SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
July 17, 1997
HSN, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-20570 59-2712887
(Commission File Number) (IRS Employer Identification No.)
1 HSN Drive, St. Petersburg, FL 33729
(Address of principal executive offices) (Zip Code)
(404) 955-0045
(Registrant's Telephone Number)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
The information set forth under Item 5. Other
Events, is incorporated by reference herein in its entirety.
ITEM 5. OTHER EVENTS.
On July 17, 1997, HSN, Inc. (the "Company" or
"HSNi") acquired from Paul G. Allen 12,283,014 shares (the
"Shares") of common stock, no par value (the "Ticketmaster
Common Stock"), in exchange for 7,238,507 shares of Common
Stock, par value $.01 per share ("Common Stock"), of the
Company subject to the issuance of up to an additional
3,257,328 shares of Common Stock to be reserved for
contingent issuance in July 1998 if the average market price
of the Common Stock over a specified period prior to such
date is below $29 per share, pursuant to the terms of a Stock
Exchange Agreement between Mr. Allen and the Company dated
May 20, 1997 (the "Stock Exchange Agreement"). The full text
of the Stock Exchange Agreement is filed herewith as Exhibit
1 and is incorporated herein by reference.
On July 17, 1997 the Company issued a press release
in connection with the closing under the Stock Exchange
Agreement; the press release is filed herewith as Exhibit 2,
and is hereby incorporated herein by reference.
Under the Stock Exchange Agreement, the Company has
agreed that so long as Mr. Allen has not disposed of one-
third or more of the 7,238,507 shares of Common Stock ac-
quired under the Stock Exchange Agreement (provided that at
all times he is the beneficial owner of at least 5% of HSNi's
outstanding equity securities), HSNi shall take all necessary
action to cause Mr. Allen (or a designee of Mr. Allen accept-
able to HSNi) to be included in the slate of nominees recom-
mended by the HSNi Board and shall use all reasonable efforts
to cause the election of Mr. Allen or such designee.
In connection with the Stock Exchange Agreement,
Barry Diller, Chairman of the Board of Directors and Chief
Executive Officer of the Company, Mr. Allen and Liberty HSN,
Inc. ("Liberty"), an indirect wholly owned subsidiary of
Tele-Communications, Inc., 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 voting stock of the Com-
pany 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 Mr.
Allen or a designee of Mr. Allen acceptable to the Company,
so long as Mr. Allen is entitled to representation on the
Company's Board of Directors under the Stock Exchange Agree-
ment.
The Diller-Liberty-Allen Stockholder Agreement will
terminate (as will Mr. Allen's right under the Stock Exchange
Agreement to representation on the Company's Board of Direc-
tors) upon the disposition by Mr. Allen and his permitted
transferees collectively, in one or more transactions, to
third parties of one-third or more of the shares of Common
Stock acquired by Mr. Allen under the Stock Exchange Agree-
ment; provided, however, that the Diller-Liberty-Allen Stock-
holder Agreement will terminate earlier (as will Mr. Allen's
right under the Stock Exchange Agreement to representation on
the Company's Board of Directors) if Mr. Allen and his per-
mitted 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 Stock Exchange Agree-
ment) are outstanding). The full text of the Diller-Liberty-
Allen Stockholder Agreement is filed herewith as Exhibit 3
and is incorporated herein by reference.
Pursuant to the Company's previously outstanding
contractual obligation to issue to Liberty certain shares of
Company stock upon the occurrence of certain events, which
events include without limitation the issuance of shares of
Common Stock (such as pursuant to the Stock Exchange Agree-
ment) that has the effect of decreasing Liberty's propor-
tionate ownership interest in the Company to a level less
than that permitted by the Federal Communications Commission,
2,002,591 shares of Company Class B Common Stock were issued
to Liberty in connection with the closing under the Stock
Agreement.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA
FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The Financial Statements of Ticketmaster are filed
herewith as Exhibit 4 and are hereby incorporated herein by
reference.
(B) PRO FORMA FINANCIAL INFORMATION
HSN, Inc. Pro Forma Financial Information (unau-
dited) is filed herewith as Exhibit 5 and is hereby incorpo-
rated herein by reference.
Exhibit No. Description
1 Stock Exchange Agreement
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2 Press Release of the Company dated July 17,
1997
3 Diller-Liberty-Allen Stockholder Agreement
4 Financial Statements of Ticketmaster
5 HSN, Inc. Pro Forma Financial Information (un-
audited)
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SIGNATURE
Pursuant to the requirements of the Securities Ex-
change Act of 1934, the registrant has duly caused this re-
port to be signed on its behalf by the undersigned hereunto
duly authorized.
Date: July 25, 1997
HSN, Inc.
By: /s/ James G. Gallagher
Name: James G. Gallagher
Title: Vice President, General
Counsel and Secretary
EXHIBIT INDEX
Exhibit No. Description Page No.
1 Stock Exchange Agreement
2 Press Release of the Com-
pany dated July 17, 1997
3 Diller-Liberty-Allen
Stockholder Agreement
4 Financial Statements of
Ticketmaster
5 HSN, Inc. Pro Forma Finan-
cial Information (unau-
dited)
EXHIBIT 1
Execution Copy
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- -----------------------------------------------------------------------
STOCK EXCHANGE AGREEMENT
between
PAUL G. ALLEN
- and -
HSN, INC.
------------
MAY 20, 1997
------------
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- -----------------------------------------------------------------------
STOCK EXCHANGE AGREEMENT
TABLE OF CONTENTS
-----------------
Page No.
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ARTICLE I CERTAIN DEFINITIONS............... 1
ARTICLE II EXCHANGE.......................... 5
Section 2.01. Exchange of Shares for shares
of HSNi Common Stock............ 5
Section 2.02. Delivery of HSNi Shares........... 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDER................... 6
Section 3.01. Organization and Good Standing.... 6
Section 3.02. Capitalization.................... 7
Section 3.03. Due Authorization; Execution and
Delivery........................ 8
Section 3.04. Absence of Breach; No Conflict.... 8
Section 3.05. The Shares........................ 9
Section 3.06. Investment Purpose................ 9
Section 3.07. Brokers........................... 10
Section 3.08. Commission Documents; Financial
Information..................... 10
Section 3.09. Approvals; Compliance with Laws... 11
Section 3.10. Litigation........................ 12
Section 3.11. Related Party Transactions........ 12
Section 3.12. Absence of Certain Events; No
Material Adverse Change......... 13
Section 3.13. Full Disclosure................... 14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF HSNi...... 15
Section 4.01. Organization and Good Standing.... 15
Section 4.02. Capitalization.................... 15
Section 4.03. Due Authorization; Execution
and Delivery.................... 16
Section 4.04. Absence of Breach; No Conflict.... 17
Section 4.05. The HSNi Shares................... 17
Section 4.06. Investment Purpose................ 17
Section 4.07. Brokers........................... 18
Section 4.08. Commission Documents; Financial
Information..................... 18
Section 4.09. Approvals; Compliance with Laws... 19
Section 4.10. Litigation........................ 20
Section 4.11. Related Party Transactions........ 20
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Page No.
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Section 4.12. Absence of Certain Events;
No Material Adverse Change...... 20
Section 4.13. Full Disclosure................... 21
ARTICLE V COVENANTS OF THE PARTIES.................... 22
Section 5.01. Additional HSNi Shares............ 22
Section 5.02. Registration Rights............... 22
Section 5.03. HSR Filings....................... 23
Section 5.04. Access to Information............. 23
Section 5.05. Further Action.................... 24
Section 5.06. Conduct of Business............... 24
Section 5.07. Tag-Along Rights.................. 25
Section 5.08. Stockholders Agreement............ 25
ARTICLE VI DIRECTORS................................... 26
Section 6.01. Director Election................. 26
Section 6.02. HSNi Director Appointment......... 26
ARTICLE VII CLOSING; SECOND CLOSING..................... 27
Section 7.01. Closing........................... 27
Section 7.02. Deliveries........................ 27
Section 7.03. Second Closing.................... 27
Section 7.04. Deliveries at Second Closing...... 27
ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE STOCKHOLDER TO EXCHANGE, SELL AND
DELIVER THE SHARES.......................... 27
Section 8.01. Accuracy of HSNi's
Representations and Warranties.. 28
Section 8.02. Performance by HSNi............... 28
Section 8.03. HSR Act........................... 28
Section 8.04. No Injunction..................... 28
Section 8.05. Information Statements............ 28
Section 8.06. Stockholders Agreement............ 28
Section 8.07. No Adverse Decision or Action..... 28
Section 8.08. No Material Adverse Effect........ 29
Section 8.09. Approvals and Consents............ 29
Section 8.10. Proceedings....................... 29
ARTICLE IX CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF HSNi TO EXCHANGE, ISSUE AND DELIVER
THE SHARES.................................. 30
Section 9.01. Accuracy of the Stockholder's
Representations and Warranties.. 30
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Page No.
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Section 9.02. Performance by the Stockholder.... 30
Section 9.03. No Adverse Action or Decision..... 30
Section 9.04. No Material Adverse Effect........ 30
Section 9.05. No Injunction..................... 31
Section 9.06. Approvals and Consents............ 31
Section 9.07. HSR Act........................... 31
Section 9.08. Information Statements............ 31
Section 9.09. Proceedings....................... 31
ARTICLE X TERMINATION; EXPENSES....................... 31
Section 10.01. Termination by Mutual Written
Consent......................... 31
Section 10.02. Termination by the Stockholder
or HSNi......................... 32
Section 10.03. Termination by HSNi............... 32
Section 10.04. Termination by the Stockholder.... 32
Section 10.05. Expenses.......................... 33
ARTICLE XI SURVIVAL OF REPRESENTATIONS AND
WARRANTIES.................................. 33
ARTICLE XII CONFIDENTIALITY............................. 33
ARTICLE XIII MISCELLANEOUS............................... 34
Section 13.01. Notices........................... 34
Section 13.02. Entire Agreement.................. 36
Section 13.03. Successors and Assigns............ 36
Section 13.04. Paragraph Headings................ 36
Section 13.05. Reasonable Efforts................ 36
Section 13.06. Applicable Law.................... 37
Section 13.07. Severability...................... 37
Section 13.08. Equitable Remedies................ 37
Section 13.09. No Waiver......................... 37
Section 13.10. Counterparts...................... 38
Exhibit A Stockholders Agreement
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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");
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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.
"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
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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.
-3-
"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.
"Shareholders Agreement" shall mean the Shareholders
----------------------
Agreement dated as of December 15, 1993 by 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.
-4-
"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.
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(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 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
-6-
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
-7-
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 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
-8-
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
-9-
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."
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
-10-
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.
-11-
(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.
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
-12-
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;
-13-
(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;
(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
-14-
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
-------------
-15-
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 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
-16-
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.
Section 4.06. Investment Purpose. HSNi is acquiring
------------------
the Shares solely for the purpose of investment and not
-17-
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
-18-
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 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
-19-
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;
-20-
(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
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)
-21-
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 Stock-
holder 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
-22-
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 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
-23-
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
-24-
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 ongoing 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 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.
-25-
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.
-26-
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 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,
-27-
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.
Section 8.07. No Adverse Action or Decision. There shall be
-----------------------------
no action, suit, investigation or proceeding
-28-
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
regula tory 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.
-29-
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 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.
-30-
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
-31-
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 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
-32-
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
-33-
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 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 13.01. 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:
-34-
(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
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
-35-
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 13.02. 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 13.03. 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 13.04. 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 13.05. 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
-36-
Stockholder for the Company's failure (provided the Stockholder acts
in good faith).
Section 13.06. 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 13.07. 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 13.08. 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 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 13.09. 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.
-37-
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.
-38-
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: Office of the Chairman
-39-
Exhibit 2
HSN, INC. ACQUIRES CONTROLLING INTEREST IN TICKETMASTER GROUP,
INC.; TICKETMASTER RECONSTITUTES BOARD
ST. PETERSBURG, Fla., and LOS ANGELES, July 17 /PRNewswire/ --
HSN, inc. (Nasdaq:HSNI) announced today that it has consummated
the previously announced agreement to acquire Paul G. Allen's
interest in Ticketmaster Group, Inc., (Nasdaq:TKTM) in a stock-
for-stock transaction. The shares issued by HSNi to Mr. Allen
represent approximately 11% of HSNi's equity after giving
effect to the transaction. HSNi issued approximately 7.2
million shares to Mr. Allen in exchange for approximately 12.3
million of his common shares of Ticketmaster, representing
approximately 49.6% of the currently outstanding Ticketmaster
equity securities. In connection with the closing, Mr. Allen,
Fredric D. Rosen and William Savoy joined the HSNi Board of
Directors.
Also, in connection with the closing, Barry Diller, Chairman
and Chief Executive Officer of HSN, inc., and James Held,
President and Chief Executive Officer of Home Shopping Network,
Inc. and Vice Chairman of HSN, inc., joined the Ticketmaster
Board of Directors. In addition, Ticketmaster announced that
Jonathan Dolgen, Chairman of Viacom Entertainment Group, and
Peter Barton, President of Barton and Associates, have joined
the Ticketmaster Board as outside directors. Charles Gerber,
Terence Strom and David Liddle resigned from the Ticketmaster
Board. Mr. Allen continues as Chairman and Mr. Rosen continues
as President and Chief Executive Officer of Ticketmaster Group,
Inc.
HSN, inc. is the parent company to Home Shopping Network,
Silver King Broadcasting and SF Broadcasting, and has home
shopping joint ventures in Germany and Japan. The Home
Shopping Network, which pioneered the television shopping
industry in 1982, currently reaches 70 million households via
cable and broadcast station affiliates and also owns the
Internet Shopping Network. Silver King Broadcasting, the
sixth-largest television broadcast group in the nation, owns
and operates 12 independent full-power UHF stations in 11 major
markets and holds minority interest in stations in six major
markets. SF Broadcasting owns and operates VHF Fox affiliates
in Honolulu, New Orleans, Mobile, Alabama and Green Bay,
Wisconsin.
Ticketmaster is the world's leading computerized ticketing
service, selling over 70 million tickets a year through
approximately 2,900 retail center outlets, 25 telephone call
centers and Ticketmaster's Internet site.
Contact: Jennifer Goebel of HSN, inc., 212-247-5823; or Susan
Pierson of Vulcan Northwest, 206-453-1940; or George Sard or
Debbie Miller of Sard Verbinnen & Co., 212-687-8080
EXHIBIT 3
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 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 the
exercise voting power to ensure that the
-2-
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.
(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.
-3-
(f) Attorneys' 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
attorneys' 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.
-4-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
/s/ Paul G. Allen
-----------------------------
Paul G. Allen
Attorney-in-Fact
/s/ Barry Diller
-----------------------------
Barry Diller
Liberty Media Corporation,
a Delaware Corporation
By: /s/ Robert R. Bennett
-----------------------------
Robert R. Bennett
-5-
Exhibit 4
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
1
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
JANUARY 31,
-----------------------
1996 1997
--------- ---------
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
========= =========
See notes to consolidated financial statements.
2
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED JANUARY 31,
----------------------------------------
1995 1996 1997
---------- ---------- ----------
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
======== ======== ========
See notes to consolidated financial statements.
3
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
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)
-------------- ---------- -------- ---------- ----------- ------------ -------------
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
====== ========== ======= ======= ====== ======== ========
See notes to consolidated financial statements.
4
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED JANUARY 31,
-------------------------------------
1995 1996 1997
--------- --------- ---------
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
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:
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
=======
See notes to consolidated financial statements.
5
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.
6
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.
7
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
8
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):
JANUARY 31,
---------------------
1996 1997
-------- --------
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
========= =========
(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):
JANUARY 31,
------------------
1996 1997
------- ------
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
======== =======
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
9
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):
YEAR ENDED
JANUARY 31,
1997
-----------
COMBINED RESULTS OF OPERATIONS:
Revenues.......................................................... $54,577
Operating income.................................................. 10,087
Net income........................................................ 10,032
JANUARY 31,
1997
-----------
COMBINED FINANCIAL POSITION:
Total assets.................................................... $24,739
Total liabilities............................................... 12,551
Venturers' capital.............................................. 12,188
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.
10
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-
11
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.
FISCAL YEAR ENDED JANUARY 31
------------------------------
1996 1997
-------- -----------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Total revenue............................. $223,666 $ 270,851
Net income (loss)......................... (6,076) 1,989
Income (loss) per share................... (0.40) 0.12
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):
JANUARY 31,
-------------------
1996 1997
------- -------
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
======= =======
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.
12
TICKETMASTER GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
JANUARY 31,
---------------------
1996 1997
-------- --------
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
======== ========
Annual principal payments due subsequent to January 31, 1997 are as follows
(in thousands):
Year ending January 31:
1998........................................ $ 190
1999........................................ 764
2000........................................ 126,750
--------
$127,704
========
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.
13
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):
JANUARY 31,
-----------------
1996 1997
------ ------
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
====== ======
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):
YEARS ENDED JANUARY 31,
------------------------------
1995 1996 1997
------- ------- ------
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
======= ======= ======
14
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:
YEARS ENDED JANUARY 31,
-----------------------
1995 1996 1997
--- --- ---
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%
===== ===== =====
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
15
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:
OPTION PRICE
NUMBER (RANGE PER
OF SHARES SHARE)
--------- ----------------
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
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.
16
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:
YEAR ENDED
JANUARY 31,
1997
----------
Net income
As reported................................................... $ 1,792
Pro forma..................................................... 902
Net income per share
As reported................................................... .10
Pro forma..................................................... .05
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:
YEAR ENDED
JANUARY 31,
1997
----------
Dividend Yield.................................................. 0%
Volatility...................................................... 27%
Risk free interest.............................................. 7.2%
Expected terms (years).......................................... 4%
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.
17
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):
YEAR ENDING
JANUARY 31, AMOUNT
--------------------------------------------------- -------
1998.......................................... $ 7,393
1999.......................................... 6,891
2000.......................................... 5,803
2001.......................................... 3,457
2002.......................................... 2,826
Thereafter....................................... 3,014
-------
$29,384
=======
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
18
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.
19
QUARTERLY FINANCIAL SUMMARY
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
-------- ------- ---------- ----------
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)
20
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
21
TICKETMASTER NORTHWEST
(A JOINT VENTURE)
BALANCE SHEET
JANUARY 31, 1997
(IN THOUSANDS)
ASSETS
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
======
See accompanying notes to financial statements.
22
TICKETMASTER NORTHWEST
(A JOINT VENTURE)
STATEMENT OF INCOME AND VENTURERS' CAPITAL
FISCAL YEAR ENDED JANUARY 31, 1997
(IN THOUSANDS)
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
=======
See accompanying notes to financial statements.
23
TICKETMASTER NORTHWEST
(A JOINT VENTURE)
STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED JANUARY 31, 1997
(IN THOUSANDS)
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
=======
See accompanying notes to financial statements.
24
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.
25
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):
Telephone and computer equipment.................................... $ 967
Furniture and equipment............................................. 31
Leasehold improvements.............................................. 178
------
1,176
Less accumulated depreciation....................................... (632)
------
$ 544
======
(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.
26
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):
YEAR ENDING JANUARY 31 AMOUNT
-------------------------------------------------------------------- ------
1998........................................................ $127
1999........................................................ 127
2000........................................................ 72
------
$326
======
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):
Management Fees (royalties)............................................ $24
Reimbursements for other services...................................... 10
Purchases of equipment from the venturers.............................. 40
(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.
27
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
28
TICKETMASTER CANADA HOLDINGS LTD.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN CANADIAN DOLLARS)
A S S E T S
FEBRUARY 28, FEBRUARY 29,
1997 1996
----------- -----------
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
=========== ===========
See accompanying notes to consolidated financial statements.
29
TICKETMASTER CANADA HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED
-------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
----------- ----------- -----------
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
=========== =========== ===========
See accompanying notes to consolidated financial statements.
30
TICKETMASTER CANADA HOLDINGS LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(EXPRESSED IN CANADIAN DOLLARS)
YEAR ENDED
------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
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
=========== =========== ===========
See accompanying notes to consolidated financial statements.
31
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%.
32
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:
ASSET BASIS RATE
----------------------------- ----------------------------- -----------
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
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:
1997 1996
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
----------- ------------ ---------- ----------
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
=========== ========== ========== ==========
3. INTANGIBLE AND OTHER ASSETS, NET
Intangible and other long term assets consisted of the following:
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
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
========= =========
33
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:
1997 1996
---------- ----------
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
========== ==========
Principal repayments on long-term debt due in each of the next five years
as follows:
1998..................................................... $ 533,324
1999..................................................... 558,485
2000..................................................... 492,031
2001..................................................... 194,557
2002..................................................... 12,000
----------
$1,790,397
==========
34
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:
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
ISSUED:
FEBRUARY 28,
1997
-----------
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
==========
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:
1998...................................................... $332,453
1999...................................................... 171,139
2000...................................................... 86,275
2001...................................................... 30,480
2002...................................................... 14,280
--------
$634,627
========
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.
35
TICKETMASTER GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 1997
THREE
MONTHS ENDED
JANUARY 31, TICKETMASTER
1997 ACQUIRED PRO FORMA ADJUSTED
(HISTORICAL) BUSINESSES ADJUSTMENTS PRO FORMA
-------------- ------------ ----------- ------------
(IN THOUSANDS)
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
======= ===== ======= =======
34
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.
35
Exhibit 5
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF HSN, INC.
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.
1
HSN, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1997
TICKETMASTER GROUP, INC.
-----------------------------
JANUARY 31,
1997 CANADIAN PRO FORMA PRO FORMA
HSN, INC. (HISTORICAL) TRANSACTION(B) ADJUSTMENTS COMBINED
---------- ------------ -------------- ----------- ----------
(IN THOUSANDS)
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
========== ========= ========== ========= ==========
2
HSN, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
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)
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)
========== =======
3
HSN, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
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)
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
======== ========
4
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:
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
========
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).
5
(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.
6
