.6% from 18.2%. We will continue to increase
technology development expenses to enhance system functionality and broaden
reporting capabilities and service delivery methods. Additionally, we developed
an aggressive schedule for achieving connectivity between our clients and the
licensees of our various software platforms, and our web site. We are also
working to develop and enhance our web site and to increase communication links.
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
25.5% to $2.2 million for the three months ended March 31, 1999 from $1.8
million for the three months ended March 31, 1998. As a percentage of revenues,
general and administrative expenses increased to 34.1% from 29.5%. The increase
was primarily due to increased payroll and related expenses as we continue to
invest in our managerial and administrative infrastructure, commensurate with
and to facilitate our growth. We expect general and administrative expenses to
increase in future periods as we continue to expand our staff and as we incur
additional costs related to the growth of our business and reporting as a public
company.
Amortization of Intangibles. Amortization expense decreased 14.1% to
$369,000 for the three months ended March 31, 1999 from $430,000 for the three
months ended March 31, 1998. This decrease was a result of a write-off for the
impairment of goodwill and intangibles in the fourth quarter of 1998. The
decrease was partially offset by amortization related to goodwill and
intangibles as a result of the acquisition of ProTix. Amortization expense is
expected to increase in future periods resulting from significant intangibles
and goodwill recorded in connection with the acquisitions of TicketsLive, ($25.5
million) and California Tickets.com ($38.2 million). We expect our annual
amortization of intangibles to increase by $6.8 million as a result of these
acquisitions.
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<PAGE> 39
Total Other (Income) Expense. Total other (income) expense consists
principally of interest income and interest expense. Interest income is
generated principally from cash and cash equivalents held in interest bearing
accounts. Interest income increased 36.4% to $149,000 for the three months ended
March 31, 1999 from $109,000 for the three months ended March 31, 1998. The
increase in interest income in 1998 is due primarily to higher cash balances
that resulted from our financing activities. Interest expense increased by 32.0%
to $900,000 for the three months ended March 31, 1999 from $700,000 for the
three months ended March 31, 1998. The increase in interest expense 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" and (2) increased interest related to the additional $1.3
million of debt incurred in connection with the 1998 acquisition of ProTix.
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 primarily 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, ticket sales decreased slightly 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 convenience and handling
fees.
From March 1998 to July 1998, three of our largest clients terminated their
contracts. As a result, we expect annualized revenues to be reduced by
approximately $5.8 million and annualized ticket sales volume to be reduced by
approximately 1.5 million tickets commencing January 1999. In November 1998, our
largest client notified us of its intent not to renew its contract with us at
the end of its term on December 31, 1999. We expect our annualized revenues will
be reduced by an additional amount of approximately $3.5 million commencing in
fiscal 2000 due to the loss of this client and annualized ticket sales volume to
be reduced by approximately 700,000 tickets.
Software Services and Other. Revenues from software services and other
increased 52.1% to $3.0 million in 1998 from $2.0 million in 1997. ProTix
contributed $500,000 of the increase. The remaining amount of the increase was
primarily due to an increase in the number of licensees of our software systems
and the related support fees derived therefrom.
COST OF SERVICES
Ticketing services. Cost of services for ticketing increased $9.5 million
or 122.7% to $17.2 million in 1998 from $7.7 million in 1997. An additional nine
months of 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 leverage 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. As a
percentage of revenues, costs of software services and other increased to 52.0%
from 36.3%. The increase was primarily due to $900,000 in cost of services
recognized in connection with the acquisition of ProTix in October 1998 and to
the costs involved with support services provided to new software support
clients in 1998.
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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 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.
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.
During 1998, estimated revenues attributable to these four clients totalled
approximately $9.3 million. 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 certain 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.
We also reviewed the estimated lives of certain of our long-lived assets, which
resulted in the acceleration of amortization expense for certain intangible
assets.
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
certain long-lived assets were shortened, which resulted in the acceleration of
amortization expense for certain 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 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.
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<PAGE> 41
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 (2004) 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 utilized 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.
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 seven
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
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<PAGE> 42
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 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.
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The operating results in any quarter are not necessarily indicative of the
results that may be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER DECEMBER 31, MARCH 31,
1998 1998 30, 1998 1998 1999
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <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%
Software services and
other...................... 462 8 683 9 814 10 1,023 14 1,508 23
------ --- ------ --- ------ --- ------ --- ------ ---
Total revenues................. 6,053 100 7,821 100 8,252 100 7,414 100 6,578 100
------ --- ------ --- ------ --- ------ --- ------ ---
Cost of services:
Ticketing services........... 3,150 52 4,899 63 4,628 56 4,478 60 3,725 57
Software services and
other...................... 183 3 224 3 269 3 875 12 750 11
------ --- ------ --- ------ --- ------ --- ------ ---
Total cost of services......... 3,333 55 5,123 65 4,897 59 5,353 72 4,475 68
------ --- ------ --- ------ --- ------ --- ------ ---
Gross profit............... $2,720 45% $2,698 35% $3,355 41% $2,061 28% $2,103 32%
====== === ====== === ====== === ====== === ====== ===
</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. Factors that may affect our quarterly 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:
- our access to tickets and ability to increase our available ticket
inventory;
- changes in our revenue mix;
- delays in implementation of our services by clients;
- the announcement or introduction of new or enhanced sites and services by
us or our competitors;
- consumer acceptance of the Internet for services such as ours;
- the amount of traffic on our web sites;
- 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);
- our ability to upgrade and develop our systems;
- 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, or others not specifically
listed, could adversely affect our revenues, gross profit and results of
operations in the future. In addition, we derive a majority of our revenues
directly or indirectly from the sale of tickets and related merchandise for live
entertainment, sporting and leisure events and the popularity, frequency and
location of those events directly affect our revenues and our operating results.
Factors affecting the demand for and the attendance of such events include
general economic conditions, consumer trends and work stoppages, among others.
Any occurrence or condition that results in decreased attendance or demand for
entertainment, sporting and leisure events would likely have a material adverse
effect on our business, financial condition and results of operations. As a
result, you should not rely upon period-to-period comparisons of our results of
operations as an indication of future performance. In addition, the results of
any quarterly period are not indicative of results to be expected for a full
fiscal year. Many of the factors outlined above are largely unpredictable and
may cause significant fluctuations in our operating results. These fluctuations
may cause our annual or quarterly results to be below market expectations which
could materially and adversely affect the market price of our stock.
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<PAGE> 44
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our activities through a series of
private placements of convertible preferred stock, and through debt and credit
facilities. As of March 1999, we had raised a total of $82.5 million in
long-term capital from equity and debt instruments.
From December 31, 1998 to March 31, 1999, cash and cash equivalents
increased by $9.5 million. The increase resulted mainly from $21.3 million in
proceeds from the issuance of 9,477,655 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 $9.1 million, purchases of property and
equipment of $200,000 and principal payments on long term debt of $2.5 million.
Cash used in operating activities was primarily for funding of the first quarter
losses of $6.0 million, and pre-acquisition cash advances of $3.7 million to
California Tickets.com and $1.0 million to TicketsLive.
In 1998, cash and cash equivalents increased by $7.6 million. This increase
resulted from $20.0 million in proceeds from the issuance of 11,597,114 shares
of Series C convertible preferred stock, net of issuance costs. In addition,
cash and cash equivalents increased from the liquidation of $6.8 million of
marketable securities available for sale, the reduction of restricted cash and
investments by $1.5 million and from the issuance of long-term debt totaling
$700,000. These sources of the increase in cash were partially offset by cash
used in the acquisition of ProTix of $3.7 million net of cash acquired, cash
used in operating activities of $10.0 million, expenditures for property and
equipment of $3.9 million, debt service payments of principal of $1.1 million
and the reduction to zero of the December 31, 1997 bank overdraft of $2.7
million.
In 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.
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 certain provisions of the
Credit Agreement. Additionally, the 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 certain financial and non-financial covenants that we were required to
satisfy under our Amended and Restated Credit Agreement with this 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 Credit Agreement. On
March 17, 1999, we entered into a First Amendment to the Credit Agreement, which
among other things, amended financial covenants and provided for a waiver of all
instances of default under the provisions of the former 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.
We believe that cash on hand as of March 31, 1999, the $8.7 million
received in connection with the sale of additional Series D convertible
preferred stock, which occurred on May 17, 1999, and the anticipated net
proceeds from this offering will be sufficient to fund operations and meet debt
and other obligations through March 31, 2001. However, we may need to raise
additional funds in order to support more rapid expansion, develop new or
enhanced services or technologies, respond to competitive pressures, acquire
complementary businesses, or respond to unanticipated requirements. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our stockholders will be reduced and stockholders may
experience additional dilution in net book value per share, or such equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. There can be no assurance that we will be able to
obtain additional financing when needed on favorable terms, if at all. If
adequate funds are
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<PAGE> 45
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. We have provided a full 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 certain 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 May 17, 1999, we had outstanding non-qualified stock options to
purchase 5,326,233 shares issued to various employees, consultants and directors
under our 1996 and 1998 stock options plans. Each option entitles its holder to
purchase a share of common stock at a weighted average exercise price of
approximately $2.03. 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 in interest rate risk and changes in fair
market value should not have a significant impact on the fixed rate debt unless
we would be required to refinance that debt. The carrying value of our variable
rate debt approximates fair value due to the frequency of repricing of this
debt.
We do not believe that the future market risks related to the above
securities will have a material adverse impact on our financial position,
results of operations or liquidity.
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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, phone
centers, retail outlets, 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 explicitly or inferred by unambiguous algorithms.
(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 (for example hardware, software, firmware, and networks) used with our
products and services properly exchange accurate date data. Our proprietary
ticketing software systems operate in conjunction with hardware, databases,
operating systems and other applications developed by third parties. We have
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.
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.
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, phone centers, and
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internal network are dependent upon the ability of our telecommunications
vendors to maintain service without interruption. A substantial interruption of
these services could have a material adverse effect on our results of
operations.
Contingency Plans
Since we do not believe we face a material risk of a year 2000 problem, we
have not yet developed a contingency plan to address situations that may result
if we are unable to achieve year 2000 readiness, or if there is a major
disruption in mission critical services. We plan to continue to evaluate our
risk associated with the year 2000 problem. If we determine that a contingency
plan is necessary, the costs of developing and implementing a plan could be
material.
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 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 2000. SFAS No. 133
establishes accounting and reporting standards for derivative instruments. The
statement requires that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value, and that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. We do not have any derivative
instruments as of December 31, 1998. We believe that the adoption of SFAS No.
133 will not have a material effect on our consolidated financial statements.
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BUSINESS
OVERVIEW
Tickets.com is a leading source of entertainment tickets, event
information, and related products and services. We sell tickets and provide
these services through retail outlets, call centers, interactive voice response
systems, and 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 3,800 entertainment
organizations such as stadiums, performing arts centers, museums and
professional sports franchises. In 1998 we sold approximately 5.3 million
tickets for which we received convenience 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 over 200,000 sporting and entertainment
events and performances, purchase tickets from multiple sources and shop for
related products. Our goal is to leverage 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 U.S. 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.
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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 outlets because of advances in call 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, commonly known as
IVR 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, IVR systems,
call centers, retail outlets 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 call centers, retail outlet networks, and more
recently, e-commerce solutions, these outsourcing service providers
enable entertainment organizations to sell a large volume of tickets in a
short period of time and over a wide geographic area.
- In-House System Providers. Many entertainment organizations, such as
performing arts centers, elect to manage their ticket sales through
integrated ticketing software systems licensed from providers of
automated ticketing systems. In-house systems allow entertainment
organizations to better control the level of service offered to, and
gather relevant information about, consumers. These entertainment
organizations can use consumer information to develop marketing programs
to target audiences for events and address their often complex season and
subscription ticketing needs. Under license arrangements, entertainment
organizations generally undertake the costs of establishing and
maintaining their own sales and distribution channels, including
computer, networking and telecommunications systems.
- Manual Ticketing. Other typically small entertainment organizations, such
as local theater and dance companies and other organizations generally
rely on manual ticketing through a single box office. These providers
often have limited administrative, marketing and financial resources and
rely on box office personnel to manually record transactions and keep
track of available ticket inventories.
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Limitations of Current Ticketing Alternatives
Consumer Perspective. Currently, there are few sources where consumers can
find extensive event information and ticket selection. As a result, the consumer
must search through a variety of sources, including newspapers, entertainment
guides and the Internet, in order to gather information about upcoming events.
Even on the Internet, consumers often must conduct several time-consuming
searches before obtaining the information they are seeking. Then consumers
frequently must turn to a different source, such as a call center or separate
web site, in order to determine ticket availability for an event and purchase
tickets. This is often a frustrating experience for the consumer because of long
wait times and poorly trained personnel. 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. Because current ticketing approaches offer limited information and
limited access to tickets, consumers are often dissatisfied and seek a better
solution for their entertainment information and ticketing needs.
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
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sports and entertainment events, purchase tickets from multiple sources and shop
for related products at a single site. We provide a wide variety of
entertainment organizations with a broad range of flexible outsourcing services
and scalable 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.
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 over
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 services as well as entertainment organizations that use other
ticketing systems. 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 IVR systems, call centers, retail outlets 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 and not have 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
- 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 entertainment 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
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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, scalable 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. By
using the Internet, advanced data communications technology and standardized
open interfaces that connect our sales and distribution network to our in-house
ticketing software solutions, we can also offer entertainment organizations
real-time Internet ticketing capabilities through our web site or through their
own web site. We believe that our diverse and flexible product and service
offerings provide superior solutions to respond to the ticketing needs of
virtually any entertainment organization.
Targeted Marketing and Event Promotion Capabilities that Provide
Incremental Revenue and Cost Savings Opportunities. Our ticketing system and web
site offer entertainment organizations effective targeted marketing and event
promotion capabilities. Our core ticketing system enables entertainment
organizations to build, maintain and access a consumer database and to organize
and analyze information about ticket buyers. Entertainment organizations can use
this information to earn higher fees from their advertisers and corporate
sponsors, sell more tickets, create more efficient ticket pricing strategies and
lower their marketing expenditures by targeting specific consumers or groups of
consumers. We also offer entertainment organizations promotional services on our
web site, including special venue or event listings, venue seating charts,
banner advertising and customized web pages promoting specific events. In the
future, we also plan to offer entertainment organizations promotional services
such as targeted e-mail event notification and key word and category search
sponsorships, such as the Performing Arts section sponsored by Phantom of the
Opera. We believe that these programs are effective tools for entertainment
organizations to build long-term consumer loyalty, and, over time, significantly
lower the costs associated with promoting and marketing events.
Ability to Leverage 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 is
especially 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 leverage 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 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 leverage the benefits of our
open Internet transaction system to enter into online distribution
agreements with other ticketing companies and systems providers in the
U.S. and abroad;
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- 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 U.S. and abroad.
Offer Additional Services to Help Entertainment Organizations Maximize
Revenues and Profits.
We plan to offer a number of value-added services in conjunction with our
web site and ticketing systems in order to sell more tickets, create new revenue
sources and create operating efficiencies for entertainment organizations. In
order to achieve this goal we intend to:
- Improve yield management and implement dynamic pricing. We are developing
technology and web site functionalities that we expect will enable us to
introduce efficient pricing strategies to entertainment ticketing.
Planned functionalities include business-to-consumer ticket auctions and
dynamic, demand-driven pricing. Furthermore, we plan to create authorized
markets to allow season and subscription ticket holders to sell tickets
they do not intend to use, while enabling entertainment organizations to
share in some of the revenue associated with the resale of these tickets.
We believe these services will increase ticket sales and enable
entertainment organizations to collect information about purchasers of
these tickets.
- Expand marketing initiatives to generate higher market demand. We intend
to enhance event, marketing and ticket sales on behalf of entertainment
organizations by leveraging numerous sales channels and marketing
strategies. 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 leverage 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 offline 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
streaming, 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
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inventory. For example, we have established advertising and other relationships
with GeoCities, MP3.com, International Merchandising Corporation, a wholly owned
subsidiary of International Management Group and Sitematic Corporation. We
intend to maximize the value of these relationships to broaden the services we
offer to our clients by creating additional distribution channels, specialized
corporate sponsorship programs, and marketing and promotional campaigns.
Penetrate International Markets
We believe that significant opportunities for international expansion exist
because the availability of automated ticketing services and the adoption of
Internet ticketing in these markets lag behind the U.S. We intend to leverage
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 over 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
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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 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 certain keyword searches.
Future Web Site Services
- Merchandise Sales. We believe that ticket sales and event information
create complementary opportunities for related merchandise sales. We
intend to significantly increase online merchandise sales by increasing
the breadth of merchandise available for sale on our web site, as well as
integrating merchandise offerings with relevant content on our site.
Future merchandise offerings on our site are expected to include compact
discs, apparel and other merchandise related to tickets or event
promotions available on our site. We intend to enter into online
marketing and distribution agreements with merchandising companies that
can provide us with the necessary depth and breadth of inventory, as well
as fulfillment capabilities.
- 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
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intend to offer affiliated fan clubs the opportunity to be integrated
into our event database to promote their clubs to targeted visitors at
our web site.
THE TICKETS.COM SALES AND DISTRIBUTION NETWORK
Our sales and distribution network is comprised of various channels through
which information is accessed and tickets are sold. This network consists of
various distribution channels including numerous retail outlet locations, three
national call centers, individual venue box offices, IVR technology and our web
site.
- Retail Outlets. We currently sell tickets through a number of retail
outlets in those locations where we offer full outsourcing ticketing
services to entertainment organizations. These retail outlets are
typically in 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 outlets are located 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 outlets and for training employees of the retail outlets in the
operation of the system. The retail outlets are responsible for providing
personnel for ticket sales and daily operations, as well as advertising
and promotions to augment ticket sales.
- National Call Centers. Consumers can purchase tickets through our three
national call centers located in Concord, California; Cleveland, Ohio;
and Fairfax, Virginia. Operators at our call 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.
- IVR. Our ticketing capabilities also include an advanced IVR system,
which enables consumers to access information and purchase tickets by
using a touch tone telephone and 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 IVR
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 IVR 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 Ahmanson Theatre in Los Angeles. The majority of
transactions conducted through our www.tickets.com site use our highly
specialized Transaction Application Gateway, TAG, 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 TAG. 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.
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Transaction Application Gateway
Our Transaction Application Gateway, or TAG, is an open-standard,
transactional middleware, designed to facilitate real-time Internet ticket sales
from existing ticketing systems. We have developed TAG to achieve the
standardization and scalability needed to simultaneously sell tickets for
multiple entertainment organizations, independent of the ticketing system used
by those organizations. TAG is capable of facilitating interaction between
various ticketing systems on one end, and various sales and distribution points
on the other end. We leverage TAG's flexibility 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 TAG, and we are developing interfaces for our other software
products, as well as third party software products. We intend to enhance TAG to
create a distributed network capable of selling and printing tickets at any
connected location, for any entertainment organization that uses TAG as a
transactional middleware.
TAG 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 TAG and are written to the specific ticketing engine's
database to update inventory availability. In addition, TAG 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 TAG's architecture also makes it
possible to develop interfaces with a variety of sales and distribution
channels, such as web sites, kiosks, IVR 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.
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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 and Access Control System 2100, which we obtained through
acquisitions of other ticketing companies. Over the next several years we intend
to consolidate our various codelines and integrate our ticketing software
systems.
The following table describes our ticketing software family of products as
of May 17, 1999:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
APPROX.
NUMBER
TARGET MARKET AND OF
PRODUCT NAME FUNCTIONALITY HIGHLIGHTS CLIENTS REPRESENTATIVE CLIENTS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ADVANTIX SQL - Large performing arts centers, professional 790 - 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 SQL format; - Marine Midland Arena
tracks
transaction history and facilitates
sophisticated marketing programs
- -----------------------------------------------------------------------------------------------------------------------------
PROLOGUE - Large venues, including raceways, universities 270 - International Speedway - Wolf Trap Filene
and
professional sports organizations Corp. Center
- High volume transaction processing - Texas Rangers - Benedum Center
capabilities
- Includes a suite of customizable "plug-in" - Sydney Organizing - Dallas Stars Hockey
enhancements, including student debit card Committee for the Club
authori-
zation, access control and membership/loyalty Olympic Games - University of N.C.
program integration - Ticket King at Chapel Hill
- -----------------------------------------------------------------------------------------------------------------------------
PASS SUITE - Performing arts, museums, universities, minor 1,750 - Lincoln Center for the - Tower of London
of
PRODUCTS league sports, and attractions Performing Arts - AMP Tower-Australia
- Modular in design, sharing a common platform - Carrier Dome - Montage Ski Resort
and
providing scalable ticketing solutions for small - Pennsylvania State - Royal Albert Hall
to medium-sized venues University - National Gallery
- Patron-based system features client/server - New York Philharmonic London, England
architecture and provides complete box office - Kravitz Center - Glyndebourne Opera
ticketing, admission control, an integrated fund - St. Louis Arch
raising module and an event/tour scheduling
module.
- -----------------------------------------------------------------------------------------------------------------------------
ARTSOFT/ - Mid-sized venues, performing arts and serial/ 150 - St. Louis Symphony - Cheyenne Frontier Days
SPORTSOFT seasonal sporting and entertainment events - North Shore Music - Cerritos Center for
the
- Patron-based system running on Novell or Theatre Performing Arts
NT network - Boston Ballet - Crystal Cathedral
- Full ticketing functionality including single,
group
and season ticket sales, and an integrated fund
raising module
- -----------------------------------------------------------------------------------------------------------------------------
TICKETMAKER - Small to mid-sized venues migrating from 880 - Los Angeles Zoo - President's Casino
manual
PROFESSIONAL ticketing systems, minor leage sports, casinos, - San Antonio Missions - Essential Theatre
small performing arts centers and attractions - Sahara Speedworld (Florida A & M)
- Affordable PC-based ticketing solution for - Midway Slots & - Irvine Arts Ctr.
organizations that seek a flexible, easy-to-use Simulcast
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, 20 - Dreamland Amusement - Santa Anita Race Track
CONTROL fairs and festivals Park - Supersplash Adventure
SYSTEM 2100 - Provides integrated access control (bar-code, - IGMA 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
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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OUTSOURCING SERVICES
We use Advantix SQL and Prologue to provide flexible outsourcing services
that enable entertainment organizations to leverage the benefits of our industry
knowledge, telecommunications infrastructure and technology development to
manage their ticketing needs in an efficient and economic manner. 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.
- Real-Time Tracking of Ticket Inventory. Tickets are often sold
simultaneously through multiple distribution channels, including the
Internet, IVR, call centers, retail outlets 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 outlets,
the
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transaction is completed and a unique transaction number is provided by
the system. For most transactions completed through the Internet, IVR or
our call centers, tickets are printed and sent to customers via the mail
or express delivery, depending on customer preferences. For transactions
completed at retail outlets, 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 convenience 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.
We generally serve as the exclusive automated ticketing service for our
outsourcing clients. In addition, we typically license our software, sell
hardware and provide maintenance and support services to individual software
licensees. 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 Guilford,
Connecticut; Madison, Wisconsin; Bellevue, Washington; and Syracuse, New York
and St. Albans, England facilities provides full-time product support for our
licensees.
SALES
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
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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 upsell 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 the goal of increasing our presence within the
entertainment and sports industries, as well as increasing our offerings to
consumers.
GeoCities
In March 1999, we entered into an agreement as a Premier Merchant Partner
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 impressions 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.
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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 partner 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.
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 promotion company events. 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 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 certain 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.
Sitematic
In April 1999, we entered into a channel partner 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.
RESEARCH AND DEVELOPMENT
We conduct research and development for our licensed products in several
offices around the United States. As of May 17, 1999, we employed 36 software
engineers who were responsible for the continued development and maintenance of
our products and systems. We also employed 10 quality assurance personnel, and
189 persons dedicated to the continued installation, training and support of our
various products. In addition, we employ 28 software engineers dedicated to
ongoing development and functionality of our web site. We also make use of
Internet consulting services provided by Proxicom, Inc. to augment our web site
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development. Our current development work is primarily devoted to the
integration of our licensed products with our TAG transactional middleware, in
an effort to enable our licensees to connect their inventory to our web site.
Our development efforts are also focused on consolidating our various codelines
and integrating our ticketing software systems.
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, system scalability, 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 function 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 operations in multiple
locations throughout the United States. Ticketmaster Online-CitySearch has an
exclusive license to do all of the online ticketing for Ticketmaster
Corporation. Ticketmaster has a widely recognized brand name in the live event
ticketing business 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
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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 certain other trademarks in the United States and certain other countries.
Eastman Kodak Company has registered the trademark "Advantix" in the United
States and certain other countries in connection with its digital photography
technology and has notified us of that fact.
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 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. We could also
be subject to lawsuits because we link consumers to an internal page within
other ticketing service providers' web sites -- a practice called "deep"
hypertext linking. We have also included the trademarks of these other ticketing
service providers on our web site. For example, we link consumers to pages
within Ticketmaster Online-City Search's web site in circumstances where
Ticketmaster has the exclusive right to sell tickets to certain events and also
have included Ticketmaster's name on our web site. While Ticketmaster receives
all revenues from this practice and controls the advertising on its order page,
deep linking is controversial, and Ticketmaster Corporation has sued Microsoft
Corporation for deep linking practices.
Any litigation over intellectual property rights or business practices
(including claims relating to deep linking) raises the possibility of
substantial damages. Such litigation may also result in injunctive or other
equitable relief that could block our ability to market or license our products
in the United States or elsewhere. We could also lose the rights to technologies
necessary to operate portions of our business. Moreover, sustained intellectual
property litigation is costly and could adversely affect our operating results.
Litigation may be necessary in the future to, among other things:
- enforce our intellectual property rights;
- protect our trade secrets;
- determine the validity and scope of the proprietary rights of others; or
- defend against claims of infringement or invalidity.
Any litigation, regardless of the outcome, could result in substantial
costs and diversion of managerial resources.
We currently hold the Internet domain names "tickets.com," "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
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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 certain 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.
EMPLOYEES
As of May 17, 1999, we had a total of 723 employees including 440 full-time
and 283 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 9,612 square feet
and are located in Newport Beach, California under a lease that expires on
January 30, 2001. Our three call 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 call 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
We currently are not a party to any material litigation, nor are we aware
of any pending or threatened litigation that would have a material adverse
effect on us or our business.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
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
James A. Caccavo..................... 37 Executive Vice President, President Internet Group and
Director
John M. Markovich.................... 43 Executive Vice President, Finance and Chief Financial
Officer
Thomas R. Pascoe..................... 43 Executive Vice President and Chief Operating Officer
Andrew B. Dolich..................... 52 Executive Vice President, Sport Marketing
Daniel A. Cooper..................... 35 Senior Vice President, National Operations
Lisa M. Marquardt.................... 37 Senior Vice President Product Development
Robert D. McClintock................. 46 Senior Vice President, Software Development
Steven F. Perrin..................... 36 Senior Vice President, Technology
Robert P. Rieth...................... 39 Senior Vice President, Marketing
Mardan M. Afrasiabi.................. 32 Vice President, Strategic and International Business
Development
Michael R. Rodriguez................. 31 Vice President, Corporate Controller
C. Ian Sym-Smith(a)(b)............... 69 Chairman of the Board
Christos M. Cotsakos................. 50 Director
William E. Ford(a)(b)................ 37 Director
Howard L. Morgan..................... 53 Director
Irvin E. Richter..................... 54 Director
Nicholas E. Sinacori(b).............. 54 Director
</TABLE>
- ---------------
(a) Member of Personnel and Compensation Committee
(b) Member of Finance 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.
James A. Caccavo has served as Executive Vice President and President of
Internet Operations, and as a director of Tickets.com, since the merger of the
Company with California Tickets.com in May 1999. Prior to the merger, 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.
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
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<PAGE> 67
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 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.
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.
Daniel A. Cooper has served as Senior Vice President of National Operations
of Tickets.com since September 1998. Prior to joining Tickets.com, Mr. Cooper
was Director of Global Sports Operations with Electronic Data Services (EDS), a
leading provider of information services, from August 1994 to September 1998.
From October 1992 to August 1994, he was Director of Operations, World Cup
Technology with EDS. Mr. Cooper received his B.S. in Information and Computer
Services from the University of California, Irvine.
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 the
Company 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.
Steven F. Perrin has served as Tickets.com's Senior Vice President of
Technology since September 1998. Prior to joining Tickets.com, Mr. Perrin served
as Director of Development, EDS France '98 at Electronic Data Services (EDS)
from August 1994 to August 1998. From March 1993 to August 1994, he was Director
of Development, EDS World Cup '94. Mr. Perrin received his B.A. in German and
his B.S. in Math and Computer Science from Pepperdine University.
Robert P. Rieth has served as Senior Vice President of Marketing of
Tickets.com since its merger with California Tickets.com in May 1999. Prior to
its acquisition by Tickets.com, Mr. Rieth served as Senior Vice President of
Development of California Tickets.com from August 1997 to May 1999. Mr. Rieth
served as Executive Director of Development for idealab! from January 1997 to
July 1997. From July 1994 to December 1996, Mr. Rieth served as Director of
Product Development for Pacific Bell At Hand. From August 1990 to July 1994, Mr.
Rieth held various marketing positions with The Walt Disney Company. Mr. Rieth
received his B.A. from Trinity College and his M.B.A. from Columbia University.
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<PAGE> 68
Mardan M. Afrasiabi has served as Vice President, Strategic and
International Business Development of Tickets.com since June 1998. 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.
Michael R. Rodriguez has served as Vice President, Corporate Controller
since May 1999. He previously served as Tickets.com's 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.
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. 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. Mr. Cotsakos has received several
industry awards, including the Entrepreneur of The Year Award from Entrepreneur
of The Year Institute and the 1997 Visionary Award from Communications Week.
William E. Ford has served as a director of Tickets.com since May 1998. Mr.
Ford has served as a managing member of General Atlantic Partners, LLC or its
predecessor, a private equity firm that invests globally in software, service
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.
Irvin E. Richter has served as a director of Tickets.com since April 1995.
Mr. Richter founded and has served as Chairman and Chief Executive Officer of
Hill International, Inc., a construction claims and project
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management consulting firm, since February 1976. Mr. Richter is also Chairman
and Chief Executive Officer of R4 Holdings, LLC, a venture capital firm, and a
director of Gerens Hill International, S.A. Mr. Richter also served as Chairman
and Chief Executive Officer and was the sole shareholder of Hill Arts and
Entertainment Systems, Inc. prior to its acquisition by Tickets.com in May 1996.
Mr. Richter is also a member of the New Jersey and Pennsylvania Bars. Mr.
Richter received his B.A. in government from Wesleyan University and his 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.
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(a) Salary($) Options(#) Compensation
------------------------------ --------- ------------ ------------
<S> <C> <C> <C>
W. Thomas Gimple
President and Chief Executive Officer................ $268,431 1,350,000 $1,830(b)
Thomas R. Pascoe
EVP and Chief Operating Officer...................... 194,615 356,250 --
John M. Markovich
EVP and Chief Financial Officer...................... 177,596 806,250 --
Andrew B. Dolich(c)
EVP, Sports Marketing................................ 180,769 450,000 --
</TABLE>
- ---------------
(a) Mr. Caccavo joined Tickets.com and was appointed Executive Vice President
and President of the Internet Group in May 1999. We anticipate that Mr.
Caccavo will earn in excess of $100,000 in 1999.
(b) Represents life insurance premiums paid by the Company.
(c) Due to changes in organizational structure of Tickets.com and the
acquisition of California Tickets.com, Mr. Dolich will not be deemed to be
executive officers in 1999.
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<PAGE> 70
Option Grants
The following table sets forth certain information concerning grants of
options to the Named Executive Officers of Tickets.com during the year ended
December 31, 1998. No stock appreciation rights were granted to the Named
Executive Officers during 1998.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBERS OF % OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM($)(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..... 1,350,000 24.86 1.50 9/14/2008 3,298,512 5,252,328
Thomas R. Pascoe..... 356,250 6.56 1.50 9/14/2008 870,441 1,386,031
John M. Markovich.... 450,000 8.29 1.00 1/30/2008 733,003 1,167,184
356,250 6.56 1.50 9/14/2008 870,441 1,386,031
Andrew B. Dolich..... 450,000 8.29 1.00 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 1,110,000 shares granted Mr. Gimple vest in equal quarterly
installments over four years. Mr. Gimple's remaining options to acquire
250,000 shares vest on September 14, 2004. Upon an involuntary termination
of a Named Executive Officer's employment or a resignation for good reason,
his options will immediately vest as to 50% of the unvested option shares.
(b) All options were granted at the fair market value of the common stock on
the date of grant, as determined by the Board of Directors.
(c) Sets forth potential option gains based on assumed annualized rates of
stock price appreciation from the 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 VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR AT FISCAL YEAR
SHARES END(#) END($)(A)
ACQUIRED ON VALUE ----------------------- --------------------
NAME EXERCISE(#) REALIZED($) VESTED UNVESTED VESTED UNVESTED
---- ----------- ----------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
W. Thomas Gimple............... -- -- 618,750 2,531,250 515,000 925,000
Thomas R. Pascoe............... -- -- 166,015 690,235 119,875 226,125
John M. Markovich.............. -- -- 106,640 699,610 42,188 182,813
Andrew B. Dolich............... -- -- 84,375 365,625 42,188 182,813
</TABLE>
- ---------------
(a) Represents the difference between the fair market value of the shares
underlying such option at fiscal year-end ($1.50 per share, as determined by
the Board of Directors) and the exercise price of such option.
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<PAGE> 71
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors established the Compensation Committee in December
1997. 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
1,500,000 shares of common stock at an exercise price of $2.75 per share. On
that date we also granted options to each of Messrs. Markovich and Pascoe to
purchase 385,000 shares at an exercise price of $2.75 per share. On May 17,
1999, we granted to Mr. Caccavo an option to purchase 750,000 shares at an
exercise price of $3.25 per share. We have designated each of these options
"Performance Options." All of the Performance Options 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 $5.00 per share.
- 40% will be exercisable if the closing price of our common stock is over
$10.00 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
$12.50 per share for 20 consecutive trading days at any time after June
30, 2000.
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.
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
In October 1998, Tickets.com and Messrs. Gimple, Markovich, Pascoe and
Dolich entered into employment agreements. In May 1999, the Company entered into
an employment agreement with Mr. Caccavo and, in April 1999, 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. Caccavo, 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. Caccavo, 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. Caccavo, Pascoe and Dolich will vest 12 months, in the case
of Mr. Caccavo, and 24 months, in the case of Messrs. Pascoe and Dolich,
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, Messrs. Caccavo, 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.
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<PAGE> 72
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 are not currently compensated for
serving on the board. However, in December 1997, each non-employee Board member
serving on the board received an option to purchase 25,000 shares of common
stock at an exercise price of $1.00 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 25,000 shares of common stock at exercise price of
$ per share and a warrant to purchase 175,000 shares of common stock at an
exercise price of $3.25 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 25,000 shares at an exercise price of $3.25 per share.
Mr. Ford's options were fully vested upon grant, and Mr. Morgan's options will
vest in full after one year. Under our 1999 Stock Incentive Plan, each new
non-employee director typically will receive an option to purchase 30,000 shares
of common stock upon joining the board of directors. Each incumbent director
will be granted an option to purchase an additional 10,000 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 1998 Stock Incentive Plan 1997 Stock Option Plan, 1996 Stock Option Plan
and 1997 Non-Employee Director's Option Plan. The 1999 plan was adopted by the
board on May 27, 1999 and approved by the stockholders in ,
1999. The 1999 plan will become effective when the underwriting agreement for
this offering is signed. At that time, all outstanding options granted under our
1998 plan, 1997 plan, 1996 plan and the directors' plan will be transferred to
the 1999 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 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
plan.
Share Reserve
17,500,000 shares of our common stock have been authorized for issuance
under the 1999 plan. This share reserve consists of the number of shares we
estimate will be carried over from the 1998 plan, 1997 plan, 1996 plan and
directors' plan plus an additional increase of approximately 3,770,730 shares.
The share reserve under our 1999 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 5,000,000 shares. In addition, no
participant in the 1999 plan may be granted stock options or direct stock
issuances for more than 1,000,000 shares of common stock in total in any
calendar year.
Programs
Our 1999 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;
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- 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 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 plan will include the following features:
- The exercise price for any options granted 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 1998 plan, 1997 plan, 1996
plan or directors' plan, in return for the grant of new options for the
same or different number of option shares with an exercise price per
share based upon the fair market value of our common stock on the new
grant date.
- Stock appreciation rights may be issued under the discretionary option
grant program. These rights will provide the holders with the election to
surrender their outstanding options for a payment from us equal to the
fair market value of the shares subject to the surrendered options less
the exercise price payable for those shares. We may make the payment in
cash or in shares of our common stock. No stock appreciation rights are
outstanding under our 1998 plan, 1997 plan, 1996 plan or directors' plan.
Change in Control
The 1999 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
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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 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 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 exercise price per share equal to
one-third of the fair market value of the option shares on the grant date. As a
result, the option will be structured so that the fair market value of the
option shares on the grant date less the exercise price payable for those shares
will be equal to the amount of the salary reduction. The option will become
exercisable in a series of twelve equal monthly installments over the calendar
year for which the salary reduction is to be in effect.
Automatic Option Grant Program
Each individual who first becomes a non-employee board member at any time
after the effective date of this offering will receive an option grant for
30,000 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
10,000 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
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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 30,000-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 30,000-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
10,000 shares under the annual grant portion of the program.
- One-third of the shares subject to the initial 30,000-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 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 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
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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 plan at any time, subject to any
required stockholder approval. The 1999 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 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
1,500,000 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 1,500,000 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 the offering covered 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 set
by our compensation committee.
Eligible Employees
Individuals scheduled to work more than 20 hours per week for more than
five calendar months per year may join an offering period on the start date or
any semi-annual entry date within that period. Semi-annual entry dates will
occur on the first business day of February and August each year. Individuals
who become eligible employees after the start date of an offering period may
join the plan on any subsequent semi-annual entry date within that offering
period.
Payroll Deductions
A participant may contribute up to 10% of his or her cash earnings through
payroll deductions, and the accumulated deductions will be applied to the
purchase of shares on each semi-annual purchase date. The purchase price per
share will be equal to 85% of the fair market value per share on the
participant's entry date into the offering period or, if lower, 85% of the fair
market value per share on the semi-annual purchase date. Semi-annual purchase
dates will occur on the last business day of January and July each year. In no
event, however, may any participant purchase more than 1,200 shares on any
purchase date, and not more than 600,000 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
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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 (not to exceed the annual
limit prescribed by statute $10,000 in 1999) and contribute the amount of such
reduction to the 401(k) Plan. The 401(k) Plan allows for matching contributions
to the 401(k) Plan by us, such matching and the amount of such matching to be
determined at the sole discretion of the Board of Directors. To date, no such
matching contributions have been made with respect to the 401(k) Plan. The
trustee under the 401(k) Plan, at the direction of each participant, invests the
assets of the 401(k) Plan in various investment options. Participants may obtain
a 401(k) Plan distribution upon termination of employment at age 65 or upon
financial hardship. Distributions can be made in one lump sum payment or in
installments. Loans are available to participants from the 401(k) Plan. The
401(k) Plan is intended to qualify under Section 401 of the Code so that
contributions by employees to the 401(k) Plan, and income earned on plan
contributions, are not taxable until withdrawn, and so that the contributions by
employees will be deductible by Tickets.com when made.
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CERTAIN TRANSACTIONS
EQUITY TRANSACTIONS
In May 1996, Tickets.com sold 8,000,000 shares of its common stock to R4
Holdings, LLC, at a purchase price of $.0001 per share. Mr. Irvin E. Richter, a
director of Tickets.com, together with members of his immediate family, owns all
of the membership interests in R4 Holdings, LLC.
In May 1996, Tickets.com sold 1,250,000 shares of its common stock to
Ventana Express, LLC at a purchase price of $.01 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 1,900,000 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 900,000 shares and 995,000 shares,
respectively, of Tickets.com's common stock for an aggregate purchase price of
$19,000 or $.01 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 400,000
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 400,000 shares of Tickets.com's common stock
for an aggregate purchase price of $4,000 or $.01 per share. Mr. Nicholas E.
Sinacori, a director of Tickets.com, is a managing partner of ICP.
In December 1997, Tickets.com sold 90,000 shares of its Series B preferred
stock to Rich Products Corporation for an aggregate purchase price of $112,500
or $1.25 per share. Ms. Melinda Rich, a director of Tickets.com, is an executive
officer of Rich Products.
In May 1998, Tickets.com sold an aggregate of 11,597,114 shares of its
Series C preferred stock to a group of investors for an aggregate purchase price
of approximately $20.3 million or $1.75 per share. Of such shares, an aggregate
of 11,428,572 shares were sold to affiliates of General Atlantic. The shares of
Series C preferred stock held by affiliates of General Atlantic will
automatically convert into an aggregate of 11,428,572 shares of common stock
upon completion of this offering. Affiliates of General Atlantic own in excess
of five percent of the outstanding capital stock of Tickets.com. Mr. William E.
Ford, a director of Tickets.com, is a managing member of General Atlantic
Partners, LLC.
In March 1999, Tickets.com sold an aggregate of 9,477,655 shares of its
Series D preferred stock to a group of investors for an aggregate purchase price
of approximately $21.3 million or $2.25 per share. Of such shares, an aggregate
of 7,616,489 shares were sold to affiliates of General Atlantic. The shares of
Series D preferred stock held by affiliates of General Atlantic will
automatically convert into an aggregate of 7,616,489 shares of common stock upon
completion of this offering. Mr. Ford, a director of Tickets.com, is a managing
member of General Atlantic Partners, LLC.
In May 1999, Tickets.com sold an aggregate of 3,855,680 shares of its
Series D preferred stock to a group of investors comprised of former
stockholders of California Tickets.com for an aggregate purchase price of
approximately $8.7 million or $2.25 per share. Of such shares an aggregate of
1,308,288 shares were sold to affiliates of idealab! The shares of Series D
preferred stock held by affiliates of idealab! are automatically convertible
into an aggregate of 1,308,288 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!.
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 $0.49 per
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share or 508,160 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 $0.49 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 1,818,182
shares of common stock at a price of $1.65 per share. Mr. 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 his 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 11,690,504 shares of Tickets.com's
common stock. Of such shares of common stock, 5,301,761 were issued to the
founder of TicketsLive Corporation, Ms. Karen Goetz. In addition, in connection
with this merger, Tickets.com granted Ms. Geotz the right to register and sell
up to 1,000,000 of her shares of common stock in this offering. Ms. Geotz
currently owns in excess of five percent of the outstanding capital stock of
Tickets.com.
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
8,838,869 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 2,678,577 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
5,782,241 shares of Tickets.com's Series C Preferred Stock. 321,429 shares of
Tickets.com common stock were issued to Mr. James A. Caccavo, Executive Vice
President, President of the Internet Group and a director of Tickets.com,
6,093,765 shares of Tickets.com's common stock and 384,303 shares of
Tickets.com's Series C Preferred Stock were issued to affiliates of Bill Gross'
idealab!, who own in excess of five percent of the outstanding capital stock of
Tickets.com. In addition, Tickets.com assumed options to purchase 1,428,575
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 75,000 shares
of its common stock to certain investors at a price of $1.75 per share. Under
this agreement, Tickets.com issued a promissory note in the amount of $100,000
and warrants to purchase 15,000 shares of common stock to each of RER Family
Partnership, L.P., ICP and C. Ian Sym-Smith, a director of Tickets.com. Ms.
Rich, a director of Tickets.com, is a partner of RER Family Partnership. 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 7,500 shares of common stock to Janice L.
Richter. Ms. Richter is the spouse of Mr. Irvin E. 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, purchase up to an aggregate of 5,333,334 shares of convertible
preferred stock from us for an aggregate purchase price of $12.0 million, or
$2.25 per share. Under the letter agreement, we will also issue a warrant to
General Atlantic to purchase up to 500,000 shares of our common stock at an
exercise price of $2.25 per share. The letter agreement will terminate upon the
earlier to occur of (1) the closing of this offering or (2) March 31, 2000.
Tickets.com has granted registration rights to certain stockholders and
warrant holders as described under "Description of Capital Stock -- Registration
Rights."
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information known to Tickets.com, with
respect to beneficial ownership of Tickets.com's common stock as of May 17, 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 or warrants
that are currently exercisable or exercisable within 60 days of May 17, 1999 are
deemed to be outstanding and to be beneficially owned by the person holding such
options 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)................. 19,070,061 21.7% -- 19,045,061 %
Howard Morgan(b)................... 9,378,888 10.7 -- 9,378,888
Irvin E. Richter(c)................ 10,383,842 11.6 -- 10,383,842
James A. Caccavo(d)................ 1,750,004 2.0 -- 1,750,004
W. Thomas Gimple(e)................ 918,750 1.0 -- 918,750
Nicholas E. Sinacori(f)............ 440,000 * -- 440,000
Thomas R. Pascoe(g)................ 304,295 * -- 304,295
John M. Markovich(h)............... 235,545 * -- 235,545
Andrew B. Dolich(i)................ 168,750 * -- 168,750
Melinda R. Rich(j)................. 1,266,000 1.4 -- 1,266,000
C. Ian Sym-Smith(k)................ 40,000 * -- 40,000
Harold Silen(l).................... 628,318 * -- 628,318
General Atlantic Partners LLC(a)... 19,045,061 21.7 -- 19,045,061
idealab! entities(b)............... 9,378,888 10.7 -- 9,378,888
R4 Holdings, LLC(m)................ 8,000,000 9.1 -- 8,000,000
Karen S. Goetz..................... 5,301,761 6.0 1,000,000 4,301,761
All directors and executive
officers as a group (10
persons)(a), (c), (d), (e), (f),
(g), (h), (i), (j), (k), (l), (n)
)................................ 35,036,815 37.5% %
</TABLE>
- ---------------
* Represents beneficial ownership of less than one percent.
(a) Includes the following securities held by various General Atlantic
partnerships: (1) 11,428,572 shares of Series C preferred stock, which will
be converted into 11,428,572 shares of common stock upon consummation of
this offering; and (2) 7,616,489 shares of Series D preferred stock, which
will be converted into 7,616,489 shares of common stock upon consummation
of this offering. In addition, includes options outstanding to purchase
25,000 shares of common stock which are exercisable within 60 days of May
17, 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) and (2)
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)
6,093,765 shares of common stock; (2) 1,976,835 shares of Series C
preferred stock, which will be converted into 1,976,835 shares of common
stock upon consummation of the offering; and (3) 1,308,288 shares of Series
D preferred stock, which will be converted into 1,308,288 shares of common
stock upon consummation of the offering. 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), and (3) above, except to the extent of his pecuniary interest therein.
The address of idealab! is 130 W. Union Street, Pasadena, California 91103.
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(c) Includes options outstanding to purchase 25,000 shares of common stock
which are exercisable within 60 days of May 17, 1999, which are held by Mr.
Richter. Also includes warrants to purchase 7,500 shares of common stock
and options outstanding to purchase 25,000 shares of common stock which are
exercisable within 60 days of May 17, 1999, which are beneficially owned by
Mr. Richter through his wife, Ms. Janice Richter. In addition, includes
8,000,000 shares of common stock held by R4 Holdings, LLC, 508,160 shares
of common stock held by Hill International, Inc. and a note held by Hill
International which is convertible into 1,818,182 shares of common stock.
Mr. Richter, a director of Tickets.com, is a Chairman, Chief Executive
Officer and a member of R4 Holdings, LLC and the Chairman, Chief Executive
Officer and majority shareholder of Hill International. Mr. Richter
disclaims beneficial ownership of the shares held by R4 Holdings and Hill
International except to the extent of his pecuniary interest therein.
(d) Includes options outstanding to purchase 1,428,575 shares which are
exercisable within 60 days of May 17, 1999.
(e) Comprises options outstanding to purchase 918,750 of common stock shares
which are exercisable within 60 days of May 17, 1999.
(f) Includes (1) 400,000 shares held by International Capital Partners, Inc.,
(2) options outstanding to purchase 25,000 shares of common stock which are
exercisable within 60 days of May 17, 1999 and (3) warrants to purchase
15,000 shares of common stock. 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 304,295 shares of common stock
which are exercisable within 60 days of May 17, 1999.
(h) Comprises options outstanding to purchase 235,545 shares of common stock
which are exercisable within 60 days of May 17, 1999.
(i) Comprises options outstanding to purchase 168,750 shares of common stock
which are exercisable within 60 days of May 17, 1999.
(j) Includes (1) options outstanding to purchase 25,000 shares of common stock
which are exercisable within 60 days of May 17, 1999, (2) 1,136,000 shares
of common stock held by T.I.C., LLC, (3) 90,000 shares of Series B
preferred stock held by Rich Products Corp. and (4) warrants held by RER
Family Partnership, L.P. to purchase 15,000 shares. Ms. Rich, who was a
director of Tickets.com as of May 17, 1999, is a managing member of T.I.C.,
LLC, an Executive Vice President of Innovation of Rich Products and a
General Partner of RER Family Partnership. Ms. Rich disclaims beneficial
ownership of the shares referred to in clauses (2), (3) and (4) above,
except to the extent of her pecuniary interest therein. Ms. Rich resigned
as a director effective May 26, 1999.
(k) Includes options outstanding to purchase 25,000 shares which are
exercisable within 60 days of May 17, 1999 and warrants to purchase 15,000
shares.
(l) Includes (1) options outstanding to purchase 25,000 shares which are
exercisable within 60 days of May 17, 1999, (2) warrants to purchase 17,806
shares of common stock which are held by Mr. Silen and his wife, and (3)
warrants to purchase 585,512 shares of common stock held as trustee of
several trusts. Mr. Silen resigned as a director effective May 26, 1999.
(m) The address of R4 Holdings, LLC is One Levitt Parkway, Willingboro, New
Jersey 08046.
(n) The address of all directors and executive officers is 4675 MacArthur
Court, Suite 1400, Newport Beach, California 92626.
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<PAGE> 82
DESCRIPTION OF CAPITAL STOCK
Immediately following the consummation of this offering, the authorized
capital stock of Tickets.com will consist of shares of
common stock, par value $0.0001 per share, and no shares of preferred stock, par
value $0.0001 per share. As of May 17, 1999 and assuming completion of this
offering, there will be outstanding shares of common stock,
outstanding options to purchase 18,170,917 shares of common stock and
outstanding warrants to purchase 5,027,520 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 and nonassessable.
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 May 17, 1999, (1) options to purchase a total of 18,170,917 shares of
common stock were outstanding; and (2) up to 3,770,730 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 May 17, 1999, Tickets.com had the following outstanding warrants to
purchase shares of common stock: (1) a warrant to purchase up to 827,944 shares
of common stock at an exercise price of $.01 per share that is held by The
Provident Bank; and (2) warrants to purchase up to an aggregate of 4,199,576
shares of common stock at a weighted average exercise price of $1.48 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 certain holders of registrable securities. In addition, the holders of
all of the
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<PAGE> 83
registrable securities are entitled under the agreement, subject to certain
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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the common stock is Chase Mellon
Shareholder Services, LLC.
LISTING
The common stock has been approved 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
shares of common stock, assuming no exercise of outstanding warrants
and options. Of these shares, the 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 May 17, 1999, there were a total of 18,170,917 shares of common stock
subject to outstanding options under our 1998 plan, 1997 plan, 1996 plan and
director plan, 5,620,033 of which are vested and exercisable. As of May 17, 1999
there were a total of 5,027,520 shares subject to outstanding warrants to
purchase common stock, 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.
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 it nor any of its affiliates will, during the period ending
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<PAGE> 84
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 will equal approximately 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 May 17, 1999 and currently reserved for issuance under such plans,
such registration statement would cover approximately 18,170,917 shares issuable
on exercise of the options of which 5,620,033 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.
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<PAGE> 85
UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999 (the "underwriting agreement"), the
underwriters named below, for whom Morgan Stanley & Co. Incorporated, Credit
Suisse First Boston Corporation, SG Cowen Securities Corporation and Volpe Brown
Whelan & Co., LLC 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.............................
Volpe Brown Whelan & Company................................
--------
Total.............................................
========
</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 and the selling stockholders have granted to the underwriters
an option, exercisable for 30 days from the date of this prospectus, to purchase
up to an aggregate of 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
$ .
The underwriters have informed Tickets.com that they do not intend sales to
discretionary accounts to 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
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.
We have applied for quotation of our common stock on the Nasdaq National
Market under the symbol "TKTS."
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<PAGE> 86
Each of Tickets.com, the directors, executive officers, selling
stockholders 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 it nor any of its 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 stockholders and the underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
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.
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<PAGE> 87
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, shareholders'
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.
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.
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<PAGE> 88
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 March 31, 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 three
months ended March 31, 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 three months ended March 31, 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 three
months ended March 31, 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-25
Report of Independent Public Accountants.................... F-26
Balance Sheets as of March 31, 1996 and 1997................ F-27
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-28
Statements of Shareholders' Equity for the years ended March
31, 1996 and 1997......................................... F-29
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-30
Notes to Financial Statements............................... F-31
CONSOLIDATED FINANCIAL STATEMENTS OF PROTIX, INC.
Report of Independent Public Accountants.................... F-39
Consolidated Balance Sheet as of December 31, 1997.......... F-40
Consolidated Statement of Operations for the year ended
December 31, 1997......................................... F-41
Consolidated Statement of Stockholders' Deficit for the year
ended December 31, 1997................................... F-42
Consolidated Statements of Cash Flows for the year ended
December 31, 1997......................................... F-43
Notes to Consolidated Financial Statements.................. F-44
CONSOLIDATED FINANCIAL STATEMENTS OF TICKETSLIVE CORPORATION
Independent Auditors' Report................................ F-49
Consolidated Balance Sheets as of April 30, 1997 and 1998
and January 31, 1999 (unaudited).......................... F-50
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-51
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-52
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-53
Notes to Consolidated Financial Statements.................. F-54
FINANCIAL STATEMENTS OF CALIFORNIA TICKETS.COM, INC.
Report of Independent Public Accountants.................... F-65
Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999 (unaudited)...................................... F-66
Statements of Operations for the years ended December 31,
1998 and 1997 and the three months ended March 31, 1998
and 1999 (unaudited)...................................... F-67
</TABLE>
F-1
<PAGE> 89
<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-68
Statements of Cash Flows for the years ended December 31,
1997 and 1998 and the three months ended March 31, 1998
and 1999.................................................. F-69
Notes to Financial Statements............................... F-70
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Basis of Presentation....................................... PF-1
Unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 1999............................................ PF-2
Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1998........... PF-3
Unaudited Pro Forma Condensed Combined Statement of
Operations for the three months ended March 31, 1999...... PF-4
Notes to Unaudited Pro Forma Condensed Combined Statement of
Operations................................................ PF-5
</TABLE>
F-2
<PAGE> 90
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.
ARTHUR ANDERSEN LLP
Orange County, California
May 17, 1999, except for
Note 12, for which the
date is May 28, 1999
F-3
<PAGE> 91
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1997 1998 1999
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,380,559 $ 11,955,963 $ 21,474,305
Marketable securities..................................... 6,804,269 -- --
Restricted cash and investments........................... 1,641,062 167,698 167,698
Accounts receivable, net of allowances of $65,565,
$255,121 and $217,761, respectively..................... 2,849,703 3,620,875 4,264,111
Notes receivable from affiliates.......................... -- -- 4,700,000
Prepaid expenses and other current assets................. 1,311,310 850,182 1,162,560
----------- ------------ ------------
Total current assets............................... 16,986,903 16,594,718 31,768,674
----------- ------------ ------------
PROPERTY AND EQUIPMENT, net................................. 4,346,213 8,410,869 7,841,078
INTANGIBLE ASSETS, net...................................... 20,795,715 9,043,288 11,131,068
OTHER ASSETS................................................ 5,793,652 4,463,313 3,405,863
----------- ------------ ------------
TOTAL ASSETS................................................ $47,922,483 $ 38,512,188 $ 54,146,683
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank overdraft............................................ $ 2,677,287 $ -- $ --
Accounts payable.......................................... 8,662,734 10,257,716 10,939,574
Accrued liabilities....................................... 3,689,454 5,262,653 4,938,604
Current portion of long-term debt and capital lease
obligations............................................. 2,791,239 7,848,473 5,561,871
Deferred revenue and other current liabilities............ 704,386 1,405,707 1,673,079
----------- ------------ ------------
Total current liabilities.......................... 18,525,100 24,774,549 23,113,128
----------- ------------ ------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, net of current
portion................................................... 23,493,196 20,231,613 20,200,455
----------- ------------ ------------
OTHER LIABILITIES........................................... 118,510 748,762 672,360
----------- ------------ ------------
MINORITY INTEREST........................................... -- 179,890 191,021
----------- ------------ ------------
REDEEMABLE COMMON STOCK AND WARRANTS........................ 3,599,415 4,506,119 4,634,172
----------- ------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Series A, B, C and D convertible preferred stock, $.0001
par value; 42,870,451 shares authorized; 17,939,876,
29,536,990 and 39,014,645 issued and outstanding,
respectively............................................ 1,794 2,954 3,902
Common stock, $.0001 par value; 100,000,000 shares
authorized; 12,541,600, 14,238,873 and 14,239,186 shares
issued and outstanding, respectively.................... 1,254 1,424 1,424
Additional paid-in capital................................ 15,700,359 36,858,911 60,302,137
Accumulated deficit....................................... (13,517,145) (48,792,034) (54,965,565)
Cumulative other comprehensive income..................... -- -- (6,351)
----------- ------------ ------------
Total stockholders' equity (deficit)............... 2,186,262 (11,928,745) 5,335,547
----------- ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $47,922,483 $ 38,512,188 $ 54,146,683
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 92
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MAY 31, 1996 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
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 $ 5,591,590 $ 5,070,063
Software services and other... 1,123,040 1,960,904 2,981,824 461,870 1,508,350
----------- ----------- ------------ ----------- -----------
Total revenues......... 1,242,289 11,647,042 29,539,436 6,053,460 6,578,413
----------- ----------- ------------ ----------- -----------
COST OF SERVICES:
Ticketing services............ 816,620 7,701,433 17,154,790 3,150,403 3,725,162
Software services and other... 613,705 711,317 1,550,948 182,445 750,057
----------- ----------- ------------ ----------- -----------
Total cost of
services............. 1,430,325 8,412,750 18,705,738 3,332,848 4,475,219
----------- ----------- ------------ ----------- -----------
Gross profit (loss)............. (188,036) 3,234,292 10,833,698 2,720,612 2,103,194
----------- ----------- ------------ ----------- -----------
OPERATING EXPENSES:
Sales and marketing........... 154,016 2,096,372 7,338,698 1,416,328 2,919,230
Technology development........ 690,024 2,232,684 6,416,829 1,101,107 1,813,358
General and administrative.... 2,070,577 3,181,980 9,204,053 1,788,296 2,243,534
Amortization of intangibles... -- 712,416 2,081,561 429,873 369,237
Impairment of long-lived
assets...................... -- -- 17,026,149 -- --
Purchased in-process research
and development............. -- -- 1,600,000 -- --
----------- ----------- ------------ ----------- -----------
Total operating
expenses............. 2,914,617 8,223,452 43,667,290 4,735,604 7,345,359
----------- ----------- ------------ ----------- -----------
Loss from operations............ (3,102,653) (4,989,160) (32,833,592) (2,014,992) (5,242,165)
----------- ----------- ------------ ----------- -----------
OTHER (INCOME) EXPENSE:
Interest income............... -- (206,680) (878,242) (109,013) (148,697)
Interest expense.............. 145,976 1,315,001 2,952,465 711,805 939,570
Minority interest............. -- -- (52,674) -- 11,131
----------- ----------- ------------ ----------- -----------
145,976 1,108,321 2,021,549 602,792 802,004
----------- ----------- ------------ ----------- -----------
Loss before provision for income
taxes......................... (3,248,629) (6,097,481) (34,855,141) (2,617,784) (6,044,169)
Provision for income taxes...... -- 1,150 5,655 -- 3,125
----------- ----------- ------------ ----------- -----------
Net loss........................ $(3,248,629) $(6,098,631) $(34,860,796) $(2,617,784) $(6,047,294)
=========== =========== ============ =========== ===========
Basic and diluted net loss per
share......................... $ (0.29) $ (0.52) $ (2.70) $ (0.22) $ (0.42)
=========== =========== ============ =========== ===========
Weighted average common shares
outstanding................... 11,250,000 11,698,255 12,900,645 11,698,255 14,248,454
=========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 93
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED CUMULATIVE
STOCK COMMON STOCK ADDITIONAL OTHER
--------------------- ------------------- PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME
----------- ------- ---------- ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1996................. -- $ -- -- $ -- $ -- $ (4,169,885) $ --
Issuance of common stock for cash... -- -- 11,250,000 1,125 12,375 -- --
Issuance of Series A convertible
preferred stock for cash, net of
issuance costs.................... 6,141,430 614 -- -- 3,008,686 -- --
Net loss............................ -- -- -- -- -- (3,248,629) --
---------- ------ ---------- ------ ----------- ------------ -------
Balance, December 31, 1996............ 6,141,430 614 11,250,000 1,125 3,021,061 (7,418,514) --
Exercise of common stock options.... -- -- 32,298 3 12,915 -- --
Exercise of common stock warrants... -- -- 400,000 40 3,960 -- --
Issuance of common stock in payment
of accrued interest on note
payable........................... -- -- 508,160 51 248,947 -- --
Issuance of common stock in
connection with the acquisition of
Fantastix Ticket Company, LLC, net
of redeemable common stock........ -- -- 236,000 24 176,976 -- --
Issuance of common stock in payment
of commissions on issuance of
convertible preferred stock....... -- -- 115,142 11 (11) -- --
Issuance of Series A convertible
preferred stock for cash, net of
issuance costs.................... 2,298,572 230 -- -- 1,081,463 -- --
Issuance of Series B convertible
preferred stock for cash, net of
issuance costs.................... 9,499,874 950 -- -- 11,155,048 -- --
Net loss............................ -- -- -- -- -- (6,098,631) --
---------- ------ ---------- ------ ----------- ------------ -------
Balance, December 31, 1997............ 17,939,876 1,794 12,541,600 1,254 15,700,359 (13,517,145) --
Exercise of common stock options.... -- -- 32,294 3 13,616 -- --
Exercise of common stock warrants... -- -- 900,000 90 8,910 -- --
Issuance of common stock in
connection with the acquisition of
ProTix, Inc....................... -- -- 714,979 72 1,072,397 -- --
Issuance of common stock for
services.......................... -- -- 50,000 5 74,995 -- --
Issuance of Series C convertible
preferred stock for cash, net of
issuance costs.................... 11,597,114 1,160 -- -- 19,988,634 -- --
Accretion on redeemable common stock
and warrants...................... -- -- -- -- -- (414,093) --
Net loss............................ -- -- -- -- -- (34,860,796) --
---------- ------ ---------- ------ ----------- ------------ -------
Balance, December 31, 1998............ 29,536,990 2,954 14,238,873 1,424 36,858,911 (48,792,034) --
Exercise of common stock options.... -- -- 313 -- 14,902 -- --
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.................... 9,477,655 948 -- -- 21,278,652 -- --
Foreign currency translation........ -- -- -- -- -- -- (6,351)
Accretion on redeemable common stock
and warrants...................... -- -- -- -- -- (126,237) --
Net loss............................ -- -- -- -- -- (6,047,294) --
---------- ------ ---------- ------ ----------- ------------ -------
Balance, March 31, 1999 (unaudited)... 39,014,645 $3,902 14,239,186 $1,424 $60,302,137 $(54,965,565) $(6,351)
========== ====== ========== ====== =========== ============ =======
<CAPTION>
TOTAL
------------
<S> <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.... 14,902
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.................... 21,279,600
Foreign currency translation........ (6,351)
Accretion on redeemable common stock
and warrants...................... (126,237)
Net loss............................ (6,047,294)
------------
Balance, March 31, 1999 (unaudited)... $ 5,335,547
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 94
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MAY 31, 1996 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
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) $(2,617,784) $(6,047,294)
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 -- --
Depreciation............................... 75,000 482,488 1,946,604 353,678 807,751
Amortization of intangibles................ -- 712,416 2,081,561 429,873 369,237
Loss on disposal of property............... -- -- 51,944 -- --
Noncash interest expense................... -- 505,588 126,152 31,172 100,090
Noncash compensation expense............... -- -- 75,000 -- --
Minority interest.......................... -- -- (52,674) -- 11,131
Changes in operating assets and
liabilities:
Accounts receivable...................... (95,173) 156,778 (130,627) 163,385 (22,507)
Notes receivable from affiliates......... -- -- -- -- (4,700,000)
Prepaid expenses and other current
assets................................. (6,352) (344,500) (1,194,328) 12,294 (312,973)
Other assets............................. (6,550) (378,289) 1,330,339 20,057 93,561
Accounts payable......................... 830,087 849,200 482,968 350,227 681,858
Accrued liabilities...................... 568,914 1,617,987 369,513 (472,611) (326,522)
Deferred revenue and other liabilities... (6,919) 4,567 1,117,563 (33,402) 269,848
----------- ----------- ------------ ----------- -----------
Net cash used in operating
activities........................ (1,889,622) (2,492,396) (10,030,632) (1,763,111) (9,075,820)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......... (596,509) (2,055,998) (3,936,918) (1,192,854) (233,149)
Contingent consideration in connection with
acquisition................................ -- (5,324,192) -- -- --
Proceeds from sale of marketable
securities................................. -- 1,244,006 6,804,269 3,681,204 --
(Increase) decrease in restricted cash and
investments................................ -- (740,467) 1,473,364 1,199,994 --
Acquisitions, net of cash acquired........... -- (13,459,515) (3,708,752) -- --
----------- ----------- ------------ ----------- -----------
Net cash (used in) provided by
investing activities.............. (596,509) (20,336,166) 631,963 3,688,344 (233,149)
----------- ----------- ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in bank overdraft................... -- (514,161) (2,677,287) (2,677,287) --
Proceeds from issuance of long-term debt..... -- 17,075,585 716,960 -- --
Principal payments on long-term debt......... -- (2,143,581) (1,078,013) (125,835) (2,467,191)
Net proceeds from issuance of preferred
stock...................................... 3,009,300 12,237,691 19,989,794 -- 21,279,600
Proceeds from issuance of common stock....... 13,500 16,918 22,619 -- 14,902
----------- ----------- ------------ ----------- -----------
Net cash (used in) provided by
financing activities.............. 3,022,800 26,672,452 16,974,073 (2,803,122) 18,827,311
----------- ----------- ------------ ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS.... 536,669 3,843,890 7,575,404 (877,889) 9,518,342
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 $ 3,502,670 $21,474,305
=========== =========== ============ =========== ===========
</TABLE>
F-7
<PAGE> 95
TICKETS.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
MAY 31, 1996 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
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 $ -- $ 1,327,469
=========== =========== ============ =========== ===========
Income taxes paid.......................... $ -- $ 1,150 $ 5,655 $ -- $ 3,125
=========== =========== ============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Capital lease obligations entered into for
equipment................................ $ 356,421 $ -- $ 1,306,649 $ -- $ --
=========== =========== ============ =========== ===========
Accretion on redeemable common stock
warrants issued in connection with
financing arrangements................... $ -- $ -- $ 414,093 $ 60,631 $ 126,237
=========== =========== ============ =========== ===========
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
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 $ -- $ --
Less:
Liabilities assumed.................... -- (11,433,420) (2,107,639) -- --
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) -- --
Common stock issued.................... -- (177,000) (1,072,469) -- --
Redeemable common stock issued......... (2,500,000) (675,000) -- -- --
----------- ----------- ------------ ----------- -----------
Cash paid.............................. -- 14,319,483 4,591,295 -- --
Cash acquired.......................... -- (859,968) (882,543) -- --
----------- ----------- ------------ ----------- -----------
Cash paid, net of cash acquired........ $ -- $13,459,515 $ 3,708,752 $ -- $ --
=========== =========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 96
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> 97
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes new standards for
reporting operating segments of publicly held companies. This approach requires
the Company to present segment information externally the same way management
uses financial data internally to make operating decisions and assess
performance. The Company believes it has only one reportable segment. The
Company generates revenues from software services internationally in 16
countries. However, revenues are principally derived from domestic operations.
Internationally generated revenues represent significantly less than 10% of the
Company's total revenues.
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
F-10
<PAGE> 98
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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.
F-11
<PAGE> 99
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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
9).
UNAUDITED INTERIM INFORMATION
The accompanying financial information as of March 31, 1999 and for the
three months ended March 31, 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
F-12
<PAGE> 100
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1,082,404 shares of the
Company's common stock. The notes were recorded at a discount of $256,590 that
yielded an effective interest rate of 10%, which approximates the Company's
incremental borrowing rate at the time of the acquisition. In connection with
the purchase agreement, the Company entered into a Stock Issuance Agreement with
PSF. The agreement provides that, if the Company does not complete an Initial
Public Offering ("IPO") of its common stock prior to December 31, 1999, PSF may
require the Company to repurchase the stock at $2.31 per share. If the Company
does complete an IPO within the specified time, but for a price less than $2.31
per share, the Company will issue additional shares of its common stock up to an
aggregate value of $2,500,000. The 1,082,404 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.
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 1,136,000 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 900,000 shares of common
stock at $1.87 per share for total consideration of $1,683,000. The 900,000
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 236,000
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.
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.
F-13
<PAGE> 101
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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 2,998,003 shares of common
stock at an exercise price of $2.00 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.
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 714,979 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
1,435,419 of the Company's common stock at an exercise price of $0.01 per share
were issued to the sellers of ProTix. The Company entered into an amendment with
ProTix whereby the parties agreed to vest 1,076,573 of the warrants and cancel
the remaining 358,846. 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
714,979 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"). 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
F-14
<PAGE> 102
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 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............... (0.77) (2.68)
</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>
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-
F-15
<PAGE> 103
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. 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>
F-16
<PAGE> 104
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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).
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>
6. 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
</TABLE>
F-17
<PAGE> 105
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
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
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.
F-18
<PAGE> 106
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. 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 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 (see Note 11), 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.
8. 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:
F-19
<PAGE> 107
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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>
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.
9. STOCKHOLDERS' EQUITY
REDEEMABLE COMMON STOCK
In connection with the Advantix and Fantastix acquisitions, the Company
issued 1,082,404 and 900,000 shares of common stock subject to redemption,
respectively (see Note 3). As redemption of the common stock is outside of the
control of the Company, the value attributable to such common stock is presented
outside of stockholders' equity.
CONVERTIBLE PREFERRED STOCK
From May 1996 to January 1997, the Company issued 8,440,002 shares of
Series A convertible preferred stock in a private placement to various investors
at $0.49 per share, for net proceeds after stock issuance costs of $4,090,993.
From March 1997 to October 1997 the Company issued 9,499,874 shares of Series B
convertible preferred stock in a private placement to various investors at $1.25
per share, for net proceeds after stock issuance costs of $11,155,998. In
addition, in May 1998 the Company issued 11,597,114 shares of Series C
convertible preferred stock in a private placement to various investors at $1.75
per share, for net proceeds after stock issuance costs of $19,989,794.
On March 22, 1999 the Company issued 9,477,655 shares of series D
convertible preferred stock in a private placement with institutional investors
at $2.25 per share for total proceeds net of issuance costs of $21,279,600. On
May 17, 1999 the Company issued 3,855,680 shares of series D convertible
preferred stock in a private placement for $2.25 per share for total proceeds
net of issuance costs of $8,669,658.
The Series A, Series B, Series C and Series D convertible preferred stock
have a liquidation preference, voting rights equivalent 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.
F-20
<PAGE> 108
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 400,000 shares of the Company's common stock at an exercise
price of $0.01 per share. The warrants are subject to certain antidilution
provisions and, as a result of such provisions, such warrants totaled 424,415
and 752,823 and as of December 31 1997 and 1998, respectively. Under the terms
of the warrants, the Bank is entitled to receive warrants for the purchase of
shares of common stock equivalent to 1.19725% of the outstanding common stock of
the Company, as defined, which includes securities convertible into common stock
and common stock equivalents. The warrants expire eight years from the date of
issuance or as of the closing of an IPO, whichever is earlier. As a result of
this provision, the Company will be required to issue additional warrants to the
Bank concurrent with any future issuances of common stock, securities
convertible into common stock, or common stock equivalents, subject to certain
exceptions as provided in the warrants. The warrants are also subject to an
adjustment by an additional 0.23945% of the outstanding common stock of the
Company, as defined, on each anniversary date of the warrant through September
26, 2000 if the Company has not yet completed an IPO, and are subject to a put
option, whereby the Company may be required to repurchase the warrants, or the
related common stock should the warrants be exercised, at a price of $5.00 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 $917,027 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 2,998,003 shares of the Company's common stock to the sellers of BASS
at an exercise price of $2.00 per share. The estimated fair value attributable
to the warrants was included in the purchase price calculation for BASS.
In connection with the acquisition of ProTix, the Company issued warrants
to purchase 1,435,419 shares of common stock to the sellers of ProTix at an
exercise price of $0.01 per share. The Company entered into an amendment
subsequent to December 31, 1998, whereby 1,076,573 warrants were vested and the
remaining 358,846 warrants were cancelled. The warrants were recorded at fair
market value of the underlying common stock at the time of vesting of $2.00 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.
10. 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 3,000,000
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 2,330,500 shares of common stock under
the 1996 Plan at an exercise price of $0.40 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.
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 3,000,000
shares of common stock to various employees. The
F-21
<PAGE> 109
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 3,000,000 shares of common stock under
the 1997 Plan at an exercise price of $1.00 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 8,999,826
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 4,850,150 shares of common stock under
the 1998 plan at an exercise price of $1.50 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 3,000,000 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.......................................... 1,998,000 $0.40
Exercised........................................ -- --
Cancelled or Expired............................. (1,000) $0.40
---------- -----
Outstanding as of December 31, 1996................ 1,997,000 $0.40
Granted.......................................... 3,165,230 $0.94
Exercised........................................ (32,297) $0.40
Canceled or expired.............................. (214,139) $0.40
---------- -----
Outstanding as of December 31, 1997................ 4,915,794 $0.75
Granted.......................................... 5,428,500 $1.42
Exercised........................................ (32,294) $0.41
Canceled or expired.............................. (131,350) $0.78
---------- -----
Outstanding as of December 31, 1998................ 10,180,650 $1.10
========== =====
Options exercisable as of December 31, 1998........ 2,113,932 $0.86
========== =====
</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-22
<PAGE> 110
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............ $ (0.29) $ (0.53) $ (2.76)
</TABLE>
Pro forma results of operations costs may not be representative of that to
be expected in future years.
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.
11. SUBSEQUENT EVENTS
ACQUISITION OF LASERGATE SYSTEMS, INC.
In January 1999, the Company entered into an Agreement (the "Lasergate
Agreement") with a shareholder of Lasergate Systems, Inc. ("Lasergate") to
purchase all of the outstanding Series G Preferred Stock and approximately 51.0%
of the outstanding common stock of Lasergate. The purchase price equaled
approximately $2.8 million, consisting of a combination of cash and 969,462
shares of the Company's common stock, subject to adjustment as defined in the
Lasergate Agreement. The acquisition will be accounted for as a purchase.
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 $40.6 million,
consisting of the issuance of 2,678,577, 5,782,241 and 8,838,869 shares of the
Company's Series A1 convertible preferred stock, Series C convertible preferred
stock and common stock, valued at estimated fair value of $2.09, $2.25, and
$2.00 per share, respectively. The Company determined the estimated fair value
based on recent private placements of its Series D preferred stock (see Note 9).
In 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 3,391,519 shares of the Company's common stock. The
acquisition was accounted for as a purchase. Subsequent to the acquisition 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.
in March 1999. These loans are classified as notes receivable from affiliates in
the March 31, 1999 financial statements. The notes were 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 11,690,504 shares of Company's common
stock, valued at estimated fair value of $2.00 per share. The Company determined
the estimated fair value based on recent private placements of its
F-23
<PAGE> 111
TICKETS.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Series D preferred stock (see Note 9). 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 1,309,496 shares of the Company's
common stock. The TicketsLive Agreement provides that if the Company does not
complete an IPO prior to August 31, 1999 and April 5, 2001, the majority
shareholder of TicketsLive may require the Company to repurchase up to 1,400,000
and 938,000 shares, respectively, of the Company's common stock at $4.16 and
$4.43 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. The loan is classified as a note receivable from
affiliate in the March 31, 1999 financial statements. 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.
STOCK OPTION GRANTS
In April and May 1999 the Company granted options to acquire a total of
4,133,000 shares of common stock to employees at exercise prices ranging from
$2.00 to $3.25. Of the granted options, 1,113,000 vest quarterly and have a term
of 10 years. The remaining 3,020,000 options fully vest at the earlier of six
years or upon consummation of certain events, including the completion of the
IPO and the achievement of certain defined minimum trading prices for the
Company's common stock for specified periods.
12. COMMITMENT FOR EQUITY INVESTMENT
In May 1999, the Company entered into an agreement with a significant
shareholder, whereby the shareholder agreed to purchase up to an aggregate of
5,333,334 shares of convertible preferred stock for an aggregate purchase price
of $12.0 million, under certain conditions. The shares will only be purchased in
the event that the Company requires additional capital to satisfy and discharge
its obligations as they become due. The agreement expires upon the earlier of
the completion of the IPO, or March 31, 2000. Pursuant to the agreement, the
Company issued to the shareholder a warrant for the purchase of up to 500,000
shares of common stock at an exercise price of $2.25 per share, with a term of
10 years.
F-24
<PAGE> 112
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.
San Francisco, California
May 15, 1997
F-25
<PAGE> 113
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.
Orange County, California
January 30, 1998
F-26
<PAGE> 114
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-27
<PAGE> 115
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-28
<PAGE> 116
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-29
<PAGE> 117
BAY AREA SEATING SERVICE, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM APRIL 1, 1997 TO SEPTEMBER 26, 1997 AND THE
YEARS ENDED MARCH 31, 1996 AND 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-30
<PAGE> 118
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 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.
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.
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,
F-31
<PAGE> 119
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
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>
F-32
<PAGE> 120
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
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.
F-33
<PAGE> 121
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
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>
F-34
<PAGE> 122
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 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.
F-35
<PAGE> 123
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-36
<PAGE> 124
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 $75,000 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.
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.
The following is a summary of transactions:
<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>
F-37
<PAGE> 125
BAY AREA SEATING SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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-38
<PAGE> 126
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-39
<PAGE> 127
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-40
<PAGE> 128
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-41
<PAGE> 129
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-42
<PAGE> 130
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-43
<PAGE> 131
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-44
<PAGE> 132
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-45
<PAGE> 133
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-46
<PAGE> 134
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-47
<PAGE> 135
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 714,979 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 1,435,419 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-48
<PAGE> 136
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-49
<PAGE> 137
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-50
<PAGE> 138
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-51
<PAGE> 139
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-52
<PAGE> 140
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-53
<PAGE> 141
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-54
<PAGE> 142
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-55
<PAGE> 143
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-56
<PAGE> 144
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-57
<PAGE> 145
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-58
<PAGE> 146
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-59
<PAGE> 147
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-60
<PAGE> 148
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-61
<PAGE> 149
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-62
<PAGE> 150
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-63
<PAGE> 151
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-64
<PAGE> 152
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-65
<PAGE> 153
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-66
<PAGE> 154
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-67
<PAGE> 155
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-68
<PAGE> 156
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-69
<PAGE> 157
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-70
<PAGE> 158
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-71
<PAGE> 159
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-72
<PAGE> 160
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-73
<PAGE> 161
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-74
<PAGE> 162
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-75
<PAGE> 163
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 $40.6 million, consisting of the issuance of 2,678,577, 5,782,241
and 8,838,869 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-76
<PAGE> 164
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 3,391,519 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-77
<PAGE> 165
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
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 Balance Sheet at March 31, 1999
is presented as if the acquisitions of California Tickets.com and TicketsLive
were completed as of March 31, 1999. Since our historical consolidated balance
sheet as of March 31, 1999 reflects the acquisition of ProTix, no pro forma
adjustments are necessary as of March 31, 1999.
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
year ended December 31, 1998 and the three months ended March 31, 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 three months ended March 31, 1999 reflect the acquisition of ProTix, no pro
forma adjustments are necessary for ProTix for the three months ended March 31,
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> 166
TICKETS.COM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF MARCH 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
CALIFORNIA
TICKETS.COM, TICKETS.COM, TICKETSLIVE PRO FORMA PRO FORMA
INC. INC. CORPORATION ADJUSTMENTS COMBINED
------------ ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 21,642 $ 898 $ 709 $ -- $ 23,249
Accounts receivable, net....... 8,964 324 1,812 (4,700)(1) 6,400
Prepaid expenses and other
current assets.............. 1,163 286 649 (205)(3) 1,893
-------- ------- ------- ------- --------
Total current assets... 31,769 1,508 3,170 (4,905) 31,542
-------- ------- ------- ------- --------
Property and equipment, net...... 7,841 1,344 743 (543)(2) 9,385
Intangible assets, net........... 11,131 3,411 -- 63,736(2) 78,278
Other assets..................... 3,406 205 122 -- 3,733
-------- ------- ------- ------- --------
Total assets........... $ 54,147 $ 6,468 $ 4,035 $58,288 $122,938
======== ======= ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued
liabilities................. $ 15,879 $ 2,556 $ 2,608 $ 695(3) $ 21,738
Current portion of long-term
debt........................ 5,562 4,245 600 (3,700)(1) 6,707
Deferred revenue and other
current liabilities......... 1,673 242 616 -- 2,531
-------- ------- ------- ------- --------
Total current
liabilities.......... 23,114 7,043 3,824 (3,005) 30,976
-------- ------- ------- ------- --------
Long-term debt................... 20,200 159 1,015 (1,000)(1) 20,374
-------- ------- ------- ------- --------
Minority interest and other
liabilities.................... 864 9 28 -- 901
-------- ------- ------- ------- --------
Redeemable common stock and
warrants....................... 4,634 -- -- 4,676(4) 9,310
-------- ------- ------- ------- --------
Redeemable preferred stock....... -- -- 4,668 (4,668)(4) --
-------- ------- ------- ------- --------
Stockholders' equity (deficit):
Preferred stock................ 4 1 -- --(4) 5
Common stock................... 1 1 89 (88)(4) 3
Additional paid-in capital..... 60,302 8,677 96 53,181(4) 122,256
Deferred compensation.......... -- (1,186) -- 610(5) (576)
Accumulated deficit............ (54,966) (8,236) (5,677) 8,574(6) (60,305)
Cumulative foreign currency
translation adjustments..... (6) -- (8) 8(4) (6)
-------- ------- ------- ------- --------
Total stockholders'
equity (deficit)..... 5,335 (743) (5,500) 62,285 61,377
-------- ------- ------- ------- --------
Total liabilities and
stockholders'
equity............... $ 54,147 $ 6,468 $ 4,035 $58,288 $122,938
======== ======= ======= ======= ========
</TABLE>
PF-2
<PAGE> 167
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.(2) INC.(3) CORPORATION(4) ADJUSTMENTS COMBINED
------------ ------- ------------ -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing services(1)............. $ 26,558 $ 3,234 $ 1,092 $ 66 $ -- $ 30,950
Software services and other....... 2,982 2,696 -- 11,052 -- 16,730
-------- ------- ------- ------- -------- --------
Total revenues............ 29,540 5,930 1,092 11,118 -- 47,680
-------- ------- ------- ------- -------- --------
Cost of services:
Ticketing services................ 17,155 2,060 1,683 33 -- 20,931
Software services and other....... 1,551 1,067 -- 5,704 -- 8,322
-------- ------- ------- ------- -------- --------
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 -- 7,371(5) 9,782
Impairment of long-lived assets... 17,026 -- -- -- -- 17,026
Purchased in-process research and
development expenses........... 1,600 -- -- -- 5,340(6) 6,940
-------- ------- ------- ------- -------- --------
Total operating
expenses................ 43,668 3,616 4,577 8,671 12,711 73,243
-------- ------- ------- ------- -------- --------
Loss from operations................ (32,834) (813) (5,168) (3,290) (12,711) (54,816)
Other (income) expense
Interest income................... (878) (29) (117) (141) -- (1,165)
Interest expense.................. 2,952 236 34 81 92(7) 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) (12,803) (57,279)
Provision for income taxes.......... 6 -- -- 34 -- 40
-------- ------- ------- ------- -------- --------
Net loss............................ $(34,861) $(1,306) $(5,085) $(3,264) $(12,803) $(57,319)
======== ======= ======= ======= ======== ========
Basic and diluted net loss per
share............................. $ (1.83)
========
Weighted average common shares(8)... 31,358
========
</TABLE>
PF-3
<PAGE> 168
TICKETS.COM, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
CALIFORNIA
TICKETS.COM, TICKETS.COM, TICKETSLIVE PRO FORMA PRO FORMA
INC. INC.(1) CORPORATION(2) ADJUSTMENTS COMBINED
------------ ------------ -------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing services.................. $ 5,070 $ 354 $ 17 $ -- $ 5,441
Software services and other......... 1,508 -- 2,593 -- 4,101
------- ------- ------- ------- --------
Total revenues.............. 6,578 354 2,610 -- 9,542
------- ------- ------- ------- --------
Cost of services:
Ticketing services............... 3,725 743 -- -- 4,468
Software services and other...... 750 -- 1,325 -- 2,075
------- ------- ------- ------- --------
Total cost of services...... 4,475 743 1,325 -- 6,543
------- ------- ------- ------- --------
Gross profit (loss)................... 2,103 (389) 1,285 -- 2,999
------- ------- ------- ------- --------
Operating expenses:
Sales and marketing................. 2,919 1,255 789 -- 4,963
Technology development.............. 1,813 122 418 -- 2,353
General and administrative.......... 2,244 1,000 1,913 -- 5,157
Amortization of intangibles......... 369 38 -- 1,708(3) 2,115
Impairment of long-lived assets..... -- -- -- -- --
Purchased in-process research and
development expenses............. -- -- -- -- --
------- ------- ------- ------- --------
Total operating expenses.... 7,345 2,415 3,120 1,708 14,588
------- ------- ------- ------- --------
Loss from operations.................. (5,242) (2,804) (1,835) (1,708) (11,589)
Other (income) expense
Interest income..................... (149) (7) (33) -- (189)
Interest expense.................... 940 3 21 -- 964
------- ------- ------- ------- --------
Loss before provision for income
taxes............................... (6,033) (2,800) (1,823) (1,708) (12,364)
Provision for income taxes............ 3 -- 4 -- 7
------- ------- ------- ------- --------
Loss before minority interest......... (6,036) (2,800) (1,827) (1,708) (12,371)
Minority interest..................... 11 -- -- -- 11
------- ------- ------- ------- --------
Net loss.............................. $(6,047) $(2,800) $(1,827) (1,708) $(12,382)
======= ======= ======= ======= ========
Basic and diluted net loss per
share............................... $ (0.39)
========
Weighted average common shares(4)..... 32,110
========
</TABLE>
PF-4
<PAGE> 169
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS)
BALANCE SHEET AS OF MARCH 31, 1999
(1) Represents the elimination of intercompany advances made to California
Tickets.com for $3.7 million and to TicketsLive for $1.0 million
(2) Represents intangible assets recorded in connection with purchase price
premiums for the acquisitions of California Tickets.com and TicketsLive and
the write down to fair market value of certain property and equipment.
Certain property and equipment will be disposed of subsequent to the
acquisition and therefore have no value at acquisition date.
(3) Represents estimated closing costs of the acquisitions of California
Tickets.com and TicketsLive, which consists primarily of legal and
accounting fees.
(4) Represents the issuance of redeemable common stock, convertible preferred
stock and common stock in connection with the acquisitions of California
Tickets.com and TicketsLive, as well as the elimination of their respective
capital stock balances and cumulative foreign currency translation
adjustments as of March 31, 1999.
(5) Represents a reduction of deferred compensation related to certain
California Tickets.com stock options, which vest in full upon the closing of
the acquisition.
(6) Represents the elimination of the March 31, 1999 accumulated deficit
balances of California Tickets.com and TicketsLive. Also, the amount
includes the effect of a charge to earnings as of March 31, 1999 related to
estimated in-process research and development as if the acquisitions
occurred on March 31, 1999. The estimated in-process research and
development for California Tickets.com are $3.5 million and for TicketsLive
are $1.8 million.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998
(1) 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.
(2) 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.
(3) The results of operations of California Tickets.com will be 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.
(4) The results of operations of TicketsLive will be 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.
(5) 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.
(6) 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.
PF-5
<PAGE> 170
(7) 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.
(8) 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 THREE MONTHS ENDED MARCH 31, 1999
(1) The results of operations of California Tickets.com will be 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.
(2) The results of operations of TicketsLive will be 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.
(3) 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.
(4) 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-6
<PAGE> 171
[Ticket.com Logo]
<PAGE> 172
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............................................
NASD filing fee.............................................
Nasdaq National Market listing fee..........................
Blue sky fees and expenses..................................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Transfer Agent and Registrar fees...........................
Miscellaneous...............................................
------
Total.............................................
======
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of Tickets.com under certain conditions and subject to
certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of Section 145 of the
Delaware General Corporation Law.
Article VII, Section I of the Restated Bylaws of Tickets.com provides that
Tickets.com shall indemnify its directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law. The rights to
indemnity thereunder continue as to a person who has ceased to be a director,
officer, employee or agent and inure to the benefit of the heirs, executors and
administrators of the person. In addition, expenses incurred by a director or
executive officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she is
or was a director or officer of Tickets.com (or was serving at Tickets.com's
request as a director or officer of another corporation) shall be paid by
Tickets.com in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he or she
is not entitled to be indemnified by Tickets.com as authorized by the relevant
section of the Delaware General Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General. Corporation Law,
Article V, Section (A) of Tickets.com's Restated Certificate of Incorporation
provides that a director of Tickets.com shall not be personally liable for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to Tickets.com or
its stockholders, (ii) for acts or omissions not in good faith or acts or
omissions that involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law or (iv) for any
transaction from which the director derived any improper personal benefit.
Tickets.com has entered into indemnification agreements with each of its
directors and executive officers. Generally, the indemnification agreements
attempt to provide the maximum protection permitted by
II-1
<PAGE> 173
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 4,500,000, 1,000,000 and
1,000,000 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
$0.001. The shares were repurchased at their original issue price. The
Registrant then issued and sold 8,000,000, 1,000,000 and 1,000,000 shares of
common stock at $0.0001 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 1,250,000 shares of common
stock at $0.01 per share, warrants to purchase 1,900,000 shares of common stock
at $0.01 per share and 408,163 shares of Series A Preferred Stock at $0.49 per
share to Ventana Express, LLC, for an aggregate cash consideration of $212,500.
(d) In September and October of 1996 and January of 1997, the Registrant
issued and sold 8,440,002 shares of Series A Preferred Stock at $0.49 per share
to 25 investors in a private offering, for a net aggregate cash consideration of
$4,090,993. In connection with the Series A Private Placement, 50,510, 19,684
and 44,948 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 1,082,404 shares of common
stock to Playhouse Square Foundation ("PSF"), an Ohio not-for-profit
corporation, in connection with the acquisition of certain assets and
liabilities of the Advantix ticketing division of PSF.
(f) In March and May of 1997, the Registrant issued and sold 2,094,174
shares of Series B Preferred Stock at $1.25 per share to 16 investors in a
private offering, for an aggregate cash consideration of $2,617,718.
II-2
<PAGE> 174
(g) In March 1997, a terminated employee of the Registrant exercised a
stock option to acquire 375 shares of the Registrant's common stock at $0.40 per
share, for an aggregate cash consideration of $150.
(h) In April 1997, terminated employees of the Registrant exercised stock
options to acquire 20,844 shares of the Registrant's common stock at $0.40 per
share, for an aggregate cash consideration of $8,337.
(i) In May 1997, the Registrant issued 489,796 shares of common stock at
$0.49 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 891 shares of the Registrant's common stock
at $0.40 per share, for an aggregate cash consideration of $356.
(k) In August 1997, the Registrant issued 1,136,000 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 September and October of 1997, the Registrant issued and sold
7,505,700 shares of Series B Preferred Stock at $1.25 per share to 34 investors
in a private offering (the "Second Series B Private Placement"), for an
aggregate cash consideration of $9,382,125. 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 400,000 shares of the Registrant's
common stock at $0.01 per share.
(m) In November 1997, the Registrant issued and sold 400,000 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.
(n) In September 1997, the Registrant issued warrants to purchase 2,998,003
shares of common stock at $2.00 per share to the shareholders of Bay Area
Seating Service ("BASS") in connection with the acquisition of the outstanding
securities of BASS.
(o) In September 1997, the Registrant issued Provident Bank a warrant to
purchase up to 400,000 shares of the Registrant's common stock at $0.01 per
share, in connection with a loan from Provident Bank.
(p) In October 1997, a terminated employee of the Registrant exercised a
stock option to acquire 10,000 shares of the Registrant's common stock at $0.40
per share, for an aggregate cash consideration of $4,000.
(q) In October 1997, the Registrant issued an additional 18,364 shares of
common stock representing underpaid interest on the Hill Note.
(r) In December 1997, the Registrant, pursuant to its 1997 Nonemployee
Directors' Stock Option Plan, issued options to purchase 225,000 shares of
common stock to its nonemployee directors, with an exercise price of $1.00 per
share.
(s) In May 1998, the Registrant issued and sold 11,597,114 shares of Series
C Preferred Stock at $1.75 per share to three investors in a private offering,
for an aggregate cash consideration of $20,294,949.
(t) In October 1998, the Registrant issued 714,979 shares of common stock,
warrants to purchase 1,435,419 shares of common stock at $0.01 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.
(u) In April 1999, the Registrant issued 11,690,504 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]
(v) In May 1999, the Registrant issued 8,838,869 shares of common stock,
2,678,577 shares of Series Al Preferred Stock, and 5,782,241 shares of Series C
Preferred Stock to the stockholders of California Tickets.com in exchange for
9,899,510 shares of California Tickets.com common stock, 3,000,000 shares of
II-3
<PAGE> 175
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.
(w) In March and May 1999, the Registrant issued and sold 13,333,335 shares
of Series D Preferred Stock at $2.25 per share to 14 investors for an aggregate
cash consideration of $30,000,003.
(x) Since May 31, 1996, the Registrant has issued options to purchase an
aggregate of 14,750,742 shares of common stock to certain of its employees under
its 1996 and 1997 1998 Stock Option Plans, with exercise prices ranging from
$0.05 to $3.25 per share. In addition, the Registrant assumed options to
purchase an aggregate of 1,075,240 shares of common stock in connection with its
acquisition of TicketsLive and options to purchase 3,366,407 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 1,270,500 $0.40 Employee
10/01/96 to 08/04/97 1,060,000 $0.40 Officer
08/05/97 to 03/01/98 571,981 $0.06 Employee
09/26/97 to 02/09/98 1,819,730 $1.00 Employee
10/15/97 to 02/09/98 1,690,000 $1.00 Officer
12/01/97 1,428,575 $0.06 Officer
12/22/97 225,000 $1.00 Director
02/02/98 22,321 $0.05 Employee
03/17/98 to 04/16/99 436,000 $2.00 Employee
05/04/98 to 04/20/99 1,361,583 $0.20 Employee
06/23/98 to 12/17/98 2,457,000 $1.50 Employee
09/14/98 2,062,500 $1.50 Officer
11/09/98 to 02/01/99 85,713 $0.84 Employee
12/01/98 22,321 $1.12
04/20/99 951,943 $0.62 Employee
04/29/99 to 05/17/99 2,457,000 $2.00 Officer
05/14/99 to 05/17/99 684,900 $3.25 Employee
</TABLE>
The sale and issuance of securities in the above transactions were deemed to be
exempt from registration under the Securities Act by virtue of Section 4(2) or
Rule 701 thereof, or Regulation D, as transactions by an issuer not involving a
public offering. Appropriate legends are affixed to the stock certificates
issued in such transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. All recipients either received adequate
information about the Company or had access, through employment or other
relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 * Form of Underwriting Agreement
3.1 * Amended and Restated Certificate of Incorporation of the
Company as filed with the Delaware Secretary of State 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
</TABLE>
II-4
<PAGE> 176
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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
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 * License Agreement by and between the Company, Advantix
(Ohio), Inc., Bay Area Seating Service, Inc. and Sybase,
Inc. dated as of April 6, 1998
</TABLE>
II-5
<PAGE> 177
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
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 * International Merchandising Corporation Agreement dated as
of November 1, 1998, 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
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
</TABLE>
- ---------------
* To be filed by amendment.
II-6
<PAGE> 178
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 28th day of May, 1999.
TICKETS.COM, INC.
By: /s/ C. IAN SYM-SMITH
------------------------------------
C. Ian Sym-Smith
Chairman of the Board
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>
/s/ C. IAN SYM-SMITH Chairman of the Board May 28, 1999
- -----------------------------------------------------
C. Ian Sym-Smith
/s/ W. THOMAS GIMPLE President, Chief Executive May 28, 1999
- ----------------------------------------------------- Officer (principal executive
W. Thomas Gimple officer) and Director
/s/ JOHN M. MARKOVICH Chief Financial Officer May 28, 1999
- ----------------------------------------------------- (principal financial officer)
John M. Markovich
/s/ MICHAEL R. RODRIGUEZ Vice President, Corporate May 28, 1999
- ----------------------------------------------------- Controller (principal
Michael R. Rodriguez accounting officer)
/s/ JAMES A. CACCAVO Director May 28, 1999
- -----------------------------------------------------
James A. Caccavo
/s/ CHRISTOS M. COTSAKOS Director May 28, 1999
- -----------------------------------------------------
Christos M. Cotsakos
</TABLE>
II-7
<PAGE> 179
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM E. FORD Director May 28, 1999
- -----------------------------------------------------
William E. Ford
/s/ HOWARD L. MORGAN Director May 28, 1999
- -----------------------------------------------------
Howard L. Morgan
/s/ IRVIN E. RICHTER Director May 28, 1999
- -----------------------------------------------------
Irvin E. Richter
/s/ NICHOLAS E. SINACORI Director May 28, 1999
- -----------------------------------------------------
Nicholas E. Sinacori
</TABLE>
II-8
<PAGE> 180
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
</TABLE>
<PAGE> 181
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.17 Employment Agreement between Thomas R. Pascoe and the
Company effective as of April 29, 1999
10.18 Employment Agreement between James A. Caccavo and the
Company effective as of May 17, 1999
10.19 * Employment Agreement between Karen S. Goetz and the Company
dated as of April 21, 1999
10.20 * License 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 * International Merchandising Corporation Agreement dated as
of November 1, 1998, 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
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
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 10.5
ADVANTIX, INC.
(A DELAWARE CORPORATION)
1997 STOCK OPTION PLAN
(CALIFORNIA AND OTHER EMPLOYEES)
NONSTATUTORY STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
NOTICE OF EXERCISE OF NONSTATUTORY STOCK OPTION
NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION
<PAGE> 2
ADVANTIX, INC.
1997 STOCK OPTION PLAN
1. Purpose. The purposes of this Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive to the Employees, Directors and Consultants of the Company
and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (b) of Section 3 of the Plan, if one is
appointed.
(d) "Common Stock" shall mean the Common Stock of the Company.
(e) "Company" shall mean Advantix, Inc., a Delaware corporation.
(f) "Consultant" shall mean any person who is engaged by the Company
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services, including compensation through Options granted under
this Plan; provided that the term Consultant shall not include Directors who are
not compensated for their services or are paid only a director's fee by the
Company.
(g) "Continuous Status as an Employee, Director or Consultant" shall
mean the absence of any interruption or termination of service as an Employee,
Director or Consultant (as the case may be). Continuous Status as an Employee,
Director or Consultant shall not be considered interrupted in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
(h) "Director" shall mean a member of the Board.
(i) "Disability" shall mean a total and permanent disability as that
term is defined in Section 22(e)(3) of the Code.
(j) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the
<PAGE> 3
Company shall not be sufficient to constitute "employment" by the Company.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(l) "Fair Market Value" shall mean: (i) if Shares are
exchange-traded or traded on the NASDAQ National Market System ("NMS"), the
closing sale or last sale price per share of the Shares; (ii) if Shares are
regularly traded in any over-the-counter market other than NMS, the average of
the bid and asked prices per share of the Shares; and (iii) if Shares are not
traded as described in (i) and (ii) of this Section 2(m), the per share fair
market value of the Shares as determined in good faith by the Board on such
basis as the Board in its sole discretion shall choose. Fair Market Value as of
a given date with respect to subparagraphs (i), (ii) and (iii) shall be
determined as of the close of business on the day prior to the date of
determination, or if no trading in the Shares takes place on such date, on the
next preceding trading day on which there has been such trading.
(m) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422(b) of the
Code.
(n) "Nonstatutory Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option.
(o) "Option" shall mean a stock option granted pursuant to the Plan.
(p) "Optionee" shall mean an Employee, Director or Consultant who
receives an Option.
(q) "Option Termination Date" shall mean the date of expiration of
the term of such Option as set forth in the written option agreement.
(r) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(s) "Plan" shall mean this Advantix, Inc. 1997 Stock Option Plan.
(t) "Restricted Stockholder" shall mean an Optionee who, at the time
the Option is granted, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary of the Company.
(u) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(v) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(w) "Subsidiary" shall mean a "subsidiary corporation", whether now
or hereafter existing, as defined in Section 424(f) of the Code.
2
<PAGE> 4
(x) "Terminating Transaction" shall mean any of the following
events: (a) the dissolution or liquidation of the Company; (b) a reorganization,
merger or consolidation of the Company with one or more other corporations
(except with respect to a transaction, the purpose of which is to change the
domicile or name of the Company), as a result of which the Company goes out of
existence or becomes a subsidiary of another corporation (which shall be deemed
to have occurred if another corporation shall own, directly or indirectly, fifty
percent (50%) or more of the aggregate voting power of all outstanding equity
securities of the Company); or (c) a sale of all or substantially all of the
Company's assets.
3. Administration.
(a) The Plan shall be administered by the Board, which shall have
sole authority in its absolute discretion, subject to the terms of Section 3(b)
herein, (i) to determine which Employees, Directors and Consultants shall
receive Options, (ii) subject to the express provisions of the Plan, to
determine the time when Options shall be granted, the number of Shares subject
to the Options, the exercise prices, and the terms and conditions of Options
other than those terms and conditions fixed under the Plan, and (iii) to
interpret the provisions of the Plan and any Option granted under the Plan. The
Board shall adopt by resolution such rules and regulations as may be required to
carry out the purposes of the Plan and shall have authority to do everything
necessary or appropriate to administer the Plan. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees.
(b) The Board may delegate administration of the Plan to a Committee
of no less than two Directors. The Board may from time to time remove members
from, or add members to, the Committee, and vacancies on the Committee shall be
filled by the Board. Furthermore, the Board at any time by resolution may
abolish the Committee and revest in the Board the administration of the Plan.
(For purposes of this Plan document, the term "Board" shall mean the Committee
to the extent that the Board's powers have been delegated to the Committee.)
4. Eligibility.
(a) Incentive Stock Options may be granted only to Employees who
render services which contribute to the Company. Nonstatutory Stock Options may
be granted only to Employees, Directors or Consultants who render services which
contribute to the Company.
(b) The Plan shall not confer upon any Optionee any right to
continue as an Employee, Director or Consultant of the Company, nor shall it
interfere in any way with an Optionee's right or the Company's right to
terminate Optionee's employment or relationship as a Director or Consultant at
any time, with or without cause.
(c) The determination as to whether an Employee, Director or
Consultant is eligible to receive Options hereunder shall be made by the Board
in its sole discretion, and the decision of the Board shall be binding and
final.
5. Number of Shares. The maximum aggregate number of Shares which may
be
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<PAGE> 5
optioned and sold under this Plan is 3,000,000 Shares of authorized but unissued
Common Stock of the Company. In the event that Options granted under the Plan
shall terminate or expire without being exercised, in whole or in part, the
Shares subject to such unexercised Options may again be optioned and sold under
this Plan.
6. Term of the Plan. The Plan shall be effective as of September __,
1997, and shall continue in effect until September __, 2007, unless terminated
earlier.
7. Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board in its sole discretion, but shall be subject to the following:
(i) for an Option granted to a Restricted Stockholder, the per
Share exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant;
(ii) for a Nonstatutory Stock Option granted to any Employee,
Director or Consultant (other than a Restricted Stockholder), the per
Share exercise price shall be no less than 85% of the Fair Market Value
per Share on the date of grant; and
(iii) for an Incentive Stock Option granted to any Employee
(other than a Restricted Stockholder), the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the
date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option shall consist of full payment in cash or cash equivalents
or, with the consent of the Board, one of the alternative forms specified below:
(i) full payment in shares of Common Stock (duly endorsed for
transfer to the Company) held by the Optionee for the requisite period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes and valued at Fair Market Value on the date of
delivery; or
(ii) full payment through a combination of cash or cash
equivalents and shares of Common Stock (duly endorsed for transfer to
the Company) held by the Optionee for the requisite period necessary to
avoid a charge to the Company's earnings for financial reporting
purposes and valued at Fair Market Value on the date of delivery; or
(iii) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (A) shall provide
irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the
purchased Shares plus all applicable Federal
4
<PAGE> 6
and State income and employment taxes required to be withheld by the
Company by reason of such purchase and (B) shall provide written
directives to the Company to deliver the certificates for the purchased
Shares directly to such brokerage firm in order to complete the sale
transaction; or
(iv) any other legal consideration that may be acceptable to the
Board.
8. Exercise of Options.
(a) Vesting of Options. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the Board,
including performance criteria with respect to the Company and/or the Optionee,
and as shall be permissible under the terms of the Plan, except that any Option
granted hereunder shall be exercisable at a rate of at least 20% per year over
five (5) years from the date of grant.
(b) Procedure for Exercise. An Option may be exercised at any time
as to all or any portions of the Shares as to which it is then exercisable,
except that an Option may not be exercised for a fraction of a Share and shall
be subject to any provision in the written option agreement governing the
minimum number of Shares as to which the Option may be exercised. An Option
shall be deemed to be exercised when written notice of such exercise has been
given to the Company in accordance with the terms of the Option by the person
entitled to exercise the Option and full payment for the Shares with respect to
which the Option is exercised has been received by the Company. Full payment
may, as authorized by the Board, consist of any consideration and method of
payment allowable under Section 7(b) of the Plan.
(c) Termination of Options. All installments of an Option shall
expire and terminate on such date(s) as the Board shall determine, but in no
event later than ten (10) years from the date such Option was granted (except
that an Incentive Stock Option granted to a Restricted Stockholder shall by its
terms not be exercisable after the expiration of five (5) years from the date
such Option was granted).
(d) Death or Termination of Service of Optionee. The following
provisions shall govern the exercise period applicable to any Options held by an
Optionee at the time of his or her death or termination of service with the
Company or any Parent or Subsidiary of the Company:
(i) Termination of Continuous Status as an Employee, Director or
Consultant. In the event of termination of an Optionee's Continuous
Status as an Employee, Director or Consultant (as the case may be) for
any reason other than Optionee's death or Disability, such Optionee may
only exercise the Option within three (3) months (or such shorter
period as specified in the written option agreement, but in no event
less than thirty (30) days) after the date of such termination.
(ii) Disability of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee, Director or Consultant as
a result of the Optionee's Disability, the Optionee may only exercise
the Option within twelve (12) months (or such
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<PAGE> 7
shorter period as is specified in the written option agreement, but in
no event less than six (6) months) from the date of such termination.
(iii) Death of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee, Director or Consultant as
a result of the Optionee's death, the Option may only be exercised any
time within twelve (12) months (or such shorter period as is specified
in the written option agreement, but in no event less than six (6)
months) following the date of death by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or
inheritance.
(iv) Limitations. Each Option shall, during the limited exercise
period under this Section 8(d), be exercisable only as to the Shares
for which the Option is exercisable on the date of the Optionee's death
or termination of service with the Company. Under no circumstances
shall any Option become exercisable under this Section 8(d) after the
Option Termination Date. Upon the earlier of the expiration of such
limited exercise period or the Option Termination Date, the Option
shall terminate and cease to be exercisable.
(v) Immediate Termination. Should (A) the Optionee's Continuous
Status as an Employee, Director or Consultant be terminated for
misconduct (including, but not limited to, any act of dishonesty,
willful misconduct, fraud or embezzlement) or (B) the Optionee make any
unauthorized use or disclosure of confidential information or trade
secrets of the Company or any Parent or Subsidiary, then in any such
event all outstanding Options granted to the Optionee under this Plan
shall terminate immediately and cease to be exercisable.
(vi) Board Discretion to Accelerate. The Board shall have
complete discretion, exercisable either at the time the Option is
granted or at any time the Option remains outstanding, to permit one or
more Options granted under this Plan to be exercised during the limited
exercise period applicable under this Section 8(d), not only for the
number of Shares for which each such Option is exercisable at the time
of the Optionee's death or termination of service but also for one or
more subsequent installments of Shares for which the Option would
otherwise have become exercisable had such death or termination of
service not occurred.
(e) Extensions. Notwithstanding the provisions covering the
exercisability of Options following death or termination of service, as
described in Section 8(d), the Board may, in its sole discretion, with the
consent of the Optionee or the Optionee's estate (in the case of the death of
Optionee), extend the period of time during which the Option shall remain
exercisable, provided that in no event shall such extension go beyond the Option
Termination Date. In the case of Incentive Stock Options, extensions under this
Section 8(e) may result in loss of the favorable treatment accorded to incentive
stock options under the Code.
9. Restrictions on Grants of Options and Issuance of Shares.
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<PAGE> 8
(a) Regulatory Approvals. No Shares shall be issued or delivered
upon exercise of an Option unless and until there shall have been compliance
with all applicable requirements of the Securities Act, and any other
requirement of law or of any regulatory body having jurisdiction over such
issuance and delivery. The inability of the Company to obtain any required
permits, authorizations or approvals necessary for the lawful issuance and sale
of any Shares hereunder on terms deemed reasonable by the Board shall relieve
the Company, the Board, and any Committee of any liability in respect of the
non-issuance or sale of such Shares as to which such requisite permits,
authorizations, or approvals shall not have been obtained.
(b) Representations and Warranties. As a condition to the granting
or exercise of any Option, the Board may require the person receiving or
exercising such Option to make any representation and/or warranty to the Company
as may be required (or deemed appropriate by the Board, in its discretion) under
any applicable law or regulation, including but not limited to a representation
that the Option and/or Shares are being acquired only for investment and without
any present intention to sell or distribute such Option and/or Shares, if such a
representation is required under the Securities Act or any other applicable law,
rule, or regulation.
(c) Stockholder Approval. The exercise of Options under the Plan
also is conditioned on approval of the Plan by the Company's Stockholders within
twelve (12) months of adoption of the Plan by the Board, and no Option shall be
exercisable hereunder unless and until the Plan has been so approved.
10. Option Adjustments.
(a) Change in Capitalization. If the outstanding shares of Common
Stock of the Company are increased, decreased, changed into or exchanged for a
different number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse stock
split, upon authorization by the Board an appropriate and proportionate
adjustment shall be made in the number or kind of shares, and the per-share
option price thereof, which may be issued in the aggregate and to any individual
Optionees under the Plan upon exercise of Options granted under the Plan;
provided, however, that no such adjustment need be made if, upon the advice of
counsel, the Board determines that such adjustment may result in the receipt of
federal taxable income to holders of Options granted under the Plan or the
holders of Common Stock or other classes of the Company's securities.
(b) Corporate Reorganizations. Upon the occurrence of a Terminating
Transaction, as of the effective date of such Terminating Transaction, the Plan
and any then outstanding Options (whether or not vested) shall terminate unless
(i) provision is made in writing in connection with such transaction for the
continuance of the Plan and for the assumption of such Options, or for the
substitution for such Options of new options covering the securities of a
successor corporation or an affiliate thereof, with appropriate adjustments as
to the number and kind of securities and exercise prices, in which event the
Plan and such outstanding Options shall continue or be replaced, as the case may
be, in the manner and under the terms so provided; or (ii) the Board otherwise
shall provide in writing for such adjustments as it deems appropriate in the
terms and conditions of the then-outstanding Options (whether or not vested),
including without limitation (A)
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<PAGE> 9
accelerating the vesting of outstanding Options and/or (B) providing for the
cancellation of Options and their automatic conversion into the right to receive
the securities or other properties which a holder of the Shares underlying such
Options would have been entitled to receive upon such Terminating Transaction
had such Shares been issued and outstanding (net of the appropriate option
exercise prices). If, pursuant to the foregoing provisions of this paragraph
(b), the Plan and the Options shall terminate by reason of the occurrence of a
Terminating Transaction without provision for any of the action(s) described in
clause (i) or (ii) hereof, then any Optionee holding outstanding Options shall
have the right, at such time immediately prior to the consummation of the
Terminating Transaction as the Board shall designate, to exercise his or her
Options to the full extent not theretofore exercised, including any portion
which has not yet become exercisable.
11. Option Agreement. The terms and conditions of Options granted under
the Plan shall be evidenced by a written option agreement executed by the
Company and the person to whom the Option is granted. Each option agreement
shall incorporate the Plan by reference and shall include such provisions as are
determined to be necessary or appropriate by the Board.
12. Restricted Stock. As a condition to the granting of any Option
hereunder and the subsequent exercise of any such Option, the Board may include
in the option agreement for that Option provisions limiting the sale or other
transfer of ownership of Shares acquired by the Optionee under that Option.
13. Limitations on Incentive Stock Options. In the event that the
aggregate Fair Market Value of Shares (determined as of the date of grant of the
Option covering such Shares) with respect to which Incentive Stock Options are
exercisable for the first time by an Employee during any calendar year under
this Plan and any other plan of the Company exceeds $100,000, Options with
respect to and to the extent of such excess shall be treated as Nonstatutory
Stock Options. This Section 13 shall be applied by taking Options which are
intended to be Incentive Stock Options into account in the order in which they
were granted.
14. Amendment or Termination of the Plans.
(a) Board Authority. The Board may amend, suspend, alter, or
terminate the Plan at any time. To the extent necessary or desirable to comply
with the Code or any other applicable law or regulation, the Company may obtain
stockholder approval of any amendment to the Plan only in such a manner and to
such a degree as required under applicable law.
(b) Limitation on Board Authority. Furthermore, the Plan may not,
without the approval of the stockholders, be amended in any manner that would
cause Incentive Stock Options issued hereunder to fail to qualify as Incentive
Stock Options as defined in Section 422(b) of the Code. Notwithstanding the
foregoing, no amendment, suspension or termination of the Plan shall adversely
affect Options granted on or prior to the date thereof, as evidenced by the
execution of an option agreement by both the Company and the Optionee, without
the consent of such Optionee.
(c) Contingent Grants Based on Amendments. Options may be granted in
reliance on and consistent with any amendment adopted by the Board and which is
necessary to
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<PAGE> 10
enable such Options to be granted under the Plan, even though such amendment
requires future stockholder approval; provided, however, that any such
contingent Option by its terms may not be exercised prior to stockholder
approval of such amendment, and provided further, that in the event stockholder
approval is not obtained within twelve (12) months of the date of grant of such
contingent Option, then such contingent Option shall be deemed cancelled and no
longer outstanding.
15. Options Not Transferable. Options granted under this Plan may not be
sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise
transferred or alienated in any manner, either voluntarily or involuntarily by
operation of law, other than by will or the laws of descent or distribution, and
may be exercised during the lifetime of an Optionee only by such Optionee.
16. No Rights in Shares Before Issuance and Delivery. Neither the
Optionee, his or her estate nor his or her transferees by will or the laws of
descent and distribution shall be, or have any rights or privileges of, a
stockholder of the Company with respect to any Shares issuable upon exercise of
the Option unless and until certificates representing such Shares shall have
been issued and delivered notwithstanding exercise of the Option. No adjustment
will be made for a dividend or other rights where the record date is prior to
the date such stock certificates are issued, except as provided in Section 10.
17. Taxes. The Board shall make such provisions and take such steps as
it deems necessary or appropriate for the withholding of any federal, state,
local and other tax required by law to be withheld with respect to the grant or
exercise of an Option under the Plan, including, without limitation, the
deduction of the amount of any such withholding tax from any compensation or
other amounts payable to an Optionee by the Company, or requiring an Optionee
(or the Optionee's beneficiary or legal representative) as a condition of
granting or exercising an Option to pay to the Company any amount required to be
withheld, or to execute such other documents as the Board deems necessary or
desirable in connection with the satisfaction of any applicable withholding
obligation. In the discretion of the Board, upon exercise of a Nonstatutory
Stock Option, the Optionee may request the Company to withhold from the Shares
to be issued upon such exercise that number of Shares (based on the Fair Market
Value of the Shares as of the day notice of exercise is received by the Company)
that would satisfy any tax withholding requirement.
18. Legends on Options and Stock Certificates. Each option agreement and
each certificate representing Shares acquired upon exercise of an Option shall
be endorsed with all legends, if any, required by applicable federal and state
securities laws to be placed on the option agreement and/or the certificate. The
determination of which legends, if any, shall be placed upon option agreements
and/or the certificates representing Shares shall be made by the Board in its
sole discretion and such decision shall be final and binding.
19. Availability of Plan and Financial Statements. A copy of this Plan
shall be delivered to the Secretary of the Company and shall be shown by the
Secretary to any eligible person making reasonable inquiry concerning the Plan.
The Company shall also provide Optionees with financial statements of the
Company at least annually.
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<PAGE> 11
20. Applicable Law. This Plan shall be governed by and construed in
accordance with the laws of the State of California.
Date Plan approved by Board: September 15, 1997
Date Plan approved by Stockholders: September 26, 1997
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NONSTATUTORY STOCK OPTION AGREEMENT
On this ___ day of __________, ____, ("Grant Date"), ADVANTIX, INC., a
Delaware corporation (the "Company"), hereby grants to ___________________ (the
"Optionee") an Option to purchase a total of _________ shares of Common Stock
(the "Shares"), on the terms and conditions set forth below, and in all respects
subject to the terms, definitions and provisions of the Advantix, Inc. 1997
Stock Option Plan (the "Plan") adopted by the Company, which is incorporated
herein by reference. Unless otherwise defined in this Option, the terms defined
in the Plan shall have the same defined meanings in this Option. In the event of
any conflict between the provisions of this Option and those of the Plan, the
Plan shall control.
<PAGE> 13
1. NATURE OF THE OPTION. This Option is intended to qualify as a
Nonstatutory Stock Option.
2. EXERCISE PRICE. The exercise price is $____ for each share of Common
Stock.
3. VESTING AND EXERCISE OF OPTION. This Option shall be exercisable
during its term in accordance with the provisions of Section 8 of the Plan as
follows:
(a) VESTING. Subject to the limitations contained in this Option and
the Plan, this Option shall become exercisable in installments as follows:
Number of Shares Date of Earliest
(Installment) Exercise (Vesting)
---------------- ------------------
The installments provided for in this Section 3(a) are cumulative. Each such
installment which becomes exercisable pursuant to this Section shall remain
exercisable until expiration or earlier termination of this Option.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice (in a form designated by the Company) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and warranties of Optionee as
may be required by the Company pursuant to Section 9(b) of the Plan. Such
written notice shall be signed by Optionee and shall be delivered in person or
by certified mail to the President, Secretary or Chief Financial Officer of the
Company. The written notice shall be accompanied by payment of the exercise
price.
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
(c) MINIMUM EXERCISE. The minimum number of Shares with respect to
which this Option may be exercised at any one time is One Hundred (100) Shares,
and this Option shall be exercised for whole Shares only.
4. CERTAIN REPRESENTATIONS AND WARRANTIES; RESTRICTIONS ON TRANSFER.
(a) By receipt of this Option, by its execution and by its exercise
in whole or in part, Optionee represents to the Company the following:
(i) Optionee has read and understands the terms and provisions
<PAGE> 14
of the Plan, and hereby accepts this Option subject to all the terms
and provisions of the Plan;
(ii) Optionee shall accept as binding and final all decisions or
interpretations of the Board or of the Committee upon any questions
arising under the Plan;
(iii) Optionee understands that this Option and any Shares
purchased upon its exercise are securities, the issuance of which
requires compliance with federal and state securities laws;
(iv) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
securities. Optionee is acquiring these securities for investment for
Optionee's own account only and not with a view to, or for sale in
connection with, any "distribution" thereof within the meaning of the
Securities Act of 1933, as amended (the "Securities Act");
(v) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and must be
held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available.
Optionee further acknowledges and understands that the Company is under
no obligation to register the securities. Optionee understands that the
certificate evidencing the securities will be imprinted with a legend
which prohibits the transfer of the securities unless they are
registered or such registration is not required in the opinion of
counsel satisfactory to the Company, and any other legend required
under applicable state securities laws.
(b) Optionee agrees that, if required by the Company in connection
with the Company's initial underwritten public offering of the Company's
securities, Optionee (i) will not sell, make short sale of, loan, grant any
options for the purchase of, or otherwise dispose of any Shares acquired upon
exercise of this Option (other than those shares included in the registration)
without the prior written consent of the Company or the underwriters managing
such initial underwritten public offering of the Company's securities for one
hundred eighty (180) days from the effective date of such registration, and (ii)
will execute any agreement reflecting (i) above as may be requested by the
underwriters at the time of the public offering.
5. METHOD OF PAYMENT.
(a) The consideration to be paid for the Shares to be issued upon
exercise of the Option shall consist of full payment in cash or cash equivalents
or, with the consent of the Board or the Committee, one of the alternative forms
specified below:
(i) full payment in shares of Common Stock (duly endorsed for
transfer to the Company) held by the Optionee for the requisite
period necessary to avoid a charge to the Company's earnings for
financial reporting purposes and valued at Fair Market
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<PAGE> 15
Value on the date of delivery; or
(ii) full payment through a combination of cash or cash
equivalents and shares of Common Stock (duly endorsed for transfer
to the Company) held by the Optionee for the requisite period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes and valued at Fair Market Value on the date of
delivery; or
(iii) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (A) shall
provide irrevocable written instructions to a designated brokerage
firm to effect the immediate sale of the purchased shares and remit
to the Company, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate option price payable
for the purchased Shares plus all applicable federal and state
income and employment taxes required to be withheld by the Company
by reason of such purchase and (B) shall provide written directives
to the Company to deliver the certificates for the purchased Shares
directly to such brokerage firm in order to complete the sale
transaction; or
(iv) any other legal consideration that may be acceptable to the
Board or the Committee.
6. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
7. TERMINATION OF STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT. In the
event of termination of Optionee's Continuous Status as an Employee, Director or
Consultant, Optionee may, but only within three (3) months after the date of
such termination (but in no event later than the date of expiration of the term
of this Option as set forth in Section 11 below), exercise this Option to the
extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise this
Option at the date of such termination, or if Optionee does not exercise this
Option within the time specified herein, this Option shall terminate.
Notwithstanding the foregoing, should (A) Optionee's Continuous Status as an
Employee, Director or Consultant be terminated for misconduct (including, but
not limited to, any act of dishonesty, willful misconduct, fraud or
embezzlement) or (B) Optionee make any unauthorized use or disclosure of
confidential information or trade secrets of the Company or any Parent or
Subsidiary, then in any such event this Option shall terminate immediately and
cease to be exercisable.
8. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 7
above, in the event of termination of Optionee's Continuous Status as an
Employee, Director or Consultant as a result of Optionee's permanent and total
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only
within twelve (12) months from the date of termination of employment or
relationship as director or consultant (but in no event later than the date of
expiration of the term of
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<PAGE> 16
this Option as set forth in Section 11 below), exercise this Option to the
extent Optionee was entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise this Option at the date of
termination, or if Optionee does not exercise such Option (which Optionee was
entitled to exercise) within the time specified herein, this Option shall
terminate.
9. DEATH OF OPTIONEE. In the event of the death of Optionee during the
term of this Option while an Employee, Director or Consultant of the Company and
having been in Continuous Status as an Employee, Director or Consultant since
the date of grant of this Option, this Option may be exercised, at any time
within twelve (12) months following the date of death (but in no event later
than the date of expiration of the term of this Option as set forth in Section
11 below), by Optionee's estate or by a person who acquired the right to
exercise this Option by bequest or inheritance, but only to the extent Optionee
was entitled to exercise this Option on the date of death.
10. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
11. TERM OF OPTION. In no event may this Option be exercised after
__________, 200__ (which date shall be no more than ten (10) years from the date
this Option was granted).
12. NO EMPLOYMENT RIGHTS. Optionee acknowledges and agrees that the
vesting of Shares pursuant to Section 3 hereof is earned only through Optionee's
Continuous Status as an Employee, Director or Consultant (not through the act of
being hired or engaged, being granted this Option or acquiring Shares
hereunder). Optionee further acknowledges and agrees that this Option, the
Company's Plan which is incorporated herein by reference, the transactions
contemplated hereunder and the vesting schedule set forth herein do not
constitute an express or implied promise of continued engagement as an Employee,
Director or Consultant for the vesting period, for any period, or at all, and
shall not interfere with Optionee's right or the Company's right to terminate
Optionee's employment, directorship or consulting relationship at any time, with
or without cause.
13. RESTRICTED STOCK PROVISIONS. Shares issued on exercise of this
Option, including any shares issued as a result of a stock dividend, stock split
or other change in the Shares, shall upon issuance be subject to the following
restrictions:
(a) GRANT OF RIGHT. Before any such Shares may be sold or
transferred (including transfer by operation of law) other than to Optionee's
spouse, children (including adopted children), or trusts for their benefit or
the benefit of Optionee, such Shares shall first be offered to the Company in
the manner set forth in this Section 13.
(b) NOTICE OF SALE. Optionee shall first deliver a written notice
("Notice") to the Company stating (i) his bona fide intention to sell or
transfer such Shares, (ii) the number of such Shares to be sold or transferred,
(iii) the price for which he proposes to sell or transfer such Shares, and (iv)
the name of the proposed purchaser or transferee.
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(c) ELECTION TO PURCHASE. Within thirty (30) days after receipt of
the Notice, the Company or its assignee(s) may elect to purchase any or all
Shares to which the Notice refers, at the price per share specified in the
Notice.
(d) EXERCISE OF RIGHT. In the event the Company or the assignee(s)
of the Company elect to acquire any of the Shares of Optionee as specified in
Optionee's notice, the Secretary of the Company shall so notify Optionee and
settlement thereof shall be made in cash within forty-five (45) days after the
Secretary of the Company receives Optionee's Notice; provided that if the terms
of payment set forth in Optionee's Notice were other than cash against delivery,
the Company or the assignee(s) of the Company shall pay for said Shares on the
same terms and conditions set forth in Optionee's Notice.
(e) NON-EXERCISE OF RIGHT. In the event the Company does not elect
to purchase any of the Shares as provided in Section 13(c) and 13(d), Optionee
may sell or otherwise dispose of the Shares upon terms and conditions (including
the purchase price) no more favorable to the third-party purchaser than those
specified in the Notice; provided, however, that any such sale is in accordance
with all of the terms and conditions of this Section 13; and provided, further,
that such sale or transfer is consummated within three (3) months of the date of
the Notice. The third-party purchaser shall acquire the Shares free and clear of
the Company's first refusal right under this Section 13. In the event Optionee
does not sell or otherwise dispose of the Shares within the specified
three-month period, the Optionee's first refusal right shall continue to be
applicable to any subsequent disposition of the Shares by Optionee until such
right terminates in accordance with Section 13(g).
(f) PARTIAL EXERCISE. If some, but not all, of the Shares to which
the Notice refers are elected to be purchased, as provided in Section 13(c) and
13(d), Optionee may sell the remaining Shares to any person named in the Notice
at the price and on the terms specified in the Notice or at a higher price or on
terms more favorable to Optionee, provided that such sale or transfer is
consummated within three (3) months of the date of said Notice to the Company,
and provided, further, that any such sale is in accordance with all the terms
and conditions of this Section 13.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. Optionee's obligations
under this Section 13 shall terminate upon the first sale of Common Stock of the
Company to the public in a firm commitment underwritten public offering pursuant
to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act and involving net
proceeds to the Company of at least $5,000,000.
(h) ASSIGNMENT. The Company may assign its rights under this Section
13 to one or more persons or entities who shall have the right to so exercise
such rights in their own name and for their own account.
14. WITHHOLDING OF TAXES. Optionee authorizes the Company to withhold,
in accordance with any applicable law, from any compensation payable to him any
taxes required to be withheld by federal, state, or foreign law as a result of
the grant of the Option or the issuance of stock pursuant to the exercise of the
Option.
5
<PAGE> 18
15. NOTICES. Any notice to be given to the Company shall be addressed to
the Company in care of its Secretary at its principal office, and any notice to
be given to Optionee shall be addressed to Optionee at the address given below
or at such other address as the Optionee may hereafter designate in writing to
the Company. Any such notice shall be deemed duly given upon personal delivery
or three business days after deposit in the United States mail, registered or
certified, postage prepaid.
6
<PAGE> 19
16. GOVERNING LAW. This Option shall be governed by and construed in
accordance with the internal laws of the State of California.
ADVANTIX, INC.
By:
---------------------------
W. Thomas Gimple
President/CEO
ACCEPTED:
_______________________________
______________, Optionee
7
<PAGE> 20
INCENTIVE STOCK OPTION AGREEMENT
On this ___ day of __________, ____, ("Grant Date"), ADVANTIX, INC., a
Delaware corporation (the "Company"), hereby grants to ____________________ (the
"Optionee") an Option to purchase a total of __________ shares of Common Stock
(the "Shares"), on the terms and conditions set forth below, and in all respects
subject to the terms, definitions and provisions of the Advantix, Inc. 1997
Stock Option Plan (the "Plan") adopted by the Company, which is incorporated
herein by reference. Unless otherwise defined in this Option, the terms defined
in the Plan shall have the same defined meanings in this Option. In the event of
any conflict between the provisions of this Option and those of the Plan, the
Plan shall control.
1. NATURE OF THE OPTION. This Option is intended to qualify as an
Incentive Stock Option.
2. EXERCISE PRICE. The exercise price is $___ for each share of Common
Stock, which price is not less than the fair market value per share of Common
Stock on the date of grant, as determined by the Board or the Committee.
3. VESTING AND EXERCISE OF OPTION. This Option shall be exercisable
during its term in accordance with the provisions of Section 8 of the Plan as
follows:
(a) VESTING. Subject to the limitations contained in this Option and
the Plan, this Option shall become exercisable in installments as follows:
Number of Shares Date of Earliest
(Installment) Exercise (Vesting)
---------------- ------------------
8
<PAGE> 21
The installments provided for in this Section 3(a) are cumulative. Each such
installment which becomes exercisable pursuant to this Section shall remain
exercisable until expiration or earlier termination of this Option.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice (in a form designated by the Company) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and warranties of Optionee as
may be required by the Company pursuant to Section 9(b) of the Plan. Such
written notice shall be signed by Optionee and shall be delivered in person or
by certified mail to the President, Secretary or Chief Financial Officer of the
Company. The written notice shall be accompanied by payment of the exercise
price.
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
(c) MINIMUM EXERCISE. The minimum number of Shares with respect to
which this Option may be exercised at any one time is One Hundred (100) Shares,
and this Option shall be exercised for whole Shares only.
4. CERTAIN REPRESENTATIONS AND WARRANTIES; RESTRICTIONS ON TRANSFER.
(a) By receipt of this Option, by its execution and by its exercise
in whole or in part, Optionee represents to the Company the following:
(i) Optionee has read and understands the terms and provisions
of the Plan, and hereby accepts this Option subject to all the terms
and provisions of the Plan;
(ii) Optionee shall accept as binding and final all decisions or
interpretations of the Board or of the Committee upon any questions
arising under the Plan;
(iii) Optionee understands that this Option and any Shares
purchased upon its exercise are securities, the issuance of which
requires compliance with federal and state securities laws;
(iv) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
securities. Optionee is acquiring these securities for investment for
Optionee's own account only and not with a view to, or for sale in
connection with, any "distribution" thereof within the meaning of the
Securities Act of 1933, as amended (the "Securities Act");
(v) Optionee acknowledges and understands that the securities
constitute
9
<PAGE> 22
"restricted securities" under the Securities Act and must be
held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available.
Optionee further acknowledges and understands that the Company is under
no obligation to register the securities. Optionee understands that the
certificate evidencing the securities will be imprinted with a legend
which prohibits the transfer of the securities unless they are
registered or such registration is not required in the opinion of
counsel satisfactory to the Company, and any other legend required
under applicable state securities laws; and
(vi) Optionee understands that the existence of the Plan and the
execution of this Option are not sufficient by themselves to cause any
exercise of any Incentive Stock Options granted under the Plan and this
Option to qualify for favorable tax treatment through the application
of Section 422(a) of the Code; and that Optionee must, in order to so
qualify, individually meet by Optionee's own action all applicable
requirements of Section 422, including, without limitation, the
requirement that no disposition of Shares may be made by Optionee
within two (2) years from the date of the granting of the Option nor
within one (1) year after the transfer of such Shares to Optionee.
(b) Optionee agrees that, if required by the Company in connection
with the Company's initial underwritten public offering of the Company's
securities, Optionee (i) will not sell, make short sale of, loan, grant any
options for the purchase of, or otherwise dispose of any Shares acquired upon
exercise of this Option (other than those shares included in the registration)
without the prior written consent of the Company or the underwriters managing
such initial underwritten public offering of the Company's securities for one
hundred eighty (180) days from the effective date of such registration, and (ii)
will execute any agreement reflecting (i) above as may be requested by the
underwriters at the time of the public offering.
5. METHOD OF PAYMENT.
(a) The consideration to be paid for the Shares to be issued upon
exercise of the Option shall consist of full payment in cash or cash equivalents
or, with the consent of the Board or the Committee, one of the alternative forms
specified below:
(i) full payment in shares of Common Stock (duly endorsed for
transfer to the Company) held by the Optionee for the requisite period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes and valued at Fair Market Value on the date of
delivery; or
(ii) full payment through a combination of cash or cash
equivalents and shares of Common Stock (duly endorsed for transfer to
the Company) held by the Optionee for the requisite period necessary to
avoid a charge to the Company's earnings for financial reporting
purposes and valued at Fair Market Value on the date of delivery; or
(iii) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (A) shall provide
irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit
10
<PAGE> 23
to the Company, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate option price payable for
the purchased Shares plus all applicable federal and state income and
employment taxes required to be withheld by the Company by reason of
such purchase and (B) shall provide written directives to the Company
to deliver the certificates for the purchased Shares directly to such
brokerage firm in order to complete the sale transaction; or
(iv) any other legal consideration that may be acceptable to the
Board or the Committee.
6. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
7. TERMINATION OF STATUS AS AN EMPLOYEE. In the event of termination of
Optionee's Continuous Status as an Employee, Optionee may, but only within three
(3) months after the date of such termination (but in no event later than the
date of expiration of the term of this Option as set forth in Section 11 below),
exercise this Option to the extent that Optionee was entitled to exercise it at
the date of such termination. To the extent that Optionee was not entitled to
exercise this Option at the date of such termination, or if Optionee does not
exercise this Option within the time specified herein, this Option shall
terminate. Notwithstanding the foregoing, should (A) Optionee's Continuous
Status as an Employee be terminated for misconduct (including, but not limited
to, any act of dishonesty, willful misconduct, fraud or embezzlement) or (B)
Optionee make any unauthorized use or disclosure of confidential information or
trade secrets of the Company or any Parent or Subsidiary, then in any such event
this Option shall terminate immediately and cease to be exercisable.
8. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 7
above, in the event of termination of Optionee's Continuous Status as an
Employee, as a result of Optionee's permanent and total disability (as defined
in Section 22(e)(3) of the Code), Optionee may, but only within twelve (12)
months from the date of termination of employment (but in no event later than
the date of expiration of the term of this Option as set forth in Section 11
below), exercise this Option to the extent Optionee was entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled to
exercise this Option at the date of termination, or if Optionee does not
exercise such Option (which Optionee was entitled to exercise) within the time
specified herein, this Option shall terminate.
9. DEATH OF OPTIONEE. In the event of the death of Optionee during the
term of this Option while an Employee of the Company and having been in
Continuous Status as an Employee since the date of grant of this Option, this
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the date of expiration of the term of
this Option as set forth in Section 11 below), by Optionee's estate or by a
person who acquired the right to exercise this Option by bequest or inheritance,
but only to the extent Optionee was entitled
11
<PAGE> 24
to exercise this Option on the date of death.
10. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
11. TERM OF OPTION. In no event may this Option be exercised after
_______, ____ (which date shall be no more than ten (10) years from the date
this Option was granted).
12. NO EMPLOYMENT RIGHTS. Optionee acknowledges and agrees that the
vesting of Shares pursuant to Section 3 hereof is earned only by continuing
service as an employee at the will of the Company (not through the act of being
hired, being granted this Option or acquiring Shares hereunder). Optionee
further acknowledges and agrees that this Option, the Company's Plan which is
incorporated herein by reference, the transactions contemplated hereunder and
the vesting schedule set forth herein do not constitute an express or implied
promise of continued engagement as an employee for the vesting period, for any
period, or at all, and shall not interfere with Optionee's right or the
Company's right to terminate Optionee's employment relationship at any time,
with or without cause.
13. RESTRICTED STOCK PROVISIONS. Shares issued on exercise of this
Option, including any shares issued as a result of a stock dividend, stock split
or other change in the Shares, shall upon issuance be subject to the following
restrictions:
(a) GRANT OF RIGHT. Before any such Shares may be sold or
transferred (including transfer by operation of law) other than to Optionee's
spouse, children (including adopted children), or trusts for their benefit or
the benefit of Optionee, such Shares shall first be offered to the Company in
the manner set forth in this Section 13.
(b) NOTICE OF SALE. Optionee shall first deliver a written notice
("Notice") to the Company stating (i) his bona fide intention to sell or
transfer such Shares, (ii) the number of such Shares to be sold or transferred,
(iii) the price for which he proposes to sell or transfer such Shares, and (iv)
the name of the proposed purchaser or transferee.
(c) ELECTION TO PURCHASE. Within thirty (30) days after receipt of
the Notice, the Company or its assignee(s) may elect to purchase any or all
Shares to which the Notice refers, at the price per share specified in the
Notice.
(d) EXERCISE OF RIGHT. In the event the Company or the assignee(s)
of the Company elect to acquire any of the Shares of Optionee as specified in
Optionee's notice, the Secretary of the Company shall so notify Optionee and
settlement thereof shall be made in cash within forty-five (45) days after the
Secretary of the Company receives Optionee's Notice; provided that if the terms
of payment set forth in Optionee's Notice were other than cash against delivery,
the Company or the assignee(s) of the Company shall pay for said Shares on the
same terms and conditions set forth in Optionee's Notice.
12
<PAGE> 25
(e) NON-EXERCISE OF RIGHT. In the event the Company does not elect
to purchase any of the Shares as provided in Section 13(c) and 13(d), Optionee
may sell or otherwise dispose of the Shares upon terms and conditions (including
the purchase price) no more favorable to the third-party purchaser than those
specified in the Notice; provided, however, that any such sale is in accordance
with all of the terms and conditions of this Section 13; and provided, further,
that such sale or transfer is consummated within three (3) months of the date of
the Notice. The third-party purchaser shall acquire the Shares free and clear of
the Company's first refusal right under this Section 13. In the event Optionee
does not sell or otherwise dispose of the Shares within the specified
three-month period, the Optionee's first refusal right shall continue to be
applicable to any subsequent disposition of the Shares by Optionee until such
right terminates in accordance with Section 13(g).
(f) PARTIAL EXERCISE. If some, but not all, of the Shares to which
the Notice refers are elected to be purchased, as provided in Section 13(c) and
13(d), Optionee may sell the remaining Shares to any person named in the Notice
at the price and on the terms specified in the Notice or at a higher price or on
terms more favorable to Optionee, provided that such sale or transfer is
consummated within three (3) months of the date of said Notice to the Company,
and provided, further, that any such sale is in accordance with all the terms
and conditions of this Section 13.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. Optionee's obligations
under this Section 13 shall terminate upon the first sale of Common Stock of the
Company to the public in a firm commitment underwritten public offering pursuant
to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act and involving net
proceeds to the Company of at least $5,000,000.
(h) ASSIGNMENT. The Company may assign its rights under this Section
13 to one or more persons or entities who shall have the right to so exercise
such rights in their own name and for their own account.
14. WITHHOLDING OF TAXES. Optionee authorizes the Company to withhold,
in accordance with any applicable law, from any compensation payable to him any
taxes required to be withheld by federal, state, or foreign law as a result of
the grant of the Option or the issuance of stock pursuant to the exercise of the
Option.
15. NOTICES. Any notice to be given to the Company shall be addressed to
the Company in care of its Secretary at its principal office, and any notice to
be given to Optionee shall be addressed to Optionee at the address given below
or at such other address as the Optionee may hereafter designate in writing to
the Company. Any such notice shall be deemed duly given upon personal delivery
or three business days after deposit in the United States mail, registered or
certified, postage prepaid.
13
<PAGE> 26
16. GOVERNING LAW. This Option shall be governed by and construed in
accordance with the internal laws of the State of California.
ADVANTIX, INC.
By:
--------------------------------
C. Ian Sym-Smith
Chairman
____________________________________
______________, Optionee
14
<PAGE> 27
NOTICE OF EXERCISE OF NONSTATUTORY STOCK OPTION
-----------------------------------------------
Advantix, Inc.
4675 MacArthur Court, Suite 1540
Newport Beach, CA 92660
Gentlemen:
In accordance with the terms of the Advantix, Inc. 1997 Stock Option
Plan (the "Plan"), and the related Nonstatutory Stock Option Agreement dated as
of ______________, 199__ between me and Advantix, Inc. (the "Company"), I
hereby give notice of exercise of my option (the "Option") as to ___________
shares of Company Common Stock (the "Shares") at a purchase price of
$________ per share, or $________ in the aggregate.
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the Plan, and (ii) to provide for the
payment by me to you (in the manner designated by you) of your withholding
obligation, if any, relating to the exercise of the Option.
Unless a registration statement covering the Shares is currently in
effect under the Securities Act of 1933, as amended (the "Securities Act"), I
hereby make the following certifications and representations with respect to the
Shares:
(1) I acknowledge that the Shares have not been registered under the
Securities Act and are deemed to constitute "restricted securities" under Rule
144 promulgated under the Securities Act. I represent and warrant to the Company
that I am acquiring the Shares for my own account and for investment purposes
only and I have no present intention of distributing or selling the Shares,
except as permitted under the Securities Act and any applicable state securities
laws; and
(2) I further acknowledge that all certificates representing any of the
Shares subject to the provisions of the Option shall have endorsed thereon
appropriate legends reflecting the foregoing limitations, as well as any legends
reflecting restrictions pursuant to applicable securities laws.
<PAGE> 28
There accompanies this Notice payment in full for the aggregate
purchase price for the Shares as follows (check applicable method of payment):
[ ]1 Check in the amount of $ _______________
[ ]2 If authorized by the Plan and the Board, shares of the
Company's Stock currently owned by me as follows:
Certificate Number(s) Number of Shares
--------------------- ----------------
__________ __________
__________ __________
Please mail the certificate representing the Shares to the following address:
_______________________________
_______________________________
_______________________________
Dated: ________________, 199_ _______________________________
Signature
_______________________________
Type or Print Name
2
<PAGE> 29
NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION
--------------------------------------------
Advantix, Inc.
4675 MacArthur Court, Suite 1540
Newport Beach, CA 92660
Gentlemen:
In accordance with the terms of the Advantix, Inc. 1997 Stock Option
Plan (the "Plan"), and the related Incentive Stock Option Agreement dated as of
______________, 199__ between me and Advantix, Inc. (the "Company"), I hereby
give notice of exercise of my option (the "Option") as to ___________ shares of
Company Common Stock (the "Shares") at a purchase price of $______ per share,
or $_______ in the aggregate.
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the Plan, and (ii) to notify you in
writing within fifteen (15) days after the date of any disposition of any of the
shares of Common Stock issued upon exercise of the Option that occurs within two
(2) years after the date of grant of the Option or within one (1) year after
such shares of Common Stock are issued upon exercise of the Option.
Unless a registration statement covering the Shares is currently in
effect under the Securities Act of 1933, as amended (the "Securities Act"), I
hereby make the following certifications and representations with respect to the
Shares:
(3) I acknowledge that the Shares have not been registered under the
Securities Act and are deemed to constitute "restricted securities" under Rule
144 promulgated under the Securities Act. I represent and warrant to the Company
that I am acquiring the Shares for my own account and for investment purposes
only and I have no present intention of distributing or selling the Shares,
except as permitted under the Securities Act and any applicable state securities
laws; and
(4) I further acknowledge that all certificates representing any of
the Shares subject to the provisions of the Option shall have endorsed thereon
appropriate legends reflecting the foregoing limitations, as well as any legends
reflecting restrictions pursuant to applicable securities laws.
<PAGE> 30
There accompanies this Notice payment in full for the aggregate purchase
price for the Shares as follows (check applicable method of payment):
[ ]3 Check in the amount of $ _________________
[ ]4 If authorized by the Plan and the Board, shares of the
Company's/Stock currently owned by me as follows:
Certificate Number(s) Number of Shares
--------------------- ----------------
__________ __________
__________ __________
Please mail the certificate representing the Shares to the following address:
_________________________________
_________________________________
_________________________________
Dated: ________________, 199_ ____________________________
Signature
____________________________
Type or Print Name
2
<PAGE> 1
EXHIBIT 10.7
ADVANTIX, INC.
(A DELAWARE CORPORATION)
1996 STOCK OPTION PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
INCENTIVE STOCK OPTION AGREEMENT
NOTICE OF EXERCISE OF NONSTATUTORY STOCK OPTION
NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION
(AS AMENDED JULY 28, 1997)
<PAGE> 2
ADVANTIX, INC.
1996 STOCK OPTION PLAN
1. Purpose. The purposes of this Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to provide
additional incentive to the Employees, Directors and Consultants of the Company
and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (b) of Section 3 of the Plan, if one is
appointed.
(d) "Common Stock" shall mean the Common Stock of the Company.
(e) "Company" shall mean Advantix, Inc., a Delaware corporation.
(f) "Consultant" shall mean any person who is engaged by the Company
or any Parent or Subsidiary to render consulting services and is compensated for
such consulting services, including compensation through Options granted under
this Plan; provided that the term Consultant shall not include Directors who are
not compensated for their services or are paid only a director's fee by the
Company.
(g) "Continuous Status as an Employee, Director or Consultant" shall
mean the absence of any interruption or termination of service as an Employee,
Director or Consultant (as the case may be). Continuous Status as an Employee,
Director or Consultant shall not be considered interrupted in the case of sick
leave, military leave, or any other leave of absence approved by the Board;
provided that such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
(h) "Director" shall mean a member of the Board.
(i) "Disability" shall mean a total and permanent disability as that
term is defined in Section 22(e)(3) of the Code.
(j) "Employee" shall mean any person, including officers and
directors,
<PAGE> 3
employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(l) "Fair Market Value" shall mean: (i) if Shares are
exchange-traded or traded on the NASDAQ National Market System ("NMS"), the
closing sale or last sale price per share of the Shares; (ii) if Shares are
regularly traded in any over-the-counter market other than NMS, the average of
the bid and asked prices per share of the Shares; and (iii) if Shares are not
traded as described in (i) and (ii) of this Section 2(m), the per share fair
market value of the Shares as determined in good faith by the Board on such
basis as the Board in its sole discretion shall choose. Fair Market Value as of
a given date with respect to subparagraphs (i), (ii) and (iii) shall be
determined as of the close of business on the day prior to the date of
determination, or if no trading in the Shares takes place on such date, on the
next preceding trading day on which there has been such trading.
(m) "Incentive Stock Option" shall mean an Option intended to
qualify as an incentive stock option within the meaning of Section 422(b) of the
Code.
(n) "Nonstatutory Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option.
(o) "Option" shall mean a stock option granted pursuant to the Plan.
(p) "Optionee" shall mean an Employee, Director or Consultant who
receives an Option.
(q) "Option Termination Date" shall mean the date of expiration of
the term of such Option as set forth in the written option agreement.
(r) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(s) "Plan" shall mean this Advantix, Inc. 1996 Stock Option Plan.
(t) "Restricted Stockholder" shall mean an Optionee who, at the time
the Option is granted, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary of the Company.
(u) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(v) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(w) "Subsidiary" shall mean a "subsidiary corporation", whether now
or
2
<PAGE> 4
hereafter existing, as defined in Section 424(f) of the Code.
(x) "Terminating Transaction" shall mean any of the following
events: (a) the dissolution or liquidation of the Company; (b) a reorganization,
merger or consolidation of the Company with one or more other corporations
(except with respect to a transaction, the purpose of which is to change the
domicile or name of the Company), as a result of which the Company goes out of
existence or becomes a subsidiary of another corporation (which shall be deemed
to have occurred if another corporation shall own, directly or indirectly, fifty
percent (50%) or more of the aggregate voting power of all outstanding equity
securities of the Company); or (c) a sale of all or substantially all of the
Company's assets.
3. Administration.
(a) The Plan shall be administered by the Board, which shall have
sole authority in its absolute discretion, subject to the terms of Section 3(b)
herein, (i) to determine which Employees, Directors and Consultants shall
receive Options, (ii) subject to the express provisions of the Plan, to
determine the time when Options shall be granted, the number of Shares subject
to the Options, the exercise prices, and the terms and conditions of Options
other than those terms and conditions fixed under the Plan, and (iii) to
interpret the provisions of the Plan and any Option granted under the Plan. The
Board shall adopt by resolution such rules and regulations as may be required to
carry out the purposes of the Plan and shall have authority to do everything
necessary or appropriate to administer the Plan. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees.
(b) The Board may delegate administration of the Plan to a Committee
of no less than two Directors. The Board may from time to time remove members
from, or add members to, the Committee, and vacancies on the Committee shall be
filled by the Board. Furthermore, the Board at any time by resolution may
abolish the Committee and revest in the Board the administration of the Plan.
(For purposes of this Plan document, the term "Board" shall mean the Committee
to the extent that the Board's powers have been delegated to the Committee.)
4. Eligibility.
(a) Incentive Stock Options may be granted only to Employees who
render services which contribute to the Company. Nonstatutory Stock Options may
be granted only to Employees, Directors or Consultants who render services which
contribute to the Company.
(b) The Plan shall not confer upon any Optionee any right to
continue as an Employee, Director or Consultant of the Company, nor shall it
interfere in any way with an Optionee's right or the Company's right to
terminate Optionee's employment or relationship as a Director or Consultant at
any time, with or without cause.
(c) The determination as to whether an Employee, Director or
Consultant is eligible to receive Options hereunder shall be made by the Board
in its sole discretion, and the decision of the Board shall be binding and
final.
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<PAGE> 5
5. Number of Shares. The maximum aggregate number of Shares which may
be optioned and sold under this Plan is 3,000,000 Shares of authorized but
unissued Common Stock of the Company. In the event that Options granted under
the Plan shall terminate or expire without being exercised, in whole or in part,
the Shares subject to such unexercised Options may again be optioned and sold
under this Plan.
6. Term of the Plan. The Plan shall be effective as of October 1, 1996,
and shall continue in effect until October 1, 2006, unless terminated earlier.
7. Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board in its sole discretion, but shall be subject to the following:
(i) for an Option granted to a Restricted Stockholder, the per
Share exercise price shall be no less than 110% of the Fair Market
Value per Share on the date of grant;
(ii) for an Incentive Stock Option granted to any Employee
(other than a Restricted Stockholder), the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the
date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option shall consist of full payment in cash or cash equivalents
or, with the consent of the Board, one of the alternative forms specified below:
(i) full payment in shares of Common Stock (duly endorsed for
transfer to the Company) held by the Optionee for the requisite period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes and valued at Fair Market Value on the date of
delivery; or
(ii) full payment through a combination of cash or cash
equivalents and shares of Common Stock (duly endorsed for transfer to
the Company) held by the Optionee for the requisite period necessary to
avoid a charge to the Company's earnings for financial reporting
purposes and valued at Fair Market Value on the date of delivery; or
(iii) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (A) shall provide
irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the
purchased Shares plus all applicable Federal and State income and
employment taxes required to be withheld by the Company by reason of
such purchase and (B) shall provide written directives to the Company
to deliver the certificates for the purchased Shares directly to such
brokerage firm in order to complete the sale transaction; or
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<PAGE> 6
(iv) any other legal consideration that may be acceptable to the
Board.
8. Exercise of Options.
(a) Vesting of Options. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the Board,
including performance criteria with respect to the Company and/or the Optionee,
and as shall be permissible under the terms of the Plan.
(b) Procedure for Exercise. An Option may be exercised at any time
as to all or any portions of the Shares as to which it is then exercisable,
except that an Option may not be exercised for a fraction of a Share and shall
be subject to any provision in the written option agreement governing the
minimum number of Shares as to which the Option may be exercised. An Option
shall be deemed to be exercised when written notice of such exercise has been
given to the Company in accordance with the terms of the Option by the person
entitled to exercise the Option and full payment for the Shares with respect to
which the Option is exercised has been received by the Company. Full payment
may, as authorized by the Board, consist of any consideration and method of
payment allowable under Section 7(b) of the Plan.
(c) Termination of Options. All installments of an Option shall
expire and terminate on such date(s) as the Board shall determine, but in no
event later than ten (10) years from the date such Option was granted (except
that an Incentive Stock Option granted to a Restricted Stockholder shall by its
terms not be exercisable after the expiration of five (5) years from the date
such Option was granted).
(d) Death or Termination of Service of Optionee. The following
provisions shall govern the exercise period applicable to any Options held by an
Optionee at the time of his or her death or termination of service with the
Company or any Parent or Subsidiary of the Company:
(i) Termination of Continuous Status as an Employee, Director or
Consultant. In the event of termination of an Optionee's Continuous
Status as an Employee, Director or Consultant (as the case may be) for
any reason other than Optionee's death or Disability, such Optionee may
only exercise the Option within three (3) months (or such shorter
period as specified in the written option agreement) after the date of
such termination.
(ii) Disability of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee, Director or Consultant as
a result of the Optionee's Disability, the Optionee may only exercise
the Option within twelve (12) months (or such shorter period as is
specified in the written option agreement) from the date of such
termination.
(iii) Death of Optionee. In the event of termination of an
Optionee's Continuous Status as an Employee, Director or Consultant as
a result of the Optionee's death, the Option may only be exercised any
time within twelve (12) months (or such
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<PAGE> 7
shorter period as is specified in the written option agreement)
following the date of death by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance.
(iv) Limitations. Each Option shall, during the limited exercise
period under this Section 8(d), be exercisable only as to the Shares
for which the Option is exercisable on the date of the Optionee's death
or termination of service with the Company. Under no circumstances
shall any Option become exercisable under this Section 8(d) after the
Option Termination Date. Upon the earlier of the expiration of such
limited exercise period or the Option Termination Date, the Option
shall terminate and cease to be exercisable.
(v) Immediate Termination. Should (A) the Optionee's Continuous
Status as an Employee, Director or Consultant be terminated for
misconduct (including, but not limited to, any act of dishonesty,
willful misconduct, fraud or embezzlement) or (B) the Optionee make any
unauthorized use or disclosure of confidential information or trade
secrets of the Company or any Parent or Subsidiary, then in any such
event all outstanding Options granted to the Optionee under this Plan
shall terminate immediately and cease to be exercisable.
(e) Extensions. Notwithstanding the provisions covering the
exercisability of Options following death or termination of service, as
described in Section 8(d), the Board may, in its sole discretion, with the
consent of the Optionee or the Optionee's estate (in the case of the death of
Optionee), extend the period of time during which the Option shall remain
exercisable, provided that in no event shall such extension go beyond the Option
Termination Date. In the case of Incentive Stock Options, extensions under this
Section 8(e) may result in loss of the favorable treatment accorded to incentive
stock options under the Code.
9. Restrictions on Grants of Options and Issuance of Shares.
(a) Regulatory Approvals. No Shares shall be issued or delivered
upon exercise of an Option unless and until there shall have been compliance
with all applicable requirements of the Securities Act, and any other
requirement of law or of any regulatory body having jurisdiction over such
issuance and delivery. The inability of the Company to obtain any required
permits, authorizations or approvals necessary for the lawful issuance and sale
of any Shares hereunder on terms deemed reasonable by the Board shall relieve
the Company, the Board, and any Committee of any liability in respect of the
non-issuance or sale of such Shares as to which such requisite permits,
authorizations, or approvals shall not have been obtained.
(b) Representations and Warranties. As a condition to the granting
or exercise of any Option, the Board may require the person receiving or
exercising such Option to make any representation and/or warranty to the Company
as may be required (or deemed appropriate by the Board, in its discretion) under
any applicable law or regulation, including but not limited to a representation
that the Option and/or Shares are being acquired only for investment and without
any present intention to sell or distribute such Option and/or Shares, if such a
representation is required under the Securities Act or any other applicable law,
rule, or regulation.
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<PAGE> 8
(c) Stockholder Approval. The exercise of Options under the Plan
also is conditioned on approval of the Plan by the Company's Stockholders within
twelve (12) months of adoption of the Plan by the Board, and no Option shall be
exercisable hereunder unless and until the Plan has been so approved.
10. Option Adjustments.
(a) Change in Capitalization. If the outstanding shares of Common
Stock of the Company are increased, decreased, changed into or exchanged for a
different number or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or reverse stock
split, upon authorization by the Board an appropriate and proportionate
adjustment shall be made in the number or kind of shares, and the per-share
option price thereof, which may be issued in the aggregate and to any individual
Optionees under the Plan upon exercise of Options granted under the Plan;
provided, however, that no such adjustment need be made if, upon the advice of
counsel, the Board determines that such adjustment may result in the receipt of
federal taxable income to holders of Options granted under the Plan or the
holders of Common Stock or other classes of the Company's securities.
(b) Corporate Reorganizations. Upon the occurrence of a Terminating
Transaction, as of the effective date of such Terminating Transaction, the Plan
and any then outstanding Options (whether or not vested) shall terminate unless
(i) provision is made in writing in connection with such transaction for the
continuance of the Plan and for the assumption of such Options, or for the
substitution for such Options of new options covering the securities of a
successor corporation or an affiliate thereof, with appropriate adjustments as
to the number and kind of securities and exercise prices, in which event the
Plan and such outstanding Options shall continue or be replaced, as the case may
be, in the manner and under the terms so provided; or (ii) the Board otherwise
shall provide in writing for such adjustments as it deems appropriate in the
terms and conditions of the then-outstanding Options (whether or not vested),
including without limitation (A) accelerating the vesting of outstanding Options
and/or (B) providing for the cancellation of Options and their automatic
conversion into the right to receive the securities or other properties which a
holder of the Shares underlying such Options would have been entitled to receive
upon such Terminating Transaction had such Shares been issued and outstanding
(net of the appropriate option exercise prices). If, pursuant to the foregoing
provisions of this paragraph (b), the Plan and the Options shall terminate by
reason of the occurrence of a Terminating Transaction without provision for any
of the action(s) described in clause (i) or (ii) hereof, then any Optionee
holding outstanding Options shall have the right, at such time immediately prior
to the consummation of the Terminating Transaction as the Board shall designate,
to exercise his or her Options to the full extent not theretofore exercised,
including any portion which has not yet become exercisable.
11. Option Agreement. The terms and conditions of Options granted under
the Plan shall be evidenced by a written option agreement executed by the
Company and the person to whom the Option is granted. Each option agreement
shall incorporate the Plan by reference and shall include such provisions as are
determined to be necessary or appropriate by the Board.
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<PAGE> 9
12. Restricted Stock. As a condition to the granting of any Option
hereunder and the subsequent exercise of any such Option, the Board may include
in the option agreement for that Option provisions limiting the sale or other
transfer of ownership of Shares acquired by the Optionee under that Option.
13. Limitations on Incentive Stock Options. In the event that the
aggregate Fair Market Value of Shares (determined as of the date of grant of the
Option covering such Shares) with respect to which Incentive Stock Options are
exercisable for the first time by an Employee during any calendar year under
this Plan and any other plan of the Company exceeds $100,000, Options with
respect to and to the extent of such excess shall be treated as Nonstatutory
Stock Options. This Section 13 shall be applied by taking Options which are
intended to be Incentive Stock Options into account in the order in which they
were granted.
14. Amendment or Termination of the Plans.
(a) Board Authority. The Board may amend, suspend, alter, or
terminate the Plan at any time. To the extent necessary or desirable to comply
with the Code or any other applicable law or regulation, the Company may obtain
stockholder approval of any amendment to the Plan only in such a manner and to
such a degree as required under applicable law.
(b) Limitation on Board Authority. Furthermore, the Plan may not,
without the approval of the stockholders, be amended in any manner that would
cause Incentive Stock Options issued hereunder to fail to qualify as Incentive
Stock Options as defined in Section 422(b) of the Code. Notwithstanding the
foregoing, no amendment, suspension or termination of the Plan shall adversely
affect Options granted on or prior to the date thereof, as evidenced by the
execution of an option agreement by both the Company and the Optionee, without
the consent of such Optionee.
(c) Contingent Grants Based on Amendments. Options may be granted
in reliance on and consistent with any amendment adopted by the Board and which
is necessary to enable such Options to be granted under the Plan, even though
such amendment requires future stockholder approval; provided, however, that any
such contingent Option by its terms may not be exercised prior to stockholder
approval of such amendment, and provided further, that in the event stockholder
approval is not obtained within twelve (12) months of the date of grant of such
contingent Option, then such contingent Option shall be deemed cancelled and no
longer outstanding.
15. Options Not Transferable. Options granted under this Plan may not
be sold, pledged, hypothecated, assigned, encumbered, gifted or otherwise
transferred or alienated in any manner, either voluntarily or involuntarily by
operation of law, other than by will or the laws of descent or distribution, and
may be exercised during the lifetime of an Optionee only by such Optionee.
16. No Rights in Shares Before Issuance and Delivery. Neither the
Optionee, his or her estate nor his or her transferees by will or the laws of
descent and distribution shall be, or have any rights or privileges of, a
stockholder of the Company with respect to any Shares issuable upon exercise of
the Option unless and until certificates representing such Shares shall have
been issued
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<PAGE> 10
and delivered notwithstanding exercise of the Option. No adjustment will be made
for a dividend or other rights where the record date is prior to the date such
stock certificates are issued, except as provided in Section 10.
17. Taxes. The Board shall make such provisions and take such steps as
it deems necessary or appropriate for the withholding of any federal, state,
local and other tax required by law to be withheld with respect to the grant or
exercise of an Option under the Plan, including, without limitation, the
deduction of the amount of any such withholding tax from any compensation or
other amounts payable to an Optionee by the Company, or requiring an Optionee
(or the Optionee's beneficiary or legal representative) as a condition of
granting or exercising an Option to pay to the Company any amount required to be
withheld, or to execute such other documents as the Board deems necessary or
desirable in connection with the satisfaction of any applicable withholding
obligation. In the discretion of the Board, upon exercise of a Nonstatutory
Stock Option, the Optionee may request the Company to withhold from the Shares
to be issued upon such exercise that number of Shares (based on the Fair Market
Value of the Shares as of the day notice of exercise is received by the Company)
that would satisfy any tax withholding requirement.
18. Legends on Options and Stock Certificates. Each option agreement
and each certificate representing Shares acquired upon exercise of an Option
shall be endorsed with all legends, if any, required by applicable federal and
state securities laws to be placed on the option agreement and/or the
certificate. The determination of which legends, if any, shall be placed upon
option agreements and/or the certificates representing Shares shall be made by
the Board in its sole discretion and such decision shall be final and binding.
19. Availability of Plan and Financial Statements. A copy of this Plan
shall be delivered to the Secretary of the Company and shall be shown by the
Secretary to any eligible person making reasonable inquiry concerning the Plan.
The Company shall also provide Optionees with financial statements of the
Company at least annually.
20. Applicable Law. This Plan shall be governed by and construed in
accordance with the laws of the State of California.
Date Plan approved by Board: October 10, 1996
Date Plan Amendment approved by Board: July 28, 1997
Date Plan as amended approved by Stockholders: August 1997 Action By Written
Consent
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<PAGE> 11
NONSTATUTORY STOCK OPTION AGREEMENT
On this __.__ day of _______,_______, ("Grant Date"), ADVANTIX, INC., a
Delaware corporation (the "Company"), hereby grants to ____________________ (the
"Optionee") an Option to purchase a total of __________ shares of Common Stock
(the "Shares"), on the terms and conditions set forth below, and in all respects
subject to the terms, definitions and provisions of the Advantix, Inc. 1996
Stock Option Plan (the "Plan") adopted by the Company, which is incorporated
herein by reference. Unless otherwise defined in this Option, the terms defined
in the Plan shall have the same defined meanings in this Option. In the event of
any conflict between the provisions of this Option and those of the Plan, the
Plan shall control.
1. NATURE OF THE OPTION. This Option is intended to qualify as a
Nonstatutory Stock Option.
2. EXERCISE PRICE. The exercise price is $____ for each share of Common
Stock.
3. VESTING AND EXERCISE OF OPTION. This Option shall be exercisable
during its term in accordance with the provisions of Section 8 of the Plan as
follows:
(a) VESTING. Subject to the limitations contained in this Option and
the Plan, this Option shall become exercisable in installments as follows:
Number of Shares Date of Earliest
(Installment) Exercise (Vesting)
---------------- ------------------
The installments provided for in this Section 3(a) are cumulative. Each such
installment which becomes exercisable pursuant to this Section shall remain
exercisable until expiration or earlier termination of this Option.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice (in a form designated by the Company) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and warranties of Optionee as
may be required by the Company pursuant to Section 9(b) of the Plan. Such
written notice shall be signed by Optionee and shall be delivered in person or
by certified mail to the President, Secretary or Chief Financial Officer of the
Company. The written notice shall be accompanied by payment of the exercise
price.
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
<PAGE> 12
(c) MINIMUM EXERCISE. The minimum number of Shares with respect to
which this Option may be exercised at any one time is One Hundred (100) Shares,
and this Option shall be exercised for whole Shares only.
4. CERTAIN REPRESENTATIONS AND WARRANTIES; RESTRICTIONS ON TRANSFER.
(a) By receipt of this Option, by its execution and by its exercise
in whole or in part, Optionee represents to the Company the following:
(i) Optionee has read and understands the terms and provisions
of the Plan, and hereby accepts this Option subject to all the terms
and provisions of the Plan;
(ii) Optionee shall accept as binding and final all decisions or
interpretations of the Board or of the Committee upon any questions
arising under the Plan;
(iii) Optionee understands that this Option and any Shares
purchased upon its exercise are securities, the issuance of which
requires compliance with federal and state securities laws;
(iv) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
securities. Optionee is acquiring these securities for investment for
Optionee's own account only and not with a view to, or for sale in
connection with, any "distribution" thereof within the meaning of the
Securities Act of 1933, as amended (the "Securities Act");
(v) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and must be
held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available.
Optionee further acknowledges and understands that the Company is under
no obligation to register the securities. Optionee understands that the
certificate evidencing the securities will be imprinted with a legend
which prohibits the transfer of the securities unless they are
registered or such registration is not required in the opinion of
counsel satisfactory to the Company, and any other legend required
under applicable state securities laws.
(b) Optionee agrees that, if required by the Company in connection
with the Company's initial underwritten public offering of the Company's
securities, Optionee (i) will not sell, make short sale of, loan, grant any
options for the purchase of, or otherwise dispose of any Shares acquired upon
exercise of this Option (other than those shares included in the registration)
without the prior written consent of the Company or the underwriters managing
such initial underwritten public offering of the Company's securities for one
hundred eighty (180) days from the effective date of such registration, and (ii)
will execute any agreement reflecting (i) above as may be requested by the
underwriters at the time of the public offering.
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<PAGE> 13
5. METHOD OF PAYMENT.
(a) The consideration to be paid for the Shares to be issued upon
exercise of the Option shall consist of full payment in cash or cash equivalents
or, with the consent of the Board or the Committee, one of the alternative forms
specified below:
(i) full payment in shares of Common Stock (duly endorsed for
transfer to the Company) held by the Optionee for the requisite period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes and valued at Fair Market Value on the date of
delivery; or
(ii) full payment through a combination of cash or cash
equivalents and shares of Common Stock (duly endorsed for transfer to
the Company) held by the Optionee for the requisite period necessary to
avoid a charge to the Company's earnings for financial reporting
purposes and valued at Fair Market Value on the date of delivery; or
(iii) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (A) shall provide
irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the
purchased Shares plus all applicable federal and state income and
employment taxes required to be withheld by the Company by reason of
such purchase and (B) shall provide written directives to the Company
to deliver the certificates for the purchased Shares directly to such
brokerage firm in order to complete the sale transaction; or
(iv) any other legal consideration that may be acceptable to the
Board or the Committee.
6. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
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<PAGE> 14
7. TERMINATION OF STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT. In the
event of termination of Optionee's Continuous Status as an Employee, Director or
Consultant, Optionee may, but only within three (3) months after the date of
such termination (but in no event later than the date of expiration of the term
of this Option as set forth in Section 11 below), exercise this Option to the
extent that Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise this
Option at the date of such termination, or if Optionee does not exercise this
Option within the time specified herein, this Option shall terminate.
Notwithstanding the foregoing, should (A) Optionee's Continuous Status as an
Employee, Director or Consultant be terminated for misconduct (including, but
not limited to, any act of dishonesty, willful misconduct, fraud or
embezzlement) or (B) Optionee make any unauthorized use or disclosure of
confidential information or trade secrets of the Company or any Parent or
Subsidiary, then in any such event this Option shall terminate immediately and
cease to be exercisable.
8. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 7
above, in the event of termination of Optionee's Continuous Status as an
Employee, Director or Consultant as a result of Optionee's permanent and total
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only
within twelve (12) months from the date of termination of employment or
relationship as director or consultant (but in no event later than the date of
expiration of the term of this Option as set forth in Section 11 below),
exercise this Option to the extent Optionee was entitled to exercise it at the
date of such termination. To the extent that Optionee was not entitled to
exercise this Option at the date of termination, or if Optionee does not
exercise such Option (which Optionee was entitled to exercise) within the time
specified herein, this Option shall terminate.
9. DEATH OF OPTIONEE. In the event of the death of Optionee during the
term of this Option while an Employee, Director or Consultant of the Company and
having been in Continuous Status as an Employee, Director or Consultant since
the date of grant of this Option, this Option may be exercised, at any time
within twelve (12) months following the date of death (but in no event later
than the date of expiration of the term of this Option as set forth in Section
11 below), by Optionee's estate or by a person who acquired the right to
exercise this Option by bequest or inheritance, but only to the extent Optionee
was entitled to exercise this Option on the date of death.
10. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by Optionee. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
11. TERM OF OPTION. In no event may this Option be exercised after
__________, 200__ (which date shall be no more than ten (10) years from the date
this Option was granted).
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<PAGE> 15
12. NO EMPLOYMENT RIGHTS. Optionee acknowledges and agrees that the
vesting of Shares pursuant to Section 3 hereof is earned only through Optionee's
Continuous Status as an Employee, Director or Consultant (not through the act of
being hired or engaged, being granted this Option or acquiring Shares
hereunder). Optionee further acknowledges and agrees that this Option, the
Company's Plan which is incorporated herein by reference, the transactions
contemplated hereunder and the vesting schedule set forth herein do not
constitute an express or implied promise of continued engagement as an Employee,
Director or Consultant for the vesting period, for any period, or at all, and
shall not interfere with Optionee's right or the Company's right to terminate
Optionee's employment, directorship or consulting relationship at any time, with
or without cause.
13. RESTRICTED STOCK PROVISIONS. Shares issued on exercise of this
Option, including any shares issued as a result of a stock dividend, stock split
or other change in the Shares, shall upon issuance be subject to the following
restrictions:
(a) GRANT OF RIGHT. Before any such Shares may be sold or
transferred (including transfer by operation of law) other than to Optionee's
spouse, children (including adopted children), or trusts for their benefit or
the benefit of Optionee, such Shares shall first be offered to the Company in
the manner set forth in this Section 13.
(b) NOTICE OF SALE. Optionee shall first deliver a written notice
("Notice") to the Company stating (i) his bona fide intention to sell or
transfer such Shares, (ii) the number of such Shares to be sold or transferred,
(iii) the price for which he proposes to sell or transfer such Shares, and (iv)
the name of the proposed purchaser or transferee.
(c) ELECTION TO PURCHASE. Within thirty (30) days after receipt of
the Notice, the Company or its assignee(s) may elect to purchase any or all
Shares to which the Notice refers, at the price per share specified in the
Notice.
(d) EXERCISE OF RIGHT. In the event the Company or the assignee(s)
of the Company elect to acquire any of the Shares of Optionee as specified in
Optionee's notice, the Secretary of the Company shall so notify Optionee and
settlement thereof shall be made in cash within forty-five (45) days after the
Secretary of the Company receives Optionee's Notice; provided that if the terms
of payment set forth in Optionee's Notice were other than cash against delivery,
the Company or the assignee(s) of the Company shall pay for said Shares on the
same terms and conditions set forth in Optionee's Notice.
(e) NON-EXERCISE OF RIGHT. In the event the Company does not elect
to purchase any of the Shares as provided in Section 13(c) and 13(d), Optionee
may sell or otherwise dispose of the Shares upon terms and conditions (including
the purchase price) no more favorable to the third-party purchaser than those
specified in the Notice; provided, however, that any such sale is in accordance
with all of the terms and conditions of this Section 13; and provided, further,
that such sale or transfer is consummated within three (3) months of the date of
the Notice. The third-party purchaser shall acquire the Shares free and clear of
the Company's first refusal right under this Section 13. In the event Optionee
does not sell or otherwise dispose of the Shares within the specified
three-month period, the Optionee's first refusal right shall continue to be
applicable to any subsequent disposition of the Shares by Optionee until such
right terminates in accordance with
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<PAGE> 16
Section 13(g).
(f) PARTIAL EXERCISE. If some, but not all, of the Shares to which
the Notice refers are elected to be purchased, as provided in Section 13(c) and
13(d), Optionee may sell the remaining Shares to any person named in the Notice
at the price and on the terms specified in the Notice or at a higher price or on
terms more favorable to Optionee, provided that such sale or transfer is
consummated within three (3) months of the date of said Notice to the Company,
and provided, further, that any such sale is in accordance with all the terms
and conditions of this Section 13.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. Optionee's obligations
under this Section 13 shall terminate upon the first sale of Common Stock of the
Company to the public in a firm commitment underwritten public offering pursuant
to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act and involving net
proceeds to the Company of at least $5,000,000.
(h) ASSIGNMENT. The Company may assign its rights under this
Section 13 to one or more persons or entities who shall have the right to so
exercise such rights in their own name and for their own account.
14. WITHHOLDING OF TAXES. Optionee authorizes the Company to withhold,
in accordance with any applicable law, from any compensation payable to him any
taxes required to be withheld by federal, state, or foreign law as a result of
the grant of the Option or the issuance of stock pursuant to the exercise of the
Option.
15. NOTICES. Any notice to be given to the Company shall be addressed
to the Company in care of its Secretary at its principal office, and any notice
to be given to Optionee shall be addressed to Optionee at the address given
below or at such other address as the Optionee may hereafter designate in
writing to the Company. Any such notice shall be deemed duly given upon personal
delivery or three business days after deposit in the United States mail,
registered or certified, postage prepaid.
6
<PAGE> 17
16. GOVERNING LAW. This Option shall be governed by and construed in
accordance with the internal laws of the State of California.
ADVANTIX, INC.
By: __________________________
Title: _______________________
ACCEPTED:
______________________________
_____________, Optionee
Address:______________________
______________________________
7
<PAGE> 18
INCENTIVE STOCK OPTION AGREEMENT
On this ___ day of __________, ____, ("Grant Date"), ADVANTIX, INC., a
Delaware corporation (the "Company"), hereby grants to ____________________ (the
"Optionee") an Option to purchase a total of __________ shares of Common Stock
(the "Shares"), on the terms and conditions set forth below, and in all respects
subject to the terms, definitions and provisions of the Advantix, Inc. 1996
Stock Option Plan (the "Plan") adopted by the Company, which is incorporated
herein by reference. Unless otherwise defined in this Option, the terms defined
in the Plan shall have the same defined meanings in this Option. In the event of
any conflict between the provisions of this Option and those of the Plan, the
Plan shall control.
1. NATURE OF THE OPTION. This Option is intended to qualify as an
Incentive Stock Option.
2. EXERCISE PRICE. The exercise price is $___ for each share of Common
Stock, which price is not less than the fair market value per share of Common
Stock on the date of grant, as determined by the Board or the Committee.
3. VESTING AND EXERCISE OF OPTION. This Option shall be exercisable
during its term in accordance with the provisions of Section 8 of the Plan as
follows:
(a) VESTING. Subject to the limitations contained in this Option and
the Plan, this Option shall become exercisable in installments as follows:
Number of Shares Date of Earliest
(Installment) Exercise (Vesting)
---------------- ------------------
The installments provided for in this Section 3(a) are cumulative. Each such
installment which becomes exercisable pursuant to this Section shall remain
exercisable until expiration or earlier termination of this Option.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
notice (in a form designated by the Company) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and warranties of Optionee as
may be required by the Company pursuant to Section 9(b) of the Plan. Such
written notice shall be signed by Optionee and shall be delivered in person or
by certified mail to the President, Secretary or Chief Financial Officer of the
Company. The written notice shall be accompanied by payment of the exercise
price.
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law. Assuming such compliance, for
<PAGE> 19
income tax purposes the Shares shall be considered transferred to the Optionee
on the date on which the Option is exercised with respect to such Shares.
(c) MINIMUM EXERCISE. The minimum number of Shares with respect to
which this Option may be exercised at any one time is One Hundred (100) Shares,
and this Option shall be exercised for whole Shares only.
4. CERTAIN REPRESENTATIONS AND WARRANTIES; RESTRICTIONS ON TRANSFER.
(a) By receipt of this Option, by its execution and by its exercise
in whole or in part, Optionee represents to the Company the following:
(i) Optionee has read and understands the terms and provisions
of the Plan, and hereby accepts this Option subject to all the terms
and provisions of the Plan;
(ii) Optionee shall accept as binding and final all decisions or
interpretations of the Board or of the Committee upon any questions
arising under the Plan;
(iii) Optionee understands that this Option and any Shares
purchased upon its exercise are securities, the issuance of which
requires compliance with federal and state securities laws;
(iv) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
securities. Optionee is acquiring these securities for investment for
Optionee's own account only and not with a view to, or for sale in
connection with, any "distribution" thereof within the meaning of the
Securities Act of 1933, as amended (the "Securities Act");
(v) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and must be
held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available.
Optionee further acknowledges and understands that the Company is under
no obligation to register the securities. Optionee understands that the
certificate evidencing the securities will be imprinted with a legend
which prohibits the transfer of the securities unless they are
registered or such registration is not required in the opinion of
counsel satisfactory to the Company, and any other legend required
under applicable state securities laws; and
(vi) Optionee understands that the existence of the Plan and the
execution of this Option are not sufficient by themselves to cause any
exercise of any Incentive Stock Options granted under the Plan and this
Option to qualify for favorable tax treatment through the application
of Section 422(a) of the Code; and that Optionee must, in order to so
qualify, individually meet by Optionee's own action all applicable
requirements of Section 422, including, without limitation, the
requirement that no disposition of Shares may be made by Optionee
within two (2) years from the date of the granting of the Option
2
<PAGE> 20
nor within one (1) year after the transfer of such Shares to Optionee.
(b) Optionee agrees that, if required by the Company in connection
with the Company's initial underwritten public offering of the Company's
securities, Optionee (i) will not sell, make short sale of, loan, grant any
options for the purchase of, or otherwise dispose of any Shares acquired upon
exercise of this Option (other than those shares included in the registration)
without the prior written consent of the Company or the underwriters managing
such initial underwritten public offering of the Company's securities for one
hundred eighty (180) days from the effective date of such registration, and (ii)
will execute any agreement reflecting (i) above as may be requested by the
underwriters at the time of the public offering.
5. METHOD OF PAYMENT.
(a) The consideration to be paid for the Shares to be issued upon
exercise of the Option shall consist of full payment in cash or cash equivalents
or, with the consent of the Board or the Committee, one of the alternative forms
specified below:
(i) full payment in shares of Common Stock (duly endorsed for
transfer to the Company) held by the Optionee for the requisite period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes and valued at Fair Market Value on the date of
delivery; or
(ii) full payment through a combination of cash or cash
equivalents and shares of Common Stock (duly endorsed for transfer to
the Company) held by the Optionee for the requisite period necessary to
avoid a charge to the Company's earnings for financial reporting
purposes and valued at Fair Market Value on the date of delivery; or
(iii) full payment effected through a broker-dealer sale and
remittance procedure pursuant to which the Optionee (A) shall provide
irrevocable written instructions to a designated brokerage firm to
effect the immediate sale of the purchased shares and remit to the
Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the
purchased Shares plus all applicable federal and state income and
employment taxes required to be withheld by the Company by reason of
such purchase and (B) shall provide written directives to the Company
to deliver the certificates for the purchased Shares directly to such
brokerage firm in order to complete the sale transaction; or
(iv) any other legal consideration that may be acceptable to the
Board or the Committee.
6. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of this Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
3
<PAGE> 21
7. TERMINATION OF STATUS AS AN EMPLOYEE. In the event of termination of
Optionee's Continuous Status as an Employee, Optionee may, but only within three
(3) months after the date of such termination (but in no event later than the
date of expiration of the term of this Option as set forth in Section 11 below),
exercise this Option to the extent that Optionee was entitled to exercise it at
the date of such termination. To the extent that Optionee was not entitled to
exercise this Option at the date of such termination, or if Optionee does not
exercise this Option within the time specified herein, this Option shall
terminate. Notwithstanding the foregoing, should (A) Optionee's Continuous
Status as an Employee be terminated for misconduct (including, but not limited
to, any act of dishonesty, willful misconduct, fraud or embezzlement) or (B)
Optionee make any unauthorized use or disclosure of confidential information or
trade secrets of the Company or any Parent or Subsidiary, then in any such event
this Option shall terminate immediately and cease to be exercisable.
8. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 7
above, in the event of termination of Optionee's Continuous Status as an
Employee, as a result of Optionee's permanent and total disability (as defined
in Section 22(e)(3) of the Code), Optionee may, but only within twelve (12)
months from the date of termination of employment (but in no event later than
the date of expiration of the term of this Option as set forth in Section 11
below), exercise this Option to the extent Optionee was entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled to
exercise this Option at the date of termination, or if Optionee does not
exercise such Option (which Optionee was entitled to exercise) within the time
specified herein, this Option shall terminate.
9. DEATH OF OPTIONEE. In the event of the death of Optionee during the
term of this Option while an Employee of the Company and having been in
Continuous Status as an Employee since the date of grant of this Option, this
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the date of expiration of the term of
this Option as set forth in Section 11 below), by Optionee's estate or by a
person who acquired the right to exercise this Option by bequest or inheritance,
but only to the extent Optionee was entitled to exercise this Option on the date
of death.
10. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or distribution
and may be exercised during the lifetime of Optionee only by Optionee. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
11. TERM OF OPTION. In no event may this Option be exercised after
_______, ____ (which date shall be no more than ten (10) years from the date
this Option was granted).
4
<PAGE> 22
12. NO EMPLOYMENT RIGHTS. Optionee acknowledges and agrees that the
vesting of Shares pursuant to Section 3 hereof is earned only by continuing
service as an employee at the will of the Company (not through the act of being
hired, being granted this Option or acquiring Shares hereunder). Optionee
further acknowledges and agrees that this Option, the Company's Plan which is
incorporated herein by reference, the transactions contemplated hereunder and
the vesting schedule set forth herein do not constitute an express or implied
promise of continued engagement as an employee for the vesting period, for any
period, or at all, and shall not interfere with Optionee's right or the
Company's right to terminate Optionee's employment relationship at any time,
with or without cause.
13. RESTRICTED STOCK PROVISIONS. Shares issued on exercise of this
Option, including any shares issued as a result of a stock dividend, stock split
or other change in the Shares, shall upon issuance be subject to the following
restrictions:
(a) GRANT OF RIGHT. Before any such Shares may be sold or
transferred (including transfer by operation of law) other than to Optionee's
spouse, children (including adopted children), or trusts for their benefit or
the benefit of Optionee, such Shares shall first be offered to the Company in
the manner set forth in this Section 13.
(b) NOTICE OF SALE. Optionee shall first deliver a written notice
("Notice") to the Company stating (i) his bona fide intention to sell or
transfer such Shares, (ii) the number of such Shares to be sold or transferred,
(iii) the price for which he proposes to sell or transfer such Shares, and (iv)
the name of the proposed purchaser or transferee.
(c) ELECTION TO PURCHASE. Within thirty (30) days after receipt of
the Notice, the Company or its assignee(s) may elect to purchase any or all
Shares to which the Notice refers, at the price per share specified in the
Notice.
(d) EXERCISE OF RIGHT. In the event the Company or the assignee(s)
of the Company elect to acquire any of the Shares of Optionee as specified in
Optionee's notice, the Secretary of the Company shall so notify Optionee and
settlement thereof shall be made in cash within forty-five (45) days after the
Secretary of the Company receives Optionee's Notice; provided that if the terms
of payment set forth in Optionee's Notice were other than cash against delivery,
the Company or the assignee(s) of the Company shall pay for said Shares on the
same terms and conditions set forth in Optionee's Notice.
(e) NON-EXERCISE OF RIGHT. In the event the Company does not elect
to purchase any of the Shares as provided in Section 13(c) and 13(d), Optionee
may sell or otherwise dispose of the Shares upon terms and conditions (including
the purchase price) no more favorable to the third-party purchaser than those
specified in the Notice; provided, however, that any such sale is in accordance
with all of the terms and conditions of this Section 13; and provided, further,
that such sale or transfer is consummated within three (3) months of the date of
the Notice. The third-party purchaser shall acquire the Shares free and clear of
the Company's first refusal right under this Section 13. In the event Optionee
does not sell or otherwise dispose of the Shares within the specified
three-month period, the Optionee's first refusal right shall continue to be
applicable to any subsequent disposition of the Shares by Optionee until such
right terminates in accordance with
5
<PAGE> 23
Section 13(g).
(f) PARTIAL EXERCISE. If some, but not all, of the Shares to which
the Notice refers are elected to be purchased, as provided in Section 13(c) and
13(d), Optionee may sell the remaining Shares to any person named in the Notice
at the price and on the terms specified in the Notice or at a higher price or on
terms more favorable to Optionee, provided that such sale or transfer is
consummated within three (3) months of the date of said Notice to the Company,
and provided, further, that any such sale is in accordance with all the terms
and conditions of this Section 13.
(g) TERMINATION OF RIGHT OF FIRST REFUSAL. Optionee's obligations
under this Section 13 shall terminate upon the first sale of Common Stock of the
Company to the public in a firm commitment underwritten public offering pursuant
to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act and involving net
proceeds to the Company of at least $5,000,000.
(h) ASSIGNMENT. The Company may assign its rights under this Section
13 to one or more persons or entities who shall have the right to so exercise
such rights in their own name and for their own account.
14. WITHHOLDING OF TAXES. Optionee authorizes the Company to withhold,
in accordance with any applicable law, from any compensation payable to him any
taxes required to be withheld by federal, state, or foreign law as a result of
the grant of the Option or the issuance of stock pursuant to the exercise of the
Option.
15. NOTICES. Any notice to be given to the Company shall be addressed
to the Company in care of its Secretary at its principal office, and any notice
to be given to Optionee shall be addressed to Optionee at the address given
below or at such other address as the Optionee may hereafter designate in
writing to the Company. Any such notice shall be deemed duly given upon personal
delivery or three business days after deposit in the United States mail,
registered or certified, postage prepaid.
6
<PAGE> 24
16. GOVERNING LAW. This Option shall be governed by and construed in
accordance with the internal laws of the State of California.
ADVANTIX, INC.
By: __________________________
Title: _______________________
ACCEPTED:
______________________________
_____________, Optionee
Address:______________________
______________________________
7
<PAGE> 25
NOTICE OF EXERCISE OF NONSTATUTORY STOCK OPTION
-----------------------------------------------
Advantix, Inc.
4675 MacArthur Court, Suite 1540
Newport Beach, CA 92660
Gentlemen:
In accordance with the terms of the Advantix, Inc. 1996 Stock Option
Plan (the "Plan"), and the related Nonstatutory Stock Option Agreement dated as
of __________, 199__ between me and Advantix, Inc. (the "Company"), I hereby
give notice of exercise of my option (the "Option") as to ___________ shares of
Company Common Stock (the "Shares") at a purchase price of $______ per share, or
$________ in the aggregate.
By this exercise, I agree (i) to provide such additional documents
as you may require pursuant to the terms of the Plan, and (ii) to provide for
the payment by me to you (in the manner designated by you) of your withholding
obligation, if any, relating to the exercise of the Option.
Unless a registration statement covering the Shares is currently in
effect under the Securities Act of 1933, as amended (the "Securities Act"), I
hereby make the following certifications and representations with respect to the
Shares:
(1) I acknowledge that the Shares have not been registered under
the Securities Act and are deemed to constitute "restricted securities" under
Rule 144 promulgated under the Securities Act. I represent and warrant to the
Company that I am acquiring the Shares for my own account and for investment
purposes only and I have no present intention of distributing or selling the
Shares, except as permitted under the Securities Act and any applicable state
securities laws; and
(2) I further acknowledge that all certificates representing any
of the Shares subject to the provisions of the Option shall have endorsed
thereon appropriate legends reflecting the foregoing limitations, as well as any
legends reflecting restrictions pursuant to applicable securities laws.
<PAGE> 26
There accompanies this Notice payment in full for the aggregate
purchase price for the Shares as follows (check applicable method of payment):
[ ] Check in the amount of $ ____________
[ ] If authorized by the Plan and the Board, shares of the
Company's Stock currently owned by me as follows:
Certificate Number(s) Number of Shares
--------------------- ----------------
_______________ _____________
_______________ _____________
Please mail the certificate representing the Shares to the following address:
__________________________________
__________________________________
__________________________________
Dated: ________________, 199 __ ________________________________
Signature
________________________________
Type or Print Name
2
<PAGE> 27
NOTICE OF EXERCISE OF INCENTIVE STOCK OPTION
--------------------------------------------
Advantix, Inc.
4675 MacArthur Court, Suite 1540
Newport Beach, CA 92660
Gentlemen:
In accordance with the terms of the Advantix, Inc. 1996 Stock Option
Plan (the "Plan"), and the related Incentive Stock Option Agreement dated as
of _________, 199__ between me and Advantix, Inc. (the "Company"), I hereby give
notice of exercise of my option (the "Option") as to ___________ shares of
Company Common Stock (the "Shares") at a purchase price of $______ per share, or
$________ in the aggregate.
By this exercise, I agree (i) to provide such additional documents
as you may require pursuant to the terms of the Plan, and (ii) to notify you in
writing within fifteen (15) days after the date of any disposition of any of the
shares of Common Stock issued upon exercise of the Option that occurs within
two (2) years after the date of grant of the Option or within one (1) year
after such shares of Common Stock are issued upon exercise of the Option.
Unless a registration statement covering the Shares is currently in
effect under the Securities Act of 1933, as amended (the "Securities Act"), I
hereby make the following certifications and representations with respect to the
Shares:
(3) I acknowledge that the Shares have not been registered under
the Securities Act and are deemed to constitute "restricted securities" under
Rule 144 promulgated under the Securities Act. I represent and warrant to the
Company that I am acquiring the Shares for my own account and for investment
purposes only and I have no present intention of distributing or selling the
Shares, except as permitted under the Securities Act and any applicable state
securities laws; and
(4) I further acknowledge that all certificates representing any
of the Shares subject to the provisions of the Option shall have endorsed
thereon appropriate legends reflecting the foregoing limitations, as well as any
legends reflecting restrictions pursuant to applicable securities laws.
<PAGE> 28
There accompanies this Notice payment in full for the aggregate
purchase price for the Shares as follows (check applicable method of payment):
[ ] Check in the amount of $ ____________
[ ] If authorized by the Plan and the Board, shares of the
Company's Stock currently owned by me as follows:
Certificate Number(s) Number of Shares
--------------------- ----------------
_______________ _____________
_______________ _____________
Please mail the certificate representing the Shares to the following address:
__________________________________
__________________________________
__________________________________
Dated: ________________, 199 __ ________________________________
Signature
________________________________
Type or Print Name
2
<PAGE> 1
EXHIBIT 10.8
================================================================================
FOURTH AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
among
ADVANTIX, INC.
and
THE STOCKHOLDERS NAMED HEREIN
-----------------------------------
Dated May 17, 1999
-----------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions..........................................................................2
2. General; Securities Subject to this Agreement........................................7
(a) Grant of Rights...............................................................7
(b) Registrable Securities........................................................7
(c) Holders of Registrable Securities.............................................7
3. Demand Registration..................................................................8
(a) Request for Demand Registration...............................................8
(b) Limitations on Demand Registrations...........................................8
(c) Effective Demand Registration.................................................9
(d) Expenses......................................................................9
(e) Underwriting Procedures......................................................10
(f) Selection of Underwriters....................................................10
4. Incidental or "Piggy-Back" Registration.............................................10
(a) Request for Incidental Registration..........................................10
(b) Expenses.....................................................................11
(c) Right to Terminate Registration..............................................11
5. Form S-3 Registration...............................................................11
(a) Request for a Form S-3 Registration..........................................12
(b) Form S-3 Underwriting Procedures.............................................13
(c) Limitations on Form S-3 Registrations........................................13
(d) Expenses.....................................................................14
(e) No Demand Registration.......................................................14
6. Termination.........................................................................14
7. Holdback Agreements.................................................................14
(a) Restrictions on Public Sale by Designated Holders............................14
(b) Restrictions on Public Sale by the Company...................................15
8. Registration Procedures.............................................................15
(a) Obligations of the Company...................................................15
(b) Seller Information...........................................................15
(c) Notice to Discontinue........................................................18
(d) Registration Expenses........................................................18
9. Indemnification; Contribution.......................................................19
(a) Indemnification by the Company...............................................19
(b) Indemnification by Designated Holders........................................19
(c) Conduct of Indemnification Proceedings.......................................19
(d) Contribution.................................................................20
10. Rule 144............................................................................21
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
11. Miscellaneous.......................................................................21
(a) Recapitalizations, Exchanges, etc............................................21
(b) No Inconsistent Agreements...................................................21
(c) Remedies.....................................................................22
(d) Amendments and Waivers.......................................................22
(e) Notices......................................................................22
(f) Successors and Assigns; Third Party Beneficiaries............................25
(g) Counterparts.................................................................26
(h) Headings.....................................................................26
(i) Governing Law................................................................26
(j) Severability.................................................................26
(k) Entire Agreement.............................................................26
(l) Further Assurances...........................................................26
</TABLE>
ii
<PAGE> 4
FOURTH AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
THIS FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (this
"Agreement"), is made and entered into this 17 day of May 1999, among Advantix,
Inc., a Delaware corporation (the "Company"), and the parties set forth on
Schedule I annexed hereto.
RECITALS
WHEREAS, pursuant to an Amended and Restated Investor Rights
Agreement (the "Amended Agreement"), dated May 26, 1998, among the Company,
General Atlantic Partners 46, L.P., a Delaware limited partnership ("GAP LP"),
GAP Coinvestment Partners, L.P., a New York limited partnership ("GAP
Coinvestment"), and the persons set forth on Schedule A thereto (the "Existing
Stockholders"), GAP LP, GAP Coinvestment and the Existing Stockholders possess
registration rights and other rights;
WHEREAS, in connection with the sale and issuance of its Series D
Preferred Stock, the Existing Stockholders and General Atlantic Partners 54,
L.P., a Delaware limited partnership ("GAP 54"), GAP Coinvestment Partners II,
L.P. , a Delaware limited partnership ("GAP Coinvestment II"), Bayview
Investors, Ltd. ("Bayview") and certain New Stockholders (as hereinafter defined
and, together with GAP 54, GAP Coinvestment II and Bayview, the "Purchasers")
entered into a Second Amended and Restated Investor Rights Agreement (the
"Second Agreement"), dated March 19, 1999 pursuant to which the which the
Company granted the parties thereto; certain registration rights with respect to
the Registrable Securities (as hereinafter defined);
WHEREAS, The Provident Bank ("Provident") was made a party to the
Second Agreement to provide it with certain registration rights previously set
forth in Section 7 of that certain Warrant Agreement, dated September 26, 1997
(the "Provident Warrant");
WHEREAS, in connection with the merger of TicketsLive Corporation
("TicketsLive") with and into Advantix Acquisition II Corp., a Delaware
corporation and a wholly-owned subsidiary of the Company pursuant to an
Agreement and Plan of Merger and Reorganization, dated March 18, 1999, by and
among the Company, the Merger Sub, TicketsLive, CMGI @ Ventures II, LLC
("CMGI"), Liberty Ventures I, L.P. ("Liberty"), Intel Corporation ("Intel"),
Karen S. Goetz ("KGoetz"), Donald H. Hellstedt ("Hellstedt"), Lee H. Goetz
("LGoetz"), Christopher G. Smith ("Smith"), and Roy Pinsky ("Pinsky") (CMGI,
Liberty, Intel, KGoetz, Hellstedt, LGoetz, Smith and Pinsky are collectively
referred to as the "Merger Stockholders") entered into a Third Amended and
Restated Investor Rights Agreement (the "Third Agreement") with the Company and
the other parties to the Second Agreement, dated April 10, 1999 pursuant to
which the which the Company granted the parties thereto; certain registration
rights with respect to the Registrable Securities (as hereinafter defined);
WHEREAS, the Company, Advantix Acquisition Corp., a Delaware
corporation, Tickets.com, Inc., a Delaware corporation ("TCI"), and certain
stockholders of TCI have entered
1
<PAGE> 5
into that Certain Agreement and Plan of Merger and Reorganization, dated January
26, 1999, pursuant to which TCI will merge with and into Acquisition Corp. TCI
(the "Merger");
WHEREAS, pursuant to that certain Registration Rights Agreement
(the "TCI Agreement"), dated May 18, 1998, among TCI and the TCI Stockholders
(as hereinafter defined), the TCI Stockholders possess registration rights and
certain other rights with respect to the shares of TCI's capital stock held by
them;
WHEREAS, in connection with the Merger, the shares of TCI's
capital stock held by the TCI Stockholders will be converted into and exchange
for shares of the Company's capital stock;
WHEREAS, upon consummation of the Merger, TCI and the TCI
Stockholders desire to terminate the TCI Agreement in its entirety and for the
TCI Stockholders to become parties hereto;
WHEREAS, pursuant to Section 11(d) of the Third Agreement, the
parties to the Third Agreement desire to amend and restate the Third Agreement
to bring the TCI Stockholders within the terms of the Third Agreement, as so
amended and restated;
Whereas, in order to induce (i) the TCI Stockholders to terminate
the TCI Agreement and (ii) the parties to the Third Agreement to amend and
restate the Third Agreement, the Company has agreed to grant registration rights
with respect to the Registrable Securities (as hereinafter defined) as set forth
in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
covenants and agreements set forth herein, the Third Agreement is hereby amended
and restated to read in its entirety as follows:
1. Definitions. As used in this agreement the following terms
have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act and, with respect to any Person that is a limited liability company, any
member of such limited liability company. The following shall be deemed to be
Affiliates of GAP LP and GAP 54: (a) GAP LLC, the members of GAP LLC, the
limited partners of GAP LP and the limited partners of GAP 54; (b) any Affiliate
of GAP LLC, the members of GAP LLC, the limited partners of GAP LP and the
limited partners of GAP 54; and (c) any limited liability company or partnership
a majority of whose members or partners, as the case may be, are members, former
members, consultants or key employees of GAP LLC. GAP LP, GAP 54, GAP
Coinvestment and GAP Coinvestment II shall be deemed to be Affiliates of one
another. Each of the Attractor Entities and their respective members shall be
deemed to be Affiliates of one another. Each of the idealab! Entities shall be
deemed to be Affiliates of one another. Each of the Moore Entities shall be
deemed to be Affiliates of one another. SCT and any entity in which IMG
Chase/Sports Capital LLC (or its successor) is the managing member or general
partner and shall be deemed to be Affiliates of one another.
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"Amended Agreement" has the meaning set forth in the recitals to
this Agreement.
"Approved Underwriter" has the meaning set forth in Section 3(f)
of this Agreement.
"Attractor Entities" means (a) Attractor Institutional LP, a
Delaware limited partnership, (b) Attractor LP, a Delaware limited partnership,
(c) Attractor Ventures LLC, a Delaware limited liability company, and (d) any
successor to any of the entities listed in (a)-(c). For the purposes of the
definition of Registerable Securities, the term Attractor Entities shall include
and refer to the John D. and Catherine T. MacArthur Foundation.
"Business Day" means any other day other than a Saturday, Sunday
or other day on which commercial banks in the State of California are authorized
or required by law or executive order to close.
"Caccavo" shall mean James A. Caccavo.
"CMGI" has the meaning set forth in the recitals to this
Agreement.
"Common Stock" means the Common Stock, par value $.0001 per
share, of the Company or any other equity securities of the Company into which
such securities are converted, reclassified, reconstituted or exchanged.
"Company" has the meaning set forth in the recitals to this
Agreement.
"Company Underwriter" has the meaning set forth in Section 4(a)
of this Agreement.
"Demand Registration" has the meaning set forth in Section 3(a)
of this Agreement.
"Designated Holder" means each of the Existing Stockholders, the
General Atlantic Stockholders, the New Stockholders, the Merger Stockholders and
the TCI Stockholders and any transferee of any of them to whom Registrable
Securities have been transferred in accordance with the provisions of the
Stockholders Agreement and Section 11(f) of this Agreement, other than a
transferee to whom Registrable Securities have been transferred pursuant to a
Registration Statement under the Securities Act or Rule 144 or Regulation S
under the Securities Act.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Existing Stockholders" has the meaning set forth in the recitals
to this Agreement.
"GAP Coinvestment" has the meaning set forth in the recitals to
this Agreement.
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"GAP Coinvestment II" has the meaning set forth in the recitals
to this Agreement.
"GAP 54" has the meaning set forth in the recitals to this
Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP LP and GAP 54, and any
successor to such entity.
"GAP LP" has the meaning set forth in the recitals to this
Agreement.
"General Atlantic Stockholders" means GAP LP, GAP 54, GAP
Coinvestment GAP Coinvestment II and any Permitted Transferee (as defined in the
Stockholders Agreement) of any of them to which Registrable Securities are
transferred in accordance with Section 2.2 of the Stockholders Agreement.
"Hellstedt" has the meaning set forth in the recitals to this
Agreement.
"Holders' Counsel" has the meaning set forth in Section 8(a)(i)
of this Agreement.
"idealab! Entities" means idealab! Capital Partners I-A LP, a
Delaware limited partnership, idealab! Capital Partners I-B LP, a Delaware
limited partnership, and any successor entity to either of them.
"Incidental Registration" has the meaning set forth in Section
4(a) of this Agreement.
"Indemnified Party" has the meaning set forth in Section 9(c) of
this Agreement.
"Indemnifying Party" has the meaning set forth in Section 9(c) of
this Agreement.
"Initial Company Underwriter" has the meaning set forth in
Section 4(d) of this Agreement.
"Initial Incidental Registration" has the meaning set forth in
Section 4(d) of this Agreement.
"Initial Public Offering" means an underwritten initial public
offering pursuant to an effective Registration Statement filed under the
Securities Act.
"Initial Requested Shares" has the meaning set forth in Section
4(d) of this Agreement.
"Initiating Holders" has the meaning set forth in Section 3(a) of
this Agreement.
"Inspector" has the meaning set forth in Section 8(a)(viii) of
this Agreement.
"Intel" has the meaning set forth in the recitals to this
Agreement.
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"IPO Effectiveness Date" means the date upon which the Company
consummates its Initial Public Offering.
"KGoetz" has the meaning set forth in the recitals to this
Agreement.
"LGoetz" has the meaning set forth in the recitals to this
Agreement.
"Liberty" has the meaning set forth in the recitals to this
Agreement.
"Merger" means the merger of Advantix Acquisition Corp., a
Delaware corporation, with and into TCI, pursuant to that certain Agreement and
Plan of Merger and Reorganization, dated as of January 26, 1999, among the
Company, Advantix Acquisition Corp., TCI , the TCI Stockholders and the certain
other parties named therein.
"Merger Stockholders" has the meaning set forth in the recitals
to this Agreement.
"Moore Entities" means (a) Moore Global Investments, Ltd., a
Bahamas corporation, (b) Remington Investments Strategies, L.P., a Delaware
limited partnership, (c) Multi-Strategies Fund, L.P., a Delaware limited
partnership, (d) Multi-Strategies Fund Ltd., a Bahamas corporation, and (e) any
successor to any of the entities listed in (a)-(d).
"NASD" has the meaning set forth in Section 8(a)(xiv) of this
Agreement.
"New Stockholders" means each of the TCI Stockholders and Other
New Stockholders and any Permitted Transferee (as defined in the Stockholders
Agreement) of any of them to whom Registrable Securities are transferred in
accordance with Section 2.2 of the Stockholders Agreement.
"Other New Stockholders" means each of Jackson International,
LLC, a Delaware limited liability company, and SCT and any successor entity to
either of them.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.
"Pinsky" has the meaning set forth in the recitals to this
Agreement.
"Preferred Stock" means the Series A Preferred Stock, the Series
B Preferred Stock, the Series C Preferred Stock and the Series D Preferred
Stock.
"Provident" has the meaning set forth in the recitals to this
Agreement.
"Provident Warrant" has the meaning set forth in the recitals to
this Agreement.
"Purchasers" has the meaning set forth in the recitals to this
Agreement.
"Records" has the meaning set forth in Section 8(a)(viii) of this
Agreement.
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"Registrable Securities" means each of the following: (a) any and
all shares of Common Stock owned by the Designated Holders or issued or issuable
upon conversion of shares of Preferred Stock, including, without limitation, any
shares of Common Stock issued or issuable upon conversion of any shares of
preferred stock of the Company acquired by any of the Designated Holders after
the date hereof, (b) any other shares of Common Stock acquired or owned by any
of the Designated Holders prior to the IPO Effectiveness Date (including Common
Stock issued to any Designated Holder upon conversion of convertible securities
of the Company or upon exercise of warrants or options granted by the Company to
such Designated Holder), or acquired or owned by any of the Designated Holders
(other than an Attractor Entity) after the IPO Effectiveness Date if such
Designated Holder is an Affiliate of the Company and (c) any shares of Common
Stock or voting common stock issued or issuable to any of the Designated Holders
with respect to shares of Common Stock or Preferred Stock by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise and
shares of Common Stock or voting common stock issuable upon conversion, exercise
or exchange thereof. The foregoing notwithstanding, any shares of Common Stock
acquired by any Attractor Entity on the IPO Effectiveness Date shall be deemed
not to be Registrable Securities.
"Registration Expenses" has the meaning set forth in Section 8(d)
of this Agreement.
"Registration Statement" means a Registration Statement filed
pursuant to the Securities Act.
"S-3 Initiating Holders" has the meaning set forth in Section
5(a) of this Agreement.
"S-3 Registration" has the meaning set forth in Section 5(a) of
this Agreement.
"SCT" means Sports Capital Tickets LLC, a limited liability
company, and any successor entity thereto.
"SEC" means the Securities and Exchange Commission.
"Second Agreement" has the meaning set forth in the recitals to
this Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Series A Preferred Stock" means Series A Preferred Stock of the
Company, par value $.0001 per share.
"Series A1 Preferred Stock" means Series A1 Preferred Stock of
the Company, par value $.0001 per share.
"Series B Preferred Stock" means Series B Preferred Stock of the
Company, par value $.0001 per share.
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"Series C Preferred Stock" means Series C Preferred Stock of the
Company, par value $.0001 per share.
"Series D Preferred Stock" means Series D Preferred Stock of the
Company, par value $.0001 per share.
"Smith" has the meaning set forth in the recitals to this
Agreement.
"Stockholders Agreement" means the Third Amended and Restated
Stockholders Agreement, dated of even date herewith, by and among the Company
and the parities identified therein.
"TCI" has the meaning set forth in the recitals to this
Agreement.
"TCI Stockholders" means (a) each of the Attractor Entities, (b)
each of the idealab! Entities, (c) each of the Moore Entities, (d) S.A.M. Trust,
(e) Bill Gross' idealab!, a California corporation, (f) James A. Caccavo
("Caccavo"); (g) The John D. and Catherine T. MacArthur Foundation and (h) any
Permitted Transferee (as defined in the Stockholders Agreement) of the Persons
listed in (a)-(h) above to which Registrable Securities are transferred in
accordance with Section 2.2 of the Stockholders Agreement.
"Third Agreement" has the meaning set forth in the recitals to
this Agreement.
"TicketsLive" has the meaning set forth in the recitals to this
Agreement.
2. General; Securities Subject to this Agreement.
(a) Grant of Rights. The Company hereby grants
registration rights to the Existing Stockholders, the General Atlantic
Stockholders, the New Stockholders, the Merger Stockholders and the TCI
Stockholders upon the terms and conditions set forth in this Agreement.
(b) Registrable Securities. For the purposes of this
Agreement, Registrable Securities will cease to be Registrable Securities when
(i) a Registration Statement covering such Registrable Securities has been
declared effective under the Securities Act by the SEC and such Registrable
Securities have been disposed of pursuant to such effective Registration
Statement, (ii) the entire amount of Registrable Securities held by a Designated
Holder are eligible, in the opinion of counsel satisfactory to the Company and
the Designated Holder, each in their reasonable judgment, to be distributed to
the public pursuant to Rule 144 (or any successor provision then in effect)
under the Securities Act during any 90-day period or (iii) the Registrable
Securities are proposed to be sold or distributed by a Person not entitled to
the registration rights granted by this Agreement.
(c) Holders of Registrable Securities. A Person is deemed
to be a holder of Registrable Securities whenever such Person owns of record
Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected and
disregarding any legal restrictions upon the exercise of such rights. If the
Company receives
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conflicting instructions, notices or elections from two or more Persons with
respect to the same Registrable Securities, the Company may act upon the basis
of the instructions, notice or election received from the registered owner of
such Registrable Securities. Registrable Securities issuable upon exercise of an
option or upon conversion of another security shall be deemed outstanding for
the purposes of this Agreement.
3. Demand Registration.
(a) Request for Demand Registration. On any date following
the IPO Effectiveness Date, if the Company shall receive from (i) any one or
more of the General Atlantic Stockholders as a group, acting through GAP LLC or
its written designees, (ii) any one or more Existing Stockholders holding at
least a majority of the Registrable Securities then held by all Existing
Stockholders or (iii) any one or more TCI Stockholders holding at least a
majority of the Registrable Securities then held by all TCI Stockholders (in
each case, the "Initiating Holders") a written request that the Company effect
any registration, qualification or compliance with respect to the Registrable
Securities (a "Demand Registration"), the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Designated Holders; and
(ii) as soon as practicable, use its best efforts
to effect such registration, qualification or compliance (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state securities
laws and appropriate compliance with applicable regulations issued under the
Securities Act and any other governmental requirements or regulations) as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any
Designated Holder or Designated Holders joining in such request as are specified
in a written request received by the Company within twenty (20) days after
mailing of such written notice from the Company.
(b) Limitations on Demand Registrations. Notwithstanding
the foregoing, the Company shall not be obligated to take any action to effect
any such registration, qualification or compliance pursuant to this Section 3:
(i) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) (A) With respect to a request initiated by a
General Atlantic Stockholder after the Company has effected two (2) such
registrations for the General Atlantic Stockholders pursuant to this Section 3,
each such registration has been declared or ordered effective and the securities
offered pursuant to each such registration have been sold; (B) with respect to a
request initiated by an Existing Stockholder, after the Company has effected two
(2) such registrations for the Existing Stockholders pursuant to this Section 3,
each such registration has been declared or ordered effective and the securities
offered pursuant to each
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such registration have been sold; and (C) with respect to a request initiated by
a TCI Stockholder, after the Company has effected one (1) such registration for
the TCI Stockholders pursuant to this Section 3, such registration has been
declared or ordered effective and the securities offered pursuant to each such
registration have been sold;
(iii) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of (which date
the Company shall notify the Designated Holders of not less that sixty (60) days
prior thereto), and ending on the date one hundred eighty (180) days immediately
following the effective date of, any Registration Statement pertaining to
securities of the Company (other than a registration of securities in a
transaction under Rule 145 (or any successor provision then in effect) under the
Securities Act or with respect to an employee stock option, stock purchase or
similar plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such Registration Statement to become effective and
that the Company's estimate of the date of filing such Registration Statement is
made in good faith;
(iv) If the Company shall furnish to the Initiating
Holders a certificate, signed by the Chief Executive Officer or Chief Financial
Officer of the Company, stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its stockholders
for a Registration Statement to be filed in the near future, then the Company's
obligation to use its best efforts to register, qualify or comply under this
Section 3 shall be deferred for a period not to exceed ninety (90) days from the
date of receipt of written request from the Initiating Holders; provided,
however, that the Company may not utilize this right more than once in any
twelve (12) month period.
(c) Effective Demand Registration. Subject to the
provisions of Section 3(b), the Company shall use its best efforts to cause any
such Demand Registration to become and remain effective within ninety (90) days
after it receives a request under Section 3(a) hereof. A registration shall not
constitute a Demand Registration until it has become effective and remains
continuously effective for the lesser of (i) the period during which all
Registrable Securities registered in the Demand Registration are sold and (ii)
120 days; provided, however, that a registration shall not constitute a Demand
Registration if (x) after such Demand Registration has become effective, such
registration or the related offer, sale or distribution of Registrable
Securities thereunder is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court for any
reason not attributable to the Initiating Holders and such interference is not
thereafter eliminated or (y) the conditions specified in the underwriting
agreement, if any, entered into in connection with such Demand Registration are
not satisfied or waived, other than by reason of a failure by the Initiating
Holders.
(d) Expenses. In any registration initiated as a Demand
Registration, the Company shall pay all reasonable Registration Expenses (other
than underwriter's discounts and commissions) in connection therewith, whether
or not such Demand Registration becomes effective, provided, however, that the
Company shall not be required to pay for any expenses of any Demand Registration
begun pursuant to Section 3 if the Demand Registration request is subsequently
withdrawn at the request of the Initiating Holders who requested such Demand
Registration (in which case all of such Initiating Holders shall bear such
expenses), unless such
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Initiating Holders agree to forfeit their right to one demand registration
pursuant to Section 3; provided further, however, that if at the time of such
withdrawal, such Initiating Holders reasonably determine in good faith that
there is, or is pending, a material adverse change in the condition, business,
or prospects of the Company from that known to such Initiating Holders at the
time of their request and have withdrawn the request with reasonable promptness
following their determination of such material adverse change or disclosure by
the Company of such material adverse change, then such Initiating Holders shall
not be required to pay any of such expenses and shall retain their rights
pursuant to Section 3.
(e) Underwriting Procedures. If the Initiating Holders
holding a majority of the Registrable Securities held by all of the Initiating
Holders to which the requested Demand Registration relates so elect, the
offering of such Registrable Securities pursuant to such Demand Registration
shall be in the form of a firm commitment underwritten offering and the managing
underwriter or underwriters selected for such offering shall be the Approved
Underwriter selected in accordance with Section 3(f). In connection with any
Demand Registration under this Section 3 involving an underwritten offering,
none of the Registrable Securities held by any Designated Holder making a
request for inclusion of such Registrable Securities pursuant to Section 3(a)
hereof shall be included in such underwritten offering unless such Designated
Holder accepts the terms of the underwritten offering as agreed upon by the
Company, the Initiating Holders and the Approved Underwriter and enters into an
underwriting agreement in customary form with the Approved Underwriter, and then
only in such quantity as will not, in the opinion of the Approved Underwriter,
jeopardize the success of such offering by the Initiating Holders. If the
Approved Underwriter advises the Company in writing that in its opinion
marketing factors require a limitation on the number of shares to be
underwritten, then the Company shall so advise all Designated Holders and the
number of Registrable Securities to be included in the Demand Registration and
underwriting shall be reduced, first as to the Designated Holders (who are not
Initiating Holders and who requested to participate in such registration
pursuant to Section 3(b) hereof) as a group, if any, and second as to the
Initiating Holders as a group, pro rata within each group based on the number of
Registrable Securities owned by each member of such group at the time of the
filing of the Registration Statement.
(f) Selection of Underwriters. If any Demand Registration
or S-3 Registration, as the case may be, of Registrable Securities is in the
form of an underwritten offering, the Initiating Holders or S-3 Initiating
Holders, as the case may be, holding a majority of the Registrable Securities
held by all such Initiating Holders or S-3 Initiating Holders shall select and
obtain an investment banking firm of national reputation to act as the managing
underwriter of the offering (the "Approved Underwriter"); provided, however,
that the Approved Underwriter shall, in any case, be acceptable to the Company
in its reasonable judgment.
4. Incidental or "Piggy-Back" Registration.
(a) Request for Incidental Registration. At any time after
the Initial Public Offering, if the Company proposes to file a Registration
Statement under the Securities Act with respect to an offering by the Company
for its own account or for the account of another person entitled to
registration rights not governed by this Agreement (other than a Registration
Statement on Form S-4 or S-8 or any successor thereto), then the Company shall
promptly give written notice of such proposed filing to each of the Designated
Holders, and such notice shall
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describe the proposed registration and distribution and offer such Designated
Holders the opportunity to register the number of Registrable Securities as each
such holder may request (an "Incidental Registration"). The Company shall, and
shall use its best efforts to cause the managing underwriter or underwriters
selected by the Company for such proposed underwritten offering (the "Company
Underwriter") to permit each of the Designated Holders who have requested in
writing within twenty (20) calendar days after mailing of the notice provided
for in the preceding sentence by the Company, to participate in the Incidental
Registration to include its or his Registrable Securities in such offering on
the same terms and conditions as the securities of the Company included therein.
In connection with any Incidental Registration under this Section 4(a) involving
an underwritten offering, the Company shall not be required to include any
Registrable Securities in such underwritten offering unless the holders thereof
accept the terms of the underwritten offering as agreed upon between the Company
and the Company Underwriter, and then only in such quantity as will not, in the
opinion of the Company Underwriter, jeopardize the success of the offering by
the Company, and enter into an underwriting agreement in customary form with the
Company Underwriter. If the Company Underwriter determines that marketing
factors require a limitation on the number of shares that may be underwritten,
then the Company Underwriter may limit the number of securities to be included
in the registration and underwriting. The Company shall also advise all
Designated Holders who have requested to participate in the Incidental
Registration and the securities entitled to inclusion in such registration will
include, first, all of the securities to be offered for the account of the
Company; second, the Registrable Securities to be offered for the account of the
Designated Holders pursuant to this Section 4, pro rata based on the number of
Registrable Securities owned by each such Designated Holder; and third, any
other securities requested to be included in such underwritten offering.
(b) Expenses. The Company shall bear all reasonable
Registration Expenses (other than underwriter's discounts and commissions
relating to the Registrable Securities) in connection with any Incidental
Registration pursuant to this Section 4, whether or not such Incidental
Registration becomes effective.
(c) Right to Terminate Registration. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 4 prior to the effectiveness of such registration whether or not
any Designated Holder has elected to include Registrable Securities in such
registration.
(d) Initial Incidental Registration. If the Company
proposes to file a Registration Statement under the Securities Act with respect
to an Initial Public Offering by the Company, then the Company shall promptly
give written notice of such proposed filing to KGoetz, and such notice shall
describe the proposed registration and distribution and offer KGoetz the
opportunity to register up to a maximum of one million (1,000,000) shares of
Common Stock (an "Initial Incidental Registration"). The Company shall, and
shall use its best efforts to cause the managing underwriter or underwriters
selected by the Company for such proposed underwritten offering (the "Initial
Company Underwriter") to permit KGoetz, upon request in writing within twenty
(20) calendar days after mailing of the notice provided for in the preceding
sentence by the Company, to participate in the Initial Incidental Registration
to include up to one million (1,000,000) shares of her Common Stock (the
"Initial Requested Shares") in such offering on the same terms and conditions as
the securities of the Company included
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therein. In connection with any Initial Incidental Registration under this
Section 4(d) involving an underwritten offering, the Company shall not be
required to include any Common Stock owned by KGoetz in such underwritten
offering unless KGoetz (i) accepts the terms of the underwritten offering as
agreed upon between the Company and the Initial Company Underwriter, and then
only in such quantity as will not, in the opinion of the Initial Company
Underwriter, jeopardize the success of the offering by the Company, and (ii)
enters into an underwriting agreement in customary form with the Initial Company
Underwriter. If the Initial Company Underwriter determines that marketing
factors require a limitation on the number of shares that may be underwritten,
then the Initial Company Underwriter may limit the number of securities to be
included in the registration and underwriting. The Company shall also advise
KGoetz and the securities entitled to inclusion in such registration will
include, first, all of the securities to be offered for the account of the
Company; second, the Common Stock to be offered for the account of KGoetz
pursuant to this Section 4; and third, any other securities requested to be
included in such underwritten offering.
(e) Expenses Relating to Initial Incidental Registration.
The Company shall bear all reasonable Registration Expenses (other than
underwriter's discounts and commissions relating to the Common Stock being
registered by KGoetz) in connection with any Initial Incidental Registration
pursuant to this Section 4, whether or not such Initial Incidental Registration
becomes effective.
(f) Right to Terminate Initial Incidental Registration.
The Company shall have the right to terminate or withdraw any registration
initiated by it under this Section 4 prior to the effectiveness of such
registration whether or not KGoetz has elected to include Common Stock in such
registration.
5. Form S-3 Registration.
(a) Request for a Form S-3 Registration. At any time after
the Company is eligible to register the Registrable Securities on Form S-3 (or
any successor form thereto), (i) one or more of the General Atlantic
Stockholders as a group, acting through GAP LLC or its written designee, (ii)
one or more of the Existing Stockholders holding at least a majority of the
Registrable Securities then held by all Existing Stockholders, or (iii) one or
more TCI Stockholders (in each case, the "S-3 Initiating Holders") may make a
written request to the Company to file a Registration Statement, on Form S-3 for
a public offering of shares of Registrable Securities the reasonably anticipated
aggregate price to the public of which would exceed $2,500,000 (or any successor
form then in effect) (an "S-3 Registration"). The Company shall promptly give
written notice of a request for an S-3 Registration to all of the Designated
Holders (other than the S-3 Initiating Holders who have requested an S-3
Registration under this Section 5(a)), which notice shall describe the proposed
registration and offer such Designated Holders the opportunity to register the
number of Registrable Securities as each such Designated Holder may request in
writing to the Company, given within ten (10) days of its receipt from the
Company of such written notice. The Company shall (i) take such steps as are
necessary or appropriate to prepare for the registration of the Registrable
Securities to be registered and (ii) use its best efforts to (x) cause such
registration pursuant to this Section 5(a) to become and remain effective as
soon as practicable, and (y) include in such offering the Registrable
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Securities of the Initiating Holders and the Designated Holders who have
requested in writing to participate in such registration on the same terms and
conditions as the Registrable Securities of the S-3 Initiating Holders included
therein.
(b) Form S-3 Underwriting Procedures. If the S-3
Initiating Holders holding a majority of the Registrable Securities held by all
of the S-3 Initiating Holders to which the requested S-3 Registration relates so
elect, the Company shall use its reasonable efforts to cause such S-3
Registration pursuant to this Section 5 to be in the form of a firm commitment
underwritten offering and the managing underwriter or underwriters selected for
such offering shall be the Approved Underwriter selected in accordance with
Section 3(f). In connection with any S-3 Registration under Section 5(a)
involving an underwritten offering, the Company shall not be required to include
any Registrable Securities in such underwritten offering unless the Designated
Holders thereof accept the terms of the underwriting as agreed upon between the
Company, the Approved Underwriter and the S-3 Initiating Holders and enter into
an underwriting agreement in customary form with the Approved Underwriter, and
then only in such quantity as will not, in the opinion of such underwriter,
jeopardize the success of such offering by the S-3 Initiating Holders. If the
Approved Underwriter determines that marketing factors require a limitation on
the number of shares that may be underwritten, then the Approved Underwriter may
limit the number of securities to be included in the registration and
underwriting. The Company shall so advise all Designated Holders who have
requested to participate in the S-3 Registration and the securities entitled to
inclusion in such registration will include, first, all of the Registrable
Securities to be offered for the account of the S-3 Initiating Holders; second,
the Registrable Securities to be offered for the account of the other Designated
Holders who requested inclusion of their Registrable Securities pursuant to
Section 5(a), pro rata based on the number of Registrable Securities owned by
such Designated Holders, and third, any other securities requested to be
included in such underwritten offering.
(c) Limitations on Form S-3 Registrations. Notwithstanding
the foregoing, the Company shall not be obligated to take any action to effect
any such registration, qualification or compliance pursuant to this Section 5:
(i) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
Securities Act;
(ii) If within a twelve (12) month period preceding
the date of such request, the Company has effected two (2) such registrations on
Form S-3 pursuant to this Section 5, each such registration has been declared or
ordered effective and the Registrable Securities offered pursuant to each such
registration have been sold;
(iii) During the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of (which date
the Company shall notify the S-3 Initiating Holders of not less than sixty (60)
days prior thereto), and ending on the date one hundred eighty (180) days
immediately following the effective date of, any Registration Statement
pertaining to securities of the Company (other than a registration of securities
in a transaction under Rule 145 (or any successor provision then in effect)
under the Securities Act or
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<PAGE> 17
with respect to an employee stock option, stock purchase or similar plan),
provided that the Company is actively employing in good faith all reasonable
efforts to cause such Registration Statement to become effective and that the
Company's estimate of the date of filing such Registration Statement is made in
good faith, and provided the Company has, within thirty (30) days of receiving a
request for registration pursuant to this Section 5, provided notice to such S-3
Initiating Holders of its intent to commence a public offering of its
securities;
(iv) If the Company shall furnish to the Designated
Holders a certificate, signed by the Chief Executive Officer or Chief Financial
Officer of the Company, stating that in good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its stockholders
for a Registration Statement to be filed in the near future, then the Company's
obligation to use its best efforts to register, qualify or comply under this
Section 5 shall be deferred for a period not to exceed ninety (90) days from the
date of receipt of written request from the S-3 Initiating Holders;
(v) If Form S-3 is not available for such offering
by the S-3 Initiating Holders.
(d) Expenses. In connection with any registration pursuant
to this Section 5, the Company shall pay all reasonable Registration Expenses
(other than underwriter's discounts and commissions), whether or not such
registration becomes effective.
(e) No Demand Registration. No registration requested by
any S-3 Initiating Holder pursuant to this Section 5 shall be deemed a Demand
Registration pursuant to Section 3.
6. Termination. This Agreement shall terminate and be of no
further force or effect on such time as there shall no longer be any Registrable
Securities outstanding. This Agreement shall also terminate as to any party that
no longer holds Registrable Securities. The foregoing notwithstanding, Sections
7, 9, 10, 11(c) shall survive the termination of this Agreement
7. Holdback Agreements.
(a) Restrictions on Public Sale by Designated Holders. If
and to the extent requested by the Company, the Initiating Holders or the S-3
Initiating Holders, as the case may be, in the case of a non-underwritten public
offering or if and to the extent requested by the Approved Underwriter or the
Company Underwriter, as the case may be, in the case of an underwritten public
offering, each Designated Holder of Registrable Securities agrees not to effect
any sale, short sale, loan, grant any option for the purchase of, or otherwise
dispose of any Registrable Securities or of any securities convertible into or
exchangeable or exercisable for such Registrable Securities, including a sale
pursuant to Rule 144 under the Securities Act, during (i) with respect to an
Initial Public Offering, the 180-day period or such shorter period agreed upon
by such Designated Holder and the requesting party or (ii) in any other case,
the 90-day period or such shorter period agreed upon by such Designated Holder
and the requesting party, beginning on the effective date of such Registration
Statement (except as part of such registration). The Company may impose
stop-transfer instructions with respect to such securities
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<PAGE> 18
subject to the foregoing restriction until the end of such period. The
provisions of this Section 7(a) shall terminate eighteen (18) months from the
IPO Effectiveness Date with respect to each Designated Holder who is not an
Affiliate of the Company at that time; provided, however, that in the event that
following the IPO Effectiveness Date (A) one or more Designated Holders has
properly exercised its registration rights pursuant to the Section 3, Section 4
or Section 5 of this Agreement in connection with an underwritten public
offering and (B) the Approved Underwriter or the Company Underwriter, as the
case may be, has determined that marketing factors require that less than 50% of
the Registrable Securities requested to be included in such offering by such
Designated Holders may be so included and has so advised such Designated Holders
in writing, the provisions of this Section 7(a) shall terminate as of the date
the underwriters so advise the Designated Holders.
(b) Restrictions on Public Sale by the Company. The
Company agrees not to effect any public sale or distribution of any of its
securities, or any securities convertible into or exchangeable or exercisable
for such securities (except pursuant to registrations on Form S-4 or S-8 or any
successor thereto), during the period beginning on the effective date of any
Registration Statement in which the Designated Holders of Registrable Securities
are participating and ending on the earlier of (i) the date on which all
Registrable Securities registered on such Registration Statement are sold and
(ii) 120 days after the effective date of such Registration Statement (except as
part of such registration).
8. Registration Procedures.
(a) Obligations of the Company. Whenever registration of
Registrable Securities has been requested pursuant to Section 3, Section 4 or
Section 5 of this Agreement, the Company shall use its best efforts to effect
the registration and sale of such Registrable Securities in accordance with the
intended method of distribution thereof as quickly as practicable, and in
connection with any such request, the Company shall, as expeditiously as
possible:
(i) prepare and file with the SEC a Registration
Statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate and which form shall be available for the
sale of such Registrable Securities in accordance with the intended method of
distribution thereof, and use its best efforts to cause such Registration
Statement to become effective; provided, however, that (x) before filing a
Registration Statement or prospectus or any amendments or supplements thereto,
if counsel for the Company does not make itself available to serve as counsel to
the Designated Holders, then the Company shall provide one counsel selected by
the Designated Holders holding a majority of the Registrable Securities being
registered in such registration ("Holders' Counsel") and any other Inspector
with an adequate and appropriate opportunity to participate in the preparation
of such Registration Statement and each prospectus included therein (and each
amendment or supplement thereto) to be filed with the SEC, which documents shall
be subject to the review of Holders' Counsel, and (y) the Company shall notify
the Holders' Counsel, if any, and each seller of Registrable Securities of any
stop order issued or threatened by the SEC and take all reasonable action
required to prevent the entry of such stop order or to remove it if entered;
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<PAGE> 19
(ii) prepare and file with the SEC such amendments
and supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective for the lesser of (x) 120 days and (y) such shorter period which will
terminate when all Registrable Securities covered by such Registration Statement
have been sold, and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration Statement;
(iii) as soon as reasonably possible, furnish to
each seller of Registrable Securities, prior to filing a Registration Statement,
copies of such Registration Statement as is proposed to be filed, and thereafter
such number of copies of such Registration Statement, each amendment and
supplement thereto (in each case including all exhibits thereto), the prospectus
included in such Registration Statement (including each preliminary prospectus)
and such other documents as each such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such seller;
(iv) register or qualify such Registrable
Securities under such other securities or "blue sky" laws of such jurisdictions
as any seller of Registrable Securities may request, and to continue such
qualification in effect in such jurisdiction for as long as permissible pursuant
to the laws of such jurisdiction, or for as long as any such seller requests or
until all of such Registrable Securities are sold, whichever is shortest, and do
any and all other acts and things which may be reasonably necessary or advisable
to enable any such seller to consummate the disposition in such jurisdictions of
the Registrable Securities owned by such seller; provided, however, that the
Company shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 8(a)(iv), (y) subject itself to taxation in any such jurisdiction or (z)
consent to general service of process in any such jurisdiction;
(v) cause the Registrable Securities covered by
such Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable the seller or sellers of
Registrable Securities to consummate the disposition of such Registrable
Securities;
(vi) notify each seller of Registrable Securities
at any time when a prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such Registration Statement contains
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made, and the
Company shall promptly prepare a supplement or amendment to such prospectus and
furnish to each seller a reasonable number of copies of such supplement to or
amendment of such prospectus as may be necessary so that, after delivery to the
purchasers of such Registrable Securities, such prospectus shall not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made;
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<PAGE> 20
(vii) enter into and perform customary agreements
(including an underwriting agreement in customary form with the Approved
Underwriter or Company Underwriter, if any, selected as provided in Section 3,
Section 4 or Section 5, as the case may be) and take such other actions as are
prudent and reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities;
(viii) make available for inspection by any seller
of Registrable Securities, any managing underwriter participating in any
disposition of such Registrable Securities pursuant to a Registration Statement,
Holders' Counsel, if any, and any attorney, accountant or other agent retained
by any such seller or any managing underwriter (each, an "Inspector" and
collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's and its
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspector in connection with such Registration Statement. Records that
the Company determines, in good faith, to be confidential and which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors unless
(x) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in the Registration Statement, (y) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction or (z) the information in such Records was known to the
Inspectors on a non-confidential basis prior to its disclosure by the Company or
has been made generally available to the public. Each seller of Registrable
Securities agrees that it shall, upon learning that disclosure of such Records
is sought in a court of competent jurisdiction, give notice to the Company and
allow the Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential;
(ix) if such sale is pursuant to an underwritten
offering, use its best efforts to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters or the
managing underwriter reasonably request;
(x) use its best efforts to furnish, at the request
of any seller of Registrable Securities on the date such securities are
delivered to the underwriters for sale pursuant to such registration or, if such
securities are not being sold through underwriters, on the date the Registration
Statement with respect to such securities becomes effective, an opinion, dated
such date, of counsel representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to the seller making
such request, covering such legal matters with respect to the registration in
respect of which such opinion is being given as such seller may reasonably
request and are customarily included in such opinions;
(xi) otherwise use its best efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable but no later than fifteen
(15) months after the effective date of the Registration Statement, an earnings
statement covering a period of twelve (12) months beginning after the effective
date of the Registration Statement, in a manner which satisfies the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder;
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<PAGE> 21
(xii) cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by the
Company are then listed, provided that the applicable listing requirements are
satisfied;
(xiii) keep Holders' Counsel, if any, advised in
writing as to the initiation and progress of any registration under Section 3,
Section 4 or Section 5 hereunder;
(xiv) cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc. (the "NASD"); and
(xv) take all other steps necessary to effect the
registration of the Registrable Securities contemplated hereby.
(b) Seller Information. The Company may require each
seller of Registrable Securities as to which any registration is being effected
to furnish to the Company such information regarding the distribution of such
securities as the Company may from time to time reasonably request in writing.
(c) Notice to Discontinue. Each Designated Holder of
Registrable Securities agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 8(a)(vi), such
Designated Holder shall forthwith discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Designated Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 8(a)(vi) and, if so
directed by the Company, such Designated Holder shall deliver to the Company (at
the Company's expense) all copies, other than permanent file copies then in such
Designated Holder's possession, of the prospectus covering such Registrable
Securities which is current at the time of receipt of such notice. If the
Company shall give any such notice, the Company shall extend the period during
which such Registration Statement shall be maintained effective pursuant to this
Agreement (including, without limitation, the period referred to in Section
8(a)(ii)) by the number of days during the period from and including the date of
the giving of such notice pursuant to Section 8(a)(vi) to and including the date
when the sellers of such Registrable Securities under such Registration
Statement shall have received the copies of the supplemented or amended
prospectus contemplated by and meeting the requirements of Section 8(a)(vi).
(d) Registration Expenses. The Company shall pay all
expenses arising from or incident to the performance of, or compliance with,
this Agreement, including, without limitation, (i) SEC, stock exchange and NASD
registration and filing fees, (ii) all fees and expenses incurred in complying
with securities or "blue sky" laws (including reasonable fees, charges and
disbursements of counsel in connection with "blue sky" qualifications of the
Registrable Securities), (iii) all printing, messenger and delivery expenses,
(iv) the fees, charges and disbursements of counsel to the Company and of the
Company's independent public accountants and any other legal or accounting fees,
charges and expenses incurred by the Company (including, without limitation, any
expenses arising from any "cold comfort" letters or any special audits incident
to or required by any registration or qualification) and, in the case of a
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<PAGE> 22
Demand Registration, subject to the provisions of Section 3(d), any reasonable
charges and expenses incurred by the Initiating Holders, including the
reasonable fees of Holders' counsel, if any, and (v) any liability insurance or
other premiums for insurance obtained in connection with any Demand Registration
or piggy-back registration thereon, Incidental Registration or S-3 Registration
pursuant to the terms of this Agreement, regardless of whether such Registration
Statement is declared effective. All of the expenses described in this Section
8(d) are referred to herein as "Registration Expenses."
9. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the fullest extent permitted by law, each
Designated Holder, its officers, directors, trustees, partners, employees,
advisors and agents and each Person who controls (within the meaning of the
Securities Act or the Exchange Act) such Designated Holder from and against any
and all losses, claims, damages, liabilities and expenses (including reasonable
costs of investigation) arising out of or based upon any untrue, or allegedly
untrue, statement of a material fact contained in any Registration Statement,
prospectus or preliminary prospectus or notification or offering circular (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information concerning such Designated
Holder furnished in writing to the Company by such Designated Holder expressly
for use therein. The Company shall also provide customary indemnities to any
underwriters of the Registrable Securities, their officers, directors and
employees and each Person who controls such underwriters (within the meaning of
the Securities Act and the Exchange Act) to the same extent as provided above
with respect to the indemnification of the Designated Holders of Registrable
Securities.
(b) Indemnification by Designated Holders. In connection
with any Registration Statement in which a Designated Holder is participating
pursuant to Section 3, Section 4 or Section 5 hereof, each such Designated
Holder shall furnish to the Company in writing such information with respect to
such Designated Holder as the Company may reasonably request or as may be
required by law for use in connection with any such Registration Statement or
prospectus and each Designated Holder agrees to indemnify and hold harmless, to
the fullest extent permitted by law, the Company, any underwriter retained by
the Company and their respective directors, officers, employees and each Person
who controls the Company or such underwriter (within the meaning of the
Securities Act and the Exchange Act) to the same extent as the foregoing
indemnity from the Company to the Designated Holders, but only with respect to
any such information with respect to such Designated Holder furnished in writing
to the Company by such Designated Holder expressly for use therein; provided,
however, that the total amount to be indemnified by such Designated Holder
pursuant to this Section 9(b) shall be limited to the net proceeds received by
such Designated Holder in the offering to which the Registration Statement or
prospectus relates unless the obligations of such Designated Holder hereunder
arise out of or are based upon willful misconduct of such Designated Holder.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder (the "Indemnified Party") agrees to give
prompt written notice to the
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<PAGE> 23
indemnifying party (the "Indemnifying Party") after the receipt by the
Indemnified Party of any written notice of the commencement of any action, suit,
proceeding or investigation or threat thereof made in writing for which the
Indemnified Party intends to claim indemnification or contribution pursuant to
this Agreement; provided, however, that the failure to so notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder unless the failure to give
such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action. If notice of commencement of any such action is given to the
Indemnifying Party as above provided, the Indemnifying Party shall be entitled
to participate in and, to the extent it may wish, jointly with any other
Indemnifying Party similarly notified, to assume the defense of such action at
its own expense, with counsel chosen by it and satisfactory to such Indemnified
Party. The Indemnified Party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel (other than reasonable costs of investigation) shall be
paid by the Indemnified Party unless (i) the Indemnifying Party agrees to pay
the same, (ii) the Indemnifying Party fails to assume the defense of such action
with counsel satisfactory to the Indemnified Party in its reasonable judgment or
(iii) in the reasonable opinion of the counsel to the Indemnified Party either
(x) representation of such Indemnified Party and the Indemnifying Party by the
same counsel would be inappropriate under applicable standards of professional
conduct or (y) there may be one or more legal defenses available to the
Indemnified Party which are different from or additional to those available to
the Indemnifying Party. In any of such cases, the Indemnifying Party shall not
have the right to assume the defense of such action on behalf of such
Indemnified Party. No Indemnifying Party shall be liable for any settlement
entered into without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the consent of such
Indemnified Party, effect any settlement of any pending or threatened proceeding
in respect of which such Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability for claims that are the subject matter of such proceeding.
(d) Contribution. If the indemnification provided for in
this Section 9 from the Indemnifying Party is unavailable to an Indemnified
Party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and Indemnified Party in connection
with the actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
faults of such Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact, has been made by, or relates to information
supplied by, such Indemnifying Party or Indemnified Party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Sections 9(a), 9(b)
and 9(c), any legal or other fees, charges or expenses reasonably incurred by
such party in connection with any investigation or proceeding; provided that the
total amount to be indemnified by a Designated Holder shall be limited to the
net proceeds received
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<PAGE> 24
by such Designated Holder in the offering unless the obligations of such
Designated Holder hereunder arise out of or are based upon willful misconduct of
such Designated Holder.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 9(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(e) Notwithstanding the foregoing provisions of this
Section 9, to the extent that the provisions relating to indemnification and
contribution in an underwriting agreement entered into by the Company in
connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
10. Rule 144. The Company covenants that it shall (a) file any
reports required to be filed by it under the Exchange Act and (b) take such
further action as each Designated Holder of Registrable Securities may
reasonably request (including providing any information necessary to comply with
Rules 144 and 144A under the Securities Act), all to the extent required from
time to time to enable such Designated Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rules 144 and 144A under the Securities Act, as such
rule may be amended from time to time, or (ii) any similar rules or regulations
hereafter adopted by the SEC. The Company shall, upon the request of any
Designated Holder of Registrable Securities, deliver to such Designated Holder a
written statement as to whether it has complied with such requirements.
11. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The provisions of
this Agreement shall apply, to the full extent set forth herein with respect to
(i) the shares of Common Stock, (ii) any and all shares of voting common stock
of the Company into which the shares of Common Stock are converted, exchanged or
substituted in any recapitalization or other capital reorganization by the
Company and (iii) any and all equity securities of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in conversion of, in exchange for
or in substitution of, the shares of Common Stock and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
recapitalizations and the like occurring after the date hereof. The Company
shall cause any successor or assign (whether by sale, merger or otherwise) to
enter into a new registration rights agreement with the Designated Holders on
terms substantially the same as this Agreement as a condition of any such
transaction.
(b) No Inconsistent Agreements. The Company represents and
warrants that it has not granted to any Person the right to request or require
the Company to register any securities issued by the Company, which rights have
not been terminated, other than the rights granted to the Designated Holders
herein. The Company shall not enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Designated
Holders in
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<PAGE> 25
this Agreement or grant any additional registration rights which are prior in
right to or inconsistent with the rights granted in this Agreement to any Person
or with respect to any securities that are not Registrable Securities.
(c) Remedies. The Designated Holders, in addition to being
entitled to exercise all rights granted by law, including recovery of damages,
shall be entitled to specific performance of their rights under this Agreement.
The Company agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the provisions of this
Agreement and hereby agrees to waive in any action for specific performance the
defense that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may be given, only if consented to in writing by (i) the Company, (ii) the
Existing Stockholders holding Registrable Securities representing (after giving
effect to any adjustments) at least a majority of the aggregate number of
Registrable Securities owned by all of the Existing Stockholders and Other New
Stockholders, (iii) the General Atlantic Stockholders holding Registrable
Securities representing (after giving effect to any adjustments) at least a
majority of the aggregate number of Registrable Securities owned by all of the
General Atlantic Stockholders, (iv) the TCI Stockholders holding Registrable
Securities representing (after giving effect to any adjustments) at least a
majority of the aggregate number of Registrable Securities owned by all of the
TCI Stockholders; provided, however, that no amendment or waiver shall be
binding upon a TCI Stockholder that, together with all Affiliates of such TCI
Stockholder, beneficially owns more than 4% of the Registrable Securities owned
by all of the TCI Stockholders unless such TCI Stockholder has consented in
writing to such amendment or waiver, (v) the Other New Stockholders holding
Registrable Securities representing (after giving effect to any adjustments) at
least a majority of the aggregate number of Registrable Securities owned by all
of the Other New Stockholders and (vi) the Merger Stockholders holding
Registrable Securities representing (after giving effect to any adjustments) at
least a majority of the aggregate number of Registrable Securities owned by all
of the Merger Stockholders. Any such written consent shall be binding upon the
Company and all of the Designated Holders.
(e) Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be made
by registered or certified first-class mail, return receipt requested,
telecopier, courier service, overnight mail or personal delivery:
(i) if to the Company:
Advantix, Inc.
4675 MacArthur Court, Suite 1400
Newport Beach, CA 92660
Telecopy: (7140 862-5412
Attention:
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with a copy to:
Brobeck, Phleger & Harrison L.L.P.
38 Technology Drive
Irvine, CA 92618-2301
Telecopy: (949) 790-6301
Attention: Bruce A. Hallett, Esq.
(ii) if to any of the General Atlantic
Stockholders:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, Connecticut 06830
Telecopy: (203) 622-8818
Attention: Mr. William E. Ford
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Matthew Nimetz, Esq.
(iii) if to a TCI Stockholder, at its address as
it appears on the record books of the
Company
with a copy to:
Bryan Cave LLP
Two North Central Avenue
Suite 2200
Phoenix, Arizona 85004-4406
and a copy to:
Buchalter, Nemer, Fields & Younger, A
Professional Corporation
601 South Figueroa Street, 24th Floor
Los Angeles, California 90017
Attn: Rick Cohen
23
<PAGE> 27
(iv) if to CMGI:
CMGI @ Ventures II, LLC
100 Brickstone Square, 5th Floor
Andover, MA 01810
Telecopy: (978) 684-3660
Attention: Guy Bradley
Andrew J. Hajducky III
with a copy to:
Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Street
Boston, MA 02110
Telecopy: (617) 951-1295
Attention: Thomas M. Camp, Esq.
(v) If to Liberty:
Liberty Ventures I, L.P.
200 South Broad Street, 8th Floor
Philadelphia, PA 19103
Fax: (215) 732-4644
Attention: David J. Robkin, Vice President
with a copy to:
Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Street
Boston, MA 02110
Fax: (617) 951-1295
Attention: Thomas M. Camp, Esq.
(vi) If to Intel:
Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95052
Attn: M & A Portfolio Manager (RN6-46)
(vii) if to a Merger Stockholder, at its address as
it appears on the record books of the Company
24
<PAGE> 28
with a copy to:
Roberts, Sheridan & Kotel
A Professional Corporation
Tower Forty-Nine
12 East 49th Street
New York, NY 10017
Fax: (212) 299-8686
Attn: William Brennan
(viii) if to any other Designated Holder, at its
address as it appears on the record books of
the Company.
All such notices and communications shall be deemed to have been
duly given when delivered by hand, if personally delivered; when delivered by
courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied.
(f) Successors and Assigns; Third Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of each of the parties hereto. The Demand Registration
rights and the S-3 Registration rights of the General Atlantic Stockholders, the
Existing Stockholders and the TCI Stockholders contained in Section 3 and
Section 5 hereof and the other rights of each of the General Atlantic
Stockholders, the Existing Stockholders and the TCI Stockholders with respect
thereto shall be, with respect to any Registrable Security, (i) automatically
transferred (A) in the case of such rights of the General Atlantic Stockholders,
among the General Atlantic Stockholders, (B) in the case of such rights of the
Existing Stockholders, among the Existing Stockholders and (C) in the case of
such rights of the TCI Stockholders, among the TCI Stockholders; and (ii) in all
other cases, transferred only with the consent of the Company. The incidental or
"piggy-back" registration rights of the Designated Holders contained in Sections
3(a) and 4 hereof and the other rights of each of the Designated Holders with
respect thereto shall be, with respect to any Registrable Security,
automatically transferred by such Designated Holder to any Person who is the
transferee of such Registrable Security, provided that such transferee holds at
least $2.5 million of Registrable Securities (subject to appropriate adjustment
for stock splits, stock dividends, combinations and other recapitalizations),
and (a) the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being
assigned; (b) such transferee or assignee agrees in writing to be bound by and
subject to the terms and conditions of this Agreement; and (c) such assignment
shall be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted under
the Securities Act. For the purposes of determining the number of Registrable
Securities held by a transferee or assignee, the holders of transferees and
assignees of a partnership who are partners or retired partners of such
partnership (including spouses and ancestors, lineal descendants and siblings of
such partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) shall be aggregated together and with the partnership;
provided that
25
<PAGE> 29
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking actions under this Agreement.
All of the obligations of the Company hereunder shall survive any such transfer.
No Person other than the parties hereto and their successors and permitted
assigns is intended to be a beneficiary of any of the rights granted hereunder.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD
TO THE PRINCIPLES OF CONFLICTS OF LAW OF ANY JURISDICTION.
(j) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, it being
intended that all of the rights and privileges of the Designated Holders shall
be enforceable to the fullest extent permitted by law.
(k) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and in the Stockholders Agreement. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter, including, without limitation, the Existing Agreement. Each of the TCI
Stockholders who is a party to the TCI Agreement hereby agrees that upon
execution of this Agreement, the TCI Agreement, which constitute the only
agreement between such TCI Stockholder, on the one hand, and TCI, on the other
hand, with respect to registration rights shall be terminated in its entirety
and replaced and superseded by this Agreement.
(l) Further Assurances. Each of the parties shall execute
such documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
26
<PAGE> 30
IN WITNESS WHEREOF, the undersigned have executed, or have caused
to be executed, this Agreement on the date first written above.
ADVANTIX, INC.
By:
--------------------------------
Name:
Title:
GENERAL ATLANTIC PARTNERS 46, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By:
--------------------------------
Name:
Title:
GENERAL ATLANTIC PARTNERS 54, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By:
--------------------------------
Name:
Title:
GAP COINVESTMENT PARTNERS, L.P.
By:
--------------------------------
Name:
Title:
GAP COINVESTMENT PARTNERS II, L.P.
By:
--------------------------------
Name:
Title:
27
<PAGE> 31
THE PROVIDENT BANK
By:
--------------------------------
Name:
Title:
R4 HOLDINGS L.L.C.
By:
--------------------------------
Name:
Title:
------------------------------------
James S. Cassano
------------------------------------
Laurence F. Schwartz
VENTANA EXPRESS, L.L.C.
By:
--------------------------------
Name:
Title:
HILL INTERNATIONAL, INC.
By:
--------------------------------
Name:
Title:
PLAYHOUSE SQUARE FOUNDATION
By:
--------------------------------
Name:
Title:
28
<PAGE> 32
THE SHAREHOLDERS' REPRESENTATIVE, as
representative of certain former
shareholders of Bay Area Seating
Serving, Inc.
By:
--------------------------------
Name: Harold Silen
Title: Shareholders'
Representative
INDUSTRIFORSIKRING, A.S.
By:
--------------------------------
Name:
Title:
------------------------------------
Walter J. Kczor, Jr.
CHRISTINA INVESTMENTS LTD.
By:
--------------------------------
Name:
Title:
HERITAGE FINANCE & TRUST COMPANY
By:
--------------------------------
Name:
Title:
ZESIGER CAPITAL GROUP LLC, As Agent
and Attorney-in-Fact for the ZCG
Investors listed on Schedule II
attached hereto
By:
--------------------------------
Name:
Title:
29
<PAGE> 33
ATTRACTOR INSTITUTIONAL LP
By: Attractor Ventures LLC,
its General Partner
By:
--------------------------------
Name:
Title:
ATTRACTOR VENTURES, LLC
By:
--------------------------------
Name:
Title:
THE JOHN D. AND CATHERINE T.
MACARTHUR FOUNDATION
By:
--------------------------------
Name:
Title:
ATTRACTOR LP
By: Attractor Ventures LLC, its
General Partner
By:
--------------------------------
Name:
Title:
30
<PAGE> 34
IDEALAB! CAPITAL PARTNERS I-A LP
By: idealab! Capital Management I,
LLC, its General Partner
By:
--------------------------------
Name: William S. Elkus
Title: Managing Member
IDEALAB! CAPITAL PARTNERS I-B LP
By: idealab! Capital Management I,
LLC, its General Partner
By:
--------------------------------
Name: William S. Elkus
Title: Managing Member
MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Inc.,
its Trading Advisor
By:
--------------------------------
Name:
Title:
REMINGTON INVESTMENTS STRATEGIES,
L.P.
By: Moore Capital Advisors, L.L.C.,
its General Partner
By:
--------------------------------
Name:
Title:
31
<PAGE> 35
MULTI-STRATEGIES FUND, L.P.
By: Moore Capital Management, Inc.,
its Trading Advisor
By:
--------------------------------
Name:
Title:
MUTLI-STRATEGIES FUND LTD.
By: Moore Capital Advisors, L.L.C.,
its General Partner
By:
--------------------------------
Name:
Title:
S.A.M. TRUST
By:
--------------------------------
Name:
Title:
SPORTS CAPITAL TICKETS, LLC
By:
--------------------------------
Name:
Title:
JACKSON INTERNATIONAL, LLC
By:
--------------------------------
Name:
Title:
32
<PAGE> 36
------------------------------------
Karen S. Goetz
------------------------------------
Christopher G. Smith
CMG @ VENTURES II, LLC
By:____________, its General Partner
By:
--------------------------------
Name:
Title:
33
<PAGE> 37
LIBERTY VENTURES I, L.P.
By:____________, its General Partner
By:
--------------------------------
Name:
Title:
BILL GROSS' IDEALAB
By:
--------------------------------
Name:
Title:
34
<PAGE> 1
EXHIBIT 10.9
AGREEMENT
THIS AGREEMENT is made and entered into as of the 21st day of May,
1999, by and between Advantix, Inc., a Delaware corporation (the "Company") and
Karen S. Goetz ("Goetz").
WHEREAS, the Company, TicketsLive Corporation, a New York corporation
("TicketsLive"), Advantix Acquisition II Corp., a Delaware corporation ("Merger
Sub"), and certain of the shareholders of TicketsLive, including Goetz, have
entered into an Agreement and Plan of Merger and Reorganization dated as of
March 18, 1999 (the "Merger Agreement"), pursuant to which Merger Sub will be
merged with and into TicketsLive and TicketsLive, as the surviving corporation,
will become a wholly owned subsidiary of the Company (the "Merger");
WHEREAS, in connection with the Merger, Goetz has been granted certain
"Piggyback" registration rights in connection with an initial public offering of
common stock of the Company (a "Company IPO"), pursuant to Section 4(b) of that
certain Third Amended and Restated Investor Rights Agreement dated as of March
__, 1999 by and among the Company and the stockholders named therein (the
"Investor Rights Agreement"); and
WHEREAS, the Company desires to grant to Goetz certain additional rights
in connection with the shares of Company common stock she is receiving in the
Merger.
NOW, THEREFORE, in consideration of the foregoing recitals and of the
agreements contained herein, the parties agree as follows:
1. Definitions. Capitalized terms used but not otherwise defined
herein shall have the respective meanings set forth in the Investor Rights
Agreement.
2. Underwriters' Cutback Put. In connection with a Company IPO, in
the event that (i) Goetz shall not have exercised either the Second Put or the
Third Put (as described in Section 3 and Section 4, respectively, below) and (i)
the Company Underwriter limits the number of securities to be included in the
registration and underwriting pursuant to Section 4(d) of the Investor Rights
Agreement such that all or a portion of the Requested Shares may not be
registered, Goetz shall have the right to obligate the Company to purchase up to
the difference (the "Unregistered Requested Shares") between (i) the number of
Requested Shares and (ii) the number of Requested Shares included in the Initial
Public Offering pursuant to Section 4(d) of the Investor Rights Agreement, at a
per share purchase price equal to the Company IPO price per share, less
underwriters' discounts and commissions. Goetz may exercise this right by giving
written notice of the election of this right to the Company in accordance with
Section 10.3 of the Merger Agreement not later than two (2) business days prior
to the date of filing of the Registration Statement in connection with a Company
IPO. The Company shall deliver payment for any Unregistered Requested Shares
with respect to which the Company shall have received notice pursuant to this
Section 2 within ten (10) Business Days following the closing of a Company IPO.
<PAGE> 2
3. Second Goetz Put. In the event the Company does not consummate a
Company IPO on or before August 31, 1999, Goetz shall have the right (the
"Second Put") to obligate the Company to repurchase from Goetz up to 1,400,000
shares (the "Second Put Shares") of Company Common Stock at a purchase price of
$4.16 per share. Goetz may exercise this right by giving written notice of the
election of this right to the Company in accordance with Section 10.3 of the
Merger Agreement at any time between August 1, 1999 and October 1, 1999. The
Company shall deliver payment for any Second Put Shares with respect to which
the Company shall have received notice pursuant to this Section 2 not later than
thirty (30) days following the date upon which the Company shall have received
such notice.
4. Third Goetz Put. In the event the Company does not consummate a
Company IPO on or before the second anniversary of the closing of the Merger
(the "Second Anniversary"), Goetz shall have the right (the "Third Put") to
obligate the Company to repurchase from Goetz up to 938,000 shares (the "Third
Put Shares") of Company Common Stock at a purchase price of $4.43 per share.
Goetz may exercise this right by giving written notice of the election of this
right to the Company in accordance with Section 10.3 of the Merger Agreement at
any time between thirty (30) days prior to the Second Anniversary and sixty (60)
days following the Second Anniversary. The Company shall deliver payment for any
Third Put Shares with respect to which the Company shall have received notice
pursuant to this Section 4 not later than thirty (30) days following the date
upon which the Company shall have received such notice.
5. General Provisions. Neither this Agreement nor any term or
provision hereof may be amended or modified in any manner without the express
prior written consent of the parties hereto. This Agreement and the rights and
obligations hereunder shall be governed by and construed in accordance with the
laws of the State of California. This Agreement may be executed simultaneously
in two counterparts, each of which shall be deemed an original but both of which
together shall constitute one and the same instrument. This Agreement supersedes
all prior agreements and understandings with respect to the subject matter
hereof, whether written or oral.
[Remainder of Page Intentionally Left Blank]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ADVANTIX, Inc.,
a Delaware corporation
By: /s/ JOHN M. MARKOVICH
-------------------------------------
Name: John M. Markovich
Title: Ch
/s/ KAREN S. GOETZ
----------------------------------------
Karen S. Goetz
[SIGNATURE PAGE TO GOETZ AGREEMENT]
3
<PAGE> 1
EXHIBIT 10.10
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
By and Among
ADVANTIX, INC.
ADVANTIX ACQUISITION CORP.,
TICKETS.COM, INC.
and
CERTAIN OF ITS STOCKHOLDERS
Dated as of January 26, 1999
1
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I THE MERGER.........................................................................2
1.1 The Merger....................................................................2
1.2 Closing.......................................................................2
1.3 Effective Time................................................................2
1.4 Effects of the Merger.........................................................2
1.5 Certificate of Incorporation; Bylaws..........................................2
1.6 Directors and Officers........................................................3
1.7 Merger Consideration; Conversion and Cancellation of Company Capital Stock....3
1.8 Dissenters' Rights............................................................4
1.9 Options and Warrants to Purchase Company Common Stock.........................5
1.10 Tax Consequences..............................................................6
1.11 Exemption from Registration...................................................6
1.12 Taking of Necessary Action; Further Action....................................6
ARTICLE II EXCHANGE OF SHARES................................................................6
2.1 Exchange Agent................................................................6
2.2 Exchange Fund.................................................................6
2.3 Escrow Fund...................................................................7
2.4 Exchange of Shares............................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE COMPANY STOCKHOLDERS.......9
3.1 Corporate Organization.......................................................10
3.2 Capitalization...............................................................10
3.3 Authority; No Violation......................................................11
3.4 Consents and Approvals.......................................................12
3.5 Financial Statements.........................................................13
3.6 Absence of Undisclosed Liabilities...........................................13
3.7 Absence of Certain Changes...................................................13
3.8 Legal Proceedings............................................................14
3.9 Restrictions on Business Activities..........................................15
3.10 Governmental Authorization; Compliance with Laws.............................15
3.11 Title and Condition of Personal Property.....................................15
3.12 Real and Leased Property.....................................................16
3.13 Intellectual Property........................................................17
3.14 Taxes........................................................................19
3.15 Environmental Matters........................................................19
3.16 Major Suppliers..............................................................20
3.17 List of Accounts.............................................................20
3.18 Employment Agreements........................................................20
3.19 Employee Benefit Plans.......................................................21
3.20 Labor Matters................................................................21
3.21 Contracts and Commitments....................................................22
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
3.22 Absence of Breaches or Defaults..............................................24
3.23 Insurance....................................................................24
3.24 Reorganization...............................................................24
3.25 Section 203 of the DGCL Not Applicable.......................................25
3.26 Brokers......................................................................25
3.27 Minute Books.................................................................25
3.28 Vote Required................................................................25
3.29 Employee Nondisclosure and Assignment of Inventions Agreements...............25
3.30 Year 2000 Compliance.........................................................25
3.31 Representations Complete.....................................................26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..........................26
4.1 Corporate Organization.......................................................26
4.2 Authority; No Violation......................................................26
4.3 Capitalization of Parent and Merger Sub......................................27
4.4 Subsidiaries.................................................................28
4.5 Consents and Approvals.......................................................28
4.6 Parent Financial Statements..................................................28
4.7 Absence of Undisclosed Liabilities...........................................29
4.8 Absence of Certain Changes...................................................29
4.9 Additional Representations and Warranties....................................30
4.10 Brokers......................................................................30
4.11 Vote Required................................................................30
4.12 Representations Complete. ..................................................30
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS.........................................30
5.1 Covenants of the Company.....................................................30
5.2 Covenants of Parent..........................................................32
ARTICLE VI ADDITIONAL AGREEMENTS............................................................33
6.1 Preparation of Information Statement.........................................33
6.2 Stockholders' Meetings.......................................................35
6.3 Access to Information........................................................35
6.4 Public Disclosure............................................................36
6.5 Intentionally Deleted........................................................36
6.6 Legal Requirements...........................................................36
6.7 Blue Sky Laws................................................................37
6.8 Company Stock Option Plan....................................................37
6.9 Board Representation; Appointment of Certain Officers........................38
6.10 Loan to the Company. .......................................................38
6.11 Reorganization...............................................................38
6.12 Control of Operations........................................................38
6.13 Change of Corporate Names....................................................38
6.14 Best Efforts and Further Assurances..........................................40
6.15 Amendments to Certificates of Designation....................................40
6.16 Stockholder Voting Agreements; Irrevocable Proxies...........................40
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.17 Stockholders Agreement.......................................................40
6.18 Investor Rights Agreement....................................................41
6.19 Company Stock Option Plan....................................................41
ARTICLE VII CONDITIONS PRECEDENT............................................................41
7.1 Conditions to Each Party's Obligation to Effect the Merger...................41
7.2 Conditions to Obligations of Parent and Merger Sub...........................42
7.3 Conditions to the Obligations of Company and Company Stockholders............44
ARTICLE VIII TERMINATION AND AMENDMENT......................................................45
8.1 Termination..................................................................45
8.2 Effect of Termination........................................................46
8.3 Amendment....................................................................46
8.4 Extension; Waiver............................................................46
ARTICLE IX INDEMNIFICATION AND ESCROW FUND..................................................47
9.1 Indemnity; Escrow Fund.......................................................47
9.2 Claims.......................................................................47
9.3 Objections to Claims.........................................................48
9.4 Attempt to Resolve Conflicts; Arbitration....................................48
9.5 Actions of the Stockholders' Agent...........................................51
9.6 Third-Party Claims...........................................................51
9.7 Limitations..................................................................51
9.8 No Limitation................................................................52
ARTICLE X GENERAL PROVISIONS................................................................52
10.1 Nonsurvival of Representations, Warranties and Agreements....................52
10.2 Expenses.....................................................................53
10.3 Notices......................................................................53
10.4 Governing Law................................................................54
10.5 Severability.................................................................55
10.6 Assignment; Binding Effect; Benefit..........................................55
10.7 Headings.....................................................................55
10.8 Entire Agreement.............................................................55
10.9 Counterparts.................................................................56
</TABLE>
iii
<PAGE> 5
EXHIBITS AND SCHEDULES
- ----------------------
Exhibit A Form of Escrow Agreement
Exhibit B Form of Promissory Note
Exhibit C Form of Stockholder Voting Agreement
Exhibit D Form of Irrevocable Proxy
Exhibit E Form of Amended Stockholders Agreement
Exhibit F Form of Second Amended Investor Rights Agreement
Exhibit G Form of Opinion of Company's counsel
Exhibit H Form of Stockholder Representation Agreement
Exhibit I Form of Opinion of Parent's counsel
Exhibit J Arbitration Procedures
Schedule I Company Stockholders
Schedule II Stockholders Executing Stockholders Representation Agreement
Schedule III Company Officers Constituting "Knowledge"
Schedule IV Parent Officers Constituting "Knowledge"
iv
<PAGE> 6
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this
"Agreement"), is made and entered into as of January 26, 1999, by and among
ADVANTIX, INC., a Delaware corporation ("Parent"), ADVANTIX ACQUISITION CORP., a
Delaware corporation and wholly-owned subsidiary of Parent ("Merger Sub"),
TICKETS.COM, INC., a Delaware corporation (the "Company"), and the individual
stockholders of the Company listed on Schedule I hereto (individually, a
"Company Stockholder" and collectively, the "Company Stockholders"). Merger Sub
and the Company are sometimes collectively referred to herein as the
"Constituent Corporations."
WHEREAS, the Boards of Directors of Parent, Merger Sub and the
Company have each determined that it is in the best interest of their respective
companies and in the best interest of their respective stockholders to
consummate the business combination transaction provided for herein in which
Merger Sub will, subject to the terms and conditions set forth herein, merge
with and into the Company (the "Merger"); and
WHEREAS, pursuant to the Merger, among other things, (i) all of
the outstanding shares of Common Stock, par value $.0001 per share, of the
Company ("Company Common Stock") shall be converted into shares of Common Stock,
par value $.0001 per share, of Parent ("Parent Common Stock"), (ii) all of the
outstanding shares of Series A Preferred Stock, par value $.0001 per share, of
the Company ("Company Series A Preferred") shall be converted into shares of
Series A1 Preferred Stock of Parent ("Parent Series A1 Preferred"), and (iii)
all of the outstanding shares of Series C Preferred Stock, par value $.0001 per
share, of the Company ("Company Series C Preferred") shall be converted into
shares of Series C Preferred Stock, par value $.0001 per share, of Parent
("Parent Series C Preferred"), in each case at the rate set forth herein. As
used herein, the Company Common Stock, Company Series A Preferred and Company
Series C Preferred are collectively referred to as the "Company Capital Stock"
and the Parent Common Stock, Series A Preferred Stock, par value $.0001 per
share, of Parent ("Parent Series A Preferred"), Parent Series A1 Preferred,
Series B Preferred Stock, par value $.0001 per share, of Parent ("Parent Series
B Preferred") and Parent Series C Preferred are collectively referred to as the
"Parent Capital Stock."
WHEREAS, for federal income tax purposes, it is intended that
the Merger will qualify as a tax-free reorganization under the provisions of
Section 368(a) of the United States Internal Revenue Code of 1986, as amended
(the "Code"); and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
1
<PAGE> 7
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
Agreement, in accordance with the applicable provisions of the General
Corporation Law of the State of Delaware (the "DGCL"), at the Effective Time (as
defined in Section 1.3 hereof), Merger Sub shall merge with and into the
Company. The Company shall be the surviving company (hereinafter sometimes
called the "Surviving Corporation") in the Merger, and shall continue its
corporate existence under the laws of the State of Delaware. Upon consummation
of the Merger, the separate corporate existence of Merger Sub shall terminate,
and the Company shall be a wholly-owned subsidiary of Parent.
1.2 Closing. The closing of the transactions contemplated hereby
(the "Closing") shall take place as soon as practicable after the satisfaction
or waiver of each of the conditions set forth in Article VII hereof or at such
other time as the parties hereto agree (the "Closing Date"), provided, however,
that the parties shall use reasonable commercial efforts to effect the Closing
on or prior to April 10, 1999. The Closing shall take place at the offices of
Brobeck, Phleger & Harrison LLP, 38 Technology Drive, Irvine, California or at
such other location as the parties hereto agree.
1.3 Effective Time. The Merger shall become effective upon the
filing of a Certificate of Merger with the Secretary of State of the State of
Delaware in such form as is required by, and executed in accordance with the
relevant provisions of, the DGCL on the Closing Date (the "Certificate of
Merger"). The term "Effective Time" shall be the date and time of the filing of
the Certificate of Merger with the Secretary of State of the State of Delaware
or such later time as is specified in the Certificate of Merger.
1.4 Effects of the Merger. At and after the Effective Time, the
Merger shall have the effects set forth in this Agreement, the Certificate of
Merger and the applicable provisions of the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.5 Certificate of Incorporation; Bylaws. At the Effective Time, the
Certificate of Incorporation of Merger Sub as in effect at the Effective Time,
shall be the Certificate of Incorporation of the Surviving Corporation until
thereafter amended in accordance with applicable law.
At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended in accordance with applicable law.
1.6 Directors and Officers. The directors and officers of Merger Sub
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation until their
respective successors are duly elected or appointed and qualified.
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1.7 Merger Consideration; Conversion and Cancellation of Company
Capital Stock. By virtue of the Merger without any action on the part of Parent,
Merger Sub, the Company or the holders of any Company Capital Stock or capital
stock of Merger Sub:
(a) Conversion of Company Capital Stock. Subject to the
terms and conditions of this Agreement, at the Effective Time, each share of
Company Capital Stock issued and outstanding immediately prior to the Effective
Time (other than Dissenting Shares (as hereinafter defined)) and all rights in
respect thereof shall be converted and exchanged for such number and class or
series of shares of Parent Capital Stock as set forth below:
(i) each share of Company Common Stock shall be
converted and exchanged for that number of shares of Parent Common Stock equal
to the quotient of (A) 20,691,212 divided by (B) the sum of (1) the number of
shares of Company Common Stock issued and outstanding immediately prior to the
Effective Time, (2) the number of shares of Company Common Stock into which the
Company Series A Preferred and Company Series C Preferred issued and outstanding
immediately prior to the Effective Time are convertible, and (3) the number of
shares of Company Common Stock issuable upon conversion or exercise of all other
securities convertible into Company Common Stock and all stock options, warrants
and other rights (if any) to purchase Company Common Stock issued and
outstanding immediately prior to the Effective Time (the "Exchange Ratio");
(ii) each share of Company Series A Preferred shall
be converted and exchanged for that number of shares of Parent Series A1
Preferred equal to the Exchange Ratio; and
(iii) each share of Company Series C Preferred shall
be converted and exchanged for that number of shares of Parent Series C
Preferred equal to the Exchange Ratio.
At the Effective Time, all shares of Company Capital Stock converted into the
right to receive shares of Parent Capital Stock at the Exchange Ratio (the
"Merger Consideration") pursuant to this Article I shall no longer be
outstanding and shall automatically be canceled and shall cease to exist, and
each certificate (each a "Certificate") previously representing any such shares
of Company Capital Stock shall thereafter only represent the right to receive
the shares of Parent Capital Stock into which the shares represented by such
Certificate have been converted pursuant to this Section 1.7(a). Certificates
previously representing shares of Company Capital Stock shall be exchanged for
shares of Parent Capital Stock upon surrender of such Certificates in accordance
with Section 2.4 hereof, without any interest.
(b) Cancellation of Company Capital Stock Owned by Parent or
Company. At the Effective Time, all shares of Company Capital Stock that are
owned by the Company as treasury stock, each share of Company Capital Stock
owned by Parent or any direct or indirect wholly owned subsidiary of Parent or
of the Company immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Company Stock Option Plan. At the Effective Time, the
Company's 1998 Stock Plan (the "Company Stock Option Plan") and all options to
purchase Company
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Common Stock then outstanding under the Company Stock Option Plan shall be
assumed by Parent in accordance with Sections 1.9 and 6.8 of this Agreement.
(d) Certain Adjustments to Exchange Ratio. The Exchange
Ratio shall be adjusted to reflect fully the effect of any stock split, reverse
split, stock dividend (including any dividend or distribution of securities
convertible into the applicable class or series of Company Capital Stock or
Parent Capital Stock), reorganization, recapitalization or other like change
with respect to the applicable class or series of Company Capital Stock or
Parent Capital Stock, any termination or cancellation of any previously granted
stock options or any issuances of stock options permitted by the terms hereof,
occurring after the date hereof and prior to the Effective Time.
(e) Conversion of Merger Sub Capital Stock. Each share of
Common Stock of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one newly and validly
issued, fully paid and nonassessable share of Common Stock of the Surviving
Corporation.
(f) Fractional Shares. No fraction of a share of Parent
Capital Stock will be issued, but in lieu thereof each holder of shares of
Company Capital Stock who would otherwise be entitled to a fraction of a share
of Parent Capital Stock (after aggregating all fractional shares of the
applicable class or series of Parent Capital Stock to be received by such
holder) shall receive from Parent an amount of cash (rounded to the nearest
whole cent) equal to the product of (i) such fraction, multiplied by (ii) $2.10.
1.8 Dissenters' Rights.
(a) Notwithstanding any provision of the Agreement to the
contrary, each share of Company Capital Stock that is issued and outstanding
immediately prior to the Effective Time and is held by stockholders who have not
voted such shares in favor of the approval and adoption of this Agreement and
who shall have properly demanded appraisal of such shares in accordance with
Section 262 of the DGCL ("Dissenting Shares") shall not be converted into the
right to receive the relevant Merger Consideration at the Effective Time, unless
and until the holder of such Dissenting Shares shall have failed to perfect or
shall have effectively withdrawn or lost such right to appraisal and payment
under the DGCL. If a holder of Dissenting Shares (a "Dissenting Stockholder")
shall have so failed to perfect or shall have effectively withdrawn or lost such
right to appraisal and payment, then, as of the Effective Time or the occurrence
of such event, whichever last occurs, such Dissenting Shares shall be converted
into and represent solely the right to receive the relevant Merger
Consideration, without any interest thereon, as provided in Section 1.7.
(b) The Company shall give Parent (i) prompt notice of any
written demands for appraisal, withdrawal of demands for appraisal and any other
instruments served pursuant to Section 262 of the DGCL and (ii) the opportunity
to direct all negotiations and proceedings with respect to demands for appraisal
under Section 262 of the DGCL. The Company agrees that prior to the Effective
Time, it will not, without the prior written consent of Parent, voluntarily make
or agree to make any payment with respect to, or settle or offer to settle, any
such demands.
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(c) Each holder of Dissenting Shares who becomes entitled,
pursuant to the provisions of Section 262 of the DGCL, to payment of his or her
Dissenting Shares shall receive payment therefor after the Effective Time from
the Surviving Corporation (but only after the amount thereof shall have been
agreed upon or finally determined pursuant to such provisions) and such shares
shall be canceled.
(d) Parent hereby assumes responsibility for the preparation
and delivery of any and all notices, documents, information or instruments
required by law to be delivered to stockholders of the Company in connection
with the provisions of Section 262 of the DGCL and for compliance of such
materials with any disclosure obligations imposed by applicable law.
1.9 Options and Warrants to Purchase Company Common Stock. At the
Effective Time, each option or warrant granted by the Company to purchase shares
of Company Common Stock (each, a "Company Stock Option") which is outstanding
and unexercised immediately prior to the Effective Time shall be assumed by
Parent and converted into an option or warrant to purchase shares of Parent
Common Stock in such number and at such exercise price as provided below and
otherwise having the same terms and conditions as in effect immediately prior to
the Effective Time (except to the extent that such terms, conditions and
restrictions may be altered in accordance with their terms as a result of the
Merger):
(a) the number of shares of Parent Common Stock to be
subject to the new option or warrant shall be equal to the product of (i) the
number of shares of Company Common Stock subject to the original option or
warrant and (ii) the Exchange Ratio;
(b) the exercise price per share of Parent Common Stock
under the new option or warrant shall be equal to the quotient of (i) the
exercise price per share of Company Common Stock under the original option or
warrant divided by (ii) the Exchange Ratio; and
(c) upon each exercise of options or warrants by a holder
thereof, the aggregate number of shares of Parent Common Stock deliverable upon
such exercise shall be rounded down, if necessary, to the nearest whole share
and the aggregate exercise price shall be rounded up, if necessary, to the
nearest cent.
The adjustments provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Code) shall be effected in a
manner consistent with the requirements of Section 424(a) of the Code.
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368(a) of
the Code.
1.11 Exemption from Registration. Assuming the accuracy of the
representations contained in the Stockholder Representation Agreements delivered
to Parent by those holders of Company Capital Stock set forth on Schedule II
hereto pursuant to Section 7.2 hereof and the Stockholder Voting Agreements
delivered to Parent by the Company Stockholders, the shares of Parent Capital
Stock to be issued in connection with the Merger will be issued in a transaction
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), by reason of Section 4(2) thereof.
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1.12 Taking of Necessary Action; Further Action. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
power and franchises of the Company, the officers and directors of the Company,
Parent and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
ARTICLE II
EXCHANGE OF SHARES
2.1 Exchange Agent. The Company and Parent shall mutually select an
agent to serve as exchange agent (the "Exchange Agent") in the Merger.
2.2 Exchange Fund. At or prior to the Effective Time, Parent shall
deposit, or shall cause to be deposited, with the Exchange Agent for the benefit
of the holders of Certificates, for exchange in accordance with this Article II
(i) certificates evidencing a number of shares of Parent Capital Stock for the
conversion of Company Capital Stock in accordance with the provisions of Section
1.7(a), less such numbers of shares of Parent Capital Stock as shall be
deposited into the Escrow Fund (as defined in Section 2.3 below) and (ii) cash
in an amount sufficient to provide for the payments to be made in lieu of
issuing any fractional shares of Parent Capital Stock as provided in Section
1.7(f) of this Agreement (such certificates and cash being hereinafter referred
to as the "Exchange Fund").
2.3 Escrow Fund.
(a) Deposit of Shares. At or prior to the Effective Time,
Parent shall cause to be issued in the name of each holder of a Certificate, a
certificate representing ten percent (10%) of the number of shares of the
applicable class or series of Parent Capital Stock to be received by such holder
in the Merger (the "Escrow Shares") and shall deposit the Escrow Shares on
behalf of such holders with the Escrow Agent to be held (together with any
monies exchanged for Escrowed Shares pursuant to paragraph (b) of this Section
2.3 and any shares of Parent Capital Stock distributed with respect to the
Escrowed Shares in a stock split or reverse stock split) in a fund (the "Escrow
Fund"), pursuant to the Escrow Agreement attached hereto as Exhibit A (the
"Escrow Agreement"), to be held in escrow in accordance with the terms and
conditions of such Escrow Agreement.
(b) Withdrawal of Shares During Escrow Period. At any time
during the twelve (12) month period following the Closing Date (the "Escrow
Period") each Holder may withdraw such Holder's shares of Parent Capital Stock
from the Escrow Fund by (i) delivering to each of the Escrow Agent and Parent a
notice (a "Withdrawal Notice") setting forth the number and class or series of
shares of Parent Capital Stock to be withdrawn, and (ii) by delivering to the
Escrow Agent a certified or bank cashier's check in an amount equal to the
product of (a) $2.10 and (b) the number of shares of Parent Capital Stock set
forth in the Withdrawal Notice. Promptly following receipt of such certified or
bank cashier's check, the Escrow Agent shall deliver to the Holder a certificate
or certificates representing the number of shares of Parent Capital Stock
withdrawn pursuant to the Withdrawal Notice.
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2.4 Exchange of Shares.
(a) Exchange Procedures. As soon as practicable after the
Effective Time, and in no event more than three (3) business days thereafter,
the Exchange Agent shall mail to each holder of record of a Certificate or
Certificates a form letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent) and instructions
for use in effecting the surrender of the Certificates in exchange for shares of
Parent Capital Stock and cash in lieu of any fractional shares, into which the
shares of Company Capital Stock shall have been converted pursuant to this
Agreement. The Company shall have the right to approve both the letter of
transmittal and the instructions prior to the Effective Time, which approval
shall not be unreasonably withheld. Upon surrender of a Certificate for exchange
and cancellation to the Exchange Agent, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing ninety percent (90%) of
that number of whole shares of the applicable class or series of Parent Capital
Stock which such holder has the right to receive pursuant to the provisions of
Section 1.7(a) and cash in the amount such holder has the right to receive
pursuant to the provisions of Section 1.7(f), and the Certificates so
surrendered shall forthwith be canceled. No interest will be paid or accrued on
the cash payable to holders of Certificates.
(b) Transfers of Ownership. If any payment for shares of
Company Capital Stock is to be made in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such payment that the Certificate so surrendered shall be properly
endorsed (or accompanied by an appropriate instrument of transfer) and otherwise
in proper form for transfer, and that the person requesting such exchange shall
pay to the Exchange Agent in advance any transfer or other taxes required by
reason of the payment of the relevant Merger Consideration to a person other
than the registered holder of the Certificate surrendered, or required for any
other reason, or shall establish to the satisfaction of the Exchange Agent that
such tax has been paid or is not payable.
(c) Distribution With Respect to Unexchanged Shares. No
dividends or other distributions declared or made after the date of this
Agreement with respect to Parent Capital Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Capital Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the Certificates representing whole shares of
Parent Capital Stock issued in exchange thereof, without interest, at the time
of such surrender, the amount of dividends or other distributions with a record
date after the Effective Time payable with respect to such whole shares of
Parent Capital Stock.
(d) No Liability. Notwithstanding anything to the contrary
in this Section 2.4, none of the Parent, Company, Exchange Agent, the Escrow
Agent, the Surviving Corporation or any other party hereto shall be liable to a
holder of shares of Parent Capital Stock or Company Capital Stock for any amount
properly paid to a public official pursuant to any applicable abandoned
property, escheat or similar law.
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(e) No Further Ownership Rights in Company Capital Stock.
The Merger Consideration paid upon the surrender for exchange of shares of
Company Capital Stock in accordance with the terms hereof (including any cash
paid in lieu of fractional shares), shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Capital Stock
and there shall be no further registration of transfers on the records of
Company of shares of Company Capital Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in Section 2.4.
(f) Lost, Stolen or Destroyed Certificates. In the event any
Certificate evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificates, upon the making of an affidavit of that fact
by the holder thereof, such shares of Parent Capital Stock and cash for
fractional shares, if any, as may be required pursuant to Section 2.4(a);
provided, that Parent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificates to indemnify Parent against any loss or cost incurred by or claim
that may be made against Parent, the Surviving Corporation, or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
(g) Transfer Restrictions; Legends. The shares of Parent
Capital Stock issued in the Merger shall not be transferable in the absence of
an effective registration statement under the Securities Act or an exemption
therefrom. In the absence of an effective registration statement under the
Securities Act, neither such shares of Parent Capital Stock nor any interest
therein shall be sold, transferred, assigned or otherwise disposed of, unless
Parent shall have previously received an opinion of counsel knowledgeable in
Federal securities law, in form and substance reasonably satisfactory to Parent,
to the effect that registration under the Securities Act is not required in
connection with such disposition. Parent shall be entitled to give stop transfer
instructions to its transfer agent with respect to such shares of Parent Capital
Stock in order to enforce the foregoing restrictions.
The certificate or certificates representing the shares of Parent
Capital Stock issued in the Merger shall bear the following legend restricting
the transfer thereof, in addition to any other legend required by applicable
law:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED."
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE COMPANY STOCKHOLDERS
For purposes of this Agreement, the phrases "knowledge of the Company,"
or "to the Company's knowledge", or references to the absence of "notice to the
Company" or the like shall refer to the actual knowledge after due inquiry of
those persons set forth on Schedule III attached hereto. Except as disclosed in
the disclosure schedule attached hereto (the "Company Disclosure Schedule"), the
Company and each of the Company Stockholders jointly and severally, except as
otherwise noted below, represent and warrant to Parent and Merger Sub as
follows:
3.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power and authority to own or lease its
properties and assets and to carry on its business as it is now being conducted,
and is qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such qualification necessary, except where
the failure to be so licensed or qualified (i) is related solely to the fact
that the Company is deemed to conduct commerce over the Internet or using
interstate telephone lines or through the use of an "800" number in a particular
jurisdiction, (ii) would not individually or in the aggregate have a Material
Adverse Effect (as defined below) or (iii) would not adversely affect the
ability of the Company to consummate the transactions contemplated hereby. To
the knowledge of the Company, the Company has not received notice from any
governmental authority that its business activities constitute the conduct of
business in any jurisdiction where the Company is not qualified to transact
business. The copies of the Certificate of Incorporation and Bylaws of the
Company which have previously been made available to Parent are true and correct
copies of such documents as in effect as of the date of this Agreement. For
purposes of this Agreement, an action, event or occurrence has a "Material
Adverse Effect" if it has, or could reasonably be expected to have, a material
adverse effect on the assets, liabilities, business, financial condition or
results of operations of the Company or Parent, as the case may be.
3.2 Capitalization.
(a) The authorized capital stock of the Company consists of
25,000,000 shares of Company Common Stock, and 25,000,000 shares of preferred
stock, par value $0.0001 per share, of which 3,250,000 shares have been
designated as Company Series A Preferred and 7,150,438 shares have been
designated as Company Series C Preferred. As of the date hereof, there are (i)
9,485,540 shares of Company Common Stock issued and outstanding and no shares of
Company Common Stock held by the Company as treasury stock, (ii) 3,000,000
shares of Company Series A Preferred, no shares of Series B Preferred Stock and
6,400,438 shares of Company Series C Preferred issued and outstanding, (iii)
5,456,658 shares of Company Common Stock reserved for issuance upon exercise of
outstanding stock options and (iv) an aggregate of 9,400,438 shares of Company
Common Stock reserved for issuance upon conversion of the Company Series A and
Series C Preferred Stock. All of the issued and outstanding shares of Company
Capital Stock were duly authorized and validly issued and are fully paid and
nonassessable and are free of any liens or encumbrances created by or resulting
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from the actions of the Company, and, except as set forth in Section 3.2(a) of
the Company Disclosure Schedule, are not subject to preemptive rights or rights
of first refusal created by statute, the Certificate of Incorporation or Bylaws
of the Company or any agreement to which the Company is a party or by which it
is bound. Except as set forth in Section 3.2(a) of the Company Disclosure
Schedule, to the knowledge of the Company, none of the outstanding shares of
Company Capital Stock were issued in violation of any applicable federal or
state securities law. Section 3.2(a) of the Company Disclosure Schedule sets
forth all outstanding subscriptions, options (including a schedule of exercise
prices, vesting and/or acceleration provisions), warrants, convertible
securities, calls, commitments, agreements or obligations of any character
calling for the purchase, redemption or issuance of any shares of Company
Capital Stock or any other equity security of the Company or any securities
representing the right to purchase or otherwise receive any shares of Company
Capital Stock or any other equity security of the Company (collectively,
"Capital Stock Purchase Rights"). Except as reflected in Section 3.2(a) of the
Company Disclosure Schedule, the Company does not have, and is not bound by, any
outstanding Capital Stock Purchase Rights. The terms of the Company Stock Option
Plan permit the assumption or substitution of options to purchase Parent Common
Stock as provided in this Agreement, without the consent or approval of the
holders of such securities, the Company Stockholders, or otherwise and without
any acceleration of the exercise schedule or vesting provisions in effect for
those options, except as set forth in Section 3.2(a) of the Company Disclosure
Schedule. True and complete copies of all forms of agreements and instruments
relating to or issued under the Company Stock Option Plan have been made
available to Parent and such agreements and instruments have not been amended,
modified or supplemented, and except as set forth in Section 3.2(a) of the
Company Disclosure Schedule, there are no agreements to amend, modify or
supplement such agreements or instruments in any case from the form made
available to Parent.
(b) The Company does not presently own or control, directly
or indirectly, and has no stock or other interest as owner or principal in, any
other corporation, partnership, limited liability company, joint venture,
business, trust, association or other business venture or entity.
3.3 Authority; No Violation.
(a) The Company has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The Board of
Directors of the Company has (i) unanimously approved this Agreement and the
Merger and all transactions contemplated hereby, (ii) determined that the Merger
is in the best interests of the stockholders of the Company and is on terms that
are fair to such stockholders and (iii) determined that this Agreement is
advisable and recommended that the stockholders of the Company approve this
Agreement and consummation of the Merger. Except for the adoption of this
Agreement by the requisite votes of the Company's stockholders, no other
corporate proceedings on the part of the Company are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
and all other agreements and documents to be entered into in connection herewith
have been duly and validly executed and delivered by the Company and (assuming
due authorization, execution and delivery by Parent and Merger Sub) constitute
valid and binding obligations of the Company, enforceable against the Company,
except as enforcement may be
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limited by general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally. Each of the Company Stockholders
severally (and not jointly) represents that this Agreement and all other
agreements and documents to be entered into in connection herewith have been
duly and validly executed and delivered by each of the Company Stockholders and
(assuming due authorization, execution and delivery by Parent and Merger Sub)
constitute valid and binding obligations of each of the Company Stockholders,
enforceable against each of the Company Stockholders, except as enforcement may
be limited by general principles of equity whether applied in a court of law or
a court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(b) Except as set forth in Section 3.3(b) of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement by the
Company nor the consummation by the Company of the transactions contemplated
hereby, nor compliance by the Company with any of the terms or provisions
hereof, will (i) violate any provision of the Certificate of Incorporation or
Bylaws of the Company, (ii) assuming that the consents and approvals referred to
in Section 3.4 hereof are duly obtained, violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to the
Company or any of its properties or assets or (iii) violate, conflict with,
result in a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the properties or assets of the Company under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
the Company is a party, or by which the Company or any of its properties or
assets may be bound or affected.
(c) Each of the Company Stockholders severally (and not
jointly) represents that, except as set forth in Section 3.3(c) of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement by
each of the Company Stockholders, nor the consummation by each of the Company
Stockholders of the transactions contemplated hereby, nor compliance by each of
the Company Stockholders with any of the terms or provisions hereof, will (i)
assuming that the consents and approvals referred to in Section 3.4 hereof are
duly obtained, violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to the Company Stockholders or any
of their respective properties or assets or (ii) violate, conflict with, result
in a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the properties or assets of any of the Company
Stockholders under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which any of the Company Stockholders is a party, or
by which any of the Company Stockholders or any of their respective properties
or assets may be bound or affected.
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3.4 Consents and Approvals. Except for (a) the approval of this
Agreement by the requisite vote of the stockholders of the Company, (b) the
filing of Certificate of Merger with the Secretary of State of the State of
Delaware pursuant to Section 251(c) of the DGCL, and (c) such filings,
authorizations or approvals as may be set forth in Section 3.4 of the Company
Disclosure Schedule, no consents, approvals, orders or authorizations of or
filings or registrations with any court, administrative agency or commission or
other governmental authority or instrumentality (each a "Governmental Entity")
or with any third party are necessary with respect to the Company or any of the
Company Stockholders in connection with (1) the execution and delivery of this
Agreement and (2) the consummation of the Merger and the other transactions
contemplated hereby, except for those which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company or a Material Adverse Effect on the ability of the parties to consummate
the transactions contemplated hereby.
3.5 Financial Statements. Set forth in Section 3.5 of the Company
Disclosure Schedule are true and correct copies of (a) an unaudited balance
sheet of the Company at December 31, 1997, together with related unaudited
statements of operations, stockholders' equity and cash flows for the fiscal
year then ended, and (b) the Company's unaudited balance sheet and statement of
operations as of and for the year ended December 31, 1998 (the "Reference
Balance Sheet Date") (collectively, the "Financial Statements"). Such Financial
Statements have been prepared in accordance with generally accepted accounting
principles ("GAAP") (except that the unaudited Financial Statements do not
contain all footnotes required by GAAP and are subject to normal year-end audit
adjustments that in the aggregate, with the exception of certain adjustments
related to compensation expense in connection with stock options, will not be
material) applied on a basis consistent throughout the periods indicated and
with each other. The Financial Statements (a) are complete and correct in all
material respects, (b) are in accordance with the Company's books and records,
and (c) fairly present the financial condition and operating results of the
Company as of the dates, and for the periods indicated therein, subject to
normal year-end audit adjustments. Except as disclosed in the Financial
Statements, the Company is not a guarantor or indemnitor of any indebtedness of
any other person, firm or corporation. The books and records of the Company have
been, and are being, maintained in accordance with GAAP and any other applicable
legal and accounting requirements.
3.6 Absence of Undisclosed Liabilities. Except as set forth on
Section 3.6 of the Company Disclosure Schedule, the Company has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those disclosed or reserved against in its unaudited
balance sheet as of December 31, 1998 (the "Reference Balance Sheet"), (ii)
those incurred in the ordinary course of business and not required to be set
forth in the Reference Balance Sheet under GAAP, (iii) those incurred in the
ordinary course of business since the Reference Balance Sheet Date and
consistent with past practice, and (iv) those incurred in connection with the
execution of this Agreement.
3.7 Absence of Certain Changes. Except as disclosed in Section 3.7
of the Company Disclosure Schedule, since the Reference Balance Sheet Date, the
Company has conducted its business in the ordinary course consistent with past
practice, and except for transactions contemplated or authorized hereby, there
has not occurred (i) any purchase or other acquisition of, sale, lease,
disposition, or other transfer of, or mortgage, pledge or subjection to
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any material encumbrance or lien on, any material asset, tangible or intangible,
of the Company, other than in the ordinary course of business; (ii) any change
in accounting methods or practices (including any change in depreciation or
amortization policies or rates) by the Company or any revaluation by the Company
of any of its assets; (iii) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of Company Capital
Stock, or any split-up or other recapitalization in respect of Company Capital
Stock, or any direct or indirect redemption, purchase or other acquisition by
the Company of any shares of Company Capital Stock; (iv) any material contract
entered into by the Company, other than in the ordinary course of business and
as provided to Parent, or any amendment or termination of, or default under, any
material contract to which the Company is a party or by which it is bound; (v)
any amendment or change to the Certificate of Incorporation or Bylaws of the
Company; (vi) any increase in or modification of the compensation or benefits
payable or to become payable by the Company to any of its directors or
employees; (vii) any issuance, transfer, sale or pledge by the Company of any
shares of Company Capital Stock or other securities or of any commitment,
option, right or privilege under which the Company is or may become obligated to
issue any shares of Company Capital Stock or other securities; (viii) any
indebtedness for borrowed money incurred by the Company, except such as may have
been incurred or entered into in the ordinary course of business not exceeding
$25,000; (ix) any loan made or agreed to be made by the Company, nor has the
Company become liable or agreed to become liable as a guarantor with respect to
any loan; (x) any waiver or compromise by the Company of any right or rights or
any payment, direct or indirect, of any material debt, liability or other
obligation, other than in the ordinary course of business; (xi) any sale,
assignment, or transfer of any patents, trademarks, copyrights, domain names,
URLs, trade secrets or other intangible assets, including, without limitation,
the telephone number (800) 842-5387 ("800 TICKETS"), (888) 842-5387 ("888
TICKETS"), "tickets.com" and "etickets.com," other than in the ordinary course
of business; (xii) any actual or, to the knowledge of the Company, threatened
termination or loss of (a) any material contract, lease, license or other
agreement to which the Company was or is a party; (b) any certificate, license
or other authorization required for the continued operation by the Company of
any portion of any of its business; or (c) termination or loss of any customer
or other revenue source, which termination or loss could reasonably be expected
to result in loss of revenues to the Company in excess of $50,000 per year, and
the Company has no knowledge of any event (including, without limitation, the
transactions contemplated hereby) which could reasonably be expected to result
in any such termination or loss; (xiii) any resignation of employment of any key
officer or employee of the Company, or to the knowledge of the Company, any
impending resignation of employment of any such officer or employee; (xiv) any
negotiation or agreement by the Company to do any of the things described in the
preceding clauses (i) through (xiii) (other than negotiations with Parent and
its representatives regarding the transactions contemplated by this Agreement);
or (xv) to the Company's knowledge, any other event or circumstance that will
have or could reasonably be expected to have a Material Adverse Effect on the
Company.
3.8 Legal Proceedings. Except as set forth in Section 3.8 of the
Company Disclosure Schedule, there are no legal actions, suits, arbitrations or
other legal, administrative or governmental proceedings or investigations
pending or, to the knowledge of the Company, threatened against the Company or
its properties, assets or business in which an unfavorable outcome, ruling or
finding would have a Material Adverse Effect, and neither the Company nor any of
the Company Stockholders is aware of any facts which might result in or form the
basis for any such action, suit or other proceeding or which would challenge the
validity or propriety
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of the transactions contemplated by this Agreement. The Company is not in
default with respect to any judgment, order or decree of any court or any
governmental agency or instrumentality which would have a Material Adverse
Effect. The foregoing includes, without limiting the generality thereof, actions
pending, or to the Company's knowledge, threatened or involving the prior
employment of any of the Company's employees or their use in connection with the
Company's business of any information or techniques allegedly proprietary to a
former employee.
3.9 Restrictions on Business Activities. To the Company's knowledge,
there is no agreement, judgment, injunction, order or decree binding upon the
Company which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any current or future business practice of
the Company, any acquisition of property by the Company, the ability of the
Company to compete with any other person or the conduct of business by the
Company as currently conducted or as proposed to be conducted by the Company.
3.10 Governmental Authorization; Compliance with Laws. Except as set
forth in Section 3.10 of the Company Disclosure Schedule, the Company has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which the Company currently operates or holds any interest in any of
its properties or (ii) that is required for the operation of the Company's
business or the holding of any such interest ((i) and (ii) herein collectively
called the "Company Authorizations"), and all of such Company Authorizations are
in full force and effect, except where the failure to obtain or have any such
Company Authorizations could not reasonably be expected to have a Material
Adverse Effect on the Company. To the Company's knowledge, except as set forth
in Section 3.10 of the Company Disclosure Schedule, the Company is in material
compliance with all applicable laws, statutes, orders, rules and regulations of
any Governmental Entity relating to the Company except where the failure to do
so would not have a Material Adverse Effect, and the Company has not received
notice of any violations of any of the above.
3.11 Title and Condition of Personal Property. The Company has
marketable title to all of its personal property reflected in the Reference
Balance Sheet or acquired after the Reference Balance Sheet Date (other than
property sold or otherwise disposed of since the Reference Balance Sheet Date in
the ordinary course of business), free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character or claims thereto,
except (i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and would not reasonably
be expected to have a Material Adverse Effect on the Company and (iii) liens
securing debt which is reflected on the Reference Balance Sheet. The plants,
property and equipment of the Company that are used in the operations of its
business are in all material respects in good operating condition and repair.
All properties used in the operations of the Company are reflected in the
Reference Balance Sheet to the extent GAAP requires the same to be reflected.
3.12 Real and Leased Property.
(a) The Company does not own any fee simple interest in real
property. The Company does not lease or sublease any real property other than as
set forth on Section 3.12
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of the Company Disclosure Schedule. Section 3.12 of the Company Disclosure
Schedule sets forth the street address of each parcel of real property leased or
subleased by the Company (the "Leased Property"). The Company has previously
delivered to Parent a true and complete copy of all of the lease and sublease
agreements, as amended to date (the "Leases") relating to the Leased Property.
The Leases are valid, binding and in full force and effect, all rent and other
sums and charges payable thereunder are current, no notice of default or
termination under any of the Leases is outstanding, no termination event or
condition or uncured default on the part of the Company or, on the part of the
landlord or sublandlord, as the case may be, thereunder, exists under the
Leases, and no event has occurred and no condition exists which, with the giving
of notice or the lapse of time or both, would constitute such a default or
termination event or condition. There are no subleases, licenses or other
agreements granting to any person other than the Company any right to the
possession, use, occupancy or enjoyment of the premises demised by the Leases.
All of the premises are used in the conduct of the Company's business.
(b) The heating, ventilation, air conditioning, plumbing and
electrical systems at the Leased Property are in such working order and repair
as is necessary to permit the Company's computer and information systems to
function properly without material disruption on the date hereof and will be in
such working order and repair on the Closing Date. The Company has not
experienced any material interruption in material services provided to any of
the Leased Property within the last six (6) months. To the knowledge of the
Company, no landlord under the Leases has any plans to make any material
alterations to any of the Leased Property, the construction of which would
materially and adversely interfere with the Company's use of the Leased
Property. To the knowledge of the Company, no landlord under the Leases has any
plans to make any material alterations to any of the buildings in which Leased
Property is located, the costs of which alterations would be borne in any part
by a tenant under the applicable Lease.
(c) Section 3.12 of the Company Disclosure Schedule sets
forth all material permits, licenses, franchises, approvals and authorizations
(collectively, the "Real Property Permits") required to be obtained by the
Company from all Governmental Entities having jurisdiction over each Leased
Property and from all insurance companies and fire rating and other similar
boards and organizations (collectively, the "Insurance Organizations"). All such
Real Property Permits required to be obtained by the Company to enable each
Leased Property to be lawfully occupied and used for all of the purposes for
which they are currently occupied and have been lawfully issued to the Company
and are, as of the date hereof, in full force and effect. The Company has not
received or been informed by a third party of the receipt by it of any notice
from any Governmental Entity having jurisdiction over any Leased Property or
from any Insurance Organization threatening a suspension, revocation,
modification or cancellation of any Real Property Permit or of any insurance
policies and, to the best knowledge and belief of the Company there is no basis
for the issuance of any such notice or the taking of any such action. No action
is required in order for all Real Property Permits and liability and casualty
insurance policies required under any of the Leases to remain Real Property
Permits and insurance policies of the Surviving Corporation.
(d) The Company has not received any notice, nor has it any
knowledge, of any pending, threatened or contemplated condemnation proceeding
affecting any Leased Property or any part thereof.
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(e) There are no liabilities (other than rent and other sums
and charges regularly payable) associated with any of the Leases including,
without limitation, any liability under any Environmental and Safety Laws (as
defined in Section 3.15), which is or which may become payable by the Surviving
Corporation.
3.13 Intellectual Property.
(a) Section 3.13(a) of the Company Disclosure Schedule sets
forth an accurate and complete description of (i) all foreign and domestic
patents, patent applications, inventions not the subject of any issued patent or
patent application, trademarks, trademark applications, service marks, trade
names, product names or other marks in which the Company has common law
trademark rights, copyrights, domain names and URLs of the Company which are
registered or issued or for which registration or issuance is pending with any
Governmental Entity specifying as to each such item, as applicable, the
jurisdiction(s) by or in which such patent, trademark, service mark, trade name
or copyright has been issued or registered or in which an application for such
issuance or registration has been filed or proposed, including the registration
or application number; (ii) all foreign and domestic franchises, licenses,
sublicenses, contracts and agreements, pursuant to which any person other than
the Company is authorized to use any foreign and domestic patents, inventions
not the subject of any issued patent or patent application, trademarks, trade
names, service marks, product names or other marks in which the Company has
common law trademark rights, copyrights, domain names, URLs, and any
applications therefor, net lists, schematics, technology, know-how (except for
shared know-how), trade secrets, inventory, ideas, algorithms, processes,
computer software programs or applications (in both source code and object code
form), and tangible or intangible proprietary information or material
("Intellectual Property") owned by the Company; and (iii) all foreign and
domestic franchises, licenses, sublicenses, contracts and agreements, other than
shrink-wrap software licenses, pursuant to which the Company is authorized to
use any such Intellectual Property not owned by the Company (except for shared
know-how) ("Third Party Intellectual Property Rights")[ including, with respect
to (ii) or (iii), the identity of all parties thereto, a description of the
nature and subject matter thereof, the royalty provided and the term thereof.]
(b) Except as set forth in Section 3.13(b) of the Company
Disclosure Schedule, the Company owns or has the right to use, pursuant to
franchise, license, sublicense, contract, agreement or permission, all of the
Intellectual Property necessary for the conduct of its business as currently
conducted or as proposed to be conducted by the Company. All applicable fees,
royalties and other amounts due and payable by the Company to any person or to
the Company by any person in respect of such Intellectual Property have been
paid. The Company has taken all reasonably necessary actions to maintain and
protect (i) the Intellectual Property that it owns and (ii) the Intellectual
Property that it has the right to use and is contractually required to protect.
(c) Except for third party licenses listed in Section
3.13(c) of the Company Disclosure Schedule, the Company is the sole and
exclusive owner of its Intellectual Property including, but not limited to,
those listed or described on the Company Disclosure Schedule, or has the right
to the use thereof for the material covered thereby in connection with the
services or products in respect to which they have been or are now being used.
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(d) Except as set forth in Section 3.13(d) of the Company
Disclosure Schedule, the Company (i) is not the subject of any pending
litigation or, to the Company's knowledge, any claim regarding infringement of
or misappropriation or misuse of any Intellectual Property of the Company or
other tangible right of any other person, (ii) does not have knowledge of any
such infringement, whether or not claimed by any other person, and (iii) does
not have knowledge of any facts or circumstances which would reasonably be
anticipated to result in any such litigation or claim or which would reasonably
lead the Company to conclude that the continued operation and conduct of any
aspect of its business would result in any such litigation or claim. To the
knowledge of the Company, except as set forth in Section 3.13(d) of the Company
Disclosure Schedule, there is no other person that is operating under or
otherwise using any name confusingly similar with any trade names, trademarks,
service names, service marks or logos included in the Intellectual Property
owned by the Company. To the Company's knowledge, no Intellectual Property
licensed by the Company from a third party is subject to any outstanding order,
judgment, decree, stipulation or agreement restricting the use thereof by the
Company. Except as set forth in Section 3.13(d) of the Company Disclosure
Schedule, no Intellectual Property of the Company is subject to any outstanding
order, judgment, decree, stipulation or agreement restricting the use thereof by
the Company. Except as set forth in Section 3.13(d) of the Company Disclosure
Schedule, the Company has not entered into any agreement to indemnify any other
person against any charge of infringement of any Intellectual Property.
(e) To the Company's knowledge, there has been no
unauthorized use, disclosure, infringement or misappropriation by any third
party, including any employee or former employee of the Company, of any
Intellectual Property rights of the Company, any trade secret material to the
Company, or any Third Party Intellectual Property Rights.
(f) The Company is not nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other agreement
relating to the Intellectual Property or Third Party Intellectual Property
Rights.
(g) Except as set forth in Section 3.13(g) of the Company
Disclosure Schedule, to the Company's knowledge, no material trade secrets
included in the Intellectual Property of the Company have been disclosed by the
Company to any person other than employees, agents and representatives of the
Company or Parent. Except as set forth in Section 3.13(g) of the Company
Disclosure Schedule, the Company has taken reasonable measures to protect all of
its trade secrets, including securing valid written assignments from all
consultants and employees who contributed to the creation or development of
Intellectual Property of the rights to such contributions that the Company does
not already own by operation of law.
(h) Except for obligations that arise under the common law
of the appropriate jurisdiction, to the Company's knowledge, neither the Company
nor its employees has, other than confidentiality and other agreements assigning
inventions made prior to their employment with the Company, any written
agreements or arrangements with former employers of such employees relating to
trade secrets of such employers, the assignment of inventions of such employers,
or such employee's engagement in activities competitive with such employers.
Except for obligations that arise under the common law of the appropriate
jurisdiction, to the
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Company's knowledge, the activities of such employees on behalf of the Company
do not violate any agreements or arrangements known to the Company which any
such employees have with former employers.
3.14 Taxes.
(a) Except as set forth in Section 3.14(a) of the Company
Disclosure Schedule, the Company has duly and timely filed (including applicable
extensions granted without penalty) all material Tax Returns (as hereinafter
defined) required to be filed at or prior to the Effective Time, and such Tax
Returns are true and correct in all material respects, except where failure to
do so would not have a Material Adverse Effect, and the Company has paid in full
or made adequate provision in the financial statements of the Company (in
accordance with GAAP) for all material Taxes (as hereinafter defined) shown to
be due on such Tax Returns except where failure to do so would not have a
Material Adverse Effect. Except as set forth in Section 3.14(a) of the Company
Disclosure Schedule, as of the date hereof (i) the Company has not requested any
extension of time within which to file any Tax Returns in respect of any fiscal
year which have not since been filed and no request for waivers of the time to
assess any Taxes are pending or outstanding, (ii) no claim for Taxes has become
a lien against the property of the Company or is being asserted against the
Company other than liens for Taxes not yet due and payable, (iii) no audit of
any Tax Return of the Company is being conducted by a Tax authority, (iv) no
extension of the statute of limitations on the assessment of any Taxes has been
granted to the Company and is currently in effect, and (v) there is no
agreement, contract or arrangement to which the Company is a party that may
result in the payment of any amount that would not be deductible by reason of
Sections 280G, 162 or 404 of the Code. The Company has not been nor will it be
required to include any adjustment in taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any comparable
provision under state or foreign Tax laws as a result of transactions, events or
accounting methods employed prior to the Merger.
(b) For the purposes of this Agreement, "Tax" or "Taxes"
shall mean all taxes, charges, fees, levies, penalties or other assessments
imposed by any United States federal, state, local or foreign taxing authority,
including, but not limited to income, excise, property, sales, transfer,
franchise, payroll, withholding, social security or other taxes, including any
interest, penalties or additions attributable thereto. For purposes of this
Agreement, "Tax Return" shall mean any return, report, information return or
other document (including any related or supporting information) with respect to
Taxes.
3.15 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any
federal, state or local laws, ordinances, codes, regulations, rules, policies
and orders that are intended to assure the protection of the environment, or
that classify, regulate, call for the remediation of, require reporting with
respect to, or list or define air, water, groundwater, solid waste, hazardous or
toxic substances, materials, wastes, pollutants or contaminants, or which are
intended to assure the safety of employees, workers or other persons, including
the public.
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(ii) "Facilities" shall mean all buildings and
improvements located on any real property leased or subleased by the Company.
(b) The Company represents and warrants as follows: (i) the
Company has received no notice (oral or written) of any noncompliance of the
Facilities or its past or present operations with Environmental and Safety Laws;
(ii) no notices, administrative actions or suits are pending or, to the
Company's knowledge, threatened relating to a violation of any Environmental and
Safety Laws; (iii) the Company has not been notified that it is a potentially
responsible party under the federal Comprehensive Environmental Response,
Compensation and Liability Act, or state analog statute, arising out of events
occurring prior to the Closing Date; (iv) to the Company's knowledge, the
Company's uses of and activities within the Facilities have at all times
complied with all Environmental and Safety Laws; and (v) the Company has all the
permits and licenses required by Environmental and Safety Laws to be issued and
are in full compliance with the terms and conditions of those permits.
3.16 Major Suppliers. Section 3.16 of the Company Disclosure Schedule
identifies those suppliers of significant goods or services with respect to
which, to the knowledge of the Company, alternative sources of supply are not
readily available on comparable terms and conditions. To the knowledge of the
Company, except as indicated in Section 3.16 of the Company Disclosure Schedule,
all supplies and services necessary for the conduct of the business of the
Company as presently conducted, may be obtained from alternate sources on terms
and conditions comparable to those presently available to the Company, and no
facts, circumstances or conditions exist which create a reasonable basis for
believing that the Company will be unable to continue to procure the supplies
and services necessary to conduct its business on substantially the same terms
and conditions as such supplies and services are currently procured.
3.17 List of Accounts. Set forth in Section 3.17 of the Company
Disclosure Schedule is: (a) the name and address of each bank or other
institution in which the Company maintains an account (cash, securities or
other) or safe deposit box; (b) the name and phone number of the contact person
at such bank or institution and (c) the account number of the relevant account
and a description of the type of account.
3.18 Employment Agreements. Section 3.18 of the Company Disclosure
Schedule contains the names, job descriptions and annual salary rates and other
compensation of all officers, directors and employees of the Company or
consultants whose annual compensation by the Company exceeds $75,000. A list of
all employee policies, employee manuals or other written statements of rules or
policies as to working conditions, vacation and sick leave, and a complete copy
of each has been made available to Parent. Except as set forth in Section 3.18
of the Company Disclosure Schedule, there are no employment, consulting,
severance or indemnification arrangements, agreements or understandings between
the Company and any officer, director, consultant or employee including, without
limitation, any contracts to employ executive officers, any severance, change in
control or similar arrangements with any officers, employees or agents of the
Company that will result in any obligation (absolute or contingent) of the
Company to make any payment to any officer, employee or agent of the Company
following either the consummation of the transactions contemplated hereby,
termination of employment, or both ("Company Employment Agreements").
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3.19 Employee Benefit Plans. The Company has no employee benefit
plans (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended).
3.20 Labor Matters. (a) Except as set forth in Section 3.20(a) of the
Company Disclosure Schedule, (a) the Company is not a party to or otherwise
bound by any collective bargaining agreement or other labor union contract and
currently there are no organizational campaigns, petitions or other unionization
activities seeking recognition of a collective bargaining unit which could
affect the Company; (b) to the Company's knowledge, there are no controversies,
strikes, slowdowns, work stoppages or labor disturbances pending or threatened
between the Company and any of its employees, and the Company has not
experienced any such controversy, strike, slowdown, work stoppage or labor
disturbances within the past three years; (c) the Company has not breached or
otherwise failed to comply with the provisions of any collective bargaining or
union contract and there are no grievances outstanding against the Company under
any such agreement or contract; (d) there are no unfair labor practice
complaints pending against the Company before the National Labor Relations Board
or any other Governmental Entity or any current union representation questions
involving employees of the Company; (e) there are no pending claims against the
Company under any workers' compensation plan or policy or for long-term
disability; (f) the Company does not have any obligations under COBRA with
respect to any former employees or qualifying beneficiaries thereunder; (g) the
Company is currently in material compliance with all applicable laws relating to
the employment of labor, including those related to wages, hours, collective
bargaining and the payment and withholding of taxes and other sums as required
by the appropriate Governmental Entity and has withheld and paid to the
appropriate Governmental Entity or is holding for payment not yet due to such
Governmental Entity all amounts required to be withheld from employees of the
Company and is not liable for any arrears of wages, taxes, penalties or other
sums for failure to comply with any of the foregoing; (h) the Company has paid
in full to all their respective employees or adequately accrued for in
accordance with GAAP all wages, salaries, commissions, bonuses, benefits and
other compensation due to or on behalf of such employees, including all
compensation owing and due for over-time work; (i) the Company has provided its
employees with all relocation benefits, stock options, bonuses and incentives,
and all other compensation that such employee has earned up through the date of
this Agreement or that such employee was otherwise promised in their employment
agreements with the Company; (j) to the Company's knowledge, there is no claim
with respect to payment of wages, salary or overtime pay that has been asserted
or is now pending or threatened before any Governmental Entity with respect to
any Persons currently or formerly employed by the Company; (k) the Company is
not a party to, or otherwise bound by, any consent decree with, or citation by,
any Governmental Entity relating to employees or employment practices; (l) to
the Company's knowledge, there is no charge or proceeding with respect to a
violation of any occupational safety or health standards that has been asserted
or is now pending or threatened with respect to the Company; (m) there is no
charge of discrimination in employment or employment practices, for any reason,
including, without limitation, age, gender, race, religion or other legally
protected category, which has been asserted or is now pending or threatened
before the United States Equal Employment Opportunity Commission, or any other
Governmental Entity in any jurisdiction in which the Company has employed or
currently employs any Person; (n) to the Company's knowledge, the Company is in
material compliance with the requirements of the Americans With Disabilities
Act; and (o) the Company is in material compliance with the
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requirements of the Workers Adjustment and Retraining Notification Act ("WARN")
and has no liabilities pursuant to WARN.
(b) Except as set forth in Section 3.20 of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
severance benefits or any other payment (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any current or former director, employee or other service
provider of the Company, (ii) increase any benefits otherwise payable by the
Company or (iii) result in the acceleration of the time of payment or vesting of
any such benefits, or increase in the amount of compensation of benefits due any
such person.
3.21 Contracts and Commitments. Section 3.21 of the Company
Disclosure Schedule contains a complete and accurate list of all contracts and
agreements (including, without limitation, oral and informal arrangements) of
the following categories to which the Company is a party or by which it is bound
as of the date of this Agreement.
(a) labor contracts or collective bargaining agreements;
(b) material manufacturing, distribution, franchise,
license, sales, agency or advertising contracts;
(c) contracts which require the payment in excess of $50,000
per year for (i) the purchase of inventory, materials, supplies or equipment
which are not cancelable (without material penalty, cost or other liability)
within one (1) year, (ii) management, consulting, service or other similar
contracts, (iii) advertising or marketing agreements or arrangements, and (iv)
other contracts made in the ordinary course of business involving annual
expenditures or liabilities in excess of $50,000 which are not cancelable
(without material penalty, cost or other liability) within ninety (90) days,
other than purchase orders made in the ordinary course of business consistent
with past practice;
(d) promissory notes, loans, agreements, indentures,
evidences of indebtedness or other instruments proving for the lending of money,
whether as borrower, lender or guarantor, in excess of $50,000;
(e) contracts (other than Leases) containing covenants
limiting the freedom of the Company to engage in any line of business or compete
with any person or operate at any location;
(f) joint venture or partnership agreements or joint
development or similar agreements;
(g) agreements, contracts or other arrangements with (i) the
Company or any affiliate of the Company or (ii) any current or former officer,
director or employee of the Company or any affiliate of the Company;
(h) leases or similar agreements with any person under which
(i) the Company is lessee of, or holds or uses, any machinery, equipment,
vehicle or other tangible
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personal property owned by any person or (ii) the Company is a lessor or
sublessor of, or makes available for use by any person, any tangible personal
property owned or leased by the Company, in any such case which has an aggregate
future liability or receivable, as the case may be, in excess of $50,000 and is
not terminable by the Company by notice of not more than sixty (60) days for a
cost of less than $10,000;
(i) material license, option or other agreements relating in
whole or in part to the Intellectual Property described in Section 3.13
(including any license or other agreement under which the Company is licensee or
licensor of any such Intellectual Property);
(j) contracts or other instruments (including so-called
take-or-pay or keepwell agreements) under which (i) any person has directly or
indirectly guaranteed indebtedness, liabilities or obligations of the Company or
(ii) the Company has directly or indirectly guaranteed indebtedness, liabilities
or obligations of any person (in each case other than endorsements for the
purpose of collection in the ordinary course of business);
(k) contracts or other instruments under which the Company
has, directly or indirectly, made any advance, loan, extension of credit or
capital contribution to, or other investment in, any person involving aggregate
payments in excess of $50,000;
(l) mortgages, pledges, security agreements, deeds of trust
or other instruments granting a lien or other encumbrance upon any property of
the Company;
(m) agreements or instruments involving aggregate payments
in excess of $50,000 providing for indemnification of any person with respect to
liabilities relating to any current or former business of the Company, or any
predecessor entity;
(n) contracts for the acquisition, sale or lease of any
assets or capital stock or other ownership interests outside the ordinary course
of business or involving aggregate payments in excess of $50,000 or to effect
any merger of the Company; and
(o) any exclusive retainer agreement or arrangement with
attorneys, accountants, actuaries, appraisers, investment bankers or other
professional advisors.
True copies of the written contracts identified in Section 3.21 of the
Company Disclosure Schedule have been delivered to Parent.
3.22 Absence of Breaches or Defaults. The Company is not and, to the
knowledge of the Company, no other party is, in default under, or in breach or
violation of, any contract identified on Section 3.21 of the Company Disclosure
Schedule and, to the knowledge of the Company, no event has occurred which, with
the giving of notice or passage of time or both would constitute a default under
any contact identified on Section 3.21 of the Company Disclosure Schedule,
except for defaults, breaches, violations or events which, individually or in
the aggregate, would not have a Material Adverse Effect on the Company. Other
than contracts which have terminated or expired in accordance with their terms,
each of the contracts identified on Section 3.21 of the Company Disclosure
Schedule is valid, binding and enforceable (subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles
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(whether considered in a proceeding in equity or at law)) and is in full force
and effect, and assuming all consents required by the terms thereof or
applicable law have been obtained, such contracts will continue to be valid,
binding and enforceable and in full force and effect immediately following the
consummation of the transactions contemplated hereby, in each case except where
the failure to be valid, binding, enforceable and in full force and effect would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. No event has occurred which either entitles, or would, on notice or
lapse of time or both, entitle the holder of any indebtedness for borrowed money
affecting the Company (except for the execution or consummation of this
Agreement) to accelerate, or which does accelerate, the maturity of any
indebtedness affecting the Company, except as set forth in Section 3.22 of the
Company Disclosure Schedule.
3.23 Insurance. Section 3.23 of the Company Disclosure Schedule sets
forth a true and complete list of all insurance policies providing insurance
coverage of any nature to the Company. Such policies are sufficient for
compliance by the Company with all requirements of law and all material
agreements to which the Company is a party or by which any of its assets are
bound. All of such policies are in full force and effect and are valid and
enforceable in accordance with their terms, and the Company has complied with
all material terms and conditions of such policies, including premium payments.
None of the insurance carriers has indicated to the Company an intention to
cancel any such policy. The Company does not have any claim pending against any
of the insurance carriers under any of such policies and there has been no
actual or alleged occurrence of any kind which may give rise to any such claim.
3.24 Reorganization. Neither the Company nor, to the knowledge of the
Company, any of its directors, officers or stockholders has taken any action
which would prevent the Merger from constituting a reorganization qualifying
under the provisions of Section 368(a)(2)(E) of the Code.
3.25 Section 203 of the DGCL Not Applicable. The Board of Directors
of the Company has taken all actions so that the restrictions contained in
Section 203 of the DGCL applicable to a "business combination" (as defined in
Section 203) will not apply to the execution, delivery or performance of this
Agreement or to the consummation of the Merger or the other transactions
contemplated by this Agreement.
3.26 Brokers. Except as set forth in Section 3.26 of the Company
Disclosure Schedule, neither the Company nor any of its officers or directors
has employed any broker or finder or incurred any liability for any broker's
fees, commissions or finder's fees in connection with any of the transactions
contemplated by this Agreement.
3.27 Minute Books. Except as set forth in Section 3.27 of the Company
Disclosure Schedule, the minute books of the Company made available to Parent
contain a complete and accurate summary of all meetings of directors and
stockholders or actions by written consent since the time of incorporation of
the Company through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately.
3.28 Vote Required. The affirmative vote of (i) the holders of a
majority of the shares of Company Common Stock, (ii) the holders of a majority
of the shares of Company
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Series A Preferred, voting separately as a class, and (ii) the holders a
majority of the shares of Company Series C Preferred, voting separately as a
class, in each case outstanding on the record date set for the Company
Stockholders Meeting (as defined in Section 6.1 below), are the only votes of
the holders of any of Company Capital Stock necessary to approve this Agreement
and the transactions contemplated hereby (including the amendment of the
Certificate of Designation of the Company Series A Preferred and the Certificate
of Designation of the Company Series C Preferred).
3.29 Employee Nondisclosure and Assignment of Inventions Agreements.
Except as set forth in Section 3.29 of the Company Disclosure Schedule, each
employee of the Company with access to Intellectual Property has executed and
delivered to the Company the standard agreement regarding confidentiality and
assignment of inventions in the form previously delivered to Parent.
3.30 Year 2000 Compliance. Except as set forth in Section 3.30 to the
Company Disclosure Schedule, (a) the software and hardware utilized by the
Company in connection with its business will deliver, receive, store and process
date information in the same manner before, during and after January 1, 2000 and
(b) no material expenditures are contemplated by the Company or, to the
Company's knowledge, are necessary to remediate such software and hardware in
connection with processing data information.
3.31 Representations Complete. None of the representations or
warranties made by the Company or the Company Stockholders herein or in any
Schedule hereto, including the Company Disclosure Schedule, or certificate
furnished by the Company pursuant to this Agreement, when all such documents are
read together in their entirety, contains or will contain at the Effective Time
any untrue statement of a material fact, or omits or will omit at the Effective
Time to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which made,
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
For purposes of this Agreement, the phrases "knowledge of Parent and
Merger Sub," or "to Parent's and Merger Sub's knowledge" or references to the
absence of "notice to Parent and Merger Sub" and the like shall mean the actual
knowledge after due inquiry of those persons set forth on Schedule IV attached
hereto. Except as set forth in the disclosure schedule attached hereto (the
"Parent Disclosure Schedule"), Parent and Merger Sub hereby jointly and
severally represent and warrant to the Company as follows:
4.1 Corporate Organization. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
the State of Delaware. Parent and Merger Sub have the corporate power and
authority to own or lease their respective properties and assets and to carry on
their respective businesses as they are now being conducted, and are duly
qualified to do business in each jurisdiction in which the nature of the
business conducted by them or the character or location of the properties and
assets owned or leased by them makes such qualification necessary, except where
the failure to be so qualified (i) would
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not individually or in the aggregate have a Material Adverse Effect or (ii)
would not adversely affect the ability of Parent or Merger Sub to consummate the
transactions contemplated hereby. The copies of the Certificate of Incorporation
and Bylaws of Parent and Merger Sub which have previously been made available to
the Company are true and correct copies of such documents as in effect as of the
date of this Agreement.
4.2 Authority; No Violation.
(a) Each of Parent and Merger Sub has the requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The Board of Directors of Parent has (i) unanimously approved this
Agreement and the Merger and all transactions contemplated hereby, (ii)
determined that the Merger is in the best interests of the stockholders of
Parent and is on terms that are fair to such stockholders and (iii) determined
that this Agreement is advisable and recommended that the stockholders of Parent
approve this Agreement and consummation of the Merger. The Board of Directors
and the stockholder of Merger Sub have approved this Agreement and the Merger
and all transactions contemplated hereby. Except for such approvals of Parent's
stockholders as may be required by law or Parent's Certificate of Incorporation,
no other corporate proceedings on the part of Parent or Merger Sub are necessary
to approve this Agreement and to consummate the transactions contemplated
hereby. This Agreement and all other agreements and documents to be entered into
in connection herewith have been duly and validly executed and delivered by
Parent and Merger Sub and (assuming due authorization, execution and delivery by
the Company and Company Stockholders) constitute valid and binding obligations
of Parent and Merger Sub, enforceable against each of them, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(b) Except as set forth in Section 4.2(b) of the Parent
Disclosure Schedule, neither the execution and delivery of this Agreement by
Parent and Merger Sub, nor the consummation by Parent and Merger Sub of the
transactions contemplated hereby, nor compliance by Parent and Merger Sub with
any of the terms or provisions hereof, will (i) violate any provision of the
Certificate of Incorporation or Bylaws of Parent or Merger Sub, or (ii) assuming
that the consents and approvals referred to in Section 4.5 hereof are duly
obtained, (x) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Parent or Merger Sub or any of
their respective properties or assets, or (y) violate, conflict with, result in
a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the properties or assets of Parent or Merger Sub under,
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which Parent or Merger Sub is a party, or by which either of them
or any of their respective properties or assets may be bound or affected.
4.3 Capitalization of Parent and Merger Sub.
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(a) As of December 31, 1998, Parent's authorized capital
stock consisted solely of (i) 100,000,000 shares of Parent Common Stock, of
which (A) 16,171,091 shares were issued and outstanding, (B) no shares were
issued and held in treasury (which does not include the shares reserved for
issuance set forth in clause (C) below) and no shares were held by Subsidiaries
of Parent, and (C) 12,225,000 shares were reserved for issuance upon the
exercise of outstanding options and 37,554,287 shares were reserved for issuance
upon the conversion or exchange of convertible or exchangeable securities
granted or issued by Parent; and (ii) 35,000,000 shares of Parent Preferred
Stock of which 8,440,002 shares were designated as Series A Preferred of which
8,440,002 shares were issued and outstanding, 9,500,000 shares were designated
as Series B Preferred, of which 9,499,874 shares were issued and outstanding,
and 11,597,112 shares were designated Series C Preferred, of which 11,547,112
shares were issued and outstanding. Each outstanding share of Parent Capital
Stock is, and all shares of Parent Capital Stock to be issued in connection with
the Merger will be, duly authorized and validly issued, fully paid and
nonassessable, and each outstanding share of Parent Capital Stock has not been,
and all shares of Parent Capital Stock to be issued in connection with the
Merger will not be, issued in violation of any preemptive or similar rights. As
of the date hereof, other than as set forth herein or in Section 4.3 of the
Parent Disclosure Schedule, there are no outstanding subscriptions, options,
warrants, calls, commitments, agreements, or obligations of any character
calling for the purchase, redemption or issuance by Parent of any equity
securities of Parent, nor are there outstanding any securities which are
convertible into or exchangeable for any shares of Parent Capital Stock and
neither Parent nor any Subsidiary has any obligation of any kind to issue any
additional securities or to pay for or repurchase any securities of Parent, its
Subsidiaries or its or their predecessors. Except as set forth in Section 4.3 of
the Parent Disclosure Schedule, Parent has no agreement, arrangement or
understanding to register any securities of Parent or any of its Subsidiaries
under the Securities Act or under any state securities law and has not granted
registration rights to any person or entity; copies of all such agreements have
previously been provided to the Company.
(b) Merger Sub's authorized capital stock consists solely of
10,000 shares of Common Stock, par value $.0001 per share ("Merger Sub Common
Stock"), of which, as of the date hereof, 1,000 shares are issued and
outstanding and none are reserved for issuance. As of the date hereof, all of
the outstanding shares of Merger Sub Common Stock are owned free and clear of
any liens, claims or encumbrances by Parent.
4.4 Subsidiaries. Section 4.4 of the Parent Disclosure Schedule sets
forth a list of all of Parent's subsidiaries ("Subsidiaries"). Except as set
forth in Section 4.4 of the Parent Disclosure Schedule, Parent owns directly or
indirectly each of the outstanding shares of capital stock (or other ownership
interests having by their terms ordinary voting power to elect a majority of
directors or others performing similar functions) of each of such Subsidiaries.
4.5 Consents and Approvals. Neither the execution and delivery of
this Agreement by Parent or Merger Sub nor the consummation of the transactions
contemplated hereby will require any action or consent or approval of, or review
by, or registration or filing by Parent or any of its affiliates with, any third
party or any Governmental Entity, other than (i) registrations or other actions
required under federal and state securities laws as are contemplated by this
Agreement or (ii) consents or approvals of any Governmental Entity set forth in
Section 4.5 to the Parent Disclosure Schedule, except for those which would not,
individually or in the
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aggregate, reasonably be expected to have a Material Adverse Effect on Parent
and its Subsidiaries taken as a whole or a Material Adverse Effect on the
ability of the parties to consummate the transactions contemplated hereby.
4.6 Parent Financial Statements. Set forth in Section 4.6 of Parent
Disclosure Schedule are true and correct copies of (a) an audited consolidated
balance sheet of Parent at December 31, 1997, together with related audited
statements of operations, stockholders' equity and cash flows for the fiscal
year then ended, and (b) Parent's unaudited consolidated balance sheet (the
"Parent Balance Sheet") and income statement as of and for the year ended
December 31, 1998 (collectively, the "Parent Financial Statements"). Such Parent
Financial Statements have been prepared in accordance with GAAP (except that the
unaudited Parent Financial Statements do not contain all footnotes required by
GAAP and are subject to normal year-end audit adjustments that in the aggregate
will not be material) applied on a basis consistent throughout the periods
indicated and with each other. The Parent Financial Statements fairly present
the consolidated financial condition and operating results of Parent as of the
dates, and for the periods indicated therein, subject to normal year-end audit
adjustments. The books and records of Parent have been, and are being,
maintained in accordance with GAAP and any other applicable legal and accounting
requirements.
4.7 Absence of Undisclosed Liabilities. Except (i) as and to the
extent disclosed or reserved against in the Parent Balance Sheet, (ii) as
incurred in the ordinary course of business and consistent with past practice
and not prohibited by this Agreement, (iii) as incurred in connection with the
execution of this Agreement and (iv) as disclosed in Section 4.7 of the Parent
Disclosure Schedule, Parent, together with its Subsidiaries, does not have any
liabilities or obligations of any nature, whether known or unknown, absolute,
accrued, contingent or otherwise and whether due or to become due, that,
individually or in the aggregate, have or would have a Material Adverse Effect
on Parent and its Subsidiaries, taken as a whole.
4.8 Absence of Certain Changes. Since December 31, 1998, (a) except
as disclosed in Section 4.8 of Parent Disclosure Schedule, there has not been
any change that would have a Material Adverse Effect on the assets, business,
properties, operations or financial condition of Parent and its Subsidiaries,
taken as a whole, or any condition, event or occurrence that, individually or in
the aggregate, could reasonably be expected to result in a Material Adverse
Effect on Parent, (b) neither Parent nor any of its Subsidiaries has
participated in any transaction, or otherwise acted outside the ordinary course
of business, including, without limitation, declaring or paying any dividend or
declaring or making any distribution to its stockholders except out of the
earnings of Parent and (c) neither Parent nor any of its Subsidiaries has
increased the compensation of any of its officers or the rate of pay of any of
its employees, except as part of regular compensation increases in the ordinary
course of business.
4.9 Additional Representations and Warranties. Except as disclosed
in Section 4.9 of the Parent Disclosure Schedule, the representations and
warranties of Parent set forth in Sections 3.5, 3.6, 3.8, 3.9, 3.12, 3.14, 3.16
through 3.18 and 3.20 through 3.27 (the "Series C Representations") of that
certain Stock Purchase Agreement, dated May 26, 1998, by and among Parent,
General Atlantic Partners 46, L.P., GAP Coinvestment Partners, L.P. and Bayview
Investors, Ltd. (the "Series C Purchase Agreement") are true and correct in all
material respects as of the date hereof. For the purposes of this Section 4.9,
all capitalized terms used in the Series
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C Representations and not otherwise defined herein shall have the meanings given
to them in Section 1.1 of the Series C Purchase Agreement. All schedules
referred to in the Series C Representations shall refer to the applicable
schedules set forth in Section 4.9 of the Parent Disclosure Schedule.
4.10 Brokers. Except as set forth in Section 4.10 of the Parent
Disclosure Schedule, neither Parent, Merger Sub, nor any of their respective
officers or directors has employed any broker or finder or incurred any
liability for any broker's fees, commissions or finder's fees in connection with
any of the transactions contemplated by this Agreement.
4.11 Vote Required. The affirmative vote of (i) the holders of a
majority of the shares of Parent Common Stock, (ii) the holders of a majority of
the shares of Parent Series A Preferred, voting separately as a class, (iii) the
holders of a majority of the shares of Parent Series B Preferred, voting
separately as a class, and (iv) the holders of a majority of the shares of
Parent Series C Preferred, voting separately as a class, in each case
outstanding on the record date set for the Parent Stockholders Meeting (as
defined in Section 6.1 below), are the only votes of the holders of any of
Parent Capital Stock necessary to approve this Agreement and the transactions
contemplated hereby.
4.12 Representations Complete. None of the representations or
warranties made by Parent or Merger Sub herein or in any Schedule hereto,
including the Parent Disclosure Schedule, or certificate furnished by the Parent
pursuant to this Agreement, when all such documents are read together in their
entirety, contains or will contain at the Effective Time any untrue statement of
a material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company. During the period from the date of
this Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
Parent, the Company shall carry on its business in the ordinary course
consistent with past practice. Without limiting the generality of the foregoing,
and except as previously disclosed by the Company to Parent in writing or as
otherwise contemplated by this Agreement or consented to in writing by Parent,
the Company shall not:
(a) declare or pay any dividends on, or make other
distributions in respect of, any of Company Capital Stock;
(b) (i) repurchase, redeem or otherwise acquire any shares
of Company Capital Stock, or any securities convertible into or exercisable for
any shares of Company Capital Stock, (ii) split, combine or reclassify any
shares of Company Capital Stock or issue or authorize or propose the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
Company Capital Stock, or (iii) issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock or any
securities convertible into or
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exercisable for, or any rights, warrants or options to acquire, any such shares,
or enter into any agreement with respect to any of the foregoing; provided,
however, that Parent agrees that it shall review in good faith any proposal by
the Company to issue stock options in connection with the hiring of any new
employee or the engagement of any consultant or service provider by the Company;
(c) amend its Certificate of Incorporation or Bylaws;
(d) make any capital expenditures other than those which are
made in the ordinary course of business or are necessary to maintain existing
assets in good repair;
(e) enter into any new line of business, except as
contemplated hereby;
(f) acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire any assets, which would be material, individually or in the
aggregate, to the Company;
(g) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in Article I not being satisfied;
(h) make a material change in its methods of accounting in
effect at December 31, 1998, except as required by changes in GAAP or as
concurred with by the Company's independent auditors;
(i) (i) except as required by applicable law or as required
to maintain qualification pursuant to the Code, adopt, amend, or terminate any
employee benefit plan or any agreement, arrangement, plan or policy between the
Company and one or more of its current or former directors, officers or
employees, except that the Company may pay retention bonuses as described in
Section 5.1(i) of the Company Disclosure Schedule or (ii) except for normal
increases in the ordinary course of business consistent with past practice or
except as required by applicable law, increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit not
required by any employment or similar agreement in effect as of the date hereof
(including, without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units or performance
units or shares); provided, however, that nothing contained herein shall
prohibit the Company (x) from paying 1998 bonuses under any employment agreement
or bonus arrangements listed in Section 5.1(i) of the Company Disclosure
Schedule (the "Bonus Arrangements") consistent with past practices, except that
in determining the amounts of such bonuses, the Company shall be entitled to
disregard the effect (including, without limitation, the cost) of any actions
taken by the Company in contemplation of the Merger or at the request of Parent,
or (y) from entering into the severance arrangements described in Section 5.1(i)
of the Company Disclosure Schedule;
(j) other than activities in the ordinary course of business
consistent with past practice, sell, lease, encumber, assign or otherwise
dispose of, or agree to sell, lease,
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encumber, assign or otherwise dispose of, any of its material assets, properties
or other rights or agreements;
(k) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money or assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other individual, corporation or other entity, except for the
loan from Parent contemplated by Section 6.10 hereof; provided, however, that if
Company does not receive by January 29, 1999 the funds to be loaned by Parent
pursuant to and in accordance with the terms of the Promissory Note (as defined
in Section 6.10), then the provisions of this Section 5.1(k) shall not apply,
and the provisions of Sections 5(b)(iii), (c), (g) and (j) shall not apply to
the extent necessary to permit the Company to obtain alternative short-term
financing through the issuance of debt and/or convertible securities or the
granting of liens to secure such short-term financing; provided further,
however, that the immediately foregoing proviso shall not be deemed to be or
construed as a waiver by Parent or Merger Sub of any other provision of this
Agreement, including, without limitation, the condition to the Closing set forth
in Section 7.2(d) of this Agreement.
(l) other than (i) agreements in the ordinary course of
business that do not require payments by the Company in excess of $100,000 per
year per individual agreement or an aggregate of $300,000 per year for all such
agreements and (ii) agreements not in the ordinary course of business that do
not require payments by the Company in excess of $50,000 per year per individual
agreement or an aggregate of $200,000 per year for all such agreements, create,
renew, amend or terminate or give notice of a proposed renewal, amendment or
termination of, any material contract, agreement or lease for goods, services or
office space to which the Company is a party or by which the Company or its
properties are bound; or
(m) agree to do any of the foregoing.
5.2 Covenants of Parent. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the prior written consent of
the Company, Parent and its Subsidiaries shall carry on their respective
businesses in the ordinary course consistent with past practice. Without
limiting the generality of the foregoing, and except as previously disclosed by
Parent to the Company in writing or as otherwise contemplated by this Agreement
or consented to in writing by the Company, Parent shall not, and shall not
permit any of its Subsidiaries to:
(a) amend its Certificate of Incorporation or Bylaws;
(b) declare or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, in respect of any Parent Capital
Stock or any other securities subsequently authorized and issued by Parent,
except that any Subsidiary of Parent may pay dividends or make other
distributions to Parent or any other Subsidiary of Parent;
(c) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock;
(d) sell, transfer, license, sublicense or otherwise dispose
of any material assets;
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(e) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in
this Agreement being or becoming untrue, or in any of the conditions to the
Merger set forth in Article I not being satisfied;
(f) enter into any new line of business except as
contemplated hereby;
(g) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof; or
(h) other than (i) agreements in the ordinary course of
business that do not require payments by the Company in excess of $200,000 per
year per individual agreement or an aggregate of $600,000 per year for all such
agreements and (ii) agreements not in the ordinary course of business that do
not require payments by the Company in excess of $100,000 per year per
individual agreement or an aggregate of $400,000 per year for all such
agreements, create, renew, amend or terminate or give notice of a proposed
renewal, amendment or termination of, any material contract, agreement or lease
for goods, services or office space to which the Company is a party or by which
the Company or its properties are bound; or
(i) agree to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS.
6.1 Preparation of Information Statement.
(a) As promptly as practicable after the execution of this
Agreement, Parent and Company shall jointly prepare a document or documents
(together with all amendments thereto, the "Information Statement") that will
constitute a disclosure document for the offering of the Parent Capital Stock to
be issued to Company's stockholders pursuant to the Merger and the proxy
statement relating to the special meeting of Company's stockholders (the
"Company Stockholders' Meeting") and either the obtaining of a written consent
of Parent's Stockholders or the special meeting of Parent's stockholders (the
"Parent Stockholders' Meeting"), as the case may be, to be obtained or held for
the purpose of approving this Agreement, the Merger and the transactions
contemplated hereby. Parent and Company shall each use reasonable commercial
efforts to cause the Information Statement to comply with applicable federal and
state securities laws requirements and with the applicable provisions of the
DGCL. Parent or Company, as the case may be, shall furnish promptly to the other
such information concerning its business and financial statements and affairs
as, in the reasonable judgment of the providing party or its counsel, may be
required or appropriate for inclusion in the Information Statement, or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
Information Statement. As promptly as practicable after the preparation of the
Information Statement, the Information Statement shall be mailed to the
stockholders of Company and of Parent. The Information Statement shall include
the approval of the Merger and recommendation of the Board of Directors of
Company to Company's stockholders that they vote in favor of
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approval of this Agreement, the Merger and the transactions contemplated hereby,
and the approval of the Merger and recommendation of the Board of Directors of
Parent to Parent's stockholders that they vote in favor of approval of this
Agreement, the Merger and the transactions contemplated hereby. Anything to the
contrary contained herein notwithstanding, the Information Statement shall not
include any information with respect to any party or its affiliates or
associates, the form and content of which information shall not have been
approved by such party prior to such inclusion, unless required by applicable
law.
(b) No amendment or supplement to the Information Statement
shall be made without the approval of Parent and Company, which approval shall
not be unreasonably withheld or delayed. None of the information supplied by
either party for inclusion in the Information Statement shall, at the date it or
any amendments or supplements thereto are mailed to stockholders of Parent in
connection with the Parent Stockholders' Meeting or the solicitation of written
consents of the stockholders of Parent, as the case may be, and to stockholders
of Company in connection with the Company Stockholders' Meeting, at the time of
the Company Stockholders' Meeting, at the time of the Parent Stockholders'
Meeting or date upon which a written consent is solicited, as the case may be,
and at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If at any time prior to the Effective Time any
event or circumstance relating to Company or Parent, or any of their respective
subsidiaries, or any of their respective officers or directors, should be
discovered by either party that should be set forth in an amendment or a
supplement to the Information Statement, such party shall promptly inform the
other party in writing.
(c) Parent assumes no liability for, and the Holders (as
defined in Section 9.1 hereof) shall indemnify and hold harmless Parent, its
officers, directors, employees, advisors and agents and each person who controls
(within the meaning of the Securities Act) or the Securities Exchange Act of
1934, as amended (the "Exchange Act")) Parent from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue, or allegedly untrue,
statement of a material fact contained in any information disclosed in the
Information Statement or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent the same
are caused by or contained in any information concerning the Company or any
Holder furnished in writing to Parent by the Company or any Holders for
inclusion in the Information Statement, provided, however, that the liability of
the Holders under this paragraph (d) shall be several and not joint with respect
to any such untrue statements or omissions to state material facts regarding any
Holder contained in any information furnished by such Holder.
(d) Neither the Company nor any Holder assumes liability
for, and Parent shall indemnify and hold harmless the Holders, the Company, its
officers, directors, employees, advisors and agents and each person who controls
(within the meaning of the Securities Act or the Exchange Act) the Company from
and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue, or allegedly untrue, statement of a material fact contained in any
information disclosed in the Information Statement or arising out of or based
upon any omission or alleged omission to
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state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, to the extent the same are caused by or
contained in any information concerning Parent or Merger Sub furnished in
writing to the Company for inclusion in the Information Statement.
6.2 Stockholders' Meetings. Company shall call and hold the Company
Stockholders' Meeting, and Parent shall call and hold the Parent Stockholders'
Meeting, or solicit written stockholder consent, as the case may be, as promptly
as practicable after the date hereof for the purpose of voting upon the approval
of this Agreement, the Merger and the transactions contemplated hereby pursuant
to the Information Statement, and Company and Parent shall use all reasonable
efforts to hold the Company Stockholders' Meeting and Parent Stockholders'
Meeting, if any, on the same day and as soon as practicable after the date
hereof. Company shall use all reasonable efforts to solicit from its
stockholders proxies in favor of the approval of this Agreement, the Merger and
the transactions contemplated hereby pursuant to the Information Statement and
shall take all other action necessary or advisable to secure the vote or consent
of stockholders required by the DGCL to obtain such approval. Parent shall use
all reasonable efforts to solicit from its stockholders proxies in favor of the
approval of this Agreement, the Merger and the transactions contemplated hereby
pursuant to the Information Statement and shall take all other action necessary
or advisable to secure the vote or consent of stockholders required by the DGCL
to obtain such approval. Each of the parties hereto shall take all other action
necessary or, in the opinion of the other parties hereto, advisable to promptly
and expeditiously secure any vote or consent of stockholders required by
applicable law and such party's Certificate of Incorporation and Bylaws to
effect the Merger.
6.3 Access to Information.
(a) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, the Company shall afford to the
officers, employees, accountants, counsel and other representatives of Parent,
access, during normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments, records, officers,
employees, accountants, counsel and other representatives and, during such
period, the Company shall make available to Parent all information concerning
its business, properties and personnel as Parent may reasonably request. The
Company shall not be required to provide access to or to disclose information
where such access or disclosure would violate or prejudice the rights of its
customers, jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply. All information furnished to
Parent pursuant to this Section 6.3(a) shall be subject to, and Parent shall
hold all such information in confidence in accordance with, the provisions of
the confidentiality agreement, dated November 23, 1998 (the "Confidentiality
Agreement"), between Parent and the Company.
(b) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, Parent shall, and shall cause its
Subsidiaries to, afford to the officers, employees, accountants, counsel and
other representatives of the Company, access, during normal business hours
during the period prior to the Effective Time, to such information
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regarding Parent and its Subsidiaries as shall be reasonably necessary prepare
the Information Statement or which may be reasonably necessary for the Company
to confirm that the representations and warranties of Parent contained herein
are true and correct and that the covenants of Parent contained herein have been
performed in all material respects. Neither Parent nor any of its Subsidiaries
shall be required to provide access to or to disclose information where such
access or disclosure would violate or prejudice the rights of Parent's
customers, jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. The parties hereto will make
appropriate substitute disclosure arrangements under circumstances in which the
restrictions of the preceding sentence apply. The Company shall have the same
obligations to Parent, with respect to all information furnished by Parent to
the Company pursuant to this Section 6.3(b), as Parent has to the Company under
the Confidentiality Agreement with respect to information furnished thereunder
by the Company to Parent, as if the Company were the receiving party under the
Confidentiality Agreement.
(c) No investigation by Parent or the Company or their
respective representatives shall affect the representations, warranties,
covenants or agreements of the other set forth herein.
6.4 Public Disclosure. Unless otherwise permitted by this Agreement,
Parent and the Company shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law.
6.5 Intentionally Deleted.
6.6 Legal Requirements. Each of Parent, Merger Sub and the Company
will, and will cause their respective subsidiaries to, take all reasonable
actions necessary to comply promptly with all legal requirements which have been
or which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with and
furnish information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
6.7 Blue Sky Laws. Parent shall take such steps as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Capital Stock in connection with the
Merger. The Company shall use its best efforts to assist Parent as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Parent Capital Stock in
connection with the Merger.
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6.8 Company Stock Option Plan. At the Effective Time, the Company
Stock Option Plan and each outstanding option to purchase shares of Company
Common Stock under the Company Stock Option Plan, whether vested or unvested,
will be assumed by Parent and any outstanding repurchase rights shall be
assigned to Parent. Section 6.8 of the Company Disclosure Schedule sets forth a
true and complete list as of the date hereof of all holders of outstanding
options under the Company Stock Option Plan including the number of shares of
Company Common Stock subject to each such option, the exercise or vesting
schedule, the exercise price per share and the term of each such option. On the
Closing Date, the Company shall deliver to Parent an updated Section 6.8 of the
Company Disclosure Schedule current as of such date. Each such option so assumed
by Parent under this Agreement shall continue to have, and be subject to, the
same terms and conditions set forth in the Company Stock Option Plan immediately
prior to the Effective Time, except that (i) such option will be exercisable for
that number of whole shares of Parent Common Stock equal to the product of the
number of shares of Company Common Stock that were issuable upon exercise of
such option immediately prior to the Effective Time multiplied by the Exchange
Ratio and rounded down to the nearest whole number of shares of Parent Common
Stock, and (ii) the per share exercise price for the shares of Parent Common
Stock issuable upon exercise of such assumed option will be equal to the
quotient determined by dividing the exercise price per share of Company Common
Stock at which such option was exercisable immediately prior to the Effective
Time by the Exchange Ratio, rounded up to the nearest whole cent. Consistent
with the terms of the Company Stock Option Plan and the documents governing the
outstanding options thereunder, except as disclosed in Section 3.2(a) of the
Company Disclosure Schedule, the Merger will not terminate any of the
outstanding options under the Company Stock Option Plan or accelerate the
exercisability or vesting of such options or the shares of Parent Common Stock
upon Parent's assumption of the options in the Merger. It is the intention of
the parties that the options so assumed by Parent qualify following the
Effective Time as incentive stock options as defined in Section 422 of the Code
to the extent such options qualified as incentive stock options prior to the
Effective Time. Within ten (10) business days after the Effective Time, Parent
will issue to each person who immediately prior to the Effective Time was a
holder of an outstanding option under the Company Stock Option Plan a document
in form and substance satisfactory to the Company evidencing the foregoing
assumption of such option by Parent.
6.9 Board Representation; Appointment of Certain Officers. Promptly
following the Effective Time, consistent with applicable law and its Bylaws, the
Board of Directors of Parent shall (i) increase the number of members of its
Board of Directors by two and elect two designees nominated by the Company
Stockholders and designated to the Stockholders Agent (as defined below) to fill
such vacancies, to serve as such until the next annual meeting of Parent
stockholders or such time as their successors shall have been duly elected or
appointed and qualified, and (ii) appoint James A. Caccavo as an Executive Vice
President of Parent and the President, Internet Services Division of Parent.
6.10 Loan to the Company. Parent agrees that, upon the execution and
delivery by the Company of a promissory note in the form attached hereto as
Exhibit B (the "Promissory Note"), Parent shall lend funds to the Company in an
amount up to $1,500,000 in accordance with the terms of such Promissory Note,
with the first advance under such Promissory Note to occur not later than
January 29, 1999.
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6.11 Reorganization. Parent and the Company shall each use its best
efforts to cause the business combination to be effected by the Merger to be
qualified as a "reorganization" described in Section 368(a)(2)(E) of the Code.
6.12 Control of Operations. Nothing contained in this Agreement shall
give Parent, directly or indirectly, the right to control or direct the
operations of the Company prior to the Effective Time. Prior to the Effective
Time, each of Parent and the Company shall exercise, consistent with the terms
and conditions of this Agreement, complete control and supervision over its
respective operations.
6.13 Change of Corporate Names.
(a) The parties agree that, following the execution of this
Agreement and not later than February 19, 1999:
(i) The Company shall take all necessary and
appropriate action, including, without limitation, the amendment of its
Certificate of Incorporation, to (x) change the corporate name of the Company to
a name other than, and not in conflict with, either the name "Tickets.com, Inc."
or the name "Advantix, Inc.", (y) concurrently allow Parent to amend its
Certificate of Incorporation to change its corporate name to "Tickets.com, Inc."
and (z) allow Parent to qualify to do business under the name "Tickets.com,
Inc." in any jurisdiction in which Parent reasonably deems it necessary or
appropriate to so qualify. For purposes hereof, a name shall be deemed "in
conflict with" another name if such name would limit the ability of Parent to
use such name in connection with the operation of its businesses in any
jurisdiction in which Parent conducts such businesses.
(ii) Immediately following completion of the actions
contemplated by paragraph (a)(i) above, Parent shall take all necessary and
appropriate action, including, without limitation, the amendment of its
Certificate of Incorporation, to (x) change the corporate name of Parent to the
name "Tickets.com, Inc." and (y) qualify to do business under the name
"Tickets.com, Inc." in those jurisdictions in which the Company is required to
permit Parent to qualify to do business pursuant to paragraph (i) above.
(b) Parent hereby covenants and agrees that, upon completion
of the actions set forth in clause (x) of paragraph (a)(ii) above, Parent shall
authorize and permit the Company to continue to use, and shall take any and all
necessary action to facilitate the use by the Company of, the name "Tickets.com"
as a "d/b/a" or otherwise in the conduct of the Company's business pending the
Closing in a manner consistent with the previous conduct thereof, and Parent
shall not challenge or interfere in any manner with such continued usage.
(c) Parent and the Company hereby expressly acknowledge and
agree that the actions contemplated to be taken by the parties pursuant to this
Section 6.13 pertain solely and exclusively to the change of the parties'
respective corporate names prior the Closing in order to facilitate the
integration of the parties' businesses following the Effective Time and for
other sound business reasons. Parent and the Company hereby further expressly
acknowledge and agree that no assignment by the Company to Parent prior to
Closing of any right, title or interest of the Company in and to any of its
trademarks, trademark applications, trade names,
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URLs, domain names or other Intellectual Property (whether related to the name
"Tickets.com" or otherwise) is intended or contemplated by this Section 6.13 and
no such assignment shall be deemed to have occurred as a result hereof.
(d) Notwithstanding anything in this Agreement to the
contrary, in the event that this Agreement is terminated pursuant to Article
VIII hereof or for any other reason whatsoever, Parent promptly shall take all
necessary and appropriate action, including, without limitation, the amendment
of its Certificate of Incorporation, to (x) change its name to a name other
than, and not in conflict with, the name "Tickets.com, Inc.", (y) allow the
Company to qualify to do business under the name "Tickets.com, Inc." in any
jurisdiction in which the Company reasonably deems it necessary or appropriate
to so qualify, and (z) amend any registration statement theretofore filed by
Parent under the Securities Act, prior to the effective date of such
registration statement to effect such name change and to remove all references
therein to "Tickets.com" (except where such references may be required for the
purpose of providing adequate disclosure about Parent's business). For purposes
hereof, a name shall be deemed "in conflict with" the name "Tickets.com, Inc."
if such name would limit the ability of the Company to use such name in
connection with the operation of its business in any jurisdiction in which the
Company conducts such business.
(e) The Company and Parent shall each bear their own costs
and expenses incurred in effecting the actions contemplated by this Section 6.13
(which expenses on the part of the Company shall be deemed not to be included in
the Company Expense Fee Cap (as defined in Section 10.2 hereof)); provided,
however, that (i) in the event that this Agreement is terminated as a result of
a breach of this Agreement by either the Company or a Company Stockholder,
Parent shall be entitled to recover its costs and expenses, including without
limitation reasonable legal fees and expenses, incurred in connection with
effecting the actions contemplated by this Section 6.13, and (ii) in the event
that this Agreement is terminated as a result of a breach of this Agreement by
either Parent or Merger Sub, the Company shall be entitled to recover its costs
and expenses, including without limitation reasonable legal fees and expenses,
incurred in connection with effecting the actions contemplated by this Section
6.13.
6.14 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to Closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
6.15 Amendments to Certificates of Designation.
(a) By executing this Agreement, each of the Company
Stockholders holding Company Series A Preferred hereby waives any and all rights
to receive any distribution under Section A.1 of the Certificate of Designation
of Series A Preferred Stock of the Company (the "Series A Certificate") as a
result of the consummation of the transactions contemplated in this Agreement
and agrees to vote all shares of Company Series A Preferred held by it in favor
of the amendment of the Series A Certificate to eliminate all rights to receive
any distribution under
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Section A.1 of the Series A Certificate which might otherwise be receivable as a
result of the transactions contemplated by this Agreement.
(b) By executing this Agreement, each of the Company
Stockholders holding Company Series C Preferred hereby waives any and all rights
to receive any distribution under Section B.1 of the Certificate of Designation
of Series C Preferred Stock of the Company (the "Series C Certificate") as a
result of the consummation of the transactions contemplated in this Agreement.
and agrees to vote all shares of Company Series C Preferred held by it in favor
of the amendment of the Series C Certificate to eliminate all rights to receive
any distribution under Section B.1 of the Series C Certificate which might
otherwise be receivable as a result of the transactions contemplated by this
Agreement.
6.16 Stockholder Voting Agreements; Irrevocable Proxies.
Each of the Company Stockholders agrees, concurrently with the execution
of this Agreement, to execute a Stockholder Voting Agreement in the form
attached hereto as Exhibit C (each a "Stockholder Voting Agreement"). In
addition, each Company Stockholder hereby agrees to vote for approval of this
Agreement and the Merger pursuant to the Stockholder Voting Agreement or
pursuant to an irrevocable proxy in the form attached hereto as Exhibit D (each
an "Irrevocable Proxy").
6.17 Stockholders Agreement. Parent shall execute, and use its best
efforts to cause the other parties to that certain Stockholders Agreement dated
as of May 26, 1998 among Parent, General Atlantic Partners 46, L.P., GAP
Coinvestment Partners, L.P., Bayview Investors, Ltd., and the several
stockholders of Parent named therein (the "Stockholders Agreement") to execute
an Amended and Restated Stockholders Agreement (the "Amended Stockholders
Agreement") in substantially the form attached hereto as Exhibit E, subject to
such amendments as shall be reasonably required to effect the Equity Financing
contemplated by Section 7.3(f); provided, however, that no such amendment shall
be made to Sections 4.2.1, 4.5 and 8.3(b) of the Amended Stockholders Agreement
in a manner that would materially and adversely affect the rights of the TCI
Series C Stockholders (as defined in the Amended Stockholders Agreement) without
the prior written consent of The TCI Series C Stockholders.
6.18 Investor Rights Agreement. Parent shall execute, and use its
best efforts to cause the other parties to that certain Amended and Restated
Investor Rights Agreement dated May 26, 1998 among Parent and the several
stockholders of Parent named therein (the "Investor Rights Agreement") to
execute a Second Amended and Restated Investor Rights Agreement (the "Second
Amended Investor Rights Agreement") in substantially the form attached hereto as
Exhibit F, subject to such amendments as shall be reasonably required to effect
the Equity Financing contemplated by Section 7.3(f); provided, however, that no
such amendment shall be made to Sections 3(b)(ii), 7(a) and 11(d) of the Second
Amended Investor Rights Agreement in a manner that would materially and
adversely affect the rights of the TCI Stockholders (as defined in the Second
Amended Investor Rights Agreement) without the prior written consent of The TCI
Stockholders.
6.19 Company Stock Option Plan. The Company shall use its best
efforts to comply with all federal and California securities law requirements in
connection with the grant
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of stock options previously made or to be made under the Company Stock Option
Plan, to the reasonable satisfaction of Parent and its legal counsel.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been
approved and adopted by the requisite vote or written consent of (i) the holders
of the outstanding shares of Company Capital Stock as of the record date set for
the Company Stockholders' Meeting, (ii) Parent, as the sole stockholder of
Merger Sub and (iii) such holders of the outstanding shares of Parent Capital
Stock outstanding as shall be required to approve the transactions contemplated
hereby as of the record date set for determining stockholders entitled to vote
at the Parent Stockholders' Meeting or take action by written consent, as the
case may be.
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.
(c) Governmental Approval. The Company, Parent and its
Subsidiaries shall have timely obtained from each Governmental Entity all
approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the several transactions contemplated hereby
(each a "Requisite Regulatory Approval"), including such approvals, waivers and
consents as may be required under the Securities Act and under state blue sky
laws (other than those filings, approvals, waivers and consents relating to the
Merger or affecting Parent's ownership of Company or any of its properties that,
if not obtained would not have a Material Adverse Effect to either party).
(d) Tax-Free Reorganization. The Company shall have received
an opinion from its tax advisors to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a)(2)(E) of the Code, and such
opinion shall have been reviewed and approved by Arthur Andersen LLP on behalf
of Parent. In rendering such opinion, the Company's tax advisors shall be
entitled to rely upon representations of Parent and Company and certain
stockholders of Company.
(e) Investor Rights Agreement. Parent, the Company
Stockholders designated in Section 6.18 of the Company Disclosure Schedule, and
all other parties required to
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amend the Investor Rights Agreement pursuant to its terms shall have executed
the Second Amended Investor Rights Agreement.
(f) Employment Agreements. The persons listed on Section
7.1(f) of the Company Disclosure Schedule shall have entered into employment
agreements with Parent in form and substance reasonably satisfactory to the
parties thereto and the Board of Directors of Parent shall have approved the
grant of options to purchase Parent Common Stock as set forth in such employment
agreements.
(g) Stockholders Agreements. Parent, the Company
Stockholders designated in Section 6.18 of the Company Disclosure Schedule, and
all other parties required to amend the Stockholders Agreement pursuant to its
terms shall have executed the Amended Stockholders Agreement.
7.2 Conditions to Obligations of Parent and Merger Sub. The
obligation of Parent and Merger Sub to effect the Merger is also subject to the
satisfaction or waiver by Parent and Merger Sub at or prior to the Effective
Time of the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
as of the date of this Agreement and (except to the extent such representations
and warranties speak as of an earlier date) as of the Closing Date as though
made on and as of the Closing Date. Parent shall have received a certificate
signed on behalf of the Company by the Chief Executive Officer and the Chief
Financial Officer of the Company to the foregoing effect.
(b) Performance of Obligations of the Company. The Company
shall have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Closing Date, and Parent
shall have received a certificate signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company to such effect.
(c) Injunctions or Restraints on Conduct of Business. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent's conduct or operation of the
business of the Company following the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
(d) No Material Adverse Changes. There shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of the Company, taken as a whole.
(e) Third Party Consents. Parent shall have been furnished
with evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger under
the contracts of the Company set forth on Section 3.4 of the Company Disclosure
Schedule.
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(f) Legal Opinion. Parent shall have received a legal
opinion from Bryan Cave LLP in substantially the form attached hereto as Exhibit
G.
(g) Stockholder Representation Agreements. Parent shall have
received from each holder of Company Capital Stock listed on Schedule II
attached hereto an executed Stockholder Representation Agreement in
substantially the form attached hereto as Exhibit H.
(h) Approval of Company Stockholders. Either (i)
stockholders of the Company holding at least 92% of the outstanding Company
Capital Stock shall have voted their shares of Company Capital Stock in favor
of, or executed a written consent approving, the Merger or (ii) Parent shall
have received notices from Company stockholders holding no more than 8% of the
outstanding Company Capital Stock that such stockholders have elected to
exercise their appraisal rights under Section 262 of the DGCL.
7.3 Conditions to the Obligations of Company and Company
Stockholders. The obligation of the Company to effect the Merger is also subject
to the satisfaction or waiver by the Company at or prior to the Effective Time
of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub set forth in this Agreement shall be true
and correct as of the date of this Agreement and (except to the extent such
representations and warranties speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date. The Company shall have
received a certificate signed (i) on behalf of Parent by the Chief Executive
Officer and the Chief Financial Officer of Parent and (ii) on behalf of Merger
Sub by the President of Merger Sub, in each case to the foregoing effect.
(b) Performance of Obligations of Parent and Merger Sub.
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by them under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed (i)
on behalf of Parent by the Chief Executive Officer and the Chief Financial
Officer of Parent and (ii) on behalf of Merger Sub by the President of Merger
Sub, in each case to such effect.
(c) Injunctions or Restraints on Conduct of Business. No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent's business following the
Merger shall be in effect, nor shall any proceeding brought by an administrative
agency or commission or other Governmental Entity, domestic or foreign, seeking
the foregoing be pending.
(d) No Material Adverse Changes. There shall not have
occurred any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of Parent and its Subsidiaries, taken as a
whole.
(e) Legal Opinion. Company shall have received a legal
opinion from Brobeck Phleger & Harrison LLP in substantially the form attached
hereto as Exhibit I.
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(f) Equity Financing. Parent shall have received a written
commitment from General Atlantic Partners to purchase shares of Series D
Preferred Stock of Parent (the "Parent Series D Preferred") in an aggregate
amount not less than $10 million at a combined pre-money valuation of Parent and
Company of no less than $190 million (assuming consummation of the Merger).
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval of the matters presented
in connection with the Merger by the stockholders of the Company:
(a) by mutual consent of the Company, Parent and Merger Sub
in a written instrument, if the Board of Directors of each so determines by a
vote of a majority of the members of its entire Board;
(b) by either Parent or the Company upon written notice to
the other party (i) ten (10) days after the date on which any request or
application for a Requisite Regulatory Approval shall have been denied or
withdrawn at the request or recommendation of the Governmental Entity which must
grant such Requisite Regulatory Approval, unless within the 60-day period
following such denial or withdrawal a petition for rehearing or an amended
application has been filed with the applicable Governmental Entity; provided,
however, that no party shall have the right to terminate this Agreement pursuant
to this Section 8.1(b)(i) if such denial or request or recommendation for
withdrawal shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe the covenants and agreements of such party set
forth herein or (ii) if any Governmental Entity of competent jurisdiction shall
have issued a final nonappealable order enjoining or otherwise prohibiting the
Merger;
(c) by either Parent or the Company if the Merger shall not
have been consummated on or before [May 20, 1999] unless the failure of the
Closing to occur by such date shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe the covenants and agreements
of such party set forth herein;
(d) by either Parent or the Company if any approval of the
stockholders of the Company or Parent required for the consummation of the
Merger shall not have been obtained by reason of the failure to obtain the
required vote at a duly held meeting of such stockholders or at any adjournment
or postponement thereof;
(e) by either Parent or the Company if there shall have been
a material breach of any of the representations or warranties set forth in this
Agreement on the part of the other party, which breach is not cured within
thirty (30) days following written notice to the party committing such breach,
or which breach, by its nature, cannot be cured prior to the Closing; provided,
however, that neither party shall have the right to terminate this Agreement
pursuant to this Section 8.1(e) unless the breach of representation or warranty,
together with all other such breaches, would entitle the party receiving such
representation not to consummate the transactions contemplated hereby under
Section 7.2(a) (in the case of a breach of representation
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<PAGE> 48
or warranty by the Company) or Section 7.3(a) (in the case of a breach of
representation or warranty by Parent);
(f) by either Parent or the Company if there shall have been
a material breach of any of the covenants or agreements set forth in this
Agreement on the part of the other party, which breach shall not have been cured
within thirty (30) days following receipt by the breaching party of written
notice of such breach from the other party hereto, or which breach, by its
nature, cannot be cured prior to the Closing.
8.2 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect except that (i) the
last sentence of Section 6.3(a), the last sentence of Section 6.3(b), and each
of Sections 6.4, 6.11, 8.2, 10.2, 10.3, 10.4, 10.5 and 10.8 shall survive any
termination of this Agreement and (ii) notwithstanding anything to the contrary
contained in this Agreement, no party shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
8.3 Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the stockholders of the
Company; provided, however, that after any approval of the transactions
contemplated by this Agreement by the Company's stockholders, there may not be,
without further approval of such stockholders, any amendment of this Agreement
which reduces the amount or changes the form of the consideration to be
delivered to the Company stockholders hereunder or which otherwise changes any
of the principal terms of this Agreement. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, each
of the parties hereto, by action taken or authorized by its Board of Directors,
may, to the extent legally allowed, (a) extend the time for the performance of
any of the obligations or other acts of the other party hereto, (b) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions of the other party contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in a written instrument signed on behalf of
such party, but such extension or waiver or failure to insist on strict
compliance with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
ARTICLE IX
INDEMNIFICATION AND ESCROW FUND
9.1 Indemnity; Escrow Fund. The holders of Company Capital Stock
immediately prior to the Effective Time (collectively, the "Holders") (pro rata
in accordance with each such Holder's percentage interest in Company Capital
Stock immediately prior to the Effective Time; except that each holder shall be
solely responsible for all Damages (as defined below) arising from any breach of
the representations, warranties or covenants set forth in each
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<PAGE> 49
such Holder's Stockholder Voting Agreement or Stockholder Representation
Agreement, as the case may be and for breaches of the representations and
warranties given on a several and not joint basis in Article III) shall jointly
and severally indemnify and hold harmless Parent and the Surviving Corporation
(as used in this Article IX, the "Holder Indemnified Parties" and/or "Parent
Indemnifying Parties") in respect of any and all loss, expense, liability or
other damage, including, without limitation, reasonable attorneys' fees,
accountants' fees, and all other reasonable costs and expenses of litigation,
investigation, defense or settlement of claims (including costs of all appeals
related thereto) or threats thereof and amounts paid in settlement to the extent
of the amount of such loss, expense, liability or other damage (collectively,
"Damages") that Parent or the Surviving Corporation incur by reason of any
breach by the Company or any Company Stockholder of any representation,
warranty, covenant or agreement of the Company or any Company Stockholder
contained herein (subject to the foregoing limitation regarding warranties given
on a several rather than a joint basis) ("Company Indemnifiable Items").
(b) Parent and Merger Sub shall indemnify and hold harmless
the Holders (as used in this Article IX, the "Parent Indemnified Parties" and/or
"Holder Indemnifying Parties") in respect of any and all Damages that the
Holders incur by reason of the breach by Parent or Merger Sub of any
representation, warranty, covenant or agreement of the Parent or Merger Sub
contained herein ("Parent Indemnifiable Items").
(c) To secure performance of the Holders' indemnification
obligations hereunder, the Escrow Shares shall be deposited with the Escrow
Agent in accordance with Section 2.3 hereof. The Escrow Fund shall be available
to compensate Parent and the Surviving Corporation for any Damages that Parent
and the Surviving Corporation incur by reason of any Company Indemnifiable Item.
Subject to Section 2.3(b) and Article IX hereof, the Escrow Shares shall be held
in the Escrow Fund for the Escrow Period. Any Escrow Shares or funds remaining
in the Escrow Fund upon expiration of the Escrow Period shall be distributed to
the Holders pro rata in accordance with their percentage interests in Company
Capital Stock immediately prior to the Effective Time, provided that any Holder
making a withdrawal in accordance with Section 2.3(b) hereof shall receive such
Holder's interest in cash, pro rata in accordance with such Holder's percentage
interests in Company Capital Stock immediately prior to the Effective Time.
9.2 Claims.
(a) Claims by Parent. Upon receipt by the Escrow Agent on or
before the last day of the Escrow Period of a certificate of Parent (an
"Officer's Certificate") setting forth a claim under this Article IX and
specifying in reasonable detail (i) the individual items of such Damages
included in the amount so stated, (ii) the date each such item was paid or
properly accrued or arose, and (iii) the nature of the Company Indemnifiable
Item to which such item is related, the Escrow Agent shall, subject to the
provisions of Sections 9.3(a) and 9.7 hereof, deliver to Parent out of the
Escrow Fund, as promptly as practicable, Parent Capital Stock, cash (or a
certified or bank cashier's check or wire transfer) or other assets held in the
Escrow Fund having a fair market value (determined in accordance with Section
2.4 of the Escrow Agreement) equal to such Damages, in the same proportion of
Parent Capital Stock, cash and such other
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assets as constitutes the Escrow Fund at the time of such delivery, whereupon
the Holders shall have no further liability to Parent with respect to the claim
set forth in such Officer's Certificate.
(b) Claims by Holders. Upon receipt by Parent on or before
the last day of the Escrow Period of a certificate of the Stockholders' Agent
(as defined below) (the "Agent's Certificate") setting forth a claim under this
Article IX and specifying in reasonable detail (i) the individual items of such
Damages included in the amount so stated, (ii) the date each such item was paid
or properly accrued or arose, and (iii) the nature of the Parent Indemnifiable
Item to which such item is related, Parent shall, subject to the provisions of
Sections 9.3(b) and 9.7 hereof, deliver to Stockholders' Agent a certified check
or wire transfer payable to the Stockholders' Agent, as agent for the Holders,
in the amount of such Damages, whereupon Parent shall have no further liability
to the Holders with respect to the claim set forth in such Agent's Certificate.
9.3 Objections to Claims. Objections to Claims by Parent. At the
time of delivery of any Officer's Certificate to the Escrow Agent, a duplicate
copy of such Officer's Certificate shall be delivered to the Stockholders' Agent
(defined in Section 9.4 below) and for a period of twenty (20) days after such
delivery, the Escrow Agent shall make no delivery of Parent Capital Stock or
other property pursuant to Section 9.2 hereof unless the Escrow Agent shall have
received written authorization from the Stockholders' Agent to make such
delivery. After the expiration of such twenty (20) day period, the Escrow Agent
shall make delivery of the Parent Capital Stock or other property in the Escrow
Fund in accordance with Section 9.2(a) hereof; provided, that no such payment or
delivery may be made if the Stockholders' Agent shall object in a written
statement specifying in reasonable detail the basis for such objection to the
claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to Parent prior to the expiration of such
twenty (20) day period.
(b) Objections to Claims by Holders. Parent shall have a
period of twenty (20) days after the time of delivery of any Agent's Certificate
to Parent to object to any claim made by Holders pursuant to Section 9.2(b)
above, by delivery to the Stockholders' Agent of an objection in a written
statement specifying in reasonable detail the basis for such objection, to the
claim made in the Agent's Certificate.
9.4 Attempt to Resolve Conflicts; Arbitration.
(a) In case (i) the Stockholders' Agent shall object in
writing to any claim or claims by Parent made in any Officer's Certificate or
otherwise in accordance with Section 9.3(a) above, or (ii) Parent shall object
in writing to the Stockholders' Agent within twenty (20) days of receipt of any
claim for indemnification hereunder in accordance with Section 9.3(b) above, the
party receiving such objection shall have twenty (20) days to respond in a
written statement to the objection. If after such twenty (20) day period there
remains a dispute as to any claims, the Stockholders' Agent and Parent shall
attempt in good faith for twenty (20) days to agree upon the rights of the
respective parties with respect to each of such claims. If the Stockholders'
Agent and Parent should so agree, a memorandum setting forth such agreement
shall be prepared and signed by both parties. If a claim is being made against
the Escrow Fund, such memorandum shall be furnished to the Escrow Agent and the
Escrow Agent shall be entitled to rely on such memorandum and shall distribute
the Parent Capital Stock or
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<PAGE> 51
other property from the Escrow Fund within ten (10) days of delivery of such
memorandum in accordance with the terms thereof. If a claim is being made
against Parent, Parent shall deliver funds in accordance with the terms of such
memorandum to Stockholders' Agent within ten (10) days of the date of such
memorandum.
(b) If no such agreement can be reached after good faith
negotiation, either Parent or the Stockholders' Agent may, by written notice to
the other, demand binding arbitration of the matter unless the Damages are at
issue in pending litigation with a third party. If the Damages are at issue in
pending litigation, then the arbitration shall not be commenced until such
amount is ascertained or both parties agree to arbitration; and in either such
event the matter shall be settled by arbitration in accordance with the
procedures set forth on Exhibit J hereto
(c) Application may also be made to a court of competent
jurisdiction for confirmation of any decision or award of the arbitrator, for an
order of the enforcement and for any other remedies which may be necessary to
effectuate such decision or award. The parties hereto hereby consent to the
jurisdiction of the arbitrator and of such court and waive any objection to the
jurisdiction of such arbitrator and court.
(d) If a dispute is submitted for arbitration as provided in
this Section 9.4 with respect to a claim by a Holder Indemnified Party, the
Escrow Agent shall continue to hold Escrow Shares and other assets in the Escrow
Fund having a value (determined in accordance with Section 2.4 of the Escrow
Agreement) sufficient to cover the Damages related to such dispute (the
"Contested Damages") (but only to the extent that there are Escrow Shares or
other assets remaining in the Escrow Fund) until: (i) delivery of a copy of a
settlement agreement executed by Parent and the Stockholders' Agent setting
forth instructions to the Escrow Agent as to the release of such Escrow Shares
that shall be made with respect to the Contested Damages; (ii) delivery of a
copy of the final decision of the arbitrators setting forth instructions to the
Escrow Agent as to the release of Escrow Shares that shall be made with respect
to the Contested Damages; or (iii) receipt of a court order or judgment
directing the Escrow Agent to act with respect to the distribution of any Escrow
Shares. The Escrow Agent shall thereupon release the Escrow Shares from the
Escrow Fund (to the extent Escrow Shares are then held in the Escrow Fund) in
accordance with such settlement agreement, arbitrator's instructions, court
order or judgment, as applicable. If any controversy arises involving any party
to this Agreement (other than the Escrow Agent) concerning the subject matter of
this Agreement, including Contested Damages, the Escrow Agent will not be
required to resolve the controversy.
(e) If a dispute is submitted for arbitration as provided in
this Section 9.4 with respect to a claim by a Parent Indemnified Party, then
within ten (10) days of (i) execution of a copy of a settlement agreement
executed by Parent and the Stockholders' Agent relating to the amount of the
Damages owed to the Holders; (ii) delivery of a copy of the final decision of
the arbitrators setting forth the amount of Damages owed to the Holders or (iii)
receipt of a court order or judgment directing Parent to pay Damages to the
Holders, Parent shall thereupon deliver a certified check or wire transfer to
the Stockholders' Agent payable to the Stockholders' Agent, as agent for the
Holders, in accordance with such settlement agreement, arbitrator's instructions
or judgment, as applicable, whereupon Parent shall have no further liability to
the Holders with
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respect to the claim determined by such settlement agreement, arbitrator's
instructions or judgment.
(f) Howard Lee Morgan shall be constituted and appointed as
agent ("Stockholders' Agent") for and on behalf of the Holders to give and
receive notices and communications, to authorize delivery to Parent of the
Parent Capital Stock or other property from the Escrow Fund in satisfaction of
claims by Parent, to settle any other claims for indemnification, to object to
such deliveries, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of the Stockholders' Agent for the accomplishment of
the foregoing. Such agency may be changed by the holders of a majority in
interest of the Escrow Fund from time to time upon not less than ten (10) days'
prior written notice to Parent. No bond shall be required of the Stockholders'
Agent, and the Stockholders' Agent shall receive no compensation for his
services. Notices or communications to or from the Stockholders' Agent shall
constitute notice to or from each of the stockholders of the Company. If at any
time there is no Stockholders' Agent, then any action contemplated to be taken
by the Stockholders' Agent hereunder, and any power granted to the Stockholders'
Agent, may be exercised by Holders representing a majority of the beneficial
interests in the Escrow Fund (in such case, as used herein "Stockholders' Agent"
shall mean such Holders). In the event that any claim, agreement, negotiation,
settlement, compromise or demand for arbitration shall relate solely to the
Holders of a specific class or series of Escrow Shares, then the Stockholders'
Agent shall act with respect to such claim, agreement, negotiation, settlement,
compromise or demand for arbitration in accordance with the instructions of the
Holders of a majority of shares of such class or series of Escrow Shares.
(g) The Stockholders' Agent shall not be liable for any act
done or omitted hereunder as Stockholders' Agent while acting in good faith and
in the exercise of reasonable judgment, and any act taken or omitted to be taken
pursuant to the advice of counsel shall be conclusive evidence of such good
faith. The stockholders of the Company shall severally indemnify the
Stockholders' Agent and hold him harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of the Stockholders'
Agent and arising out of or in connection with the acceptance or administration
of his duties hereunder.
(h) The Stockholders' Agent shall have reasonable access to
information about the Company and the reasonable assistance of the Company's
officers and employees for purposes of performing its duties and exercising its
rights hereunder; provided, that the Stockholders' Agent shall treat
confidentially and not disclose any nonpublic information from or about the
Company to anyone (except on a need to know basis to individuals who agree to
treat such information confidentially).
9.5 Actions of the Stockholders' Agent. A decision, act, consent or
instruction of the Stockholders' Agent shall constitute a decision of all
stockholders of the Company for whom shares of Parent Capital Stock otherwise
issuable to them are deposited in the Escrow Fund and shall be final, binding
and conclusive upon each such stockholder of the Company, and the Escrow Agent
and Parent may rely upon any decision, act, consent or instruction of the
Stockholders' Agent as being the decision, act, consent or instruction of each
and every such
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stockholder of the Company. The Escrow Agent and Parent are hereby relieved from
any liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Stockholders' Agent.
9.6 Third-Party Claims.
(a) In the event that a third party asserts or threatens a
claim which Parent believes may result in a demand against the Escrow Fund,
Parent shall notify the Stockholders' Agent of such claim, and the Stockholders'
Agent on behalf of the stockholders of the Company for whom shares of Parent
Capital Stock otherwise issuable or payable to them are deposited in the Escrow
Fund shall be entitled, at such stockholders' expense, to participate in any
defense of such claim. Unless the Stockholders' Agent elects to assume such
defense (with counsel reasonably acceptable to Parent, and, provided, that the
Stockholders' Agent has the reasonable means to put on such a defense), Parent
shall have the right to settle any such claim (with its own counsel); provided,
that Parent may not effect the settlement of any such claim without the consent
of the Stockholders' Agent, which consent shall not be unreasonably withheld. In
the event that the Stockholders' Agent has consented to any such settlement, the
Stockholders' Agent and the former stockholders of the Company shall have no
power or authority to object under Section 9.3 or any other provision of this
Article IX to the amount of any claim by Parent against the Escrow Fund for
indemnity with respect to such settlement.
(b) In the event that a third party asserts or threatens a
claim involving a Parent Indemnifiable Item, Parent shall be entitled to
participate in any defense of such claim. Unless Parent elects to assume such
defense, the Stockholders' Agent shall have the right to settle any such claim
(with counsel reasonably acceptable to Parent); provided, that Stockholders'
Agent may not effect the settlement of any such claim without the consent of the
Parent, which consent shall not be unreasonably withheld.
9.7 Limitations.
(a) The parties hereto understand and agree that the
indemnity obligations under this Article IX shall terminate twelve (12) months
from the Closing Date, except insofar as a claim for indemnification under this
Article IX has been asserted and such claim has not been resolved in accordance
with the terms of the this Agreement, the Escrow Agreement or otherwise.
(b) Notwithstanding the foregoing, neither the Parent
Indemnifying Parties nor the Holder Indemnifying Parties shall have any
liability for indemnification under this Article IX unless and until the
aggregate amount of Damages suffered by the Holder Indemnified Parties or the
Parent Indemnified Parties, as the case may be, exceeds $250,000 (the "Threshold
Amount"). The Holder Indemnified Parties or the Parent Indemnified Parties, as
the case may be, shall be indemnified for all Damages in excess of the Threshold
Amount; provided, however, that (i) the indemnification obligations of the
Company and Company Stockholders hereunder shall be limited to an amount equal
to the amount deposited in the Escrow Fund pursuant to Section 2.3 and (ii) the
indemnification obligations of Parent hereunder shall be limited to $5,000,000;
provided, further, that this paragraph shall not apply to any Company Expenses
in excess of the Company Expense Fee Cap (each as defined in Section 10.2
below). For the
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purposes of this Article IX, the shares of Parent Capital Stock in the Escrow
Fund shall be deemed to have a value of $2.10 per share. The parties hereby
agree that except (x) as provided in Section 9.7(c) hereof, and (y) for matters
contemplated by Sections 6.1(c), 6.1(d) and 9.8 hereof, Parent and the Surviving
Corporation may seek to be made whole for any Damages only from the Escrow Fund
and shall have no other remedy at law or in equity against the Company, the
Surviving Corporation or the Holders other than as set forth in Section 9.7(c).
(c) Notwithstanding any other provision of this Article IX,
the terms of this Article IX shall not apply to any claims arising out of or
resulting from alleged fraudulent conduct; (ii) any claims under any securities
law that may not be waived or limited, or (iii) any claims relating to grossly
negligent, reckless, willful, intentional or fraudulent breach of any
representation, warranty, covenant or obligation by the Company, Company
Stockholders or Parent.
9.8 No Limitation. Notwithstanding any other provision of this
Agreement, nothing contained in this Article IX shall limit the liability of any
party for any breach of any representation, warranty or covenant if the Merger
does not close.
ARTICLE X
GENERAL PROVISIONS
10.1 Nonsurvival of Representations, Warranties and Agreements. The
representations and warranties in this Agreement shall terminate one year from
the date of the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be. Each party agrees that, except for
the representations and warranties contained in this Agreement, the Parent
Disclosure Schedule, the Company Disclosure Schedule and the other agreements
contemplated by this Agreement, no party hereto has made any other
representations and warranties, and each party hereby disclaims any other
representations and warranties made by itself or any of its officers, directors,
employees, agents, financial and legal advisors or other representatives, with
respect to execution and delivery of this Agreement or the Merger contemplated
herein, notwithstanding the delivery or disclosure to any other party or any
party's representatives of any documentation or other information with respect
to any one or more of the foregoing.
10.2 Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such costs and expenses; provided, however, that if the Merger
is consummated, Parent shall pay promptly upon demand the amount of all expenses
incurred by the Company and the Holders (collectively, "Company Expenses"),
including, without limitation, legal and accounting expenses and fees and
expenses owed to Updata Capital Corporation, up to an amount equal to the
difference between (a) $[305,000] (including fees and expenses payable to Updata
Capital Corporation) and (b) amount of Company Expenses paid by the Company
prior to the Closing (the "Company Expense Fee Cap"). Any Company Expenses in
excess of the Company Expense Fee Cap shall be recoverable by Parent in
accordance with Section 9 hereof.
10.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed
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by registered or certified mail (return receipt requested) or delivered by an
express courier (with confirmation) to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
(a) if to Parent, to:
Advantix, Inc.
4675 MacArthur Blvd., Suite 1400
Newport Beach, CA 92626
Fax: (949) 862-5412
Attention: John M. Markovich
Executive Vice President
Chief Financial Officer
with a copy to:
Brobeck, Phleger & Harrison LLP
38 Technology Drive
Irvine, CA 92618
Fax: (949) 790-6301
Attention: Bruce Hallett, Esq.
and
(b) if to the Company, to:
Tickets.com, Inc.
4061 Glencoe Avenue
Marina del Rey, CA 90292
Fax: (310) 578-4201
Attention: James A. Caccavo
President and Chief Executive Officer
with a copy to
Bryan Cave, LLP
2 North Central, Suite 2200
Phoenix, AZ 85004-4406
Fax: (602) 364-7070
Attention: Frank M. Placenti, Esq.
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(c) if to the Stockholders' Agent, to:
Howard L. Morgan
130 W. Union Street
Pasadena, CA 91103
Fax: (610) 527-5437
with a copy to
10.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
(WITHOUT REFERENCE TO CONFLICT OF LAW PRINCIPLES OTHER THAN THOSE DIRECTING
CALIFORNIA LAW) EXCEPT TO THE EXTENT MANDATORILY GOVERNED BY THE LAWS OF THE
STATE OF DELAWARE. PARENT, MERGER SUB AND THE COMPANY EACH HEREBY IRREVOCABLY
SUBMITS TO THE JURISDICTION OF ANY CALIFORNIA STATE OR FEDERAL COURT SITTING IN
ORANGE COUNTY, CALIFORNIA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT, AND PARENT, MERGER SUB AND THE COMPANY EACH HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY
BE HEARD AND DETERMINED IN SUCH CALIFORNIA STATE COURT OR SUCH FEDERAL COURT.
PARENT, MERGER SUB AND THE COMPANY EACH HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO
THE MAINTENANCE OF SUCH ACTION OR PROCEEDING.
10.5 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Merger is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner to the fullest extent
permitted by applicable law in order that the Merger may be consummated as
originally contemplated to the fullest extent possible.
10.6 Assignment; Binding Effect; Benefit. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties hereto; provided, however, that
Parent may assign its rights, interests and obligations hereunder to any
successor or parent entity of Parent whose shares are registered under Section
12 of the Exchange Act (or will be so registered at the Effective Time). Subject
to the preceding sentence, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. Notwithstanding anything contained in this
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Agreement to the contrary, other than Section 6.3, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors and permitted assigns any rights or
remedies under or by reason of this Agreement.
10.7 Headings. The descriptive headings contained in this Agreement
are included for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
10.8 Entire Agreement. This Agreement (including the Exhibits,
Schedules, the Parent Disclosure Schedule and the Company Disclosure Schedule)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings among the
parties with respect thereto. No addition to or modification of any provision of
this Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
10.9 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
IN WITNESS WHEREOF, Parent and the Company have caused this Agreement to
be executed and delivered by their respective officers thereunto duly
authorized, all as of the date first written above.
PARENT
ADVANTIX, INC.
By:
-------------------------------------
Name:
Title:
MERGER SUB
ADVANTIX ACQUISITION CORP.
By:
-------------------------------------
Name:
Title:
COMPANY
TICKETS.COM, INC.
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By:
-------------------------------------
Name:
Title:
[SIGNATURE PAGE TO MERGER AGREEMENT]
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COMPANY STOCKHOLDERS
ATTRACTOR INSTITUTIONAL LP
By: Attractor Ventures LLC,
its General Partner
By:
-------------------------------------
Name:
Title:
ATTRACTOR DEARBORN PARTNERS LP
By: Attractor Ventures LLC,
its General Partner
By:
-------------------------------------
Name:
Title:
ATTRACTOR LP
By: Attractor Ventures LLC,
its General Partner
By:
-------------------------------------
Name:
Title:
Bill Gross' idealab!,
a California corporation
By:
-------------------------------------
Name:
Title:
[SIGNATURE PAGE TO MERGER AGREEMENT]
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MOORE GLOBAL INVESTMENTS, LTD.
By: Moore Capital Management, Inc.,
its Trading Advisor
By:
-------------------------------------
Name:
Title:
REMINGTON INVESTMENTS STRATEGIES, L.P.
By: Moore Capital Advisors, L.L.C.,
its General Partner
By:
-------------------------------------
Name:
Title:
MULTI-STRATEGIES FUND, L.P.
By: Moore Capital Management, Inc.,
its Trading Advisor
By:
-------------------------------------
Name:
Title:
[SIGNATURE PAGE TO MERGER AGREEMENT]
55
<PAGE> 61
MULTI-STRATEGIES FUND LTD.
By: Moore Capital Advisors, L.L.C.,
its General Partner
By:
-------------------------------------
Name:
Title:
idealab! Capital Partners I-A, L.P.
By:
-------------------------------------
Name: William S. Elkus
Title: Managing Member,
idealab! Capital Management I, LLC,
General Partner of idealab!
Capital Partners I-A, LP
idealab! Capital Partners I-B, L.P.
By:
-------------------------------------
Name: William S. Elkus
Title: Managing Member,
idealab! Capital Management I, LLC,
General Partner of idealab!
Capital Partners I-B, LP
[SIGNATURE PAGE TO MERGER AGREEMENT]
56
<PAGE> 62
----------------------------------------
Steven J. Casey
----------------------------------------
Robert H. Lessin
----------------------------------------
Bruce Hendricks
[SIGNATURE PAGE TO MERGER AGREEMENT]
List of Exhibits
- ----------------
Exhibit A Form of Escrow Agreement
Exhibit B Form of Promissory Note
Exhibit C Form of Stockholder Voting Agreement
Exhibit D Form of Irrevocable Proxy
Exhibit E Form of Amended Stockholders Agreement
Exhibit F Form of Second Amended Investor Rights Agreement
Exhibit G Form of Opinion of Company's counsel
Exhibit H Form of Stockholder Representation Agreement
Exhibit I Form of Opinion of Parent's counsel
Exhibit J Arbitration Procedures
Tickets.com Inc. agrees to furnish to the Securities and Exchange Commission a
copy of the foregoing exhibits upon request of the Securities and Exchange
Commission.
57
<PAGE> 1
EXHIBIT 10.14
AGREEMENT
This Agreement ("Agreement"), made and entered into on the 24th day of
January 1999 by and between Advantix, Inc., a California corporation
("Advantix"), and RBB Bank AG, a bank organized under the laws of Austria
("RBB").
RECITALS
--------
A. RBB is the record holder of seven million eight hundred thirty
seven thousand three hundred thirty two (7,837,332) shares (the
"Common Shares") of common stock of Lasergate Systems, Inc., a
Florida corporation ("Lasergate") (the "Lasergate Common Stock")
and five thousand seven hundred (5,700) shares (the "Preferred
Shares," and together with the Common Shares, the "Shares") of
Series G Preferred Stock of Lasergate (the "Lasergate Preferred
Stock"), which are convertible into twenty four million eight
hundred eighteen thousand two hundred seventeen (24,818,217)
shares of Lasergate Common Stock. The term Shares shall include
appropriate adjustments for stock splits, recapitalizations,
combinations, conversions, exchanges and other similar events
relating to the Lasergate Common Stock and Lasergate Preferred
Stock.
B. RBB owns the Shares as nominee for its clients who are beneficial
owners of such shares.
C. Advantix desires to purchase all of the Shares and RBB desires to
sell all of the Shares on the terms and subject to the conditions
set forth in this Agreement (the "Purchase Transaction").
D. Advantix has proposed to the Board of Directors of Lasergate that
Lasergate will merge (the "Merger") with a subsidiary of Advantix
("New Subsidiary") whereby the outstanding Lasergate Common Stock
will be exchanged for $0.10 cash per share and the outstanding
shares of Lasergate Preferred Stock will be exchanged for
preferred stock of New Subsidiary (the "New Subsidiary Preferred
Stock").
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the respective
mutual agreements, covenants, representations and warranties set forth herein,
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
TERMS
-----
1. RECITALS. The recitals set forth above are true and correct and are
hereby incorporated into and made a part of this Agreement.
<PAGE> 2
2. APPROVAL OF MERGER. RBB agrees to vote all of its Shares in favor of
the Merger and to actively support the Merger and to execute such documents and
take such steps as are reasonably necessary to consummate the Merger. On or
after May 15, 1999, at the option of RBB upon 15 days prior written notice to
Advantix, the New Subsidiary Preferred Stock to be received by RBB in exchange
for the Preferred Shares shall be convertible into either (i) cash in the amount
of U.S.$0.10 for each share of Lasergate Common Stock into which such shares
could have been converted immediately prior to the consummation of the Merger
(the "Cash Consideration") or (ii) 170.081 shares of Advantix Common Stock for
each Preferred Share that was exchanged for such shares pursuant to the Merger
(the "Stock Consideration"). On or after June 15, 1999, at the option of
Advantix upon 15 days prior written notice to RBB, the New Subsidiary Preferred
Stock to be received by RBB in exchange for the Preferred Shares shall be
redeemable for the Cash Consideration or the Stock Consideration.
3. PURCHASE OF SHARES. In the event that the Board of Directors of
Lasergate does not approve the Merger on or before January 31, 1999, RBB agrees
to sell, and Advantix agrees to purchase, the Shares upon the terms and
conditions hereinafter set forth. In the event that the Board of Directors of
Lasergate approves the Merger on or before January 31, 1999, the provisions
herein relating to the purchase and sale of the Shares (other than pursuant to
Section 2) shall not become effective and the acquisition and disposition of the
Shares shall be pursuant to the definitive agreements governing the Merger.
4. SALE OF SHARES. On the Closing Date (as defined in below), RBB shall
sell, transfer, convey and deliver to Advantix, and Advantix shall purchase and
accept delivery of, the Shares, and RBB shall deliver to Advantix stock
certificates representing the Shares, together with appropriate stock powers
endorsed in blank or as otherwise instructed by Advantix.
5. PURCHASE PRICE.
A. PURCHASE PRICE. As consideration for this Agreement and as
the purchase price to be paid by Advantix for the Shares and all other
obligations of RBB under this Agreement, Advantix shall pay and deliver to RBB
the following consideration (the "Purchase Price"): (i) cash in an amount equal
to U.S.$0.10 for each Common Share owned by RBB and being purchased by Advantix
under this Agreement, and (ii) subject to adjustment as set forth below, such
number of shares (the "Advantix Shares") of common stock of Advantix ("Advantix
Common Stock") as shall be equal to the Exchange Ratio (as defined below)
multiplied by the number of Preferred Shares owned by RBB and being purchased by
Advantix under this Agreement. The Exchange Ratio shall be 170.081 shares of
Advantix Common Stock for each share of Lasergate Preferred Stock.
B. ADJUSTMENT OF PURCHASE PRICE. In the event that prior to
Closing Advantix consummates a private offering of its equity securities which
results in gross proceeds to Advantix of not less than $5 million (the "Private
Financing"), and the pre-offering valuation of Advantix in connection with such
Private Financing is less than or greater than U.S.$190 million, then the
Exchange Ratio shall be increased or decreased, as the case may be, on a
proportionate basis.
C. PAYMENT OF PURCHASE PRICE IN CASH. In the event that
Advantix has not consummated a registered public offering of Advantix Common
Stock on or before May 15, 1999
2
<PAGE> 3
(the "Advantix IPO"), or such later date as Advantix and RBB may agree, then,
notwithstanding paragraphs A and B of this Section 3, the Purchase Price shall
be an amount equal to the sum of (i) U.S.$0.10 for each Common Share owned by
RBB and being purchased by Advantix under this Agreement and (ii) U.S.$0.10 for
each share of Lasergate Common Stock into which the Preferred Shares may be
converted on the Closing Date.
6. ADDITIONAL AGREEMENTS.
A. RIGHTS. From and after the date hereof, Advantix shall be
entitled to receive, and RBB shall promptly deliver to Advantix, all of RBB's
rights, title and interest with respect to any proceeds, revenues, dividends,
distributions, conversions, exchanges, penalties and all other economic benefits
arising from the ownership of the Shares, including without limitation any cash
penalties or other consideration payable on account of the Shares as a result of
Lasergate's failure to obtain shareholder authorization for the issuance of
additional shares of Lasergate Common Stock upon the conversion of the Lasergate
Preferred Stock.
B. PAYMENT OF PROMISSORY NOTE. Upon the consummation of the
Merger, Advantix shall cause Lasergate, or its successor, to pay to RBB all
amounts as they become due under the terms of that certain Promissory Note
issued by Lasergate in favor of RBB in the original principal amount of
$300,000.
C. CONTROL OF LASERGATE BOARD OF DIRECTORS. In the event that
the Board of Directors of Lasergate does not approve the Merger on or before
January 31, 1999, RBB shall, as soon as possible thereafter, take all
appropriate or necessary actions, including without limitation making all
appropriate filings with the Securities and Exchange Commission, to elect a
majority of the members of the Lasergate board of directors. The members of the
Lasergate board of directors shall include David A. Riley and Stephen Fryer, or
such other individuals as are acceptable to Advantix, and David A. Riley shall
be named as Lasergate's business manager.
D. FUTURE ACTION. RBB agrees, and agrees to cause Lasergate,
not to take any action, including voting the Shares, inconsistent with the
purposes of this Agreement or the Merger or otherwise detrimental to Advantix.
E. CONVERSION. RBB agrees not to convert the Preferred Shares
into shares of Common Stock prior to the earlier to occur of the Closing and the
consummation of the Merger without the prior written consent of Advantix.
7. NON-SOLICITATION. From and after the date hereof until the earlier
to occur of the Closing and the consummation of the Merger, RBB shall not, and
shall not permit its officers, directors, employees, advisors, representatives
or agents to directly or indirectly, solicit, initiate, encourage (including by
way of furnishing information) or take any other action to facilitate any
inquiry or the making of any proposal which constitutes, or may be reasonably
expected to lead to, any acquisition or purchase of any of the Shares. If RBB
receives a proposal relating to the purchase of all or any portion of the
Shares, RBB shall immediately inform Advantix in writing of the terms and
conditions of such proposal and the identity of the person(s) making such
proposal, and keep Advantix fully and promptly informed of the status and
details of any such proposal and
3
<PAGE> 4
the response thereto.
8. REPRESENTATIONS AND WARRANTIES OF RBB. As an inducement for Advantix
to enter into this Agreement, RBB hereby represents and warrants to Advantix as
follows:
A. RBB has all requisite power and authority to enter into
this Agreement and to carry out its obligations hereunder. RBB has taken all
action necessary to authorize the execution and delivery of this Agreement, the
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by RBB and constitutes a legal, valid and binding obligation of RBB,
enforceable against RBB in accordance with its terms. RBB is not bound by any
contractual or legal restriction from selling the Shares pursuant to the terms
of this Agreement.
B. RBB is the record owner of the Shares, and as of the date
hereof and the Closing Date, such Shares are owned by RBB free and clear of all
liens, encumbrances, security interests, and restrictions of any kind.
C. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in a
breach of any provision of, or the termination of, or constitute a default under
any agreement to which RBB is a party or by which it or any of its assets may be
bound, (ii) violate or conflict with any applicable law, statute, ordinance,
rule, regulation, decree, writ, judgment, injunction or order of any
governmental authority, or (iii) require the consent, approval, authorization or
permit of, or filing with or notification to, any governmental authority other
than the U.S. Securities and Exchange Commission.
D. As of the Closing Date, RBB will have the absolute right
and authority to transfer the Shares to Advantix as described herein without the
consent of any other party, including without limitation the beneficial owners
of the Shares, and no agreement or instrument will be violated as a result such
transfer.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF ADVANTIX. As an
inducement for RBB to enter into this Agreement, Advantix hereby represents,
warrants and covenants to RBB as follows:
A. Advantix has all requisite power and authority to enter
into this Agreement and to carry out its obligations hereunder. Advantix has
taken all action necessary to authorize the execution and delivery of this
Agreement, the performance of its obligations hereunder and the consummation of
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Advantix and constitutes a legal, valid and binding obligation of
Advantix, enforceable against Advantix in accordance with its terms.
B. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not (i) result in a
breach of any provision of, or the termination of, or constitute a default under
any agreement to which Advantix is a party or by which it or any of its assets
may be bound, (ii) violate or conflict with any applicable law, statute,
ordinance, rule, regulation, decree, writ, judgment, injunction or order of any
governmental
4
<PAGE> 5
authority, or (iii) require the consent, approval, authorization or permit of,
or filing with or notification to, any governmental authority other than the
U.S. Securities and Exchange Commission.
10. INDEMNIFICATION OF ADVANTIX BY RBB. RBB agrees to indemnify, defend
and hold Advantix and its successors and assigns harmless against and in respect
of any and all liabilities, losses, damages, claims, penalties, fines, costs and
expenses of any kind which may be incurred (including, without limitation,
reasonable attorneys' and accountants' fees) (collectively, "Losses"), arising
out of or due to:
A. any and all liabilities arising out of any claims of
ownership to any of the Shares, whether absolute, accrued, contingent,
liquidated or unliquidated, existing or arising out of a state of facts existing
at or prior to the Closing, and expenses relating thereto;
B. any misrepresentation or any breach of any representation
or warranty on the part of RBB under, in or with respect to this Agreement;
C. any breach of any covenant or agreement on the part of RBB
under, in or with respect to this Agreement;
D. any and all and all liabilities arising out of any claims
by the beneficial owners of the Shares; and
E. any and all actions, suits, proceedings, demands,
assessments or judgments, costs and expenses incidental to any of the foregoing
matters.
Notwithstanding the foregoing, RBB's aggregate liability for
indemnifiable Losses pursuant to clauses A or B of this Section shall not exceed
the Purchase Price.
11. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
INDEMNIFICATION OBLIGATIONS. All representations, warranties, covenants,
agreements and indemnification obligations of RBB and Advantix contained in this
Agreement shall survive the Closing.
12. ATTORNEYS' FEES. In the event a suit or proceeding is brought by a
party to this Agreement to enforce its provisions, or to seek remedy for any
breach hereof, the prevailing party shall be entitled to receive its reasonable
attorneys' fees and disbursements incurred in connection with such suit or
proceeding, including fees and expenses incurred in any appellate proceedings.
13. CLOSING. The transfers and deliveries to be made pursuant to this
Agreement (the "Closing") shall take place not later than ten days following the
consummation of the Advantix IPO (the "Closing Date"); provided however, that in
the event that Advantix has not consummated the Advantix IPO on or before May
15, 1999, or such later date as Advantix and RBB may agree, May 15, 1999, or
such later date shall be the Closing Date. Time shall be of the essence with
respect to this Agreement.
14. CONDITIONS TO CLOSING. The obligations of the parties to consummate
the Purchase
5
<PAGE> 6
Transaction shall be subject to the following conditions, which may be waived in
whole or in part by the parties:
A. LASERGATE BANKRUPTCY. In the event that Lasergate (i)
applies for or consents to the appointment of a receiver, trustee or liquidator
of all or a substantial portion of its assets, files a voluntary petition in
bankruptcy or consents to an involuntary petition, makes a general assignment
for the benefit of its creditors, or files a petition or answer seeking
reorganization or arrangement with its creditors; or (ii) suffers any order,
judgment or decree to be entered by any court of competent jurisdiction,
adjudicating Lasergate to be bankrupt or approving a petition seeking its
reorganization or the appointment of a receiver, trustee or liquidator of
Lasergate or of all or a substantial part of its assets, then, unless RBB and
Advantix otherwise agree in writing, the Closing Date shall be postponed so long
as such condition exists for up to 180 days. This Agreement shall automatically
be terminated in the event that such condition continues for more than 180 days.
B. BREACHES. In the event that either party breaches any of
its agreements, covenants, representations or warranties under this Agreement,
and such breach can not be cured or remains uncured for more than ten days after
notice of such breach is delivered by the non-breaching party, then the
non-breaching party shall not be obligated to consummate the Purchase
Transaction.
15. EXPENSES. Each of Advantix and RBB shall bear its own expenses
(whether or not incurred prior to the date hereof) in connection with the
discussion, evaluation, negotiation and documentation of, or otherwise arising
out of, this Agreement and the transactions contemplated thereby.
16. ENTIRE AGREEMENT. This Agreement contains the entire Agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements, understandings, negotiations and discussions,
both written and oral, between the parties hereto with respect to the
transactions contemplated hereby.
17. FURTHER ASSURANCES. From and after the Closing, RBB shall, upon
request of Advantix and at no expense to Advantix, execute and deliver such
documents and instruments and perform such other acts as Advantix shall from
time to time reasonably request in order to confirm or more fully vest in
Advantix title to the Shares and allow Advantix to realize the benefits of this
Agreement.
18. AMENDMENT. No amendment, modification or termination of the
Agreement shall be effective unless in writing signed by the parties hereto.
19. NO WAIVER. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof, nor
shall any such waiver constitute a continuing waiver unless otherwise expressly
so provided.
20. SEVERABILITY. The invalidity of any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall not
affect the enforceability of the remaining
6
<PAGE> 7
portions of this Agreement, all of which are inserted conditionally on their
being valid in law, and, in the event that any one or more of the words,
phrases, sentences, clauses or sections contained in this Agreement shall be
declared invalid, this Agreement shall be construed as if such word(s),
phrase(s), sentence(s), clause(s) or section(s) had not been inserted.
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same Agreement and
each of which shall be deemed an original.
22. APPLICABLE LAW; VENUE; SPECIFIC PERFORMANCE. This Agreement shall
be governed by, and construed in accordance with, the laws of the State of New
York. The parties agree to the jurisdiction of any court located in the State of
New York agree that the venue of any action or proceeding relating to this
Agreement shall be in New York. Advantix and RBB agree that each shall be
entitled to the equitable remedy of specific performance if at any time any such
party hereto shall desire to enforce any provision of this Agreement.
23. JURY WAIVER. RBB AND Advantix HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE THE RIGHT EITHER MAY HAVE TO A TRIAL BY JURY IN RESPECT TO
ANY LITIGATION BASED HEREIN, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT, ANY OTHER DOCUMENTS OR INSTRUMENTS CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.
NOW THEREFORE, the parties hereto have executed and delivered this
Agreement as of the date first written above.
RBB BANK AG
By: S/ Herbert Straub
---------------------------
Its: Managing director US Equity
ADVANTIX, INC.
By: S/ Tom Gimple
---------------------------
Its: President & CEO
7
<PAGE> 1
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is dated effective as of April
29, 1999, between Advantix, Inc., a Delaware corporation ("Company"), and W.
Thomas Gimple ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and Executive
agrees to serve as the Company's President and Chief Executive Officer, during
the term of this Agreement. Executive agrees to devote Executive's full business
time and attention and best efforts to the affairs of the Company during the
term of this Agreement.
1.2 Term. Subject to the earlier termination of Executive's employment
by the Company pursuant to the provisions hereof, the term of employment of
Executive under this Agreement shall commence on the date hereof and shall
continue in effect until April 29, 2005, plus any extension as provided below.
At the end of the initial term, or any additional term, this Agreement shall
automatically be extended for an additional one (1) year, unless either
Executive or Company gives written notice to the other of its desire to
terminate this Agreement at least six (6) months prior to the scheduled end of
the term.
1.3 Termination of Prior Agreement. Immediately upon the commencement
of Executive's employment pursuant to the terms of this Agreement, that certain
Employment Agreement by and between Executive and the Company dated as of
October 1, 1998, shall terminate and shall be of no further force or effect.
ARTICLE II
COMPENSATION
------------
2.1 Annual Salary. During the employment of Executive, the Company
shall pay to Executive an initial base salary at the annual rate of $ 275,000
(the "Base Salary"), payable on the Company's regular payroll dates. The Company
may, in its sole and absolute discretion, increase Executive's Base Salary in
light of Executive's performance, inflation and cost of living, and other
factors deemed relevant by the Company; provided, however, Executive's Base
Salary may not be decreased below the initial Base Salary during the term of
this Agreement. The Compensation Committee of the Board shall meet with
Executive annually to review Executive's performance, objectives and
compensation, including salary, bonus and stock options. If the Compensation
Committee determines that any adjustments are appropriate they shall make a
recommendation to the full Board and the Board shall make such adjustments
thereto as the Board deems appropriate, consistent with this Agreement.
<PAGE> 2
2.2 Bonus. In addition to Executive's Base Salary, Executive shall be
entitled to receive such bonuses, if any, as shall be determined by the Board of
Directors of the Company (the "Board") in its sole and absolute discretion.
2.3 Stock Option. Executive has been granted stock options to purchase
shares of the Company's Common Stock pursuant to the Company's Stock Option
Plans. The options granted to Executive on September 14, 1998 to acquire 250,000
shares subject to event vesting and the options granted to Executive on April
29, 1999 to acquire 1,500,000 shares subject to event vesting are referred to as
the "Performance Options". To the extent any options other than the Performance
Options are outstanding at the time of a Corporate Transaction or Change in
Control (as defined in Article IV), all such non-Performance Options shall
automatically vest in full on an accelerated basis so that the non-Performance
Options will immediately become exercisable for all the shares as fully vested
shares. Notwithstanding the terms and conditions of the non-Performance Option
agreements and the applicable stock option plans, Section 4.5 of this Agreement
shall govern the acceleration, if any, of the non-Performance Options upon the
Executive's termination of employment.
2.4 Reimbursement of Expenses. Executive shall be entitled to receive
prompt reimbursement of all reasonable and necessary expenses incurred by
Executive in performing services hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
2.5 Benefits. Executive shall be entitled to participate in and be
covered by health, insurance, pension and other employee plans and benefits
currently or hereafter established for the employees of the Company generally
(collectively referred to as the "Company Benefit Plans") on at least the same
terms as other employees of the Company, subject to meeting applicable
eligibility requirements; provide, however, in lieu of participating in the
Company's health insurance plans, the Company agrees to pay the premiums on
Executive's Blue Cross and Blue Shield insurance plans (currently $5,484 per
year) up to a maximum premium of $8,500 per year.
2.6 Vacations and Holidays. During Executive's employment with the
Company, Executive shall be entitled to an annual vacation leave of four (4)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive shall
be entitled to such holidays as are established by the Company for all
employees.
2.7 Automobile Allowance. The Company shall provide Executive with an
automobile allowance of $600 per month.
2.8 Life Insurance. During Executive's employment with the Company, the
Company shall maintain a term life insurance policy on Executive's life in the
face amount of $1,000,000 payable to beneficiaries designated by Executive;
provided, however, that the Company's initial obligation to obtain such policy
is conditioned upon Executive providing evidence of incurability.
2
<PAGE> 3
ARTICLE III
CONFIDENTIALITY, NONDISCLOSURE AND NONCOMPETITION
-------------------------------------------------
3.1 Confidentiality. Executive will not during Executive's employment
by the Company or thereafter at any time disclose, directly or indirectly, to
any person or entity or use for Executive's own benefit any trade secrets or
confidential information relating to the Company's business operations,
marketing data, business plans, strategies, employees, negotiations and
contracts with other companies, or any other subject matter pertaining to the
business of the Company or any of their clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company and further excepting any such
information which is or becomes available to the public through no fault of
Executive. For purposes of this Article III, the term "Company" shall mean the
Company and each of its subsidiaries.
3.2 Return of Confidential Material. Executive shall promptly deliver
to the Company on termination of Executive's employment with the Company,
whether or not for cause and whatever the reason, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, drawings,
blueprints, Confidential Information and any other documents of a confidential
nature belonging to the Company, including all copies of such materials which
Executive may then possess or have under Executive's control. Upon termination
of Executive's employment by the Company, Executive shall not take any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
Executive's employment with the Company and for a period of two (2) years
thereafter, Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver of
any and all rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
Contractors After Termination. During the term of Executive's employment with
the Company and for a period of two (2) years thereafter, Executive will not
solicit any of the employees, agents or independent contractors of the Company
to leave the employ of the Company for a competitive company or business.
However, Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with the Company after a period of
90 days have elapsed since the termination date of such employee, agent or
independent contractor. None of the foregoing shall be deemed a waiver of any
and all rights and remedies the Company may have under applicable law.
3
<PAGE> 4
3.5 Noncompetition.
(a) Executive acknowledges that: (i) the services to be
performed by Executive under this Agreement are of a special, unique, unusual,
extraordinary, and intellectual character; (ii) the Company has required that
Executive make the covenants set forth in this Section 3.5 as a condition to the
Company's entering into this Agreement; and (iii) the provisions of this Section
3.5 are reasonable and necessary to protect the business of the Company.
(b) In consideration of the acknowledgments by Executive, and
in consideration of the compensation and benefits to be paid or provided to
Executive by the Company under this Agreement, Executive covenants that
Executive will not, directly or indirectly:
(i) during the term of Executive's employment with
the Company hereunder and for a period of two (2) years thereafter (the
"Covenant Period"), engage or invest in, own, manage, operate, finance,
control, or participate in the ownership, management, operation,
financing, or control of, be employed by, associated with, or in any
manner connected with, lend Executive's name or any similar name to,
lend Executive's credit to, or render services or advice to, any
business whose products or activities compete in the Territory (as
defined below), directly or indirectly, with (i) the Company's
ticketing products or services or (ii) with any products or services of
the Company as of the time of the Executive's termination; provided,
however, that Executive may purchase or otherwise acquire up to (but
not more than) one percent of any class of securities of any enterprise
(but without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934. Executive agrees that this covenant is
reasonable with respect to its duration, geographical area, and scope.
For purposes hereof, "Territory" shall mean any county of any state of
the United States of America, including any county in the States of
California, Connecticut, Ohio or New York, and any other states or
international jurisdictions in which the Company is doing business at
the time of Executive's termination.
(ii) at any time during or after the Covenant Period,
disparage the Company, or any of its shareholders, directors, officers,
employees, or agents.
(c) Executive will, for the Covenant Period, within ten days
after accepting any employment, advise the Company of the identity of any
employer of Executive. The Company may serve notice upon each such employer that
Executive is bound by this Agreement and furnish each such employer with a copy
of this Agreement or relevant portions thereof.
3.6 Enforcement. It is the intent of the parties that the restrictive
covenants contained in this Article III are severable and separate and the
unenforceability of any individual provision shall not effect the enforceability
of any other. If any covenant in this Article III is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding and enforceable against the Executive.
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3.7 Survival of Obligations. Executive agrees that the terms of this
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
ARTICLE IV
TERMINATION
-----------
4.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined as a
refusal to execute or carry out directions from the Board or its duly
appointed designees) where Executive has been given written notice of
the acts or omissions constituting such neglect or insubordination and
Executive has failed to cure such conduct, where susceptible to cure,
within thirty (30) days following notice;
(ii) conviction of any felony or any crime involving
moral turpitude;
(iii) participation in any fraud against the Company;
(iv) willful breach of Executive's duties to the
Company, including but not limited to theft from the Company, failure
to fully disclose personal pecuniary interest in a transaction
involving the Company, violation of the Company's authority limits on
commitments, trading, controls and notification;
(v) intentional damage to any property of the
Company;
(vi) conduct by Executive which in the good faith,
reasonable determination of the Board demonstrates gross unfitness to
serve including, but not be limited to, gross neglect, non-prescription
use of controlled substances, any abuse of controlled substances
whether or not by prescription, or habitual drunkenness, intoxication,
or other impaired state induced by consumption of any drug, including
alcohol; or
(vii) material breach by the Executive of those
provisions of this Agreement concerning non-competition or the
confidentiality of trade secrets or proprietary or other information.
(b) Change in Control. "Change in Control" shall mean a change
in ownership or control of the Company effected through either of the following
transactions:
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(i) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Company or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Company) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Securities Exchange Act, as amended)
of securities possessing more than fifty (50%) of the total combined
voting power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's stockholders,
or
(ii) a change in the composition of the Company's
Board over a period of thirty-six (36) consecutive months or less such
that a majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (a) have been Board members continuously since
the beginning of such period or (b) have been elected or nominated for
election as Board members described in clause (a) who were still in
office at the time the Board approved such election or nomination.
(c) Corporate Transaction. "Corporate Transaction" shall mean
either of the following stockholder-approved transactions to which the Company
is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all
or substantially all of the Company's assets in complete liquidation or
dissolution of the Company.
(d) Disability. "Disability" shall mean a physical or mental
incapacity as a result of which Executive becomes unable to continue the proper
performance of his duties hereunder (reasonable absences because of sickness for
up to three (3) consecutive months excepted; provided, however, that any new
period of incapacity or absences shall be deemed to be part of a prior period of
incapacity or absences if the prior period terminated within ninety (90) days of
the beginning of the new period of incapacity or absence and the incapacity or
absence is determined by the Company's Board of Directors, in good faith, to be
related to the prior incapacity or absence.) A determination of Disability shall
be subject to the certification of a qualified medical doctor agreed to by the
Company and Executive or, in the event of Executive's incapacity to designate a
doctor, Executive's legal representative. In the absence of agreement between
the Company and Executive, each party shall nominate a qualified medical doctor
and the two (2) doctors so nominated shall select a third doctor, who shall make
the determination as to Disability.
(e) Good Reason. "Good Reason" shall mean:
(i) assignment of the Executive without Executive's
consent to a position, responsibilities or duties of a materially
lesser status or degree of responsibility than his position,
responsibilities or duties as of the date of this Agreement;
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(ii) relocation of the Executive outside of the
Orange County area without Executive's consent;
(iii) a reduction by the Company of the Executive's
Base Salary below the initial Base Salary or, following a Change in
Control, below Executive's Base Salary at the time of the Change in
Control, without Executive's consent;
(iv) a failure by the Company to continue in effect,
without substantial change, any benefit plan or arrangement in which
the Executive was participating or the taking of any action by the
Company which would adversely affect the Executive's participation in
or materially reduce his benefits under any benefit plan (unless such
failure, action or changes apply equally to substantially all other
management employees of Company); or
(v) any material breach by the Company of any
provision of this Agreement without the Executive having committed any
material breach of Executive's obligations hereunder, which breach is
not cured within thirty (30) days following written notice thereof to
the Company of such breach; provided, however, that the events listed
herein shall constitute "Good Reason" only for a period of ninety (90)
days following the occurrence thereof.
4.2 Termination by Company. The Company may terminate Executive's
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be the
date of notice of termination if for Cause and thirty (30) days subsequent to
written notice of termination for any reason other than Cause; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Termination by Executive. Executive may terminate this Agreement
upon thirty (30) days' written notice to the Company. The effective date of
termination ("Effective Date") shall be considered to be thirty (30) days
subsequent to written notice of termination; however, the Company may elect to
have Executive leave the Company immediately.
4.4 Death or Disability of Executive. This Agreement shall terminate
immediately upon the death or Disability of Executive (the "Effective Date").
4.5 Severance Benefits Received Upon Termination.
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement without Good Reason, then the
Company shall pay Executive's Base Salary through the Effective Date of such
termination plus credit for any vacation earned but not taken and the Company
shall thereafter have no further obligations to Executive under this Agreement.
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(b) Except as otherwise provided in Section 4.5(c) below, if
Executive's employment is terminated by the Company without Cause or as a result
of Disability, or if Executive's employment is terminated by Employee for Good
Reason, then the Company shall provide Executive:
(i) salary continuation in an amount equal to
Executive's then Base Salary for a period of nine (9) months,
commencing on the Effective Date, said sum to be paid in equal
installments at the times salary payments are usually made by the
Company; and
(ii) acceleration and immediate vesting of fifty
percent (50%) of the unvested shares subject to each of the Executive's
options outstanding at the Effective Date, excluding the Performance
Options, and such accelerated options as well as any other options
which have vested and which are then exercisable shall remain
exercisable for the three (3)-month period measured from the Effective
Date, except for Executive's termination by reason of a disability
where the options shall remain exercisable for such fully vested shares
until the expiration of the twelve (12)-month period measured from the
Effective Date, and shall then expire and be of no further force or
effect;
(iii) health insurance coverage as then in effect for
Executive, Executive's spouse and dependent children for a period of
nine (9) months, commencing on the Effective Date, subject to any
employee contribution provisions as defined in the Company Benefit
Plans. Subsequent health insurance benefits will be in accordance with
COBRA. The Company shall thereafter have no further obligations under
this Agreement.
(c) If within twenty-four (24) months of a Corporate
Transaction or Change in Control the Executive's employment is terminated by the
Company without Cause or by Executive for Good Reason, then the Company shall
provide Executive:
(i) salary continuation in an amount equal to
Executive's then Base Salary for a period of eighteen (18) months,
commencing on the Effective Date, said sum to be paid in equal
installments at the times salary payments are usually made by the
Company; and
(ii) acceleration and immediate vesting of one
hundred percent (100%) of Executive's options which have not yet vested
by the Effective Date, excluding the Performance Options, and such
accelerated options as well as any other options which have vested and
which are then exercisable shall remain exercisable for a period of
twelve (12) months following the Effective Date and shall then expire
and be of no further force or effect; and
(iii) health insurance coverage as then in effect for
Executive, Executive's spouse and dependent children for a period of
eighteen (18) months, commencing on the Effective Date, subject to any
employee contribution provisions as defined in the Company Benefit
Plans. Subsequent health insurance benefits will be in
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accordance with COBRA. The Company shall thereafter have no further
obligations under this Agreement.
(d) If Executive's employment is terminated by the Company as
a result of death, then the Company shall pay Executive's Base Salary through
the Effective Date of such termination plus credit for any vacation earned but
not taken and the Company shall provide Executive's spouse and dependent
children health insurance coverage as then in effect for Executive, Executive's
spouse and dependent children for a period of two (2) months, subject to any
employee contribution provisions as defined in the Company Benefit Plans. Health
insurance benefits subsequent to the continuation period will be in accordance
with COBRA. The Company shall thereafter have no further obligations under this
Agreement.
(e) Notwithstanding the foregoing, Executive shall not be
entitled to the severance benefits set forth in this Section 4.5 in the event of
Executive's termination upon expiration of the term of this Agreement.
4.6 Expiration of Term. If Executive's employment is terminated as a
result of the expiration of the term of this Agreement, then the Company shall
pay Executive's Base Salary through the expiration date plus credit for any
vacation earned but not taken and the Company shall thereafter have no further
obligations under this Agreement.
4.7 Benefit Limit. In the event that any payment or benefit (including
salary continuation payments, accelerated option vesting or continued health
care coverage) received or to be received by Executive pursuant to this
Agreement (collectively the 'Payments") would constitute a parachute payment
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then the following limitation shall apply:
The aggregate present value of those Payments shall be limited in
amount to the greater of the following dollar amounts (the "Benefit Limit"):
(a) 2.99 times Executive's Average Compensation, or
(b) the amount which yields Executive the greatest after-tax
amount of Payments under this Agreement after taking into account any excise tax
imposed under Code Section 4999 on those Payments.
The present value of the Payments will be measured as of the date of
the Change in Control or Corporate Transaction and determined in accordance
with the provisions of Code Section 280G(d)(4).
Average Compensation means the average of Executive's W-2 wages from
the Company for the five (5) calendar years (or such fewer number of
calendar years of employment with the Company) completed immediately prior
to the calendar year in which the Change of Control or Corporate Transaction
is effected. Any W-2 wages for a partial year of employment will be
annualized, in accordance with the
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frequency which such wages are paid during such partial year, before
inclusion in Average Compensation.
4.8 Resolution Procedure. For purposes of the foregoing Benefit Limit,
the following provisions will be in effect:
(a) In the event there is any disagreement between Executive
and the Company as to whether one or more Payments to which Executive becomes
entitled under this Agreement constitute parachute payments under Code Section
280G or as to the determination of the present value thereof, such dispute will
be resolved as follows:
(i) In the event temporary, proposed or final
Treasury Regulations in effect at the time under Code Section 280G (or
applicable judicial decisions) specifically address the status of any
such Payment or the method of valuation therefor, the characterization
afforded to such Payment by the Regulations (or such decisions) will,
together with the applicable valuation methodology, be controlling.
(ii) In the event Treasury Regulations (or applicable
judicial decisions) do not address the status of any Payment in
dispute, the matter will be submitted for resolution to a
nationally-recognized independent accounting firm mutually acceptable
to Executive and the Company ("Independent Accountant"). The resolution
reached by the Independent Accountant will be final and controlling;
provided, however, that if in the judgment of the Independent
Accountant the status of the payment in dispute can be resolved through
the obtainment of a private letter ruling from the Internal Revenue
Service, a formal and proper request for such ruling will be prepared
and submitted, and the determination made by the Internal Revenue
Service in the issued ruling will be controlling. All expenses incurred
in connection with the retention of the Independent Accountant and (if
applicable) the preparation and submission of the ruling request shall
be borne by the Company.
4.9 Reduction of Benefits. To the extent the aggregate present value of
the Payments would exceed the Benefit Limit, the salary continuation payments
will first be reduced, and then the accelerated vesting of the options (based on
their parachute value under Code Section 280G) will be reduced, to the extent
necessary to assure that such Benefit Limit is not exceeded.
ARTICLE V
GENERAL PROVISIONS
------------------
5.1 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be deposited in the United States mail,
registered or certified, return receipt requested, postage prepaid, addressed as
follows:
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To the Company: Advantix, Inc.
4675 MacArthur Court, Suite 1400
Newport Beach, CA 92660
Attn: Chairman of the Board
To Executive: W. Thomas Gimple
1019 Santiago Drive
Newport Beach, CA 92660
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the date so mailed or on the date of actual
receipt, whichever is earlier.
5.2 Proprietary Information and Inventions. Contemporaneously with the
execution of this Agreement, Executive shall execute a Proprietary Information
and Inventions Agreement in the form attached as Exhibit A hereto. The terms of
said agreement are incorporated by reference in this Agreement, and Executive
agrees to be bound thereby.
5.3 Covenant to Notify Management. Executive agrees to abide by the
ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. Executive agrees to comply in full with
all governmental laws and regulations as well as ethics codes applicable to the
profession. In the event that Executive is aware or suspects the Company, or any
of its officers or agents, of violating any such laws, ethics codes, rules,
regulations, policies or procedures, Executive agrees to bring all such actual
and suspected violations to the attention of the Company immediately so that the
matter may be properly investigated and appropriate action taken. Executive
understands that he is precluded from filing a complaint with any governmental
agency or court having jurisdiction over wrongful conduct unless Executive has
first notified the Company of the facts and permits it to investigate and
correct the concerns.
5.4 No Waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Executive and the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
5.5 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to him hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive's devisee, legatee, or other designee
or, if there be no such designee, to Executive's estate.
5.6 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
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5.7 Statute of Limitations. Executive and the Company hereby agree that
there shall be a one year statute of limitations for the filing of any requests
for arbitration or any lawsuit relating to this Agreement or the terms or
conditions of Executive's employment by the Company. If such a claim is filed
more than one year subsequent to Executive's last day of employment it shall be
precluded by this provision, regardless of whether or not the claim has accrued
at that time.
5.8 Right to Injunctive and Equitable Relief. Executive's obligations
under Article III are of a special and unique character which gives them a
peculiar value. The Company cannot be reasonably or adequately compensated for
damages in an action at law in the event Executive breaches such obligations.
Therefore, Executive expressly agrees that the Company shall be entitled to
injunctive and other equitable relief without bond or other security in the
event of such breach in addition to any other rights or remedies which the
Company may possess or be entitled to pursue. Furthermore, the obligations of
Executive and the rights and remedies of the Company under Article III are
cumulative and in addition to, and not in lieu of, any obligations, rights, or
remedies created by applicable law.
5.9 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.10 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument.
5.11 Attorneys' Fees. In the event any action in law or equity,
arbitration or other proceeding is brought for the enforcement of this Agreement
or in connection with any of the provisions of this Agreement, the prevailing
party shall be entitled to his or its attorneys' fees and other costs reasonably
incurred in such action or proceeding.
5.12 Entire Agreement. This Agreement, along with the Proprietary
Information and Inventions Agreement by and between Executive and the Company of
even date herewith (the "Proprietary Information Agreement"), constitutes the
entire agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement, along with
the Proprietary Information Agreement, is intended by the parties as the final
expression of their agreement with respect to such terms as are included herein
and therein and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement, along
with the Proprietary Information Agreement, constitutes the complete and
exclusive statement of their terms and that no extrinsic evidence may be
introduced in any judicial proceeding involving such agreements.
5.13 Assignment. This Agreement and the rights, duties, and obligations
hereunder may not be assigned or delegated by any party without the prior
written consent of the other party and any attempted assignment or delegation
without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.13, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
affiliate or to any person or
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entity which succeeds to all or substantially all of the business of the Company
through merger, consolidation, reorganization, or other business combination or
by acquisition of all or substantially all of the assets of the Company.
5.14 Dispute Resolution. Except as provided in Section 5.8, any
controversy, dispute, claim or other matter in question arising out of or
relating to the interpretation, performance or breach of this Agreement shall be
finally determined, at the request of any party, by binding arbitration
conducted in accordance with the then existing rules for commercial arbitration
of the American Arbitration Association, and judgment upon any award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. Such
arbitration shall be conducted in Orange County, California. The arbitrator
shall award to the prevailing party, in addition to the costs of the proceeding,
that party's reasonable attorney's fees. The Company reserves the right to seek
judicial provisional remedies and equitable relief regarding any breach or
threatened breach of Executive's obligations regarding the matters set forth in
Article III hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
ADVANTIX, INC.
By:
---------------------------------
John M. Markovich
Executive Vice President and CFO
"EXECUTIVE"
--------------------------------------
W. Thomas Gimple
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EXHIBIT 10.16
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is dated effective as of April
29, 1999, between Advantix, Inc., a Delaware corporation ("Company"), and John
M. Markovich ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and Executive
agrees to serve as the Company's Executive Vice President, Finance and Chief
Financial Officer, reporting to the Chief Executive Officer, or in such other
management position consistent with Executive's experience and reputation in the
industry as the Company shall determine, during the term of this Agreement.
Executive agrees to devote Executive's full business time and attention and best
efforts to the affairs of the Company during the term of this Agreement.
1.2 Term. Subject to the earlier termination of Executive's employment
by the Company pursuant to the provisions hereof, the term of employment of
Executive under this Agreement shall commence on the date hereof and shall
continue in effect until April 29, 2005, plus any extension as provided below.
At the end of the initial term, or any additional term, this Agreement shall
automatically be extended for an additional one (1) year, unless either
Executive or Company gives written notice to the other of its desire to
terminate this Agreement at least six (6) months prior to the scheduled end of
the term.
1.3 Termination of Prior Agreement. Immediately upon the commencement
of Executive's employment pursuant to the terms of this Agreement, that certain
Employment Agreement by and between Executive and the Company dated as of
October 1, 1998, shall terminate and shall be of no further force or effect.
ARTICLE II
COMPENSATION
------------
2.1 Annual Salary. During the employment of Executive, the Company
shall pay to Executive an initial base salary at the annual rate of $ 200,000
(the "Base Salary"), payable on the Company's regular payroll dates. The Company
shall review Executive's Base Salary annually and may, in its sole and absolute
discretion, increase Executive's Base Salary in light of Executive's
performance, inflation and cost of living, and other factors deemed relevant by
the Company; provided, however, Executive's Base Salary may not be decreased
below the initial Base Salary during the term of this Agreement. The Chief
Executive Officer of the Company shall meet with Executive annually to review
<PAGE> 2
Executive's performance, objectives and compensation, including salary, bonus
and stock options, and the Chief Executive Officer shall then meet with the
Compensation Committee of the Board to discuss the same. If the Compensation
Committee determines that any adjustments thereto are appropriate they shall
make a recommendation to the full Board and the Board shall make such
adjustments as the Board deems appropriate, consistent with this Agreement.
2.2 Bonus. In addition to Executive's Base Salary, Executive shall be
entitled to receive such bonuses, if any, as shall be determined by the Board of
Directors of the Company (the "Board") in its sole and absolute discretion. The
Board of Directors of the Company intends to develop a performance bonus plan
for its executive officers which will provide for potential bonus opportunities
of up to fifty percent (50%) of base salary.
2.3 Stock Option. Executive has been granted stock options to purchase
shares of the Company's Common Stock pursuant to the Company's Stock Option
Plans. The options granted to Executive on April 29, 1998 to acquire 385,000
shares subject to event vesting are referred to as the "Performance Options". To
the extent any options other than the Performance Options are outstanding at the
time of a Corporate Transaction or Change in Control (as defined in Article IV),
all such non-Performance Options shall automatically vest in full on an
accelerated basis so that the non-Performance Options will immediately become
exercisable for all the shares as fully vested shares. Notwithstanding the terms
and conditions of the non-Performance Option agreements and the applicable stock
option plans, Section 4.5 of this Agreement shall govern the acceleration, if
any, of the non-Performance Options upon the Executive's termination of
employment.
2.4 Reimbursement of Expenses. Executive shall be entitled to receive
prompt reimbursement of all reasonable and necessary expenses incurred by
Executive in performing services hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
2.5 Benefits. Executive shall be entitled to participate in and be
covered by health, insurance, pension and other employee plans and benefits
currently or hereafter established for the employees of the Company generally
(collectively referred to as the "Company Benefit Plans") on at least the same
terms as other executive officers of the Company, excluding the Chief Executive
Officer, subject to meeting applicable eligibility requirements.
2.6 Vacations and Holidays. During Executive's employment with the
Company, Executive shall be entitled to an annual vacation leave of three (3)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive shall
be entitled to such holidays as are established by the Company for all
employees.
2.7 Automobile Allowance. The Company shall provide Executive with an
automobile allowance of $600 per month.
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ARTICLE III
CONFIDENTIALITY, NONDISCLOSURE AND NONCOMPETITION
-------------------------------------------------
3.1 Confidentiality. Executive will not during Executive's employment
by the Company or thereafter at any time disclose, directly or indirectly, to
any person or entity or use for Executive's own benefit any trade secrets or
confidential information relating to the Company's business operations,
marketing data, business plans, strategies, employees, negotiations and
contracts with other companies, or any other subject matter pertaining to the
business of the Company or any of their clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company and further excepting any such
information which is or becomes available to the public through no fault of
Executive. For purposes of this Article III, the term "Company" shall mean the
Company and each of its subsidiaries.
3.2 Return of Confidential Material. Executive shall promptly deliver
to the Company on termination of Executive's employment with the Company,
whether or not for cause and whatever the reason, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, drawings,
blueprints, Confidential Information and any other documents of a confidential
nature belonging to the Company, including all copies of such materials which
Executive may then possess or have under Executive's control. Upon termination
of Executive's employment by the Company, Executive shall not take any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
Executive's employment with the Company and for a period of two (2) years
thereafter, Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver of
any and all rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
Contractors After Termination. During the term of Executive's employment with
the Company and for a period of two (2) years thereafter, Executive will not
solicit any of the employees, agents or independent contractors of the Company
to leave the employ of the Company for a competitive company or business.
However, Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with the Company after a period of
90 days have elapsed since the termination date of such employee, agent or
independent contractor. None of the foregoing shall be deemed a waiver of any
and all rights and remedies the Company may have under applicable law.
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3.5 Noncompetition.
(a) Executive acknowledges that: (i) the services to be
performed by Executive under this Agreement are of a special, unique, unusual,
extraordinary, and intellectual character; (ii) the Company has required that
Executive make the covenants set forth in this Section 3.5 as a condition to the
Company's entering into this Agreement; and (iii) the provisions of this Section
3.5 are reasonable and necessary to protect the business of the Company.
(b) In consideration of the acknowledgments by Executive, and
in consideration of the compensation and benefits to be paid or provided to
Executive by the Company under this Agreement, Executive covenants that
Executive will not, directly or indirectly:
(i) during the term of Executive's employment with
the Company hereunder and for a period of two (2) years thereafter (the
"Covenant Period"), engage or invest in, own, manage, operate, finance,
control, or participate in the ownership, management, operation,
financing, or control of, be employed by, associated with, or in any
manner connected with, lend Executive's name or any similar name to,
lend Executive's credit to, or render services or advice to, any
business whose products or activities compete in the Territory (as
defined below), directly or indirectly, with (i) the Company's
ticketing products or services or (ii) with any products or services of
the Company as of the time of the Executive's termination; provided,
however, that Executive may purchase or otherwise acquire up to (but
not more than) one percent of any class of securities of any enterprise
(but without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or regional
securities exchange or have been registered under Section 12(g) of the
Securities Exchange Act of 1934. Executive agrees that this covenant is
reasonable with respect to its duration, geographical area, and scope.
For purposes hereof, "Territory" shall mean any county of any state of
the United States of America, including any county in the States of
California, Connecticut, Ohio or New York, and any other states or
international jurisdictions in which the Company is doing business at
the time of Executive's termination.
(ii) at any time during or after the Covenant Period,
disparage the Company, or any of its shareholders, directors, officers,
employees, or agents.
(c) Executive will, for the Covenant Period, within ten days
after accepting any employment, advise the Company of the identity of any
employer of Executive. The Company may serve notice upon each such employer that
Executive is bound by this Agreement and furnish each such employer with a copy
of this Agreement or relevant portions thereof.
3.6 Enforcement. It is the intent of the parties that the restrictive
covenants contained in this Article III are severable and separate and the
unenforceability of any individual provision shall not effect the enforceability
of any other. If any covenant in this Article III is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not
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arbitrary, and not against public policy, will be effective, binding and
enforceable against the Executive.
3.7 Survival of Obligations. Executive agrees that the terms of this
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
ARTICLE IV
TERMINATION
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4.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined as a
refusal to execute or carry out directions from the Board or its duly
appointed designees) where Executive has been given written notice of
the acts or omissions constituting such neglect or insubordination and
Executive has failed to cure such conduct, where susceptible to cure,
within thirty (30) days following notice;
(ii) conviction of any felony or any crime involving
moral turpitude;
(iii) participation in any fraud against the Company;
(iv) willful breach of Executive's duties to the
Company, including but not limited to theft from the Company, failure
to fully disclose personal pecuniary interest in a transaction
involving the Company, violation of the Company's authority limits on
commitments, trading, controls and notification;
(v) intentional damage to any property of the
Company;
(vi) conduct by Executive which in the good faith,
reasonable determination of the Board demonstrates gross unfitness to
serve including, but not be limited to, gross neglect, non-prescription
use of controlled substances, any abuse of controlled substances
whether or not by prescription, or habitual drunkenness, intoxication,
or other impaired state induced by consumption of any drug, including
alcohol; or
(vii) material breach by the Executive of those
provisions of this Agreement concerning non-competition or the
confidentiality of trade secrets or proprietary or other information.
(b) Change in Control. "Change in Control" shall mean a change
in ownership or control of the Company effected through either of the following
transactions:
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(i) the acquisition, directly or indirectly, by any
person or related group of persons (other than the Company or a person
that directly or indirectly controls, is controlled by, or is under
common control with, the Company) of beneficial ownership (within the
meaning of Rule 13d-3 of the 1934 Securities Exchange Act, as amended)
of securities possessing more than fifty (50%) of the total combined
voting power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's stockholders,
or
(ii) a change in the composition of the Company's
Board over a period of thirty-six (36) consecutive months or less such
that a majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (a) have been Board members continuously since
the beginning of such period or (b) have been elected or nominated for
election as Board members described in clause (a) who were still in
office at the time the Board approved such election or nomination.
(c) Corporate Transaction. "Corporate Transaction" shall mean
either of the following stockholder-approved transactions to which the Company
is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all
or substantially all of the Company's assets in complete liquidation or
dissolution of the Company.
(d) Disability. "Disability" shall mean a physical or mental
incapacity as a result of which Executive becomes unable to continue the proper
performance of his duties hereunder (reasonable absences because of sickness for
up to three (3) consecutive months excepted; provided, however, that any new
period of incapacity or absences shall be deemed to be part of a prior period of
incapacity or absences if the prior period terminated within ninety (90) days of
the beginning of the new period of incapacity or absence and the incapacity or
absence is determined by the Company's Board of Directors, in good faith, to be
related to the prior incapacity or absence.) A determination of Disability shall
be subject to the certification of a qualified medical doctor agreed to by the
Company and Executive or, in the event of Executive's incapacity to designate a
doctor, Executive's legal representative. In the absence of agreement between
the Company and Executive, each party shall nominate a qualified medical doctor
and the two (2) doctors so nominated shall select a third doctor, who shall make
the determination as to Disability.
(e) Good Reason. "Good Reason" shall mean:
(i) assignment of the Executive without Executive's
consent to a position, responsibilities or duties of a materially
lesser status or degree of responsibility than his position,
responsibilities or duties as of the date of this Agreement;
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(ii) relocation of the Executive outside of the
Orange County area without Executive's consent;
(iii) a reduction by the Company of the Executive's
Base Salary below the initial Base Salary or, following a Change in
Control, below Executive's Base Salary at the time of the Change in
Control, without Executive's consent;
(iv) a failure by the Company to continue in effect,
without substantial change, any benefit plan or arrangement in which
the Executive was participating or the taking of any action by the
Company which would adversely affect the Executive's participation in
or materially reduce his benefits under any benefit plan (unless such
failure, action or changes apply equally to substantially all other
management employees of Company); or
(v) any material breach by the Company of any
provision of this Agreement without the Executive having committed any
material breach of Executive's obligations hereunder, which breach is
not cured within thirty (30) days following written notice thereof to
the Company of such breach; provided, however, that the events listed
herein shall constitute "Good Reason" only for a period of ninety (90)
days following the occurrence thereof.
4.2 Termination by Company. The Company may terminate Executive's
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be the
date of notice of termination if for Cause and thirty (30) days subsequent to
written notice of termination for any reason other than Cause; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Termination by Executive. Executive may terminate this Agreement
upon thirty (30) days' written notice to the Company. The effective date of
termination ("Effective Date") shall be considered to be thirty (30) days
subsequent to written notice of termination; however, the Company may elect to
have Executive leave the Company immediately.
4.4 Death or Disability of Executive. This Agreement shall terminate
immediately upon the death or Disability of Executive (the "Effective Date").
4.5 Severance Benefits Received Upon Termination.
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement without Good Reason, then the
Company shall pay Executive's Base Salary through the Effective Date of such
termination plus credit for any vacation earned but not taken and the Company
shall thereafter have no further obligations to Executive under this Agreement.
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(b) Except as otherwise provided in Section 4.5(c) below, if
Executive's employment is terminated by the Company without Cause or as a result
of Disability, or if Executive's employment is terminated by Employee for Good
Reason, then the Company shall provide Executive:
(i) salary continuation in an amount equal to
Executive's then Base Salary for a period of six (6) months, commencing
on the Effective Date, said sum to be paid in equal installments at the
times salary payments are usually made by the Company; and
(ii) acceleration and immediate vesting of fifty
percent (50%) of the unvested shares subject to each of the Executive's
options outstanding at the Effective Date, excluding the Performance
Options, and such accelerated options as well as any other options
which have vested and which are then exercisable shall remain
exercisable for the three (3)-month period measured from the Effective
Date, except for Executive's termination by reason of a disability
where the options shall remain exercisable for such fully vested shares
until the expiration of the twelve (12)-month period measured from the
Effective Date, and shall then expire and be of no further force or
effect;
(iii) health insurance coverage as then in effect for
Executive, Executive's spouse and dependent children for a period of
six (6) months, commencing on the Effective Date, subject to any
employee contribution provisions as defined in the Company Benefit
Plans. Subsequent health insurance benefits will be in accordance with
COBRA. The Company shall thereafter have no further obligations under
this Agreement.
(c) If within twenty-four (24) months of a Corporate
Transaction or Change in Control the Executive's employment is terminated by the
Company without Cause or by Executive for Good Reason, then the Company shall
provide Executive:
(i) salary continuation in an amount equal to
Executive's then Base Salary for a period of twelve (12) months,
commencing on the Effective Date, said sum to be paid in equal
installments at the times salary payments are usually made by the
Company; and
(ii) acceleration and immediate vesting of one
hundred percent (100%) of Executive's options which have not yet vested
by the Effective Date, excluding the Performance Options, and such
accelerated options as well as any other options which have vested and
which are then exercisable shall remain exercisable for a period of
twelve (12) months following the Effective Date and shall then expire
and be of no further force or effect; and
(iii) health insurance coverage as then in effect for
Executive, Executive's spouse and dependent children for a period of
twelve (12) months, commencing on the Effective Date, subject to any
employee contribution provisions as defined in the Company Benefit
Plans. Subsequent health insurance benefits will be in accordance with
COBRA. The Company shall thereafter have no further obligations under
this Agreement.
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(d) If Executive's employment is terminated by the Company as
a result of death, then the Company shall pay Executive's Base Salary through
the Effective Date of such termination plus credit for any vacation earned but
not taken and the Company shall provide Executive's spouse and dependent
children health insurance coverage as then in effect for Executive, Executive's
spouse and dependent children for a period of two (2) months, subject to any
employee contribution provisions as defined in the Company Benefit Plans. Health
insurance benefits subsequent to the continuation period will be in accordance
with COBRA. The Company shall thereafter have no further obligations under this
Agreement.
(e) Notwithstanding the foregoing, Executive shall not be
entitled to the severance benefits set forth in this Section 4.5 in the event of
Executive's termination upon expiration of the term of this Agreement.
4.6 Expiration of Term. If Executive's employment is terminated as a
result of the expiration of the term of this Agreement, then the Company shall
pay Executive's Base Salary through the expiration date plus credit for any
vacation earned but not taken and the Company shall thereafter have no further
obligations under this Agreement.
4.7 Benefit Limit. In the event that any payment or benefit (including
salary continuation payments, accelerated option vesting or continued health
care coverage) received or to be received by Executive pursuant to this
Agreement (collectively the 'Payments") would constitute a parachute payment
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then the following limitation shall apply:
The aggregate present value of those Payments shall be limited in
amount to the greater of the following dollar amounts (the "Benefit Limit"):
(a) 2.99 times Executive's Average Compensation, or
(b) the amount which yields Executive the greatest after-tax
amount of Payments under this Agreement after taking into account any excise tax
imposed under Code Section 4999 on those Payments.
The present value of the Payments will be measured as of the date of
the Change in Control or Corporate Transaction and determined in accordance
with the provisions of Code Section 280G(d)(4).
Average Compensation means the average of Executive's W-2 wages from
the Company for the five (5) calendar years (or such fewer number of
calendar years of employment with the Company) completed immediately prior
to the calendar year in which the Change of Control or Corporate Transaction
is effected. Any W-2 wages for a partial year of employment will be
annualized, in accordance with the frequency which such wages are paid
during such partial year, before inclusion in Average Compensation.
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4.8 Resolution Procedure. For purposes of the foregoing Benefit Limit,
the following provisions will be in effect:
(a) In the event there is any disagreement between Executive
and the Company as to whether one or more Payments to which Executive becomes
entitled under this Agreement constitute parachute payments under Code Section
280G or as to the determination of the present value thereof, such dispute will
be resolved as follows:
(i) In the event temporary, proposed or final
Treasury Regulations in effect at the time under Code Section 280G (or
applicable judicial decisions) specifically address the status of any
such Payment or the method of valuation therefor, the characterization
afforded to such Payment by the Regulations (or such decisions) will,
together with the applicable valuation methodology, be controlling.
(ii) In the event Treasury Regulations (or applicable
judicial decisions) do not address the status of any Payment in
dispute, the matter will be submitted for resolution to a
nationally-recognized independent accounting firm mutually acceptable
to Executive and the Company ("Independent Accountant"). The resolution
reached by the Independent Accountant will be final and controlling;
provided, however, that if in the judgment of the Independent
Accountant the status of the payment in dispute can be resolved through
the obtainment of a private letter ruling from the Internal Revenue
Service, a formal and proper request for such ruling will be prepared
and submitted, and the determination made by the Internal Revenue
Service in the issued ruling will be controlling. All expenses incurred
in connection with the retention of the Independent Accountant and (if
applicable) the preparation and submission of the ruling request shall
be borne by the Company.
4.9 Reduction of Benefits. To the extent the aggregate present value of
the Payments would exceed the Benefit Limit, the salary continuation payments
will first be reduced, and then the accelerated vesting of the options (based on
their parachute value under Code Section 280G) will be reduced, to the extent
necessary to assure that such Benefit Limit is not exceeded.
ARTICLE V
GENERAL PROVISIONS
------------------
5.1 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be deposited in the United States mail,
registered or certified, return receipt requested, postage prepaid, addressed as
follows:
To the Company: Advantix, Inc.
4675 MacArthur Court, Suite 1400
Newport Beach, CA 92660
Attn: W. Thomas Gimple
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To Executive: John M. Markovich
248 Avenida Vista del Oceano
San Clemente, CA 92672-4747
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the date so mailed or on the date of actual
receipt, whichever is earlier.
5.2 Proprietary Information and Inventions. Contemporaneously with the
execution of this Agreement, Executive shall execute a Proprietary Information
and Inventions Agreement in the form attached as Exhibit A hereto. The terms of
said agreement are incorporated by reference in this Agreement, and Executive
agrees to be bound thereby.
5.3 Covenant to Notify Management. Executive agrees to abide by the
ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. Executive agrees to comply in full with
all governmental laws and regulations as well as ethics codes applicable to the
profession. In the event that Executive is aware or suspects the Company, or any
of its officers or agents, of violating any such laws, ethics codes, rules,
regulations, policies or procedures, Executive agrees to bring all such actual
and suspected violations to the attention of the Company immediately so that the
matter may be properly investigated and appropriate action taken. Executive
understands that he is precluded from filing a complaint with any governmental
agency or court having jurisdiction over wrongful conduct unless Executive has
first notified the Company of the facts and permits it to investigate and
correct the concerns.
5.4 No Waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Executive and the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
5.5 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to him hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive's devisee, legatee, or other designee
or, if there be no such designee, to Executive's estate.
5.6 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
5.7 Statute of Limitations. Executive and the Company hereby agree that
there shall be a one year statute of limitations for the filing of any requests
for arbitration or any lawsuit relating to this Agreement or the terms or
conditions of Executive's employment by the Company. If such a claim is filed
more than one year subsequent to Executive's last day of employment it shall be
precluded by this provision, regardless of whether or not the claim has accrued
at that time.
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5.8 Right to Injunctive and Equitable Relief. Executive's obligations
under Article III are of a special and unique character which gives them a
peculiar value. The Company cannot be reasonably or adequately compensated for
damages in an action at law in the event Executive breaches such obligations.
Therefore, Executive expressly agrees that the Company shall be entitled to
injunctive and other equitable relief without bond or other security in the
event of such breach in addition to any other rights or remedies which the
Company may possess or be entitled to pursue. Furthermore, the obligations of
Executive and the rights and remedies of the Company under Article III are
cumulative and in addition to, and not in lieu of, any obligations, rights, or
remedies created by applicable law.
5.9 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.10 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument.
5.11 Attorneys' Fees. In the event any action in law or equity,
arbitration or other proceeding is brought for the enforcement of this Agreement
or in connection with any of the provisions of this Agreement, the prevailing
party shall be entitled to his or its attorneys' fees and other costs reasonably
incurred in such action or proceeding.
5.12 Entire Agreement. This Agreement, along with the Proprietary
Information and Inventions Agreement by and between Executive and the Company of
even date herewith (the "Proprietary Information Agreement"), constitutes the
entire agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement, along with
the Proprietary Information Agreement, is intended by the parties as the final
expression of their agreement with respect to such terms as are included herein
and therein and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement, along
with the Proprietary Information Agreement, constitutes the complete and
exclusive statement of their terms and that no extrinsic evidence may be
introduced in any judicial proceeding involving such agreements.
5.13 Assignment. This Agreement and the rights, duties, and obligations
hereunder may not be assigned or delegated by any party without the prior
written consent of the other party and any attempted assignment or delegation
without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.13, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
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5.14 Dispute Resolution. Except as provided in Section 5.8, any
controversy, dispute, claim or other matter in question arising out of or
relating to the interpretation, performance or breach of this Agreement shall be
finally determined, at the request of any party, by binding arbitration
conducted in accordance with the then existing rules for commercial arbitration
of the American Arbitration Association, and judgment upon any award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. Such
arbitration shall be conducted in Orange County, California. The arbitrator
shall award to the prevailing party, in addition to the costs of the proceeding,
that party's reasonable attorney's fees. The Company reserves the right to seek
judicial provisional remedies and equitable relief regarding any breach or
threatened breach of Executive's obligations regarding the matters set forth in
Article III hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
ADVANTIX, INC.
By:
--------------------------
W. Thomas Gimple
President and CEO
"EXECUTIVE"
-------------------------------
John M. Markovich
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EXHIBIT 10.17
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated effective as of April
29, 1999, between Advantix, Inc., a Delaware corporation ("Company"), and Thomas
R. Pascoe ("Executive"). In consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
ARTICLE I
EMPLOYMENT
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and Executive
agrees to serve as the Company's Chief Operating Officer, or in such other
management position as the Company shall determine, during the term of this
Agreement. Executive agrees to devote Executive's full business time and
attention and best efforts to the affairs of the Company during the term of this
Agreement.
1.2 Term. Subject to the earlier termination of Executive's employment
by the Company pursuant to the provisions hereof, the term of employment of
Executive under this Agreement shall commence on the date hereof and shall
continue in effect until April 29, 2005, plus any extension as provided below.
At the end of the initial term, or any additional term, this Agreement shall
automatically be extended for an additional one (1) year, unless either
Executive or Company gives written notice to the other of its desire to
terminate this Agreement at least six (6) months prior to the scheduled end of
the term.
1.3 Termination of Prior Agreement. Immediately upon the commencement
of Executive's employment pursuant to the terms of this Agreement, that certain
Employment Agreement by and between Executive and the Company dated as of
October 1, 1998, shall terminate and shall be of no further force or effect.
ARTICLE II
COMPENSATION
2.1 Annual Salary. During the employment of Executive, the Company
shall pay to Executive an initial base salary at the annual rate of $ 200,000
(the "Base Salary"), payable on the Company's regular payroll dates. The Company
may, in its sole and absolute discretion, increase Executive's Base Salary in
light of Executive's performance, inflation and cost of living, and other
factors deemed relevant by the Company; provided, however, Executive's Base
Salary may not be decreased below the initial Base Salary during the term of
this Agreement. The Chief Executive Officer of the Company shall meet with
Executive annually to review Executive's performance, objectives and
compensation, including
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salary, bonus and stock options, and the Chief Executive Officer shall then
meet with the Compensation Committee of the Board to discuss the same. If the
Compensation Committee determines that any adjustments thereto are appropriate
they shall make a recommendation to the full Board and the Board shall make
such adjustments as the Board deems appropriate, consistent with this Agreement.
2.2 Bonus. In addition to Executive's Base Salary, Executive shall be
entitled to receive such bonuses, if any, as shall be determined by the Board of
Directors of the Company (the "Board") in its sole and absolute discretion.
2.3 Stock Option. Executive has been granted stock options to purchase
shares of the Company's Common Stock pursuant to the Company's Stock Option
Plans. The options granted to Executive on April 29, 1998 to acquire 385,000
shares subject to event vesting are referred to as the "Performance Options". To
the extent any options other than the Performance Options are outstanding
twenty-four (24) months following a Corporate Transaction or Change in Control
(as defined in Article IV), all such non-Performance Options shall automatically
vest in full on an accelerated basis so that the non-Performance Options will
immediately become exercisable for all the option shares as fully vested shares.
Notwithstanding the terms and conditions of the nonPerformance Option agreements
and the applicable stock option plans, Section 4.5 of this Agreement shall
govern the acceleration, if any, of the non-Performance Options upon the
Executive's termination of employment.
2.4 Reimbursement of Expenses. Executive shall be entitled to receive
prompt reimbursement of all reasonable and necessary expenses incurred by
Executive in performing services hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
2.5 Benefits. Executive shall be entitled to participate in and be
covered by health, insurance, pension and other employee plans and benefits
currently or hereafter established for the employees of the Company generally
(collectively referred to as the "Company Benefit Plans") on at least the same
terms as other employees of the Company, subject to meeting applicable
eligibility requirements.
2.6 Vacations and Holidays. During Executive's employment with the
Company, Executive shall be entitled to an annual vacation leave of three (3)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive shall
be entitled to such holidays as are established by the Company for all
employees.
2.7 Automobile Allowance. The Company shall provide Executive with an
automobile allowance of $600 per month.
ARTICLE III
CONFIDENTIALITY, NONDISCLOSURE AND NONCOMPETITION
3.1 Confidentiality. Executive will not during Executive's employment
by the Company or thereafter at any time disclose, directly or indirectly, to
any person or entity or use for Executive's own benefit any trade secrets or
confidential information relating to the Company's
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business operations, marketing data, business plans, strategies, employees,
negotiations and contracts with other companies, or any other subject matter
pertaining to the business of the Company or any of their clients, customers,
consultants, or licensees, known, learned, or acquired by Executive during the
period of Executive's employment by the Company (collectively "Confidential
Information"), except as may be necessary in the ordinary course of performing
Executive's particular duties as an employee of the Company and further
excepting any such information which is or becomes available to the public
through no fault of Executive. For purposes of this Article III, the term
"Company" shall mean the Company and each of its subsidiaries.
3.2 Return of Confidential Material. Executive shall promptly deliver
to the Company on termination of Executive's employment with the Company,
whether or not for cause and whatever the reason, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, drawings,
blueprints, Confidential Information and any other documents of a confidential
nature belonging to the Company, including all copies of such materials which
Executive may then possess or have under Executive's control. Upon termination
of Executive's employment by the Company, Executive shall not take any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
Executive's employment with the Company and for a period of two (2) years
thereafter, Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver of
any and all rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
Contractors After Termination. During the term of Executive's employment with
the Company and for a period of two (2) years thereafter, Executive will not
solicit any of the employees, agents or independent contractors of the Company
to leave the employ of the Company for a competitive company or business.
However, Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with the Company after a period of
90 days have elapsed since the termination date of such employee, agent or
independent contractor. None of the foregoing shall be deemed a waiver of any
and all rights and remedies the Company may have under applicable law.
3.5 Noncompetition.
(a) Executive acknowledges that: (i) the services to be performed
by Executive under this Agreement are of a special, unique, unusual,
extraordinary, and intellectual character; (ii) the Company has required that
Executive make the covenants set forth in this Section 3.5 as a condition to the
Company's entering into this Agreement; and (iii) the provisions of this Section
3.5 are reasonable and necessary to protect the business of the Company.
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(b) In consideration of the acknowledgments by Executive, and in
consideration of the compensation and benefits to be paid or provided to
Executive by the Company under this Agreement, Executive covenants that
Executive will not, directly or indirectly:
(i) during the term of Executive's employment with the Company
hereunder and for a period of two (2) years thereafter (the "Covenant
Period"), engage or invest in, own, manage, operate, finance, control,
or participate in the ownership, management, operation, financing, or
control of, be employed by, associated with, or in any manner connected
with, lend Executive's name or any similar name to, lend Executive's
credit to, or render services or advice to, any business whose products
or activities compete in the Territory (as defined below), directly or
indirectly, with (i) the Company's ticketing products or services or
(ii) with any products or services of the Company as of the time of the
Executive's termination; provided, however, that Executive may purchase
or otherwise acquire up to (but not more than) one percent of any class
of securities of any enterprise (but without otherwise participating in
the activities of such enterprise) if such securities are listed on any
national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934. Executive agrees
that this covenant is reasonable with respect to its duration,
geographical area, and scope. For purposes hereof, "Territory" shall
mean any county of any state of the United States of America, including
any county in the States of California, Connecticut, Ohio or New York,
and any other states or international jurisdictions in which the
Company is doing business at the time of Executive's termination.
(ii) at any time during or after the Covenant Period,
disparage the Company, or any of its shareholders, directors, officers,
employees, or agents.
(c) Executive will, for the Covenant Period, within ten days
after accepting any employment, advise the Company of the identity of any
employer of Executive. The Company may serve notice upon each such employer that
Executive is bound by this Agreement and furnish each such employer with a copy
of this Agreement or relevant portions thereof.
3.6 Enforcement. It is the intent of the parties that the restrictive
covenants contained in this Article III are severable and separate and the
unenforceability of any individual provision shall not effect the enforceability
of any other. If any covenant in this Article III is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not arbitrary, and not against
public policy, will be effective, binding and enforceable against the Executive.
3.7 Survival of Obligations. Executive agrees that the terms of this
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
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ARTICLE IV
TERMINATION
4.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined as a refusal
to execute or carry out directions from the Board or its duly appointed
designees) where Executive has been given written notice of the acts or
omissions constituting such neglect or insubordination and Executive
has failed to cure such conduct, where susceptible to cure, within
thirty (30) days following notice;
(ii) conviction of any felony or any crime involving moral
turpitude;
(iii) participation in any fraud against the Company;
(iv) willful breach of Executive's duties to the Company,
including but not limited to theft from the Company, failure to fully
disclose personal pecuniary interest in a transaction involving the
Company, violation of the Company's authority limits on commitments,
trading, controls and notification;
(v) intentional damage to any property of the Company;
(vi) conduct by Executive which in the good faith, reasonable
determination of the Board demonstrates gross unfitness to serve
including, but not be limited to, gross neglect, non-prescription use
of controlled substances, any abuse of controlled substances whether or
not by prescription, or habitual drunkenness, intoxication, or other
impaired state induced by consumption of any drug, including alcohol;
or
(vii) material breach by the Executive of those provisions of
this Agreement concerning non-competition or the confidentiality of
trade secrets or proprietary or other information.
(b) Change in Control. "Change in Control" shall mean a change in
ownership or control of the Company effected through either of the following
transactions:
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Company) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Securities Exchange Act, as amended) of
securities possessing more than fifty (50%) of the total combined
voting power of the
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Company's outstanding securities pursuant to a tender or exchange offer
made directly to the Company's stockholders, or
(ii) a change in the composition of the Company's Board over a
period of thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for Board
membership, to be comprised of individuals who either (a) have been Board
members continuously since the beginning of such period or (b) have been elected
or nominated for election as Board members described in clause (a) who were
still in office at the time the Board approved such election or nomination.
(c) Corporate Transaction. "Corporate Transaction" shall mean either of
the following stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior
to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets in complete liquidation or
dissolution of the Company.
(d) Disability. "Disability" shall mean a physical or mental incapacity
as a result of which Executive becomes unable to continue the proper performance
of his duties hereunder (reasonable absences because of sickness for up to three
(3) consecutive months excepted; provided, however, that any new period of
incapacity or absences shall be deemed to be part of a prior period of
incapacity or absences if the prior period terminated within ninety (90) days of
the beginning of the new period of incapacity or absence and the incapacity or
absence is determined by the Company's Board of Directors, in good faith, to be
related to the prior incapacity or absence.) A determination of Disability shall
be subject to the certification of a qualified medical doctor agreed to by the
Company and Executive or, in the event of Executive's incapacity to designate a
doctor, Executive's legal representative. In the absence of agreement between
the Company and Executive, each party shall nominate a qualified medical doctor
and the two (2) doctors so nominated shall select a third doctor, who shall make
the determination as to Disability.
(e) Good Reason. "Good Reason" shall mean:
(i) assignment of the Executive without Executive's consent to
a position, responsibilities or duties of a materially lesser status or
degree of responsibility than his position, responsibilities or duties
as of the date of this Agreement;
(ii) relocation of the Executive outside of the Orange County
area without Executive's consent;
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(iii) a reduction by the Company of the Executive's Base
Salary below the initial Base Salary or, following a Change in Control,
below Executive's Base Salary at the time of the Change in Control,
without Executive's consent;
(iv) a failure by the Company to continue in effect, without
substantial change, any benefit plan or arrangement in which the
Executive was participating or the taking of any action by the Company
which would adversely affect the Executive's participation in or
materially reduce his benefits under any benefit plan (unless such
failure, action or changes apply equally to substantially all other
management employees of Company); or
(v) any material breach by the Company of any provision of
this Agreement without the Executive having committed any material
breach of Executive's obligations hereunder, which breach is not cured
within thirty (30) days following written notice thereof to the Company
of such breach; provided, however, that the events listed herein shall
constitute "Good Reason" only for a period of ninety (90) days
following the occurrence thereof.
4.2 Termination by Company. The Company may terminate Executive's
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be the
date of notice of termination if for Cause and thirty (30) days subsequent to
written notice of termination for any reason other than Cause; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Termination by Executive. Executive may terminate this Agreement
upon thirty (30) days' written notice to the Company. The effective date of
termination ("Effective Date") shall be considered to be thirty (30) days
subsequent to written notice of termination; however, the Company may elect to
have Executive leave the Company immediately.
4.4 Death or Disability of Executive. This Agreement shall terminate
immediately upon the death or Disability of Executive (the "Effective Date").
4.5 Severance Benefits Received Upon Termination.
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement without Good Reason, then the
Company shall pay Executive's Base Salary through the Effective Date of such
termination plus credit for any vacation earned but not taken and the Company
shall thereafter have no further obligations to Executive under this Agreement.
(b) Except as otherwise provided in Section 4.5(c) below, if
Executive's employment is terminated by the Company without Cause or as a result
of Disability, or if Executive's employment is terminated by Employee for Good
Reason, then the Company shall provide Executive:
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(i) salary continuation in an amount equal to Executive's then
Base Salary for a period of six (6) months, commencing on the Effective
Date, said sum to be paid in equal installments at the times salary
payments are usually made by the Company; and
(ii) acceleration and immediate vesting of fifty percent (50%)
of the unvested shares subject to each of the Executive's options
outstanding at the Effective Date, excluding the Performance Options,
and such accelerated options as well as any other options which have
vested and which are then exercisable shall remain exercisable for the
three (3)-month period measured from the Effective Date, except for
Executive's termination by reason of a disability where the options
shall remain exercisable for such fully vested shares until the
expiration of the twelve (12)-month period measured from the Effective
Date, and shall then expire and be of no further force or effect;
(iii) health insurance coverage as then in effect for
Executive, Executive's spouse and dependent children for a period of
six (6) months, commencing on the Effective Date, subject to any
employee contribution provisions as defined in the Company Benefit
Plans. Subsequent health insurance benefits will be in accordance with
COBRA. The Company shall thereafter have no further obligations under
this Agreement.
(c) If within twenty-four (24) months of a Corporate Transaction
or Change in Control the Executive's employment is terminated by the Company
without Cause or by Executive for Good Reason, then the Company shall provide
Executive:
(i) salary continuation in an amount equal to Executive's then
Base Salary for a period of twelve (12) months, commencing on the
Effective Date, said sum to be paid in equal installments at the times
salary payments are usually made by the Company; and
(ii) acceleration and immediate vesting of one hundred percent
(100%) of Executive's options which have not yet vested by the
Effective Date, excluding the Performance Options, and such accelerated
options as well as any other options which have vested and which are
then exercisable shall remain exercisable for a period of twelve (12)
months following the Effective Date and shall then expire and be of no
further force or effect; and
(iii) health insurance coverage as then in effect for
Executive, Executive's spouse and dependent children for a period of
twelve (12) months, commencing on the Effective Date, subject to any
employee contribution provisions as defined in the Company Benefit
Plans. Subsequent health insurance benefits will be in accordance with
COBRA. The Company shall thereafter have no further obligations under
this Agreement.
(d) If Executive's employment is terminated by the Company as a
result of death, then the Company shall pay Executive's Base Salary through the
Effective Date of such termination plus credit for any vacation earned but not
taken and the Company shall provide
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Executive's spouse and dependent children health insurance coverage as then in
effect for Executive, Executive's spouse and dependent children for a period of
two (2) months, subject to any employee contribution provisions as defined in
the Company Benefit Plans. Health insurance benefits subsequent to the
continuation period will be in accordance with COBRA. The Company shall
thereafter have no further obligations under this Agreement.
(e) Notwithstanding the foregoing, Executive shall not be
entitled to the severance benefits set forth in this Section 4.5 in the event of
Executive's termination upon expiration of the term of this Agreement.
4.6 Expiration of Term. If Executive's employment is terminated as a
result of the expiration of the term of this Agreement, then the Company shall
pay Executive's Base Salary through the expiration date plus credit for any
vacation earned but not taken and the Company shall thereafter have no further
obligations under this Agreement.
4.7 Benefit Limit. In the event that any payment or benefit (including
salary continuation payments, accelerated option vesting or continued health
care coverage) received or to be received by Executive pursuant to this
Agreement (collectively the "Payments") would constitute a parachute payment
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then the following limitation shall apply:
The aggregate present value of those Payments shall be limited
in amount to the greater of the following dollar amounts (the "Benefit
Limit"):
(a) 2.99 times Executive's Average Compensation, or
(b) the amount which yields Executive the greatest after-tax
amount of Payments under this Agreement after taking into account any excise tax
imposed under Code Section 4999 on those Payments.
The present value of the Payments will be measured as of the
date of the Change in Control or Corporate Transaction and determined
in accordance with the provisions of Code Section 280G(d)(4).
Average Compensation means the average of Executive's W-2
wages from the Company for the five (5) calendar years (or such fewer
number of calendar years of employment with the Company) completed
immediately prior to the calendar year in which the Change of Control
or Corporate Transaction is effected. Any W-2 wages for a partial year
of employment will be annualized, in accordance with the frequency
which such wages are paid during such partial year, before inclusion in
Average Compensation.
4.8 Resolution Procedure. For purposes of the foregoing Benefit Limit,
the following provisions will be in effect:
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(a) In the event there is any disagreement between Executive and
the Company as to whether one or more Payments to which Executive becomes
entitled under this Agreement constitute parachute payments under Code Section
280G or as to the determination of the present value thereof, such dispute will
be resolved as follows:
(i) In the event temporary, proposed or final Treasury
Regulations in effect at the time under Code Section 280G (or
applicable judicial decisions) specifically address the status of any
such Payment or the method of valuation therefor, the characterization
afforded to such Payment by the Regulations (or such decisions) will,
together with the applicable valuation methodology, be controlling.
(ii) In the event Treasury Regulations (or applicable judicial
decisions) do not address the status of any Payment in dispute, the
matter will be submitted for resolution to a nationally-recognized
independent accounting firm mutually acceptable to Executive and the
Company ("Independent Accountant"). The resolution reached by the
Independent Accountant will be final and controlling; provided,
however, that if in the judgment of the Independent Accountant the
status of the payment in dispute can be resolved through the obtainment
of a private letter ruling from the Internal Revenue Service, a formal
and proper request for such ruling will be prepared and submitted, and
the determination made by the Internal Revenue Service in the issued
ruling will be controlling. All expenses incurred in connection with
the retention of the Independent Accountant and (if applicable) the
preparation and submission of the ruling request shall be borne by the
Company.
4.9 Reduction of Benefits. To the extent the aggregate present value of
the Payments would exceed the Benefit Limit, the salary continuation payments
will first be reduced, and then the accelerated vesting of the options (based on
their parachute value under Code Section 280G) will be reduced, to the extent
necessary to assure that such Benefit Limit is not exceeded.
ARTICLE V
GENERAL PROVISIONS
5.1 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be deposited in the United States mail,
registered or certified, return receipt requested, postage prepaid, addressed as
follows:
To the Company: Advantix, Inc.
4675 MacArthur Court, Suite 1400
Newport Beach, CA 92660
Attn: W. Thomas Gimple
To Executive: Thomas R. Pascoe
14781 Devonshire Avenue
Tustin, CA 92780
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or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the date so mailed or on the date of actual
receipt, whichever is earlier.
5.2 Proprietary Information and Inventions. Contemporaneously with the
execution of this Agreement, Executive shall execute a Proprietary Information
and Inventions Agreement in the form attached as Exhibit A hereto. The terms of
said agreement are incorporated by reference in this Agreement, and Executive
agrees to be bound thereby.
5.3 Covenant to Notify Management. Executive agrees to abide by the
ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. Executive agrees to comply in full with
all governmental laws and regulations as well as ethics codes applicable to the
profession. In the event that Executive is aware or suspects the Company, or any
of its officers or agents, of violating any such laws, ethics codes, rules,
regulations, policies or procedures, Executive agrees to bring all such actual
and suspected violations to the attention of the Company immediately so that the
matter may be properly investigated and appropriate action taken. Executive
understands that he is precluded from filing a complaint with any governmental
agency or court having jurisdiction over wrongful conduct unless Executive has
first notified the Company of the facts and permits it to investigate and
correct the concerns.
5.4 No Waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Executive and the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
5.5 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to him hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive's devisee, legatee, or other designee
or, if there be no such designee, to Executive's estate.
5.6 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
5.7 Statute of Limitations. Executive and the Company hereby agree that
there shall be a one year statute of limitations for the filing of any requests
for arbitration or any lawsuit relating to this Agreement or the terms or
conditions of Executive's employment by the Company. If such a claim is filed
more than one year subsequent to Executive's last day of employment it shall be
precluded by this provision, regardless of whether or not the claim has accrued
at that time.
5.8 Right to Injunctive and Equitable Relief. Executive's obligations
under Article III are of a special and unique character which gives them a
peculiar value. The Company cannot be reasonably or adequately compensated for
damages in an action at law in the event
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Executive breaches such obligations. Therefore, Executive expressly agrees that
the Company shall be entitled to injunctive and other equitable relief without
bond or other security in the event of such breach in addition to any other
rights or remedies which the Company may possess or be entitled to pursue.
Furthermore, the obligations of Executive and the rights and remedies of the
Company under Article III are cumulative and in addition to, and not in lieu of,
any obligations, rights, or remedies created by applicable law.
5.9 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.10 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument.
5.11 Attorneys' Fees. In the event any action in law or equity,
arbitration or other proceeding is brought for the enforcement of this Agreement
or in connection with any of the provisions of this Agreement, the prevailing
party shall be entitled to his or its attorneys' fees and other costs reasonably
incurred in such action or proceeding.
5.12 Entire Agreement. This Agreement, along with the Proprietary
Information and Inventions Agreement by and between Executive and the Company of
even date herewith (the "Proprietary Information Agreement"), constitutes the
entire agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement, along with
the Proprietary Information Agreement, is intended by the parties as the final
expression of their agreement with respect to such terms as are included herein
and therein and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement, along
with the Proprietary Information Agreement, constitutes the complete and
exclusive statement of their terms and that no extrinsic evidence may be
introduced in any judicial proceeding involving such agreements.
5.13 Assignment. This Agreement and the rights, duties, and obligations
hereunder may not be assigned or delegated by any party without the prior
written consent of the other party and any attempted assignment or delegation
without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.13, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
5.14 Dispute Resolution. Except as provided in Section 5.8, any
controversy, dispute, claim or other matter in question arising out of or
relating to the interpretation, performance or breach of this Agreement shall be
finally determined, at the request of any party, by binding arbitration
conducted in accordance with the then existing rules for commercial arbitration
of the American Arbitration Association, and judgment upon any award rendered by
the arbitrator may be
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entered in any court having jurisdiction thereof. Such arbitration shall be
conducted in Orange County, California. The arbitrator shall award to the
prevailing party, in addition to the costs of the proceeding, that party's
reasonable attorney's fees. The Company reserves the right to seek judicial
provisional remedies and equitable relief regarding any breach or threatened
breach of Executive's obligations regarding the matters set forth in Article III
hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
ADVANTIX, INC.
By:
-------------------------------------
W. Thomas Gimple
President and CEO
"EXECUTIVE"
------------------------------------------
Thomas R. Pascoe
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EXHIBIT 10.18
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated effective as of May
17, 1999, between Advantix, Inc., a Delaware corporation ("Company"), and James
A. Caccavo ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
EMPLOYMENT
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and Executive
agrees to serve as the Company's Executive Vice President and President,
Internet Operations, or in such other management position as the Company shall
determine, during the term of this Agreement. Executive agrees to devote
Executive's full business time and attention and best efforts to the affairs of
the Company during the term of this Agreement.
1.2 Term. Subject to the earlier termination of Executive's employment
by the Company pursuant to the provisions hereof, the term of employment of
Executive under this Agreement shall commence on the date hereof and shall
continue in effect until May 17, 2005, plus any extension as provided below. At
the end of the initial term, or any additional term, this Agreement shall
automatically be extended for an additional one (1) year, unless either
Executive or Company gives written notice to the other of its desire to
terminate this Agreement at least six (6) months prior to the scheduled end of
the term.
1.3 Termination of Prior Agreements. Immediately upon the commencement
of Executive's employment pursuant to the terms of this Agreement, that certain
Employment, Confidential Information and Invention Assignment Agreement by and
between Executive and Tickets.com, Inc., a Delaware corporation ("Tickets.com"),
dated April 29, 1998 and any other employment agreements between Executive and
the Company shall, except for any provisions thereof regarding inventions,
terminate and be of no further force or effect.
ARTICLE II
COMPENSATION
2.1 Annual Salary. During the employment of Executive, the Company
shall pay to Executive an initial base salary at the annual rate of $ 200,000
(the "Base Salary"), payable on the Company's regular payroll dates. The Company
may, in its sole and absolute discretion, increase Executive's Base Salary in
light of Executive's performance, inflation and cost of living, and other
factors deemed relevant by the Company; provided, however, Executive's Base
Salary may not be decreased below the initial Base Salary during the term of
this Agreement. The Chief Executive Officer of the Company shall meet
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with Executive annually to review Executive's performance objectives and
compensation, including salary, bonus and stock options, and the Chief
Executive Officer shall then meet with the Compensation Committee of the Board
to discuss the same. If the Compensation Committee determines that any
adjustiments thereto are appropriate they shall make a recommendation to the
full Board and the Board shall make such adjustments as the Board deems
appropriate, consistent with this Agreement.
2.2 Bonus. In addition to Executive's Base Salary, Executive shall be
entitled to receive such bonuses, if any, as shall be determined by the Board of
Directors of the Company (the "Board") in its sole and absolute discretion.
2.3 Stock Option. The options granted to Executive on May 17, 1999 to
acquire 750,000 shares of the Company's Common Stock subject to event vesting
are referred to as the "Performance Options". To the extent any options other
than the Performance Options are outstanding twelve (12) months following a
Corporate Transaction or Change in Control (as defined in Article IV), all such
non-Performance Options shall automatically vest in full on an accelerated basis
so that the non-Performance Options will immediately become exercisable for all
the option shares as fully vested shares. Notwithstanding the terms and
conditions of the non-Performance Option agreements and the applicable stock
option plans, Section 4.5 of this Agreement shall govern the acceleration, if
any, of the non-Performance Options upon the Executive's termination of
employment.
2.4 Reimbursement of Expenses. Executive shall be entitled to receive
prompt reimbursement of all reasonable and necessary expenses incurred by
Executive in performing services hereunder, provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
2.5 Benefits. Executive shall be entitled to participate in and be
covered by health, insurance, pension and other employee plans and benefits
currently or hereafter established for the employees of the Company generally
(collectively referred to as the "Company Benefit Plans") on at least the same
terms as other employees of the Company, subject to meeting applicable
eligibility requirements.
2.6 Vacations and Holidays. During Executive's employment with the
Company, Executive shall be entitled to accrue vacation leave monthly up to a
maximum of three (3) weeks annually at full pay, or such greater vacation
benefits as may be provided for by the Company's vacation policies applicable to
senior executives. Executive shall be entitled to such holidays as are
established by the Company for all employees.
2.7 Automobile Allowance. The Company shall provide Executive with an
automobile allowance of $600 per month.
2.8 Additional Benefits. Executive shall receive a lump sum payment of
$50,000 (gross amount) payable on the first payroll period following Executive's
first day of employment with the Company.
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ARTICLE III
CONFIDENTIALITY, NONDISCLOSURE AND NONCOMPETITION
3.1 Confidentiality. Executive will not during Executive's employment
by the Company or thereafter at any time disclose, directly or indirectly, to
any person or entity or use for Executive's own benefit any trade secrets or
confidential information relating to the Company's business operations,
marketing data, business plans, strategies, employees, negotiations and
contracts with other companies, or any other subject matter pertaining to the
business of the Company or any of their clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company and further excepting any such
information which is or becomes available to the public through no fault of
Executive. For purposes of this Article III, the term "Company" shall mean the
Company and each of its subsidiaries.
3.2 Return of Confidential Material. Executive shall promptly deliver
to the Company on termination of Executive's employment with the Company,
whether or not for cause and whatever the reason, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, drawings,
blueprints, Confidential Information and any other documents of a confidential
nature belonging to the Company, including all copies of such materials which
Executive may then possess or have under Executive's control. Upon termination
of Executive's employment by the Company, Executive shall not take any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
Executive's employment with the Company and for a period of two (2) years
thereafter, Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver of
any and all rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
Contractors After Termination. During the term of Executive's employment with
the Company and for a period of two (2) years thereafter, Executive will not
solicit any of the employees, agents or independent contractors of the Company
to leave the employ of the Company for a competitive company or business.
However, Executive may solicit any employee, agent or independent contractor who
voluntarily terminates his or her employment with the Company after a period of
90 days have elapsed since the termination date of such employee, agent or
independent contractor. None of the foregoing shall be deemed a waiver of any
and all rights and remedies the Company may have under applicable law.
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<PAGE> 4
3.5 Noncompetition.
(a) Executive acknowledges that: (i) the services to be performed
by Executive under this Agreement are of a special, unique, unusual,
extraordinary, and intellectual character; (ii) the Company has required that
Executive make the covenants set forth in this Section 3.5 as a condition to the
Company's entering into this Agreement; and (iii) the provisions of this Section
3.5 are reasonable and necessary to protect the business of the Company.
(b) In consideration of the acknowledgments by Executive, and in
consideration of the compensation and benefits to be paid or provided to
Executive by the Company under this Agreement, Executive covenants that
Executive will not, directly or indirectly:
(i) during the term of Executive's employment with the Company
hereunder and for a period of two (2) years thereafter (the "Covenant
Period"), engage or invest in, own, manage, operate, finance, control,
or participate in the ownership, management, operation, financing, or
control of, be employed by, associated with, or in any manner connected
with, lend Executive's name or any similar name to, lend Executive's
credit to, or render services or advice to, any business whose products
or activities compete in the Territory (as defined below), directly or
indirectly, with (i) the Company's ticketing products or services or
(ii) with any products or services of the Company as of the time of the
Executive's termination; provided, however, that Executive may purchase
or otherwise acquire up to (but not more than) one percent of any class
of securities of any enterprise (but without otherwise participating in
the activities of such enterprise) if such securities are listed on any
national or regional securities exchange or have been registered under
Section 12(g) of the Securities Exchange Act of 1934. Executive agrees
that this covenant is reasonable with respect to its duration,
geographical area, and scope. For purposes hereof, "Territory" shall
mean any county of any state of the United States of America, including
any county in the States of California, Connecticut, Ohio or New York,
and any other states or international jurisdictions in which the
Company is doing business at the time of Executive's termination.
(ii) at any time during or after the Covenant Period,
disparage the Company, or any of its shareholders, directors, officers,
employees, or agents.
(c) Executive will, for the Covenant Period, within ten days
after accepting any employment, advise the Company of the identity of any
employer of Executive. The Company may serve notice upon each such employer that
Executive is bound by this Agreement and furnish each such employer with a copy
of this Agreement or relevant portions thereof.
3.6 Enforcement. It is the intent of the parties that the restrictive
covenants contained in this Article III are severable and separate and the
unenforceability of any individual provision shall not effect the enforceability
of any other. If any covenant in this Article III is held to be unreasonable,
arbitrary, or against public policy, such covenant will be considered to be
divisible with respect to scope, time, and geographic area, and such lesser
scope, time, or geographic area, or all of them, as a court of competent
jurisdiction may determine to be reasonable, not
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<PAGE> 5
arbitrary, and not against public policy, will be effective, binding and
enforceable against the Executive.
3.7 Survival of Obligations. Executive agrees that the terms of this
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
(i) habitual neglect or insubordination (defined as a refusal
to execute or carry out directions from the Board or its duly appointed
designees) where Executive has been given written notice of the acts or
omissions constituting such neglect or insubordination and Executive
has failed to cure such conduct, where susceptible to cure, within
thirty (30) days following notice;
(ii) conviction of any felony or any crime involving moral
turpitude;
(iii) participation in any fraud against the Company;
(iv) willful breach of Executive's duties to the Company,
including but not limited to theft from the Company, failure to fully
disclose personal pecuniary interest in a transaction involving the
Company, violation of the Company's authority limits on commitments,
trading, controls and notification;
(v) intentional damage to any property of the Company;
(vi) conduct by Executive which in the good faith, reasonable
determination of the Board demonstrates gross unfitness to serve
including, but not be limited to, gross neglect, non-prescription use
of controlled substances, any abuse of controlled substances whether or
not by prescription, or habitual drunkenness, intoxication, or other
impaired state induced by consumption of any drug, including alcohol;
or
(vii) material breach by the Executive of those provisions of
this Agreement concerning non-competition or the confidentiality of
trade secrets or proprietary or other information.
(b) Change in Control. "Change in Control" shall mean a change in
ownership or control of the Company effected through either of the following
transactions:
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<PAGE> 6
(i) the acquisition, directly or indirectly, by any person or
related group of persons (other than the Company or a person that
directly or indirectly controls, is controlled by, or is under common
control with, the Company) of beneficial ownership (within the meaning
of Rule 13d-3 of the 1934 Securities Exchange Act, as amended) of
securities possessing more than fifty (50%) of the total combined
voting power of the Company's outstanding securities pursuant to a
tender or exchange offer made directly to the Company's stockholders,
or
(ii) a change in the composition of the Company's Board over a
period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (a) have been Board members continuously since
the beginning of such period or (b) have been elected or nominated for
election as Board members described in clause (a) who were still in
office at the time the Board approved such election or nomination.
(c) Corporate Transaction. "Corporate Transaction" shall mean
either of the following stockholder-approved transactions to which the Company
is a party:
(i) a merger or consolidation in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior
to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Company's assets in complete liquidation or
dissolution of the Company.
(d) Disability. "Disability" shall mean a physical or mental
incapacity as a result of which Executive becomes unable to continue the proper
performance of his duties hereunder (reasonable absences because of sickness for
up to three (3) consecutive months excepted; provided, however, that any new
period of incapacity or absences shall be deemed to be part of a prior period of
incapacity or absences if the prior period terminated within ninety (90) days of
the beginning of the new period of incapacity or absence and the incapacity or
absence is determined by the Company's Board of Directors, in good faith, to be
related to the prior incapacity or absence.) A determination of Disability shall
be subject to the certification of a qualified medical doctor agreed to by the
Company and Executive or, in the event of Executive's incapacity to designate a
doctor, Executive's legal representative. In the absence of agreement between
the Company and Executive, each party shall nominate a qualified medical doctor
and the two (2) doctors so nominated shall select a third doctor, who shall make
the determination as to Disability.
(e) Good Reason. "Good Reason" shall mean:
(i) assignment of the Executive without Executive's consent to
a position, responsibilities or duties of a materially lesser status or
degree of responsibility than his position, responsibilities or duties
as of the date of this Agreement;
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<PAGE> 7
(ii) relocation of the Executive outside of the Southern
California area without Executive's consent;
(iii) a reduction by the Company of the Executive's Base
Salary below the initial Base Salary or, following a Change in Control,
below Executive's Base Salary at the time of the Change in Control,
without Executive's consent;
(iv) a failure by the Company to continue in effect, without
substantial change, any benefit plan or arrangement in which the
Executive was participating or the taking of any action by the Company
which would adversely affect the Executive's participation in or
materially reduce his benefits under any benefit plan (unless such
failure, action or changes apply equally to substantially all other
management employees of Company); or
(v) any material breach by the Company of any provision of
this Agreement without the Executive having committed any material
breach of Executive's obligations hereunder, which breach is not cured
within thirty (30) days following written notice thereof to the Company
of such breach; provided, however, that the events listed herein shall
constitute "Good Reason" only for a period of ninety (90) days
following the occurrence thereof; or
(vi) removal or failure of re-election of Executive from the
Board of Directors of the Company.
4.2 Termination by Company. The Company may terminate Executive's
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be the
date of notice of termination if for Cause and thirty (30) days subsequent to
written notice of termination for any reason other than Cause; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Termination by Executive. Executive may terminate this Agreement
upon thirty (30) days' written notice to the Company. The effective date of
termination ("Effective Date") shall be considered to be thirty (30) days
subsequent to written notice of termination; however, the Company may elect to
have Executive leave the Company immediately.
4.4 Death or Disability of Executive. This Agreement shall terminate
immediately upon the death or Disability of Executive (the "Effective Date").
4.5 Severance Benefits Received Upon Termination.
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement without Good Reason, then the
Company shall pay Executive's Base Salary through the Effective Date of such
termination plus credit for any vacation
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<PAGE> 8
earned but not taken and the Company shall thereafter have no further
obligations to Executive under this Agreement.
(b) Except as otherwise provided in Section 4.5(c) below, if
Executive's employment is terminated by the Company without Cause or as a result
of Disability, or if Executive's employment is terminated by Employee for Good
Reason, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's then
Base Salary for a period of six (6) months, commencing on the Effective
Date, said sum to be paid in equal installments at the times salary
payments are usually made by the Company; and
(ii) acceleration and immediate vesting of fifty percent (50%)
of the unvested shares subject to each of the Executive's options
outstanding at the Effective Date, excluding the Performance Options
and such accelerated options as well as any other options which have
vested and which are then exercisable shall remain exercisable for the
three (3)-month period measured from the Effective Date, except for
Executive's termination by reason of a disability where the Options
shall remain exercisable for such fully vested shares until the
expiration of the twelve (12)-month period measured from the Effective
Date, and shall then expire and be of no further force or effect;
(iii) health insurance coverage as then in effect for
Executive, Executive's spouse and dependent children for a period of
six (6) months, commencing on the Effective Date, subject to any
employee contribution provisions as defined in the Company Benefit
Plans. Subsequent health insurance benefits will be in accordance with
COBRA. The Company shall thereafter have no further obligations under
this Agreement.
(c) If within twenty-four (24) months of a Corporate Transaction
or Change in Control the Executive's employment is terminated by the Company
without Cause or by Executive for Good Reason, then the Company shall provide
Executive:
(i) salary continuation in an amount equal to Executive's then
Base Salary for a period of twelve (12) months, commencing on the
Effective Date, said sum to be paid in equal installments at the times
salary payments are usually made by the Company; and
(ii) acceleration and immediate vesting of one hundred percent
(100%) of Executive's options which have not yet vested by the
Effective Date, excluding the Performance Options, and such accelerated
options as well as any other options which have vested and which are
then exercisable shall remain exercisable for a period of twelve (12)
months following the Effective Date and shall then expire and be of no
further force or effect; and
(iii) health insurance coverage as then in effect for
Executive, Executive's spouse and dependent children for a period of
twelve (12) months, commencing
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<PAGE> 9
on the Effective Date, subject to any employee contribution provisions
as defined in the Company Benefit Plans. Subsequent health insurance
benefits will be in accordance with COBRA. The Company shall thereafter
have no further obligations under this Agreement.
(d) If Executive's employment is terminated by the Company as a
result of death, then the Company shall pay Executive's Base Salary through the
Effective Date of such termination plus credit for any vacation earned but not
taken and the Company shall provide Executive's spouse and dependent children
health insurance coverage as then in effect for Executive, Executive's spouse
and dependent children for a period of two (2) months, subject to any employee
contribution provisions as defined in the Company Benefit Plans. Health
insurance benefits subsequent to the continuation period will be in accordance
with COBRA. The Company shall thereafter have no further obligations under this
Agreement.
(e) Notwithstanding the foregoing, Executive shall not be
entitled to the severance benefits set forth in this Section 4.5 in the event of
Executive's termination upon expiration of the term of this Agreement.
4.6 Expiration of Term. If Executive's employment is terminated as a
result of the expiration of the term of this Agreement, then the Company shall
pay Executive's Base Salary through the expiration date plus credit for any
vacation earned but not taken and the Company shall thereafter have no further
obligations under this Agreement.
4.7 Benefit Limit. In the event that any payment or benefit (including
salary continuation payments, accelerated option vesting or continued health
care coverage) received or to be received by Executive pursuant to this
Agreement (collectively the "Payments") would constitute a parachute payment
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), then the following limitation shall apply:
The aggregate present value of those Payments shall be limited
in amount to the greater of the following dollar amounts (the "Benefit
Limit"):
(i) 2.99 times Executive's Average Compensation, or
(ii) the amount which yields Executive the greatest
after-tax amount of Payments under this Agreement after taking into
account any excise tax imposed under Code Section 4999 on those
Payments.
The present value of the Payments will be measured as of the
date of the Change in Control or Corporate Transaction and determined
in accordance with the provisions of Code Section 280G(d)(4).
Average Compensation means the average of Executive's W-2
wages from the Company for the five (5) calendar years (or such fewer
number of calendar years of employment with the Company) completed
immediately prior to the calendar year in which the Change of Control
or Corporate Transaction is effected. Any W-2 wages for a partial year
of employment will be annualized, in accordance with the
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frequency which such wages are paid during such partial year, before
inclusion in Average Compensation.
4.8 Resolution Procedure. For purposes of the foregoing Benefit Limit,
the following provisions will be in effect:
(a) In the event there is any disagreement between Executive and
the Company as to whether one or more Payments to which Executive becomes
entitled under this Agreement constitute parachute payments under Code Section
280G or as to the determination of the present value thereof, such dispute will
be resolved as follows:
(i) In the event temporary, proposed or final Treasury
Regulations in effect at the time under Code Section 280G (or
applicable judicial decisions) specifically address the status of any
such Payment or the method of valuation therefor, the characterization
afforded to such Payment by the Regulations (or such decisions) will,
together with the applicable valuation methodology, be controlling.
(ii) In the event Treasury Regulations (or applicable judicial
decisions) do not address the status of any Payment in dispute, the
matter will be submitted for resolution to a nationally-recognized
independent accounting firm mutually acceptable to Executive and the
Company ("Independent Accountant"). The resolution reached by the
Independent Accountant will be final and controlling; provided,
however, that if in the judgment of the Independent Accountant the
status of the payment in dispute can be resolved through the obtainment
of a private letter ruling from the Internal Revenue Service, a formal
and proper request for such ruling will be prepared and submitted, and
the determination made by the Internal Revenue Service in the issued
ruling will be controlling. All expenses incurred in connection with
the retention of the Independent Accountant and (if applicable) the
preparation and submission of the ruling request shall be borne by the
Company.
4.9 Reduction of Benefits. To the extent the aggregate present value of
the Payments would exceed the Benefit Limit, the salary continuation payments
will first be reduced, and then the accelerated vesting of the options (based on
their parachute value under Code Section 280G) will be reduced, to the extent
necessary to assure that such Benefit Limit is not exceeded.
ARTICLE V
GENERAL PROVISIONS
5.1 Notices. All notices, demands, requests, consents, approvals or
other communications (collectively "Notices") required or permitted to be given
hereunder or which are given with respect to this Agreement shall be in writing
and may be personally served or may be deposited in the United States mail,
registered or certified, return receipt requested, postage prepaid, addressed as
follows:
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To the Company: Advantix, Inc.
4675 MacArthur Court, Suite 1400
Newport Beach, CA 92660
Attn: W. Thomas Gimple
To Executive: James A. Caccavo
==================
or such other address as such party shall have specified most recently by
written notice. Notice mailed as provided herein shall be deemed given on the
fifth business day following the date so mailed or on the date of actual
receipt, whichever is earlier.
5.2 Proprietary Information and Inventions. Contemporaneously with the
execution of this Agreement, Executive shall execute a Proprietary Information
and Inventions Agreement in the form attached as Exhibit A hereto. The terms of
said agreement are incorporated by reference in this Agreement, and Executive
agrees to be bound thereby.
5.3 Covenant to Notify Management. Executive agrees to abide by the
ethics policies of the Company as well as the Company's other rules,
regulations, policies and procedures. Executive agrees to comply in full with
all governmental laws and regulations as well as ethics codes applicable to the
profession. In the event that Executive is aware or suspects the Company, or any
of its officers or agents, of violating any such laws, ethics codes, rules,
regulations, policies or procedures, Executive agrees to bring all such actual
and suspected violations to the attention of the Company immediately so that the
matter may be properly investigated and appropriate action taken. Executive
understands that he is precluded from filing a complaint with any governmental
agency or court having jurisdiction over wrongful conduct unless Executive has
first notified the Company of the facts and permits it to investigate and
correct the concerns.
5.4 No Waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Executive and the Company. No waiver by either party hereto at
any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
5.5 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to him hereunder, all
such amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to Executive's devisee, legatee, or other designee
or, if there be no such designee, to Executive's estate.
5.6 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
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5.7 Statute of Limitations. Executive and the Company hereby agree that
there shall be a one year statute of limitations for the filing of any requests
for arbitration or any lawsuit relating to this Agreement or the terms or
conditions of Executive's employment by the Company. If such a claim is filed
more than one year subsequent to Executive's last day of employment it shall be
precluded by this provision, regardless of whether or not the claim has accrued
at that time.
5.8 Right to Injunctive and Equitable Relief. Executive's obligations
under Article III are of a special and unique character which gives them a
peculiar value. The Company cannot be reasonably or adequately compensated for
damages in an action at law in the event Executive breaches such obligations.
Therefore, Executive expressly agrees that the Company shall be entitled to
injunctive and other equitable relief without bond or other security in the
event of such breach in addition to any other rights or remedies which the
Company may possess or be entitled to pursue. Furthermore, the obligations of
Executive and the rights and remedies of the Company under Article III are
cumulative and in addition to, and not in lieu of, any obligations, rights, or
remedies created by applicable law.
5.9 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.10 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute but one and the same instrument.
5.11 Attorneys' Fees. In the event any action in law or equity,
arbitration or other proceeding is brought for the enforcement of this Agreement
or in connection with any of the provisions of this Agreement, the prevailing
party shall be entitled to his or its attorneys' fees and other costs reasonably
incurred in such action or proceeding.
5.12 Entire Agreement. This Agreement, along with the Proprietary
Information and Inventions Agreement by and between Executive and the Company of
even date herewith (the "Proprietary Information Agreement"), constitutes the
entire agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement, along with
the Proprietary Information Agreement, is intended by the parties as the final
expression of their agreement with respect to such terms as are included herein
and therein and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement, along
with the Proprietary Information Agreement, constitutes the complete and
exclusive statement of their terms and that no extrinsic evidence may be
introduced in any judicial proceeding involving such agreements.
5.13 Assignment. This Agreement and the rights, duties, and obligations
hereunder may not be assigned or delegated by any party without the prior
written consent of the other party and any attempted assignment or delegation
without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.13, the Company may
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assign or delegate its rights, duties, and obligations hereunder to any
affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
5.14 Dispute Resolution. Except as provided in Section 5.8, any
controversy, dispute, claim or other matter in question arising out of or
relating to the interpretation, performance or breach of this Agreement shall be
finally determined, at the request of any party, by binding arbitration
conducted in accordance with the then existing rules for commercial arbitration
of the American Arbitration Association, and judgment upon any award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. Such
arbitration shall be conducted in Orange County, California. The arbitrator
shall award to the prevailing party, in addition to the costs of the proceeding,
that party's reasonable attorney's fees. The Company reserves the right to seek
judicial provisional remedies and equitable relief regarding any breach or
threatened breach of Executive's obligations regarding the matters set forth in
Article III hereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
ADVANTIX, INC.
By:
---------------------------------
W. Thomas Gimple
President and CEO
"EXECUTIVE"
--------------------------------------
James A. Caccavo
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<PAGE> 1
EXHIBIT 10.25
[This document will be replaced by a later version]
TABLE OF CONTENTS
Lease between Sierra Pacific Properties, Inc. as Lessor, and Bay Area Seating
Service, Inc., dba BASS Ticketmaster, as Lessee.
BASIC LEASE DOCUMENT
- --------------------
<TABLE>
<CAPTION>
Paragraph Subject Page
- --------- -------------------------------------------- ----
<S> <C> <C>
1 Fundamental Lease Provisions 1
2 Premises 2
3 Term 2
4 Base Rent 3
5 Additional Rent 3
6 Security Deposit 8
7 Construction and Acceptance of Premises 8
8 Holding Over 8
9 Use of Premises 9
10 Taxes of Tenant's Property 9
11 Alterations 10
12 Maintenance and Repairs 11
13 Liens 11
14 Building Services 12
15 Rights of Landlord 13
16 Indemnification and Waiver 14
17 Insurance 15
18 Waivers of Subrogation 16
19 Damage or Destruction 17
20 Eminent Domain 19
21 Default 19
22 Assignment and Subletting 22
23 Subordination 25
24 Estoppel Certificate 25
25 Interest on Past Due Obligation 26
26 Sale or Transfer by Landlord 26
27 Landlord's Right to Cure Defaults 27
28 Waiver 27
29 Force Majeure 27
30 Relocation 28
31 Parking 28
32 Surrender of Premises 29
33 Miscellaneous 31
LEASE ADDENDUM
- --------------
LEASE EXHIBITS
- --------------
A Space Plan
B Work Letter
C Rules and Regulations
</TABLE>
<PAGE> 2
This Lease ("Lease") is made and executed this twenty-ninth day of
December, 1989, in Concord, Contra Costa County, California, by and between
Sierra Pacific Properties, a California Corporation ("Landlord"), and Bay Area
Seating Service Inc., dba BASS Ticketmaster, A California Corporation,
("Tenant") who agrees as follows:
1. FUNDAMENTAL LEASE PROVISIONS
(a) Premises: Suite No. 600 on the 6th floor constituting
a Rentable Area consisting of 16,532 square feet.
(b) (1) Lease Term: 120 months.
(2) Commencement Date: February 15, 1990, or
upon actual substantial completion of tenant
improvements.
(c) * Base Rent: $17,358.60 per month. *(See addendum)
(d) Tenant's Proportionate Share of total Rentable Area
in Building .05492.
(f) Nature of Tenant's Business or Profession: General
office use, including telephone and computer center.
(g) Address for Rent and Notice:
For Rent: Building office
1850 Gateway Blvd. #200
Concord, CA 94520
(415) 680-1255
For Notices: Sierra Pacific Properties
3890 Railroad Ave.
Pittsburg, California 94565
(415) 427-3700
To Tenant: at premises, also
Harold Silen
591 Redwood Highway, #2375
Mill Valley, CA 94941
<PAGE> 3
2. PREMISES. In consideration of the Tenant's agreement to pay the
rent, and the covenants and conditions herein contained, Landlord hereby leases
to Tenant and Tenant hereby hires from Landlord, upon the terms and conditions
set forth herein, that certain office space identified in Paragraph (a) of
Article 1, as delineated and shown in the cross-hatched area on the plan
designated as Exhibit A attached hereto and incorporated by reference (herein
referred to as the "Premises") in the building known as CONCORD GATEWAY (herein
referred to as the "Building") the address of which is 1855 Gateway Boulevard,
Concord, California. The Rentable Area of the Premises ("Rentable Area"), as
provided in Paragraph (a) of Article I, shall be determined in accordance with
the BOMA (Building Owners and Managers Association) standard method of
measurement.
Tenant also acknowledges that Landlord has made no
representation or warranty regarding the condition of the Premises or the
Building except as specifically set forth herein.* see attached page 2a.
3. TERM. (a) In General, Commencement. The term of this Lease shall be
that period set forth in Paragraph (b)(1) of Article 1 hereof. The term shall
commence on the Commencement Date set forth in Paragraph (b)(2) of Article 1
hereof, on which date Landlord shall deliver the Premises to Tenant.
**
(b) Delay. If Landlord, for any reason within the sole control
of Landlord, cannot deliver possession of the Premises to Tenant on or prior to
the fixed date set forth herein, Tenant's obligation to pay rent and Additional
Charges shall be delayed until such time as the Premises are delivered to
Tenant. In the event of any such delay, neither the validity of this Lease nor
the obligations of Tenant under this Lease shall be affected by such failure to
deliver possession and postponement of Tenant's rental obligation prior to
delivery of possession of the Premises to Tenant shall be in sole satisfaction
of all claims Tenant might otherwise have by reason of the Premises not being
delivered on the date set forth herein. If Tenant takes possession of all or any
part, of the Premises prior to the date the Premises are delivered, all terms
and provisions of this Lease shall apply, including the obligation for the
payment of all rents and other amounts owing hereunder.
(c) Early Possession. If Tenant, with Landlord's consent,
takes possession of the Premises prior to the Commencement Date, Tenant shall be
subject to all the covenants and conditions hereof, and shall pay rent at the
monthly rate prescribed for the first month of the term, prorated on the basis
of a thirty (30) day month, for the period beginning with the taking of
possession and ending with the Commencement Date.
** In the event Landlord is unable to deliver premises substantially
complete and ready for occupany, unless due to reasons for delay caused
by tenant, by March 1st, 1990, then tenant shall receive rent credit
equal to 1 1/2 days for every day delayed past March 1st, 1990.
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<PAGE> 4
(a) Landlord represents and warrants to Tenant that, to the best of
Landlord's knowledge after due inquiry, (i) there is no asbestos or
asbestos-containing materials located in or on any part of the Building
or Land and (ii) there are no hazardous substances or hazardous
materials (as such terms are defined under applicable federal, state
and/or local law) in, on or under the Building and/or the Land. In the
event of a breach of the warranty set forth in the preceding sentence,
Tenant shall have the right ot terminate this Lease on prior written
notice to Landlord and Landlord's failure to cure such breach within
ninety (90) days after Landlord's receipt of such notice from Tenant,
and Tenant shall have the right to recover from Landlord all direct
damages (but not indirect or consequential damages) arising out of or
resulting from Landlord's breach of the representations and warranties
set forth in the first sentence of this Article. In addition, Landlord
agrees to indemnify and forever hold Tenant, its successors and
assigns, harmless from and against al direct damages (but not indirect
or consequential damages), liabilities, claims, costs and expenses
(including, without limitation, court costs and reasonable attorneys'
fees) that result from a breach of any of the representations and
warranties set forth in the first sentence of this subparagraph
(b) If Tenant shall discover or ascertain that the Building or the Land
contains asbestos or asbestos-containing materials or any other
hazardous substance or hazardous material (as such terms are defined
from time to time under applicable federal, state and/or local law) but
that Landlord has not breached any of its representations and
warranties set forth in the first sentence of subparagraph and if the
asbestos, asbestos-containing materials, hazardous material or
hazardous substance, as the case might be, could have an adverse effect
on the health, safety or welfare of Tenant or any employee, invitee,
guest or licensee of Tenant, then Tenant shall have the right ot
terminate this Lease on prior written notice to Landlord and Landlord's
failure to cure such breach within one hundred eighty (180) days after
Landlord's receipt of such notice from Tenant, and Tenant shall have
the right to recover all direct damages (but not indirect or
consequential damages) arising out of or resulting from the presence of
such asbestos, asbestos-containing materials, hazardous material or
hazardous substance in, on or under the Land on the Building. In
addition, in such instance Landlord agrees to indemnify and forever
hold Tenant, its successors and assigns, harmelss from and against all
direct damages (but not indirect or consequential damages),
liabilities, claims, costs and expenses (including, without limitation,
court costs and reasonable attorneys' fees) that result therefrom.
(c) As used in this Lease Agreement, the term "Land" shall mean the land
underlying the Building, the parking deck and the parking facilities
serving the Building, and all other common areas of the Building.
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(d) Failure to Take Possession. Tenant's inability or failure
to take possession of the Premises when delivered by Landlord shall not delay
the commencement of the term of this Lease or Tenant's obligation to pay rent.
Tenant acknowledges that Landlord has and shall continue to incur significant
expenses as a consequence of the making of this Lease, including without
limitation, the cost of carrying vacant space in the Building, brokerage
commissions and fees, legal and architectural fees, the cost of space planning
and the costs of construction of improvements to the Premises. All of said
expenses shall be deemed included in measuring Landlord's damages should Tenant
fail to take possession of the Premises when required under the terms of this
Lease, although such expenses shall not be duplicative of the items of damage to
which Landlord may otherwise be entitled under Section 21(b)(1)(iv) hereof.
4. BASE RENT. Tenant covenants to pay to Landlord during the term
hereof, at Landlord's office at the address set forth in Paragraph (g) of
Article 1 hereof or to such other persons or at such other places as directed
from time to time by written notice to Tenant from Landlord, a monthly rental
(hereinafter referred to as the "Base Rent") in the amount set forth in
Paragraph (c) of Article 1 hereof (subject to adjustment as hereinafter
provided) due and payable without demand or offset or deduction, in advance on
the first day of each calendar month; except that if Commencement Date occurs on
a day other than the first day of a calendar month, then the Base Rent for the
fraction of the month starting with the Commencement Date shall be paid on such
Commencement Date, prorated on the basis of a thirty (30) day month.
5. ADDITIONAL RENT. Landlord hereby agrees to pay Landlord's Base Costs
for Operating Costs and Taxes (as defined herein). It is understood that the
Base Rent specified in Paragraph (c) of Article 1 and more fully described in
Article 4 of
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this lease, above, does not contemplate Landlord paying amounts in excess of
Landlord's Base Costs for Operating Costs and Taxes. Therefore, in order that
the rental payable throughout the term of this Lease shall reflect any such
excess amounts, the Base Rent payable by Tenant pursuant to Article 4, above,
shall be augmented by "Additional Rent" in accordance with the provisions of
this Article 5.
(a) Definitions
(1) The term "Landlord's Base Costs" shall mean the amount
which is derived by multiplying the Rentable Area of the Premises times twelve
(12), times the cost (i.e., Operating Costs and taxes) per square foot of
Rentable Area per month as shall actually be incurred by Landlord during the
calendar year in which the Commencement Date occurs.
(2) The term "Operating Costs' shall mean the sum of all
expenses paid or incurred by Landlord during any calendar year of the term
hereof in connection with the operation, maintenance, insurance (including
earthquake insurance),** management and repair of the Building, including
parking facilities and both interior and adjacent landscaped area; provided,
however, that the term "Operating Costs" shall include Landlord's taxes as that
term is defined herein, the costs of special services rendered to tenants
(including Tenant) for which a special charge is made hereunder, any costs of
preparation or leasing of space for new tenants in the Building or any costs
borne directly by Tenant under this Lease.
By way of example, Operating Costs shall include without
limitation: all expenses paid or incurred by Landlord during any calendar year
of the term hereof for electricity, water, gas and sewers, and similar utilities
services in connection with the operation of the Building, and for utility
taxes, charges or other similar impositions paid or incurred by Landlord in
connection therewith; maintenance and repair of HVAC, electrical and plumbing;
salaries, wages, bonuses, medical, surgical and general welfare benefits and
pension payments, payroll taxes, workmen's compensation, uniforms, and dry
cleaning thereof for employees engaged in the operation, maintenance, and repair
of the Building, parking facilities and both interior and adjacent landscaped
areas; the cost of all premiums for property damage, liability, and all other
insurance for the Building, parking facilities and both interior and adjacent
landscaped areas to the extent that such insurance is required to be carried by
Landlord under any lease, mortgage or deed of trust covering the whole or a
substantial part of the real property of which the Premises are a part, or, if
not required under any such lease, mortgage or deed of trust, then to the extent
such insurance is carried by owners of buildings comparable to the Building; the
cost of all building and cleaning supplies and materials; the cost of all
**Unless earthquake insurance is included in tenant's Base Year operating costs,
then no earthquake insurance placed in subsequent years during tenancy of tenant
shall be passed onto tenant as operating costs.
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<PAGE> 7
charges for cleaning, maintenance, and service contracts and other other
services with independent contractors; the cost of periodic maintenance repair
and restoration of elevators, Building surfaces, including paint, floor and wall
coverings, and other surface materials on the exterior of the Building and in
both interior and exterior common areas (including the atriums), as well as
repaving and restriping of the parking facilities; and the cost of all
professional services and management fees.
Operating Costs shall not include initial construction
costs required to be capitalized for federal income tax purposes; provided,
however, that if Landlord installs equipment or materials or makes other capital
improvements to the Building, parking facilities or adjacent landscaped area, or
are required to comply with present or anticipated energy conservation programs,
earthquake damage prevention programs, or are required pursuant to any future
law or regulation of any governmental entity, the cost: of such installation, or
allocable portion thereof to be amortized over such reasonable period as
Landlord shall determine, together with interest at the rate of 10% per annum of
such higher rate as was actually paid or would have been paid by Landlord on
funds borrowed for the purpose of constructing such capital improvements, shall
be considered Operating Costs. Operating Costs shall not include, either,
interest or amortization paid in connection with any loan or loans secured by
the real property of which the Premises are a part; provided, however, that if
Landlord's interest costs exceed 15% per annum, such excess shall be considered
Operating Costs.
(3) The term "Taxes" shall mean all real property taxes,
and personal property taxes, charges and assessments which are levied, assessed
upon or imposed by any governmental authority or political subdivision thereof
during any calendar year of the term thereof with respect to the Building and
the land of which the Building is located and any improvements, fixtures, and
equipment and all other property of Landlord, real or personal, and used in
connection with the operation of the Building, parking facilities and adjacent
landscaped areas (computed as if paid in permitted installments regardless of
whether actually so paid) and any tax which shall be levied or assessed in
addition to or in lieu of such real or personal property taxes (including,
without limitation, any municipal income tax), and any license fees, tax
measured by or imposed upon rents, or other tax or charge upon Landlord's
business of leasing the Premises, or other parts of the Building, but shall not
include any federal or state income tax, or any franchise, capital stock, estate
or inheritance taxes. All assessments, taxes, fees, levies and charges imposed
by governmental agencies for services such as child care facilities, promotion
of the arts, transportation, fire protection, street, sidewalk and road
maintenance, refuse removal
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<PAGE> 8
and other public services generally provided without charge to owners or
occupants prior to the adoption of Proposition 13 by the voters of the State of
California in the June, 1978, election, also shall be deemed included within the
definition of "Taxes" for the purpose of this Lease.
(4) The Term "Estimated Operating Costs" shall mean the
annual estimates of Tenant's Proportionate Share of Operating Costs for each
calendar year, after the first calendar year, to be given by Landlord to Tenant
pursuant to the terms hereof.
(5) The term "Estimated Taxes" shall mean the annual
estimates of Tenant's Proportionate Share of Landlord's Taxes for each calendar
year, after the first calendar year, to be given by landlord to Tenant pursuant
to the terms hereof.
(6) The term "First Calendar year" shall mean the calendar
year in which the Commencement Date occurs.
(7) The term "Tenant's Proportionate Share" shall mean the
proportion of the Rentable Area of the Premises to the Rentable Area of the
Building, which for this Lease is agreed by Landlord and Tenant to be the
percentage set forth in Paragraph (d) of Article 1 hereof.
(b) Payment of Operating Costs and Taxes in Excess of
Landlord's Base Cost.
Tenant shall pay to Landlord, as additional rent, the
following amounts in the manner specified:
(1) For each calendar year following the first calendar
year, Landlord shall furnish to Tenant prior to January 1, a written statement
showing in reasonable detail the Estimated Operating Costs and the Estimated
Taxes for the next forthcoming calendar year. At the first monthly rent payment
date for the next calendar year following Tenant's receipt of such statement
(the "then current calendar year") and at each of the other monthly rent payment
dates for such then current calendar year, Tenant shall pay to Landlord as
additional rent, one-twelfth (1/12th) of the amount equal to the difference
between the sum of the Estimated Operating Costs and Estimated Taxes for the
then current calendar year, and Landlord's Base costs; provided, however, that
in no event shall Tenant receive a credit for any total amount calculated
hereunder to be less than Landlord's Base Costs. In the event of the inability
of Landlord for any reason to furnish said statement prior to January 1, as
described above, Tenant shall pay, at the monthly rent payment date next
following Tenant's receipt of said statement, any additional rental which shall
have accrued.
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<PAGE> 9
(2) On or before March 15, (or as soon thereafter as
possible) in each calendar year commencing with the second calendar year after
the calendar year in which the Commencement Date occurred, Landlord shall
furnish to Tenant a written statement showing in reasonable detail the Operating
Costs and Taxes for the preceding calendar year. At the monthly rent payment
date next following Tenant's receipt of such statement, Tenant shall pay to
Landlord as additional rent, in the event of an increase, or Landlord shall pay
to Tenant, in the event of a decrease, an amount equal to the excess of Tenant's
Proportionate Share of the sum of the Operating Costs and Taxes for the
preceding calendar year, over Tenant's Proportionate Share of the sum of the
Estimated Operating Costs and Estimated Taxes previously given for such year;
provided, however, that in no event shall Tenant receive a credit as provided
herein for any total amount calculated hereunder to be less than Landlord's Base
Costs.
(c) Payments of Additional Rent.
(1) Notwithstanding any other provision of this Article to
the contrary, it is agreed that in the event that the Building is less than
ninety percent (90%) occupied during any calendar year, *an adjustment shall be
made in the computation of all additional rent hereunder to reflect at least an
ninety percent (90%) occupancy of the total Rentable Area of the Building. The
Operating Costs and Taxes for such year shall be deemed to be the amount of
Operating Costs and Taxes which, in the opinion of Landlord's certified public
accountant, would have been incurred if ninety percent (90%) of the Rentable
Area of the Building had been leased.
(2) The determination of Tenant's Proportionate Share of a
cost hereunder shall be made by Landlord. A statement of such determination
shall be made available to Tenant upon demand. Landlord's estimates shall be
based upon Landlord's experience with actual costs and reasonable projections.
(3) The Rentable Area of the Premises shall be subject to
verification by Landlord's project architect, whose reasonable determination
shall be conclusive and binding on the parties. In the event that Landlord's
project architect shall determine that the Rentable Area is more or less than
the Rentable Area set forth in Paragraph (a) of Article 1 hereof, then the Base
Rent shall be adjusted to the product which is the result of multiplying the
Base Rent by a fraction, the numerator of which is the verified Rentable Area of
the Premises, and the denominator of which is the approximate Rentable Area set
forth in Paragraph (a) of Article 1 hereof. Such adjustment shall be confirmed
in writing by the parties promptly upon such verification, and thereupon such
written confirmation shall be attached hereto and the Base Rent set forth in
Paragraph (c) of Article 1 hereof adjusted, accordingly.
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<PAGE> 10
7. CONSTRUCTION AND ACCEPTANCE OF PREMISES. The Premises have been
constructed by Landlord. Absent written notice from Tenant to Landlord within
fifteen (15) days after occupancy execution of this Lease, there shall be a
conclusive presumption that the Premises are in good and tenantable condition.**
8. HOLDING OVER. Should Tenant, with or without Landlord's written
consent, hold over after the termination of this Lease, such possession by
Tenant shall be deemed to be a month-to-month tenancy terminable by thirty (30)
days' notice given at any time, upon each and all of the terms herein provided
as may be applicable to a month-to-month tenancy and any such holding over shall
not constitute an extension of this Lease. During such holding over, Tenant
shall pay in advance, monthly rent equal to 125% of the current rent at the time
of termination of the lease. There shall be no adjustment in the Base Costs from
** Tenant shall have 30 days to submit punchlist items to Landlord, after which
Landlord shall use due diligence to complete punchlist items in a timely
manner.
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<PAGE> 11
which Operating Costs are calculated during any holding over period. The
foregoing provisions of this Article are in addition to and do not affect
Landlord's right of re-entry or any other rights of Landlord hereunder or as
otherwise provided by law.
9. USE OF PREMISES. *including telephone computer center
(a) The Premises shall be used and occupied by Tenant for
general office purposes* unless the premises are located on the first floor of
the building in which event they may be used for retail sales or in connection
with the business or profession described in Paragraph (f) of Article 1 hereof,
and for no other purpose without the prior written consent of Landlord. The
granting or withholding of such consent shall be at the sole discretion of
Landlord.
(b) Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation or warranty with respect to the Premises or
the Building or with respect to the suitability of either for the conduct of
Tenant's business, nor has Landlord agreed to undertake any modification,
alteration or improvement to the premises except as provided in this Lease.
(c) Any use of the Premises in violation of the Rules and
Regulations hereinafter described in Article 33(h) is expressly prohibited.
(d) The judgment of any court of competent jurisdiction or the
admission of Tenant in any action against Tenant, whether Landlord be a party
thereto or not, that Tenant has violated any law, statute, ordinance or
governmental rule, regulation or requirement, shall be conclusive of the fact as
between Landlord and Tenant.
10. TAXES ON TENANT'S PROPERTY.
(a) Tenant shall be liable for and shall pay before
delinquency taxes, assessments, license fees, and other similar charges levied
against any personal property or trade fixtures placed by Tenant or at Tenant's
direction in or about the Premises. On demand by Landlord, Tenant shall furnish
Landlord with satisfactory evidence of these payments. If any such taxes on
Tenant's personal property or trade fixtures are levied against Landlord or
Landlord's property or if the assessed value of Landlord's Premises is increased
by the inclusion therein of a value placed upon such personal property or trade
fixtures of Tenant and if Landlord, after written notice to tenant, pays such
taxes based upon such increased assessment, which Landlord shall have the right
to do regardless of the validty thereof, but only under property protest if
required by Tenant, Tenant shall, within ten (10) days of written demand,
reimburse Landlord for the taxes so levied against Landlord, or the proportion
of such taxes resulting from such increase in the assessment; provided that, in
any such event, Tenant shall have the right, in the name of Landlord and with
Landlord's full cooperation, to bring suit in
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<PAGE> 12
any court of competent jurisdiction to recover the amount of any such taxes so
paid under protest, and any amount so recovered shall belong to Tenant.
(b) If the "Tenant Improvements" in the Premises, whether
installed and/or paid for by Landlord or Tenant and whether or not affixed to
the real property so as to become a part thereof, are assessed for real property
tax purposes at a valuation higher than the valuation at which Tenant
Improvements conforming to Landlord's "Tenant Standard Improvements" in other
space in the Building are assessed, then the real property taxes and assessment
levied against Landlord or the Building by reason of such excess assessed
valuation shall be governed by the provisions of Paragraph (a) above. If the
record of the County Assessor are available and sufficiently detailed to serve
as a basis for determining whether said Tenant Improvements are assessed at a
higher valuation than Landlord's Tenant Standard Improvements, such records
shall be binding on both the Landlord and the Tenant. If the records of the
County Assessor are not available or sufficiently detailed to serve as a basis
for making said determination, the actual costs of construction shall be used.
11. ALTERATIONS. Tenant shall make no alterations, decorations,
additions or improvements in or to the Premises without Landlord's prior written
consent, and then only by contractors or mechanics approved by Landlord. All
such work shall be done at such times and in such manner as Landlord may from
time to time designate. Tenant covenants and agrees that all work done by or
pursuant to the direction and instruction of Tenant shall be performed in full
compliance with all laws, rules, orders, ordinances, directions, regulations and
requirements of all governmental agencies, offices, departments, bureaus and
boards having jurisdiction, and in full compliance with the rules, orders,
directions, regulations and requirements of the Insurance Service Office, and of
any similar body. Before commencing any work, Tenant shall give Landlord at
least twenty-one (21) days written notice of the proposed commencement of such
work and shall, if required by Landlord, secure at Tenant's own cost and
expense, a completion and lien indemnity bond, satisfactory to Landlord, for
said work. Landlord shall have the right at all times to post notices of
non-responsibility on the Premises and record verified copies thereof in
connection with all work of any kind upon the Premises., All alterations,
decorations, additions or improvements upon the Premises, made by Tenant,
including without limitation wall coverings, draperies, floor coverings,
built-in cabinet work, paneling and the like (but excluding Tenant's trade
fixtures, if any, equipment and furnishings) shall become the property of
Landlord upon expiration or sooner termination of this Lease, and shall remain
upon and be surrendered with the Premises as part thereof, except that Landlord
may, by written notice to Tenant, given at lest thirty (30) days prior to the
end of the term, require Tenant to remove all partitions, counters, railings and
the like installed by or pursuant to the direction and instruction of Tenant,
and Tenant shall repair the Premises
** Any items of alteration submitted by Tenant and approved by Landlord that
require removal from premises upon expiration of lease shall be identified
by Landlord at time of initial approval by Landlord.
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At Tenant's cost or, at Landlord's option, shall pay to Landlord all costs
arising from such removal.
12. MAINTENANCE AND REPAIRS.
(a) Tenant shall at Tenant's sole cost and expense keep the
Premises in good condition and repair; damage thereto from causes beyond the
reasonable control of Tenant and ordinary wear and tear excepted. All damage or
injury to the Premises or the Building in which the same are located, caused by
the act or negligence of Tenant, its employees, agents or visitors, shall be
promptly repaired by Tenant at its sole cost and expense, to the satisfaction of
Landlord. Landlord may make any repairs which are not promptly made by Tenant
and charge Tenant for the cost thereof. Tenant shall upon the expiration of
sooner termination of the term hereof surrender the Premises to Landlord in the
same condition as when construction of Tenant Improvements was completed,
ordinary wear and tear and damage from causes beyond the reasonable control of
Tenant excepted. Landlord shall have no obligation to shampoo or replace the
carpeting or draperies of the Premises during the term or any extension thereof.
Landlord shall have no obligation to alter, remodel, improve, repair, decorate,
or paint the Premises or any part thereof, and the parties hereto affirm that
that Landlord has made no representations to Tenant respecting the condition of
the Premises or the Building except as specifically herein set forth.
(b) Anything contained in the foregoing Paragraph (a) to the
contrary notwithstanding, Landlord shall repair and maintain the structural
portions of the Building, including the basic plumbing, air conditioning, and
electrical systems installed or furnished by Landlord. If such maintenance and
repairs are caused in part or whole by the act, neglect, fault or omission of
any duty by Tenant, its agents, servants, employees or visitors, Tenant shall
pay to Landlord upon demand the reasonable cost of such maintenance and repairs.
Landlord shall not be liable for any failure to make any such repairs or to
perform any maintenance unless such failure shall persist for an unreasonable
time after written notice of the need of such repairs or maintenance is given to
Landlord by Tenant. Except as provided in Article 19 hereof, there shall e no
abatement of rent and no liability of Landlord by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations, or improvements in or to any portion of the building or the
Premises or in or to fixtures, appurtenances, and equipment therein. Tenant
waives the right to make repairs at Landlord's expense under Subsection 1 of
Section 1932, Sections 1941 and 1942 of the California Civil Code, or any other
such law, statute, or ordinance now or hereafter in effect.
13. LIENS. Tenant shall keep the Premises, the Building, and the
property upon which the Building is situated, free from any liens arising out of
the work performed, materials
* Landlord agrees that during Landlord's normal hours of operation, the HVAC
system serving the premises shall keep the temperature in the premises at not
more than 76 degrees Fahrenheit and no less than 68 degrees Fahrenheit, unless
such temperature levels are not maintained because of heat generating
equipment of Tenant (other than customary office equipment), improper design
of the space configuration or HVAC equipment, obstruction by tenant's
furniture or equipment, failure by tenant to use building standard window
coverings to reduce solar load, or because of outside temperatures in excess
of 95 degrees Fahrenheit or lower than 10 degrees Fahrenheit.
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<PAGE> 14
furnished, or obligations incurred by Tenant. Tenant further covenants and
agrees that should any mechanic's lien be filed against the Premises or against
the Building for work claimed to have been done for, or materials claimed to
have been furnished to Tenant, said lien will be discharged by Tenant, by bond
or otherwise, within ten (10) days after the filing thereof, at the cost and
expense of Tenant.
14. BUILDING SERVICES. Provided that Tenant is not in default
hereunder, Landlord agrees to furnish to the Premises, at its expense, during
standard business hours, Monday through Friday, (generally recognized holidays
excepted), and subject to the Rules and Regulations described in Exhibit "B"
hereof, air conditioning and heat, elevator service, electric current for normal
lighting and fractional horsepower office mahcines and, on the same floor as the
Premises, water for lavatory and drinking purposes, all in such reasonable
quantities, in the judgment of Landlord, as are necessary for the comfortable
occupancy of the Premises. Janitorial and maintenance services will be furnished
***five (5) days per week. Janitorial services shall include only ordinary
dusting and cleaning and shall not include shampooing of carpets or rugs,
cleaning of draperies or furniture, or other unusual services. Landlord may
impose a reasonable additional charge for the usage of any additional or unusual
janitorial services required because of any unusual Tenant Improvements in the
Premises, the carelessness of Tenant, the unusual nature of Tenant's business
and the removal of any refuse and rubbish from the Premises other than discarded
material placed in waste paper baskets and left for emptying as an incident to
Tenant's normal cleaning of the Premises. Tenant shall comply with all rules and
regulations which Landlord may reasonably establish for the proper functioning
and protection of the air conditioning, heating, elevator and plumbing system.
Landlord shall not be liable for and Tenant shall not be entitled to any
abatement or reduction of rent by reason of Landlord's failure to furnish any of
the foregoing when such failure is caused by riot, strike, labor disputes of any
character, breakdowns, necessary repairs, breakage, accidents, the
unavailability of natural or other energy resources, or other cause beyond
Landlord's reasonable control. **Without the prior written consent of Landlord,
Tenant shall not use any apparatus or device in the Premises, including without
limitation, electronic data processing machines, punch card machines and
machines using current in excess of 110 volts, which may increase the amount of
the electricity, air conditioning, heat or water which would otherwise be
furnished or supplied under this Article 14 for the intended use of the
Premises; and Tenant will not connect with electric current, except through
existing electrical outlets in the Premises, or with water pipes, any apparatus
or device which uses electric current or water. Except as specifically provided
in this Article 14, and in addition to rent and other charges required to be
paid by Tenant under this Lease, Tenant agrees to pay for all utilities and
other services utilized by Tenant and for all overtime or additional building
services furnished to Tenant not uniformly furnished to all
** Except for those specified in tenant's initial design and buildout and
pursuant to tenant's existing equipment.
***Janitorial service provided to Tenant's premises shall be performed Monday
through Friday between the hours of 9 p.m. and 12 p.m., with tenant being
provided with extra bathroom supplies and trash compactor access for
weekend operation.
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tenants of the Building. The costs of all building services furnished by
Landlord shall be deemed to be Operating Costs as defined in Paragraph (a)(2) of
Article 5 hereof.
15. RIGHTS OF LANDLORD.
(a) Landlord and its agents shall have the right to enter the
Premises at all reasonable times for the purpose of cleaning the Premises or
examining or inspecting the same, showing the same to prospective tenants,
lenders or purchasers of the building, or in the case of an emergency, and to
make such alterations, repairs, improvements or additions to the Premises or to
the Building of which they are a part as Landlord may deem necessary or
desirable.* If Tenant shall not personally be present to open and permit an
entry into the Premises at any time when such an entry by Landlord is necessary
by reason of emergency or permitted hereunder, Landlord may enter by means of a
master key or pass key or may enter forcibly, without liability to Tenant except
for any failure to exercise due care for Tenant's property, and any such entry
by Landlord shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an eviction
of Tenant from the Premises or any portion thereof.
(b) In addition to any other rights provided herein, Landlord
shall have the following rights, exercisable in a reasonable manner without
notice to Tenant and without any obligation to exercise such rights: to change
the name or address of the Building or the suite number of the Premises; to
grant to anyone the exclusive right to conduct any business or render any
service in the Building, provided such exclusive right shall not operate to
exclude Tenant from the uses expressly permitted under this Lease; to have
access to all mail chutes, if any, according to the rules of the United States
Postal Service; to require all persons entering or leaving the Building during
such yours as Landlord may from time to time reasonably determine to identify
themselves to a watchman by registration or otherwise, establishing their right
to enter or leave, and at any time to exclude or expel any peddler, solicitor,
or beggar from the Premises or the Building; to close the Building daily at such
reasonable time as Landlord may determine, subject, however, to Tenant's right
to admittance at any time under such reasonable regulations as shall be
prescribed from time to time by Landlord; to reasonably approve the weight, size
and location of safes, vaults, computers, machinery, book shelves and other
heavy equipment and articles in and about the Premises and the Building, and to
require all such items to be moved in and out of the Building or the Premises
only at such times and in such manner as Landlord shall direct, and in all
events at Tenant's sole risk and responsibility; to designate and/or approve,
prior to installation, all types of window shades, blinds, drapes, and other
similar equipment, and to control all internal lighting that may be visible from
the exterior of the Building; to decorate, alter, repair or improve the
Premises,
* with reasonable notice from Landlord
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Building and parking facilities, or maintain any service therein, at any time,
including the erection of scaffolding, props or other mechanical devices; to
shore the foundations, footings and walls of the Building; to do or permit to be
done any necessary work in or about the Premises or the Building or the parking
facilities or any adjacent or nearby land, street or alley. Any rights so
exercised by Landlord shall be without any rebate or abatement of rent to Tenant
for any loss of occupancy or quiet enjoyment of the Premises or damage, injury
or inconvenience thereof occasioned, provided that the business of Tenant shall
be interfered with as little as is reasonably practicable.
(c) If during the last month of the term hereof, Tenant shall
have removed substantially all of its property therefrom, Landlord may
immediately enter and alter, renovate, and redecorate the Premises without
eliminating or abating any rent or incurring any liability to Tenant.
(d) No graphics, log, sign, advertisement, or notice shall be
inscribed, painted, or affixed on any part of the inside or outside of the
Building unless of such color, size and style and in such place upon or in the
Building as shall be first designated by Landlord in writing but there shall be
no obligation or duty on Landlord to allow any sign, advertisement or notice to
be inscribed, pained, or affixed on any part of the inside or outside of the
Building. A directory in a conspicuous place, with names of tenants, will be
provided by Landlord. Any necessary revision in the directory will be made by
Landlord at Tenant's expense within a reasonable time after notice from Tenant
of the change making the revision necessary. No furniture shall be placed in
front of the Building or in any lobby or corridor of the Building (whether
included wholly within the Premises, or otherwise), without the prior written
consent of Landlord. Landlord shall have the right to remove all non-permitted
signs and furniture, without notice to Tenant, at the expense of Tenant. If
Tenant desires additional names to be listed on the Building directory, to the
extent space is available thereon after consideration of other tenants' desires,
Landlord agrees Tenant shall have the right to list such names at Tenant's sole
cost and expense.
16. INDEMNIFICATION AND WAIVER. Tenant hereby agrees to indemnify and
hold Landlord harmless against and from any and all claims of damages or injury
arising from Tenant's use of he Premises, Building common areas and parking
facilities, or the conduct of its business or from any activity, work, or thing
done, permitted or suffered by Tenant and in the Premises, Building common areas
and parking facilities, and shall further indemnify and hold harmless Landlord
against and from any and all claims arising from any breach or default in the
performance of any obligation on Tenant's part to be performed under the terms
of this Lease, or arising from any act, neglect, fault, or omission of the
Tenant, or of its agents, employees, visitors, invitees, or licensees, and from
and against all costs, attor-
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<PAGE> 17
neys' fees, expenses and liabilities incurred in or about any such claim or any
action or proceeding brought thereon; and in case any action or proceeding be
brought against Landlord by reason of such claim, Tenant, upon notice from
Landlord, shall defend the same at Tenant's expense by counsel reasonably
satisfactory to Landlord. Tenant, as a material part of the consideration to
landlord, hereby assumes all risk of damage to Tenant's property or injury to
Tenant's employees, agents, visitors, invitees and licensees in or upon the
Premises, Building and parking facilities; from any cause whatsoever, and Tenant
hereby waives all claims in respect thereof against Landlord except, any claims
which are caused by the failure of Landlord to observe any of the terms and
conditions of this Lease, (and such failure has persisted for an unreasonable
period of time after written notice of such failure) and those which arise from
any neglect, fault or omission of the Landlord, or of its agents, or employees.
Land-**lord shall not be liable to Tenant for any unauthorized or criminal entry
of third parties into the Premises, Building, or parking facilities or for any
death or bodily injury to persons or damage to property, or loss of property in
and about the Premises, Building, parking facilities and the approaches,
entrances, streets, sidewalks or corridors thereto, by or from any unauthorized
or criminal acts of third parties, regardless of any breakdown, malfunction or
insufficiency of the security measures, practices or equipment provided by
Landlord. Tenant shall immediately notify Landlord in writing of any breakdown
or malfunction of the security measures, practices or equipment provided by
Landlord as to which Tenant has knowledge. Landlord shall not be liable to
Tenant for interference with the light or other incorporeal hereditaments or for
any damage therefrom to Tenant or Tenant's property from any cause beyond
Landlord's reasonable control. Tenant waives all claims against Landlord for
damage to persons or property for any reason unless caused by or due to the
active negligence of Landlord, its agents, servants, or employees.
17. INSURANCE.
(a) All insurance required to be carried by Tenant hereunder
shall be issued by responsible insurance companies, qualified to do business in
the State of California, acceptable to Landlord and Landlord's lender. Each
policy shall name Landlord, and at Landlord's request any mortgagee of Landlord,
as an additional insured, as their respective interests may appear, and copies
of all policies or certificates evidencing the existence and amounts of such
insurance shall be delivered to Landlord by Tenant at least ten (10) days prior
to Tenant's occupancy of the Premises. No such policy shall be cancellable
except after ten (10) days prior written notice to Landlord and Landlord's
lender. Tenant shall furnish Landlord with renewals or "binders" of any such
policy at least ten (10) days prior to the expiration thereof. Tenant agrees
that if Tenant does not take out and maintain such insurance, Landlord may (but
shall not be required to) procure said insurance on Tenant's behalf and
** except for gross negligence by Landlord, its agents, or employees
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<PAGE> 18
charge the Tenant the premiums together with a twenty-five percent (25) handling
charge, payable upon demand. Tenant shall have the right to provide such
insurance coverage pursuant to blanket policies obtained by the Tenant provided
such blanket policies expressly afford coverage to the Premises and to Tenant as
required by this Lease.
(b) At all times during the terms hereof, Tenant shall
maintain in effect policies of property damage insurance covering (1) all
leasehold improvements (including any alterations, additions or improvements as
may be made by Tenant pursuant to provisions of Article 11 hereof) and in which
Tenant may have an insurable interest, and (2) trade fixtures, merchandise and
other personal property from time to time in, on or upon the Premises, in an
amount not less than one hundred percent (100)%) of their actual replacement
cost from time to time during the term of this Lease, providing protection
against any peril included within the classification "Fire and Extended
Coverage" together with insurance against sprinkler damage, vandalism and
malicious mischief. The proceeds of such insurance shall be used for the repair
or replacement of the property so insured. Upon termination of this Lease
following a casualty as set forth herein, the proceeds under (1) shall be paid
to Landlord, and the proceeds under (2) above shall be paid to Tenant.
(c) Tenant shall, at all times during the term hereof and at
its own cost and expense, procure and continue in force comprehensive general
liability insurance for bodily injury and property damage, adequate to protect
Landlord against liability for injury to or death of any person, arising in
connection with the use, operation or condition of the Premises. Such insurance
at all times shall be in an amount of not less than a combined single limit of
Two Million Dollars ($2,000,000), insuring against any and all liability of the
insured with respect to said Premises or arising out of the use or occupancy
thereof.
(d) Not less than every two and one-half (2-1/2) years during
the term of this lease, Tenant and Landlord shall agree in writing on the full
replacement cost of the leasehold improvements pursuant to Article 17(b), above.
If, in the opinion of the Landlord or Landlord's lender, the amount or type of
public liability and property damage insurance coverage, or any other amount or
type of insurance at that time is not adequate or not provided for herein,
Tenant shall either acquire or increase the insurance coverage as required by
either Landlord or Landlord's lender.
18. WAIVERS OF SUBROGATION. Each of the parties hereby waives any and
all rights to recovery against the other or against any other tenant or occupant
of the Building, or against the officers, employees, agents, representatives,
customers, and business visitors of such other party or of such other tenant or
occupant of the Building, for loses or damage to such waiving party or its
property or the property of others under its con-
16
<PAGE> 19
trol, arising from any cause insured against under the standard form of property
damage insurance policy with all permissible extensions and endorsements
covering extended perils or under any other policy of insurance carried by such
waiving party in lieu thereof. Such waiver shall be effective only so long as
the same is permitted by each party's insurance carrier without payment of any
additional premium.
19. DAMAGE OR DESTRUCTION.
(a) In the event the Building in which the Premises are
located is damaged by any peril included within the classification Fire and
Extended Coverage Insurance:
(i) In the event of total destruction of the Building,
this Lease shall automatically be terminated as of the date of such casualty.
(ii) In the event of partial destruction of the Building,
or of total or partial destruction of the Premises, Landlord shall be
responsible for repairing or restoring such damage, except in the circumstances
hereinafter provided. If the Premises or the Building are damaged and (a) the
repair or restoration thereof, in Landlord's opinion, cannot be completed within
one-hundred twenty (120) days of commencement of repair or restoration; (b) the
repair or restoration is not covered by insurance, or the estimated cost thereof
exceeds the insurance proceeds available for repair or restoration plus any
amount which Tenant is obligated or elects to pay for such repair or
restoration; or (c) the estimated cost of repair or restoration of the Premises
or Building exceeds twenty-five percent (25%) of the full replacement cost of
the Premises or of the Building, as the case may be; or (d) Landlord elects to
rebuild the Building in a substantially different structural or architectural
form than existed before the damage and destruction, Landlord shall have the
option to either terminate this Lease or to repair or restore the Premises or
the Building. In the event that Landlord elects to terminate this Lease,
Landlord shall give notice to Tenant within sixty (60) days after the occurrence
of such damage, terminating this Lease as of the date specified in such notice,
which date shall be not less than thirty (30) nor more than sixty (60) days
after the giving of such notice. In the event such notice is given, this Lease
shall expire and all interest of Tenant in the Premises shall terminate on the
date specified in the notice, and the rent (abated proportionately in the ratio
in which Tenant's use of said Premises has been impaired since the date of such
partial destruction of the Building or of the Premises) shall be paid up to the
date of termination. Landlord shall refund to Tenant the rent theretofore paid
for any period of time subsequent to such date.
(b) Upon any termination of this Lease under any of the
provisions of this Article, the parties shall be released thereby without
further obligation to the other from the date
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<PAGE> 20
possession of the Premises is surrendered to the Landlord, except for items
which have theretofore accrued and are then unpaid.
(c) In the event Landlord repairs or restores as herein
provided, the rental to be paid under this Lease shall be abated proportionately
in the ratio which the Tenant's use of said Premises has been impaired since the
date of such partial destruction of the Building or of the Premises. The Tenant
shall not be entitled to any compensation or damages from Landlord for loss of
the use of the whole or any part of said Premises or for any inconvenience or
annoyance occasioned by any such damage, repair or restoration.
(d) Notwithstanding any destruction or damage to the Premises
or the Building, including the parking facilities and interior and adjacent
landscaped areas, Tenant shall not be released from any of its obligations under
this Lease except to the extent and upon the conditions expressly stated in this
Article. Notwithstanding anything to the contrary contained in this Article,
should Landlord be delayed or prevented from repairing or restoring said damaged
premises for one (1) year after the occurrence of such damage or destruction by
reason of acts of God, war, governmental restrictions, inability to procure the
necessary labor or materials, or other cause beyond the control of Landlord, the
Landlord and the Tenant shall each have the right to terminate this Lease,
effective upon thirty (30) days prior written notice, so long as said damaged
Premises shall still have not substantially been repaired or restored.
(e) In the event of partial destruction of the Premises or the
Building due to any cause other than a peril included within the classification
Fire and Extended Coverage Insurance, Landlord may elect to terminate this
Lease.
(f) It is hereby acknowledged that if Landlord is obligated
to, or elects to repair or restore as herein provided, Landlord shall be
obligated to make repairs or restoration only of those portions of said Building
and said Premises which were originally provided at Landlord's expense, and the
repair and restoration of items not provided at Landlord's expense shall be the
obligation of Tenant. Tenant understands that Landlord will not carry insurance
of any kind on Tenant's furniture, furnishings, fixtures or equipment, and that
Landlord shall not be obligated to repair any damage thereto or replace the
same.
(g) Notwithstanding anything to the contrary contained in this
Article, Landlord shall not have any obligation whatsoever to repair or restore
the Premises when the damage resulting from any casualty covered under this
Article occurs during the last twelve (12) months of the term of this Lease or
any extension thereof; provided, however, that Landlord shall give Tenant notice
of such intent within thirty (30) days of the occurrence of such casualty,
whereupon this Lease shall terminate effective as of the date of such casualty
and Landlord shall
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<PAGE> 21
refund to Tenant the rent theretofore paid for any period of time subsequent to
such date.
(h) The provisions of Section 1932, Subdivision 2, and Section
1933, Subdivision 4, of the Civil Code of the State of California, including any
amendments thereto and any other law which may hereinafter be in force during
the term of this Lease which authorizes the termination of the Lease upon the
partial or complete destruction of the Premises, are hereby waived by Tenant.
20. EMINENT DOMAIN. If the whole of the Premises shall be taken, or
such party thereof shall be taken as shall substantially interfere with Tenant's
use and occupancy of the balance thereof, under power of eminent domain, or
sold, transferred, or conveyed in lieu thereof, either Tenant or Landlord may
terminate this Lease as of the date of such condemnation or as of the date
possession is taken by the condemning authority, whichever date occurs later. If
any part of the Building other than the Premises, including parking facilities
and interior and adjacent landscaped areas, shall be so taken, sold, transferred
or conveyed in lieu thereof, Landlord shall have the right, at its option, to
terminate this Lease as of the date of such condemnation or as of the date
possession is taken by the condemning authority. No award for any partial or
entire taking shall be apportioned, and Tenant hereby assigns to Landlord any
award which may be made in such taking or condemnation, together with any and
all rights of Tenant now or hereafter arising in or to the same or any part
thereof; provided, however, that nothing contained herein shall be deemed to
give Landlord any interest in or require Tenant to assign to Landlord any award
made to Tenant for the taking of personal property and fixtures belonging to
Tenant and removable by Tenant at the expiration of the term hereof, as provided
hereunder, or for the interruption of, or damage to Tenant's business or for
relocation expenses recoverable against the condemning authority. In the event
of a partial taking, or a sale, transfer, or conveyance in lieu thereof, which
does not result in a termination of this Lease, Landlord shall restore the
premises substantially to their condition prior to such partial taking and,
thereafter, rent shall be abated in the proportion which the square footage of
the part of the Premises so made unusable bears to the amount of Rentable Area
immediately prior to the taking. No temporary taking of a part of the Premises
or of the Building, including parking facilities and interior and adjacent
landscaped areas, shall give Tenant any right to terminate this Lease or to any
abatement of rent hereunder.
21. DEFAULT.
(a) Any of the following events shall constitute a default
under this Lease by Tenant:
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<PAGE> 22
(1) Failure by tenant to make any payment of rent or other
payment required by this Lease when the same is due, and the continuance of such
failure for a period of ten (10) days after written notice thereof from Landlord
to Tenant;
(2) The vacating (except as may be necessary to facilitate
the reoccupancy of the Premises for a permitted use pursuant to an assignment or
subletting authorized under the terms hereof) or abandoning (which is deemed to
include absence from the Premises for more than ten (10) days while in default
of any provision of this Lease) of the Premises by Tenant;
(3) Any attempted conveyance, assignment, mortgage or
subletting of this Lease or of bankruptcy (unless, in the case of a petition
filled against Tenant, the same is dismissed within sixty (60) days); the taking
of any action at the corporate or partnership level by Tenant to authorize any
of the foregoing actions on behalf of Tenant; the appointment of a trustee or
receiver to take possession of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease unless possession is restored
to Tenant within thirty (30) days; or the attachment, execution or other
judicial seizure of substantially all of Tenant's assets located at the Premises
or of Tenant's interest in this Lease, where such seizure is not discharged
within thirty (30) days;
(4) The failure by Tenant to observe or perform any
covenant, condition, or provision in this Lease not already specifically
mentioned in this Article 2(a), where such failure continues for thirty (30)
days after written notice from Landlord notifying Tenant of such failure;
provided, however, that if the nature of Tenant's failure is such that more than
thirty (30) days are reasonably required for its cure, then Tenant shall not be
in default if it begins such cure within the thirty (30) day period described
above and thereafter diligently prosecutes such cure to completion.
(b) In the event of any default by Tenant, Landlord may
promptly or at any time thereafter, upon notice and demand and without limiting
Landlord in the exercise of any other right or remedy which Landlord may have by
reason of such default or breach;
(1) Terminate Tenant's right to possession of the Premises
by any lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Premises to Landlord. In such event,
Landlord shall be entitled to recover from Tenant:
(i) The worth at the time of award of the unpaid rent
which had been earned at the time of termination;
(ii) The worth at the time of award of the amount by
which the unpaid rent which would have been earned
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<PAGE> 23
after termination until the time of the award exceeds the amount of such rental
loss that Tenant proves could have been reasonably avoided;
(iii) The worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss the Tenant proves can reasonably be
avoided; and
(iv) Any other amount necessary to compensate Landlord
for all detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting (including
advertising), brokerage commissions and fees, costs of putting the Premises in
good order, condition and repair, including necessary renovation and alteration
of the Premises, reasonable attorney's fees, court costs, all costs for
maintaining the Premises, all costs incurred in the appointment of and
performance by a receiver to protect the Premises or Landlord's interest under
the Lease, and any other reasonable cost.
The "worth at the time of award" of the amounts
referred to in subsections (I) and (ii) above shall be computed by allowing
interest at the rate of 12% per annum. The "worth at the time of award" of the
amount referred to in subsection (iii) above shall be computed by discounting
such amount at one (1) percentage point above the discount rate of the Federal
Reserve Bank of San Francisco at the time of award.
(2) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the State of California.
(c) Even though Tenant has breached this Lease and vacated or
abandoned the Premises, at Landlord's option this Lease shall continue in effect
for so long as Landlord does not terminate Tenant's right to possession, and
Landlord may enforce all of its rights and remedies hereunder, including the
right to recover rent as it comes due under this Lease, and in such event
Landlord will permit Tenant to sublet the Premises or to assign his interest in
the Lease, or both, with the consent of Landlord, which consent will not
unreasonably be withheld provided the proposed assigneee or sublessee is
reasonably satisfactory to Landlord as to credit and will occupy the Premises
for the same purposes specified herein, and such tenancy is not inconsistent
with Landlord's commitments to other tenants in the Building. For purpose of
this subparagraph (c) the following shall not constitute a termination of
Tenant's right to possession: (1) acts of maintenance or preservation or efforts
to relet the Premises; or (2) the appointment of a receiver under the initiative
of Landlord to protect Landlord's interest under this Lease.
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<PAGE> 24
(d) Tenant hereby acknowledges that late payment by Tenant to
Landlord of rent and other charges due 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. Such costs include, but are not limited to
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other charge due from Tenant is
not received by Landlord or Landlord's designee within ten (10) days after such
amount shall be due, then, at Landlord's election and upon Landlord's demand,
Tenant shall pay to Landlord a late charge equal to 15% of such overdue amount,
and in such event the parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of the
late payment by Tenant. No late charge may be imposed more than once for the
same late rental payment. 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 other rights and remedies
granted to it hereunder.
22. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not assign or transfer this Lease, or any
interest therein, and shall not sublet the Premises or any part thereof, or any
right or privilege appurtenant thereto, or suffer any other person (the
invitees, agents and servants of Tenant excepted) to occupy or use the Premises,
or any portion thereof, or agree to any of the foregoing, without in each case
first obtaining the written consent of Landlord, in accordance with subparagraph
(b) below. Neither this Lease nor any interest therein shall be assignable as to
the interest of Tenant by operation of law, without the written consent of
Landlord. Tenant shall not pledge, hypothecate or encumber this Lease, or any
interest therein, without in each case first obtaining the written consent of
Landlord, which consent shall not unreasonably be withheld. Any such assignment,
transfer, pledge, hypothecation, encumbrance, sublease or occupation of, or the
use of the Premises by any other person without such consent, shall be void. Any
consent to any assignment, transfer, pledge, hypothecation, encumbrance,
sublease or occupation or use of the Premises by any other person which may be
given by Landlord shall not constitute a waiver by Landlord of, the provisions
of this Article 22 or a release of Tenant from the full performance by it of the
covenants herein contained.
(b) If Tenant desires at any time to assign this Lease or
sublet all or any portion of the Premises, Tenant shall first notify Landlord at
least sixty (60) days prior to the proposed effective date of the assignment or
sublease, in writing, of its desire to do so and shall submit in writing to
Landlord (1) the name of the proposed sub-tenant or assignee, (2) the nature of
the proposed sub-tenant's or assignee's business to be carried on in the
Premises, (3) the terms and conditions of the
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<PAGE> 25
proposed sublease or assignment and (4) financial statements for the two most
recent completed fiscal years of the proposed sub-tenant or assignees, and a
bank reference. Thereafter, Tenant shall furnish such supplemental information
as Landlord may reasonably request concerning the proposed sub-tenant or
assignee. At any time within fifteen (15) days after Landlord's receipt of the
information specified above, Landlord may by written notice to Tenant elect to
(1) terminate this Lease not less than forty-five (45) nor more than ninety (90)
days after the end of said fifteen (15) day period as to the portion (including
all) of the Premises so proposed to be assigned or subleased, with a
proportionate abatement in rent payable hereunder, (2) consent to the sublease
or assignment, or (3) reasonably disapprove of the sublease or assignment,
setting forth in writing Landlord's grounds for doing so. Such grounds may
include, without limitation, a material increase in the impact upon the common
areas of the Building or the parking facilities, a material increase in the
demands upon utilities and services supplied by Landlord, a possible material
adverse effect upon the reputation of the Building from the nature of the
business to be conducted, or a reputation for financial reliability on the part
of the proposed sub-tenant or assignee which is unsatisfactory in the reasonable
judgment of Landlord. If Landlord consents to the sublease or assignment within
the fifteen (15) day period, Tenant may thereafter enter into such assignment or
sublease of the Premises, or a portion thereof, upon the terms and conditions
and as of the effective date set forth in the information furnished by Tenant to
Landlord.
(c) Each permitted assignee, transferee or sublessee, other
than Landlord, shall assume and be deemed to have assumed this Lease and shall
be and remain liable jointly and severally with Tenant for the payment of the
rent and for the due performance or satisfaction of all of the provisions,
covenants, conditions and agreements herein contained on Tenant's part to be
performed or satisfied. No permitted assignment shall be binding on Landlord
unless such assignee or Tenant shall deliver to Landlord a counterpart of such
assignment which contains a covenant of assumption by the assignee, but the
failure or refusal of the assignee to execute such instrument of assumption
shall not release or discharge the assignee from its liability as set forth
above.
(d) If Tenant is a partnership, a transfer of any interest of
a general partner, a withdrawal of any general partner from the partnership, or
the dissolution of the partnership, shall be deemed to be an assignment of this
Lease.
(e) If Tenant is a corporation, unless Tenant is a public
corporation, viz., whose stock is regularly traded on a national stock exchange,
or is regularly traded in the over-the-counter market and quoted on NASDAQ, any
dissolution, merger, consolidation, or other reorganization of Tenant or sale or
other transfer of a percentage of capital stock of Tenant which results
23
<PAGE> 26
in a change of controlling persons, or the sale or other transfer of
substantially all of the assets of Tenant, shall be deemed to be an assignment
of this Lease.
(f) (1) In the event this Lease is assigned to any person or
entity pursuant to provisions of the Bankruptcy Code, 11 USC Section 101, et
seq., (the "Bankruptcy Code"), any and all monies or other consideration payable
or otherwise to be delivered in connection with such assignment shall be paid or
delivered to Landlord, shall remain the exclusive property of Landlord, and
shall not constitute property of Tenant or of the estate of Tenant within the
meaning of the Bankruptcy Code. Any and all monies or other consideration
constituting Landlord's property under the preceding sentence not paid or
delivered to Landlord shall be held in trust for the benefit of Landlord and be
promptly paid to or turned over to Landlord.
(2) If Tenant pursuant to this Lease, proposes to assign
the same pursuant to the provisions of the Bankruptcy Code, to any person or
entity who shall have made a bona fide offer to accept an assignment of this
Lease on terms acceptable to Tenant, the notice of the proposed assignment
setting forth (I) the name and address of such person, (ii) all of the terms and
conditions of such offer, and (iii) the assurances referred to in Section
365(b)(3) of the Bankruptcy Code, shall be given to the Landlord by the Tenant
no later than 20 days after receipt of such offer by the Tenant, but in any
event no later than 10 days prior to such offer by the Tenant, but in any event
no later than 10 days prior to the date that Tenant shall make application to a
court of competent jurisdiction for authority and approval to enter into such
assignment and assumption, and Landlord shall thereupon have the prior right and
option, to be exercised by notice to the Tenant given at any time prior to the
effective date of such proposed assignment, to accept an assignment of this
Lease upon the same terms and conditions and for the same consideration, if any,
as the bona fide offer made by such person, less any brokerage commissions which
may be payable out of the consideration to be paid such person for the
assignment of this Lease.
(3) Any person or entity to which this Lease is assigned
pursuant to the provisions of the Bankruptcy Code shall be deemed without
further act or deed to have assumed all of the obligations arising under this
Lease on or after the date of such assignment. Any such assignee shall, upon
demand, execute and deliver to Landlord an instrument confirming such
assumption.
(4) The following factors may be considered by the
Landlord as necessary in order to determine whether or not the proposed assignee
has furnished Landlord with adequate assurances of its ability to perform the
obligations of this Lease:
1. The adequacy of security deposit.
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<PAGE> 27
2. Net worth and other financial elements of the
proposed assignee.
(5) In the event Landlord rejects the proposed assignee, the
rights and obligations of the parties hereto shall continue to be governed by
the terms of this Lease, and Tenant shall have all the rights of a Tenant under
applicable California law.
23. SUBORDINATION. This Lease is subject and subordinate to all ground
or underlying leases, mortgages, and deeds of trust which now affect the
Premises, the Building and the real property of which it is a part, and to all
renewals, modifications, consolidations, replacements, and extensions thereof.
If the lessor under any such lease or the holder or holders of any such mortgage
or deed of trust shall advise Landlord that they desire or require this Lease to
be prior and superior thereto, upon written request of Landlord to Tenant,
Tenant agrees promptly to execute, acknowledge, and deliver any and all
documents or instruments which Landlord or such lessor, holder, or holders deem
necessary or desirable for purposes thereof. Landlord shall have the right to
cause this Landlord to be and become and remain subject and subordinate to any
and all ground or underlying leases, mortgages or deeds of trust which may
hereafter be executed covering the Premises, the Building and the real property
of which it is a part, or any renewals, modifications, consolidations,
replacements or extensions thereof, for the full amount of all advances made or
to be made thereunder and without regard to the time or character of such
advances, together with interest thereon and subject to all the terms and
provisions thereof. Tenant agrees, within ten (10) days after Landlord's written
request therefor, to execute, acknowledge, and deliver any and all documents or
instruments requested by Landlord, or that are necessary or proper to assure the
subordination of this Lease to any such mortgages, deeds of trust, or leasehold
estates; provided, however, that the foregoing provisions with respect to such
election of subordination by Landlord shall not be effective unless the owner or
holder of any such mortgage, deed of trust, or the lessor under any such
leasehold estate shall execute with Tenant a non-disturbance and attornment
agreement under which such owner, holder, or lessor shall agree to accept the
Tenant upon the terms and conditions contained in this Lease for the then
unexpired term hereof, in the event of termination of such leasehold estate or
upon the foreclosure of any such mortgage or deed of trust, so long as Tenant
agrees to pay rent and observe and perform all of the provisions of this Lease
to be observed and performed by Tenant.
24. ESTOPPEL CERTIFICATE. Tenant shall at any time and from time to
time, upon not less than ten (10) days prior written notice from Landlord,
execute, acknowledge, and deliver to Landlord a statement in writing certifying
that this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease,
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<PAGE> 28
as so modified, is in full force and effect) and the dates to which the rental,
the security deposit, if any, and other charges, if any, are paid in advance,
and acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder, and not events or conditions then in
existence which, with the passage of time or notice or both, would constitute a
default on the part of Landlord hereunder, or specifying such defaults, events,
or conditions, if any are claimed. It is expressly understood and agreed that
any prospective purchaser or encumbrancer of all or any portion of the building
or of the real property of which it is a part shall be entitled to rely upon any
such statement. Tenant's failure to deliver such statement within such time
shall, at the option of Landlord, constitute a breach or default under this
Lease. If such option is not so exercised by Landlord, Tenant's failure shall be
conclusive upon Tenant that (i) this lease is in full force and effect without
modification except as may be represented by Landlord; (ii) that there are no
uncured defaults in Landlord's performance; and (iii) that not more than two (2)
months' rental has been paid in advance. If Tenant fails to deliver the
certificate within ten (10) days, Tenant irrevocably constitutes and appoints
Landlord as its special attorney-in-fact to execute and deliver the certificate
to any third party.
25. INTEREST ON PAST DUE OBLIGATION. Except as otherwise
expressly provided in this Lease, any amount due from Tenant to Landlord
hereunder which is not paid when due shall bear interest at the highest rate
then allowed under the usury laws of the State of California from the date due
until the date paid.
26. SALE OR TRANSFER BY LANDLORD. In the event of any transfer
or transfers of Landlord's interest in the Premises, other than a transfer for
security purposes only, the transferor shall automatically be relieved of any
and all obligations and liabilities on the part of the Landlord accruing from
and after the date of such transfer; provided, however, that any funds in the
hands of Landlord in which Tenant has an interest, at the time of such transfer,
shall be turned over to the transferee and upon such transfer, Landlord shall be
discharged from any further liability with reference to such funds. The
covenants and obligations of Landlord contained in this Lease shall be binding
upon Landlord, its successors and assigns only during their respective periods
of ownership. Tenant agrees to look solely to Landlord's interest in the
Building and the real property of which it is a part (or the proceeds thereof)
for the satisfaction of any remedy of Tenant, for the collection of a judgment
(or other judicial process) requiring the payment of money by Landlord in the
event of any default by Landlord hereunder, and no other property or assets of
Landlord shall be subject to levy, execution, or other enforcement procedure for
the satisfaction of Tenant's remedies under or with respect to this Lease, the
relationship of Landlord and Tenant hereunder, or Tenant's use of occupancy of
this Premises.
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27. LANDLORD'S RIGHT TO CURE DEFAULTS. All covenants and agreements to
be performed by Tenant under any of the terms of the Lease shall be at its sole
cost and expense and, except as otherwise specifically provided herein, without
any abatement of rent. If Tenant shall fail to pay any sum of money, other than
rent, required to be paid by hereunder or shall fail to perform any other act on
its part to be performed hereunder, and such failure shall continue for twenty
(20) days after notice thereof by Landlord, Landlord may, but shall not be
obligated so to do, and without waiving any rights of Landlord or releasing
Tenant from any obligations of tenant hereunder, make such payment or perform
such other act at Tenant's cost. All sums so paid by Landlord and all such
necessary incidental costs together with interest thereon from the date of such
payment by Landlord in connection with the performance of any such act by
Landlord shall be considered rent hereunder. Except as otherwise in this Lease
expressly provided, such rent shall be payable to Landlord on demand, or at the
option of Landlord, in such installments as Landlord may elect and may be added
to any other rent then due or thereafter becoming due under this Lease, and
Landlord shall have (in addition to any other right or remedy of Landlord) the
same rights and remedies in the event of the nonpayment thereof by Tenant as in
the case of default by Tenant in the payment of any other rent due hereunder.
28. WAIVER. No delay or omission in the exercise of any right or remedy
of Landlord on the occurrence of any default by Tenant shall impair such a right
or remedy or be construed as a waiver. The receipt and acceptance by Landlord of
delinquent rent shall not constitute a waiver of any other default; it shall
constitute only a waiver of timely payment for the particular rent payment
involved. No act or conduct of Landlord, including, without limitation, the
acceptance of the keys to the Premises, shall constitute an acceptance of the
surrender of the Premises by Tenant before the expiration of the term. Only
written notice from Landlord to Tenant shall constitute acceptance of the
surrender of the Premises and accomplish a termination of the Lease. Landlord's
consent to or approval of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waiver or render unnecessary Landlord's consent
to or approval of any subsequent act by Tenant. Any waiver by Landlord of any
default must be in writing and shall not be a waiver of any other default
concerning the same or any other provision of the Lease.
29. FORCE MAJEURE. Whenever a day is appointed herein on which, or a
period of time is appointed within which, either party hereto is required to do
or complete any act, matter or thing, the time for the doing or completion
thereof shall be extended by a period of time equal to the number of days on or
during which such party is prevented from, or is unreasonably interfered with,
the doing or completion of such art, matter or thing because of strikes,
lock-outs, embargoes, unavailability of labor or materials, wars, insurrections,
rebellions, civil
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disorder, declaration of national emergencies, acts of God, or other causes
beyond such party's reasonable control (financial inability excepted); provided,
however, nothing contained in this Article 29 shall excuse Tenant from the
prompt payment of any rental or other charge required of Tenant hereunder.
31. PARKING. Landlord shall make available, for persons regularly
employed by Tenant in the Premises, a reasonable number of non-exclusive parking
spaces in the parking facilities. Landlord, at all times, shall have sole and
exclusive control of all parking facilities and common areas, including without
limitation, driveways, entrances and exits, sidewalks and pedestrian passage
ways, and pylon signs, and Landlord may at any time exclude any person from the
use and occupancy thereof except those persons using the parking facilities in
accordance with the written consent of Landlord and in accordance with all
regulations established by Landlord from time to time. Tenant agrees that
Landlord assumes no responsibility of any kind whatsoever in reference to said
automobile parking facilities or the use thereof by Tenant, its employees,
agents or invitees, or by anyone else. Landlord may, at its sole discretion,
determine whether parking facilities shall be surface, underground, or
multi-deck, and where they shall be located. Landlord may, at the outset and
from time to time, limit access to the parking facilities by means of attendants
and/or other devices, and make other changes in the layout and operation of the
parking facilities including, without limiting the generality of the foregoing,
changes in locations of entrances, exits and parking spaces, and changes in the
direction of traffic flow. No delay or failure by Landlord to enforce its
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parking rules and regulation or its other rights hereunder, and no waiver by
Landlord of any breach thereof, shall be deemed to be a waiver of any succeeding
breach or prevent any subsequent or other enforcement thereof by Landlord.
32. SURRENDER OF PREMISES.
(a) The voluntary or other surrender of this Lease by Tenant
to Landlord, or a mutual termination thereof, shall not work a merger, and shall
at the option of Landlord, operate as an assignment to it of any or all
subleases or subtenancies affecting the Premises.
(b) Upon the expiration of the term of this Lease, or upon any
earlier termination of this Lease, Tenant shall quit and surrender possession of
the Premises to Landlord in as good order and condition as the same are now or
hereafter may be improved by Landlord or Tenant, reasonable wear and tear and
repairs which are Landlord's obligation excepted, and shall, without expense to
Landlord, remove or cause to be removed from the Premises all debris and
rubbish, all furniture, equipment, business and trade fixtures, free-standing
cabinet work, moveable partitioning and other articles of personal property
owned by Tenant or installed or placed by Tenant at its expense in the Premises,
and all similar articles of any other persons claiming under Tenant unless
Landlord exercises its option to have any subleases or subtenancies assigned to
it, and Tenant shall repair all damage to the Premises resulting from such
removal.
(c) Any property of Tenant not removed by Tenant upon the
expiration of the term of this Lease (within forty-eight (48) hours after a
termination or re-entry by Landlord pursuant to Article 21 hereof) shall be
considered abandoned. Landlord shall give Tenant notice of its right to reclaim
abandoned property pursuant to California Civil Code Section 1980 et. seq., and
may, thereafter, remove any or all of such items and dispose of the same in any
manner or store the same in a public warehouse or elsewhere for the account and
at the expense and risk of Tenant. Tenant hereby grants to Landlord a security
interest in said abandoned property, in the event it is not reclaimed within the
statutory period. It Tenant shall fail to pay the cost of storing any such
property after it has been stored for a period of thirty (30) days or more,
Landlord may sell any or all of such property at public or private sale, in such
manner and at such time and places as Landlord, in its sole discretion, may deem
proper without notice to or demand upon Tenant, and shall apply the proceeds of
such sale: first, to the costs and expenses of such sale, including reasonable
attorneys' fees actually incurred; second, to the payment of the costs for the
removal and storing of any such property; third, to the payment of any other
sums of money which may then or thereafter be due to Landlord from Tenant under
any of the terms hereof; and fourth, the balance, if any, to Tenant.
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(d) All fixtures, equipment, alterations, additions, fixed
partitions and/or appurtenances attached to or built into the Premises prior to
or during the term hereof, whether by Landlord at its expense or at the expense
of Tenant or both, shall be and remain part of the Premises and shall not be
removed by Tenant at the end of the term hereof unless such removal is required
by Landlord pursuant to written notice to Tenant given at least thirty (30) days
prior to the expiration or sooner termination of the term of this Lease. Such
fixtures, equipment, alterations, additions, improvements and/or appurtenances
shall include but not be limited to: All floor coverings, drapes, paneling,
molding, doors, vaults (exclusive of vault doors), plumbing systems, electrical
systems, lighting systems, silencing equipment, communication systems, all
fixtures and outlets for the systems mentioned above and for all telephone,
radio, telegraph and television purposes, and any special flooring or ceiling
installations.
(e) Tenant shall, at least three-hundred sixty (360) days
before the last day of the term hereof, give to Landlord a written notice of
intention to surrender the Premises on or before that date, but nothing
contained herein shall be construed as an extension of the term hereof or as
consent of Landlord to any holding over by Tenant.
33. MISCELLANEOUS.
(a) Any provision of this Lease which shall prove to be
invalid, void, or illegal shall in no way affect, impair, or invalidate any
other provision hereof and such other provisions shall remain in full force and
effect.
(b) In the event of any litigation between Tenant and
Landlord, to enforce any provision of this Lease or any right of either party
hereto, or to secure a judicial determination of any right or obligation of
either party hereto, the unsuccessful party in such litigation shall pay to the
successful party all costs and expenses, including reasonable attorneys' fees,
incurred therein. Moreover, if either party hereto without fault is made a party
to any litigation instituted by or against any other party to this Lease, such
other party shall indemnify Landlord or Tenant, as the case may be, against and
save it harmless from all costs and expense, including reasonable attorneys'
fees, incurred by it in connection therewith.
(c) Each of Tenant's covenants herein is a condition and time
is of the essence with respect to the performance of every provision of this
Lease, and the strict performance of each shall be a condition precedent to
Tenant's right to remain in possession of the Premises or to have this Lease
continue in effect.
(d) The article captions contained in this Lease are for
convenience and do not in any way limit or amplify any term or provision of this
Lease and shall have no effect on its interpretation.
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(e) The terms "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular, and the neuter shall include the
masculine and feminine genders. The obligations herein imposed upon Tenant shall
be joint and several as to each of the persons, firms, or corporations of which
Tenant may be composed.
(f) This Lease and the exhibits and any rider or addendum
attached hereto constitute the entire agreement between the parties hereto with
respect to the subject matter hereof; and no prior agreement or understanding
pertaining to any such matter shall be effective for any purpose. No provisions
of this Lease may be amended or supplemented except by an agreement in writing
signed by the parties hereto or their successors in interest.
(g) The submission of this Lease by Landlord, its agents, or
representative for examination or execution by Tenant does not constitute an
option or offer to lease the Premises upon the terms and conditions contained
herein or a reservation of the Premise in favor of Tenant, it being intended
hereby that this Lease shall only become effective upon the execution hereof by
Landlord and delivery of a fully executed counterpart hereto to Tenant.
(h) Tenant shall observe faithfully and comply strictly with
the Rules and Regulations set forth in Exhibit "B", attached hereto and
incorporated by reference herein, and such other Rules and Regulations,
modifications or amendments thereto, as Landlord may from time to time
reasonably adopt for the safety, care, and cleanliness of the building,
including the parking facilities and both interior and adjacent landscaped
areas, for the preservation of good order therein. Failure by Tenant to comply,
strictly, with the Rules and Regulations, at the option of Landlord, shall
constitute a material default by Tenant under this Lease. Landlord shall not be
liable to Tenant for violation or non-performance of any such Rules and
Regulations or, for that matter, for the breach of any covenant or condition in
any lease, by any other tenant or occupant of the Building. Notwithstanding,
Landlord agrees to enforce the Rules and Regulations without discrimination
among all, Tenants similarly affected. If there is a conflict between the Rules
and Regulations and any of the provisions of this Lease, the provisions of this
Lease shall prevail.
(i) This Lease shall be interpreted and enforced in accordance
with the laws of the State of California, which shall apply in all respect,
including statutes of limitation, to any disputes or controversies arising out
of or pertaining to this Lease.
(j) Upon Tenant's paying the Base Rent, Additional Rent and
other sums provided hereunder, and observing
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and performing all of the covenants, conditions, and provisions on Tenant's part
to be observed and performed hereunder, Tenant shall have quit possession of the
Premises for the entire term hereof, subject to all of the provisions of this
Lease.
(k) Except as otherwise provided in this Lease, all of the
covenants, conditions, and provisions of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors, and assigns.
(l) Any notice required or permitted to be given hereunder
shall be in writing and may be given by personal delivery or by certified mail,
return receipt requested, addressed to tenant or to Landlord oat the address
provided in Paragraph (g) of Article 1 hereof. Either party may by notice to the
other specify a different address for notice purposes. A copy of all notices to
be given to Landlord hereunder shall be concurrently transmitted by Tenant to
any other party hereafter designated by notice from Landlord to Tenant.
(m) In connection with the Lease, Tenant warrants and
represents that it has had dealings only with Landlord's leasing agents, and
that there are no other real estate agents and/or brokers involved in this
transaction. Tenant represents that there are no other fees or commissions
involved in this transaction other than those which may be owing to Landlord's
leasing agents, and Tenant does hereby agree to indemnify and hold Landlord
harmless from any claims, of any nature whatsoever, for any real estate
commissions in connection herewith, or any other claims of any nature whatsoever
that may be raised by any real estate agents or brokers who may be claiming a
commission as a result of services rendered to Tenant in connection with this
Lease.
LANDLORD TENANT
SIERRA PACIFIC PROPERTIES, INC. Bay Area Seating Service, Inc.
A California Corporation
By By /s/ Douglas Levinson
----------------------------- -----------------------------------
Thomas A. Seeno Douglas Levinson VP/GM 12/18/89
By /s/ Albert D. Seeno, Jr. By
----------------------------- -----------------------------------
Albert D. Seeno, Jr.
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<PAGE> 35
LEASE ADDENDUM
This Lease Addendum refers to that Office Building Leased dated November 29,
1989, by and between Sierra Pacific Properties, Inc., a California Corporation
("Landlord") and Bay Area Seating Service, Inc., Tenant, of said premises at
Concord Gateway, 1855 Gateway Blvd., Suite 600, Concord, California, 94520.
1. BASE MONTHLY RENT
$1.05 per rentable square foot per month, fully serviced ($17,358.00
per month, $208,303.20 per year). Beginning the first day of the 61st
month of the lease term, Base Monthly Rent shall increase to $1.50 per
rentable square foot per month, fully serviced ($24,798.00 per month,
$297,576.00 per year). The 61st month of the lease term shall be rent
free, less any buildout overage amount deducted including 12% per annum
interest for 60 months.
2. OPERATING EXPENSES
Tenant's proportionate share is hereby mutually agreed to be 0.05492.
Tenant shall pay to Landlord, as additional rent, the amount by which
Tenant's share of Operating Expenses exceeds the Base Year Operating
Expenses per rentable square foot as defined and further described in
Article 5, "Additional Rent," and the attached Addendum to Lease.
Tenant shall not be responsible for any operating expense pass-through
increase for real property tax increases due to sale of subject
property during the initial lease term.
3. TENANT IMPROVEMENTS
Premises shall be improved as per final mutually approved space plan,
dated December 12, 1989, with building standard materials used except
where noted on plan. Landlord's maximum contribution toward plan shall
not exceed $27.00 per rentable square foot ($446,364.00). Any overages
above this amount will be amortized by Landlord over Lease Term at 12%
per annum, and payable in addition to base monthly rent upon
commencement of lease. If Tenant improvements are less than $446,364,
tenant shall be credited with difference.
4. OPTION TO EXTEND TERM
Tenant shall be given one (1) five (5) year option to extend lease term
at 95% of then current market rent by giving Landlord written notice no
later than 180 days prior to Lease expiration. The option base rental
rate to be determined for option period shall equal 95% of the then
prevailing market rental rate (new minimum monthly rent) which is to be
mutually agreed upon by Landlord and Tenant.
PAGE 1 OF 3 PAGES
<PAGE> 36
"Fair Market Value" is defined as comparable space in a comparable
building of similar age and class in the Concord area.
If the parties cannot agree on the minimum monthly rent for the period
beyond Tenant's initial lease term (hereafter referred to as period),
then within Thirty (30) days after Lessee has exercised its option to
extend, each party, at its cost and by giving notice to the other
party, shall appoint a real estate appraiser with at least three (3)
years full-time commercial appraisal experience in the area in which
the premises are located to appraise and set the minimum monthly rent
and any future rental escalation during the option period thereof.
If the party does not appoint an appraiser within ten (10) days after
the other party has given notice of the same, its appraiser shall set
the minimum monthly rent for the period. The two appraisers appointed
by the parties as stated in this paragraph shall meet promptly and
attempt to set the minimum monthly rent for the period. If they are
unable to agree within thirty (30) days after the second appraiser has
been appointed, then the two appraisers will elect a third appraiser
meeting the qualifications stated in this paragraph within ten (100
days after the last day the two appraisers are given to set the minimum
rent. The third appraiser will then choose one of the minimum monthly
rent figures proposed by the two former appraisers which, in the third
appraiser's opinion, most closely approximates fair market value in
respect to new minimum monthly rent and any future rental escalations
during the option period.
If the new rent has not been determined by the time the lease expires,
the holdover rate recited in Paragraph 8 of the lease will apply until
the new rate is established pursuant to the above. In all other
respects, the balance of the lease terminology will remain the same as
the initial lease.
5. FIRST RIGHT OF REFUSAL TO EXPAND PREMISES:
Landlord hereby grants to Tenant an ongoing Right of First Refusal on
contiguous space up to 3,000 rentable square feet as delineated in
"Exhibit A" for the purpose of expanding Tenant's Premises with Tenant
improvements consistent with those prevailing at the time of expansion.
Tenant will have ten (10) calendar days response time in order to
notify Landlord in writing of Tenant's intent to lease additional area
affective from date Landlord notifies Tenant by telephone to be later
confirmed in writing of another Tenant's interest in leasing Tenant's
expansion area.
PAGE 2 OF 3 PAGES
<PAGE> 37
6. AFTER HOURS UTILITY USE:
The tenant has designated approximately 1,200 square feet of the
premises to a 24-hour operation for computer facility. Landlord agrees
to provide this area of the Premises with after-hours electrical power,
lighting and HVAC which shall be recovered and build at a rate of $2.50
per hour. This rate is based on Tenant's consumption estimated at four
(4) watts per square foot. This rate is subject to adjustment from time
to time based on inflationary factors including, but not limited to,
utility rates, union labor rates for building engineers, usage above
four (4) watts per square foot, and other maintenance costs directly
associated with these services. For purposes of adjustment, the utility
portion of the $2.50 per hour is agreed to be 58% and the maintenance
10%. Tenant will be provided with a breakdown or explanation of any
adjustments.
7. PARKING:
Tenant shall be allowed to park in project garage at a rate of 3.0
unreserved parking stalls per 1,000 square feet rented (50 stalls
total) at no cost during initial lease term. Landlord reserves the
right to convert the parking garage to valet if usage deems necessary
at no direct cost to Tenant. Two (2) of the stalls shall be reserved
with location to be approved by both Landlord and Tenant.
8. MOVING ALLOWANCE:
Landlord agrees to provide Tenant with a relocation allowance of $4.50
per rentable square foot, payable upon occupancy of premises.
9. FITNESS CENTER:
Tenant shall be allowed to use Concord Gateway Two fitness center at no
direct charge to Tenant or its employees.
10. CONFLICT:
This Addendum is an integral part of the Lease attached, and should
there by any conflict between either languages, this Addendum will
prevail.
LANDLORD TENANT
- -------- ------
Sierra Pacific Properties, Bay Area Seating Service, Inc.
A California Corporation dba BASS Ticketmaster
/s/ Albert D. Seeno 12/29/89 /s/ Thomas A. Seeno 12/18/89
- ------------------------------------ ------------------------------------
Albert D. Seeno Date Thomas A. Seeno Date
PAGE 3 OF 3 PAGES
<PAGE> 38
ADDENDUM A
Suite 600
16,532 Rentable sq. ft.
1855 Gateway Blvd.
Concord, CA 904520
<PAGE> 39
EXHIBIT B
WORK LETTER
Initial Improvement of the Premises
1. Installation of Improvements. Landlord shall furnish and install
within the Premises, substantially in accordance with the Approved Space Plan,
improvements ("Improvements") required by Tenant which are normally performed by
the construction trades. The quantities, character and manner of installation of
the Improvements shall be subject to the limitations imposed by any applicable
regulations, including those relating to the conservation of energy adopted by
any governmental agency. Landlord shall provide architectural, mechanical and
electrical engineering services required in connection with the Improvements.
2. Changes to Approved Improvements.
(a) Tenant shall bear the cost of any improvements and related
architectural and/or engineering costs called for as result of changes to the
Approved Space Plan by Tenant ("Tenant Extra Improvements"). Any modifications
requested by Tenant to any part of the Improvements which have already been
completed shall constitute part of the Tenant Extra Improvements. All
Improvements, tenant additions and substitutions shall become a part of the
Building upon installation hereof.
(b) Any substitutions for the Improvements desired by tenant
shall first be approved by Landlord. Landlord shall have the right to disapprove
any substitution or additions that (1) does not conform to all applicable codes;
(2) is not consistent with the general standard of the Building as a first-class
office building; (3) is not durable or does not have an acceptable useful life;
(4) does not have an acceptable availability; (5) does not have an acceptable
serviceability; (6) increases any item of Operating Expenses of the Building, or
(7) in Landlord's sole judgment, is of a quality inferior to the Typical
Improvements in the building.
3. Approval of Plans
(a) Landlord and Tenant shall diligently pursue the
preparation of the Preliminary Space Plan. The Final Space Plan shall have the
approval of both Landlord and Tenant. In the event Landlord and Tenant cannot
agree upon the Final Space Plan within a reasonable time, Landlord shall have
the right to terminate this Lease.
(b) Tenant shall bear the cost of any changes in the work
requested by Tenant after approval of the Final Space Plan.
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<PAGE> 40
4. Preparation of Construction Documents. Construction Documents shall
be prepared by the Landlord's Architect and approved by Tenant based on the
Tenant's Signed and Approved Final Space Plan. Preparation of Construction
Documents for Final Pricing shall commence upon Architect's Receipt of
aforementioned Signed and Approved Final Space Plan.
Construction Documents shall be issued for Final Pricing and for
Tenant's signed Approval within (10) working days of Receipt of Tenant's Signed
Approved Final Space Plan.
5. Completion of Improvements and Rental Commencement Date. Landlord
shall work diligently to make the Premises Ready for Occupancy by the Scheduled
Term Commencement Date. The quantities, character and manner of the Improvements
Installation shall be subject to the Limitations imposed by any applicable
regulations, laws, ordinances, codes and rules. The Premises shall be deemed
ready for occupancy ("Ready for Occupancy") when the Improvements have been
substantially completed in accordance with the Construction Documents as
evidenced by the issue of a Notice of Substantial Completion prepared by the
Landlord's Architect. Landlord shall prepare and deliver to Tenant a written
statement certifying (a) that the Improvements have been substantially completed
in accordance with the Construction Documents and any properly authorized
changes or amendments thereof, and (b) the date of such completion. Landlord
shall diligently complete, as soon as reasonably possible, any items of work and
adjustment not completed when the Improvements are Ready for Occupancy. If
Landlord shall be delayed, however, in making the Premises Ready for Occupancy
as a result of:
(a) Tenant's failure to approve the Construction Documents and Cost
Estimate, or;
(b) Tenant's changes to the Construction Documents after approval,
or;
(c) Tenant's request for materials, finishes or installations other
than the Improvements as set forth in Section 2;
then the commencement of the Term shall be accelerated by the number of days of
such delay. If any portion of the Premises has been sublet by Tenant for initial
occupancy by a subtenant, subject to the provisions of the foregoing sentence,
Tenant's obligation to pay rental shall commence with respect to the entire
Premises upon Landlord's making the portion of the Premises to be occupied by
Tenant or the portion of the Premises to be occupied by the subtenant Ready for
Occupancy, whichever shall first occur.
-2-
<PAGE> 41
6. Payment of Tenant's Costs. Tenant shall pay to Landlord all amounts
payable by Tenant pursuant to the Exhibit B within ten days (10) thirty (30 days
after billing thereof by Landlord. Bills may be rendered during the progress of
the work so as to enable Landlord to pay its general contractor, architect
and/or engineer without advancing Landlord funds for the Tenant Extra
Improvements.
7. Other Work By Tenant. All work outside the scope of work normally
constructed by the construction trades employed on the project, such as
furniture, telephone equipment, wiring and office equipment work shall be
furnished and installed by Tenant at Tenant's expense. Tenant shall adopt a
schedule in conformance with the schedule of Landlord's contractors and conduct
its work in such a manner so as to maintain harmonious labor relations and so as
not to unreasonably interfere with or delay the work of Landlord's contractors.
Tenant's contractors, subcontractors and labor, if other than Landlord's
contractor, shall be acceptable to and approved by ;l and shall be subject to
the administrative supervision of Landlord's contractor and shall be subject to
the rules of the site. All contractors and subcontractors engaged by Tenant
shall employ workers and means to ensure, to the fullest extent possible, the
progress of the work without interruption on account of strikes, work stoppage
or similar causes for delay. Landlord shall give access and entry to the
Premises to Tenant and its contractors and subcontractors and reasonable
opportunity and time and reasonable use of facilities to enable Tenant to adapt
the Premises for Tenant's use; provided, however, that if such entry is prior to
the commencement of the Term, such entry shall be subject to all of the terms
and conditions of the Lease except the payment of Base Rent and, provided
further, that Tenant shall not interfere with the work of Landlord or Landlord's
contractor in any way which delays Landlord's making the Premises Ready for
Occupancy.
-3-
<PAGE> 42
EXHIBIT C
CONCORD GATEWAY
RULES AND REGULATIONS OF THE PREMISES
1. Landlord shall have the right to control and operate the public
portions of the Building and the public facilities, as well as
facilities furnished for the common use of the tenants, in such manner
as it deems best for the benefit of the tenants generally. No tenant
shall invite to the Premises or permit the visit of persons in such
numbers or under such conditions as to interfere with the use and
enjoyment of the Building, its entrances, corridors, elevators, parking
facilities, and grounds referred herein as the Premises.
2. Landlord reserves the right to close and keep locked all entrance and
exit doors of the Building outside of normal business hours as Landlord
may deem to be advisable for the protection of the property. All
tenants, their employees, or other persons entering or leaving the
Building at any time when it is so locked may be required to sign the
Building register when so doing, and the watchman in charge may refuse
to admit to the Building while it is so locked Tenant or any of
Tenant's employees, or any other person, without a pass previously
arranged, or other satisfactory identification showing his right of
access to the Building at such time.
3. Landlord reserves the right to exclude or expel from the Premises any
person who, in the judgment or Landlord, is intoxicated or under the
influence of liquor or drugs, or who shall, in any manner, do any act
in violation of any of the Rules and Regulations of the Premises or in
violation of any law, order, ordinance, or governmental regulation.
4. Canvassing, soliciting, or peddling in the Premises is prohibited and
each tenant shall cooperate to prevent the same.
5. Sidewalks, doorways, vestibules, halls, stairways, and similar areas
shall not be obstructed by tenants or their officers, agents, servants,
and employees, or used for any purpose other than ingress and egress to
and from the Premises and for going from one part of the Building to
another part of the Building.
-1-
<PAGE> 43
CONCORD GATEWAY
RULES AND REGULATIONS OF THE PREMISES
23. Landlord is not responsible to any tenant for the non-observance or
violation of the Rules and Regulations by any other tenant.
24. No tenant shall, at any time, occupy any part of the Premises as
sleeping or lodging quarters.
25. No tenant shall obtain or accept for use in the Demised Premises,
janitorial services, ice, coffee service, catering, drinking water,
barbering, or bootblacking from any person not authorized by Landlord
in writing to furnish such services.
26. Tenant shall not advertise the business, profession, or activities of
Tenant in any manner, which violates the letter of spirit of any code
of ethics adopted by any recognized association or organization
pertaining thereto or use the name of the Premises for any purpose
other than that of the business address of Tenant.
27. Landlord reserves the right to rescind any of these rules and make such
other and further reasonable, non-discriminatory rules and regulations
as in the judgment of Landlord shall from time to time be needed for
the safety, protection, care, and cleanliness of the Premises, the
operation thereof, the preservation of good order therein, and the
protection and comfort of its tenants, their agents, employees and
invitees, which rules when made and notice thereof given to a tenant
shall be binding upon him in like manner as if originally herein
prescribed.
28. Tenant shall exercise control over its employees, agents, and invitees
to that they do not litter the Premises and shall be responsible for
any additional expense, which Landlord incurs to remedy any littering
by such persons.
-4-
<PAGE> 44
EXHIBIT D
MEMORANDUM CONFIRMING TERM
This Memorandum is made on March 17, 1992 between Sierra Pacific Properties,
Inc. ("Landlord"), whose address is 4300 Railroad Avenue, Pittsburg, CA 94565,
and BASS TICKETMASTER, A CALIFORNIA CORPORATION, ("TENANT"), whose address is
1855 Gateway Boulevard, Suite #630, Concord, California 94520, who entered into
a lease dated December 29, 1989, (the "Lease"), and Addendum #3 dated December
18, 1991, covering certain premises located at 1855 Gateway Boulevard, Suite
#600, Concord, California 94520 (the "Premises"), as more particularly described
in the Lease.
1. The parties to this memorandum hereby agree to confirm the
establishment of the Commencement and Expiration Dates of the Term, and
the Rental Commencement Date as follows:
a) The date of March 13, 1992, is the "Commencement Date" of the
Term referred to in the Lease;
b) the date of March 2, 2000, is the "Expiration Date" of the
Term referred to in the Lease; and
c) the date of March 13, 1992, is the "Rental Commencement Date"
referred to in the Lease.
2. Tenant hereby confirms the following:
a) That it has accepted possession of the Premises pursuant to
the terms of the Lease;
b) that the Landlord's work (as defined in Exhibit B) has been
substantially completed;
c) that Landlord has fulfilled all of its duties of an inducement
nature;
d) that the Lease has not been modified, altered or amended,
except for the dates stated in 1. a, b, & c above.
e) that there are no offsets or credits against rentals, nor has
any security deposit been paid except as provided by the
Lease;
f) that Tenant has no notice of a prior assignment, hypothecation
or pledge of rents or of the Lease; and
g) that the Lease is in full force and effect.
3. This Memorandum and each and all of the provisions hereof shall inure
to the benefit of, or bind, as the case may require the parties hereto,
and their respective heirs, successors, and assigns subject to the
restrictions upon assignment and subletting contained in the Lease.
LANDLORD TENANT
SIERRA PACIFIC PROPERTIES, INC. BASS TicketMaster
A California Corporation a California Corporation
By /s/ Thomas A. Seeno 3-27-92 By /s/ 3/17/92
--------------------------------------- ------------------------------
Michael J. Welton, President Date Date
By By
--------------------------------------- ------------------------------
Albert D. Seeno, Jr. Date Date
<PAGE> 45
SECOND ADDENDUM TO LEASE
A-1
THIS SECOND ADDENDUM TO OFFICE BUILDING LEASE dated October 25, 1990, is hereby
made a part of that certain leased dated December 29, 1989 herewith between
Sierra Pacific Properties, Inc., a California Corporation ("Landlord"), and Bay
Area Seating Service, Inc., ("Tenant). This document is hereinafter referred to
as the "Addendum A-1" and the Office Building Lease of which it forms a part is
hereinafter referred to as the "Lease". Landlord and Tenant agrees as follows:
STANDBY GENERATOR
-----------------
At Tenant's request, Landlord shall cause to be installed, with
Tenant's approval of plans and specifications, a standby electrical
generator ("Bass generator") for exclusive use by Tenant during power
outages. Tenant and Landlord shall review and approve in writing in
advance the plans, specifications, costs and expenses for the Bass
generator prior to installation. Upon request, Tenant shall reimburse
Landlord for all expenditures made by Landlord toward the Bass
generator installation. At the termination of the lease the Bass
generator and all associated equipment shall remain the property of the
Landlord. When the Bass generator becomes operational, Tenant shall
contract directly for the testing and maintenance of the generator,
using contractors approved by Landlord. It is agreed that Landlord will
provide fuel to the Bass generator's day tank on the roof from the
buildings main fuel tank as required except when Landlord, in his sole
judgment, deems it necessary to restrict such fuel due to the
requirements of the building's emergency generator, which shall have
priority at all times. Landlord agrees, however, to use its best
efforts and to act in a diligent manner to provide fuel to the Bass
generator as required. Tenant shall reimburse Landlord for the cost of
providing fuel for the Bass generator monthly upon receipt of
Landlord's statement. Tenant further agrees that Landlord shall not be
held liable for the design, installation, operation of nor any
maintenance to the Bass generator, nor for any consequential damages
including, but not limited to, property damage, personal liability,
loss of life, business or income loss in the event that the generator
fails to perform its intended function for any cause whatsoever.
INDEMNIFICATION
---------------
Landlord has also agreed to serve a part of Tenant's emergency lighting
HVAC, and power needs from the Building's existing emergency standby
generator. In consideration for Landlord's accommodation to the Tenant
as above set forth, Tenant hereby agrees that Landlord shall not be
liable to Tenant its subtenants, assignees, agents, invites, employees
and/or contractors for any damage or injury or loss of any kind or
nature that may be sustained by Tenant, its subtenants, assignees,
agents, invites, employees and/or contractors, direct or consequential,
in the event said generator fails from any cause whatsoever. Tenant
hereby waives any claims for losses or damages from the generator
failure.
RENT FOR ROOF SPACE
-------------------
Beginning the first day of the 61st month of the lease term, Tenant
shall begin paying rent for the roof space in the amount of $525.00 per
month ($6,300.00 per year) for the remainder of the lease term. This
additional roof space herein added to this lease shall be subject to
all terms and conditions of the Lease.
<PAGE> 46
PREMISES
--------
Tenant leases from Landlord and Landlord leases to Tenant an additional
seventy five (75) rentable square feet on the 6th floor adjacent to
Tenant's existing premises as a generator transformer room and as shown
on the attached Exhibit "A-1".
Effective upon the substantial completion of the generator
installation, but in no event later than January 1, 1991, PARAGRAPH 1
(A) OF THE FUNDAMENTAL LEASE PROVISIONS IS hereby changed to read:
(a) Premises: Suite NO. 600 on the 6th floor constituting a Rental
Area consisting of 16, 607 square feet.
(c)* Base Rent: $17,437.00 per month. *(See Addendum)
(d) Tenant's Proportionate Share of total Rentable Area in
Building .05517.
Except as amended above, the Lease dated December 29, 1989 shall remain in full
force and effect during its term.
LANDLORD TENANT
SIERRA PACIFIC PROPERTIES, INC. Bay Area Seating Service, Inc.
A California Corporation dba BASS Ticketmaster
By By /s/
--------------------------------- ------------------------------------
Thomas A. Seeno
or
By /s/
---------------------------------
Albert D. Seeno, Jr.
<PAGE> 47
LEASE ADDENDUM #2
THIS SECOND ADDENDUM TO LEASE is entered into on June 4, 1991, between SIERRA
PACIFIC PROPERTIES, INC., A CALIFORNIA CORPORATION (hereinafter referred to as
"Landlord") and BAY AREA SEATING SERVICE, INC., A CALIFORNIA CORPORATION, DOING
BUSINESS AS BASS TICKETS FOUNDATION, A PRIVATE, NON-PROFIT ORGANIZATION
(hereinafter referred to as "Tenant"). The parties have heretofore entered into
an office building lease dated December 29, 1989, covering premises known as
Suite 600 in that certain office building known as Concord Gateway, in the City
of Concord, County of Contra Costa, State of California, owned by Landlord and
which has a street address of 1855 Gateway Boulevard, Concord, California.
1. PREMISES:
Landlord leases to Tenant and Tenant leases from Landlord an additional
339 rentable square feet (herein "Expansion Space") located on the
third (3rd) floor in Suite 342 as shown on the floor plan attached
hereto as Exhibit "A1".
2. TERM AND OCCUPANCY:
This additional term shall commence upon occupancy by Tenant and shall
expire on March 2, 2000. Tenant shall occupy the Expansion Space when
(a) an appropriate certificate of occupancy is issued which permits
lawful occupancy; and (b) construction and installation of Tenant's
improvements is sufficiently complete so that Tenant may occupy the
Expansion Space for the conduct of its business. Tenant shall provide
necessary space planning information to Landlord in a timely manner and
approve completed working drawings requested by the Landlord's
architect within five (5) business days of receipt of said working
drawings.
3. RENT:
The rent for the Expansion space shall be One Dollar and Thirty Five
Cents ($1.35) per rentable square foot per month, or Four Hundred
Fifty-Seven and Sixty-Five Cents ($457.65) per month commencing on
occupancy of the Expansion Space as described in paragraph 2.
4. TENANT IMPROVEMENTS:
Landlord agrees to provide Tenant Improvements in the Expansion Space
according to a mutually approved space plan 291333.10, dated June 3,
1991, attached hereto as Exhibit "A1" with building standard materials
used.
Following approval by Landlord, Tenant and the City of Concord of the
above mentioned space plan, any subsequent changes made by Tenant shall
be at Tenant's cost. If these changes cause additional changes mandated
by the City of Concord or other governmental agencies, these costs
shall also be at Tenant's cost.
5. PARKING:
Tenant shall be given the use, at no cost to Tenant, on a nonexclusive
basis, one (1) additional unreserved parking stall in Concord Gateway
Two parking garage, subject to the same restrictions and regulations as
specified in the master lease.
6. CONFLICT:
This amendment is an integral part of the master lease. Should there by
any conflict in the language between the mater lease or this Addendum
the latter will prevail.
7. MASTER LEASE:
Other than as amended herein, the office building lease dated December
29, 1989, shall remain in full force and effect.
SIERRA PACIFIC PROPERTIES, INC. BAY AREA SEATING SERVICE, INC.
A CALIFORNIA CORPORATION A CALIFORNIA CORPORATION
LANDLORD DBA BASS TICKETS FOUNDATION,
A PRIVATE, NON-PROFIT ORGANIZATION
TENANT
BY: /s/ BY: /s/
------------------------------ -----------------------------------
OR DATED: 6/18/91
--------------------------------
BY:
------------------------------
DATED: 7/17/91
---------------------------
<PAGE> 48
Exhibit A1
Suite 342
1855 Gateway Blvd.
Concord, CA 94520
339 Rentable sq. ft.
<PAGE> 49
LEASE ADDENDUM #3
THIS ADDENDUM TO LEASE is entered into on December 18, 1991, between SIERRA
PACIFIC PROPERTIES, INC., A CALIFORNIA CORPORATION (hereinafter referred to as
"Landlord") and BASS TICKETMASTER, A CALIFORNIA CORPORATION, (hereinafter
referred to as "Tenant"). The parties have heretofore entered into an office
building lease dated December 29, 1989, covering premises known as Suite 600 in
that certain office building known as Concord Gateway, in the City of Concord,
County of Contra Costa, State of California, owned by Landlord and which has a
street address of 1855 Gateway Boulevard, Concord, California.
1. PREMISES:
Landlord leases to Tenant and Tenant leases from Landlord an additional
2,660 rentable square feet (herein "Expansion Space") located adjacent
on the sixth (6th) floor as shown on the floor plan attached hereto as
Exhibit "A1", beginning Tenant's total square footage to 19,267 square
feet.
2. TERM AND OCCUPANCY:
The term for this expansion space shall commence upon occupancy by
Tenant and shall expire on March 2, 2000. Tenant shall occupy the
Expansion Space when (a) an appropriate certificate of occupancy is
issued which permits lawful occupancy; and (b) construction and
installation of Tenant improvements is sufficiently complete so that
Tenant may occupy the Expansion Space for the conduct of its business.
Tenant shall provide necessary space planning information to Landlord
in a timely manner and approve completed working drawings requested by
the Landlord's architect within five (5) business days of receipt of
said working drawings.
3. RENT:
The rent for the Expansion space shall be One Dollar and Thirty Five
Cents ($1.35) per rentable square foot per month, per month commencing
on occupancy of the Expansion Space as described in paragraph 2, and
shall increase to $1.85 per rentable SF beginning March 1, 1995, with
months March and April of 1995 to be rent free.
4. TENANT IMPROVEMENTS:
Landlord agrees to provide Tenant Improvements in the Expansion Space
according mutually approved space plan 291408.10, dated October 14,
1991, and revised October 24, 1991, attached hereto as Exhibit "A1"
with building standard materials used except where noted on plan.
Any subsequent changes made by Tenant shall be at Tenant's cost. If
these changes cause additional changes mandated by the City of Concord
or other governmental agencies, these costs shall also be at Tenant's
cost.
5. PARKING:
Tenant shall be given the use, at no cost to Tenant on a nonexclusive
basis, eight (8) additional unreserved parking stall in Concord Gateway
Two parking garage, subject to the same restrictions and regulations as
specified in the master lease.
6. CONFLICT:
This amendment is an integral part of the master lease. Should there by
any conflict in the language between the master lease or this Addendum
the latter will prevail.
7. MASTER LEASE:
Other than as amended herein, the office building lease dated December
29, 1989, shall remain in full force and effect.
8. CANCELLATION:
Upon mutual execution of this addendum, Landlord and Tenant agree to
void Lease Addendum #2 dated June 4, 1991, for 339 SF on the 3rd floor
of Gateway Two.
SIERRA PACIFIC PROPERTIES, INC. BASS TICKETMASTER
A CALIFORNIA CORPORATION A CALIFORNIA CORPORATION
LANDLORD TENANT
BY: /s/ BY: /s/
----------------------------- --------------------------------------
OR DATED: 1/20/92
-----------------------------------
BY:
-----------------------------
DATED: 1/23/92
--------------------------
<PAGE> 50
Exhibit A1
Suite 600
Concord Gateway Two
<PAGE> 51
LEASE ADDENDUM #4
THIS ADDENDUM TO LEASE is entered into on May 17, 1994, between SIERRA PACIFIC
PROPERTIES, INC., A CALIFORNIA CORPORATION (hereinafter referred to as
"Landlord") and BAY AREA SEATING SERVICE, INC., DBA BASS TICKETS, A CALIFORNIA
CORPORATION, (hereinafter referred to as "Tenant"). The parties have heretofore
entered into an office building lease dated December 29, 1989, covering premises
known as Suite 600 in that certain office building known as Concord Gateway, in
the City of Concord, County of Contra Costa, State of California, owned by
Landlord and which has a street address of 1855 Gateway Boulevard, Concord,
California and Lease Addendum #3 dated 12/18/91, covering the premises known as
Suite 680, for the purposes of expanding adjacent Suite 630.
1. PREMISES:
Landlord leases to Tenant and Tenant leases from Landlord the premises
currently known as Suite 670, containing 2,944 rentable square feet
(herein "Expansion Space"), located adjacent on the sixth (6th) floor
as shown on the floor plan attached hereto as Exhibit "A2", brining
Tenant's total square footage to 22,211 square feet.
2. TERM AND OCCUPANCY:
The term for this expansion space shall commence upon occupancy by
Tenant and shall expire on August 15th, 1994, and shall expire with
Master Lease on March 2, 2000. Tenant shall occupy the Expansion Space
when (a) an appropriate certificate of occupancy is issued which
permits lawful occupancy; and (b) construction and installation of
Tenant improvements is sufficiently complete so that Tenant may occupy
the Expansion Space for the conduct of its business. Tenant shall
provide necessary space planning information to Landlord in a timely
manner and approve completed working drawings requested by the
Landlord's architect within five (5) business days of receipt of said
working drawings.
3. RENT:
The rent for the Expansion space shall be $3,944.96 per month ($1.34
per rentable square foot per month), commencing upon occupancy of the
Expansion Space as described in paragraph 2.
4. TENANT IMPROVEMENTS:
Landlord agrees to provide Tenant Improvements in the Expansion Space
as per Fitschen & Associates space plan 294865.10, dated April 25,
1994, and revised April 28, 1994, attached hereto as Exhibit "A4" with
building standard materials used except where noted on plan, with
Landlord's maximum contribution toward tenant improvements not to
exceed $30,000.00.
5. PARKING:
Tenant shall be given the use, at no cost to Tenant on a nonexclusive
basis, nine (9) additional unreserved parking stall in Concord Gateway
Two parking garage, subject to the same restrictions and regulations as
specified in the master lease.
6. CONFLICT:
This amendment is an integral part of the master lease. Should there by
any conflict in the language between the master lease or this Addendum
the latter will prevail.
7. MASTER LEASE:
Other than as amended herein, the office building lease dated December
29, 1989, shall remain in full force and effect.
SIERRA PACIFIC PROPERTIES, INC. BAY AREA SEATING SERVICE
A CALIFORNIA CORPORATION DBA BASS TICKETS
LANDLORD A CALIFORNIA CORPORATION
TENANT
BY: /s/ MICHAEL J. WELTON BY: /s/
---------------------------------- -----------------------------------
MICHAEL J. WELTON DATED: 5/27/94
PRESIDENT --------------------------------
DATED:
-------------------------------
<PAGE> 52
EXHIBIT A2
<PAGE> 53
AMENDMENT TO LEASE ADDENDUM #4
THIS AMENDMENT TO LEASE ADDENDUM #4 entered into on June 9, 1994
between SIERRA PACIFIC PROPERTIES, INCORPORATED, a California Corporation
hereinafter referred to as "Landlord", and BAY AREA SEATING SERVICE, INC. DBA
BASS TICKETS, A CALIFORNIA CORPORATION, hereinafter referred to as "Tenant".
The parties have heretofore entered into an Office Building Lease dated
December 29, 1989, covering the premises known as Suite 630 in that certain
office building known as Concord Gateway located at 1855 Gateway Boulevard,
Concord, Contra Costa County, California and Lease Addendum $3 dated May 17,
1994 for the purposes of expanding into adjacent space Suite 670.
The parties are desirous of amending the above referenced Lease
Addendum $3 in advance of its expiration date of March 2, 2000, to add the
following terms and conditions:
1. TENANT IMPROVEMENTS Premises shall be approved as per Fitschen & Associates
space plan #94865.10 dated May 2, 1994 with building standard materials used
except where noted on plan: All tenant improvement costs exceeding Thirty
Thousand Dollars ($30,000.00) including all necessary permits, licenses and
architectural fees shall be paid by tenant. Tenant agrees to construct the
premises in conformance with the American Disabilities Act of 1990 ("ADA") and
with the ADA Accessibility guidelines.
Landlord agrees to allow Tenant's preferred contractor, Burt Construction
Company, to do the construction of tenant improvements so long as Burt
Construction Company's bid from finished working drawings is the lowest, or Burt
Construction Company agrees to match the reasonable lowest bid received by the
Landlord from other bidding contractors. Landlord shall approve in writing the
final construction bid number submitted by Burt Construction Company. Tenant
shall oversee the buildout process and shall require Burt Construction Company
to meet and adhere to all Concord Gateway contractor and vendor regulations.
Landlord shall approve and sign-off on final working drawings to be prepared by
Tenant's architect and shall remit payment to Tenant upon completion and
<PAGE> 54
Landlords' sign-off of all Tenant's work. Landlord shall remit payment to Tenant
within fifteen (15) days after signing-off on completed work, receipt of
Tenant's invoice and receipt of lien releases. All other supervisory
responsibilities pertaining to tenant improvement construction shall be borne by
Tenant. Landlord shall post appropriate notices of non-responsibility and shall
defer all related correspondence to Tenant and Burt Construction Company.
2. CONFLICT This amendment is an integral part of the master lease. Should there
be any conflict in the language between the master lease or this amendment, the
latter will prevail.
3. MASTER LEASE Other than as amended above, the Office Building Lease dated
December 29, 1989, shall remain in full force and effect.
LANDLORD TENANT
SIERRA PACIFIC PROPERTIES, INC. BAY AREA SEATING SERVICE
a California Corporation dba Bass Tickets
a California Corporation
Tenant
By: /s/ Michael J. Welton-President By: /s/
-------------------------------- ---------------------------------
Michael J. Welton-President
Date: 6/15/94 Date: June 14, 1994
------------------------------ -------------------------------
<PAGE> 55
AMENDMENT TO LEASE ADDENDUM #5
July 30, 1997
This Agreement (the "Agreement") is dated for reference purposes only
and is made by and between Sierra Pacific Properties, Inc., (the "Landlord") and
Bay Area Seating Service, Inc., a California Corporation (the "Tenant") d.b.a.
BASS Tickets
RECITALS
This Agreement is made with reference to the following facts and
objectives:
A. Landlord and Tenant entered into a written Office
Building Lease and Lease Addendum dated December 29,
1989, a Lease Addendum #3 dated December 18, 1991,
wherein Lease Addendum #2 dated June 4, 1991 was
cancelled, a Lease Addendum #4 dated May 17, 1994 and
Amendment to Lease Addendum #4 dated June 9, 1994
(collectively referred to as the "Lease"), in which
Landlord leased to Tenant and Tenant leased from
Landlord certain premises located at 1855 Gateway
Blvd., Suites 600, 630 and 670, Concord, California.
(the "Premises").
B. Tenant desires to lease additional space in the
Building known as 1855 Gateway Boulevard, Suite 125
on the terms and conditions agreed to herein.
C. Landlord and Tenant wish to amend the Lease, as
provided in this Agreement.
NOW THEREFORE, in consideration of the mutual provisions
herein contained and the detriment to be suffered by each of the parties,
Landlord and Tenant agree as follows:
1. Definitions. All capitalized terms not defined herein
shall have the meanings defined in the Lease.
The following paragraphs shall be added to the Lease.
2. 34. Additional Premises. Landlord leases to Tenant
and Tenant leases from Landlord the Additional
Premises located at 1855 Gateway Boulevard, Suite 125
Concord, CA and consisting of approximately 660
rentable square feet as referenced on the attached
Exhibit "A" (the "Additional Premises").
3. 35. Additional Minimum Rent. The Minimum Rent for the
Additional Premises ("the Additional Minimum Rent")
shall be $1,122.00 per month beginning August 1,
1997, and each month thereafter during the Additional
Term, as defined herein.
4. 36. Additional Term. The term of the Lease for the
Additional Premises (the "Additional Term") shall be
on a month-to-month basis commencing on August 1,
1997 and cancellable by thirty (30) days advance
written notice by either party hereto.
5. 38. Tenant Improvements. Landlord leases the
Additional Premises and Tenant accepts the Additional
Premises in their "AS IS" CONDITION.
6. Effectiveness of Lease. Except as set forth in this
Amendment, all provisions of the Lease shall remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Lease
Addendum #5 this 6th day of August, 1997.
SIGNATURE PAGE FOLLOWS
<PAGE> 56
LANDLORD:
SIERRA PACIFIC PROPERTIES, INC., A CALIFORNIA
CORPORATION
BY: /s/ DOUGLAS W. MESSNER
----------------------------------------
DOUGLAS W. MESSNER
ITS: VICE PRESIDENT - COO
BY: /s/ MARK D. WICKHAM
----------------------------------------
MARK D. WICKHAM
ITS: VICE PRESIDENT - CFO
TENANT:
BAY AREA SEATING SERVICE, A CALIFORNIA
CORPORATION, D.B.A. BASS TICKETS
BY: /s/
----------------------------------------
ITS: CEO
<PAGE> 57
EXHBIT "A"
<PAGE> 58
AMENDMENT TO LEASE ADDENDUM #6
January 29, 1998
This Agreement (the "Agreement") is dated for reference purposes only
and is made by and between Sierra Pacific Properties, Inc., (the "Landlord") and
Bay Area Seating Service, Inc., a California Corporation (the "Tenant") d.b.a.
BASS Tickets
RECITALS
This Agreement is made with reference to the following facts and
objectives:
A. Landlord and Tenant entered into a written Office Building
Lease and Lease Addendum dated December 29, 1989, a Lease
Addendum #3 dated December 18, 1991, wherein Lease Addendum #2
dated June 4, 1991 was cancelled, a Lease Addendum #4 dated
May 17, 1994 and Amendment to Lease Addendum #4 dated June 9,
1994 and Amendment to Lease Addendum #5 dated July 30, 1997
(collectively referred to as the "Lease"), in which Landlord
leased to Tenant and Tenant leased from Landlord certain
premises located at 1855 Gateway Blvd., Suites 500, 630 and
670 California. (the "Premises").
B. Tenant desires to lease additional space in the Building known
as 1855 Gateway Boulevard, Suite 170 on the terms and
conditions agreed to herein.
C. Landlord and Tenant wish to amend the Lease, as provided in
this Agreement.
NOW THEREFORE, in consideration of the mutual provisions herein
contained and the detriment to be suffered by each of the parties, Landlord and
Tenant agree as follows:
1. Definitions. All capitalized terms not defined herein shall
have the meanings defined in the Lease.
2. The following paragraphs shall be added to the Lease.
34. Additional Premises. Landlord leases to Tenant and
Tenant leases from Landlord the Additional Premises
located at 1855 Gateway Boulevard, Suite 170 Concord,
CA and consisting of approximately 592 rentable
square feet as referenced on the attached Exhibit "A"
(the "Additional Premises").
35. Additional Minimum Rent. The Minimum Rent for the
Additional Premises ("the Additional Minimum Rent")
shall be $1,000.00 per month beginning February 1,
1998, and each month thereafter during the Additional
Term, as defined herein.
36. Additional Term. The term of the Lease for the
Additional Premises (the "Additional Term") shall be
on a month-to-month basis commencing on February 1,
1998 and cancellable by thirty (30) days advance
written notice by either party hereto.
38. Tenant Improvements. Landlord leases the Additional
Premises and Tenant accepts the Additional Premises
in their "AS IS" CONDITION.
6. Effectiveness of Lease. Except as set forth in this Amendment,
all provisions of the Lease shall remain unchanged and in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Lease
this ________ day of __________, 1998.
LANDLORD:
SIERRA PACIFIC PROPERTIES, INC.
BY:
------------------------------------
DOUGLAS W. MESSNER
ITS: VICE PRESIDENT - COO
BY:
------------------------------------
MARK D. WICKHAM
ITS: VICE PRESIDENT - CFO
TENANT:
BAY AREA SEATING SERVICE, A CALIFORNIA
CORPORATION, D.B.A. BASS TICKETS
BY: /s/
------------------------------------
ITS: VP & GM
-----------------------------------
<PAGE> 59
EXHIBIT "A"
<PAGE> 60
AMENDMENT TO LEASE #7
June 25, 1998
This Agreement (the "Agreement") is dated for reference purposes only and is
made by and between Sierra Pacific Properties, Inc., (the "Landlord") and Bay
Area Seating Service, Inc. a California Corporation (the "Tenant") d.b.a.
BASS Tickets.
RECITALS
This Agreement is made with the reference to the following facts and objectives:
A. Landlord and Tenant entered into a written Office Building Lease and Lease
Addendum dated December 29, 1989, a Lease Addendum #3 dated December 18, 1991,
wherein Lease Addendum #2 dated June 4, 1991 was canceled, a Lease Addendum #4
dated May 17, 1994 and Amendment to Lease Addendum #4 dated June 9, 1994, a
Amendment to Lease Addendum #5 dated July 30, 1997 and Amendment to Lease #6
dated January 29, 1998 (collectively referred to as the "Lease") in which
Landlord leased to Tenant and Tenant leased from Landlord certain premises
located at 1855 Gateway Boulevard, Suites 600, 630, 670, 125 and 170 (the
"Premises").
B. Tenant desires to lease additional space in the Building known as 1855
Gateway Boulevard, Suite 240 on the terms and conditions agreed to herein.
C. Landlord and Tenant wish to amend the Lease, as provided in this Agreement.
NOW THEREFORE, in consideration on the mutual provisions herein contained and
the detriment to be suffered by each of the parties, Landlord and Tenant agree
as follows:
1. Definitions. All capitalized terms not defined herein shall have the meanings
defined in the Lease.
2. Additional Premises. Landlord leases to Tenant and Tenant leases from
Landlord additional Premises located at 1855 Gateway Boulevard, Suite 240
Concord, California consisting of approximately 2,965 rentable square feet as
referenced on the attached Exhibit "A" (the "Additional Premises"). 2A. * 3.
Minimum Rent. The Minimum Rent for the Additional Premises shall be $5,040.50
per month beginning August 1 July 16, 1998 and each month thereafter through
July 4, 1999.
4. Tenant Improvements. Landlord leases the Additional Premises and Tenant
accepts the Additional Premises in their "as is" condition. Tenant may take
occupancy of the Additional Premises on August 1, 1998.
5. Parking. Commencing on August 1 July 16, 1998, Tenant shall have the right to
use nine (9) unreserved parking tags in the Concord Gateway II garage, not to
exceed a three (3) per 1,000 over all parking ratio. Landlord reserves the right
to convert all or a portion of the garage and or Tenant's parking to valet if
Landlord deems necessary.
6. Base Year. Tenant's Base Year as defined under Paragraph 5 of the Lease for
the said Additional Premises shall be 1998.
7. Tenant's Proportionate Share. Tenant's Proportionate Share of total rentable
area in the Building for the Additional Premises shall be .985%.
8. Effectiveness of Lease. Except as set forth in this Amendment, all provisions
of the Lease shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to Lease
this 14th day of July, 1998.
LANDLORD: TENANT:
SIERRA PACIFIC PROPERTIES, INC. BAY AREA SEATING
SERVICE, INC., a California
Corporation, d.b.a. BASS Tickets
By: /s/ By: /s/
---------------------------- -------------------------------------
Douglas W. Messner
Its: Vice President - COO Its: VP & GM
---------------------------- -------------------------------------
By: /s/ By:
---------------------------- -------------------------------------
Thomas Seeno
Its: President Its:
---------------------------- -------------------------------------
*2A. Term. The Term of this Amendment shall commence August 1, 1998, and
shall expire on July 4, 1999. Upon expiration, Tenant shall have
vacated the Additional Premises and returned the Premises to Landlord
in the condition as depicted in Article 32 of the Office Building
Lease. Tenant shall have no option period to extend the Term of the
Additional Premises.
<PAGE> 61
Exhibit A
<PAGE> 1
EXHIBIT 10.27
OFFICE LEASE BETWEEN
PLAYHOUSE SQUARE FOUNDATION
AND
ADVANTIX (OHIO), INC.
LEASE AGREEMENT (herein called the "Lease") entered into as of the 1st day of
October, 1997, between Playhouse Square Foundation, an Ohio Not-for-profit
Corporation, (herein called "Lessor"), and Advantix (Ohio), Inc., a Delaware
Corporation, (herein called "Lessee").
WITNESSETH:
1. DEMISE. For the rent and term and upon the terms, conditions, limitations and
provisions hereinafter set forth, Lessor leases to Lessee and Lessee hires from
Lessor the space (herein called the "Premises") consisting of approximately
9,500 usable square feet on the entire fourth floor and the occupied portion of
the third floor in the building known as The Loews Building (herein called the
"Building") located at 1515 Euclid Avenue, Cleveland, Ohio.
2. TERM. The term of this Lease shall be four years, commencing on January 1,
1997, and terminating on December 31, 2001.
3. USE. Lessee shall use and occupy the premises only for general office use and
operation of a phone center and for no other purposes.
4. ANNUAL BASE RENT. Lessee shall pay Lessor as rent for the premises the sum as
shown in Schedule A attached hereto, payable in advance, without deduction or
set-off, on the first day of each and every calendar month of the term, at the
offices of Lessor, 1501 Euclid Avenue, Suite 810, Cleveland, Ohio 44115, or at
such other place as Lessor may, from time to time, in writing, designate.
5. BUILDING SERVICES. Provided Lessee is not in default under any of the terms
and provisions of this Lease. Lessor shall furnish Lessee with the following
services:
(a) cleaning, janitor and window washing services;
(b) all utility services, including heat, electric, and water;
(c) passenger elevator service;
(d) phone system and equipment;
(e) Hewlett-Packard computer hardware.
<PAGE> 2
Lessee agrees that Lessor shall not be liable for damages, by abatement
of Rent or otherwise, for failure to furnish or delay in furnishing any service,
or for any diminution in the quality or quantity thereof, when such failure or
delay or diminution is occasioned, in whole or in part, by any strike, lockout
or other labor trouble, by inability to secure electricity, gas, water, or other
fuel at the Building after reasonable effort so to do, by any accident or
casualty whatsoever, by act or default of Lessee or other parties, or by any
other cause beyond Lessor's reasonable control; and such failures or delays or
diminution shall not be deemed to constitute an eviction or disturbance of
Lessee's use and possession of the premises or relieve the Lessee from paying
Rent or performing any of its obligations under this Lease. Lessor also reserves
the right to temporarily suspend, delay, or discontinue furnishing any of the
services to be provided by Lessor under this Lease, without abatement or
diminution in Rent and without any liability to Lessee as a result thereof, for
such inspections, cleaning, repairs, replacements, alterations, improvements or
renewals as may, in Lessor's reasonable judgment, be desirable or necessary to
be made; provided that such services shall not, to the extent reasonably
feasible, be suspended for such purposes during Lessee's normal business hours
unless Lessor shall, to the extent reasonably possible under the circumstance,
have given Lessee advance notice of any proposed suspension of services.
6. SURRENDER OF POSSESSION. Upon the expiration of the term or upon the
termination of Lessee's right of possession, Lessee shall, at Lessee's sole cost
and expense, forthwith surrender the premises to Lessor in good order, repair
and condition, ordinary wear excepted. Any interest of Lessee in the
alterations, improvements, and additions to the premises made or paid for by
Lessor or Lessee shall, without compensation to Lessee, become Lessor's property
at the termination of this Lease. Prior to the termination of the term of
Lessee's right of possession, Lessee shall remove its office furniture, trade
fixtures, office equipment, and all other items of Lessee's property on the
premises. Lessee shall pay to Lessor, upon demand, the cost of repairing any
damage to the premises and to the Building caused by any such removal.
7. USE AND OCCUPANCY. In the use and occupancy of the premises, Lessee shall:
(a) comply with all laws, ordinances, rules, regulations, and orders of
any governmental authorities having jurisdiction over the premises or over the
use and occupancy thereof;
(b) keep and maintain the premises in good order, condition and repair,
and promptly make all repairs or replacements becoming necessary during the term
excluding, supports, columns and foundation;
(c) not install in the premises any apparatus or equipment which shall
interfere with or impair the maintenance or operation of any building system,
including, without limitation, the electrical, plumbing, heating, ventilating,
and air-conditioning systems;
(d) not conduct any activity or install in the premises any apparatus
or equipment which shall result (i) in the cancellation of any insurance
covering or relating to the Building, or (ii) without Lessor's prior written
approval, in any increase in insurance premiums in respect of any insurance
covering or relating to the Building;
<PAGE> 3
(e) not permit any so-called hazardous or toxic wastes or substances to
be placed or maintained within the premises or the Building, unless otherwise
approved by Lessor in writing.
8. ASSIGNMENT AND SUBLETTING. Lessee shall not sublet the premises or any part
thereof, nor assign this Lease or any interest therein, nor permit any business
to be operated in or from the premises by any person, firm or corporation other
than Lessee.
9. RIGHTS RESERVED BY LESSOR. Lessor reserves the following rights:
(a) to enter the premises at all reasonable times and upon reasonable
notice except in the case of emergency (1) for the making of such inspections,
repairs, alterations, improvements, or additions of, or to, the premises or the
Building as Lessor may deem necessary or desirable; and (2) for any purpose
whatsoever related to the safety, protection, preservation, or improvement of
the premises or of the Building or of Lessor's interest therein;
(b) at any time or times, Lessor, either voluntarily or pursuant to
governmental requirement, may, at Lessor's expense, make repairs, alterations,
or improvements in or to the Building or any part thereof, and, during such
times, may temporarily close entrances, doors, corridors, elevators, or other
public facilities; and
(c) to charge Lessee any additional expense (including overtime or
premium costs incurred by Lessor) in the event repairs, alterations, decorating,
or other work in the premises or the Building are, at Lessee's request, not made
during ordinary business hours.
Lessor may exercise all or any of the foregoing rights hereby reserved
without being deemed guilty of an eviction or disturbance of Lessee's use and
occupancy, without being liable in any manner to Lessee, and without elimination
or abatement of rent, or payment of other compensation, and such acts shall in
no way affect this Lease.
10. ENTIRE AGREEMENT. This Lease contains the entire agreement of the parties
hereto as to the subject matter hereof, and there are no agreements, promises,
covenants, warranties, or representations other than as set forth herein.
<PAGE> 4
IN WITNESS WHEREOF, Lessor and Lessee have respectively signed this
Lease Agreement as of the day, month, and year first above written.
Signed and acknowledged LESSOR
in the presence of:
PLAYHOUSE SQUARE FOUNDATION
/s/ Patricia A. Gaul By: /s/ Art Falco
- ------------------------------- --------------------------
Signature Art J. Falco
President
Patricia A. Gaul
- -------------------------------
Printed Name
/s/ Estelle J. Geiss
- -------------------------------
Signature
Estelle J. Geiss
- -------------------------------
Printed Name
LESSEE
ADVANTIX (OHIO), INC.
/s/ Tom Gimple By: /s/ Tom Pascoe
- ------------------------------- --------------------------
Signature Thomas Pascoe
Chief Operating Officer
Tom Gimple
- -------------------------------
Printed Name
/s/ Shirish Patel
- -------------------------------
Signature
Shirish Patel
- -------------------------------
Printed Name
<PAGE> 5
SCHEDULE A
TO
OFFICE LEASE BETWEEN
PLAYHOUSE SQUARE FOUNDATION
AND
ADVANTIX (OHIO), INC.
THIS SCHEDULE A, COMPRISING PARAGRAPH 11, IS ANNEXED TO AND FORMS A PART OF THE
LEASE AGREEMENT DATED AS OF THE 1ST DAY OF OCTOBER, 1997, BETWEEN PLAYHOUSE
SQUARE FOUNDATION, AS LESSOR, AND ADVANTIX (OHIO), INC., AS LESSEE, COVERING THE
FOURTH FLOOR AND THE OCCUPIED PORTION OF THE THIRD FLOOR OF THE LOEWS BUILDING,
1515 EUCLID AVENUE, CLEVELAND, OHIO.
11. THE ANNUAL BASE RENT, as described in Paragraph 4, shall be the following:
YEAR ONE (October 1, 1997 through September 30, 1998) the annual sum of
$233,124, payable in monthly installments of $19,427.
YEAR TWO (October 1, 1998 through September 30, 1999) the annual sum of
$194,334, payable in monthly installments of $16,195.
YEAR THREE (October 1, 1999 through September 30, 2000) the annual sum of
$127,473, payable in monthly installments of $10,623.
YEAR FOUR (October 1, 2000 through September 30, 2001) the annual sum of
$119,733, payable in monthly installments of $9,978.
Additionally, the lease period ending date for the Hewlett-Packard lease and the
two phone leases is April, 1999, June, 2000, and December 1, 2001, respectively.
At the termination of the leases, the fair market buy-out amount will be added
to the ANNUAL BASE RENT, as described above.
<PAGE> 6
ADVANTIX
OCCUPANCY EXPENSES - CLEVELAND CALL CENTER
COMMENCING 10/1/97 THROUGH 9/30/01
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4
<S> <C> <C> <C> <C>
Base Rent (1) $ 87,875 $ 95,000 $ 95,000 $ 95,000
HP Lease (2) 110,196 64,281 0 0
Phone Leases (3) 24,048 24,048 21,468 13,728
Build-out (4) 11,005 11,005 11,005 11,005
TOTAL $ 233,124 $ 194,334 $ 127,473 $ 119,733
Monthly Payment $ 19,427 $ 16,195 $ 10,623 $ 9,978
</TABLE>
(1) 9,500 Sq. Ft. @ $9.25/sq. ft. year 1, $10.00/sq. ft. years 2-4
(2) $9,183 per month through 4/99
(3) $2,004 per month through 6/00, $1,144 per month through 12/01
(4) $44,020 over 48 months
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
------------------------------
California Tickets.com, Inc.
Bay Area Seating Service, Inc.
TicketsLive Corporation
ProTix, Inc.
ProTix Australia Pty. Ltd.
ProTix Connecticut General Partnership (50% owned)
ProTix Limited Partnership I (75% owned)
ProTix Access Control LLC
ProTix Australia Pty. Ltd.
TicketStop, Inc. (a subsidiary of California Tickets.com, Inc.)
Advantix (Ohio), Inc.
Select Ticketing Systems GmbH (a subsidiary of TicketsLive Corporation)
Select Ticketing Systems BV (a subsidiary of TicketsLive Corporation)
Select Ticketing Systems Pty. Ltd. (a subsidiary of TicketsLive Corporation)
Select Ticketing Systems Ltd. (a subsidiary of TicketsLive Corporation)
Interactive Media, Animation & Graphics, Inc.
<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
May 26, 1999
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
TicketsLive Corporation:
We consent to inclusion in the Registration Statement on Form S-1 of
Tickets.com, Inc. of our report dated June 12, 1998, relating to the
consolidated balance sheets of TicketsLive Corporation (formerly Select
Technologies Corporation) and subsidiaries as of April 30, 1997 and 1998, and
the related consolidated statements of operations, redeemable preferred stock,
stockholders' equity (deficit) and comprehensive income (loss), and cash flows
for the years then ended.
/s/ KPMG LLP
May 25, 1999
Syracuse, New York
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement 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.
/s/ BURR, PILGER & MAYER
--------------------------------------
Burr, Pilger & Mayer
San Francisco, CA
May 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,123,661
<SECURITIES> 0
<RECEIVABLES> 3,620,875
<ALLOWANCES> 255,121
<INVENTORY> 0
<CURRENT-ASSETS> 16,594,718
<PP&E> 9,030,147
<DEPRECIATION> 619,278
<TOTAL-ASSETS> 38,512,188
<CURRENT-LIABILITIES> 24,774,549
<BONDS> 0
0
2,954
<COMMON> 1,424
<OTHER-SE> (11,933,123)
<TOTAL-LIABILITY-AND-EQUITY> 38,512,188
<SALES> 0
<TOTAL-REVENUES> 29,539,436
<CGS> 0
<TOTAL-COSTS> 18,705,738
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,952,465
<INCOME-PRETAX> (34,855,141)
<INCOME-TAX> 5,655
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,860,796)
<EPS-BASIC> (2.70)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 21,642,003
<SECURITIES> 0
<RECEIVABLES> 8,964,111
<ALLOWANCES> 217,761
<INVENTORY> 0
<CURRENT-ASSETS> 31,768,674
<PP&E> 7,841,078
<DEPRECIATION> 0
<TOTAL-ASSETS> 54,146,683
<CURRENT-LIABILITIES> 23,113,128
<BONDS> 0
1,424
0
<COMMON> 3,902
<OTHER-SE> 5,330,221
<TOTAL-LIABILITY-AND-EQUITY> 54,146,683
<SALES> 0
<TOTAL-REVENUES> 6,578,413
<CGS> 0
<TOTAL-COSTS> 4,475,219
<OTHER-EXPENSES> 11,131
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 939,570
<INCOME-PRETAX> (6,044,169)
<INCOME-TAX> 3,125
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,047,294)
<EPS-BASIC> (0.42)
<EPS-DILUTED> (0.42)
</TABLE>
