<PAGE> 1
SCHEDULE 14C
(RULE 14C-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES EXCHANGE ACT
OF 1934
<TABLE>
<CAPTION>
CHECK THE APPROPRIATE BOX:
<S> <C>
[ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission
only (as permitted by Rule 14c-5(d)(2))
[X] Definitive Information Statement
</TABLE>
HSN, INC.
(Name of Registrant as Specified in Its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[HSN, INC. LOGO]
June 27, 1997
Dear Fellow Stockholders:
As you may be aware, HSN, Inc. ("HSNi") recently entered into an agreement
with Paul G. Allen pursuant to which HSNi intends to issue a number of shares of
HSNi Common Stock in exchange (the "Exchange") for approximately 47% of the
outstanding common stock of Ticketmaster Group, Inc. ("Ticketmaster"). Enclosed
is an Information Statement that more fully describes the terms and conditions
of the Exchange as well as certain information relating to Ticketmaster. Your
shares of HSNi Common Stock will not be affected by the Exchange transaction.
The Exchange, and HSNi's resulting investment in Ticketmaster, represent a
strategic opportunity for HSNi. Your Board of Directors has unanimously approved
the Exchange, and no action is required on your part (HSNi is not asking you for
a proxy and you are requested not to send a proxy). In addition, the Board of
Directors has received an opinion from Allen & Company Incorporated that, as of
the date of such opinion, the terms of the Exchange are fair to HSNi from a
financial point of view.
I encourage you to read this Information Statement carefully.
Very truly yours,
/s/ BARRY DILLER
Barry Diller
Chairman of the Board and
Chief Executive Officer
[HSN, INC. LETTERHEAD]
<PAGE> 3
HSN, INC.
1 HSN DRIVE
ST. PETERSBURG, FLORIDA 33729
NOTICE OF ACTION TAKEN BY WRITTEN CONSENT
TO THE STOCKHOLDERS OF HSN, Inc.:
NOTICE IS HEREBY GIVEN in accordance with Section 228(d) of the Delaware
General Corporation Law (the "DGCL") and Article II, Section 8 of the By-laws of
HSN, Inc. ("HSNi"), that stockholders representing approximately 71% of the
total outstanding voting power of HSNi, have acted without a meeting of
stockholders by written consent (the "Consent") to approve the issuance of up to
13,125,466 shares of Common Stock, par value $.01 per share of HSNi (the "HSNi
Common Stock"), pursuant to the Stock Exchange Agreement by and between Paul G.
Allen and HSNi, dated as of May 20, 1997 (the "Exchange Agreement") in exchange
for up to 15,360,405 shares (the "Shares") of Common Stock, no par value, of
Ticketmaster (the "Ticketmaster Common Stock"), representing up to approximately
59% of the total number of outstanding shares of Ticketmaster Common Stock. The
Consent shall be effective on July 17, 1997.
In accordance with the rules of the National Association of Securities
Dealers, Inc., and pursuant to the DGCL and HSNi's Amended and Restated
Certificate of Incorporation, as amended, the affirmative vote or written
consent of the holders of a majority of the voting power of outstanding common
stock entitled to vote, with holders of HSNi Common Stock and Class B Common
Stock, par value $.01 per share, of HSNi voting together as a single class, is
necessary to approve the issuance of the HSNi Common Stock (the "Stock
Issuance") under the Exchange Agreement.
BY VIRTUE OF THE CONSENT, THE STOCK ISSUANCE HAS BEEN APPROVED AND THE
TRANSACTIONS CONTEMPLATED IN CONNECTION THEREWITH MAY BE CONSUMMATED WITHOUT THE
AFFIRMATIVE VOTE OR CONSENT OF ANY OTHER STOCKHOLDERS. None of the Stock
Issuance or the transactions contemplated in connection therewith will afford to
HSNi stockholders the opportunity to dissent from the actions described herein
and to receive an agreed or judicially appraised value for their shares.
By Order of the Board of Directors
/s/ JAMES G. GALLAGHER
James G. Gallagher
Vice President, General
Counsel and Secretary
St. Petersburg, Florida
June 27, 1997
<PAGE> 4
HSN, INC.
INFORMATION STATEMENT
------------------------
INTRODUCTION
This Information Statement is being furnished to the holders of record as
of the close of business on June 26, 1997 of the common stock, par value $.01
per share (the "HSNi Common Stock"), and Class B common stock, par value $.01
per share (the "HSNi Class B Common Stock" and together with the HSNi Common
Stock, the "Common Stock"), of HSN, Inc., a Delaware corporation ("HSNi"), in
connection with the approval of the issuance (the "Stock Issuance") by HSNi of
up to 13,125,466 shares of HSNi Common Stock in exchange for (the "Exchange") up
to 15,360,405 shares (the "Shares") of common stock, no par value (the
"Ticketmaster Common Stock"), of Ticketmaster Group, Inc., an Illinois
corporation ("Ticketmaster"), on the terms set forth in the Stock Exchange
Agreement dated as of May 20, 1997 by and between HSNi and Paul G. Allen,
annexed hereto as Annex A (the "Exchange Agreement"). In consideration for the
Shares, at the closing of the Exchange (the "Closing") HSNi will issue to Mr.
Allen, Chairman of the Board of Directors of Ticketmaster, and certain other
stockholders of Ticketmaster who are parties to a stockholders agreement with
Mr. Allen that provide for rights to participate with Mr. Allen in any sale by
him of Ticketmaster Common Stock ("Tag-Along Rights") and who elect to
participate in the transaction (together with Mr. Allen, the "Tag-Along Group")
an aggregate of up to 9,052,045 shares of HSNi Common Stock (the "HSNi Shares"),
subject to the issuance of up to a maximum of 4,073,421 additional shares of
HSNi Common Stock to be reserved for contingent issuance in July 1998 (the
"Adjustment Shares," and together with the HSNi Shares, the "Tag-Along Group
Shares") if the average market price of the HSNi Common Stock over certain
periods prior to such time is below $29 per share (the "Adjustment"). See "The
Exchange -- Terms of the Exchange." However, HSNi has been advised by a member
of the Tag-Along Group holding 2,544,526 shares of Ticketmaster Common Stock
(the "Non-Electing Holder") that it does not intend to elect to exercise
Tag-Along Rights. Accordingly, it is assumed that HSNi will acquire a maximum of
12,815,879 shares of Ticketmaster Common Stock in exchange for a maximum of
7,552,530 shares of HSNi Common Stock, subject to possible adjustment as
described below. The Closing is subject to specified conditions described
herein. See "The Exchange -- Terms of the Exchange." As of the date of this
Information Statement, it is anticipated that the Closing will occur on or about
July 17, 1997.
Pursuant to the rules of the National Association of Securities Dealers,
Inc. (the "NASD"), the issuance of shares of HSNi Common Stock under the
Exchange Agreement requires stockholder approval given that the number of shares
of HSNi Common Stock to be issued under the Exchange Agreement may be equal to
or in excess of 20% of the number of shares of Common Stock outstanding before
such issuance.
Pursuant to the rules of the NASD and in accordance with the Delaware
General Corporation law (the "DGCL") and HSNi's Amended and Restated Certificate
of Incorporation, as amended (the "HSNi Charter"), the affirmative vote or
written consent of the holders of a majority of the voting power of outstanding
Common Stock entitled to vote (with holders of HSNi Common Stock and HSNi Class
B Common Stock voting together as a single class) is necessary to approve the
issuance of the HSNi Common Stock under the Exchange Agreement. On May 20, 1997,
in accordance with Section 228(d) of the DGCL and Article II, Section 8 of
HSNi's Amended and Restated By-laws (the "HSNi By-laws"), stockholders
representing approximately 71% of the total outstanding voting power of HSNi
acted without a meeting of stockholders by written consent (the "Consent") to
approve the Stock Issuance and the transactions contemplated in connection
therewith. See "The Exchange -- Approval of the Exchange," and "Security
Ownership of Certain Beneficial Owners and Management of HSNi." The Consent
shall be effective on July 17, 1997. ACCORDINGLY, THE STOCK ISSUANCE HAS BEEN
APPROVED AND THE TRANSACTIONS CONTEMPLATED IN CONNECTION THEREWITH MAY BE
CONSUMMATED WITHOUT THE AFFIRMATIVE VOTE OR CONSENT OF ANY OTHER STOCKHOLDERS.
IN LIGHT OF THE FOREGOING, HSNi HAS DETERMINED NOT TO SOLICIT PROXIES OR
CONSENTS FROM ITS STOCKHOLDERS. YOU ARE ADVISED, HOWEVER, TO READ THE ATTACHED
INFORMATION STATEMENT IN ITS ENTIRETY FOR A DESCRIPTION OF THE TRANSACTIONS
CONTEMPLATED IN CONNECTION WITH THE STOCK ISSUANCE.
HSNi IS NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND A PROXY
<PAGE> 5
NO DISSENTERS' RIGHTS; NO PREEMPTIVE RIGHTS
None of the corporate actions described in this Information Statement will
afford to stockholders of HSNi the opportunity to dissent from the actions
described herein and to receive an agreed or judicially appraised value for
their shares of Common Stock. The issuance of HSNi Common Stock in the Exchange
will not result in stockholders of HSNi having any preemptive rights to acquire
additional shares of Common Stock. The rights of holders of Common Stock, as
holders of Common Stock, will not be affected by the Exchange or the
transactions contemplated in connection therewith.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN, OR INCORPORATED BY REFERENCE IN,
THIS INFORMATION STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HSNi OR ANY
OTHER PERSON.
The date of this Information Statement is June 27, 1997 and it is being
mailed to stockholders on or about such date.
------------------------
ii
<PAGE> 6
AVAILABLE INFORMATION
HSNi and Ticketmaster are each subject to the information reporting
requirements of the Securities Exchange Act of 1934, as amended, and the
regulations promulgated thereunder (the "Exchange Act"), and, in accordance
therewith, file reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). These materials should be
available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices at Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of these materials can also
be obtained from the Commission at prescribed rates by writing to the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a World Wide Web site on the Internet that
contains reports, proxy and information statements and other information
(http://www.sec.gov). In addition, materials filed by HSNi and Ticketmaster
should be available for inspection at the offices of the NASD, Reports Section,
1735 K Street, N.W., Washington, D.C. 20006.
ALL INFORMATION CONTAINED IN THIS INFORMATION STATEMENT RELATING TO HSNi
HAS BEEN SUPPLIED BY HSNi, AND ALL INFORMATION RELATING TO TICKETMASTER, UNLESS
OTHERWISE INDICATED, HAS BEEN SUPPLIED BY TICKETMASTER OR TAKEN FROM
TICKETMASTER'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 31,
1997. HSNi TAKES NO RESPONSIBILITY FOR THE ACCURACY OF THE INFORMATION SUPPLIED
BY TICKETMASTER OR TAKEN FROM TICKETMASTER'S FILINGS WITH THE COMMISSION.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Information Statement incorporates documents by reference that are not
presented herein or delivered herewith. There will be provided without charge to
each person, including any beneficial owner, to whom an Information Statement is
delivered, upon oral or written request of any such person, a copy of any or all
documents incorporated by reference herein (excluding exhibits unless such
exhibits are specifically incorporated by reference herein). With respect to
HSNi's documents, requests should be directed to HSN, Inc., Investor Relations
Department, 1 HSN Drive, St. Petersburg, Florida 33729 (telephone (813)
572-8585). In order to ensure timely delivery of the documents in advance of the
consummation of the Stock Issuance to which this Information Statement relates,
any such request should be made within 14 calendar days from the date of this
Information Statement. HSNi incorporates herein by reference HSNi's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996, HSNi's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, and the
description of HSNi Common Stock and HSNi Class B Common Stock set forth in
HSNi's Registration Statement on Form 10 dated August 27, 1992 (No. 0-20570), as
amended.
All reports and definitive proxy or information statements filed by HSNi
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to
the date of this Information Statement and prior to the date of the consummation
of the Stock Issuance shall be deemed incorporated by reference into this
Information Statement from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated herein shall
be deemed to be modified or superseded for purposes of this Information
Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Information Statement.
FORWARD-LOOKING STATEMENTS
THIS INFORMATION STATEMENT INCLUDES FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 21E OF THE EXCHANGE ACT. ALL STATEMENTS REGARDING HSNI'S OR
TICKETMASTER'S EXPECTED FUTURE FINANCIAL POSITION, BUSINESS STRATEGY, BUDGETS,
PROJECTED COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE OPERATIONS,
ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH HSNI BELIEVES ITS EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON REASONABLE
ASSUMPTIONS, NO ASSURANCE CAN BE GIVEN THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS (CERTAIN OF WHICH ARE BEYOND HSNI'S OR
TICKETMASTER'S CONTROL) THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS HEREIN
INCLUDE, AMONG OTHERS, GENERAL ECONOMIC, BUSINESS AND MARKET CONDITIONS, CHANGES
IN FEDERAL LAWS AND REGULATION OF THE TELECOMMUNICATIONS AND BROADCAST
INDUSTRIES, DIFFICULTIES IN ACHIEVING EXPECTED COST SAVINGS, INCREASED
COMPETITIVE PRESSURE, AND THE COSTS OR DIFFICULTIES RELATING TO THE INTEGRATION
OF ACQUIRED BUSINESSES.
iii
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION........................................................................... i
NO DISSENTERS' RIGHTS; NO PREEMPTIVE RIGHTS............................................ ii
AVAILABLE INFORMATION.................................................................. iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................ iii
FORWARD-LOOKING STATEMENTS............................................................. iii
TABLE OF CONTENTS...................................................................... iv
INDEX OF DEFINED TERMS................................................................. vi
THE PARTIES............................................................................ 1
HSNi................................................................................. 1
Ticketmaster......................................................................... 1
Recent Developments............................................................... 1
THE EXCHANGE........................................................................... 2
Background of the Exchange........................................................... 2
Approval of the Exchange............................................................. 3
HSNi Board Approval............................................................... 3
HSNi Stockholder Approval......................................................... 4
Reasons for the Exchange............................................................. 4
Opinion of HSNi's Financial Advisor............................................... 5
Terms of the Exchange................................................................ 8
The Exchange...................................................................... 8
Representations and Warranties.................................................... 9
Covenants......................................................................... 9
Board Representation.............................................................. 10
Conditions to Closing............................................................. 11
Termination....................................................................... 12
Interests of Certain Persons in the Exchange......................................... 12
Liberty HSN, Liberty and TCI...................................................... 12
Mr. Diller........................................................................ 14
Other............................................................................. 14
Accounting Treatment................................................................. 14
Certain Federal Income Tax Consequences.............................................. 15
Regulatory Approvals................................................................. 15
INFORMATION CONCERNING TICKETMASTER.................................................... 16
Business............................................................................. 16
General........................................................................... 16
Client Relationships.............................................................. 17
Distribution System............................................................... 19
The Ticketmaster System........................................................... 21
Industry Overview................................................................. 23
Ticketmaster History.............................................................. 23
Joint Ventures And Licensees...................................................... 24
Competition....................................................................... 26
Trademarks and Patents............................................................ 27
Regulation........................................................................ 27
Employees......................................................................... 27
Properties........................................................................... 28
Legal Proceedings.................................................................... 28
Market Prices and Dividends.......................................................... 29
SELECTED FINANCIAL DATA OF TICKETMASTER................................................ 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF TICKETMASTER.................................................. 32
General.............................................................................. 32
</TABLE>
iv
<PAGE> 8
<TABLE>
<S> <C>
Revenues............................................................................. 32
Operating Costs...................................................................... 33
Other................................................................................ 34
Pro Forma Financial Information...................................................... 34
Fiscal Year 1997 Compared with Fiscal Year 1996...................................... 40
Consolidated Businesses........................................................... 40
Unconsolidated Joint Ventures..................................................... 42
Managed Businesses................................................................ 42
Fiscal Year 1996 Compared with Fiscal Year 1995...................................... 43
Consolidated Businesses........................................................... 43
Unconsolidated Joint Ventures..................................................... 44
Managed Businesses................................................................ 45
Liquidity and Capital Resources...................................................... 45
Seasonality.......................................................................... 46
Inflation Risk....................................................................... 46
Foreign Currency Risk................................................................ 46
Effect of Recent Accounting Changes.................................................. 47
SELECTED FINANCIAL DATA OF HSNi........................................................ 47
SELECTED PRO FORMA FINANCIAL DATA OF HSNi.............................................. 48
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF HSNi................. 48
MARKET PRICES.......................................................................... 51
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... F-1
Annex A -- Stock Exchange Agreement between Paul G. Allen and HSN, Inc., dated May 20,
1997
Annex B -- Stockholders Agreement by and among Paul G. Allen, Barry Diller and Liberty
Media Corporation, dated as of May 20, 1997
Annex C -- Opinion of Allen & Company Incorporated, dated May 19, 1997
</TABLE>
v
<PAGE> 9
INDEX OF CERTAIN DEFINED TERMS
<TABLE>
<S> <C>
Adjustment............................. i
Adjustment Shares...................... i
Allen & Company........................ 3
Antitrust Division..................... 15
August Stockholders Agreement.......... 4
Australian Joint Ventures.............. 24
BDTV................................... 4
BDTV Entities.......................... 4
BDTV II................................ 4
CIE.................................... 24
Closing................................ i
Commission............................. iii
Common Stock........................... i
Consent................................ i
Consolidated Businesses................ 16
Contingent Rights...................... 12
Contingent Rights Shares............... 12
Credit Agreement....................... 30
DGCL................................... i
Diller-Liberty-Allen Stockholders
Agreement............................ 10
Distribution........................... 1
Distribution Date...................... 1
District Court......................... 28
Engagement Letter...................... 7
EBITDA................................. 6
EPS.................................... 47
ETG.................................... 33
European Joint Venture................. 25
Exchange............................... i
Exchange Act........................... iii
Exchange Agreement..................... i
Exchangeable Promissory Note........... 25
Fair Market Value...................... 8
FCC.................................... 8
FCC Excess Shares...................... 8
First Amendment........................ 4
FTC.................................... 15
Fundamental Matter..................... 4
HBI.................................... 29
Home Shopping.......................... 1
Home Shopping Merger................... 1
HSNCC.................................. 48
HSNi................................... i
HSNi Board............................. 2
HSNi By-laws........................... i
HSNi Charter........................... i
HSNi Class B Common Stock.............. i
HSNi Common Stock...................... i
HSNi Shares............................ i
HSR Act................................ 9
IPO.................................... 6
IPO Price.............................. 6
Latin American Venture................. 24
Liberty................................ 4
Liberty Exchange....................... 13
Liberty Exchange Agreement............. 13
Liberty Exchange Shares................ 13
Liberty HSN............................ 12
Mergers................................ 1
Microsoft.............................. 29
Montgomery............................. 2
MovieFone.............................. 25
NASD................................... i
NASDAQ................................. 30
New East............................... 25
NNM.................................... 30
Non-Electing Holder.................... i
Pacer Joint Venture.................... 25
PCI.................................... 21
Preferred Stock........................ 25
Savoy.................................. 1
Savoy Merger........................... 1
Second Closing......................... 8
Securities Act......................... 9
Shares................................. i
Silver King............................ 1
SKBC................................... 1
SKTV................................... 47
SKTV Stations.......................... 48
Statement 109.......................... 48
Stock Issuance......................... i
Stockholders Agreement................. 4
Tag-Along Group........................ i
Tag-Along Group Shares................. i
Tag-Along Rights....................... i
Tag-Along Sale......................... 8
TCI.................................... 12
TCW.................................... 29
Ticketmaster........................... i
Ticketmaster Common Stock.............. i
Ticketmaster Credit Agreement.......... 11
Ticketmaster Shareholders Agreement.... 8
Unconsolidated Joint Ventures.......... 16
WIL.................................... 25
</TABLE>
vi
<PAGE> 10
THE PARTIES
HSNI
HSNi, formerly known as Silver King Communications, Inc. ("Silver King"),
is a holding company, the subsidiaries of which conduct the operations of HSNi's
various business activities. HSNi was incorporated in July 1986 in Delaware as
Silver King Broadcasting Company, Inc. ("SKBC") as part of a strategy to broaden
the viewership of Home Shopping Network, Inc. ("Home Shopping"). SKBC
subsequently changed its name to HSN Communications, Inc. and thereafter, to
Silver King. On December 28, 1992 (the "Distribution Date"), Home Shopping, the
sole stockholder, distributed the capital stock (the "Distribution") of HSNi to
Home Shopping's stockholders in the form of a pro-rata tax free stock dividend.
On December 19 and 20, 1996, Silver King consummated mergers with Savoy Pictures
Entertainment, Inc. ("Savoy") and Home Shopping, respectively (respectively, the
"Savoy Merger" and the "Home Shopping Merger," and collectively, the "Mergers")
and changed its name to HSN, Inc. Following the Mergers, HSNi's principal areas
of business are electronic retailing and television broadcasting.
HSNi's principal executive offices are located at 1 HSN Drive, St.
Petersburg, Florida, 33729 and its telephone number is (813) 572-8585.
TICKETMASTER
Ticketmaster, through its subsidiaries and those unconsolidated joint
ventures in which it acts as managing partner, is the leading provider of
automated ticketing services in the U.S. with over 3,500 clients, including many
of the country's foremost entertainment facilities and promoters and 77
professional sports franchises. Ticketmaster has established its market position
by providing these clients with comprehensive ticket inventory control and
management, a broad distribution network and dedicated marketing and support
services. Ticket orders are received and fulfilled through operator-staffed call
centers, independent sales outlets remote to the facility box office and
Ticketmaster's World Wide Web site. Revenue is generated principally from
convenience charges received by Ticketmaster for tickets sold on its clients'
behalf. Ticketmaster generally serves as an exclusive agent for its clients and
typically has no financial risk for unsold tickets. Ticketmaster sold 60.0
million tickets in fiscal 1997, while generating revenues from its Managed
Business (as defined herein) of $298.5 million.
Ticketmaster's principal offices are located at 8800 Sunset Boulevard, West
Hollywood, California 90069, and its telephone number is (310) 360-6000.
Ticketmaster uses a fiscal year ending on January 31. Therefore, as used in this
Information Statement, references to a "fiscal" year with respect to
Ticketmaster refer to the 12-month period ending on January 31 of each year
(e.g., "fiscal 1997" shall mean Ticketmaster's fiscal year ended January 31,
1997).
Recent Developments
Pursuant to an Agreement of Purchase and Sale of Stock, dated as of May 13,
1997, Ticketmaster acquired all of the issued and outstanding shares of capital
stock of its Canadian licensee for a purchase price of Cdn. $44,650,000
(approximately U.S. $32,350,000) consisting of approximately Cdn. $22,325,000 in
cash and 1,115,531 non-voting, non-participating Class B Shares of
Ticketmaster's new Canadian subsidiary. Upon the occurrence or satisfaction, as
applicable, of certain specified events and conditions relating to operations in
Canada, the purchase price will be increased by approximately 12.3%, payable on
May 1, 1998, 50% in cash and 50% in additional Class B Shares of the Canadian
subsidiary. Holders of the Class B Shares have the right, at any time, to
exchange such Class B Shares for shares of Ticketmaster Common Stock on a
one-for-one basis, subject to adjustment. In addition, Ticketmaster has the
right to require such exchange to occur at any time on or after January 1, 2001,
or earlier if certain specified events occur.
The following summarizes certain recent events that have taken place with
respect to the matters described under "Information Concerning
Ticketmaster -- Legal Proceedings:" (i) with regard to Ticketmaster's action
against Microsoft (as defined herein), an amended complaint was filed by
Ticketmaster on May 9, 1997; (ii) with regard to the action against HBI (as
defined herein), Ticketmaster's motion for partial
1
<PAGE> 11
summary judgment was granted in part on May 9, 1997; and (iii) with regard to
the action filed against Ticketmaster by Ticketmaster Group Limited Partnership,
Ticketmaster filed its answer, affirmative defenses and counterclaim on May 5,
1997.
With respect to the New York City collective bargaining agreement,
described below (see "Information Concerning Ticketmaster -- Business"), a
decision has been made to close the New York City call center on or about August
10, 1997.
THE EXCHANGE
BACKGROUND OF THE EXCHANGE
HSNi regularly evaluates its strategic options, including significant
investment opportunities in other companies, that could complement and
strengthen its business. Since Barry Diller became Chairman of the Board and
Chief Executive Officer of HSNi in August 1995, HSNi has evaluated growth
strategies, including growth through internal development, acquisitions and
strategic investments. In early 1997, Mr. Diller approached Mr. Allen and
presented to Mr. Allen the outlines of a transaction involving the exchange of
HSNi stock for Mr. Allen's stake in Ticketmaster. Mr. Diller and Mr. Allen from
time to time then discussed generally the possibility of such a share exchange.
Several weeks prior to the execution of the Exchange Agreement, HSNi and
Mr. Allen's financial advisor, Montgomery Securities ("Montgomery"), entered
into a confidentiality agreement pursuant to which HSNi agreed to share with
Montgomery certain non-public information concerning HSNi in connection with Mr.
Allen's evaluation of the proposed terms of a share exchange transaction.
Thereafter HSNi and Mr. Allen, through their representatives, conducted mutual
due diligence investigations of Ticketmaster and HSNi, respectively.
At the point in the discussions between Messrs. Diller and Allen when they
believed that a transaction was possible, they informed Fredric D. Rosen,
President and Chief Executive Officer of Ticketmaster, of the potential
transaction to seek his views. Thereafter, the parties agreed that they each
would instruct their financial and legal advisors to seek to negotiate the terms
of a definitive agreement.
At a telephonic information meeting on May 15, 1997, the HSNi Board of
Directors (the "HSNi Board") was informed of the possibility of a share exchange
transaction involving the Shares and was briefed by Mr. Diller and HSNi's legal
and financial advisors on Ticketmaster and its businesses, the background of the
proposed transaction, and the status of the discussions with Mr. Allen. During
that meeting, the HSNi Board made an extensive evaluation of the business and
financial consequences of the proposed transaction to HSNi.
From May 9, 1997 through the date of the Exchange Agreement, the parties
and their financial and legal advisors negotiated the terms of the definitive
Exchange Agreement.
On May 20, 1997, HSNi announced the execution of the Exchange Agreement and
issued the following press release:
HSN, INC. TO ACQUIRE CONTROLLING INTEREST IN TICKETMASTER
GROUP, INC.; HSN, INC. AND PAUL G. ALLEN TO EXCHANGE SHARES
IN STOCK-FOR-STOCK TRANSACTION
ST. PETERSBURG, Fla., May 20 -- HSN, Inc. (Nasdaq:HSNI) today
announced plans to acquire Paul G. Allen's 47.5% equity interest in
Ticketmaster Group, Inc. (Nasdaq:TKTM) in a stock-for-stock transaction.
The shares to be issued by HSN, Inc. to Mr. Allen will represent
approximately 11% of HSN, Inc.'s equity after consummation of the
transaction. The 47.5% interest gives effect to shares recently issued by
Ticketmaster to acquire its Canadian licensee.
Under the terms of the Agreement, HSN, Inc. will issue approximately
7.2 million shares of HSN, Inc. to Mr. Allen in exchange for approximately
12.3 million shares of Ticketmaster. The transaction is subject to certain
customary terms and conditions, and is expected to close in July 1997.
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HSN, Inc. currently intends to purchase additional Ticketmaster shares
from time to time, through open market purchases or otherwise, in order to
increase its ownership to over 50% and to consolidate the two companies'
operating results for accounting purposes. The two companies will continue
to operate as independent entities.
Upon the closing of the initial exchange of shares, Paul Allen,
Fredric D. Rosen, and William Savoy are expected to join HSN, Inc.'s Board
of Directors. Mr. Rosen will remain President and Chief Executive Officer
of Ticketmaster Group, Inc.
Barry Diller, Chairman and Chief Executive Officer of HSN, Inc., said,
"Interactivity and electronic commerce is the core business of the Home
Shopping Network. We believe that the Transactional Processing Center of
the Home Shopping Network, our full service fulfillment operations, which
receive 60 million calls per year and mail over 24 million packages
annually, is a key operating asset. As all forms of electronic commerce
grow, the need for efficient transactional capability will exponentially
grow and we intend to be an aggressive player in offering these services to
the thousands of companies that will need them as they develop their own
versions of interactive direct commerce. Ticketmaster, a great brand name
with rich experience in transactions, with 60 million tickets worth $1.8
billion sold annually and a database of over 25 million active names, is
well matched to our existing infrastructure. We believe this transaction
will help us gain the scale and experience for the kind of expansion we
foresee as a key component to our overall growth.
"Fred Rosen is one of those rare executives whose vision and
willfulness against great odds, created the Ticketmaster business. He knows
how much I really do hope he will play an expanded role in the development
of this and allied businesses.
"We're also very pleased that as part of this transaction we will have
a key investor like Paul Allen join our Company's interests and its Board.
I've known Mr. Allen for some time and have great respect for his ability
and decency. For a great long time before others saw anything, he saw the
future and acted upon it in all these myriad computer enabled forms of
interactivity."
"This transaction creates a powerful partnership between two leaders
in electronic commerce and provides Ticketmaster with additional channels
for growth," said Mr. Rosen. "I am pleased to be in business with Barry
Diller."
Mr. Allen, Chairman of Ticketmaster Group, Inc. said, "I'm pleased to
be entering into a long-term relationship with HSN, Inc. and Barry Diller.
Our mutual interest and strategic investments in the electronic commerce
market will create not only synergy, but also unique opportunities that
support this and future business ventures."
Under the terms of the agreement, up to a maximum of 3.3 million
additional shares of HSN, Inc. Common Stock will also be issued in August
1998 if the average closing stock price of HSN, Inc. is below $29 per share
for the first 20 consecutive trading days in July 1998, subject to certain
conditions described below. This adjustment will be made, subject to the
maximum number of shares set forth above, to ensure that Paul Allen will be
receiving value for his stock equal to but not to exceed $209 million.
However, in no event will Paul Allen be entitled to any such adjustment if
the average closing stock price of HSN, Inc. equals or exceeds $29 per
share for any 20 consecutive trading days between December 1, 1997 and June
30, 1998.
Certain other shareholders of Ticketmaster have tag-along rights with
respect to Mr. Allen's sale of shares. HSN, Inc. has been advised that the
shareholder controlling in excess of 80% of such rights does not intend to
exercise them due to its own planning considerations.
APPROVAL OF THE EXCHANGE
HSNi Board Approval
On May 19, 1997, at a meeting of the HSNi Board, during which meeting Allen
& Company Incorporated ("Allen & Company"), HSNi's financial advisor, delivered
its opinion that the Exchange was
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fair to HSNi from a financial point of view, the HSNi Board unanimously approved
the Exchange and the transactions contemplated in connection therewith,
including the Stock Issuance. The Board of Directors recommended that the
stockholders vote to approve the Stock Issuance and the transactions
contemplated in connection therewith.
HSNi Stockholder Approval
In accordance with the rules of the NASD, the affirmative vote or written
consent of the holders of a majority of the voting power of outstanding Common
Stock entitled to vote (with holders of HSNi Common Stock and HSNi Class B
Common Stock voting together as a single class) is necessary to approve the
Stock Issuance. On May 20, 1997, in accordance with Section 228 of the DGCL and
Article II, Section 8 of HSNi's By-laws, BDTV INC. ("BDTV") and BDTV II INC.
("BDTV II," and together with BDTV, the "BDTV Entities"), as the holders of
shares of HSNi Class B Common Stock representing in the aggregate approximately
71% of the outstanding total voting power of HSNi executed the Consent,
approving the Stock Issuance and the transactions contemplated in connection
therewith. See "Beneficial Security Ownership of Certain Beneficial Owners and
Management of HSNi."
The action taken by the BDTV Entities in executing the Consent was in turn
consented to by Mr. Diller and Liberty Media Corporation ("Liberty") as
stockholders of the BDTV Entities. Mr. Diller and Liberty are parties to a
stockholders agreement, dated as of August 24, 1995 (the "August Stockholders
Agreement"), as amended by the first amendment (the "First Amendment") thereto,
dated as of August 25, 1996 (the First Amendment, together with the August
Stockholders Agreement, the "Stockholders Agreement"), pursuant to which the
parties thereto and certain of their affiliates have formed the BDTV Entities.
Mr. Diller beneficially owns all the outstanding voting stock of each of the
BDTV Entities and Liberty currently holds all of the non-voting common stock of
each of the BDTV Entities, representing in excess of 99% of the equity of each
of them, which shares are convertible under certain circumstances into shares of
voting common stock.
Under the terms of the Stockholders Agreement, the Stock Issuance, together
with the transactions contemplated in connection therewith, constitute a
"Fundamental Matter." The Stockholders Agreement provides that the taking of any
action by the BDTV Entities with respect to any Fundamental Matter requires the
unanimous approval of each holder of a voting or non-voting equity interest in
the BDTV Entities.
See "-- Interests of Certain Persons in the Exchange."
REASONS FOR THE EXCHANGE
The HSNi Board believes that HSNi's ownership of a significant equity
interest in Ticketmaster would provide meaningful benefits to HSNi. In reaching
its conclusion to approve the Exchange and the transactions contemplated in
connection therewith, the HSNi Board considered a number of factors. The
material factors considered by the HSNi Board are as follows: (i) its review of
the financial condition, results of operations, cash flows, business and
prospects of Ticketmaster; (ii) its view of the strategic opportunities
presented by a significant ownership interest in Ticketmaster, including without
limitation, the possibility of fulfillment and other arrangements between HSNi
and Ticketmaster; (iii) the opinion of Allen & Company that the terms of the
Exchange are fair to HSNi from a financial point of view; (iv) the fact that as
a result of the Stock Issuance, HSNi would issue additional shares of Common
Stock to Liberty in satisfaction of HSNi's obligation under the Contingent
Rights (as defined herein) (see "-- Interests of Certain Persons in the
Acquisition"); and (v) the fact that there will continue to be public ownership
of, and a public market for, shares of Ticketmaster Common Stock.
In view of the nature of the factors considered in connection with its
evaluation of the terms of the Exchange, the HSNi Board did not attempt to
quantify or assign relative importance to such factors. THE HSNI BOARD HAS
CONCLUDED THAT THE EXCHANGE IS IN THE BEST INTERESTS OF HSNI.
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Opinion of HSNi's Financial Advisor
At the meeting of the HSNi Board on May 19, 1997, Allen & Company delivered
its oral opinion, subsequently confirmed in writing, to the effect that, as of
such date, the terms of the Exchange were fair to HSNi from a financial point of
view.
The full text of the written opinion, dated May 19, 1997, is set forth as
Annex C to this Information Statement and describes the assumptions made,
matters considered and limits on the review undertaken. HSNI STOCKHOLDERS ARE
URGED TO READ THE OPINION IN ITS ENTIRETY. The summary of the opinion of Allen &
Company set forth in this Information Statement is qualified in its entirety by
reference to the full text of such opinion.
In arriving at its opinion, Allen & Company reviewed and analyzed (i) the
terms and conditions of the Exchange Agreement; (ii) financial aspects of the
proposed transaction and consideration to be paid by HSNi in the Exchange; (iii)
the present financial conditions and prospects of HSNi and Ticketmaster; (iv)
publicly available historical business and financial information relating to
HSNi and Ticketmaster, as presented in documents filed with the Commission; (v)
selected non-public financial and operating data provided to Allen & Company by
HSNi and Ticketmaster relating to HSNi's and Ticketmaster's respective
businesses; (vi) the trading histories of the HSNi Common Stock and Ticketmaster
Common Stock, including their performance in comparison to market indices and to
selected companies with operating statistics and dynamics similar to those of
HSNi and Ticketmaster; (vii) certain stock market data and financial information
relating to selected public companies; (viii) public financial and transaction
information relating to change of control transactions deemed by Allen & Company
to be generally similar to the Exchange; (ix) discussions with certain members
of HSNi management and Ticketmaster management; and (x) such other financial
analyses and investigations as Allen & Company deemed necessary or appropriate
for the purposes of the opinion expressed therein.
In connection with its review, Allen & Company assumed and relied on the
accuracy and completeness of the information it reviewed for the purposes of its
opinion and did not assume any responsibility for independent verification of
such information or for any independent evaluation or appraisal of the assets of
HSNi or Ticketmaster. With respect to non-public financial and operating data,
Allen & Company assumed that they had been reasonably prepared on bases
reflecting the best currently available estimates and judgments of management,
and Allen & Company expressed no opinion with respect to such forecasts or the
assumptions on which they were based. Allen & Company's opinion was necessarily
based upon business, market, economic and other conditions as they existed on,
and could be evaluated as of, the date of its opinion. Allen & Company's opinion
does not imply any conclusion as to the likely trading range of Ticketmaster
Common Stock or HSNi Common Stock following the consummation of the Exchange,
which may vary depending on, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other factors
that generally influence the price of securities.
Neither HSNi nor Ticketmaster makes, as a matter of course, public
forecasts or projections as to future performance or earnings. However, in
connection with their ongoing budgetary and financing activities, management of
HSNi and Ticketmaster, respectively, periodically prepare certain projections
for internal use. Certain of such projections were provided Allen & Company in
connection with the Exchange and related transactions. Such projections were not
prepared for, or with a view toward, dissemination to the public. SUCH
PROJECTIONS WERE NOT PREPARED IN ACCORDANCE WITH PUBLISHED GUIDELINES OF THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS OR THE COMMISSION REGARDING
PROJECTIONS AND FORECASTS, NOR HAVE SUCH PROJECTIONS BEEN AUDITED, EXAMINED OR
OTHERWISE REVIEWED BY INDEPENDENT AUDITORS OF HSNi, TICKETMASTER, OR THEIR
AFFILIATES. In addition, such projections are based upon a variety of
assumptions and estimates and are inherently subject to significant economic and
competitive uncertainties and contingencies, many of which are beyond the
control of management of HSNi Ticketmaster and their affiliates. Accordingly,
actual results may be materially higher or lower than those projected. The
inclusion of such projections herein should not be regarded as a representation
by HSNi; Ticketmaster, or any other person that the projections will prove to be
correct. None of Allen & Company or any party to whom any of these projections
were provided assumes any responsibility for the accuracy of such
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information and, in connection with its review, Allen & Company assumed without
independent verification that these projections were reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
managements which prepared the projections.
The following is a summary of the presentation made by Allen & Company to
the HSNi Board in connection with the rendering of Allen & Company's fairness
opinion:
Prior to delivering its written opinion to the HSNi Board, Allen & Company
reviewed certain information with the HSNi Board relating to HSNi and
Ticketmaster, including the information reviewed and analyzed in connection with
rendering their opinion, the financial terms of the Exchange Agreement, the
consideration to be paid by HSNi and the financial analyses summarized below.
Allen & Company reviewed the price performance of Ticketmaster Common Stock
and trading volume of Ticketmaster Common Stock since Ticketmaster's initial
public offering consummated on November 22, 1996 ("IPO"). Allen & Company also
reviewed the volume trading history of Ticketmaster Common Stock at a series of
price ranges since the IPO and noted that in excess of two-thirds of the trading
activity had taken place above the $13 per share trading price on May 15, 1997.
Allen & Company also reviewed recent reports of Wall Street analysts addressing
Ticketmaster Common Stock, noting twelve month target price estimates of $15 to
$17 per share of Ticketmaster Common Stock.
While noting that there are no publicly traded companies directly
comparable to Ticketmaster, Allen & Company performed a comparable company
analysis by comparing Ticketmaster to four market segments that Allen & Company
believed best reflected the nature and dynamics of Ticketmaster's business. The
market segments were represented by indices of companies in the following
industries: (i) diversified entertainment; (ii) telemarketing; (iii) transaction
processing; and (iv) direct marketing. The financial information compared
included recent trading price performance, historical and projected operating
results, and historical and projected multiples of key valuation measures and
financial statistics. Based upon such analysis, Allen & Company concluded that
the $13 trading price per share of Ticketmaster Common Stock on May 15, 1997,
was within the range of the multiples provided by such analysis.
As part of its analysis, Allen & Company also reviewed recent transactions
valuing Ticketmaster Common Stock, which included (i) the initial purchase by
Mr. Allen in December 1993 of approximately 12.2 million shares of Ticketmaster
Common Stock at an implied price of $14.14 per share, and (ii) the IPO of 7.25
million shares, in which the price per share of Ticketmaster Common Stock to the
public ("IPO Price") was $14.50, which reflected an enterprise value multiple of
projected fiscal 1998 attributable earnings before interest, taxes, depreciation
and amortization ("EBITDA") of approximately 10x.
Allen & Company also analyzed the implied value of the consideration to be
paid by HSNi for the Shares. Based upon the market value of $26 per share of
HSNi Common Stock as of May 15, 1997, Allen & Company determined that the
implied offer value was approximately $15.32 to $17.09 per share (depending upon
the amount of the Adjustment), representing a premium of 18% to 32% over the
market price of $13 per Share of Ticketmaster Common Stock on May 15, 1997.
Allen & Company noted that control premiums paid in comparably sized
transactions ($100 million to $500 million) to the Exchange have averaged in
excess of 30% over the past several years. Among these transactions, the premium
to the target entity's stock price one day prior to announcement ranged from
4.9% to 99.6% with a mean of 32.5% (30.8% excluding the high and low) and a
median of 28.3%.
Allen & Company analyzed the enterprise value of Ticketmaster represented
by the consideration to be paid by HSNi in the Exchange based upon the implied
value as a multiple of projected fiscal 1998 attributable EBITDA (9.7x to 10.5x)
(which was approximately $52.1 million, including Allen & Company's estimated
pro forma adjustments for Ticketmaster's acquisition of its Canadian licensee;
Allen & Company's estimate was based upon Ticketmaster management's projection
of fiscal 1998 attributable EBITDA of approximately $47.7 million, which
projection did not reflect pro forma adjustments for Ticketmaster's acquisition
of its Canadian licensee). Allen & Company noted such multiple range was
consistent with the range of current trading multiples for similar companies and
with the multiple paid for Ticketmaster Common Stock at the
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time of the IPO. Allen & Company stated its belief that Ticketmaster's financial
and operating performance has improved since the IPO.
Allen & Company also performed a discounted cash flow analysis of
Ticketmaster based upon budgets provided by Ticketmaster management and certain
other assumptions made by Allen & Company. The discounted cash flow valuation of
Ticketmaster was determined by adding (i) the present value of projected
unlevered after-tax free cash flow of Ticketmaster over the five year period
from fiscal 1998 through fiscal 2002 and (ii) the present value of
Ticketmaster's terminal value in the year 2002. The range of terminal values for
Ticketmaster's common equity at the end of the five year period was calculated
by applying a range of multiples (from 8.0x to 10.0x) to Ticketmaster's
projected EBITDA. The cash flows and terminal values of Ticketmaster were
discounted to present value using different discount rates (from 10% to 15%)
chosen to reflect various assumptions regarding Ticketmaster's estimated cost of
capital. Based upon this analysis, Allen & Company valued Ticketmaster Common
Stock at $12.56 to $20.27 per share.
No company used in the comparable company analysis summarized above is
identical to Ticketmaster, and no transaction reviewed in the control premium
analysis is identical to the Exchange. Accordingly, any such analysis of the
value of Ticketmaster or the consideration offer by HSNi in the Exchange
involves complex considerations and judgments concerning differences in the
potential financial and operating characteristics of the comparable companies
and transactions and other factors in relation to the trading and acquisition
values of the comparable companies.
The preparation of a fairness opinion is not susceptible to partial
analysis or summary description. Allen & Company believes that its analyses and
the summary set forth above must be considered as a whole and that selecting
portions of its analyses and the factors considered by it, without considering
all analyses and factors, could create an incomplete view of the processes
underlying the analysis set forth in its opinion. Allen & Company has not
indicated that any of the analyses which it performed had a greater significance
than any other.
In determining the appropriate analyses to conduct and when performing
those analyses, Allen & Company made numerous assumptions with respect to
industry performance, general business, financial, market and economic
conditions and other matters, many of which are beyond the control of HSNi or
Ticketmaster. The analyses which Allen & Company performed are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. Such analyses were
prepared solely as part of Allen & Company's analysis of the fairness to HSNi,
from a financial point of view, of the terms of the Exchange. The analyses do
not purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or at any time in the future.
Allen & Company is a nationally recognized investment banking firm that is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
bids, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. HSNi
retained Allen & Company based on such qualifications as well as its familiarity
with HSNi and Ticketmaster.
HSNi entered into a letter agreement with Allen & Company dated May 19,
1997 (the "Engagement Letter"), pursuant to which Allen & Company agreed to act
as financial advisor to HSNi and to assist in evaluating the fairness to HSNi,
from a financial point of view, of the terms of a proposed transaction between
HSNi and Mr. Allen. Under the Engagement Letter, HSNi agreed to pay Allen &
Company a fee in an amount to be agreed upon by HSNi and Allen & Company, which
fee has not yet been determined. HSNi has agreed to reimburse Allen & Company
for all its reasonable out-of-pocket expenses, including the fees and
disbursements of its counsel, incurred in connection with its engagement by HSNi
and to indemnify Allen & Company against certain liabilities and expenses in
connection with its engagement.
Allen & Company has from time to time provided financial advisory services
to each of Ticketmaster and HSNi, acted as managing underwriter of
Ticketmaster's IPO, and acted as placement agent in March 1996 for the private
placement of Home Shopping convertible debentures. Allen & Company and certain
principals and
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employees of Allen & Company hold positions in HSNi securities. From time to
time in the ordinary course of its business as a broker-dealer, Allen & Company
may hold positions and trade in securities of HSNi and Ticketmaster.
TERMS OF THE EXCHANGE
The following is a brief summary of the terms of the Exchange. This summary
does not purport to be complete and is qualified in its entirety by reference to
the Exchange Agreement, which is annexed to this Information Statement as Annex
A and incorporated herein by reference.
The Exchange
At the Closing, HSNi will acquire from Mr. Allen the 12,283,014 Shares held
by him, and, in consideration therefor, HSNi will issue to Mr. Allen an
aggregate of 7,238,507 shares of HSNi Common Stock, subject to adjustment as
follows: if the unweighted average closing price of a share of HSNi Common
Stock, during the first 20 trading days in July 1998 (the "Fair Market Value")
is less than $29 per share, Adjustment Shares will be issued to Mr. Allen at a
second closing (the "Second Closing"). The number of Adjustment Shares to be
issued will equal the difference between the number obtained by dividing
$209,916,709 by the Fair Market Value and 7,238,507. Notwithstanding the
foregoing, (i) if the Fair Market Value is less than $20 per share, the Fair
Market Value will be deemed to be $20 per share, and (ii) no adjustment will be
required or made if the Fair Market Value during any consecutive 20 trading day
period commencing on December 1, 1997 and ending on the day immediately prior to
the Second Closing equals or exceeds $29 per share.
In the event that the issuance of all or any portion of the Adjustment
Shares would cause Mr. Allen to be in violation of the rules and regulations of
the Federal Communications Commission ("FCC"), Mr. Allen, at his option, may
elect to (i) receive in lieu of the Adjustment Shares that may not be issued
under FCC law (the "FCC Excess Shares") non-voting participating preferred stock
of HSNi, convertible upon transfer or upon compliance with FCC regulatory
restrictions into HSNi Common Stock, and designed to be the economic equivalent
of the FCC Excess Shares, (ii) deliver a proxy complying with FCC law to Mr.
Diller to vote the FCC Excess Shares, or (iii) enter into such other
arrangements to comply with FCC law as are acceptable to HSNi.
The Exchange Agreement also provides that, subject to specified conditions,
pursuant to the terms of the Shareholders Agreement, dated as of December 15,
1993, by and among Mr. Allen and the other members of the Tag-Along Group (the
"Ticketmaster Shareholders Agreement"), HSNi will purchase shares of
Ticketmaster Common Stock from those members of the Tag-Along Group who exercise
their Tag-Along Rights in accordance with the terms of the Ticketmaster
Shareholders Agreement. As a result, as part of the Exchange, HSNi may acquire
up to an additional 3,077,391 shares of Ticketmaster Common Stock, in the
aggregate, from those members of the Tag-Along Group other than Mr. Allen
(532,865 additional shares of Ticketmaster Common Stock excluding shares held by
the Non-Electing Holder), and in exchange therefor may issue to such members up
to an additional 1,813,538 shares of HSNi Common Stock, in the aggregate, at the
Closing (314,023 additional shares of HSNi Common Stock excluding shares that
would be issuable to the Non-Electing Holder) and an additional 816,092 shares
of HSNi Common Stock, in the aggregate, in the Adjustment (141,310 additional
shares of HSNi Common Stock excluding shares that would be issuable to the
Non-Electing Holder).
Under the Ticketmaster Shareholders Agreement, if at any time during the
term of such Agreement, Mr. Allen enters into an agreement to transfer (other
than certain permitted or exempt transfers) any of his shares of Ticketmaster
Common Stock (such transfer, a "Tag-Along Sale"), then each of the members of
the Tag-Along Group other than Mr. Allen has the right to participate in such
Tag-Along Sale upon the same terms and conditions as Mr. Allen. The number of
shares of Ticketmaster Common Stock that each such member is entitled to include
in such Tag-Along Sale is determined by multiplying (i) the number of shares of
Ticketmaster Common Stock continuously held by such member from the date of the
Ticketmaster Shareholders Agreement by (ii) a fraction, the numerator of which
shall equal the number of shares of
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Ticketmaster Common Stock proposed by Mr. Allen to be sold or otherwise disposed
of pursuant to the Tag-Along Sale and the denominator of which shall equal the
total number of Shares held by Mr. Allen.
Pursuant to the Ticketmaster Shareholders Agreement, Mr. Allen has provided
the required notice of the Tag-Along Sale to the members of the Tag-Along Group.
No less than ten business days prior to the Closing, each member of the
Tag-Along Group other than Mr. Allen is required to provide written notice to
Mr. Allen of such member's desire to participate in the Exchange, which notice
will constitute such member's binding agreement to sell such member's shares of
Ticketmaster Common Stock in the Exchange on the terms and conditions provided
in the Exchange Agreement. In addition, HSNi has agreed to extend the period of
time until January 6, 1998 for Mr. Rosen to decide whether to participate in the
Exchange. HSNi is therefore unable to determine at this time the actual number
of Shares it will acquire, or the actual number of Tag-Along Group Shares it
will issue, in the Exchange. HSNi has been advised by the Non-Electing Holder,
which holds 2,544,526 shares of Ticketmaster Common Stock, that it does not
intend to exercise Tag-Along Rights.
Representations and Warranties
In the Exchange Agreement, each of HSNi and Mr. Allen makes substantially
parallel representations and warranties concerning each of HSNi and Ticketmaster
customary for transactions similar to the Exchange. With certain exceptions, the
representations and warranties contained in the Exchange Agreement will not
survive the Closing.
Covenants
HSNi covenants that it will reserve authorized but unissued shares of HSNi
Common Stock as will be sufficient to effect the Adjustment. HSNi also granted
to Mr. Allen certain registration rights on the basis of one demand registration
right for each 4,000,000 Shares exchanged by him, together with customary
"piggyback" registration rights relating thereto. Accordingly, under the
Exchange Agreement, HSNi covenants that following the one year anniversary of
the Closing, if requested by Mr. Allen, it shall promptly cause the Tag-Along
Group Shares owned by Mr. Allen or his affiliates to be registered under the
Securities Act of 1933, as amended (the "Securities Act"), in order to permit
Mr. Allen or such affiliate to sell such shares in one or more (but not more
than three) registered public offerings. Mr. Allen will also be entitled to
customary "piggyback" registration rights in which he or his affiliates may sell
Tag-Along Group Shares owned by him in a registered public offering not
initiated by him or his affiliates. HSNi has also agreed to provide demand
registration rights to members of the Tag-Along Group other than Mr. Allen on
the basis of one demand registration right for each 4,000,000 Shares sold to
HSNi pursuant to the Tag-Along Rights. In addition, to the extent any such
member of the Tag-Along Group other than Mr. Allen receives under the Exchange
Agreement more than 1% of HSNi's outstanding equity securities, such member will
be permitted to "piggyback" on any demand registration by Mr. Allen if at the
time thereof such member cannot sell his or its Tag-Along Group Shares under
Rule 144 under the Securities Act (or its equivalent) without volume limitation.
HSNi and Mr. Allen agree to (and, in the case of Mr. Allen, to use all
reasonable efforts to cause Ticketmaster to) file promptly any forms required
under applicable law and take any other action reasonably requested in
connection with obtaining the expiration or termination of the waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the rules and regulations promulgated thereunder (the "HSR Act"). In addition,
(i) Mr. Allen will use all reasonable efforts to cause Ticketmaster and its
subsidiaries and each of their officers, directors, employees, agents,
representatives, accountants and counsel to, and (ii) HSNi and its subsidiaries
and each of their officers, directors, employees, agents, representatives,
accountants and counsel will: (x) afford the officers, employees and authorized
agents, accountants, counsel and representatives of the other party reasonable
access to its offices, properties, plants, other facilities, books and records,
and to those officers, directors, employees, agents, accountants and counsel who
have any knowledge relating to its business and (y) furnish to the officers,
employees and authorized agents, accountants, counsel and representatives of the
other party such additional financial and operating data
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and other information regarding its assets, properties and goodwill as the other
party may from time to time reasonably request.
During the period from the date of the Exchange Agreement to the Closing,
Mr. Allen has agreed to use all reasonable efforts to cause Ticketmaster to
carry on its business in the ordinary course consistent with past practice and
in compliance in all material respects with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts to preserve
intact its current business organizations, use all reasonable efforts to keep
available the services of its current officers and other key employees and
preserve its relationships with those persons having business dealings with it
to the end that its goodwill and on-going business shall be unimpaired at the
Closing, including, without limitation, refraining from: (i) making any change
or agreement to change the character or nature of its businesses; (ii)
purchasing, selling, transferring, assigning, conveyancing or pledging its
properties, except in the ordinary course of business; (iii) waiving or
modifying any right or rights of substantial value, or paying, directly or
indirectly, in satisfaction of any liability, in each case, having a material
adverse effect on Ticketmaster; (iv) incurring any liability, contract,
agreement, license or other commitment relating to its business, assets or
properties, except in the ordinary course of business; (v) making any loan,
advance or capital expenditure, except for loans, advances and capital
expenditures made in the ordinary course of business; (vi) adopting a change in
the accounting principles, methods, practices or procedures or any change in the
depreciation or amortization policies or rates theretofore adopted in connection
with the respective business; (vii) declaring or paying any dividends, or other
distributions in respect of the outstanding shares of capital stock of
Ticketmaster and its subsidiaries (other than dividends declared or paid by
wholly owned subsidiaries); (viii) other than in connection with the exercise of
outstanding employee stock option, issuing any shares of capital stock of
Ticketmaster and its subsidiaries; (ix) granting or awarding any options,
warrants, conversion rights or other rights to acquire any shares of capital
stock of Ticketmaster or any of its subsidiaries, except as contemplated by the
Exchange Agreement or except pursuant to employee benefit plans, programs or
arrangements in the ordinary course of business consistent with past practice;
and (x) increasing the compensation or benefits of any director, officer or
other key employee of Ticketmaster or any of its subsidiaries. In addition, as
an accommodation to HSNi to facilitate an orderly transition, Mr. Allen will
continue to serve as Chairman of Ticketmaster for a period not to exceed six
months following the Closing.
Board Representation
Mr. Allen will use all reasonable efforts to cause Ticketmaster and its
directors to exercise all authority under applicable law so that, effective upon
the Closing, the Board of Directors of Ticketmaster will consist of up to a
majority of individuals designated by HSNi. Such designees will be reasonably
satisfactory to Ticketmaster's directors in the exercise of their fiduciary
duties to Ticketmaster's stockholders.
HSNi has agreed that prior to the Closing, HSNi will take such action under
applicable law so that, effective upon the Closing, Mr. Allen will be elected to
serve as a director of HSNi. Subject to applicable law (including the rules and
regulations of the FCC), so long as Mr. Allen has not disposed of one-third or
more of the Tag-Along Group Shares acquired by him under the Exchange Agreement
(other than to certain specified transferees), and provided that at all times
Mr. Allen is the beneficial owner of at least 5% of HSNi's outstanding equity
securities (assuming for this purpose that all HSNi equity securities issuable
under the Liberty Agreements (as defined in the Exchange Agreement) are
outstanding)), HSNi shall take all necessary action to cause Mr. Allen (or a
designee of Mr. Allen acceptable to HSNi) to be included in the slate of
nominees recommended by the HSNi Board and shall use all reasonable efforts to
cause the election of Mr. Allen or such designee.
In addition, in connection with the Exchange Agreement, Mr. Allen, Mr.
Diller and Liberty have entered into a Stockholders Agreement (the
"Diller-Liberty-Allen Stockholders Agreement") pursuant to which, among other
things, each of Mr. Diller and Liberty agrees to vote all shares of HSNi voting
stock over which he or it may then exercise voting power, at any annual or
special meeting of stockholders of HSNi called for the purpose of the election
of directors or to execute written consents of stockholders without a meeting
with respect to the election of directors, in favor of Mr. Allen or a designee
of Mr. Allen acceptable to HSNi, so long as Mr. Allen is entitled to
representation on the HSNi Board under the Exchange Agreement. The
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<PAGE> 20
foregoing summary does not purport to be complete and is qualified in its
entirety by reference to the Diller-Liberty-Allen Stockholders Agreement, which
is annexed to this Information Statement as Annex B and incorporated herein by
reference.
Conditions to Closing
Under the Exchange Agreement, Mr. Allen's obligations to consummate the
Exchange are subject to the following conditions: (i) the representations and
warranties of HSNi remaining true; (ii) the performance by HSNi of all
covenants, agreements, and conditions required by the Exchange Agreement to be
performed, satisfied or complied with by it on or prior to the Closing; (iii)
the expiration or termination of the waiting periods under the HSR Act
applicable to Mr. Allen's acquisition of HSNi Common Stock and to HSNi's
acquisition of the Shares; (iv) the absence of any temporary, preliminary or
permanent injunction or any order by any federal or state court of competent
jurisdiction which would prohibit or otherwise seek to prohibit, restrain,
enjoin or delay the consummation of any of the transactions contemplated by the
Exchange Agreement; (v) the Diller-Liberty-Allen Stockholders Agreement having
been executed; (vi) the receipt of all authorizations, consents (including any
required consent under the Credit Agreement dated as of November 18, 1994, as
amended, among Ticketmaster, its lenders and Wells Fargo Bank, National
Association, as agent (the "Ticketmaster Credit Agreement")), approvals,
licenses, franchises, permits and certificates by or of, and the making of all
filings and the effectuation of all notifications, registrations and
qualifications with, all federal, state and local governmental and regulatory
authorities necessary for the consummation of the transactions contemplated by
the Exchange Agreement; (vii) the absence of any action, suit, investigation or
proceeding pending with, or to the knowledge of HSNi, threatened by, any public
or governmental authority, against or affecting Ticketmaster or its respective
properties or rights, before any court, arbitrator or administrative or
governmental body which seeks to restrain, enjoin or prevent the consummation of
the transactions contemplated by the Exchange Agreement, or challenges the
validity or legality of any transactions contemplated by the Exchange Agreement
or seeks to recover damages or to obtain other relief in connection with any
such transactions; (viii) the passing of 20 calendar days from the mailing of
this Information Statement to HSNi's stockholders, and ten calendar days from
the mailing, if required, of a Ticketmaster information statement to
Ticketmaster's stockholders; and (ix) the taking of all corporate and other
proceedings to be taken by HSNi in connection with the transactions contemplated
by the Exchange Agreement. The Required Lenders (as defined in the Ticketmaster
Credit Agreement) have executed an amendment to the Ticketmaster Credit
Agreement, which will become effective upon the Exchange to, among other things,
approve and consent to the Exchange.
HSNi's obligations to consummate the Acquisition are subject to the
following conditions: (i) the representations and warranties of Mr. Allen
remaining true; (ii) the performance by Mr. Allen of all covenants, agreements
and conditions required by the Exchange Agreement to be performed, satisfied or
complied with by him on or prior to the Closing; (iii) the absence of any
condition, event or development having, or likely to have (in the reasonable
judgment of HSNi), a material adverse effect on Ticketmaster and its
subsidiaries considered as a whole; (iv) the expiration or termination of the
waiting periods under the HSR Act applicable to Mr. Allen's acquisition of HSNi
Common Stock and to HSNi's acquisition of the Shares; (v) the absence of any
temporary, preliminary or permanent injunction or any order by any federal or
state court of competent jurisdiction which would prohibit or otherwise seek to
prohibit, restrain, enjoin or delay the consummation of any of the transactions
contemplated by the Exchange Agreement; (vi) the receipt of all authorizations,
consents (including any required consent under the Ticketmaster Credit
Agreement), approvals, licenses, franchises, permits and certificates by or of,
and the making of all filings and the effectuation of all notifications,
registrations and qualifications with, all federal, state and local governmental
and regulatory authorities necessary for the consummation of the transactions
contemplated by the Exchange Agreement; (vii) the absence of any action, suit,
investigation or proceeding pending with, or to the knowledge of Mr. Allen,
threatened by, any public or governmental authority, against or affecting Mr.
Allen or HSNi or their respective properties or rights, before any court,
arbitrator or administrative or governmental body which seeks to restrain,
enjoin or prevent the consummation of the transactions contemplated by the
Exchange Agreement, or challenges the validity or legality of any transactions
contemplated by the Exchange Agreement or seeks to recover damages or to obtain
other relief in connection with any such transactions; (viii) the passing of 20
calendar days from the mailing of this Information Statement to HSNi's
stockholders,
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<PAGE> 21
and ten calendar days from the mailing, if required, of a Ticketmaster
information statement to Ticketmaster's stockholders; and (ix) the taking of all
corporate and other proceedings to be taken by Ticketmaster in connection with
the transactions contemplated by the Exchange Agreement.
Termination
The Exchange Agreement may be terminated, for any reason, at any time prior
to the Closing, by the mutual written consent of Mr. Allen and HSNi. In
addition, the Exchange Agreement may be terminated by action of Mr. Allen or
HSNi if and to the extent that (i) the Closing shall not have occurred at or
prior to 5:00 p.m., Eastern Time, on December 31, 1997 (provided, however, that
such right to terminate will not be available to any party whose failure to
fulfill any obligation under the Exchange Agreement was the cause of, or
resulted in, the failure of the Closing to occur); or (ii) any court or
governmental authority of competent jurisdiction shall have issued an order,
decree, writ or ruling or taken any other action, or there shall be in effect
any statute, rule or regulation, temporarily, preliminarily or permanently
restraining, enjoining or otherwise prohibiting the Exchange or the consummation
of the transactions contemplated by the Exchange Agreement.
The Exchange Agreement may be terminated by action of HSNi, if (i) Mr.
Allen shall have failed to comply in any material respect with any of the
covenants or agreements contained in the Exchange Agreement to be complied with
or performed by him at or prior to such date of termination, and Mr. Allen shall
not, within a reasonable period of time after notice of such failure, have cured
or commenced prompt and diligent measures which would promptly cure such
failure; (ii) there shall have been a misrepresentation or breach by Mr. Allen
with respect to any representation or warranty made by him in the Exchange
Agreement and such misrepresentation or breach cannot be cured prior to the
Closing; or (iii) there shall have occurred and be continuing any condition,
event or development having, or reasonably likely to have, a material adverse
effect on Ticketmaster and its subsidiaries considered as a whole.
The Exchange Agreement may be terminated by action of Mr. Allen, if (i)
HSNi shall have failed to comply in any material respect with any of the
covenants or agreements contained in the Exchange Agreement to be complied with
or performed by HSNi at or prior to such date of termination and HSNi shall not,
within a reasonable period of time after notice of such failure, have cured or
commenced prompt and diligent measures which would promptly cure such failure;
(ii) there shall have been a misrepresentation or breach by HSNi with respect to
any representation or warranty made by it in the Exchange Agreement and such
misrepresentation or breach cannot be cured prior to the Closing; (iii) there
shall have occurred and be continuing any condition, event or development
having, or reasonable likely to have, a material adverse effect on HSNi and its
subsidiaries considered as a whole; or (iv) Mr. Diller shall have ceased serving
HSNi as its Chief Executive Officer and Chairman of the Board.
INTERESTS OF CERTAIN PERSONS IN THE EXCHANGE
Liberty HSN, Liberty and TCI
Liberty HSN, Inc. ("Liberty HSN") is an indirect, wholly owned subsidiary
of Liberty, which, in turn, is a wholly owned subsidiary of Tele-Communications,
Inc. ("TCI"). Prior to the Home Shopping Merger, TCI, through Liberty and
Liberty HSN, exercised voting control over Home Shopping. A total of 2,591,752
of the shares of HSNi Class B Common Stock issuable to Liberty HSN pursuant to
the Home Shopping Merger were not issued, but instead are represented by HSNi's
contractual obligation to issue to Liberty HSN such shares upon the occurrence
of certain events, including a change in applicable FCC regulations or other
event that would permit Liberty HSN to hold additional shares of HSNi Class B
Common Stock (such contractual right, the "Contingent Rights," and such
underlying shares, the "Contingent Rights Shares").
As a consequence of the issuance of shares to the Tag-Along Group under the
Exchange Agreement, under applicable FCC authority, Liberty HSN will be
permitted to hold an indirect interest in a greater number of shares of Common
Stock. Therefore, under the terms of the Contingent Rights, Contingent Rights
Shares will become issuable to Liberty HSN. At the Closing under the Exchange
Agreement, HSNi will issue 7,238,507 shares of HSNi Common Stock to Mr. Allen
(up to 7,552,530 shares of HSNi Common Stock if all members of the Allen Group
other than the Non-Electing Holder exercise their Tag-Along Rights). In
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<PAGE> 22
accordance with the terms of the Contingent Rights held by Liberty HSN, at least
2,002,591 Contingent Rights Shares (and up to 2,087,935 Contingent Rights Shares
if all members of the Tag-Along Group other than the Non-Electing Holder
exercise their Tag-Along Rights) will become issuable to Liberty HSN
simultaneous with or immediately following the closing under the Exchange
Agreement.
In addition, the Exchange Agreement provides that, depending upon the
market price of the Common Stock, in August 1998 up to 3,257,328 Adjustment
Shares may be required to be issued to Mr. Allen (up to 3,398,639 Adjustment
Shares if all members of the Allen Group other than the Non-Electing Holder
exercise their Tag-Along Rights). Accordingly, in the event Adjustment Shares
become issuable to members of the Tag-Along Group pursuant to the Stock Exchange
Agreement in August 1998, additional Contingent Rights Shares will become
issuable to Liberty HSN. Assuming the maximum of 3,257,328 of such Adjustment
Shares are issued to Mr. Allen (3,398,639 if all members of the Tag-Along Group
other than the Non-Electing Holder exercise their Tag-Along Rights) the
remaining 589,161 Contingent Rights Shares will become issuable to Liberty HSN.
Because the trading price of HSNi Common Stock is uncertain, and therefore the
number of shares of HSNi Common Stock issuable to the Tag-Along Group under the
Exchange Agreement is uncertain, and because the participation in the
transaction by the members of the Tag-Along Group other than Mr. Allen is
uncertain, as of the date hereof HSNi can only estimate the actual number of
Contingent Rights Shares that will ultimately be issued as a result of the
transactions contemplated by the Exchange Agreement.
Because the Home Shopping class B shares are entitled to ten votes per
share, upon consummation of the Home Shopping Merger, HSNi owned 80.1% of the
equity and 90.8% of the voting power of Home Shopping and Liberty HSN owned
19.9% of the equity and 9.2% of the voting power of Home Shopping. After the
Home Shopping Merger, pursuant to an Exchange Agreement, dated as of December
20, 1996, between HSNi and Liberty HSN (the "Liberty Exchange Agreement"), at
such time from time to time as Liberty HSN or its permitted transferee may be
allowed under applicable FCC authority to have an indirect equity interest in an
additional number of shares of Common Stock, Liberty HSN or its permitted
transferee will exchange its shares of Home Shopping common stock and its Home
Shopping class B common stock for shares of HSNi Common Stock and HSNi Class B
Common Stock, respectively, at the applicable conversion ratio (such exchange
and such shares of HSNi Class B Common Stock and HSNi Common Stock issued
pursuant thereto are referred to herein as the "Liberty Exchange" and the
"Liberty Exchange Shares," respectively). Liberty HSN, however, is obligated to
effect a Liberty Exchange only after all of the Contingent Rights Shares have
been issued, subject to certain conditions. Assuming the maximum of 3,257,328 of
such Adjustment Shares are issued to Mr. Allen (3,398,639 if all members of the
Allen Group other than the Non-Electing holder exercise their Tag-Along Rights),
296,113 Liberty Exchange Shares (419,863 Liberty Exchange Shares if all members
of the Tag-Along Group other than the Non-Electing Holder exercise their
Tag-Along Rights) will become issuable to Liberty HSN. Because there can be no
assurance as to the actual number of Contingent Rights Shares that will
ultimately be issued as a result of the Acquisition, there can also be no
assurance as to the actual number of shares of Common Stock that may be issued
pursuant to the Liberty Exchange Agreement as a result of the Exchange. Upon
completion of the exchange of all shares of Home Shopping common stock and its
Home Shopping class B common stock for shares of HSNi Common Stock and HSNi
Class B Common Stock, Home Shopping would become a wholly owned subsidiary of
HSNi.
The actual number of Contingent Rights Shares or Liberty Exchange Shares
issuable could vary from the numbers contained in the above description of the
interests of Liberty HSN, Liberty and TCI in the Exchange, as a result of events
subsequent to the date of this Information Statement, including, among other
things, a change in law, or the occurrence of some event other than the Exchange
which could cause the issuance of Contingent Rights Shares or Liberty Exchange
Shares prior to the Closing or the Adjustment.
The issuance of the Contingent Rights Shares and Liberty Exchange Shares by
HSNi was approved in connection with the Mergers, and therefor no additional
stockholder action will be required to approve issuance of the Contingent Rights
Shares and Liberty Exchange Shares. Under the terms of the Contingent Rights and
the Liberty Exchange Agreement, no additional consideration is payable by
Liberty HSN to HSNi in connection with the issuance of Contingent Rights Shares
or Liberty Exchange Shares.
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Mr. Diller
Pursuant to the Stockholders Agreement, Mr. Diller exercises voting control
over the Common Stock held by the BDTV Entities, Mr. Diller, Liberty, Arrow
Holdings, LLC and certain of their affiliates, subject to certain restrictions
on Mr. Diller's authority to vote such shares with respect to certain matters
relating to HSNi and otherwise as provided in the Stockholders Agreement.
Pursuant to the Stockholders Agreement, Mr. Diller and Liberty have agreed that
the Common Stock owned by any of Mr. Diller, Liberty and certain of their
affiliates will not be voted in favor of the taking of any action in connection
with certain extraordinary matters except with the consent of each of Mr. Diller
and Liberty. Each of Mr. Diller and Liberty has given such consent to the
Exchange and the transactions contemplated thereby.
Due to the voting control afforded Mr. Diller under the Stockholders
Agreement, the issuance of Contingent Rights Shares to Liberty HSN and the
potential issuance of Liberty Exchange Shares to Liberty HSN as a consequence of
the issuance of the Stock Issuance, the Stock Issuance indirectly will have the
effect of increasing Mr. Diller's voting control over HSNi.
In view of the number of shares of Common Stock as to which the BDTV
Entities or Mr. Diller already has voting power, Mr. Diller is already able to
control the outcome of any vote of stockholders as to any proposal or matter on
which the holders of HSNi Common Stock and HSNi Class B Common Stock vote
together as a single class and the outcome of any matter as to which only the
holders of HSNi Class B Common Stock vote as a separate class. In addition, Mr.
Diller, subject to the terms of the Stockholders Agreement, is already
effectively able to control the outcome of all matters submitted to a vote or
for the consent of stockholders (other than with respect to the election by the
holders of HSNi Common Stock of 25% of the members of the HSNi Board (rounded up
to the nearest whole number) and certain matters as to which a separate class
vote of the holders of HSNi Common Stock is required under the DGCL). Therefore,
the increase in Mr. Diller's voting control over HSNi is not expected to have
any material effect on HSNi.
It is anticipated that, effective upon the Closing, Mr. Diller will be
elected to serve as a director of Ticketmaster.
Other
Bruce Ramer, a Director of HSNi, owns 2,500 shares of Ticketmaster Common
Stock. The HSNi Board was aware of Mr. Ramer's ownership of Ticketmaster Common
Stock during its consideration of the Exchange.
ACCOUNTING TREATMENT
In the event that the number of Shares acquired by HSNi in the Exchange is
less than 50% of the total number of outstanding shares of Ticketmaster Common
Stock, HSNi would be required to account for the acquired Shares as a investment
under the equity method (which is used when an investor owns a sufficient number
of shares in an unconsolidated company to exercise significant control over the
actions of that company), in which case the acquired Shares would be recorded on
the books of HSNi at their cost of acquisition, and the proportionate share of
earnings reported by Ticketmaster would be debited to HSNi's investment account
and credited to HSNi's earnings.
If the number of Shares acquired by HSNi in the Exchange is less than 50%
of the total number of outstanding shares of Ticketmaster Common Stock, HSNi
currently intends to acquire additional shares of Ticketmaster Common Stock from
time to time in the open market or otherwise until the number of shares owned by
HSNi exceeds 50% of the total number of outstanding shares of Ticketmaster
Common Stock. As a result, HSNi expects to consolidate the financial reporting
of Ticketmaster's operating results. The outstanding equity interest of
Ticketmaster not owned by HSNi would be reported as a minority interest by HSNi.
As a result of HSNi's acquisition of in excess of 50% of the outstanding shares
of Ticketmaster Common Stock, options granted to employees of Ticketmaster under
the Ticketmaster Stock Plan would vest and become exercisable. See Note 9 of the
Notes to Ticketmaster Group, Inc. and Subsidiaries, Notes to Consolidated
Financial Statements.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the U.S. federal income tax consequences to
HSNi and its stockholders resulting from the Exchange is for general information
only. This summary is based upon laws, regulations, rulings and judicial
decisions now in effect, all of which are subject to change. This discussion
does not cover all aspects of U.S. federal taxation that may be relevant and it
does not address state, local, foreign or other tax laws.
Mr. Allen's (and that of the other members of this Tag-Along Group, if
applicable) sale of the Shares to HSNi is generally a taxable transaction to Mr.
Allen (and the other members of the Tag-Along Group, if applicable) for federal
income tax purposes, and may be taxable for state, local and other tax purposes.
HSNi's tax basis in the Shares for federal income tax purposes will be equal to
the fair market value of the purchase price. There will be no tax consequences
to HSNi's stockholders as a result of the Exchange.
REGULATORY APPROVALS
With the exception of any required filings under the Exchange Act and the
HSR Act, there are no federal or state regulatory filing requirements or
approvals in connection with the Exchange.
Under the HSR Act certain acquisition transactions may not be consummated
unless certain information has been furnished to the Antitrust Division of the
U.S. Department of Justice (the "Antitrust Division") and the U.S. Federal Trade
Commission (the "FTC") and certain waiting period requirements have been
satisfied.
Notification and Report Forms with respect to the Exchange were filed under
the HSR Act by both HSNi in connection with its acquisition of the Shares in the
Exchange on May 30, 1997, and by Mr. Allen in connection with his acquisition of
HSNi Common Stock in the Exchange on May 29, 1997. The waiting periods with
respect to each of the filings under the HSR Act have been terminated.
At any time before or after the Exchange, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the Exchange or
seeking the divestiture of the HSNi Common Stock by Mr. Allen or the
Ticketmaster Common Stock by HSNi. Private parties and state attorneys general
may also bring legal action under federal or state antitrust laws under certain
circumstances. Based upon an examination of information available to HSNi, HSNi
believes that the Exchange does not violate the antitrust laws. Nevertheless,
there can be no assurance that a challenge to the Exchange on antitrust grounds
will not be made or, if such a challenge is made, what the result would be.
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INFORMATION CONCERNING TICKETMASTER
Unless the context otherwise requires, references to "Ticketmaster" include
Ticketmaster Group, Inc., its predecessors and its subsidiaries. References to
the "Managed Businesses" include Ticketmaster's wholly and majority owned
subsidiaries (the "Consolidated Businesses") together with Ticketmaster's
interest in those unconsolidated joint ventures in which it acts as managing
partner (the "Unconsolidated Joint Ventures"). The following information
concerning Ticketmaster is taken from Ticketmaster's Annual Report on Form 10-K
for the fiscal year ending January 31, 1997. More complete information is
contained in such Annual Report.
BUSINESS
General
Ticketmaster, through the Managed Businesses, is the leading provider of
automated ticketing services in the U.S. with over 3,500 clients, including many
of the country's foremost entertainment facilities and promoters and 77
professional sports franchises. Ticketmaster has established its market position
by providing these clients with comprehensive ticket inventory control and
management, a broad distribution network and dedicated marketing and support
services. Ticket orders are received and fulfilled through operator-staffed call
centers, independent sales outlets remote to the facility box office and
Ticketmaster's World Wide Web site. Revenue is generated principally from
convenience charges received by Ticketmaster for tickets sold on its clients'
behalf. Ticketmaster generally serves as an exclusive agent for its clients and
typically has no financial risk for unsold tickets. Ticketmaster, through the
Managed Businesses, sold 60.0 million tickets in fiscal 1997, while generating
revenues of $298.5 million.
Based upon recent trends in the entertainment, sporting and leisure
industries, Ticketmaster believes that its principal business, live
entertainment ticketing, will experience increased revenues under existing venue
contracts. Ticketmaster believes that significant opportunities exist through
continued penetration of this principal market. Additionally, Ticketmaster
believes that further ticketing opportunities will arise from the construction
of new and larger facilities, the increase in the number of professional sports
teams and the development of new sports leagues. Furthermore, Ticketmaster plans
to continue to broaden its client base to include such venues as museums, zoos,
amusement parks, state and county fairs, and other locations such as golf
courses, ski resorts and trade shows.
Ticketmaster also believes that significant opportunities exist
internationally to attract additional venues in a historically under-penetrated
market for automated ticketing services. In addition, the continued enthusiasm
for soccer and growing popularity of major American sports such as football,
baseball and basketball should lead to increased utilization of these
international venues and provide additional revenue opportunities. In order to
be in a position to capitalize on these trends, Ticketmaster expects to expand
its existing operations in the United Kingdom, Australia and Mexico, and is
exploring further opportunities in Europe, the Pacific Rim, and Central and
South America.
Ticketmaster is continuing to leverage its widely recognized brand name and
extensive distribution capabilities by developing new opportunities in related
areas, such as entertainment information and publishing, merchandising,
advertising, promotional services, and direct marketing. Specific examples of
its efforts include offering integrated brand management and marketing services
to strategic partners, such as MasterCard International, Sprint Communications
and United Parcel Service, through sponsorship and advertising opportunities
during live events, during telephone ticketing services, on its ticket stock and
envelopes, on event promotional material and in additional media outlets which
Ticketmaster is developing. In addition, in February 1996, Ticketmaster launched
Live!, a monthly entertainment magazine and event guide which Ticketmaster
believes is a natural extension of its existing distribution channels.
Ticketmaster has also launched Ticketmaster Online
(http://www.ticketmaster.com), its site on the World Wide Web, designed to
promote ticket sales for live events, disseminate event information and offer
transactional and merchandising services. Ticketmaster Online began
transactional services in September 1996 and is currently processing retail
transactions for Ticketmaster and ticketing transactions for its entire
clientele. These efforts to create new promotional, marketing and distribution
opportunities by utilizing and integrating Ticketmaster's
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traditional principal ticketing services and brand name have formed the basis
for new growth opportunities in the future.
Ticketmaster believes that the Ticketmaster System and its extensive
distribution capabilities provide a competitive advantage that enhances
Ticketmaster's ability to attract new clients and maintain its existing client
base. The Ticketmaster System, which includes both hardware and software, is
typically installed in a client's facility box office and provides a single
centralized inventory control management system capable of tracking total ticket
inventory for all events, whether sales are made on a season, subscription,
group or individual ticket basis. The Ticketmaster System is capable of
processing over 100,000 tickets per hour in certain markets, and each of its 18
computer systems can support 10,000 users per system, of which as many as 3,000
can be online at any one time.
Through its Managed Businesses, Ticketmaster has a comprehensive domestic
distribution system that includes approximately 2,700 remote sales outlets in 44
states covering many of the major metropolitan areas in the U.S. and 16 domestic
call centers with approximately 1,750 operator positions. Ticketmaster provides
the public with convenient access to tickets and information regarding
entertainment events. Ticket purchasers are assessed a convenience charge for
each ticket sold offsite by Ticketmaster on behalf of its clients. These charges
are negotiated and included in Ticketmaster's contracts with its clients. The
versatility of the Ticketmaster System allows it to be customized to satisfy a
full range of client requirements.
From fiscal 1991 through 1997, the number of tickets sold and revenues for
the Managed Businesses have grown from 29.1 million tickets and $96.1 million of
revenues to 60.0 million tickets and $298.5 million of revenues.
Client Relationships
Ticketmaster's clients include many of the most well known arenas,
stadiums, theaters, sports teams and promoters in the U.S. Ticketmaster
currently has in excess of 3,500 clients ranging in size from large stadiums
with more than 60,000 seats to smaller theaters with seating in the hundreds,
and from multi-event promoters to one-time single event promoters.
Representative of Ticketmaster's clients are the following:
<TABLE>
<CAPTION>
ARENAS, STADIUMS AND THEATERS
- ----------------------------------------------------------------------------------------------------
<S> <C>
Alamodome, San Antonio, TX Market Square Arena, Indianapolis, IN
Arie Crown Theater, Chicago, IL Meadowlands Sports Complex, East Rutherford, NJ
Astrodome, Houston, TX Miami Arena, Miami, FL
Blossom Amphitheatre, Cleveland, OH Nassau Coliseum, Uniondale, NY
Bradley Center, Milwaukee, WI Nederlander New York Broadway Theatres, New
York, NY
Cajundome, Lafayette, LA The New World Music Theatre, Tinley Park, IL
Centrum, Worcester, MA The Omni, Atlanta, GA
Charlotte Coliseum, Charlotte, NC Orlando Arena and Centroplex, Orlando, FL
Chicago Theater, Chicago, IL Orpheum Theatre, Boston, MA
Coral Sky Amphitheatre, West Palm Beach, FL The Palace at Auburn Hills, Auburn Hills, MI
Deer Creek Music Center, Indianapolis, IN Pine Knob Music Theatre, Clarkston, MI
Fargo Dome, Fargo, ND The Pond, Anaheim, CA
Fleet Center, Boston, MA Pontiac Stadium, Detroit, MI
Freedom Hall, Louisville, KY Pro Player Stadium, Miami, FL
Garden State Arts Center, Holmdel, NJ Pyramid, Memphis, TN
The Georgia Dome, Atlanta, GA Radio City Music Hall, New York, NY
Great Western Forum, Inglewood, CA RCA Dome, Indianapolis, IN
Greek Theatre, Los Angeles, CA Rosemont Horizon, Rosemont, IL
Gund Arena, Cleveland, OH Rupp Arena, Lexington, KY
Ice Palace, Tampa, FL Sun Dome, Tampa, FL
</TABLE>
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<TABLE>
<CAPTION>
ARENAS, STADIUMS AND THEATERS
- ----------------------------------------------------------------------------------------------------
<S> <C>
Irvine Meadows Amphitheatre, Costa Mesa, CA Star Lake Amphitheatre, Pittsburgh, PA
Joe Louis Arena, Detroit, MI The Summit, Houston, TX
John G. Shedd Aquarium and Oceanarium, Chicago, Tacoma Dome, Tacoma, WA
IL
Jones Beach Theatre, Wantagh, NY Target Center, Minneapolis, MN
Key Arena, Seattle, WA Tennessee Performing Arts Center, Nashville, TN
Los Angeles Memorial Coliseum, Los Angeles, CA Turner Field, Atlanta, Georgia
Louisiana Superdome, New Orleans, LA The United Center, Chicago, IL
Madison Square Garden, New York, NY The Wang Center for the Performing Arts, Boston,
MA
</TABLE>
PROMOTERS
<TABLE>
<S> <C>
Avalon Attractions Livent
Belkin Productions Pace Management
Cellar Door Concerts Sunshine Promotions
Jam Productions Universal Concerts
</TABLE>
GENERAL
<TABLE>
<S> <C>
American Music Festival Houston Exposition and Rodeo
Beale Street Music Festival New Orleans Jazz and Heritage Festival
Chicago International Film Festival U.S. Hotrod Nationals
Del Mar Fair Walt Disney's Magic Kingdom on Ice
The 500 Festival Parade
</TABLE>
Ticketmaster's clients also include 77 professional sports franchises,
including 15 Major League Baseball teams, 20 National Football League teams, 20
National Basketball Association teams, 14 National Hockey League teams and eight
Major League Soccer teams.
Ticketmaster generally enters into written agreements with its clients
pursuant to which it agrees to provide the Ticketmaster System and to serve as
the client's exclusive ticket sales agent for all sales of individual tickets
sold outside of the facility's box office, including any tickets sold at remote
sales outlets, over the phone or through other medium, for a specified period,
typically three to five years. Pursuant to an agreement with a facility,
Ticketmaster generally is granted the right to sell tickets for all events
presented at that facility, and as part of such arrangement Ticketmaster
installs the Ticketmaster System in the facility's box office. An agreement with
a promoter generally grants Ticketmaster the right to sell tickets for all
events presented by that promoter at any facility, unless the facility is
covered by an exclusive agreement with Ticketmaster or another automated
ticketing service company. The terms of the agreements with clients are
negotiated on a contract-by-contract basis. In the case of contracts subject to
public bid (e.g., by facilities owned or managed by municipalities or
governmental agencies), the terms are defined, to a material degree, by the
specifications and conditions set forth in the formal requests for bid.
Clients are routinely required by contract to include the Ticketmaster name
in print, radio and television advertisements for entertainment events sponsored
by such clients. The Ticketmaster name and logo are also prominently displayed
on printed tickets and ticket envelopes.
Ticketmaster generally does not buy tickets from its clients for resale to
the public and has no financial risk for unsold tickets. In the United Kingdom,
Ticketmaster may from time to time buy tickets from its clients for resale to
the public in an amount typically not exceeding L250,000 in the aggregate. All
ticket prices are determined by Ticketmaster's clients and their customers.
Ticketmaster's clients also generally determine the scheduling of when tickets
go on sale to the public and what tickets will be available for sale through
Ticketmaster. Facilities and promoters, for example, often handle group sales
and season tickets in-house. Ticketmaster only sells a portion of its clients'
tickets, the amount of which varies from client to client and varies as to any
single client from year to year.
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Among the primary benefits derived by Ticketmaster's clients by use of the
Ticketmaster System are (i) centralized control of total ticket inventory as
well as accounting information and market research data, (ii) centralized
accountability for ticket proceeds, (iii) manageable and predictable transaction
costs, (iv) broader and expedited distribution of tickets, (v) wide
dissemination of information about upcoming events through Ticketmaster's call
centers, Ticketmaster's World Wide Web site and other media platforms, (vi) the
ability to easily add additional performances if warranted by demand and (vii)
marketing and promotional support.
The Ticketmaster System also provides Ticketmaster's clients with
flexibility in processing season, subscription and group ticketing. For example,
a sports team may want to give priority to season tickets, mini-ticket plans and
group sales, permitting those ticket purchasers to have first choice of tickets
before their sale to the general public. In addition, clients have the ability
to structure single or multiple events, including season events, in almost any
number and type of pricing and discount plans.
In general, Ticketmaster negotiates a contract with each client. Pursuant
to such contracts, Ticketmaster is granted the right to collect from ticket
purchasers a per ticket convenience charge on all tickets sold at remote sales
outlets, by telephone, through Ticketmaster's World Wide Web site and other
media. There is an additional per order handling charge on all tickets sold by
Ticketmaster at other than remote sales outlets to partially offset the cost of
fulfillment. The amount of the convenience charge is determined during the
contract negotiation process, and typically varies based upon numerous factors,
including the services to be rendered to the client, the amount and cost of
equipment to be installed at the client's box office and the amount of
advertising and/or promotional allowances to be provided, as well as the type of
event and whether the ticket is purchased at a remote sales outlet, by
telephone, through Ticketmaster's World Wide Web site or otherwise. Any
deviations from those amounts for any event are negotiated and agreed upon by
Ticketmaster and its client prior to the commencement of ticket sales. During
fiscal 1997, the convenience charges generally ranged from $1.50 to $7.00 per
ticket. During fiscal 1997, convenience charges, when added to per order
handling charges, averaged $3.60 per ticket. Generally, the agreement between
Ticketmaster and a client will also establish the amounts and frequency of any
increases in the convenience charge and handling charge during the term of the
agreement.
The agreements with certain of Ticketmaster's clients may provide for a
client to participate in the convenience charges paid by ticket purchasers for
tickets bought through Ticketmaster for that client's events. The amount of such
participation, if any, is determined by negotiation with clients. Some
agreements also may provide for Ticketmaster to make participation advances to
the client, generally recoupable by Ticketmaster out of the client's future
right to participations. In isolated instances, Ticketmaster may make an
up-front, non-recoupable payment to a client for the right to sell tickets for
that client.
If an event is canceled, Ticketmaster's current policy is to refund the per
ticket convenience charges (but not the handling charge which is payable with
respect to transactions by telephone and online orders). Refunds of the ticket
price for a canceled event are funded by the client. To the extent that funds
then being held by Ticketmaster on behalf of the client are insufficient to
cover all refunds, the client is obligated to provide Ticketmaster with
additional amounts within a specified period of time (typically 24 to 72 hours)
after a request by Ticketmaster. Clients have historically fulfilled these
obligations.
During fiscal 1997, no single client accounted for more than 3.2% of
Ticketmaster's total revenues and no single facility accounted for more than
1.7% of Ticketmaster's total revenues. Historically, approximately 15% to 20% of
Ticketmaster's contracts are subject to renewal each fiscal year. Ticketmaster
has experienced substantial success in renewing its contracts with clients on an
annual basis.
Distribution System
Ticketmaster's distribution system is comprised of remote sales outlets,
call centers and Ticketmaster's World Wide Web site, Ticketmaster Online
(http://www.ticketmaster.com). During fiscal 1997, ticket sales at the remote
sales outlets and call centers accounted for approximately 51.0% and 49.0%,
respectively, of ticket sales for Ticketmaster.
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Remote Sales Outlets. Through its Managed Businesses, Ticketmaster has
approximately 2,700 remote sales outlets in the U.S. and approximately 115
remote sales outlets internationally, up from approximately 1,700 remote sales
outlets worldwide at the end of fiscal 1991. During the past seven years,
Ticketmaster has emphasized the establishment of retail outlets in high
visibility chain stores with existing name recognition, significant customer
traffic and customer profiles consistent with the type of events sold through
the Ticketmaster System. The majority of remote sales outlets are located in
major department, grocery, music and video stores. Among the retailers that
serve as remote sales outlets are Carson Pirie Scott, Dayton/Hudson, Foley's and
Robinsons-May department stores, Dominick's, Fiesta and Kroger food stores,
Blockbuster Music, Coconuts and Tower Records music stores, and Blockbuster
Video stores. The specific stores within each chain that will serve as remote
sales outlets is negotiated by Ticketmaster with each chain.
Ticketmaster is responsible for installation and maintenance of the
hardware and software necessary to operate the Ticketmaster System at the remote
sales outlets. Ticketmaster also trains the remote sales outlet's employees in
the use of the Ticketmaster System, provides support and oversight in connection
with the sale of tickets, and furnishes the remote sales outlets with
promotional materials relative to the Ticketmaster System and events for which
tickets are available. The remote sales outlets are responsible for the staffing
of the stores and their daily operation. The remote sales outlets generally are
paid a commission of approximately 20% to 25% of the convenience charge,
typically subject to a maximum amount per ticket. A majority of sales at retail
outlets are for cash, although some department stores also accept their own
charge cards (in which case the cost of the charge card and payment risk are
borne by the department stores). Ticket purchasers are delivered their tickets
at the point of sale. The remote sales outlets generally deliver sales proceeds
and convenience charges to Ticketmaster on a schedule ranging from daily to
weekly depending on the financial condition of the particular remote sales
outlets and other factors. Ticketmaster has not suffered any material loss with
respect to funds collected by its remote sales outlets for remittance to
Ticketmaster.
Call Centers. Through its Managed Businesses, Ticketmaster currently
operates 16 domestic regional call centers in the U.S., up from ten at the end
of fiscal 1991. Ticket purchasers seeking a greater degree of convenience than
is afforded at facility box offices or remote sales outlets can purchase tickets
by telephone seven days a week, up to 14 hours per day, using a major credit
card. Sales agents for the Managed Businesses, staffing up to approximately
1,750 telephone positions domestically, take the caller's credit card order and
mail the tickets directly to the ticket purchasers. Tickets that are purchased
by telephone can also be picked up at the appropriate facility's "will call"
ticket window. A per order handling charge typically is assessed in addition to
the per ticket convenience charge. The ticket sales proceeds and convenience and
handling charges from telephone credit card transactions are generally received
by Ticketmaster within two business days after submission to the credit card
company. The call centers also respond to large numbers of informational calls
relative to events, including requests for facility characteristics, directions,
telephone numbers, disability access and seating and local hotels and
restaurants. Concurrently with the sale of tickets to entertainment events,
Ticketmaster's call centers offer other products for sale related to the events
for which tickets are being sold. Ticketmaster fulfills such sales by ordering
the products from a third party.
Ticketmaster's domestic call centers are located in Atlanta, Chicago,
Cleveland, Columbus, Dallas, Denver, Detroit, Houston, Los Angeles, Minneapolis,
New York, Orlando, Pittsburgh, San Diego, Seattle and Virginia Beach.
Ticketmaster also operates a call center located in London, England with
approximately 100 telephone positions, and, through its Australian joint
venture, a call center located in Melbourne, Australia with approximately 60
telephone positions. In Mexico, Ticketmaster's Mexico investee operates call
centers located in Mexico City, Mexico and Monterey, Mexico with approximately
100 and 90 telephone positions, respectively.
An important feature of Ticketmaster's domestic telephone system is the
ability to channel all or a portion of incoming calls from any city to a
selected regional call center. Accordingly, the number of telephone positions
available to receive telephone orders in a given region is capable of being
increased in advance of the commencement of sales activity for a major event.
Similarly, the ability to network regional call centers affords Ticketmaster
backup capabilities in the event that a regional call center experiences
operating difficulties.
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Online Services. Ticketmaster has recently expanded its distribution
network through the addition of online services, which permit consumers to
purchase tickets and access information on their personal computers via the
Internet. Currently, retail transactions for Ticketmaster and ticketing
transactions for Ticketmaster's entire clientele are capable of being processed
through Ticketmaster's World Wide Web site, Ticketmaster Online, and tickets for
selected events in Florida and Illinois are also being distributed by
Ticketmaster through a Ticketmaster screen accessible through the America Online
service. Ticketmaster expects online to become an important distribution channel
as more consumers begin to transact over the Internet. Additionally, this medium
provides Ticketmaster with a cost efficient way to disseminate information and
cross-promote, which may help reduce costs for these services across
Ticketmaster's other distribution channels.
The Ticketmaster System
Ticketmaster's proprietary operating system and application software, and
its computer and telephone systems, were specifically developed for the
ticketing industry. The Ticketmaster System provides clients with the means to
maintain and control their ticket inventory efficiently. Users of the
Ticketmaster System can effect a range of functions from the most basic to the
most complex, including individual advanced ticket sales, season and
subscription ticketing, day of show walk-up ticket sales and group ticket sales.
The Ticketmaster System is capable of processing over 100,000 tickets per hour
in certain markets and each of its 18 computer systems can support 10,000 users
per system, of which as many as 3,000 can be online at any one time.
The Ticketmaster System software is maintained in-house, eliminating any
reliance upon outside software companies. Consequently, Ticketmaster is able to
adapt to its clients' needs, changing market conditions and advances in hardware
and other technologies. The Ticketmaster System communicates directly with bank
processing centers for instantaneous online credit card authorization and
electronic deposit of credit card receipts. All of the Ticketmaster System's
online terminals at the call centers and at selected facility box offices have
access to the authorization network.
A recent innovative feature of the Ticketmaster System is the Personal
Computer Interface ("PCI"), which provides a Ticketmaster System operator easy
access to the Ticketmaster System through personal computers. The PCI software
allows an operator (including, in certain cases, a box office employee) to move
rapidly through a number of screens to quickly obtain information, complete
transactions and build consumer profiles.
Significant measures are taken to prevent system failure in each computer
center. Each system has a live backup standing ready in the event of a primary
system failure. The rooms housing the computer-related equipment are protected
by computer-safe fire protection systems. Dual custom air conditioning units
provide constant climate control. To guard against power outages, Ticketmaster
employs uninterruptable power supplies. High capacity back-up generators
eliminate the dependency on public electric sources. Moreover, all data is
continually recorded on a back-up hard copy and Ticketmaster maintains an online
disaster recovery site in one of its principal offices. Historically, the
Ticketmaster System has experienced minimal downtime.
Ticketmaster's proprietary software is a product of over 20 years of
continual enhancement by a team of in-house software and system professionals
currently numbering over 70. Ticketmaster's research and development staff has
produced significant enhancements to the Ticketmaster System, including
proprietary ticket printers and data telecommunications multiplexors, and
regularly upgrades its software. During each of fiscal 1995, 1996 and 1997,
Ticketmaster spent between $2.0 million and $3.0 million on this activity.
The Ticketmaster System is fully integrated and accessible on a real-time
basis by any authorized user. The Ticketmaster System has been designed to be
flexible in order to handle virtually any reserved seat configuration. Some of
the most commonly used features of the Ticketmaster System are the following:
- Creation of Master Seating Chart and Events. A master seating chart
representing all of the seating sections of a facility is created for
each configuration of the facility's events. The master seating chart is
then used as a template for ticketing all events having that
configuration. Ticket text, ticket prices,
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special seats on hold and similar matters can all be included on the
master seating chart and automatically carried forward to each event at
the time it is created. Events can contain up to 1,000 sections having a
combined seating capacity of 150,000 seats. Each event can support
multiple price levels, including pricing options for subscriptions and
discounts.
- Editing of Seating Charts and Events. Once created, seating charts and
events can be fully edited online, at any time, by any authorized system
operator. Among the items that can be edited are the performance date or
time, the identity of a performer, new or revised ticket prices, the
structure of the sections and the order in which seats, rows and sections
are sold.
- On-Sale Procedures. Once an event template has been created, checked and
customized, the tickets for that event can go on sale to the public. The
sale of tickets for events are under the control of the client's box
office management and, except as may be otherwise determined by the
client, are put on sale simultaneously at the box office, remote sales
outlets and call centers, and when applicable, on Ticketmaster's World
Wide Web site.
- Continuing Sale; Tracking of Inventory. Once an event is on sale, there
are a host of features that provide an operator with an enhanced ability
to make a sale. Events can be found by searching by the date or date
range of the performance or by key words in the ticket text. Once the
event code is entered, seating within events can be selected by a variety
of attributes such as location or ticket price. These attributes can also
be combined, such as a request for balcony center seats at a particular
price.
Tickets, whether for a single event or multiple events, can be selected on
a best available seat basis or a specific seat basis. On a best available
seat basis, the computer will select the best seats requested by the
operator based on a comprehensive set of rules determined by the client
during the master seating chart and event creation process. On a specific
seat basis, the operator can look at a map of the seats that are available
in a requested section. Each available or open seat is shown on the map,
while a seat that is not available does not appear.
The inventory tracking capabilities also provide a facility or promoter
with the ability to monitor, on a realtime basis, the progress of the sale
of tickets for a particular event. This capability enhances the ability of
a facility or promoter to determine whether to add additional dates for the
event in order to satisfy demands.
- Mastersearch. Mastersearch is specifically designed to streamline the
process of fulfilling requests for performances in a series of events.
Based upon the consumer's specifications, Mastersearch executes a rapid
search and finds the best available seats for the requested performances.
For example, the system can quickly give the consumer a choice of the
first three events that have the best pair of seats available in the
lower concourse for a Wednesday performance during the month of December.
- Reports. All standard reports are online and are updated at the time each
transaction occurs. There is a system of checks and balances that
verifies data accuracy based on sales by event compared to sales by
operator. The Ticketmaster System produces numerous reports relative to
ticket sales, monies collected and event status.
- Ancillary Box Office Features. Online credit card authorization is a
feature offered to selected facility box offices. Typical time to
authorize a transaction is less than two seconds, and a charge slip can
be printed on blank ticket stock along with the purchaser's event
tickets. The box office can print a report that verifies the deposit
processed by the authorizing bank.
- Closing the Event. At the conclusion of the event, the box office can
take the event off-sale so that it is impossible for tickets to be sold
or returned. Final reports are then prepared. An event can remain on the
system indefinitely, but past events are normally archived on file copy
disks and deleted from the system.
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Industry Overview
Ticketmaster believes that since a small percentage of all tickets for live
entertainment events sold in the U.S. during fiscal 1997 were sold through
retail outlet networks, call centers and online services operated by automated
ticketing service companies, the domestic market represents a growth
opportunity.
The use of automated ticketing is generally in an earlier stage of
development outside of the U.S., although the actual level of use varies greatly
from country to country. While Ticketmaster believes that there is substantial
potential for international growth, the timing and rate of penetration within
each international market will vary.
The supply of tickets, both domestically and internationally, has increased
in recent years by virtue of, among other factors, increases in the number of
facilities (e.g., construction of amphitheaters), facility size and seating
capacity, event expansion into new market areas (e.g., the increase in the
number of professional sports teams and the development of new sports leagues)
and increases in the number of performances of an event (e.g., the adoption of
lengthened regular season play and expanded post-season play by sporting leagues
and associations). Ticket supply has also been enhanced by the desire of, and
necessity for, facilities to continually present as many revenue-producing
events as possible in order to meet their financial and other obligations. In
recent years, the public's increased demand for tickets to certain entertainment
events has been evidenced by its willingness to pay higher ticket prices to
attend entertainment events and the spread of public interest in certain types
of events beyond customary boundaries (e.g., increased worldwide interest in
football, baseball and basketball). In addition to live entertainment events
held at arenas, amphitheaters, stadiums and performing arts venues, automated
ticketing has expanded into servicing ticket issuing facilities that do not
generally have seats (e.g., museums, zoos, amusement parks, state and county
fairs, golf courses, ski resorts and trade shows).
The success of automated ticket service companies depends on their ability
to develop and maintain relationships with facilities, sports teams and
promoters by providing high quality service as well as on the availability of,
and public demand for, tickets for all types of events, including sports, family
entertainment, concerts, fine arts and cultural attractions.
Ticketmaster History
Ticketmaster Corporation, Ticketmaster's principal subsidiary, was
organized in 1976 for the primary purpose of developing stand-alone automated
ticketing systems for sale to individual facilities. Ticketmaster Corporation
initially derived its revenues solely from the sale and installation of
equipment and ongoing royalties and service fees, but was not involved in the
actual process of selling tickets to the public. In the fall of 1982,
Ticketmaster Corporation began its transformation from a seller of stand-alone
systems to a service provider. Ticketmaster Corporation's growth and success
resulted from combining an integrated ticket inventory control management system
(which permitted season, subscription, group and individual tickets to be
handled on one system) with extensive distribution capabilities. In addition, by
establishing revenue sharing arrangements similar to those employed by food
service and other concessionaires to the facilities, Ticketmaster Corporation
provided the facilities with a new source of revenue.
Historically, Ticketmaster expanded both internally and through joint
ventures and acquisitions. During the 1980s and the early 1990s, Ticketmaster
formed four principal domestic joint ventures covering all or parts of Alabama,
Arkansas, Georgia, Indiana, Kentucky, Mississippi, North Carolina, Ohio, Oregon,
South Carolina, Tennessee, Washington and West Virginia to operate ticket
selling services in those states. In addition, Ticketmaster selectively licensed
its name and technology to other entities for use in certain regions, including
northern California, Washington, D.C., Philadelphia and parts of Canada and
Mexico.
During the early 1990s, Ticketmaster continued to expand both through
acquisitions and strategic alliances with joint venture partners, including, in
1991, the acquisition of certain assets (principally client contracts) of
Ticketron, which previously had been one of Ticketmaster's major competitors; in
1992, the formation of a joint venture with an affiliate of Warner Music Group,
Inc. to pursue automated ticketing opportunities in European markets; and in
1994, the formation of a joint venture with an affiliate of Wembley plc to
provide advance ticketing for movie theaters worldwide and to market general
admission ticket selling
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and concession control systems to various clients, including movie theaters,
stadiums, arenas and amusement parks. Recently, Ticketmaster has begun to
reacquire certain of the rights to use Ticketmaster's name and the Ticketmaster
System that had previously been granted to joint ventures and to licensees. See
" -- Joint Ventures and Licensees."
As of January 31, 1997, Ticketmaster had expanded its ticket distribution
network into 44 states domestically and four countries worldwide.
Joint Ventures And Licensees
In addition to the ticketing operations performed directly by Ticketmaster,
the Ticketmaster System is operated in certain territories through joint
ventures and licensees. Included among Ticketmaster's current and proposed joint
ventures and strategic alliances are the following:
Domestic Joint Ventures. Ticketmaster's live entertainment ticketing
business in certain states is conducted through joint ventures in which
Ticketmaster serves as the managing partner. The geographical territory covered
by each joint venture and percentage ownership of Ticketmaster are as follows:
(i) Ticketmaster owns a 33% equity interest in Ticketmaster-Southeast, which
services Georgia, North Carolina, South Carolina, Birmingham, Alabama, and
Chattanooga, Tennessee; (ii) Ticketmaster owns an 80% equity interest in
Ticketmaster-Tennessee, which services parts of Tennessee, Arkansas and
Mississippi; and (iii) Ticketmaster owns a 50% equity interest in
Ticketmaster-Northwest, which services Oregon and parts of Washington. See
" -- Legal Proceedings."
Australian Joint Ventures. On December 1, 1995, Ticketmaster and the
Victorian Arts Centre Trust formed joint ventures (the "Australian Joint
Ventures") for the purpose of conducting Ticketmaster's live entertainment
ticketing business in Australia and, possibly, in New Zealand. Ticketmaster has
a 50% interest in and serves as the managing partner of the Australian Joint
Ventures. The Australian Joint Ventures' clients include the Victorian Arts
Centre, the National Tennis Centre, the Melbourne Cricket Grounds, the
Australian Grand Prix and the Olympic Park.
Latin American Development Arrangement. Ticketmaster and Corporacion
Interamericana de Entretenimiento, S.A. de C.V. ("CIE") are currently
negotiating a development arrangement (the "Latin American Venture") for the
purpose of marketing and operating the Ticketmaster System throughout Central
and South America. CIE is currently the owner of a 73% equity interest in
Ticketmaster's Mexico licensee (and, after the transaction described under
" -- Foreign Licensees," a 50.01% equity interest). Ticketmaster will have a
50.01% interest in and serve as the manager of each operating entity which is
organized pursuant to the Latin American Venture.
Domestic Licensees. Ticketmaster has selectively licensed its name and
technology to third parties for use in areas of northern California, Oklahoma,
Oregon, parts of Washington and Maryland and in Washington, D.C. and certain
other cities (See " -- Legal Proceedings"). Ticketmaster derives revenues from
the licensees in the form of license fees and/or ongoing per ticket royalties.
Less than 1% of Ticketmaster's total revenues during fiscal 1997 were derived
from these license arrangements. Some of Ticketmaster's license agreements
continue indefinitely while others have scheduled expirations ranging from
December 1997 to June 2001. Certain of the license agreements are renewable at
the option of the licensee.
Foreign Licensees. Ticketmaster has also selectively licensed its name and
technology to third parties for use in parts of Canada and Mexico. For recent
developments see "The Parties -- Ticketmaster." Ticketmaster derives revenues
from the licensees in the form of license fees and/or ongoing per ticket
royalties. Less than 1% of Ticketmaster's total revenues during fiscal 1997 were
derived from these license arrangements. The license agreements have varying
terms with scheduled expirations ranging from May 1998 to May 2001.
Ticketmaster is currently negotiating to acquire an additional 22.99%
equity interest in Ticketmaster's Mexico licensee from CIE in consideration of
Ticketmaster entering into the Latin American Venture with CIE. CIE will have
general rights of management with respect to Ticketmaster's Mexico licensee.
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Ticketmaster has recently completed the acquisition, by purchase,
redemption or otherwise, of three former joint venture partners, two former
minority shareholders in Ticketmaster's operating subsidiaries and three former
domestic licensees and has acquired a 27% equity interest in one foreign
licensee as described below:
European Joint Venture. During 1992, Ticketmaster and Warner Music
Ticketing, Inc., a subsidiary of Warner Music Group, Inc., formed Ticketmaster
Europe Group (the "European Joint Venture") for the purpose of conducting
Ticketmaster's live entertainment ticketing business in substantially all of
Europe, inclusive of the United Kingdom. Ticketmaster had a 50% interest in and
served as the managing partner of the European Joint Venture.
On June 7, 1996, Ticketmaster acquired the 50% equity interest of its
partner in the European Joint Venture (and in a related entity) in consideration
of $6 million in cash and an Exchangeable Promissory Note in the principal
amount of $5 million due June 7, 1997, bearing interest at the prime rate (the
"Exchangeable Promissory Note"). The Exchangeable Promissory Note plus interest
was paid in full in November 1996.
Ticketmaster's clients in the United Kingdom include Really Useful Group,
Maybox Theatres, Cameron McIntosh and several prominent professional soccer
organizations in the greater London area, all of which had previously been
clients of the European Joint Venture.
Pacer/CATS/CCS Joint Venture. During 1994, Ticketmaster and WIL,
Incorporated, a subsidiary of Wembley plc ("WIL"), formed Pacer/CATS/CCS -- a
Wembley Ticketmaster Joint Venture (the "Pacer Joint Venture"), for the purpose
of designing, selling and servicing, worldwide other than in Israel, (i)
automated ticketing systems for use by motion picture theaters; (ii) automated
concession sales and control systems for use by motion picture theaters,
stadiums, arenas, amusement parks and other facilities; and (iii) automated
general admission ticketing systems for use by ticket-issuing facilities that do
not generally have seats (e.g., amusement parks, zoos and museums). Ticketmaster
had a 50% interest in and served as the managing partner of the Pacer Joint
Venture. On July 29, 1996, Ticketmaster acquired the remaining 50% interest in
the Pacer Joint Venture from WIL and the name of the operating entity was
changed to Pacer/CATS/CCS. Consideration paid by Ticketmaster in connection with
its initial 50% interest in the Pacer Joint Venture and the subsequent
acquisition of WIL's 50% interest in the Pacer Joint Venture aggregated
approximately $16 million in cash and the assumption of $7.5 million of debt.
The automated ticketing and concession sales and control systems are
currently in use at movie theaters worldwide, including theaters operated by AMC
Theaters, Cineplex Odeon, General Cinemas, United Artists Cinemas, Warner Bros.
International Theaters, MGM Theaters, UGC, Pathe and UFA Olympia Reich Group,
and in such stadiums and other facilities as Wembley Stadium (United Kingdom),
Cologne Zoo (Germany), Calgary Saddledome (Canada), CICI Parque (Mexico), and
3Com Park, Great Western Forum and Veteran's Stadium (U.S.). Pacer/CATS/CCS has
recently begun expansion into the Far East and has completed installations in
Japan, Australia, New Zealand and Singapore.
Prior to the formation of the Pacer Joint Venture, Pacer Cats Corporation
(one of the operating subsidiaries of Wembley plc) entered into an agreement
with Promofone, Inc., an affiliate of MovieFone, Inc. ("MovieFone"), whereby the
general admission ticket selling equipment and related computer interface now
owned by Pacer/CATS/CCS would be utilized in connection with MovieFone's
interactive telephone movie ticketing business. The Pacer Joint Venture did not
assume or otherwise become a party to that agreement. Certain disputes have
arisen with respect to the interpretation of that agreement and whether any
breaches have occurred thereunder. See " -- Legal Proceedings."
Ticketmaster-Indiana Joint Venture. On November 15, 1996, Ticketmaster
acquired the 50% equity interest of New East Associates LLC ("New East"), its
partner in Ticketmaster-Indiana, pursuant to which Ticketmaster-Indiana
purchased newly issued convertible preferred stock of Ticketmaster ("Preferred
Stock") in exchange for Ticketmaster-Indiana's promissory note in the principal
amount of $27 million. Ticketmaster-Indiana distributed the Preferred Stock to
New East in complete liquidation of New East's interest in Ticketmaster-Indiana.
Concurrent with the completion of the IPO, the Preferred Stock automati-
25
<PAGE> 35
cally converted into shares of Common Stock having a value of $27 million based
on the IPO Price. On November 22, 1996, the Preferred Stock was exchanged for
1,862,069 shares of Common Stock.
Operating Subsidiaries. On November 25, 1996, Ticketmaster acquired (i)
the 20% equity interest of the minority shareholder in Southwest Ticketing,
Inc., Ticketmaster's operating subsidiary in Texas, for $6 million in cash and
(ii) the 20% equity interest of the minority shareholder in Ticketmaster
Florida, Inc., Ticketmaster's operating subsidiary in Florida, for $4.6 million
in Common Stock (317,241 shares) based on the IPO Price.
Domestic Licensees. On February 12, 1996, Ticketmaster acquired the
license rights and related assets of its Nashville, Tennessee licensee. In
addition, on August 31, 1996, Ticketmaster acquired the license rights and
related assets of its Albuquerque, New Mexico licensee. The aggregate cash
consideration for both acquisitions was $1.8 million.
On October 3, 1996, Ticketmaster acquired the license rights and related
assets of its Delaware Valley (Philadelphia) licensee for $19.0 million in cash.
Foreign Licensees. On October 10, 1996, Ticketmaster acquired a 27% equity
interest in Ticketmaster's Mexico licensee from Ogden Entertainment Inc. for
$1.8 million in cash and 5% of net distributions received with respect to such
27% equity interest by Ticketmaster from Ticketmaster's Mexico licensee through
December 31, 1998.
Competition
Not all facilities, promoters and other potential clients use the services
of an automated ticketing company, choosing instead to distribute their tickets
through their own internal box offices or other distribution channels.
Accordingly, Ticketmaster competes with the facilities, promoters and other
potential clients for the right to distribute their tickets at retail outlets,
by telephone and on the Internet. Among those who perform their own ticketing
are Riverfront Coliseum in Cincinnati, the New York Mets, Don Law Presents (Next
Ticketing) and The Shubert Organization, Inc. (Telecharge).
For those facilities and promoters which decide to utilize the services of
an automated ticketing company, Ticketmaster competes with many international,
national and regional ticketing systems, such as Telecharge Systems, which is a
division of The Schubert Organization, Inc. and licenses the Ticketron software,
Dillards Ticketing Systems, which is a division of Dillard's Department Stores,
Inc. and which uses its own department stores as ticket outlets, and Destinet
(formerly Mistix Corporation). Several of Ticketmaster's competitors have
operations in multiple locations throughout the U.S., while others compete
principally in one specific geographic location. One or more of these regional
ticketing systems could expand into other regions or nationally. Other companies
compete with Ticketmaster by selling stand-alone automated ticketing systems to
enable the facilities to do their own ticketing, including companies that sell
systems under the names Prologue, Artsoft and Lasergate in the U.S., Bocs in the
United Kingdom and Softix in Australia, New Zealand and Pacific Rim countries.
Ticketmaster has experienced substantial competition for new accounts, such as
1994 World Cup soccer (which became a client of Ticketmaster) and the National
and California Park Systems and the 1996 Summer Olympics (all of which became
clients of one of Ticketmaster's competitors). Accordingly, there can be no
assurance that prospective clients will enter into contracts with Ticketmaster
rather than Ticketmaster's competitors. Ticketmaster believes that it competes
on the basis of service provided, capability of the ticketing system,
distribution network, reliability and price.
As an alternative to purchasing tickets through Ticketmaster, ticket
purchasers generally may purchase tickets from the facility's box office at
which an event will be held or by season, subscription or group sales directly
from the venue or promoter of the event. Although processed through the
Ticketmaster System, Ticketmaster derives no convenience charge revenue from the
ticket purchasers with respect to those ticket purchases.
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<PAGE> 36
Trademarks and Patents
Ticketmaster owns a number of registered trademarks in various countries
relating to, among other things, the name Ticketmaster and its related logo.
Ticketmaster believes that such trademarks are widely recognized throughout
North America and other parts of the world and have considerable value.
Ticketmaster is not aware of any actions against its trademarks used in the
ticketing business and has not received any notice or claim of infringement in
respect of such trademarks.
Ticketmaster also acquired the rights to the name Ticketron in connection
with Ticketmaster's purchase of certain assets of Ticketron.
Ticketmaster presently has no patents pertaining to the Ticketmaster
System. Although Ticketmaster may in the future file for patent protection on
products developed or to be developed by it, there can be no assurance that any
patents will be issued or, if issued, that such patents will provide
Ticketmaster with meaningful protection. Further, the technology used by
Ticketmaster in many of its products is likely to be within the state-of-the-art
and may not be more advanced than the technology used by or available to certain
of its present or potential competitors. Ticketmaster may be unable to prevent
its competitors and others from incorporating features of Ticketmaster's
products into their own products.
Regulation
Ticketmaster is subject to numerous state and local licensing laws and laws
that require the disclosure of specified information to ticket purchasers. In
addition, on February 8, 1996, a bill was introduced in the U.S. House of
Representatives to require ticket distributors (sellers and resellers) to (i)
disclose to a purchaser of an entertainment or sporting event ticket, prior to
any purchase of such ticket, any fee, charge or assessment (other than a tax or
other levy imposed pursuant to Federal, state or local law) to be imposed in
excess of the face amount of the ticket and (ii) have the amount of any such
fee, charge or assessment imprinted on the ticket or on a receipt evidencing any
such ticket sale. These requirements are consistent with existing Ticketmaster
policy. The bill also included a provision directing the FTC to conduct a study
of ticketing practices. The 1996 U.S. Congressional session adjourned without
any action being taken with respect to the bill.
Ticketmaster is currently regulated by a law in Georgia that establishes
maximum convenience charges on tickets for certain sporting events. Other bills
that could affect the way Ticketmaster does business, including bills that would
regulate the amount of convenience charges, are introduced from time to time in
state and local legislative bodies. Ticketmaster is unable to predict whether
any such bills will be adopted and, if so, the impact thereof on its business.
In addition, increasing concern over consumer privacy has led to the
introduction from time to time of proposed legislation which could impact the
direct marketing and market research industries. Ticketmaster does not know when
or whether any such proposed legislation may pass or whether any such
legislation would relate to the types of services currently provided by
Ticketmaster or which Ticketmaster intends to develop. Accordingly, Ticketmaster
cannot predict the effect, if any, that any such future regulation may have on
its business.
Further, Ticketmaster is unable to predict, at this time, the effect, if
any, upon Ticketmaster's business that may result from the Telecommunications
Act of 1995 and various state telecommunications laws.
Employees
As of January 31, 1997, Ticketmaster employed approximately 1,700 full-time
employees, approximately 130 part-time administrative employees and
approximately 3,500 part-time telephone operators.
The telephone operators in New York City and Chicago and the telephone
operators employed by the Australian Joint Ventures (approximately 15% of
Ticketmaster's telephone operators) are the only employees of Ticketmaster
covered by collective bargaining agreements. The collective bargaining
agreements covering the telephone operators in New York City, Chicago and
Australia are scheduled to expire on April 30, 1997, December 31, 1997, and
December 1, 1997, respectively. A meeting regarding the New York City collective
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<PAGE> 37
bargaining agreement was held on April 29, 1997. See "The Parties -- Recent
Developments." Ticketmaster believes that its relations with its employees are
good.
PROPERTIES
Ticketmaster owns its principal offices in West Hollywood, California, and
leases office space in various cities throughout the U.S., the United Kingdom,
Germany and France and, through joint ventures, in Australia. Ticketmaster
currently has approximately 405,000 square feet of space under lease, with
scheduled expirations ranging from March 1997 to September 2014.
Ticketmaster's corporate offices are housed in a 70,000 square foot
building. The building was purchased in October 1996 and also serves as the
principal offices for Live! magazine and Ticketmaster Online. Ticketmaster
currently occupies approximately 50,000 square feet of the building, with
tenants occupying a majority of the remaining space.
LEGAL PROCEEDINGS
Ticketmaster received a Civil Investigation Demand in June 1994 from the
Antitrust Division for the stated purpose of determining if Ticketmaster had
violated Sections 1 and 2 of the Sherman Act. Section 1 of the Sherman Act
prohibits contracts, combinations or conspiracies in restraint of trade. Section
2 of the Sherman Act prohibits any person from monopolizing, attempting to
monopolize or combining or conspiring to monopolize any part of trade or
commerce. On July 5, 1995, the Antitrust Division issued the following release
(which is quoted in its entirety): "The Department of Justice announced today
that it has informed Ticketmaster Holdings Group, Inc., that it is closing its
antitrust investigation into that firm's contracting practices. The Department
will continue to monitor competitive developments in the ticketing industry."
During 1994, Ticketmaster was named as a defendant in 16 federal class
action lawsuits filed in U.S. District Courts purportedly on behalf of consumers
who were alleged to have purchased tickets to various events through
Ticketmaster. These lawsuits alleged that Ticketmaster's activities violated
antitrust laws. On December 7, 1994, the Judicial Panel on Multidistrict
Litigation transferred all of the lawsuits to the U.S. District Court for the
Eastern District of Missouri (the "District Court") for coordinated and
consolidated pretrial proceedings. After an amended and consolidated complaint
was filed by the plaintiffs, Ticketmaster filed a motion to dismiss and, on May
31, 1996, the District Court granted that motion ruling that the plaintiffs had
failed to state a claim upon which relief could be granted. On June 12, 1996,
the plaintiffs appealed the District Court's decision to the Court of Appeals
for the Eighth Circuit. The appeal has been fully briefed by the parties and
oral argument was held on February 14, 1997. The Court took the case under
advisement and the parties are currently awaiting the Court's decision.
On July 20, 1994, the named plaintiffs in the Florida federal action filed
a complaint in Florida state court essentially asserting the same allegations
that were contained in the then pending federal action. On March 6, 1995, the
Florida state court granted Ticketmaster's motion to dismiss the complaint
without prejudice. Plaintiffs have appealed the dismissal, oral arguments have
been presented and a decision affirming the dismissal has been rendered.
On March 17, 1995, Moviefone, Inc. and The Teleticketing Company, L.P.
filed a complaint against Ticketmaster Corporation in the United States District
Court for the Southern District of New York. Plaintiffs allege that they are in
the business of providing movie information and teleticketing services, and that
they are parties to a contract with Pacer Cats Corporation to provide
teleticketing services to movie theaters. Plaintiffs also allege that, together
with Pacer Cats Corporation, they had planned to commence selling tickets to
live entertainment events, and that Ticketmaster Corporation, by its conduct,
frustrated and prevented plaintiffs' ability to do so. Plaintiffs further allege
that Ticketmaster Corporation has interfered with and caused Pacer Cats
Corporation to breach its contract with plaintiffs. The complaint asserts that
Ticketmaster's actions violate Section 7 of the Clayton Act and Sections 1 and 2
of the Sherman Act, and that Ticketmaster tortiously interfered with contractual
and prospective business relationships. Ticketmaster has filed a motion to
dismiss which is fully briefed and undecided. The court heard oral argument on
September 26, 1995. On March 4, 1997, prior to the rendering of any decision by
the Court on Ticketmaster's
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motion to dismiss, Ticketmaster received an amended complaint in which the
plantiffs assert essentially the same claims as in the prior complaint but have
added a RICO claim and tort claims. Ticketmaster filed a motion to dismiss the
amended complaint on April 17, 1997.
On February 24, 1997, Ticketmaster Corporation of Washington ("TCW"), a
wholly-owned subsidiary of Ticketmaster, filed a complaint against HBI
Financial, Inc. ("HBI"), its 50% joint venture partner in the Ticketmaster
Northwest Joint Venture, seeking dissolution of the Joint Venture. On March 17,
1997, HBI filed a counterclaim against TCW seeking a declaratory judgment that
TCW by its actions in filing the lawsuit dissolved the Joint Venture in
contravention of the joint venture agreement. On April 11, 1997, TCW filed a
motion for summary judgment asserting that since the Joint Venture had an
indefinite term, it could be dissolved, under Washington law, at the will of
either partner. On April 22, 1997, HBI filed its response and a motion for
partial summary judgment. For recent developments, see "The
Parties -- Ticketmaster."
On April 18, 1997, Ticketmaster Group Limited Partnership, Ticketmaster's
licensee in Maryland, Washington D.C. and parts of Virginia, filed a First
Amended complaint against Ticketmaster Corporation, a wholly-owned subsidiary of
Ticketmaster, in the U.S. District Court for the Northern District of Illinois.
Plaintiff alleges that Ticketmaster Corporation has undertaken a course of
conduct designed to force plaintiff to sell its operations or relinquish
management control to Ticketmaster Corporation by intentionally withholding
access codes and enhancements to the Ticketmaster System. Plaintiff alleges that
Ticketmaster Corporation, by its conduct, has breached the license agreement
between the parties and has engaged in tortious and unfair business practices.
Ticketmaster Corporation intends to file an answer denying the material
allegations contained in the complaint and asserting various defenses thereto,
as well as a counterclaim seeking a declaratory judgment that plaintiff is in
breach of the license agreement between the parties and should be terminated as
a Ticketmaster licensee. For recent developments, see "The
Parties -- Ticketmaster."
On April 28, 1997, Ticketmaster Corporation filed a complaint against
Microsoft Corporation ("Microsoft") in the U.S. District Court for the Central
District of California. Plaintiff alleges that Microsoft wrongfully appropriated
and misused Ticketmaster's World Wide Web site by unlawfully linking its own web
site to and associating it with the Ticketmaster World Wide Web site. Plaintiff
seeks declaratory judgment in its favor, seeks to permanently enjoin Microsoft
from making any commercial use of Ticketmaster's World Wide Web site and seeks
unspecified damages. For recent developments, see "The Parties -- Ticketmaster."
From time to time, state and local authorities commence investigations or
inquiries with respect to Ticketmaster's compliance with applicable antitrust,
consumer protection, deceptive advertising, unfair business practice and other
laws. Ticketmaster has historically cooperated in and satisfactorily resolved
each such investigation or inquiry.
Ticketmaster believes that it has conducted its business in substantial
compliance with all applicable laws, including federal and state antitrust laws.
In the opinion of Ticketmaster's management, none of Ticketmaster's legal
proceedings will have a material adverse effect on Ticketmaster's financial
position or results of operation. Ticketmaster has incurred significant legal
expenses in connection with these and other investigations and lawsuits and may
incur additional significant legal expenses in the future should investigations
or lawsuits be instituted.
Ticketmaster is involved in various other litigation and claims arising out
of or related to the normal conduct of its business, including. but not limited
to, claims alleging violations of the antitrust laws. In the opinion of
Ticketmaster, none of these proceedings will have a material adverse effect on
its results of operations or financial condition.
For recent developments, see "The Parties -- Ticketmaster."
MARKET PRICES AND DIVIDENDS
In November 1996, Ticketmaster completed the IPO at an initial price to the
public of $14.50 per share. The market price of the Ticketmaster Common Stock is
likely to be highly volatile and could be subject to wide fluctuations in
response to quarterly variations in operating results, announcements of new
contracts or contract cancellations, announcements of technological innovations
or new products or services by Tick-
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<PAGE> 39
etmaster or its competitors, changes in financial estimates by securities
analysts or other events or factors. The market price of the Ticketmaster Common
Stock also may be affected by Ticketmaster's ability to meet analysts'
expectations, and any failure to meet such expectations, even if minor, could
have a material adverse effect on the market price of the Common Stock.
The Ticketmaster Common Stock is traded on the NASD National Market (the
"NNM") under the symbol "TKTM." The following table sets forth the range of the
high and low closing sale prices of the Common Stock, for the fiscal quarter
indicated, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System (the "NASDAQ"):
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C>
Second Quarter Fiscal 1998 (through June 25, 1997)................ $15.50 $ 11.63
First Quarter Fiscal 1998......................................... $14.88 $ 11.75
Fourth Quarter Fiscal 1997 (from November 18, 1996)............... $15.00 $ 10.25
</TABLE>
As of April 23, 1997, there were 24,739,715 shares of Ticketmaster Common
Stock outstanding, held by approximately 100 shareholders of record.
Since November 17, 1993, Ticketmaster has not declared or paid any
dividends upon the Ticketmaster Common Stock. Ticketmaster presently intends to
retain earnings during the foreseeable future for general corporate purposes,
including business expansion and capital expenditures. The declaration and
payment of future dividends will be at the sole discretion of the Ticketmaster's
Board of Directors and will depend on Ticketmaster's profitability, financial
condition, capital needs, future prospects and other factors deemed relevant by
the Ticketmaster Board.
Furthermore, Ticketmaster's Credit Agreement, as amended (the "Credit
Agreement"), imposes restrictions and limitations on the making of dividends and
distributions to Ticketmaster's shareholders. Accordingly, the future ability of
Ticketmaster to declare and pay dividends on the Ticketmaster Common Stock will
be limited by virtue of the restrictions under the Credit Agreement.
In addition, the separate credit agreement pertaining to Ticketmaster's
Pacer/CATS/CCS operations restricts the ability of that entity to transfer funds
to Ticketmaster in the form of cash dividends, loans or advances.
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SELECTED FINANCIAL DATA OF TICKETMASTER
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Ticketmaster" and the Consolidated Financial Statements of
Ticketmaster and the related notes appearing elsewhere in this Information
Statement.
HISTORICAL AND PRO FORMA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR ENDED
YEAR ENDED JANUARY 31, JANUARY 31,
-------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BUSINESSES:
Revenue.............................. $ 134,805 $ 146,640 $ 182,950 $ 161,250 $ 230,961 $ 223,666 $ 270,851
Operating income..................... 14,576 7,763 4,045 2,710 13,663 3,485 14,394
Net income (loss).................... 7,501 40 (6,678) (8,095) 1,792 (4,479) 3,672
Net income (loss) per share.......... $ 2.48 $ 0.01 $ (0.44) $ (0.53) $ 0.10 $ (0.18) $ 0.15
UNCONSOLIDATED JOINT VENTURES:
Revenue.............................. $ 35,993 $ 41,812 $ 69,269 $ 80,053 $ 67,541 $ 33,286 $ 33,763
Operating income..................... 2,661 3,845 4,712 8,690 9,398 5,891 5,936
Net income........................... 2,625 3,738 3,632 7,443 8,859 6,045 5,925
Ticketmaster's share of net income... 1,061 1,577 1,360 1,458 3,605 2,622 3,116
SUPPLEMENTAL INFORMATION:
Number of tickets sold:
Consolidated Businesses.............. 36,881 38,655 42,458 37,619 45,530 48,144 52,325
Unconsolidated Joint Ventures........ 11,057 12,194 13,156 15,497 14,491 8,459 8,586
---------- ---------- ---------- ---------- ---------- ---------- ----------
Managed Businesses................... 47,938 50,849 55,614 53,116 60,021 56,603 60,911
---------- ---------- ---------- ---------- ---------- ---------- ----------
GROSS DOLLAR VALUE OF TICKET SALES:
Consolidated Businesses.............. $ 898,121 $1,001,098 $1,308,310 $1,116,660 $1,370,709 $1,389,801 $1,557,405
Unconsolidated Joint Ventures........ 246,378 282,274 345,491 414,918 409,646 236,939 251,265
---------- ---------- ---------- ---------- ---------- ---------- ----------
Managed Businesses................... $1,144,499 $1,283,372 $1,653,801 $1,531,578 $1,780,355 $1,626,740 $1,808,670
---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL REVENUES:
Consolidated Businesses.............. $ 134,805 $ 146,640 $ 182,950 $ 161,250 $ 230,961 $ 223,666 $ 270,851
Unconsolidated Joint Ventures........ 35,993 41,812 69,269 80,053 67,541 33,286 33,763
---------- ---------- ---------- ---------- ---------- ---------- ----------
Managed Businesses................... $ 170,798 $ 188,452 $ 252,219 $ 241,303 $ 298,502 $ 256,952 $ 304,614
---------- ---------- ---------- ---------- ---------- ---------- ----------
EBITDA(1):
Consolidated Businesses.............. $ 22,913 $ 15,585 $ 15,986 $ 10,577 $ 22,602 $ 18,483 $ 29,273
Unconsolidated Joint Ventures........ 6,939 8,671 9,774 13,091 13,426 3,743 8,383
---------- ---------- ---------- ---------- ---------- ---------- ----------
Managed Businesses................... $ 29,852 $ 24,256 $ 25,760 $ 23,668 $ 36,028 $ 22,226 $ 37,656
---------- ---------- ---------- ---------- ---------- ---------- ----------
Attributable EBITDA(2)............... $ 25,262 $ 18,235 $ 19,503 $ 15,222 $ 28,299 $ 23,272 $ 34,116
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES:
Consolidated Businesses.............. $ 21,384 $ 14,571 $ 12,309 $ (3,068) $ 15,585 $ 1,239 $ 29,586
Unconsolidated Joint Ventures........ 12,439 6,439 15,761 17,658 11,806 14,927 2,965
---------- ---------- ---------- ---------- ---------- ---------- ----------
Managed Businesses................... $ 33,823 $ 21,010 $ 28,070 $ 14,590 $ 27,391 $ 16,166 $ 32,551
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES:
Consolidated Businesses.............. $ (4,830) $ (6,250) $ (14,553) $ (9,452) $ (43,752) $ (12,107) $ (45,105)
Unconsolidated Joint Ventures........ (10,431) (4,654) (1,772) (6,508) (4,775) (3,793) (3,345)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Managed Businesses................... $ (15,261) $ (10,904) $ (16,325) $ (15,960) $ (48,527) $ (15,900) $ (48,450)
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES:
Consolidated Businesses.............. $ (14,017) $ (2,732) $ 15,086 $ 7,772 $ 55,096 $ 7,439 $ 55,181
Unconsolidated Joint Ventures........ 3,119 (5,406) (9,133) (5,011) (4,810) (645) (3,329)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Managed Businesses................... $ (10,898) $ (8,138) $ 5,953 $ 2,761 $ 50,286 $ 6,794 $ 51,852
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
- ---------------
(1) Defined as revenue less operating costs before interest, taxes, depreciation
and amortization. Managed Business EBITDA does not represent cash flows from
operations, as defined by generally accepted accounting principles, and
should not be considered to be an alternative to net income as an indicator
of operating performance or to cash flows from operations as a measure of
liquidity. Management believes that an EBITDA presentation is an important
factor in evaluating the amount of cash available for repayment of debt,
future investments and dividends and in determining cash available for
future distributions.
(2) Defined as Ticketmaster's pro rata share in the results of its Consolidated
Businesses (as defined herein) and Unconsolidated Joint Ventures' revenue
less operating costs before interest, taxes, depreciation and amortization.
EBITDA does not represent cash flows from operations, as defined by
generally accepted accounting principles, and should not be considered to be
an alternative to net income as an indicator of operating performance or to
cash flows from operations as a measure of liquidity. Management believes
that an EBITDA presentation is an important factor in evaluating the amount
of cash available for repayment of debt, future investments and dividends
and in determining cash available for future distributions.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF TICKETMASTER
The discussion and analysis of the results of operations and financial
condition of Ticketmaster should be read in conjunction with the Consolidated
Financial Statements of Ticketmaster and related Notes thereto.
GENERAL
Ticketmaster seeks to optimize the performance of each of the Managed
Businesses regardless of its percentage ownership. Ticketmaster provides the
same scope of ticket inventory control and management, distribution and
dedicated marketing and support services to its joint ventures as it does to its
wholly owned operating subsidiaries. Consequently, certain aspects of the
performance of the Managed Businesses are better understood by measuring their
performance as a whole without regard to Ticketmaster's ownership interest.
Where relevant, certain aspects of the performance of the Managed Businesses are
also discussed with regard to the Consolidated Businesses and Unconsolidated
Joint Ventures separately.
Ticketmaster believes that a meaningful measure of its operating results,
in addition to those of Ticketmaster on a historical consolidated basis, is a
period to period comparison of the results of the Managed Businesses.
Accordingly, in order to obtain a better understanding of the factors affecting
Ticketmaster's performance, additional operating data is presented to show
Ticketmaster's attributable beneficial interest in (i.e., its pro rata share of
the results of) the Managed Businesses regardless of whether or not fully
consolidated.
During fiscal 1997, Ticketmaster made several acquisitions of third party
interests in certain of Ticketmaster's joint ventures and licensees (see
"Information Concerning Ticketmaster -- Joint Ventures and Licensees").
Comparisons of results of operations have been significantly affected by these
acquisitions.
REVENUES
Historically, ticket operation revenues are primarily comprised of
convenience charges which Ticketmaster generates by providing clients with
access to Ticketmaster's extensive distribution capabilities including
Ticketmaster-owned call centers, an independent network of sales outlets remote
to the client's box office and non-traditional distribution channels such as the
Internet. Other components of ticket operations revenue include handling fees
attributed to the sale and distribution of tickets through channels other than
remote sales outlets, credit card fee reimbursements and licensing fees.
Supplemental revenues are generated through the development of integrated
marketing programs designed to provide a strategic partner with access to
Ticketmaster's extensive distribution capabilities and media assets such as
Live! magazine and Ticketmaster Online. Additional sponsorship and promotion
opportunities exist through call center music on hold, ticketbacks, inserts and
ticket envelopes. Ticketmaster also generates revenues from the sale of
ticketing systems to licensees and other third party users, which revenues
historically have averaged between 1% and 2% of total revenues on an annual
basis.
Ticketmaster generally contracts with each client to be its exclusive agent
for ticket distribution for a specified period, typically three to five years,
and has experienced a high contract renewal rate. In contracts with clients,
Ticketmaster is granted the right to collect from ticket purchasers a per ticket
convenience charge on all tickets sold by Ticketmaster and an additional per
order handling charge on those tickets sold by Ticketmaster at other than remote
sales outlets.
Fluctuations in ticket operation revenues occur largely as a result of
changes in the number of tickets sold and changes in Ticketmaster's average
revenue per ticket. The number of tickets sold by Ticketmaster can vary as a
result of (i) additions or deletions to the list of client facilities serviced
by Ticketmaster; (ii) fluctuations in the scheduling of events, particularly for
popular performers; (iii) overall consumer demand for live entertainment events;
and (iv) the percentage of tickets for events which are sold directly by
Ticketmaster's clients and not through Ticketmaster's distribution system.
The average revenue per ticket will vary as a result of the amount of
convenience charges earned on each ticket. The amount of the convenience charge
typically varies based upon numerous factors, including the type
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<PAGE> 42
of event and whether the ticket is purchased at a retail sales outlet or through
call centers, as well as the services to be rendered to the client, the amount
and cost of equipment to be installed at the client's facility and the amount of
advertising and/or promotional allowances to be provided by Ticketmaster.
Generally, contracts with clients provide for scheduled increases in convenience
charges during the term of the contract.
The sale of tickets for an event often commences several months prior to
the date of the event. Ticketmaster recognizes ticket operation revenue when the
ticket is sold. If an event is likely to be canceled, a reserve is established
in the financial statements for potential convenience charge refunds. Except for
major league sports' work stoppages, the losses attributable to cancellations
have been very limited because most events are postponed and rescheduled rather
than canceled.
Additional revenue is generated through the sale of automated concession
inventory control systems which are manufactured by Pacer/CATS/CCS and marketed
to movie theatres, stadiums, arenas and general admission facilities. Revenue is
principally recognized from the sale and installation of the hardware and
software and includes a component of service revenue which is earned from
maintaining systems sold to its client base.
Ticketmaster has generated revenue through the sale of subscriptions to the
Ticketmaster Entertainment Guides, which were produced and distributed by
Ticketmaster to provide the ticket buying public with regional information
regarding future live entertainment events. Significant growth in the number of
subscribers to the Entertainment Guide led, in part, to the creation of Live!
magazine, a monthly entertainment publication whose first edition was published
in February 1996. Each edition of Live! contains a supplemental regional
Entertainment Guide inserted for the reader's benefit. Issues of Live! magazine
published during the 1997 fiscal year had an aggregate of 351 pages of
advertising.
Ticketmaster also operates Entertainment To Go ("ETG"), a merchandising
business designed to leverage Ticketmaster's inbound call center traffic, its
database of consumers and its relationships with the music and entertainment
industries to effectively sell at retail prices music, tour and entertainment
related merchandise products to consumers.
OPERATING COSTS
Ticketmaster records ticket operations costs specifically associated with
the distribution of tickets sold through its system. The largest components of
these operating costs are payroll, telecommunication charges, data communication
costs and commissions paid on tickets distributed through outlets away from the
box office, along with the clients' share of convenience charges, and other
expenses with lesser components including ticket stock and postage. These costs
are primarily variable in nature. Direct payroll costs relate to Ticketmaster's
call centers, which are located throughout the U.S., and in the United Kingdom,
Australia and Mexico. Outlet commissions are paid to music chains, department
stores and other independent retail locations in exchange for their providing
space and personnel to service ticket purchases. The participation, if any, by
clients in Ticketmaster's revenues from convenience charges and other revenues
is set forth in Ticketmaster's contracts with its clients.
Costs incurred from the manufacturing and distribution of automated
concession inventory control systems include research and development, inventory
procurement, payroll and other costs for installment and distribution expenses.
These costs are primarily variable in nature and fluctuate based upon the number
of systems installed on an annual basis.
Costs associated with the production and fulfillment of Live! magazine
include production (paper and printing), editorial and distribution costs. These
costs are primarily variable in nature and fluctuate based upon the number of
copies produced and the number of pages in each edition.
The costs recorded by Ticketmaster for its merchandising operations are
directly related to the procurement of products which are ultimately sold and
distributed to consumers. Ticketmaster acquires its products through licensees
of major touring acts and other copyright owners and does not generally invest
in or hold inventory prior to sale; consequently, operations are designed to
quickly access product inventory to fulfill orders.
33
<PAGE> 43
Because many operating expenses such as those attributable to technology
support, sales and marketing, human resources management and other
administrative functions are not allocable to specific businesses, they are
recorded as corporate general and administrative expenses. These cost
characteristics of maintaining Ticketmaster's Consolidated Businesses differ
from the cost characteristics of the Unconsolidated Joint Ventures;
consequently, Consolidated Businesses have higher costs of services as a
percentage of revenue than Unconsolidated Joint Ventures.
OTHER
Although Ticketmaster collects ticket receipts, representing the full
ticket sale price, on behalf of its clients, it only records as revenue the
convenience charges and handling fees included in the ticket sales price. The
remainder of the ticket sales price constitutes funds being held on behalf of
clients, which Ticketmaster is obligated to remit to its clients at times
specified by contracts with each client. As a result, a significant portion of
Ticketmaster's cash, accounts receivable and accounts payable relates to funds
received and held on behalf of clients. Accounts payable clients primarily
represent the ticket proceeds payable to its clients, which are paid according
to the terms specified in each contract, typically weekly. Accounts receivable
clients primarily represent the portion of ticket proceeds, including the
convenience charges, due Ticketmaster from its independent outlets and from
credit card companies. Ticketmaster's contracts with outlets set forth payment
terms, generally ranging from daily to weekly, which together with other
collection procedures virtually eliminate losses from these receivables.
PRO FORMA FINANCIAL INFORMATION
As described in Note 4 of the Consolidated Financial Statements,
Ticketmaster acquired (by purchase, redemption or otherwise) various Joint
Venture partners', minority shareholders' and licensees' interests during fiscal
1997. Accordingly, the following pro forma financial information has been
prepared to illustrate the effects of these acquisitions and the application of
the proceeds of the IPO completed on November 22, 1996. The pro forma financial
information does not purport to represent what Ticketmaster's results of
operations actually would have been if such transactions had in fact occurred on
such dates. The pro forma adjustments are based on currently available
information and upon certain assumptions that management believes are reasonable
under certain circumstances. The pro forma financial information and
accompanying notes should be read in conjunction with the Consolidated Financial
Statements and related Notes thereto.
34
<PAGE> 44
TICKETMASTER GROUP, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JANUARY 31, 1997
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TICKETMASTER ACQUIRED OTHER ACQUIRED
CONSOLIDATED TICKETING BUSINESSES-- PRO FORMA COMBINED
BUSINESSES BUSINESSES PACER/CATS/CCS ADJUSTMENTS PRO FORMA
------------ ---------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations....................... $ 205,491 $ 26,878 $ (128)(1) $ 232,241
Concession control systems................. 12,401 $ 12,964 25,365
Publications............................... 10,769 176 10,945
Merchandising.............................. 2,300 2,300
----------- ------- ------- -----------
230,961 27,054 12,964 270,851
Operating costs, expenses and other items:
Ticketing operations....................... 122,243 15,490 (128)(1) 137,605
Ticketing selling, general and
administrative........................... 35,789 4,608 40,397
Concession control systems operations...... 7,377 8,462 15,839
Concession control systems selling, general
and administrative....................... 5,995 4,687 10,682
Publications............................... 17,965 100 18,065
Merchandising.............................. 2,141 2,141
Corporate general and administrative....... 16,849 16,849
Depreciation............................... 6,714 962 362 350 (2) 8,388
Amortization of goodwill................... 2,356 30 142 1,202 (3) 3,730
Amortization of other...................... 3,474 162 2,241 (3) 5,877
Equity in net (income) of unconsolidated
affiliates............................... (3,605) (365) 854 (4) (3,116)
----------- ------- ------- -----------
Operating income (loss).................... 13,663 6,067 (689) 14,394
Other expenses:
Interest expense, net...................... 11,508 (47) 484 (3,152)(5) 8,793
Minority interests......................... 300 (219)(6) 81
Gain on sale of unconsolidated affiliate... (3,195) (3,195)
----------- ------- ------- -----------
Income (loss) before income taxes........ 5,050 6,114 (1,173) 8,715
Income tax provision....................... 3,258 1,785 (7) 5,043
----------- ------- ------- -----------
Net income (loss)........................ $ 1,792 $ 6,114 $ (1,173) $ 3,672
=========== ======= ======= ===========
Net income per share....................... $ 0.10 $ 0.15
=========== ===========
Weighted average number of common shares
outstanding(8)........................... 17,243,626 24,760,882
=========== ===========
Supplemental Financial Information:
EBITDA(9).......................................................................................... $ 29,273
Attributable EBITDA(10)............................................................................ 34,116
Net cash provided by operating activities.......................................................... 29,586
Net cash (used in) investing activities............................................................ (45,105)
Net cash provided by financing activities.......................................................... 55,181
</TABLE>
- ---------------
(1) Represents the elimination of license fees paid by Delaware Valley
(Philadelphia) to Ticketmaster during the year.
(2) Represents depreciation arising from the purchase of the building which
serves as corporate headquarters.
(3) Represents amortization arising from the purchased user agreements and
excess purchase price paid for the net assets of a joint venture partner's
50% equity interest in the European Joint Venture, a licensee's 100% equity
interest in Nashville, Tennessee, a joint venture partner's 50% equity
interest in Ticketmaster-Indiana, a licensee's 100% equity interest in
Delaware Valley (Philadelphia), a minority shareholder's 20% equity
interest in Ticketmaster's Florida operating subsidiary, a minority share-
35
<PAGE> 45
holder's 20% equity interest in Ticketmaster's Texas operating subsidiary
and a licensee's approximately 50% equity interest in its Mexico licensee.
The purchased user agreements are being amortized using a discounted cash
flow method through the expiration date of the underlying contracts,
generally ranging from 3 to 10 years. The cost in excess of net assets
acquired is being amortized over a 30 year period.
(4) Represents the consolidation of income earned by Ticketmaster-Indiana and
the European Joint Venture, aggregating $2,027, and losses incurred by the
Pacer Joint Venture, totaling $1,173.
(5) Represents the reduction in interest expense resulting from the repayment
of indebtedness under Ticketmaster's Credit Agreement at rates of interest
incurred by Ticketmaster during the year, approximately 7.0%.
(6) Represents a decrease in the minority interests held by the minority
shareholders in Ticketmaster's Florida and Texas operating subsidiaries.
(7) Represents the related income tax effect of the pro forma adjustments
utilizing a statutory Federal rate of 34% and a statutory rate for state
and foreign taxes based on the rate in the applicable jurisdiction.
(8) Includes 15,310,405 weighted average common and common equivalent shares
outstanding at January 31, 1996, 7,250,000 shares of Common Stock issued by
Ticketmaster in connection with the Initial Public Offering, 21,167 of
additional common stock equivalents at January 31, 1997 and 1,862,069 and
317,241 shares of Common Stock issued in connection with the acquisition,
by purchase, redemption or otherwise, of its joint venture partner's 50%
equity interest in Ticketmaster-Indiana and the minority shareholder's 20%
equity interest in Ticketmaster's Florida operating subsidiary,
respectively.
(9) Defined as revenue less operating costs before interest, taxes,
depreciation and amortization. EBITDA does not represent cash flows from
operations, as defined by generally accepted accounting principles, and
should not be considered to be an alternative to net income as an indicator
of operating performance or to cash flows from operations as a measure of
liquidity. Management believes that an EBITDA presentation is an important
factor in evaluating the amount of cash available for repayment of debt,
future investments and dividends and in determining cash available for
future distributions.
(10) Defined as Ticketmaster's pro rata share of its Consolidated Businesses and
Unconsolidated Joint Ventures' revenue less operating costs before
interest, taxes, depreciation and amortization. EBITDA does not represent
cash flows from operations, as defined by generally accepted accounting
principles, and should not be considered to be an alternative to net income
as an indicator of operating performance or to cash flows from operations
as a measure of liquidity. Management believes that an EBITDA presentation
is an important factor in evaluating the amount of cash available for
repayment of debt, future investments and dividends and in determining cash
available for future distributions.
36
<PAGE> 46
TICKETMASTER GROUP, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JANUARY 31, 1996
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
TICKETMASTER ACQUIRED OTHER ACQUIRED
CONSOLIDATED TICKETING BUSINESSES -- PRO FORMA COMBINED
BUSINESSES BUSINESSES PACER/CATS/CCS ADJUSTMENTS PRO FORMA
------------- ------------ ---------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations..................... $ 154,851 $ 38,170 $ (238)(1) $ 192,783
Concession control systems............... $ 22,985 22,985
Publications............................. 4,198 1,499 5,697
Merchandising............................ 2,201 2,201
------------ ---------- ------- -----------
161,250 39,669 22,985 223,666
Operating costs, expenses and other items:
Ticketing operations..................... 97,147 20,289 (238)(1) 117,198
Ticketing selling, general and
administrative......................... 27,748 7,666 35,414
Concession control systems operations.... 18,844 18,844
Concession control systems selling,
general
and administrative..................... 6,902 6,902
Publications............................. 9,129 1,047 10,176
Merchandising............................ 1,891 1,891
Corporate general and administrative..... 14,758 14,758
Depreciation............................. 4,868 1,671 681 367 (2) 7,587
Amortization of goodwill................. 1,925 105 275 1,714 (3) 4,019
Amortization of other.................... 2,532 474 3,008 (3) 6,014
Equity in net (income) of unconsolidated
affiliates............................. (1,458) (157) (1,007)(4) (2,622)
------------ ---------- ------- -----------
Operating income (loss).................. 2,710 8,574 (3,717) 3,485
Other expenses:
Interest expense, net.................... 12,782 69 985 (3,029)(5) 10,807
Minority interests....................... 273 (129)(6) 144
------------ ---------- ------- -----------
Income (loss) before income taxes...... (10,345) 8,505 (4,702) (7,466)
Income tax provision..................... (2,250) 305 (1,042)(7) (2,987)
------------ ---------- ------- -----------
Net income (loss)...................... $ (8,095) $ 8,505 $ (5,007) $ (4,479)
============ ========== ========= ===========
Net income per share..................... $ (0.53) $ (0.18)
=========== ===========
Weighted average number of common shares
outstanding(8)......................... 15,310,405 24,739,715
========== ==========
Supplemental Financial Information:
EBITDA(9)............................................................................................... $ 18,483
Attributable EBITDA(10)................................................................................. 23,272
Net cash provided by operating activities............................................................... 1,239
Net cash (used in) investing activities................................................................. (12,107)
Net cash provided by financing activities............................................................... 7,439
</TABLE>
- ---------------
(1) Represents the elimination of license fees paid by Delaware Valley
(Philadelphia) and Nashville to Ticketmaster during the year.
(2) Represents depreciation arising from the purchase of the building which
serves as corporate headquarters.
(3) Represents amortization arising from the purchased user agreements and
excess purchase price paid for the net assets of a joint venture partner's
50% equity interest in the European Joint Venture, a licensee's 100% equity
interest in Nashville, Tennessee, a joint venture partner's 50% equity
interest in Ticketmaster-Indiana, a licensee's 100% equity interest in
Delaware Valley (Philadelphia), a minority shareholder's 20% equity
interest in Ticketmaster's Florida operating subsidiary, a minority
shareholder's 20% equity interest in Ticketmaster's Texas operating
subsidiary and a licensee's approximately 50% equity interest in its Mexico
licensee. The purchased user agreements are being amortized using a
discounted cash flow method through the expiration date of the underlying
contracts generally ranging from 3 to 10 years. The cost in excess of net
assets acquired is being amortized over a 30 year period.
(4) Represents the consolidation of income earned by Ticketmaster-Indiana and
the European Joint Venture, aggregating $3,709, and losses incurred by the
Pacer Joint Venture, totaling $4,211, offset by an increase of $505 in
equity for inclusion of the Australian Joint Venture for the entire year.
37
<PAGE> 47
(5) Represents the reduction in interest expense resulting from the repayment
of indebtedness under Ticketmaster's Credit Agreement at rates of interest
incurred by Ticketmaster during the year, approximately 7.0%.
(6) Represents a decrease in the minority interests held by the minority
shareholders in Ticketmaster's Florida and Texas operating subsidiaries.
(7) Represents the related income tax effect of the pro forma adjustments
utilizing a statutory rate of 40%.
(8) Includes 15,310,405 weighted average common and common equivalent shares
outstanding at January 31, 1996, 7,250,000 shares of Common Stock issued by
Ticketmaster in connection with the Initial Public Offering, and 1,862,069
and 317,241 shares of Common Stock issued in connection with the
acquisition, by purchase, redemption or otherwise, of its joint venture
partner's 50% equity interest in Ticketmaster-Indiana and the minority
shareholder's 20% equity interest in Ticketmaster's Florida operating
subsidiary, respectively.
(9) Defined as revenue less operating costs before interest, taxes,
depreciation and amortization. EBITDA does not represent cash flows from
operations, as defined by generally accepted accounting principles, and
should not be considered to be an alternative to net income as an indicator
of operating performance or to cash flows from operations as a measure of
liquidity. Management believes that an EBITDA presentation is an important
factor in evaluating the amount of cash available for repayment of debt,
future investments and dividends and in determining cash available for
future distributions.
(10) Defined as Ticketmaster's pro rata share of its Consolidated Businesses and
Unconsolidated Joint Ventures' revenue less operating costs before
interest, taxes, depreciation and amortization. EBITDA does not represent
cash flows from operations, as defined by generally accepted accounting
principles, and should not be considered to be an alternative to net income
as an indicator of operating performance or to cash flows from operations
as a measure of liquidity. Management believes that an EBITDA presentation
is an important factor in evaluating the amount of cash available for
repayment of debt, future investments and dividends and in determining cash
available for future distributions.
38
<PAGE> 48
RESULTS OF OPERATIONS
The following tables set forth operating results for the Managed Businesses
showing the results of the Consolidated Businesses and the Unconsolidated Joint
Ventures as a percentage of total revenues. The percentages shown for the
Unconsolidated Joint Ventures represent the full balance for each line item and
are not reduced by the joint venture ownership interests held by entities other
than Ticketmaster.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
I. CONSOLIDATED BUSINESSES
Revenue:
Ticketing operations......................................... 96.8% 96.1% 88.9%
Concession control systems................................... 0.0 0.0 5.4
Publications................................................. 2.5 2.6 4.7
Merchandising................................................ 0.7 1.3 1.0
----- ----- -----
100.0 100.0 100.0
Operating Costs:
Ticketing operations......................................... 61.6 60.2 52.9
Ticketing selling, general and administrative................ 15.8 17.2 15.5
Concession control systems operations........................ 0.0 0.0 3.2
Concession control systems selling, general and
administrative.............................................. 0.0 0.0 2.6
Publications................................................. 1.6 5.7 7.8
Merchandising................................................ 0.7 1.2 0.9
Corporate general and administrative......................... 7.5 9.2 7.3
Write off of in-process research and development............. 4.1 0.0 0.0
Depreciation................................................. 2.6 3.0 2.9
Amortization of goodwill..................................... 1.0 1.2 1.0
Amortization of other........................................ 3.7 1.6 1.5
Equity in net income of unconsolidated affiliates............ (0.7) (0.9) (1.6)
----- ----- -----
Operating income........................................... 2.1 1.6 6.0
Other expenses:
Interest expense and minority interests...................... 7.3 8.1 5.1
Gain on sale of unconsolidated affiliate..................... 0.0 0.0 (1.4)
----- ----- -----
Income (loss) before income taxes.......................... (5.2) (6.5) 2.3
Income tax provision............................................ (1.5) (1.4) 1.4
Net income (loss).......................................... (3.7)% (5.1)% 0.9%
===== ===== =====
II. UNCONSOLIDATED JOINT VENTURES:
Revenue:
Ticketing operations......................................... 69.0% 68.9% 80.5%
Publications................................................. 3.1 2.4 0.3
Concession control systems................................... 27.9 28.7 19.2
----- ----- -----
100.0 100.0 100.0
----- ----- -----
Operating costs:
Ticketing operations......................................... 40.7 38.5 45.1
Ticketing selling, general and administrative................ 13.1 11.5 15.4
Publications................................................. 1.8 1.4 0.2
Concession control systems operations........................ 17.6 19.9 12.5
Concession control systems selling, general and
administrative.............................................. 12.7 12.3 6.9
Depreciation................................................. 4.3 3.2 3.0
Amortization of goodwill..................................... 0.4 0.5 0.2
Amortization of other........................................ 2.6 1.8 2.8
----- ----- -----
Operating income........................................... 6.8 10.9 13.9
Other expenses:
Interest expense and other................................... 0.8 1.2 0.4
----- ----- -----
Income before income taxes................................. 6.0 9.7 13.5
Income tax provision............................................ 0.7 0.4 0.4
----- ----- -----
Net income................................................. 5.3% 9.3% 13.1%
===== ===== =====
</TABLE>
39
<PAGE> 49
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996
The following tables set forth operating results for the Consolidated
Businesses and the Unconsolidated Joint Ventures, collectively, the Managed
Businesses. The amounts shown for the Unconsolidated Joint Ventures represent
the full balance for each line item and do not give effect to the joint venture
ownership interests held by entities other than Ticketmaster.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1996 YEAR ENDED JANUARY 31, 1997
-------------------------------------------- --------------------------------------------
CONSOLIDATED UNCONSOLIDATED MANAGED CONSOLIDATED UNCONSOLIDATED MANAGED
BUSINESSES JOINT VENTURES BUSINESSES BUSINESSES JOINT VENTURES BUSINESSES
------------- --------------- ------------ ------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations............. $ 154,851 $55,129 $209,980 $ 205,491 $54,401 $259,892
Concession Control Systems....... -- 22,985 22,985 12,401 12,964 25,365
Publications..................... 4,198 1,939 6,137 10,769 176 10,945
Merchandising.................... 2,201 -- 2,201 2,300 -- 2,300
------------- ------- ------------ ------------- ------- ------------
Total Revenues................. 161,250 80,053 241,303 230,961 67,541 298,502
------------- ------- ------------ ------------- ------- ------------
Operating costs:
Ticketing operations............. 97,147 30,836 127,983 122,243 30,472 152,715
Ticketing selling, general and
administrative................. 27,748 9,232 36,980 35,789 10,366 46,155
Concession control systems
operations..................... -- 15,912 15,912 7,377 8,462 15,839
Concession control systems
selling, general and
administrative................. -- 9,834 9,834 5,995 4,687 10,682
Publications..................... 9,129 1,148 10,277 17,965 128 18,093
Merchandising.................... 1,891 -- 1,891 2,141 -- 2,141
Corporate general and
administrative................. 14,758 -- 14,758 16,849 -- 16,849
Depreciation..................... 4,868 2,599 7,467 6,714 2,012 8,726
Amortization of goodwill......... 1,925 380 2,305 2,356 142 2,498
Amortization of other............ 2,532 1,422 3,954 3,474 1,874 5,348
Total operating costs.......... 159,998 71,363 231,361 220,903 58,143 279,046
------------- ------- ------------ ------------- ------- ------------
1,252 $ 8,690 $ 9,942 10,058 $ 9,398 $ 19,456
============ ============== =========== ============ ============== ===========
Equity in net income of
unconsolidated affiliates...... (1,458) (3,605)
========= =========
Operating income................. 2,710 13,663
Interest expense and other....... 13,055 11,808
Gain on sale of unconsolidated
affiliate...................... -- (3,195)
Income tax provision (benefit)... (2,250) 3,258
========= =========
Net (loss) income................ $ (8,095) $ 1,792
========= =========
Supplemental information
EBITDA:........................ $ 10,577 $13,091 $ 23,668 $ 22,602 $13,426 $ 36,028
============ ============== =========== ============ ============== ===========
Attributable EBITDA.............. $ 15,222 $ 28,299
========= =========
Net cash provided by (used in)
operating activities........... $ (3,068) $17,658 $ 14,590 $ 15,585 $11,806 $ 27,391
Net cash (used in) investing
activities..................... (9,452) (6,508) (15,960) (43,752) (4,775) (48,527)
Net cash provided by (used in)
financing activities........... 7,772 (5,011) 2,761 55,096 (4,810) 50,286
</TABLE>
CONSOLIDATED BUSINESSES
Revenues from ticketing operations increased by $50.6 million, or 33%, to
$205.5 million for fiscal 1997 from $154.9 million for fiscal 1996. The increase
is attributed to an increase of 21% in the number of tickets sold (from 37.6
million to 45.5 million tickets), a 6% increase in average per ticket revenue
(from $4.01 to $4.23) and an increase in sponsorship and promotions revenue. The
increase in the number of tickets sold is largely attributed to the acquisition
of Ticketmaster's Nashville and Delaware Valley (Philadelphia) licensees in
February 1996 and October 1996, respectively, acquisitions of Joint Venture
partners' interests in (and subsequent consolidation of) the Ticketmaster Europe
operations in June 1996 and Ticketmaster Indiana operations in November 1996,
and an overall increase in the number of events made available for sale to the
consumer and subsequent demand for live entertainment events. Increased
sponsorship and promotions revenue is primarily attributed to an increase in
activity with strategic marketing partners resulting from Ticketmaster's efforts
to create integrated marketing opportunities around live events, its call
centers, ticket
40
<PAGE> 50
stock and envelopes and event promotional material and in additional media
outlets such as Ticketmaster Online and Ticketmaster Travel.
Publications revenues increased by $6.6 million, or 157%, to $10.8 million
for fiscal 1997 from $4.2 million for fiscal 1996. The increase is attributed to
Ticketmaster Publications' launch of Live! magazine, a monthly consumer oriented
entertainment magazine, which distributed its first issue in February of 1996.
Live! was created as an extension of the Entertainment Guide which was published
and distributed without significant advertising revenue as a stand-alone
publication by Ticketmaster through fiscal 1996. With the February 1996 launch
of Live! magazine, the subscription base has remained relatively constant with
the increase in revenues resulting from increases in annual subscription rates
and advertising revenues. Issues of Live! magazine published during the 1997
fiscal year had an aggregate of 351 pages of advertising.
Revenues generated by concession and control systems for the six months
ended January 31, 1997 are included in Consolidated Businesses while the
revenues generated for the first six months ended July 31, 1996 are included in
Unconsolidated Joint Ventures due to the acquisition of the joint venture
partner's interest on July 29, 1996. Accordingly, the discussion and analysis
included herein is based upon the increase in combined revenues of the
Consolidated Businesses and the Unconsolidated Joint Ventures of $2.4 million,
or 10%, to $25.4 million from $23.0 million for the prior year. The increase is
primarily attributed to increased sales from the release of new products. The
combined operating costs of concession and control systems remained consistent
at $15.9 million in both years. As a percentage of revenue, these expenses
decreased from 69% to 62%, which decrease is attributed to a combination of
product mix and improvements in the quotation, assembly and delivery processes.
The combined selling, general and administrative costs of concession and control
systems increased by $0.8 million, or 9%, to $10.7 million in fiscal 1997 from
$9.8 million in fiscal 1996. The increase is attributed to legal costs
associated with the MovieFone complaint. See "Information Concerning
Ticketmaster -- Legal Proceedings."
Ticketing operations costs increased by $25.1 million, or 26%, to $122.2
million in fiscal 1997 from $97.1 million in fiscal 1996. This increase is
attributed to the increase in ticketing operations revenues as these costs are
primarily variable in nature. Ticketing operations costs decreased as a
percentage of ticketing operations revenues to 59% in fiscal 1997 from 63% in
fiscal 1996. Much of this decrease is attributed to operating efficiencies and
increased revenues generated from sponsorship and promotions activities in
fiscal 1997.
Publications costs increased by $8.8 million, or 97%, to $18.0 million in
fiscal 1997 from $9.1 million in fiscal 1996. This increase is attributed to the
increased production costs resulting from the launch of Live! magazine.
Corporate general and administrative costs increased by $2.1 million, or
14%, to $16.8 million in fiscal 1997 from $14.8 million in fiscal 1996. Much of
the increase resulted from increased compensation expense associated with growth
in administrative functions necessary to support the development of
Ticketmaster's principal business, and more recent development efforts in
Ticketmaster Publications, Ticketmaster Online and Ticketmaster Travel. The
increase in compensation expense was partially offset by decreases in legal
fees.
Depreciation increased by $1.8 million, or 38%, to $6.7 million in fiscal
1997 from $4.9 million in fiscal 1996. The increase is attributed to
acquisitions (and subsequent consolidation) of interests previously owned by
third parties in Ticketmaster's operations in Europe, Delaware Valley and
Indiana.
Amortization of goodwill increased by $0.4 million, or 22%, to $2.4 million
in fiscal 1997 from $1.9 million in fiscal 1996. The increase is attributed to
acquisitions (and subsequent consolidation) of interests previously owned by
third parties in Ticketmaster's operations in Europe, Delaware Valley, Indiana,
Florida and Texas. Amortization of goodwill is expected to increase in
subsequent years over 1997 because 1997 amortization is computed from the dates
of acquisition which occurred in mid to late 1997.
Other amortization increased by $0.9 million, or 37%, to $3.5 million in
fiscal 1997 from $2.5 million in fiscal 1996. The increase is attributed to the
acquisitions (and subsequent consolidation) of interests previously owned by
third parties in Ticketmaster's operations in Europe, Delaware Valley, Indiana,
Florida and Texas.
41
<PAGE> 51
The income tax provision of $3.3 million in fiscal 1997, compared to an
income tax benefit of $2.2 million for the prior year, is primarily attributed
to taxes on the gain of the sale of an unconsolidated affiliate and state income
taxes.
As a result of the foregoing, Ticketmaster had net income of $1.8 million
in the current year compared to net losses of $8.1 million in the prior year.
Unconsolidated Joint Ventures
Revenues from ticket operations decreased by $0.7 million, or 1%, to $54.4
million in fiscal 1997 from $55.1 million in fiscal 1996. This decrease is
primarily attributed to a decrease of 6% in the number of tickets sold (from
15.5 million to 14.5 million tickets) offset by an increase in average per
ticket operation revenue of 6% (from $3.56 to $3.75). The decrease in the number
of tickets sold by Unconsolidated Joint Ventures is largely attributed to the
reacquisition by Ticketmaster of its partners' Joint Venture interests (and thus
inclusion of operating results in Consolidated Businesses rather than
Unconsolidated Joint Ventures) in the Ticketmaster Europe and Indiana operations
in June and November 1996, respectively, offset by the acquisition of 50% of the
business of Ticketmaster's Australian licensee in December 1995. The 6% increase
in average revenue per ticket is comparable to the 6% increase in average gross
price per ticket of tickets sold (from $26.77 to $28.27), which is the result of
both inflation and varying ticket prices between markets.
The discussion and analysis with respect to results of operations from
concession control systems is included in Consolidated Businesses.
Ticketing operations costs decreased by $0.4 million, or 1%, to $30.5
million in fiscal 1997 from $30.8 million in fiscal 1996. This decrease is
attributed to the decrease in ticketing operations revenues as these costs are
primarily variable in nature. As a percentage of ticket operations revenues
these expenses totaled 56% in both periods.
Depreciation decreased by $0.6 million, or 23%, to $2.0 million in fiscal
1997 from $2.6 million in fiscal 1996. The decrease is attributed to the
reacquisition by Ticketmaster of its partners' Joint Venture interests (and thus
inclusion of operating results in Consolidated Businesses rather than
Unconsolidated Joint Ventures) in the Ticketmaster Europe and Indiana operations
in June and November 1996, respectively, which was partially offset by the
acquisition of 50% of the business of Ticketmaster's Australian licensee,
achieved through the formation of Joint Ventures in December 1995.
Amortization of goodwill decreased by $0.2 million, or 63%, to $0.1 million
in fiscal 1997 from $0.4 million in fiscal 1996. The decrease is attributed to
the reacquisition by Ticketmaster of its partners' Joint Venture interests (and
thus inclusion of operating results in Consolidated Businesses rather than
Unconsolidated Joint Ventures) in the Ticketmaster Europe and Indiana operations
in June and November 1996, respectively, which was partially offset by the
acquisition of 50% of the business of Ticketmaster's Australian licensee,
achieved through the formation of Joint Ventures in December 1995.
Other amortization increased by $0.5 million, or 32%, to $1.9 million in
fiscal 1997 from $1.4 million in fiscal 1996. The increase is attributed to the
acquisition of 50% of the business of Ticketmaster's Australian licensee,
achieved through the formation of Joint Ventures in December 1995 (2 months of
operations in fiscal 1996 versus 12 months of operations in fiscal 1997).
As a result of the foregoing, net income from Unconsolidated Joint Ventures
increased by $1.4 million, or 19%, to $8.9 million for fiscal 1997, from $7.4
million for fiscal 1996.
Managed Businesses
Aggregate revenues for the Managed Businesses increased by $57.2 million,
or 24%, to $298.5 in fiscal 1997 from $241.3 million in fiscal 1996, principally
as a result of an increase of $49.9 million, or 24%, to $259.9 million in ticket
operations revenue.
EBITDA for the Managed Businesses increased by $12.4 million, or 52%, to
$36.0 million in fiscal 1997 from $23.7 million in fiscal 1996, principally as a
result of an increase of $16.0 million in ticketing operations income net of
ticketing operations and selling, general and administrative costs, offset by a
decrease of $3.0 million in Publications income net of Publications costs.
42
<PAGE> 52
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995
The following tables set forth operating results for the Consolidated
Businesses and the Unconsolidated Joint Ventures, collectively, the Managed
Businesses. The amounts shown for the Unconsolidated Joint Ventures represent
the full balance for each line item and do not give effect to the joint venture
ownership interests held by entities other than Ticketmaster.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1995 YEAR ENDED JANUARY 31, 1996
----------------------------------------- -----------------------------------------
CONSOLIDATED UNCONSOLIDATED MANAGED CONSOLIDATED UNCONSOLIDATED MANAGED
BUSINESSES JOINT VENTURES BUSINESSES BUSINESSES JOINT VENTURES BUSINESSES
------------ --------------- ---------- ------------ --------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Ticketing operations............. $176,989 $47,786 $224,775 $154,851 $55,129 $209,980
Concession Control Systems....... -- 19,354 19,354 -- 22,985 22,985
Publications..................... 4,640 2,129 6,769 4,198 1,939 6,137
Merchandising.................... 1,321 -- 1,321 2,201 -- 2,201
-------- ------- -------- -------- ------- --------
Total Revenues................. 182,950 69,269 252,219 161,250 80,053 241,303
-------- ------- -------- -------- ------- --------
Operating costs:
Ticketing operations............. 112,695 28,208 140,903 97,147 30,836 127,983
Ticketing selling, general and
administrative................. 28,917 9,094 38,011 27,748 9,232 36,980
Concession control systems
operations..................... -- 12,162 12,162 -- 15,912 15,912
Concession control systems
selling, general and
administrative................. -- 8,770 8,770 -- 9,834 9,834
Publications..................... 2,908 1,261 4,169 9,129 1,148 10,277
Merchandising.................... 1,222 -- 1,222 1,891 -- 1,891
Corporate general and
administrative................. 13,722 -- 13,722 14,758 -- 14,758
Write off of in-process research
and development................ 7,500 -- 7,500 -- -- --
Depreciation..................... 4,614 2,950 7,564 4,868 2,599 7,467
Amortization of goodwill......... 1,858 302 2,160 1,925 380 2,305
Amortization of other............ 6,829 1,810 8,639 2,532 1,422 3,954
-------- ------- -------- -------- ------- --------
Total operating costs.......... 180,265 64,557 244,822 159,998 71,363 231,361
-------- ------- -------- -------- ------- --------
$ 2,685 $ 4,712 $ 7,397 $ 1,252 $ 8,690 $ 9,942
======== ======= ======== ======== ======= ========
Equity in net income of
unconsolidated affiliates........ (1,360) (1,458)
-------- --------
Operating income................... 4,045 2,710
Interest expense and other......... 13,393 13,055
Income tax provision (benefit)..... (2,670) (2,250)
-------- --------
Net (loss) income.................. $ (6,678) $ (8,095)
======== ========
Supplemental information EBITDA:... $ 15,986 $ 9,774 $ 25,760 $ 10,577 $13,091 $ 23,668
======== ======= ======== ======== ======= ========
Attributable EBITDA................ $ 19,503 $ 15,222
======== ========
Net cash provided by (used in)
operating activities............. $ 12,309 $15,761 $ 28,070 $ (3,068) $17,658 $ 14,590
Net cash (used in) investing
activities....................... (14,553) (1,772) (16,325) (9,452) (6,508) (15,960)
Net cash provided by (used in)
financing activities............. 15,086 (9,133) 5,953 7,772 (5,011) 2,761
</TABLE>
Consolidated Businesses
Revenues from ticketing operations decreased by $22.1 million, or 13%, to
$154.9 million for fiscal 1996 from $177.0 million for fiscal 1995. The decrease
is primarily attributed to a decrease of 11% in the number of tickets sold (from
42.5 million to 37.6 million tickets). The decrease in the number of tickets
sold was largely attributable to fewer performances by popular music performers
during fiscal 1996 as compared to fiscal 1995.
43
<PAGE> 53
Publications revenues decreased by $0.4 million, or 10%, to $4.2 million
for fiscal 1996 from $4.6 million for fiscal 1995. The decrease is largely
attributed to fewer subscription sales of the Entertainment Guide during fiscal
1996. The decrease in subscriptions is consistent with the decrease in ticket
sales through Ticketmaster's call centers which was the only distribution
channel through which the Entertainment Guide was sold.
Merchandising revenues increased by $0.9 million, or 67%, to $2.2 million
for fiscal 1996 from $1.3 million in fiscal 1995. Fiscal 1996 revenues include a
full year of operations while fiscal 1995 revenues include six months of
operations.
Ticketing operations costs decreased by $15.5 million, or 14%, to $97.1
million in fiscal 1996 from $112.7 million in fiscal 1995. This decrease is
attributed to the decrease in ticketing operations revenues as these costs are
primarily variable in nature. As a percentage of ticketing operations revenues,
these expenses amounted to 64% and 63% in fiscal 1995 and 1996, respectively.
Publications costs increased by $6.2 million, or 214%, to $9.1 million in
fiscal 1996 from $2.9 million in fiscal 1995. This increase is attributed to the
design and pre-production cost attributable to the launch of Live! magazine by
Ticketmaster Publications.
Merchandising costs increased by $0.7 million, or 55%, to $1.9 million in
fiscal 1996 from $1.2 million in fiscal 1995. Fiscal 1996 costs include a full
year of operations while fiscal 1995 costs include six months of operations.
Corporate general and administrative costs increased by $1.0 million, or
8%, to $14.8 in fiscal 1996 from $13.7 million in fiscal 1995. The increase is
primarily attributed to costs associated with litigation against Ticketmaster
and investigations into its operations by government agencies. See "Information
Concerning Ticketmaster -- Legal Proceedings."
During fiscal 1995, Ticketmaster incurred a charge of $7.5 million to write
off purchased in-process research and development in connection with the
formation of the Pacer Joint Venture.
Other amortization decreased by $4.3 million, or 63%, to $2.5 million is
fiscal 1996 from $6.8 million in fiscal 1995. The decrease is primarily
attributed to the absence of a $3.8 million charge to amortization to write-off
the value of covenants-not-to-compete which was incurred in fiscal 1995 in
connection with the formation of the Pacer Joint Venture.
The income tax benefit decreased by $0.4 million, or 16%, to $2.3 million
in fiscal 1996 from $2.7 million in fiscal 1995. Income tax benefit as a
percentage of pre-tax loss decreased from 29% to 22% from fiscal 1995 to fiscal
1996. The decrease is attributed to higher earnings subject to state and foreign
taxes and the effect of nondeductible amortization of intangible foreign assets.
As a result of the foregoing, net loss from Consolidated Businesses
increased by $1.4 million, or 21%, to $8.1 million for fiscal 1996 from $6.7
million for fiscal 1995.
Unconsolidated Joint Ventures
Revenues from ticketing operations increased by $7.3 million, or 15%, to
$55.1 million in fiscal 1996 from $47.8 million in fiscal 1995. This increase is
primarily attributed to an increase of 18% in the number of tickets sold (from
13.2 million to 15.5 million tickets). The increase in the number of tickets
sold was largely attributed to approximately a 39% growth in ticket sales from
Ticketmaster's joint venture in the United Kingdom (0.8 million tickets),
increased popularity of professional sport franchises (1.2 million tickets) in
areas serviced by these joint ventures, and the formation of joint ventures with
Ticketmaster's Australian licensee (0.4 million tickets) during fiscal 1996.
Concession control systems revenues increased by $3.6 million, or 19%, to
$23.0 million in fiscal 1996 from $19.4 million in fiscal 1995, because fiscal
1995 figures represent the results of operations from inception (April 15, 1994)
through fiscal year end.
44
<PAGE> 54
Ticketing operations costs increased by $2.6 million, or 9%, to $30.8
million in fiscal 1996 from $28.2 million in fiscal 1995. This increase is
attributed to the increase in ticketing operations revenues as these costs are
primarily variable in nature. Ticketing operations costs decreased as a
percentage of ticketing operations revenues to 56% in fiscal 1996 from 59% in
fiscal 1995. Much of this decrease is attributed to increased efficiencies in
the call centers which service these joint ventures and increased revenue per
ticket.
Concession control systems operating costs increased by $3.7 million, or
31%, to $15.9 million in fiscal 1996 from $12.2 million in fiscal 1995 because
fiscal 1996 costs represent a full year of operations as noted previously. As a
percentage of concession control systems revenues, these costs increased from
63% to 69% due to increased research and new product development expenses.
Concession control systems selling, general and administrative costs
increased by $1.1 million, or 12%, to $9.8 million in the fiscal 1996 from $8.8
million in fiscal 1995 because fiscal 1996 costs represent a full year of
operations as noted previously.
As a result of the foregoing, net income from Unconsolidated Joint Ventures
increased by $3.8 million, or 105%, to $7.4 million for fiscal 1996 from $3.6
million for fiscal 1995.
Managed Businesses
Aggregate revenues for the Managed Businesses decreased by $10.9 million,
or 4%, to $241.3 million in fiscal 1996 from $252.2 million in fiscal 1995,
principally as a result of a decrease of $14.8 million, or 7%, to $210.0 million
in ticket operations revenue, offset by an increase in concession control
systems revenue of $3.6 million in fiscal 1996.
EBITDA for the Managed Businesses decreased by $2.1 million, or 8%, to
$23.7 million in fiscal 1996 from $25.8 million in fiscal 1995, principally as a
result of an increase of $6.1 million, or 147%, to $10.3 million in publications
costs resulting from the anticipated fiscal 1997 launch of Live! magazine and
losses incurred in the concession control systems businesses of the Pacer Joint
Venture offset by the effect of the write-off of in-process research and
development of $7.5 million in fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Ticketmaster's primary sources of liquidity are cash flows from operations
and available credit under its revolving bank credit facilities. Management
believes that these sources adequately provide for its working capital, capital
expenditures and debt service needs.
Net cash provided by operating activities was $15.6 million in fiscal 1997
compared with net cash used by operating activities of $3.1 million in fiscal
1996. This change primarily reflects an increase in net income.
As of January 31, 1997, Ticketmaster had cash and cash equivalents of $25.0
million for its own account, separate from funds held in accounts on behalf of
venues and promoters and working capital of $21.1 million.
Net cash used in investing activities was $43.8 million in fiscal 1997
compared with $9.5 million in fiscal 1996. This change primarily reflects cash
used to fund the acquisition and formation of new ventures net of cash acquired
of $27.2 million, investments in property and improvements, including,
Ticketmaster's recently acquired corporate headquarters building of $21.8
million offset by net proceeds from the sale of an unconsolidated affiliate of
$6.6 million.
Excluding the acquisitions and formations of new venture investment
activity, Ticketmaster's anticipated annual capital expenditures are expected to
include $2.0 million for improvements to its recently acquired corporate
headquarters building, $5.0 million of replacements or upgrades of computer
equipment, $4.0 million in expanded call center capacity and additional amounts
which management determines are necessary in order to maintain Ticketmaster's
competitive position or to otherwise achieve its business strategies.
Net cash provided by financing activities was $55.1 million in fiscal 1997
compared to $7.8 million in fiscal 1996. This change primarily reflects proceeds
received from Ticketmaster's Initial Public Offering net of amounts used to
reduce a portion of outstanding indebtedness under Ticketmaster's bank
facilities and other long term debt.
45
<PAGE> 55
Amounts available under the Credit Agreement are limited to the lower of
the commitment amount or a borrowing base calculated as a multiple of cash flows
as defined in the Credit Agreement. As of January 31, 1997, Ticketmaster had
$120 million in outstanding bank borrowings under its $175 million revolving
bank credit line. Amounts available under the credit line decrease to $165
million as of December 31, 1997 and reduces further to $150 million as of
December 31, 1998. As of January 31, 1997, the borrowing base calculation did
not restrict Ticketmaster's availability under the Credit Agreement.
Ticketmaster's Credit Agreement contains other covenants and restrictions, as to
which Ticketmaster was in compliance at January 31, 1997.
Also as of January 31, 1997, Pacer/CATS/CCS had indebtedness of $7.5
million outstanding under a bank term loan, with monthly interest payments only
due through June 1997 and principal and interest payable monthly from July 1997
through June 1999. The loan agreement is secured by all of Pacer/CATS/CCS's
assets and contains certain restrictions and covenants, with which
Pacer/CATS/CCS is in full compliance.
Ticketmaster anticipates that funds from operations and from its bank
lending facilities will be sufficient to meet its working capital, capital
expenditure and debt service requirements through the expiration of the Credit
Agreement (December 31, 1999). However, to the extent that such funds are
insufficient, Ticketmaster may need to incur additional indebtedness and/or
refinance existing indebtedness. Ticketmaster's ability to do so may be
restricted by borrowing base calculations and other financial covenants
described in the Credit Agreement.
SEASONALITY
Ticketmaster's ticketing operations results for its Managed Businesses are
occasionally impacted by fluctuations in the availability of events for sale to
the public, which varied depending upon scheduling by clients. This, together
with the general practice of scheduling the commencement of ticket sales several
months prior to event dates, tends to benefit Ticketmaster's first two fiscal
quarters. Set forth below are quarterly ticket quantities and gross sales for
the Managed Businesses for the past three fiscal years:
TICKETS SOLD
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL
- ------------ -------------- --------------- -------------- --------------- ------
<S> <C> <C> <C> <C> <C>
1995 16,649 14,939 11,649 12,377 55,614
1996 13,509 13,667 12,759 13,181 53,116
1997 15,268 15,135 14,936 14,682 60,021
</TABLE>
GROSS TICKET RECEIPTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER TOTAL
- ------------ -------------- --------------- -------------- --------------- ----------
<S> <C> <C> <C> <C> <C>
1995 $489,721 $ 455,799 $352,675 $ 355,606 $1,653,801
1996 383,564 389,791 379,741 378,482 1,531,578
1997 425,382 444,612 453,232 457,129 1,780,355
</TABLE>
INFLATION RISK
General economic inflation has not had a significant impact on
Ticketmaster's operations during the periods covered by the accompanying
Consolidated Financial Statements.
FOREIGN CURRENCY RISK
Ticketmaster is not presently subject to significant foreign exchange risk
as international operations currently constitute a minor part of its operations.
46
<PAGE> 56
EFFECT OF RECENT ACCOUNTING CHANGES
In February 1997, the Financial Standards Board issued SFAS No. 128,
"Earnings Per Share". SFAS No. 128 specifies new standards designed to improve
the earnings per share ("EPS") information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements and increasing the comparability of EPS data on an international
basis. Some of the changes made to simplify the EPS computations include: (a)
eliminating the presentation of primary EPS and replacing it with basic EPS,
with the principal difference being that common stock equivalents are not
considered in computing basic EPS, (b) eliminating the modified treasury stock
method and the three percent materiality provision and (c) revising the
contingent share provision and the supplemental EPS data requirements. SFAS No.
128 also makes a number of changes to existing disclosure requirements. SFAS No.
128 is effective for financial statements issued for periods ending after
December 15, 1997, including interim periods. Ticketmaster has not determined
the impact of the implementation of SFAS No. 128.
SELECTED FINANCIAL DATA OF HSNI
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of HSNi and the related
notes appearing in HSNi's Annual Report on Form 10-K for the Year Ended December
31, 1996 and the HSNi's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, which are incorporated herein by reference.
<TABLE>
<CAPTION>
THREE MONTHS FOUR MONTHS
SUMMARY CONSOLIDATED ENDED YEAR ENDED ENDED YEARS ENDED AUGUST 31,
STATEMENTS OF OPERATIONS MARCH 31, DECEMBER 31, DECEMBER 31, -----------------------------------------
DATA 1997 1996(1) 1995 1995 1994 1993 1992
- -------------------------- ------------ ------------ ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............... $ 279,551 $ 75,172 $ 15,980 $ 47,918 $ 46,563 $ 46,136 $ 46,729
Earnings (loss) before
cumulative effect of
change in accounting
principle (2)........... 3,770 (6,539) (2,882) 115 (899) (6,386) (15,222)
Net earnings (loss) (3)... 3,770 (6,539) (2,882) 115 (3,878) (6,386) (15,222)
Earnings (loss) per common
share:
Earnings (loss) before
cumulative effect of
change in accounting
principle (4)........... .07 (.61) (.31) .01 (.10) (.72) --
Net earnings (loss) (4)... .07 (.61) (.31) .01 (.44) (.72) --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, AUGUST 31,
SUMMARY CONSOLIDATED MARCH 31, --------------------------- -----------------------------------------
BALANCE SHEET DATA 1997 1996(1) 1995 1995 1994 1993 1992
- ---------------------------- ---------- ------------ ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficit)... $ 7,451 $ (24,444) $ 7,553 $ 6,042 $ 1,553 $ 4,423 $ (594)
Total assets................ 2,099,300 2,116,232 136,670 142,917 145,488 153,718 153,491
Long-term obligations....... 269,071 271,430 95,980 97,937 114,525 128,210 185
Stockholders' equity
(deficit)................. 1,164,451 1,158,749 7,471 9,278 2,614 6,396 (87,064)
Total assets less
intangibles............... 569,331 570,285 76,686 79,814
Shares outstanding.......... 46,319 46,218 9,412 9,374
Book value per share:
Common Stock.............. 25.14 25.07 .79 .99
Class B Common Stock...... 25.14 25.07 .79 .99
</TABLE>
- ---------------
(1) As a result of the Mergers, the results of operations for the year ended
December 31, 1996 includes SKTV, Inc. ("SKTV") for the full year and 11 and
12 days of Home Shopping and Savoy, respectively. The balance sheet reflects
purchase accounting adjustments for the consolidated entity. Performance
bonus commissions of $3.4 million were not paid to HSNi by Home Shopping for
1996 as a result of the Mergers.
47
<PAGE> 57
(2) In fiscal 1994, HSNi adopted Statement of Financial Accounting Standards No.
109 "Accounting for Income Taxes" ("Statement 109"). The cumulative effect
of the accounting change resulted in a charge of approximately $3.0 million.
Prior years' financial statements were not restated.
(3) Beginning in fiscal 1992, the 12 independent full power UHF television
stations owned and operated by SKTV and its subsidiaries (the "SKTV
Stations") were charged interest based on the historical cost of the SKTV
Stations to SKTV and Home Shopping' s then cost of long-term borrowings. In
fiscal 1993, the SKTV Stations were charged interest expense on the note
payable to HSN Capital Corporation ("HSNCC"), a wholly-owned subsidiary of
Home Shopping, at a rate of 9.5% per annum. In fiscal 1994, HSNi paid
interest to HSNCC until August 1, 1994 when HSNi repaid the long-term
obligation to HSNCC.
(4) Net earnings (loss) per share for the year ended December 31, 1996, for the
four months ended December 31, 1995 and for the years ended August 31, 1995,
1994 and 1993 have been computed based upon the weighted average shares
outstanding of 10,785,743; 9,394,696; 9,144,772; 8,881,380; and 8,851,339,
respectively. Loss per share for fiscal year 1992 has been omitted due to
lack of comparability.
SELECTED PRO FORMA FINANCIAL DATA OF HSNI
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Net revenues.................................................. $ 355,156 $ 1,364,029
Net earnings (loss)........................................... 2,882 (19,063)
Total assets.................................................. 2,620,207
Long-term obligations......................................... 407,092
Stockholders' equity.......................................... 1,428,094
Shares outstanding............................................ 55,560
Book value per share.......................................... 25.70
Ticketmaster per share equivalent:
Net earnings (loss)......................................... .03 (.19)
Book value.................................................. 15.14
</TABLE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF HSNI
The following table sets forth, as of December 31, 1996, information
relating to the beneficial ownership of HSNi Common Stock by (i) each person
known by HSNi to own beneficially more than 5% of the outstanding shares of HSNi
Common Stock, (ii) each director, (iii) the Chief Executive Officer of HSNi and
the other four most highly compensated officers of HSNi whose compensation
exceeded $100,000 for the year 1996, and (iv) all executive officers and
directors of HSNi as a group:
<TABLE>
<CAPTION>
PERCENT OF
NUMBER PERCENT VOTES
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF CLASS (ALL CLASSES)(1)
- --------------------------------------------------------- ---------- -------- -----------------
<S> <C> <C> <C>
Capital Research & Management Co. &
The Capital Group Companies, Inc.(2)
333 South Hope Street
Los Angeles, CA 90071.................................... 3,846,250 10.8% 2.8%
Denver Investment Advisers, LLC
1225 17th St., 26th Floor
Denver, CO 80202......................................... 3,126,243 8.7% 2.3%
Fidelity Investments(3)
82 Devonshire Street
Boston, MA 02109-3614.................................... 2,920,040 8.1% 2.1%
</TABLE>
48
<PAGE> 58
<TABLE>
<CAPTION>
PERCENT OF
NUMBER PERCENT VOTES
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF CLASS (ALL CLASSES)(1)
- --------------------------------------------------------- ---------- -------- -----------------
<S> <C> <C> <C>
Snyder Capital Management, Inc.
350 California Street
Suite 1460
San Francisco, CA 94104.................................. 1,962,325 5.5% 1.4%
Tele-Communications, Inc.(4)
5619 DTC Parkway
Englewood, CO............................................ 9,870,741 21.4% 21.4%
Barry Diller(5).......................................... 12,484,190 27.0% 27.0%
Douglas Binzak(6)........................................ 0 * *
James G. Held(7)......................................... 281,272 * *
Victor A. Kaufman(8)..................................... 142,000 * *
John E. Oxendine(9)...................................... 0 * *
Bruce M. Ramer(9)........................................ 0 * *
Gen. H. Norman Schwarzkopf(10)........................... 750 * *
Eli J. Segal(11)......................................... 750 * *
Sidney J. Sheinberg(9)................................... 0 * *
Richard E. Snyder(9)..................................... 0 * *
Adam Ware(12)............................................ 0 * *
Michael Drayer(13)....................................... 14,500 * *
Lia Afriat-Hernandez(14)................................. 12,343 * *
All executive officers and directors as a group (16
persons)............................................... 12,996,071 28.4% 28.1%
</TABLE>
- ---------------
Unless otherwise indicated, beneficial owners listed herein may be contacted at
HSNi's corporate headquarters address, 1 HSN Drive, St. Petersburg, FL 33729.
The percentage of votes listed assumes the conversion of any shares of HSNi
Class B Common Stock owned by such listed person, but does not assume the
conversion of HSNi Class B Common Stock owned by any other person. Under the
rules of the Commission, a person is deemed to be a "beneficial owner" of a
security if that person has or shares "voting power," which includes the power
to vote or to direct the voting of such security, or "investment power," which
includes the power to dispose of or to direct the disposition of such security.
A person is also deemed to be the beneficial owner of any securities of which
that person has the right to acquire beneficial ownership within 60 days. Under
these rules, more than one person may be deemed to be a beneficial owner of the
same securities and a person may be deemed to be a beneficial owner of
securities as to which that person has no beneficial interest.
* The percentage of shares beneficially owned does not exceed 1% of the class.
(1) The percent of votes for all classes is based on one vote for each share of
HSNi Common Stock and ten votes for each share of HSNi Class B Common
Stock. However, the percent of votes for TCI and Mr. Diller assume that all
of their HSNi Class B Common Stock has been converted into HSNi Common
Stock, and therefore, there is no HSNi Class B Common Stock outstanding.
(2) Includes 3,141,250 shares of HSNi Common Stock and 705,000 shares as a
result of the assumed conversion of $18,800,000 principal amount of the
Home Shopping Debentures into HSNi Common Stock.
(3) Includes 2,238,479 shares of HSNi Common Stock and 681,651 shares as a
result of the assumed conversion of $15,763,000 principal amount of the
Home Shopping Debentures into HSNi Common Stock.
(4) Includes beneficial ownership of 9,809,111 shares of HSNi Class B Common
Stock, which may be converted at any time into an equal number of shares of
HSNi Common Stock, and 61,630 shares of HSNi Common Stock. The number of
shares does not include any shares or options to purchase shares
49
<PAGE> 59
held and voted by Mr. Diller outside the BDTV Entities as to which shares
TCI disclaims beneficial ownership, and does not include any Contingent
Rights Shares or Liberty Exchange Shares.
(5) The number of shares includes 486,988 shares owned by Mr. Diller and vested
options to purchase 2,126,461 shares but does not include unvested options
to purchase 6,379,386 shares granted to Mr. Diller. Such number also
includes 9,809,111 shares of HSNi Class B Common Stock beneficially owned
by Mr. Diller as the sole voting shareholder of the BDTV Entities which
hold such shares, which shares are convertible into HSNi Common Stock, and
61,630 shares of HSNi Common Stock held by Liberty HSN with respect to
which Mr. Diller may be deemed to be a beneficial owner because he has
voting control of such shares. Such number does not include the Liberty
Exchange Shares or the Contingent Rights Shares.
(6) Does not include unvested options to purchase 110,000 shares of HSNi Common
Stock pursuant to the Stock Incentive Plan.
(7) Includes vested options, granted pursuant to the 1996 Home Shopping
Employee Stock Option Plan (the "Home Shopping Employee Plan"). Does not
include unvested options to purchase 843,750 shares pursuant to that plan.
Includes 22 shares under the Home Shopping Retirement Savings Plan.
(8) Includes the conversion of 500,000 shares of Savoy Common Stock and 250,000
shares of Savoy Restricted Stock pursuant to the Savoy Merger. Includes
28,000 vested options to purchase HSNi Common Stock assumed by HSNi
pursuant to the Savoy Merger. Includes 9,000 shares of vested options to
purchase HSNi Common Stock resulting from the conversion of options granted
pursuant to the Home Shopping Employee Plan. Does not reflect unvested
options to purchase 100,000 shares of HSNi Common Stock granted pursuant to
the Stock Incentive Plan and unvested options to purchase 36,000 shares of
HSNi Common Stock resulting from conversion of options granted pursuant to
the Home Shopping Employee Plan.
(9) Does not reflect unvested options to purchase 5,000 shares of HSNi Common
Stock pursuant to the Directors' Stock Option Plan.
(10) Does not include unvested options to purchase 5,000 shares of HSNi Common
Stock pursuant to the Directors' Stock Option Plan. Does not include
unvested options to purchase 1,500 shares of HSNi Common Stock under the
Home Shopping Directors' Stock Option Plan which were converted pursuant to
the terms of the Home Shopping Merger. Does not include unvested options to
purchase 22,500 shares of HSNi Common Stock granted under the Home Shopping
Employee Plan pursuant to a consulting agreement with Home Shopping.
(11) Does not include unvested options to purchase 5,000 shares of HSNi Common
Stock pursuant to the Directors' Stock Option Plan. Does not include
unvested options to purchase 1,500 shares of HSNi Common Stock under the
Home Shopping Directors' Stock Option Plan which were converted pursuant to
the terms of the Home Shopping Merger.
(12) Does not include unvested options to purchase 100,000 shares of HSNi Common
Stock pursuant to the Stock Incentive Plan.
(13) Includes 14,500 vested options granted under HSNi's Stock Option and
Restricted Stock Plan.
(14) Includes vested options to purchase 12,040 vested options granted under
HSNi's Stock Option and Restricted Stock Plan.
50
<PAGE> 60
The following table sets forth, as of December 31, 1996, information
relating to the beneficial ownership of HSNi Class B Common Stock:
<TABLE>
<CAPTION>
PERCENT OF
NUMBER PERCENT VOTES (ALL
NAME AND ADDRESS OF BENEFICIAL OWNER OF SHARES OF CLASS CLASSES)(1)
- --------------------------------------------------------- ---------- -------- -------------------
<S> <C> <C> <C>
Barry Diller(2).......................................... 9,809,111 95.9% 71.0%
Tele-Communications, Inc.(2)
5619 DTC Parkway
Englewood, CO............................................ 9,809,111 95.9% 71.0%
BDTV INC. and BDTV II INC.(2)
2425 Olympic Boulevard
Santa Monica, CA 90404................................... 9,809,111 95.9% 71.0%
</TABLE>
- ---------------
* Excludes shares of HSNi Common Stock owned by any of the listed persons.
(1) All or any portion of shares of HSNi Class B Common Stock may be converted
at any time into an equal number of shares of HSNi Common Stock.
(2) Liberty, a wholly owned subsidiary of TCI, and Mr. Diller have entered into
the Stockholders Agreement pursuant to which Liberty and Mr. Diller have
formed the BDTV Entities. On August 13, 1996, BDTV exercised an option
assigned to it by Liberty, thereby acquiring 2,000,000 shares of HSNi Class
B Common Stock. On December 20, 1996, Liberty contributed 7,809,111 shares
of HSNi Class B Common Stock to BDTV II. Mr. Diller also owns 441,988 shares
of HSNi Common Stock and options to purchase 8,505,847 shares of HSNi Common
Stock, 2,126,461 of which are currently vested representing 5.9% of the
issued and outstanding shares of HSNi Common Stock as of December 31, 1996.
Moreover, if the BDTV Entities converted their HSNi Class B Common Stock
into HSNi Common Stock, such shares would represent approximately 21.2% of
the issued and outstanding shares of HSNi Common Stock. Newly formed BDTV
Entities may be issued additional Class B Common Stock upon issuance of the
Contingent Rights Shares and conversion of the Liberty Exchange Shares in
accordance with the terms of the Home Shopping Merger. TCI disclaims
beneficial ownership of all Common Stock held by Mr. Diller or his
affiliates other than shares of any Common Stock held by the BDTV Entities,
and does not include the Liberty Exchange Shares or the Contingent Rights
Shares. Mr. Diller owns all of the voting stock of BDTV Entities and Liberty
owns all of the non-voting stock, which non-voting stock represents in
excess of 99% of the equity of the BDTV Entities. Common Stock held by the
BDTV Entities are subject to the terms of the Stockholders Agreement.
MARKET PRICES
The HSNi Common Stock and the Ticketmaster Common Stock are each traded on
the NNM. On May 20, 1997 (the last full trading day prior to the public
announcement of the proposed Acquisition), the high and low sale prices of the
HSNi Common Stock, as quoted on the NASDAQ were $30.375 and $27.500,
respectively, and the high and low sale prices of the Ticketmaster Common Stock,
as quoted on the NASDAQ were $15.250 and $14.250, respectively. Stockholders are
advised to obtain current market quotations.
51
<PAGE> 61
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
TICKETMASTER GROUP, INC. AND SUBSIDIARIES
Independent Auditors' Report........................................................ F-2
Consolidated Balance Sheets -- January 31, 1996 and 1997............................ F-3
Consolidated Statements of Operations -- Years ended January 31, 1995, 1996 and
1997.............................................................................. F-4
Consolidated Statements of Shareholders' Equity (Deficiency) -- Years ended January
31, 1995, 1996 and 1997........................................................... F-5
Consolidated Statements of Cash Flows -- Years ended January 31, 1995, 1996 and
1997.............................................................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7
Quarterly Financial Summary......................................................... F-21
TICKETMASTER - NORTHWEST (A JOINT VENTURE)
Independent Auditors' Report........................................................ F-22
Balance Sheet -- January 31, 1997................................................... F-23
Statement of Income and Venturers' Capital -- Year ended January 31, 1997........... F-24
Statement of Cash Flows -- Year ended January 31, 1997.............................. F-25
Notes to Financial Statements....................................................... F-26
TICKETMASTER CANADA HOLDINGS LTD.
(Expressed in Canadian dollars)
Independent Auditors' Report...................................................... F-29
Consolidated Balance Sheets -- February 28, 1997 and February 29, 1996............ F-30
Consolidated Statements of Income and Retained Earnings -- Years ended February
28, 1997, February 29, 1996 and February 28, 1995.............................. F-31
Consolidated Statements of Changes in Financial Position -- Years ended February
28, 1997, February 29, 1996 and February 28, 1995.............................. F-32
Notes to Consolidated Financial Statements........................................ F-33
HSN, INC. - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Combined Condensed Balance Sheet -- March 31, 1997.................................. F-38
Combined Condensed Statement of Operations -- Year ended December 31, 1996.......... F-39
Combined Condensed Statement of Operations -- Three months ended March 31, 1997..... F-40
TICKETMASTER GROUP, INC. AND SUBSIDIARIES - PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
Combined Condensed Statements of Operations -- Three months ended January 31,
1997.............................................................................. F-43
</TABLE>
F-1
<PAGE> 62
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ticketmaster Group, Inc.:
We have audited the accompanying consolidated balance sheets of Ticketmaster
Group, Inc. and subsidiaries as of January 31, 1996 and 1997 and the related
consolidated statements of operations, shareholders' equity (deficiency), and
cash flows for each of the years in the three year period ended January 31,
1997. 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 statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ticketmaster Group,
Inc. and subsidiaries as of January 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three year period
ended January 31, 1997 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
March 12, 1997, except for Notes 13 and 14,
which are as of April 17, 1997
F-2
<PAGE> 63
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
1996 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash-equivalents........................................ $ 34,004 $ 60,880
Accounts receivable, ticket sales................................ 8,644 12,014
Accounts receivable, other....................................... 3,783 8,884
Inventory........................................................ 623 4,093
Prepaid expenses................................................. 5,491 8,079
--------- ---------
Total current assets..................................... 52,545 93,950
Property, equipment and leasehold improvements, net.............. 12,776 32,923
Investments in and advances to affiliates........................ 9,784 7,308
Cost in excess of net assets acquired, net....................... 13,645 65,074
Intangible and other assets, net................................. 11,447 26,031
Deferred income taxes, net....................................... 5,200 3,948
--------- ---------
$ 105,397 $ 229,234
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current portion of long-term debt................................ $ 45 $ 190
Accounts payable, trade.......................................... 5,352 10,767
Accounts payable, clients........................................ 31,318 35,842
Accrued expenses................................................. 6,691 16,863
Deferred revenue................................................. 5,165 9,233
--------- ---------
Total current liabilities................................ 48,571 72,895
Long-term debt, net of current portion............................. 159,864 127,514
Deferred rent and other............................................ 3,627 7,400
Minority interests................................................. 1,128 80
Shareholders' equity (deficiency):
Preferred stock.................................................. -- --
Common stock, no par value, authorized 80,000,000 shares, issued -- --
and outstanding 15,310,405 and 24,739,715 shares at January
31, 1996 and 1997, respectively...............................
Additional paid-in capital....................................... -- 127,466
Cumulative currency translation adjustment....................... -- (53)
Accumulated deficit.............................................. (107,793) (106,068)
--------- ---------
Total shareholders' equity (deficiency).................. (107,793) 21,345
--------- ---------
$ 105,397 $ 229,234
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 64
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Ticketing operations................................. $ 176,989 $ 154,851 $ 205,491
Concession control systems........................... -- -- 12,401
Publications......................................... 4,640 4,198 10,769
Merchandising........................................ 1,321 2,201 2,300
-------- -------- --------
182,950 161,250 230,961
-------- -------- --------
Operating costs, expenses and other items:
Ticketing operations................................. 112,695 97,147 122,243
Ticketing selling, general and administrative........ 28,917 27,748 35,789
Concession control systems operations................ -- -- 7,377
Concession control systems selling, general and
administrative.................................... -- -- 5,995
Publications......................................... 2,908 9,129 17,965
Merchandising........................................ 1,222 1,891 2,141
Corporate general and administrative................. 13,722 14,758 16,849
Write off of in process research and development..... 7,500 -- --
Depreciation......................................... 4,614 4,868 6,714
Amortization of goodwill............................. 1,858 1,925 2,356
Amortization of other................................ 6,829 2,532 3,474
Equity in net income of unconsolidated affiliates.... (1,360) (1,458) (3,605)
-------- -------- --------
Operating income............................. 4,045 2,710 13,663
Other (income) expenses:
Interest expense, net................................ 12,409 12,782 11,508
Minority interests................................... 984 273 300
Gain on sale of unconsolidated affiliate............. -- -- (3,195)
-------- -------- --------
Income (loss) before income taxes............ (9,348) (10,345) 5,050
Income tax provision (benefit)......................... (2,670) (2,250) 3,258
-------- -------- --------
Net income (loss)............................ $ (6,678) $ (8,095) $ 1,792
======== ======== ========
Net income (loss) per share............................ $ (0.44) $ (0.53) $ 0.10
======== ======== ========
Weighted average number of common shares outstanding... 15,310,405 15,310,405 17,243,626
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 65
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
PREFERRED STOCK
NO PAR (NUMBER COMMON STOCK, NO PAR CUMULATIVE RETAINED TOTAL
OF SHARES) (NUMBER OF SHARES) ADDITIONAL CURRENCY EARNINGS/ SHAREHOLDERS'
REDEEMABLE/ ----------------------- PAID-IN TRANSLATION (ACCUMULATED EQUITY
CONVERTIBLE SERIES A SERIES B CAPITAL ADJUSTMENT DEFICIT) (DEFICIENCY)
-------------- ---------- -------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY
31, 1994.......... -- 15,262,704 47,701 $ -- $ -- $ (93,020) $ (93,020)
Common stock
conversion........ -- 47,701 (47,701) -- -- -- --
Net loss............ -- -- -- -- -- (6,678) (6,678)
------ ---------- ------- ------- ------ -------- --------
BALANCE AT JANUARY
31, 1995.......... -- 15,310,405 -- -- -- (99,698) (99,698)
Net loss............ -- -- -- -- -- (8,095) (8,095)
------ ---------- ------- ------- ------ -------- --------
BALANCE AT JANUARY
31, 1996.......... -- 15,310,405 -- -- -- (107,793) (107,793)
Foreign currency
translation
adjustment........ -- -- -- -- (53) -- (53)
Preferred Stock
issued............ 1 -- -- 27,000 -- -- 27,000
Preferred Stock
converted......... (1) 1,862,069 -- -- -- -- --
Dividends on
Preferred Stock... -- -- -- -- -- (67) (67)
Public sale of
Common Stock at
$14.50 per share
(IPO Price), net
of expenses....... -- 7,250,000 -- 95,866 -- -- 95,866
Issuance of Common
Stock for a
Minority
Interest.......... -- 317,241 -- 4,600 -- -- 4,600
Net income.......... -- -- -- -- -- 1,792 1,792
------ ---------- ------- ------- ------ -------- --------
BALANCE AT JANUARY
31, 1997.......... -- 24,739,715 -- $127,466 $ (53) $ (106,068) $ 21,345
====== ========== ======= ======= ====== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 66
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................................ $ (6,678) $ (8,095) $ 1,792
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................ 13,301 9,325 12,544
Income attributable to minority interests................................ 984 273 300
Equity in net income of unconsolidated affiliates........................ (1,360) (1,458) (3,605)
Gain on sale of unconsolidated affiliate................................. -- -- (3,195)
Deferred income taxes.................................................... (4,200) (1,830) 1,252
Changes in operating assets and liabilities net of effects from purchase of
venturers' interests:
Accounts receivable, ticket sales.......................................... 1,797 3,385 (299)
Accounts receivable, other................................................. (624) (1,693) (216)
Inventory.................................................................. 520 (223) 424
Prepaid expenses........................................................... (1,036) 393 (1,196)
Accounts payable, trade.................................................... (501) 1,783 457
Accounts payable, clients.................................................. 7,632 (5,876) (2,981)
Accrued expenses........................................................... 4,036 (3,432) 3,653
Deferred revenue........................................................... (1,409) 3,090 2,149
Deferred rent and other.................................................... (153) 1,290 4,506
--------- --------- ---------
Net cash provided by (used in) operating activities...................... 12,309 (3,068) 15,585
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of unconsolidated affiliate............................... -- -- 6,600
Purchase of property, equipment and leasehold improvements................... (6,838) (3,644) (21,796)
Payments for investments in affiliates....................................... (2,586) (7,736) (4,309)
Cash distributions received from affiliates.................................. 4,060 5,760 3,240
Cost in excess of net assets acquired........................................ (3,250) (2,225) --
Intangible and other assets.................................................. (5,939) (1,607) (305)
Purchase of minority interest for cash....................................... -- -- (6,000)
Payment for acquisitions of venturers' and licensees interests, net of cash
acquired................................................................... -- -- (21,182)
--------- --------- ---------
Net cash used in investing activities.................................... (14,553) (9,452) (43,752)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from IPO........................................................ -- -- 95,866
Dividends paid............................................................... -- -- (67)
Proceeds from long-term debt................................................. 161,036 136,339 70,999
Reduction of long-term debt.................................................. (144,910) (128,029) (111,401)
Distributions to minority shareholders....................................... (1,040) (538) (301)
--------- --------- ---------
Net cash provided by financing activities................................ 15,086 7,772 55,096
--------- --------- ---------
Effect of exchange rate on cash and cash-equivalents........................... -- -- (53)
--------- --------- ---------
Net increase (decrease) in cash and cash-equivalents..................... 12,842 (4,748) 26,876
Cash and cash-equivalents, beginning of year................................... 25,910 38,752 34,004
--------- --------- ---------
Cash and cash-equivalents, end of year......................................... $ 38,752 $ 34,004 $ 60,880
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest................................................................... $ 14,268 $ 12,913 $ 12,623
Income taxes............................................................... 4,256 997 2,738
</TABLE>
Supplemental schedule of noncash investing and financing activities:
During the fiscal year ended January 31, 1997, Ticketmaster acquired the 50%
interest of its partners in the European and Indiana Joint Ventures and in the
Pacer Joint Venture, the 20% interests of the minority shareholders in the Texas
and Florida operations, and the license rights and related assets of its
Delaware Valley (Philadelphia) licensee. In conjunction with the acquisitions,
liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired............................................................. $92,576
Cash paid for venturers' and licensee's interests......................................... 37,600
Stock issued for venturer's interest...................................................... 31,600
-------
$23,376
=======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 67
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Ticketmaster Group, Inc. and subsidiaries (the Company) is the leading
provider of automated ticketing services in the United States with clients
including the country's foremost entertainment facilities, promoters and
professional sports franchises. The Company provides automated ticketing
services to organizations that sponsor events which enable patrons alternatives
to purchasing tickets through operator-staffed call centers, the Internet and
independent sales outlets remote to the facility box office. On November 22,
1996 the Company completed its Initial Public Offering (IPO).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
its wholly owned subsidiaries and majority (80% or greater) owned companies and
joint ventures. Investments in companies and joint ventures, which ownership
interests range from 20-50% and in which the Company exercises significant
influence over operating and financial policies, are accounted for using the
equity method at cost plus advances, increased or decreased by the Company's
share of earnings or losses, less dividends received. All significant
intercompany balances and transactions have been eliminated.
REVENUE RECOGNITION
Revenue from ticket operations is recognized as tickets are sold. Revenue
from all other sources are recognized either upon delivery or when the service
is provided.
CASH AND CASH EQUIVALENTS
The Company classifies all highly liquid debt instruments purchased with an
original maturity of three months or less as cash equivalents.
ACCOUNTS RECEIVABLE, TICKET SALES
Accounts receivable, ticket sales are principally from ticketing outlets
and represent the face value of the tickets sold plus convenience charges,
generally net of outlet commissions. The Company performs credit evaluations of
new ticket outlets, which are reviewed and updated periodically, requiring
collateral as circumstances warrant.
INVENTORY
Inventory, consisting primarily of systems hardware, maintenance parts and
supplies, is stated at the lower of cost (first-in, first out) or market.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the related assets of three to forty years or, for
leasehold improvements, the term of the lease, if shorter. When assets are
retired or otherwise disposed of, the cost is removed from the asset account and
the corresponding accumulated depreciation is removed from the related allowance
account and any gain or loss is reflected in results of operations.
F-7
<PAGE> 68
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COST IN EXCESS OF NET ASSETS ACQUIRED
The cost in excess of net assets acquired represents amounts allocated to
goodwill through the purchase of other businesses, ticketing operations and
minority interests and is being amortized by the straight-line method
principally over terms ranging from five to thirty years.
ACCOUNTS PAYABLE, CLIENTS
Accounts payable, clients represents contractual amounts due to clients for
tickets sold by the Company on behalf of the organizations that sponsor events.
DEFERRED REVENUE
Deferred revenue primarily consists of subscription revenue related to
publications, maintenance revenue related to Concession Control Systems and
sponsorship revenue related to ticketing operations. Deferred publications
revenue is recognized pro rata on a monthly basis, over the life of the
subscriptions. Costs in connection with the procurement of the subscriptions are
charged to expense pro rata on a monthly basis, over the life of the
subscriptions. Deferred maintenance revenue is recognized over the term
(generally 1 year) of the agreements on a straight-line basis. Deferred
sponsorship revenue and the related costs are recognized over the term of the
agreements on a straight-line basis.
INCOME TAXES
Deferred tax assets and liabilities are recognized with respect to the tax
consequences attributable to the differences between the financial statement
carrying values and tax bases of assets and liabilities. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which these temporary differences are expected to be
recovered or settled. Further, 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.
FOREIGN CURRENCY TRANSLATION
The consolidated financial statements of foreign subsidiaries are
translated into U.S. dollars. Gains and losses resulting from translation are
accumulated in a separate component of shareholders' equity (deficiency) until
the investment in the foreign entity is sold or liquidated. Gains and losses on
currency transactions were immaterial for all years presented.
CONCENTRATION OF CREDIT RISK
The Company places its temporary cash investments principally in commercial
paper with large domestic and international companies and limits the amount of
credit exposure in any one company.
INCOME (LOSS) PER SHARE
Income (loss) per share is based on the weighted average number of Common
Shares outstanding, as adjusted for the reverse stock split (note 8) for all
years presented.
Pursuant to the requirements of the Securities and Exchange Commission,
Common Shares and stock options issued by the Company during the twelve months
immediately preceding an initial public offering have been included in the
calculation of the weighted average shares outstanding as if they were
outstanding for all periods presented using the treasury stock method.
F-8
<PAGE> 69
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The estimated fair values of cash, accounts receivable, notes receivable,
accounts payable, accrued expenses, income taxes payable and long term debt
approximate their carrying value because of the short term maturity of these
instruments or the stated interest rates are indicative of market interest
rates.
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 and liabilities at the
date of financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
STOCK OPTION PLAN
Prior to February 1, 1996, the Company accounted for its Stock Option Plan
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 would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
February 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant or,
alternatively, SFAS No. 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 made in 1995 and
future years as if the fair-value-based method defined in SFAS No. 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 provisions of SFAS No. 123.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," on
February 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows (on an
undiscounted basis) expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations or liquidity.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Standards Board issued SFAS No. 128,
"Earnings Per Share." SFAS No. 128 specifies new standards designed to improve
the earnings per share (EPS) information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements and increasing the comparability of EPS data on an international
basis. Some of the changes made to simplify the EPS computations include: (a)
eliminating the presentation of primary EPS and replacing it with basic EPS,
with the principal difference being that common stock equivalents are not
considered in computing basic EPS, (b) eliminating the modified treasury stock
method and the three percent materiality provision and (c) revising the
contingent share provision and the supplemental EPS data requirements. SFAS No.
128 also
F-9
<PAGE> 70
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
makes a number of changes to existing disclosure requirements. SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. The Company has not determined the impact of
the implementation of SFAS No. 128.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years financial
information to conform with the current year presentation.
(2) PROPERTY, EQUIPMENT & LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consisted of the following
(in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Computer equipment..................................... $ 17,203 $ 28,287
Building............................................... -- 12,784
Telephone equipment and furnishings.................... 7,688 11,611
Transportation equipment............................... 642 1,124
Leasehold improvements................................. 3,516 4,661
--------- ---------
29,049 58,467
Less accumulated depreciation and amortization......... (16,273) (25,544)
--------- ---------
$ 12,776 $ 32,923
========= =========
</TABLE>
(3) INVESTMENTS IN AND ADVANCES TO AFFILIATES
Investments in Joint Ventures, which the Company refers to also as
affiliates or "affiliated companies", consisted of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
------------------
1996 1997
------- ------
<S> <C> <C>
Investments in Ticketing Joint Ventures................... $ 7,458 $6,655
Investment in Pacer Joint Venture (defined in note 4)..... (2,430) --
Advances to Pacer Joint Venture........................... 2,000 --
Investment in and advances to VJNIL (defined below)....... 2,270 --
Other investments......................................... 486 653
-------- -------
$ 9,784 $7,308
======== =======
</TABLE>
All of the above investments are accounted for under the equity method. The
Company is managing general partner of each of the Joint Ventures.
Ticketing Joint Ventures
At January 31, 1997, the Company's investments in Ticketing Joint Ventures
consist of a 50% interest in both Ticketmaster-Northwest and
Ticketmaster-Australia, a 33% interest in Ticketmaster-Southeast and a 27%
interest in Ticketmaster-Mexico. In fiscal 1997, the Company acquired
controlling interests in Ticketmaster-Indiana, Ticketmaster-UK Limited and
TM-Europe Group (see note 4). Prior to the fiscal 1997
F-10
<PAGE> 71
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS IN AND ADVANCES TO AFFILIATES (CONTINUED)
acquisition dates, the Company had a 50% interest in these Joint Ventures and,
accordingly, classified these investments as affiliates and accounted for them
using the equity method of accounting.
On December 1, 1995, the Company entered into a series of agreements which
resulted in the acquisition of a 50% interest in Joint Ventures with its former
licensee in Melbourne, Australia for Australian $2.8 million (approximately US
$2 million). In March 1996, an additional Australian $400,000 (approximately US
$300,000) was paid in accordance with certain contingent consideration
provisions of the Joint Venture Agreement for a total investment of Australian
$3.2 million (approximately US $2.3 million).
On October 10, 1996, the Company acquired a 27% equity interest in the
Company's Mexican licensee from a third party for $1.8 million in cash and 5% of
net distributions (as defined) received with respect to such 27% equity interest
from the Mexican operation through December 31, 1998. Pursuant to a letter of
intent, the Company and the majority owner of its licensee (CIE) intend to enter
into a development agreement to operate in Central and South America using the
Company's trademark and technology in exchange for a 22.99% portion of CIE's 73%
ownership interest in the Company's Mexican licensee. Upon completion of these
two transactions, the Company will have a 50.01% equity interest in future
ticketing and service entities in Central America and South America and will
have a 49.99% equity interest in existing and future ticketing service entities
in Mexico.
Summarized financial information of the unconsolidated Ticketing Joint
Ventures is presented below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1997
-----------
<S> <C>
COMBINED RESULTS OF OPERATIONS:
Revenues.......................................................... $54,577
Operating income.................................................. 10,087
Net income........................................................ 10,032
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
1997
-----------
<S> <C>
COMBINED FINANCIAL POSITION:
Total assets.................................................... $24,739
Total liabilities............................................... 12,551
Venturers' capital.............................................. 12,188
</TABLE>
Pacer/CATS/CCS
During the years ended January 31, 1995 and 1996, the Company held a 50%
interest in and served as the managing general partner of the Pacer Joint
Venture. On July 29, 1996, the Company acquired the remaining 50% equity
interest in the Pacer Joint Venture from WIL, Incorporated (WIL) (see note 4).
Video Jukebox Network International Limited (VJNIL)
On June 30, 1995, the Company acquired 50% of the common stock in VJNIL for
$2.2 million in cash and commitments for future management services equivalent
to $1 million. Also, on June 30, 1995, the Company loaned VJNIL $1.5 million. On
October 29, 1996, the Company received $5.0 million for its interest in VJNIL
and $1.6 million as repayment of the note plus interest. A $3.2 million gain on
the transaction was recognized.
F-11
<PAGE> 72
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) BUSINESS ACQUISITIONS
All acquisitions have been accounted for under the purchase method. The
results of operations of the acquired businesses are included in the
consolidated financial statements from the dates of acquisition. The aggregate
purchase price plus liabilities assumed exceeded the fair value of tangible
assets by approximately $65 million, of which approximately $14.5 million was
allocated to purchased user agreements with the remaining excess of the
estimated fair value of the net assets acquired amounting to approximately $50.5
million, which is being accounted for as goodwill. Purchased user agreements are
being amortized over the contract life generally three to ten years, while
goodwill is being amortized primarily over 30 years.
Ticketing Joint Ventures and Licensees
On February 12, 1996 the Company completed the acquisition of certain
assets of Tennessee Performing Arts Center Management Corporation, which manages
a ticket selling business within the State of Tennessee, for a purchase price of
$1.6 million.
On June 7, 1996, the Company acquired the minority interests held by its
joint venture partner in Ticketmaster UK Limited and Ticketmaster Europe Group.
The purchase consideration was $6 million in cash and an Exchangeable Promissory
Note (the Note) in the principal amount of $5 million, bearing interest at the
prime rate. The Note plus interest was paid in full in November 1996.
On August 31, 1996, the Company purchased certain assets of its
Albuquerque, New Mexico licensee, which manages a ticket distribution business
in Albuquerque, New Mexico, for a purchase price of $150,000.
On October 3, 1996, the Company acquired the license rights and related
assets of its Delaware Valley (Philadelphia) licensee, which manages a ticket
distribution business primarily in Philadelphia, Pennsylvania for $19 million in
cash.
On November 22, 1996, the Company completed the acquisition of the 50%
equity interest of its partner in Ticketmaster-Indiana. In connection with this
transaction, the Company issued 1,862,069 shares of Common Stock having an
aggregate value of $27 million based on the IPO Price per share (also, see note
8).
On November 25, 1996, the Company acquired the 20% equity interest of the
minority shareholder in Southwest Ticketing, Inc., the Company's consolidated
operating subsidiary in Texas, for $6 million in cash. With the acquisition, the
Company increased its ownership interest to 100%.
Also, on November 25, 1996, the Company acquired the 20% equity interest of
the minority shareholder in Ticketmaster-Florida, Inc., the Company's
consolidated operating subsidiary in Florida. In connection with the
acquisition, the Company issued 317,241 shares of Common Stock (having a value
of $4.6 million based upon the IPO Price per share). With the acquisition, the
Company increased its ownership interest to 100%.
Pacer/CATS/CCS
On July 29, 1996, the Company acquired the 50% interest held by its joint
venture partner in Pacer/CATS/CCS - a Wembley/Ticketmaster Joint Venture (the
Pacer Joint Venture) which business is to develop, design and service
stand-alone computer tickets systems, as well as other management information
systems to be used in various venues, including motion picture theaters,
stadiums, arenas and amusement parks. With the acquisition, the Company
increased its ownership interest to 100%.
Consideration paid by the Company in connection with its initial 50%
interest in the Pacer Joint Venture and the subsequent 50% interest purchased
from WIL aggregated approximately $16 million in cash and the assumption of $7.5
million of debt. WIL's contribution to the Pacer Joint Venture included certain
ticketing technology in development and employment contracts with
covenants-not-to-compete, for which the Com-
F-12
<PAGE> 73
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) BUSINESS ACQUISITIONS (CONTINUED)
pany paid $7.5 million and $3.75 million, respectively. The technology in
development was expensed as research and development cost by the Company. During
the year ended January 31, 1995, the covenants-not-to-compete were charged to
expense, as it was determined that this intangible had no future value to the
Company. The remaining $3.25 million of the Company's excess investment over the
underlying equity in the Pacer Joint Venture has been recorded as cost in excess
of net assets acquired and is being amortized using the straight line method
over a period of seven and a half years.
Proforma Financial Results
The following pro forma information presents a summary of consolidated
results of the Company, the European, Indiana and Pacer Joint Ventures, the
Delaware Valley (Philadelphia) and Mexico licensees and the Texas and Florida
operating subsidiaries for the years ended January 31, 1996 and 1997 assuming
the acquisitions had been made as of February 1, 1995, with pro forma
adjustments to give affect to amortization of goodwill and purchased user
agreements, interest on the related acquisitions and the related income tax
effect utilizing a statutory rate for Federal taxes equal to 34%, for state and
foreign taxes equal to the rate applicable in each jurisdiction. The pro forma
financial information is not necessarily indicative of the results of operations
as they would have been had the transactions been effective on February 1, 1995.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31
------------------------------
1996 1997
-------- -----------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Total revenue............................. $223,666 $ 270,851
Net income (loss)......................... (6,076) 1,989
Income (loss) per share................... (0.40) 0.12
</TABLE>
Pro forma results of operations have not been presented for the Nashville
or the New Mexico acquisitions because the pro forma effects of these
acquisitions are not significant.
(5) INTANGIBLE AND OTHER ASSETS, NET
Intangible and other long term assets consisted of the following (in
thousands):
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Purchased user agreements................................ $ 5,949 $20,320
Covenants not to compete................................. 1,274 1,072
Other.................................................... 2,674 3,199
Note Receivable.......................................... 1,550 1,440
------- -------
$11,447 $26,031
======= =======
</TABLE>
The purchased user agreements and other long term assets are being
amortized generally in accordance with the contract terms, primarily on a
straight-line basis, including any annual minimum guarantees specified by the
contract. The lives of the contracts generally range from 2 to 10 years. The
covenants not to compete are being amortized using the straight-line method over
the lives of the noncompetition agreements, principally ranging from 2 to 25
years. Other long term assets include debt issue costs.
Notes receivable consists of the long term portion of a $2 million note
entered into with a former related party in May 1995. The $2 million note bears
an interest rate of prime (8.25% at January 31, 1997) plus 1% and is due in
monthly installments through April 30, 1998 with the balance due on May 31,
1998.
F-13
<PAGE> 74
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Notes payable to bank on revolving loan ($100 million at January 31,
1996, $175 million at January 31, 1997, respectively),
collateralized by substantially all of the Company's assets,
payable on December 31, 1999; bearing interest at the London
Inter-Bank Offering Rate (5.5% and 5.4% at January 31, 1996 and
1997, respectively) plus the applicable margin, as defined (1.625%
at January 31, 1996 and 1997, respectively)........................ $ 84,800 $120,000
Notes payable to bank on term loan collateralized by substantially
all of the Company's assets and certain publicly traded common
stock pledged by the majority shareholder, paid in November 1996:
bearing interest at the London Inter-Bank Offering Rate (5.5% at
January 31, 1996), plus the applicable margin, as defined (1.625%
at January 31, 1996)............................................... 75,000 --
Notes payable to bank on term loan collateralized by substantially
all of Pacer's assets, interest at prime (8.25% at January 31,
1997) plus 0.25% or at the Inter-Bank Offering Rate plus 225 basis
points; interest payable monthly; principal payable monthly
beginning July 31, 1997 with the balance due on June 30, 1999...... -- 7,500
Other................................................................ 109 204
-------- --------
159,909 127,704
Less current portion................................................. 45 190
-------- --------
$159,864 $127,514
======== ========
</TABLE>
Annual principal payments due subsequent to January 31, 1997 are as follows
(in thousands):
<TABLE>
<S> <C>
Year ending January 31:
1998........................................ $ 190
1999........................................ 764
2000........................................ 126,750
--------
$127,704
========
</TABLE>
Aggregate bank group commitment under the terms of the Company's revolving
loan agreement, currently equals $175 million reducing to $165 million at
December 31, 1997 and $150 million at December 31, 1998.
The Company's revolving credit and term loans borrowing agreements with its
bank group are subject to certain restrictive covenants relating to, among other
things, net worth, cash flows and capital expenditures. The Company was in
compliance with its restrictive covenants or has obtained the necessary waivers
from its bank for the fiscal years ended January 31, 1995, 1996 and 1997. In
addition, the Company's credit agreements impose certain restrictions on the
payment of dividends to the Company's shareholders.
The Company has issued standby letters of credit totaling $0.2 million on
January 31, 1997.
F-14
<PAGE> 75
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES
Deferred income taxes result from temporary differences in the tax and
financial reporting bases of certain assets and liabilities. The sources of
these differences and the tax effect of each were as follows (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
-----------------
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Investments in affiliates due to equity in net loss and
amortization period differences........................ $5,125 $3,305
Deferred revenue......................................... 975 1,545
Contributions............................................ 375 630
State and local taxes.................................... 130 45
Other.................................................... 50 --
------ ------
Total deferred tax assets...................... 6,655 5,525
Deferred tax liabilities:
Other intangible assets, principally due to
amortization........................................... 880 600
Equipment and leasehold improvements, principally due to
depreciation........................................... 575 265
Cost in excess of net assets acquired, principally due to
amortization........................................... -- 415
Other.................................................... -- 297
------ ------
Total deferred tax liabilities................. 1,455 1,577
------ ------
Net deferred tax assets................... $5,200 $3,948
====== ======
</TABLE>
In assessing the realizability of the net deferred tax assets, management
considers whether it is more likely than not that some or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets
depends upon the generation of future taxable income during the periods in which
those temporary differences become deductible. As of January 31, 1997, the
Company had not provided a valuation allowance to reduce the net deferred tax
assets due to the Company's expectation of future taxable income against which
the deferred tax asset may be realized.
The provision/(benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------------
1995 1996 1997
------- ------- ------
<S> <C> <C> <C>
Current:
Federal...................................... $ 510 $(1,500) $ 545
State........................................ 1,020 1,080 1,330
Foreign...................................... -- -- 130
------- ------- ------
1,530 (420) 2,005
------- ------- ------
Deferred:
Federal...................................... (3,446) (1,595) 1,092
State........................................ (754) (235) 161
------- ------- ------
(4,200) (1,830) 1,253
------- ------- ------
Total income tax provision (benefit)........... $(2,670) $(2,250) $3,258
======= ======= ======
</TABLE>
F-15
<PAGE> 76
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES (CONTINUED)
The following is a reconciliation of the statutory Federal income tax rate
to the Company's effective income tax rate:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------
1995 1996 1997
--- --- ---
<S> <C> <C> <C>
Statutory Federal income tax expense................. (34)% (34)% 34%
State income taxes, net of Federal benefit........... 2 5 20
Effect of foreign operations......................... (1) (3) (7)
Non-deductible amortization of excess cost over fair
market value of net assets acquired................ 3 5 10
Meals and entertainment limitation................... 3 2 5
Other................................................ (2) 3 3
---- ---- ----
- - -
(29)% (22)% 65%
===== ===== =====
</TABLE>
Federal income tax returns of the Company for all fiscal years through 1989
and the 1993 fiscal year have been closed and all matters have been resolved.
The Federal income tax returns for the 1990 and 1991 fiscal years have been
audited by the Internal Revenue Service and the Company received a Notice of
Proposed Adjustment. A response to the proposed adjustments has been filed.
Management believes that the resolution of the proposed adjustments will not
have a material adverse effect on the Company's financial position or results of
operations.
(8) CAPITAL STOCK
In August 1996, the Company amended its Restated Certificate of
Incorporation pursuant to which the classes of the Company's Common and
Preferred Stock were revised (the Stock Amendment). There were no accounting
effects as a result of the Stock Amendment. A description of the Company's
structure before and after the Stock Amendment follows:
COMMON STOCK
Prior to the Stock Amendment, the Company had authorized the issuance of
80,000,000 shares of Series A Common Stock and 1,000,000 shares of Series B
Common Stock. Each share of Series A Common was entitled to one vote; Series B
Common Stock had no voting rights. As of January 31, 1996 and 1997, no shares of
Series B Common Stock were issued or outstanding.
Subsequent to the Stock Amendment, the authorized, issued and outstanding
shares of the Company's Series A Common Stock, and the voting rights, remained
unchanged. The Series A Common Stock is now referred to as the Common Stock. The
Company no longer had Series B Common Stock.
On August 21, 1996, the Board of Directors authorized a one-for-three
reverse stock split of the Company's Common Stock which subsequently was
approved by the shareholders. All references in the consolidated financial
statements to the number of common shares and per share amounts have been
retroactively restated to reflect the decreased number of common shares
outstanding.
PREFERRED STOCK
Prior to the Stock Amendment, the Company had authorized three series of
Preferred Stock. The Company had 15,000,000 authorized shares of no par Series I
Preferred Stock, 5,900,000 authorized shares of
F-16
<PAGE> 77
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(8) CAPITAL STOCK (CONTINUED)
no par Series II Preferred Stock, and 4,100,000 shares of no par undesignated
Preferred Stock. As of January 31, 1996 and 1997, no shares of Preferred Stock
were issued or outstanding.
Subsequent to the Stock Amendment, the Company had 20,000,000 authorized
shares of no par undesignated Preferred Stock. The Company no longer had Series
I or II Preferred Stock.
In conjunction with the Indiana transaction (note 4), the Company
designated a new series of Preferred Stock -- Series A Redeemable Convertible
Preferred Stock (Series A Preferred Stock). One share of no par Series A
Preferred Stock was authorized. The one share of Series A Preferred Stock is
entitled to receive an annual dividend of $2,700,000, payable in installments on
the last day of each calendar quarter. The one share of Series A Preferred Stock
was issued on November 12, 1996 and converted into 1,862,069 shares of Common
Stock on November 22, 1996; a $67,000 dividend was paid on December 31, 1996.
(9) STOCK OPTIONS
In February 1994, the Company adopted the Ticketmaster Stock Plan (the
Plan), under which 3,250,000 shares of common stock have been reserved for
issuance upon exercise of incentive stock options, nonqualified stock options,
restricted stock, stock appreciation rights or phantom stock awards.
The table below summarizes stock option activity under the Plan over the
past three years consisting solely of the non-qualified stock options:
<TABLE>
<CAPTION>
OPTION PRICE
NUMBER (RANGE PER
OF SHARES SHARE)
--------- ----------------
<S> <C> <C>
Options outstanding at February 1, 1994......... --
Granted....................................... 265,111 $14.14
Exercised..................................... --
Canceled or expired........................... --
--------- -------------
Options outstanding at January 31, 1995......... 265,111 $14.14
Granted....................................... --
Exercised..................................... --
Canceled or expired........................... --
--------- -------------
Options outstanding at January 31, 1996......... 265,111 $14.14
Granted....................................... 2,801,700 $14.50
Exercised..................................... --
Canceled or expired........................... (9,900) $14.50
--------- -------------
Options outstanding at January 31, 1997......... 3,056,911 $14.14 - $14.50
========= =============
Exercisable at January 31, 1997................. 247,437
</TABLE>
Options are granted at prices not less than the market value of the common
stock at grant date and become exercisable over a period of 6 to 48 months.
Options expire not later than 10 years after the date of grant. Options
outstanding at January 31, 1997 had an average exercise price of $14.47 per
share and will expire at various dates between February 2004 and October 2006,
or earlier, in certain cases, if the individual is no longer employed by the
Company. On January 31, 1997, the Company's underlying stock closed on the
NASDAQ at a price of $14.125 per share.
On December 15, 1993, the Company granted, outside of the Plan, options to
acquire 1,331,340 shares of common stock at an exercise price of $14.14 per
share. At January 31, 1997, 1,026,241 options were exercisable. The options
expire on December 15, 2003. No options were exercised as of January 31, 1997.
F-17
<PAGE> 78
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) STOCK OPTIONS (CONTINUED)
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1997
----------
<S> <C>
Net income
As reported................................................... $ 1,792
Pro forma..................................................... 902
Net income per share
As reported................................................... .10
Pro forma..................................................... .05
</TABLE>
Pro forma net income reflects only options granted in fiscal 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of 6 months to 4 years and compensation cost for options granted prior to
January 31, 1996 is not considered.
The weighted average fair value of options granted during the year was
$4.81 in 1997. No options were granted in 1996. The fair value of each option
grant was estimated on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1997
----------
<S> <C>
Dividend Yield.................................................. 0%
Volatility...................................................... 27%
Risk free interest.............................................. 7.2%
Expected terms (years).......................................... 4%
</TABLE>
The impact of outstanding unvested stock options granted prior to 1997 has
been excluded from the pro forma calculations. Accordingly, the 1996 and 1995
pro forma adjustments are not indicative of future period pro forma adjustments,
when the calculation will apply to all applicable stock options.
(10) 401(K) PLAN
The Company has a 401(k) plan covering all eligible employees, which
contains an employer matching feature of 25% up to a maximum of 6% of the
employee's compensation. The Company's contribution for the plan years ended
December 31, 1994, 1995 and 1996 was approximately $190,000, $310,000 and
$410,000, respectively.
F-18
<PAGE> 79
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) COMMITMENTS AND CONTINGENCIES
The Company leases office space and equipment under various operating
leases that expire at various dates through 2014. Future minimum lease payments
are as follows as of January 31, 1997 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 31, AMOUNT
--------------------------------------------------- -------
<S> <C>
1998.......................................... $ 7,393
1999.......................................... 6,891
2000.......................................... 5,803
2001.......................................... 3,457
2002.......................................... 2,826
Thereafter....................................... 3,014
-------
$29,384
=======
</TABLE>
Additional rental payments may be required for the Company's pro rata share
of certain operating expenses associated with office space leases.
Rental expense charged to operations for operating leases was approximately
$5.9 million, $4.9 million and $4.9 million and for the years ended January 31,
1995, 1996 and 1997 respectively.
(12) RELATED PARTY TRANSACTIONS
The Company has employment contracts with certain senior executives which
require through 2002, periodic payments aggregating $0.9 million to $6.2 million
per year, plus performance bonuses based in part upon the annual results of
operations.
At January 31, 1996 and 1997, an affiliate of a primary lender to the
Company held 196,370 shares of Common Stock, which represents less than 1% of
the shares outstanding.
The Company entered into an agreement expiring on December 31, 2003, with
an affiliate of its majority shareholder, whereby in exchange for services
rendered in connection with the development of the Company's web site, the
Company will pay royalties ranging from 5 - 10% of ticket service charges and
merchandise sold through its web site (net of defined deductions). The agreement
calls for an annual minimum royalty payment of $100,000 per year (pro-rated for
1996). Royalty payments incurred for the year ended January 31, 1997 amounted to
$50,000.
(13) LITIGATION AND GOVERNMENT INVESTIGATION
The Company and several of its subsidiaries were named as defendants in
several Federal and state antitrust consumer class action lawsuits. These cases,
consolidated by the Judicial Panel on Multi-District Litigation, asserted among
other things violations of Sections 1 and 2 of the Sherman Act. On May 31, 1996,
these cases were dismissed for failure to state a claim. On June 12, 1996,
plaintiffs appealed the court's decision. Oral argument was held on February 14,
1997, and the case is under advisement by the Eighth Circuit Court of Appeals.
On March 17, 1995, Moviefone, Inc. and the Teleticketing Company, L.P.
filed a complaint against the Company in the United States District Court for
the Southern District of New York. The complaint asserts that the Company has
violated Sections 1 and 2 of the Sherman Antitrust Act and Section 7 of the
Clayton Act. On May 8, 1995, the Company filed a motion to dismiss the case in
its entirety. The Court heard oral argument on September 26, 1995. On March 4,
1997, prior to the rendering of any decision by the Court on the Company's
motion to dismiss, the Company received an amended complaint in which the
plaintiffs assert
F-19
<PAGE> 80
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) LITIGATION AND GOVERNMENT INVESTIGATION (CONTINUED)
essentially the same claims as in the prior complaint but have added a RICO
claim and tort claims. The Company filed a motion to dismiss the amended
complaint on April 17, 1997.
The Company also is involved in various other investigations, lawsuits and
claims arising in the normal conduct of its business, including but not limited
to, allegations of antitrust violations. The Company has also at times responded
to inquiries from various government and state authorities. In the opinion of
the Company's management, none of the Company's legal proceedings will have a
material adverse effect on the Company's financial position or results of
operation.
(14) SUBSEQUENT EVENTS
In March 1997, the Company signed a letter of intent to purchase 100% of
the businesses of its Canadian licensees, Vancouver Ticket Centre Limited and
Ticketmaster Canada, Inc. for a combination of cash and stock for an amount not
yet determined.
F-20
<PAGE> 81
QUARTERLY FINANCIAL SUMMARY
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED JANUARY 31, 1997
Revenues........................................ $46,741 $53,218 $ 62,578 $ 68,424
Operating Income................................ 427 3,069 4,745 5,422
Net income (loss)............................... (1,979) (439) 2,849 1,361
Earnings (loss) per share....................... $ (0.13) $ (0.03) $ 0.19 $ 0.06
FISCAL YEAR ENDED JANUARY 31, 1996
Revenues........................................ $42,302 $41,428 $ 38,196 $ 39,324
Operating Income................................ 2,639 1,254 252 (1,435)
Net loss........................................ (728) (1,598) (2,660) (3,109)
Loss per share.................................. $ (0.05) $ (0.10) $ (0.17) $ (0.20)
</TABLE>
F-21
<PAGE> 82
INDEPENDENT AUDITORS' REPORT
The Venturers:
Ticketmaster Northwest (A Joint Venture)
We have audited the accompanying balance sheet of Ticketmaster Northwest (A
Joint Venture) as of January 31, 1997, and the related statements of income and
venturers' capital, and cash flows for the year then ended. These financial
statements are the responsibility of Ticketmaster Northwest'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 Ticketmaster Northwest (A Joint
Venture) as of January 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
March 12, 1997, except for Note 7,
which is as of April 22, 1997
F-22
<PAGE> 83
TICKETMASTER NORTHWEST
(A JOINT VENTURE)
BALANCE SHEET
JANUARY 31, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash-equivalents......................................................... $4,952
Accounts receivable, ticket sales................................................. 502
Accounts receivable, trade........................................................ 176
Due from affiliates............................................................... 208
Prepaid expenses.................................................................. 268
------
Total current assets...................................................... 6,106
Noncurrent assets:
Equipment and leasehold improvements, net......................................... 544
Other assets...................................................................... 358
------
$7,008
======
LIABILITIES AND VENTURERS' CAPITAL
Current liabilities:
Accounts payable, trade........................................................... $ 134
Accounts payable, clients......................................................... 4,359
Accrued expenses.................................................................. 332
Deferred income and other......................................................... 71
------
Total current liabilities................................................. 4,896
Venturers' capital.................................................................. 2,112
------
$7,008
======
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 84
TICKETMASTER NORTHWEST
(A JOINT VENTURE)
STATEMENT OF INCOME AND VENTURERS' CAPITAL
FISCAL YEAR ENDED JANUARY 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Revenue............................................................................ $ 9,651
Operating costs, expenses and other items:
Operating costs.................................................................. 4,712
Selling, general and administrative.............................................. 1,838
Depreciation..................................................................... 225
-------
Net income............................................................... 2,876
Venturers' capital at beginning of year............................................ 1,286
Distribution to venturers.......................................................... (2,050)
-------
Venturers' capital at end of year.................................................. $ 2,112
=======
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 85
TICKETMASTER NORTHWEST
(A JOINT VENTURE)
STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED JANUARY 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income....................................................................... $ 2,876
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation.................................................................. 225
Changes in operating assets and liabilities:
Accounts receivable........................................................... (35)
Due from affiliates........................................................... (73)
Prepaid expenses.............................................................. (15)
Other assets.................................................................. (297)
Accounts payable, trade....................................................... 23
Accounts payable, clients..................................................... (3,878)
Accrued expenses.............................................................. (80)
Deferred income and other..................................................... 71
-------
Net cash used in operating activities............................................ (1,183)
Cash used in investing activities-purchases of equipment and leasehold
improvements..................................................................... (212)
Cash used in financing activities-distribution to venturers........................ (2,050)
-------
Net decrease in cash and cash-equivalents........................................ (3,445)
Cash and cash-equivalents, beginning of year....................................... 8,397
-------
Cash and cash-equivalents, end of year............................................. $ 4,952
=======
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 86
TICKETMASTER NORTHWEST
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Ticketmaster Northwest (Joint Venture) is a Washington joint venture and is
50% owned by Ticketmaster Corporation of Washington (TCW) and HBI Financial Inc.
(HBI) respectively. The Joint Venture is engaged in the business of providing
computerized ticketing services to venues and promoters primarily in the State
of Washington. The Joint Venture's profits and losses are shared by joint
venturers in proportion to their equal ownership interests.
Revenue Recognition
Revenue from ticket operations is recognized as tickets are sold.
Cash and Cash Equivalents
The Company classifies all highly liquid debt instruments purchased with an
original maturity of three months or less as cash equivalents.
Accounts Receivable, Ticket Sales
Accounts receivable, ticket sales are principally from ticketing outlets
and represent the face value of the tickets sold plus convenience charges,
generally net of outlet commissions. The Joint Venture performs credit
evaluations of new ticket outlets, which are reviewed and updated periodically,
requiring collateral as circumstances warrant.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization are computed using the straight-line method over the estimated
useful lives of the related assets of three to five years or, for leasehold
improvements, the term of the lease, if shorter. When assets are retired or
otherwise disposed of, the cost is removed from the asset account and the
corresponding accumulated depreciation is removed from the related allowance
account and any gain or loss is reflected in results of operations.
Concentration of Credit Risk
The Joint Venture places its cash equivalents principally in money market
accounts with its banks. The money market investments are diverse and generally
short-term and, therefore, bear minimal risk. The Joint Venture has not
experienced any losses on its money market investments.
Accounts Payable, Clients
Accounts payable, clients represents contractual amounts due to clients for
tickets sold by the Joint Venture on behalf of the organizations that sponsor
events.
Income Taxes
No provision has been made for Federal and state income taxes, since these
taxes are the responsibility of the joint venturers.
F-26
<PAGE> 87
TICKETMASTER NORTHWEST
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments
The estimated fair values of cash, accounts receivable, due from venturers,
accounts payable and accrued expenses approximate their carrying value because
of the short term maturity of these instruments or the stated interest rates are
indicative of market interest rates.
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 and liabilities at the
date of financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted to provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be "Disposed Of,"
on February 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows, (on an
undiscounted basis) expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets. Adoption of this statement did not have a material impact on the
Company's financial position, results of operations or liquidity.
(2) EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Equipment and leasehold improvements at January 31, 1997 are summarized as
follows (in thousands):
<TABLE>
<S> <C>
Telephone and computer equipment.................................... $ 967
Furniture and equipment............................................. 31
Leasehold improvements.............................................. 178
------
1,176
Less accumulated depreciation....................................... (632)
------
$ 544
======
</TABLE>
(3) OTHER ASSETS
During the fiscal year ended January 31, 1997, pursuant to the renewal of
an agreement to provide ticketing services, the Joint Venture was required to
pay a recoupable advance of $500,000 against revenue to be earned over a
three-year period. As of January 31, 1997, $125,000 was included as prepaid
expenses and $357,000 was included in other assets.
F-27
<PAGE> 88
TICKETMASTER NORTHWEST
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(4) COMMITMENTS AND CONTINGENCIES
The Joint Venture leases office space and equipment under various operating
leases which expire through 1999. Future minimum lease payments are as follows
as of January 31, 1997 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31 AMOUNT
-------------------------------------------------------------------- ------
<S> <C>
1998........................................................ $127
1999........................................................ 127
2000........................................................ 72
------
$326
======
</TABLE>
Rental expenses charged to operations for operating leases was
approximately $130,000 for the year ended January 31, 1997.
(5) 401(K) PLAN
Ticketmaster Corporation has a 401(k) Plan covering all eligible employees
of the Joint Venture. The Plan contains an employer matching feature of 25% up
to a maximum of 6% of the employee's compensation. The Joint Venturer's
contribution for the plan year ended December 31, 1996 was approximately
$18,000.
(6) RELATED PARTY TRANSACTIONS
Charges from the venturers and affiliates under various agreements were as
follows for the year ended January 31, 1997 (in thousands):
<TABLE>
<S> <C>
Management Fees (royalties)............................................ $24
Reimbursements for other services...................................... 10
Purchases of equipment from the venturers.............................. 40
</TABLE>
(7) SUBSEQUENT EVENT
On February 24, 1997, TCW filed a complaint against HBI seeking dissolution
of the Joint Venture. On March 17, 1997, HBI filed a counterclaim against TCW
seeking a declaratory judgment that TCW by its actions in filing the lawsuit
dissolved the Joint Venture in contravention to the joint venture agreement. On
April 11, 1997, TCW filed a motion of summary judgment asserting that since the
Joint Venture had an indefinite term, it could be dissolved under Washington
law, at the will of either partner. On April 22, 1997, HBI filed its response
and a motion for partial summary judgment.
F-28
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Ticketmaster Canada Holdings Ltd.
We have audited the consolidated balance sheets of Ticketmaster Canada Holdings
Ltd. as at February 28, 1997 and February 29, 1996 and the consolidated
statements of income and retained earnings and changes in financial position for
the years ended February 28, 1997, February 29, 1996 and February 28, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated balance sheets present fairly, in all
material respects, the financial position of the Company as at February 28, 1997
and February 29, 1996 and the statements of income and retained earnings and
changes in financial position present fairly, in all material respects, the
results of its operations and the changes in its financial position for the
years ended February 28, 1997, February 29, 1996 and February 28, 1995 in
accordance with generally accepted accounting principles.
KPMG
Chartered Accountants
Vancouver, Canada
May 13, 1997
F-29
<PAGE> 90
TICKETMASTER CANADA HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN CANADIAN DOLLARS)
A S S E T S
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and short-term investments................................. $21,974,432 $16,689,784
Accounts receivable:
Ticket sales................................................. 2,239,844 2,759,034
Other........................................................ 2,041,405 1,454,506
Receivable from affiliates...................................... -- 386,887
Receivable from shareholders.................................... -- 8,512
Inventory....................................................... -- 16,101
Prepaid expenses and deposits................................... 1,055,395 1,052,624
----------- -----------
Current assets.......................................... 27,311,076 22,367,448
Property and equipment.......................................... 4,248,278 4,742,574
Rental property and equipment................................... -- 292,274
Intangible and other assets, net................................ 2,564,683 2,202,068
Deferred income taxes........................................... 160,500 157,500
----------- -----------
$34,284,537 $29,761,864
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt......................................... $ 533,324 $ 744,347
Accounts payable:
Trade........................................................ 1,788,749 823,906
Clients...................................................... 20,135,591 17,209,956
Accrued liabilities............................................. 1,978,516 1,865,505
Shareholder bonuses payable..................................... 262,886 700,000
Income taxes payable............................................ 932,220 66,063
Deferred revenue................................................ 585,170 1,048,993
----------- -----------
Current liabilities..................................... 26,216,456 22,458,770
Long-term debt.................................................... 1,257,073 1,050,621
Payable to shareholders........................................... -- 927,121
----------- -----------
Shareholders' equity:
Share capital................................................... 6,587,528 2,531,577
Retained earnings............................................... 223,480 2,793,775
----------- -----------
Total shareholders' equity.............................. 6,811,008 5,325,352
Commitments and contingencies.....................................
----------- -----------
$34,284,537 $29,761,864
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 91
TICKETMASTER CANADA HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenue:
Ticketing operations.............................. $34,868,202 $29,162,739 $31,188,405
Other revenue..................................... 1,138,565 1,521,984 557,362
----------- ----------- -----------
36,006,767 30,684,723 31,745,767
Expenses:
Ticketing operations.............................. 19,158,296 17,191,817 17,319,678
Ticketing, selling, general and administrative.... 9,304,008 8,472,548 8,054,097
Shareholder bonuses............................... 1,410,859 775,778 2,019,949
Depreciation and amortization..................... 1,414,790 1,380,166 1,202,757
Interest.......................................... 186,541 220,533 214,821
----------- ----------- -----------
31,474,494 28,040,842 28,811,302
----------- ----------- -----------
4,532,273 2,643,881 2,934,465
Other expenses (income)............................. 471,390 (55,154) (132,283)
----------- ----------- -----------
Income before income taxes.......................... 4,060,883 2,699,035 3,066,748
Income taxes:
Current........................................... 1,927,808 1,009,954 985,266
Deferred.......................................... (3,000) 120,803 313,881
----------- ----------- -----------
1,924,808 1,130,757 1,299,147
----------- ----------- -----------
Net income.......................................... 2,136,075 1,568,278 1,767,601
Retained earnings (deficit), beginning of year...... 2,793,775 1,654,732 (15,046)
----------- ----------- -----------
4,929,850 3,223,010 1,752,555
Dividends........................................... 650,419 429,235 97,823
Reclassification of retained earnings into share
capital........................................... 4,055,951 -- --
----------- ----------- -----------
Retained earnings, end of year...................... $ 223,480 $ 2,793,775 $ 1,654,732
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 92
TICKETMASTER CANADA HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(EXPRESSED IN CANADIAN DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash provided by (used in):
Operations:
Net income............................................. $ 2,136,075 $ 1,568,278 $ 1,767,601
Items not involving cash:
Depreciation and amortization....................... 1,414,790 1,380,166 1,202,757
Equity (loss) of an affiliate....................... 1,173 (82,293) (173,368)
Write-off of receivable from an affiliate........... 333,360 -- --
Depreciation and amortization of rental property and
equipment......................................... 13,969 14,439 17,000
Deferred income taxes............................... (3,000) 120,803 313,881
Loss (gain) on disposal of property and equipment... 102,828 (6,037) --
Net change in non-cash operating working capital....... 4,564,330 (6,629,878) 10,188,585
----------- ----------- -----------
8,563,525 (3,634,522) 13,316,456
Financing:
Advances (repayments) from affiliated companies........ 53,527 (35,019) (59,385)
Repayment of long-term debt............................ (711,958) (1,176,288) (217,680)
Advances to shareholders............................... (918,609) 110,918 (508,398)
Dividends.............................................. (650,419) (429,235) (97,823)
Proceeds from long-term debt........................... 872,557 -- 690,000
Increase (decrease) of obligations under capital
lease............................................... (165,170) 71,966 563,390
----------- ----------- -----------
(1,520,072) (1,457,658) 370,104
Investments:
Proceeds from sale of rental property and equipment.... 279,377 -- --
Purchase of property and equipment..................... (745,063) (841,985) (2,201,605)
Proceeds from sale of property and equipment........... 44,376 23,483 18,728
Advances of convenience charge participations.......... (1,675,000) -- --
Repayment of advance convenience charge
participation....................................... 543,577 -- --
Dividends received from an affiliate................... -- 96,075 236,741
Proceeds (purchase) of rental property equipment....... (1,072) 1,397 --
Advance note receivable................................ (250,000) -- (437,500)
Reduction note receivable.............................. 45,000 -- --
Acquisition of ticketing rights........................ -- -- (500,000)
----------- ----------- -----------
(1,758,805) (721,030) (2,883,636)
----------- ----------- -----------
Increase (decrease) in cash and short-term investments... 5,284,648 (5,813,210) 10,802,924
Cash and short-term investments, beginning of year....... 16,689,784 22,502,994 11,700,070
----------- ----------- -----------
Cash and short-term investments, end of year............. $ 21,974,432 $ 16,689,784 $ 22,502,994
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 93
TICKETMASTER CANADA HOLDINGS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(EXPRESSED IN CANADIAN DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Ticketmaster Canada Holdings Ltd. (the "Company") is the leading provider
of automated ticketing services in Canada with clients including the country's
foremost entertainment facilities promoters and professional sports franchises.
The Company provides automated ticketing services to organizations that sponsor
events which enable patrons alternatives to purchasing tickets through
operator-staffed call centers, the Internet and independent sales outlets remote
to the facility box office.
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The Company was formed by the amalgamation of certain companies principally
Vancouver Ticket Center Ltd. and Ticketmaster Canada Inc. (the "Companies"),
which amalgamation took place in contemplation of the acquisition of the
Companies by Ticketmaster Group, Inc. in a transaction pursuant to an agreement
dated May 13, 1997 (See Note 7). The amalgamation has been accounted for under
the pooling-of-interest method whereby the assets and liabilities of the
Companies are carried forward in the accounts of the Company at their carrying
values in the records of the predecessor companies and the operations are the
combined operations of the Companies. All intercompany balances and transactions
have been eliminated.
The Consolidated Balance Sheet at February 28, 1997 has been adjusted to
give effect to certain transactions that occurred subsequent to that date
relating to the acquisition of the Company by Ticketmaster Group, Inc. The
adjustment gives effect to the settlement of all amounts due to or from
shareholders along with a dividend and sale of non-ticketing assets to the
former shareholders aggregating $260,000 and $157,422 respectively. Accordingly,
the accompanying balance sheet at February 28, 1997 includes the assets acquired
and liabilities assumed by Ticketmaster Group, Inc. in its acquisition of the
amalgamated Companies.
ACCOUNTING PRINCIPLES
These financial statements have been prepared based on accounting
principles generally accepted in Canada. These accounting principles are not
materially different from accounting principles generally accepted in the U.S.
for the Company.
REVENUE RECOGNITION
The Company recognizes convenience charge revenue as tickets are sold, and
user fee revenue upon completion of the event.
RENTAL PROPERTY
Rental property is recorded at the lower of cost or net recoverable amount.
Depreciation is calculated using a declining-balance method at a rate of 4%.
F-33
<PAGE> 94
TICKETMASTER CANADA HOLDINGS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the following methods and annual rates:
<TABLE>
<CAPTION>
ASSET BASIS RATE
----------------------------- ----------------------------- -----------
<S> <C> <C>
Building straight-line 20 years
Computer equipment declining-balance 20% - 30%
Furniture, fixtures and
equipment declining-balance 20% - 30%
Automobiles declining-balance 30%
Equipment under capital lease straight-line over term of
lease
Leasehold improvements straight-line over term of
lease
</TABLE>
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 and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
2. PROPERTY AND EQUIPMENT
Property and Equipment consisted of the following:
<TABLE>
<CAPTION>
1997 1996
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Land..................... $ 600,000 $ -- $ 600,000 $ 600,000
Buildings and
leaseholds............. 1,245,881 589,981 655,900 748,815
Computer equipment....... 7,117,427 5,196,784 1,920,643 2,098,064
Furniture and
equipment.............. 1,593,524 961,218 632,306 667,791
Equipment under capital
leases................. 871,448 432,019 439,429 627,904
----------- ---------- ---------- ----------
$11,428,280 $ 7,180,002 $4,248,278 $4,742,574
=========== ========== ========== ==========
</TABLE>
3. INTANGIBLE AND OTHER ASSETS, NET
Intangible and other long term assets consisted of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
Acquired ticketing rights........................... $ 250,000 $ 350,000
Advances of participations in convenience charges... 731,423 --
Cost in excess of assets acquired................... 1,190,760 1,413,395
Note receivable..................................... 392,500 437,500
Other............................................... -- 1,173
------------ ------------
$ 2,564,683 $ 2,202,068
========= =========
</TABLE>
F-34
<PAGE> 95
TICKETMASTER CANADA HOLDINGS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
3. INTANGIBLE AND OTHER ASSETS, NET (CONTINUED)
Acquired ticketing rights are recorded at cost and are being amortized over
the lesser of the life of the contract or five years. Cost in excess of net
assets acquired is recorded at cost and is being amortized on a straight-line
basis over ten years.
Advances of participations in convenience charges bear interest at bank
prime plus 1.5%, except at February 28, 1997 $171,776 is non-interest bearing.
The advances will be repaid by applying certain ticket convenience charge
participations payable by the Company to the promoters in 1998 through 2006.
The Note Receivable is non-interest bearing and is being repaid through
quarterly installments of $62,500 and by the application of certain fees payable
by the Company to a ticketing services client in 1997, 1998 and 1999.
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Western Economic Diversification unsecured loan:
Payable in monthly installments of $6,000 including
interest at 7.34% per annum to July 1, 1997............ $ 30,000 $ 90,000
Non-interest bearing, payable in monthly installments of
$6,000 commencing August 1, 1997....................... 268,217 270,000
---------- ----------
298,217 360,000
Term demand loan, payable in monthly installments of
$3,333 plus interest at prime plus 1% per annum,
secured by a general securities agreement with a fixed
charge on certain equipment............................ 106,667 146,667
Term demand loan, payable in quarterly installments of
$62,500 plus interest at prime plus 1% per annum,
secured by a floating charge on all Company assets..... 872,557 217,234
Term demand loan, payable in monthly installments of
$20,883 plus interest at prime plus 1.25% secured by a
registered general security agreement with a floating
charge on all assets................................... -- 250,001
Term demand loan, payable in monthly installments of
$1,022 including interest at 7.75% per annum, secured
by a mortgage on rental property (note 2).............. -- 141,317
Capitalized lease obligations, plus interest at rates
ranging from 6% to 10%................................. 511,313 676,483
Other..................................................... 1,643 3,266
---------- ----------
1,790,397 1,794,968
Less: Current portion....................................... 533,324 744,347
---------- ----------
$1,257,073 $1,050,621
========== ==========
</TABLE>
Principal repayments on long-term debt due in each of the next five years
as follows:
<TABLE>
<S> <C>
1998..................................................... $ 533,324
1999..................................................... 558,485
2000..................................................... 492,031
2001..................................................... 194,557
2002..................................................... 12,000
----------
$1,790,397
==========
</TABLE>
F-35
<PAGE> 96
TICKETMASTER CANADA HOLDINGS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(EXPRESSED IN CANADIAN DOLLARS)
5. SHARE CAPITAL
The share capital of the Company is as follows:
AUTHORIZED:
<TABLE>
<C> <S>
50,000,000 class A voting common shares without par value
50,000,000 class B voting common shares with a par value of $0.001 per share
50,000,000 class C non-voting common shares with a par value of $0.001 per
share
50,000,000 class A non-voting preferred shares with a par value of $0.01 per
share, redeemable at $100 per share
50,000,000 class B non-voting preferred shares without par value, redeemable
at $1 per share
</TABLE>
ISSUED:
<TABLE>
<CAPTION>
FEBRUARY 28,
1997
-----------
<C> <S> <C>
293,530 class A common shares............................... $ 47,422
1,000 class B common shares............................... 1
12,887,761 class C common shares............................... 12,888
15,642,802 class B preferred shares............................ 6,527,217
----------
$6,587,528
==========
</TABLE>
6. COMMITMENTS AND CONTINGENCY
The Company has entered into operating leases for office premises,
equipment and automobiles. Minimum annual lease payments required are
approximately as follows:
<TABLE>
<S> <C>
1998...................................................... $332,453
1999...................................................... 171,139
2000...................................................... 86,275
2001...................................................... 30,480
2002...................................................... 14,280
--------
$634,627
========
</TABLE>
The Company is also committed to pay its share of operating costs related
to the premises leases.
The Company has guaranteed certain obligations of a related company by
virtue of common directors, in the amount of $207,000 which during 1997 filed
for bankruptcy. The Company has not provided for the guarantee as the outcome is
not determinable at this time.
7. SUBSEQUENT EVENT
Pursuant to an agreement dated May 13, 1997, all the outstanding share
capital of the Company was purchased by Ticketmaster Group, Inc.
F-36
<PAGE> 97
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to (i) the Ticketmaster acquisition as
presented herein, (ii) certain acquisitions of Ticketmaster and (iii) the
Ticketmaster Canadian Transaction (collectively the "Acquisition"). In addition,
the statements give effect to the Savoy Merger and the Home Shopping Merger
(collectively, the "HSNi Mergers") as presented in the HSNi Form 10-K for the
year ended December 31, 1996. These unaudited pro forma combined condensed
financial statements give effect to the Acquisition and the HSNi Mergers using
the purchase method of accounting.
The unaudited pro forma financial statements reflect certain assumptions
regarding the proposed Acquisition and the HSNi Mergers and are based on the
historical consolidated financial statements of the respective companies. These
unaudited pro forma combined condensed financial statements, including the notes
thereto, are qualified in their entirety by reference to, and should be read in
conjunction with, the audited financial statements and the unaudited interim
financial statements, including the notes thereto, of HSNi and Ticketmaster,
which are incorporated by reference or included in this Proxy Statement.
The pro forma combined condensed balance sheet as of March 31, 1997 gives
effect to the Acquisition as if it had occurred on March 31, 1997, and combines
the unaudited balance sheet of HSNi as of March 31, 1997 with the audited
balance sheet of Ticketmaster as of January 31, 1997, reflecting the pro forma
effects of the Ticketmaster Canadian Transaction.
The pro forma combined condensed statement of operations for the year ended
December 31, 1996, combines the unaudited pro forma statement of operations of
HSNi for the year ended December 31, 1996, which gives effect to the HSNi
Mergers as if they had occurred January 1, 1996, with the results of operations
of Ticketmaster for the 12-month period ended January 31, 1997, reflecting the
pro forma effect of certain acquisitions of Ticketmaster including the
Ticketmaster Canadian Transaction. Separately, the pro forma combined condensed
statement of operations for the three months ended March 31, 1997, combines the
unaudited statements of operations of HSNi for the quarter ended March 31, 1997
with the unaudited results of operations of Ticketmaster for the three months
ended January 31, 1997, reflecting the pro forma effect of certain acquisitions
of Ticketmaster including the Ticketmaster Canadian Transaction.
The purchase accounting information included herein is preliminary and has
been made solely for the purposes of developing such unaudited pro forma
combined condensed financial information. The unaudited pro forma combined
information is presented for illustrative purposes only and is not necessarily
indicative of the financial position or results of operation which would have
actually been reported had any of the transactions occurred as of March 31,
1997, or for three months ended March 31, 1997, or for the year ended December
31, 1996, nor is it necessarily indicative of future financial position or
results of operation. Although cost savings and other benefits from the
synergies of operations of the combined companies are expected, no such benefits
are reflected in these pro forma combined condensed financial statements.
F-37
<PAGE> 98
HSN, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
TICKETMASTER GROUP, INC.
-----------------------------
JANUARY 31,
1997 CANADIAN PRO FORMA PRO FORMA
HSN, INC. (HISTORICAL) TRANSACTION(B) ADJUSTMENTS COMBINED
---------- ------------ -------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and short-term
investments................... $ 41,562 $ 60,880 $ 15,160 $ (6,175) (g) $ 111,427
Accounts and notes receivable... 53,291 20,898 3,063 -- 77,252
Inventories..................... 113,479 4,093 -- -- 117,572
Deferred income taxes........... 34,718 -- -- -- 34,718
Other........................... 6,778 8,079 755 -- 15,612
---------- --------- ---------- --------- ----------
Total current
assets.............. 249,828 93,950 18,978 (6,175) 356,581
Property, plant and equipment,
net........................... 125,837 32,923 3,041 161,801
Intangible assets including
goodwill and broadcast
licenses, net................. 1,529,969 86,466 1,031 189,509(a)(c) 1,891,345
56,954(d)
27,416(h)
Cable distribution fees......... 112,854 -- -- -- 112,854
Long-term investments........... 27,958 7,308 -- -- 35,266
Notes receivable................ 17,042 1,440 281 -- 18,763
Deferred income taxes........... 6,086 3,948 114 -- 10,148
Deferred charges and other...... 29,726 3,199 524 -- 33,449
---------- --------- ---------- --------- ----------
1,849,472 135,284 4,991 273,879 2,263,626
---------- --------- ---------- --------- ----------
Total assets.......... $2,099,300 $ 229,234 $ 23,969 $ 267,704 $2,620,207
========== ========= ========== ========= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Accounts payable, accrued and
other current liabilities..... $ 227,643 $ 63,472 $ 17,898 $ 1,618(c) $ 310,631
Deferred revenue................ -- 9,233 419 -- 9,652
Current portion of long-term
debt.......................... 14,734 190 211 -- 15,135
---------- --------- ---------- --------- ----------
Total current
liabilities......... 242,377 72,895 18,528 1,618 335,418
Long-term debt.................. 269,071 127,514 507 10,000(g) 407,092
Other long-term liabilities..... 58,392 7,400 -- -- 65,792
---------- --------- ---------- --------- ----------
569,840 207,809 19,035 11,618 808,302
Minority interest............... 365,009 80 18,722(e) 383,811
Stockholders' Equity:
Preferred stock................. -- -- -- -- --
Common stock.................... 361 -- -- 93(a)(d) 454
Common stock -- Class B......... 102 -- -- -- 102
Additional paid-in capital...... 1,286,671 127,466 4,774 (143,641)(a)(d) 1,550,221
263,550(a)(e)
11,401(g)
Retained earnings (deficit)..... (112,892) (106,068) 160 106,068(a) (112,892)
(160)(g)
Unearned compensation........... (4,793) -- -- -- (4,793)
Cumulative currency translation
adjustment.................... -- (53) -- 53(a) --
Note receivable from key
executive for common stock
issuance...................... (4,998) -- -- -- (4,998)
---------- --------- ---------- --------- ----------
Total stockholders'
equity.............. 1,164,451 21,345 4,934 237,364 1,428,094
---------- --------- ---------- --------- ----------
Total liabilities and
stockholders' equity.......... $2,099,300 $ 229,234 $ 23,969 $ 267,704 $2,620,207
========== ========= ========== ========= ==========
</TABLE>
F-38
<PAGE> 99
HSN, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
TICKETMASTER GROUP, INC.
----------------------------------------------------------------
YEAR ENDED
HSN, INC. JANUARY 31, 1997 CANADIAN PRO FORMA ADJUSTED PRO FORMA PRO FORMA
PRO FORMA(F) PRO FORMA(B) TRANSACTION(B) ADJUSTMENTS PRO FORMA ADJUSTMENTS COMBINED
------------ ---------------- -------------- ----------- ------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES:
Home Shopping.... $1,014,705 $ -- $ -- $ -- $ -- $ -- $1,014,705
Broadcasting..... 53,215 -- -- -- -- -- 53,215
Ticket
operations.... -- 232,241 25,763 (505)(i) 257,499 -- 257,499
Other............ -- 38,610 -- 38,610 -- 38,610
---------- -------- ------- -------- ------ ------- -------
Total net
revenues... 1,067,920 270,851 25,763 (505) 296,109 -- 1,364,029
---------- -------- ------- -------- ------ ------- -------
Operating costs and
expenses:
Cost of sales.... 626,090 17,980 -- -- 17,980 -- 644,070
Selling, general
and
administrative... 271,961 223,598 21,684 (477)(i) 243,761 -- 515,722
(1,044)(j)
Engineering and
programming... 39,679 -- -- -- -- -- 39,679
Depreciation and
amortization... 90,862 17,995 1,012 2,621(k) 21,628 6,162(o) 118,652
---------- -------- ------- -------- ------ ------- -------
Total
operating
costs
and
expenses... 1,028,592 259,573 22,696 1,100 283,369 6,162 1,318,123
---------- -------- ------- -------- ------ ------- -------
Operating
profit... 39,328 11,278 3,067 (1,605) 12,740 (6,162) 45,906
---------- -------- ------- -------- ------ ------- -------
Interest income
(expense),
net........... (34,665) (8,793) (133) (613)(m) (9,539) -- (44,204)
Other income
(expense)..... 320 6,311 (24) 24(l) 6,311 -- 6,631
---------- -------- ------- -------- ------ ------- -------
(34,345) (2,482) (157) (589) (3,228) -- (37,573)
---------- -------- ------- -------- ------ ------- -------
Earnings (loss)
before income
taxes and
minority
interest......... 4,983 8,796 2,910 (2,194) 9,512 (6,162) 8,333
Income tax
(expense)
benefit.......... (22,582) (5,043) (1,375) (198)(n) (6,616) (29,198)
Minority interest
(expense)
benefit.......... 3,288 (81) (81) (1,405)(e) 1,802
---------- -------- ------- -------- ------ ------- -------
NET EARNINGS
(LOSS)........... $ (14,311) $ 3,672 $ 1,535 $(2,392) $ 2,815 $(7,567) $ (19,063)
========== ======== ======= ======== ====== ======= =======
Weighted average
shares
outstanding(p)... 48,761 58,002
========== =======
Net loss per common
share............ $ (.29) $ (.33)
========== =======
</TABLE>
F-39
<PAGE> 100
HSN, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
TICKETMASTER GROUP, INC.
--------------------------------------------------------------------
THREE MONTHS ENDED
JANUARY 31, 1997 CANADIAN PRO FORMA ADJUSTED PRO FORMA PRO FORMA
HSN, INC. PRO FORMA(B) TRANSACTION(B) ADJUSTMENTS PRO FORMA ADJUSTMENTS COMBINED
--------- ------------------- -------------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
NET REVENUES:
Home Shopping.... $ 261,418 $ -- $ -- $ -- $ -- $ -- $ 261,418
Broadcasting..... 12,294 -- -- -- -- -- 12,294
Ticket
operations.... -- 60,664 6,638 -- 67,302 -- 67,302
Other............ 5,839 8,303 -- -- 8,303 -- 14,142
-------- ------- ------- ------- ------- ------- --------
Total net
revenues... 279,551 68,967 6,638 -- 75,605 -- 355,156
-------- ------- ------- ------- ------- ------- --------
Operating costs and
expenses:
Cost of sales.... 158,614 4,168 -- -- 4,168 -- 162,782
Selling, general
and
administrative... 57,856 55,602 5,153 -- 60,755 -- 118,611
Engineering and
programming... 18,713 -- -- -- -- -- 18,713
Depreciation and
amortization... 20,959 4,801 659 218(k) 5,678 1,540(n) 28,177
-------- ------- ------- ------- ------- ------- --------
Total
operating
costs
and
expenses... 256,142 64,571 5,812 218 70,601 1,540 328,283
-------- ------- ------- ------- ------- ------- --------
Operating
profit... 23,409 4,396 826 (218) 5,004 (1,540) 26,873
-------- ------- ------- ------- ------- ------- --------
Interest Income
(expense),
net........... (5,681) (2,051) (12) (168)(m) (2,231) -- (7,912)
Other income
(expense)..... (3,229) 675 -- -- 675 -- (2,554)
-------- ------- ------- ------- ------- ------- --------
(8,910) (1,376) (12) (168) (1,556) -- (10,466)
-------- ------- ------- ------- ------- ------- --------
Earnings (loss)
before income
taxes and
minority
interest......... 14,499 3,020 814 (386) 3,448 (1,540) 16,407
Income tax
(expense)
benefit.......... (11,129) (1,612) (601) 77(n) (2,136) -- (13,265)
Minority interest
(expense)
benefit.......... 400 (11) -- -- (11) (649)(e) (260)
-------- ------- ------- ------- ------- ------- --------
NET EARNINGS
(LOSS)........... $ 3,770 $ 1,397 $ 213 $ (309) $ 1,301 $(2,189) $ 2,882
======== ======= ======= ======= ======= ======= ========
Weighted average
shares
outstanding(p)... 50,623 59,864
======== ========
Net earnings per
common share..... $ .07 $ .05
======== ========
</TABLE>
F-40
<PAGE> 101
HSN, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(a) Acquisition cost and the preliminary determination of the unallocated excess
of acquisition cost over net assets acquired are set forth below:
<TABLE>
<S> <C>
Acquisition cost...................................................... $208,306
Net assets acquired as of January 31, 1997, adjusted for the
Ticketmaster Canadian Transaction (see notes b and g)............... 18,797
--------
Unallocated excess of acquisition cost over 50.1% of the Ticketmaster
net assets ("goodwill")............................................. $189,509
========
</TABLE>
Acquisition cost is based on an assumed price of $28.44 per share of HSNi
stock and the 7,238,507 shares to be issued pursuant to the Exchange
Agreement, plus the assumed purchase price of the anticipated purchase of
additional shares (see note c) and estimated transaction costs of $825.
(b) Ticketmaster acquired (by purchase, redemption or otherwise) various joint
venture partners', minority shareholders and licensees' interests ("Acquired
Businesses") during fiscal 1997. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Ticketmaster" for
further description of the separate pro forma statement of operations for
the year ended January 31, 1997. Ticketmaster pro forma financial statements
and notes reflecting the fiscal 1997 acquisitions are included herein for
the three months ended January 31, 1997. In addition, pursuant to an
agreement dated May 13, 1997, Ticketmaster acquired all the issued and
outstanding shares of capital stock of its Canada licensee (the "Canadian
Transaction," see note g.) The Canadian Transaction column in the pro forma
combined condensed statement of operations for the three months ended March
31, 1997 include the operations of the Canadian subsidiary for the three
months ended April 30, 1997.
(c) Reflects the acquisition of an additional 111,583 shares of Ticketmaster
Common Stock in open market transactions to increase HSNi's ownership
percentage to 50.1% of the outstanding Ticketmaster Common Stock in
accordance with HSNi's stated intention to acquire additional Ticketmaster
Common Stock and consolidate the operations of Ticketmaster. The additional
Ticketmaster Common Stock purchases are calculated using an assumed price
based the closing price of the Ticketmaster Common Stock on the date of the
Exchange Agreement ($14.50 per share).
(d) Reflects 2,002,591 Contingent Rights Shares issued to Liberty HSN at an
assumed price of $28.44 per share.
(e) Reflects the minority interest in the net assets and earnings of
Ticketmaster.
(f) HSNi pro forma for the year ended December 31, 1996 have been prepared to
give effect to the Savoy Merger and Home Shopping Merger as if these
transactions had occurred January 1, 1996. See the HSNi audited financial
statements for additional information regarding the HSNi Mergers and the
HSNi pro forma results for the year ended December 31, 1996.
(g) Reflects the adjustment to record the Ticketmaster Canadian Transaction. The
Canadian Transaction purchase price was Cdn. $44,650 (approximately U.S.
$32,350) consisting of approximately U.S. $16,175 (U.S. $10,000 was
borrowed) and 1,115,531 shares of non-voting, non-participating Class B
Common Stock of Ticketmaster's new Canadian subsidiary, which track the
Ticketmaster Common Stock and are exchangeable into Ticketmaster Common
Stock at anytime, valued at approximately U.S. $16,175.
(h) Represents excess of purchase price over the fair value of net tangible
assets acquired in the Canadian Transaction. The amount has been
preliminarily allocated to purchase user agreements ($6,400) and goodwill
($21,016).
F-41
<PAGE> 102
(i) Reflects the elimination of licensing fees paid by Ticketmaster Canada to,
and profit on equipment sold to Ticketmaster Canada by, Ticketmaster during
the applicable period.
(j) Represents the elimination of shareholder bonuses paid by Ticketmaster
Canada during the year under previous employment agreements.
(k) Represents amortization arising from the purchased user agreements and
goodwill related to the Ticketmaster Canadian Transaction. The purchased
user agreements are being amortized using a discounted cash flow method
through the expiration date of the underlying contracts generally ranging
from 3 to 10 years. Goodwill is being amortized over a 30 year period.
(l) Represents the elimination of net income on unconsolidated affiliates, as
the unconsolidated affiliates were not acquired in the Ticketmaster Canadian
Transaction.
(m) Represents the increase in interest expense resulting from indebtedness
incurred in connection with the Ticketmaster Canadian Transaction, at rates
of interest incurred by Ticketmaster during the first quarter of fiscal
1998, approximately 6.7%. In addition, the adjustment also reflects the
reduction in interest expense resulting from debt not acquired. Rates of
interest used represent Ticketmaster Canada's rate on the respective debt,
approximately 10%.
(n) Represents the related income tax effect of the pro forma adjustments
utilizing a statutory Federal rate of 34% and a statutory rate for state and
foreign taxes based on the rate in the applicable jurisdiction.
(o) Reflects additional amortization expense resulting from the increase in
intangible assets of $246,463 (see notes a and d). The excess of acquisition
cost over net assets acquired has preliminarily been allocated to goodwill
to be amortized over 40 years. The final allocation and amortization period
are subject to adjustment upon completion of the acquisition and review of
Ticketmaster operations.
(p) Pro forma weighted average shares outstanding include the HSNi historical
weighted average shares outstanding for the applicable period plus 7,238,507
shares to be issued in connection with the Acquisition and 2,002,591 shares
to be issued in connection with Liberty HSN Contingent Rights (see note d).
Pro forma weighted average shares outstanding does not include any
Adjustment Shares or shares issuable in connection with Ticketmaster
Shareholder Agreement Tag-Along Rights because these shares are not
currently estimatable.
F-42
<PAGE> 103
TICKETMASTER GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
JANUARY 31, TICKETMASTER
1997 ACQUIRED PRO FORMA ADJUSTED
(HISTORICAL) BUSINESSES ADJUSTMENTS PRO FORMA
-------------- ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET REVENUES:
Ticket operations....................... $ 60,664 $ -- $ -- $ 60,664
Other................................... 7,760 543 -- 8,303
------- ----- ------- -------
Total net revenues.............. 68,424 543 -- 68,967
------- ----- ------- -------
Operating costs and expenses:
Cost of sales........................... 4,268 (100) -- 4,168
Selling, general and administrative..... 54,999 603 -- 55,602
Depreciation and amortization........... 4,400 38 363(A) 4,801
------- ----- ------- -------
Total operating costs and
expenses...................... 63,667 541 363 64,571
------- ----- ------- -------
Operating profit................ 4,757 2 (363) 4,396
------- ----- ------- -------
Interest income (expense), net.......... (2,414) (22) 385(B) (2,051)
Other income............................ 665 -- 10(C) 675
------- ----- ------- -------
(1,749) (22) 395 (1,376)
------- ----- ------- -------
Earnings (loss) before income taxes and
minority interest....................... 3,008 (20) 32 3,020
Income tax (expense) benefit.............. (1,608) -- (4)(D) (1,612)
Minority interest (expense) benefit....... (39) -- 28(E) (11)
------- ----- ------- -------
NET EARNINGS (LOSS)....................... $ 1,361 $ (20) $ 56 $ 1,397
======= ===== ======= =======
</TABLE>
F-43
<PAGE> 104
TICKETMASTER GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997
(A) Represents depreciation arising from the purchase of the building which
serves as corporate headquarters and amortization arising from the purchased
user agreements and excess purchase price paid for the net assets of a joint
venture partner's 50% equity interest in Ticketmaster-Indiana, a minority
shareholder's 20% equity interest in the Company's Florida operating
subsidiary and a minority shareholder's 20% equity interest in the Company's
Texas operating subsidiary. The purchased user agreements are being
amortized using a discounted cash flow method through the expiration date of
the underlying contracts, generally ranging from 3 to 10 years. The cost in
excess of net assets acquired is being amortized over a 30 year period.
(B) Represents the reduction in interest expense resulting from the repayment of
indebtedness under the Company's Credit Agreement at rates of interest
incurred by the Company during the period, approximately 7.0%.
(C) Represents the consolidation of income earned by Ticketmaster-Indiana and
the European Joint Venture.
(D) Represents the related income tax effect of the pro forma adjustments
utilizing a statutory Federal rate of 34% and a statutory rate for state and
foreign taxes based on the rate in the applicable jurisdiction.
(E) Represents a decrease in the minority interests held by the minority
shareholders in Ticketmaster's Florida and Texas operating subsidiaries.
F-44
<PAGE> 105
ANNEX A
EXECUTION COPY
================================================================================
STOCK EXCHANGE AGREEMENT
BETWEEN
PAUL G. ALLEN
- AND -
HSN, INC.
------------------------
MAY 20, 1997
------------------------
================================================================================
<PAGE> 106
STOCK EXCHANGE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
ARTICLE I CERTAIN DEFINITIONS...................................................... A-1
ARTICLE II EXCHANGE................................................................ A-3
Section
2.01. Exchange of Shares for shares of HSNi Common Stock............... A-3
Section
2.02. Delivery of HSNi Shares.......................................... A-3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER...................... A-3
Section
3.01. Organization and Good Standing................................... A-3
Section
3.02. Capitalization................................................... A-4
Section
3.03. Due Authorization; Execution and Delivery........................ A-4
Section
3.04. Absence of Breach; No Conflict................................... A-5
Section
3.05. The Shares....................................................... A-5
Section
3.06. Investment Purpose............................................... A-5
Section
3.07. Brokers.......................................................... A-6
Section
3.08. Commission Documents; Financial Information...................... A-6
Section
3.09. Approvals; Compliance with Laws.................................. A-6
Section
3.10. Litigation....................................................... A-6
Section
3.11. Related Party Transactions....................................... A-7
Section
3.12. Absence of Certain Events; No Material Adverse Change............ A-7
Section
3.13. Full Disclosure.................................................. A-8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HSNi.................................. A-8
Section
4.01. Organization and Good Standing................................... A-8
Section
4.02. Capitalization................................................... A-8
Section
4.03. Due Authorization; Execution and Delivery........................ A-9
Section
4.04. Absence of Breach; No Conflict................................... A-9
Section
4.05. The HSNi Shares.................................................. A-9
Section
4.06. Investment Purpose............................................... A-10
Section
4.07. Brokers.......................................................... A-10
Section
4.08. Commission Documents; Financial Information...................... A-10
Section
4.09. Approvals; Compliance with Laws.................................. A-10
Section
4.10. Litigation....................................................... A-11
Section
4.11. Related Party Transactions....................................... A-11
Section
4.12. Absence of Certain Events; No Material Adverse Change............ A-11
Section
4.13. Full Disclosure.................................................. A-12
ARTICLE V COVENANTS OF THE PARTIES................................................. A-12
Section
5.01. Additional HSNi Shares........................................... A-12
Section
5.02. Registration Rights.............................................. A-12
Section
5.03. HSR Filings...................................................... A-13
Section
5.04. Access to Information............................................ A-13
Section
5.05. Further Action................................................... A-13
Section
5.06. Conduct of Business.............................................. A-13
Section
5.07. Tag-Along Rights................................................. A-14
Section
5.08. Stockholders Agreement........................................... A-14
ARTICLE VI DIRECTORS............................................................... A-14
Section
6.01. Director Election................................................ A-14
Section
6.02. HSNi Director Appointment........................................ A-14
</TABLE>
i
<PAGE> 107
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
ARTICLE VII CLOSING; SECOND CLOSING................................................ A-14
Section
7.01. Closing.......................................................... A-14
Section
7.02. Deliveries....................................................... A-15
Section
7.03. Second Closing................................................... A-15
Section
7.04. Deliveries at Second Closing..................................... A-15
ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE STOCKHOLDER TO
EXCHANGE, SELL AND DELIVER THE SHARES............................................. A-15
Section
8.01. Accuracy of HSNi's Representations and Warranties................ A-15
Section
8.02. Performance by HSNi.............................................. A-15
Section
8.03. HSR Act.......................................................... A-15
Section
8.04. No Injunction.................................................... A-15
Section
8.05. Information Statements........................................... A-15
Section
8.06. Stockholders Agreement........................................... A-15
Section
8.07. No Adverse Decision or Action.................................... A-16
Section
8.08. No Material Adverse Effect....................................... A-16
Section
8.09. Approvals and Consents........................................... A-16
Section
8.10. Proceedings...................................................... A-16
ARTICLE IX CONDITIONS PRECEDENT TO THE OBLIGATIONS OF HSNi TO EXCHANGE, ISSUE AND
DELIVER THE SHARES................................................................ A-16
Section
9.01. Accuracy of the Stockholder's Representations and Warranties..... A-16
Section
9.02. Performance by the Stockholder................................... A-16
Section
9.03. No Adverse Action or Decision.................................... A-16
Section
9.04. No Material Adverse Effect....................................... A-17
Section
9.05. No Injunction.................................................... A-17
Section
9.06. Approvals and Consents........................................... A-17
Section
9.07. HSR Act.......................................................... A-17
Section
9.08. Information Statements........................................... A-17
Section
9.09. Proceedings...................................................... A-17
ARTICLE X TERMINATION; EXPENSES.................................................... A-17
Section
10.01. Termination by Mutual Written Consent............................ A-17
Section
10.02. Termination by the Stockholder or HSNi........................... A-17
Section
10.03. Termination by HSNi.............................................. A-17
Section
10.04. Termination by the Stockholder................................... A-18
Section
10.05. Expenses......................................................... A-18
ARTICLE XI SURVIVAL OF REPRESENTATIONS AND WARRANTIES.............................. A-18
ARTICLE XII CONFIDENTIALITY........................................................ A-18
ARTICLE XIII MISCELLANEOUS......................................................... A-19
Section
13.01. Notices.......................................................... A-19
Section
13.02. Entire Agreement................................................. A-20
Section
13.03. Successors and Assigns........................................... A-20
Section
13.04. Paragraph Headings............................................... A-20
Section
13.05. Reasonable Efforts............................................... A-20
Section
13.06. Applicable Law................................................... A-20
Section
13.07. Severability..................................................... A-20
Section
13.08. Equitable Remedies............................................... A-20
Section
13.09. No Waiver........................................................ A-21
Section
13.10. Counterparts..................................................... A-21
Exhibit A Stockholders Agreement
</TABLE>
ii
<PAGE> 108
STOCK EXCHANGE AGREEMENT
AGREEMENT made and entered into on this 20th day of May, 1997, between PAUL
G. ALLEN (the "Stockholder") and HSN, INC., a Delaware corporation ("HSNi").
W I T N E S S E T H :
WHEREAS, the Stockholder is the owner of 12,283,014 shares (the "Shares")
of common stock, no par value ("Common Stock"), of Ticketmaster Group, Inc., an
Illinois corporation (the "Company");
WHEREAS, the Stockholder desires to exchange with HSNi, and HSNi desires to
exchange with the Stockholder, the Shares for shares of common stock, $.01 par
value per share ("HSNi Common Stock"), of HSNi, upon the terms and subject to
the conditions hereinafter set forth; and
WHEREAS, the Stockholder and the Company are entering into this Agreement
to provide for said exchange (the "Exchange") and to establish various rights
and obligations in connection therewith, upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual premises and covenants
contained herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
"Additional HSNi Shares" shall have the meaning set forth in Section 2.02
of this Agreement.
"Affiliate" shall have the meaning set forth in Rule 12b-2 promulgated by
the Commission under the Exchange Act.
"Balance Sheet" shall have the meaning set forth in Section 3.08 of this
Agreement.
"Balance Sheet Date" shall have the meaning set forth in Section 3.08 of
this Agreement.
"Bank Consent" shall mean the consent or waiver by the banks under the
Credit Agreement to the transactions contemplated hereby.
"Bank Refinancing" shall have the meaning set forth in Section 5.05 of this
Agreement.
"Business Day" shall mean any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are not open for the transaction
of business.
"Closing" shall have the meaning set forth in Section 7.01 of this
Agreement.
"Closing Date" shall have the meaning set forth in Section 7.01 of this
Agreement.
"Commission" shall mean the Securities and Exchange Commission.
"Commission Documents" shall have the meaning set forth in Section 3.08 of
this Agreement.
"Common Stock" shall have the meaning set forth in the recitals to this
Agreement.
"Company" shall mean Ticketmaster Group, Inc., an Illinois corporation.
"Company Information Statement" shall have the meaning set forth in Section
6.01 of this Agreement.
"Credit Agreement" shall mean the Company's Credit Agreement dated as of
November 18, 1994, as amended, among the Company, its lenders and Wells Fargo
Bank, National Association, as agent.
"Diller" shall mean Mr. Barry Diller.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
<PAGE> 109
"Fair Market Value" shall mean the unweighted average closing price of a
share of HSNi Common Stock as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ"), during the period in
question or, if the HSNi Common Stock is no longer quoted on NASDAQ, as reported
in the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
HSNi Common Stock is listed or admitted to trading; provided, however, that if
the Fair Market Value is less than $20 per share, Fair Market Value shall be
deemed to be $20 per share.
"FCC" shall mean the Federal Communications Commission.
"FCC Excess Shares" shall have the meaning set forth in Section 2.02(c) of
this Agreement.
"Form 10-K" shall have the meaning set forth in Section 3.08 of this
Agreement.
"Form S-1" shall mean the registration statement of the Company on Form
S-1, as amended through the date hereof, filed with the Commission on September
20, 1996.
"GAAP" shall mean United States generally accepted accounting principles.
"HSNi Certificate" shall have the meaning set forth in Section 4.01 of this
Agreement.
"HSNi Class B Stock" shall have the meaning set forth in Section 4.02 of
this Agreement.
"HSNi Commission Documents" shall have the meaning set forth in Section
4.08 of this Agreement.
"HSNi Common Stock" shall have the meaning set forth in the recitals to
this Agreement.
"HSNi Form 10-K" shall have the meaning set forth in Section 4.08 of this
Agreement.
"HSNi Form S-4" shall have the meaning set forth in Section 4.02 of this
Agreement.
"HSNi Shares" shall have the meaning set forth in Section 2.01 of this
Agreement.
"HSR Act" shall mean Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"Information Statement" shall mean the Information Statement relating to
the Exchange mailed to HSNi shareholders in accordance with Rule 14c-2 under the
Exchange Act.
"Joint Ventures" shall have the meaning set forth in Section 3.01 of this
Agreement.
"Laws" shall have the meaning set forth in Section 3.09 of this Agreement.
"Liberty Agreements" shall have the meaning set forth in Section 4.02 of
this Agreement.
"Liens" shall mean any lien, claim, charge, restriction, pledge, mortgage,
security interest or other encumbrance.
"Loss" or "Losses" shall have the meaning set forth in Section 11.01 of
this Agreement.
"Material Adverse Effect" shall mean a material adverse effect on the
business, prospects, condition (financial or otherwise), assets or results of
operations of the party in question.
"Permitted Transferees" shall have the meaning set forth in the
Stockholders Agreement.
"Representatives" shall have the meaning set forth in Section 5.04.
"Restated By-laws" shall mean the By-laws of the Company, as amended and
restated and in effect on the date hereof.
"Restated Certificate" shall mean the Articles of Incorporation of the
Company, as amended and restated and in effect on the date hereof.
"Second Closing" shall have the meaning set forth in Section 7.03 of this
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
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<PAGE> 110
"Shareholders Agreement" shall mean the Shareholders Agreement dated as of
December 15, 1993 by and among Paul Allen, on the one hand, and HG, Inc. and the
other signatories thereto, on the other hand.
"Shares" shall have the meaning set forth in the recitals to this
Agreement.
"Stockholder" shall mean Mr. Paul G. Allen and his successors.
"Stockholders Agreement" shall have the meaning set forth in Section 5.08
of this Agreement.
"Subsidiary" shall mean each corporation or other entity of which a
majority of the voting power of the voting equity securities or equity interest
is owned, directly or indirectly, by the party in question.
ARTICLE II
EXCHANGE
SECTION 2.01. Exchange of Shares for shares of HSNi Common Stock. Upon
the terms and subject to the conditions hereinafter set forth, the Stockholder
shall exchange, assign, transfer and deliver the Shares to HSNi, or to any
direct or indirect subsidiary of HSNi designated by HSNi, at the Closing, as
described in Section 7.01; and, in consideration therefor, HSNi shall issue,
exchange, sell and deliver to the Stockholder an aggregate of 7,238,507 shares
(the "HSNi Shares") of HSNi Common Stock as provided in Section 2.02 and subject
to adjustment as therein provided.
SECTION 2.02. Delivery of HSNi Shares. (a) Subject to adjustment as
provided in subparagraph (b) below, at the Closing, HSNi shall deliver
certificates representing the HSNi Shares, bearing a legend regarding
restrictions on transfer under the Securities Act.
(b) The number of HSNi Shares to be issued to the Stockholder in exchange
for the Shares shall be subject to adjustment as follows: if the Fair Market
Value during the first 20 trading days in July 1998 is less than $29 per share,
additional shares ("Additional HSNi Shares") of HSNi Common Stock shall be
issued to the Stockholder as additional consideration in exchange for the
Shares. The number of Additional HSNi Shares to be issued shall equal the
difference between the number obtained by dividing $209,916,709 by the Fair
Market Value and the number of HSNi Shares. Notwithstanding the foregoing, no
adjustment shall be required or made if the Fair Market Value during any
consecutive 20 trading day period commencing on December 1, 1997 and ending on
the day immediately prior to the Second Closing equals or exceeds $29 per share.
(c) In the event that the issuance of all or any portion of the Additional
HSNi Shares would cause the Stockholder to be in violation of the rules and
regulations of the FCC, the Stockholder, at his option, may elect to (i) receive
in lieu of the Additional HSNi Shares that may not be issued under FCC law (the
"FCC Excess Shares") non-voting participating preferred stock of HSNi,
convertible upon transfer or upon compliance with FCC regulatory restrictions
into HSNi Common Stock, and designed to be the economic equivalent of the FCC
Excess Shares, (ii) deliver a proxy complying with FCC law to Diller to vote the
FCC Excess Shares or (iii) enter into such other arrangements to comply with FCC
law as are acceptable to HSNi.
(d) The number of Shares, HSNi Shares and/or Additional HSNi Shares shall
be appropriately and equitably adjusted to reflect (i) the payment of any
dividend or other distribution on such shares, (ii) any stock split, combination
or reclassification of such shares, or (iii) any consolidation, merger or other
event which results in the conversion or exchange of such shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER
The Stockholder hereby represents and warrants to HSNi as follows:
SECTION 3.01. Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Illinois, and is duly qualified to transact business as a foreign
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<PAGE> 111
corporation and is in good standing in each jurisdiction in which the nature of
the business transacted by it or the character or location of the properties
owned or leased by it requires such qualification, except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect on
the Company and its Subsidiaries considered as a whole. The Company has full
corporate power and authority to own and manage its properties and to carry on
its business as it is now being (and as it is currently proposed to be)
conducted. The copies of the Company's Restated Certificate and Restated By-laws
and other organizational documents and instruments (in each case, as amended
and/or restated through the date hereof), filed by the Company with the
Commission prior to the date hereof, are true, complete and correct copies
thereof. The Restated Certificate and the Restated By-laws will be in full force
and effect on and prior to the Closing Date. Except for the joint ventures (the
"Joint Ventures"), disclosed in the Commission Documents filed prior to the date
hereof or as set forth on Schedule 3.01 hereof, the Company does not own any
interest in any other company or entity other than the Subsidiaries of the
Company. Each Subsidiary of the Company and, to the knowledge of the
Stockholder, each Joint Venture is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization and
has the power and authority to own or lease its properties and to conduct its
business as now conducted, except as would not result in any Material Adverse
Effect on the Company and its Subsidiaries considered as a whole. All
outstanding shares of the capital stock of each Subsidiary of the Company and,
to the knowledge of the Stockholder, equity interests of the Company in each
Joint Venture have been validly issued and are fully paid and nonassessable.
Except as disclosed in the Commission Documents filed prior to the date hereof,
there are no outstanding options, warrants, rights, agreements or commitments of
any nature whatsoever of any third party to subscribe for or purchase any equity
security of any Subsidiary of the Company or, to the knowledge of the
Stockholder, of any Joint Venture or to cause any Subsidiary of the Company or,
to the knowledge of the Stockholder, any Joint Venture to issue any such equity
security.
SECTION 3.02. Capitalization. The authorized capitalization of the
Company as of the date hereof consists of: 80,000,000 shares of Common Stock, no
par value, one share of series A redeemable convertible preferred stock, no par
value (the "Series A Stock"), and 19,999,999 shares of undesignated preferred
stock, no par value ("Preferred Stock"), of which, as of the date hereof, there
were 24,739,715 shares of Common Stock outstanding (and 1,252,942 shares
issuable upon exchange of the Class B shares of Ticketmaster Canada Acquisition
Limited) and no shares of Series A Stock or Preferred Stock outstanding. All
such shares outstanding on the date hereof are, and any shares that will be
issued under the Restated Certificate, when issued, will be, duly authorized,
validly issued and fully paid and nonassessable. Except as disclosed on Schedule
3.02 hereof and other than options to purchase an aggregate of 4,408,251 shares
of Common Stock issued pursuant to employee benefit plans of the Company, there
are no outstanding options, warrants, rights, puts, calls, commitments, or other
contracts, arrangements, or understandings issued by or binding upon the Company
requiring or providing for, and there are no outstanding debt or equity
securities of the Company which upon the conversion, exchange or exercise
thereof would require or provide for, the issuance by the Company of any new or
additional shares of Common Stock (or any other securities of the Company which,
with notice, lapse of time and/or payment of monies, are or would be convertible
into or exercisable or exchangeable for shares of Common Stock). There are no
preemptive or other similar rights available to the existing holders of Common
Stock or other securities of the Company.
SECTION 3.03. Due Authorization; Execution and Delivery. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Stockholder and by the Board of Directors of the
Company (including such authorization as may be required so that no state
anti-takeover statute or similar statute or regulation including, without
limitation, Section 5/11.75 of the Illinois Business Corporation Act, is or
becomes operative with respect to this Agreement or the transactions
contemplated hereby), and, except (if applicable) for requirements under Rule
14f-1 under the Exchange Act to transmit the Company Information Statement to
the Company's stockholders at least 10 days prior to the date that persons
designated by HSNi constitute a majority of the Company's Board, no other action
by the Stockholder or corporate proceedings on the part of the Company are
necessary to authorize this Agreement and to consummate the transactions
contemplated hereby. This Agreement constitutes the legal, valid and binding
obligation of the Stockholder, enforceable against the Stockholder in accordance
with its terms, except that such enforcement may be subject to
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<PAGE> 112
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights, and the remedy of
specific performance and injunctive relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding therefor may be
brought.
SECTION 3.04. Absence of Breach; No Conflict. Except as disclosed in the
Commission Documents filed prior to the date hereof or as set forth on Schedule
3.04 hereto, the execution, delivery, and performance of this Agreement by the
Stockholder, and the consummation by the Stockholder of the transactions
contemplated hereby, will not (a) give rise to a right to (or otherwise)
terminate, accelerate the maturity of or increase any payment due under,
conflict with, result in a breach or violation of any of the terms, conditions
or provisions of, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, require any approval,
waiver or consent under, or result in the creation or imposition of any Lien
upon any property or assets of the Stockholder, the Company or any of its
Subsidiaries pursuant to the terms of, any note, bond, mortgage, pledge,
indenture, deed of trust, lease, agreement, indemnity, obligation, commitment,
instrument, franchise, license, certificate or permit to which the Company or
any of its Subsidiaries is a party or by which any of their respective
properties or assets may be bound; (b) violate or conflict with any term or
provision of the restated certificate of incorporation, by-laws or equivalent
organizational instruments and documents (in each case, as amended and/or
restated through the date hereof) of the Company or any Subsidiary of the
Company (and in each case as in effect on the Closing Date); (c) violate any
judgment, decree, order, writ, statute, rule or regulation of any judicial,
arbitral, public, or governmental authority having jurisdiction over the
Company, any of its Subsidiaries or any of their respective properties or assets
or (d) to the knowledge of the Stockholder, violate or conflict with any term or
provision of any Joint Venture. No employment agreement or other contract with
any Company employee contains any provision that would permit such employee to
terminate such agreement or contract or receive additional or accelerated
payments or benefits upon consummation of the transactions contemplated hereby.
SECTION 3.05. The Shares. (a) The Shares have been duly authorized and
legally and validly issued, are fully paid and nonassessable, and represent all
of the issued and outstanding shares of capital stock of the Company held by the
Stockholder.
(b) The Stockholder has full beneficial ownership of the Shares, subject to
his obligations under the Shareholders Agreement, and on the Closing Date shall
possess full authority and power to convey the same to HSNi, free and clear of
any and all Liens, and preemptive and other similar rights. Except as disclosed
on Schedule 3.05 hereof, the Shareholders Agreement is the only agreement,
arrangement or understanding relating to the Shares to which the Stockholder is
a party, and since December 15, 1993, there have been no amendments thereto.
Schedule 3.05 hereof sets forth the identity of the persons who have rights
under the Shareholders Agreement and the maximum number of shares of Brick
Common Stock as to which each such person may exercise "Tag-Along Rights"
thereunder.
SECTION 3.06. Investment Purpose. The Stockholder is acquiring the HSNi
Shares solely for the purpose of investment and not with view to, or for offer
or sale in connection with, any distribution thereof. The Stockholder
acknowledges and understands that the HSNi Shares may not be sold except in
compliance with the registration requirements of the Securities Act, unless an
exemption therefrom is available.
The Stockholder hereby acknowledges and agrees that upon the original
issuance thereof, and until such time as the same is no longer required under
the applicable requirements of the Securities Act and the rules and regulations
thereunder, the certificates representing the HSNi Shares (including shares of
HSNi Common Stock issuable as Additional HSNi Shares) may bear the following
legend on the reverse side thereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (THE 'SHARES') HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
LAWS REGULATING THE SALE OF SECURITIES AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED UNLESS REGISTERED OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION IS OBTAINED TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED."
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<PAGE> 113
SECTION 3.07. Brokers. Other than Montgomery Securities, the fees of
which shall be paid by HSNi (not to exceed the amount previously disclosed to
HSNi), no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Stockholder or the Company.
SECTION 3.08. Commission Documents; Financial Information. The Company's
Form S-1 filed with the Commission on September 20, 1996, as amended, the
Company's Form 10-K in respect of the fiscal year ended January 31, 1997 (the
"Form 10-K"), and each report, schedule, proxy, information statement or
registration statement (including all exhibits and schedules thereto and
documents incorporated by reference therein) filed by the Company with the
Commission on or before the Closing Date are collectively referred to as the
"Commission Documents." As of their respective filing dates, the Commission
Documents complied (or will comply) in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission thereunder applicable to such Commission
Documents, and as of their respective dates none of the Commission Documents
contained (or will contain) any untrue statement of a material fact or omitted
(or will omit) to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the Commission Documents comply (or will comply) as of their
respective dates as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto (except as may be indicated in the notes thereto or, in the case
of the unaudited statements, as permitted by Form 10-Q promulgated by the
Commission), and present fairly (or will present fairly) as of their respective
dates, in all material respects, the consolidated financial position of the
Company and the Subsidiaries as at the dates thereof and the consolidated
results of their operations and their consolidated cash flows for each of the
respective periods, in conformity with GAAP. As used in this Agreement, the
consolidated balance sheet of the Company and its Subsidiaries at January 31,
1997 included in the Form 10-K is hereinafter referred to as the "Balance
Sheet," and January 31, 1997 is hereinafter referred to as the "Balance Sheet
Date."
Except as and to the extent expressly set forth in the Balance Sheet, or
the notes, schedules or exhibits thereto, or as disclosed in the Form 10-K or
Schedule 3.08 hereof, (i) as of the Balance Sheet Date, neither the Company nor
its Subsidiaries had any liabilities or obligations (whether absolute,
contingent, accrued or otherwise) that would be required to be included on a
balance sheet or in the notes, schedules or exhibits thereto prepared in
accordance with GAAP and (ii) since the Balance Sheet Date, neither the Company
nor any of its Subsidiaries has incurred any such liabilities or obligations
other than in the ordinary course of business.
SECTION 3.09. Approvals; Compliance with Laws. (a) Except (i) as
disclosed in the Commission Documents filed prior to the date hereof or as set
forth on Schedule 3.09(a) hereof and (ii) for any filings, notices, applications
and other information as may be required to be made or supplied pursuant to the
HSR Act or the Exchange Act, no notices, reports or other filings are required
to be made by the Stockholder, the Company or any of its Subsidiaries with, nor
are any consents, registrations, applications, approvals, permits, licenses or
authorizations required to be obtained by the Stockholder, the Company or any of
its Subsidiaries from, any public or governmental authority or other third party
in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
(b) Except as set forth on Schedule 3.09(b) or as set forth in the
Commission Documents filed prior to the date hereof and except as would not
result in any Material Adverse Effect on the Company and its Subsidiaries
considered as a whole, the business of the Company and each of its Subsidiaries
has been and is presently being conducted in compliance with all applicable
federal, state, county and local ordinances, statutes, rules, regulations and
laws (collectively "Laws").
SECTION 3.10. Litigation. Except as would not result in any Material
Adverse Effect on the Company and its Subsidiaries considered as a whole, there
are no judicial, administrative or arbitral actions, suits, claims, inquiries,
investigations or proceedings (whether of a public or private nature) pending
or, to the knowledge of the Stockholder, threatened against the Company, any of
its Affiliates (relating to the Company or its Subsidiaries) or any of the
Company's Subsidiaries.
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<PAGE> 114
SECTION 3.11. Related Party Transactions. Except as set forth on Schedule
3.11 hereto or as disclosed in the Commission Documents filed prior to the date
hereof, since January 1, 1996, there is no transaction required to be disclosed
under the Securities Act or the Exchange Act pursuant to which an Affiliate of
the Company and/or any person who beneficially owns (within the meaning of Rule
13d-3 promulgated under the Exchange Act) five percent or more of the
outstanding Common Stock of the Company (other than the Subsidiaries) has
borrowed any monies from or has outstanding any indebtedness or other similar
obligations to the Company or any Subsidiary of the Company. Except as disclosed
in the Commission Documents filed prior to the date hereof or as set forth on
Schedule 3.11 hereto, since January 1, 1996, there is no transaction required to
be disclosed under the Securities Act or the Exchange Act pursuant to which an
Affiliate of the Company and/or any person who beneficially owns (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) five percent or more
of the outstanding Common Stock of the Company (other than the Subsidiaries) (a)
owns any direct or indirect interest of any kind in, or is a director, officer,
employee, partner or Associate (as such term is defined in Rule 12b-2 under the
Exchange Act) of, or consultant or lender to, or borrower from, or has the right
to participate in the management, operations or profits of, any person or entity
which is (i) a competitor, supplier, customer, distributor, lessor, tenant,
creditor or debtor of the Company or any Subsidiary of the Company, (ii) engaged
in a business related to the business of the Company or any Subsidiary of the
Company or (iii) participating in any transaction to which the Company or any
Subsidiary of the Company is a party or (b) is otherwise a party to any
contract, arrangement or understanding with the Company or any Subsidiary of the
Company. To the knowledge of the Stockholder, each of the contracts,
arrangements or understandings set forth on Schedule 3.11 hereto to which the
Company or any Subsidiary of the Company is a party provides for terms and
conditions that are no less favorable to the Company than could be obtained from
a non-Affiliate third-party in an arm's-length transaction.
SECTION 3.12. Absence of Certain Events; No Material Adverse
Change. Except as disclosed in the Commission Documents filed prior to the date
hereof, since the Balance Sheet Date, the Company and its Subsidiaries have
conducted their business operations in the ordinary course and there has not
occurred any event or condition having or, that the Stockholder believes is
likely to have, a Material Adverse Effect on the Company and its Subsidiaries
considered as a whole. Without limiting the generality of the foregoing, other
than as is disclosed in the Commission Documents filed prior to the date hereof
or on Schedule 3.12 hereto, since the Balance Sheet Date there has not occurred:
(a) any change or agreement to change the character or nature of the
business of the Company or any of its Subsidiaries;
(b) any purchase, sale, transfer, assignment, conveyance or pledge of
the assets or properties of the Company or any of its Subsidiaries
(including by merger or otherwise), except in the ordinary course of
business;
(c) any waiver or modification by the Company or any of its
Subsidiaries of any right or rights of substantial value, or any payment,
direct or indirect, in satisfaction of any liability, in each case, having
a Material Adverse Effect on the Company and its Subsidiaries considered as
a whole;
(d) any liability, contract, agreement, license or other commitment
entered into or assumed by or on behalf of the Company or any of its
Subsidiaries relating to a merger or acquisition or to the business, assets
or properties of the Company or any of its Subsidiaries (whether oral or
written), except in the ordinary course of business;
(e) any loan, advance or capital expenditure by the Company or any of
its Subsidiaries, except for loans, advances and capital expenditures made
in the ordinary course of business;
(f) any change in the accounting principles, methods, practices or
procedures followed by the Company in connection with the business of the
Company or any change in the depreciation or amortization policies or rates
theretofore adopted by the Company in connection with the business of the
Company and its Subsidiaries;
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(g) any declaration or payment of any dividends, or other
distributions in respect of the outstanding shares of capital stock of the
Company or any of its Subsidiaries (other than dividends and distributions
declared or paid by its wholly-owned Subsidiaries or by Joint Ventures);
(h) other than in connection with the exercise of employee stock
options outstanding on the date hereof, any issuance of any shares of
capital stock of the Company or any of its Subsidiaries or any other change
in the authorized capitalization of the Company or any of its Subsidiaries;
(i) other than options granted to employees in the ordinary course of
business prior to the date hereof, any grant or award of any options,
warrants, conversion rights or other rights to acquire any shares of
capital stock of the Company or any of its Subsidiaries; or
(j) any increase in the compensation or benefits of any director,
officer or other key employee of the Company or any of its Subsidiaries not
required by an agreement or plan as in effect on the Balance Sheet Date to
any such person.
SECTION 3.13. Full Disclosure. All of the statements made by the
Stockholder in this Agreement (including, without limitation, the
representations and warranties made by the Stockholder herein and in the
schedules and exhibits hereto which are incorporated by reference herein and
which constitute an integral part of this Agreement) do not (and on the Closing
Date shall not) include or contain any untrue statement of a material fact, and
do not (and on the Closing Date shall not) 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 were made, not
misleading. Other than as is disclosed in the Commission Documents filed prior
to the date hereof, there is no material fact as to the Company or its
Subsidiaries which the Stockholder has not disclosed to HSNi and which, in the
reasonable judgment of the Stockholder, has had or will have a Material Adverse
Effect on the Company and its Subsidiaries considered as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF HSNI
HSNi hereby represents and warrants to the Stockholder as follows:
SECTION 4.01. Organization and Good Standing. HSNi is a corporation duly
organized, validly existing and in good standing under the laws of Delaware, and
is duly qualified to transact business as a foreign corporation and is in good
standing in each jurisdiction in which the nature of the business transacted by
it or the character or location of the properties owned or leased by it requires
such qualification, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect on HSNi and its Subsidiaries
considered as a whole. HSNi has full corporate power and authority to own and
manage its properties and to carry on its business as it is now being (and as it
is currently proposed to be) conducted. The copies of HSNi's certificate of
incorporation (the "HSNi Certificate"), by-laws and other organizational
documents and instruments (in each case, as amended and/or restated through the
date hereof), heretofore delivered to the Stockholder, are true, complete and
correct copies thereof. Each Subsidiary is duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation or
organization and has the power and authority to own or lease its properties and
to conduct its business as now conducted, except as would not result in any
Material Adverse Effect on HSNi and its Subsidiaries considered as a whole. All
outstanding shares of the capital stock of each HSNi Subsidiary have been
validly issued and are fully paid and nonassessable. Except as set forth in the
HSNi Form 10-K, there are no outstanding options, warrants, rights, agreements
or commitments of any nature whatsoever of any third party to subscribe for or
purchase any equity security of any Subsidiary or to cause any Subsidiary to
issue any such equity security.
SECTION 4.02. Capitalization. The authorized capitalization of HSNi as of
the date hereof consists of: 150,000,000 shares of HSNi Common Stock, $.01 par
value per share, 30,000,000 shares of HSNi Class B Common Stock, $.01 par value
per share ("HSNi Class B Stock"), and 15,000,000 shares of preferred stock, $.01
par value per share, of HSNi ("HSNi Preferred Stock"), of which, as of May 1,
1997, there were 36,094,593 shares of HSNi Common Stock outstanding, 10,225,056
shares of HSNi Class B Stock
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outstanding and no shares of HSNi Preferred Stock outstanding. All such shares
outstanding on the date hereof are, and any shares that will be issued under the
HSNi Certificate, when issued, will be, duly authorized, validly issued and
fully paid and nonassessable. Other than (a) options to purchase an aggregate of
11,359,592 shares of HSNi Common Stock issued pursuant to employee benefit plans
and agreements of HSNi as of April 30, 1997, (b) rights to acquire shares of
HSNi Class B Stock and HSNi Common Stock under agreements (the "Liberty
Agreements") described in a Joint Proxy Statement/Prospectus dated November 20,
1996 filed by HSNi with the Commission on Form S-4 (the "HSNi Form S-4") and (c)
shares of HSNi Common Stock issuable upon exercise or conversion, as the case
may be, of Savoy Warrants, Savoy Options, Savoy Debentures, the Savoy Note, HSNi
Options and HSNi Debentures (each such term as defined in the HSNi Form S-4), as
of the date hereof, there are no outstanding options, warrants, rights, puts,
calls, commitments, or other contracts, arrangements, or understandings issued
by or binding upon HSNi requiring or providing for, and there are no outstanding
debt or equity securities of HSNi which upon the conversion, exchange or
exercise thereof would require or provide for, the issuance by HSNi of any new
or additional shares of HSNi Common Stock (or any other securities of HSNi
which, with notice, lapse of time and/or payment of monies, are or would be
convertible into or exercisable or exchangeable for shares of HSNi Common
Stock). There are no preemptive or other similar rights available to the
existing holders of HSNi Common Stock or other securities of HSNi.
SECTION 4.03. Due Authorization; Execution and Delivery. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the HSNi Board of
Directors (including such authorization as may be required so that no state
anti-takeover statute or similar statute or regulation including, without
limitation, Section 203 of the Delaware Business Corporation Act, is or becomes
operative with respect to this Agreement or the transactions contemplated
hereby) and by the requisite consent of HSNi stockholders acting by consent
pursuant to HSNi's By-laws and, except for notification requirements under
HSNi's By-laws and under Rule 14c-2 under the Exchange Act to deliver the
Information Statement to HSNi stockholders at least 20 calendar days prior to
consummation of the Exchange, no other corporate proceedings on the part of HSNi
are necessary to authorize this Agreement and to consummate the transactions
contemplated hereby. This Agreement constitutes the legal, valid and binding
obligation of HSNi, enforceable against HSNi in accordance with its terms,
except that such enforcement may be subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights, and the remedy of specific performance and
injunctive relief may, as the case may be, subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
SECTION 4.04. Absence of Breach; No Conflict. Except as set forth on
Schedule 4.04 hereto, the execution, delivery, and performance of this Agreement
by HSNi, and the consummation by HSNi of the transactions contemplated hereby,
will not (a) give rise to a right to (or otherwise) terminate, accelerate the
maturity of or increase any payment due under, conflict with, result in a breach
or violation of any of the terms, conditions or provisions of, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, require any approval, waiver or consent under, or
result in the creation or imposition of any Lien upon any property or assets of
HSNi or any Subsidiary pursuant to the terms of, any note, bond, mortgage,
pledge, indenture, deed of trust, lease, agreement, indemnity, obligation,
commitment, instrument, franchise, license, certificate or permit to which HSNi
or any of its Subsidiaries is a party or by which any of their respective
properties or assets may be bound; (b) violate or conflict with any term or
provision of the certificate of incorporation, by-laws or equivalent
organizational instruments and documents (in each case, as amended and/or
restated through the date hereof) of HSNi or any of its Subsidiaries (in each
case as in effect on the Closing Date); or (c) violate any judgment, decree,
order, writ, statute, rule or regulation of any judicial, arbitral, public, or
governmental authority having jurisdiction over HSNi, any of its Subsidiaries or
any of their respective properties or assets except as would not result in a
Material Adverse Effect on HSNi and its Subsidiaries considered as a whole.
SECTION 4.05. The HSNi Shares. The HSNi Shares have been, and any
Additional HSNi Shares will be, duly authorized and legally and validly issued,
are (or will be) fully paid and nonassessable.
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SECTION 4.06. Investment Purpose. HSNi is acquiring the Shares solely for
the purpose of investment and not with view to, or for offer or sale in
connection with, any distribution thereof. HSNi acknowledges and understands
that the Shares may not be sold except in compliance with the registration
requirements of the Securities Act, unless an exemption therefrom is available.
HSNi hereby acknowledges and agrees that upon the transfer by the
Stockholder of the Shares to HSNi, and until such time as the same is no longer
required under the applicable requirements of the Securities Act and the rules
and regulations thereunder, the certificates representing the Shares may bear
the following legend on the reverse side thereof:
"THE SHARES REPRESENTED BY THIS CERTIFICATE (THE 'SHARES') HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
LAWS REGULATING THE SALE OF SECURITIES AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED UNLESS REGISTERED OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION IS OBTAINED TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED."
SECTION 4.07. Brokers. Other than Allen & Company Incorporated, the fees
of which shall be solely the responsibility of HSNi, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of HSNi.
SECTION 4.08. Commission Documents; Financial Information. The HSNi Form
10-K in respect of the fiscal year ended December 31, 1996 (the "HSNi Form
10-K"), and each report, schedule, proxy, information statement or registration
statement (including all exhibits and schedules thereto and documents
incorporated by reference therein) filed by HSNi with the Commission following
the date thereof and on or before the Closing Date are collectively referred to
as the "HSNi Commission Documents." As of their respective filing dates, the
HSNi Commission Documents complied (or will comply) in all material respects
with the requirements of the Securities Act and the rules and regulations of the
Commission thereunder applicable to such HSNi Commission Documents, and as of
their respective dates none of the HSNi Commission Documents contained (or will
contain) any untrue statement of a material fact or omitted (or will omit) to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of HSNi included in the HSNi
Commission Documents comply (or will comply) as of their respective dates as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect thereto (except
as may be indicated in the notes thereto or, in the case of the unaudited
statements, as permitted by Form 10-Q promulgated by the Commission), and
present fairly (or will present fairly) as of their respective dates, in all
material respects, the consolidated financial position of HSNi and its
Subsidiaries as at the dates thereof and the consolidated results of their
operations and their consolidated cash flows for each of the respective periods,
in conformity with GAAP. As used in this Agreement, the consolidated balance
sheet of HSNi and its Subsidiaries at March 31, 1997 included in the HSNi Form
10-Q filed with the Commission in respect of the fiscal quarter ended March 31,
1997 is hereinafter referred to as the "HSNi Balance Sheet," and March 31, 1997
is hereinafter referred to as the "HSNi Balance Sheet Date."
Except as and to the extent expressly set forth in the HSNi Balance Sheet,
or the notes, schedules or exhibits thereto, or as disclosed in the HSNi Form
10-K, (i) as of the HSNi Balance Sheet Date, neither HSNi nor its Subsidiaries
had any liabilities or obligations (whether absolute, contingent, accrued or
otherwise) that would be required to be included on a balance sheet or in the
notes, schedules or exhibits thereto prepared in accordance with GAAP and (ii)
since the HSNi Balance Sheet Date, neither HSNi nor any of its Subsidiaries has
incurred any such liabilities or obligations other than in the ordinary course
of business.
SECTION 4.09. Approvals; Compliance with Laws. (a) Except (i) as set
forth on Schedule 3.09(a) hereof and (ii) for any filings, notices, applications
and other information as may be required to be made or supplied pursuant to the
HSR Act or the Exchange Act, no notices, reports or other filings are required
to be
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made by HSNi, or any of its Subsidiaries with, nor are any consents,
registrations, applications, approvals, permits, licenses or authorizations
required to be obtained by HSNi or any of its Subsidiaries from, any public or
governmental authority or other third party in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.
(b) Except as would not result in any Material Adverse Effect on HSNi and
its Subsidiaries considered as a whole, the business of HSNi and its
Subsidiaries has been and is presently being conducted in compliance with all
applicable Laws.
SECTION 4.10. Litigation. Except as would not result in any Material
Adverse Effect on HSNi and its Subsidiaries considered as a whole, there are no
judicial, administrative or arbitral actions, suits, claims, inquiries,
investigations or proceedings (whether of a public or private nature) pending
or, to the knowledge of HSNi, threatened against HSNi, any of its controlled
Affiliates or any of the HSNi Subsidiaries.
SECTION 4.11. Related Party Transactions. Except as disclosed in the HSNi
Form S-4 or the HSNi Commission Documents, since January 1, 1996, no officer or
director of HSNi has borrowed any monies from or has outstanding any
indebtedness or other similar obligations to HSNi or any Subsidiary of HSNi.
Except as disclosed in the HSNi Form S-4 or the HSNi Commission Documents, since
January 1, 1996, no officer or director of HSNi (a) owns any direct or indirect
interest of any kind in, or is a director, officer, employee, partner or
Associate (as such term is defined in Rule 12b-2 under the Exchange Act) of, or
consultant or lender to, or borrower from, or has the right to participate in
the management, operations or profits of, any person or entity which is (i) a
competitor, supplier, customer, distributor, lessor, tenant, creditor or debtor
of HSNi or any Subsidiary of HSNi, (ii) engaged in a business related to the
business of HSNi or any Subsidiary of HSNi or (iii) participating in any
transaction to which HSNi or any Subsidiary of HSNi is a party or (b) is
otherwise a party to any contract, arrangement or understanding with HSNi or any
Subsidiary of HSNi.
SECTION 4.12. Absence of Certain Events; No Material Adverse
Change. Except as disclosed in the HSNi Form 10-K, since the HSNi Balance Sheet
Date, HSNi and its Subsidiaries have conducted their business operations in the
ordinary course and there has not occurred any event or condition having or,
that management believes is likely to have, a Material Adverse Effect on HSNi
and its Subsidiaries considered as a whole. Without limiting the generality of
the foregoing, other than as is disclosed in the HSNi Commission Documents filed
prior to the date hereof or on Schedule 4.11 hereto, since the HSNi Balance
Sheet Date there has not occurred:
(a) any change or agreement to change the character or nature of the
business of HSNi or any of its Subsidiaries;
(b) any purchase, sale, transfer, assignment, conveyance or pledge of
the assets or properties of HSNi or its Subsidiaries, except in the
ordinary course of business;
(c) any waiver or modification by HSNi or any HSNi Subsidiary of any
right or rights of substantial value, or any payment, direct or indirect,
in satisfaction of any liability, in each case, having a Material Adverse
Effect on HSNi and its Subsidiaries considered as a whole;
(d) any loan, advance or capital expenditure by HSNi or any of its
Subsidiaries, except for loans, advances and capital expenditures made in
the ordinary course of business;
(e) any change in the accounting principles, methods, practices or
procedures followed by HSNi in connection with the business of HSNi or any
change in the depreciation or amortization policies or rates theretofore
adopted by HSNi in connection with the business of HSNi and its
Subsidiaries; or
(f) any declaration or payment of any dividends, or other
distributions in respect of the outstanding shares of capital stock of HSNi
or any HSNi Subsidiary (other than dividends declared or paid by
wholly-owned Subsidiaries);
(g) other than in connection with the exercise of employee stock
options or the conversion of outstanding convertible debt instruments, any
issuance of any shares of capital stock of HSNi or any
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HSNi Subsidiary or any other change in the authorized capitalization of the
Company or any HSNi Subsidiary, except as contemplated by this Agreement or
the Liberty Agreement; or
(h) any grant or award of any options, warrants, conversion rights or
other rights to acquire any shares of capital stock of HSNi or any HSNi
Subsidiary, except as contemplated by this Agreement or except pursuant to
employee benefit plans, programs or arrangements in the ordinary course of
business consistent with past practice.
SECTION 4.13. Full Disclosure. All of the statements made by HSNi in this
Agreement (including, without limitation, the representations and warranties
made by HSNi herein and in the schedules and exhibits hereto which are
incorporated by reference herein and which constitute an integral part of this
Agreement) do not (and on the Closing Date shall not) include or contain any
untrue statement of a material fact, and do not (and on the Closing Date shall
not) 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 were made, not misleading. Other than as is disclosed in the Form S-4
or the HSNi Commission Documents filed prior to the date hereof, there is no
material fact as to HSNi or its Subsidiaries which HSNi has not disclosed to the
Stockholder and which, in the reasonable judgment of HSNi, has had or will have
a Material Adverse Effect on HSNi and its Subsidiaries considered as a whole.
ARTICLE V
COVENANTS OF THE PARTIES
SECTION 5.01. Additional HSNi Shares. HSNi hereby covenants to the
Stockholder that it shall reserve and keep available out of its authorized but
unissued shares of HSNi Common Stock (including any shares of HSNi Common Stock
held by HSNi in its corporate treasury), for the purpose of effecting the
adjustment in full of the number of HSNi Shares deliverable hereunder in
accordance with Section 2.02 of this Agreement, such number of its duly
authorized shares of HSNi Common Stock as shall be sufficient to effect such
adjustment.
SECTION 5.02. Registration Rights. (a) HSNi hereby grants the Stockholder
certain registration rights on the basis of one demand registration right for
each 4,000,000 shares of Common Stock being exchanged hereunder, together with
customary piggyback registration rights relating thereto. Accordingly, HSNi
hereby covenants to the Stockholder that following the one year anniversary of
the Closing Date, if requested by the Stockholder, it shall be required promptly
to cause the HSNi Shares and the Additional HSNi Shares, if any, owned by the
Stockholder or his Affiliates to be registered under the Securities Act in order
to permit the Stockholder or such Affiliate to sell such shares in one or more
(but not more than three) registered public offerings (each, a "Demand
Registration"). The Stockholder shall also be entitled to customary piggyback
registration rights. If the amount of shares sought to be registered by the
Stockholder and his Affiliates pursuant to any Demand Registration is reduced by
more than 50% pursuant to any underwriters' cutback, then the Stockholder may
elect to request the Company to withdraw such registration, in which case, such
registration shall not count as one of the Stockholder's three Demand
Registrations. If the Stockholder requests that any Demand Registration be an
underwritten offering, then the Stockholder shall select the underwriter(s) to
administer the offering, provided that such underwriter(s) shall be reasonably
satisfactory to HSNi. If a Demand Registration is an underwritten offering and
the managing underwriter advises the Stockholder in writing that in its opinion
the total number or dollar amount of securities proposed to be sold in such
offering is such as to materially and adversely affect the success of such
offering, then HSNi will include in such registration, first, the securities of
the Stockholder, and, thereafter, any securities to be sold for the account of
others who are participating in such registration (as determined by HSNi). In
connection with any Demand Registration or inclusion of the Stockholder's or his
Affiliate's shares in a piggyback registration, the Company, the Stockholder
and/or his Affiliates shall enter into an agreement containing terms (including
representations, covenants and indemnities by HSNi and the Stockholder), and
shall be subject to limitations, conditions, and blackout periods, customary for
a secondary offering by a selling stockholder. The costs of the registration
(other than underwriting discounts, fees and commissions) shall be paid by HSNi.
HSNi shall not
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be required to register such shares if the Stockholder would be permitted to
sell the HSNi Shares and/or Additional HSNi Shares in the quantities proposed to
be sold and at such time under Rule 144 of, or other exemption from, the
Securities Act.
(b) If HSNi and the Stockholder cannot agree as to what constitutes
customary terms within 10 days of the Stockholder's request for registration
(whether in a Demand Registration or a piggyback registration), then such
determination shall be made by a law firm of national reputation mutually
acceptable to HSNi and the Stockholder.
SECTION 5.03. HSR Filings. Following the date hereof, the Stockholder and
HSNi shall, and the Stockholder shall use all reasonable efforts to cause the
Company to, file promptly any forms required under applicable law and take any
other action reasonably requested in connection with obtaining the expiration or
termination of the waiting period under the HSR Act.
SECTION 5.04. Access to Information. (a) From the date hereof until the
Closing, (i) the Stockholder shall use all reasonable efforts to cause the
Company and its Subsidiaries and each of the Company's and its Subsidiaries'
officers, directors, employees, agents, representatives, accountants and counsel
(collectively, "Representatives") to, and (ii) HSNi and its Subsidiaries and
each of HSNi's and its Subsidiaries' Representatives shall: (x) afford the
officers, employees and authorized agents, accountants, counsel and
representatives of the other party reasonable access to its offices, properties,
plants, other facilities, books and records and to those officers, directors,
employees, agents, accountants and counsel who have any knowledge relating to
its business and (y) furnish to the officers, employees and authorized agents,
accountants, counsel and representatives of the other party such additional
financial and operating data and other information regarding its assets,
properties and goodwill as the other party may from time to time reasonably
request. All information obtained by a party or its Representatives pursuant to
this Section 5.04 shall be kept confidential in accordance with the provisions
of Article XII hereof.
SECTION 5.05. Further Action. Each of the parties hereto shall use all
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things necessary, proper or advisable under applicable law,
and execute and deliver such documents and other papers, as may be required to
carry out the provisions of this Agreement and consummate and make effective the
transactions contemplated by this Agreement (including, without limitation,
promptly preparing, filing with the Commission and mailing to stockholders, in
the case of HSNi, the Information Statement and, in the case of the Stockholder
(and to the extent required), the Company Information Statement). HSNi and the
Stockholder shall, and the Stockholder shall use all reasonable efforts to cause
the Company to (a) cooperate with the parties hereto in order to obtain any
consents (including, without limitation, the Bank Consent) required to be
obtained or to otherwise take action to effectuate the transactions contemplated
hereby (including without limitation refinancing the Credit Agreement on terms
reasonably acceptable to the Company and HSNi (the "Bank Refinancing") if the
Bank Consent is not obtained) and (b) take such action as is required so as to
cause the representations and warranties made by such party to be true at and as
of the Closing, the covenants contained herein to be complied with and the
conditions to the parties' obligations to proceed to the Closing to be
satisfied.
SECTION 5.06. Conduct of Business. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Closing, the
Stockholder shall use all reasonable efforts to cause the Company and its
Subsidiaries to carry on their businesses in the ordinary course consistent with
past practice and in compliance in all material respects with all applicable
laws and regulations and, to the extent consistent therewith, shall use all
reasonable efforts to preserve intact their current business organizations, use
reasonable efforts to keep available the services of their current officers and
other key employees and preserve their relationships with those persons having
business dealings with them to the end that their goodwill and on-going
businesses shall be unimpaired at the Closing. Without limiting the generality
of the foregoing, during the period from the date of this Agreement to the
Closing, the Stockholder shall use all reasonable efforts to cause the Company
and its Subsidiaries not to (without the consent of HSNi) take any action that
would cause the representations and warranties made in paragraphs (a) through
(j) of Section 3.12 to be untrue. In
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addition, as an accommodation to HSNi to facilitate an orderly transition, the
Stockholder will continue to serve as Chairman of the Company for a period not
to exceed six months following the Closing.
SECTION 5.07. Tag-Along Rights. HSNi hereby confirms that it has been
informed of the "Tag-Along Rights" provided for in the Shareholders Agreement
and hereby agrees, subject to the accuracy of the last two sentences of Section
3.05(b) of this Agreement, to purchase shares of Common Stock from those Company
shareholders who exercise their "Tag-Along Rights" in accordance with the terms
of the Shareholders Agreement and will provide demand registration rights to
such holders on the basis of one demand registration right for each 4,000,000
shares of Common Stock sold to HSNi pursuant to such tag-along right. In
addition, to the extent any such exchanging holder receives under this Agreement
more than 1% of HSNi's outstanding equity securities, such holder shall be
permitted to "piggyback" on any demand registration by the Stockholder if at the
time thereof such holder cannot sell his or its HSNi shares received pursuant to
his or its tag-along right under Rule 144 under the Securities Act (or its
equivalent) without volume limitation. The Stockholder shall be solely
responsible for giving notices to such holders in connection with any such
registration.
SECTION 5.08. Stockholders Agreement. In connection with the Closing, the
Stockholder shall enter into the Stockholders Agreement attached hereto as
Exhibit A (the "Stockholders Agreement") with the parties thereto. HSNi shall
use all reasonable efforts to cause Diller and Liberty Media Corporation to
enter into the Stockholders Agreement.
ARTICLE VI
DIRECTORS
SECTION 6.01. Director Election. Prior to the Closing, the Stockholder
shall use all reasonable efforts to cause the directors of the Company and the
Company to exercise all authority under applicable law (including, without
limitation, if required, preparing, filing and mailing to the Company's
stockholders an information statement (the "Company Information Statement") in
accordance with Rule 14f-1 under the Exchange Act) so that, effective upon the
Closing, the Board of Directors of the Company shall consist of up to a majority
of persons designated by HSNi (the precise number of which shall be determined
by HSNi). Such designees shall be reasonably satisfactory to the Company's
directors in the exercise of their fiduciary duties to the Company's
stockholders. HSNi shall cooperate with the Company and shall provide to the
Company the information required to be contained in the Company Information
Statement, to the extent the Company Information Statement is required under the
Exchange Act, concerning the persons proposed by HSNi to serve as Company
directors.
SECTION 6.02. HSNi Director Appointment. Prior to the Closing, HSNi shall
take such action under applicable law so that, effective upon the Closing, the
Stockholder shall be elected to serve as a director of HSNi. Subject to
applicable law (including the rules and regulations of the FCC), so long as the
Stockholder has not disposed of one-third or more of the HSNi Shares acquired
hereunder (appropriately adjusted for stock splits, stock dividends,
combinations, reorganizations and the like), other than to his Permitted
Transferees (provided that at all times the Stockholder is the beneficial owner
of at least 5% of HSNi's outstanding equity securities (assuming for this
purpose that all HSNi equity securities issuable under the Liberty Agreements
are outstanding)), HSNi shall take all necessary action to cause the Stockholder
(or a designee of the Stockholder acceptable to HSNi) to be included in the
slate of nominees recommended by the HSNi Board and shall use all reasonable
efforts to cause the election of the Stockholder or such designee.
ARTICLE VII
CLOSING; SECOND CLOSING
SECTION 7.01. Closing. Subject to the provisions of Articles VIII and IX
hereof and unless otherwise agreed by the parties, the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place at
the offices of Wachtell, Lipton, Rosen & Katz, 51 W. 52nd Street, New York, New
York at
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10:00 a.m., Eastern time, on July 9, 1997; provided, however, that if the
conditions set forth in Sections 8.03, 8.05, 8.09, 9.06, 9.07 and 9.08 shall not
have been satisfied or, where legally permissible, waived by such date, the
Closing shall occur on the second Business Day after the last of such conditions
has been satisfied or waived, at such time and place as is specified above. The
date of the Closing is referred to in this Agreement as the "Closing Date."
SECTION 7.02. Deliveries. At or prior to the Closing, the parties shall
deliver all documents, instruments, certificates and writings required to be
executed and delivered by them at or prior to the Closing pursuant to this
Agreement.
SECTION 7.03. Second Closing. If an adjustment in the number of HSNi
Shares to be delivered in the Exchange is required to be made under Section
2.02(b), a second closing (the "Second Closing") shall take place at the offices
of Wachtell, Lipton, Rosen & Katz, 51 W. 52nd Street, New York, New York at
10:00 a.m., Eastern time, on the fifth Business Day following the determination
of the number of Additional HSNi Shares to be delivered in accordance with
Section 2.02(b).
SECTION 7.04. Deliveries at Second Closing. At the Second Closing, HSNi
shall deliver to the Stockholder, against receipt therefor, certificates
representing the Additional HSNi Shares and/or the FCC Excess Shares bearing a
legend as set forth in Section 3.06.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
THE STOCKHOLDER TO EXCHANGE, SELL AND DELIVER THE SHARES
The obligations hereunder of the Stockholder to exchange, sell and deliver
the Shares to HSNi, and accept delivery of the HSNi Shares, are subject to the
satisfaction, at or before the Closing, of each of the following conditions set
forth in Section 8.01 through Section 8.10 below. These conditions are for the
Stockholder's sole benefit and may be waived by the Stockholder (in whole or in
part) at any time in his sole discretion.
SECTION 8.01. Accuracy of HSNi's Representations and Warranties. The
representations and warranties of HSNi contained in Article IV hereof shall be
true and correct as of the date when made and as of the Closing Date, as though
made on such date (except that representations and warranties made as of a
specific date need be true and correct only as of such date), and the
Stockholder shall have received a certificate attesting thereto signed by a duly
authorized officer or agent of HSNi.
SECTION 8.02. Performance by HSNi. HSNi shall have performed, satisfied
and complied with, in all material respects, all covenants, agreements, and
conditions required by this Agreement to be performed, satisfied or complied
with by it on or prior to the Closing Date, and the Stockholder shall have
received a certificate attesting thereto signed by a duly authorized officer or
agent of HSNi.
SECTION 8.03. HSR Act. The waiting periods under the HSR Act applicable
to the Stockholder's acquisition of the HSNi Shares and to HSNi's acquisition of
the Shares shall have expired or have been earlier terminated.
SECTION 8.04. No Injunction. No temporary, preliminary or permanent
injunction or any order by any federal or state court of competent jurisdiction
shall have been issued which prohibits or otherwise seeks to prohibit, restrain,
enjoin or delay the consummation of any of the transactions contemplated by this
Agreement.
SECTION 8.05. Information Statements. Twenty calendar days shall have
elapsed from the mailing of the Information Statement to HSNi stockholders, and,
if required under the Exchange Act, 10 calendar days shall have elapsed from the
mailing of the Company Information Statement to the Company's stockholders.
SECTION 8.06. Stockholders Agreement. The Stockholders Agreement shall be
executed and delivered by Diller and Liberty Media Corporation.
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SECTION 8.07. No Adverse Action or Decision. There shall be no action,
suit, investigation or proceeding pending with, or to the knowledge of the
Stockholder, threatened by, any public or governmental authority, against or
affecting HSNi or the Stockholder or their respective properties or rights,
before any court, arbitrator or administrative or governmental body which (a)
seeks to restrain, enjoin or prevent the consummation of the transactions
contemplated by this Agreement, or (b) challenges the validity or legality of
any transactions contemplated by this Agreement or seeks to recover damages or
to obtain other relief in connection with any such transactions.
SECTION 8.08. No Material Adverse Effect.
(a) There shall not have occurred and there shall not otherwise exist any
condition, event or development having, or likely to have (in the reasonable
judgment of the Stockholder), a Material Adverse Effect on HSNi and its
Subsidiaries considered as a whole.
(b) Diller shall not have ceased serving HSNi as its Chief Executive
Officer and Chairman of the Board.
SECTION 8.09. Approvals and Consents. HSNi shall have duly obtained,
received or effected (and all applicable waiting and termination periods, if
any, including any extensions thereof, under any applicable law, statute,
regulation or rule shall have expired or terminated) all authorizations,
consents, approvals, licenses, franchises, permits and certificates by or of,
and shall have made all filings and effected all notifications, registrations
and qualifications with, all federal, state and local governmental and
regulatory authorities necessary for the consummation of the transactions
contemplated hereby. The Bank Consent shall have been obtained or, in lieu
thereof, the Bank Refinancing shall have been effected.
SECTION 8.10. Proceedings. All corporate and other proceedings to be
taken by HSNi in connection with the transactions contemplated by this Agreement
and all documents reflecting or evidencing such proceedings shall be reasonably
satisfactory in scope, form and substance to the Stockholder and his legal
counsel, and the Stockholder and his legal counsel shall have received all such
duly executed counterpart originals or certified or other copies of such
documents and instruments as they may reasonably request.
ARTICLE IX
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF HSNI TO EXCHANGE, ISSUE AND DELIVER THE SHARES
The obligations of HSNi hereunder to exchange, issue and deliver the HSNi
Shares, and accept delivery of the Shares, are subject to the satisfaction, at
or before the Closing, of each of the following conditions set forth in Section
9.01 through Section 9.08 below. These conditions are for HSNi's sole benefit
and may be waived (in whole or in part) at any time in its sole discretion.
SECTION 9.01. Accuracy of the Stockholder's Representations and
Warranties. The representations and warranties of the Stockholder contained in
Article III hereof shall be true and correct as of the date when made and as of
the Closing Date, as though made on such date (except that representations and
warranties made as of a specific date need be true and correct only as of such
date), and HSNi shall have received a certificate attesting thereto signed by
the Stockholder.
SECTION 9.02. Performance by the Stockholder. The Stockholder shall have
performed, satisfied and complied with, in all material respects, all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with on or prior to the Closing Date, and HSNi shall have received a
certificate attesting thereto signed by the Stockholder.
SECTION 9.03. No Adverse Action or Decision. There shall be no action,
suit, investigation or proceeding pending with, or to the knowledge of HSNi,
threatened by, any public or governmental authority, against or affecting the
Company or its properties or rights, before any court, arbitrator or
administrative or governmental body which (a) seeks to restrain, enjoin or
prevent the consummation of the transactions
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contemplated by this Agreement, or (b) challenges the validity or legality of
any transactions contemplated by this Agreement or seeks to recover damages or
to obtain other relief in connection with any such transactions.
SECTION 9.04. No Material Adverse Effect. There shall not have occurred
and there shall not otherwise exist any condition, event or development having,
or likely to have (in the reasonable judgment of HSNi), a Material Adverse
Effect on the Company and its Subsidiaries considered as a whole.
SECTION 9.05. No Injunction. No temporary, preliminary or permanent
injunction or any order by any federal or state court of competent jurisdiction
shall have been issued or threatened which prohibits or otherwise seeks to
prohibit, restrain, enjoin or delay the consummation of any of the transactions
contemplated by this Agreement.
SECTION 9.06. Approvals and Consents. The Company and the Stockholder, as
applicable, shall have duly obtained, received or effected (and all applicable
waiting and termination periods, if any, including any extensions thereof, under
any applicable law, statute, regulation or rule, shall have expired or
terminated) all authorizations, consents, approvals, licenses, franchises,
permits and certificates by or of, and shall have made all filings and effected
all notifications, registrations and qualifications with, all federal, state and
local governmental and regulatory authorities necessary for the consummation of
the transactions contemplated hereby. The Bank Consent shall have been obtained
or, in lieu thereof, the Bank Refinancing shall have been effected.
SECTION 9.07. HSR Act. The waiting periods under the HSR Act applicable
to the Stockholder's acquisition of the HSNi Shares and to HSNI's acquisition of
the Shares shall have expired or have been earlier terminated.
SECTION 9.08. Information Statements. Twenty calendar days shall have
elapsed from the mailing of the Information Statement to HSNi stockholders, and,
if required under the Exchange Act, 10 calendar days shall have elapsed from the
mailing of the Company Information Statement to the Company's stockholders.
SECTION 9.09. Proceedings. All corporate and other proceedings to be
taken by the Company in connection with the transactions contemplated by this
Agreement and all documents reflecting or evidencing such proceedings shall be
reasonably satisfactory in scope, form and substance to HSNi and its legal
counsel, and HSNi and its legal counsel shall have received all such duly
executed counterpart originals or certified or other copies of such documents
and instruments as they may reasonably request.
ARTICLE X
TERMINATION; EXPENSES
SECTION 10.01. Termination by Mutual Written Consent. This Agreement may
be terminated and the transactions contemplated hereby may be abandoned, for any
reason, at any time prior to the Closing Date, by the mutual written consent of
the Stockholder and HSNi.
SECTION 10.02. Termination by the Stockholder or HSNi. This Agreement may
be terminated and the transactions contemplated hereby may be abandoned by
action of the Stockholder or HSNi if and to the extent that (a) the Closing
shall not have occurred at or prior to 5:00 p.m., Eastern time, on December 31,
1997; provided, however, that the right to terminate this Agreement under this
Section 10.02 shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing Date to occur on or before such date; or (b) any court or
governmental authority of competent jurisdiction shall have issued an order,
decree, writ or ruling or taken any other action, or there shall be in effect
any statute, rule or regulation, temporarily, preliminarily or permanently
restraining, enjoining or otherwise prohibiting the Exchange or the consummation
of the transactions contemplated by this Agreement.
SECTION 10.03. Termination by HSNi. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by action of HSNi, if (a)
the Stockholder shall have failed to comply in any material respect with any of
the covenants or agreements contained in this Agreement to be complied
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with or performed by the Stockholder at or prior to such date of termination,
and the Stockholder shall not, within a reasonable period of time after notice
of such failure, have cured or commenced prompt and diligent measures which
would promptly cure such failure, (b) there shall have been a misrepresentation
or breach by the Stockholder with respect to any representation or warranty made
by him in this Agreement which would entitle HSNi not to consummate the
transactions contemplated hereby under Article IX and such misrepresentation or
breach cannot be cured prior to the Closing Date, or (c) there shall have
occurred and be continuing any condition, event or development having, or
reasonably likely to have, a Material Adverse Effect on the Company and its
Subsidiaries considered as a whole.
SECTION 10.04. Termination by the Stockholder. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Stockholder, at any time prior to the Closing Date, if (a) HSNi shall
have failed to comply in any material respect with any of the covenants or
agreements contained in this Agreement to be complied with or performed by HSNi
at or prior to such date of termination and HSNi shall not, within a reasonable
period of time after notice of such failure, have cured or commenced prompt and
diligent measures which would promptly cure such failure, (b) there shall have
been a misrepresentation or breach by HSNi with respect to any representation or
warranty made by it in this Agreement which would entitle the Stockholder not to
consummate the transactions contemplated hereby under Article VIII and such
misrepresentation or breach cannot be cured prior to the Closing Date, (c) there
shall have occurred and be continuing any condition, event or development
having, or reasonably likely to have, a Material Adverse Effect on HSNi and its
Subsidiaries considered as a whole, or (d) Diller shall have ceased serving HSNi
as its Chief Executive Officer and Chairman of the Board.
SECTION 10.05. Expenses. Except as provided in Section 3.7 hereof, each
party shall be responsible for the payment of any expenses incurred by such
party (including fees and expenses of counsel) incurred in connection with this
Agreement and the transactions contemplated hereby.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
Except as set forth below in the proviso to this Article XI, the
representations and warranties of the parties set forth in this Agreement shall
not survive the Closing Date; provided, however, that (a) the representations
and warranties of the Stockholder set forth in Sections 3.03, 3.05, 3.06 and
3.07 of this Agreement shall survive the Closing Date indefinitely, and (b) the
representations and warranties of HSNi set forth in Sections 4.03, 4.05, 4.06
and 4.07 of this Agreement shall survive the Closing Date and continue
indefinitely. All covenants of the parties contained in this Agreement that
contemplate action following the Closing shall survive the Closing; all other
covenants shall terminate at the Closing.
ARTICLE XII
CONFIDENTIALITY
Each party hereto agrees that any nonpublic information heretofore
delivered, provided or made available to it or to be provided to it in the
future, shall not be used to the detriment of HSNi, the Company or any of their
respective Subsidiaries or their business or operations and shall be kept
confidential and not disclosed to any third party; provided, however, that
disclosure of such information may be made (a) to any officers, directors,
general partners, representatives, shareholders, agents, employees, Affiliates
and Associates of the person receiving such information who agree to keep the
nonpublic information confidential to the same extent and degree as provided
herein, or (b) to the extent the same: (i) shall be or hereinafter become
publicly available other than as a result of a disclosure by the party receiving
such information; (ii) was lawfully available to the party receiving such
information prior to its having received such information; (iii) becomes
available to the party receiving such information from a source other than the
party providing such information, provided such source is not known to the
receiving party to be bound by a duty of confidentiality to the party providing
such information; or (iv) shall be required to be disclosed by law or during the
course of
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or in connection with any litigation or other proceeding, provided that the
party so required to make disclosure shall notify the party provided such
information of its obligation to disclose such information and shall fully
cooperate with the party which provided such information in order to protect
such confidentiality, or (c) by any party in connection with the enforcement of
its rights hereunder (to the minimum extent necessary to enforce such rights, as
determined in good faith by the party seeking to enforce such right).
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. Notices. Except as otherwise provided herein, whenever it
is provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties by any other party, or whenever any of the parties desires to
give or serve upon any other communication with respect to this Agreement, each
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing and either shall be delivered in person with
receipt acknowledged or sent by registered or certified mail, return receipt
requested, postage prepaid, or by overnight mail or courier, or delivery service
or by telecopy and confirmed by telecopy answerback, addressed as follows:
(a) If to the Stockholder, to:
Paul G. Allen
c/o William Savoy
110 110th Avenue, NE
Suite 500
Bellevue, Washington 98004
Telephone: (206) 453-1940
Telecopy: (206) 453-1985
With a copy to:
Irell & Manella
1800 Avenue of the Stars
Suite 900
Los Angeles, California 90067
Telephone: (310) 203-7069
Telecopy: (310) 282-5669
Attention: Al Segel
(b) If to HSNi, to:
HSN, Inc.
2501 118th Avenue North
St. Petersburg, Florida 33716
Telephone: (813) 572-8585
Telecopy: (813) 556-6882
Attention: James G. Gallagher
With a copy to:
Wachtell, Lipton, Rosen & Katz
51 W. 52nd Street
New York, New York 10019
Telephone: (212) 403-1000
Telecopy: (212) 403-2000
Attention: Pamela S. Seymon
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or at such other address as may be substituted by notice given as herein
provided. The furnishing of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration or other communication hereunder shall
be deemed to have been duly given or served on (A) the date on which personally
delivered, with receipt acknowledged, (B) the date on which telecopied and
confirmed by telecopy answerback, (C) the next Business Day if delivered by
overnight or express mail, courier or delivery service, or (D) three Business
Days after the same shall have been deposited in the United States mail, as the
case may be. Failure or delay in delivering copies of any notice, demand,
request, consent, approval, declaration or other communication to the persons
designated above to receive copies shall in no way adversely affect the
effectiveness of such notice, demand, request, consent, approval, declaration or
other communication.
SECTION 13.2. Entire Agreement. This Agreement (together with the annex,
schedules and exhibits hereto which are incorporated by reference herein)
together with the Stockholders Agreement represent the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes any and all prior oral and written agreements,
arrangements and understandings among the parties hereto with respect to such
subject matter, and can be amended, supplemented or changed, and any provision
hereof can be waived, only by a written instrument making specific reference to
this Agreement signed by the party against whom enforcement of any such
amendment, supplement, modification or waiver is sought.
SECTION 13.3. Successors and Assigns. This Agreement shall be binding
upon the parties hereto and their respective successors and permitted assigns.
Neither the Stockholder nor HSNi may assign its rights hereunder without the
prior written consent of the other party hereto.
SECTION 13.4. Paragraph Headings. The paragraph headings contained in
this Agreement are for general reference purposes only and shall not affect in
any manner the meaning or interpretation of the terms or other provisions of
this Agreement.
SECTION 13.5. Reasonable Efforts. Whenever in this Agreement the
Stockholder is required to use all reasonable efforts to cause the Company to
take or refrain from taking any action, the Stockholder shall not be required to
breach his fiduciary duties to the Company in causing the Company to take or
refrain from taking such action. Notwithstanding the foregoing, in the event the
Company fails to comply with the covenants contained herein despite the
Stockholder's efforts, for purposes of HSNi's rights under this Agreement, such
failure shall be a breach of the applicable covenant, permitting, to the full
extent of HSNi's rights under this Agreement, HSNi to terminate this Agreement,
and there shall be no liability on the part of the Stockholder for the Company's
failure (provided the Stockholder acts in good faith).
SECTION 13.6. Applicable Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of New York,
applicable to contracts to be made, executed, delivered and performed wholly
within such state, and in any case, without regard to the conflicts of law
principles of such state.
SECTION 13.7. Severability. If at any time subsequent to the date hereof,
any provision of this Agreement shall be held by any court of competent
jurisdiction to be illegal, void or unenforceable, such provision shall be of no
force and effect, but the illegality or unenforceability of such provision shall
have no effect upon and shall not impair the enforceability of any other
provision of this Agreement.
SECTION 13.8. Equitable Remedies. The parties hereto agree that
irreparable harm would occur in the event that any of the covenants contained in
this Agreement were not performed in all material respects by the parties hereto
in accordance with their specific terms or conditions or were otherwise
breached, and that money damages are an inadequate remedy for breach thereof
because of the difficulty of ascertaining and quantifying the amount of damage
that will be suffered by the parties hereto in the event that such covenants are
not performed in accordance with their terms or are otherwise breached. It is
accordingly hereby agreed that the parties hereto shall be entitled to an
injunction or injunctions to restrain, enjoin and prevent breaches and
violations of any of the covenants contained in this Agreement by the other
parties and to enforce specifically the terms and provisions hereof in any court
of the United States or any state having competent
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jurisdiction, such remedy being in addition to and not in lieu of, any other
rights and remedies to which the other parties are entitled to at law or in
equity.
SECTION 13.9. No Waiver. The failure of any party at any time or times to
require performance of any provision hereof shall not affect the right at a
later time to enforce the same. No waiver by any party of any condition, and no
breach of any provision, term, covenant, representation or warranty contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
SECTION 13.10. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same original instrument.
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement, as of the day and year first above written.
Paul G. Allen
By: /s/ PAUL G. ALLEN
------------------------------------
William Savoy
Attorney-in-Fact
HSN, INC.
By: /s/ VICTOR KAUFMAN
------------------------------------
Name: Victor Kaufman
Office of the Chairman
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<PAGE> 130
ANNEX B
STOCKHOLDERS AGREEMENT
This Stockholders Agreement is made and entered into as of May 20, 1997 by
and among Paul G. Allen, an individual ("Allen"); Barry Diller, an individual
("Diller"), on behalf of himself and his Affiliates (as defined below)
(including, without limitation, Arrow Holdings, LLC, BDTV, Inc. and BDTV II,
Inc.); and Liberty Media Corporation, a Delaware corporation ("Liberty"), on
behalf of itself and its Affiliates (including, without limitation, Liberty HSN,
Inc.).
WHEREAS, pursuant to a Stock Exchange Agreement, dated May 20, 1997,
between Allen and HSN, Inc., a Delaware corporation (the "Company") (the
"Exchange Agreement"), Allen will acquire shares of HSNi Common Stock, as
defined below;
WHEREAS, Diller and Liberty and their respective Affiliates collectively
have "beneficial ownership" (within the meaning of Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended) of an aggregate number of
shares of HSNi Common Stock and HSNi Class B Common Stock, as defined below,
which represent over 50% of the total voting power of the outstanding Voting
Stock of the Company; and
WHEREAS, Allen, Diller and Liberty desire to enter into this Agreement to
set forth their respective rights and obligations with respect to certain
matters relating to their shares of Common Stock (as defined below).
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
SECTION 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
"Affiliate" of a specified person shall mean any other person directly
or indirectly controlling or controlled by or under direct common control
with such specified person. For purposes of this definition, "control,"
when used with respect to any person, means the power to direct the
management and policies of such person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise.
"Board of Directors" shall mean the Board of Directors of the Company.
"Common Stock" shall mean and include, without limitation, (i) the
HSNi Common Stock; (ii) the HSNi Class B Common Stock; (iii) any security
or other instrument (A) received as a dividend on, or other payment made to
holder of, the Common Stock (or any security or other instrument referred
to in this definition); (B) issued in connection with a split of the Common
Stock (or any security or other instrument referred to in this definition)
or as a result of any exchange or reclassification of the Common Stock (or
any security or other instrument referred to in this definition) or (C)
issued as a result of any consolidation, merger or other event which
results in the conversion or exchange of the Common Stock (or any security
or other instrument referred to in this definition); and (iv) any option,
warrant or right to acquire the Common Stock (or any security or other
instrument referred to in this definition).
"HSNi Common Stock" shall mean common stock, par value $.01 per share
of the Company.
"HSNi Class B Common Stock" shall mean Class B common stock, par value
$.01 per share of the Company.
"Permitted Transferee" shall mean, with respect to Allen, (i) an
Affiliate of Allen in which Allen is the sole equity owner, (ii) Allen's
spouse, parents, members of his immediate family or his lineal descendants
or to a trust the beneficiary of which is any of such persons, (iii) any of
Allen's executors, administrators, testamentary trustees, legatees or
beneficiaries named by will or by the laws of intestate succession or (iv)
any investment fund, investment account or investment entity whose
investment manager, investment advisor, general partner or managing member
is Allen or a Permitted Transferee of
<PAGE> 131
Allen and such manager, advisor, partner or member has sole voting power
with respect to the HSNi Common Stock so transferred by Allen.
"Person" or "person" shall mean an individual, trustee, corporation,
partnership, limited liability company, joint stock company, trust,
unincorporated association, union, business association, firm or other
entity.
"Voting Stock" shall mean all capital stock of the Company that by its
terms may be voted on all matters submitted to the stockholders of the
Company generally.
SECTION 2. Voting Agreement Relating to Election of Directors.
At all times after the date of this Agreement, (i) Allen shall be entitled
to nominate Allen (or a designee of his acceptable to the Company) in each
election of the Company's directors or, if the Company shall have a staggered
Board of Directors, in each election in which Allen or his designee would stand
for re-election upon the expiration of his or her term as a director of the
Company, (ii) each of Diller and Liberty agrees, and agrees to cause each of his
or its respective Affiliates, to vote all shares of Voting Stock over which he
or it may then exercise voting power, at any annual or special meeting of
stockholders of the Company called for the purpose of the election of directors
or to execute written consents of stockholders without a meeting with respect to
the election of directors, in favor of Allen or his designee (or, if necessary,
to cause his or its designee or designees on the Board of Directors of the
Company, if any, to vote in favor of the election of Allen or his designee) and
(iii) each of Diller and Liberty shall, and shall cause his or its respective
Affiliates to, take whatever other action is reasonably necessary to ensure that
the Board of Directors shall at all times include Allen or his designee as a
member (including voting all shares of Voting Stock over which he or it may then
exercise voting power to ensure that the Company's charter and bylaws do not at
any time conflict with the provisions of this Agreement), subject to applicable
law. Allen or his designee shall not be removed except for cause or with the
consent of Allen. Upon any such removal for cause or with the consent of Allen,
Allen shall have the right to designate a replacement director.
Nothing in this Agreement shall be construed as requiring that Allen or his
designee be counted as one of the directors that Diller or Liberty would be
entitled to designate under the Stockholders Agreement dated as of August 24,
1995, as amended, by and between Diller and Liberty following a "Restructuring
Transaction" or a "Change in Law" (as such terms are defined in such
Stockholders Agreement).
This Agreement shall terminate upon the disposition by Allen and his
Permitted Transferees collectively, in one or more transactions, to third
parties (other than Permitted Transferees) of one-third or more of the shares of
HSNi Common Stock (as adjusted for stock splits, stock dividends, combinations,
reorganizations and the like) acquired by Allen in the first closing of the
Exchange Agreement; provided, however, that this Agreement shall terminate
earlier if Allen and his Permitted Transferees do not beneficially own at least
5% of the Company's outstanding equity securities assuming for this purpose that
all Company equity securities issuable under the Liberty Agreements (as defined
in the Exchange Agreement) are outstanding).
SECTION 3. Miscellaneous.
(a) Effective Time of this Agreement. This Agreement shall become
effective upon the first closing of the Exchange Agreement. If the Exchange
Agreement is terminated for any reason, this Agreement shall also terminate.
(b) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN THE STATE OF DELAWARE.
(c) Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto.
(d) Amendments and Waivers. This Agreement may be amended, waived or
modified only with the written consent of each of the parties hereto. Any
amendment that shall be so consented to shall be effective and binding on all of
the parties hereto.
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<PAGE> 132
(e) Specific Enforcement. Each of the parties hereto acknowledges and
agrees that (i) monetary damages would be an inadequate remedy for a breach of
any of the provisions of this Agreement, (ii) the other parties shall therefore
be entitled to specific performance of its rights under this Agreement and (iii)
in the event of any action for specific performance it shall waive the defense
that a remedy at law would be adequate.
(f) Attorney's Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorney's fees in addition to its cost and expense and any other available
remedy.
(g) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable best efforts to find and employ an alternative means to achieve
the same or substantially the same result as that contemplated by such term,
provision, covenant or restriction.
(h) 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.
(i) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement, and is 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. This Agreement supersedes all prior
agreements and understandings among the parties with respect to such subject
matter.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
Paul G. Allen
By: /s/ PAUL G. ALLEN
------------------------------------
William Savoy
Attorney-in-Fact
/s/ BARRY DILLER
--------------------------------------
Barry Diller
Liberty Media Corporation,
a Delaware corporation
By: /s/ ROBERT R. BENNETT
------------------------------------
Name: Robert R. Bennett
Title:
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<PAGE> 134
ANNEX C
[ALLEN & COMPANY LETTERHEAD]
May 19, 1997
The Board of Directors
HSN, Inc.
2501 118th Avenue North
St. Petersburg, FL 33716
Members of the Board of Directors:
You have requested our opinion, as of this date, as to the fairness, from a
financial point of view, to HSN, Inc., a Delaware corporation ("HSNi"), of the
terms of the Proposed Transaction referred to hereinafter.
Pursuant to the proposed Stock Exchange Agreement (the "Exchange
Agreement"), to be entered into between Paul G. Allen and HSNi, the parties
thereto are to effect an exchange transaction pursuant to which, on the terms
and subject to the conditions set forth in the Exchange Agreement (the "Proposed
Transaction"), HSNi will exchange newly issued and outstanding shares of its
Common Stock for the approximately 12,283,000 shares of Ticketmaster Group, Inc.
("Ticketmaster") common stock, no par value (the "TKTM Common Stock"), owned by
Paul G. Allen. Unless otherwise specifically defined herein, all capitalized
terms used herein shall have the meanings ascribed to such terms in the Exchange
Agreement.
We understand that all approvals required for the consummation of the
Proposed Transaction have been or, prior to consummation of the Proposed
Transaction will be, obtained. As you know, Allen & Company Incorporated
("Allen") has from time to time provided various investment banking and
financial advisory services to HSNi and its affiliates and has acted as its
financial advisor in connection with the Proposed Transaction pursuant to the
letter agreement dated May 19, 1997. In addition, as you know, Allen served as
lead managing underwriter in connection with the initial public offering of
7,250,000 shares of TKTM Common Stock in November 1996, and Allen and certain of
its officers and directors own securities of HSNi. From time to time in the
ordinary course of its business as a broker-dealer, Allen may also hold
positions and trade in securities of HSNi and TKTM.
We also understand that the consummation of the Proposed Transaction,
together with the possible exercise of certain tag-along rights by certain
shareholders and the completion of certain other steps that may be contemplated,
will confer upon you effective control of TKTM.
In arriving at our opinion, we have among other things:
(i) reviewed the terms and conditions of the Proposed Transaction,
including the draft Exchange Agreement and the draft agreements ancillary
thereto (none of which prior to the delivery of this opinion has been
executed by the parties);
(ii) analyzed certain financial aspects of the Proposed Transaction
and consideration to be paid to TKTM shareholders;
(iii) reviewed and analyzed publicly available historical business and
financial information relating to HSNi and TKTM, as presented in documents
filed with the Securities and Exchange Commission;
(iv) analyzed selected summary non-public financial and operating
results of operations of HSNi and TKTM;
(v) analyzed the financial conditions and prospects of HSNi and TKTM;
(vi) reviewed and analyzed public information, including certain stock
market data and financial information relating to selected companies with
operating statistics and dynamics similar to those of HSNi and TKTM;
<PAGE> 135
The Board of Directors
HSN, Inc.
May 19, 1997
Page 2
(vii) reviewed the trading history of HSNi's Common Stock and the TKTM
Common Stock, including such stocks' performance in comparison to market
indices and to selected companies with operating statistics and dynamics
similar to those of HSNi and TKTM;
(viii) conferred with the management teams of each of HSNi; and TKTM;
(ix) reviewed public financial and transaction information relating to
premiums paid in "change-of-control" transactions; and
(x) conducted such other financial analyses and investigations as we
deemed necessary or appropriate for the purposes of the opinion expressed
herein.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information respecting HSNi and TKTM and
any other information provided to us, and we have not assumed any responsibility
for any independent verification of such information or any independent
valuation or appraisal of any of the assets of HSNi or TKTM. With respect to
selected summary financial and operating results referred to above, we have
assumed they were reasonably prepared on a basis reflecting the best currently
available information and the good faith estimates and judgments of the
management of HSNi and TKTM as to the future financial performance of HSNi and
TKTM, respectively.
In addition to our review and analysis of the specific information set
forth above, our opinion herein reflects and gives effect to our assessment of
general economic, monetary and market conditions existing as of the date hereof
as they may affect the business and prospects of HSNi and TKTM.
Our engagement and the opinion expressed herein are for the benefit of the
Board of Directors of HSNi in its evaluation of the Proposed Transaction and may
not be used for any other purpose without our prior written consent, except that
this opinion may be included in its entirety and referred to in any filing made
by HSNi with the Securities and Exchange Commission with respect to the Proposed
Transaction. Furthermore, the opinion rendered herein does not constitute a
recommendation that HSNi pursue the Proposed Transaction over any other
alternative transactions which may be available to HSNi or that any stockholder
of HSNi vote to approve the Proposed Transaction.
Based on and subject to the foregoing, we are of the opinion that, as of
this date, the terms of the Proposed Transaction are fair, from a financial
point of view, to HSNi.
Very truly yours,
ALLEN & COMPANY INCORPORATED
By: /s/ NANCY B. PERETSMAN
------------------------------------
Nancy B. Peretsman
Managing Director
[Allen & Company Logo]
